The Power of Generating Power
Recently my family and I became shareholders of Dynegy Inc. (NYSE: DYN) in a surprising way. We had been shareholders years ago and had suffered losses when Dynegy experienced legal problems and the stock price plunged. This was followed by a class action lawsuit that we had participated in. Many moons had passed and we kept wondering if anything would ever come from the lawsuit. Then recently we received a check in the mail followed by a stock certificate for a small number of DYN shares. So, since I was again a shareholder I wanted to learn more about this company with its tainted past.
Dynegy, Inc., through its subsidiaries, engages in the production and sale of electric energy, capacity, and ancillary services. It generates electricity by burning coal, natural gas, or oil. As of November 13, 2006, the company owned and leased 20 plants of power generation facilities with 12,000 megawatts. It sells electric energy, capacity, and ancillary services primarily through bilateral negotiated contracts with third parties and into regional central markets; and through structured wholesale over-the-counter markets and directly to end-use customers.
It also seems interesting to me that Chevron (NYSE:CVX) is the largest shareholder of DYN stock with a position of 97 million shares as of September 15, 2006. On that date DYN entered into a unique arrangement. It agreed to merge with LS Power Group, a privately held power plant investor. LS Power, a subsidiary of LS Power Equity Partners, owns and/or operates more than 10,000 MW of generating capacity in operation or under development across the United States and markets energy commodities. The transaction is subject to shareholder approval and is all necessary conditions are satisfied it will close in early 2007.
Back in early November the company gave some guidance on earnings. It reported a loss of $69 million, or 14 cents a share, vs. a profit of $23 million, or 6 cents a share, a year earlier. The results include one-time charges totaling $98 million for asset impairment, a debt exchange and litigation settlement. The most notable item -- a $61 million after-tax charge -- relates to a write-down of Dynegy's Bluegrass peaking plant because of "recent changes in the market that placed economic constraints on the facility," the company said. Revenue fell to $581 million from last year's $770 million as the company's power generation business was hurt by lower volumes and softer pricing. The Midwest, where Dynegy was able to raise prices, helped to counter declines in other regions. For 2006, Dynegy widened its loss outlook to a range of $305 million to $325 million from $215 million to $260 million.
Weeden & Co. analyst Matthew Conlan said he was disappointed with the results, but stood by his hold rating and $7 a share price target on the stock. "I believe US power demand will continue to grow alongside US economic expansion, and Dynegy will be a significant beneficiary of increased utilization of the currently over-built power generation capacity," he said.
Now if the merger with LS Power goes through Dynegy believes it will position the combined company with a diverse platform that presents near-term, medium-term and long-term options for delivering value to shareholders. See their website for details at www.dynegy.com/. The company claims that Chevron is planning to vote all their shares in favor of the transaction.
This company’s history of not being “shareholder friendly” has me worried. Rumor has it they pay their CEO a shocking salary of $2.7 million a year, and the company has been loosing money. I’ll probably keep the shares we were given just to see what happens if the merger is approved and completed. But this company, even though it is in a lucrative business, has to start posting profits and an improved financial outlook before I’ll be buying any more shares.
An apparent contrast to the Dynegy legacy is Exelon Corp. (NYSE:EXC). Exelon operates as a utility holding company in the United States. The company, through its subsidiary, Commonwealth Edison Company, engages in the purchase, transmission, distribution, and sale of electricity to residential, commercial, industrial, and wholesale customers in northern Illinois. Through it’s other subsidiary, PECO Energy Company, the company engages in the purchase, transmission, distribution, and sale of electricity and natural gas to residential, commercial, and industrial customers in southeastern Pennsylvania. In addition, the company operates electric generating facilities and a wholesale energy marketing business, as well as retail sales business of other generation projects. Exelon distributes electricity to approximately 5.2 million customers in northern Illinois and Pennsylvania; and natural gas to approximately 470,000 customers in southeastern Pennsylvania. The company was founded in 1887 and is headquartered in Chicago, Illinois. As far as I know this company has glowing track record, but do your own due diligence before you invest and check out their website at www.exeloncorp.com/.
It pays a nice little dividend of around 2.6%. It is selling close to its 52 week high and its price-to-earnings ratio going forward is around 13 times next year’s projected earnings. Recently we read that Exelon and Ameren Corp. (NYSE:AEE) avoided an Illinois electricity rate freeze and the state government will consider next year whether to pass phased-in hikes or a freeze. The two utilities had sharply criticized the proposed three-year extension of a law that locked in retail power prices at 1997 levels, warning that the measure could drive their Illinois utility units into bankruptcy. Thus are the complications of owning a utility and power generation business and why I won’t invest too much money in any one utility, even if they do pay a nice dividend and have good corporate leadership.
If you want the benefits of owning power companies but don’t want to nibble on shares of individual utilities, you might want to consider the Exchange-Traded Fund (ETF) appropriately called “Utilities Select Sector SPDR” (NYSE:XLU). It pays a lovely 3% dividend and has averaged a 21% return over the past 3 years. Now as we all know, past performance doesn’t mean much concerning how it will perform in the future, but if you want to invest in power utilities and the business of providing electricity and natural gas to the consuming public, this seems like a prudent way to spread your risk and seek worthwhile returns. More power to you!
Dynegy, Inc., through its subsidiaries, engages in the production and sale of electric energy, capacity, and ancillary services. It generates electricity by burning coal, natural gas, or oil. As of November 13, 2006, the company owned and leased 20 plants of power generation facilities with 12,000 megawatts. It sells electric energy, capacity, and ancillary services primarily through bilateral negotiated contracts with third parties and into regional central markets; and through structured wholesale over-the-counter markets and directly to end-use customers.
It also seems interesting to me that Chevron (NYSE:CVX) is the largest shareholder of DYN stock with a position of 97 million shares as of September 15, 2006. On that date DYN entered into a unique arrangement. It agreed to merge with LS Power Group, a privately held power plant investor. LS Power, a subsidiary of LS Power Equity Partners, owns and/or operates more than 10,000 MW of generating capacity in operation or under development across the United States and markets energy commodities. The transaction is subject to shareholder approval and is all necessary conditions are satisfied it will close in early 2007.
Back in early November the company gave some guidance on earnings. It reported a loss of $69 million, or 14 cents a share, vs. a profit of $23 million, or 6 cents a share, a year earlier. The results include one-time charges totaling $98 million for asset impairment, a debt exchange and litigation settlement. The most notable item -- a $61 million after-tax charge -- relates to a write-down of Dynegy's Bluegrass peaking plant because of "recent changes in the market that placed economic constraints on the facility," the company said. Revenue fell to $581 million from last year's $770 million as the company's power generation business was hurt by lower volumes and softer pricing. The Midwest, where Dynegy was able to raise prices, helped to counter declines in other regions. For 2006, Dynegy widened its loss outlook to a range of $305 million to $325 million from $215 million to $260 million.
Weeden & Co. analyst Matthew Conlan said he was disappointed with the results, but stood by his hold rating and $7 a share price target on the stock. "I believe US power demand will continue to grow alongside US economic expansion, and Dynegy will be a significant beneficiary of increased utilization of the currently over-built power generation capacity," he said.
Now if the merger with LS Power goes through Dynegy believes it will position the combined company with a diverse platform that presents near-term, medium-term and long-term options for delivering value to shareholders. See their website for details at www.dynegy.com/. The company claims that Chevron is planning to vote all their shares in favor of the transaction.
This company’s history of not being “shareholder friendly” has me worried. Rumor has it they pay their CEO a shocking salary of $2.7 million a year, and the company has been loosing money. I’ll probably keep the shares we were given just to see what happens if the merger is approved and completed. But this company, even though it is in a lucrative business, has to start posting profits and an improved financial outlook before I’ll be buying any more shares.
An apparent contrast to the Dynegy legacy is Exelon Corp. (NYSE:EXC). Exelon operates as a utility holding company in the United States. The company, through its subsidiary, Commonwealth Edison Company, engages in the purchase, transmission, distribution, and sale of electricity to residential, commercial, industrial, and wholesale customers in northern Illinois. Through it’s other subsidiary, PECO Energy Company, the company engages in the purchase, transmission, distribution, and sale of electricity and natural gas to residential, commercial, and industrial customers in southeastern Pennsylvania. In addition, the company operates electric generating facilities and a wholesale energy marketing business, as well as retail sales business of other generation projects. Exelon distributes electricity to approximately 5.2 million customers in northern Illinois and Pennsylvania; and natural gas to approximately 470,000 customers in southeastern Pennsylvania. The company was founded in 1887 and is headquartered in Chicago, Illinois. As far as I know this company has glowing track record, but do your own due diligence before you invest and check out their website at www.exeloncorp.com/.
It pays a nice little dividend of around 2.6%. It is selling close to its 52 week high and its price-to-earnings ratio going forward is around 13 times next year’s projected earnings. Recently we read that Exelon and Ameren Corp. (NYSE:AEE) avoided an Illinois electricity rate freeze and the state government will consider next year whether to pass phased-in hikes or a freeze. The two utilities had sharply criticized the proposed three-year extension of a law that locked in retail power prices at 1997 levels, warning that the measure could drive their Illinois utility units into bankruptcy. Thus are the complications of owning a utility and power generation business and why I won’t invest too much money in any one utility, even if they do pay a nice dividend and have good corporate leadership.
If you want the benefits of owning power companies but don’t want to nibble on shares of individual utilities, you might want to consider the Exchange-Traded Fund (ETF) appropriately called “Utilities Select Sector SPDR” (NYSE:XLU). It pays a lovely 3% dividend and has averaged a 21% return over the past 3 years. Now as we all know, past performance doesn’t mean much concerning how it will perform in the future, but if you want to invest in power utilities and the business of providing electricity and natural gas to the consuming public, this seems like a prudent way to spread your risk and seek worthwhile returns. More power to you!
posted by Marc Mentor at 7:59 PM
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