Dominion Resources Inc. of Richmond yesterday said it has decided to invest $250 million to keep alive a Louisiana hydropower project that has been used by Drexel Burnham Lambert as an example of the successful projects junk bonds have financed.

Drexel has been running a television ad about the water power plant that is being built at Vidalia, La., by Catalyst Energy Corp., the independent power producer for which Drexel sold $300 million in junk bonds.

Junk bonds are high-risk, high-yielding securities that are used to finance growing companies and corporate takeovers.

Over scenes of a small town that turns out not to be in Louisiana at all, the Drexel television ads say, "In December 1986, the Catalyst Energy Corp. began construction on the Vidalia, La., hydroelectric plant, financed with the help of high-yield bonds provided by Drexel Burnham. Today, this project has helped reduce unemployment by over 20 percent -- proof that high-yield bonds are not just good for business, but for everyone."

The commercial has been criticized in a Wall Street Journal article reporting that Vidalia residents were upset because the ads were filmed 300 miles away in Fort Smith, Ark., instead of less-scenic Louisiana.

The latest revelation is that Drexel Burnham's junk bonds provided money to start construction but did not raise enough funds to complete the project, called the Sidney A. Murray Jr. hydroelectric station.

The project, whose estimated time of completion is 1990, appears to be sapping the financial strength of the independent power producer, which began the project in 1984.

Dominion Capital, a Dominion Resources subsidiary formed to invest in power plants outside the local utility's usual service area, has promised to provide half the funds needed to finish the $500 million plant.

William C. Hall Jr., the spokesman for Dominion Capital, a subsidiary of Dominion Resources making the investment, yesterday said the project was "a sound investment for our company and fit in with our diversification strategy of investing in those businesses with which we are familiar." He called the project "rock solid." Dominion officials could not say yesterday how much of the $250 million would be raised through debt financing.

"This project is in great shape and we certainly could have gone it alone but it would have been a tremendous strain on a company of this size," said Lawrence Coben, vice president of mergers and acquisitions at Catalyst Energy. "This is a $500 million project and we felt it was prudent and profitable for us to have a good strong financial partner in there with us. Dominion is a very good company and a very smart company and they understand the hydro business very well."

Dominion has experience with hydropower, having built a pumped storage facility in Bath County. That project ran into problems in the late 1970s when demand for electricity dropped and construction costs increased, delaying the facility for two years.

Dominion appears to have entered at the right moment for Catalyst, whose stock price plummeted after the stock market dropped in October. A group of top executives at the company, including Coben, made an offer yesterday to buy out the company's public stockholders for $10 a share and take the company private.

The company's stock dropped from a high for the year of $25 to under $4 per share after the Oct. 19 collapse. Yesterday the stock jumped $3 a share to $9.37 after the buyout offer. "It's really a move to offer the shareholders a chance to get out at a reasonable price," he said, adding that the Catalyst board has formed an independent committee to consider the offer.

Coben said that over the last three years Drexel raised $380 million for a variety of Catalyst projects, among them the Vidalia plant. About $300 million of the sum came from junk bonds and about $150 million was invested in the Louisiana facility, he said. Catalyst earned more than $6 million last year on revenue of $227 million.

Asked whether the ad might have misled viewers into thinking Drexel was financing the entire project, Coben said "the ad never said that." Drexel remains a possible source of additional financing for Catalyst and Dominion who now are partners in the project, he said. "It was always a a possible financing and it remains a possible financing alternative to go back to them," he said.

Drexel spokesman Steven Anreder yesterday said the ad never suggested that all the funds for the hydroelectric project were being provided by Drexel. "It just said we provided the capital to get this project going," Anreder said. "The only thing you can say is that the ad was not shot in Vidalia."

Drexel raised funds not for the project but for Catalyst, he said. Before Catalyst entered the picture, in the early 1980s, Salomon Bros. was retained to underwrite the project but it was never completed, perhaps because "there wasn't enough contractual volume for the electricity to assure the project would go forward," Anreder said. "What Catalyst did was underwrite part of the construction costs with its own capital and that allowed the banks to come in."

Dominion's investment could provide the cash to complete the project or give it the financial strength needed to provide other financing, either junk bonds, bank loans or other sources of borrowing.

Coben and Dominion officials yesterday said they viewed the project as highly profitable once complete.