Dynegy Announces Agreement to Combine Operating Assets and Establish Development Joint Venture with LS Power

Business Wire, Sept 15, 2006

HOUSTON -- Dynegy Inc. (NYSE:DYN):

Transaction to Create Leading Merchant Power Generator with Proven Asset Development Platform and Multiple Value Drivers

--Combination of Dynegy's and LS Power's complementary operating assets to create a portfolio consisting of more than 20,000 megawatts of generating capacity concentrated in Midwest, Northeast and Western U.S.

--Transaction will be immediately and increasingly accretive to Dynegy's free cash flow, enhances financial stability through favorable contracted sales from LS Power's generation fleet, and allows for rapid deleveraging of LS Power's project debt to shift value to Dynegy's common stockholders

--50 percent ownership interest in a development joint venture with LS Power will provide significant organic growth prospects through greenfield development, expansion and repowering opportunities, coupled with proven execution capabilities

--Dynegy Chairman and Chief Executive Officer Bruce A. Williamson and the rest of Dynegy's Executive Management Team to lead combined company

--Combined company to retain Dynegy Inc. name and remain headquartered in Houston

--LS Power to have 40 percent equity ownership in Dynegy, aligning its interests with public shareholders; Chevron to support the transaction and significantly reduce its percentage ownership as a result of the combination

Dynegy Inc. and LS Power Group, a privately held power plant investor, developer and manager, today announced that the companies have executed a definitive agreement to combine Dynegy's current assets and operations with LS Power Group's generation portfolio, and for Dynegy to acquire a 50 percent ownership interest in a development joint venture with LS Power. Under the terms of the transaction, LS Power will receive 340 million shares of Dynegy common stock plus $100 million in cash and a $275 million Dynegy Inc. note. The combined entity will also assume approximately $1.8 billion in net debt from LS Power.

The transaction will create a combined company with more than 20,000 megawatts comprised of 31 power plants in 15 states. In addition to creating a company with significant scale and scope in three key geographic regions, these complementary assets balance Dynegy's generation mix, adding intermediate combined-cycle capacity to an existing portfolio that largely consists of baseload and peaking assets. The company's expanded portfolio will also include a controlling interest in the Plum Point facility in Arkansas, the only coal-fired plant in the country currently under construction by an independent power producer.

The development joint venture will provide Dynegy with a 50 percent ownership interest in an established growth vehicle. The joint venture will immediately own a pipeline of nine greenfield projects totaling more than 7,600 megawatts in various stages of development and approximately 2,300 megawatts of repowering opportunities.

"The combination of Dynegy's and LS Power's operating assets and a 50 percent ownership interest in the development joint venture will significantly advance the competitive position of the combined company's power generation enterprise, expand our scale and scope to better serve our markets and customers, and create a pipeline of future development opportunities," said Bruce A. Williamson, Chairman and Chief Executive Officer of Dynegy Inc. "The transaction also uniquely positions the combined company with a diverse platform that presents near-, medium- and long-term options for delivering value to all shareholders.

"Immediate and increasing cash flow accretion and the rapid deleveraging of the balance sheet will shift significant value to our common stockholders. Medium-term value drivers will include the combined portfolio's fuel, geographic and dispatch diversity, continued strong operational performance and in-market asset availability, and a commercial strategy of maximizing upside potential and economic returns. Long-term value drivers will be in the form of organic growth through a proven development business, a strategic presence in key markets as power demand recovery gains further momentum, and an overall enterprise that can manage a greater number of assets without a proportionate increase in costs," Williamson added.

Mike Segal, Chairman and Chief Executive Officer of LS Power Group, said, "This transaction will create a company uniquely positioned to capitalize on the dominant trends in our sector today -- consolidation and demand growth. LS Power's significant ownership stake in Dynegy is a major commitment to and investment in a company with outstanding performance and a management team that has consistently delivered."

Combination Advantages and Benefits

Dynegy and LS Power expect that the combination of their operating assets and the development joint venture will deliver the following advantages and benefits:

--  Builds Greater Scale and Scope in Key Regions of the U.S.

        --  Forty-five percent of the new portfolio's generating
            capacity will be located in the Midwest, with 26 percent
            in the West, 22 percent in the Northeast and the remainder
            of the combined portfolio in the South.

        --  Further fuel and dispatch diversity will result from the
            combination of Dynegy's and LS Power's operating assets.
            Thirty-three percent of the combined portfolio will be
            natural gas-fired combined-cycle capacity, thirty-nine
            percent natural gas-fired peaking capacity and 21 percent
            baseload coal/oil. The remainder of the combined portfolio
            will have dual fuel capabilities.

        --  The transaction also provides a new strategic position in
            the California market for the combined company. LS Power's
            California assets benefit from a mix of long-term forward
            sales, off-take contracts with a major utility company,
            and reliability must-run contracts, thereby providing cash
            flow predictability in a key market.

    --  Creates Greater Financial Stability

        --  The transaction will be immediately and increasingly
            accretive to Dynegy's free cash flow and it will rapidly
            deleverage the balance sheet, thereby shifting significant
            value to common stockholders through LS Power's contracted
            earnings and flexible debt repayment schedule.

        --  LS Power's contracts, while providing stability and
            mitigating commodity exposure, also provide leverage to
            improving capacity markets and power market recovery.

        --  Through the end of the decade, more than 50 percent of LS
            Power's fleet is contracted or subject to reliability must
            run arrangements each year, with 75 percent in 2007,
            providing a highly predictable cash flow stream to pay
            down the project debt obligations to be assumed in the
            transaction.

    --  Provides a Proven and Mature Asset Development Platform

        --  LS Power has a proven track record of successfully
            developing projects and creating more than $1 billion of
            value through its development efforts since 1990.

        --  LS Power is currently the only independent power producer
            to have received approval of all necessary permits for the
            construction of a coal-fired facility in ERCOT.

        --  The joint venture will initially own a pipeline of nine
            greenfield projects totaling more than 7,600 megawatts in
            various stages of development.

        --  Resources will also be focused on repowering and expansion
            opportunities within the new portfolio. LS Power is
            currently pursuing four repowering opportunities totaling
            approximately 2,300 megawatts of generating capacity.