NRG Energy Inc (NRG) 2003 Q4 法說會逐字稿

Good morning. My name is Christie and I will be your conference facilitator today.

At this time I would like to welcome everyone to the NRG Energy fourth quarter earnings conference call.All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone key pad. If you would like to withdraw your question, press star, then the number 2 on your telephone key pad. Thank you.

I will now turn the call over to Katie Sullivan of Investor Relations.

Good morning and welcome to our call. This call is being broadcast life over the phone and from our Web site at www.NRGEnergy.com. You can access the call and presentation through a link on the Investor Relations page of our Web site. We recommend you log on to the Web site if you would like to review today's presentation slides. A replay of the call will be posted on our Web site later today.

Before we begin I would like to remind you that, during the course of today's presentation management will reiterate forward-looking statements made in today's press release regarding future events and financial performance. We will attempt to the identify these statements by use of words such expect, believe, anticipate, intend and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. These risk factors are described in our press release and should be considered in connection with information regarding risks and uncertainties that may affect our future results included in our filings with the Securities and Exchange Commission.

During this morning's call we will refer both to GAAP and nonGAAP financial measures of the company's operating and financial results. For complete information regarding our nonGAAP financial information, the most directly comparable GAAP measures, and a quantitative reconciliation of those figures, please refer to today's press release regarding our fourth quarter and year end 2003 results, and certain nonGAAP financial information which is included in the press release available on the media page of our Web site at www.NRGEnergy.com.

The press release has also been furnished to the SEC as part of form 8(K). We will make this information and a Web cast replay of this conference call available on the Investor page for a limited time.

In addition please note that the date of this conference call is March 11, 2004 and any forward-looking statements that we make today are based on assumptions we believe to be reasonable as of this date. We undertake no obligate to update these statements as a result of future events.

With the formalities out of the way I would like to turn the call over to David Crane, NRG's President and CEO.

Thank you, Katie, and good morning, everyone. I am very glad to welcome you today to the new NRG's first quarterly conference call.

Joining me in the room today are certain key members of the senior management team here at NRG Hershel(ph) Red, who runs our commercial operations group; John Brewster, local plant operations; Scott DeVio, general council; Phil Peeper, group controller; and George Shaeffer, our treasurer.

Before I review the numbers I would like to put this set of results in context from a point of view of timing. I joined NRG in December, 2003, from International Power. With the emergence from bankruptcy and the refinancing road show that took place in December, I have had, as a practical matter, about nine weeks inside the company. That's not enough time to reach the definitive conclusions and plans with respect to all matters.

Fortunately a capable management team had been assembled at NRG during the Chapter 11 period. They have proven to be enthusiastic about working with me to improve the company by accelerating and expanding the process of change that was already underway.

By my estimation we are about halfway through our effort to position the company for the future. I am very pleased with the progress we have made to date but only part of that progress will be visible to you today.

Certain key elements, such as our future strategy, implicit or explicit earnings guidance, and details of our proposed corporate restructuring are not going to be discussed today. With respect to the public articulation of our strategy, we need to wait until after our new Board has had the opportunity to review and hopefully endorse our proposed approach. That Board meeting will occur in late April.

With respect to guidance, we will not be giving guidance until our new CFO and I are confident that we can provide the market with information that provides a reliable guide to likely future financial results.

And finally with respect to organizational restructuring. We need to wait until after we have had the chance to disclose and explain fully our plan internally, which will occur next week.

Having said the foregoing my objectives for this call are the following: First, to provide you with some analysis of our 2003 operating results; Second, to explain the impact of fresh start accounting on our balance sheet and on our future earnings and; and, third, to enumerate for you our current high priority objectives and to give you some assessment on where we stand in achieving those objectives.

Beginning with an overview of 2003. From January 1st to December 5th 2003, our predecessor company ,which I may refer to as the old NRG, recorded a net income of $2.8 billion. This result was so substantially affected by fresh start accounting adjustments that it bears absolutely no resemblance to our actual or potential operating performance. From December 6th onward, the new NRG achieved a net income of $11 million for the balance of the reporting period.

Apart from the fact that it was only 3.5 weeks, that number is somewhat more reflective of operating performance, but it also reflects the impact of fresh start adjustments. In an attempt to give you a better indication of full year 2003 operating performance we have provided a full year avenue adjusted EBITDA figure. We have also itemized the two most significant numbers within that adjusted EBITDA figure. The positive $117 million from California, and a negative $183 million from Connecticut. Finally, have provided a reconciliation to net income as an appendix to this presentation as well as in our earnings press release.

Before I launch into a a brief, but potentially bewildering explanation of fresh start accounting, I want to tell you in direct terms what I think is important about fresh start from a business perspective. First, Fresh Start has no impact whatsoever on cash flow generation. And this company has been, during Chapter 11, and will continue to be run with a strong emphasis on cash. Second, the Connecticut Light & Power Company expired on December 31, 2003, to our great relief and will have will have no impact on our future results either as a result of Fresh Start or otherwise.

Third, the California Department of Water Resources contract at West Coast Power expires on December 31, 2004. And the positive value of that contract has been recorded as an intangible asset and is being amortized over the course of 2004. As such, this very positive contract will not contribute to our 2004 earnings as they will be reported. We continue to expect West Coast Power to generate very substantial cash flow during 2004, notwithstanding this earnings treatment.

And fourth and finally while the impact of Fresh Start accounting on our 2004 earnings will, in aggregate, be substantially negative because of the CDWR contract treatment which I just mentioned, for fiscal year 2005 and beyond, the aggregate results of the Fresh Start adjustments on our accounting earnings will be positive due primarily to the impact of substantially reduced EP&E on the annual depreciation charge, and the amortization of longer dated contracts which were out of the market as of the day of Fresh Start accounting, December 6, 2003.

Now turning to what Fresh Start accounting is. Instituting Fresh Start accounting is a complex process. The most important step was the revaluation of the assets and liabilities of the company as of the date of emergence. The assets and liabilities had to be valued as if they had been purchased or assumed on that day. Certain liabilities were valued through the reorganization plan on the basis of negotiations between the parties in interest. As a result of adopting Fresh Start reporting, the book value of our long life debts and related depreciation and amortization schedules, among other things, will change from that reflected in our historical consolidated financial statement.

We have sought on page six of the presentation to show the major balance sheet items for the predecessor NRG as of year end 2002, against the balance sheet of the new NRG as of year end 2003. You can see that either as a result of Fresh Start or of the plan of reorganization itself the balance sheets contain very substantial differences. Accordingly once more we are compelled to caution you that our future results will not be comparable to the historical consolidated statement of operations data included in this annual report. Since we have emerged from bankruptcy you will not be able to compare certain information reflecting our results of operations and financial conditions to those for periods prior to our emergence from bankruptcy without making adjustments for Fresh Start reporting.

Now before I turn my attention to the underlying business, I wish to acknowledge the outstanding work that's been done by Phil Peeper and his accounting team over the past couple of months. The application of Fresh Start accounting to a company of our size, scope and complexity has been an extraordinary challenge and Phil and his team have done an exceptional job.

Now turning to the business. When I joined the company I had a list of objectives I expected to achieve within my first 100 days. Those objectives were broken down into financial, commercial, and organizational priorities. Looking first at financial priorities. Financially, our objectives were to simplify our capital structure, insure our liquidity and, to the extent possible, reduce our borrowing costs. As most of you know we have succeeded on all these counts through our capital market activities in December and in January. Our corporate refinancing has been rapped up in a single jumbo $2.7 billion, one corporate level, two tiered security structure. And in terms of the cost of our financing our weighted-average cost of corporate debt is now seven and a quarter percent.

Looking at liquidity our total liquidity now stands close to $1.4 billion. And importantly the known future demands on that liquidity are quite manageable. We have virtually no new construction defined at present and our 2004 maintenance Capex budget is slightly over $100 million. Our corporate maturities have been pushed out so far that we have less than $50 million in aggregate of recourse debt due over the next five years. The biggest currently projected use of our capital continues to be credit support for trading. And even in this area we are proceeding cautiously to insure that all of the credit we extend is used efficiently and effectively in support of our hedging activities. At this point we have only $103 million of marketing collateral outstanding. Over the course of the year we anticipate using the remaining balance of our letter of credit facilities for additional marketing support.

Now turning to our commercial priorities. Commercially we have had four priorities: First, to keep the plants running safely, reliably and efficiently; Second, to address the commercial issues surrounding our Connecticut plant; Third, to increase the contractive portion of our merchant energy production; and, Four, to avoid a loss of momentum in our asset sales program.

With respect to our plant operations, as the statistics demonstrate the fact that NRG was in Chapter 11 for the better part of 2003, did not disrupt John Brewster (ph) and his operations group from improving the day-to-day operations of the plant. That strong operating performance has continued into 2004. Now I recognize that many of the financial community and probably many of you on the phone, think of power plants as back boxes that anyone can operate. I don't agree with that and indeed we at NRG are totally dependent upon the dedication and professionalism of our 2,700 power plant personnel. Never has that been more evident than this January when our plant personnel in the northeast fought off ice clogs, water intakes and frozen coal stocks in order to keep our plants generating, so that the company could capture the benefit of the high price environment that occurred during that time.

Now turning to hedging activities. During the Chapter 11 period the company was compelled to sell a disproportionate amount of its economic production into the short term market due to liquidity constraints. With the greater liquidity provided to us on our emergence and in light of the high gas price and rising coal price environment, we have sought both the contract for and a substantial portion of the economic energy production from our coal plant and locked in the associated fuel price. In this regard, as depicted on slide 13, we have been very successful with a very high percentage of our coal requirements being contracted and a substantial portion of our economic energy progression sold forward through the balance of 2004.

Now, with respect to Connecticut. The expiration of the CL&P contract at the end of 2003 is indeed a welcome event. However, we still face the prospect of how to obtain an adequate return on our plant that the New England ISO has deemed necessary for reliability purposes. While we are working this issue hard at all levels and have had constructive discussions with all affected parties we are not yet in a position to report a positive result. I can assure thank you our efforts will not slacken and we will report as soon as we know the final outcome of our variance negotiations and petitions.

Now, finally, my concern with asset sales were that, as with so many of the companies in our industry who talk about selling assets but never do any transactions, our asset sales team might use the fact of emergence or my arrival to delay or stop our efforts to monetize nonstrategic assets at fair value. That has not occurred. We sold a substantial number of nonstrategic assets in 2003, both before and after emergence and are proceeding on a steady pace in monetizing additional assets in 2004. These sales will generate cash and they will further delever our balance sheet.

Now, turning to organizational priorities. In terms of internal priorities, upon joining the company I had four immediate objectives. First, to higher a CFO; second, to eliminate the company's dependence on external advisors; third, to redirect the management team; and, fourth, to restructure the corporate organization to fit the current business and prospects of the company. Our new CFO, Bob Flexon, may be unknown to you, who specializes in the power generation sector. I have to say, given the recent history of our industry, I take that as a positive. The CFO position is a very important hire for us, not only for the obvious reasons, but also because it's not my intention or practice to have a Chief Operating Officer. Of the several qualified and capable candidates that we interviewed, Bob stood out as exactly the person I was looking for. As a veteran of the chemicals industry, he has had experience in a tough, capital intensive commodity industry. He has distinguished himself in a distress situation requiring a significant amount of changed management. He is a great fit with the rest of the team and I look forward to welcoming him aboard later this month.

With respect to external advisors, all of us who follow the Enron process know that Chapter 11 is a feeding trough for lawyers and other advisors. Achieving a savings on the huge expense of advisors is good enough reason to cut them off, but from my perspective there is an even better reason, which is preventing the potential damage done to a company's psyche after a prolonged period of operations under the control of advisors. The company needs to breathe on its own to make decisions and provide leadership vis-a-vis the company's various groups of stakeholders. It was primarily for this reason that we have moved in an orderly but decisive fashion to phase out all of our bankruptcy advisors. As a result we have severely reduced our external spend on advisors and the company once again is standing on its own two feet.

On a similar note, as I mentioned before and I don't know how to say this other than to say that the management team here gets it, in a way that it seems that some of the management teams at some of the other companies in our sector do not. We will not repeat the mistakes of the past. Whatever else our strategy will be, it will not be based on the old sales strategy which I like to call MPOM, which stands for mindless pursuit of megawatts. Our management team is with me on this and when I spoke about redirecting the management team, what I meant by that is that the management team here is just spending their time fighting filings in Chapter 11 and generally dealing with short term issues. As such we need to refocus the team to run the business on a go forward basis.

Likewise the corporate organization itself continues to reflect structural elements from the merchant generation bubble period. We will in the near future be restructuring the management assignments and corporate organization to fit the company's current requirements and prospects. The benefit of these internal changes is at this point unquantifiable. I am confident, however that, before too long you will see the results of this internal restructuring in enhanced bottom line performance.

Now, ultimately I hope and indeed I believe that you should leave this call with a strong sense that, while it may not be occurred overnight, real, meaningful and steady progress is being made at NRG to put the company in the position to take maximum advantage of our uniquely strong competitive position in the merchant generation industry.

By way of conclusion, to reiterate what makes us unique. We have a healthy balance sheet, we have no immediate short or immediate term debt maturities or other liquidity issues, we have a unified management team with a single minded focus on the current and future business challenges facing this company, and we have an asset base which, as a result of its fuel and geographic diversity and it's locational advantages, is well suit to do outlast the current commodity price down cycle.

With that I would like to turn it back to the operator to start the question and answer session portion of the call. Operator?

At this time, I would like to remind everyone, if you would like to ask a question, please press star one on your telephone keypad. We will pause for just a minute to compile the Q&A roster.

Your first question comes from the line of David Silverstein of Merrill Lynch.

Good morning guys. Two questions for you. Number one, you had made a suggestion in the 8(K) filing that the coal requirements that you had in terms of supply during 2004 had been hedged to the tune of more than 90%. Could you elaborate a little bit further in terms of tonnage that represents, the expected dispatch of those facilities, and the approximate price. And then relative to any firm agreements you would have for that power in 2004?

David, I think that what I would say about that, I don't know if you're looking at the Web site but the presentation, what page is it in the presentation?

13, I think.

I mean, does page 13 not answer this question?

Well, 13 only gives us capacity by region. Just with the spike we've seen in coal prices it was an interesting comment you made in the 8(K) about hedging your coal requirements. So I think I would just like to focus on the coal aspect of it for now, if you could delineate that from page 13.

Well, to answer your question, the gross tonnage - Hershel, do give you a rough idea of what that is? I guess I don't, I guess we can get that number, get back to you, David.

On average what type of price are you talking about? When you've said you've hedged. I was wondering when those hedges were entered into or if these are kind of legacy hedges you had, legacy coal supply contracts that you had in place.

The, I mean, I think that the, we wouldn't want to answer that question specifically, but what I can tell you is that the coal contracts were entered into, the normal practice here would have been to enter those in the latter part of last year. And so the very recent spike in coal prices would not be reflected in the prices we had contracted for.

Having said that, the one thing that I would caution you and everyone in terms of the coal situation, particularly with respect to eastern coal, we do have this amount of coal under contract. But there will have been said reliability issues and some force majeure claims and sort of production issues among eastern coal in various people's minds. And so as you know it's one thing to have coal contracted at a certain price. In order to actually achieve the result, you still need to actually get the coal and, and that's something that we are working on very diligently.

In terms of inventory carrying, what 30 day inventory now?

Approximately, although the it varies at each plant.

Could you elaborate a little bit further on 13? I don't think I've seen a chart like this before, just if you could just walk through what the three bars mean?

I think the importance as far as the left-hand bar in each, the basically the thing that makes this chart a little bit different is that we use this concept as economic production. Which is at the beginning of the year we look at, we look at the forward price curve and try and determine how much of the time our coal plant would be expected to be operating because they would be dispatched. And that defines our economic production. So it's different, it's a smaller number than the capacity factor.

Then once we sense, once we have an idea of how much we expect to be operating, we then calculate the amount of tonnage we need and then go out and buy that tonnage. So these numbers, the second bar, the second bar ties to the first bar in terms of looking at how much of the time of economic production we have from a coal supply point of view. And then the third bar shows actual how much we sold of the time we would expect to be dispatched. So the economic production obviously has a tie in to peak hours versus non peak hours.

Just one final question then, on the heels of that, then, can you give us an idea by region or in aggregate what the gross margin is from the hedged portion of this display?

Can we give you an idea of the gross margin? I mean, the basic cost of production for coal is in the $15 to $20, and then you can sort of determine the price yourself from looking at the prices in the market. But the cost of the marginal cost of coal production is between $15 and $20.

Sure. But what you have here is you have a certain amount of your economic production has been hedged now obviously through agreements with counter parties, right?

Yes.

So based upon just, we can figure out the part that's floating, we can do on a market basis. But in terms of the amount of contracted spark spread or contracted gross margin that you have in your generation portfolio for '04, can you give us a sense as to what that dollar amount is? And we can go and figure out, do our own forecast on power prices?

I'm afraid if I got too specific about what margin we have for the rest of 2004 I would be venturing into the area of giving you earnings guidance, which I vowed at the beginning of the call that I wouldn't do. So I am trying to give you some help to try and figure it out yourself without again venturing into that area myself.

That's fine. There is a merchant component and then there's a hedge component. I am not asking to you give us a merchant component but I am asking to you give us a hedge component. I think a lot of your competitors do that.

They may do that but I think I've told you as much as I want to tell you at this point.

Thank you.

Your next question comes from the line of Michael Lipsky of Deutsche Banc.

Yes, good morning, David, congratulations on it looks like some super results. I had a quick question. I realize you don't want to talk about guidance going forward, but I wanted to look backwards for a moment.

If a I look at Exhibit C of your disclosure statement, you give a five-year consolidated financial projection. And if I look at the 2002 number, EBITDA was projected to be approximately 520.5. If I look at page two of your 8(K) this morning, that number is now 550. And I guess the question in my mind is, what explains that differential?

Could you wait just a second?

Sure.

I thought that was from the, I'm sorry, but the information that you refer to was nonpublic information that was provided as part of the financing in December. And we are not really supposed to discuss anything related to that on this call. So, again, I'm sorry about that, but those are the rules.

I'm actually looking at something filed with the bankruptcy court. This is the disclosure statement for NRG Energy, Inc. and as part of that filing it's Exhibit C "Disclosure Statement". It says 5 year consolidated financial projection. This is a public document to my understanding.

I'm sorry, I missheard you at the beginning. I'm sorry, so the question was, the 520 versus the 550?

Yes.

Well, I mean I think that we are pretty well on track. I mean the one thing about the projections that were done in the, at that time obviously that was done at the beginning of December, peak period in '03 and was based on the model. But, yeah, I think the general theme here is that we are on track and that things are pretty well have been disclosed in that document.

I mean, in that document you expected to do 451.7 for '03. The actual number now is 570. So, would you classify your results as on track, or it appears based on the results that came out in the disclosure statement that the company is well ahead of considerable schedule.

Well, we are fine. Clearly I wasn't here at the time that the bankruptcy document was prepared. So I can't really tell you what was the basis for that. But we are quite, we are where we thought we would be and we are pleased with the results.

Okay. So is there anything that you can point to that would explain the differential on the '02 results? I mean those '02 results should be pretty solidified even at the time of the filing.

I mean the one thing that this company benefits from which we've said all along is that this is a company, unlike some other companies, that benefits from high gas prices. And we did during 2003 and continue to benefit from the high gas price environment that exists.

So I don't have at my fingertips a reconciliation to the numbers from the bankruptcy disclosure document but gas prices now are certainly higher than most of our forward projections have always been based on our gas prices in the 4-dollar range. We know gas prices are above $5. So that correlation to our results is being reflected.

Got it. No further questions. Congratulations on the year.

Thank you.

Your next question comes from the line of Elizabeth Corella of Merrill Lynch.

Yes, thank you. To go back to slide 13 if we could for a moment. Just taking a step back, are you only showing coal fired power production on this slide or is it meant to represent all the capacity in each of these regions?

No, this is only coal.

Only coal. Could you talk a little bit about, are any of these intermediate or peaking plants that are not coal hedged for 2004?

No, not in, not to any significant extent. But keep in mind to the extent, that portion of our EBITDA that comes from energy sales is very, very heavily weighted towards our coal fired plant. Our intermediate peaking plant makes more money in the capacity market. So they are not hedged but that's not as big an issue for us as it may be for some.

I guess when I was talked to (INAUDIBLE), any type of sales, I mean would there be any capacity sales that you are getting on the intermediate peaking plants?

Yes. The intermediate peaking plants make a substantial some in the capacity market, particularly the New York plants in zone J. and zone A.

Okay. Is it possible to talk more generally about the whole portfolio in terms of, if you look out a year or two? How much of the expected cash flows are hedged either in the form of energy sales or capacity payments(ph)?

Well, the, I mean what we've, in broad terms from a long-term hedge point of view, from a power purchase agreement perspective, if you look at our as our assets into the three groups of Northeast and South Central and West Coast, as we've talked about in the statement, West Coast is very, is really totally hedged through 2004 and then not at all thereafter. South Central is very heavily hedged for quite an extensive period, for between 10 and 20 years, depending on the contract. In the Northeast, beyond 2004 the portfolio is largely unhedged.

Okay.

So, then on the capacity payment front. The capacity payment market doesn't really work in the way that you're talking about. The capacity payments in the New York ISO are fixed for six months in advance and it's done sort of on a rolling basis.

Did you retain any of the gas combined cycles newer plants that were built by the old NRG or were they turned back to the banks, divested, or are there any still in the portfolio?

Yes, there are. There are plants like Dadesville and Kendall that are still part of the portfolio. There are other plants that have been in the news like McClain, and then the plants that are subject to the Nelson Auto Drain Pipes (ph), those are in various stages of disposal or disposed. But Dadesville and Kendall, we still have those, but, again, relative to other companies we had very, we have a very small portfolio of 7,000 heat rate plants, gas fired combine cycle plants.

Going back to something you said at the outset, that you and the new CFO needed time to - to do some further work before talking to us about financial guidance. Is it possible to talk about time frame on that? For example, might occur on the first quarter call in two months or are we talking about later than that?

Well, I mean again, the CFO doesn't even start until the end of the month. It's going to have a big influence on that. Certainly we think that the first quarter call, which I think is scheduled for May 11th, is going to be more substantial than the average first quarter call would be. Whether we will give specific guidance or not at that time I just really can't say at this point, Elizabeth, because I've got to be frank with you, so far we have been wholly preoccupied over the last two months with backward looking things like the Fresh Start accounting.

So we will, with our filing of our 10(K) we will be turning to looking forward much more intensively. So I hope that we can constantly improve the amount of information that we give the market in terms of, if not specific dollars or cents per share guidance, that we can at least give information that will help people reach their own conclusions more than we are doing now. And that part of that would be beyond the first quarter call. But I can't guarantee you that we will give you a specific number and that will be money in the banking from your perspective. Thanks, David.

Thank you, Elizabeth.

Your next question comes from the line of Mora Shannessy from Massachusetts Financial Services.

I have a couple of questions some of which you may want to answer, some of which you may not. First of all, is there any sense of capital spending or guidance or what sort of maintenance capital levels we can expect over the next year or two?

Second, what actually was the Connecticut hit ,so to speak with regards to the contract that expired at the end of the year and what's the hope of some better economic structure going forward?

And, third, yes, the California contract expires at the end of this year, should we just make a guesstimate in terms of the forward markets from here or how should we think about that negotiation and that kind of thing?

The maintenance Capex number going forward is roughly in the $70 to $100 million per year range. That includes maintenance Capex and Capex for purposes of environmental remediation. The Connecticut Light and Power portion of your question, I'm not, what would you like to know about the Connecticut Light and Power? I assume you don't want the whole history, the whole sordid he do history of it? What aspect of it-?

I was just wondering what, if you can quantify, what the '03 hit was so I can think about that '04 versus '03.

The '03 hit was $183 million.

Okay.

Then the third question was?

And also how you expect to or hope to have a better economic platform going forward, what is the status of that situation?

In Connecticut?

Yes.

Well, the situation in Connecticut is its pretty straightforward. Our plants are admittedly old and their not particularly competitive on an energy production point of view. And some might say that they should be retired. But New England ISO has indicated that because of their position on the system, where they play a very dominant part in the, in Southwest Connecticut, that they need to be kept on the system for reliability, for transmission reliability purposes. So you get into sort of a semi regulated area where, in order to achieve a fair return on our investment of those assets, we need to work out an arrangement in terms of reliability must run. We filed an RMR petition.

All of this spending now and we can't really say at this point the timing or the quantum of an outcome. But absent that the assets are quite frankly are not, are not competitive. And we would have to look at the alternatives in terms of shutting down and possibly using the sites for alternative use. Because we do think there is some alternative use value in terms of our assets in Connecticut.

So we hope to here from the [inaudible] maybe by the summer or, who knows?

You are not going to get me to estimate when we will hear about regulatory decisions at (FIRCA). But, believe me, we are emphasizing to everyone at (FIRCA) in terms of the Connecticut authorities that time is money here and that, that we can't go on indefinitely basically carrying these plants on a noneconomic basis.

Last question with regard to California.

Well, California is a fairly similar situation in that we've got older plants but they are located in high demands areas within Southern California. And, again, the California ISO, yeah, the plants are not particularly competitive in terms of energy production but they are in key parts of the system, and also California is very loathe to add transmission lines to deal with what would happen if we retired that plant. And in California, even more so than in Connecticut, we are absolutely convinced that our plants out there have very substantial value for nonpower generation purposes. So we are in sort of a similar situation in California, it's just not as mature yet because we still have one year left on the contract. So basically where we are at in Connecticut today we would expect to be at in California next year, it's just that we are trying to anticipate it and sort of get the California issue resolved at the point we come off contract at the end of this year. But like with Connecticut, I can't give you an assessment of the outcome at this time.

Great.Thanks so much.

Sure.

Your next question comes from the line of (INAUDIBLE) with Solomon Smith.

Hi. I just need a clarification on your cash position on the slide number 8, March. 649, it says includes $125 million payment from Excel. I mean the press release, I think you were expecting $288 in February. Is that the same payment, the same category and why you didn't get the full amount? And also should we be subcontracting the $125 from the liquidity, then given that money is going to go back to the creditors?

Just to make it clear, we did receive the $288 and $163 went directly to the creditors leaving us with $125. If the Excel payments go according to plan, of that $125 you should be aware that there's another $25 million claim that the creditors would have against that money which occurs in the fourth quarter this year and which, certainly our current plan would anticipate that we will be paying to them, leaving us with a net from the Excel payments of $100 million which will stick with the company.

Okay. So the next April payment of $352 will directly go to the creditors, not going to you, then?

That's correct.

Okay. And the restricted cash, what is it restricted for, again?

Restricted cash is tied up in various project financings. And, of course, as you can see from the break down some of it's overseas.

Okay. All right. Thank you.

Thank you.

Your next question comes from the line of Brian Olson(ph) of Nemis(ph) Management.

Hi, congratulations on the listing and getting these financials out. Just wanted to ask a follow up on the cash question. It seems that you have a pretty large cash balance now, and I was wondering if you could go into what your plans are going forward with the cash?

Well, Brian, one of the things is right now we are really just happy to have liquidity. And one of the things is the age old saying, you have to have money in order not to use it. And coming out of bankruptcy, we have a certain amount of, certain credibility issue or credit issue, even, I would say with certain of our counter parties on a trade level. So we are trying to minimize the degree to which we have to collateralize our commercial activities with cash or with LCs. To the extent we can show people a very healthy balance sheet, you know, that gives some comfort to people.

Right now the main use of the cash right is to basically convince people that we are a solvent company and that they should do business with in the normal course. Longer term, do we need all this liquidity for purposes of supplying our supporting our commercial activities? No, probably we don't. But the excess is not so great yet that we have actually turned to what we do with the additional cash. And quite frankly that's sort of tied up with the strategic discussion we are going to have with the Board at the end of April.

I would just point out to you that we've always said that a big part of our advantage is the locational advantage of our power plants, and we've also been fully candid in acknowledging that a lot of our power plants are quite old and not actually competitive in terms of energy production. But they are in the right place on the grid. To the extent that the various markets we are in needs power, need power from the places where we are generating, we need to be piling money at some point into repowering and life extension, and plant expansion and, of course, that takes some money. Clearly we are going to be extremely prudent in how we invest money having, as I said, learned the lessons of the past.

What do you view as sort of an operational level of cash that you would need to hold looking forward, say, if the solvency issue, sort of credit issue is resolved going forward, what sort of a maintenance cash level?

Well, you know, we've always said that just as the, right now one of the reasons we are able to keep the credit support for our commercial activities down to very modest numbers, it's not the ideal time to be contracting forward, certainly from the point of view of gas spark spread. You know, if prices start to rise and if load providers start to want to contract for longer terms, then, of course, we would have to be putting up more credit support to engage in those type of activities.

Now, of course, I view that as a high quality problem, more credit support for trading, but then more surety in terms of our earnings and hopefully better prices. For those purposes we would earmark that we should have about $500 million to support our commercial activities at our current size. You know, beyond that, of course, every company needs a certain amount of headroom for a rainy day and unexpected events. And we haven't actually discussed and I don't want to front run the new CFO on this, but I would be typically thinking of that as another $200 million. And so I think that basically is a long winded answer to your question, how much money we think we need to have to operate our business based on the current portfolio.

Okay. Great. Well I appreciate it and good luck in '04.

Thank you.

Your next question comes from the line of Lawrence Watson of Stenfield Capital.

Hi. You said you talked about your capacity factors in the Northeast and South Central. I guess this is including the peakers and intermediates. It seems low in the Northeast considering that you have those big coal plants there. Would you be able to tell us what the capacity factors were on just the coal assets? At least your base load or maybe just your base load portfolio?

I am going to turn that over to John Brewster because, I'm sorry you said you wanted the capacity factors for our coal fired plant on a stand alone basis, right? Because your first observation that the overall number in the Northeast was dragged down quite substantially by the intermediate and the peaking plants was 100% accurate. Did I get the second part of your question right? You wanted to know the capacity factors for the coal plant?

Yeah, the coal or the base load, your whole base load portfolio, I know you have gas in there, too, some gas base load, but whatever you can give me.

This is John Brewster. For 2003 the Dunkirk coal plant was 70.5% capacity factor. Huntley coal plant, 50.9% capacity factor. Those are the two significant ones in the New York area.

You want to give, do you have Indian River there, too?

Yes. Indian River for 2003 was about 37%.

37%.

Let me give you one other one within the Northeast, and that is Summerset, which was 46.

Okay. Thank you. On the Indian River, is that the plant Delaware?

Yes.

Is there a reason why, I guess it's a combo coal / oil plant, is there a reason why that capacity factor is only at 37%? It seems rather low.

It is low but that is, it's run more as an intermediate plant than it is as a base load plant.

Okay. Thank you.

And additionally can you talk a little bit more about the RFP environment that you are seeing? You know, in terms of people approaching you to supply them with long-term contracts? And then kind of an unrelated question, just so that on the Delta on your, on the LC availability, and you also said that cash balances lifted reflect cash in bank and will differ from those in the financial statement. I didn't know there was a difference. Can you talk about that as well? That's it.

Well, the difference is we are just trying to reconcile the numbers that are in the earnings release from the numbers that are in the balance sheet. And the numbers are not that different but they basically, they basically reflect the difference between cash and accrual methods of calculation. The treasury looks at cash really based on the old fashioned way of looking at what's in the bank on the day that we are calculating the number, while for accounting purposes, if a check has been written but not cashed yet, it's immediately deducted from cash at the time the check is written. That's a large part of the difference there.The discrepancy is not that large between the numbers that we are talking about.

Thanks.

I'm sorry, did you have, you had, oh, about RFP? I am going to turn that over to Hershel Red who runs our commercial group to give you his observations on that.

Post immergence basis, we are getting a look at all the RFPs that are being floated out in the market. None of them are long-term or longer tenured type transactions with the use of market expectations don't justify longer term commitments. I think David mentioned that a lot earlier in this conversation. But we have responded positively and been successful in receiving some awards on our recent RFPs. We anticipate continuing to look at those but once again I caution you that the market expectations for (INAUDIBLE) don't really support longer tenured transactions right now.

Okay. Then on the when you did your refinancing on the lender presentation, which was actually public, was under public domain you actually did give some EBITDA projections without meaning any numbers for '04 and '05. Are you still sticking by those numbers? This is the presentation given by you guys, so it wasn't previous projections by the former management?

All I can tell you because I don't remember giving the projections that you're talking about in terms of in the public domain, but I would tell you that there's nothing that's really changed about our view from December. So I think that's the most I could say, which I think answers your question.

Yes, it does, thank you.

Your next question comes from the line of Clark Orsky of KDP Investment Advisors.

Hi. You mentioned that you have some additional commercial commitments this year that you would handle with the LOC. Are there additional commitments that come out of cash or are they pretty much all handled with LOCs?

The question, sir, what are the demands on our cash resources for the foreseeable demand apart from LOCs, or are you talking about different forms of collateral? Because sometimes we have to put cash on margin and things like that.

Well, I think you said one of the biggest calls on liquidity, because you don't have any maturities really, will be to support marketing and hedging. I'm just wondering about how much do you think that will be?

Through the end of the year our current target is basically to use up the rest of the LC , which is the amount outstanding right now is about $150 million. And that's the additional amount we would expect before the end of the year; for, to support our commercial activities.

Apart from that, as you mentioned since the maturities are very limited the other uses are the maintenance Capex which I referred to before and also the $25 million which we expect to distribute to creditors before the ends of the year. That's really it in terms of projected or foreseeable demands on our liquidity at this point for the balance of the year.

Okay. Thanks.

And circling back on the Capex, any environmental upgrades, what have you, on the coal plants that you foresee in the near term?

Well, at various coal plants we have and continued to do environmental remediation which is mainly having to do with the installation of low Knox burners, and also adapting our power plants to, our Eastern power plants to have the came built to burn a blend of lower sulphur western coal, in addition to the traditional coal they burn which is the Appalachian coal which is higher sulphur. But of course we are working very carefully or very closely with the environmental authorities, particularly at the state level in New York and Delaware, to make sure that they are comfortable with our, with our environmental remediation plans over time.

I guess I wondered about the 100 million you're talking about, does that include kind of, a portion for that or is there sort of other stuff out there?

Well, I mean, I mean there's for every power generation company there's always a certain amount of maintenance Capex related or in keeping the tread mill turning. But, yes, within the $100 million per year there is a substantial amount that is in environmental remediation spec. Roughly $30 million, in fact. And that's about a constant, that's about a constant been a constant number for the last couple years.

Okay.I just had a couple others. Is there still a cash flow sweep on the bank term loan?

My understanding, I just have to tell you, is that the terms of the bank loan on this question are not public information. So I can't really answer that question.

Okay. Then the other question, the 901.6 that's in the current portion of long-term debt, what is that number?

Well, the biggest portion of that number is the accelerated long-term debt on the Kendall facility which I have to emphasize is non-recourse to the parent. And so that's I think half of that $900 number and, Phil, you want to give a further break down of what that is?

I mean, [inaudible] [inaudible]

So that's various, the, on Kendall, that's I guess that's an accounting question then, because there are events of default, the debt is treated as current even though it's not being treated that way by the lenders at this point. On the peakers financing it's in the same situation. But again all of that except for the amount in the presentation is non-recourse to the parent.

Can you remind us what is happening at Kendall and some of those peakers in terms of the, to resolve those issues? Is it for sale? I can't remember.

Well, Kendall, for Kendall it's business as usual. It continues to be part of the portfolio running, servicing the contracts. The off take agreements that it has for the peakers, you know, they are also still part of the system. But there is McClain and there's Nelson and Pike and [inaudible] which are one way or another being handed over or, situations more effectively where we are operating the plants on behalf of the banks with the intention of disposing them.

Okay. Thank you.

Your next question comes from the line of Mitchell Spiegel of Credit Suisse First Boston.

Your asset sales for the year, can you just remind us what the estimated net proceeds range is?

Are you saying asset sales for 2004?

Yes.

I think the asset sales for 2004, the ones that are referred to in the presentation, the numbers are fairly modest in terms of cash proceeds. And in terms of debt. But, you know, a smaller number in terms of the ones that we're referring to than we sold in 2003.

Beyond that there may be additional asset sales but given that that gets into an area of how much we may sell at what point, we are not really willing to quantify that or even talk specifically about which assets those would be. One of the things we don't want to get ourselves into and, in asset sales even post bankruptcy, there's a situation where people see fire sale stamped on our forehead, so we don't want to commit to a dollar number. We don't want to commit to a certain time. We just want the market to take comfort in the fact that we have sold assets, we have generated cash, we delevered the balance sheet, and that we will continue to do that. But to quantify or to commit to something will end up destroying value for the company and we are not going to do that right now.

Is less than $100 million unreasonable?

Well, less than $100 million is reasonable for the ones that are referred to. But, again, that's, we've only referred to in the slide presentation those for which there are agreements in place.

Okay.

Just to understand the accounting treatment for the West Coast power, basically you are not going to show, you are not going to show any income, rents to the income statement now or the West Coast power JV? It's going to appear as an amortization expense to the income statement?

Yeah, that's essentially true. Let me ask Phil to give you details, because this is a very important point that everyone should be focused on, particularly people who are going to be valuing us on the basis of 2004 earnings.

West Coast Power is an equity investment, and we do record equity earnings from that particular group of projects. The equity earnings in 2004 will go down because of the contract evaluation which is not shown in NRG's books. So as a result the earnings that you see coming from the project will represent what it would have been on a merchant basis. There still will be earnings but we won't have a very large amount that we had previously forecasted.

So it's basically going to be, - it's gonna to wipe out that line item that you used, the second line of your former income statement to get to total revenues?

Correct.The equity earnings for the projects will go down significantly in 2004.

But you are still getting the cash in on this one?

Yes. The other think that is the evaluation of the contract. There is always the potential that the California assets will actually produce more in terms of, during hot weather spikes, they do have the potential to earn on energy sales beyond the contract. But overwhelmingly, I think the important point is what happens to the treatment of the contract in the 2004 earnings.

Okay. Thank you.

Operator at this point I think we should probably limit it to about three more questions, if that's okay. That's fine. Your next question comes from the line of David Frank of Zimmer Lucas.

Good morning. I just wanted to ask if you could tell me what the net asset value of the CL&P assets are? Hello?

We can't really give that you information because that, there are negotiations underway in Connecticut and, believe me, we've had situations where thing that have come out in our reports have been used against us. And so I think it's not a good idea for us to be specific about the net asset value. Really for any of our individual plants but particularly in Connecticut.

Oh. Is there a ballpark you can give relative to what you've provided as far as information to the ISO? Have you indicated to them approximately or is that?

No, believe me, it's a very sensitive environment and there is just know upside for us in giving you that information.

Sure. Okay. Is the ISO proposing the $5.43 per KW per month on Devon, Monsell and Middleton?

Go ahead, Hershel.

Us this is Hershel Red. Again, are you referring to the LICAP or the RMR.?

The RMR.

Well, those are confidential settlement discussions that we really can't discuss the numbers. I don't know, have any idea where you got that number but it's very close to the 5.34 that the ISO has proposed as a LICAP going forward.

Maybe that's, yeah, oh, I see, it's a LICAP, it said LICAP for RMR facilities, I'm looking at slide 14. I'm trying to figure out exactly what that means.

You know, as Dave pointed out earlier, the ISO has told us they need every one of these units for reliability. And so we said, if that's the case, we need to be paid for it. So we did file, we are not certain whether or not the LICAP will be instituted in June of this year as proposed by FIRC or ordered by FIRC. And we don't know at what rate. We know what rate they have suggested.

But we need to stop the bleeding now. So what we've done, is we filed for the RMR, the RMRs on these units. In fact, we did that in January and we are now in the process of negotiating those. If we thought that LICAP cap would come in at a level that allowed us to recover our fixed costs and generate a return, we would probably wait for that but we don't think that's the case.

I see. Okay. That gets to the heart of my question. And maybe you can just talk, switching the subject for a second, about the in impact on D&A expenses as a result of Fresh Start accounting. It looks like your net PP&E went down $2 billion. What will the annual impact be as a result of the Fresh Start accounting on D&A?

Oh, well, the annual impact on D&A. I mean, I think that, rather than tell you what the annual impact is I mean really you can basically sort of see what the positive impact -- I hate to be coy about this, but I think the way you can get to the right number, if you look at the predecessor company, D&A number and the new NRG D&A number just for the three and a half weeks, and if you turn that into a monthly number and multiply it by 12, and look at the difference between what you calculate and previous year, you will get a good idea of what the D&A impact will be.

Now keep in mind that the D&A in terms of the overall impact of Fresh Start accounting on our future earnings, that's only one thing there. In the first, we've got this situation in California that impacts 2004, but there are other out of money contracts that have positive and negative affects. But D&A is the most important.

Is the amortization related to the West Coast contract in that 3.5 weeks of D&A that I am going to attempt to annualize now, or is that treated separately.

No, that's (INAUDIBLE) project, so that's treated separately.

Okay. So it won't affect that D&A number that I'm looking at?

No.

Okay. I'm sorry, could you tell us again what the cap factor was for Dunkirk and Huntley? I think I got Dunkirk and I missed Huntley for 2003.

Huntley was 50 percent, wasn't it John? You said Dunkirk was 70% and Huntley was 50%.

Huntley was (INAUDIBLE).

Did you get that?

Yeah, 50.9. Is that a good run rate for these units? I thought they produced at higher cap factors?

Yeah, well, that's pretty much in line, if you go back to 2002, Huntley was 49.1 and Dunkirk was 69.2.

So that's a good average to use going forward, then, you think?

Yes.

Okay. Great.

I mean one of the dynamics, of course, we are seeing as a result of, one of the things that a lot of people are talking about now is what happens with, if the price in the off peak hours starts to reflect the higher coal prices, then, the amount economic productions of these plants will go up. But that's a trend that people are expecting to see by having really, it hasn't really been proven out yet.

But obviously you also have to keep in mind that this economic production, these plants are operating at a time when the margins are substantially better than, and they are not running at a time when there is no money to be made. So it's not, their earnings potential is not proportional to their capacity factor directly, in a linear fashion.

I see. Okay. Thank you very much.

The next question comes from the line of John Hanson of Imperial.

Good morning. Good morning? Good morning. All right. Good. I couldn't hear myself there.

Okay. I missed the first part of the call where you were talking about the coal contracts and the coal situation. You referred to coal price spike. You are experiencing higher coal prices for your Northeastern plants. Is that correct?

Well, no, I think what we said is that our coal, I mean in general terms we are contracted for most of these. There were some very significant spikes I think, I mean coal, Appalachian coal at one point in February got up to $90 for export purposes. And so we are just observing that there's been a spike.

It clearly we have a little bit more in coal to round out and obviously you don't by when coal is at $90 a ton.So we are not trying to suggest that we are paying that amount for coal. But the historic very flat levels of coal, it looks like the paradigm may be shifting.

So your contracts that you have for 2004, are they substantially the same then as contracts that were there in prior years in terms of price levels?

Yeah, I mean, in general terms that's a fairer characterization.

Again, I caught a piece of it, but you're not talking about contracting prices in advance, in 2005 at all in terms of coal contracts?

I'm sorry, are you saying are we talking about procuring coal for 2005?

Right, for 2005 for the Northeast.

We are always talking about it and we start to fill that position a little bit later in the year. But, again, we don't intend to fill the position with 90-dollar coal.

Do you have any expectations in terms of where those markets may turn out and how that may turn out for you in terms of margins on, down the road for those coal plants in the Northeast?

I don't think we have any expectation beyond where the sort of the forward curve is for coal. And that's still, that's rising relatively gently still, certainly compared to gas prices in terms of volatility and all. But I mean the point I want to emphasize is one of the key things we are doing here is because with this Eastern coal, with the Appalachian coal, it's not only a question of price but a question of getting it, which is, which has been an increasingly challenging issue. And so we are, we are working hard and we are actually very pleased with where we are getting our Eastern plants in order to burn a blend of Western coal. The Western coal has not been under the same pressure as Eastern coal in terms of price spikes driven by export. And so that's a huge part of our coal strategy is to rely more on Western coal where the price remains relatively flat.

Are you having significant delivery problems in the East or are you just hearing about that in the market again as well?

This is Hershel Red.

By delivery you are talking about physical delivery problems or are you talking about deliveries of coal we've contracted for?

Probably B., deliveries of contracted coal.

Well, we have received a couple of force majeure notices from vendors that the cited (INAUDIBLE) faults, quality problems, but we are investigating those and we are going to have these folks feet to the fire. We are going to get our coal one way or the other.

You don't have to make that up in the spot market, then?

We may have to but as far as I'm concerned those are liquidated damages and we will go after somebody for them. It's a small portion. It really is.

You don't have inventory problems then at the plant?

No we don't.

Thanks.

Thank you.I will now turn the call back over to Katy Sullivan.

Did you have any closing remarks, David?

No, I just want to thank everyone for participating on the call and just to remind everyone this is is a work in progress and we appreciate your interest in the company and we look forward to talking to you around the first quarter results. Thank you.

Thank you. If people have further questions they can contact me, Katie Sullivan, and we appreciate you joining our call today.

This concludes our conference call. You may now disconnect.