Daniel Acker | Bloomberg | Getty Images
Hennepin Power Plant, owned by Dynegy Inc., stands in Hennepin, Illinois.
Shares of Dynegy jumped more than 17 percent in late afternoon trade
Talks to combine the two energy companies, reportedly in the works since May, could lead to a deal being officially announced as soon as next week, according to The Journal. It would mark further consolidation among independent power producers, the companies that generate electric power and sell it into wholesale markets.
The two companies’ combined enterprise value, a more comprehensive measure of total value than market capitalization, would value the merger at more than $20 billion, the Journal reported.
Neither company immediately responded to CNBC’s request for comment.
In addition to generating power, Dynegy and Vistra both play in the retail electricity space, which sells power to residences and businesses.
Independent power producers have struggled to find a winning business model since a wave of deregulation in the early 2000s. The goal of deregulation was to promote competition in the utility sector and drive down power costs, but sea changes in the space have created challenges for merchant generators.
The unexpected boom in U.S. natural gas production over the last decade has pushed down power prices, making it harder for companies that operate plants to turn a profit. At the same time, subsidies and other support for renewable energy projects have boosted competition from wind and solar power and piled pressure on coal-fire and nuclear power plants.
The industry has been plagued by bankruptcies. Dynegy entered chapter 11 bankruptcy in 2011, and Vistra itself was spun out of the bankruptcy of Energy Future Holdings.
This story is developing. Check back for updates.