Jan. 2 (Bloomberg) -- Dynegy Inc., the owner of power plants in 11 U.S. states, agreed to dissolve its development venture with LS Power Associates LP, partly because of the credit crisis. Dynegy’s shares soared 19 percent.

LS Power, based in New York, will receive $19 million for its stake in the venture, Houston-based Dynegy said today in a statement. Dynegy said it will record an unspecified loss on the venture, which planned to expand Dynegy plants and build new generators in Arkansas, Georgia, Iowa, Michigan and Nevada.

“The development of new generation is increasingly marked by barriers to entry including external credit and regulatory factors that make development much more uncertain,” Dynegy Chief Executive Officer Bruce Williamson said in the statement.

Dynegy rose 38 cents to $2.38 in New York Stock Exchange composite trading, the biggest gain since Oct. 10 and best performance among companies in the Standard & Poor’s 500 stock index. Dynegy fell 72 percent last year.

The dissolution of the venture will leave Dynegy with full rights to expand its own plants, and closely held LS Power will have rights for other development projects. Dynegy said it’s continuing a re-evaluation, announced Dec. 10, of two plant projects currently under construction, Plum Point in Arkansas and Sandy Creek in Texas.

Coal-Fueled Projects

Among LS Power’s projects are proposed coal-fueled power plants in Iowa, Nevada and Georgia, according to its Web site. LS Power, which won approval to build the Nevada plant on U.S. government-owned land last month, expects environmental challenges to hold up construction until 2012, spokesman Mark Milburn said in a Dec. 23 interview.

“Dynegy has recognized the change in landscape with an incoming U.S. president who has committed to regulate carbon dioxide and invest in clean energy,” said Bruce Nilles, a spokesman for the Sierra Club in Washington. “The Dynegy-LS Power venture was the largest proposer of new coal plants in the country.”

The environmentalist group staged protests at Dynegy’s annual meeting in Houston in May over the projects. Carbon dioxide from coal-burning power plants accounts for about a third of U.S. greenhouse-gas emissions.

A call to LS Power seeking comment on Dynegy’s announcement wasn’t returned.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.

Last Updated: January 2, 2009 16:17 EST