Dynegy Inc. confirmed Friday it is engaged in exclusive discussions with Chicago-based Exelon Corp. to possibly sell Illinois Power Co. (IP). The utility is the Houston-based company’s regulated business segment, which sells natural gas and electricity to Illinois customers.

The sale was not a done deal on Friday afternoon, but Dynegy indicated that the transaction would be subject to Exelon’s completion of due diligence, negotiation of final terms and structure and the negotiation and execution of definitive agreements. The transaction also would require approval by both company’s boards as well as regulatory agencies.

In a statement, Exelon, a holding company which runs the utilities Commonwealth Edison in Illinois and Peco Energy in Pennsylvania, said that the discussions “have only commenced and no assurance can be given that they will lead to an agreement.”

Dynegy said it would not comment further on the transaction until a definitive agreement was reached or when discussions were terminated.

IP’s retail natural gas service has almost 415,000 customers, which it serves via 774 miles of gas transportation pipeline and 7,598 miles of gas distribution. IP, based in Decatur, IL, owns seven underground storage fields that ensure a reliable supply of natural gas during peak periods throughout the heating season.

The retail electric arm of IP distributes service to more than 590,000 residential, commercial and industrial customers in a 15,000 square-mile territory. The distribution system has more than 37,900 circuit miles of above and below ground lines woven throughout northern, central and southern Illinois.

For the first half of 2003, IP’s total revenues were $791 million. Total gas sales were 471 million therms. Total power sales were 8,931 million kWh.

If Dynegy were to sell IP, it would have two business units remaining: Power Generation and Natural Gas Liquids (NGLs).

The NGL segment is engaged in the gathering and processing of natural gas and the fractionation, storage, transportation and marketing of NGLs. Its assets are located in high-growth oil and gas exploration and production areas of North Texas and the Louisiana Gulf Coast, and in the mature Permian Basin of Texas and Southeast New Mexico.

The downstream NGL assets, strategically connected to upstream assets, are located in Mont Belvieu, TX, the hub of the U.S. NGL business, and in Lake Charles, LA. Additionally, Dynegy manages a diverse portfolio of storage and transportation assets. Overall, equity NGL production is 84.6 million bbl/d; fractionating volumes are 181.9 thousand bbl/d. Dynegy also sells 319.7 thousand bbl/d.

The Power Generation segment asset fleet consists of facilities in 12 states. It provides wholesale power to utilities, cooperatives, municipalities and other energy companies through North American Energy Reliability Council regions.

The Power segment also serves the load requirements of commercial and industrial customers in markets where it has a generation presence and where the regulatory environment supports those activities. It currently provides power for commercial and industrial customers in Texas, Illinois, Michigan and New York.

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