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

Illinova got the blessing of the Federal Energy RegulatoryCommission (FERC) to transfer its entire fossil generating fleet froma utility subsidiary into a separate unregulated affiliatedcompany. Approval of the generating asset transfer is consistent withthe merger plans of Illinova and Dynegy Inc., announced June 14 (seeDaily GPI, June 15, 1999). An Illinovaspokesman said the merger is not contingent upon the generating assettransfer and that Illinova had planned to create the new generationsubsidiary before planning to merge with Dynegy.

Last Friday’s FERC order under section 203 of the Federal PowerAct gives Illinova authority to transfer about 3,800 MW of fossilfuel generating assets from Illinois Power Co. to a new subsidiary.On Aug. 24, FERC approved a power purchase agreement betweenIllinois Power and the new subsidiary aimed at providing an ongoingsource of electric supply for the utility’s 560,000 electriccustomers.

The two FERC orders were the final regulatory hurdles forIllinova in forming the new wholesale energy services company. TheIllinois Commerce Commission on July 8 unanimously approvedtransferring the fossil generating assets to the new subsidiary.

Dreyer said Illinova expects to finalize operational andfinancial details and have the new subsidiary in place during thefourth quarter of 1999. The subsidiary will operate assetsassociated with five major coal-fired power stations (Baldwin,Hennepin, Wood River, Havana and Vermilion), and gas-fired turbinesat three sites (Tilton, Oglesby and Stallings). About 500 IllinoisPower employees will become part of the new subsidiary.

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

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