Although the end of the story is far from written, Dynegy Inc. has settled a lawsuit with subsidiaries of Enron Corp. for Dynegy to exercise its option to acquire the Northern Natural Gas (NNG) pipeline. Dynegy and Enron have agreed to a closing on the pipe by the end of this month. Dynegy, in return, has agreed to extend Enron’s option to repurchase the pipeline from May 9, 2002, to June 30, 2002.

Gaining NNG in the lawsuit battle helped Dynegy in the stock market, as it edged up 5.18% Friday to close at $26.59. The news also slightly helped Enron, which gained two cents, or 3%, to close at 66 cents.

The settlement, said Dynegy, does not affect the rights of either Dynegy or Enron in connection with the merger agreement, and Dynegy “intends to fully pursue its claims against Enron for breaches of that agreement,” it said in a written statement. Meanwhile, Enron announced in a counter statement that it also will pursue its lawsuit against Dynegy that seeks $10 billion in damages after Dynegy terminated its merger agreement in late November. Enron also has amended that complaint, alleging that Dynegy’s exercise of the NNG pipe option was wrongful.

As Enron’s business took a disastrous turn in November and Dynegy agreed to a merger agreement Nov. 8, 2001, Dynegy and Dynegy’s major shareholder ChevronTexaco (which owns 26% of Dynegy stock) paid $1.5 billion to acquire preferred stock and other rights in an Enron subsidiary that owns NNG. After Dynegy pulled out of the merger agreement, Dynegy exercised its rights to acquire the common equity of NNG’s parent but was sued by Enron both for pulling out of the merger agreement and for trying to take over NNG (see NGI, Dec. 3, 2001; Dec.10, 2001). Along with the $1.5 billion, Dynegy’s option agreement calls for a $23 million exercise payment at closing, subject to working capital adjustments. Enron will provide transition services related to the pipeline through the end of the repurchase period in June.

“We acquired the pipeline under the terms originally agreed upon by the two companies, with the exception of the date extension,” said Chuck Watson, Dynegy chairman and CEO in a written statement. “Through our longstanding relationship with Northern Natural Gas, we recognize the value of its operations and the professional manner in which its employees serve their customers. We will be committed to maintaining the same high level of service and safe asset operation that has characterized Northern Natural Gas’ management of its business.”

NNG currently provides transportation and storage services to its customers and provides cross-haul and grid transportation between other interstate and intrastate pipelines in the Permian, Anadarko, Hugoton and Midwest areas.

“This action ensures continuity of quality service to the customers of Northern Natural Gas and stability for the outstanding employees who have run the pipeline carefully and safely over many years,” said Stan Horton, chairman and CEO of Enron Transportation Services Co. “We remain committed to our tradition of excellence throughout this transition period.”

NNG’s 16,600 miles of pipeline extend from the Permian Basin in Texas to the Upper Midwest, providing extensive access to major utilities and industrial customers. NNG’s storage capacity is 59 Bcf and its market area capacity is approximately 4.3 Bcf/d.

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