Chile's largest electricity producer, Empresa Nacional de Electricidad SA (EOC, ENDESA.SN), is expected to post a drop in its third-quarter net profit as sales slipped and costs rose because of a drought that crimped hydrolectric generation, forcing the company and its competitors to use more expensive coal, diesel and natural gas.

Endesa increased spot-energy purchases in Chile to meet its supply obligations as hydroelectric production on the central SIC power grid, which is the Andean nation's largest, and provides energy to over 90% of its population, was curtailed by drought.

About 59% of the company's capacity is in hydroelectric generation, and the rest is thermal generation plants. Endesa has 13,846 megawatts of installed capacity in Argentina, Chile, Colombia and Peru, and owns an equity stake in 987 MW of installed capacity in Brazil. Some 38% of Endesa's capacity is in Chile.

Delays starting up the 370-megawatt Bocamina II coal-fired thermal plant in southern Chile is also expected to have hurt Endesa's bottom line. Startup of Bocamina II, originally slated for early 2011, was delayed after a massive February 2010 earthquake caused damage. The plant is now expected to start operations during the third quarter of 2012.

"Endesa has needed to increase its purchases on the spot market to cover the energy it was expecting to generate at Bocamina II," said Cristian Jadue, analyst at Santander GBM.

Endesa's third-quarter net profit is expected to slip nearly 20% on the year, to 114.6 billion Chilean pesos ($227 million), according to Jadue.

The power generator's sales likely slipped 11.1%, to CLP596.5 billion, according to investment bank Bice Inversiones. The company's Ebitda, or earnings before interest, taxes, depreciation and amortization, is expected to drop 10%, to CLP255.6 billion, said the bank.

Endesa plans to report its third-quarter results on Tuesday.

As Endesa weighs heavily on the bottom line of its parent company Enersis SA (ENI, ENERSIS.SN), the energy holding company is expected to see third-quarter profit decrease 12.8%, to CLP125.5 billion, said investment bank Inversiones Security.

In addition to all of Endesa's assets, which account for nearly 60% of Enersis' revenues, the power holding company also owns power-distribution and transmission businesses in Argentina, Brazil, Chile, Colombia and Peru. Enersis, which is owned by Spain's Endesa SA (ELEZF, ELE.MC), is expected to post a 7.2% drop in Ebitda, to CLP544.7 billion, and a 7.3% fall in sales, to CLP1.58 trillion.

-By Anthony Esposito, Dow Jones Newswires; 56-2-715-8929; anthony.esposito@dowjones.com