##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 
 DYNEGY INC.
DYNEGY HOLDINGS INC.
 (Exact name of registrant as specified in its charter)
 Commission
    
    State of
    
    I.R.S. EmployerEntity
    
    File Number
    
    Incorporation
    
    Identification No.Dynegy Inc.
    
    001-33443
    
    Delaware
    
    20-5653152Dynegy Holdings Inc.
    
    000-29311
    
    Delaware
    
    94-32484151000 Louisiana, Suite 5800Houston, Texas
    
    
    
    
    
    77002(Address of principal executive offices)
    
    
    
    
    
    (Zip Code)
 (713) 507-6400
(Registrants telephone number, including area code)
  Dynegy Inc.
    
    Yes þ No oDynegy Holdings Inc.
    
    Yes þ No o
  Large accelerated filer
    
    Accelerated filer
    
    Non-accelerated filerDynegy Inc.
    
    þ
    
    o
    
    oDynegy Holdings Inc.
    
    o
    
    o
    
    þ
  Dynegy Inc.
    
    Yes o No þDynegy Holdings Inc.
    
    Yes o No þ




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##### 



DYNEGY INC. and DYNEGY HOLDINGS INC.
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    FINANCIAL STATEMENTSDYNEGY INC. AND DYNEGY HOLDINGS INC.:Condensed Consolidated Balance SheetsDynegy Inc.:
September 30, 2007 and December 31, 2006
    
    
    4Condensed Consolidated Statements of OperationsDynegy Inc.:
For the three and nine months ended September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash FlowsDynegy Inc.:
For the nine months ended September 30, 2007 and 2006
    
    
    6Condensed Consolidated Statements of Comprehensive Income (Loss)Dynegy Inc.:
For the three and nine months ended September 30, 2007 and 2006
    
    
    7Condensed Consolidated Balance SheetsDynegy Holdings Inc.:
September 30, 2007 and December 31, 2006
    
    
    8Condensed Consolidated Statements of OperationsDynegy Holdings Inc.:
For the three and nine months ended September 30, 2007 and 2006
    
    
    9Condensed Consolidated Statements of Cash FlowsDynegy Holdings Inc.:
For the nine months ended September 30, 2007 and 2006
    
    
    10Condensed Consolidated Statements of Comprehensive Income (Loss)Dynegy Holdings Inc.:
For the three and nine months ended September 30, 2007 and 2006
    
    
    11Notes to Condensed Consolidated Financial Statements
    
    
    12Item 2.
    

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    52Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDYNEGY INC.
AND DYNEGY HOLDINGS INC.
    
    
    86Item 4.
    
    CONTROLS AND PROCEDURESDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    87PART II. OTHER INFORMATIONItem 1.
    
    LEGAL PROCEEDINGSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    89Item 1A.
    
    RISK FACTORSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    89Item 2.
    
    UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDSDYNEGY INC.
    
    
    89Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSDYNEGY INC.
    
    
    89Item 6.
    
    EXHIBITSDYNEGY INC. AND DYNEGY HOLDINGS INC.
    
    
    91Exhibit 31.1Exhibit 31.1(a)Exhibit 31.2Exhibit 31.2(a)Exhibit 32.1Exhibit 32.1(a)Exhibit 32.2Exhibit 32.2(a)
  EXPLANATORY NOTE
   2




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##### Table of Contents



DEFINITIONS
  APB
    
    Accounting Principles BoardARO
    
    Asset retirement obligationCal ISO
    
    The California Independent System OperatorCARB
    
    California Air Resources BoardCDWR
    
    California Department of Water ResourcesCEC
    
    California Energy CommissionCFTC
    
    Commodity Futures Trading CommissionCO2
    
    Carbon DioxideCPUC
    
    California Public Utilities CommissionCRA
    
    Canada Revenue AgencyCRM
    
    Our customer risk management business segmentCUSA
    
    Chevron U.S.A. Inc., a wholly owned subsidiary of Chevron CorporationDGC
    
    Dynegy Global CommunicationsDHI
    
    Dynegy Holdings Inc., Dynegys primary financing subsidiaryDMG
    
    Dynegy Midwest Generation, Inc.DMSLP
    
    Dynegy Midstream Services L.P.DMT
    
    Dynegy Marketing and TradeDNE
    
    Dynegy Northeast GenerationDPM
    
    Dynegy Power Marketing Inc.EBITDA
    
    Earnings Before Interest, Taxes, Depreciation and AmortizationEITF
    
    Emerging Issues Task ForceEMA
    
    Energy management agreementEPA
    
    Environmental Protection AgencyERCOT
    
    Electric Reliability Council of Texas, Inc.ERISA
    
    The Employee Retirement Income Security Act of 1974, as amendedFASB
    
    Financial Accounting Standards BoardFERC
    
    Federal Energy Regulatory CommissionFIN
    
    FASB InterpretationFSP
    
    FASB Staff PositionGAAP
    
    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-SO
    
    Our power generation business  South segment, which was renamed GEN-WEGEN-WE
    
    Our power generation business  West segmentICC
    
    Illinois Commerce CommissionIMA
    
    In-market asset availabilityIP
    
    Illinois PowerIRS
    
    Internal Revenue ServiceISO
    
    Independent System OperatorLNG
    
    Liquefied natural gasLTSA
    
    Long term service agreementMISO
    
    Midwest Independent Transmission Operator, Inc.MMBtu
    
    Millions of British thermal unitsMW
    
    MegawattsMWh
    
    Megawatt hourNGL
    
    Our former natural gas liquids business segmentNNG
    
    Northern Natural Gas CompanyNOL
    
    Net operating lossNOx
    
    Nitrogen OxideNPDES
    
    National Pollutant Discharge Elimination SystemNRG
    
    NRG Energy, Inc.NYSDEC
    
    New York State Department of Environmental ConservationPRB
    
    Powder River Basin coalPUHCA
    
    Public Utility Holding Company Act of 1935, as amendedRGGI
    
    Regional Greenhouse Gas InitiativeSAB
    
    SEC Staff Accounting BulletinSEC
    
    U.S. Securities and Exchange CommissionSFAS
    
    Statement of Financial Accounting StandardsSPN
    
    Second Priority Senior Secured NotesSPDES
    
    State Pollutant Discharge Elimination SystemVaR
    
    Value at RiskVIE
    
    Variable Interest Entity
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1FINANCIAL STATEMENTSDYNEGY INC. AND DYNEGY HOLDINGS INC.
 DYNEGY INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except share data)
 September 30,2007
    
    
    December 31, 2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    638
    
    
    $
    371Restricted cash
    
    
    140
    
    
    
    280Accounts receivable, net of allowance for doubtful accounts of $21 and $48, respectively
    
    
    386
    
    
    
    257Accounts receivable, affiliates
    
    
    
    
    
    
    1Inventory
    
    
    197
    
    
    
    194Assets from risk-management activities
    
    
    509
    
    
    
    701Deferred income taxes
    
    
    22
    
    
    
    93Prepayments and other current assets
    
    
    160
    
    
    
    92Assets held for sale (Note 3)
    
    
    58
    
    
    
    Total Current Assets
    
    
    2,110
    
    
    
    1,989Property, Plant and Equipment
    
    
    10,579
    
    
    
    6,473Accumulated depreciation
    
    
    (1,604
    )
    
    
    (1,522
    )Property, Plant and Equipment, Net
    
    
    8,975
    
    
    
    4,951Other AssetsUnconsolidated investments
    
    
    96
    
    
    
    Restricted cash and investments
    
    
    912
    
    
    
    83Assets from risk-management activities
    
    
    230
    
    
    
    16Goodwill
    
    
    532
    
    
    
    Intangible assets
    
    
    321
    
    
    
    347Deferred income taxes
    
    
    6
    
    
    
    12Other long-term assets
    
    
    222
    
    
    
    139Total Assets
    
    $
    13,404
    
    
    $
    7,537LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    307
    
    
    $
    172Accrued interest
    
    
    130
    
    
    
    66Accrued liabilities and other current liabilities
    
    
    252
    
    
    
    231Liabilities from risk-management activities
    
    
    502
    
    
    
    629Notes payable and current portion of long-term debt
    
    
    53
    
    
    
    68Liabilities held for sale (Note 3)
    
    
    2
    
    
    
    Total Current Liabilities
    
    
    1,246
    
    
    
    1,166Long-term debt
    
    
    5,691
    
    
    
    2,990Long-term debt, affiliates
    
    
    200
    
    
    
    200Long-Term Debt
    
    
    5,891
    
    
    
    3,190Other LiabilitiesLiabilities from risk-management activities
    
    
    220
    
    
    
    35Deferred income taxes
    
    
    1,087
    
    
    
    469Other long-term liabilities
    
    
    421
    
    
    
    410Total Liabilities
    
    
    8,865
    
    
    
    5,270Minority Interest
    
    
    (14
    )
    
    
    Commitments and Contingencies (Note 11)Stockholders EquityClass A Common Stock, $0.01 par value, 2,100,000,000 shares authorized at September 30, 2007; 502,672,821 shares
issued and outstanding at September 30, 2007; and no par value, 900,000,000 shares authorized at December 31, 2006;
403,137,339 shares issued and outstanding at December 31, 2006
    
    
    5
    
    
    
    3,367Class B Common Stock, $0.01 par value, 850,000,000 shares authorized at September 30, 2007; 340,000,000 shares issued
and outstanding at September 30, 2007; and no par value, 360,000,000 shares authorized at December 31, 2006;
96,891,014 shares issued and outstanding at December 31, 2006
    
    
    3
    
    
    
    1,006Additional paid-in capital
    
    
    6,457
    
    
    
    39Subscriptions receivable
    
    
    (7
    )
    
    
    (8
    )Accumulated other comprehensive income (loss), net of tax
    
    
    (16
    )
    
    
    67Accumulated deficit
    
    
    (1,818
    )
    
    
    (2,135
    )Treasury stock, at cost, 2,448,380 shares at September 30, 2007 and 1,787,004 shares at December 31, 2006, respectively
    
    
    (71
    )
    
    
    (69
    )Total Stockholders Equity
    
    
    4,553
    
    
    
    2,267Total Liabilities and Stockholders Equity
    
    $
    13,404
    
    
    $
    7,537
   4




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##### Table of Contents



DYNEGY INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    1,046
    
    
    $
    508
    
    
    $
    2,379
    
    
    $
    1,427Cost of sales, exclusive of depreciation shown separately below
    
    
    (649
    )
    
    
    (319
    )
    
    
    (1,478
    )
    
    
    (907
    )Depreciation and amortization expense
    
    
    (92
    )
    
    
    (54
    )
    
    
    (232
    )
    
    
    (164
    )Impairment and other charges
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    (107
    )Gain on sale of assets, net
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    3General and administrative expenses
    
    
    (62
    )
    
    
    (59
    )
    
    
    (163
    )
    
    
    (160
    )Operating income (loss)
    
    
    247
    
    
    
    (20
    )
    
    
    510
    
    
    
    92Earnings from unconsolidated investments
    
    
    8
    
    
    
    4
    
    
    
    6
    
    
    
    6Interest expense
    
    
    (117
    )
    
    
    (105
    )
    
    
    (268
    )
    
    
    (310
    )Debt conversion costs
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (249
    )Minority interest income (expense)
    
    
    1
    
    
    
    
    
    
    
    (8
    )
    
    
    Other income and expense, net
    
    
    16
    
    
    
    11
    
    
    
    34
    
    
    
    41Income (loss) from continuing operations before income taxes
    
    
    155
    
    
    
    (112
    )
    
    
    274
    
    
    
    (420
    )Income tax (expense) benefit (Note 14)
    
    
    (59
    )
    
    
    41
    
    
    
    (95
    )
    
    
    150Income (loss) from continuing operations
    
    
    96
    
    
    
    (71
    )
    
    
    179
    
    
    
    (270
    )Income (loss) from discontinued operations, net of tax expense
of $93, $8, $97 and $1, respectively (Notes 3 and 14)
    
    
    124
    
    
    
    2
    
    
    
    131
    
    
    
    (6
    )Income (loss) before cumulative effect of change in accounting
principle
    
    
    220
    
    
    
    (69
    )
    
    
    310
    
    
    
    (276
    )Cumulative effect of change in accounting principle, net of
tax expense of zero
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net income (loss)
    
    
    220
    
    
    
    (69
    )
    
    
    310
    
    
    
    (275
    )Less: preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Net income (loss) applicable to common stockholders
    
    $
    220
    
    
    $
    (69
    )
    
    $
    310
    
    
    $
    (284
    )Earnings (Loss) Per Share (Note 10):Basic earnings (loss) per share:Income (loss) from continuing operations
    
    $
    0.11
    
    
    $
    (0.14
    )
    
    $
    0.25
    
    
    $
    (0.63
    )Income (loss) from discontinued operations
    
    
    0.15
    
    
    
    
    
    
    
    0.18
    
    
    
    (0.01
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic earnings (loss) per share
    
    $
    0.26
    
    
    $
    (0.14
    )
    
    $
    0.43
    
    
    $
    (0.64
    )Diluted earnings (loss) per share:Income (loss) from continuing operations
    
    $
    0.11
    
    
    $
    (0.14
    )
    
    $
    0.25
    
    
    $
    (0.63
    )Income (loss) from discontinued operations
    
    
    0.15
    
    
    
    
    
    
    
    0.18
    
    
    
    (0.01
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted earnings (loss) per share
    
    $
    0.26
    
    
    $
    (0.14
    )
    
    $
    0.43
    
    
    $
    (0.64
    )Basic shares outstanding
    
    
    836
    
    
    
    495
    
    
    
    721
    
    
    
    446Diluted shares outstanding
    
    
    838
    
    
    
    497
    
    
    
    723
    
    
    
    512
   5




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##### Table of Contents



DYNEGY INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
 Nine Months EndedSeptember 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    310
    
    
    $
    (275
    )Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and amortization
    
    
    239
    
    
    
    206Impairment and other charges
    
    
    
    
    
    
    107Earnings from unconsolidated investments, net of cash distributions
    
    
    (6
    )
    
    
    (6
    )Risk-management activities
    
    
    (137
    )
    
    
    (70
    )Gain on sale of assets, net
    
    
    (214
    )
    
    
    (3
    )Deferred income taxes
    
    
    172
    
    
    
    (147
    )Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    (1
    )Legal and settlement charges
    
    
    29
    
    
    
    14Sithe subordinated debt exchange charge
    
    
    
    
    
    
    36Debt conversion costs
    
    
    
    
    
    
    249Other
    
    
    22
    
    
    
    39Changes in working capital:Accounts receivable
    
    
    (64
    )
    
    
    353Inventory
    
    
    (5
    )
    
    
    12Prepayments and other assets
    
    
    (43
    )
    
    
    119Accounts payable and accrued liabilities
    
    
    109
    
    
    
    (817
    )Changes in non-current assets
    
    
    (45
    )
    
    
    11Changes in non-current liabilities
    
    
    (1
    )
    
    
    (7
    )Net cash provided by (used in) operating activities
    
    
    366
    
    
    
    (180
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (236
    )
    
    
    (92
    )Unconsolidated investments
    
    
    (7
    )
    
    
    Proceeds from asset sales, net
    
    
    466
    
    
    
    18Business acquisitions, net of cash acquired
    
    
    (128
    )
    
    
    Net proceeds from exchange of unconsolidated investments, net of cash acquired
    
    
    
    
    
    
    165Decrease (increase) in restricted cash and restricted investments
    
    
    (598
    )
    
    
    125Other investing
    
    
    
    
    
    
    (3
    )Net cash provided by (used in) investing activities
    
    
    (503
    )
    
    
    213CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings, net
    
    
    2,705
    
    
    
    1,071Repayments of long-term borrowings
    
    
    (2,300
    )
    
    
    (1,780
    )Debt conversion costs
    
    
    
    
    
    
    (249
    )Redemption of Series C Preferred
    
    
    
    
    
    
    (400
    )Proceeds from issuance of capital stock
    
    
    4
    
    
    
    183Dividends and other distributions, net
    
    
    
    
    
    
    (17
    )Other financing, net
    
    
    (5
    )
    
    
    (2
    )Net cash provided by (used in) financing activities
    
    
    404
    
    
    
    (1,194
    )Net increase (decrease) in cash and cash equivalents
    
    
    267
    
    
    
    (1,161
    )Cash and cash equivalents, beginning of period
    
    
    371
    
    
    
    1,549Cash and cash equivalents, end of period
    
    $
    638
    
    
    $
    388Other non-cash investing activity:Noncash construction expenditures
    
    $
    13
    
    
    $
    Other non-cash financing activity:Conversion of Convertible Subordinated Debentures due 2023
    
    $
    
    
    
    $
    225Sithe subordinated debt exchange charge, net
    
    
    
    
    
    
    122
   6




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##### Table of Contents



DYNEGY INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited) (in millions)
 Three Months EndedSeptember 30,2007
    
    
    2006Net income (loss)
    
    $
    220
    
    
    $
    (69
    )Cash flow hedging activities, net:Unrealized mark-to-market gains (losses) arising during period, net
    
    
    (15
    )
    
    
    38Reclassification of mark-to-market losses to earnings, net
    
    
    12
    
    
    
    2Changes in cash flow hedging activities, net (net of tax benefit
(expense) of $3 and ($23), respectively)
    
    
    (3
    )
    
    
    40Recognized prior service cost and actuarial loss
    
    
    1
    
    
    
    Foreign currency translation adjustment
    
    
    2
    
    
    
    (1
    )Unrealized gain on securities, net:Unrealized gain on securities
    
    
    6
    
    
    
    Less: Reclassification adjustments for gains realized in net income (loss)
    
    
    (4
    )
    
    
    Net unrealized gains, net (net of tax expense of $1)
    
    
    2
    
    
    
    Other comprehensive income, net of tax
    
    
    2
    
    
    
    39Comprehensive income (loss)
    
    $
    222
    
    
    $
    (30
    )
 Nine Months EndedSeptember 30,2007
    
    
    2006Net income (loss)
    
    $
    310
    
    
    $
    (275
    )Cash flow hedging activities, net:Unrealized mark-to-market gains (losses) arising during period, net
    
    
    (74
    )
    
    
    63Reclassification of mark-to-market gains to earnings, net
    
    
    (16
    )
    
    
    (10
    )Changes in cash flow hedging activities, net (net of tax benefit
(expense) of $54 and ($31), respectively)
    
    
    (90
    )
    
    
    53Recognized prior service cost and actuarial loss
    
    
    3
    
    
    
    Foreign currency translation adjustment
    
    
    4
    
    
    
    2Unrealized gain on securities, net:Unrealized gain on securities
    
    
    4
    
    
    
    Less: Reclassification adjustments for gains realized in net income (loss)
    
    
    (4
    )
    
    
    Net unrealized gain, net (net of tax of zero)
    
    
    
    
    
    
    Other comprehensive income (loss), net of tax
    
    
    (83
    )
    
    
    55Comprehensive income (loss)
    
    $
    227
    
    
    $
    (220
    )
   7




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    594
    
    
    $
    243Restricted cash
    
    
    140
    
    
    
    280Accounts receivable, net of allowance for doubtful accounts of $14 and $48 respectively
    
    
    391
    
    
    
    263Accounts receivable, affiliates
    
    
    
    
    
    
    7Inventory
    
    
    197
    
    
    
    194Assets from risk-management activities
    
    
    509
    
    
    
    701Deferred income taxes
    
    
    
    
    
    
    48Prepayments and other current assets
    
    
    160
    
    
    
    92Assets held for sale (Note 3)
    
    
    58
    
    
    
    Total Current Assets
    
    
    2,049
    
    
    
    1,828Property, Plant and Equipment
    
    
    10,579
    
    
    
    6,473Accumulated depreciation
    
    
    (1,604
    )
    
    
    (1,522
    )Property, Plant and Equipment, Net
    
    
    8,975
    
    
    
    4,951Other AssetsUnconsolidated investments
    
    
    35
    
    
    
    Restricted cash and investments
    
    
    912
    
    
    
    83Assets from risk-management activities
    
    
    230
    
    
    
    16Long-term accounts receivable, affiliate
    
    
    784
    
    
    
    781Goodwill
    
    
    532
    
    
    
    Intangible assets
    
    
    321
    
    
    
    347Deferred income taxes
    
    
    6
    
    
    
    12Other long-term assets
    
    
    211
    
    
    
    118Total Assets
    
    $
    14,055
    
    
    $
    8,136LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    307
    
    
    $
    172Accrued interest
    
    
    130
    
    
    
    66Accrued liabilities and other current liabilities
    
    
    243
    
    
    
    230Deferred income taxes
    
    
    45
    
    
    
    Liabilities from risk-management activities
    
    
    502
    
    
    
    629Notes payable and current portion of long-term debt
    
    
    53
    
    
    
    68Liabilities held for sale (Note 3)
    
    
    2
    
    
    
    Total Current Liabilities
    
    
    1,282
    
    
    
    1,165Long-term debt
    
    
    5,691
    
    
    
    2,990Long-term debt to affiliates
    
    
    200
    
    
    
    200Long-Term Debt
    
    
    5,891
    
    
    
    3,190Other LiabilitiesLiabilities from risk-management activities
    
    
    220
    
    
    
    35Deferred income taxes
    
    
    818
    
    
    
    325Other long-term liabilities
    
    
    417
    
    
    
    385Total Liabilities
    
    
    8,628
    
    
    
    5,100Minority Interest
    
    
    (14
    )
    
    
    Commitments and Contingencies (Note 11)Stockholders EquityCapital Stock, $1 par value, 1,000 shares authorized at September 30, 2007 and
December 31, 2006, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    5,684
    
    
    
    3,543Accumulated other comprehensive income (loss), net of tax
    
    
    (16
    )
    
    
    67Accumulated deficit
    
    
    (227
    )
    
    
    (574
    )Total Stockholders Equity
    
    
    5,441
    
    
    
    3,036Total Liabilities and Stockholders Equity
    
    $
    14,055
    
    
    $
    8,136
   8




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    1,046
    
    
    $
    508
    
    
    $
    2,379
    
    
    $
    1,427Cost of sales, exclusive of depreciation shown separately below
    
    
    (649
    )
    
    
    (319
    )
    
    
    (1,478
    )
    
    
    (907
    )Depreciation and amortization expense
    
    
    (92
    )
    
    
    (54
    )
    
    
    (232
    )
    
    
    (164
    )Impairment and other charges
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    (107
    )Gain on sale of assets, net
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    3General and administrative expenses
    
    
    (62
    )
    
    
    (58
    )
    
    
    (144
    )
    
    
    (158
    )Operating income (loss)
    
    
    247
    
    
    
    (19
    )
    
    
    529
    
    
    
    94Earnings from unconsolidated investments
    
    
    12
    
    
    
    4
    
    
    
    12
    
    
    
    6Interest expense
    
    
    (117
    )
    
    
    (105
    )
    
    
    (268
    )
    
    
    (303
    )Debt conversion costs
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (204
    )Minority interest income (expense)
    
    
    1
    
    
    
    
    
    
    
    (8
    )
    
    
    Other income and expense, net
    
    
    17
    
    
    
    9
    
    
    
    33
    
    
    
    36Income (loss) from continuing operations before income taxes
    
    
    160
    
    
    
    (113
    )
    
    
    298
    
    
    
    (371
    )Income tax (expense) benefit (Note 14)
    
    
    (62
    )
    
    
    43
    
    
    
    (94
    )
    
    
    132Income (loss) from continuing operations
    
    
    98
    
    
    
    (70
    )
    
    
    204
    
    
    
    (239
    )Income (loss) from discontinued operations, net of tax expense
of $93, $7, $98 and $1, respectively (Notes 3 and 14)
    
    
    124
    
    
    
    3
    
    
    
    130
    
    
    
    (6
    )Net income (loss)
    
    $
    222
    
    
    $
    (67
    )
    
    $
    334
    
    
    $
    (245
    )
   9




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
 Nine Months EndedSeptember 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    334
    
    
    $
    (245
    )Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and amortization
    
    
    239
    
    
    
    203Impairment and other charges
    
    
    
    
    
    
    107Earnings from unconsolidated investments, net of cash distributions
    
    
    (12
    )
    
    
    (6
    )Risk-management activities
    
    
    (137
    )
    
    
    (70
    )Gain on sale of assets, net
    
    
    (214
    )
    
    
    (3
    )Deferred income taxes
    
    
    161
    
    
    
    (130
    )Legal and settlement charges
    
    
    29
    
    
    
    14Sithe subordinated debt exchange charge
    
    
    
    
    
    
    36Debt conversion costs
    
    
    
    
    
    
    205Other
    
    
    20
    
    
    
    38Changes in working capital:Accounts receivable
    
    
    (64
    )
    
    
    353Inventory
    
    
    (5
    )
    
    
    12Prepayments and other assets
    
    
    (43
    )
    
    
    95Accounts payable and accrued liabilities
    
    
    111
    
    
    
    (805
    )Changes in non-current assets
    
    
    (43
    )
    
    
    11Changes in non-current liabilities
    
    
    (1
    )
    
    
    (7
    )Net cash provided by (used in) operating activities
    
    
    375
    
    
    
    (192
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (236
    )
    
    
    (92
    )Proceeds from asset sales, net
    
    
    466
    
    
    
    15Business acquisitions, net of cash acquired
    
    
    16
    
    
    
    Net proceeds from exchange of unconsolidated investments, net of cash
acquired
    
    
    
    
    
    
    165Decrease in restricted cash and restricted investments
    
    
    (598
    )
    
    
    125Affiliate transactions
    
    
    (11
    )
    
    
    2Other investing
    
    
    
    
    
    
    (3
    )Net cash provided by (used in) investing activities
    
    
    (363
    )
    
    
    212CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings, net
    
    
    2,705
    
    
    
    1,071Repayments of long-term borrowings
    
    
    (2,025
    )
    
    
    (1,780
    )Debt conversion costs
    
    
    
    
    
    
    (203
    )Borrowings from affiliate, net of affiliate
    
    
    
    
    
    
    (120
    )Dividend to affiliate
    
    
    (342
    )
    
    
    (50
    )Other financing, net
    
    
    1
    
    
    
    (1
    )Net cash provided by (used in) financing activities
    
    
    339
    
    
    
    (1,083
    )Net increase (decrease) in cash and cash equivalents
    
    
    351
    
    
    
    (1,063
    )Cash and cash equivalents, beginning of period
    
    
    243
    
    
    
    1,326Cash and cash equivalents, end of period
    
    $
    594
    
    
    $
    263Other non-cash investing activity:Noncash construction expenditures
    
    $
    13
    
    
    $
    Other non-cash financing activity:Sithe subordinated debt exchange charge, net
    
    $
    
    
    
    $
    122
   10




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##### Table of Contents



DYNEGY HOLDINGS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited) (in millions)
 Three Months EndedSeptember 30,2007
    
    
    2006Net income (loss)
    
    $
    222
    
    
    $
    (67
    )Cash flow hedging activities, net:Unrealized mark-to-market gains (losses) arising during period, net
    
    
    (15
    )
    
    
    38Reclassification of mark-to-market gains to earnings, net
    
    
    12
    
    
    
    2Changes in cash flow hedging activities, net (net of tax benefit
(expense) of $3 and ($23), respectively)
    
    
    (3
    )
    
    
    40Recognized prior service cost and actuarial loss
    
    
    1
    
    
    
    Foreign currency translation adjustment
    
    
    2
    
    
    
    (1
    )Unrealized gain on securities, net:Unrealized gain on securities
    
    
    6
    
    
    
    Less: Reclassification adjustments for gains realized in net income (loss)
    
    
    (4
    )
    
    
    Net unrealized gains, net (net of tax expense of $1)
    
    
    2
    
    
    
    Other comprehensive income, net of tax
    
    
    2
    
    
    
    39Comprehensive income (loss)
    
    $
    224
    
    
    $
    (28
    )
 Nine Months EndedSeptember 30,2007
    
    
    2006Net income (loss)
    
    $
    334
    
    
    $
    (245
    )Cash flow hedging activities, net:Unrealized mark-to-market gains (losses) arising during period, net
    
    
    (74
    )
    
    
    63Reclassification of mark-to-market gains to earnings, net
    
    
    (16
    )
    
    
    (10
    )Changes in cash flow hedging activities, net (net of tax benefit
(expense) of $54 and ($31), respectively)
    
    
    (90
    )
    
    
    53Recognized prior service cost and actuarial loss
    
    
    3
    
    
    
    Foreign currency translation adjustment
    
    
    4
    
    
    
    2Unrealized gain on securities, net:Unrealized gain on securities
    
    
    4
    
    
    
    Less: Reclassification adjustments for gains realized in net income (loss)
    
    
    (4
    )
    
    
    Net unrealized gains, net (net of tax of zero)
    
    
    
    
    
    
    Other comprehensive income (loss), net of tax
    
    
    (83
    )
    
    
    55Comprehensive income (loss)
    
    $
    251
    
    
    $
    (190
    )
   11




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Note 1Accounting Policies
 Basis of Presentation
      12




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Goodwill and Other Intangible Assets
    Accounting Principles Adopted
 FIN No. 48.
    13




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
     Accounting Principles Not Yet Adopted
 SFAS No. 157.
 SFAS No. 159.
 Note 2LS Power Business Combination and Dynegy Illinois Entity Contributions
 LS Power Business Combination.
  14




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
      15




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  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
    
    
    21Property, plant and equipment
    
    
    4,223Goodwill
    
    
    594Unconsolidated investments
    
    
    83Other
    
    
    48Total assets acquired
    
    $
    5,202Current 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
    
    
    (533
    )Other
    
    
    (96
    )Minority interest
    
    
    22Total liabilities and minority interest assumed
    
    $
    (2,672
    )Net assets acquired
    
    $
    2,530
     16




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
     Three Months EndedSeptember 30, 2006Actual
    
    
    Pro Forma(in millions, except pershare amounts)Revenue
    
    $
    508
    
    
    $
    945Loss before cumulative effect of a change in
accounting principal
    
    
    (69
    )
    
    
    (72
    )Net loss applicable to common stockholders
    
    
    (69
    )
    
    
    (72
    )Basic and diluted loss per share before
cumulative effect of accounting change
    
    $
    (0.14
    )
    
    $
    (0.09
    )Basic and diluted loss per share
    
    
    (0.14
    )
    
    
    (0.09
    )
  17




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006Actual
    
    
    Pro Forma
    
    
    Actual
    
    
    Pro Forma(in millions, except per share amounts)Revenue
    
    $
    2,379
    
    
    $
    2,668
    
    
    $
    1,427
    
    
    $
    2,076Income (loss) before cumulative effect of a change
in accounting principal
    
    
    310
    
    
    
    261
    
    
    
    (276
    )
    
    
    (264
    )Net income (loss) applicable to common stockholders
    
    
    310
    
    
    
    261
    
    
    
    (284
    )
    
    
    (272
    )Basic earnings (loss) per share before cumulative
effect of accounting change
    
    $
    0.43
    
    
    $
    0.36
    
    
    $
    (0.64
    )
    
    $
    (0.35
    )Diluted earnings (loss) per share before
cumulative effect of accounting change
    
    
    0.43
    
    
    
    0.36
    
    
    
    (0.64
    )
    
    
    (0.35
    )Basic earnings (loss) per share
    
    
    0.43
    
    
    
    0.36
    
    
    
    (0.64
    )
    
    
    (0.35
    )Diluted earnings (loss) per share
    
    
    0.43
    
    
    
    0.36
    
    
    
    (0.64
    )
    
    
    (0.35
    )
   LS Assets Contribution.
  Three Months EndedSeptember 30, 2006Actual
    
    
    Pro Forma(in millions)Revenue
    
    $
    508
    
    
    $
    945Net loss
    
    
    (67
    )
    
    
    (70
    )
  18




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006Actual
    
    
    Pro Forma
    
    
    Actual
    
    
    Pro Forma(in millions)Revenue
    
    $
    2,379
    
    
    $
    2,668
    
    
    $
    1,427
    
    
    $
    2,076Net income (loss)
    
    
    334
    
    
    
    285
    
    
    
    (245
    )
    
    
    (233
    )
  Sithe Assets Contribution.
 Note 3Discontinued Operations
 GEN-WE Discontinued Operations
 CoGen Lyondell.
    19




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Calcasieu.
  Other Discontinued Operations
 Natural Gas Liquids.
 Other.
  GEN-WE
    
    
    CRM
    
    
    NGL
    
    
    TotalThree Months Ended September 30, 2007Revenues
    
    $
    14
    
    
    $
    
    
    
    $
    
    
    
    $
    14Income from operations before taxes
    
    
    3
    
    
    
    4
    
    
    
    
    
    
    
    7Income from operations after taxes
    
    
    7
    
    
    
    3
    
    
    
    4
    
    
    
    14Gain on sale before taxes
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    210Gain on sale after taxes
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    110Three Months Ended September 30, 2006Revenues
    
    $
    73
    
    
    $
    
    
    
    $
    
    
    
    $
    73Income from operations before taxes
    
    
    2
    
    
    
    6
    
    
    
    2
    
    
    
    10Income (loss) from operations after taxes
    
    
    
    
    
    
    (2
    )
    
    
    4
    
    
    
    2
 GEN-WE
    
    
    CRM
    
    
    NGL
    
    
    TotalNine Months Ended September 30, 2007Revenues
    
    $
    81
    
    
    $
    
    
    
    $
    
    
    
    $
    81Income from operations before taxes
    
    
    3
    
    
    
    15
    
    
    
    
    
    
    
    18Income from operations after taxes
    
    
    2
    
    
    
    11
    
    
    
    8
    
    
    
    21Gain on sale before taxes
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    210Gain on sale after taxes
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    110Nine Months Ended September 30, 2006Revenues
    
    $
    193
    
    
    $
    
    
    
    $
    
    
    
    $
    193Income (loss) from operations before taxes
    
    
    (13
    )
    
    
    5
    
    
    
    3
    
    
    
    (5
    )Income (loss) from operations after taxes
    
    
    (9
    )
    
    
    (1
    )
    
    
    4
    
    
    
    (6
    )
  20




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  GEN-WE
    
    
    CRM
    
    
    NGL
    
    
    TotalThree Months Ended September 30, 2007Revenues
    
    $
    14
    
    
    $
    
    
    
    $
    
    
    
    $
    14Income from operations before taxes
    
    
    3
    
    
    
    4
    
    
    
    
    
    
    
    7Income from operations after taxes
    
    
    7
    
    
    
    3
    
    
    
    4
    
    
    
    14Gain on sale before taxes
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    210Gain on sale after taxes
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    110Three Months Ended September 30, 2006Revenues
    
    $
    73
    
    
    $
    
    
    
    $
    
    
    
    $
    73Income from operations before taxes
    
    
    2
    
    
    
    6
    
    
    
    2
    
    
    
    10Income from operations after taxes
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    3
 GEN-WE
    
    
    CRM
    
    
    NGL
    
    
    TotalNine Months Ended September 30, 2007Revenues
    
    $
    81
    
    
    $
    
    
    
    $
    
    
    
    $
    81Income from operations before taxes
    
    
    3
    
    
    
    15
    
    
    
    
    
    
    
    18Income from operations after taxes
    
    
    2
    
    
    
    10
    
    
    
    8
    
    
    
    20Gain on sale before taxes
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    210Gain on sale after taxes
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    110Nine Months Ended September 30, 2006Revenues
    
    $
    193
    
    
    $
    
    
    
    $
    
    
    
    $
    193Income (loss) from operations before taxes
    
    
    (13
    )
    
    
    5
    
    
    
    3
    
    
    
    (5
    )Income (loss) from operations after taxes
    
    
    (9
    )
    
    
    1
    
    
    
    2
    
    
    
    (6
    )
 Note 4Restructuring Charges
 2005 Restructuring.
 2002 Restructuring.
  CancellationFees andOperatingSeverance

    
    
    Leases
    
    
    Total(in millions)Balance at December 31, 2006
    
    $
    3
    
    
    $
    7
    
    
    $
    10Cash payments
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Balance at September 30, 2007
    
    $
    3
    
    
    $
    2
    
    
    $
    5
  21




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Note 5Risk Management Activities
  Cash Flow Hedges.
    22




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Fair Value Hedges.
 Net Investment Hedges in Foreign Operations.
 Note 6Accumulated Other Comprehensive Income (Loss)
  September 30,
    
    
    December 31,2007
    
    
    2006(in millions)Cash flow hedging activities, net
    
    $
    (14
    )
    
    $
    76Foreign currency translation adjustment
    
    
    27
    
    
    
    23Unrecognized prior service cost and actuarial loss
    
    
    (40
    )
    
    
    (43
    )Available for sale securities
    
    
    11
    
    
    
    11Accumulated other comprehensive income (loss), net of tax
    
    $
    (16
    )
    
    $
    67
 Note 7Variable Interest Entities
 Hydroelectric Generation Facilities.
  23




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  PPEA Holding Company LLC.
   24




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 DLS Power Holdings and DLS Power Development.
  Sandy Creek.
      25




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
   Note 8Debt
  September 30,
    
    
    December 31,2007
    
    
    2006(in millions)Term Loan B, due 2013
    
    $
    70
    
    
    $
    Term Facility, floating rate due 2013
    
    
    850
    
    
    
    Term Facility, floating rate due 2012
    
    
    
    
    
    
    200Senior Notes, 6.875% due 2011
    
    
    496
    
    
    
    493Senior Notes, 8.75% due 2012
    
    
    493
    
    
    
    488Senior Unsecured Notes, 7.5% due 2015
    
    
    550
    
    
    
    Senior Unsecured Notes, 8.375% due 2016
    
    
    1,047
    
    
    
    1,047Senior Debentures, 7.125% due 2018
    
    
    173
    
    
    
    173Senior Unsecured Notes, 7.75% due 2019
    
    
    1,100
    
    
    
    Senior Debentures, 7.625% due 2026
    
    
    172
    
    
    
    173Second Priority Senior Secured Notes, 9.875% due 2010
    
    
    
    
    
    
    11Subordinated Debentures payable to affiliates, 8.316%, due 2027
    
    
    200
    
    
    
    200Sithe Senior Notes, 8.5% due 2007
    
    
    
    
    
    
    39Sithe Senior Notes, 9.0% due 2013
    
    
    409
    
    
    
    409Plum Point Tax Exempt Bonds, floating rate due 2036
    
    
    100
    
    
    
    Plum Point Construction Loan, floating rate due 2010
    
    
    263
    
    
    
    5,923
    
    
    
    3,233Unamortized premium on debt, net
    
    
    21
    
    
    
    255,944
    
    
    
    3,258Less: Amounts due within one year, including non-cash
amortization of basis adjustments
    
    
    53
    
    
    
    68Total Long-Term Debt
    
    $
    5,891
    
    
    $
    3,190
  26




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Fifth Amended and Restated Credit Facility.
       27




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
     Plum Point Credit Agreement Facility. 1 2
  28




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
   Plum Point Tax Exempt Bonds.
 Senior Unsecured Notes Offering.
  29




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Face

    
    
    Premium
    
    
    FairValue
    
    
    Discount
    
    
    Value(in millions)Generation Facilities First Lien Term Loans due 2013
    
    $
    919
    
    
    $
    1
    
    
    $
    920Generation Facilities Second Lien Term Loans due 2014
    
    
    150
    
    
    
    1
    
    
    
    151Kendall First Lien Term Loan due 2013
    
    
    396
    
    
    
    (5
    )
    
    
    391Ontelaunee First Lien Term Loan due 2009
    
    
    100
    
    
    
    (1
    )
    
    
    99Ontelaunee Second Lien Credit Agreement due 2009
    
    
    50
    
    
    
    1
    
    
    
    51Total debt repaid with proceeds from unsecured offering
    
    $
    1,615
    
    
    $
    (3
    )
    
    $
    1,612
  Repayments and Redemptions.
 Note 9Related Party Transactions
 Equity Investments.
 Other.
  Note 10Dynegys Earnings (Loss) Per Share
   30




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions, except per share amounts)Income (loss) from continuing operations
    
    $
    96
    
    
    $
    (71
    )
    
    $
    179
    
    
    $
    (270
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Income (loss) from continuing operations for basic
earnings (loss) per share
    
    
    96
    
    
    
    (71
    )
    
    
    179
    
    
    
    (279
    )Effect of dilutive securities:Interest on convertible subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Dividends on Series C Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Income (loss) from continuing operations for
diluted earnings (loss) per share
    
    $
    96
    
    
    $
    (71
    )
    
    $
    179
    
    
    $
    (267
    )Basic weighted-average shares
    
    
    836
    
    
    
    495
    
    
    
    721
    
    
    
    446Effect of dilutive securities:Stock options
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Convertible subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Series C Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Diluted weighted-average shares
    
    
    838
    
    
    
    497
    
    
    
    723
    
    
    
    512Income (loss) per share from continuing operations:Basic
    
    $
    0.11
    
    
    $
    (0.14
    )
    
    $
    0.25
    
    
    $
    (0.63
    )Diluted (1)
    
    $
    0.11
    
    
    $
    (0.14
    )
    
    $
    0.25
    
    
    $
    (0.63
    )
 
 (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 and nine months ended
September 30, 2006. Note 11Commitments and Contingencies
   31




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Gas Index Pricing Litigation.
 
    
    During the previous eighteen months, several cases pending in Nevada federal court
were dismissed on defendants motions. Certain plaintiffs appealed to the Court of
Appeals for the Ninth Circuit, which coordinated the cases before the same appellate
panel. In September 2007, the Ninth Circuit reversed the dismissals and remanded the
cases to their respective trial courts for further proceedings. We are a defendant in
only one of the remanded cases. Several matters transferred to Nevada from other federal
courts through the multi-district litigation process remain pending.
    
    Pursuant to various motions, the cases pending in California state court were
coordinated before a single judge in San Diego (Coordinated Gas Index Cases). In
August 2006, we entered into an agreement to settle the class action claims in the
Coordinated Gas Index Cases for $30 million. In December 2006, the court granted final
approval of the settlement and dismissed the class action claims. The settlement is
without admission of wrongdoing, and we and West Coast Power continue to deny class
plaintiffs allegations. The settlement did not include fourteen similar claims filed by
individual plaintiffs in the Coordinated Gas Index Cases (the Single Plaintiff Cases).
    
    Also in August 2006, we entered into an agreement to settle the class action claims by
California natural gas re-sellers and co-generators (to the extent they purchased natural
gas to generate electricity for re-sale) pending in Nevada federal court for $2.4
million. The court granted preliminary approval of this settlement in May 2007, which we
funded shortly thereafter, and final approval in October 2007. The
settlement is without admission of wrongdoing, and we and West Coast Power continue to
deny class plaintiffs allegations.
    
    In February 2007, a Tennessee state court case was also dismissed on defendants
motion. In April 2007, the plaintiffs appealed the decision, and that appeal remains
pending.
    
    In September 2007, we and the parties to the Alabama action entered into a
confidential settlement agreement to resolve the litigation. The settlement is without
admission of wrongdoing, and we continue to deny plaintiffs allegations.
    
    In October 2007, we, on behalf of ourselves and West Coast Power, entered into a
confidential memorandum of understanding to settle the Single Plaintiff Cases. The
execution of a formal agreement and funding are expected to occur in the fourth quarter
2007. The settlement is without admission of wrongdoing, and we continue to deny
plaintiffs allegations.
   32




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 California Market Litigation.
  Nevada Power Arbitration.
 Illinois Auction Complaints.
   33




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
     New York Attorney General Subpoena.
 Illinova Arbitration.
  34




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Bridgeport RMR Agreement.
 Danskammer State Pollutant Discharge Elimination System Permit.
  Roseton State Pollutant Discharge Elimination System Permit.
   35




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Moss Landing National Pollutant Discharge Elimination System Permit.
   Guarantees and Indemnifications
  WCP Indemnities.
  36




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  Targa Indemnities.
 Illinois Power Indemnities.
 Northern Natural and Other Indemnities.
  37




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Note 12Regulatory Issues
  Illinois Resource Procurement Auction.
 California Greenhouse Gas Regulation .
   Regional Greenhouse Gas Initiative.
 2 2 2 2 2 2
  38




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 2 2 2 2 2 2 2 2
 2
 2
  Federal Greenhouse Gas Regulation. Massachusetts v. Environmental Protection Agency 2 2 2
 Note 13Employee Compensation, Savings and Pension Plans
   39




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Components of Net Periodic Benefit Cost.
 Pension Benefits
    
    
    Other BenefitsThree Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)Service cost benefits earned during period
    
    $
    2
    
    
    $
    2
    
    
    $
    1
    
    
    $
    Interest cost on projected benefit obligation
    
    
    3
    
    
    
    2
    
    
    
    1
    
    
    
    Expected return on plan assets
    
    
    (3
    )
    
    
    (2
    )
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    1Net periodic benefit cost
    
    $
    3
    
    
    $
    3
    
    
    $
    2
    
    
    $
    1Additional cost due to curtailment
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Total net periodic benefit cost
    
    $
    3
    
    
    $
    4
    
    
    $
    2
    
    
    $
    1
 Pension Benefits
    
    
    Other BenefitsNine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)Service cost benefits earned during period
    
    $
    7
    
    
    $
    7
    
    
    $
    2
    
    
    $
    2Interest cost on projected benefit obligation
    
    
    8
    
    
    
    7
    
    
    
    3
    
    
    
    2Expected return on plan assets
    
    
    (9
    )
    
    
    (7
    )
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    1Net periodic benefit cost
    
    $
    8
    
    
    $
    9
    
    
    $
    6
    
    
    $
    5Additional cost due to curtailment
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    Total net periodic benefit cost
    
    $
    8
    
    
    $
    12
    
    
    $
    6
    
    
    $
    5
 Exchange Transaction with Chairman and CEO.
 Contributions.
  40




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Note 14Income Taxes
 Effective Tax Rate.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions, except rates)Income tax (expense) benefit
    
    $
    (59
    )
    
    $
    41
    
    
    $
    (95
    )
    
    $
    150Effective tax rate
    
    
    38
    %
    
    
    37
    %
    
    
    35
    %
    
    
    36
    %
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions, except rates)Income tax (expense) benefit
    
    $
    (62
    )
    
    $
    43
    
    
    $
    (94
    )
    
    $
    132Effective tax rate
    
    
    39
    %
    
    
    38
    %
    
    
    32
    %
    
    
    36
    %
    41




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Note 15Segment Information
    42




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Dynegys Segment Data for the Three Months Ended September 30, 2007
(in millions)
  Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    392
    
    
    $
    354
    
    
    $
    264
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,014Other
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Total revenues
    
    $
    392
    
    
    $
    354
    
    
    $
    296
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,046Depreciation and amortization
    
    $
    (51
    )
    
    $
    (25
    )
    
    $
    (12
    )
    
    $
    
    
    
    $
    (4
    )
    
    $
    (92
    )Operating income (loss)
    
    $
    139
    
    
    $
    119
    
    
    $
    52
    
    
    $
    (12
    )
    
    $
    (51
    )
    
    $
    247Earnings (losses) from
unconsolidated investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    8Other items, net
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    18
    
    
    
    17Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )Income from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )Income from continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96Income from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    220Identifiable assets:Domestic
    
    $
    6,564
    
    
    $
    3,411
    
    
    $
    2,032
    
    
    $
    294
    
    
    $
    1,045
    
    
    $
    13,346Other
    
    
    
    
    
    
    7
    
    
    
    14
    
    
    
    37
    
    
    
    
    
    
    
    58Total
    
    $
    6,564
    
    
    $
    3,418
    
    
    $
    2,046
    
    
    $
    331
    
    
    $
    1,045
    
    
    $
    13,404Unconsolidated investments
    
    $
    
    
    
    $
    35
    
    
    $
    
    
    
    $
    
    
    
    $
    61
    
    
    $
    96Capital expenditures and
investments in unconsolidated
affiliates
    
    $
    (72
    )
    
    $
    (5
    )
    
    $
    (5
    )
    
    $
    
    
    
    $
    (3
    )
    
    $
    (85
    )
  43




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Dynegys Segment Data for the Three Months Ended September 30, 2006
(in millions)
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    260
    
    
    $
    24
    
    
    $
    182
    
    
    $
    20
    
    
    $
    
    
    
    $
    486Other
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    4
    
    
    
    
    
    
    
    22260
    
    
    
    24
    
    
    
    200
    
    
    
    24
    
    
    
    
    
    
    
    508Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    Total revenues
    
    $
    260
    
    
    $
    24
    
    
    $
    199
    
    
    $
    25
    
    
    $
    
    
    
    $
    508Depreciation and amortization
    
    $
    (43
    )
    
    $
    (2
    )
    
    $
    (6
    )
    
    $
    
    
    
    $
    (3
    )
    
    $
    (54
    )Impairment and other charges
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )Operating income (loss)
    
    $
    (10
    )
    
    $
    6
    
    
    $
    33
    
    
    $
    (9
    )
    
    $
    (40
    )
    
    $
    (20
    )Earnings from unconsolidated
investments
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Other items, net
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    6
    
    
    
    11Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )Income from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (69
    )Identifiable assets:Domestic
    
    $
    4,719
    
    
    $
    747
    
    
    $
    1,371
    
    
    $
    364
    
    
    $
    199
    
    
    $
    7,400Other
    
    
    
    
    
    
    2
    
    
    
    10
    
    
    
    95
    
    
    
    
    
    
    
    107Total
    
    $
    4,719
    
    
    $
    749
    
    
    $
    1,381
    
    
    $
    459
    
    
    $
    199
    
    
    $
    7,507Unconsolidated investments
    
    $
    
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7Capital expenditures
    
    $
    (22
    )
    
    $
    (4
    )
    
    $
    (5
    )
    
    $
    
    
    
    $
    (2
    )
    
    $
    (33
    )
  44




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Dynegys Segment Data for the Nine Months Ended September 30, 2007
(in millions)
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    1,070
    
    
    $
    499
    
    
    $
    690
    
    
    $
    10
    
    
    $
    
    
    
    $
    2,269Other
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    1
    
    
    
    
    
    
    
    110Total revenues
    
    $
    1,070
    
    
    $
    499
    
    
    $
    799
    
    
    $
    11
    
    
    $
    
    
    
    $
    2,379Depreciation and amortization
    
    $
    (143
    )
    
    $
    (49
    )
    
    $
    (30
    )
    
    $
    
    
    
    $
    (10
    )
    
    $
    (232
    )Operating income (loss)
    
    $
    399
    
    
    $
    105
    
    
    $
    148
    
    
    $
    17
    
    
    $
    (159
    )
    
    $
    510Earnings (losses) from
unconsolidated investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    6Other items, net
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    39
    
    
    
    26Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (268
    )Income from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95
    )Income from continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179Income from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    310Identifiable assets:Domestic
    
    $
    6,564
    
    
    $
    3,411
    
    
    $
    2,032
    
    
    $
    294
    
    
    $
    1,045
    
    
    $
    13,346Other
    
    
    
    
    
    
    7
    
    
    
    14
    
    
    
    37
    
    
    
    
    
    
    
    58Total
    
    $
    6,564
    
    
    $
    3,418
    
    
    $
    2,046
    
    
    $
    331
    
    
    $
    1,045
    
    
    $
    13,404Unconsolidated investments
    
    $
    
    
    
    $
    35
    
    
    $
    
    
    
    $
    
    
    
    $
    61
    
    
    $
    96Capital expenditures and
investments in unconsolidated
affiliates
    
    $
    (187
    )
    
    $
    (16
    )
    
    $
    (24
    )
    
    $
    
    
    
    $
    (16
    )
    
    $
    (243
    )
  45




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Dynegys Segment Data for the Nine Months Ended September 30, 2006
(in millions)
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    744
    
    
    $
    83
    
    
    $
    410
    
    
    $
    69
    
    
    $
    
    
    
    $
    1,306Other
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    12
    
    
    
    
    
    
    
    121744
    
    
    
    83
    
    
    
    519
    
    
    
    81
    
    
    
    
    
    
    
    1,427Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    
    
    
    
    Total revenues
    
    $
    744
    
    
    $
    83
    
    
    $
    516
    
    
    $
    84
    
    
    $
    
    
    
    $
    1,427Depreciation and amortization
    
    $
    (126
    )
    
    $
    (6
    )
    
    $
    (18
    )
    
    $
    
    
    
    $
    (14
    )
    
    $
    (164
    )Impairment and other charges
    
    
    (96
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (107
    )Operating income (loss)
    
    $
    159
    
    
    $
    (2
    )
    
    $
    59
    
    
    $
    (3
    )
    
    $
    (121
    )
    
    $
    92Earnings from unconsolidated
investments
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Other items, net
    
    
    1
    
    
    
    1
    
    
    
    6
    
    
    
    1
    
    
    
    32
    
    
    
    41Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (559
    )Loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (420
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Cumulative effect of change in
accounting principle, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (275
    )Identifiable assets:Domestic
    
    $
    4,719
    
    
    $
    747
    
    
    $
    1,371
    
    
    $
    364
    
    
    $
    199
    
    
    $
    7,400Other
    
    
    
    
    
    
    2
    
    
    
    10
    
    
    
    95
    
    
    
    
    
    
    
    107Total
    
    $
    4,719
    
    
    $
    749
    
    
    $
    1,381
    
    
    $
    459
    
    
    $
    199
    
    
    $
    7,507Unconsolidated investments
    
    $
    
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7Capital expenditures
    
    $
    (58
    )
    
    $
    (16
    )
    
    $
    (12
    )
    
    $
    
    
    
    $
    (6
    )
    
    $
    (92
    )
  46




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
  DHIs Segment Data for the Three Months Ended September 30, 2007
(in millions)
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    392
    
    
    $
    354
    
    
    $
    264
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,014Other
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Total revenues
    
    $
    392
    
    
    $
    354
    
    
    $
    296
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,046Depreciation and amortization
    
    $
    (51
    )
    
    $
    (25
    )
    
    $
    (12
    )
    
    $
    
    
    
    $
    (4
    )
    
    $
    (92
    )Operating income (loss)
    
    $
    139
    
    
    $
    119
    
    
    $
    52
    
    
    $
    (12
    )
    
    $
    (51
    )
    
    $
    247Earnings from unconsolidated
investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Other items, net
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    19
    
    
    
    18Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )Income from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62
    )Income from continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98Income from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    222Identifiable assets:Domestic
    
    $
    6,564
    
    
    $
    3,358
    
    
    $
    2,032
    
    
    $
    317
    
    
    $
    1,756
    
    
    $
    14,027Other
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    28Total
    
    $
    6,564
    
    
    $
    3,358
    
    
    $
    2,046
    
    
    $
    331
    
    
    $
    1,756
    
    
    $
    14,055Unconsolidated investments
    
    $
    
    
    
    $
    35
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    35Capital expenditures
    
    $
    (72
    )
    
    $
    (3
    )
    
    $
    (5
    )
    
    $
    
    
    
    $
    (3
    )
    
    $
    (83
    )
  47




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 DHIs Segment Data for the Three Months Ended September 30, 2006
(in millions)
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    260
    
    
    $
    24
    
    
    $
    182
    
    
    $
    20
    
    
    $
    
    
    
    $
    486Other
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    4
    
    
    
    
    
    
    
    22260
    
    
    
    24
    
    
    
    200
    
    
    
    24
    
    
    
    
    
    
    
    508Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    Total revenues
    
    $
    260
    
    
    $
    24
    
    
    $
    199
    
    
    $
    25
    
    
    $
    
    
    
    $
    508Depreciation and amortization
    
    $
    (43
    )
    
    $
    (2
    )
    
    $
    (6
    )
    
    $
    
    
    
    $
    (3
    )
    
    $
    (54
    )Impairment and other charges
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )Operating income (loss)
    
    $
    (10
    )
    
    $
    6
    
    
    $
    33
    
    
    $
    (9
    )
    
    $
    (39
    )
    
    $
    (19
    )Earnings from unconsolidated
investments
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Other items, net
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    9Interest expense and debt 
conversion costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Income from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (67
    )Identifiable assets:Domestic
    
    $
    4,719
    
    
    $
    748
    
    
    $
    1,387
    
    
    $
    387
    
    
    $
    744
    
    
    $
    7,985Other
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    71
    
    
    
    
    
    
    
    81Total
    
    $
    4,719
    
    
    $
    748
    
    
    $
    1,397
    
    
    $
    458
    
    
    $
    744
    
    
    $
    8,066Unconsolidated investments
    
    $
    
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7Capital expenditures
    
    $
    (22
    )
    
    $
    (4
    )
    
    $
    (5
    )
    
    $
    
    
    
    $
    (2
    )
    
    $
    (33
    )
  48




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 DHIs Segment Data for the Nine Months Ended September 30, 2007
(in millions)
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    1,070
    
    
    $
    499
    
    
    $
    690
    
    
    $
    10
    
    
    $
    
    
    
    $
    2,269Other
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    1
    
    
    
    
    
    
    
    110Total revenues
    
    $
    1,070
    
    
    $
    499
    
    
    $
    799
    
    
    $
    11
    
    
    $
    
    
    
    $
    2,379Depreciation and amortization
    
    $
    (143
    )
    
    $
    (49
    )
    
    $
    (30
    )
    
    $
    
    
    
    $
    (10
    )
    
    $
    (232
    )Operating income (loss)
    
    $
    399
    
    
    $
    105
    
    
    $
    148
    
    
    $
    17
    
    
    $
    (140
    )
    
    $
    529Earnings from unconsolidated
investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Other items, net
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    38
    
    
    
    25Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (268
    )Income from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    298Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )Income from continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204Income from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130Net income loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    334Identifiable assets:Domestic
    
    $
    6,564
    
    
    $
    3,358
    
    
    $
    2,032
    
    
    $
    317
    
    
    $
    1,756
    
    
    $
    14,027Other
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    28Total
    
    $
    6,564
    
    
    $
    3,358
    
    
    $
    2,046
    
    
    $
    331
    
    
    $
    1,756
    
    
    $
    14,055Unconsolidated investments
    
    $
    
    
    
    $
    35
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    35Capital expenditures
    
    $
    (187
    )
    
    $
    (14
    )
    
    $
    (24
    )
    
    $
    
    
    
    $
    (11
    )
    
    $
    (236
    )
  49




---



##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 DHIs Segment Data for the Nine Months Ended September 30, 2006
(in millions)
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    TotalUnaffiliated revenues:Domestic
    
    $
    744
    
    
    $
    83
    
    
    $
    410
    
    
    $
    69
    
    
    $
    
    
    
    $
    1,306Other
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    12
    
    
    
    
    
    
    
    121744
    
    
    
    83
    
    
    
    519
    
    
    
    81
    
    
    
    
    
    
    
    1,427Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    
    
    
    
    Total revenues
    
    $
    744
    
    
    $
    83
    
    
    $
    516
    
    
    $
    84
    
    
    $
    
    
    
    $
    1,427Depreciation and amortization
    
    $
    (126
    )
    
    $
    (6
    )
    
    $
    (18
    )
    
    $
    
    
    
    $
    (14
    )
    
    $
    (164
    )Impairment and other charges
    
    
    (96
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (107
    )Operating income (loss)
    
    $
    159
    
    
    $
    (2
    )
    
    $
    59
    
    
    $
    (3
    )
    
    $
    (119
    )
    
    $
    94Earnings from unconsolidated
investments
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Other items, net
    
    
    1
    
    
    
    1
    
    
    
    6
    
    
    
    1
    
    
    
    27
    
    
    
    36Interest expense and debt
conversion costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (507
    )Loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (239
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (245
    )Identifiable assets:Domestic
    
    $
    4,719
    
    
    $
    748
    
    
    $
    1,387
    
    
    $
    387
    
    
    $
    744
    
    
    $
    7,985Other
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    71
    
    
    
    
    
    
    
    81Total
    
    $
    4,719
    
    
    $
    748
    
    
    $
    1,397
    
    
    $
    458
    
    
    $
    744
    
    
    $
    8,066Unconsolidated investments
    
    $
    
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7Capital expenditures
    
    $
    (58
    )
    
    $
    (16
    )
    
    $
    (12
    )
    
    $
    
    
    
    $
    (6
    )
    
    $
    (92
    )
  50




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DYNEGY INC. and DYNEGY HOLDINGS INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 (Unaudited)
 For the Interim Periods Ended September 30, 2007 and 2006
 Note 16Subsequent Events
    51




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 For the Interim Periods Ended September 30, 2007 and 2006
 
 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.
  General
   Recent Developments
 CoGen Lyondell Sale.
  52




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##### Table of Contents



Illinois Rate Relief.
   Sandy Creek.
     53




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Overview
  Debt Obligations
      54




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##### Table of Contents



Collateral Postings
  November 1,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2007
    
    
    2006(in millions)By Business:Generation
    
    $
    1,148
    
    
    $
    1,169
    
    
    $
    134Customer Risk Management
    
    
    33
    
    
    
    38
    
    
    
    54Other
    
    
    191
    
    
    
    191
    
    
    
    7Total
    
    $
    1,372
    
    
    $
    1,398
    
    
    $
    195By Type:Cash (1)
    
    $
    76
    
    
    $
    62
    
    
    $
    38Letters of Credit
    
    
    1,296
    
    
    
    1,336
    
    
    
    157Total
    
    $
    1,372
    
    
    $
    1,398
    
    
    $
    195
 
 (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.   Tax Attributes
   Disclosure of Contractual Obligations and Contingent Financial Commitments
   55




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##### Table of Contents



Dividends on Common Stock
  Internal Liquidity Sources
  Current Liquidity.
 November 1,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2007 (1)
    
    
    2006(in millions)Revolver capacity
    
    $
    1,150
    
    
    $
    1,150
    
    
    $
    470Borrowings against revolver capacity
    
    
    
    
    
    
    
    
    
    
    Term letter of credit capacity, net
of required reserves
    
    
    825
    
    
    
    825
    
    
    
    194Plum Point letter of credit capacity
    
    
    101
    
    
    
    101
    
    
    
    Outstanding letters of credit
    
    
    (1,296
    )
    
    
    (1,336
    )
    
    
    (157
    )Unused capacity
    
    
    780
    
    
    
    740
    
    
    
    507CashDHI
    
    
    503
    (2)
    
    
    594
    (2)
    
    
    243
    (2)Total available liquidityDHI
    
    
    1,283
    
    
    
    1,334
    
    
    
    750CashDynegy
    
    
    37
    
    
    
    44
    
    
    
    128Total available liquidityDynegy
    
    $
    1,320
    
    
    $
    1,378
    
    
    $
    878
 
 (1)
    
    In April 2007, we amended and restated the credit facility, and in May 2007, we further
amended it. Please see Note 8DebtFifth Amended and Restated Credit Facility for further
discussion.(2)
    
    The November 1, 2007, September 30, 2007 and December 31, 2006 amounts include
approximately zero, $2 million and $46 million, respectively, of cash that remains
in Europe and $4 million, $12 million and $10 million, respectively, of cash that remains
in Canada. Cash Flows from Operations.
  56




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##### Table of Contents



Cash on Hand.
  Revolver Capacity.
 External Liquidity Sources
  Asset Sale Proceeds.
  
  57




---



##### Table of Contents



Capital-Raising Transactions.
   RESULTS OF OPERATIONSDYNEGY INC. and DYNEGY HOLDINGS INC.
 Overview.
   58




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##### Table of Contents



Three Months Ended September 30, 2007 and 2006
 Summary Financial Information.
 Dynegys Results of Operations for the Three Months Ended September 30, 2007
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    392
    
    
    $
    354
    
    
    $
    296
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,046Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (202
    )
    
    
    (210
    )
    
    
    (232
    )
    
    
    (4
    )
    
    
    (1
    )
    
    
    (649
    )Depreciation and amortization expense
    
    
    (51
    )
    
    
    (25
    )
    
    
    (12
    )
    
    
    
    
    
    
    (4
    )
    
    
    (92
    )Gain on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (46
    )
    
    
    (62
    )Operating income (loss)
    
    $
    139
    
    
    $
    119
    
    
    $
    52
    
    
    $
    (12
    )
    
    $
    (51
    )
    
    $
    247Earnings (losses) from
unconsolidated investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    8Other items, net
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    18
    
    
    
    17Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )Income from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96Income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    220
 Dynegys Results of Operations for the Three Months Ended September 30, 2006
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    260
    
    
    $
    24
    
    
    $
    199
    
    
    $
    25
    
    
    $
    
    
    
    $
    508Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (131
    )
    
    
    (16
    )
    
    
    (160
    )
    
    
    (12
    )
    
    
    
    
    
    
    (319
    )Depreciation and amortization expense
    
    
    (43
    )
    
    
    (2
    )
    
    
    (6
    )
    
    
    
    
    
    
    (3
    )
    
    
    (54
    )Impairment and other charges
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (37
    )
    
    
    (59
    )Operating income (loss)
    
    $
    (10
    )
    
    $
    6
    
    
    $
    33
    
    
    $
    (9
    )
    
    $
    (40
    )
    
    $
    (20
    )Earnings from unconsolidated
investments
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Other items, net
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    6
    
    
    
    11Interest expense and debt conversion
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Loss from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )Income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (69
    )
  59




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##### Table of Contents



DHIs Results of Operations for the Three Months Ended September 30, 2007
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    392
    
    
    $
    354
    
    
    $
    296
    
    
    $
    4
    
    
    $
    
    
    
    $
    1,046Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (202
    )
    
    
    (210
    )
    
    
    (232
    )
    
    
    (4
    )
    
    
    (1
    )
    
    
    (649
    )Depreciation and amortization expense
    
    
    (51
    )
    
    
    (25
    )
    
    
    (12
    )
    
    
    
    
    
    
    (4
    )
    
    
    (92
    )Gain on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (46
    )
    
    
    (62
    )Operating income (loss)
    
    $
    139
    
    
    $
    119
    
    
    $
    52
    
    
    $
    (12
    )
    
    $
    (51
    )
    
    $
    247Earnings from unconsolidated
investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Other items, net
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    19
    
    
    
    18Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )Income from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98Income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    222
 DHIs Results of Operations for the Three Months Ended September 30, 2006
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    260
    
    
    $
    24
    
    
    $
    199
    
    
    $
    25
    
    
    $
    
    
    
    $
    508Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (131
    )
    
    
    (16
    )
    
    
    (160
    )
    
    
    (12
    )
    
    
    
    
    
    
    (319
    )Depreciation and amortization expense
    
    
    (43
    )
    
    
    (2
    )
    
    
    (6
    )
    
    
    
    
    
    
    (3
    )
    
    
    (54
    )Impairment and other charges
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (36
    )
    
    
    (58
    )Operating income (loss)
    
    $
    (10
    )
    
    $
    6
    
    
    $
    33
    
    
    $
    (9
    )
    
    $
    (39
    )
    
    $
    (19
    )Earnings from unconsolidated
investments
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Other items, net
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    9Interest expense and debt conversion
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Loss from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (67
    )
  60




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##### Table of Contents



Three Months EndedSeptember 30,2007
    
    
    2006GEN-MWMillion Megawatt Hours Generated
    
    
    7.5
    
    
    
    5.7Average Actual On-Peak Market Power Prices ($/MWh) (1):Cinergy (Cin Hub)
    
    $
    64
    
    
    $
    58Commonwealth Edison (NI Hub)
    
    $
    61
    
    
    $
    58PJM West
    
    $
    75
    
    
    $
    74GEN-WEMillion Megawatt Hours Generated (2) (3)
    
    
    5.2
    
    
    
    0.3Average Actual On-Peak Market Power Prices ($/MWh) (1):North Path
15 (NP 15)
    
    $
    69
    
    
    $
    72Palo Verde
    
    $
    69
    
    
    $
    67Average Market Spark Spreads ($/MWh):North Path 15 (NP15)
    
    $
    24
    
    
    $
    27Palo Verde
    
    $
    26
    
    
    $
    24GEN-NEMillion Megawatt Hours Generated
    
    
    3.2
    
    
    
    1.7Average Actual On-Peak Market Power Prices ($/MWh) (1):New YorkZone G
    
    $
    78
    
    
    $
    84New YorkZone A
    
    $
    64
    
    
    $
    62Mass Hub
    
    $
    71
    
    
    $
    71Average Market Spark Spreads ($/MWh):New YorkZone A
    
    $
    19
    
    
    $
    18Mass Hub
    
    $
    24
    
    
    $
    24Average natural gas priceHenry Hub ($/MMBtu) (4)
    
    $
    6.15
    
    
    $
    6.08
 
 (1)
    
    Reflects the average of day-ahead quoted prices for the periods presented and does not
necessarily reflect prices realized by the Company.(2)
    
    Includes our ownership percentage in the MWh generated by our GEN-WE investment in NCA#2 for
the three months ended September 30, 2007 and September 30, 2006.(3)
    
    Excludes approximately 0.3 MWh and 0.8 MWh generated by our CoGen Lyondell facility, which we
sold in August 2007, and less than 0.1 MWh and less than 0.1 MWh generated by our Calcasieu
facility, which is classified as held for sale, for the three months ended September 30, 2007
and 2006, respectively.(4)
    
    Calculated as the average of the daily gas prices for the period.  61




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##### Table of Contents



Three Months Ended September 30, 2007Power GenerationOther &GEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Discontinued operations (1)
    
    $
    
    
    
    $
    213
    
    
    $
    
    
    
    $
    4
    
    
    $
    
    
    
    $
    217Legal and settlement charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Gain on sale of Sandy
Creek ownership interest
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Total
    
    $
    
    
    
    $
    225
    
    
    $
    
    
    
    $
    (12
    )
    
    $
    
    
    
    $
    213
 
 (1)
    
    Discontinued operations for GEN-WE includes a $210 million pre-tax gain on the sale of the
CoGen Lyondell power generation facility. Three Months Ended September 30, 2006Power GenerationOther &GEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Asset impairment
    
    $
    (96
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (96
    )Legal and settlement charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    (22
    )Sithe subordinated debt
exchange charge
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Discontinued operations (1)
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    6
    
    
    
    2
    
    
    
    10Total
    
    $
    (96
    )
    
    $
    2
    
    
    $
    (36
    )
    
    $
    (16
    )
    
    $
    2
    
    
    $
    (144
    )
 Operating Income (Loss)
  Power GenerationMidwest Segment.
     62




---



##### Table of Contents



Power GenerationWest Segment.
     Power GenerationNortheast Segment.
     63




---



##### Table of Contents



CRM.
  Other.
    Earnings from Unconsolidated Investments
    64




---



##### Table of Contents



Other Items, Net
   Interest Expense
  Income Tax (Expense) Benefit
    Discontinued Operations
 Income From Discontinued Operations Before Taxes.
     65




---



##### Table of Contents



Income Tax (Expense) Benefit From Discontinued Operations.
   Nine Months Ended September 30, 2007 and 2006
 Summary Financial Information.
 Dynegys Results of Operations for the Nine Months Ended September 30, 2007
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    1,070
    
    
    $
    499
    
    
    $
    799
    
    
    $
    11
    
    
    $
    
    
    
    $
    2,379Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (528
    )
    
    
    (345
    )
    
    
    (621
    )
    
    
    18
    
    
    
    (2
    )
    
    
    (1,478
    )Depreciation and amortization expense
    
    
    (143
    )
    
    
    (49
    )
    
    
    (30
    )
    
    
    
    
    
    
    (10
    )
    
    
    (232
    )Gain on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (147
    )
    
    
    (163
    )Operating income (loss)
    
    $
    399
    
    
    $
    105
    
    
    $
    148
    
    
    $
    17
    
    
    $
    (159
    )
    
    $
    510Earnings (losses) from
unconsolidated investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    6Other items, net
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    39
    
    
    
    26Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (268
    )Income from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179Income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    310
  66




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##### Table of Contents



Dynegys Results of Operations for the Nine Months Ended September 30, 2006
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    744
    
    
    $
    83
    
    
    $
    516
    
    
    $
    84
    
    
    $
    
    
    
    $
    1,427Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (363
    )
    
    
    (70
    )
    
    
    (439
    )
    
    
    (34
    )
    
    
    (1
    )
    
    
    (907
    )Depreciation and amortization expense
    
    
    (126
    )
    
    
    (6
    )
    
    
    (18
    )
    
    
    
    
    
    
    (14
    )
    
    
    (164
    )Impairment and other charges
    
    
    (96
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (107
    )Gain on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    (107
    )
    
    
    (160
    )Operating income (loss)
    
    $
    159
    
    
    $
    (2
    )
    
    $
    59
    
    
    $
    (3
    )
    
    $
    (121
    )
    
    $
    92Earnings from unconsolidated
investments
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Other items, net
    
    
    1
    
    
    
    1
    
    
    
    6
    
    
    
    1
    
    
    
    32
    
    
    
    41Interest expense and debt conversion
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (559
    )Loss from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (420
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270
    )Loss from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Cumulative effect of change in
accounting principle, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (275
    )
  67




---



##### Table of Contents



DHIs Results of Operations for the Nine Months Ended September 30, 2007
 Power Generation
    
    
    
    
    
    
    Other andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    1,070
    
    
    $
    499
    
    
    $
    799
    
    
    $
    11
    
    
    $
    
    
    
    $
    2,379Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (528
    )
    
    
    (345
    )
    
    
    (621
    )
    
    
    18
    
    
    
    (2
    )
    
    
    (1,478
    )Depreciation and amortization expense
    
    
    (143
    )
    
    
    (49
    )
    
    
    (30
    )
    
    
    
    
    
    
    (10
    )
    
    
    (232
    )Gain on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (128
    )
    
    
    (144
    )Operating income (loss)
    
    $
    399
    
    
    $
    105
    
    
    $
    148
    
    
    $
    17
    
    
    $
    (140
    )
    
    $
    529Earnings from
unconsolidated investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Other items, net
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    38
    
    
    
    25Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (268
    )Income from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    298Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204Income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    334
 DHIs Results of Operations for the Nine Months Ended September 30, 2006
 Power GenerationOther andGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Eliminations
    
    
    Total(in millions)Revenues
    
    $
    744
    
    
    $
    83
    
    
    $
    516
    
    
    $
    84
    
    
    $
    
    
    
    $
    1,427Cost of sales, exclusive of
depreciation and amortization
expense shown separately below
    
    
    (363
    )
    
    
    (70
    )
    
    
    (439
    )
    
    
    (34
    )
    
    
    (1
    )
    
    
    (907
    )Depreciation and amortization expense
    
    
    (126
    )
    
    
    (6
    )
    
    
    (18
    )
    
    
    
    
    
    
    (14
    )
    
    
    (164
    )Impairment and other charges
    
    
    (96
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (107
    )Gain on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    (105
    )
    
    
    (158
    )Operating income (loss)
    
    $
    159
    
    
    $
    (2
    )
    
    $
    59
    
    
    $
    (3
    )
    
    $
    (119
    )
    
    $
    94Earnings from unconsolidated
investments
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Other items, net
    
    
    1
    
    
    
    1
    
    
    
    6
    
    
    
    1
    
    
    
    27
    
    
    
    36Interest expense and debt conversion
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (507
    )Loss from continuing operations
before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132Loss from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (239
    )Loss from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (245
    )
  68




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##### Table of Contents



Nine Months EndedSeptember 30,2007
    
    
    2006GEN-MWMillion Megawatt Hours Generated (1)
    
    
    19.1
    
    
    
    16.1Average Actual On-Peak Market Power Prices ($/MWh) (2):Cinergy (Cin Hub)
    
    $
    62
    
    
    $
    53Commonwealth Edison (NI Hub)
    
    $
    59
    
    
    $
    54PJM West
    
    $
    72
    
    
    $
    65GEN-WEMillion Megawatt Hours Generated (1) (3)
    
    
    8.0
    
    
    
    0.9Average Actual On-Peak Market Power Prices ($/MWh) (2):North Path
15 (NP 15)
    
    $
    66
    
    
    $
    61Palo Verde
    
    $
    63
    
    
    $
    59Average Market Spark Spreads ($/MWh):North Path 15 (NP15)
    
    $
    16
    
    
    $
    14Palo Verde
    
    $
    15
    
    
    $
    13GEN-NEMillion Megawatt Hours Generated
    
    
    7.0
    
    
    
    3.5Average Actual On-Peak Market Power Prices ($/MWh) (2):New YorkZone G
    
    $
    83
    
    
    $
    78New YorkZone A
    
    $
    62
    
    
    $
    60Mass Hub
    
    $
    76
    
    
    $
    71Average Actual On-Peak Market Spark Spread ($/MWh):New YorkZone A
    
    $
    11
    
    
    $
    11Mass Hub
    
    $
    20
    
    
    $
    19Average natural gas priceHenry Hub ($/MMBtu) (4)
    
    $
    6.95
    
    
    $
    6.79
 
 (1)
    
    Includes our ownership percentage in the MWh generated by our GEN-WE investment in
NCA#2 for the nine months ended September 30, 2007 and includes the MWh generated by our
GEN-WE investments in West Coast Power and NCA#2 and our GEN-MW investment in Rocky Road
for the nine months ended September 30, 2006.(2)
    
    Reflects the average of day-ahead quoted prices for the periods presented and does not
necessarily reflect prices realized by the Company.(3)
    
    Excludes approximately 1.8 MWh and 2.2 MWh generated by our CoGen Lyondell facility,
which we sold in August 2007, and less than 0.1 MWh and less than 0.1 MWh generated by our
Calcasieu facility, which is classified as held for sale, for the nine months ended
September 30, 2007 and 2006, respectively.(4)
    
    Calculated as the average of the daily gas prices for the period.  69




---



##### Table of Contents



Nine Months Ended September 30, 2007Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Other
    
    
    Total(in millions)Discontinued operations (1)
    
    $
    
    
    
    $
    213
    
    
    $
    
    
    
    $
    15
    
    
    $
    
    
    
    $
    228Legal and settlement charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (2
    )
    
    
    (18
    )Illinois rate relief charge
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Change in fair value of
interest rate swaps, net of
minority interest
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    30Gain on sale of Sandy Creek
ownership interest
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Settlement of Kendall toll
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    31Total DHI
    
    
    (34
    )
    
    
    225
    
    
    
    
    
    
    
    30
    
    
    
    37
    
    
    
    258Legal and settlement charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Total Dynegy
    
    $
    (34
    )
    
    $
    225
    
    
    $
    
    
    
    $
    30
    
    
    $
    18
    
    
    $
    239
 
 (1)
    
    Discontinued operations for GEN-WE includes a $210 million pre-tax gain on the sale of the
CoGen Lyondell power generation facility. Nine Months Ended September 30, 2006Power GenerationGEN-MW
    
    
    GEN-WE
    
    
    GEN-NE
    
    
    CRM
    
    
    Other
    
    
    Total(in millions)Debt conversion costs
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (204
    )
    
    $
    (204
    )Asset impairments
    
    
    (96
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105
    )Legal and settlement charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    (53
    )Sithe subordinated debt
exchange charge
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Acceleration of financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )Total DHI
    
    
    (96
    )
    
    
    (9
    )
    
    
    (36
    )
    
    
    (53
    )
    
    
    (238
    )
    
    
    (432
    )Debt conversion costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    (45
    )Legal and settlement charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Total Dynegy
    
    $
    (96
    )
    
    $
    (9
    )
    
    $
    (36
    )
    
    $
    (53
    )
    
    $
    (285
    )
    
    $
    (479
    )
 Operating Income
  Power GenerationMidwest Segment.
     70




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##### Table of Contents



Power GenerationWest Segment.
     Power GenerationNortheast Segment.
   71




---



##### Table of Contents



CRM.
  Other.
   72




---



##### Table of Contents



Earnings from Unconsolidated Investments
   Other Items, Net
   Interest Expense
   73




---



##### Table of Contents



Income Tax (Expense) Benefit
    Discontinued Operations
 Income From Discontinued Operations Before Taxes.
    74




---



##### Table of Contents



Income Tax (Expense) Benefit From Discontinued Operations.
   Outlook
     75




---



##### Table of Contents




    
    the structure and scope of final rules and regulations, including the level of
emissions reductions required and the time period for these reductions;
    
    the ability to recover in the marketplace any associated increases in operating and/or
capital costs;
    
    the demonstration of new technologies that make further emissions reductions a reality
and any associated costs; and
    
    the risk of litigation and related adversary proceedings, particularly with respect to
development projects and associated permitting activities.
   GEN-MW.
   ,
  76




---



##### Table of Contents



GEN-WE .
   77




---



##### Table of Contents



GEN-NE.
     DLS Power Development.
   78




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##### Table of Contents



Cash Flow Disclosures
  Dynegy Inc.
    
    
    Dynegy Holdings Inc.Nine Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)Operating cash flows from our generation businesses
    
    $
    736
    
    
    $
    503
    
    
    $
    736
    
    
    $
    503Operating cash flows from our customer risk
management business
    
    
    (24
    )
    
    
    (370
    )
    
    
    (24
    )
    
    
    (370
    )Other operating cash flows
    
    
    (346
    )
    
    
    (313
    )
    
    
    (337
    )
    
    
    (325
    )Net cash provided by (used) in operating activities
    
    $
    366
    
    
    $
    (180
    )
    
    $
    375
    
    
    $
    (192
    )
 Operating Cash Flow
 Dynegy.
  DHI.
   79




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##### Table of Contents



Capital Expenditures and Investing Activities
 Dynegy.
        DHI.
    80




---



##### Table of Contents



Financing Activities
 Dynegy.
 
    
    $1,650 million in aggregate principal amount from our Senior Unsecured Notes due 2015
and 2019;
    
    $665 million in aggregate principal amount on our letter of credit facilities;
    
    $275 million in aggregate principal amount on our revolver due 2012;
    
    $70 million senior secured term loan facility due 2013; and
    
    $78 million in aggregate principal amount on our Plum Point Credit Agreement Facility.
  
    
    $396 million in aggregate principal amount on our Kendall Senior Secured Term Loan
Facility;
    
    $150 million in aggregate principal amount on our Ontelaunee term loan due 2009;
    
    $919 million in aggregate principal amount on our Gen Finance First Lien Term Loan;
    
    $150 million in aggregate principal amount on our Gen Finance Second Lien Term Loan;
    
    $275 million promissory note to LS Associates;
    
    $275 million in aggregate principal amount on our Revolving Facility;
    
    $70 million in aggregate principal amount on our Griffith debt;
    
    $39 million in aggregate principal amount on our 8.50% secured bonds due 2007;
    
    $15 million in aggregate principal amount on our letter of credit facilities; and
    
    $11 million in aggregate principal amount on our Second Priority Senior Secured Notes.
  
    
    $900 million in aggregate principal amount on our 10.125% Second Priority Senior
Secured Notes due 2013;
    
    $614 million in aggregate principal amount on our 9.875% Second Priority Senior
Secured Notes due 2010;
  81




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##### Table of Contents




    
    $225 million in aggregate principal amount on our Second Priority Senior Secured
Floating Rate Notes due 2008;
    
    $23 million in aggregate principal amount on our 7.45% Senior Notes due 2006; and
    
    $18 million in aggregate principal amount on our 8.50% secured bonds due 2007.
   
    
    $204 million to redeem the Second Priority Senior Secured Notes mentioned above,
including approximately $3 million of transaction costs;
    
    $44 million aggregate premium to induce conversion of our $225 million 4.75%
Convertible Subordinated Debentures due 2023; and
    
    $1 million in transaction costs associated with the redemption of our Series C
Preferred.
  
    
    $750 million aggregate principal amount from a private offering of our 8.375% Senior
Unsecured Notes due 2016;
    
    $200 million, LIBOR + 1.75% letter of credit facility due 2012; and
    
    $150 million, LIBOR + 1.75% term loan due 2012.
  DHI.
 
    
    $1,650 million in aggregate principal amount from our Senior Unsecured Notes due 2015
and 2019;
    
    $665 million in aggregate principal amount on our letter of credit facilities;
    
    $275 million in aggregate principal amount on our revolver due 2012;
    
    $70 million in aggregate principal amount on our senior secured term loan facility due
2013; and
    
    $78 million in aggregate principal amount on our Plum Point Credit Agreement Facility.
  
    
    $396 million in aggregate principal amount on our Kendall Senior Secured Term Loan
Facility;
    
    $150 million in aggregate principal amount on our Ontelaunee term loan due 2009;
    
    $919 million in aggregate principal amount on our Gen Finance First Lien Term Loan;
    
    $150 million in aggregate principal amount on our Gen Finance Second Lien Term Loan;
    
    $275 million in aggregate principal amount on our Revolving Facility;
    
    $70 million in aggregate principal amount on our Griffith debt;
  82




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##### Table of Contents




    
    $39 million in aggregate principal amount on our 8.50% secured bonds due 2007;
    
    $15 million in aggregate principal amount on our letter of credit facilities; and
    
    $11 million in aggregate principal amount on our Second Priority Senior Secured Notes.
   
    
    $900 million in aggregate principal amount on our Second Priority Senior Secured Notes
due 2013;
    
    $614 million in aggregate principal amount on our Second Priority Senior Secured Notes
due 2010;
    
    $225 million in aggregate principal amount on our Second Priority Senior Secured Notes
due 2008;
    
    $23 million in aggregate principal amount on our 7.45% Senior Notes due 2006; and
    
    $18 million in aggregate principal amount on our 8.50% secured bonds due 2007.
   
    
    $750 million aggregate principal amount from our Senior Unsecured Notes due 2016;
    
    $200 million, LIBOR + 1.75% letter of credit facility due 2012; and
    
    $150 million, LIBOR + 1.75% term loan due 2012.
  RISK-MANAGEMENT DISCLOSURES
  As of and for theNine MonthsEnded September30, 2007(in millions)Balance Sheet Risk-Management AccountsFair value of portfolio at January 1, 2007
    
    $
    53Risk-management gains recognized through the income statement in the period, net
    
    
    126Cash received related to risk-management contracts settled in the period, net
    
    
    (13
    )Changes in fair value as a result of a change in valuation technique (1)
    
    
    Non-cash adjustments and other (2)
    
    
    (149
    )Fair value of portfolio at September 30, 2007
    
    $
    17
 
 (1)
    
    Our modeling methodology has been consistently applied.(2)
    
    This amount consists of $38 million in net risk management liabilities acquired in connection
with the Merger Agreement as well as changes in value associated with cash flow hedges on
forward power sales and fair value and cash flow hedges on debt.  83




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Risk-Management Asset and Liability Disclosures.
 Mark-to-Market Value of Net Risk-Management Assets (1)
 Total
    
    
    2007 (2)
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter(in millions)September 30, 2007
    
    $
    29
    
    
    $
    39
    
    
    $
    (5
    )
    
    $
    (8
    )
    
    $
    (2
    )
    
    $
    1
    
    
    $
    4December 31, 2006
    
    
    (44
    )
    
    
    (45
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3Increase (decrease) (3)
    
    $
    73
    
    
    $
    84
    
    
    $
    (2
    )
    
    $
    (8
    )
    
    $
    (2
    )
    
    $
    
    
    
    $
    1
 
 (1)
    
    The table reflects the fair value of our risk-management asset position, which considers time
value, credit, price and other reserves necessary to determine fair value. These amounts
exclude the fair value associated with certain derivative instruments designated as hedges.
The net risk-management asset at September 30, 2007 of $17 million on the unaudited condensed
consolidated balance sheets include the $29 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 October 1 to December 31, 2007 values in the September 30, 2007 row and
January 1 to December 31, 2007 values in the December 31, 2006 row.(3)
    
    Increase since December 31, 2007 primarily due to the settlement of a large portion of
risk-management liabilities outstanding at December 31, 2006 during 2007 and mark-to-market
gains recognized in 2007, partially offset by $38 million in net risk-management liabilities
acquired in connection with the Merger Agreement. Cash Flow Components of Net Risk-Management Asset
 Nine Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30,
    
    
    December 31,
    
    
    Total2007
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter(in millions)September 30, 2007 (1)
    
    $
    19
    
    
    $
    53
    
    
    $
    72
    
    
    $
    6
    
    
    $
    (14
    )
    
    $
    (4
    )
    
    $
    2
    
    
    $
    6December 31, 2006
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    5Increase (decrease)
    
    
    
    
    
    
    
    
    
    $
    117
    
    
    $
    10
    
    
    $
    (14
    )
    
    $
    (4
    )
    
    $
    1
    
    
    $
    1
 
 (1)
    
    The cash flow values for 2007 reflect realized cash flows for the nine months ended September
30, 2007 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.  84




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##### Table of Contents



Net Fair Value of Risk-Management Portfolio
 Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter(in millions)Market Quotations (1)
    
    $
    25
    
    
    $
    17
    
    
    $
    (1
    )
    
    $
    3
    
    
    $
    1
    
    
    $
    1
    
    
    $
    4Prices Based on Models.
    
    
    4
    
    
    
    22
    
    
    
    (4
    )
    
    
    (11
    )
    
    
    (3
    )
    
    
    
    
    
    
    Total
    
    $
    29
    
    
    $
    39
    
    
    $
    (5
    )
    
    $
    (8
    )
    
    $
    (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. UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
  
    
    anticipated benefits of diversifying our operations, including the merger with the LS
Contributing Entities;
    
    beliefs and expectations regarding financing, development and timing of any and all
joint venture projects;
    
    projected operating or financial results, including anticipated cash flows from
operations, revenues and profitability;
    
    expectations regarding capital expenditures, interest expense and other payments;
    
    beliefs and assumptions about economic conditions and the demand for electricity;
    
    beliefs about commodity pricing and generation volumes;
    
    our focus on safety and our ability to efficiently operate our assets so as to
maximize our revenue generating opportunities;
    
    strategies to capture opportunities presented by rising commodity prices and
strategies to manage our exposure to energy price volatility;
    
    beliefs and assumptions relating to liquidity;
    
    statements related to the effects of changing to mark-to-market accounting including
any related to gains and losses in earnings or value changes related to market price
volatility;
    
    strategies to address our substantial leverage, or to access the capital markets;
    
    measures to compete effectively with industry participants;
    
    beliefs and assumptions about market competition, fuel supply, generation capacity and
regional supply and demand characteristics of the wholesale power generation market;
    
    sufficiency of coal, fuel oil and natural gas inventories and transportation,
including strategies to deploy coal supplies;
    
    beliefs about the outcome of legal, regulatory and administrative matters;
  85




---



##### Table of Contents




    
    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 global warming;
    
    the disposition and resolution of settlements, complaints, and suits related to the
Illinois Power Auction and impacts that these may have;
    
    expectations and estimates regarding the DMG consent decree and the associated costs;
and
    
    efforts to position our power generation business for future growth and pursuing and
executing acquisition, disposition or combination opportunities.
  RECENT ACCOUNTING PRONOUNCEMENTS
  CRITICAL ACCOUNTING POLICIES
  
 Item 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDYNEGY INC. AND DYNEGY HOLDINGS
INC.
  Value at Risk (VaR). TM
   86




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##### Table of Contents



Daily and Average VaR for Risk-Management Portfolios
 September 30,
    
    
    December 31,2007
    
    
    2006(in millions)One Day VaR95% Confidence Level
    
    $
    22
    
    
    $
    1One Day VaR99% Confidence Level
    
    $
    31
    
    
    $
    1Average VaR for the Year-to-Date Period95% Confidence Level
    
    $
    17
    
    
    $
    3
 Credit Risk.
 Credit Exposure Summary
 InvestmentGrade Quality(in millions)Type of Business:Financial Institutions
    
    $
    435Utility and Power Generators
    
    
    37Total
    
    $
    472
 Interest Rate Risk.
 Derivative Contracts.
 Absolute Notional Contract Amounts
 September 30,
    
    
    December 31,2007
    
    
    2006Net Cash Flow Hedge Interest Rate Swaps (In Millions of U.S. Dollars)
    
    $
    263
    
    
    $
    Fixed Interest Rate Paid (Percent)
    
    
    5.32
    
    
    
    Net Fair Value Hedge Interest Rate Swaps (In Millions of U.S. Dollars)
    
    $
    525
    
    
    $
    525Fixed Interest Rate Received on Swaps (Percent)
    
    
    4.33
    
    
    
    4.33Interest Rate Risk-Management Contract (In Millions of U.S. Dollars)
    
    $
    231
    
    
    $
    306Fixed Interest Rate Paid (Percent)
    
    
    5.35
    
    
    
    5.29Interest Rate Risk-Management Contract (In Millions of U.S. Dollars)
    
    $
    206
    
    
    $
    281Fixed Interest Rate Received (Percent)
    
    
    5.28
    
    
    
    5.23
 
 Item 4CONTROLS AND PROCEDURESDYNEGY INC. AND DYNEGY HOLDINGS INC.
   87




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##### Table of Contents



Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
   88




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 
 PART II. OTHER INFORMATION
 
 Item 1LEGAL PROCEEDINGSDYNEGY INC. AND DYNEGY HOLDINGS INC.
  
 Item 1ARISK FACTORSDYNEGY INC. AND DYNEGY HOLDINGS INC.
  
 Item 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS DYNEGY INC.
  (d)Maximum(c)
    
    
    Number ofTotal Number of
    
    
    Shares thatShares Purchased
    
    
    May Yet Be(a)
    
    
    (b)
    
    
    as Part of
    
    
    PurchasedTotal Number
    
    
    Average
    
    
    Publicly
    
    
    Under theof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    ProgramsJuly
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/AAugust
    
    
    2,394
    
    
    
    8.91
    
    
    
    
    
    
    
    N/ASeptember
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/ATotal
    
    
    2,394
    
    
    
    8.91
    
    
    
    
    
    
    
    N/A
  
 Item 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSDYNEGY INC.
  1.
    
    To elect eight Class A common stock directors and three Class B common stock directors
to serve until the 2008 annual meeting of stockholders;2.
    
    To act upon a proposal to ratify the appointment of Ernst & Young LLP as our
independent auditors commencing with the review of the unaudited financial statements for
the second quarter ending June 30, 2007 through the remainder of the fiscal year ending
December 31, 2007; and3.
    
    To act upon a stockholder proposal regarding pay-for-superior-performance.
  89




---



##### Table of Contents



Class A Directors
 FOR
    
    
    WITHHELD1.
    
    David W. Biegler
    
    
    442,454,325
    
    
    
    12,362,7992.
    
    Thomas D. Clark, Jr.
    
    
    450,035,665
    
    
    
    4,781,4593.
    
    Victor J. Grijalva
    
    
    441,378,492
    
    
    
    13,438,6324.
    
    Patricia A. Hammick
    
    
    450,019,133
    
    
    
    4,797,9915.
    
    George L. Mazanec
    
    
    433,932,288
    
    
    
    20,884,8366.
    
    Robert C. Oelkers
    
    
    434,074,048
    
    
    
    20,743,0767.
    
    William L. Trubeck
    
    
    434,004,791
    
    
    
    20,812,3338.
    
    Bruce A. Williamson
    
    
    447,354,233
    
    
    
    7,462,891
 Class B Directors
 FOR
    
    
    WITHHELD1.
    
    James T. Bartlett
    
    
    340,000,000
    
    
    
    02.
    
    Frank E. Hardenbergh
    
    
    340,000,000
    
    
    
    03.
    
    Mikhail Segal
    
    
    340,000,000
    
    
    
    0
  FOR
    
    AGAINST
    
    ABSTAIN791,900,986
    
    1,801,951
    
    1,114,185
  FOR
    
    AGAINST
    
    ABSTAIN121,029,989
    
    613,373,998
    
    4,692,277
  90




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##### Table of Contents



Item 6EXHIBITSDYNEGY INC. AND DYNEGY HOLDINGS INC.
  ExhibitNumber
    
    Description10.1
    
    Fourth Amendment to October 18, 2002 Employment Agreement
between Bruce A. Williamson and Dynegy Inc. dated August 23,
2007 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Dynegy Inc. filed on August 24, 2007, File
No. 001-33443).10.2
    
    Equity Commitment Agreement among Sandy Creek Energy Associates,
L.P., Dynegy Sandy Creek Holdings, LLC and Credit Suisse dated
August 29, 2007 (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Dynegy Inc. filed on September
5, 2007, File No. 001-33443).10.3
    
    Equity Commitment Agreement among Sandy Creek Energy Associates,
L.P., Sandy Creek Holdings, LLC and Credit Suisse dated August
29, 2007 (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K of Dynegy Inc. filed on September 5,
2007, File No. 001-33443).**31.1
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.**31.1(a)
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.**31.2
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.**31.2(a)
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Chief Executive Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.1(a)
    
    Chief Executive Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Chief Financial Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2(a)
    
    Chief Financial Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 **
    
    Filed herewith.
    
    Pursuant to Securities and Exchange Commission Release No. 33-8238, this
certification will be treated as accompanying this report and not filed as part of
such report for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, or otherwise subject to the liability of Section 18 of
the Exchange Act, and this certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Exchange
Act.  91




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##### Table of Contents



DYNEGY INC. and DYNEGY HOLDINGS INC.
 
 SIGNATURES
  DYNEGY INC.Date: November 8, 2007
    By:

/s/
Holli C. NicholsHolli C. NicholsExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)DYNEGY HOLDINGS INC.Date: November 8, 2007
    By:

/s/
Holli C. NicholsHolli C. NicholsExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)  92




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Fourth Amendment to October 18, 2002 Employment Agreement
between Bruce A. Williamson and Dynegy Inc. dated August 23,
2007 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Dynegy Inc. filed on August 24, 2007, File
No. 001-33443).10.2
    
    Equity Commitment Agreement among Sandy Creek Energy Associates,
L.P., Dynegy Sandy Creek Holdings, LLC and Credit Suisse dated
August 29, 2007 (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Dynegy Inc. filed on September
5, 2007, File No. 001-33443).10.3
    
    Equity Commitment Agreement among Sandy Creek Energy Associates,
L.P., Sandy Creek Holdings, LLC and Credit Suisse dated August
29, 2007 (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K of Dynegy Inc. filed on September 5,
2007, File No. 001-33443).**31.1
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.**31.1(a)
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.**31.2
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.**31.2(a)
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a)
and 15d-14(a), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Chief Executive Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.1(a)
    
    Chief Executive Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Chief Financial Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2(a)
    
    Chief Financial Officer Certification Pursuant to 18 United
States Code Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 **
    
    Filed herewith.
    
    Pursuant to Securities and Exchange Commission Release No. 33-8238, this
certification will be treated as accompanying this report and not filed as part of
such report for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, or otherwise subject to the liability of Section 18 of
the Exchange Act, and this certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Exchange
Act.  93