Dynegy completes effort of ending legacy power tolling arrangements

Houston, TX, Dec. 27, 2005 — Dynegy Inc. announced that it has agreed to terminate the Sterlington long-term wholesale power tolling contract with Quachita Power LLC, substantially completing the company’s efforts of winding down its Customer Risk Management business to focus on the physical sales of electricity from company-owned power generation assets.

Under the terms of the agreement, Dynegy will use cash-on-hand to pay Quachita Power LLC, a joint venture of GE Energy Financial Services and Cogentrix Energy Inc., approximately $370 million to terminate all of Dynegy’s obligations related to the tolling contract.

As a result of the termination, which is subject to lender consents and other conditions, Dynegy will eliminate approximately $455 million in capacity payment obligations through 2012 and approximately $300 million in additional capacity payment obligations that would arise if Quachita Power exercised its option to extend the contract through 2017. The termination is expected to be effective early in the first quarter 2006.

“The termination of the Sterlington toll completes our effort launched in 2002 to eliminate power tolling obligations entered into during the company’s former energy merchant era,” said Bruce A. Williamson, chairman and CEO of Dynegy Inc. “During the course of the last three years, we have cancelled or otherwise eliminated in whole or in part the financial statement impact of all of our long-term tolling agreements, with related obligations of approximately $3.2 billion.

“The elimination of the Sterlington toll is a significant accomplishment in terms of extinguishing this off balance sheet obligation at a very favorable rate of return,” Williamson added. “The company is now wholly focused on the sale of electricity generated by company-owned power assets to serve our markets and customers with reliable delivery of electricity. In addition, our commercial focus is on selling this power through limited hedging or forward sales transactions in order to maximize value for our shareholders while serving the marketplace.”

The contract, which was entered into in 2000, required Quachita Power to sell the electricity produced at its 835-megawatt Sterlington, La. natural gas-fired power generating station to Dynegy. Dynegy will record a fourth quarter pre-tax charge of approximately $360 million (approximately $235 million after-tax) associated with this termination.

The accounting charge related to the termination will negatively impact Dynegy’s previously estimated 2005 financial results. Going forward, the elimination of the Sterlington tolling payments will positively impact the company’s Customer Risk Management earnings and cash flows, offset in 2006 by the associated cash termination payment. Dynegy will update its 2006 earnings and cash flow guidance to reflect the impact of this transaction in connection with its fourth quarter and 2005 year-end earnings report in the first quarter 2006.

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