1105055--2/28/2008--DYNEGY

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{debt, indebtedness, cash}

{gas, price, oil}

{cost, regulation, environmental}

{cost, operation, labor}

{competitive, industry, competition}

{investment, property, distribution}

{capital, credit, financial}

{acquisition, growth, future}

{cost, contract, operation}

{tax, income, asset}

{stock, price, operating}

FACTORS THAT MAY AFFECT FUTURE RESULTS Risks Related to the Operations of Our Business We do not fully contract our future sales potential and therefore are exposed to commodity prices risk associated with changes in prices of power, natural gas, coal and oil. To the extent we do engage in forward sales activities, our models representing the market may be inaccurate. Because most of our power generation facilities operate mostly without term power sales agreements and because wholesale power prices are subject to significant volatility, our revenues and profitability are subject to significant fluctuations. We are exposed to the risk of fuel and fuel transportation cost increases and interruptions in fuel supplies because some of our facilities do not have long-term coal, natural gas or fuel oil supply agreements. Our costs for compliance with existing environmental laws are significant, and costs for compliance with new environmental laws could adversely affect our financial condition, results of operations and cash flows. Our business is subject to complex government regulation. Changes in these regulations or in their implementation may affect costs of operating our facilities or our ability to operate our facilities, or increase competition, any of which would negatively impact our results of operations. Availability and cost of emission credits could materially impact our costs of operations. Competition in wholesale power markets, together with an oversupply of power generation capacity in certain regional markets, may have a material adverse effect on our financial condition, results of operations and cash flows. We do not own or control transmission facilities required to sell the wholesale power from our generation facilities. If the transmission service is inadequate, our ability to sell and deliver wholesale power may be materially adversely affected. Furthermore, these transmission facilities are operated by RTOs and ISOs, which are subject to changes in structure and operation and impose various pricing limitations. These changes and pricing limitations may affect our ability to deliver power to the market that would, in turn, adversely affect the profitability of our generation facilities. Plum Point and Sandy Creek, which are currently under construction, may not be completed, and the construction of other development projects in which Dynegy has an interest via DLS Power Holdings and DLS Power Development may never be initiated or completed. Our financial condition, results of operations and cash flows would be adversely impacted by strikes or work stoppages by our unionized employees. Risks Related to Our Financial Structure, Level of Indebtedness and Access to Markets An event of loss and certain other events relating to our Roseton and Danskammer power generation facilities could trigger a substantial obligation that would be difficult for us to satisfy. We have significant debt that could negatively impact our business. Covenants in our financing agreements impose significant restrictions on us. The terms of our debt may severely limit our ability to plan for or respond to changes in our businesses, and the failure to comply with these covenants could lead the lenders to foreclose on, and acquire control of, substantially all of our assets, which would have a material adverse impact on our business, financial condition, results of operations and cash flows. Our access to the capital markets may be limited. We expect that our non-investment grade status will continue to adversely affect our financial condition, results of operations and cash flows. We may not have adequate liquidity to post required amounts of additional collateral. We conduct a substantial portion of our operations through our subsidiaries and may be limited in our ability to access funds from these subsidiaries to service our debt. Our growth strategy may include acquisitions or combinations that could fail or present unanticipated problems for our business in the future, which would adversely affect our ability to realize the anticipated benefits of those transactions. If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings. The interests of the LS Control Group may conflict with your interests and, with respect to DLS Power Holdings and DLS Power Development, Dynegy s interests. The LS Control Group s significant interest in Dynegy could be determinative in matters submitted to a vote by Dynegy s stockholders. In addition, the rights granted to the LS Shareholders (as defined below) under the Shareholder Agreement (as defined below) and Dynegy s amended and restated bylaws provide them significant influence over Dynegy. Such influence could result in Dynegy either taking actions that Dynegy s other stockholders do not support or failing to take actions that Dynegy s other stockholders do support. Dynegy s stockholders may be adversely affected by the expiration of the transfer restrictions in the Shareholder Agreement, which would enable the LS Control Group to, among other things, transfer a significant percentage of Dynegy s common stock to a third party.

Full 10-K form ▸

1105055--2/28/2008--DYNEGY_INC.