Hello and welcome to the Dynegy Incorporated Third Quarter2007 Earnings Teleconference. At the request of Dynegy, this conference isbeing recorded for instant replay purposes. Please note that all lines will bein a listen-only mode until the question and answer portion of today's call. (OperatorInstructions) I would now like to turn the conference over to Ms. NorelleLundy, Vice President of Investor and Public Relations. Ma'am, you may begin.

Good morning, everyone, and welcome to Dynegy's investorconference call and webcast covering the company's third quarter 2007 results. Asis our customary practice before we begin this morning, I would like to remindyou that our call will include statements reflecting assumptions, expectations,projections, intentions or beliefs about future events, particularly withrespect to our growth strategy and 2007 estimates. These and other statementsnot relating strictly to historical or current facts are intended asforward-looking statements. Actual results, though, may vary materially from thoseexpressed or implied in any forward-looking statements. For a description ofthe factors that may cause such a variance, I would direct you to theforward-looking statements legend contained in today's news release and in ourSEC filings, which are available free of charge through our website atDynegy.com. With that, I will now turn it over to our Chairman and CEO,Bruce Williamson.

Good morning and thank you for joining us. Joining me in Houston this morning is HolliNichols, our Chief Financial Officer and several other members of our managementteam. Let's now turn to the agenda for our call, which ishighlighted on slide three, for those of you following it along online via the webcast.I'll begin this morning by providing an overview of our third quarterhighlights and recent developments. Holli will then cover the third quarterfinancial results in detail and provide a business segment financial review andan update to our 2007 cash flow and earnings estimates. I will follow up bydiscussing the year-to-date from a more strategic perspective. Then we will takeyour questions and finally provide a wrap-up by way of a calendar of upcominginvestor events. Please turn to slide four. During the third quarter, EBITDAfrom the power generation business improved from $92 million in the thirdquarter of 2006 to $624 million for the third quarter 2007. Our generationvolumes increased to 106%, primarily due to the assets we acquired from LSPower. In addition, in-market availability of our coal facilities,which is one of our key operational metrics and a key option for increasedreturns in markets characterized by increased demand and tightening reservemargins, remained very strong at approximately 94%. EBITDA also included $217 million in pre-tax income fromdiscontinued operations, primarily related to the company's opportunistic saleof the CoGen Lyondell power generation facility. This sale closed in August. Third quarter EBITDA also included $20 million of pre-taxunrealized mark-to-market earnings. These factors contributed to the third quarter net income of$220 million applicable to common stockholders. As a financial highlight, we also repaid $275 million of outstandingdebt under our revolving credit facility, so we currently have no outstandingdebt under our revolving credit facility, which reduces our interest expenseand provides greater financial flexibility. Also during the third quarter, we…

Thanks, Bruce. Turning now to slide seven and our financialperformance for the quarter, I'd like to cover our income statement, cash flow statementand balance sheet. Before I begin, as is customary, at this in our call, Iwould highlight that EBITDA and free cash flow are non-GAAP measures. For Reg G purposes, we have reconciled EBITDA to the GAAPmeasure of net income. In addition, we have reconciled free cash flow to theGAAP measures of cash flow from operating activities and cash flow frominvesting activities. We've included these reconciliations in the slidepresentation accompanying this webcast, as well as in the attachments to ourearnings news release. Now turning to our results; for the third quarter 2007, wereported net income of $220 million or $0.26 per diluted share. This comparesto a net loss of $69 million or $0.14 per diluted share for the third quarterof 2006. As Bruce mentioned, our results were driven by a $217million in pre-tax income from discontinued operation, primarily resulting fromthe sale of CoGen Lyondell, the addition of assets acquired from LS Power,higher volumes and prices in the Midwest and$20 million of unrealized pre-tax mark-to-market earnings. For the nine months, ended September 30, 2007 Dynegy's freecash flow was the use of $137 million. This includes operating cash inflows of$366 million and investing cash outflow of $503 million. As discussed in thesecond quarter investor call, our investing cash outflow captures therefinancing of our liquidity facilities and the funding of the LS Powertransaction, in addition to our capital expenditure program. First, our refinancing following the LS Power transactionincreased our synthetic letter of credit facility by $650 million in the secondquarter. Borrowings under a six-year term loan raised cash, which was used tocollateralize the letter of credit facility. Cash proceeds from the term loanborrowing are reflected as a financing cash inflow in accordance…

Thank you, Holli. A year ago during our investor call forthe third quarter 2006, I outlined Dynegy's to-do list at the time. Our threemain tasks were to complete the acquisition of the assets from LS Power andintegrate these assets into our business. Streamline, the right-hand side ofour balance sheet to simplify our debt structure, reduce fees, increaseflexibility and maximize capital available for our stockholders. And third,optimize the left-hand side of our balance sheet to release excess capital fromsome assets for the benefit of our stockholders. Now, I would like to give you a progress report. Over thepast year, we have executed on each of these initiatives, while deliveringstrong financial result, as demonstrated by our positive earnings for threeconsecutive quarters this year, which was achieved through our continued focuson leveraging our strong operational and commercial capabilities and strategies. Additionally, we completed the combination with LS Power.This provided us with diversification, and gave us greater scale and scope inthree of the best power markets in the country. Next, we successfully integrated the LS Power assets,focusing on reducing costs and harvesting the consolidation of synergies, whilecombining the portfolio as quickly as possible in order to demonstrate thebenefits of consolidation. That takes us to task number two. We streamlined our capitalstructure by refinancing the project-based debt associated with the assets weacquired from LS Power through the use of Dynegy Holdings unsecured bonds. Thiseliminated cash flows sweeps and other restrictions and provided us withsignificant financial and commodity cycle flexibility. We believe that Dynegy's capital structure is now one of themost simple and flexible in the industry, and that structure can serve ourinvestors over the long-term. We also recently announced the completion of a $1billion in project financing for Sandy Creek Energy Associates. Thistransaction allows the Sandy CreekPower Generation facility to begin construction in the fourth…

Thank you. (Operator Instructions). Our first question comesfrom Lasan Johong. You may ask your question and please state your companyname.

Sure. RBC Capital Markets.

Hi, Lasan.

Hi, Bruce, any more Plum Point type opportunities?

Lasan, we just got done with one and…

It's a good transaction.

I am sorry.

It's a good transaction. I'd like to see more.

Thanks. I think I will make the comment and then maybe Iwill ask Lynn, who has the development responsibility here. We really justthink that what that does is, it demonstrates that we can get value out ofthose development prospects, two different ways. We can have them be built, owned, and operated and held forthe long-term, and we can also be opportunistic about that, basically sellingoff pieces when we find a good opportunity to do that and sort of promotingpeople in, if you will. So we use kind of an E&P example. And that was really the basic strategy behind it. It wasgood economics. It demonstrates good discipline and it was a good shareholdervalue transaction. Lynn,anything you want to add?

Yeah. The only thing I would add is that the notion of opportunity,I mean, we are always looking and when that opportunity is there, and we thinkthat makes sense, then we'll take advantage of that. But, otherwise we are in good shape with the program that wehave and we move forward with, in the case of Plum Point construction andeventual operation of the facility.

More specific, I was thinking of Sandy Creekand White Pine.

Yeah. Same answer there. I mean, when we think that there isan opportunity that makes good sense for us around those facilities andopportunities that's better than continuing to move forward with ourdevelopment activities or an opportunity to sell down a piece of that, we'llentertain that. But at this point, we are looking at those and we'll make thedecision when we think it's appropriate.

Are you making an offer, Lasan?

You never know.

Okay.

Okay. I was kind of puzzled by the valuation of Plum Point,you said it was $2,800 a KW?

Yeah.

It that then translates into the rest of your coal fleet doesthat means your underlying fundamental stock price is $8 without even any singlegas plant, is that about right?

I'd have to pull some of the parts and compare numbers withyou. But, I mean, I leave that up to you to consider as you develop your NAVsand your analysis report. But, I think we put some numbers out in the past where we'vein some presentations pointed out some range of assets times the number ofmegawatts we have and it's a range, but I don't want to try to peg a number.I'll leave that up to all you sell side analysts.

Okay. And then I was a little confused about the sparkspread comments made by Holli in Californiaversus the Northeast. It was down 9% in California,up 3% in the Northeast. Is it weather driven, or was it natural gas pricecombination weather?

Well, I think it's a combination. I don't think you cannecessarily compare spark spreads in two different regions at a single point intime and understand exactly why they may be different. I mean it may beweather, it may be things going on in the market in terms of supply-demand.

Okay. One last question, what would the recurring value ofthe development projects on your books today?

Lasan, it's relatively low. In the sense that when we wentthrough the acquisition, we were required to go through an entire purchaseprice allocation process and your views of fair value and all the accountingrules that you go through around that are very specific. And for something like a development project, it isparticularly challenging to apply much value there. And I would say the rule ofthumb is probably $100 million or less in book value.

So, basically at this point, if you do realize value out ofthat portfolio, it's all gravy?

That's the way you think about it. As you saw, I'vementioned that we have approximately $70 million and as a gain anticipatedaround the sale of a portion of Plum Point and that again it obviously had avery low basis.

Excellent. Thank you very much.

Okay, thanks.

Thank you. Your next question comes from Dan Eggers. You mayask your question and please state your company.

Hey, good morning. Just want to talk a little bit about thethought process behind some of the coal plant development opportunities whereyou haven't turned a shovel yet, given some of the opposition we've seen on themarket particularly in Nevadawith Senator Reed getting more vocal these days?

Okay. I will pass that one across to Lynn and put those on the call Dan withCredit Suisse.

Sure. I think, remember what we said in the past about ourdevelopment activities. First of all, we have a portfolio that has a number ofdifferent technologies and a number of different locations and thosedevelopment activities are premised on meeting a particular market need. So, it's not a program in building out X number of megawattsor a program designed to push a particular technology. It's very much marketdriven around local needs. And so those needs are influenced by a number offactors, and where we see that market needs change or the impediments todevelopment are large enough that we don't think the probability of success ishigh, then we will begin to change the emphasis and the resources that weallocate in the development portfolio. And so that's why we have said from the beginning, that it'sa dynamic portfolio and there are number of projects there, some of them willbe successful, and some of them won't be. If you look at specifically at theproject in Nevada,I mean we are looking at the prospects there. We think it's that the fundamentalsmake good sense. We have been working with the Nevada agencies and regulatory bodies tocome up with something that does make sense there. So, we are still moving forward with that. We will see wherewe get over time and then I would just say that general approach is going toapply to all of the other projects that we have in the portfolio, whether theyare coal or whether they are gas or whether they are renewable. So we'relooking for the right fit in the particular market.

I guess given the uncertain environmental policy backdrop wehave now, should we look for you guys to look to accelerate some of the gasprojects and push out some of the coal projects until you get greater clarityon the rules?

Well, I'm not sure, I would think of it quite that way.We're dealing with the fluid market, and as I said, we're trying to beresponsive to what the market wants. Now, if the market suddenly becomes muchmore favorable towards gas and, yes, there would be some movement toward gas.But, it's not exactly easy to develop gas projects either. And that's notsomething that can happen in very short order. So, what we try to do in the development side is look forthe opportunities and advance as we can when those opportunities are there. Andthen in the meantime, the fact that it is hard to get any kind of newgeneration on the ground, just means that there is additional benefit that goesto our operating portfolio.

I think that's really key point, Dan, is that it's very mucha customer driven business venture, the development JVs, and if customersbecome more interested in natural gas or in renewals or things like that, andcontracts can be put in place to support them, then the efforts would shift inthat direction. But as Lynnsaid, while it creates a good option for us, the more difficult it is todevelop new projects be really to better the value of the incumbent assets thatare already in the portfolio and on the ground running today.

That's fair. I guess one last question. We've been hearingtalk that embedded heat rates or embedded capacity prices in MISO are moving uppretty nicely with PJM pricing. Is there any comment or color you care to giveon what you are seeing on the market now as you look at contracting some ofyour generation?

Lynn?

Well, I think, in general, your statement is right. In MISO,it's more of the bilateral markets. So it's not quite as transparent as whatyou see in PJM. But generally MISO tracks in the same sort of pattern that PJMdoes. So, as we see prices strengthen in PJM in response to supplyand demand balance, we are going to see the same thing in MISO, may not be atthe same level, but you are certain going to see the same kind of trend.

I guess Lynn any color moreon how far off of a best of pool price you are seeing particularly for the Illinois side of thebusiness?

We really haven't talked about that publicly in large part,because as I said, this is mostly done in bilateral contracts.

Fair enough. I had to try. Thanks.

Okay.

Thank you. Our next question comes from Gregg Orrill. Youmay ask your question and please state your company name.

Thanks very much. Lehman Brothers. I had two quickquestions, the first was, could you talk a little bit more about thecircumstances and the decision around the replacement of the $325 millionletter of credit on the Sandy Creek project cash? And then secondly. If you could talk a little bit about thechanges to the capacity zones for the upcoming PJM auction and how that mightaffect you?

Okay. I will pass the LC question off to Holli and then Lynn can pick up thecapacity?

Sure. The way we think about managing our cash balances andliquidity and all our collateral needs is just to be as efficient as possible.And in the near-term, we do have a LC or collateral requirement associated withthe equity commitment around the Sandy Creek developmentproject, and I would consider this temporary. What we would ultimately plan on doing is putting a morepermanent financing structure in place at Sandy Creek over the next, I am notsure if it's 12 months, 18 months, 24 months, but in some timeframe in thefuture, that would reduce this requirement. But at the time we have cash sitting on our balance sheetand we believe it's more efficient to go ahead and use that to satisfy thiscollateral need in the near-term rather than paying the LC charge of 150 basispoints and it's just a more effective use of our liquidity.

On your question on PJM, you are correct that they have madesome changes to the zones that they have, that's fairly typical of all the ISOswhen they have some type of zonal system that periodically there'll be changesthere. And generally, it's a change driven by what the ISO sees interms of supply and demand balance in a particular location and some times theyneed to redraw the lines a bit to make sure that the price signals are correctin individual locations. So, that's what we saw earlier in the year and you begin tosee some price differences in capacity across those zones and that's justreflecting the physical transmission system and the constraints that arelocated there. So, some zones are going to have relatively less supply and theywill have higher capacity prices, and we saw that in the zone where theOntelaunee facility is located this year.

So what will the zones be for the January auction?

I am not sure there are any changes. I think they will bethe same.

Okay, thanks.

Okay, thank you.

Thank you. Our next question comes from Daniele Seitz. Youmay ask your question and please state your company name. Daniele Seitz -Dahlman Rose & Co.: Thanks. Dahlman Rose. I was wondering if the MISO was stillconsidering to capacity charges?

The MISO is looking at a number of improvements to theirmarket. A form of capacity market is on their list. It's not at the top of thelist. So, I think for the near-term future, we will continue to capacity inMISO being handled on a bilateral basis as opposed to a centralized market runthrough MISO. Daniele Seitz -Dahlman Rose & Co.: So, you feel that the probability is relatively small?

For the near-term, yes. Daniele Seitz -Dahlman Rose & Co.: Okay. And in terms of your interest costs, you anticipate thatthey may stay around this level, or slightly lower and then gradually rise withthe addition of capital expenditures?

I think what, if you think about any plans we have aroundour capital structure, there is not anything significant. So, the debt balancesthat we have, there are some that are amortizing, like the debt around the Independence facility. So, you would expect a bit of a reduction associated withinterest, if that works its way down and that will be offset, though, in thesense that the Plum Point debt will be increasing between now and 2010. Andtherefore your interest will slightly rise, the points of the interest thataren't capitalized on that project. Daniele Seitz -Dahlman Rose & Co.: The amount you intend to spend in Plum Point, I mean yourshare will be about a $160 million, between $160 million and [$280 million],but higher?

Well, one of the things that's a little confusing about itis that we do consolidate Plum Point. Daniele Seitz -Dahlman Rose & Co: Right.

So, it will all show up on our balance sheet, buteffectively the total debt will be around $800 million and we're around 20% ofthat. Daniele Seitz -Dahlman Rose & Co: Okay. Great.And just one quick one, G&A, it seems to be going up. Is it just unusual oris this is a trend that you anticipate anyway, because of the expansion andconstruction etcetera?

I think we expect G&A to be -- if ignoring legalsettlements that we've cleaned up a few this year, we would expect G&A tobe pretty well flat from this point forward, maybe modest changes one way orthe other, but nothing material. The biggest changes that have come in thisyear relative to our plan have been a couple of legal settlements dealing withsome old legacy issues. Daniele Seitz -Dahlman Rose & Co: Thanks.

Thank you.

Thank you. Our next question comes from Brian Russo. You mayask your question please state your company name. Brian Russo -Ladenburg Thalmann & Co: Good morning.

Good morning Brian. Brian Russo -Ladenburg Thalmann & Co: Ladenburg Thalmann. Could you just update us on thedevelopment progress of the Georgiabased Long Leaf plant?

Sure. That project is, as you may know, is still goingthrough the final regulatory process. It received permits, some of the majorpermits that were required, those were under appeal and that is currently beinglitigated in Georgia.We expect that the litigation will wind up over the next three months or so.But there's not much we can really say beyond that, other than, we are windingthrough that final bit of litigation. Assuming we get more favorable rulings than we would lookat, moving forward with that project in 2008. And if we got unfavorablerulings, then we would obviously have to assess what the impacts of thoserulings were. So, that's still moving forward, but there is really probably notgoing to be any news on that until we get through that regulatory process. Brian Russo -Ladenburg Thalmann & Co: Okay. And can you also talk a little bit about any groundfield expansion opportunities maybe in Connecticutand California?

Sure, we are looking at those opportunities as well. I amnot sure if there is any particular highlight to give you right now. Obviously,you’ve mentioned that the two obvious ones looking at some expansions aroundthe Bridgeportfacility, and we are making progress there in the west. We are looking at andhave been participating in various RFPs and RFOs. And we are hopeful, but that'sa competitive business out there, and we'll see how things unfold as those RFPsgo forward? Brian Russo -Ladenburg Thalmann & Co: Okay. Just to focus on the west a little bit, you guys havea fairly significant presence there, and I am just wondering what your thoughtsare on evolving those power markets structures and maybe capacity markets andso forth?

Lynnyou are on the role.

Well, in California,you are probably aware that California ISO is going through market redesign,which would be put in place next year. So, we've been watching closely thosedevelopments, and looking forward to those changes and looking foropportunities that maybe created there. So, other than that I don’t think thereis going to be too much new that comes out of California. They have quite a bit on theirplate at this point. If you move over into the Arizona assets, those assets are in more ofa bilateral market. You look for bilateral type contracts there as the mainopportunity, and I think we would expect that to be more fruitful for us than anyparticular structural change in the markets. I don't really anticipate that youwill see some type of ISO set up in the desert southwest, for example or formalcapacity markets and the like. I think that will continue to be as it has beenin the past more of bilateral market. And so, that's where we see theopportunities. Brian Russo -Ladenburg Thalmann & Co: Okay. Thank you very much.

Thank you, Your next question comes from Elizabeth Parrella.You may ask your question, and please state your company name.

Merrill Lynch. Thank you. Bruce you mentioned the PJMcapacity prices aren't yet high enough to support any build economics. Can yougive us sense where think they need to be in PJM?

Sure, I will again Lynn'sgetting all the business today. Let him go to the market, so I would lend an ear.

The first thing I would say, Elizabeth, is a combined cycle plan, maybe ifwe talk about that for just a minute. A combined cycle plant will make it'smoney through some combinations of margin from energy payments, ancillaryservices that are provided, and capacity. And I don't think that there's anynecessary combination of those three, i.e. it's not necessarily the case that40% comes from capacity, and 40% comes from energy, and 20% comes fromancillary services. So, we always view that there's going to be some kind of roughbalance between those, but again no necessary proportions. If you look at newbuild economics, we would probably tell you that capacity payments probablyought to be in the $6, $7, and $8 range. But then you have to make someassumptions about what kind of energy margin that you would expect to go alongwith that. And that's the function of some of the other market rules. So, the point that Bruce was making was really that we'veseen $4.5 as sort of the high in terms of capacity payments in PJM. And we wouldexpect things to still be well above that before you get new build economic.The other way you might about it is look at what's happening in the New England area and the prices associated with capacitymarkets there, which are more up in the $7 or $8. And people are starting totalk about new facilities there. But we're still, I think everybody is stillwatching and waiting to see what happens. So, may be that gives you some senseof what kind of differential we are thinking about.

Well, you actually jumped on my next question which also isgoing to be, how you think about the New Englandcapacity auction coming up in February playing out. Given some differences inthe auction structure and the market themselves, and how do you think thatauction kind of looks compared to the pricing we have seen in PJM?

My guess would be that the pricing there will be higher.But, we haven't had the auction yet, and it's hard to say particularly when youdo have different rules and different structures. It's hard to draw directcomparisons from one region to another.

Okay. Thank you.

Our next question comes from Andy Smith. You may ask yourquestion, and please state your company name.

Good morning. This is Andy Smith with J P Morgan.

Hi, Andy

Hi guys. Quick question for you on Illinois, as we are seeing the newprocurement process there, at least for the next year coming up are beingproposed? It looks like to me one other things that's happened, is that theload shape risk is being transferred out of the old auction process and back onto the utilities, given your base load profile in Illinois, do you guys seemaybe more opportunity or maybe a little more comfort in the potential to wavesome contracts in place against these assets, under this new proposal or doesit really change your thinking at all?

I think the way you just put it, Andy, is probably the bestway to think about it. I mean what the auction did was, it basically had everysupplier provides were to call up the custom solution with the maximum amountof load shape and flexibility and every other possible risk dealt with in theprice. So, if we go down the path you are talking and that's where we thinkthey maybe headed. They are in effect going to buy sort of the wholesalecomponents, and then the utility will have the obligation to assemble that andthen have to manage some of flex and the load shape and thing like that. Obviously, when we were faced with the other process, if weare faced with a lot of additional risks and things then we're going to pricethose in. Now, I think we're generally able to look at the selling the variouswholesale components and just having an appropriate profit margin on thewholesale product. So, instead of selling the suit we maybe selling cloth andthread and button separately, so to speak. And we'll see how that all comestogether.

Okay. Great, thanks.

Thank you. And this concludes the question-and-answersession. At this time I will turn the call over to the speakers.

Thank you. Before ending this morning's call, I would liketo tell you about a new initiative as we strive to provide continuousimprovement for our stockholder communications. We invite all of you to enrollin a new program that provides the option of receiving your future stock-holdmaterials electronically. This initiative will help save investors money byreducing mailing cost and increasing efficiency. You will be receiving moreinformation about this service in the mail, and you can enroll starting todayon our website at dynegy.com. Now, turn to slide 20, I would like to mention a fewupcoming events that various members of the management team will beparticipating in. We will be at the Calyon Conference on November 29th in New York City. Inaddition, members of the management team will be making West Coast InvestorMarketing trip that same week in November. And please remember our 2008guidance estimates and future outlook call on December 12, from New York City. Thank you again for your time this morning and your interestin Dynegy. I look forward to seeing a number of you at our upcoming investorevent.

Thank you. And this does conclude today's conference. Wethank you for your participation. At this time you may disconnect your lines.