http://www.consultrci.com

*********************************************************************
SCIENTECH IssueAlert Sponsor:

Energy Exchanges Online - Scottsdale - December 4-6: the only place to
meet your future clients, suppliers and partners.  SCIENTECH has secured
a $300 discount for all IssueAlert subscribers to participate to this event.
 To join Altra, HoustonStreet, Petrocosm, APX, Enron, Conoco, Duke plus
a legion of other online energy experts visit www.eyeforenergy.com/xonline.
This is the only event to take you from yesterday to tomorrow TODAY!
*********************************************************************

===============================================================
SCIENTECH IssueAlert, November 21, 2000
Dynegy and NRG Energy to Purchase Sierra Pacific Assets
By: Will McNamara, Director, Electric Industry Analysis
===============================================================

Dynegy (NYSE: DYN) and NRG Energy (NYSE: NRG) announced a major expansion
of their co-owned generation portfolio in the West through asset purchase
agreements to acquire 1,330 MW of power generation facilities from Sierra
Pacific Resources (NYSE: SRP).  The facilities include the 740 MW gas-fired
Clark Generating Station and 590 MW of the 605 MW, coal-fired Reid Gardner
Generating Station. The facilities are currently owned by Sierra Pacific
Resources' subsidiary, Nevada Power Company, and serve the growing Las
Vegas market.

ANALYSIS: This $634 million purchase has resulted from regulatory mandates
surrounding the Sierra Pacific-Nevada Power merger, which was completed
in July 1999. Sierra Pacific is undergoing the sale and transfer of all
of its remaining gas, oil and natural-gas fired Nevada generating assets,
which it intends to complete in 2001.

The Reid Gardner and Clark Stations are among the seven asset bundles that
were included in an auction by Sierra Pacific earlier this year. Located
in southeastern Las Vegas, the Clark Generating Station consists of 10
gas- and oil-fired generating units, which as noted total 740 MW. The oldest
unit at the Clark Generating Station became operational in 1955, the newest
in 1994. Specific information about which units at the Clark Generating
Station are included in this purchase was not available. The Reid Gardner
Generating Station consists of four baseload coal-fired units and is located
52 miles northeast of Las Vegas. According to recent data from the Energy
Information Administration, the California Department of Water Resources
owns about 68 percent of the Reid Gardner Plant. It is not clear what impact
the Dynegy / NRG purchase will have on this organization's ownership in
the plant.

The purchase of the Sierra Pacific assets is subject to approval from the
Federal Trade Commission, FERC and the Nevada Public Utilities Commission,
and is expected to close during the second quarter of 2001. Additional
conditions of the deal include a power purchase agreement for Nevada Power
to buy energy and ancillary services from Dynegy and NRG "at a stable price"
until March 2003.

On their own, both companies are leaders in independent power production
and energy supply. Yet this acquisition is the latest in a string of 
collaborative
efforts between Dynegy and NRG. Together, the companies have been actively
acquiring power plants in Illinois and the West Coast, along with purchases
that they have made independently. In fact, this purchase of assets from
Sierra Pacific marks the sixth asset alliance between Dynegy and NRG. 
Together,
the two companies jointly own 2,768 MW of power generation facilities in
California and 350 MW in Illinois. In most of the partnerships, and in
the case of this latest purchase from Sierra Pacific, Dynegy markets the
energy produced at the plants and oversees fuel management services, while
NRG manages the operational side.

Last July, Dynegy and NRG entered into a similar agreement to expand the
Rocky Road Power Plant, a natural gas-fired, simple cycle peaking facility
in East Dundee, Illinois. The move into Illinois was an important strategy
for both companies. Of course, Dynegy completed its merger with Illinova
last summer, creating a $22 billion company that is well-positioned to
compete in electric generation, wholesale and retail marketing, and gas
and electric power trading. At the time, the CEO of NRG Energy made it
clear that the Rocky Road plant expansion was part of the two companies'
strategy in becoming a large contributor to the Chicago-area energy market.
Dynegy, in fact, intends to continue acquiring and expanding generation
facilities in Illinois so that it can compete with Exelon Corp.

Moreover, both companies are positioning themselves to be leaders in 
generation
capacity and power supply, and the purchase of the 1,330 MW from Sierra
Pacific factors in to both of their strategies. Not only does the acquisition
help to expand both companies' asset base, but it also diversifies their
power supply offerings. For instance, NRG claims that the assets complement
its current gas-fired peaking and intermediate California assets, providing
the benefits of fuel and dispatch level diversification. NRG aims to build
a "top three position in its primary markets." The acquisition of assets
from Sierra Pacific puts NRG into a prime position in the fast-growing
Nevada and Western markets by adding a strong component of baseload generation
to its portfolio.

In fact, this is the second acquisition that NRG has made from Sierra Pacific.
Just last month, NRG announced its intent to purchase a 50-percent interest
in the Valmy Power Station, which Sierra Pacific is selling also as a result
of regulatory mandates. The Valmy Power Station, which is primarily 
coal-fired,
produces electricity in the northern Nevada and surrounding markets. In
this $273 million deal, NRG acted as an independent buyer.

Dynegy has long claimed that it wants to gain a 10-percent share, or 70,000
MW, of the U.S. electric market over the next five year by acquiring plants,
building them or negotiating the right to sell power produced by others.
In order to reach this goal, I had projected last summer that Dynegy might
be looking to merge with another provider to build its scale, considering
the fierce competition it faces from other generation companies. The company
has now taken a different path to achieve essentially the same result.
The addition of Sierra Pacific's facilities, combined with other assets
that the company has acquired or developed this year, increases Dynegy's
generating capacity by more than 4,000 gross megawatts. Dynegy contends
that this figure is comparable to many industry mergers without the regulated
transmission and distribution businesses. Dynegy also believes the acquisition
will support a raise in its earnings forecast for 2001, from $1.75 to $1.80
per share.

Dynegy's goals are pretty ambitious. However, the company has been increasing
earnings over the last year, so the $1.80 per share target may be attainable.
For 3Q 2000, Dynegy reported recurring net income of $176.5 million, or
55 cents a share, compared with Dynegy / Illinova pro forma recurring net
income of $96.5 million, or 32 cents per share, for the same period last
year. Much of this growth is coming from Dynegy Marketing and Trade, whose
reported net income increased to $141.9 million*80 percent of the company's
consolidated net income. There is little doubt that Dynegy and NRG, 
considering
that they own 2,768 MW of power in the state, benefited from the short
supplies in California this summer, which*along with other factors*drove
up the cost for power in the state.

Another interesting element to this announcement is the fact that similar
strategic acquisitions are being made possible by mandated divestiture
that other companies have faced due to merger activity. Just yesterday,
I wrote about Duke and Williams embarking on a joint venture to purchase
the Gulfstream pipeline project from Coastal Corp. This sale was made possible
because Coastal is being forced to divest the pipeline as a result of its
merger with El Paso Energy. As the old adage goes, one company's loss is
another company's gain, which could be viewed as one of the drawbacks of
M&A activity. Another possible trend is the joint activity we are seeing
between companies. The Duke / Williams  and Dynegy / NRG projects are both
examples of companies that have collaborated on development and acquisition
ventures to support both their joint and individual strategies. As the
energy industry becomes more competitive, like-minded companies may find
that they can actually gain more by developing similar strategic alliances,
rather than following a insular path typically exemplified by, for example,
Southern Company.
===============================================================
Read SCIENTECH's free SourceBook Weekly article: "AES: SourceBook's Company
of the Year," at:
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
==============================================================

SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let
us know if we can help you with in-depth analyses or any other SCIENTECH
information products. If you would like to refer a colleague to receive
our free, daily IssueAlerts, please reply to this email and include their
full name and email address or register directly at:

http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert


Sincerely,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@scientech.com
===============================================================
Feedback regarding SCIENTECH's IssueAlert should be sent to 
wmcnamara@scientech.com
===============================================================

SCIENTECH's IssueAlerts are compiled based on independent analysis by 
SCIENTECH
consultants.  The opinions expressed in SCIENTECH's IssueAlerts are not
intended to predict financial performance of companies discussed or to
be the basis for investment decisions of any kind.  SCIENTECH's sole purpose
in publishing its IssueAlerts is to offer an independent perspective regarding
the key events occurring in the energy industry, based on its long-standing
reputation as an expert on energy and telecommunications issues.

Copyright 2000.  SCIENTECH, Inc.


If you do not wish to receive any further IssueAlerts from SCIENTECH, please
reply to this message and type "remove" in the subject line.