##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 
 DYNEGY INC.
 DYNEGY HOLDINGS INC.
 (Exact name of registrant as specified in its charter)
 Entity
    
    Commission
File Number
    
    State of
Incorporation
    
    I.R.S. Employer
Identification No.Dynegy Inc.
    
    001-33443
    
    Delaware
    
    20-5653152Dynegy Holdings Inc.
    
    000-29311
    
    Delaware
    
    94-32484151000 Louisiana, Suite 5800Houston, Texas
    
    
    
    
    
    77002(Address of principal executive offices)
    
    
    
    
    
    (Zip Code)
 (713) 507-6400
(Registrants telephone number, including area code)
  Dynegy Inc.
    
    Yes þ No oDynegy Holdings Inc.
    
    Yes þ No o
  Large accelerated filer
    
    Accelerated filer
    
    Non-accelerated filer
    
    Smaller reporting company(Do not check if a smaller reporting company)Dynegy Inc.
    
    þ
    
    o
    
    o
    
    oDynegy Holdings Inc.
    
    o
    
    o
    
    þ
    
    o
  Dynegy Inc.
    
    Yes o No þDynegy Holdings Inc.
    
    Yes o No þ




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##### 



DYNEGY INC. and DYNEGY HOLDINGS INC.
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. FINANCIAL STATEMENTSDYNEGY INC. AND DYNEGY HOLDINGS INC.:Condensed Consolidated Balance SheetsDynegy Inc.:
March 31, 2008 and December 31, 2007
    
    
    4Condensed Consolidated Statements of OperationsDynegy Inc.:
For the three months ended March 31, 2008 and 2007
    
    
    5Condensed Consolidated Statements of Cash FlowsDynegy Inc.:
For the three months ended March 31, 2008 and 2007
    
    
    6Condensed Consolidated Statements of Comprehensive LossDynegy Inc.:
For the three months ended March 31, 2008 and 2007
    
    
    7Condensed Consolidated Balance SheetsDynegy Holdings Inc.:
March 31, 2008 and December 31, 2007
    
    
    8Condensed Consolidated Statements of OperationsDynegy Holdings Inc.:
For the three months ended March 31, 2008 and 2007
    
    
    9Condensed Consolidated Statements of Cash FlowsDynegy Holdings Inc.:
For the three months ended March 31, 2008 and 2007
    
    
    10Condensed Consolidated Statements of Comprehensive LossDynegy Holdings Inc.:
For the three months ended March 31, 2008 and 2007
    
    
    11Notes to Condensed Consolidated Financial Statements
    
    
    12Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    34Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    52Item 4. CONTROLS AND PROCEDURESDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    54PART II. OTHER INFORMATIONItem 1. LEGAL PROCEEDINGSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    55Item 1A. RISK FACTORSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    55Item 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDSDYNEGY INC..
    
    
    55Item 6. EXHIBITSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    56Exhibit 10.3Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 10.8Exhibit 10.9Exhibit 10.10Exhibit 10.11Exhibit 10.12Exhibit 10.13Exhibit 10.14Exhibit 10.15Exhibit 10.16Exhibit 10.17Exhibit 10.18Exhibit 10.19Exhibit 10.20Exhibit 10.21Exhibit 10.22Exhibit 10.23Exhibit 10.24Exhibit 10.25Exhibit 10.26Exhibit 10.27Exhibit 10.28Exhibit 10.29Exhibit 10.30Exhibit 10.31Exhibit 10.32Exhibit 10.33Exhibit 31.1Exhibit 31.1(a)Exhibit 31.2Exhibit 31.2(a)Exhibit 32.1Exhibit 32.1(a)Exhibit 32.2Exhibit 32.2(a)
  EXPLANATORY NOTE
   2




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##### Table of Contents



DEFINITIONS
  APB
    
    Accounting Principles BoardBTA
    
    Best technology availableCal ISO
    
    The California Independent System OperatorCARB
    
    California Air Resources BoardCDWR
    
    California Department of Water ResourcesCEC
    
    California Energy CommissionCFTC
    
    Commodity Futures Trading CommissionCO2
    
    Carbon DioxideCRM
    
    Our former customer risk management business segmentCUSA
    
    Chevron U.S.A. Inc., a wholly owned subsidiary of Chevron CorporationDHI
    
    Dynegy Holdings Inc., Dynegys primary financing subsidiaryDMG
    
    Dynegy Midwest Generation, Inc.DMSLP
    
    Dynegy Midstream Services L.P.EITF
    
    Emerging Issues Task ForceEPA
    
    Environmental Protection AgencyFASB
    
    Financial Accounting Standards BoardFERC
    
    Federal Energy Regulatory CommissionFIN
    
    FASB InterpretationGAAP
    
    Generally Accepted Accounting Principles of the United States of AmericaGEN
    
    Our power generation businessGEN-MW
    
    Our power generation business  Midwest segmentGEN-NE
    
    Our power generation business  Northeast segmentGEN-WE
    
    Our power generation business  West segmentICC
    
    Illinois Commerce CommissionIMA
    
    In-market asset availabilityISO
    
    Independent System OperatorLNG
    
    Liquefied natural gasMISO
    
    Midwest Independent Transmission Operator, Inc.MMBtu
    
    One million British thermal unitsMW
    
    MegawattsMWh
    
    Megawatt hourNPDES
    
    National Pollutant Discharge Elimination SystemNRG
    
    NRG Energy, Inc.NYSDEC
    
    New York State Department of Environmental ConservationPJM
    
    PJM Interconnection, LLCPPEA
    
    PPEA Holding Company LLCPUHCA
    
    Public Utility Holding Company Act of 1935, as amendedRGGI
    
    Regional Greenhouse Gas InitiativeSCEA
    
    Sandy Creek Energy Associates, LPSCH
    
    Sandy Creek Holdings LLCSEC
    
    U.S. Securities and Exchange CommissionSFAS
    
    Statement of Financial Accounting StandardsSPDES
    
    State Pollutant Discharge Elimination SystemVaR
    
    Value at RiskVIE
    
    Variable Interest Entity
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1FINANCIAL STATEMENTSDYNEGY INC. AND DYNEGY HOLDINGS INC.
 DYNEGY INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited) (in millions, except share data)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent AssetsCash and cash equivalents
    
    $
    429
    
    
    $
    328Restricted cash and investments
    
    
    113
    
    
    
    104Accounts receivable, net of allowance for doubtful accounts of $18 and $20, respectively
    
    
    383
    
    
    
    426Accounts receivable, affiliates
    
    
    1
    
    
    
    1Inventory
    
    
    185
    
    
    
    199Assets from risk-management activities
    
    
    1,751
    
    
    
    358Deferred income taxes
    
    
    117
    
    
    
    45Prepayments and other current assets
    
    
    209
    
    
    
    145Assets held for sale
    
    
    
    
    
    
    57Total Current Assets
    
    
    3,188
    
    
    
    1,663Property, Plant and Equipment
    
    
    10,796
    
    
    
    10,689Accumulated depreciation
    
    
    (1,736
    )
    
    
    (1,672
    )Property, Plant and Equipment, Net
    
    
    9,060
    
    
    
    9,017Other AssetsUnconsolidated investments
    
    
    71
    
    
    
    79Restricted cash and investments
    
    
    1,237
    
    
    
    1,221Assets from risk-management activities
    
    
    96
    
    
    
    55Goodwill
    
    
    438
    
    
    
    438Intangible assets
    
    
    481
    
    
    
    497Deferred income taxes
    
    
    5
    
    
    
    6Accounts receivable, affiliates
    
    
    4
    
    
    
    Other long-term assets
    
    
    243
    
    
    
    245Total Assets
    
    $
    14,823
    
    
    $
    13,221LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    298
    
    
    $
    292Accrued interest
    
    
    127
    
    
    
    56Accrued liabilities and other current liabilities
    
    
    154
    
    
    
    201Liabilities from risk-management activities
    
    
    2,030
    
    
    
    397Notes payable and current portion of long-term debt
    
    
    51
    
    
    
    51Liabilities held for sale
    
    
    
    
    
    
    2Total Current Liabilities
    
    
    2,660
    
    
    
    999Long-term debt
    
    
    5,789
    
    
    
    5,739Long-term debt, affiliates
    
    
    200
    
    
    
    200Long-Term Debt
    
    
    5,989
    
    
    
    5,939Other LiabilitiesLiabilities from risk-management activities
    
    
    220
    
    
    
    116Deferred income taxes
    
    
    1,222
    
    
    
    1,250Other long-term liabilities
    
    
    371
    
    
    
    388Total Liabilities
    
    
    10,462
    
    
    
    8,692Minority Interest
    
    
    11
    
    
    
    23Commitments and Contingencies (Note 9)Stockholders EquityClass A Common Stock, $0.01 par value, 2,100,000,000 shares authorized at March 31, 2008 and December 31,
2007; 504,491,825 and 502,819,794 shares issued and outstanding at March 31, 2008 and December 31, 2007,
respectively
    
    
    5
    
    
    
    5Class B Common Stock, $0.01 par value, 850,000,000 shares authorized at March 31, 2008 and December 31,
2007; 340,000,000 shares issued and outstanding at March 31, 2008 and December 31, 2007
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    6,468
    
    
    
    6,463Subscriptions receivable
    
    
    (3
    )
    
    
    (5
    )Accumulated other comprehensive loss, net of tax
    
    
    (36
    )
    
    
    (25
    )Accumulated deficit
    
    
    (2,016
    )
    
    
    (1,864
    )Treasury stock, at cost, 2,449,440 and 2,449,259 shares at March 31, 2008 and December 31, 2007, respectively
    
    
    (71
    )
    
    
    (71
    )Total Stockholders Equity
    
    
    4,350
    
    
    
    4,506Total Liabilities and Stockholders Equity
    
    $
    14,823
    
    
    $
    13,221
   4




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##### Table of Contents



DYNEGY INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited) (in millions, except per share data)
 Three Months EndedMarch 31,2008
    
    
    2007Revenues
    
    $
    774
    
    
    $
    505Cost of sales
    
    
    (680
    )
    
    
    (240
    )Operating and maintenance expense, exclusive of depreciation and amortization shown separately below
    
    
    (112
    )
    
    
    (79
    )Depreciation and amortization expense
    
    
    (93
    )
    
    
    (52
    )General and administrative expenses
    
    
    (39
    )
    
    
    (53
    )Operating income (loss)
    
    
    (150
    )
    
    
    81Losses from unconsolidated investments
    
    
    (9
    )
    
    
    Interest expense
    
    
    (109
    )
    
    
    (67
    )Other income and expense, net
    
    
    20
    
    
    
    8Income (loss) from continuing operations before income taxes
    
    
    (248
    )
    
    
    22Income tax benefit (expense) (Note 11)
    
    
    96
    
    
    
    (6
    )Income (loss) from continuing operations
    
    
    (152
    )
    
    
    16Loss from discontinued operations, net of tax benefit of $1 and $1, respectively
(Notes 3 and 11)
    
    
    
    
    
    
    (2
    )Net income (loss)
    
    $
    (152
    )
    
    $
    14Earnings (Loss) Per Share (Note 8):Basic earnings (loss) per share:Income (loss) from continuing operations
    
    $
    (0.18
    )
    
    $
    0.03Loss from discontinued operations
    
    
    
    
    
    
    Basic earnings (loss) per share
    
    $
    (0.18
    )
    
    $
    0.03Diluted earnings (loss) per share:Income (loss) from continuing operations
    
    $
    (0.18
    )
    
    $
    0.03Loss from discontinued operations
    
    
    
    
    
    
    Diluted earnings (loss) per share
    
    $
    (0.18
    )
    
    $
    0.03Basic shares outstanding
    
    
    836
    
    
    
    496Diluted shares outstanding
    
    
    838
    
    
    
    498
   5




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##### Table of Contents



DYNEGY INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited) (in millions)
 Three Months EndedMarch 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (152
    )
    
    $
    14Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and amortization
    
    
    94
    
    
    
    57Losses from unconsolidated investments, net of cash distributions
    
    
    9
    
    
    
    Risk-management activities
    
    
    280
    
    
    
    3Deferred income taxes
    
    
    (95
    )
    
    
    3Legal and settlement charges
    
    
    
    
    
    
    17Other
    
    
    
    
    
    
    10Changes in working capital:Accounts receivable
    
    
    36
    
    
    
    (29
    )Inventory
    
    
    14
    
    
    
    18Prepayments and other assets
    
    
    (55
    )
    
    
    (13
    )Accounts payable and accrued liabilities
    
    
    18
    
    
    
    (37
    )Changes in non-current assets
    
    
    (7
    )
    
    
    (1
    )Changes in non-current liabilities
    
    
    4
    
    
    
    2Net cash provided by operating activities
    
    
    146
    
    
    
    44CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (131
    )
    
    
    (34
    )Unconsolidated investments
    
    
    (6
    )
    
    
    Proceeds from asset sales, net
    
    
    57
    
    
    
    Business acquisitions, net of cash acquired
    
    
    
    
    
    
    (1
    )(Increase) decrease in restricted cash and restricted investments
    
    
    (25
    )
    
    
    9Other investing
    
    
    10
    
    
    
    Net cash used in investing activities
    
    
    (95
    )
    
    
    (26
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings, net
    
    
    51
    
    
    
    Repayments of long-term borrowings
    
    
    
    
    
    
    (19
    )Other financing, net
    
    
    (1
    )
    
    
    (1
    )Net cash provided by (used in) financing activities
    
    
    50
    
    
    
    (20
    )Net increase (decrease) in cash and cash equivalents
    
    
    101
    
    
    
    (2
    )Cash and cash equivalents, beginning of period
    
    
    328
    
    
    
    371Cash and cash equivalents, end of period
    
    $
    429
    
    
    $
    369Other non-cash investing activity:Noncash construction expenditures
    
    $
    9
    
    
    $
    
   6




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##### Table of Contents



DYNEGY INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (unaudited) (in millions)
 Three Months EndedMarch 31,2008
    
    
    2007Net income (loss)
    
    $
    (152
    )
    
    $
    14Cash flow hedging activities, net:Unrealized mark-to-market losses arising during period, net
    
    
    (26
    )
    
    
    (59
    )Reclassification of mark-to-market (gains) losses to earnings, net
    
    
    8
    
    
    
    (15
    )Changes in cash flow hedging activities, net (net of tax benefit
of $5 and $44, respectively)
    
    
    (18
    )
    
    
    (74
    )Allocation to minority interest
    
    
    11
    
    
    
    Total cash flow hedging activities
    
    
    (7
    )
    
    
    (74
    )Amortization of unrecognized prior service cost and actuarial loss
(net of tax benefit (expense) of zero and zero, respectively)
    
    
    
    
    
    
    1Net unrealized loss on securities, net (net of tax benefit of $3 and
zero, respectively)
    
    
    (4
    )
    
    
    Other comprehensive loss, net of tax
    
    
    (11
    )
    
    
    (73
    )Comprehensive loss
    
    $
    (163
    )
    
    $
    (59
    )
   7




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited) (in millions)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent AssetsCash and cash equivalents
    
    $
    396
    
    
    $
    292Restricted cash and investments
    
    
    113
    
    
    
    104Accounts receivable, net of allowance for doubtful accounts of $15 and $15, respectively
    
    
    385
    
    
    
    428Accounts receivable, affiliates
    
    
    1
    
    
    
    1Inventory
    
    
    185
    
    
    
    199Assets from risk-management activities
    
    
    1,751
    
    
    
    358Deferred income taxes
    
    
    99
    
    
    
    30Prepayments and other current assets
    
    
    209
    
    
    
    145Assets held for sale
    
    
    
    
    
    
    57Total Current Assets
    
    
    3,139
    
    
    
    1,614Property, Plant and Equipment
    
    
    10,796
    
    
    
    10,689Accumulated depreciation
    
    
    (1,736
    )
    
    
    (1,672
    )Property, Plant and Equipment, Net
    
    
    9,060
    
    
    
    9,017Other AssetsUnconsolidated investments
    
    
    8
    
    
    
    18Restricted cash and investments
    
    
    1,237
    
    
    
    1,221Assets from risk-management activities
    
    
    96
    
    
    
    55Goodwill
    
    
    438
    
    
    
    438Intangible assets
    
    
    481
    
    
    
    497Deferred income taxes
    
    
    5
    
    
    
    6Accounts receivable, affiliates
    
    
    4
    
    
    
    Other long-term assets
    
    
    241
    
    
    
    241Total Assets
    
    $
    14,709
    
    
    $
    13,107LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    298
    
    
    $
    291Accrued interest
    
    
    127
    
    
    
    56Accrued liabilities and other current liabilities
    
    
    155
    
    
    
    202Liabilities from risk-management activities
    
    
    2,030
    
    
    
    397Notes payable and current portion of long-term debt
    
    
    51
    
    
    
    51Liabilities held for sale
    
    
    
    
    
    
    2Total Current Liabilities
    
    
    2,661
    
    
    
    999Long-term debt
    
    
    5,789
    
    
    
    5,739Long-term debt, affiliates
    
    
    200
    
    
    
    200Long-Term Debt
    
    
    5,989
    
    
    
    5,939Other LiabilitiesLiabilities from risk-management activities
    
    
    220
    
    
    
    116Deferred income taxes
    
    
    1,023
    
    
    
    1,052Other long-term liabilities
    
    
    367
    
    
    
    381Total Liabilities
    
    
    10,260
    
    
    
    8,487Minority Interest
    
    
    11
    
    
    
    23Commitments and Contingencies (Note 9)Stockholders EquityCapital Stock, $1 par value, 1,000 shares authorized at March 31, 2008 and December 31, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    5,684
    
    
    
    5,684Affiliate receivable
    
    
    (820
    )
    
    
    (825
    )Accumulated other comprehensive loss, net of tax
    
    
    (36
    )
    
    
    (25
    )Accumulated deficit
    
    
    (390
    )
    
    
    (237
    )Total Stockholders Equity
    
    
    4,438
    
    
    
    4,597Total Liabilities and Stockholders Equity
    
    $
    14,709
    
    
    $
    13,107
   8




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited) (in millions)
 Three Months EndedMarch 31,2008
    
    
    2007Revenues
    
    $
    774
    
    
    $
    505Cost of sales
    
    
    (680
    )
    
    
    (240
    )Operating and maintenance expense, exclusive of depreciation and amortization shown separately below
    
    
    (112
    )
    
    
    (79
    )Depreciation and amortization expense
    
    
    (93
    )
    
    
    (52
    )General and administrative expenses
    
    
    (39
    )
    
    
    (36
    )Operating income (loss)
    
    
    (150
    )
    
    
    98Losses from unconsolidated investments
    
    
    (5
    )
    
    
    Interest expense
    
    
    (109
    )
    
    
    (67
    )Other income and expense, net
    
    
    20
    
    
    
    4Income (loss) from continuing operations before income taxes
    
    
    (244
    )
    
    
    35Income tax benefit (expense) (Note 11)
    
    
    91
    
    
    
    (11
    )Income (loss) from continuing operations
    
    
    (153
    )
    
    
    24Loss from discontinued operations, net of tax benefit of $1 and $1, respectively
(Notes 3 and 11)
    
    
    
    
    
    
    (2
    )Net income (loss)
    
    $
    (153
    )
    
    $
    22
   9




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited) (in millions)
 Three Months EndedMarch 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (153
    )
    
    $
    22Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and amortization
    
    
    94
    
    
    
    57Earnings from unconsolidated investments, net of cash distributions
    
    
    5
    
    
    
    Risk-management activities
    
    
    280
    
    
    
    3Deferred income taxes
    
    
    (90
    )
    
    
    9Other
    
    
    (1
    )
    
    
    9Changes in working capital:Accounts receivable
    
    
    36
    
    
    
    (29
    )Inventory
    
    
    14
    
    
    
    18Prepayments and other assets
    
    
    (55
    )
    
    
    (13
    )Accounts payable and accrued liabilities
    
    
    19
    
    
    
    (35
    )Changes in non-current assets
    
    
    (6
    )
    
    
    (1
    )Changes in non-current liabilities
    
    
    3
    
    
    
    3Net cash provided by operating activities
    
    
    146
    
    
    
    43CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (131
    )
    
    
    (34
    )Proceeds from asset sales, net
    
    
    57
    
    
    
    (Increase) decrease in restricted cash and restricted investments
    
    
    (25
    )
    
    
    9Affiliate transactions
    
    
    1
    
    
    
    (8
    )Other investing
    
    
    6
    
    
    
    Net cash used in investing activities
    
    
    (92
    )
    
    
    (33
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings, net
    
    
    51
    
    
    
    Repayments of long-term borrowings
    
    
    
    
    
    
    (19
    )Dividend to affiliate
    
    
    
    
    
    
    (50
    )Other financing, net
    
    
    (1
    )
    
    
    (1
    )Net cash provided by (used in) financing activities
    
    
    50
    
    
    
    (70
    )Net increase (decrease) in cash and cash equivalents
    
    
    104
    
    
    
    (60
    )Cash and cash equivalents, beginning of period
    
    
    292
    
    
    
    242Cash and cash equivalents, end of period
    
    $
    396
    
    
    $
    182Other non-cash investing activity:Noncash construction expenditures
    
    $
    9
    
    
    $
    
   10




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (unaudited) (in millions)
 Three Months EndedMarch 31,2008
    
    
    2007Net income (loss)
    
    $
    (153
    )
    
    $
    22Cash flow hedging activities, net:Unrealized mark-to-market losses arising during period, net
    
    
    (26
    )
    
    
    (59
    )Reclassification of mark-to-market (gains) losses to earnings, net
    
    
    8
    
    
    
    (15
    )Changes in cash flow hedging activities, net (net of tax benefit
of $5 and $44, respectively)
    
    
    (18
    )
    
    
    (74
    )Allocation to minority interest
    
    
    11
    
    
    
    Total cash flow hedging activities
    
    
    (7
    )
    
    
    (74
    )Amortization of unrecognized prior service cost and actuarial loss
(net of tax benefit (expense) of zero and zero, respectively)
    
    
    
    
    
    
    1Net unrealized loss on securities, net (net of tax benefit of $3 and
zero, respectively)
    
    
    (4
    )
    
    
    Other comprehensive loss, net of tax
    
    
    (11
    )
    
    
    (73
    )Comprehensive loss
    
    $
    (164
    )
    
    $
    (51
    )
   11




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Note 1Accounting Policies
 Basis of Presentation
   Accounting Principles Adopted
 SFAS No. 157.
 SFAS No. 159.
  12




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Accounting Principles Not Yet Adopted
 SFAS No. 141(R).
 SFAS No. 160.
 SFAS No. 161.
 Note 2Acquisitions and Contributions
 LS Power Business Combination.
  13




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
     Cash
    
    $
    16Restricted cash and investments (including $37 million current)
    
    
    91Accounts receivable
    
    
    52Inventory
    
    
    37Assets from risk management activities (including $11 million current)
    
    
    37Prepaids and other current assets
    
    
    12Property, plant and equipment
    
    
    4,223Intangible assets (including $9 million current)
    
    
    224Goodwill
    
    
    486Unconsolidated investments
    
    
    83Other
    
    
    35Total assets acquired
    
    $
    5,296Current liabilities and accrued liabilities
    
    $
    (92
    )Liabilities from risk management activities (including $14 million current)
    
    
    (75
    )Long-term debt (including $32 million current)
    
    
    (1,898
    )Deferred income taxes
    
    
    (627
    )Other
    
    
    (96
    )Minority interest
    
    
    22Total liabilities and minority interest assumed
    
    $
    (2,766
    )Net assets acquired
    
    $
    2,530
  14




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
   Dynegy Inc.
    
    
    Dynegy Holdings Inc.Three Months Ended
    
    
    Three Months EndedMarch 31, 2007
    
    
    March 31, 2007Actual
    
    
    Pro Forma
    
    
    Actual
    
    
    Pro Forma(in millions, except per share amounts)Revenue
    
    $
    505
    
    
    $
    794
    
    
    $
    505
    
    
    $
    794Income (loss) before cumulative effect of a change
in accounting principal
    
    
    14
    
    
    
    (34
    )
    
    
    22
    
    
    
    (23
    )Net income (loss) applicable to common stockholders
    
    
    14
    
    
    
    (34
    )
    
    
    22
    
    
    
    (23
    )Basic and diluted earnings (loss) per share before
cumulative effect of accounting change
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    
    N/A
    
    
    
    N/ABasic and diluted earnings (loss) per share
    
    
    0.03
    
    
    
    (0.04
    )
    
    
    N/A
    
    
    
    N/A
  Sithe Assets Contribution.
   15




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Note 3Discontinued Operations
 CoGen Lyondell.
  Calcasieu.
  Summary.
 Three Months Ended March 31, 2008Loss on sale before taxes
    
    $
    (1
    )Loss on sale after taxes
    
    
    Three Months Ended March 31, 2007Revenues
    
    $
    69Loss from operations before taxes
    
    
    (3
    )Loss from operations after taxes
    
    
    (2
    )
 Note 4Risk Management Activities, Derivatives and Financial Instruments
   16




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Cash Flow Hedges.
    Fair Value Hedges.
 Fair Value Measurements.
   17




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
  
    
    Level 1  Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which transactions for
the asset or liability occur in sufficient frequency and volume to provide pricing
information on an ongoing basis. Level 1 primarily consists of financial instruments
such as exchange-traded derivatives, listed equities and U.S. government treasury
securities.
    
    Level 2  Pricing inputs are other than quoted prices in active markets included in
Level 1, which are either directly or indirectly observable as of the reporting date.
Level 2 includes those financial instruments that are valued using models or other
valuation methodologies. These models are primarily industry-standard models that
consider various assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual prices for the underlying
instruments, as well as other relevant economic measures. Substantially all of these
assumptions are observable in the marketplace throughout the full term of the instrument,
can be derived from observable data or are supported by observable levels at which
transactions are executed in the marketplace. Instruments in this category include
non-exchange-traded derivatives such as over the counter forwards, options and repurchase
agreements.
    
    Level 3  Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed methodologies
that result in managements best estimate of fair value. Level 3 instruments include
those that may be more structured or otherwise tailored to our needs as well as financial
transmission rights. At each balance sheet date, we perform an analysis of all
instruments subject to SFAS No. 157 and include in Level 3 all of those whose fair value
is based on significant unobservable inputs.
  18




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
  Fair Value as of March 31, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in millions)Assets:Assets from
risk
management
activities
    
    $
    
    
    
    $
    1,835
    
    
    $
    12
    
    
    $
    1,847Other
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Total
    
    $
    
    
    
    $
    1,849
    
    
    $
    12
    
    
    $
    1,861Liabilities:Liabilities
from risk
management
activities
    
    $
    
    
    
    $
    2,180
    
    
    $
    70
    
    
    $
    2,250Total
    
    $
    
    
    
    $
    2,180
    
    
    $
    70
    
    
    $
    2,250
    19




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
  2008(in millions)Balance at December 31, 2007
    
    $
    (16
    )Realized and unrealized gains (losses)
    
    
    (42
    )Balance at March 31, 2008
    
    $
    (58
    )Change in unrealized gains (losses) relating to instruments
still held as of March 31, 2008
    
    $
    (22
    )
   Note 5Accumulated Other Comprehensive Loss
  March 31,
    
    
    December 31,2008
    
    
    2007(in millions)Cash flow hedging activities, net
    
    $
    (46
    )
    
    $
    (39
    )Foreign currency translation adjustment
    
    
    27
    
    
    
    27Unrecognized prior service cost and actuarial loss
    
    
    (25
    )
    
    
    (25
    )Available for sale securities
    
    
    8
    
    
    
    12Accumulated other comprehensive loss, net of tax
    
    $
    (36
    )
    
    $
    (25
    )
 Note 6Variable Interest Entities
 Hydroelectric Generation Facilities. Form 10-K
  20




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 PPEA Holding Company LLC.
 DLS Power Holdings and DLS Power Development.
 Sandy Creek.
   21




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Note 7Related Party Transactions
 Equity Investments.
 Other.
 Note 8Dynegys Earnings (Loss) Per Share
   Three Months EndedMarch 31,2008
    
    
    2007(in millions, except pershare amounts)Income (loss) from continuing operations for basic
and diluted earnings (loss) per share
    
    $
    (152
    )
    
    $
    16Basic weighted-average shares
    
    
    836
    
    
    
    496Effect of dilutive securities:Stock options and restricted stock
    
    
    2
    
    
    
    2Diluted weighted-average shares
    
    
    838
    
    
    
    498Earnings (loss) per share from continuing operations:Basic
    
    $
    (0.18
    )
    
    $
    0.03Diluted (1)
    
    $
    (0.18
    )
    
    $
    0.03
 
 (1)
    
    When an entity has a net loss from continuing operations, SFAS No. 128,
Earnings per Share, prohibits the inclusion of potential common shares in the
computation of diluted per-share amounts. Accordingly, Dynegy has utilized the basic
shares outstanding amount to calculate both basic and diluted loss per share for the
three months ended March 31, 2008. Note 9Commitments and Contingencies
 Legal Proceedings
   22




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Gas Index Pricing Litigation.
 
    
    In October 2007, we, on behalf of ourselves and our former joint venture affiliate
West Coast Power, entered into a confidential memorandum of understanding to settle the
fourteen cases comprising the California-based gas index litigation. In February 2008, a
formal settlement agreement was executed and funding occurred shortly thereafter.
Dismissals with prejudice were entered by the court in March 2008. The settlement is
without admission of wrongdoing, and we continue to deny plaintiffs allegations.
    
    In February 2008, the United States District Court in Las Vegas, Nevada granted
defendants motion for summary judgment in a Colorado class action which had been
transferred to Nevada through the multi-district litigation process thereby dismissing
the case and all of plaintiffs claims. Plaintiffs have moved for reconsideration of the
dismissal.
    
    The remaining six cases, three of which seek class certification, are also pending in
the Nevada federal district court. Five of the cases were transferred through
multi-district litigation from other states, including Kansas, Wisconsin, Missouri and
Illinois. All of the cases contain similar claims  that individually and in
conjunction with other energy companies, we engaged in an illegal scheme to inflate
natural gas prices by providing false information to natural gas index publications. The
complaints rely heavily on prior FERC and CFTC investigations into and reports concerning
index manipulation in the energy industry. The lawsuits seek actual and punitive
damages, restitution and/or expenses.
  California Market Litigation.
 Nevada Power Arbitration.
  23




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
  New York Attorney General Subpoena.
 Illinova Arbitration.
 Danskammer State Pollutant Discharge Elimination System Permit.
   24




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Roseton State Pollutant Discharge Elimination System Permit.
  Moss Landing National Pollutant Discharge Elimination System Permit.
   Native Village of Kivalina and City of Kivalina v. ExxonMobil Corporation, et al.
  25




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Ordinary Course Litigation.
 Regulatory Matters
  Illinois Resource Procurement.
 Mercury Emissions.
 FERC Market-Based Rate Authority.
 Guarantees and Indemnifications
   26




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 West Coast Power Indemnities.
 Targa Indemnities.
 Illinois Power Indemnities.
 Other Indemnities.
  27




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Note 10Employee Compensation, Savings and Pension Plans
  Components of Net Periodic Benefit Cost.
 Pension Benefits
    
    
    Other BenefitsThree Months Ended March 31,2008

    
    
    2007
    
    
    2008
    
    
    2007(in millions)Service cost benefits earned during period
    
    $
    3
    
    
    $
    2
    
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    3
    
    
    
    3
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    3
    
    
    $
    3
    
    
    $
    2
    
    
    $
    2Additional cost due to curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net periodic benefit cost
    
    $
    3
    
    
    $
    3
    
    
    $
    2
    
    
    $
    2
 Contributions.
 Note 11Income Taxes
 Effective Tax Rate.
 Three Months EndedMarch 31,2008
    
    
    2007(in millions, except rates)Income tax benefit (expense)
    
    $
    96
    
    
    $
    (6
    )Effective tax rate
    
    
    39
    %
    
    
    27
    %
   28




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
  Three Months EndedMarch 31,2008
    
    
    2007(in millions, except rates)Income tax benefit (expense)
    
    $
    91
    
    
    $
    (11
    )Effective tax rate
    
    
    37
    %
    
    
    31
    %
  Note 12Segment Information
   29




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
  Dynegys Segment Data for the Three Months Ended March 31, 2008
(in millions)
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    319
    
    
    $
    205
    
    
    $
    179
    
    
    $
    (1
    )
    
    $
    702Other
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    72Total revenues
    
    $
    319
    
    
    $
    205
    
    
    $
    251
    
    
    $
    (1
    )
    
    $
    774Depreciation and amortization
    
    $
    (53
    )
    
    $
    (24
    )
    
    $
    (13
    )
    
    $
    (3
    )
    
    $
    (93
    )Operating loss
    
    $
    (59
    )
    
    $
    (46
    )
    
    $
    (21
    )
    
    $
    (24
    )
    
    $
    (150
    )Losses from unconsolidated
investments
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (4
    )
    
    
    (9
    )Other items, net
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    14
    
    
    
    20Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )Loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (248
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (152
    )Identifiable assets:Domestic
    
    $
    7,650
    
    
    $
    3,778
    
    
    $
    1,958
    
    
    $
    1,380
    
    
    $
    14,766Other
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    11
    
    
    
    57Total
    
    $
    7,650
    
    
    $
    3,778
    
    
    $
    2,004
    
    
    $
    1,391
    
    
    $
    14,823Unconsolidated investments
    
    $
    
    
    
    $
    8
    
    
    $
    
    
    
    $
    63
    
    
    $
    71Capital expenditures and
investments in unconsolidated
affiliates
    
    $
    (115
    )
    
    $
    (3
    )
    
    $
    (10
    )
    
    $
    (9
    )
    
    $
    (137
    )
  30




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 Dynegys Segment Data for the Three Months Ended March 31, 2007
(in millions)
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    272
    
    
    $
    
    
    
    $
    200
    
    
    $
    9
    
    
    $
    481Other
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    24Total revenues
    
    $
    272
    
    
    $
    
    
    
    $
    224
    
    
    $
    9
    
    
    $
    505Depreciation and amortization
    
    $
    (42
    )
    
    $
    (1
    )
    
    $
    (6
    )
    
    $
    (3
    )
    
    $
    (52
    )Operating income (loss)
    
    $
    100
    
    
    $
    (2
    )
    
    $
    42
    
    
    $
    (59
    )
    
    $
    81Other items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )Income from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Income from continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14Identifiable assets:Domestic
    
    $
    4,577
    
    
    $
    593
    
    
    $
    1,329
    
    
    $
    589
    
    
    $
    7,088Other
    
    
    
    
    
    
    7
    
    
    
    14
    
    
    
    98
    
    
    
    119Total
    
    $
    4,577
    
    
    $
    600
    
    
    $
    1,343
    
    
    $
    687
    
    
    $
    7,207Capital expenditures
    
    $
    (23
    )
    
    $
    (5
    )
    
    $
    (3
    )
    
    $
    (3
    )
    
    $
    (34
    )
  31




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DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
  DHIs Segment Data for the Three Months Ended March 31, 2008
(in millions)
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    319
    
    
    $
    205
    
    
    $
    179
    
    
    $
    (1
    )
    
    $
    702Other
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    72Total revenues
    
    $
    319
    
    
    $
    205
    
    
    $
    251
    
    
    $
    (1
    )
    
    $
    774Depreciation and amortization
    
    $
    (53
    )
    
    $
    (24
    )
    
    $
    (13
    )
    
    $
    (3
    )
    
    $
    (93
    )Operating loss
    
    $
    (59
    )
    
    $
    (46
    )
    
    $
    (21
    )
    
    $
    (24
    )
    
    $
    (150
    )Losses from unconsolidated
investments
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Other items, net
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    14
    
    
    
    20Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )Loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (153
    )Identifiable assets:Domestic
    
    $
    7,650
    
    
    $
    3,778
    
    
    $
    1,958
    
    
    $
    1,266
    
    
    $
    14,652Other
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    11
    
    
    
    57Total
    
    $
    7,650
    
    
    $
    3,778
    
    
    $
    2,004
    
    
    $
    1,277
    
    
    $
    14,709Unconsolidated investments
    
    $
    
    
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    8Capital expenditures
    
    $
    (115
    )
    
    $
    (3
    )
    
    $
    (10
    )
    
    $
    (3
    )
    
    $
    (131
    )
  32




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended March 31, 2008 and 2007
 DHIs Segment Data for the Three Months Ended March 31, 2007
(in millions)
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    272
    
    
    $
    
    
    
    $
    200
    
    
    $
    9
    
    
    $
    481Other
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    24Total revenues
    
    $
    272
    
    
    $
    
    
    
    $
    224
    
    
    $
    9
    
    
    $
    505Depreciation and amortization
    
    $
    (42
    )
    
    $
    (1
    )
    
    $
    (6
    )
    
    $
    (3
    )
    
    $
    (52
    )Operating income (loss)
    
    $
    100
    
    
    $
    (2
    )
    
    $
    42
    
    
    $
    (42
    )
    
    $
    98Other items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )Income from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    22Identifiable assets:Domestic
    
    $
    4,577
    
    
    $
    598
    
    
    $
    1,329
    
    
    $
    1,001
    
    
    $
    7,505Other
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    98
    
    
    
    112Total
    
    $
    4,577
    
    
    $
    598
    
    
    $
    1,343
    
    
    $
    1,099
    
    
    $
    7,617Capital expenditures
    
    $
    (23
    )
    
    $
    (5
    )
    
    $
    (3
    )
    
    $
    (3
    )
    
    $
    (34
    )
  33




---



##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 For the Interim Periods Ended March 31, 2008 and 2007
 
 Item 2MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSDYNEGY
INC. AND DYNEGY HOLDINGS INC.
 The following discussion should be read together with the unaudited condensed consolidated
financial statements and the notes thereto included in this report and with the audited
consolidated financial statements and the notes thereto included in our Forms 10-K.
    LIQUIDITY AND CAPITAL RESOURCES
 Overview
   34




---



##### Table of Contents



Collateral Postings
  May 2,
    
    
    March 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007(in millions)By Business:Generation
    
    $
    1,480
    
    
    $
    1,235
    
    
    $
    1,130Other
    
    
    193
    
    
    
    193
    
    
    
    202Total
    
    $
    1,673
    
    
    $
    1,428
    
    
    $
    1,332By Type:Cash (1)

    
    $
    100
    
    
    $
    84
    
    
    $
    53Letters of Credit
    
    
    1,573
    
    
    
    1,344
    
    
    
    1,279Total
    
    $
    1,673
    
    
    $
    1,428
    
    
    $
    1,332
 
 (1)
    
    Cash collateral consists of either cash deposits to cover physical deliveries
or liabilities on mark-to-market positions or prepayments for commodities or services
that are in advance of normal payment terms.   Disclosure of Contractual Obligations and Contingent Financial Commitments
   Dividends on Common Stock
  Internal Liquidity Sources
   35




---



##### Table of Contents



Current Liquidity.
 May 2,
    
    
    March 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007(in millions)Revolver capacity
    
$
    1,150
    
    
    $
    1,150
    
    
    $
    1,150Borrowings against revolver capacity
    
 
    
    


    
    
    
    
    
    
    Term letter of credit capacity, net
of required reserves
    
 
    825
    


    
    
    825
    
    
    
    825Plum Point and Sandy Creek letter
of credit capacity
    
 
    425
    


    
    
    425
    
    
    
    425Outstanding letters of credit
    
 
    (1,573
    )


    
    
    (1,344
    )
    
    
    (1,279
    )Unused capacity
    
 
    827
    


    
    
    1,056
    
    
    
    1,121CashDHI
    
 
    317
    (1)


    
    
    396
    (1)
    
    
    292
    (1)Total available liquidityDHI
    
 
    1,144
    


    
    
    1,452
    
    
    
    1,413CashDynegy
    
 
    28
    


    
    
    33
    
    
    
    36Total available liquidityDynegy
    
 $
    1,172
    


    
    $
    1,485
    
    
    $
    1,449
 
 (1)
    
    The May 2, 2008, March 31, 2008 and December 31, 2007 amounts include
approximately $14 million, $13 million and $5 million, respectively, of cash that remains in
Canadian subsidiaries. Cash Flows from Operations.
    Cash on Hand.
   36




---



##### Table of Contents



External Liquidity Sources
  Asset Sale Proceeds.
  Capital-Raising Transactions.
  Capital Allocation.
   37




---



##### Table of Contents



RESULTS OF OPERATIONSDYNEGY INC. and DYNEGY HOLDINGS INC.
 Overview.
  Summary Financial Information.
 Dynegys Results of Operations for the Three Months Ended March 31, 2008
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalRevenues
    
    $
    319
    
    
    $
    205
    
    
    $
    251
    
    
    $
    (1
    )
    
    $
    774Cost of sales
    
    
    (279
    )
    
    
    (197
    )
    
    
    (213
    )
    
    
    9
    
    
    
    (680
    )Operating and maintenance expense,
exclusive of depreciation and
amortization expense shown separately
below
    
    
    (46
    )
    
    
    (30
    )
    
    
    (46
    )
    
    
    10
    
    
    
    (112
    )Depreciation and amortization expense.
    
    
    (53
    )
    
    
    (24
    )
    
    
    (13
    )
    
    
    (3
    )
    
    
    (93
    )General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    (39
    )Operating loss
    
    $
    (59
    )
    
    $
    (46
    )
    
    $
    (21
    )
    
    $
    (24
    )
    
    $
    (150
    )Losses from unconsolidated investments
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (4
    )
    
    
    (9
    )Other items, net
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    14
    
    
    
    20Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )Loss from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (248
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (152
    )
  38




---



##### Table of Contents



Dynegys Results of Operations for the Three Months Ended March 31, 2007
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalRevenues
    
    $
    272
    
    
    $
    
    
    
    $
    224
    
    
    $
    9
    
    
    $
    505Cost of sales
    
    
    (90
    )
    
    
    (1
    )
    
    
    (139
    )
    
    
    (10
    )
    
    
    (240
    )Operating and maintenance expense,
exclusive of depreciation and
amortization expense shown
separately below
    
    
    (40
    )
    
    
    
    
    
    
    (37
    )
    
    
    (2
    )
    
    
    (79
    )Depreciation and amortization expense
    
    
    (42
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    (3
    )
    
    
    (52
    )General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    (53
    )Operating income (loss)
    
    $
    100
    
    
    $
    (2
    )
    
    $
    42
    
    
    $
    (59
    )
    
    $
    81Other items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )Income from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Loss from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14
  DHIs Results of Operations for the Three Months Ended March 31, 2008
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalRevenues
    
    $
    319
    
    
    $
    205
    
    
    $
    251
    
    
    $
    (1
    )
    
    $
    774Cost of sales
    
    
    (279
    )
    
    
    (197
    )
    
    
    (213
    )
    
    
    9
    
    
    
    (680
    )Operating and maintenance expense,
exclusive of depreciation and
amortization expense shown separately
below
    
    
    (46
    )
    
    
    (30
    )
    
    
    (46
    )
    
    
    10
    
    
    
    (112
    )Depreciation and amortization expense
    
    
    (53
    )
    
    
    (24
    )
    
    
    (13
    )
    
    
    (3
    )
    
    
    (93
    )General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    (39
    )Operating loss
    
    $
    (59
    )
    
    $
    (46
    )
    
    $
    (21
    )
    
    $
    (24
    )
    
    $
    (150
    )Losses from unconsolidated investments
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Other items, net
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    14
    
    
    
    20Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )Loss from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (153
    )
  39




---



##### Table of Contents



DHIs Results of Operations for the Three Months Ended March 31, 2007
 Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    TotalRevenues
    
    $
    272
    
    
    $
    
    
    
    $
    224
    
    
    $
    9
    
    
    $
    505Cost of sales
    
    
    (90
    )
    
    
    (1
    )
    
    
    (139
    )
    
    
    (10
    )
    
    
    (240
    )Operating and maintenance expense,
exclusive of depreciation and
amortization expense shown
separately below
    
    
    (40
    )
    
    
    
    
    
    
    (37
    )
    
    
    (2
    )
    
    
    (79
    )Depreciation and amortization expense
    
    
    (42
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    (3
    )
    
    
    (52
    )General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Operating income (loss)
    
    $
    100
    
    
    $
    (2
    )
    
    $
    42
    
    
    $
    (42
    )
    
    $
    98Other items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )Income from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Loss from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    22
  40




---



##### Table of Contents



Three Months EndedMarch 31,2008
    
    
    2007GEN-MWMillion Megawatt Hours Generated
    
    
    5.9
    
    
    
    5.7In Market Availability for Coal Fired Facilities (1)
    
    
    82
    %
    
    
    89
    %Average Capacity Factor for Combined Cycle Facilities (2)
    
    
    10
    %
    
    
    Average Actual On-Peak Market Power Prices ($/MWh) (3):Cinergy (Cin Hub)
    
    $
    68
    
    
    $
    56Commonwealth Edison (NI Hub)
    
    $
    68
    
    
    $
    54PJM West
    
    $
    79
    
    
    $
    65Average Market Spark Spreads ($/MWh) (4):PJM West
    
    $
    9
    
    
    $
    6GEN-WEMillion Megawatt Hours Generated (5) (6)
    
    
    2.4
    
    
    
    0.1Average Capacity Factor for Combined Cycle Facilities (2)
    
    
    37
    %
    
    
    Average Actual On-Peak Market Power Prices ($/MWh) (3):North Path
15 (NP 15)
    
    $
    80
    
    
    $
    60Palo Verde
    
    $
    70
    
    
    $
    55Average Market Spark Spreads ($/MWh) (4):North Path
15 (NP 15)
    
    $
    18
    
    
    $
    8Palo Verde
    
    $
    9
    
    
    $
    5GEN-NEMillion Megawatt Hours Generated
    
    
    1.9
    
    
    
    2.0In Market Availability for Coal Fired Facilities (1)
    
    
    94
    %
    
    
    89
    %Average Capacity Factor for Combined Cycle Facilities (2)
    
    
    24
    %
    
    
    30
    %Average Actual On-Peak Market Power Prices ($/MWh) (3):New YorkZone G
    
    $
    97
    
    
    $
    85New YorkZone A
    
    $
    68
    
    
    $
    63Mass Hub
    
    $
    90
    
    
    $
    80Average Market Spark Spreads ($/MWh) (4):New YorkZone A
    
    $
    4
    
    
    $
    11Mass Hub
    
    $
    19
    
    
    $
    20Fuel Oil
    
    $
    (35
    )
    
    $
    9Average natural gas priceHenry Hub ($/MMBtu) (7)
    
    $
    8.58
    
    
    $
    7.16
 
 (1)
    
    Reflects the percentage of generation available during periods when market
prices are such that these units could be profitably dispatched.(2)
    
    Reflects actual production as a percentage of available capacity.(3)
    
    Reflects the average of day-ahead quoted prices for the periods presented and
does not necessarily reflect prices realized by the Company.(4)
    
    Reflects the simple average of the spark spread available to a 7.0 MMBtu/MWh
heat rate generator selling power at day-ahead prices and buying delivered natural gas
or fuel oil at a daily cash market price and does not reflect spark spreads available to the Company.(5)
    
    Includes our ownership percentage in the MWh generated by our GEN-WE
investment in the Black Mountain power generation facility for the three months ended March 31, 2008 and
2007, respectively.(6)
    
    Excludes approximately 0.7 million MWh generated by our CoGen Lyondell power generation facility, which we sold in August 2007, for the three months ended
March 31, 2007 and less than 0.1 million MWh generated by our Calcasieu power generation
facility, which we sold on March 31, 2008, for the three months ended March 31,
2008 and 2007, respectively.(7)
    
    Reflects the average of daily quoted prices for the periods presented and does not reflect costs incurred by the Company.  41




---



##### Table of Contents



Three Months Ended March 31, 2007Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    Other
    
    
    Total(in millions)Legal and settlement charges
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (17
    )
    
    $
    (17
    )Total
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (17
    )
    
    $
    (17
    )
  Operating Income (Loss)
   Power GenerationMidwest Segment.
  
    
    Mark-to-market losses  GEN-MWs results for the three months ended March 31, 2008
included mark-to-market losses of $193 million related to forward sales, compared to $19
million of mark-to-market losses for the three months ended March 31, 2007. Of the $193
million in 2008 mark-to-market losses, $155 million related to positions that settled or
will settle in 2008, and the remaining $38 million related to positions that will settle
in 2009 and beyond.
  
    
    The addition of the Midwest plants acquired through the Merger  Generated volumes
were 5.9 million MWh for the three months ended March 31, 2008, up from 5.7 million MWh
for the three months ended March 31, 2007. The volume increase was primarily driven by
the Kendall and Ontelaunee plants acquired on April 2, 2007, which offset a decrease in
volumes caused by forced outages at two of our coal-fired facilities. Kendall and
Ontelaunee provided results of $22 million for the three months ended March 31, 2008,
exclusive of mark-to-market losses discussed above; and
    
    Increased market prices  The average actual on-peak prices in the Cin Hub pricing
region increased from $56 per MWh for the three months ended March 31, 2007 to $68 per
MWh for the three months ended March 31, 2008.
   42




---



##### Table of Contents



Power GenerationWest Segment.
  
    
    Mark-to-market losses  GEN-WEs results for the three months ended March 31, 2008
included mark-to-market losses of $47 million, compared to $2 million of mark-to-market
losses for the three months ended March 31, 2007. Of the $47 million in 2008
mark-to-market losses, $44 million related to positions that settled or will settle in
2008, and the remaining $3 million related to positions that will settle in 2009 and
beyond.
  
    
    The addition of the West plants acquired through the Merger  Generated volumes were
2.4 million MWh for the three months ended March 31, 2008, up from 0.1 million MWh for
the three months ended March 31, 2007. The volume increase was primarily driven by the
West plants acquired on April 2, 2007, which provided total results of $25 million for
the three months ended March 31, 2008, exclusive of mark-to-market losses discussed
above. Results for the first quarter 2008 were negatively impacted by a forced outage.
  Power GenerationNortheast Segment.
  
    
    Mark-to-market losses  GEN-NEs results for the three months ended March 31, 2008
included mark-to-market losses of $44 million related to forward sales, compared to
losses of $2 million for the three months ended March 31, 2007. Of the $44 million in
2008 mark-to-market losses, $25 million related to positions that settled or will settle
in 2008, and the remaining $19 million related to positions that will settle in 2009 and
beyond;
    
    Decreased spark spreads  Although on peak market prices in New York Zone G and Zone A
increased by 14 percent and eight percent, respectively, spark spreads contracted as a
result of higher fuel prices. Average market spark spreads decreased 64 percent and five
percent for New York Zone A and Mass Hub, respectively; and
    
    Lower volumes  In spite of the addition of the Northeast plants acquired through the
Merger on April 2, 2007, generated volumes decreased by five percent, from 2.0 million
MWh for the three months ended March 31, 2007 to 1.9 million MWh for the three months
ended March 31, 2008. The volumes added by the new Northeast plants were more than
offset by a decrease in generated volumes at our Roseton and Independence facilities,
which were affected by higher fuel prices and decreased spark spreads.
  
    
    The addition of the Northeast plants acquired through the Merger  The Bridgeport and
Casco Bay plants acquired on April 2, 2007 provided total results of $9 million for the
three months ended March 31, 2008, exclusive of mark-to-market losses discussed above.
  43




---



##### Table of Contents



Other.
      Losses from Unconsolidated Investments
   Other Items, Net
    44




---



##### Table of Contents



Interest Expense
  Income Tax Benefit (Expense)
    Discontinued Operations
 Loss From Discontinued Operations Before Taxes
  Income Tax Benefit From Discontinued Operations
  Outlook
    45




---



##### Table of Contents



GEN-MW.
   Planning Year
    
    Net Capacity(in MWs)2008-2009
    
    1,3002009-2010
    
    2,6502010-2011
    
    2,750
  GEN-WE .
 GEN-NE.
  46




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##### Table of Contents



Regulatory Matters
 Climate Change and Greenhouse Gases. 2 2 2 2 2 2
 GEN-WE.
  GEN-NE.
 2 2 2 2 2 2
  47




---



##### Table of Contents



2
  Cash Flow Disclosures
 Operating Cash Flow
 Dynegy.
  DHI.
  Capital Expenditures and Investing Activities
 Dynegy.
  48




---



##### Table of Contents



DHI.
  Financing Activities
 Dynegy.
  DHI.
   49




---



##### Table of Contents



RISK-MANAGEMENT DISCLOSURES
  As of and for theThree MonthsEnded March 31,2008(in millions)Balance Sheet Risk-Management AccountsFair value of portfolio at January 1, 2008
    
    $
    (100
    )Risk-management losses recognized through the income statement in the period, net
    
    
    (271
    )Cash paid related to risk-management contracts settled in the period, net
    
    
    1Changes in fair value as a result of a change in valuation technique (1)
    
    
    Non-cash adjustments and other (2)
    
    
    (33
    )Fair value of portfolio at March 31, 2008
    
    $
    (403
    )
 
 (1)
    
    Our modeling methodology has been consistently applied.(2)
    
    This amount consists of changes in value associated with fair value and cash flow hedges on
debt.  Risk-Management Asset and Liability Disclosures.
 Mark-to-Market Value of Net Risk-Management Liabilities (1)
 Total
    
    
    2008 (2)
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter(in millions)March 31, 2008
    
    $
    (335
    )
    
    $
    (242
    )
    
    $
    (85
    )
    
    $
    (15
    )
    
    $
    2
    
    
    $
    1
    
    
    $
    4December 31, 2007
    
    
    (66
    )
    
    
    (30
    )
    
    
    (29
    )
    
    
    (12
    )
    
    
    1
    
    
    
    1
    
    
    
    3Increase (decrease) (3)
    
    $
    (269
    )
    
    $
    (212
    )
    
    $
    (56
    )
    
    $
    (3
    )
    
    $
    1
    
    
    $
    
    
    
    $
    1
 
 (1)
    
    The table reflects the fair value of our net risk-management liability position, which
considers time value, credit, price and other reserves necessary to determine fair value.
These amounts exclude the fair value associated with certain derivative instruments
designated as hedges. The net risk-management liabilities at March 31, 2008 of $403
million on the unaudited condensed consolidated balance sheets include the $335 million
herein as well as hedging instruments. Cash flows have been segregated between periods
based on the delivery date required in the individual contracts.(2)
    
    Amounts represent April 1 to December 31, 2008 values in the March 31, 2008 row and
January 1 to December 31, 2008 values in the December 31, 2007 row.(3)
    
    The increase in the net risk management liability is due to an increase in the volume
of outstanding positions during the three months ended March 31, 2008 as well as a
significant increase in the prices associated with these positions.  50




---



##### Table of Contents



Cash Flow Components of Net Risk-Management Liabilities
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedMarch 31,
    
    
    December 31,
    
    
    Total2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter(in millions)March 31, 2008 (1)
    
    $
    (6
    )
    
    $
    (225
    )
    
    $
    (231
    )
    
    $
    (80
    )
    
    $
    (14
    )
    
    $
    1
    
    
    $
    1
    
    
    $
    5December 31, 2007
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    (27
    )
    
    
    (12
    )
    
    
    2
    
    
    
    1
    
    
    
    5Increase (decrease)
    
    
    
    
    
    
    
    
    
    $
    (203
    )
    
    $
    (53
    )
    
    $
    (2
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    
 
 (1)
    
    The cash flow values for 2008 reflect realized cash flows for the three months ended March
31, 2008 and anticipated undiscounted cash inflows and outflows by contract based on the tenor
of individual contract position for the remaining periods. These anticipated undiscounted
cash flows have not been adjusted for counterparty credit or other reserves. These amounts
exclude the cash flows associated with certain derivative instruments designated as hedges.
  Net Fair Value of Risk-Management Portfolio
 Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter(in millions)Market quotations (1)
    
    $
    (344
    )
    
    $
    (278
    )
    
    $
    (68
    )
    
    $
    (5
    )
    
    $
    2
    
    
    $
    1
    
    
    $
    4Prices based on models
    
    
    (59
    )
    
    
    (32
    )
    
    
    (17
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    Total (2)
    
    $
    (403
    )
    
    $
    (310
    )
    
    $
    (85
    )
    
    $
    (15
    )
    
    $
    2
    
    
    $
    1
    
    
    $
    4
 
 (1)
    
    Prices obtained from actively traded, liquid markets for commodities other than natural
gas positions. All natural gas positions for all periods are contained in this line based
on available market quotations.(2)
    
    The market quotations and prices based on models categorization differs from the SFAS
No. 157 categories of Level 1, Level 2 and Level 3 due to the application of the different
methodologies. Please see Note 4Risk Management Activities, Derivatives and Financial
InstrumentsFair Value Measurements for further discussion.
 UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
  
    
    beliefs about commodity pricing and generation volumes;
    
    sufficiency of and access to coal, fuel oil and natural gas inventories and
transportation;
    
    beliefs and assumptions about market competition, fuel supply, generation capacity and
regional supply and demand characteristics of the wholesale power generation market;
    
    strategies to capture opportunities presented by rising commodity prices and
strategies to manage our exposure to energy price volatility;
  51




---



##### Table of Contents




    
    beliefs and assumptions about weather, economic conditions and the demand for
electricity;
    
    expectations regarding environmental matters, including costs of compliance,
availability and adequacy of emission credits, and the impact of ongoing proceedings and
potential regulations, including those relating to climate change;
    
    projected operating or financial results, including anticipated cash flows from
operations, revenues and profitability;
    
    strategies to address our substantial leverage or to access the capital markets;
    
    beliefs and assumptions relating to liquidity;
    
    beliefs and expectations regarding financing, development and timing of any and all
joint venture projects;
    
    anticipated benefits of diversifying our operations;
    
    expectations regarding capital expenditures, interest expense and other payments;
    
    our focus on safety and our ability to efficiently operate our assets so as to
maximize our revenue generating opportunities and operating margins;
    
    beliefs about the outcome of legal, regulatory, administrative and legislative
matters;
    
    expectations and estimates regarding the Midwest consent decree and the associated
costs; and
    
    efforts to position our power generation business for future growth and pursuing and
executing acquisition, disposition or combination opportunities.
  RECENT ACCOUNTING PRONOUNCEMENTS
  CRITICAL ACCOUNTING POLICIES
  
 Item 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDYNEGY INC. AND DYNEGY HOLDINGS
INC.
  Value at Risk (VaR). TM
  52




---



##### Table of Contents



Daily and Average VaR for Risk-Management Portfolios
 March 31,
    
    
    December 31,2008
    
    
    2007(in millions)One day VaR95 percent confidence level
    
    $
    53
    
    
    $
    24One day VaR99 percent confidence level
    
    $
    75
    
    
    $
    35Average VaR for the year-to-date period95 percent confidence level
    
    $
    33
    
    
    $
    20
 Credit Risk.
 Credit Exposure Summary
 InvestmentGrade Quality(in millions)Type of Business:Financial institutions
    
    $
    156Utility and power generators
    
    
    35Total
    
    $
    191
 Interest Rate Risk.
 Derivative Contracts.
 Absolute Notional Contract Amounts
 March 31,
    
    
    December 31,2008
    
    
    2007Cash flow hedge interest rate swaps (in millions of U.S. dollars)
    
    $
    359
    
    
    $
    310Fixed interest rate paid on swaps (percent)
    
    
    5.32
    
    
    
    5.32Fair value hedge interest rate swaps (in millions of U.S. dollars)
    
    $
    25
    
    
    $
    25Fixed interest rate received on swaps (percent)
    
    
    5.70
    
    
    
    5.70Interest rate risk-management contract (in millions of U.S. dollars)
    
    $
    231
    
    
    $
    231Fixed interest rate paid (percent)
    
    
    5.35
    
    
    
    5.35Interest rate risk-management contract (in millions of U.S. dollars)
    
    $
    206
    
    
    $
    206Fixed interest rate received (percent)
    
    
    5.28
    
    
    
    5.28
  53




---



##### Table of Contents



Item 4CONTROLS AND PROCEDURESDYNEGY INC. AND DYNEGY HOLDINGS INC.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
   54




---



##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 
 PART II. OTHER INFORMATION
 
 Item 1LEGAL PROCEEDINGSDYNEGY INC. AND DYNEGY HOLDINGS INC.
  
 Item 1ARISK FACTORSDYNEGY INC. AND DYNEGY HOLDINGS INC.
  
 Item 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS DYNEGY INC.
  (d)Maximum(c)
    
    
    Number ofTotal Number of
    
    
    Shares thatShares Purchased
    
    
    May Yet Be(a)
    
    
    (b)
    
    
    as Part of
    
    
    PurchasedTotal Number
    
    
    Average
    
    
    Publicly
    
    
    Under theof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    ProgramsJanuary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/AFebruary
    
    
    181
    
    
    
    7.80
    
    
    
    
    
    
    
    N/AMarch
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/ATotal
    
    
    181
    
    
    
    7.80
    
    
    
    
    
    
    
    N/A
   55




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##### Table of Contents



Item 6EXHIBITSDYNEGY INC. AND DYNEGY HOLDINGS INC.
  ExhibitNumber
    
    Description10.1
    
    
    Dynegy Inc. Executive Severance Pay Plan, as amended and restated,
effective January 1, 2008 (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Dynegy Inc. filed on January 4, 2008,
File No. 001-33443).10.2
    
    
    Dynegy Inc. Executive Change in Control Severance Pay Plan effective
April 3, 2008 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Dynegy Inc. filed on April 8, 2008, File No.
001-33443).**10.3
    
    
    Dynegy Inc. Change in Control Severance Pay Plan effective April 3, 2008.10.4
    
    
    Dynegy Excise Tax Reimbursement Policy, effective January 1, 2008
(incorporated by reference to Exhibit 10.2 to the Current Report on Form
8-K of Dynegy Inc. filed on January 4, 2008, File No. 001-33443).**10.5
    
    
    Form of Non-Qualified Stock Option Award Agreement Between Dynegy Inc.,
all of its affiliates and Bruce A. Williamson.**10.6
    
    
    Form of Non-Qualified Stock Option Award Agreement Between Dynegy Inc.,
all of its affiliates and Jason Hochberg.**10.7
    
    
    Form of Restricted Stock Award Agreement between Dynegy Inc., all of its
affiliates and Bruce A. Williamson.**10.8
    
    
    Form of Restricted Stock Award Agreement between Dynegy Inc., all of its
affiliates and Jason Hochberg.**10.9
    
    
    Form of Performance Award Agreement between Dynegy Inc., all of its
affiliates and Bruce A. Williamson.**10.10
    
    
    Form of Performance Award Agreement between Dynegy Inc., all of its
affiliates and Jason Hochberg.**10.11
    
    
    Form of Non-Qualified Stock Option Award Agreement.**10.12
    
    
    Form of Restricted Stock Award Agreement (Managing Director and Above).**10.13
    
    
    Form of Restricted Stock Award Agreement (Directors and Below).**10.14
    
    
    Form of Performance Award Agreement.**10.15
    
    
    Twelfth Amendment to the Dynegy Inc. 401(K) Savings Plan.**10.16
    
    
    Thirteenth Amendment to the Dynegy Inc. 401(K) Savings Plan.**10.17
    
    
    Fourteenth Amendment to the Dynegy Inc. 401(K) Savings Plan.
  56




---



##### Table of Contents



ExhibitNumber
    
    Description**10.18
    
    
    Fifteenth Amendment to the Dynegy Inc. 401(K) Savings Plan**10.19
    
    
    Sixth Amendment to the Dynegy Northeast Generation, Inc. Savings Incentive Plan**10.20
    
    
    Seventh Amendment to the Dynegy Northeast Generation, Inc. Savings Incentive Plan**10.21
    
    
    Ninth Amendment to the Dynegy Midwest Generation, Inc. 401(K) Savings Plan**10.22
    
    
    Ninth Amendment to the Dynegy Midwest Generation, Inc. 401(K) Savings Plan for Employees
Covered Under a Collective Bargaining Agreement**10.23
    
    
    Ninth Amendment to the Extant, Inc. 401(K) Plan**10.24
    
    
    Tenth Amendment to the Extant, Inc. 401(K) Plan**10.25
    
    
    Tenth Amendment to the Dynegy Inc. Retirement Plan**10.26
    
    
    Eleventh Amendment to the Dynegy Inc. Retirement Plan**10.27
    
    
    Twelfth Amendment to the Dynegy Inc. Retirement Plan**10.28
    
    
    Thirteenth Amendment to the Dynegy Inc. Retirement Plan**10.29
    
    
    Fourteenth Amendment to the Dynegy Inc. Retirement Plan**10.30
    
    
    Seventh Amendment to the Dynegy Midwest Generation, Inc. Retirement Income Plan
for Employees Covered Under a Collective Bargaining Agreement**10.31
    
    
    Eighth Amendment to the Dynegy Northeast Generation, Inc. Retirement Income Plan**10.32
    
    
    Ninth Amendment to the Dynegy Northeast Generation, Inc. Retirement Income Plan**10.33
    
    
    Amended and Restated Dynegy Inc. Severance Pay Plan
  57




---



##### Table of Contents



ExhibitNumber
    
    Description**31.1
    
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.**31.1
    (a)
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.**31.2
    
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.**31.2
    (a)
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32.1
    
    
    Chief Executive Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.1
    (a)
    
    Chief Executive Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    
    Chief Financial Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    (a)
    
    Chief Financial Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 **
    
    Filed herewith.
    
    Pursuant to Securities and Exchange Commission Release No. 33-8238, this
certification will be treated as accompanying this report and not filed as part of
such report for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, or otherwise subject to the liability of Section 18 of
the Exchange Act, and this certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Exchange
Act.  58




---



##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 
 SIGNATURES
  DYNEGY INC.Date: May 8, 2008
    By:
    /s/   Holli C. NicholsHolli C. NicholsExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)DYNEGY HOLDINGS INC.Date: May 8, 2008
    By:

/s/
Holli C. NicholsHolli C. NicholsExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)  59




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Dynegy Inc. Executive Severance Pay Plan, as amended and restated,
effective January 1, 2008 (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Dynegy Inc. filed on January 4, 2008,
File No. 001-33443).10.2
    
    
    Dynegy Inc. Executive Change in Control Severance Pay Plan effective
April 3, 2008 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Dynegy Inc. filed on April 8, 2008, File No.
001-33443).**10.3
    
    
    Dynegy Inc. Change in Control Severance Pay Plan effective April 3, 2008.10.4
    
    
    Dynegy Excise Tax Reimbursement Policy, effective January 1, 2008
(incorporated by reference to Exhibit 10.2 to the Current Report on Form
8-K of Dynegy Inc. filed on January 4, 2008, File No. 001-33443).**10.5
    
    
    Form of Non-Qualified Stock Option Award Agreement Between Dynegy Inc.,
all of its affiliates and Bruce A. Williamson.**10.6
    
    
    Form of Non-Qualified Stock Option Award Agreement Between Dynegy Inc.,
all of its affiliates and Jason Hochberg.**10.7
    
    
    Form of Restricted Stock Award Agreement between Dynegy Inc., all of its
affiliates and Bruce A. Williamson.**10.8
    
    
    Form of Restricted Stock Award Agreement between Dynegy Inc., all of its
affiliates and Jason Hochberg.**10.9
    
    
    Form of Performance Award Agreement between Dynegy Inc., all of its
affiliates and Bruce A. Williamson.**10.10
    
    
    Form of Performance Award Agreement between Dynegy Inc., all of its
affiliates and Jason Hochberg.**10.11
    
    
    Form of Non-Qualified Stock Option Award Agreement.**10.12
    
    
    Form of Restricted Stock Award Agreement (Managing Director and Above).**10.13
    
    
    Form of Restricted Stock Award Agreement (Directors and Below).**10.14
    
    
    Form of Performance Award Agreement.**10.15
    
    
    Twelfth Amendment to the Dynegy Inc. 401(K) Savings Plan.**10.16
    
    
    Thirteenth Amendment to the Dynegy Inc. 401(K) Savings Plan.**10.17
    
    
    Fourteenth Amendment to the Dynegy Inc. 401(K) Savings Plan.
  60




---



##### Table of Contents



ExhibitNumber
    
    Description**10.18
    
    
    Fifteenth Amendment to the Dynegy Inc. 401(K) Savings Plan**10.19
    
    
    Sixth Amendment to the Dynegy Northeast Generation, Inc. Savings Incentive Plan**10.20
    
    
    Seventh Amendment to the Dynegy Northeast Generation, Inc. Savings Incentive Plan**10.21
    
    
    Ninth Amendment to the Dynegy Midwest Generation, Inc. 401(K) Savings Plan**10.22
    
    
    Ninth Amendment to the Dynegy Midwest Generation, Inc. 401(K) Savings Plan for Employees
Covered Under a Collective Bargaining Agreement**10.23
    
    
    Ninth Amendment to the Extant, Inc. 401(K) Plan**10.24
    
    
    Tenth Amendment to the Extant, Inc. 401(K) Plan**10.25
    
    
    Tenth Amendment to the Dynegy Inc. Retirement Plan**10.26
    
    
    Eleventh Amendment to the Dynegy Inc. Retirement Plan**10.27
    
    
    Twelfth Amendment to the Dynegy Inc. Retirement Plan**10.28
    
    
    Thirteenth Amendment to the Dynegy Inc. Retirement Plan**10.29
    
    
    Fourteenth Amendment to the Dynegy Inc. Retirement Plan**10.30
    
    
    Seventh Amendment to the Dynegy Midwest Generation, Inc. Retirement Income Plan
for Employees Covered Under a Collective Bargaining Agreement**10.31
    
    
    Eighth Amendment to the Dynegy Northeast Generation, Inc. Retirement Income Plan**10.32
    
    
    Ninth Amendment to the Dynegy Northeast Generation, Inc. Retirement Income Plan**10.33
    
    
    Amended and Restated Dynegy Inc. Severance Pay Plan
  61




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##### Table of Contents



ExhibitNumber
    
    Description**31.1
    
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.**31.1
    (a)
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.**31.2
    
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.**31.2
    (a)
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32.1
    
    
    Chief Executive Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.1
    (a)
    
    Chief Executive Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    
    Chief Financial Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    (a)
    
    Chief Financial Officer Certification Pursuant to 18 United States Code
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 **
    
    Filed herewith.
    
    Pursuant to Securities and Exchange Commission Release No. 33-8238, this
certification will be treated as accompanying this report and not filed as part of
such report for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, or otherwise subject to the liability of Section 18 of
the Exchange Act, and this certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Exchange
Act.  62