Merrill Lynch

( MER), despite a checkered history in the energy sector, is jumping back in with its acquisition of the energy-trading business of

Entergy-Koch

.

Terms of the sale weren't disclosed. But the business, a joint venture of

Entergy

(ETR) - Get Report

and

Koch Industries

, is valued at more than $1 billion. Entergy, in a corporate filing Thursday, said its equity investment in the venture is worth $1.1 billion, but the joint venture also includes a pipeline that is not part of the sale to Merrill.

In morning trading, Merrill shares were trading slightly lower, down 26 cents to $51.01. Shares of Entergy were up 35 cents to $60.97. Koch is a private company. The transaction is expected to close by year's end.

The deal, in the works for several weeks, should enable Merrill to pose a credible challenge to

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

( MWD), the two Wall Street firms with the biggest energy-trading operations. In acquiring Entergy-Koch, Merrill is believed have prevailed over competing bids from Wall Street rivals

Lehman Brothers

( LEH) and

J.P. Morgan Chase

(JPM) - Get Report

.

In recent years, Wall Street firms have become the leading players in energy trading, after the collapse of energy giant

Enron

in December 2001. The corporate scandals at Enron and

Dynegy

(EYN)

, another onetime leading energy trader, prompted most energy companies to exit the business.

In May,

Credit Suisse First Boston

( CSR) announced a joint energy-trading venture with

TXU

( TXU), a Texas-based utility company. A year ago, Goldman purchased

El Paso's

( EP) interest in East Coast Power for $490 million.

In the past, Merrill has gotten its hands singed in the energy market. Last year, the Wall Street giant paid an $80 million fine to the

Securities and Exchange Commission

to settle allegations stemming from its purchase of three Nigerian electricity-generating barges from Enron. Four former Merrill investment bankers are still awaiting trial on criminal charges arising from those transactions, which the prosecutors allege helped Enron cook its books.

In 2001, Merrill sold its former energy-trading business to

Allegheny Energy

( AYE) for $490 million. But Merrill has incurred nothing but headaches since selling the business. Allegheny is now suing Merrill, claiming the investment firm misled it about the value of the business, which allegedly was involved with sham trades.

Worse, Dan Gordon, the former Merrill trader who ran the energy business, recently reached a settlement with the SEC over allegations that he used bogus electrical trades to steal $43 million from the investment firm, and that he falsified the division's earnings. Regulators also alleged that Gordon aided and abetted Enron's fraud by engaging "risk-free" energy trades with Enron.

Despite these problems, Merrill has been looking to get back into the energy sector. In recent conference calls with analysts, Merrill executives have often described energy and commodities trading as a "missing piece" in its product offering to institutional clients.

In fact, the trading business that Gordon headed and was sold to Allegheny was smaller than the one Merrill is picking up in its latest acquisition. The unit of Entergy-Koch has about 300 employees, compared with fewer than 40 for the former trading group, a source says.

Merrill says the trading group is expected to add to its 2005 earnings, but provided no specifics.