Dynegy

(DYN)

swung to a wide first-quarter loss that reflected a big charge to settle a shareholder class-action suit related to past accounting.

But the energy company said improving commodity prices should result in better cash flow and a narrower loss in the remainder of 2005, and announced it will consider the sale of its natural gas processing operations.

The Houston energy company lost $262 million, or 70 cents a share, in the quarter, compared with earnings of $70 million, or 14 cents a share, last year. The 2005 period included charges of $256 million related to the lawsuit and a restructuring of power plant lease obligations.

Revenue fell 10% from a year ago to $1.50 billion.

For all of 2005, Dynegy now expects to post a core loss of $130 million to $145 million, narrower than its previous estimate of $183 million to $199 million. It cited the core energy business, which is "benefiting from overall improvements in power and commodity prices."

Dynegy expects to post operating cash flow of $315 million to $330 million in 2005, up from its previous guidance of $200 million to $215 million, reflecting higher power and commodity prices.

Earnings before interest, taxes, depreciation and amortization in Dynegy's power generation business was $109 million in the first quarter of 2005, compared with $139 million a year ago. EBITDA in its gas processing "midstream" operation was $77 million, compared with $85 million a year ago.

The company also says it's exploring strategic alternatives for the gas-processing operations, and that "market interest that currently exists in midstream energy assets, coupled with high cyclical commodity prices, have created a unique environment that should provide strong value for our midstream business and for the company."

Shares lost 2 cents to $3.75 in premarket trading.