Illinova Corp. of Decatur, IL, parent of Illinois Power Co., could be the first energy company in the country to spin off its generation assets to an unregulated subsidiary.

Illinova got the blessing of the Federal Energy Regulatory Commission (FERC) to transfer its entire fossil generating fleet from a utility subsidiary into a separate unregulated affiliated company. Approval of the generating asset transfer is consistent with the merger plans of Illinova and Dynegy Inc., announced June 14 (see NGI June 21). An Illinova spokesman said the merger is not contingent upon the generating asset transfer and that Illinova had planned to create the new subsidiary before planning to merge with Dynegy.

The FERC order (Docket EC99-90-00) under section 203 of the Federal Power Act gives Illinova authority to transfer about 3,800 MW of fossil fuel generating assets from Illinois Power Co. to a new subsidiary. On Aug. 24, FERC approved a power purchase agreement between Illinois Power and the new subsidiary aimed at providing an ongoing source of electric supply for the utility’s 560,000 electric customers.

The two FERC orders were the final regulatory hurdles for Illinova in forming the new wholesale energy services company. The Illinois Commerce Commission on July 8 unanimously approved transferring the fossil generating assets to the new subsidiary.

Dreyer said Illinova expects to finalize operational and financial details and have the new subsidiary in place during the fourth quarter of 1999. The subsidiary will operate assets associated with five major coal-fired power stations (Baldwin, Hennepin, Wood River, Havana and Vermilion), and gas-fired turbines at three sites (Tilton, Oglesby and Stallings). About 500 Illinois Power employees will become part of the new subsidiary.

The proposed merger of Illinova and Dynegy remains on track, with possible closure by year-end. A vote by Illinova shareholders is scheduled for Oct. 11.

Joe Fisher, Houston

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