San Diego Gas &amp Electric (SDG&ampE) completed divestiture ofall its fossil-fueled generation with the selection of Dynegy Inc.and NRG Energy Inc. as the joint winning bidder for its 951 MWEncina Power Plant in Carlsbad, CA.

Dynegy and NRG Energy will pay $356 million in cash to acquireboth the plant and 17 combustion-turbine generators, which are usedduring times of peak electricity load. The sales price of $356million is 3.8 times the book value of the assets as of Dec. 31,1997 and represents total generation of 1,218 MW.

“This acquisition clearly aligns with our corporate strategy tomaintain our leadership in the Btu convergence business bycontinuing to expand our energy portfolio,” said Chuck Watson,Dynegy CEO. “The Encina Power Plant and combustion turbines willincrease Dynegy’s power generation and asset base in a growingcompetitive marketplace, strengthening our ability to provideinnovative solutions for our customers. Dynegy will continue tocapitalize on opportunities to integrate generation assets with ourmarketing and trading capabilities throughout North America.”

“This sale will go a long way toward helping us fully recoverour transition costs, which will provide direct and immediatebenefits to both our shareholders and customers,” said Edwin A.Guiles, president of SDG&ampE. “This sale also marks the end of achapter in SDG&ampE’s storied history, completing the divestitureof all our fossil-fueled generating assets. SDG&ampE now has a corefocus of becoming a world-class energy delivery company.”

Proceeds from the sale of the Encina plant will be applied toreduce the Competition Transition Charge (CTC) SDG&ampE customerspay. Under state law, Dynegy and NRG Energy will be required tocontract with SDG&ampE for at least two years for the continuedoperation and maintenance of the Encina plant and the combustionturbines.

Dynegy will provide fuel management services and market energyout of the Encina Power plant and combustion turbines for thepartnership. NRG will manage the operation of the power generationassets out of its newly established San Diego office. Earlier thisyear, the companies acquired Southern California Edison’s 1,020 MWgas-fired El Segundo Station and 530 MW gas-fired Long BeachGenerating facility. Dynegy and NRG each hold a 50% interest inboth.

The Encina plant and associated combustion turbines willincrease the number of California power generation assets owned byDynegy to 21. Besides El Segundo and Long Beach, Dynegy hasgas-fueled cogeneration plants in Bakersfield, Corona, Crockett,Stockton, and Taft. Encina and the combustion turbines willincrease Dynegy California generating capacity to 3,477 MW.

The Encina plant began operation in 1954 and consists of fivesteam generating units. Other assets being sold along with theplant are about 400 acres of surrounding land, including the outerand middle sections of the Agua Hedionda Lagoon, an offshore marineterminal, a 1.7 million barrel petroleum storage facility and anon-site combustion turbine with a capacity of 14 MW. The sale alsoincludes 17 combustion turbines located throughout SDG&ampE’sservice territory with a total capacity of 253 MW. The sale isexpected to close in 1Q99 and is subject to regulatory approvals.

Joe Fisher, Houston

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