- The Washington Times - Thursday, October 17, 2002

HOUSTON (AP) Dynegy Inc., which once considered a rescue buyout of Enron Corp., announced yesterday it is getting out of the energy trading business, its chief operating officer is resigning and significant layoffs are coming.
The company also said it is decentralizing its corporate structure, making business units in power generation, natural gas liquids, regulated energy delivery and communications more autonomous.
Dynegy said it will wind down outstanding energy trading contracts, but dumping the cash-hungry business cuts pressure to borrow money. The company had faced the need to renew $1.3 billion in credit but was hindered by its below-investment-grade credit ratings.
Steve Bergstrom, a holdover from the management team led by company founder and former Chief Executive Chuck Watson, who resigned in May, will resign as chief operating officer.
"I fully support the steps leadership is taking to address current market conditions and position the company for the future," Mr. Bergstrom said.
Other energy marketers grappling with the weak trading environment also have scaled back those operations with layoffs in recent months, including El Paso Corp., UBS Warburg Energy and Reliant Resources. Williams Cos. is seeking a buyer for its trading operation.
Last month, Kansas City, Mo.-based Aquila Inc. announced it would abandon its trading business, and earlier this month said former President and Chief Executive Officer Robert K. Green would step down, making way for his older brother, Chairman Robert C. Green Jr., to take the helm.
Charlie Sanchez, energy markets manager for Gelber & Associates in Houston, said the exits from trading by Dynegy and Aquila don't necessarily spell death for the market.
"Energy markets are threatened right now, but there are a few organizations that are going strong and should be able to prevail," he said. "We believe that there will be some consolidation, and there may be some new faces as well."
Dynegy said the end of trading will force more layoffs, but timing and the number of employees affected will be announced "in the near future."
Dynegy laid off 340 workers in June shortly before launching a plan to raise $2 billion to strengthen finances and improve its image on Wall Street. The company said at the time it sought a partner with a strong credit rating to join the trading business, but Dynegy apparently found no legitimate takers.
The company now has 5,500 workers worldwide, with 1,600 at its Houston headquarters.
Regarding the decentralized structure, Chairman and interim Chief Executive Dan Dienstbier said, "The objective of the restructuring is to maximize the potential and profitability of our existing operating divisions."
Raymond James analyst Jon Kyle Cartwright said yesterday the changes "make perfect sense" because autonomous business units are easier to sell if necessary and energy trading "has all but evaporated" in the current weak environment.
"This is a company that's battling for its survival," he said. "It's a classic survival strategy try to sell what's not working."
Dynegy's shares have hovered just above or below $1 in recent weeks, down from a 52-week high of $47.20. Shares closed down 25 percent, or 27 cents, at 81 cents yesterday on the New York Stock Exchange.
Mr. Dienstbier alerted employees three weeks ago that more job cuts were "inevitable" with renewed efforts to cut costs and reorganize the company's structure.
"We all deeply regret that our current situation has brought us to this difficult place," he said in a memorandum to workers.
The changes announced yesterday show Dynegy is continuing its struggle to restore investor confidence that withered greatly since Enron collapsed last year shortly after Dynegy abandoned an $8.4 billion buyout of its former rival.
In the first two quarters of the year, Mr. Watson and former Chief Financial Officer Rob Doty resigned. The company also shut down its online trading platform in addition to the 340 layoffs.
The Securities and Exchange Commission also has increased scrutiny of energy marketers for accounting and trading practices.
Last month Dynegy was the first of those under investigation to settle an SEC investigation. The SEC found that the company engaged in securities fraud in a natural gas deal that improperly boosted the its cash flow and misled investors about two so-called "wash trades" in press releases issued earlier this year.
Dynegy agreed to pay $3 million to settle the claims without admitting to or denying the agency's findings.
In August, Dynegy sold the Northern Natural Gas pipeline acquired from Enron for $928 million as part of its efforts to raise cash.
Dynegy's board also has undergone turnover as new directors were elected to replace others who resigned.

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide