Dynegy Inc.’s announcement Tuesday that its sale of Northern Natural Gas Co. (NNG) to MidAmerican Energy Holdings Co. will be completed as planned this month helped the energy marketer to buoy investor confidence Tuesday. After falling with the rest of the market on Monday, the Houston company closed up 35% to $1.90.

Dynegy and MidAmerican made a joint statement that NNG had provided a proposed resolution to the Federal Energy Regulatory Commission, and if it is accepted, they expect their August sale to be completed on time. MidAmerican, 80% owned by Warren Buffett’s Berkshire Hathaway Inc., agreed to buy NNG for $928 million plus the assumption of $950 million in debt last week (see Daily GPI, July 30).

However, FERC asked NNG’s former owner, Enron Corp., to explain emergency loans, secured by the pipeline and Transwestern Pipeline, totaling $1 billion made by Citigroup Inc. and JP Morgan Chase & Co. to Enron just weeks before the Houston company filed for bankruptcy last year (see Daily GPI, Aug. 5). Enron still owns Transwestern.

FERC asked the pipelines to rebut to its assumption that the loans were imprudently made, and therefore the responsibility of the stockholders, not the ratepayers.

Dynegy obtained NNG after it exercised its option to purchase the pipe following its failed merger with Enron. Dynegy said the sale is subject to federal closing customary closing conditions, including Hart-Scott-Rodino approval. Dynegy and MidAmerican have agreed to work together to complete the sale as soon as possible.

Despite his reservations about Dynegy selling NNG, which is considered a strong cash-flow generator, Gordon Howald, an analyst with Credit Lyonnais Securities, said Tuesday that “it’s in FERC’s best interests that Dynegy not go bankrupt, and MidAmerican said the sale is on track if FERC accepts the proposal.”

Howald said in a research note that he is maintaining a “hold” rating on the stock, and said he had reduced his price target for the next 12 months to only $1 per share. Howald said he has little faith in Dynegy’s assumption it can achieve break-even earnings for the remainder of 2002, which is the basis for its revised earnings estimate of 41 cents a share.

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