Published July 20, 1999
Volume 7, Number 7

Dynegy to Expand in $7.5 Billion Merger
Merger with Illinova to Form a Premier National Energy Merchant

Nick Wallace of Dynegy thinks that the merger is good news for both Dynegy  and their customers.

By Jay Hipps
Network Editor

In a merger of energy companies with complementary lines of products and services, Dynegy and Illinova will join forces in a new company bearing the Dynegy name in the first quarter of 2000. 

After the merger, Dynegy will be poised to expand from its traditional role of natural gas and electricity wholesaler to encompass both wholesale and retail elements of energy generation and delivery. 

Illinova, a Midwest energy company which includes Illinois Power, a regulated company with 650,000 customers, will gain access to Dynegy's expertise in energy asset management services. The new company will be well positioned to maximize value of wholesale gas and electric marketing and trading. 

"This merger broadens our scope and reach, creating more opportunities to provide our customers with innovative energy solutions, in addition to increasing our access to generation capacity," says Nick Wallace, Dynegy senior vice president who works at their Hacienda marketing and trade office. "The new company will be one of the few that will provide energy marketing, trading, distribution, and generation capabilities, along with considerable operations expertise." 

The two companies have combined revenues of $16.7 billion, assets of over $12.1 billion, and 15,000 megawatts of generation capacity. 

"Based on 1998 combined statistics for North America, the company would have ranked second in power sales and production, fourth in natural gas sales, and first in liquids sales," adds Wallace. 

Opportunities from Deregulation
The merger plays a critical role in Dynegy's plan for growth in the national electric market, which is changing rapidly as more states pursue deregulation. 

In California, the electric market was restructured last year by AB 1890, creating a unique business opportunity for Dynegy. 

"One of the requirements of that law was that the utilities in the state had to divest of some gas-fired (electricity) generation (plants)," explains Wallace. 

Since Dynegy has expertise in both the electric and gas markets the company was called the Natural Gas Clearinghouse at its founding in the mid-80's the company was quick to snap up several gas fired power generating facilities at auction from public utilities which were selling them to comply with the new law.

It also allowed the company a new revenue source. Depending on the relative costs and sale prices of gas and electricity, Dynegy can maximize profits by choosing to either sell the gas or use it to create electricity, for example. This "energy convergence" market now plays a key role in the company's plans for the future. 

Expanding Horizons
Wallace believes the merger will allow the company to take advantage of similar opportunities in the future. 

"The combining of the two companies will give us an asset base of 15,000 megawatts of generation, which is very strategic in what we're trying to accomplish," he says. "Illinova has all the expertise and knowledge of the retail business the billing services, mass marketing, demand side management and we have the wholesale trading and marketing acumen to maximize value of our combined asset base." 


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