Copyright 2000 The Houston Chronicle Publishing Company
The Houston Chronicle
July 12, 2000, Wednesday 3 STAR EDITION
SECTION: BUSINESS; Pg. 1
LENGTH: 999 words
HEADLINE:
Earnings heat up;
Spring's sizzle likely to boost gas, power companies'
profits
SOURCE: Staff
BYLINE:
MICHAEL DAVIS
BODY:
An early May heat wave that
drove up demand for power and helped push natural gas prices
into record territory is expected to give an extra jolt to the second-quarter
profits of Houston's large power and gas companies.
With OPEC crude
hovering around $ 30 per barrel, analysts have long expected the second quarter
to be a banner period for U.S. oil companies.
However, they had not
foreseen natural gas prices climbing above $ 4 per thousand
cubic feet in midspring - and staying there. Nor had they foreseen temperatures
rising to the triple digits in May in such unlikely places as
the San Francisco Bay area - a development that increased the demand for power.
"I think for the most part the earnings are going to deliver positive
surprises," said Carol Coale, an energy analyst with Prudential Securities in
Houston.
The first indication of how well natural gas and power
companies fared in the second quarter came late Tuesday when El Paso Energy
Corp. released profit figures that trounced Wall Street's expectations. The
Houston company reported earnings of 69 cents per share. Analysts had expected
the owner of the nation's largest natural gas pipeline system to earn 58 cents a
share, according to estimates compiled by First Call/Thomson Financial in
Boston. El Paso earned 40 cents a share in the second quarter of 1999.
Operating earnings from El Paso's unregulated businesses more than
tripled. Income from its natural gas and power sales division totaled $ 152
million, up from $ 6 million in the same period last year.
"With the
volatility we saw in power and gas markets, people are going to make some
serious money," said John Olson, energy analyst with Sanders Morris Harris in
Houston.
Three gas and power companies - Dynegy Corp., Reliant Energy
Corp. and Williams Cos. - have already indicated that their second-quarter
earnings will be better than expected.
Reliant cited increased
electricity sales from new power plants. The company has unregulated plants with
10,378 megawatts of capacity, almost as much as the 14,000 megawatts it has
dedicated to its Reliant Energy HL&P customer base.
Estimates of its
second-quarter earnings have been revised upward from 48 cents per share to 56
cents.
Williams, whose Transco interstate natural gas pipeline is based
in Houston, cited strong natural gas and natural gas liquids prices and strong
refining margins in announcing that it will meet or exceed its first-quarter
performance of 27 cents per share. Second- quarter estimates are now 31 cents
per share.
Dynegy Chairman Chuck Watson has said that the company will
meet or beat analysts' estimates due to strengthening gas and power markets.
Analysts see Dynegy reporting some of the most improved results. Its
earnings per share are expected to triple from 17 cents in the second quarter of
1999 to 52 cents in this year's quarter.
The 17 cents do not reflect
Dynegy's merger with Illinova, however. If the Illinova results were included in
the year-ago totals, the company would have earned 23 cents a share in the
second quarter of 1999.
Companies that operate "peaking" plants make
windfall profits with those facilities. The plants kick in when base-load
facilities - those with a dedicated customer base - have no power to spare,
which allows peaking plants to earn top rates.
During the May heat wave,
one of the hardest-hit states was California, where Dynegy has four power
plants. The facilities, all in the southern part of the state, are
"intermediate" plants, meaning they are not base-load plants yet are not peaking
plants either.
In the first 12 days of May, Dynegy's California plants
ran more they did in all of May and June of last year, Watson told shareholders
at the company's annual meeting.
Coastal Corp., which El Paso is taking
over, also is expected to report strong second-quarter earnings. Analysts are
looking for the Houston company to report 58 cents per share, up from 43 cents
in the second quarter of 1999, or a 35 percent increase.
"Coastal's
natural gas production should be up materially," said James Yanello, natural gas
analyst with PaineWebber in New York.
Analysts expect Enron, the
nation's largest natural gas and power company, to enjoy a modest increase in
second-quarter earnings. They see a per-share figure of 32 cents, versus 27
cents in the year-ago quarter.
A company spokesman declined to comment
on whether Enron will meet analysts' expectations.
"They had a very good
quarter last year, and this year they have had some start-up costs associated
with their broadband business that offset earnings somewhat," Yanello said.
The third quarter is shaping up as good as the second for natural gas
and power companies. Gas prices are expected to remain above the $ 4 mark
through next spring, according to the U.S. Department of Energy's short-term
energy outlook.
The agency is predicting that electricity demand in the
third quarter will be flat or down compared with the third quarter of last year.
There may be serious problems getting power to regions where it is needed most,
it added.
"On any given day, distribution systems in New York and New
England may be severely tested," according to the report.
Second quarter
Power and gas companies are expected to report higher earnings
for the second quarter compared to the same period last year, according to First
Call / Thomson Financial estimates.
2ND QUARTER EARNINGS PER
SHARE
Company 2000 estimate 1999 Change
Tuesday stock close One-year change
Coastal
Corp. $ 0.58 $ 0.43 +35% $ 61.25 +51%
Dynegy 0.52 0.17 +206 78.25 +135
El Paso Energy Corp. 0.69* 0.40 +73
51.00 +37
Enron Corp. 0.32 0.27 +19
70.75 +64
Reliant Energy 0.56 0.43
+30 31.94 +17
Williams Cos. 0.31
0.14 +121 42.13 -4
*Actual
earnings for second quarter
GRAPHIC:
Graph: Second quarter (color, TEXT, BAR GRAPH); B.C. Oren / Chronicle, Sources:
First Call / Thomson Financial, Bloomberg News
LOAD-DATE: July 13, 2000 
