Dynegy Inc said it will sell eight power plants to private equity firm LS Power for around $1.5 billion in cash and stock, basically ending a two-and-a-half-year joint venture between the two companies.

Dynegy will receive just over $1 billion in cash in return for the power plants, allowing the independent power producer to pay down some of its debt.

LS Power will also return 245 million of Dynegy's Class B shares received when the companies penned their original venture. The firm's remaining 95 million Class B shares will be converted into common shares, leaving LS Power with a 15 percent stake in Dynegy.

The private equity firm will also receive Dynegy's remaining interest in a power plant under construction in Texas as part of the deal.

In 2007, Dynegy gave LS Power a 40 percent stake in the company in return for the private equity firm's portfolio of 10 power plants. They also launched a development company together.

But independent power producers, which sell power at competitive rates into the wholesale market, have struggled as the economic downturn has sapped demand for electricity. Dynegy shares have lost about 80 percent of their value since the original LS Power deal closed in 2007.

LS Power plans to terminate its existing shareholder agreement with Dynegy, and has entered into a new agreement restricting it from increasing its future ownership in Dynegy for a specified period.

LS Power will also receive $235 million principal amount of 7.5 percent senior unsecured notes due 2015, Dynegy said.

Dynegy also said on Monday that it posted a wider second-quarter loss as lower power prices offset higher production.

The company posted a loss of $345 million, or 41 cents a share, in the quarter, compared with a loss of $272 million, or 32 cents a share, in the year-earlier quarter.

Dynegy also plans to cut costs by about $400 million to $450 million over the next four years.

It expects to take a restructuring charge of less than $5 million in the third quarter related to job cuts associated with the cost savings program.

Shares of Dynegy were down 3 cents to $1.90.

(Reporting by Michael Erman in New York and Hezron Selvi in Bangalore, Editing by Dinesh Nair and Derek Caney)