NEW YORK (CNN/Money) - Dynegy Inc. said Wednesday it has been notified by the Securities and Exchange Commission staff that the federal regulators will request a formal order of investigation in connection with the energy trader's natural gas transaction called "Project Alpha."

The transaction raised questions and hurt the company's stock last month after a report in the Wall Street Journal said Dynegy used complex accounting moves involving the gas partnership to help cut its tax bill and raise its reported cash flow for 2001.

Dynegy denied any wrongdoing at that time and a statement Wednesday said it would cooperate with the SEC probe. Shares of Dynegy (DYN: down $2.41 to $9.85, Research, Estimates) were off about 20 percent Wednesday morning following the report, after a drop of $2.59, or 17 percent, Tuesday.

Investors have been particularly concerned with whether accounting procedures are artificially raising a company's apparent profits since the collapse of Dynegy's competing energy trader Enron Corp. last fall. Dynegy had agreed to buy Enron before further questions about its accounting practices scuttled the deal and forced Enron to seek bankruptcy court protection.

Dynegy said in April that the controversial Project Alpha partnership provides the company with about 8 billion cubic feet per month of natural gas as well as tax benefits. It entered into the five-year agreement in April 2001.

"We sought guidance from SEC staff on key accounting issues raised by the transaction," the company said in April. "Dynegy voluntarily decided, after consultation with members of the SEC staff, to change the presentation of cash flows related to the natural gas contract from operating to financing. This change has no impact on the balance sheet or income statement."

But after the April 3 report in the Journal the company said it was asked to provide details of Project Alpha to the SEC's Office of the Chief Accountant.