Trans-Elect on Thursday filed suit in the Federal District Court of Northern Illinois (Chicago) against Illinois Power on the grounds that the utility violated the terms of a contract to sell its transmission system to Trans-Elect. The move comes after Dynegy Inc. last month disclosed that it is in talks to sell its Illinois Power unit to Exelon Corp.(see NGI, Sept. 29).

Trans-Elect’s 22-page complaint argues that Illinois Power breached its contractual obligations under the asset purchase agreement (APA) under which its electric transmission assets would have been sold to Trans-Elect. Because of this breach, under the express terms of the APA, Trans-Elect contends that the court should order Illinois Power to sell its transmission system to Trans-Elect.

The complaint also argues that as a result of its breaches of the APA, Illinois Power is stopped from relying on the July 7, 2003 closing deadline as grounds for terminating the APA. Trans-Elect also asks the court to order payment of its expenses and compensation for its projected lost profits in amounts greater than $5 million and $15 million, respectively, if the transaction is not consummated.

Illinois Power this summer notified Trans-Elect that it had exercised its right to terminate the sale of its transmission system assets.

Meanwhile, Exelon last Thursday said that it believes that Dynegy has adequate liquidity, based upon information that has been made available to Exelon.

Exelon said that a contrary suggestion on Wednesday, attributed to a senior Exelon executive who is not part of the financial due diligence process, was not intended to convey a financial or legal judgment. Exelon did not name the executive in question.

“The sense of urgency [that] he expressed related to the general desirability of legislation to facilitate a prompt acquisition of Illinois Power Co. by Exelon, an acquisition it continues to pursue, for the benefit of employees, customers and communities served by Illinois Power,” Exelon said.

Completing the transaction as promptly as possible would also be consistent with the execution of Dynegy’s stated strategic and financial goals, Exelon added.

In order to expedite the proposed sale of Illinois Power to Exelon, the companies are asking the Illinois legislature to direct the Illinois Commerce Commission to conduct a six-month thorough review of a merger or acquisition involving a financially challenged company, as determined by the company’s credit rating. Dynegy and Illinois Power both have credit ratings below investment grade.

The Illinois Citizens Utility Board (CUB), which represents the state’s residential and small-business utility ratepayers, has already vowed to oppose the proposed bill in the legislature. Among other things, CUB said that the legislative proposal guts the standards in current law that require rates to be just and reasonable.

Dynegy is one of several energy companies that has struggled to right its financial ship in the wake of the broader meltdown experienced throughout the industry since the collapse of Enron Corp. in 2001. However, an analyst with Fitch Ratings recently said that Dynegy has made “very good progress” over the past six months in solving near-term liquidity problems (see NGI, Oct. 20).

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.