Dynegy Leads U.S. Electricity Producers Lower as Natural-Gas Prices Tumble

Dynegy Inc., the U.S. power producer that lost 90 percent of its market value in two years, led declines in its industry in New York trading as tumbling natural-gas futures signaled low electricity prices.

Dynegy dropped 33 cents, or 7.5 percent, to $4.09 as of the 4 p.m. close of New York Stock Exchange composite trading. Adjusting for a reverse stock split done last month, Houston- based Dynegy traded as high as $49.60 in 2008. Fellow U.S. power producers Mirant Corp., RRI Energy Inc. and AES Corp. all slid more than 5 percent. NRG Energy Inc. and Calpine Corp. fell 3.3 percent and 2.6 percent, respectively.

Natural gas for August delivery declined more than 3 percent in New York for a second straight day on forecasts for milder weather in the Eastern U.S. Cooler weather may mean less use of air conditioners, which would reduce demand for gas to fuel power generation. Dynegy’s debt-to-equity ratio is 192 percent, compared with an average of 135 percent for members of the Standard and Poor’s 500 Electric Utilities Index.

“It is a highly levered company and you would expect it to trade with more volatility than its peer group,” said Brandon Blossman, an analyst at investment bank Tudor Pickering Holt & Co. in Houston.

Abundant gas supplies will probably keep power prices in a “relatively low range” through 2012, Fitch Ratings Ltd. said in a report yesterday.

Dynegy hasn’t changed its outlook for power prices since December and sees no market indicators that would warrant the decline in its stock price, company spokesman David Byford said. The company has $2.3 billion in liquidity and still sees power markets strengthening as the U.S. economy rebounds, he said.

The highest-cost power plants, those that are last to be turned on and tend to set the market price for electricity, are commonly fueled by gas, according to the Texas Public Utility Commission. Cheaper gas means a lower threshold of power prices needed to make those plants profitable to operate.

To contact the reporter on this story: Katarzyna Klimasinska in Houston at kklimasinska@bloomberg.net.

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