Dynegy Announces Agreements to Exit Natural Gas Transportation Contracts

Business Wire, July 14, 2004

HOUSTON -- Dynegy Inc. (NYSE:DYN) today announced that it has reached agreements to exit four long-term natural gas transportation contracts. The settlement of the contracts represents continued progress in the wind-down of the company's third-party marketing and trading business.

Dynegy entered into the four contracts in June 2001 to secure firm pipeline capacity through 2014 in support of its third-party marketing and trading business. In exchange for exiting its obligations under these contracts from April 1, 2005 forward, Dynegy paid a total of $20 million in June 2004 and will pay $42 million in the first quarter 2005. These payments eliminate approximately $295 million in aggregate fixed capacity payments through 2014.

In connection with the exit from these contracts, Dynegy will reverse an aggregate liability of $148 million associated with the transportation contracts that was originally established in 2001. As a result, Dynegy's customer risk management business will realize a net pre-tax gain related to these transactions of approximately $88 million in the second quarter 2004. The company expects to consider this gain, together with its overall financial results for the second quarter, when addressing its 2004 earnings guidance estimate upon the release of its second quarter financial results.

"The exit of these gas transportation contracts given the current market conditions eliminates almost $300 million of future fixed payment obligations associated with our former marketing and trading business and thereby improves our financial profile, while sharpening our focus on our unregulated asset-based businesses," said Bruce A. Williamson, Chairman, President and Chief Executive Officer of Dynegy Inc.

Dynegy's customer risk management business, which is reported as a separate business segment, is now largely comprised of Dynegy's four remaining power tolling arrangements, as well as gas transportation agreements and the company's remaining gas and power trading positions.

Dynegy Inc. provides electricity, natural gas and natural gas liquids to customers throughout the United States. Through its energy businesses, the company owns and operates a diverse portfolio of assets, including power plants totaling more than 12,700 megawatts of net generating capacity, gas processing plants that process approximately 1.8 billion cubic feet of natural gas per day and nearly 38,000 miles of electric transmission and distribution lines.