NEW YORK (CNN/Money) - Dynegy Inc. agreed to sell its Northern Natural Gas Co. to MidAmerican Energy Holdings Co., a firm controlled by Warren Buffett's Berkshire Hathaway Inc, for $928 million cash, the energy company said Monday.

Under terms of the deal, Des Moines, Iowa-based MidAmerican Energy will acquire all common and preferred shares of Northern Natural Gas (NNG) in addition to assuming $950 million in outstanding debt. The transaction is expected to close in August. Merrill Lynch is advising Dynegy on the sale.

Eliminating NNG's debt leaves Dynegy with just a $300 million note due in November and no other significant maturities until May 2003, the company said.

NNG operates a 16,600-mile natural gas pipeline extending from the Permian Basin in Texas to the upper Midwest. It has a storage capacity of 59 billion cubic feet and can supply 4.3 billion cubic feet of gas per day.

Shares of Houston-based Dynegy (DYN: up $0.52 to $1.20, Research, Estimates), which ended its merger plans with Enron Corp. last year as news of an accounting scandal emerged, jumped 52 cents to $1.20 in morning trading Monday.

"The closing of this sale will improve our liquidity position and help us serve our customers," Dynegy interim CEO Dan Dienstbier said. "This is a decisive step forward in our ongoing efforts to improve our financial and business profile. We are committed to achieve a level of financial viability that will create a renewed sense of market and customer confidence in our company."

News of the sale comes a week after Dynegy slashed its 2002 cash-flow outlook and Standard & Poor's lowered its credit rating to non-investment grade.

Dynegy has struggled with a downturn in energy trading and marketing activity in the wake of the collapse of Enron, formerly the world's biggest energy trader. Dynegy also has faced lower power prices that have cut into its financial liquidity.