<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                  FORM 10-Q/A

<TABLE>
<C>        <S>
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                        COMMISSION FILE NUMBER: 1-11156

                            ------------------------

                              DYNEGY HOLDINGS INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
               DELAWARE                                     94-3248415
    (State or other jurisdiction of            (I.R.S. Employer Identification No.)
    incorporation or organization)

 1000 LOUISIANA, SUITE 5800 HOUSTON,                          77002
                 TEXAS                                      (Zip Code)
    (Address of principal executive
               offices)
</TABLE>

                                 (713) 507-6400
              (Registrant's telephone number, including area code)

                            ------------------------

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

    All outstanding equity of Dynegy Holdings Inc. is held by its parent Dynegy
Inc.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                              DYNEGY HOLDINGS INC.
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                      --------
<S>                     <C>                                                           <C>
PART I.  FINANCIAL INFORMATION

  Item 1.               CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

                        Condensed Consolidated Balance Sheets:

                        March 31, 2000 and December 31, 1999........................      3

                        Condensed Consolidated Statements of Operations:

                        For the three months ended March 31, 2000 and 1999..........      4

                        Condensed Consolidated Statements of Cash Flows:

                        For the three months ended March 31, 2000 and 1999..........      5

                        Notes to Condensed Consolidated Financial Statements........      6

  Item 2.               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION      12
                         AND RESULTS OF OPERATIONS..................................

PART II.  OTHER INFORMATION

  Item 1.               Legal Proceedings...........................................     27

  Item 6.               Exhibits and Reports on Form 8-K............................     28
</TABLE>

                                       2
<PAGE>
                              DYNEGY HOLDINGS INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                               MARCH 31,    DECEMBER 31,
                                                                 2000           1999
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                                         ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................  $       --     $   45,230
Accounts receivable, net....................................   1,916,995      1,992,450
Accounts receivable, related parties........................      60,454         48,966
Inventories.................................................      79,064        271,884
Assets from risk management activities......................     882,035        379,833
Prepayments and other assets................................      80,795         66,717
                                                              ----------     ----------
                                                               3,019,343      2,805,080
                                                              ----------     ----------
PROPERTY, PLANT AND EQUIPMENT...............................   2,058,594      2,575,100
Less: accumulated depreciation..............................    (427,074)      (557,219)
                                                              ----------     ----------
                                                               1,631,520      2,017,881
                                                              ----------     ----------
OTHER ASSETS:
Investments in unconsolidated affiliates....................     584,363        627,335
Accounts receivable, affiliates.............................     845,723             --
Assets from risk management activities......................     562,584        452,913
Other assets................................................     504,593        621,962
                                                              ----------     ----------
                                                              $7,148,126     $6,525,171
                                                              ==========     ==========

                          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................  $1,550,588     $1,667,199
Accounts payable, related parties...........................     177,099        161,500
Accrued liabilities.........................................     228,120        184,013
Liabilities from risk-management activities.................     717,772        334,080
Notes payable and current portion of long-term debt.........     342,678        191,731
                                                              ----------     ----------
                                                               3,016,257      2,538,523
LONG-TERM DEBT..............................................   1,282,322      1,299,333
OTHER LIABILITIES:
Non-recourse debt...........................................          --         34,593
Liabilities from risk management activities.................     473,242        321,252
Deferred income taxes.......................................     354,241        335,190
Other long-term liabilities.................................     455,090        486,798
                                                              ----------     ----------
                                                               5,581,152      5,015,689
                                                              ----------     ----------
COMPANY OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY
  TRUST.....................................................     200,000        200,000
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 50,000,000 shares
  authorized; 8,000,000 shares designated as Series A
  Participating Preferred Stock, 7,815,363 shares issued and
  outstanding at December 31, 1999..........................          --         75,418
Common stock, $0.01 par value, 400,000,000 shares
  authorized; 157,499,001 shares issued and outstanding at
  December 31, 1999.........................................          --          1,575
Additional paid-in capital..................................          --        973,000
Cumulative translation adjustment...........................      (1,440)            --
Retained earnings...........................................     336,006        277,074
Less: treasury stock, at cost; 1,200,700 shares at
  December 31, 1999.........................................          --        (17,585)
Stockholder's equity........................................   1,032,408             --
                                                              ----------     ----------
                                                               1,366,974      1,309,482
                                                              ----------     ----------
                                                              $7,148,126     $6,525,171
                                                              ==========     ==========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       3
<PAGE>
                              DYNEGY HOLDINGS INC.

          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                              -----------------------
                                                                 2000         1999
                                                              ----------   ----------
<S>                                                           <C>          <C>
Revenues....................................................  $4,820,905   $3,044,973
Cost of sales...............................................   4,616,538    2,924,896
                                                              ----------   ----------
  Operating margin..........................................     204,367      120,077
Depreciation and amortization...............................      53,690       31,288
General and administrative expenses.........................      57,841       49,542
                                                              ----------   ----------
  Operating income..........................................      92,836       39,247

Equity in earnings of unconsolidated affiliates.............       9,202       15,063
Other income................................................      56,991       13,918
Interest expense............................................     (21,970)     (19,234)
Other expenses..............................................     (38,962)      (4,153)
Minority interest in income of a subsidiary.................      (4,158)      (4,158)
                                                              ----------   ----------
Income before income taxes..................................      93,939       40,683
Income tax provision........................................      35,007       12,612
                                                              ----------   ----------
NET INCOME..................................................  $   58,932   $   28,071
                                                              ==========   ==========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       4
<PAGE>
                              DYNEGY HOLDINGS INC.

   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                              ---------------------
                                                                2000        1999
                                                              ---------   ---------
<S>                                                           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income..................................................  $  58,932   $  28,071
Items not affecting cash flows from operating activities:
  Depreciation and amortization.............................     54,180      29,316
  Equity in earnings of affiliates, net of cash
    distributions...........................................     (6,114)     (9,593)
  Risk management activities................................    (76,192)     (8,424)
  Deferred income taxes.....................................     35,007      14,568
  Other.....................................................    (27,038)     (2,519)
Changes in assets and liabilities resulting from operating
  activities:
  Accounts receivable.......................................    (37,681)    189,963
  Inventories...............................................    165,060      35,314
  Prepayments and other assets..............................    (11,892)     28,494
  Accounts payable..........................................    (18,883)   (288,038)
  Accrued liabilities.......................................     17,372     (20,852)
Other, net..................................................    (74,330)     (8,059)
                                                              ---------   ---------

Net cash provided by (used in) operating activities.........     78,421     (11,759)
                                                              ---------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................   (121,594)    (99,918)
Investment in unconsolidated affiliates, net................     (5,806)     (1,418)
Proceeds from asset sales...................................    667,111      16,650
Other, net..................................................         --     (39,060)
                                                              ---------   ---------

Net cash provided by (used in) investing activities.........    539,711    (123,746)
                                                              ---------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings..........................    296,697          --
Repayments of long-term borrowings..........................         --      (6,319)
Net proceeds from commercial paper and money market lines of
  credit....................................................   (111,471)    127,072
Affiliate transactions......................................   (845,723)         --
Other, net..................................................     (2,865)     (1,531)
                                                              ---------   ---------

Net cash (used in) provided by financing activities.........   (663,362)    119,222
                                                              ---------   ---------

Net change in cash and cash equivalents.....................    (45,230)    (16,283)
Cash and cash equivalents, beginning of period..............     45,230      28,367
                                                              ---------   ---------

Cash and cash equivalents, end of period....................  $      --   $  12,084
                                                              =========   =========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       5
<PAGE>
                              DYNEGY HOLDINGS INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

NOTE 1--ACCOUNTING POLICIES

    The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to interim financial reporting
as prescribed by the Securities and Exchange Commission ("SEC"). These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, filed with the SEC.

    The financial statements include all material adjustments, which, in the
opinion of management, were necessary for a fair presentation of the results for
the interim periods. Interim period results are not necessarily indicative of
the results for the full year. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to develop estimates and make assumptions that affect reported
financial position and results of operations and that impact the nature and
extent of disclosure, if any, of contingent assets and liabilities. Actual
results could differ from those estimates.

    The financial statements for the three-month period ended March 31, 2000
have been restated for certain matters related to the consolidation process.
Previously reported net income was $64.4 million for the three-month period
ended March 31, 2000. In order to preserve the nature and character of the
disclosures as of May 15, 2000, the date on which the Form 10-Q for the interim
period ended March 31, 2000 was originally filed, no attempt has been made in
this Form 10-Q/A to modify or update such disclosures except as required to
reflect effects of the restatement.

    On June 14, 1999, Dynegy Inc. announced its intent to acquire Illinova
Corporation ("Illinova"), and completed this acquisition early in the first
quarter 2000. As part of the acquisition of Illinova, Former Dynegy, which was
renamed Dynegy Holdings Inc., became a wholly owned subsidiary of a new holding
company, Dynegy Inc. The assets, liabilities and operations of the former Dynegy
Inc. before the acquisition became the assets, liabilities and operations of
Dynegy Holdings Inc. after the acquisition.

    Dynegy routinely conducts business with subsidiaries of Dynegy Inc. that are
not a part of this consolidated group. These transactions include the purchase
or sale of commodities and other commercial operations as well as certain other
services. Dynegy's results of operations include allocations of certain
overhead, interest, tax and other similar revenues and costs pursuant to entity-
wide sharing arrangements. Affiliate transactions have been conducted at prices
and terms equivalent to those available to and transacted with unrelated
parties, in all material respects.

NOTE 2--BUSINESS COMBINATION

    On February 1, 2000, the former Dynegy Inc., a Delaware corporation since
renamed Dynegy Holdings Inc. ("Dynegy"), and Illinova Corporation ("Illinova")
merged in a transaction (the "Merger") in which Former Dynegy and Illinova
became wholly owned subsidiaries of Dynegy Inc., a newly formed Illinois
corporation. This Merger, which was approved by shareholders of both Dynegy and
Illinova on October 11, 1999, resulted in each share of Dynegy common stock and
Series A Participating Preferred stock being converted into 0.69 shares of
Dynegy Inc. equity pursuant to the Merger terms. This Merger was accounted for
under the purchase method of accounting and Dynegy was the acquirer for
accounting purposes. As a result of the Merger, Dynegy Inc. is now the Company's
sole shareholder.

                                       6
<PAGE>
                              DYNEGY HOLDINGS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

NOTE 3--ACCOUNTING POLICY CHANGE

    The Company continues to analyze the effects of adoption of the rules
promulgated by Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133") as amended by
Financial Accounting Standard No. 137. Provisions in Statement No. 133 will
affect the accounting and disclosure of contractual arrangements and operations
of the Company. Provisions of Statement No. 133 must be applied to fiscal
periods beginning after June 15, 2000. Dynegy intends to adopt the provisions of
Statement No. 133 within the timeframe and in accordance with the requirements
provided by that statement. Management is currently assessing the financial
statement impact of the adoption, however, such impact is not determinable at
this time.

    Management believes the adoption of the provisions of Statement No. 133 may
affect the variability of future periodic results reported by Dynegy, as well as
its competitors, as market conditions and resulting trading portfolio valuations
change from time to time. Such earnings variability, if any, will likely result
principally from valuation issues arising from imbalances between supply and
demand created by illiquidity in certain commodity markets resulting from, among
other things, a lack of mature trading and price discovery mechanisms,
transmission and/or transportation constraints resulting from regulation or
other issues in certain markets and the need for a representative number of
market participants maintaining the financial liquidity and other resources
necessary to compete effectively.

NOTE 4--UNCONSOLIDATED AFFILIATES

    At March 31, 2000, Dynegy's investment in unconsolidated affiliates
accounted for by the equity method included: a 25 percent participating
preferred stock interest in Accord Energy Limited, a United Kingdom limited
company; an approximate 23 percent interest in Venice Energy Services Company,
L.L.C.; a 38.75 percent partnership interest in Gulf Coast Fractionators; a 25
percent interest in Midstream Barge Company, L.L.C.; a 39 percent partnership
interest in West Texas LPG Pipeline, Limited Partnership; interests ranging from
eight to 50 percent in seven various entities, each formed to build (or buy),
own and operate power generation facilities located in the United States; a
33.33 percent interest in Waskom Gas Processing Company, a partnership that owns
and operates a natural gas processing, extraction and fractionation facility; a
50 percent interest in NICOR Energy L.L.C., a retail energy alliance located in
the Midwest; and a 20 percent interest in SouthStar Energy Services L.L.C., a
retail energy alliance located in the Southeast.

    Also at March 31, 2000, the Company had three cost basis investments: Altra
Energy Technologies, Inc., Canadian Midstream Services, Ltd. and Compton
Petroleum Corporation.

                                       7
<PAGE>
                              DYNEGY HOLDINGS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

NOTE 4--UNCONSOLIDATED AFFILIATES (CONTINUED)
Summarized unaudited combined income statement information for the
unconsolidated affiliates accounted for by the equity method is presented in the
table below:

<TABLE>
<CAPTION>
                                                     THREE-MONTHS ENDED MARCH 31,
                                               -----------------------------------------
                                                      2000                  1999
                                               -------------------   -------------------
                                                           EQUITY                EQUITY
                                                TOTAL      SHARE      TOTAL      SHARE
                                               --------   --------   --------   --------
                                                           ($ IN THOUSANDS)
<S>                                            <C>        <C>        <C>        <C>
Revenues(1)..................................  $392,389   $128,654   $237,304   $93,670
                                               ========   ========   ========   =======

Operating margin(1)..........................  $ 89,320   $ 30,210   $ 85,762   $34,098
                                               ========   ========   ========   =======

Net income(1)................................  $ 27,175   $  3,356   $ 23,733   $10,247
                                               ========   ========   ========   =======
</TABLE>

------------------------

(1) The interim financial data for both periods presented is exclusive of
    amounts attributable to the Company's investment in Accord as such
    information was unavailable.

NOTE 5--COMMITMENTS AND CONTINGENCIES

    On August 3, 1998, Modesto Irrigation District ("MID") filed a lawsuit
against PG&E and Destec Energy, Inc. ("Destec") in federal court for the
Northern District of California, San Francisco division. The lawsuit alleges
violation of federal and state antitrust laws and breach of contract against
Destec. The allegations are related to a power sale and purchase arrangement in
the city of Pittsburg, CA. MID seeks actual damages from PG&E and Destec in
amounts not less than $25 million. MID also seeks a trebling of any portion of
damages related to its antitrust claims. By order dated February 2, 1999, the
federal District Court dismissed MID's state and federal antitrust claims
against PG&E and Destec; however, the Court granted MID leave of thirty days to
amend its complaint to state an antitrust cause of action. On March 3, 1999, MID
filed an amended complaint recasting its federal and state antitrust claims
against PG&E and Destec and restating its breach of contract claim against
Destec. PG&E and Destec have filed motions to dismiss MID's revised federal and
state antitrust claims. The hearing on the motions to dismiss was held in July
1999. On August 20, 1999, the District Court again dismissed MID's antitrust
claims against PG&E and Destec, this time without leave to amend the complaint.
As a result of the dismissal of the antitrust claims, the District Court also
dismissed the pendant state law claims. MID has appealed the District Court's
dismissal of its suit to the Ninth Circuit Court of Appeal. Following dismissal
of its federal court suit, MID filed suit in California state court asserting
breach of contract and tortious interference with prospective economic relations
claims against Destec and tortious interference with contract and tortious
interference with prospective economic relations claims against PG&E. Motions to
dismiss MID's state court claims were heard by the state court and by order
dated April 6, 2000, MID was directed to amend its complaint. MID filed its
amended complaint on April 20, 2000, including Dynegy as a defendant. Dynegy
plans to file a motion to dismiss MID's amended complaint against Dynegy. Dynegy
believes the allegations made by MID are meritless and will continue to
vigorously defend MID's claims. In the opinion of management, the amount of
ultimate liability with respect to these actions will not have a material
adverse effect on the financial position or results of operations of the
Company.

                                       8
<PAGE>
                              DYNEGY HOLDINGS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED)
    On July 30, 1999, The Dow Chemical Company ("Dow") filed a lawsuit in the
United States District Court for the District of Delaware against Dynegy Power
Corporation ("DPC"), a wholly-owned subsidiary of the Company. Dow sought
contribution from DPC in connection with claims against Dow asserted by The AES
Corporation ("AES") in a lawsuit filed on November 30, 1998 in the United States
District Court for the Southern District of Texas. AES asserts various federal
and Texas securities laws claims, and Texas claims for fraud and civil
conspiracy, arising out of AES' September 1997 purchase of stock of Destec
Engineering, a subsidiary of DPC (at that time Destec Power Corp). Specifically,
AES alleges that Destec Power made certain misrepresentations about the expected
profits that Destec Engineering would earn in connection with the construction
of the Elsta power plant in The Netherlands, and the anticipated completion date
of the Elsta plant. AES alleges that Dow is liable because it "controlled" or
had the power to control the management of Destec Power. AES's original
complaint did not assert any claims against Destec Power or any other Dynegy
entity. Dow is vigorously defending against AES' claims. In response to a motion
to transfer filed by Dow, the United States District Court for the Southern
District of Texas transferred the suit to the United States District Court for
Delaware. Following transfer of the litigation, AES added DPC as a defendant,
asserting claims similar to the claims asserted against Dow. Dow subsequently
dismissed the suit against DPC without prejudice. AES and DPC have reached a
settlement of AES's claims against DPC, which was approved by the District Court
on April 20, 2000. The order approving the settlement also contains a bar
against any claim for contribution that might otherwise be asserted by Dow
against DPC. The settlement dismisses AES's suit against DPC with prejudice. The
settlement had no impact on Dynegy's results of operations or financial
position.

    The Company is subject to various legal proceedings and claims, which arise
in the normal course of business. Further, in addition to certain disclosures
made previously herein, the Company assumed liability for various claims,
assessments and litigation in connection with its strategic acquisitions. In the
opinion of management, the amount of ultimate liability with respect to these
actions will not have a material adverse effect on the financial position or
results of operations of the Company.

NOTE 6--SEGMENT INFORMATION

    Dynegy's operations are divided into three reportable segments: Dynegy
Marketing & Trade ("DMT"), Dynegy Midstream Services ("DMS") and Dynegy Energy
Services ("DES").

    - Dynegy Marketing and Trade focuses on energy convergence--the marketing,
      trading and arbitrage opportunities that exist among power, natural gas
      and coal that can be enhanced by the control and optimization of related
      physical assets.

    - Dynegy's natural gas liquids subsidiary, Dynegy Midstream Services,
      includes North American midstream liquids operations, global natural gas
      liquids transportation and marketing operations.

    - Dynegy Energy Services markets energy products and services to the retail
      sector through direct marketing and strategic alliances with leading
      utility companies.

    Operating segment information for the three-month periods ended March 31,
2000 and 1999 is presented below.

                                       9
<PAGE>
                              DYNEGY HOLDINGS INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

    DYNEGY HOLDINGS INC.'S SEGMENT DATA FOR THE QUARTER ENDED MARCH 31, 2000

<TABLE>
<CAPTION>
                                                 DMT          DMS         DES      ELIMINATION     TOTAL
                                              ----------   ----------   --------   -----------   ----------
<S>                                           <C>          <C>          <C>        <C>           <C>
Unaffiliated revenues:
  Domestic..................................  $2,568,381   $1,264,364   $    46     $      --    $3,832,791
  Canadian..................................     373,466      183,509        --            --       556,975
  European..................................     431,139           --        --            --       431,139
                                              ----------   ----------   -------     ---------    ----------
                                               3,372,986    1,447,873        46            --     4,820,905
                                              ----------   ----------   -------     ---------    ----------
Intersegment revenues:
  Domestic..................................      17,042       52,332        --       (69,374)           --
  Canadian..................................      34,511        8,205        --       (42,716)           --
  European..................................          --           --        --            --            --
                                              ----------   ----------   -------     ---------    ----------
                                                  51,553       60,537        --      (112,090)           --
                                              ----------   ----------   -------     ---------    ----------
  Total revenues............................   3,424,539    1,508,410        46      (112,090)    4,820,905
                                              ----------   ----------   -------     ---------    ----------

Operating margin............................     130,264       74,079        24            --       204,367

Depreciation and amortization...............      (8,109)     (45,354)     (227)           --       (53,690)

Interest expense............................     (14,971)      (6,278)     (721)           --       (21,970)

Other income (expense)......................      52,405      (34,339)      (37)           --        18,029

Equity earnings (losses)....................      (2,842)       6,274     5,770            --         9,202

Income tax (provision) benefit..............     (45,514)      11,302      (795)           --       (35,007)

Net income (loss)...........................      68,695      (10,904)    1,141            --        58,932
Identifiable assets:
  Domestic..................................  $4,557,615   $1,897,570   $21,165     $      --    $6,476,350
  Canadian..................................     317,927      121,210        --            --       439,137
  European..................................     232,639           --        --            --       232,639

Investment in unconsolidated affiliates.....     405,580      173,710     5,073            --       584,363

Capital expenditures and investment in
  unconsolidated affiliates, net............    (110,309)     (17,091)       --            --      (127,400)
</TABLE>

                                       10
<PAGE>
                              DYNEGY HOLDINGS INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

    DYNEGY HOLDINGS INC.'S SEGMENT DATA FOR THE QUARTER ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
                                                 DMT          DMS         DES      ELIMINATION     TOTAL
                                              ----------   ----------   --------   -----------   ----------
<S>                                           <C>          <C>          <C>        <C>           <C>
Unaffiliated revenues:
  Domestic..................................  $1,630,795   $  698,579   $    --     $      --    $2,329,374
  Canadian..................................     321,013       43,560        --            --       364,573
  European..................................     351,026           --        --            --       351,026
                                              ----------   ----------   -------     ---------    ----------
                                               2,302,834      742,139        --            --     3,044,973
                                              ----------   ----------   -------     ---------    ----------
Intersegment revenues:
  Domestic..................................      51,752       42,253        --       (94,005)           --
  Canadian..................................      11,293           --        --       (11,293)           --
  European..................................          --           --        --            --            --
                                              ----------   ----------   -------     ---------    ----------
                                                  63,045       42,253        --      (105,298)           --
                                              ----------   ----------   -------     ---------    ----------
  Total revenues............................   2,365,879      784,392        --      (105,298)    3,044,973
                                              ----------   ----------   -------     ---------    ----------

Operating margin............................      70,106       49,971        --            --       120,077

Depreciation and amortization...............      (8,561)     (22,727)       --            --       (31,288)

Interest expense............................      (9,569)      (9,665)       --            --       (19,234)

Other income (expense)......................      10,653         (888)       --            --         9,765

Equity earnings (losses)....................      13,286        2,426      (649)           --        15,063

Income tax (provision) benefit..............     (15,751)       2,912       227            --       (12,612)

Net income (loss)...........................      26,920        1,573      (422)           --        28,071

Identifiable assets:
  Domestic..................................  $2,840,733   $2,047,501   $10,443     $      --    $4,898,677
  Canadian..................................     253,927       42,458        --            --       296,385
  European..................................     119,323           --        --            --       119,323

Investment in unconsolidated affiliates.....     340,756      160,409    10,443            --       511,608
Capital expenditures and investment in
  unconsolidated affiliates, net............     (80,431)     (20,905)       --            --      (101,336)
</TABLE>

                                       11
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

    The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements of Dynegy Holdings Inc.
included elsewhere herein and with the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.

GENERAL

    COMPANY PROFILE.  Dynegy Holdings Inc. ("Dynegy" or the "Company") is a
holding company that conducts substantially all of its business through its
subsidiaries. The Company is a leading provider of energy products and services
in North America, the United Kingdom and continental Europe. Products marketed
by the Company's wholesale marketing operations include natural gas,
electricity, coal, emissions, natural gas liquids, crude oil, liquid petroleum
gas and related services. The Company's wholesale marketing operations are
supported by ownership or control of an extensive asset base and transportation
network that includes unregulated power generation, gas and liquids storage
capacity, gas, power and liquids transportation capacity and gas gathering,
processing and fractionation assets.

    From inception of operations in 1984 until 1990, the Company limited its
activities primarily to natural gas marketing. Starting in 1990, business
operations began expanding through acquisitions and strategic alliances
resulting in the formation of a mid-stream energy asset business and established
energy marketing operations in both Canada and the United Kingdom. The Company
initiated domestic electric power marketing operations in February 1994.
Effective March 1, 1995, the Company acquired Trident NGL Holding, Inc., a fully
integrated natural gas liquids company. On August 31, 1996, NGC completed a
strategic combination with Chevron whereby substantially all of Chevron's mid-
stream assets were acquired. Effective July 1, 1997, the Company acquired Destec
Energy, Inc., a leading independent power producer and developer. During 1998,
the Company changed its name to Dynegy Inc. in order to reflect its evolution
from a natural gas marketing company to an energy services company capable of
meeting the growing demands and diverse challenges of the dynamic energy market
of the 21st Century. In 1999, the Company initiated electric power marketing
operations in the United Kingdom and in continental Europe.

    On June 14, 1999, Dynegy Inc. announced its intent to acquire Illinova
Corporation ("Illinova"), and completed this acquisition early in the first
quarter 2000. As part of the acquisition of Illinova, Former Dynegy, which was
renamed Dynegy Holdings Inc., became a wholly-owned subsidiary of a new holding
company, Dynegy Inc. The assets, liabilities and operations of the former Dynegy
Inc. before the acquisition became the assets, liabilities and operations of
Dynegy Holdings Inc. after the acquisition.

    BUSINESS SEGMENTS.  Dynegy's operations are divided into three reportable
segments: Dynegy Marketing & Trade ("DMT"), Dynegy Midstream Services ("DMS")
and Dynegy Energy Services ("DES").

    - Dynegy Marketing and Trade focuses on energy convergence--the marketing,
      trading and arbitrage opportunities that exist among power, natural gas
      and coal that can be enhanced by the control and optimization of related
      physical assets.

    - Dynegy's natural gas liquids subsidiary, Dynegy Midstream Services,
      includes North American midstream liquids operations, global natural gas
      liquids transportation and marketing operations.

                                       12
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

    - Dynegy Energy Services markets energy products and services to the retail
      sector through direct marketing and strategic alliances with leading
      utility companies.

    UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION.  This Form 10-Q
contains various forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, and information that are based on management's beliefs as well as
assumptions made by and information currently available to management. When used
in this document, words such as "anticipate", "estimate", "project", "forecast"
and "expect" reflect forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable; it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, projected, forecasted or expected.
Among the key risk factors that may have a direct bearing on Dynegy's results of
operations and financial condition are:

    - Competitive practices in the industries in which Dynegy competes;

    - Fluctuations in commodity prices for natural gas, electricity, natural gas
      liquids, crude oil or coal;

    - Fluctuations in energy commodity prices which could not or have not been
      properly hedged or that are inconsistent with Dynegy's open position in
      its energy marketing activities;

    - Operational and systems risks;

    - Environmental liabilities which are not covered by indemnity or insurance;

    - General economic and capital market conditions, including fluctuations in
      interest rates;

    - Foreign operations risk associated with the potential volatility of
      emerging countries and fluctuations in foreign currency exchange rates;
      and

    - The impact of current and future laws and governmental regulations
      (particularly environmental regulations) affecting the energy industry in
      general, and Dynegy's operations in particular.

BUSINESS RISK MANAGEMENT ASSESSMENT

    Dynegy's operations and periodic returns are impacted by a myriad of
factors, some of which may not be mitigated by risk management methods. These
risks include, but are not limited to, commodity price, interest rate and
foreign exchange rate fluctuations, weather patterns, counterparty risk,
operational risks, environmental risks, management estimations, strategic
investment decisions, changes in competition and changes in regulation.

    The Company is exposed to commodity price variability related to its natural
gas, natural gas liquids, crude oil, electricity and coal businesses. In
addition, fuel requirements at its power generation and gas processing
facilities represent additional commodity price risks to the Company. In order
to manage these commodity price risks, Dynegy routinely utilizes certain types
of fixed-price forward

                                       13
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

purchase and sales contracts, futures and option contracts traded on the New
York Mercantile Exchange and swaps and options traded in the over-the-counter
financial markets to:

    - Manage and hedge its fixed-price purchase and sales commitments;

    - Provide fixed-price commitments as a service to its customers and
      suppliers;

    - Reduce its exposure to the volatility of cash market prices;

    - Protect its investment in storage inventories; and

    - Hedge fuel requirements at its gas processing and power generation
      facilities.

    The Company may, at times, have a bias in the market, within established
guidelines, resulting from the management of its portfolio. In addition, as a
result of marketplace liquidity and other factors, the Company may, at times, be
unable to fully hedge its portfolio for certain market risks. Dynegy monitors
its exposure to fluctuations in interest rates and foreign currency exchange
rates and may execute swaps, forward-exchange contracts or other financial
instruments to hedge and manage these exposures.

    The Company employs the mark-to-market method of accounting for a portion of
its operations, which accounts for all energy trading activities at fair value
as of each balance sheet date and recognizes currently in its results of
operations the net gains or losses resulting from the revaluation of these
contracts. As a result, substantially all of the operations of the Company's
world-wide gas marketing, power marketing, and certain liquids marketing
operations are accounted for under a mark-to-market accounting methodology. In
certain of these markets, long-term contract commitments may extend beyond the
period in which market quotations for such contracts are available. The lack of
long-term pricing liquidity requires the use of mathematical models to value
these commitments under the accounting method employed. These mathematical
models utilize historical market data to forecast future elongated pricing
curves, which are used to value the commitments that reside outside of the
liquid market quotations. The application of forecasted pricing curves to
contractual commitments may result in realized cash returns on these commitments
that vary, either positively or negatively, from the results estimated through
application of the mathematical model. Dynegy believes that its mathematical
models utilize state-of-the-art technology, pertinent industry data and prudent
discounting in order to forecast certain elongated pricing curves.

    Dynegy's commercial groups manage, on a portfolio basis, the resulting
market risks inherent in commercial transactions, subject to parameters
established by the Dynegy Board of Directors. Market risks are monitored by a
risk control group that operates independently from the commercial units that
create or actively manage these risk exposures to ensure compliance with
Dynegy's risk management policies. Risk measurement is also practiced against
the Dynegy portfolios with value at risk, stress testing and scenario analysis.

    In addition to risks associated with price or interest rate movements,
credit risk is also inherent in the Company's operations. Credit risk relates to
the risk of loss resulting from the nonperformance of contractual obligations by
a counterparty. Dynegy maintains credit policies with regard to its
counterparties, which management believes minimize its overall credit risk.

    Dynegy's stated business strategy is to expand ownership or control of
merchant generation capacity in select markets across the country. Dynegy
believes that merchant generation capacity, which

                                       14
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

is designed principally to supply power to markets during periods of peak
demand, offers the greatest flexibility in executing its strategy of an
integrated gas and power marketing and power generation business. This strategy
heightens the risk for volatility in periodic returns by increasing the
Company's exposure to variability in anticipated demand resulting from:

    - changing weather patterns,

    - unexpected delays in industry-wide construction of new capacity,

    - unforeseen supply constraints or bottlenecks resulting from transmission
      failures or other factors,

    - unforeseen new technologies, and

    - other similar factors.

    Further, as Dynegy moves forward with the execution of its strategic plan of
capturing about a 10 percent share of the wholesale power market, risk of
earnings volatility increases through exposure to unanticipated variability in
generation capacity dependability factors. As a result of supply contracts
routine in the industry, Dynegy's exposure relating to performance by these
generating assets resides not only with owned and controlled assets, but also
with third-party operated facilities. The volatility of earnings, whether it be
favorable or unfavorable, will likely be most profound during periods of peak
demand when, and if, regional industry-wide generation capacity fails or is
curtailed. The increasing importance of and dependency upon physical generation
of electricity as a percentage of Dynegy's overall portfolio and strategy may
substantially alter Dynegy's earnings risk profile over time.

    Finally, the addition of these generation assets to Dynegy's portfolio may
increase enterprise exposure to environmental and regulatory laws and
regulations. These exposures could result in increased expenditures for capital
improvements to meet certain statutory requirements or expenditures for
remediation of unanticipated environmental contamination. The potential
redirection of capital to these types of expenditures could reduce the level of
available discretionary capital currently expected to be used in executing
Dynegy's strategic plan in future periods.

    Many of these risks are outside the control of Dynegy and may not be fully
mitigated through application of risk management methods and/or
state-of-the-art, first quartile operating methods.

    SEGMENT PRICE FLUCTUATION EXPOSURES.  DMT's integrated component businesses
include: wholesale gas marketing, wholesale power marketing and power
generation. Operating margins earned by wholesale gas and power marketing,
exclusive of risk-management activities, are relatively insensitive to commodity
price fluctuations since most purchase and sales contracts do not contain
fixed-price provisions. Generally, prices contained in these contracts are tied
to a current spot or index price and, therefore, adjust directionally with
changes in overall market conditions. However, market price fluctuations for
natural gas and electricity can have a significant impact on the operating
margin derived from risk-management activities in these businesses. Dynegy
generally attempts to balance its fixed-price physical and financial purchase
and sales commitments in terms of contract volumes, and the timing of
performance and delivery obligations. To the extent a net open position exists,
fluctuating commodity market prices can impact Dynegy's financial position or
results of operations, either favorably or unfavorably. The net open positions
are actively managed, and the impact of changing prices on the Company's
financial condition at a point in time is not necessarily indicative of the
impact of price movements throughout the year. Historically, fuel costs,
principally natural gas,

                                       15
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

represented the primary variable cost impacting the financial performance of the
Company's investment in power generating facilities. Operating margins at these
facilities were relatively insensitive to commodity price fluctuations since
most purchase and sales contracts contained variable power sales contract
features tied to a current spot or index natural gas price, allowing revenues to
adjust directionally with changes in natural gas prices. However, the Company's
investment strategy, which emphasizes growth of merchant generation capacity, is
altering the makeup of its generation asset portfolio. The growth of merchant
generation capacity as a percentage of total available capacity increases the
Company's exposure to commodity price risk. The financial performance and cash
flow derived from merchant generation capacity is impacted, either favorably or
unfavorably, by changes in and the relationship between the cost of the
commodity fueling the facilities and electricity prices.

    Operating margins associated with DMS' natural gas gathering, processing and
fractionation activities are very sensitive to changes in natural gas liquids
prices and the availability of inlet volumes. Commodity price fluctuations may
also affect the operating margins derived from the Company's natural gas liquid
marketing business. The impact from changes in natural gas liquids prices on
upstream operations results principally from the nature of contractual terms
under which natural gas is processed and products are sold. In addition, certain
processing plant assets are impacted by changes in, and the relationship
between, natural gas and natural gas liquids prices which, in turn influences
the volumes of gas processed. Based upon current levels of natural gas
processing activities and industry fundamentals, the estimated impact on annual
operating margins of each one-cent movement in the annual average price of
natural gas liquids approximates $6 to $8 million. The availability of inlet
volumes directly affects the utilization and profitability of the segment's
businesses throughout the Liquids Value Chain. The acquisition of inlet volumes
is highly competitive and the availability of such volumes to industry-wide
participants is also impacted by price variability. Unilateral decisions made by
producers to shut-in production or otherwise curtail workovers, reduce well
maintenance activities and/ or delay or cancel drilling activities, as a result
of depressed commodity prices or other factors, negatively affects production
available to the entire midstream industry. Because such decisions are based
upon the pricing environment at any particular time, management cannot predict
with precision the impact that such decisions may have on its business.

    DES operating margins may be impacted by fixed-price commodity risk imbedded
in certain contractual arrangements entered into by the segment. Such commodity
price risk is managed, on a portfolio basis, with similar commodity risks
inherent in the operations of the other business segments.

    SEASONALITY.  Dynegy's revenue and operating margin are subject to
fluctuations during the year, primarily due to the impact certain seasonal
factors have on sales volumes and the prices of natural gas, electricity and
natural gas liquids. Natural gas sales volumes and operating margin have
historically been higher in the winter months than in the summer months,
reflecting increased demand due to greater heating requirements and, typically,
higher natural gas prices. Conversely, power marketing operations are typically
impacted by higher demand and commodity price volatility during the summer
cooling season. Consistent with power marketing, the Company's electricity
generating facilities generally experience peak demand during the summer cooling
season, particularly for merchant plant generating facilities. Dynegy believes
that prospective seasonal fluctuations in demand and market prices for natural
gas will reduce over time as industry-wide gas-fired merchant generation
capacity expands in the United States. DMS' businesses are also subject to
seasonal factors; however, such factors typically have a greater impact on sales
prices than on sales volumes. Natural gas liquids prices

                                       16
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

typically increase during the winter season due to greater heating requirements.
The Company's wholesale propane business is seasonally weighted in terms of
volume and price, consistent with the trend in the Company's natural gas
operations, as a result of greater demand for crop-drying and space-heating
requirements in the fall and winter months.

    EFFECT OF INFLATION.  Although Dynegy's operations are affected by general
economic trends, management does not believe inflation has had a material effect
on the Company's results of operations.

LIQUIDITY AND CAPITAL RESOURCES

    The Company's business strategy has historically focused on acquisitions or
construction of core operating facilities in order to capture significant
synergies existing among these types of assets and Dynegy's natural gas, power
and natural gas liquids marketing businesses. The Company's energy convergence
strategies are focused on marketing, trading and arbitrage opportunities
involving natural gas and power, centered around the control and optimization of
Btu conversion capacity within the wholesale gas and power businesses (a.k.a.,
"Merchant Leverage Effect"). For the foreseeable future, the Company's primary
focus will be the acquisition and/or construction of merchant power generating
assets that will enable the Company to fully realize the Merchant Leverage
Effect of commercialization of these generating assets.

    Dynegy has historically relied upon operating cash flow and borrowings from
a combination of commercial paper issuances, money market lines of credit,
corporate credit agreements and various public debt issuances for its liquidity
and capital resource requirements. At March 31, 2000, Dynegy had access to an
aggregate $410 million of liquidity available under existing credit facilities,
including commercial paper and money market lines of credit. Approximately $450
million of shelf availability remains under outstanding registration statements,
which may be used for general corporate purposes. Management believes additional
financing arrangements can be obtained at reasonable terms, if required.

    Pursuant to part of its stated plan to finance the cash portion of the
Illinova merger, the Company successfully disposed of non-strategic,
under-performing assets and certain qualifying facilities for aggregate net
proceeds of approximately $667 million. The proceeds from these sales were first
used to retire indebtedness incurred in the acquisition of Illinova and then
redeployed into new business ventures.

    In a public offering effective March 15, 2000, Dynegy issued $300 million of
8.125% Senior Notes due March 15, 2005. Total proceeds net of underwriting costs
were $296.7 million. Interest is payable on the Senior Notes on March 15 and
September 15 of each year, beginning September 15, 2000. Proceeds were used to
repay existing indebtedness of an affiliate.

OTHER MATTERS

    STRATEGIC ECOMMERCE INVESTMENT.  In April 2000, Dynegy invested $25 million
for a minority interest in eSpeed, Inc. Technology employed by eSpeed Inc. will
serve as the platform for the development of at least four new
commodity-specific electronic spot and futures marketplaces in which the
marketing subsidiaries of Dynegy and other marketers, including Williams
Companies Inc., may participate. Products that could ultimately be traded
include natural gas, electricity, natural gas liquids,

                                       17
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

petrochemicals, crude oil and bandwidth. eSpeed anticipates that an electronic
marketplace for natural gas and electricity will be made available to market
participants like Dynegy and Williams in the third quarter, with the development
of additional marketplaces by the end of 2000.

    CAPITAL ASSET PROGRAM.  The Company is engaged in a continuous capital asset
expansion program consistent with its business plan and energy convergence
strategies. The emphasis of this capital asset program is on the acquisition or
construction of strategically located power generation assets. Consistent with
this strategy and as a result of the long lead time required by industry
manufacturers, the Company has executed or is currently negotiating purchase
orders to acquire in excess of forty state-of-the-art gas-fired turbines,
representing a capital commitment of approximately $1.3 billion. Delivery of the
manufactured turbines is occurring ratably through 2003. Commitments under these
purchase orders are generally payable consistent with the delivery schedule. The
purchase orders include milestone requirements by the manufacturer and provide
Dynegy with the ability to cancel each discrete purchase order commitment in
exchange for a fee, which escalates over time. The capital asset program is
subject to periodic review and revision, and the actual number of projects and
aggregate cost for such projects will be dependent on various factors including
available capital resources, market conditions, legislative actions, load
growth, changes in materials, supplies and labor costs and the identification of
partners in order to spread investment risk.

    EUROPEAN INVESTMENT.  In April, the company announced plans to participate
in the construction and ownership of two gas-fired power generation plants in
Germany through a consortium composed of Dynegy (10.0 percent interest),
Marubeni Corporation (64.9 percent interest) and BAW Holding West GmbH (25.1
percent interest). The two plants will have combined generating capacity of
1,200 megawatts. A 400-megawatt facility will be built near Dortmund, while an
800-megawatt facility will be constructed near Ahaus. Construction of these
facilities is contingent upon obtaining certain regulatory approvals and
permitting. Upon completion in March 2003, the facilities will provide power
primarily to industrial customers and municipalities in the northwest region of
Germany. Dynegy, utilizing its experience in the U.S. and European energy
markets, will lead the development of the projects' commercial activities,
including fuel procurement and power sales.

    QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES.  The Company is
exposed to certain market risks inherent in the Company's financial instruments,
which arise from transactions entered into in the normal course of business. The
Company routinely enters into financial instrument contracts to hedge purchase
and sale commitments, fuel requirements and inventories in its natural gas,
natural gas liquids, crude oil, electricity and coal businesses in order to
minimize the risk of market fluctuations. Dynegy also monitors its exposure to
fluctuations in interest rates and foreign currency exchange rates and may
execute swaps, forward-exchange contracts or other financial instruments to
hedge and

                                       18
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

manage these exposures. The absolute notional contract amounts associated with
commodity risk-management, interest rate and forward exchange contracts,
respectively, were as follows:

<TABLE>
<CAPTION>
                                                              MARCH 31,   DECEMBER 31,
                                                                2000          1999
                                                              ---------   ------------
<S>                                                           <C>         <C>
Natural Gas (Trillion Cubic Feet)...........................     6.505         5.702
Electricity (Million Megawatt Hours)........................   215.580        42.949
Natural Gas Liquids (Million Barrels).......................    26.845        19.902
Crude Oil (Million Barrels).................................        --        35.554
Interest Rate Swaps (in thousands of US Dollars)............  $     --      $ 36,524
Weighted Average Fixed Interest Rate Paid on Swaps..........        --         8.210
U.K. Pound Sterling (in thousands of US Dollars)............  $ 70,625      $ 85,812
Average U.K. Pound Sterling Contract Rate (in US Dollars)...  $ 1.6236      $ 1.6191
Canadian Dollar (in thousands of US Dollars)................  $296,369      $288,898
Average Canadian Dollar Contract Rate (in US Dollars).......  $ 0.6850      $ 0.6775
</TABLE>

    Dynegy measures entity-wide market risk in its financial trading and
risk-management portfolios using value at risk. The quantification of market
risk using value at risk provides a consistent measure of risk across diverse
energy markets and products with different risk factors to set the overall
corporate risk tolerance, determine risk targets, and position limits. The use
of this methodology requires a number of key assumptions including the selection
of a confidence level and the holding period to liquidation. Dynegy relies on
value at risk to determine the maximum potential reduction in the trading
portfolio value allowed within a given probability over a defined period.
Because of limitations to value at risk, Dynegy uses other means to monitor
market risk in the trading portfolios. In addition to value at risk, Dynegy
performs regular stress and scenario analysis to measure extreme losses due to
exceptional events. The value at risk and stress testing results are reviewed to
determine the maximum allowable reduction in the total equity of the commodity
portfolios. Additional measures are used to determine the treatment of risks
outside the value at risk methodologies, such as market volatility, liquidity,
event and correlation risk. Dynegy estimates value at risk using a JP Morgan
RiskMetrics(TM) approach assuming a one-day holding period and a 95 percent
confidence level. At March 31, 2000, the value at risk for Dynegy's trading and
risk-management portfolios approximated $10.2 million and the average of such
value during the three-month period ended March 31, 2000 was estimated at $6.4
million.

    YEAR 2000 ISSUES.  Dynegy completed all phases of the Year 2000 Program
relative to computer systems and technology infrastructure considered essential
to the Company's business prior to the event. The year 2000 event passed without
significant incident. Dynegy's contingency plans are designed to minimize any
disruptions or other adverse effects resulting from unexpected incompatibilities
regarding core systems and business applications and to facilitate the early
identification and remediation of system problems that manifest themselves after
December 31, 1999. To date, no significant items have been identified. Dynegy
continues to assess, test and remediate business applications and technology
infrastructure that were previously determined to be other than essential to
core business operations. The extent of these activities is very insignificant
to Dynegy's overall business.

                                       19
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

CONCLUSION

    The Company continues to believe that it will be able to meet all
foreseeable cash requirements, including working capital, capital expenditures
and debt service, from operating cash flow, supplemented by borrowings under its
various credit facilities and equity sales, if required.

RESULTS OF OPERATIONS

    Provided below is a narrative and tabular presentation of certain operating
and financial data and statistics for the Company's businesses for the
three-month periods ended March 31, 2000 and 1999, respectively.

THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999

    For the quarter ended March 31, 2000, Dynegy realized net income of $58.9
million compared with first quarter 1999 net income of $28.1 million. First
quarter 2000 results included a non-recurring after-tax gain on the sale of
certain qualifying generation facilities of $33.8 million and after-tax charges
aggregating approximately $38 million related to the sale and impairment of
certain natural gas liquids assets, the adjustment in the carrying value of the
domestic crude assets related to the anticipated sale of the business and merger
related costs. First quarter 1999 results included an after-tax $5.8 million
non-recurring gain on the sale of an investment. Recurring net income for first
quarter 2000 totaled $63.3 million compared with recurring net income for first
quarter 1999 of $22.3 million.

    First quarter 2000 results were led by a strong performance in energy
convergence operations, particularly in U.S. power and gas and a significant
contribution from Dynegy's European business unit. This quarter's results also
reflect solid returns in Dynegy's natural gas liquids businesses, which
continued to benefit from higher product prices and lower expenses. Consolidated
operating margin for the current quarter totaled $204.4 million compared to
$120.1 million for the same 1999 period, reflecting improved margins in
substantially all businesses. DMT contributed $130.3 million to first quarter
2000 consolidated operating margin compared to $70.1 million reported in first
quarter 1999, an increase of 86 percent. DMS contributed $74.1 million in first
quarter 2000, a $24.1 million improvement over the 1999 period.

    Operating income increased $53.6 million quarter-to-quarter, reflecting the
significantly higher operating results from the convergence and liquids
businesses partially offset by higher depreciation and amortization and general
and administrative expenses. Increases in depreciation and amortization expense
in the 2000 quarter reflect the impact of the non-recurring impairment of
natural gas liquids processing assets, continued expansion of the Company's
asset base and operations, principally in the convergence businesses, and
enhanced information technology infrastructure. The increased level of general
and administrative expenses reflects the incremental costs associated with a
larger, more diverse base of operations, non-capitalizable consulting and other
costs required to support technology infrastructure improvements and higher
variable compensation costs period-to-period.

    Included in Dynegy's consolidated results was the Company's equity share in
the earnings of its unconsolidated affiliates, which contributed approximately
$9.2 million and $15.1 million to pre-tax quarterly earnings in the 2000 and
1999 periods, respectively. Variances period-to-period in these results reflect
the impact of weather driven demand, changes in commodity prices, particularly
as these

                                       20
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

changes impacted DMS' investments, and the sale of the qualifying facilities.
The following table provides a summary of equity earnings by investment for the
comparable periods.

                 EQUITY EARNINGS FROM UNCONSOLIDATED AFFILIATES

<TABLE>
<CAPTION>
                                                               FOR THE THREE-MONTHS
                                                                 ENDED MARCH 31,
                                                              ----------------------
                                                                2000          1999
                                                              --------      --------
<S>                                                           <C>           <C>
DYNEGY MARKETING & TRADE:
  Accord....................................................  $ 3,750       $ 4,500
  Power Generation Equity Investments (in aggregate)........   (6,592)        8,620
  Other, net................................................       --           166
                                                              -------       -------
                                                               (2,842)       13,286
                                                              -------       -------

DYNEGY ENERGY SERVICES:.....................................    5,770          (649)
                                                              -------       -------

DYNEGY MIDSTREAM SERVICES:
  Gulf Coast Fractionators..................................      701           870
  West Texas LPG Pipeline Limited Partnership...............    1,304           872
  Venice Energy Services Company, L.L.C.....................    2,449           294
  Other, net................................................    1,820           390
                                                              -------       -------
                                                                6,274         2,426
                                                              -------       -------

                                                              $ 9,202       $15,063
                                                              =======       =======
</TABLE>

    Interest expense totaled $22.0 million for the quarter ended March 31, 2000,
compared to $19.2 million for the equivalent 1999 period. The variance is
attributable to the level of capital allocated to the Company pursuant to the
entity-wide sharing arrangement, which resulted in slightly lower principal
balances period-to-period, offset by higher average interest rates. Accumulated
distributions associated with trust preferred securities and preferred stock of
wholly-owned subsidiaries totaled $4.2 million for each quarter ended March 31,
2000 and 1999, respectively.

    Other income and expenses, net reflected a gain of $18.0 million in the
quarter ended March 31, 2000 compared with income of $9.8 million in the 1999
period. The 2000 quarter included a pre-tax gain on the sale of certain
qualifying generation facilities of $52.0 million and additional pre-tax charges
aggregating approximately $33 million related to the sale of certain natural gas
liquids assets and merger related costs. The 1999 period included a pre-tax gain
of $8.9 million related to the sale of an investment. The remaining amounts
consisted of interest income, minority interests in consolidated subsidiaries
and certain other recurring and non-recurring income and expense items in both
periods. The 2000 period includes allocations of certain income and expense
items pursuant to entity-wide sharing arrangements.

    The Company reported an income tax provision of $35.0 million for the
three-month period ended March 31, 2000, compared to an income tax provision of
$12.6 million for the 1999 period. The effective rates approximated 37 and 31
percent in 2000 and 1999, respectively. The difference between the
aforementioned effective rate and the statutory rate of 35 percent for 2000
results primarily from

                                       21
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

state income taxes and certain permanent differences. The difference for the
1999 periods results principally from permanent differences arising from the
amortization of certain intangibles and debt premiums, permanent differences
from the effect of certain foreign equity investments and state income taxes.

                            DYNEGY MARKETING & TRADE

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                               MARCH 31,
                                                          -------------------
                                                            2000       1999
                                                          --------   --------
                                                           ($ IN THOUSANDS)
<S>                                                       <C>        <C>
Operating Margin:
  Power Marketing and Generation........................  $ 48,722   $ 37,432
  Natural Gas Marketing.................................    30,536     24,601
  European Gas and Power Marketing......................    51,006      8,073
Equity Investments......................................    (2,842)    13,286
                                                          --------   --------
      SUBTOTAL--FINANCIAL CONTRIBUTION..................   127,422     83,392

  Depreciation..........................................    (8,109)    (8,561)
  General and Administrative Expenses...................   (39,257)   (31,539)
  Other Items...........................................    52,405     10,653
                                                          --------   --------

      EARNINGS BEFORE INTEREST AND TAXES................   132,461     53,945
Interest Expense........................................   (18,252)   (11,274)
                                                          --------   --------
      PRE-TAX EARNINGS..................................   114,209     42,671
Income Tax Provision....................................   (45,514)   (15,751)
                                                          --------   --------
      NET INCOME........................................  $ 68,695   $ 26,920
                                                          ========   ========

      RECURRING NET INCOME..............................  $ 37,826   $ 21,155
                                                          ========   ========

OPERATING STATISTICS:
  Natural Gas Marketing (Bcf/d)--
    U.S. Sales Volumes..................................       7.3        7.0
    Canadian Sales Volumes..............................       2.3        2.3
    Europe Sales Volumes................................       2.0        1.6
                                                          --------   --------
                                                              11.6       10.9
                                                          ========   ========

Electric Power Marketing--Million Megawatt Hours Sold...      15.1       13.1
</TABLE>

    Dynegy Marketing & Trade reported recurring segment net income of $37.8
million for the three-month period ended March 31, 2000, compared with recurring
net income of $21.2 million in the 1999 quarter. Included in first quarter 2000
earnings is a non-recurring after-tax gain of $33.8 million relating to the sale
of certain qualifying facilities and a reasonable allocation of certain
non-recurring charges related to merger costs. Included in first quarter 1999
earnings is a non-recurring after-tax gain

                                       22
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

of $5.8 million related to the sale of an investment. Recurring results of
operations period-to-period were influenced by:

    - increased domestic and European power origination, and

    - improved returns from worldwide power and gas marketing and trading
      operations, offset by

    - increased depreciation and general and administrative expenses reflecting
      higher variable compensation costs and increased capital and overhead
      costs required to support the larger, more diverse base of operations.

    Total megawatt hours sold during the 2000 quarter aggregated 15.1 million
megawatt hours compared to 13.1 million megawatt hours during the 1999 period.
The increase is a result of increased trading volumes due to more favorable
market conditions. Total natural gas volumes sold increased to 11.6 billion
cubic feet per day from 10.9 billion cubic feet per day during last year's first
quarter, principally as a result of increased volumes sold to the retail
alliances and to fuel gas-fired generation in the U.S.

                                       23
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

                           DYNEGY MIDSTREAM SERVICES

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 MARCH 31,
                                                          -----------------------
                                                             2000         1999
                                                          ----------   ----------
                                                          ($ IN THOUSANDS, EXCEPT
                                                             AVERAGE COMMODITY
                                                                  PRICES)
<S>                                                       <C>          <C>
Operating Margin:
  Upstream Operations...................................   $ 32,368     $ 18,340
  Downstream Operations.................................     41,711       31,631
Equity Investments......................................      6,274        2,426
                                                           --------     --------
      SUBTOTAL--FINANCIAL CONTRIBUTION..................     80,353       52,397

  Depreciation..........................................    (45,354)     (22,727)
  General and Administrative Expenses...................    (15,780)     (18,003)
  Other Items...........................................    (34,339)        (888)
                                                           --------     --------

      EARNINGS (LOSS) BEFORE INTEREST AND TAXES.........    (15,120)      10,779
Interest Expense........................................     (7,086)     (12,118)
                                                           --------     --------
      PRE-TAX LOSS......................................    (22,206)      (1,339)
Income Tax Benefit......................................     11,302        2,912
                                                           --------     --------
      NET INCOME (LOSS).................................   $(10,904)    $  1,573
                                                           ========     ========

      RECURRING NET INCOME..............................   $ 24,178     $  1,573
                                                           ========     ========
OPERATING STATISTICS:
  Natural Gas Liquids Processed (MBbls/d--Gross)--
    Field Plants........................................       75.4         88.5
    Straddle Plants.....................................       41.1         28.6
                                                           --------     --------
                                                              116.5        117.1
                                                           ========     ========

  Barrels Received for Fractionation (MBbls/d)..........      219.3        161.3
  Natural Gas Liquids Sold (MBbls/d)....................      595.5        539.4

  Average Commodity Prices:
    Henry Hub Natural Gas (First of Month) ($/MMBtu)....   $   2.53     $   1.75
    Crude Oil--Cushing ($/Bbl)..........................      26.23        10.39
    Average Mont Belvieu Price ($/Gal)..................       0.53         0.23
</TABLE>

    Dynegy Midstream Services reported recurring net income of $24.2 million in
the first quarter of 2000 compared with recurring net income of $1.6 million in
the same 1999 quarter. Included in first quarter 2000 earnings is an aggregate
non-recurring after-tax charge of $35.1 million relating to the sale and
impairment of certain assets and businesses and allocated merger costs. On a
pre-tax basis, $25 million of this charge is included in depreciation expense
and $29 million is included in other items. Recurring results of operations
period-to-period were influenced by:

    - substantially improved natural gas liquids commodity prices,

                                       24
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

    - volatile commodity markets,

    - on-time inventory management techniques,

    - lower operating costs,

    - an active hedging program in 2000,

    - lower depreciation costs, and

    - lower general and administrative and non-variable compensation expenses.

    Aggregate domestic natural gas liquids processing volumes totaled 116.5
thousand gross barrels per day in 2000 compared to an average 117.1 thousand
gross barrels per day during 1999. The net decrease in processing volumes is a
result of a decrease in field volumes resulting from the sale of the Ark-La-Tex
assets in fourth quarter 1999 and the mid-Continent assets in March 2000.
Increases in straddle plant volumes, which reflect the improved pricing
relationship between natural gas and natural gas liquids period-to-period,
partially offset the lower field plant production in 2000. After deducting the
impact on 1999's first quarter production of volumes related to the Ark-La-Tex
and mid-Continent assets, normalized processing volumes increased 24 percent in
2000. Fractionation volumes increased principally as a result of the
aforementioned improved relationship between natural gas and natural gas liquids
prices that induced increased straddle production period-to-period resulting in
greater volumes available for fractionation. Natural gas liquids marketing
volumes were higher period over period reflecting improved demand in the
chemicals and wholesale markets.

                             DYNEGY ENERGY SERVICES

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                                ENDED MARCH 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
                                                               ($ IN THOUSANDS)
<S>                                                           <C>        <C>
Retail Operating Margin.....................................   $   24     $  --
Equity Investments..........................................    5,770      (649)
                                                               ------     -----
      SUBTOTAL--FINANCIAL CONTRIBUTION......................    5,794      (649)

  Depreciation..............................................     (227)       --
  General and Administrative Expenses.......................   (2,804)       --
  Other Items...............................................      (37)       --
                                                               ------     -----

      EARNINGS (LOSS) BEFORE INTEREST AND TAXES.............    2,726      (649)
Interest Expense............................................     (790)       --
                                                               ------     -----
      PRE-TAX EARNINGS (LOSS)...............................    1,936      (649)
Income Tax (Provision) Benefit..............................     (795)      227
                                                               ------     -----
      NET INCOME (LOSS).....................................   $1,141     $(422)
                                                               ======     =====

      RECURRING NET INCOME (LOSS)...........................   $1,328     $(422)
                                                               ======     =====
</TABLE>

                                       25
<PAGE>
                              DYNEGY HOLDINGS INC.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

             FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

    Dynegy Energy Services reported recurring net income of $1.3 million,
compared with a recurring net loss of $422,000 in the 1999 period. Improved
earnings reflect positive results in the quarter related to the segment's
interests in its midwest and southeast retail alliances. This segment was formed
effective with the acquisition of Illinova and is engaged in the marketing of
retail energy products and services through direct marketing and strategic
alliances with regional market leaders. Dynegy's goal is to form a North
American network of regional retail energy alliances while building upon
Illinova's retail operations, which included three distinct strategies:
commercial & industrial and retail commodity sales and services; non-commodity
energy related products and services; and, energy information software products.

OPERATING CASH FLOW

    Cash flow from operating activities totaled $78.4 million for the
three-month period ended March 31, 2000, compared to a use of cash of $11.8
million reported in the same 1999 period. Changes in operating cash flow reflect
the operating results previously discussed herein and changes in working
capital, particularly investment in discretionary inventory volumes
period-to-period. Changes in other working capital accounts, which include trade
receivables and payables prepayments, other current assets and accrued
liabilities, reflect expenditures or recognition of liabilities for settlements
of certain litigation, insurance costs, certain deposits, salaries, taxes other
than on income, certain deferred revenue accounts and other similar items.
Fluctuations in these accounts, period-to-period, reflect changes in the timing
of payments or recognition of liabilities and are not directly impacted by
seasonal factors.

CAPITAL EXPENDITURES AND INVESTING ACTIVITIES

    Investing activities in the 2000 quarter included a net $127.4 million
expended principally on construction of power generation assets, maintenance
capital related to the transmission and distribution segment and investment
associated with technology infrastructure. The Company received cash inflows of
approximately $667 million in the first quarter 2000 principally related to the
sale of certain qualifying facilities and liquids assets. These cash inflows
were used primarily to retire indebtedness resulting from the acquisition.
During the three-months ended March 31, 1999, the Company spent $140.4 million,
principally on the acquisition of power generating assets, maintenance capital
improvements at existing facilities and capital investment associated with
technology infrastructure. Additionally, during the 1999 period, the Company
received proceeds of $16.7 million principally related to the sale of an
investment.

FINANCING ACTIVITIES

    In a public offering effective March 15, 2000, Dynegy issued $300 million of
8.125% Senior Notes due March 15, 2005. Total proceeds net of underwriting costs
were $296.7 million. Interest is payable on the Senior Notes on March 15 and
September 15 of each year, beginning September 15, 2000. Proceeds were used to
repay existing indebtedness of an affiliate.

                                       26
<PAGE>
                              DYNEGY HOLDINGS INC.
                          PART II.  OTHER INFORMATION

ITEM 1--LEGAL PROCEEDINGS

    On August 3, 1998, Modesto Irrigation District ("MID") filed a lawsuit
against PG&E and Destec Energy, Inc. ("Destec") in federal court for the
Northern District of California, San Francisco division. The lawsuit alleges
violation of federal and state antitrust laws and breach of contract against
Destec. The allegations are related to a power sale and purchase arrangement in
the city of Pittsburg, CA. MID seeks actual damages from PG&E and Destec in
amounts not less than $25 million. MID also seeks a trebling of any portion of
damages related to its antitrust claims. By order dated February 2, 1999, the
federal District Court dismissed MID's state and federal antitrust claims
against PG&E and Destec; however, the Court granted MID leave of thirty days to
amend its complaint to state an antitrust cause of action. On March 3, 1999, MID
filed an amended complaint recasting its federal and state antitrust claims
against PG&E and Destec and restating its breach of contract claim against
Destec. PG&E and Destec have filed motions to dismiss MID's revised federal and
state antitrust claims. The hearing on the motions to dismiss was held in July
1999. On August 20, 1999, the District Court again dismissed MID's antitrust
claims against PG&E and Destec, this time without leave to amend the complaint.
As a result of the dismissal of the antitrust claims, the District Court also
dismissed the pendant state law claims. MID has appealed the District Court's
dismissal of its suit to the Ninth Circuit Court of Appeal. Following dismissal
of its federal court suit, MID filed suit in California state court asserting
breach of contract and tortious interference with prospective economic relations
claims against Destec and tortious interference with contract and tortious
interference with prospective economic relations claims against PG&E. Motions to
dismiss MID's state court claims were heard by the state court and by order
dated April 6, 2000, MID was directed to amend its complaint. MID filed its
amended complaint on April 20, 2000, including Dynegy as a defendant. Dynegy
plans to file a motion to dismiss MID's amended complaint against Dynegy. Dynegy
believes the allegations made by MID are meritless and will continue to
vigorously defend MID's claims. In the opinion of management, the amount of
ultimate liability with respect to these actions will not have a material
adverse effect on the financial position or results of operations of the
Company.

    On July 30, 1999, The Dow Chemical Company ("Dow") filed a lawsuit in the
United States District Court for the District of Delaware against Dynegy Power
Corporation ("DPC"), a wholly-owned subsidiary of the Company. Dow sought
contribution from DPC in connection with claims against Dow asserted by The AES
Corporation ("AES") in a lawsuit filed on November 30, 1998 in the United States
District Court for the Southern District of Texas. AES asserts various federal
and Texas securities laws claims, and Texas claims for fraud and civil
conspiracy, arising out of AES' September 1997 purchase of stock of Destec
Engineering, a subsidiary of DPC (at that time Destec Power Corp). Specifically,
AES alleges that Destec Power made certain misrepresentations about the expected
profits that Destec Engineering would earn in connection with the construction
of the Elsta power plant in The Netherlands, and the anticipated completion date
of the Elsta plant. AES alleges that Dow is liable because it "controlled" or
had the power to control the management of Destec Power. AES's original
complaint did not assert any claims against Destec Power or any other Dynegy
entity. Dow is vigorously defending against AES' claims. In response to a motion
to transfer filed by Dow, the United States District Court for the Southern
District of Texas transferred the suit to the United States District Court for
Delaware. Following transfer of the litigation, AES added DPC as a defendant,
asserting claims similar to the claims asserted against Dow. Dow subsequently
dismissed the suit against DPC without prejudice. AES and DPC have reached a
settlement of AES's claims against DPC, which was approved by the District Court
on April 20, 2000. The order approving the settlement also contains a bar
against any claim for contribution that might otherwise be asserted by Dow
against DPC. The settlement dismisses AES's suit against DPC with prejudice. The
settlement had no impact on Dynegy's results of operations or financial
position.

                                       27
<PAGE>
    The Company is subject to various legal proceedings and claims, which arise
in the normal course of business. Further, in addition to certain disclosures
made previously herein, the Company assumed liability for various claims,
assessments and litigation in connection with its strategic acquisitions. In the
opinion of management, the amount of ultimate liability with respect to these
actions will not have a material adverse effect on the financial position or
results of operations of the Company.

ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K

(a) The following instruments and documents are included as exhibits to this
    Form 10-Q.

<TABLE>
<CAPTION>
              EXHIBIT NUMBER                                     DESCRIPTION
           ---------------------                                 -----------
           <S>                           <C>
               1.1                       Underwriting Agreement dated March 15, 2000 among the
                                         Company and the Underwriters named therein relating to the
                                         sale of Senior Notes.(1)

               4.1                       Form of 8.125% Senior Note due 2005(1)
</TABLE>

(b) Current Report on Form 8-K, Commission File No. 1-11156, dated March 15,
    2000, relating to the issuance and sale by Dynegy Holdings Inc. of
    $300,000,000 aggregate principal amount of 8.125% Senior Notes due
    March 15, 2005 in an underwritten public offering.

------------------------

(1) Incorporated by reference to exhibits to the Current Report on Form 8-K of
    Dynegy Holdings Inc. dated March 15, 2000.

                                       28
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.

<TABLE>
<S>                                                    <C>  <C>
                                                       DYNEGY HOLDINGS INC.

Date:  November 27, 2000                               By:  /s/ BRADLEY P. FARNSWORTH
                                                            -----------------------------------------
                                                            Bradley P. Farnsworth, Senior Vice
                                                            President and Controller (Principal
                                                            Accounting Officer)
</TABLE>

                                       29