Indianapolis-based Indiana Energy continued to expand itsregional service territory last week through a $425 millionpurchase of the retail gas distribution business of DPL Inc. ofDayton, OH. The deal, which will grow its distribution customerbase by more than 300,000 customers and will add 5,000 miles ofdistribution pipe, comes only a few months after the $1.9 billionmerger of Indiana Energy with Sigcorp, the Evansville, ID-basedholding company of Southern Indiana Gas and Electric (Sigeco),which provides gas and electricity to 150,000 customers insouthwest Indiana.

The DPL deal, to be accounted for as a purchase, will add about305,000 residential, commercial, industrial and governmentcustomers to Indiana Energy’s nearly 508,000 central Indianacustomers. The service area of DPL’s gas business is contiguous toIndiana Energy’s distribution system in East Central Indiana andincludes 16 counties in West Central Ohio. Revenues for DPL’s gasdistribution business for the 12 months ended Sept. 30 were $215million.

On June 14, Indiana Energy and Sigcorp Inc. announced theirmerger, and the transaction received FERC approval and that ofIndiana Energy shareholders last week. The two companies plan toproceed with the formation of new holding company, Vectren Corp.,which will have a value of about $1.9 billion. The company, throughutility subsidiaries, will serve in excess of 650,000 customers inadjoining service areas that span more than two-thirds of Indiana.In a draft order, the FERC concluded that the merger was in thepublic interest and would not adversely affect competition, rates,or regulation. The deal is expected to close in the first quarter,before the acquisition of DPL’s gas business. Once acquired, DPL’sgas business will operate under the Vectren brand and will remainin Dayton.

“The acquisition of DPL’s natural gas distribution business,together with our pending merger with Sigcorp, will enable Vectrento provide energy-related products and services to nearly onemillion customers in the Midwest,” Ellerbrook said. “With ourneighboring service territories, DPL’s natural gas distributionbusiness is a logical extension of Indiana Energy’s distributionoperations.”

DPL was required to separate its electric business units withthe July passage of Ohio electric restructuring legislation. “Inseparating and evaluating all of our business segments, weannounced that we would explore the sale of our natural gas retaildistribution business unit,” said Peter H. Forster, DPL chairman.”This sale will allow DPL to focus on growing the electricbusiness. We will invest the after-tax proceeds from this sale tocontinue expansion of our electric combustion turbine business, tofinance in part other business unit capital needs, to continue ourstock buyback program and to reduce any then outstanding short-termdebt.”

DPL is expanding its gas-fired generation, adding 795 MW in fourphases. Details will be forthcoming, the company said. Expansionsare in Ohio and Indiana and are planned to be in service startingthis summer.

DPL will continue to provide meter-reading and billing todistribution system customers and will continue to market gasthrough DPL Energy. Regulatory approval is required from the PublicUtilities Commission of Ohio, the Securities and ExchangeCommission and under the Hart Scott Rodino Act. Shareholderapproval is not required.

The deal is expected to be slightly accretive to Indiana Energyearnings in the first full year after closing, excluding one-timecharges related to the transaction. Initially financing is to comefrom a bank credit facility, to be replaced over time withpermanent financing. Indiana Energy hopes to complete thetransaction by the end of the second quarter.

DPL supplies energy services to customers in the Midwest throughsubsidiaries The Dayton Power and Light Co. and DPL Energy. DPLcontinues to buyback its shares and has bought more than $60million worth this year. Indiana Energy is the holding company ofIndiana Gas Co. Inc., IEI Services LLC and IEI Investments Inc.Distributor Indiana Gas serves nearly 508,000 customers in centralIndiana.

Last week, Standard & Poor’s revised its CreditWatch onIndiana Gas and Indiana Energy to negative from positiveimplications. At the same time, Standard & Poor’s revised itsoutlook to negative from stable for DPL Inc. and affiliate DaytonPower & Light.

“When viewed along with the proposed merger with Sigcorp, theDPL asset purchase substantially increases the scale and diversityof Indiana Energy’s operations and provides opportunity for costsynergies. However, the uncertainty over management’s financingstrategy, the prospect for a substantial increase in leverage andsubsequent weakening of key interest coverage measures, and theincreased focus on continued growth in non-regulated businessactivities could increase consolidated business risk beyond a levelthat is appropriate for the current rating category.” Ellerbrookhas said he wants to grow non-regulated operations to a point wherethey would be contributing more than 25% of consolidated totalearnings by 2003. Ratings on Sigeco remain on CreditWatch withnegative implications where they were placed June 15.

Joe Fisher, Houston

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