form10-q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
 
 
DYNEGY INC.
DYNEGY HOLDINGS INC.
(Exact name of registrant as specified in its charter)
 
 
Entity
  
Commission
File Number
  
State of
Incorporation
  
I.R.S. Employer
Identification No.
Dynegy Inc.
  
001-33443
  
Delaware
  
20-5653152
Dynegy Holdings Inc.
  
000-29311
  
Delaware
  
94-3248415
             
             
1000 Louisiana, Suite 5800
            
Houston, Texas
          
77002
(Address of principal executive offices)
          
(Zip Code)
 
(713) 507-6400
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Dynegy Inc.
    
Yes x No o
Dynegy Holdings Inc.
    
Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Dynegy Inc.
    
Yes  o No o
Dynegy Holdings Inc.
    
Yes  o No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated
filer
Accelerated filer
Non-accelerated filer
(Do not check if a
smaller reporting
company)
Smaller reporting
company
Dynegy Inc.
 o
x
 o
 o
Dynegy Holdings Inc.
 o
 o
x
 o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Dynegy Inc.
    
Yes  o No x
Dynegy Holdings Inc.
    
Yes  o No x
 
Indicate the number of shares outstanding of Dynegy Inc.’s classes of common stock, as of the latest practicable date: Common stock, $0.01 par value per share, 122,135,478 shares outstanding as of May 2, 2011.  All of Dynegy Holdings Inc.’s outstanding common stock is owned by Dynegy Inc.
 
This combined Form 10-Q is separately filed by Dynegy Inc. and Dynegy Holdings Inc.  Information contained herein relating to any individual registrant is filed by such registrant on its own behalf.  Each registrant makes no representation as to information relating to a registrant other than itself.
 
 
 
 
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
TABLE OF CONTENTS
 
       
Page
PART I. FINANCIAL INFORMATION
    
         
 
Item 1.
FINANCIAL STATEMENTS—DYNEGY INC. AND DYNEGY HOLDINGS INC.:
    
         
 
               March 31, 2011 and December 31, 2010
  
4
   
5
   
6
   
7
 
               March 31, 2011 and December 31, 2010
  
8
   
9
   
10
   
11
   
12
         
   
36
   
61
   
62
         
PART II. OTHER INFORMATION
    
         
   
63
   
63
   
63
   
64
 
EXPLANATORY NOTE
 
This report includes the combined filing of Dynegy Inc. (“Dynegy”) and Dynegy Holdings Inc. (“DHI”).  DHI is the principal subsidiary of Dynegy, providing nearly 100 percent of Dynegy’s total consolidated revenue for the three-month period ended March 31, 2011 and constituting nearly 100 percent of Dynegy’s total consolidated asset base as of March 31, 2011.  Unless the context indicates otherwise, throughout this report, the terms “the Company”, “we”, “us”, “our” and “ours” are used to refer to both Dynegy and DHI and their direct and indirect subsidiaries.  Discussions or areas of this report that apply only to Dynegy or DHI are clearly noted in such section.


DEFINITIONS
 
As used in this Form 10-Q, the abbreviations contained herein have the meanings set forth below.
 
ASU
Accounting Standards Update
BACT
Best available control technology
BART
Best available retrofit technology
BTA
Best technology available
CAA
Clean Air Act
CAIR
Clean Air Interstate Rule
CAISO
The California Independent System Operator
CAMR
Clean Air Mercury Rule
CARB
California Air Resources Board
CAVR
The Clean Air Visibility Rule
CCR
Coal Combustion Residuals
CERCLA
The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
CO2
Carbon Dioxide
CWA
Clean Water Act
DHI
Dynegy Holdings Inc., Dynegy’s primary financing subsidiary
DMSLP
Dynegy Midstream Services L.P.
EBITDA
Earnings before interest, taxes, depreciation and amortization
EPA
Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
GAAP
Generally Accepted Accounting Principles of the United States of America
GEN
Our power generation business
GEN-MW
Our power generation business - Midwest segment
GEN-NE
Our power generation business - Northeast segment
GEN-WE
Our power generation business - West segment
GHG
Greenhouse Gas
HAPs
Hazardous air pollutants, as defined by the Clean Air Act
ICC
Illinois Commerce Commission
IMA
In-market asset availability
ISO
Independent System Operator
ISO-NE
Independent System Operator New England
MACT
Maximum achievable control technology
MGGA
Midwest Greenhouse Gas Accord
MGGRP
Midwestern Greenhouse Gas Reduction Program
MISO
Midwest Independent Transmission System Operator, Inc.
MMBtu
One million British thermal units
MW
Megawatts
MWh
Megawatt hour
NOL
Net operating loss
NOx
Nitrogen oxide
NPDES
National Pollutant Discharge Elimination System
NRG
NRG Energy, Inc.
NSPS
New Source Performance Standard
NYISO
New York Independent System Operator
NYSDEC
New York State Department of Environmental Conservation
OAL
Office of Administrative Law
OTC
Over-the-counter
PJM
PJM Interconnection, LLC
PPEA
Plum Point Energy Associates, LLC
PPEA Holding
Plum Point Energy Associates Holding Company, LLC
PSD
Prevention of significant deterioration
RACT
Reasonably available control technology
RCRA
Resource Conservation and Recovery Act
RGGI
Regional Greenhouse Gas Initiative
RMR
Reliability Must Run
SEC
U.S. Securities and Exchange Commission
SIP
State Implementation Plan
SO2
Sulfur dioxide
SPDES
State Pollutant Discharge Elimination System
VaR
Value at Risk
VIE
Variable Interest Entity
WCI
Western Climate Initiative
 
 
3
 
PART I. FINANCIAL INFORMATION
 
Item 1—FINANCIAL STATEMENTS—DYNEGY INC. AND DYNEGY HOLDINGS INC.
 
DYNEGY INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except share data)
 
   
March 31,
2011
    
December 31,
2010
  
ASSETS
            
Current Assets
            
Cash and cash equivalents
   $ 328     $ 291  
Restricted cash and investments
     911       81  
Short-term investments
     76       106  
Accounts receivable, net of allowance for doubtful accounts of $31 and $32, respectively
     179       230  
Accounts receivable, affiliates
     1       1  
Inventory
     130       121  
Assets from risk-management activities
     1,065       1,199  
Deferred income taxes
     12       12  
Broker margin account
     110       80  
Prepayments and other current assets                                                                                                               
     118       123  
Total Current Assets
     2,930       2,244  
Property, Plant and Equipment
     8,649       8,593  
Accumulated depreciation
     (2,434 )     (2,320 )
Property, Plant and Equipment, Net
     6,215       6,273  
Other Assets
                
Restricted cash and investments
     9       859  
Assets from risk-management activities
     112       72  
Intangible assets
     129       141  
Other long-term assets
     424       424  
Total Assets
   $ 9,819     $ 10,013  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current Liabilities
                
Accounts payable
   $ 128     $ 134  
Accrued interest
     109       36  
Accrued liabilities and other current liabilities
     88       109  
Liabilities from risk-management activities
     1,014       1,138  
Notes payable and current portion of long-term debt
     1,153       148  
Total Current Liabilities
     2,492       1,565  
Long-term debt
     3,421       4,426  
Long-term debt, affiliates
     200       200  
Long-Term Debt
     3,621       4,626  
Other Liabilities
                
Liabilities from risk-management activities
     126       99  
Deferred income taxes
     584       641  
Other long-term liabilities
     325       336  
Total Liabilities
     7,148       7,267  
Commitments and Contingencies (Note 9)
                
Stockholders’ Equity
                
Common Stock, $0.01 par value, 420,000,000 shares authorized at March 31, 2011 and December 31, 2010; 122,466,663 and 121,687,198 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively
     1       1  
Additional paid-in capital
     6,068       6,067  
Subscriptions receivable
     (2 )     (2 )
Accumulated other comprehensive loss, net of tax
     (52 )     (53 )
Accumulated deficit
     (3,273 )     (3,196 )
Treasury stock, at cost, 727,746 and 628,014 shares at March 31, 2011 and December 31, 2010, respectively
     (71 )     (71 )
Total Stockholders’ Equity
     2,671       2,746  
Total Liabilities and Stockholders’ Equity
   $ 9,819     $ 10,013  
 
See the notes to condensed consolidated financial statements.
 
 
4
 
DYNEGY INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share data)
 
   
Three Months Ended
March 31,
  
   
2011
    
2010
  
Revenues                                                                                                 
   $ 505     $ 858  
Cost of sales                                                                                                 
     (278 )     (308 )
Operating and maintenance expense, exclusive of depreciation and amortization shown separately below
     (110 )     (113 )
Depreciation and amortization expense
     (126 )     (75 )
General and administrative expenses
     (40 )     (31 )
                 
Operating income (loss)                                                                                             
     (49 )     331  
Losses from unconsolidated investments
     —       (34 )
Interest expense
     (89 )     (89 )
Other income and expense, net
     1       1  
                 
Income (loss) from continuing operations before income taxes
     (137 )     209  
Income tax benefit (expense) (Note 12)
     60       (65 )
                 
Income (loss) from continuing operations                                                                                             
     (77 )     144  
Income from discontinued operations, net of tax (expense) benefit of zero and zero, respectively (Note 2)
     —       1  
                 
Net income (loss)
   $ (77 )   $ 145  
                 
Earnings (Loss) Per Share (Note 8):
                
Basic earnings (loss) per share:
                
Earnings (loss) from continuing operations
   $ (0.64 )   $ 1.20  
Income (loss) from discontinued operations
     —       0.01  
                 
Basic earnings (loss) per share
   $ (0.64 )   $ 1.21  
                 
Diluted earnings (loss) per share:
                
Earnings (loss) from continuing operations
   $ (0.64 )   $ 1.19  
Income (loss) from discontinued operations
     —       0.01  
                 
Diluted earnings (loss) per share                                                                                   
   $ (0.64 )   $ 1.20  
                 
Basic shares outstanding                                                                                                 
     121       120  
Diluted shares outstanding                                                                                                 
     121       121  
 
See the notes to condensed consolidated financial statements.
 
 
5
 
DYNEGY INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
 
   
Three Months Ended
March 31,
  
   
2011
    
2010
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income (loss)
   $ (77 )   $ 145  
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
                
Depreciation and amortization
     130       79  
Losses from unconsolidated investments, net of cash distributions
     —       34  
Risk-management activities
     (3 )     (253 )
Deferred income taxes
     (59 )     62  
Other
     9       12  
Changes in working capital:
                
Accounts receivable
     51       47  
Inventory
     (9 )     1  
Broker margin account
     5       310  
Prepayments and other assets
     8       (12 )
Accounts payable and accrued liabilities
     32       31  
Changes in non-current assets
     (7 )     2  
Changes in non-current liabilities
     3       —  
                 
Net cash provided by operating activities
     83       458  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Capital expenditures
     (66 )     (101 )
Maturities of short-term investments
     70       —  
Purchases of short-term investments
     (75 )     (114 )
Decrease (increase) in restricted cash
     20       (35 )
Other
     4       9  
                 
Net cash used in investing activities
     (47 )     (241 )
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Net proceeds from issuance of capital stock
     1       —  
                 
Net cash provided by financing activities
     1       —  
                 
Net increase in cash and cash equivalents
     37       217  
Cash and cash equivalents, beginning of period
     291       471  
                 
Cash and cash equivalents, end of period
   $ 328     $ 688  
                 
Other non-cash investing activity:
                
Non-cash capital expenditures
   $ (8 )   $ 9  
Non-cash unconsolidated investment
   $ —     $ 15  
 
See the notes to condensed consolidated financial statements.
 
 
6
 
DYNEGY INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited) (in millions)
 
   
Three Months Ended
March 31,
  
   
2011
    
2010
  
             
Net income (loss)
   $ (77 )   $ 145  
Amortization of unrecognized prior service cost and actuarial gain (net of tax expense of $1 and zero)
     1       2  
                 
Other comprehensive income, net of tax
     1       2  
                 
Comprehensive income (loss)
   $ (76 )   $ 147  
 
See the notes to condensed consolidated financial statements.
 
 
7
 
DYNEGY HOLDINGS INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions)

   
March 31,
2011
    
December 31,
2010
  
ASSETS
            
Current Assets
            
Cash and cash equivalents
   $ 281     $ 253  
Restricted cash and investments
     911       81  
Short-term investments
     68       90  
Accounts receivable, net of allowance for doubtful accounts of $12 and $13, respectively
     179       229  
Accounts receivable, affiliates
     1       1  
Inventory
     130       121  
Assets from risk-management activities
     1,065       1,199  
Deferred income taxes
     4       3  
Broker margin account
     110       80  
Prepayments and other current assets
     117       123  
Total Current Assets
     2,866       2,180  
Property, Plant and Equipment
     8,649       8,593  
Accumulated depreciation
     (2,434 )     (2,320 )
Property, Plant and Equipment, Net
     6,215       6,273  
Other Assets
                
Restricted cash and investments
     9       859  
Assets from risk-management activities
     112       72  
Intangible assets
     129       141  
Other long-term assets
     424       424  
Total Assets
   $ 9,755     $ 9,949  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current Liabilities
                
Accounts payable
   $ 128     $ 134  
Accrued interest
     109       36  
Accrued liabilities and other current liabilities
     88       106  
Liabilities from risk-management activities
     1,014       1,138  
Notes payable and current portion of long-term debt
     1,153       148  
Total Current Liabilities
     2,492       1,562  
Long-term debt
     3,421       4,426  
Long-term debt, affiliates
     200       200  
Long-Term Debt
     3,621       4,626  
Other Liabilities
                
Liabilities from risk-management activities
     126       99  
Deferred income taxes
     549       606  
Other long-term liabilities
     326       337  
Total Liabilities
     7,114       7,230  
Commitments and Contingencies (Note 9)
                
Stockholder’s Equity
                
Capital Stock, $1 par value, 1,000 shares authorized at March 31, 2011 and December 31, 2010
     —       —  
Additional paid-in capital
     5,135       5,135  
Affiliate receivable
     (813 )     (814 )
Accumulated other comprehensive loss, net of tax
     (52 )     (53 )
Accumulated deficit
     (1,629 )     (1,549 )
Total Stockholder’s Equity
     2,641       2,719  
Total Liabilities and Stockholder’s Equity
   $ 9,755     $ 9,949  
 
See the notes to condensed consolidated financial statements.
 
 
DYNEGY HOLDINGS INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
 
   
Three Months Ended
March 31,
  
   
2011
    
2010
  
Revenues                                                                                                 
   $ 505     $ 858  
Cost of sales                                                                                                 
     (278 )     (308 )
Operating and maintenance expense, exclusive of depreciation and amortization shown separately below
     (110 )     (113 )
Depreciation and amortization expense
     (126 )     (75 )
General and administrative expenses
     (41 )     (31 )
                 
Operating income (loss)                                                                                            
     (50 )     331  
Losses from unconsolidated investments
     —       (34 )
Interest expense
     (89 )     (89 )
Other income and expense, net
     1       1  
                 
Income (loss) from continuing operations before income taxes
     (138 )     209  
Income tax benefit (expense) (Note 12)
     58       (72 )
                 
Income (loss) from continuing operations                                                                                            
     (80 )     137  
Income from discontinued operations, net of tax (expense) benefit of zero and zero, respectively (Note 2)
     —       1  
                 
Net income (loss)
   $ (80 )   $ 138  
 
See the notes to condensed consolidated financial statements.
 
 
9
 
DYNEGY HOLDINGS INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
 
   
Three Months Ended
March 31,
  
   
2011
    
2010
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income (loss)
   $ (80 )   $ 138  
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
                
Depreciation and amortization
     130       79  
Losses from unconsolidated investments, net of cash distributions
     —       34  
Risk-management activities
     (3 )     (253 )
Deferred income taxes
     (57 )     73  
Other
     8       11  
Changes in working capital:
                
Accounts receivable
     51       47  
Inventory
     (9 )     1  
Broker margin account
     5       310  
Prepayments and other assets
     8       (12 )
Accounts payable and accrued liabilities
     34       31  
Changes in non-current assets
     (7 )     2  
Changes in non-current liabilities
     3       —  
                 
Net cash provided by operating activities
     83       461  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Capital expenditures
     (66 )     (101 )
Maturities of short-term investments
     56       —  
Purchases of short-term investments
     (69 )     (114 )
Decrease (increase) in restricted cash
     20       (35 )
Affiliate transactions
     —       (3 )
Other
     4       8  
                 
Net cash used in investing activities
     (55 )     (245 )
                 
Net increase in cash and cash equivalents
     28       216  
Cash and cash equivalents, beginning of period
     253       419  
                 
Cash and cash equivalents, end of period
   $ 281     $ 635  
                 
Other non-cash investing activity:
                
Non-cash capital expenditures
   $ (8 )   $ 9  
Non-cash unconsolidated investment
   $ —     $ 15  
 
See the notes to condensed consolidated financial statements.
 
 
DYNEGY HOLDINGS INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited) (in millions)

   
Three Months Ended
March 31,
  
   
2011
    
2010
  
             
Net income (loss)
   $ (80 )   $ 138  
Amortization of unrecognized prior service cost and actuarial gain (net of tax expense of $1 and zero)
     1       2  
                 
Other comprehensive income, net of tax
     1       2  
                 
Comprehensive income (loss)
   $ (79 )   $ 140  
 
See the notes to condensed consolidated financial statements.
 
 
11
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
Note 1—Accounting Policies
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to interim financial reporting as prescribed by the SEC.  The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.  These interim financial statements should be read together with the consolidated financial statements and notes thereto included in Dynegy’s and DHI’s annual reports on Form 10-K for the year ended December 31, 2010, filed on March 8, 2011, which we refer to as each registrant’s “Form 10-K”.
 
The unaudited condensed consolidated financial statements contained in this report include all material adjustments of a normal and recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods.  The results of operations for the interim periods presented in this Form 10-Q are not necessarily indicative of the results to be expected for the full year or any other interim period due to seasonal fluctuations in demand for our energy products and services, changes in commodity prices, timing of maintenance and other expenditures and other factors.  The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make informed estimates and judgments that affect our reported financial position and results of operations based on currently available information.  We review significant estimates and judgments affecting our consolidated financial statements on a recurring basis and record the effect of any necessary adjustments.  Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements.  Estimates and judgments are used in, among other things, (i) developing fair value assumptions, including estimates of future cash flows and discount rates, (ii) analyzing tangible and intangible assets for possible impairment, (iii) estimating the useful lives of our assets, (iv) assessing future tax exposure and the realization of deferred tax assets, (v) determining amounts to accrue for contingencies, guarantees and indemnifications, (vi) estimating various factors used to value our pension assets and liabilities and (vii) determining the primary beneficiary of variable interest entities (“VIEs”).  Actual results could differ materially from our estimates.
 
Going Concern.  Our accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the date of these unaudited condensed consolidated financial statements.  However, continued low power prices over the past two years have had a significant adverse impact on our business.  Further, as our credit rating has declined, counterparty requirements for posting collateral in support of our risk management positions and other contractual obligations have become more stringent.  Over the next twelve months, we expect that we will continue to rely on the issuance of letters of credit and/or cash borrowings and/or securing additional sources of capital to continue to meet our operating needs.
 
 
12
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
The agreements governing our Fifth Amended and Restated Credit Agreement, as amended (the “Credit Facility”), require us to meet specific financial covenants both as a matter of course and as a condition to the incurrence of additional debt and to the making of restricted payments or asset sales, among other things.  These specific financial covenants are required to be calculated on a quarterly basis and become more restrictive over the course of the next twelve months.  Given the increasingly stringent requirements under our EBITDA to Consolidated Interest Expense covenant over the next twelve months, and considering latest available forward commodity price curves and our current derivative contracts, we project that it is likely that we will not be in compliance with this covenant, as currently set forth in our Credit Facility, beginning in the third or fourth quarter of 2011, and it is virtually certain that we will not be in compliance with this covenant at some point over the next twelve months unless we reach agreement on an amendment to or replacement of the Credit Facility, or obtain a waiver of its terms.  Furthermore, we expect that our available liquidity will continue to be reduced as a result of borrowing limitations under the covenant regarding the ratio of Secured Debt to EBITDA, as defined in our Credit Facility.  To continue as a going concern over the next twelve months, we must in the near-term (i) meet the financial covenants so that we can access our Credit Facility, (ii) amend or replace our Credit Facility or obtain a waiver of certain of its requirements, or (iii) otherwise secure additional capital.  Further, our Credit Facility includes a revolving credit facility which had undrawn capacity of $649 million at March 31, 2011, and expires by its terms on April 2, 2012.  Even if we are able to meet the financial covenants included in our Credit Facility in the near-term, we will be required to amend or replace the Credit Facility or otherwise secure additional capital upon the expiration of this revolving facility.  We are currently discussing with lenders the terms upon which an amendment to the Credit Facility or a new credit facility could be implemented.  We expect the capacity of any amended or new credit facility to be less than the current capacity of $1 billion and to be at a higher cost.
 
At March 31, 2011, we have the following obligations outstanding under the Credit Facility:
 
 
●
$68 million due April 2013 under the Term Loan B (as defined in Note 18—Debt—Credit Facility in the Form 10-K);
 
 
●
$850 million due April 2013 under the Term Facility (as defined in Note 18—Debt—Credit Facility in the Form 10-K) (fully collateralized by $850 million of current restricted cash); and
 
 
●
$439 million in issued letters of credit.
 
A failure by us to comply with our financial covenants or to comply with the other restrictions in our Credit Facility could result in reduced borrowing capacity or even a default, causing our debt obligations under such financing agreements, and any other indebtedness to the extent linked to it by reason of cross-default or cross-acceleration provisions, to potentially become immediately due and payable.  We could avoid a default under the Credit Facility if we were to repay the amounts owed and cash collateralize the related letters of credit.  However, this course of action would not alleviate the going concern and liquidity issues that we are facing over the next twelve months.  If we are unable to cure any such default, or obtain a waiver or a replacement financing, and those lenders accelerate the payment of such indebtedness, in the case that we are unable to repay those amounts, the holders of the indebtedness under our secured debt obligations would be entitled to initiate foreclosure actions designed to acquire control of substantially all of our assets. The success of any such actions which would have a material adverse impact on our financial condition, results of operations and cash flows.
 
We may also seek additional sources of liquidity in order to ensure that we have sufficient cash available to meet our operating needs.  These additional sources of liquidity could include asset sales, public or private issuances of debt, equity or equity-linked securities, debt for equity swaps, or any combination of these.  The Finance and Restructuring Committee of Dynegy’s Board of Directors has retained professional advisers in connection with potential debt restructuring activities, and we have begun work on this initiative.  However, we cannot provide any assurances that we will be successful in accomplishing any of these plans.
 
Our ability to continue as a going concern is dependent on many factors, including, among other things, our ability to achieve the operating results necessary to comply with the covenants in our existing Credit Facility, amend or replace our existing Credit Facility, or achieve the operating results necessary to comply with the covenants in any amended or new credit facility.  Such compliance will be dependent on our ability to successfully execute our commercial strategies, manage our collateral requirements, and continue to execute the company-wide cost reduction initiatives that are ongoing.  The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of the foregoing uncertainties, although certain of our obligations have been reclassified to current liabilities in recognition of the uncertainties.  Please read Note 10—Debt for further information.
 
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
Note 2—Dispositions and Discontinued Operations
 
Dispositions
 
Summary.  The following table summarizes information related to both Dynegy’s and DHI’s discontinued operations:
 
   
GEN-MW
    
GEN-WE
    
Total
  
   
(in millions)
  
                   
Three Months Ended March 31, 2010
                  
Revenues
   $ —     $ —     $ —  
Income from operations before taxes
     —       1       1  
Income from operations after taxes
     —       1       1  
 
Note 3—Investments
 
The amortized cost basis, unrealized gains and losses and fair values of investments in available for sale investments is shown in the tables below:
 
   
Investments as of March 31, 2011
  
   
Cost Basis
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Fair Value
  
   
(in millions)
  
Available for Sale investments:
                        
Commercial Paper
   $ 27     $ —     $ —     $ 27  
Certificates of Deposit
     10       —       —       10  
Corporate Securities
     —       —       —       —  
U.S. Treasury and Government Securities (1)
     151       —       —       151  
                                 
Total—DHI
   $ 188     $ —     $ —     $ 188  
Commercial Paper
     2       —       —       2  
Certificates of Deposit
     6       —       —       6  
Corporate Securities
     —       —       —       —  
Total—Dynegy
   $ 196     $ —     $ —     $ 196  
 
 
(1)
Includes $120 million in Broker margin account on our unaudited condensed consolidated balance sheets in support of transactions with our futures clearing manager.
 
 
14
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
   
Investments as of December 31, 2010
  
   
Cost Basis
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Fair Value
  
   
(in millions)
  
Available for Sale investments:
                        
Commercial Paper
   $ 41     $ —     $ —     $ 41  
Certificates of Deposit
     12       —       —       12  
Corporate Securities
     2       —       —       2  
U.S. Treasury and Government Securities (1)
     120       —       —       120  
                                 
Total—DHI
   $ 175     $ —     $ —     $ 175  
Commercial Paper
     4       —       —       4  
Certificates of Deposit
     8       —       —       8  
Corporate Securities
     4       —       —       4  
                                 
Total—Dynegy
   $ 191     $ —     $ —     $ 191  
 
 
(1)
Includes $85 million in Broker margin account on our consolidated balance sheets in support of transactions with our futures clearing manager.
 
During the three months ended March 31, 2011, we received proceeds of less than $1 million from the sale of available for sale securities. 
 
Note 4—Risk Management Activities, Derivatives and Financial Instruments
 
The nature of our business necessarily involves market and financial risks.  Specifically, we are exposed to commodity price variability related to our power generation business.  Our commercial team manages these commodity price risks with financially settled and other types of contracts consistent with our commodity risk management policy.  Our commercial team also uses financial instruments in an attempt to capture the benefit of fluctuations in market prices in the geographic regions where our assets operate.  Our treasury team manages our financial risks and exposures associated with interest expense variability.
 
Our commodity risk management strategy gives us the flexibility to sell energy and capacity through a combination of spot market sales and near-term contractual arrangements (generally over a rolling 1 to 3 year time frame).  Our commodity risk management goal is to protect cash flow in the near-term while keeping the ability to capture value longer-term.  Our increasing collateral requirements and liquidity position as discussed in Note 1—Accounting Policies—Going Concern, could impact our ability to effectively employ our risk management strategy.  Many of our contractual arrangements are derivative instruments and must be accounted for at fair value.  We also manage commodity price risk by entering into capacity forward sales arrangements, tolling arrangements, RMR contracts, fixed price coal purchases and other arrangements that do not receive fair value accounting treatment because these arrangements do not meet the definition of a derivative or are designated as “normal purchase normal sales”.  As a result, the gains and losses with respect to these arrangements are not reflected in the unaudited condensed consolidated statements of operations until the settlement dates.
 
 
15
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
Quantitative Disclosures Related to Financial Instruments and Derivatives
 
The following disclosures and tables present information concerning the impact of derivative instruments on our unaudited condensed consolidated balance sheets and statements of operations.  In the table below, commodity contracts primarily consist of derivative contracts related to our power generation business that we have not designated as accounting hedges, that are entered into for purposes of economically hedging future fuel requirements and sales commitments and securing commodity prices.  Interest rate contracts primarily consist of derivative contracts related to managing our interest rate risk.  As of March 31, 2011, our commodity derivatives were comprised of both long and short positions; a long position is a contract to purchase a commodity, while a short position is a contract to sell a commodity.  As of March 31, 2011, we had net long/(short) commodity derivative contracts outstanding and notional interest rate swaps outstanding in the following quantities:
 
Contract Type
  
Hedge Designation
  
Quantity
  
Unit of Measure
  
Net Fair Value
  
       
(in millions)
      
(in millions)
  
Commodity contracts:
                  
Electric energy (1)
  
Not designated
     (51 )
MW
   $ 215  
Natural gas (1)
  
Not designated
     140  
MMBtu
   $ (160 )
Heat rate derivatives
  
Not designated
     (5)/50  
MW/MMBtu
   $ (26 )
Other (2)
  
Not designated
     2  
Misc.
   $ 8  
                       
Interest rate contracts:
                      
Interest rate swaps
  
Fair value hedge
     (25 )
Dollars
   $ 1  
Interest rate swaps
  
Not designated
     231  
Dollars
   $ (6 )
Interest rate swaps
  
Not designated
     (206 )
Dollars
   $ 5  
 
 
(1)
Mainly comprised of swaps, options and physical forwards.
 
(2)
Comprised of emissions, coal, crude oil and fuel oil options, swaps and physical forwards.
 
Derivatives on the Balance Sheet. We execute a significant volume of transactions through a futures clearing manager.  Our daily cash payments (receipts) to (from) our futures clearing manager consist of three parts: (i) fair value of open positions (exclusive of options) (“Daily Cash Settlements”); (ii) initial margin requirements related to open positions (exclusive of options) (“Initial Margin”); and (iii) fair value and margin requirements related to options (“Options”, and collectively with Initial Margin, “Collateral”).  We do not offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement and we do not elect to offset the fair value amounts recognized for the Daily Cash Settlements paid or received against the fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.
 
As a result, our unaudited condensed consolidated balance sheets present derivative assets and liabilities, as well as related Daily Cash Settlements and Collateral, as applicable, on a gross basis.  As of March 31, 2011, of the approximately $110 million included in the Broker margin account on our unaudited condensed consolidated balance sheets, approximately $114 million represents Collateral offset by approximately $11 million representing Daily Cash Settlements due to the broker.  As of December 31, 2010, of the approximately $80 million included in the Broker margin account on our unaudited condensed consolidated balance sheets, approximately $75 million represented Collateral and approximately $5 million represented Daily Cash Settlements due to the broker.
 
 
16
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010

The following table presents the fair value and balance sheet classification of derivatives in the unaudited condensed consolidated balance sheet as of March 31, 2011, and December 31, 2010 segregated between designated, qualifying hedging instruments and those that are not, and by type of contract segregated by assets and liabilities.
 
Contract Type
  
Balance Sheet Location
  
March 31,
2011
    
December 31,
2010
  
       
(in millions)
  
Derivatives designated as hedging instruments:
            
Derivative Assets:
                
Interest rate contracts
  
Assets from risk management activities
   $ 1     $ 1  
                     
Total derivatives designated as hedging instruments                                                                                                  
     1       1  
                     
Derivatives not designated as hedging instruments:
                
Derivative Assets:
                    
Commodity contracts
  
Assets from risk management activities
     1,171       1,265  
Interest rate contracts
  
Assets from risk management activities
     5       5  
Derivative Liabilities:
                    
Commodity contracts
  
Liabilities from risk management activities
     (1,134 )     (1,231 )
Interest rate contracts
  
Liabilities from risk management activities
     (6 )     (6 )
                     
Total derivatives not designated as hedging instruments                                                                                                  
     36       33  
                     
Total derivatives, net                                                                                                  
   $ 37     $ 34  
 
Impact of Derivatives on the Consolidated Statements of Operations
 
The following discussion and tables present the disclosure of the location and amount of gains and losses on derivative instruments in our unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010 segregated between designated, qualifying hedging instruments and those that are not, by type of contract.
 
Cash Flow Hedges.  We may enter into financial derivative instruments that qualify, and that we may elect to designate, as cash flow hedges.  Interest rate swaps have been used to convert floating interest rate obligations to fixed interest rate obligations.  We had no cash flow hedges in place during the three months ended March 31, 2011 and 2010.
 
Fair Value Hedges.  We also enter into derivative instruments that qualify, and that we may elect to designate, as fair value hedges.  We use interest rate swaps to convert a portion of our non-prepayable fixed-rate debt into floating-rate debt.  These hedges and the corresponding hedged debt matured April 1, 2011.  During the three months ended March 31, 2011 and 2010, there was no ineffectiveness from changes in the fair value of hedge positions and no amounts were excluded from the assessment of hedge effectiveness.  During three months ended March 31, 2011 and 2010, there were no gains or losses related to the recognition of firm commitments that no longer qualified as fair value hedges.
 
The impact of interest rate swap contracts designated as fair value hedges and the related hedged item on our unaudited condensed consolidated statement of operations for the three months ended March 31, 2011 and 2010 was immaterial.
 
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
Financial Instruments Not Designated as Hedges.  We elect not to designate derivatives related to our power generation business and certain interest rate instruments as cash flow or fair value hedges.  Thus, we account for changes in the fair value of these derivatives within the consolidated statements of operations  (herein referred to as “mark-to-market accounting treatment”).  As a result, these mark-to-market gains and losses are not reflected in the unaudited condensed consolidated statements of operations in the same period as the underlying activity for which the derivative instruments serve as economic hedges.
 
For the three-month period ended March 31, 2011, our revenues included approximately $2 million of mark-to-market gains related to this activity compared to $253 million of mark-to-market gains in the same period in the prior year.
 
The impact of derivative financial instruments that have not been designated as hedges on our unaudited condensed consolidated statement of operations for the three months ended March 31, 2011 and 2010 is presented below.  Note that this presentation does not reflect the expected gains or losses arising from the underlying physical transactions associated with these financial instruments.  Therefore, this presentation is not indicative of the economic gross profit we expect to realize when the underlying physical transactions settle.
 
  Derivatives Not Designated as
Hedging Instruments		     Location of Gain Recognized
in Income on Derivatives		  
Amount of Gain Recognized in Income on
 Derivatives for the
Three Months Ended March 31,
  
      2011       2010  
        (in millions)  
Commodity contracts
  
Revenues
   $  19     $  325  
 
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
Note 5—Fair Value Measurements
 
The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2011 and December 31, 2010.  These financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
 
   
Fair Value as of March 31, 2011
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(in millions)
  
Assets:
                        
Assets from commodity risk management activities:
                        
Electricity derivatives
   $ —     $ 463     $ 67     $ 530  
Natural gas derivatives
     —       580       5       585  
Other derivatives
     —       56       —       56  
Total assets from commodity risk management activities
   $ —     $ 1,099     $ 72     $ 1,171  
Assets from interest rate swaps
     —       6       —       6  
Short-term investments:
                                
Commercial paper
     —       27       —       27  
Certificates of deposit
     —       10       —       10  
U.S. Treasury and government securities (1)
     —       151       —       151  
Total—DHI short-term investments
   $ —     $ 188     $ —     $ 188  
                                 
Total—DHI
     —       1,293       72       1,365  
Short-term investments:
                                
Commercial paper
     —       2       —       2  
Certificates of deposit
     —       6       —       6  
Total—Dynegy
   $ —     $ 1,301     $ 72     $ 1,373  
                                 
Liabilities:
                                
Liabilities from commodity risk management activities:
                                
Electricity derivatives
   $ —     $ (296 )   $ (19 )   $ (315 )
Natural gas derivatives
     —       (745 )     —       (745 )
Heat rate derivatives
     —       —       (26 )     (26 )
Other derivatives
     —       (48 )     —       (48 )
Total liabilities from commodity risk management activities
   $ —     $ (1,089 )   $ (45 )   $ (1,134 )
Liabilities from interest rate swaps
     —       (6 )     —       (6 )
                                 
Total
   $ —     $ (1,095 )   $ (45 )   $ (1,140 )
 
(1)
Includes $120 million in Broker margin account on our consolidated balance sheets in support of transactions with our futures clearing manager.
 
 
19
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
   
Fair Value as of December 31, 2010
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(in millions)
  
Assets:
                        
Assets from commodity risk management activities:
                        
Electricity derivatives
   $ —     $ 526     $ 77     $ 603  
Natural gas derivatives
     —       613       5       618  
Other derivatives
     —       44       —       44  
Total assets from commodity risk management activities
   $ —     $ 1,183     $ 82     $ 1,265  
Assets from interest rate swaps
     —       6       —       6  
Short-term investments:
                                
Commercial paper
     —       41       —       41  
Certificates of deposit
     —       12       —       12  
Corporate securities
     —       2       —       2  
U.S. Treasury and government securities (1)
     —       120       —       120  
Total—DHI short-term investments
   $ —     $ 175     $ —     $ 175  
                                 
Total—DHI
     —       1,364       82       1,446  
Short-term investments:
                                
Commercial paper
     —       4       —       4  
Certificates of deposit
     —       8       —       8  
Corporate securities
     —       4       —       4  
Total—Dynegy
   $ —     $ 1,380     $ 82     $ 1,462  
                                 
Liabilities:
                                
Liabilities from commodity risk management activities:
                                
Electricity derivatives
   $ —     $ (311 )   $ (28 )   $ (339 )
Natural gas derivatives
     —       (825 )     —       (825 )
Heat rate derivatives
     —       —       (31 )     (31 )
Other derivatives
     —       (36 )     —       (36 )
Total liabilities from commodity risk management activities
   $ —     $ (1,172 )   $ (59 )   $ (1,231 )
Liabilities from interest rate swaps
     —       (6 )     —       (6 )
                                 
Total
   $ —     $ (1,178 )   $ (59 )   $ (1,237 )
 
(1)
Includes $85 million in Broker margin account on our consolidated balance sheets in support of transactions with our futures clearing manager.
 
We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best available information.  Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  For example, assets and liabilities from risk management activities may include exchange-traded derivative contracts and OTC derivative contracts.  Some exchange-traded derivatives are valued using broker or dealer quotations, or market transactions in either the listed or OTC markets.  In such cases, these exchange-traded derivatives are classified within Level 2.  OTC derivative trading instruments include swaps, forwards, options and complex structures that are valued at fair value.  In certain instances, these instruments may utilize models to measure fair value.  Generally, we use a similar model to value similar instruments.  Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs.  Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2.  Certain OTC derivatives trade in less active markets with a lower availability of pricing information.  In addition, complex or structured transactions, such as heat-rate call options, can introduce the need for internally-developed model inputs that might not be observable in or corroborated by the market.  When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3.  We have consistently used this valuation technique for all periods presented.  Please read Note 2—Summary of Significant Accounting Policies—Fair Value Measurements in our Form 10-K for further discussion.
 
 
20
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
The following tables set forth a reconciliation of changes in the fair value of financial instruments classified as Level 3 in the fair value hierarchy:
 
   
Three Months Ended March 31, 2011
  
   
Electricity
Derivatives
    
Natural Gas
Derivatives
    
Heat Rate
Derivatives
    
Total
  
   
(in millions)
  
Balance at December 31, 2010
   $ 49     $ 5     $ (31 )   $ 23  
Total gains included in earnings
     4       —       1       5  
Settlements
     (5 )     —       4       (1 )
                                 
Balance at March 31, 2011
   $ 48     $ 5     $ (26 )   $ 27  
                                 
Unrealized gains relating to instruments still held as of March 31, 2011
   $ 7     $ 1     $ 2     $ 10  
 
   
Three Months Ended March 31, 2010
  
   
Electricity
Derivatives
    
Natural Gas
Derivatives
    
Heat Rate
Derivatives
    
Interest Rate
Swaps
    
Total
  
   
(in millions)
  
Balance at December 31, 2009
   $ 6     $ 5     $ 17     $ (50 )   $ (22 )
Deconsolidation of Plum Point 
     —       —       —       50       50  
Total gains included in earnings                                                    
     78       —       17       —       95  
Purchases, sales and settlements:
                                        
Purchases                                                    
     1       —       1       —       2  
Sales                                                    
     (10 )     —       —       —       (10 )
Settlements                                                    
     (5 )     —       (15 )     —       (20 )
                                         
Balance at March 31, 2010
   $ 70     $ 5     $ 20     $ —     $ 95  
                                         
Unrealized gains relating to instruments held as of March 31, 2010
   $ 73     $ —     $ 13     $ —     $ 86  
 
 
21
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
Gains and losses (realized and unrealized) for Level 3 recurring items are included in Revenues on the unaudited condensed consolidated statements of operations.  We believe an analysis of instruments classified as Level 3 should be undertaken with the understanding that these items generally serve as economic hedges of our power generation portfolio.  We did not have any transfers between Level 1, Level 2 and Level 3 for the three months ended March 31, 2011 and 2010.
 
Nonfinancial Assets and Liabilities.  The following table sets forth by level within the fair value hierarchy our fair value measurements with respect to nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis.  These assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
 
   
Fair Value Measurements as of March 31, 2010
        
   
Level 1
    
Level 2
    
Level 3
    
Total
    
Total Losses
  
   
(in millions)
  
                               
Equity method investment
   $ —     $ —     $ —     $ —     $ (37 )
                                         
Total
   $ —     $ —     $ —     $ —     $ (37 )
 
On January 1, 2010, we recorded an impairment of our investment in PPEA Holding as part of our cumulative effect of a change in accounting principle.  We determined the fair value of our investment using assumptions that reflect our best estimate of third party market participants’ considerations based on the facts and circumstances related to our investment at that time.  The fair value of our investment on January 1, 2010 was considered a Level 3 measurement as the fair value was determined based on probability weighted cash flows resulting from various alternative scenarios including no change in the financing structure, a restructuring of the project debt and insolvency.  These scenarios and the related probability weighting are consistent with the scenarios used at December 31, 2009 in our long-lived asset impairment analysis.  At March 31, 2010, we fully impaired our investment in PPEA Holding due to the uncertainty and risk surrounding PPEA’s financing structure.  Please read Note 7—Impairment and Restructuring Charges—2010 Impairment Charges—Other in our Form 10-K.
 
Fair Value of Financial Instruments.  We have determined the estimated fair-value amounts using available market information and selected valuation methodologies.  Considerable judgment is required in interpreting market data to develop the estimates of fair value.  The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair-value amounts.
 
 
DYNEGY INC. and DYNEGY HOLDINGS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
(Unaudited)
 
For the Interim Periods Ended March 31, 2011 and 2010
 
The carrying values of financial assets and liabilities (cash, accounts receivable, short-term investments and accounts payable) not presented in the table below approximate fair values due to the short-term maturities of these instruments.  The fair value of debt as reflected in the table has been calculated based on the average of certain available broker quotes for the periods ending March 31, 2011 and December 31, 2010, respectively.
 
   
March 31, 2011
    
December 31, 2010
  
   
Carrying
Amount
    
Fair
Value
    
Carrying
Amount
    
Fair
Value
  
   
(in millions)
  
Interest rate derivatives designated as fair value accounting hedges (1)
   $ 1     $ 1     $ 1     $ 1  
Interest rate derivatives not designated as accounting hedges (1)
     (1 )     (1 )     (1 )     (1 )
Commodity-based derivative contracts not designated as accounting hedges (1)
     37       37       34       34  
Term Loan B, due 2013
     68       67       68       67  
Term Facility, floating rate due 2013
     850       842       850       845  
Senior Notes and Debentures:
                                
6.875 percent due 2011 (2)
     80       79       80       79  
8.75 percent due 2012
     89       88       89       87  
7.5 percent due 2015 (3)
     769       651       768       592  
8.375 percent due 2016 (4)
     1,043       874       1,043       777  
7.125 percent due 2018
     172       128       172      <