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Tuesday, 28 May, 2002, 12:36 GMT 13:36 UK
Dynegy crisis claims chief's head
Dynegy web grab
Chuck Watson, Dynegy's chairman and chief executive, has resigned as his firm's crisis intensifies.

Dynegy was once set to take over Enron, but it is now being shunned by traders and investors over fears it will become the next Enron.

Dynegy's troubles - a regulatory probe, a share price collapse, a credit downgrade and disappearing trading partners - bear a striking resemblance to the start of Enron's swift collapse.

The Enron scandal sent shockwaves through the US when it became the biggest corporate failure in history last December.

Mr Watson has been in command at Dynegy since it was established more than 20 years ago.

ChevronTexaco steps in

"Chuck Watson played a critical role in the creation of the merchant energy business and in the emergence of Dynegy as a major force in the global energy industry," said Glenn Tilton who will take Mr Watson's place as interim chairman.

No specific reason was given for Mr Watson's departure, although he has been under pressure for some time due to the issues facing the firm.

His successor is the vice chairman of ChevronTexaco, which owns 27% of the troubled firm.

John Olsen, from investment bankers Sanders Maurice Harris in Houston, told the BBC's World Business Report he thought Chuck Watson and the Dynergy board wanted to take the company in two different directions.

"The board wanted to take the company in a much more business-like direction and Chuck wanted to stay very entrepreneurial and stay very fast and loose and flexible," he said.

"The board is what counted and Chuck decided this was the best time for him to go off to greener pastures," he added.

Dynegy is primarily an energy trader in the electricity and gas markets, and it was often perceived to have modelled itself on Enron, albeit on a smaller scale.

It is the fifth largest electricity player in the world, and an active player in the European gas and power markets.

Under fire

Dynegy is under investigation for a number of different reasons.

The Securities and Exchange Commission has already begun a formal investigation into its natural gas trades.

Then there are the massive trades of electricity, where Dynegy bought and sold almost instantly enough megawatts to light the city of Houston for a year.

This has prompted speculation that Dynegy was trying to suggest false scale to its investors and trading counterparties.

And finally, it faces allegations of price manipulation during the California power crisis last year.

While its current troubles look similar to the start of Enron's demise, Dynegy has not been accused of falsifying its accounts - the ultimate reason for Enron's demise.

"Dynegy must convince shareholders and lenders that it has the best strategy in place to resolve the issues it faces, while generating new momentum in its businesses," said Otis Winters, lead director of the board.

John Olsen, Sanders Maurice Harris in Houston
"I think Chuck reached his threshold of pain"
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