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Dynegy to Spend More Than $500M on Emissions Reductions at Illinois Plants

March 14, 2005
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Dynegy Inc. last Monday said it has entered into a comprehensive Midwest generation system settlement resolving environmental litigation related to the company's Baldwin Energy Complex in Illinois. The settlement will also result in substantial emission reductions from Dynegy's Illinois coal-fired power plants.

Upon completion, the Baldwin Energy Complex will have the lowest sulfur emission rate of any existing or permitted coal-fired facility in the state of Illinois, Dynegy said.

Under the terms of the settlement, the company will invest $321 million in emission control projects between now and 2010, including the previously planned conversion to low-sulfur Powder River Basin coal at its Vermilion facility, with an additional $224 million in investments in the 2011-2012 timeframe.

The settlement resolves a 1999 dispute by the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Justice (DOJ) that related to maintenance, repair and replacement projects at the Baldwin facility. Under the Clean Air Act case, Illinois Power Co. and its successor, Dynegy Midwest Generation, were alleged to have violated the New Source Review provisions of the Clean Air Act at Baldwin. The state of Illinois and certain citizens groups intervened in the litigation in 2003.

The settlement agreement with all of the parties to the litigation is set forth in a consent decree lodged Monday with the U.S. District Court for the Southern District of Illinois. The decree settles all claims in the litigation, as well as similar claims that might have been brought related to maintenance, repair and replacement activities at other Dynegy coal-fired plants in the Midwest, including the Vermilion, Wood River, Hennepin and Havana facilities, all of which are located in Illinois.

After an official public notice and comment period, the EPA and the DOJ will make a recommendation to the court regarding the entry of the consent decree as a final judgment. This recommendation is expected late in the second quarter or early in the third quarter of 2005.

Once it is approved by the court, Dynegy believes that the settlement will satisfy the conditions for the release to the company of the remaining $100 million in sales proceeds held in escrow that was established as part of its sale of Illinois Power to Ameren Corp.

In 1999, the company began converting its coal-fired power plants in Illinois to Powder River Basin coal, with the work concluding at Baldwin and Hennepin in 2000; the Wood River plant in 2002; and the Havana plant in January 2005. The Vermilion plant is expected to be converted in late 2005 or early 2006.

Dynegy said that these fuel conversions and the investment in additional emission control technologies, including selective catalytic reduction (SCR) systems for Units 1 and 2 at Baldwin and Unit 6 at Havana, have already resulted in significant reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx). For example, from 1999 to 2003, the Baldwin Energy Complex alone reduced SO2 and NOx by 90% and 65%, respectively.

In order to meet the emission reduction requirements of the settlement agreement, additional investments outlined in the agreement are expected to result in further reductions of SO2, NOx and particulate matter. These investments include the year-round operation of SCR systems to reduce NOx emissions at Baldwin and Havana, starting in 2005; the installation of scrubbers and baghouses at the Baldwin and Havana plants from 2010 to 2012 to reduce SO2 and particulate matter; and systemwide upgrades of other existing particulate matter controls.

As part of the settlement agreement, Dynegy will also undertake several environmental projects in the Midwest, including the donation of approximately 1,135 acres of forestlands in Vermilion County, IL, to the Illinois Department of Natural Resources to form a nature preserve, as well as other efforts to preserve forests and wetlands.

The settlement also includes a payment of $9 million to the EPA, which will be paid after the settlement is approved by the court. The settlement will have no impact on Dynegy's first quarter 2005 results of operations, as the company's historical financial statements already reflect reserves for both the $9 million payment and the cost of the previously mentioned environmental projects.

When completed, the power plant modifications are expected to meet or exceed anticipated federal environmental requirements under the Bush administration's proposed Clean Air Interstate Rule, as well as proposed legislation before Congress, said Bruce Williamson, Dynegy's chairman.

The EPA noted that this is the eighth in a series of agreements reached with power plant operators, all of which are focused on securing major reductions in air pollution from coal-fired power plants. The combined effect of these eight settlements will be to reduce emissions of harmful pollutants by over 714,000 tons each year -- 486,000 tons of SO2 and 229,000 tons of NOx through the installation and operation of more than $4.4 billion worth of pollution controls, according to the EPA.

Dynegy's Midwest facilities, totaling 3,758 MW of coal-, oil- and natural gas-fired baseload and peaking generation, are located in Illinois. The company has approximately 650 employees in the state and 2,200 overall.

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