UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   FORM 10-Q/A
Amendment No. 1 x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934For the
 quarterly period ended March 31, 2008 ̈
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 5800
 Houston, Texas(Address of principal executive 
 offices)





77002(Zip Code) (713)
507-6400(Registrants telephone
number, including area code) Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Dynegy Inc.
Yes x No  ̈Dynegy Holdings Inc.
Yes x No  ̈ Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act. Large
 accelerated filer
Accelerated
 filer
Non-accelerated
 filer
 (Do not check if a smaller
 reporting company)
Smaller
 reporting companyDynegy Inc.
x
o
o
o Dynegy Holdings Inc.
o
o
x
o Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Dynegy Inc.
Yes  ̈ No
xDynegy Holdings Inc.
Yes  ̈ No
x Indicate the number of shares
outstanding of Dynegy Inc.s classes of common stock, as of the latest
practicable date: Class A common stock, $0.01 par value per share, 502,112,596
shares outstanding as of May 2, 2008; Class B common stock, $0.01 par value per
share, 340,000,000 shares outstanding as of May 2, 2008. All of Dynegy Holdings
Inc.s outstanding common stock is owned indirectly by Dynegy Inc. This combined Form 10-Q/A is
separately filed by Dynegy Inc. and Dynegy Holdings Inc. Information contained
herein relating to any individual registrant is filed by such registrant on its
own behalf. Each registrant makes no representation as to information relating
to a registrant other than itself.    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

5Condensed Consolidated Statements of Operations (Restated)Dynegy Inc.:
For the three months ended March 31, 2008 and 2007

6Condensed Consolidated Statements of Cash FlowsDynegy
 Inc.:
For the three months ended March 31, 2008 and 2007

7Condensed Consolidated Statements of Comprehensive
 LossDynegy Inc.:
For the three months ended March 31, 2008 and 2007

8Condensed Consolidated Balance SheetsDynegy Holdings
 Inc.:
March 31, 2008 and December 31, 2007

9Condensed Consolidated Statements of Operations (Restated)Dynegy Holdings Inc.:
For the three months ended March 31, 2008 and 2007

10Condensed Consolidated Statements of Cash FlowsDynegy
 Holdings Inc.:
For the three months ended March 31, 2008 and 2007

11Condensed Consolidated Statements of Comprehensive
 LossDynegy Holdings Inc.:
For the three months ended March 31, 2008 and 2007

12Notes to Condensed Consolidated Financial Statements

13Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONSDYNEGY INC. AND DYNEGY HOLDINGS
 INC.

36Item 4.
CONTROLS AND PROCEDURESDYNEGY INC. AND
 DYNEGY HOLDINGS INC.

55PART II. OTHER INFORMATIONItem 6.
EXHIBITSDYNEGY INC. AND DYNEGY HOLDINGS
 INC.

57DYNEGY INC. AND DYNEGY HOLDINGS INC. FORM 10-Q/AEXPLANATORY NOTE 1

Dynegy
Inc. and Dynegy Holdings Inc. are filing this Amendment No. 1 on Form 10-Q/A
(Amendment No. 1) to reflect the effect of a $229 million overstatement of
both revenues and cost of sales for the three months ended March 31, 2008, as
reported in our Quarterly Report on Form 10-Q for the period ended March 31,
2008, which was originally filed on May 8, 2008 (the Original Filing). The
restatement for the foregoing items had no effect on our previously reported
operating loss, net loss or loss per share for the three months ended March 31,
2008. These items are discussed in more detail in the Introductory Note to the
accompanying unaudited condensed consolidated financial statements beginning on
page 13. The following Items of the Original Filing are amended by this
Amendment No. 1:

Item 1.
Condensed Consolidated Financial StatementsItem 2.
Managements Discussion and Analysis of
 Financial Condition and Results of OperationsItem 4.
Controls and ProceduresUnaffected items have not
been repeated in this Amendment No. 1.

PLEASE
NOTE THAT THE INFORMATION CONTAINED IN THIS AMENDMENT NO. 1, INCLUDING THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO,
DOES NOT REFLECT EVENTS OCCURRING AFTER THE DATE OF THE

2

ORIGINAL FILING. SUCH EVENTS INCLUDE, AMONG OTHERS, THE
EVENTS DESCRIBED IN OUR CURRENT REPORTS ON FORM 8-K. FOR A DESCRIPTION OF THESE
EVENTS, PLEASE READ OUR REPORTS FILED SINCE MAY 8, 2008, INCLUDING OUR CURRENT
REPORTS ON FORM 8-K AND ANY AMENDMENTS THERETO.

EXPLANATORY NOTE 2

This
report includes the combined filing of Dynegy Inc. (Dynegy) and Dynegy
Holdings Inc. (DHI). DHI is the principal subsidiary of Dynegy, providing
nearly 100 percent of Dynegys total consolidated revenue for the three month
period ended March 31, 2008 and constituting nearly 100 percent of Dynegys
total consolidated asset base as of March 31, 2008 except for Dynegys 50
percent interest in DLS Power Holdings, LLC and DLS Power Development Company,
LLC. Unless the context indicates otherwise, throughout this report, the terms
the Company, we, us, our and ours are used to refer to both Dynegy
and DHI and their direct and indirect subsidiaries, including Dynegy Illinois
Inc. (Dynegy Illinois) before it became a wholly owned subsidiary of Dynegy
by way of the merger of Merger Sub Co., then Dynegys wholly owned subsidiary,
with and into Dynegy Illinois. Discussions or areas of this report that apply
only to Dynegy or DHI are clearly noted in such section.

3

DEFINITIONS

As used in this Form 10-Q/A, the abbreviations contained herein
have the
meanings set forth below.

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 Entity4

PART I. FINANCIAL
INFORMATION

Item 1FINANCIAL STATEMENTSDYNEGY INC. AND
DYNEGY HOLDINGS INC.

DYNEGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS 
See Introductory Note 
(unaudited) (in millions, except share data)

March 31,
 2008

December 31,
 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

$
13,221See the notes to condensed consolidated
financial statements.

5

DYNEGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
See Introductory Note
(unaudited) (in millions, except per share data)

Three Months Ended
 March 31,2008

2007(Restated)Revenues

$
545

$
505Cost of sales


(451
)

(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


498See the notes to condensed consolidated
financial statements.

6

DYNEGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS 
See Introductory Note
(unaudited) (in millions)

Three Months Ended 
 March 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

$
See the notes to condensed consolidated
financial statements.

7

DYNEGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS 
See Introductory Note
(unaudited) (in millions)

Three Months Ended
 March 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
)See the notes to condensed consolidated
financial statements.

8

DYNEGY HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS 
See Introductory Note
(unaudited) (in millions)

March 31,
 2008

December 31,
 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

$
13,107See the notes to condensed consolidated
financial statements.

9

DYNEGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONSSee Introductory Note
(unaudited) (in millions)

Three Months Ended
 March 31,2008

2007(Restated)Revenues

$
545

$
505Cost of sales


(451
)

(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
)
$
22See the notes to condensed consolidated
financial statements.

10

DYNEGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
See Introductory Note (unaudited) (in millions)

Three Months Ended
 March 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

$
See the notes to condensed consolidated
financial statements.

11

DYNEGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
See Introductory Note
(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
)See the notes to condensed consolidated
financial statements.

12

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

PLEASE NOTE THAT THESE FINANCIAL STATEMENTS
AND THE NOTES THERETO DO NOT REFLECT EVENTS OCCURRING AFTER MAY 8, 2008 (THE
DATE OF THE ORIGINAL FILING). FOR A DESCRIPTION OF THESE EVENTS, PLEASE READ
OUR EXCHANGE ACT REPORTS FILED SINCE MAY 8, 2008, INCLUDING OUR CURRENT REPORTS
ON FORM 8-K AND ANY AMENDMENTS THERETO.

Introductory Note

On
July 25, 2008, we filed a Current Report on Form 8-K announcing a restatement
of our previously issued financial statements included in our Quarterly Report
on Form 10-Q for the period ended March 31, 2008. The restatement relates to a
$229 million overstatement of both revenues and cost of sales. The financial
information in this amendment has been revised to reflect the effects of such
restatement.

In
accordance with EITF Issue 03-11, Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to FASB Statement No. 133 and Not Held for
Trading Purposes as Defined in Issue No. 02-3, we present all mark-to-market
gains and losses on energy trading contracts net in the income statement. In
order to conform to this accounting standard, on a quarterly basis, we
calculate our net mark-to-market gains and losses on energy trading contracts
and adjust our revenues and cost of sales accordingly. During the first quarter
2008, we inadvertently excluded certain amounts from the calculation.

The
restatement of our previously issued financial statements did not change our
previously reported operating loss, net loss or loss per share for the three
months ended March 31, 2008, nor did the restatement change our unaudited
condensed consolidated statements of cash flows or our unaudited condensed
consolidated statements of comprehensive loss for the three months ended March
31, 2008 or our unaudited condensed consolidated balance sheet as of March 31,
2008.

The
table below summarizes the effects to both Dynegy and DHI of the correction to
revenues and cost of sales (in millions):

For the
 Three Months Ended March 31, 2008Power
 GenerationGEN-MW

GEN-WE

GEN-NE

Other

TotalRevenuesAs
previously reported in Original Filing

$
319

$
205

$
251

$
(1
)
$
774Adjustment


(155
)

(74
)







(229
)As
restated

$
164

$
131

$
251

$
(1
)
$
545Cost of SalesAs
previously reported in Original Filing

$
(279
)
$
(197
)
$
(213
)
$
9

$
(680
)Adjustment


155


74








229As
restated

$
(124
)
$
(123
)
$
(213
)
$
9

$
(451
)13

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Note 1Accounting Policies

Basis
of Presentation

The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to interim financial reporting as
prescribed by the SEC. The year-end condensed consolidated balance sheet data
was derived from audited financial statements but does not include all
disclosures required by accounting principles generally accepted in the United
States of America. These interim financial statements should be read together
with the consolidated financial statements and notes thereto included in
Dynegys and DHIs Form 10-K for the year ended December 31, 2007 filed on
February 28, 2008, which we refer to as each registrants Form 10-K.

The
unaudited condensed consolidated financial statements contained in this report
include all material adjustments of a normal and recurring nature that, in the
opinion of management, are necessary for a fair statement of the results for
the interim periods. The results of operations for the interim periods
presented in this Form 10-Q/A are not necessarily indicative of the results to
be expected for the full year or any other interim period due to seasonal
fluctuations in demand for our energy products and services, changes in
commodity prices, timing of maintenance and other expenditures and other
factors. The preparation of the unaudited condensed consolidated financial
statements in conformity with GAAP requires management to make informed
estimates and judgments that affect our reported financial position and results
of operations. These estimates and judgments also impact the nature and extent
of disclosure, if any, of our contingent liabilities based on currently
available information. We review significant estimates and judgments affecting
our consolidated financial statements on a recurring basis and record the
effect of any necessary adjustments. Uncertainties with respect to such
estimates and judgments are inherent in the preparation of financial
statements. Estimates and judgments are used in, among other things, (i)
developing fair value assumptions, including estimates of future cash flows and
discount rates, (ii) analyzing tangible and intangible assets for possible
impairment, (iii) estimating the useful lives of our assets, (iv) assessing
future tax exposure and the realization of tax assets, (v) determining amounts
to accrue for contingencies, guarantees and indemnifications, (vi) estimating
various factors used to value our pension assets and liabilities and (vii)
determining the primary beneficiary of certain VIEs from a set of related
parties. Actual results could differ materially from any such estimates.
Certain reclassifications have been made to prior period amounts in order to
conform to current year presentation.

Accounting
Principles Adopted

SFAS No. 157. On
September 15, 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS No. 157). Please read Note 4Risk Management Activities, Derivatives
and Financial Instruments for further discussion.

SFAS No. 159. On
February 15, 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159
permits entities to choose to measure eligible items at fair value at specified
election dates. A business entity will report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each
subsequent reporting date. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having
to apply complex hedge accounting provisions. We adopted SFAS No. 159 on
January 1, 2008 but have not elected the fair value option to measure eligible
items. Accordingly, this statement had no impact on our financial statements.

14

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Accounting
Principles Not Yet Adopted

SFAS No. 141(R).
On December 4, 2007, the FASB issued SFAS No. 141(R), Business Combinations
(SFAS No. 141(R)). SFAS No. 141(R) requires the acquiring entity in a
business combination to recognize the assets acquired and liabilities assumed
in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires
the acquirer to disclose to investors and other users all of the information
they need to evaluate and understand the nature and financial effect of the
business combination. SFAS No. 141(R) is effective for fiscal years beginning
on or after December 15, 2008. We are currently evaluating the impact of this
statement on our financial statements.

SFAS No. 160. On
December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS No. 160).
SFAS No. 160 requires ownership interests in subsidiaries held by parties other
than the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but separate from
the parents equity; the amount of consolidated net income attributable to the
parent and to the noncontrolling interest be clearly identified and presented
on the face of the consolidated statement of income; changes in a parents
ownership interest while the parent retains its controlling financial interest
in its subsidiary be accounted for consistently; and any retained
noncontrolling equity investment in the former subsidiary be initially measured
at fair value. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. We are currently evaluating the impact of this statement on
our financial statements.

SFAS No. 161. On
March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS No. 161). SFAS No. 161 is meant to
improve transparency about the location and amounts of derivative instruments
in an entitys financial statements; how derivative instruments and related
hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended; and how derivative instruments
and related hedged items affect an entitys financial position, financial
performance and cash flows. SFAS No. 161 requires disclosure of the fair values
of derivative instruments and their gains and losses in a tabular format. It
also provides more information about an entitys liquidity by requiring
disclosure of derivative features that are credit riskrelated and it requires
cross-referencing within footnotes to enable financial statement users to
locate important information about derivative instruments. SFAS No. 161 is
effective for fiscal years beginning on or after November 15, 2008. We are
currently evaluating the impact of this statement on our financial statements.

Note 2Acquisitions and Contributions

LS
Power Business Combination.
On April 2, 2007, Dynegy acquired entities that owned ten power plants, a power
plant under construction (the Contributed Entities) and 50 percent interests
in DLS Power Holdings, LLC (DLS Power Holdings), a development joint venture,
and DLS Power Development Company, LLC (DLS Power Development) from LSP Gen
Investors, L.P., LS Power Partners, L.P., LS Power Equity Partners PIE I, L.P.,
LS Power Equity Partners, L.P. and LS Power Associates, L.P. (the Merger).
The aggregate purchase price was comprised of (i) $100 million cash, (ii) 340
million shares of the Class B common stock of Dynegy, (iii) the issuance of a
promissory note in the aggregate principal amount of $275 million (the Note)
(which was simultaneously issued and repaid in full without interest or
prepayment penalty), (iv) the issuance of an additional $70 million of
project-related debt (the Griffith Debt) (which was simultaneously issued and
repaid in full without interest or prepayment penalty) via an indirect wholly
owned subsidiary, and (v) transaction costs of approximately $52 million,
approximately $8 million of which were paid in 2006. The Class B common stock
issued by Dynegy was valued at $5.98 per share, which represents the average
closing price of Dynegys common stock on the New York Stock Exchange for the
two days prior to, including, and two days subsequent to the September 15, 2006
public announcement of the Merger, or approximately $2,033 million. Dynegy
funded the cash payment and the

15

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

repayment of
the Note and the Griffith Debt using cash on hand and borrowings by DHI (and
subsequent permitted distributions to Dynegy) of (i) an aggregate $275 million
under the revolving portion of our Fifth Amended and Restated Credit Facility
and (ii) an aggregate $70 million under a senior secured term loan facility.
Please see Note 15DebtFifth Amended and Restated Credit Facility in Dynegys
and DHIs Form 10-K for discussion of DHIs borrowings. We paid a premium over
the fair value of the net tangible and identified intangible assets acquired
due to the (i) scale and diversity of assets acquired in key regions of the
United States; (ii) financial benefits of such assets; and (iii) proven nature
of the asset development platform that was subsequently contributed to DLS
Power Holdings and DLS Power Development.

In
connection with the completion of the Merger, Dynegy contributed to Dynegy
Illinois its interest in the Contributed Entities. Following such contribution,
Dynegy Illinois contributed to DHI its interest in the Contributed Entities
and, as a result, the Contributed Entities are subsidiaries of DHI.
Accordingly, all of the entities acquired in the Merger are included within DHI
with the exception of Dynegys 50 percent interests in DLS Power Holdings and
DLS Power Development, which are directly owned by Dynegy.

The
application of purchase accounting under SFAS No. 141, Business Combinations,
(SFAS No. 141) required that the total purchase price be allocated to the fair
value of assets acquired and liabilities assumed based on their fair values at
the acquisition date, with amounts exceeding the fair values being recorded as
goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). The allocation process includes an analysis of
acquired fixed assets, contracts, and contingencies to identify and record the
fair value of all assets acquired and liabilities assumed. Dynegys allocation
of the purchase price to specific assets and liabilities was based upon
customary valuation procedures and techniques.

The
following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition (in millions):

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

$
2,53016

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Included
in Other liabilities was an intangible liability of $35 million in GEN-MW
primarily related to a contract held by LSP Kendall Holding LLC, one of the
entities acquired by Dynegy. LSP Kendall Holding LLC was party to a power
tolling agreement with another of our subsidiaries. This power tolling
agreement had a fair value of approximately $31 million as of April 2, 2007,
representing an intangible liability from the perspective of LSP Kendall
Holding LLC. Upon completion of the Merger, this power tolling agreement was
effectively settled, which resulted in a $31 million second quarter 2007 gain
equal to the fair value of this contract, in accordance with EITF Issue 04-1,
Accounting for Pre-existing Contractual Relationships Between the Parties to a
Purchase Business Combination.

Dynegys
and DHIs results of operations include the results of the acquired entities
for the period beginning April 2, 2007. The following table presents unaudited
pro forma information for 2007, as if the acquisition had occurred on January
1, 2007:

Dynegy Inc.

Dynegy Holdings Inc.Three Months Ended
 March 31, 2007

Three Months Ended
 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/AThese
unaudited pro forma results, based on assumptions deemed appropriate by
management, have been prepared for informational purposes only and are not
necessarily indicative of Dynegys and DHIs results for the three months ended
March 31, 2007 if the Merger had occurred on January 1, 2007. Pro forma
adjustments to the results of operations include the effects on depreciation
and amortization, interest expense, interest income and income taxes. The
unaudited pro forma condensed consolidated financial statements reflect the
Merger in accordance with SFAS No. 141 and SFAS No. 142.

Sithe Assets Contribution.
On January 31, 2005, Dynegy acquired, and subsequently contributed to DHI in
April 2007, 100 percent of the outstanding common shares of ExRes SHC, Inc.
(ExRes), the parent company of Sithe Energies, Inc. (Sithe Energies) and
Sithe/Independence Power Partners, L.P. (Independence). The results of the
operations of ExRes have been included in Dynegys consolidated financial
statements since January 31, 2005. Through this acquisition, Dynegy acquired
the 1,064 MW Independence power generation facility located near Scriba, New
York, as well as natural gas-fired merchant facilities in New York and
hydroelectric generation facilities in Pennsylvania (the Sithe Assets).

In
April 2007, Dynegy Illinois contributed to DHI all of its interest in New York
Holdings Inc. (New York Holdings), together with its indirect interest in the
subsidiaries of New York Holdings. New York Holdings, together with its wholly
owned subsidiaries, owns the Sithe Assets. The Sithe Assets primarily consist
of the Independence power generation facility. This contribution was accounted
for as a transaction between entities under common control. As such, the assets
and liabilities of New York Holdings were recorded by DHI at Dynegys

17

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

historical
cost on Dynegys date of acquisition, January 31, 2005. In addition, DHIs
historical financial statements have been adjusted in all periods presented to
reflect the contribution as though DHI had owned New York Holdings beginning
January 31, 2005.

Note 3Discontinued Operations

CoGen Lyondell. On
August 1, 2007, we completed the sale of the CoGen Lyondell power generation
facility for approximately $470 million to EnergyCo, LLC (EnergyCo), a joint
venture between PNM Resources and a subsidiary of Cascade Investment, LLC.

In
accordance with SFAS No. 144, we discontinued depreciation and amortization of
CoGen Lyondells property, plant and equipment during the second quarter 2007.
Depreciation and amortization expense related to CoGen Lyondell totaled
approximately $4 million in the three month period ended March 31, 2007. Also
pursuant to SFAS No. 144, we are reporting the results of CoGen Lyondells
operations in discontinued operations for all periods presented.

Calcasieu. On
March 31, 2008, we completed the sale of the Calcasieu power generation
facility to Entergy Gulf States, Inc. (Entergy) for approximately $56
million, net of transaction costs.

In
accordance with SFAS No. 144, we discontinued depreciation and amortization of
Calcasieus property, plant and equipment during the first quarter 2007.
Depreciation and amortization expense related to Calcasieu totaled zero and
less than a million dollars in the three month periods ended March 31, 2008 and
2007, respectively. Also pursuant to SFAS No. 144, we are reporting the results
of Calcasieus operations in discontinued operations for all periods presented.

Summary. The
following table summarizes information related to both Dynegys and DHIs
discontinued operations (all of which is included in our GEN-WE segment) (in
millions):

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

The
nature of our business necessarily involves market and financial risks.
Specifically, we are exposed to commodity price variability related to our
power generation business. Our commercial team manages these commodity price
risks by entering into financial instrument contracts in an attempt to mitigate
or eliminate these various risks. These risks and our strategy for mitigating
them are more fully described in Note 6Risk Management Activities and
Financial Instruments of Dynegys and DHIs Form 10-K. Consistent with our
commodity risk management policy, our commercial team also uses a limited
amount of financial instruments to capture the benefit of fluctuations in
market prices in the geographic regions where our assets operate.

Cash Flow Hedges.
We enter into financial derivative instruments that qualify, and that we may
elect to designate, as cash flow hedges.

18

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Interest
rate swaps have been used to convert floating interest rate obligations to
fixed interest rate obligations. Instruments related to our GEN business, which
are entered into for purposes of hedging future fuel requirements and sales
commitments and securing commodity prices we consider favorable under the circumstances,
have also historically been designated as cash flow hedges. Beginning on April
2, 2007, we chose to cease designating such instruments related to our GEN
business as cash flow hedges, and thus apply mark-to-market accounting
treatment prospectively. Accordingly, as fair values fluctuate from period to
period due to market price volatility, fair value changes are reflected in the
unaudited condensed consolidated statements of operations. Pursuant to EITF
Issue 02-3, Issues Involved in Accounting for Derivative Contracts Held for
Trading Purposes and Contracts Involved in Energy Trading and Risk Management
Activities (EITF Issue No. 02-3), all gains and losses on third party energy
trading contracts, whether realized or unrealized, are presented net in the
unaudited condensed consolidated statements of operations. The balance in Other
comprehensive loss at April 2, 2007 related to these instruments will be
reclassified to future earnings contemporaneously with the related purchases of
fuel and sales of electricity. As of March 31, 2008, the remaining balance was
a $7 million pre-tax loss.

During
the three months ended March 31, 2008, we recorded no income related to
ineffectiveness from changes in the fair value of cash flow hedge positions and
no amounts were excluded from the assessment of hedge effectiveness related to
the hedge of future cash flows. During the three months ended March 31, 2007,
we recorded $5 million of income related to ineffectiveness from changes in
fair value of cash flow hedge positions and no amounts were excluded from the
assessment of hedge effectiveness related to the hedge of future cash flows.
During the three months ended March 31, 2008 and 2007, no amounts were
reclassified to earnings in connection with forecasted transactions that were
no longer considered probable of occurring.

The
balance in cash flow hedging activities, net at March 31, 2008, is expected to
be reclassified to future earnings when the hedged transaction impacts
earnings. Of this amount, after-tax losses of approximately $4 million are
currently estimated to be reclassified into earnings over the 12-month period
ending March 31, 2009. The actual amounts that will be reclassified into
earnings over this period and beyond could vary materially from this estimated
amount as a result of changes in market conditions and other factors.

Fair Value
Hedges.
We also enter into derivative instruments that qualify, and that we designate,
as fair value hedges. We use interest rate swaps to convert a portion of our
non-prepayable fixed-rate debt into floating-rate debt. During the three months
ended March 31, 2008 and 2007, there was no ineffectiveness from changes in the
fair value of hedge positions and no amounts were excluded from the assessment
of hedge effectiveness. During the three months ended March 31, 2008 and 2007,
no amounts were recognized in relation to firm commitments that no longer
qualified as fair value hedges.

Fair Value
Measurements.
On September 15, 2006, the FASB issued SFAS No. 157, which defines fair value,
establishes a framework for measuring fair value and expands disclosure
requirements for fair value measurements. SFAS No. 157 applies under other
accounting pronouncements that require or permit fair value measurements.
Accordingly, SFAS No. 157 does not require any new fair value measurements;
however, for some entities the application of SFAS No. 157 will change current
practice. The provisions of SFAS No. 157 are to be applied prospectively, except
for the initial impact on three specific items: (i) changes in fair value
measurements of existing derivative financial instruments measured initially
using the transaction price under EITF No. 02-3, (ii) existing hybrid financial
instruments measured initially at fair value using the transaction price and
(iii) blockage factor discounts. We adopted SFAS No. 157 effective January 1,
2008 and did not record a cumulative effect upon the adoption.

On
February 12, 2008, the FASB issued FASB Staff Position No. FAS 157-2, which
defers the effective date of SFAS No. 157 to fiscal years beginning after
November 15, 2008, with respect to non-financial assets and non-

19

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

financial
liabilities which are not recognized or disclosed at fair value in the
financial statements on a recurring basis. Therefore, we have deferred application
of SFAS No. 157 to such non-financial assets and non-financial liabilities
until January 1, 2009.

Fair value, as
defined in SFAS No. 157, is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). However, as permitted under
SFAS No. 157, we utilize a mid-market pricing convention (the mid-point price
between bid and ask prices) as a practical expedient for valuing the majority of
our assets and liabilities measured and reported at fair value. Where
appropriate, valuation adjustments are made to account for various factors,
including the impact of our credit risk, our counterparties credit risk and
bid-ask spreads. We utilize market data or assumptions that market participants
would use in pricing the asset or liability, including assumptions about risk
and the risks inherent in the inputs to the valuation technique. These inputs
can be readily observable, market corroborated, or generally unobservable. We
primarily apply the market approach for recurring fair value measurements and
endeavor to utilize the best available information. Accordingly, we utilize
valuation techniques that maximize the use of observable inputs and minimize the
use of unobservable inputs. We are able to classify fair value balances based
on the observability of those inputs. SFAS No. 157 establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurement) and the lowest priority
to unobservable inputs (Level 3 measurement). The three levels of the fair
value hierarchy defined by SFAS No. 157 are as follows:


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.20

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of March 31, 2008. These financial assets and liabilities
are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance
of a particular input to the fair value measurement requires judgment, and may
affect the valuation of fair value assets and liabilities and their placement
within the fair value hierarchy levels.

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

$
2,250The
determination of the fair values above incorporates various factors required
under SFAS No. 157. These factors include not only the credit standing of the
counterparties involved and the impact of credit enhancements (such as cash
deposits, letters of credit and priority interests), but also the impact of our
nonperformance risk on our liabilities.

Assets
and liabilities from risk management activities may include exchange-traded
derivative contracts and OTC derivative contracts. Some exchange-traded
derivatives are valued using broker or dealer quotations, or market
transactions in either the listed or OTC markets. In such cases, these
exchange-traded derivatives are classified within Level 2. OTC derivative
trading instruments include swaps, forwards, options and complex structures
that are valued at fair value. In certain instances, these instruments may
utilize models to measure fair value. Generally, we use a similar model to
value similar instruments. Valuation models utilize various inputs that include
quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not
active, other observable inputs for the asset or liability, and
market-corroborated inputs. Where observable inputs are available for
substantially the full term of the asset or liability, the instrument is
categorized in Level 2. Certain OTC derivatives trade in less active markets
with a lower availability of pricing information. In addition, complex or
structured transactions, such as heat-rate call options, can introduce the need
for internally-developed model inputs that might not be observable in or
corroborated by the market. When such inputs have a significant impact on the
measurement of fair value, the instrument is categorized in Level 3. Other
assets primarily represent available-for-sale securities.

21

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

The
following table sets forth a reconciliation of changes in the fair value of
financial instruments classified as Level 3 in the fair value hierarchy:

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
)Gains
and losses (realized and unrealized) for Level 3 recurring items are included
in revenues on the unaudited condensed consolidated statements of operations.
We believe an analysis of instruments classified as Level 3 should be
undertaken with the understanding that these items are generally hedging our
generation portfolio

Transfers
in and/or out of Level 3 represent existing assets or liabilities that were
either previously categorized as a higher level for which the inputs to the
model became unobservable or assets and liabilities that were previously
classified as Level 3 for which the lowest significant input became observable
during the period. There were no transfers in or out of Level 3 during the
three months ended March 31, 2008.

Note 5Accumulated Other Comprehensive Loss

Accumulated
other comprehensive loss, net of tax, is included in Dynegys stockholders
equity and DHIs stockholders equity on our unaudited condensed consolidated
balance sheets, respectively, as follows:

March 31,
 2008

December 31,
 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.
On January 31, 2005, Dynegy completed the acquisition of ExRes, the parent
company of Sithe Energies, Inc. and Independence. ExRes also owns through its
subsidiaries four hydroelectric generation facilities in Pennsylvania. The
entities owning these facilities meet the definition of VIEs. In accordance
with the purchase agreement, Exelon Corporation (Exelon) has the sole and
exclusive right to direct our efforts to decommission, sell, or otherwise
dispose of the hydroelectric facilities owned through the VIEs. Exelon is
obligated to reimburse ExRes for all costs, liabilities, and obligations of the
entities owning these facilities, and to indemnify ExRes with respect to the
past and present assets and operations of the entities. As a result, we are not
the primary beneficiary of the entities and have not consolidated them in
accordance with the provisions of FIN No. 46(R), Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 (FIN No. 46(R)). There
was no material change during the three months ended March 31, 2008. Please see
Note 12

22

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Variable
Interest Entities Hydroelectric Generation Facilities in Dynegys and DHIs
Form 10-K for discussion of these entities.

PPEA Holding
Company LLC.
On April 2, 2007, in connection with the completion of the Merger, we acquired
a 70 percent interest in PPEA Holding Company LLC (PPEA). On December 13,
2007, we sold a portion of our interest in PPEA, reducing our ownership
interest in PPEA to 37 percent. PPEA owns and operates Plum Point Energy
Associates, LLC (Plum Point). Plum Point is constructing a 665 MW coal fired
power generation facility (the Project), located in Mississippi County,
Arkansas, in which it owns an approximate 57 percent undivided interest. These
assets consist primarily of $371 million of plant construction in progress at
March 31, 2008. As of March 31, 2008, we have posted a $15 million letter of
credit to support our equity contribution to the Project. See Note 15DebtPlum
Point Credit Agreement Facility for discussion of Plum Points borrowings in
Dynegys and DHIs Form 10-K. PPEA meets the definition of a VIE, and we have
determined we are the primary beneficiary of this entity. As such, we have
consolidated it in accordance with the provisions of FIN No. 46(R).

DLS Power
Holdings and DLS Power Development.
On April 2, 2007, in connection with the transactions consummated by the
Merger, Dynegy acquired a 50 percent interest in DLS Power Holdings and DLS
Power Development. The purpose of DLS Power Development is to provide services
to DLS Power Holdings and the project subsidiaries related to power project
development and to evaluate and pursue potential new development projects. DLS
Power Holdings and DLS Power Development meet the definition of VIEs, as they
will require additional subordinated financial support from their owners to
conduct normal on-going operations. However, Dynegy is not the primary
beneficiary of the entities and, in accordance with the provisions of FIN No.
46(R), has not consolidated them. Dynegy accounts for its investments in DLS
Power Holdings and DLS Power Development as equity method investments pursuant
to APB No. 18, The Equity Method of Accounting for Investments in Common
Stock. We believe that Dynegys maximum exposure to economic loss from this VIE
is limited to $63 million, which represents its equity investment in these
entities at March 31, 2008.

Sandy
Creek.
Dynegy Sandy Creek Holdings, LLC (the Dynegy Member), an indirectly wholly
owned subsidiary of Dynegy and DHI, and LSP Sandy Creek Member, LLC (the LSP
Member) each own a 50 percent interest in Sandy Creek Holdings LLC (SCH),
which owns all of Sandy Creek Energy Associates, LP (SCEA). SCEA owns an
approximate 75 percent undivided interest in the Sandy Creek Energy Station
(the Project), which is an 898 MW facility under construction in McLennan
County, Texas. In addition, Sandy Creek Services, LLC (SC Services) was
formed to provide services to SCH. Dynegy Power Services and LSP Sandy Creek
Services LLC each own a 50 percent interest in SC Services.

SCH
and SC Services both meet the definition of a VIE, as they will require
additional subordinated financial support to conduct their normal on-going
operations. However, we are not the primary beneficiary of the entities, and,
in accordance with FIN No. 46(R), do not consolidate them. We account for our
investments in SCH and SC Services as equity method investments pursuant to APB
18. We believe that our maximum exposure to economic loss from these VIEs is
limited to $335 million, which represents our $8 million equity investment in
these entities at March 31, 2008, a note receivable of approximately $4 million
and letters of credit totaling $323 million supporting our funding commitment.

Note 7Related Party Transactions

Equity
Investments.
We hold four investments in joint ventures in which LS Power or its affiliates
are also investors. Dynegy has a 50 percent ownership interest in DLS Power
Holdings and DLS Power Development. DHI has a 50 percent ownership interest in
SCEA and SC Services, which were contributed to it by Dynegy in August 2007.
Please see Note 6Variable Interest Entities for further discussion.

23

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Other. On March
30, 2007, DHI paid a dividend of $50 million to Dynegy.

Note 8Dynegys Earnings (Loss) Per Share

Basic
earnings (loss) per share represents the amount of earnings (losses) for the
period available to each share of Dynegy common stock outstanding during the
period. Diluted earnings (loss) per share represents the amount of earnings
(losses) for the period available to each share of Dynegy common stock
outstanding during the period plus each share that would have been outstanding
assuming the issuance of common shares for all dilutive potential common shares
outstanding during the period.

The
reconciliation of basic earnings (loss) per share from continuing operations to
diluted earnings (loss) per share from continuing operations is shown in the
following table:

Three Months Ended
 March 31,2008

2007(in millions, except per
 share 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

PLEASE NOTE THAT
THE INFORMATION CONTAINED IN THIS
NOTE 9, WHICH WAS PRESENTED IN OUR FIRST QUARTER 2008 FORM 10-Q ORIGINALLY
FILED WITH THE SEC ON MAY 8, 2008 IN ORDER TO REFLECT THE MATERIAL CHANGES IN
OR UPDATES TO OUR MATERIAL LEGAL PROCEEDINGS SINCE THE ORIGINAL FILING OF OUR
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007, DOES NOT
REFLECT EVENTS OCCURRING AFTER MAY 8, 2008. FOR A DESCRIPTION OF THESE EVENTS,
INCLUDING MATERIAL CHANGES IN, OR UPDATES TO, OUR MATERIAL LEGAL PROCEEDINGS,
PLEASE READ OUR REPORTS FILED SINCE MAY 8, 2008, INCLUDING OUR CURRENT REPORTS
ON FORM 8-K AND ANY AMENDMENTS THERETO.

24

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Legal
Proceedings

Set
forth below is a summary of our material ongoing legal proceedings. In
accordance with SFAS No. 5, we record reserves for contingencies when
information available indicates that a loss is probable and the amount of the
loss is reasonably estimable. In addition, we disclose matters for which management
believes a material loss is at least reasonably possible. In all instances,
management has assessed the matters below based on current information and made
a judgment concerning their potential outcome, giving due consideration to the
nature of the claim, the amount and nature of damages sought and the
probability of success. Managements judgment may prove materially inaccurate
and such judgment is made subject to the known uncertainty of litigation.

Gas
Index Pricing Litigation. We, several of our affiliates,
our former joint venture affiliate West Coast Power and other energy companies
were named defendants in twenty-two lawsuits in state and federal court
claiming damages resulting from alleged price manipulation and false reporting of
natural gas prices to various index publications in the 2000-2002 timeframe.
Many of the cases have been resolved and those which remain are pending in
Nevada and Tennessee. Recent developments include:


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.We
continue to analyze the Gas Index Pricing Litigation and are vigorously
defending the remaining individual matters. Due to the uncertainty of
litigation, we cannot predict whether we will incur any liability in connection
with these lawsuits. However, given the nature of the claims, an adverse result
in these proceedings could have a material adverse effect on our financial
condition, results of operations and cash flows.

California
Market Litigation.We and various other power generators
and marketers were defendants in numerous lawsuits alleging rate and market
manipulation in Californias wholesale electricity market during the California
energy crisis several years ago. The complaints generally alleged unfair,
unlawful and deceptive trade practices in violation of the California Unfair
Business Practices Act and sought injunctive relief, restitution and
unspecified actual and treble damages. All of these cases have been dismissed
on grounds of federal preemption and affirmed on appeal. Plaintiffs in one
case, which was dismissed by the district court and recently affirmed by the
Ninth Circuit, sought rehearing by the appellate court. In January 2008, the
Ninth Circuit denied plaintiffs motion and the deadline for plaintiffs to seek
Supreme Court review recently passed. Accordingly, no California Market
Litigation matters are pending.

25

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Nevada
Power Arbitration.Through one of our indirect
subsidiaries, we hold an ownership interest in Black Mountain, in which our
equal partner is a CUSA subsidiary. Black Mountain has a long-term power sale
agreement with Nevada Power Company (Nevada Power) that extends through April
2023. In October 2007, Nevada Power initiated an arbitration against Black
Mountain seeking a declaratory judgment that (i) Nevada Powers methodology for
calculating certain cumulative excess payments in the event of default or early
termination by Black Mountain is correct and (ii) Black Mountain is obligated
to repay to Nevada Power the full amount of any outstanding excess payments in
the event of a default or early termination or upon the expiration of the
agreements term in 2023. The arbitration is scheduled for July 2008 and the
parties are actively engaged in discovery. Currently, Nevada Power does not
allege an event of default or early termination has occurred. Nonetheless,
Nevada Power maintains that as of December 31, 2007, if an event of default
occurred, Black Mountain would be required to pay approximately $136 million in
cumulative excess payments, 50 percent of which would be our proportionate
share. We previously disclosed that we agreed to guarantee 50 percent of any
Black Mountain obligation to pay cumulative excess payments. Nevada Power
further alleges that the cumulative excess payments calculation could equal
approximately $365 million in 2023 and would be payable upon the scheduled
termination of the power sale agreement, 50 percent of which would be our
proportionate share. Management does not believe that Black Mountain has an
obligation to pay any amount to Nevada Power upon the scheduled termination of
the agreement. We believe Nevada Powers claims are without merit and we intend
to defend against them vigorously. However, given the amount in controversy, an
adverse ruling could have a material adverse effect on our future financial
condition, results of operations and cash flows.

New
York Attorney General Subpoena. On September 17, 2007, Dynegy and four
other companies received a subpoena from the Office of the New York Attorney
General. The subpoena seeks information and documents related to, among other
things: Dynegys evaluation, analysis and projections regarding climate change;
the impact of climate change on Dynegys operations; development opportunities
through Dynegys joint venture with LS Power; and alleged deficiencies in
Dynegys SEC disclosures related to the foregoing. We are reviewing the
subpoena and discussing its contents with the New York Attorney Generals
office in anticipation of our responding as appropriate.

Illinova
Arbitration.In June 2000, Dynegys subsidiary,
Illinova Generating Company (IGC), sold a minority interest it held in a
Cleburne, Texas generating plant to Ponderosa Pine Energy (PPE). Brazos
Electric Cooperative, Inc. (Brazos), the party to an offtake agreement from
the plant, brought legal action against PPE alleging that PPEs purchase did
not comply with the terms of Brazos offtake agreement. Brazos received a
favorable arbitration award against PPE, which in turn sought recovery from IGC
and the other former owners of the plant for indemnification. In May 2007, the
panel in PPEs arbitration action ruled that IGC and the other former owners of
the plant must indemnify PPE for the Brazos arbitration award, with IGCs
portion being defined as approximately $17 million. Dynegy recognized a legal
settlement charge of approximately $17 million in the first quarter 2007
relating to this adverse ruling. In May 2007, Dynegy paid the judgment under
protest. PPE moved to enforce the arbitration award in state district court and
the defendants have filed a motion to vacate the arbitration award. A hearing
on these motions was held in December 2007, with a ruling expected in the third
quarter 2008.

Danskammer
State Pollutant Discharge Elimination System Permit.In
January 2005, the NYSDEC issued a Draft SPDES Permit renewal for the Danskammer
plant, and an adjudicatory hearing was scheduled for the fall of 2005. Three
environmental groups sought to impose a permit requirement that the Danskammer
plant install a closed cycle cooling system in order to reduce the volume of
water withdrawn from the Hudson River, thus reducing aquatic organism
mortality. The petitioners claim that only a closed cycle cooling system meets
the Clean Water Acts requirement that the cooling water intake structures reflect
best technology available (BTA) for minimizing adverse environmental impacts.

26

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

A
formal evidentiary hearing was held in November and December 2005. The Deputy
Commissioners decision directing that the NYSDEC staff issue the revised Draft
Danskammer SPDES Permit was issued in May 2006. In June 2006, the NYSDEC issued
the revised Danskammer SPDES Permit with conditions generally favorable to us.
While the revised Danskammer SPDES Permit does not require installation of a
closed cycle cooling system, it does require aquatic organism mortality
reductions resulting from NYSDECs determination of BTA requirements under its
regulations. In July 2006, two of the petitioners filed suit in the Supreme
Court of the State of New York seeking to vacate the Deputy Commissioners
decision and the revised Danskammer SPDES Permit. On March 26, 2007, the Court
transferred the lawsuit to the Third Department Appellate Division. The case
will now proceed as a normal appeal from a final agency decision and the
decision will be based on whether there is substantial evidence in the record
to support the agency decision. On December 21, 2007, petitioners filed their
Brief for Appellants. Our Respondents Brief was filed on March 26, 2008.
Petitioners Reply brief was filed on April 18, 2008. We expect a decision in
the summer of 2008. We believe that the decision of the Deputy Commissioner is
well reasoned and will be affirmed. However, in the event the decision is not
affirmed and we ultimately are required to install a closed cycle cooling
system, this could have a material adverse effect on our financial condition,
results of operations and cash flows.

Roseton
State Pollutant Discharge Elimination System Permit. In April 2005, the NYSDEC issued a Draft
SPDES Permit renewal for the Roseton plant. The Draft Roseton SPDES Permit
requires the facility to actively manage its water intake to substantially
reduce mortality of aquatic organisms.

In July
2005, a public hearing was held to receive comments on the Draft Roseton SPDES
Permit. Three environmental organizations filed petitions for party status in
the permit renewal proceeding. The petitioners are seeking to impose a permit
requirement that the Roseton plant install a closed cycle cooling system in
order to reduce the volume of water withdrawn from the Hudson River, thus
reducing aquatic organism mortality. The petitioners claim that only a closed
cycle cooling system meets the Clean Water Acts requirement that the cooling
water intake structures reflect the BTA for minimizing adverse environmental
impacts. In September 2006, the administrative law judge issued a ruling
admitting the petitioners to full party status and setting forth the issues to
be adjudicated in the permit renewal hearing. Various holdings in the ruling
have been appealed to the Commissioner of NYSDEC by us, NYSDEC staff, and the
petitioners. We expect that the adjudicatory hearing on the Draft Roseton SPDES
Permit will occur in 2008. We believe that the petitioners claims are without
merit, and we plan to oppose those claims vigorously. Given the high cost of
installing a closed cycle cooling system, an adverse result in this proceeding
could have a material adverse effect on our financial condition, results of
operations and cash flows.

Moss
Landing National Pollutant Discharge Elimination System Permit. The California Regional Water Quality
Control Board (Water Board) issued a NPDES permit for the Moss Landing Power
Plant in 2000 in connection with modernization of the plant and the California
Energy Commissions licensing of that project. A local environmental group
sought review of the permit in Superior Court in Monterey County in July 2001
claiming that the permit was not supported by sufficient analysis of the BTA
for cooling water intake structures as required under the Clean Water Act.
Petitioner contends that the once-through, seawater-cooling system at Moss
Landing should be replaced with a closed cycle cooling system.

The
Superior Court concluded that the Water Boards BTA analysis was insufficient
and remanded the permit to the Water Board directing a comprehensive analysis
and reconsideration of the NPDES permit. Following the hearing on remand, the
Water Board affirmed its BTA finding. In July 2004, the Superior Court held
that the Water Board had conducted a thorough and comprehensive BTA analysis on
remand. This decision was appealed by petitioner to Californias Sixth
Appellate District. On December 14, 2007, the Court of Appeals issued its
opinion affirming the trial courts judgment upholding the permit. The petitioners
filed a Petition for Review by the Supreme Court of California, which was
granted on March 19, 2008 with further action deferred pending disposition of
several petitions for certiorari in the U. S. Supreme Court related to the EPA
rule governing existing water

27

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

intakes. On April 14, 2008, the U.S. Supreme Court granted petitions
for certiorari to consider whether costbenefit comparisons are authorized in
determining BTA for cooling water intake structures.

We
believe that petitioners claims lack merit and we plan to oppose those claims
vigorously. Given the high cost of installing a closed cycle cooling system, an
adverse result in this proceeding could have a material adverse effect on our
financial condition, results of operations and cash flows.

Native
Village of Kivalina and City of Kivalina v. ExxonMobil Corporation, et al.In February 2008, the Native Village of Kivalina and the City of Kivalina,
Alaska initiated an action in federal court in the Northern District of
California against DHI and 23 other companies in the energy industry. Plaintiffs
claim that defendants emissions of greenhouse gases including carbon dioxide
contribute to climate change and have caused significant damage to a native
Alaskan Eskimo village through increased vulnerability to waves, storm surges
and erosion. An initial schedule requires defendants to answer or otherwise
respond to Plaintiffs complaint in late June 2008. We believe the plaintiffs
suit lacks merit and we intend to oppose their claims vigorously.

Ordinary
Course Litigation.In addition to the matters
discussed above, we are party to numerous legal proceedings arising in the
ordinary course of business or related to discontinued business operations. In
managements judgment, which may prove to be materially inaccurate as indicated
above, the disposition of these matters will not materially adversely affect
our financial condition, results of operations or cash flows.

Regulatory Matters

We
are subject to regulation by various federal, state and local agencies,
including extensive rules and regulations governing transportation,
transmission and sale of energy commodities as well as the discharge of
materials into the environment or otherwise relating to environmental
protection. Compliance with these regulations requires general and
administrative, capital and operating expenditures including those related to
monitoring, pollution control equipment, emission fees and permitting at
various operating facilities and remediation obligations.

Illinois
Resource Procurement.In January 2006, the ICC
approved a reverse power procurement auction as the process by which utilities
would procure power beginning in 2007. The initial auction occurred in
September 2006, and we subsequently entered into two supplier forward contracts
with subsidiaries of Ameren Corporation to provide capacity, energy and related
services. The Illinois legislature passed legislation in 2007 as part of the
Illinois rate relief package that significantly altered the power procurement
process in Illinois. The interim process (before a new state agency implements
a permanent process) was approved by the ICC and implemented in Spring 2008
with the two major Illinois utilities procuring capacity and energy for the
period June 2008- May 2009 through a request for proposal process. Separately,
we continue to make our required payments under the rate relief package.

Mercury
Emissions.In December 2006, the Illinois
Pollution Control Board approved a state rule for the control of mercury
emissions from coal-fired power plants that required additional capital and
O&M expenditures at each of our Illinois coal-fired plants beginning in
2007. In January 2007, the State of New York also approved a mercury rule that
will likely require additional capital and operating costs at our Danskammer
plant.

FERC
Market-Based Rate Authority.FERCs market-based
rate authority allows the sale of power at negotiated rates through the
bilateral market or within an organized energy market, conditioned on periodic
re-review. In June 2007, the FERC finalized a series of fundamental reforms to
its market-based rate program intended to strengthen competitive markets and
protect consumers by reinforcing regulations for just and reasonable wholesale
electric power sales by protecting consumers from an electric power sellers
exercise of market power.

28

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Our next
triennial market power update will be an analysis of our Northeast assets and
is due between June 1, 2008 and June 30, 2008.

Guarantees and
Indemnifications

In
the ordinary course of business, we routinely enter into contractual agreements
that contain various representations, warranties, indemnifications and
guarantees. Examples of such agreements include, but are not limited to,
service agreements, equipment purchase agreements, engineering and technical
service agreements, and procurement and construction contracts. Some agreements
contain indemnities that cover the other partys negligence or limit the other
partys liability with respect to third party claims, in which event we will
effectively be indemnifying the other party. Virtually all such agreements
contain representations or warranties that are covered by indemnifications
against the losses incurred by the other parties in the event such
representations and warranties are false. While there is always the possibility
of a loss related to such representations, warranties, indemnifications and
guarantees in our contractual agreements, and such loss could be significant,
in most cases management considers the probability of loss to be remote.

West
Coast Power Indemnities.In connection with the
sale of our 50 percent interest in West Coast Power to NRG on March 31, 2006,
an agreement was executed to allocate responsibility for managing certain
litigation and provide for certain indemnities with respect to such litigation.
The agreement states that we will manage the Gas Index Pricing Litigation
described above for which NRG could suffer a loss subsequent to the closing and
that we would indemnify NRG for all costs or losses resulting from such
litigation, as well as from other proceedings based on similar acts or
omissions, which formed the basis of such litigation. Upon execution of the
California Gas Index Pricing Litigation settlement discussed above, West Coast
Power will no longer be a party to any active Gas Index Pricing Litigation
matters subject to this indemnity. The agreement further states that we will
manage the California Market Litigation described above for which NRG could
suffer a loss subsequent to the closing, and that we and NRG would each be responsible
for 50 percent of any costs or losses resulting from that power litigation, as
well as from other proceedings based on similar acts or omissions which formed
the basis of such litigation. The agreement provides that NRG will manage other
active litigation and indemnify us for any resulting losses, subject to certain
conditions. Maximum recourse under these matters is not limited by the
agreement or by the passage of time with the exception of the California
Department of Water Resources matter in which NRG has a specified indemnity
obligation. The damages claimed by the various plaintiffs in these matters are
unspecified as of March 31, 2008.

Targa
Indemnities.During 2005, as part of our sale of
DMSLP, we agreed to indemnify Targa against losses it may incur under
indemnifications DMSLP provided to purchasers of certain assets, properties and
businesses disposed of by DMSLP prior to our sale of DMSLP. We have incurred no
significant expense under these prior indemnities and deem their value to be
insignificant. We have recorded an accrual in association with the cleanup of
groundwater contamination at the Breckenridge Gas Processing Plant. The
indemnification provided by DMSLP to the purchaser of the plant has a limit of
$5 million. We have also indemnified Targa for certain tax matters arising from
periods prior to our sale of DMSLP. We have recorded a reserve associated with
this indemnification.

Illinois
Power Indemnities.As a condition of Dynegys 2004
sale of Illinois Power and its interest in Electric Energy Inc.s plant in
Joppa, Illinois, Dynegy provided indemnifications to third parties regarding
environmental, tax, employee and other representations. These indemnifications
are limited to a maximum recourse of $400 million. Additionally, Dynegy has
indemnified third parties against losses resulting from possible adverse
regulatory actions taken by the ICC that could prevent Illinois Power from
recovering costs incurred in connection with purchased natural gas and
investments in specified items. Although there is no limitation on Dynegys
liability under this indemnity, the amount of the indemnity is limited to 50
percent of any such losses. In August 2007, the ICC issued its final Order in a
case, which has been affirmed on appeal. Dynegy has adjusted the amount
reserved for the various ongoing cases in light of this and other developments
in other cases. Further disallowances and other

29

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

events, which
fall within the scope of the indemnity, may still occur; however, Dynegy is not
required to accrue a liability in connection with these indemnifications, as
management cannot reasonably estimate a range of outcomes or at this time
considers the probability of an adverse outcome as only reasonably possible.
Dynegy intends to contest any proposed disallowances.

Other
Indemnities.
During 2003, as part of our sales of the Rough and Hornsea natural gas storage
facilities and certain natural gas liquids assets, we provided indemnities to
third parties regarding tax representations. Maximum recourse under these
indemnities is limited to $857 million and $28 million, respectively. We also
entered into similar indemnifications regarding environmental, tax, employee
and other representations when completing other asset sales such as, but not
limited to the Calcasieu, CoGen Lyondell and Rockingham power generating
facilities as well as the Hartwell and Commonwealth assets. We have recorded
reserves for existing environmental, tax and employee liabilities and have incurred
no other expense relating to these indemnities.

Note 10Employee Compensation, Savings and
Pension Plans

We
have various defined benefit pension plans and post-retirement benefit plans in
which our past and present employees participate, which are more fully
described in Note 21Employee Compensation, Savings and Pension Plans in
Dynegys and DHIs Form 10-K.

Components
of Net Periodic Benefit Cost.The components of
net periodic benefit cost were:

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

$
2Contributions. During
the three months ended March 31, 2008 and 2007, we made no contributions to our
pension plans or other postretirement benefit plans.

30

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Note 11Income Taxes

Effective Tax
Rate.
We compute our quarterly taxes under the effective tax rate method based on
applying an anticipated annual effective rate to our year-to-date income or
loss, except for significant unusual or extraordinary transactions. Income
taxes for significant unusual or extraordinary transactions are computed and
recorded in the period that the specific transaction occurs. Dynegys income
taxes included in continuing operations were as follows:

Three
 Months Ended
 March 31,2008

2007(in
 millions, except rates)Income tax
 benefit (expense)

$
96

$
(6
)Effective
 tax rate


39
%

27
%For
the three months ended March 31, 2008, Dynegys overall effective tax rate on
continuing operations was different than the statutory rate of 35 percent due
primarily to state income taxes. For the three months ended March 31, 2007,
Dynegys overall effective tax rate on continuing operations was different than
the statutory rate of 35 percent due primarily to state income taxes and
adjustments to our reserve for uncertain tax positions.

DHIs
income taxes included in continuing operations were as follows:

Three
 Months Ended
 March 31,2008

2007(in
 millions, except rates)Income tax
 benefit (expense)

$
91

$
(11
)Effective
 tax rate


37
%

31
%For
the three months ended March 31, 2008, DHIs overall effective tax rate on
continuing operations was different than the statutory rate of 35 percent due
primarily to state income taxes. For the three months ended March 31, 2007,
DHIs overall effective tax rate on continuing operations was different than
the statutory rate of 35 percent due primarily to state income taxes and
adjustments to our reserve for uncertain tax positions.

Note 12Segment Information

Amounts
in this footnote have been restated. Please see the Introductory Note for
further discussion.

As
reflected in this report, we have changed our reportable segments. Prior to
this report, we reported results for the following segments: (i) GEN-MW, (ii)
GEN-WE, (iii) GEN-NE and (iv) CRM. We will continue to report the results of
our power generation business as three separate geographical segments in our
unaudited condensed consolidated financial statements. Beginning in the first
quarter 2008, the results of our former CRM segment are included in Other as it
does not meet the criteria required to be an operating segment as of January 1,
2008. Accordingly, we have restated the corresponding items of segment
information for prior periods. Our unaudited condensed consolidated financial
results also reflect corporate-level expenses such as general and
administrative, interest and depreciation and amortization.

31

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Reportable
segment information for Dynegy, including intercompany transactions accounted
for at prevailing market rates, for the three months ended March 31, 2008 and
2007 is presented below:

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

$
164

$
131

$
179

$
(1
)
$
473Other








72





72Total
revenues

$
164

$
131

$
251

$
(1
)
$
545Depreciation
 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
)32

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

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
)33

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

For the Interim Periods Ended March 31, 2008
and 2007

Reportable
segment information for DHI, including intercompany transactions accounted for
at prevailing market rates, for the three months ended March 31, 2008 and 2007
is presented below:

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

$
164

$
131

$
179

$
(1
)
$
473Other








72





72Total
revenues

$
164

$
131

$
251

$
(1
)
$
545Depreciation
 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
)34

DYNEGY INC. and DYNEGY HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(Unaudited and Restated)

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
)35

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. As discussed in the Explanatory Note 1 to this
Amendment No. 1, the financial information contained in this Form 10-Q/A has
been revised to reflect the restatement items described in the Introductory
Note to the accompanying unaudited condensed consolidated financial statements.

PLEASE
NOTE THAT THE INFORMATION CONTAINED IN THIS AMENDMENT NO. 1, INCLUDING THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO,
DOES NOT REFLECT EVENTS OCCURRING AFTER THE DATE OF THE ORIGINAL FILING. SUCH
EVENTS INCLUDE, AMONG OTHERS, THE EVENTS DESCRIBED IN OUR CURRENT REPORTS ON
FORM 8-K. FOR A DESCRIPTION OF THESE EVENTS, PLEASE READ OUR REPORTS FILED
SINCE MAY 8, 2008, INCLUDING OUR CURRENT REPORTS ON FORM 8-K AND ANY AMENDMENTS
THERETO.

We
are holding companies and conduct substantially all of our business operations
through our subsidiaries. Our current business operations are focused primarily
on the power generation sector of the energy industry. We report the results of
our power generation business as three separate segments in our consolidated
financial statements: (i) the Midwest segment (GEN-MW); (ii) the West segment
(GEN-WE); and (iii) the Northeast segment (GEN-NE). The results of our
former CRM segment are included in Other as it does not meet the criteria
required to be an operating segment as of January 1, 2008. Accordingly, we have
restated the corresponding items of segment information for prior periods. Our
unaudited condensed consolidated financial results also reflect corporate-level
expenses such as general and administrative, interest and depreciation and
amortization.

In
addition to our operating generation facilities, we own an approximate 37
percent interest in PPEA which in turn owns a 57 percent undivided interest in
Plum Point, a 665 MW coal-fired power generation facility under construction in
Arkansas, which is included in GEN-MW. We also own a 50 percent interest in SCEA,
which owns a 75 percent undivided interest in Sandy Creek, an 898 MW power
generation facility under construction in McLennan County, Texas, which is
included in GEN-WE. Finally, through its interest in DLS Power Holdings, Dynegy
owns a 50 percent interest in a portfolio of greenfield development projects
and repowering and/or expansion opportunities which is included in Other.

On
March 31, 2008, we completed our sale of the Calcasieu power generation
facility to Entergy for approximately $56 million, net of transaction costs.

LIQUIDITY AND CAPITAL RESOURCES

Overview

In
this section, we describe our liquidity and capital requirements and our
internal and external liquidity and capital resources. Our liquidity and
capital requirements are primarily a function of our debt maturities and debt
service requirements, collateral requirements, fixed capacity payments and
contractual obligations, capital expenditures (including required environmental
expenditures) and working capital needs. Examples of working capital needs
include prepayments or cash collateral associated with purchases of
commodities, particularly natural gas and coal, facility maintenance costs and
other costs such as payroll. Our liquidity and capital resources are primarily
derived from cash flows from operations, cash on hand, borrowings under our
financing agreements, asset

36

sale proceeds
and proceeds from capital market transactions to the extent we engage in these
activities. Additionally, DHI may borrow money from time to time from Dynegy.

Collateral Postings

We
use a significant portion of our capital resources, in the form of cash and
letters of credit, to satisfy counterparty collateral demands. These
counterparty collateral demands reflect our non-investment grade credit ratings
and counterparties views of our financial condition and ability to satisfy our
performance obligations, as well as commodity prices and other factors. The
following table summarizes our consolidated collateral postings to third
parties by business at May 2, 2008, March 31, 2008 and December 31, 2007:

May 2,
 2008

March 31,
 2008

December 31,
 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.The
increase in collateral postings from December 31, 2007 to March 31, 2008 and to
May 2, 2008 is primarily due to increased power prices associated with
collateral postings supporting our normal power sales.

Going
forward, we expect counterparties collateral demands to continue to reflect
changes in commodity prices, including seasonal changes in weather-related
demand, as well as their views of our creditworthiness. We believe that we have
sufficient capital resources to satisfy counterparties collateral demands,
including those for which no collateral is currently posted, for the
foreseeable future.

Disclosure of Contractual Obligations and
Contingent
Financial Commitments

We
have incurred various contractual obligations and financial commitments in the
normal course of our operations and financing activities. Contractual
obligations include future cash payments required under existing contractual
arrangements, such as debt and lease agreements. These obligations may result
from both general financing activities and from commercial arrangements that
are directly supported by related revenue-producing activities. Contingent
financial commitments represent obligations that become payable only if certain
pre-defined events occur, such as financial guarantees.

As
of March 31, 2008, there were no material changes to our contractual
obligations and contingent financial commitments since December 31, 2007.

Dividends on Common Stock

Dividend
payments on Dynegys common stock are at the discretion of Dynegys Board of
Directors. Dynegy did not declare or pay a dividend on its common stock during
the first quarter 2008, and does not foresee a declaration of dividends in the
near term.

37

Internal Liquidity Sources

Our
primary internal liquidity sources are cash flows from operations, cash on hand
and available capacity under our Fifth Amended and Restated Credit Facility, as
amended, which is scheduled to mature in April 2012.

Current
Liquidity. The following table summarizes our
consolidated revolver capacity and liquidity position at May 2, 2008, March 31,
2008 and December 31, 2007:

May 2,
 2008

March 31,
 2008

December 31,
 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. Dynegy had operating cash
inflows of $146 million for the three months ended March 31, 2008. This
consisted of $239 million in operating cash flows from our power generation
business, offset by $93 million of cash outflows relating to corporate-level
expenses and our former customer risk management business.

DHI
had operating cash inflows of $146 million for the three months ended March 31,
2008. This consisted of $239 million in operating cash flows from our power
generation business, offset by $93 million of cash outflows relating to
corporate-level expenses and our former customer risk management business.

Please
read Results of OperationsOperating Income (Loss) and Cash Flow
Disclosures for further discussion of factors impacting our operating cash
flows for the periods presented.

Our
future operating cash flows will vary based on a number of factors, many of
which are beyond our control, including the price of natural gas and its
correlation to power prices, the cost of coal and fuel oil, and the value of
ancillary services and capacity. Additionally, availability of our plants
during peak demand periods will be required to allow us to capture attractive
market prices when available. Over the longer term, our operating cash flows
also will be impacted by, among other things, our ability to tightly manage our
operating costs, including maintenance costs, in balance with ensuring that our
plants are available to operate when markets offer attractive returns.

Cash on
Hand. At
May 2, 2008 and March 31, 2008, Dynegy had cash on hand of $345 million and
$429 million, respectively, as compared to $328 million at December 31, 2007.
The increase in cash on hand as compared to the end of 2007 is primarily
attributable to proceeds from the sale of the Calcasieu power generating

38

facility, as
well as cash provided by the operations of our power generating facilities partially
offset by an increase in cash margin postings on futures and exchange-cleared
derivative positions.

At
May 2, 2008 and March 31, 2008, DHI had cash on hand of $317 million and $396
million, respectively, as compared to $292 million at December 31, 2007. The
increase in cash on hand as compared to the end of 2007 is primarily
attributable to proceeds from the sale of the Calcasieu power generating
facility, as well as cash provided by the operations of our power generating
facilities partially offset by an increase in cash margin postings on futures
and exchange-cleared derivative positions.

External Liquidity Sources

Our
primary external liquidity sources are proceeds from asset sales and other
types of capital-raising transactions, including potential debt and equity
issuances.

Asset Sale
Proceeds. On March 31, 2008, we completed our
sale of the Calcasieu power generation facility for approximately $56 million,
net of transaction costs. Please read Note 3Discontinued OperationsCalcasieu
for further discussion.

Consistent
with industry practice, we regularly evaluate our generation fleet based
primarily on geographic location, fuel supply, market structure and market
recovery expectations. We consider divestitures of non-core generation assets
where the balance of the above factors suggests that such assets earnings
potential is limited or that the value that can be captured through a
divestiture outweighs the benefits of continuing to own and operate such assets.
Moreover, dispositions of one or more generation facilities could occur in 2008
or beyond. Were any such sale or disposition to be consummated, the disposition
could result in accounting charges related to the affected asset(s), and our
future earnings and cash flows could be affected.

Capital-Raising Transactions. As part of our ongoing
efforts to maintain a capital structure that is closely aligned with the
cash-generating potential of our asset-based business, which is subject to
cyclical changes in commodity prices, we may explore additional sources of
external liquidity. The timing of any transaction may be impacted by events,
such as strategic growth opportunities, development activities, legal judgments
or regulatory requirements, which could require us to pursue additional capital
in the near-term. The receptiveness of the capital markets to an offering of
debt or equity securities cannot be assured and may be negatively impacted by,
among other things, our non-investment grade credit ratings, significant debt
maturities, long-term business prospects and other factors beyond our control.
Any issuance of equity by Dynegy likely would have other effects as well,
including stockholder dilution. Our ability to issue debt securities is limited
by our financing agreements, including our Fifth Amended and Restated Credit
Facility, as amended.

In
addition, we continually review and discuss opportunities to grow our company
and to participate in what we believe will be continuing consolidation of the
power generation industry. No such definitive transaction has been agreed to
and none can be guaranteed to occur; however, we have successfully executed on
similar opportunities in the past and could do so again in the future.
Depending on the terms and structure of any such transaction, we could issue
significant debt and/or equity securities for capital-raising purposes. We also
could be required to assume substantial debt obligations and the underlying
payment obligations.

Capital
Allocation. We continually review our investment
options with respect to our capital resources. We do not have any material debt
maturities until 2011, and between now and then we expect to enhance our
current capital resources through the results of our operating business. We
will seek to invest these capital resources in various projects and activities
based on their return to stockholders. Potential investments could include,
among others: add-on or other enhancement projects associated with our current
power generation assets; greenfield or brownfield development projects; merger
and acquisition activities; and returns of capital to stockholders through, for
example, a share buy-back. Capital allocation determinations generally are
subject to the discretion of Dynegys Board of Directors as well as
availability of capital and related investment opportunities, and may be
limited by the provisions of our credit agreement. Any particular use of
capital in an amount that is not considered material may be made without any
prior public disclosure and could occur at any time.

39

Please
read Uncertainty of Forward-Looking Statements and Information for additional
factors that could impact our future operating results and financial condition.

RESULTS
OF OPERATIONSDYNEGY INC. and DYNEGY HOLDINGS INC.

Overview.
In this section, we discuss our results of operations, both on a consolidated
basis and, where appropriate, by segment, for the three month periods ended
March 31, 2008 and 2007. At the end of this section, we have included our
outlook for each segment.

As
reflected in this report, we have changed our reportable segments. Prior to
this report, we reported results for the following segments: (i) GEN-MW, (ii)
GEN-WE, (iii) GEN-NE and (iv) CRM. We report the results of our power
generation business as three separate geographical segments in our unaudited
condensed consolidated financial statements. Beginning in the first quarter
2008, the results of our former CRM segment are included in Other as it does
not meet the criteria required to be an operating segment as of January 1,
2008. Accordingly, we have restated the corresponding items of segment
information for prior periods. Our unaudited condensed consolidated financial
results also reflect corporate-level expenses such as general and administrative,
interest and depreciation and amortization.

Summary Financial Information. The following tables provide
summary financial data regarding Dynegys consolidated and segmented results of
operations for the three month periods ended March 31, 2008 and 2007,
respectively. This financial data has been restated to reflect the impact of
the items described in the Introductory Note to the unaudited condensed
consolidated financial statements. The restatements relate to both decreased
revenues and cost of sales. Please read this Introductory Note for further
discussion of these restatement items.

Dynegys
Results of Operations for the Three Months Ended March 31, 2008

Power
 GenerationGEN-MW

GEN-WE

GEN-NE

Other

TotalRevenues

$
164

$
131

$
251

$
(1
)
$
545Cost of sales


(124
)

(123
)

(213
)

9


(451
)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
)40

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













$
14The
following tables provide summary financial data regarding DHIs consolidated
and segmented results of operations for the three month periods ended March 31,
2008 and 2007, respectively:

DHIs
Results of Operations for the Three Months Ended March 31, 2008

Power
 GenerationGEN-MW

GEN-WE

GEN-NE

Other

TotalRevenues

$
164

$
131

$
251

$
(1
)
$
545Cost of sales


(124
)

(123
)

(213
)

9


(451
)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
)41

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













$
2242

The
following table provides summary segmented operating statistics for the three
months ended March 31, 2008 and 2007, respectively:

Three Months Ended 
 March 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 than43

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.The
following table summarizes Dynegys significant items on a pre-tax basis
affecting net income for the period presented:

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
)There
were no such items reported for the three months ended March 31, 2008.

Operating Income
(Loss)

Operating
loss for Dynegy was $150 million for the three months ended March 31, 2008,
compared to operating income of $81 million for the three months ended March
31, 2007. Operating loss for DHI was $150 million for the three months ended
March 31, 2008, compared to operating income of $98 million for the three
months ended March 31, 2007.

Our
operating loss for the first quarter of 2008 was driven, in large part, by
mark-to-market losses on forward sales of power associated with our generating
assets. Such losses, which totaled $284 million for the three months ended
March 31, 2008, were a result of an increase in market power prices or spark
spreads during the first quarter 2008 combined with greater outstanding
notional amounts of forward positions compared to the same period in the prior
year partially due to the Merger. Effective April 2, 2007, we chose to cease
designating our commodity derivative instruments as cash flow hedges for
accounting purposes. Please see Note 4Risk Management Activities, Derivatives
and Financial Instruments for further discussion. The resulting mark-to-market
accounting treatment results in the immediate recognition of gains and losses
within the unaudited condensed consolidated statements of operations due to
changes in the fair value of the derivative instruments. As such, these
mark-to-market gains and losses are not reflected in the unaudited condensed
consolidated statement of operations in the same period as the underlying power
sales from generation activity for which the derivative instruments serve as
economic hedges. Except for those positions that settled in the three months
ended March 31, 2008, the expected cash impact of the settlement of these
positions will be recognized over time through the end of 2010 based on the
prices at which such positions are contracted. Dynegys overall mark-to-market
position and the related mark-to-market value will change as we buy or sell
volumes within the market and as forward commodity prices fluctuate.

Power
GenerationMidwest Segment. Operating loss for
GEN-MW was $59 million for the three months ended March 31, 2008, compared to
operating income of $100 million for the three months ended March 31, 2007.

Revenues
for the three months ended March 31, 2008 decreased by $108 million compared to
the three months ended March 31, 2007, cost of sales increased by $34 million
and operating and maintenance expense increased by $6 million, resulting in a
net decrease of $148 million. The decrease was primarily driven by the
following:


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.44

This item
 was partly offset by the following:
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.Depreciation
expense increased from $42 million for the first quarter 2007 to $53 million
for the first quarter 2008 primarily as a result of the addition of the Midwest
plants.

Power
GenerationWest Segment. Operating loss for GEN-WE
was $46 million for three months ended March 31, 2008, compared to a loss of $2
million for the three months ended March 31, 2007. Such amounts do not include
results from our CoGen Lyondell and Calcasieu power generation facilities,
which have been classified as discontinued operations for all periods
presented.

Revenues
for the three months ended March 31, 2008 increased by $131 million compared to
the three months ended March 31, 2007, cost of sales increased by $122 million
and operating and maintenance expense increased by $30 million, resulting in a
net decrease of $21 million. The decrease was primarily driven by the
following:


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.This item
 was offset by the following:
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.Depreciation
expense increased from $1 million for the first quarter 2007 to $24 million for
the first quarter 2008 primarily as a result of the addition of the West
plants.

Power
GenerationNortheast Segment. Operating loss for
GEN-NE was $21 million for the three months ended March 31, 2008, compared to
operating income of $42 million for the three months ended March 31, 2007.

Revenues
for the three months ended March 31, 2008 increased by $27 million compared to
the three months ended March 31, 2007, cost of sales increased by $74 million
and operating and maintenance expense increased by $9 million, resulting in a
net decrease of $56 million. The decrease was primarily driven by the
following:


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.45

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.These items
 were partly offset by the following:
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.Depreciation
expense increased from $6 million for the first quarter 2007 to $13 million for
the first quarter 2008 as a result of the addition of the Casco Bay and
Bridgeport plants.

Other.
Dynegys Other operating loss for the three months ended March 31, 2008 was $24
million, compared to an operating loss of $59 million for the three months
ended March 31, 2007. Operating losses in both periods were comprised primarily
of general and administrative expenses and results from our former customer
risk management business.

Cost
of sales for the three months ended March 31, 2008 included the release of a $9
million liability associated with an assignment of a natural gas transportation
contract. Operating and maintenance expense for the three months ended March 31,
2008 included the release of an $8 million of sales and use tax liability.

Dynegys
consolidated general and administrative expenses were $39 million and $53
million for the three months ended March 31, 2008 and 2007, respectively.
General and administrative expenses for the three months ended March 31, 2007
included legal and settlement charges of $17 million resulting from additional
activities during the period that negatively affected managements assessment
of the probable and estimable losses associated with the applicable
proceedings.

DHIs
other operating loss for the three months ended March 31, 2008 was $24 million,
compared to an operating loss of $42 million for the three months ended March
31, 2007. Operating losses in both periods were comprised primarily of general
and administrative expenses and results from our former customer risk
management business.

Cost
of sales for the three months ended March 31, 2008 included the release of a $9
million reserve associated with natural gas transportation contracts. Operating
and maintenance expense for the three months ended March 31, 2008 included the
release of an $8 million of sales and use tax liability.

DHIs
consolidated general and administrative expenses were $39 million and $36
million for the three months ended March 31, 2008 and 2007, respectively.

Losses
from Unconsolidated Investments

Dynegys
losses from unconsolidated investments were $9 million for the three months
ended March 31, 2008, including a $5 million loss related to the GEN-WE
investment in Sandy Creek. The remaining $4 million loss related to its
investment in DLS Power Development, included in Other. Earnings from
unconsolidated investments for the three months ended March 31, 2007 were zero.

DHIs
losses from unconsolidated investments of $5 million for the three months ended
March 31, 2008 related to the GEN-WE investment in Sandy Creek. Earnings from
unconsolidated investments for the three months ended March 31, 2007 were zero.

46

Other Items, Net

Dynegys
other items, net, totaled $20 million of income for the three months ended
March 31, 2008, compared to $8 million of income for the three months ended
March 31, 2007. Approximately $6 million of the increase was associated with
higher interest income due to larger cash balances in 2008. In addition, during
the first quarter 2008, we recognized income of $6 million related to insurance
proceeds received in excess of the book value of damaged assets.

DHIs
other items, net, totaled $20 million of net income for the three months ended
March 31, 2008, compared to $4 million of income for the three months ended
March 31, 2007. Approximately $7 million of the increase was primarily
associated with higher interest income due to larger cash balances in 2008. In
addition, during the first quarter 2008, we recognized income of $6 million
related to insurance proceeds received in excess of the book value of damaged
assets.

Interest
Expense

Dynegys
and DHIs interest expense totaled $109 million for the three months ended
March 31, 2008, compared to $67 million for the three months ended March 31,
2007. The increase was primarily attributable to the issuance of the $1.65
billion of Senior Unsecured Notes on May 24, 2007, which replaced the project
debt assumed in connection with the Merger, and secondarily to the associated
growth in the size and utilization of our Fifth Amended and Restated Credit
Facility.

Income
Tax Benefit (Expense)

Dynegy
reported an income tax benefit from continuing operations of $96 million for
the three months ended March 31, 2008, compared to an income tax expense from
continuing operations of $6 million for the three months ended March 31, 2007.
The 2008 effective tax rate was 39 percent, compared to 27 percent in 2007.

DHI
reported an income tax benefit from continuing operations of $91 million for
the three months ended March 31, 2008, compared to an income tax expense of $11
million from continuing operations for the three months ended March 31, 2007.
The 2008 effective tax rate was 37 percent, compared to 31 percent in 2007.

In
general, differences between these effective rates and the statutory rate of 35
percent resulted primarily from the effect of state income taxes in the taxing
jurisdictions in which our assets operate.

Discontinued
Operations

Loss
From Discontinued Operations Before Taxes

During
the three months ended March 31, 2008, our pre-tax loss from discontinued
operations was $1 million, which consisted of a $1 million loss on the sale of
the Calcasieu power generation facility. During the three months ended March
31, 2007, our pre-tax loss from discontinued operations was $3 million, which
consisted of losses of $3 million from the operation of the CoGen Lyondell
power generation facility.

Income
Tax Benefit From Discontinued Operations

We
recorded an income tax benefit from discontinued operations of $1million
and $1 million, respectively, during the three months ended March 31, 2008 and
2007. The effective rates for the three months ended March 31, 2008 and 2007
were 100 percent and 33 percent, respectively. FIN No. 18, Accounting for
Income Taxes in Interim Periods an interpretation of APB Opinion No. 28
requires a detailed methodology of allocating income taxes between continuing
and discontinued operations. This methodology often results in an effective
rate for discontinued operations significantly different from the statutory
rate of 35 percent.

47

Outlook

We
expect that our future financial results will continue to reflect sensitivity
to fuel and commodity prices, market structure and prices for electric energy,
ancillary services and capacity, transportation and transmission logistics,
weather conditions and IMA. Our commercial team actively manages commodity
price risk associated with our unsold power production by trading in the
forward markets that are correlated with our assets. We also participate in
various regional auctions and bilateral opportunities. Our regional commercial
strategies are particularly driven by the types of units that we have within a
given region and the operating characteristics of those units.

Our
fleet includes a diverse mixture of assets with various fuel, dispatch and
merit order characteristics within each of our three regions. Our forward sales
decisions are based on market fundamentals relative to each regional fleet
profile. Our portfolio of sales agreements include short-term, medium-term and
long-term contracts that range to five years and longer. These long-term
contracts are generally intended to run to term and may include tolls or
long-term power sale agreements related to our development projects. These contracts
include terms designed to mitigate risks related to commodity prices and
operation of the facilities such as a pass through of fuel costs and limited
penalties for unavailability. Medium-term contracts, which range from two to
five years, include structured deals and financial products, including options,
and are intended to capture value from mid-term price trends but still provide
some exposure to expected longer term upward price trends. We seek to
commercialize the remainder of our fleets output via short-term sales,
financial products, including options, spot sales and contract sales, all with
a duration of less than two years. We actively manage these positions, which
are primarily associated with our baseload facilities, in an attempt to capitalize
on commodity price volatility and other value capture opportunities. As a
result, our fleet-wide forward sales profile is fluid and subject to change
over time.

We
entered the year with a substantial portion of the output from our fleet of
power generation facilities contracted for 2008. We commercialized nearly all
of our output for the remainder of 2008 as we moved forward through the first
quarter of 2008 and prices increased. As we look forward to 2009 and beyond, we
are actively transacting in 2009 positions and expect to enter 2009 with a
substantial portion of the output of our fleet contracted. Based on specific
market conditions, at any point in time we may be above or below this level
since we actively manage our near-term market positions of less than two years.

To
the extent that we choose not to enter into forward sales, the gross margin
from our assets is a function of price movements in the coal, natural gas, fuel
oil, electric energy and capacity markets.

The
following summarizes unique business issues impacting our individual regions
outlook.

GEN-MW.
Our Midwest consent decree requires substantial emission reductions from our
Illinois coal-fired power plants and the completion of several supplemental
environmental projects in the Midwest. We have achieved all emission reductions
scheduled to date under the Consent Decree and are developing plans to install
additional emission control equipment to meet future Consent Decree emission
limits. We expect our costs associated with the Midwest consent decree
projects, which we expect to incur through 2012, to be approximately $960
million, which includes approximately $134 million spent to date. This estimate
includes a number of assumptions and uncertainties beyond our control,
including an assumption that labor and material costs will increase at four
percent per year over the remaining project term.

Our
Midwest coal requirements are 100 percent contracted through 2010. For 2008,
the prices associated with these contracts are fixed. The new prices that will
apply to the 25 percent of our post-2008 requirements that are currently
unpriced will become effective January 1, 2009. However, we expect that any
price changes will be consistent with DMGs historical price trend over the
past several years.

PJM
recently implemented a forward capacity auction, the Reliability Pricing Model.
The auction has resulted in a dramatic increase in the value of capacity in not
only PJM, but in the neighboring MISO as well. The increase in prices indicates
a projected tightening of the supply/demand balance in the near future. More
immediately, we benefited from participating in the auction process, resulting
in sales of capacity for the following planning years:

48

Planning Year

Net Capacity(in MWs)2008-2009

1,3002009-2010

2,6502010-2011

2,750The
MISO has delayed implementation of its Ancillary Services Market until
September 2008. Upon implementation MISO will administer the Ancillary Services
Market through which load-serving entities will procure regulation and
contingency reserves.

GEN-WE. Our Arizona facilities recently won
competitive solicitations for 10 year term tolling agreements by local
utilities beginning with deliveries in 2008 and 2010.

GEN-NE. The majority of our coal supply requirements
for 2008 are contracted at a fixed price. We procure certain quantities of coal
from various South American suppliers, where political conditions could
potentially result in interruptions of commodity exports. However, we continue
to maintain sufficient coal and oil inventories and contractual commitments
intended to provide us with a stable fuel supply and are considering options to
further mitigate cost and supply risks for near and long-term coal supplies.

In
New England, the ISO-NE is in the process of restructuring its capacity market
and will be transitioning to a forward capacity market in 2010. During the
transition from the pre-existing capacity markets in ISO-NE to the forward
capacity market, all listed Installed Capacity (ICAP) resources will receive
monthly capacity payments, adjusted for each Power Year. The transitional
payments for capacity commenced in December 2006, with a price of 3.05/KW-month,
and gradually rise to $4.10/KW-month through June 1, 2010, when the forward
capacity market will be fully effective. The first auction for the 2010 Power
Year was held in February 2008, and capacity prices cleared at $4.50/KW-month.
The second auction for the 2011 Power Year is planned for the fall of 2008.

Recently,
we arrived at a settlement with one of the local taxing jurisdictions in
connection with the assessed value of our Roseton and Danskammer generating
facilities. While the amount of actual tax savings resulting from the reduction
in the assessed value of these facilities will depend on future budgets of the
various taxing jurisdictions, the projected savings in property taxes for the
period 2008-2012 is approximately $55 million. We will also receive a refund of
$3 million for prior years property tax payments. We continue to work with
local authorities to consider additional settlements relating to taxes paid in
prior years.

Regulatory
Matters

Climate Change
and Greenhouse Gases. The federal government, and many states
where we have generation facilities, are considering or implementing regulatory
programs intended to reduce emissions of CO2 as a means of
addressing climate change issues. The adoption of regulatory programs mandating
a substantial reduction in C02 emissions may have a significant
impact on us and others in the power generating industry. However, at this
time, we are unable to provide an accurate assessment of the extent of the
impact that CO2 emission reduction programs will have on us. Any CO2
emission limits that are implemented, whether by the federal or state
governments, could have the effect of altering the manner in which generating
facilities are dispatched. The extent to which the costs of meeting mandated
emission reductions would be borne by power generators, or the ultimate users
of electricity, is not known. The specific requirements and timing of any
future federal program to regulate CO2 emissions cannot be
confidently predicted at this time; however, various states where we have
generating facilities have proposed or are in the process of considering or
developing regulatory programs to limit CO2 emissions.

GEN-WE. Our assets in California will be subject to
various state initiatives. As previously disclosed, we continue to be subject
to the California Global Warming Solutions Act, effective January 1, 2007,
which requires development of a greenhouse gas control program that will reduce
the states greenhouse gas emissions to their 1990 levels by 2020. Regulations
to achieve required emission reductions are to be adopted by January 2011.

49

The
California State Water Resources Control Board has issued proposed regulations
that would require all power plants utilizing sea water for once-through
cooling to reduce their intake flow and intake velocity to a level commensurate
with that which can be attained by a closed-cycle cooling system. If adopted as
proposed, it is likely that South Bay, Morro Bay and Moss Landing Units 6 &
7 would be required to retrofit with a closed-cycle cooling system by 2015 and
the Moss Landing Units 1 & 2 by 2018.

GEN-NE. Our assets in New York, Connecticut and
Maine are expected to become subject to a state-driven greenhouse gas program
known as the Regional Greenhouse Gas Initiative (RGGI) as soon as 2009. The
participating RGGI states have developed a model rule for regulating greenhouse
gas using a cap-and-trade program to reduce carbon emissions by at least 10
percent of current emission levels by the year 2018.

The
RGGI rules proposed in Maine and New York would implement CO2
cap-and-trade programs, capping total authorized CO2 emissions from
affected power generators beginning in 2009. The proposed rules would require
that each affected power generator hold CO2 emission allowances
equal to its annual CO2 emissions. Beginning in 2015, the CO2
emission caps and available allowances would be reduced each year until 2018.
Compliance with the allowance requirement under a cap-and-trade program could
be achieved by reducing emissions, purchasing allowances or securing offset
allowances from an approved offset project. Allowances would be distributed to
power generators through state auctions. Although the rules governing the
procedures and structure of the auctions are still being developed, the intent
is to conduct the first auction of CO2 allowances in 2008.

The
State of Connecticut also enacted legislation in June 2007 that mandates a cap
and trade program for CO2, including a requirement that affected
generators purchase the carbon credits needed to operate their facilities
through an auction process. The rules governing the procedures and structure of
the Connecticut auction process are still being developed.

Please
read Note 9Commitments and ContingenciesDanskammer State Pollutant Discharge
Elimination System Permit and Commitments and ContingenciesRoseton State
Pollutant Discharge Elimination System Permit, respectively, for further
discussion.

Cash Flow Disclosures

Operating
Cash Flow

Dynegy. Dynegys cash flow provided by operations
totaled $146 million for the three months ended March 31, 2008. During the
three months ended March 31, 2008, our power generation business provided
positive cash flow from operations of $234 million from the operation of our
power generation facilities. Other includes a use of approximately $88 million
in cash primarily due to interest payments to service debt, general and
administrative expenses and a legal settlement payment previously reserved,
partially offset by interest income.

Dynegys
cash flow provided by operations totaled $44 million for the three months ended
March 31, 2007. During the quarter, our power generation business provided
positive cash flow from operations of $140 million due to positive earnings for
the period. Other includes a net use of approximately $96 million in cash
primarily due to interest payments to service debt, general and administrative
expenses and cash payments associated with our former customer risk management
business.

DHI.
DHIs cash flow provided by operations
totaled $146 million for the three months ended March 31, 2008. During the
three months ended March 31, 2008, our power generation business provided
positive cash flow from operations of $234 million from the operation of our
power generation facilities. Other includes a use of approximately $88 million
in cash primarily due to interest payments to service debt, general and
administrative expense and a legal settlement payment previously reserved,
partially offset by interest income.

DHIs
cash flow provided by operations totaled $43 million for the three months ended
March 31, 2007. During the quarter, our power generation business provided
positive cash flow from operations of $140 million due to positive earnings for
the period. Other includes a net use of approximately $97 million in cash
primarily due to interest payments to service debt, general and administrative
expenses and cash payments associated with our former customer risk management
business.

50

Capital
Expenditures and Investing Activities

Dynegy. Dynegys cash used in investing
activities
during the three months ended March 31, 2008 totaled $95 million. Capital
spending of $131 million was primarily comprised of $115 million, $3 million
and $10 million for our GEN-MW, GEN-WE and GEN-NE segments, respectively.
Capital spending for the GEN-MW segment includes $54 million associated with
the construction of the Plum Point facility, which is provided by non-recourse
project financing. The remaining capital spending for the GEN-MW segment
primarily related to maintenance and environmental projects, while spending in
the GEN-NE and GEN-WE segments primarily related to maintenance projects. In
addition, there was approximately $3 million of capital expenditures in Other.
Dynegy also made $6 million in contributions to DLS Power Holdings during the
three months ended March 31, 2008. Additionally, there was a $25 million cash
outflow due to changes in restricted cash balances. These cash outflows were
partially offset by $56 million of proceeds, net of transaction costs, from the
sale of the Calcasieu power generating facility, $6 million of insurance proceeds
and $4 million of proceeds from the liquidation of an investment.

Dynegys
cash used in investing activities during the three months ended March 31, 2007
totaled $26 million. Capital spending of $34 million was primarily comprised of
$23 million, $5 million and $3 million in the GEN-MW, GEN-WE and GEN-NE
segments, respectively. The capital spending for each segment primarily related
to maintenance and environmental capital projects. In addition, there was
approximately $3 million of capital expenditures in Other related to corporate
information technology projects. Cash outflows associated with capital spending
were partly offset by a $9 million decrease in the Independence restricted cash
balance.

DHI.
DHIs cash used in investing activities
during the three months ended March 31, 2008 totaled $92 million. Capital
spending of $131 million was primarily comprised of $115 million, $3 million
and $10 million for our GEN-MW, GEN-WE and GEN-NE segments, respectively.
Capital spending for the GEN-MW segment includes $54 million associated with
the construction of the Plum Point facility, which is provided by non-recourse
project financing. The remaining capital spending for the GEN-MW segment
primarily related to maintenance and environmental projects, while spending in
the GEN-NE and GEN-WE segments primarily related to maintenance projects. In
addition, there was approximately $3 million of capital expenditures in Other.
Additionally, there was a $25 million cash outflow due to changes in restricted
cash balances. These cash outflows were partially offset by $56 million of
proceeds, net of transaction costs, from the sale of the Calcasieu power
generating facility, $1 million of affiliate transactions and $6 million of
insurance proceeds.

DHIs
cash used in investing activities during the three months ended March 31, 2007
totaled $33 million. Capital spending of $34 million was primarily comprised of
$23 million, $5 million and $3 million in the GEN-MW, GEN-WE and GEN-NE
segments, respectively. The capital spending for each segment primarily related
to maintenance and environmental capital projects. In addition, there was
approximately $3 million of capital expenditures in Other related to corporate
information technology projects. Cash outflows associated with capital spending
were partly offset by a $9 million decrease in the Independence restricted cash
balance.

Financing
Activities

Dynegy. Dynegys cash provided by financing
activities during the three months ended March 31, 2008 totaled $50 million,
which primarily related to proceeds from long-term borrowings under the Plum
Point Credit Agreement Facility.

Dynegys
cash used in financing activities during the three months ended March 31, 2007
totaled $20 million, resulting primarily from a principal payment on the Sithe
Energies debt.

DHI.
DHIs cash provided by financing activities during the three months ended March
31, 2008 totaled $50 million, which primarily related to proceeds from long-term
borrowings under the Plum Point Credit Agreement Facility.

51

DHIs
cash used in financing activities during the three months ended March 31, 2007
totaled $70 million, resulting primarily from a $50 million dividend payment to
Dynegy and a $19 million principal payment on the Sithe Energies debt.

RISK-MANAGEMENT
DISCLOSURES

The
following table provides a reconciliation of the risk-management data on the
unaudited condensed consolidated balance sheets:

As of and
 for the
 Three Months 
 Ended 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.The
net risk management liability of $403 million is the aggregate of the following
line items on our unaudited condensed consolidated balance sheets: Current
AssetsAssets from risk-management activities, Other AssetsAssets from
risk-management activities, Current LiabilitiesLiabilities from
risk-management activities and Other LiabilitiesLiabilities from
risk-management activities. During the period from December 31, 2007 to March
31, 2008, our Current AssetsAssets from risk-management activities and
Current LiabilitiesLiabilities from risk-management activities increased by
$1.4 billion and $1.6 billion, respectively. This increase was primarily a
result of increased volumes of purchases and sales of commodities via financial
instruments. These amounts are reflected gross on our condensed consolidated
balance sheets, as we do not offset fair value amounts recognized for derivative
instruments executed with the same counterparties under a master netting
agreement. However, a substantial portion of the financial instruments are with
the same counterparty, resulting in a significantly smaller increase in our net
risk-management liability, as denoted above. For further information regarding
our counterparty credit exposure associated with risk-management accounts,
please see Item 3. Quantitative and Qualitative Disclosures about Market
RiskCredit Risk.

Risk-Management
Asset and Liability Disclosures. The following
tables depict the mark-to-market value and cash flow components of our net
risk-management liabilities at March 31, 2008 and December 31, 2007. As
opportunities arise to monetize positions that we believe will result in an
economic benefit to us, we may receive or pay cash in periods other than those
depicted below:

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 value52

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.Cash
Flow Components of Net Risk-Management Liabilities

Three
 Months
 Ended
 March 31,
2008

Nine Months
 Ended
 December 31,
 2008

Total
 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.The
following table provides an assessment of net contract values by year as of
March 31, 2008, based on our valuation methodology:

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

This
Form 10-Q/A includes statements reflecting assumptions, expectations,
projections, intentions or beliefs about future events that are intended as
forward-looking statements by both Dynegy and DHI. All statements included or
incorporated by reference in this quarterly report, other than statements of
historical fact, that address activities, events or developments that we or our
management expect, believe or anticipate will or may occur in the future are
forward-looking statements. These statements represent our reasonable judgment
on the future based on various factors and using numerous assumptions and are
subject to known and unknown risks, uncertainties and other factors that could
cause our actual results and financial position to differ materially from those
contemplated

53

by the
statements. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. They use words such as
anticipate, estimate, project, forecast, plan, may,
will,
should, expect and other words of similar meaning. In particular, these
include, but are not limited to, statements relating to the following:


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;
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.Any
or all of our forward-looking statements may turn out to be wrong. They can be
affected by inaccurate assumptions or by known or unknown risks, uncertainties
and other factors, many of which are beyond our control, including those set
forth under Part IIOther Information, Item 1A-Risk Factors.

RECENT
ACCOUNTING PRONOUNCEMENTS

See
Note 1Accounting Policies to the unaudited condensed consolidated financial
statements for a discussion of recently issued accounting pronouncements
affecting us.

CRITICAL
ACCOUNTING POLICIES

Please
read Critical Accounting Policies of Dynegys and DHIs Form 10-K for a
complete description of our critical accounting policies, with respect to which
there have been no other material changes since the filing of such Form 10-K.

54
Item 4CONTROLS AND PROCEDURESDYNEGY INC.
AND DYNEGY HOLDINGS INC.

Evaluation
of Disclosure Controls and Procedures

As
of the end of the period covered by this report, an evaluation was carried out
under the supervision and with the participation of Dynegys and DHIs
management, including their Chief Executive Officer and their Chief Financial
Officer, of the effectiveness of the design and operation of the consolidated
enterprises disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act). This evaluation included consideration
of the various processes carried out under the direction of Dynegys disclosure
committee in an effort to ensure that information required to be disclosed in
the consolidated enterprises SEC reports is recorded, processed, summarized
and reported within the time periods specified by the SEC. This evaluation also
considered the work completed as of the end of the first quarter 2008 relating
to Dynegys and DHIs compliance with Section 404 of the Sarbanes-Oxley Act of
2002.

In
connection with the restatement of our unaudited condensed consolidated
financial statements for the quarter ended March 31, 2008 to correct a
misstatement of revenues that was offset in cost of sales, we reevaluated our
disclosure controls and procedures. In connection with the preparation of this
Form 10-Q/A, an evaluation of the effectiveness of the design and operation of
the consolidated enterprises disclosure controls and procedures was carried
out under the supervision and with the participation of Dynegys and DHIs
management, including their Chief Executive Officer and their Chief Financial
Officer. In making this evaluation, our management considered the material
weakness below. Based on this evaluation, Dynegys and DHIs CEO and CFO
concluded that Dynegys and DHIs disclosure controls and procedures were not
effective as of March 31, 2008.

Notwithstanding
the material weakness that existed at March 31, 2008, management believes,
based on its knowledge, that the financial statements and other financial
information included in this report, fairly present, in all material respects
in accordance with GAAP, our financial condition, results of operations and
cash flows as of and for the periods presented in this report.

Material
Weakness Related to Revenues and Cost of Sales

Subsequent
to the filing of our Quarterly Report on Form 10-Q for the period ended March
31, 2008, we identified a misstatement of revenues that was offset in cost of
sales for the three months ended March 31, 2008. Accordingly, in this Form
10-Q/A, we have restated our unaudited condensed consolidated financial statements.
For further information, please see the Introductory Note in the accompanying
unaudited condensed consolidated financial statements.

As
a result of this misstatement, we have concluded that we did not maintain
effective controls as of March 31, 2008 over the accuracy of our revenues and
cost of sales amounts. Our processes, procedures and controls related to the
calculation and analysis of the presentation of revenues and cost of sales
related to energy trading

55

activities on
a net basis were not effective to ensure that the revenues and cost of sales
amounts were accurately reflected in the financial statements at March 31,
2008. This control deficiency resulted in the restatement of our March 31, 2008
financial statements by a material amount. Therefore, we concluded that this
control deficiency, as of March 31, 2008, constitutes a material weakness.

In
order to remediate this material weakness, we have implemented the following
steps: (i) further formalized and documented the change management procedures
surrounding the quarterly revenue netting calculation; (ii) expanded the
management review of the calculation; and (iii) formalized and documented
additional analysis to be performed on our revenues and cost of sales amounts.

Changes
in Internal Controls Over Financial Reporting

Other
than as noted above in this Item 4, there were no changes in the consolidated
enterprises internal control over financial reporting that have materially
affected or are reasonably likely to materially affect the consolidated
enterprises internal control over financial reporting during the first quarter
2008.

56

DYNEGY INC. and DYNEGY HOLDINGS INC.

PART II. OTHER INFORMATION

Item 6EXHIBITSDYNEGY INC. AND DYNEGY
HOLDINGS INC.

The
following documents are included as exhibits to this Form 10-Q/A:

Exhibit
 Number

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.57

Exhibit
 Number

Description*10.17

Fourteenth Amendment to the Dynegy Inc. 401(K) Savings Plan.*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**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 2002.58

Exhibit
 Number

Description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.*
Previously filed with the Quarterly Report on Form 10-Q for the
 period ended March 31, 2008 filed on May 8, 2008.**
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.59

DYNEGY INC. and DYNEGY HOLDINGS INC.

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

DYNEGY INC.Date: July
 25, 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: July
 25, 2008
By:
/s/ HOLLI
 C. NICHOLSHolli C. NicholsExecutive Vice President and Chief Financial Officer
 (Duly Authorized Officer and Principal Financial Officer)60