NRG Energy Inc (NRG) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the quarter four 2012 NRG Energy Incorporated earnings conference call.

My name is Patrick and I'll be your coordinator for today.

At this time, all participants are in listen only mode.

Later we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Chad Plotkin, Vice President of Investor Relations.

Please proceed.

Thank you, Patrick and good morning everyone.

I'd like to welcome you to NRG's year-end and fourth quarter 2012 earnings call.

This mornings call is being broadcast live over the phone and via Webcast which can be located on our website at www.nrgenergy.com.

You can access the call, associated presentation material, as well as a replay of the call in the Investor Relations section of our website.

Because this call included a presentation and Q&A session will be limited to one hour, we ask that you limit yourself to only one question with just one follow-up.

Before we begin, I urge everyone to review the Safe Harbor Statement provided in today's presentation which explains the risks and uncertainties associated with future events and the forward-looking statements made in today's press release and presentation material.

We caution you to consider the important risk factors contained in our press release and other filings with the SEC that could cause actual results to differ materially from those in the forward-looking statements and the press release and this conference call.

In addition, please note that the date of this conference call is Wednesday, February 27, 2013, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date.

We undertake no obligation to update these statements as a result of future events, except as required by law.

During this mornings call, we will refer to both GAAP and non-GAAP financial measures of the Company's operating and financial results.

For complete information regarding our non-GAAP financial information or most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release in this presentation.

And with that, I'll turn the call over to David Crane, NRG's President and Chief Executive Officer.

Thank you, Chad and good morning to everyone.

I'm joined here today by Mauricio Gutierrez, the Company's Chief Operating Officer, and Kirk Andrews, the Company's Chief Financial Officer.

They will both be giving part of this presentation and be available for questions thereafter.

Also joining us, some other NRG executives who will be available to answer your questions, Anne Cleary, the Company's Chief Integration Officer; Chris Moser, who runs the companies Commercial Operations including our trading; and Elizabeth Killinger, who runs retail for us in Texas; and Jim Steffes, who runs retail for us in the Northeast United States.

So let me begin by recognizing that certain dichotomies exist between what we typically focus on during these earnings calls and what we, NRG management, concentrate on while conducting the Company's day-to-day business.

Chief of these dichotomies is the one that exists around personal safety.

While safety is not the focus of the financial community, it's very much our focus, indeed for NRG management it is our primary focus.

As such, I'm pleased to report today that in 2012, NRG achieved the best safety performance record in its history, a 0.52 OSHA recordable rate with not a single life altering injury.

This performance places us well within the top decile of our industry and is a testament to the hard work and professionalism of NRG's now 8,000 employees.

To put this achievement into a historical context, in 2004 my first full year here at NRG, our OSHA recordable rate was 4.48, which was itself significantly down from a rate of 6.05 which was what the Company achieved in 2003, the year before I came here.

So having brought the rate down over 90% from 2003 to 0.52 in 2012 is extremely noteworthy.

So I want to start by using this public forum to congratulate the men and women of NRG on an absolutely stellar safety performance in 2012.

Now as we turn to 2012 financial performance, I am very pleased with our overall performance in the year when our fundamental commodities were under nearly constant bearish pressure, nor did the weather give us much upside either in terms of the Northeast winter or the Texas summer.

Notwithstanding the moderate weather that we experienced in 2012, for NRG financially, the formula remained the same in 2012, solid EBITDA with a healthy contribution from retail and a growing contribution from solar, plus robust free cash flow before growth.

We also made significant strides in 2012 across our three part strategic platform of enhanced generation, expand retail and go green.

I'll hit the highlights in each of these three areas on subsequent slides but first, I want to focus for a moment on an achievement which has received relatively little public comment to date and that is the actions taken around our Louisiana portfolio in 2012.

A decade long extension to a couple of critical co-op contracts, a constructive settlement with the EPA of longstanding NSR litigation relating to Big Cajun II, and the reassessment of the Company's overall environmental spend in light of currently applicable environmental and economic factors which has enabled us to reduce our public estimate of our future overall spend as a Company on environmental CapEx by over $100 million.

This favorable outcome was a result of a coordinated effort spear headed by our Louisiana management team under the leadership of our Gulf regional organization.

Now turning to Slide 4. There are two points here.

The first point is that we, the NRG management, have long objected to the view that our stock is just a proxy for long term natural gas prices.

Clearly in the past, now and into the foreseeable future, NRG will do better in a higher natural gas price environment than in a low natural gas price environment, but our goal as a management team has been to create a business model that allows NRG not only to survive but also to flourish no matter what the price of natural gas might be from time to time.

We have made significant strides in that regard and it seems that the separation of our stock price performance from natural gas prices in the second half of 2012 might suggest that the market is coming to believe it as well.

My second point on this slide, which is obvious from the chart on Slide 4, is that 2012 was not an evenly paced year for the Company.

We clearly gained momentum during the second half of the year and we are focused right now hard on maintaining and accelerating that momentum in 2013 as we springboard off the forceful and expedited implementation of the GenOn integration.

In that regard, turning to Slide 5 under Anne Cleary's leadership, our integration effort has jumped off to a great start.

Just eight weeks into the integration, our confidence level on what we can achieve could not be higher and as a result, we are pleased to announce an increase in our overall cost synergy target arising out of this combination from $175 million to $185 million.

52% of our new revised target run rate for total cost synergies already has been captured, and that's $97 million a year, plus over 90% of our balance sheet synergies, representing an additional $93 million a year already has been put in place.

So we are well on our way to delivering what we promised.

As to what we had not yet promised, we have not yet revised our estimate of the operational synergies that we expect to be able to achieve as a result of operating the generating assets of classic NRG and the former at GenOn plants as one combined fleet.

I want to assure you that such work is ongoing at a very granular level across all the plants now in our system.

As soon as we have firmed up the commercial and technological viability of our asset management plan around the entire set of generation assets, we will inform you of what we think we can achieve in regards to increased operational synergies, the cost to achieve these synergies and how long it will take us to achieve them.

At this point, it is still too early for me to be specific but I continue to believe that the $25 million a year estimate is quite conservative.

Now turning to Slide 6, while we obviously are focused as a Company on the GenOn integration at the corporate level and on the wholesale side of the business, there is significant movement under way within NRG's retail companies to make sure we continue to grow our retail businesses in a way that enhances shareholder value which means to us, profitability and intelligent growth with the key wholesale supply risk inherent in the retail business covered or partially covered by our own wholesale supply.

To do this we have reorganized our multi-brand strategy principally on geographic lines with Elizabeth Killinger of Reliant assuming all responsibility for NRG Retail in Texas and Jim Steffes of Green Mountain assuming responsibility for all NRG Retail in the Northeast United States.

For each of our retail leaders, one of their many key objectives for 2013 will be to more closely integrate new clean energy products and services of the type I've briefly described near the bottom of Slide 6 into their conventional grid-based retail business.

We already have a head start in this regard with what Reliant already has accomplished with smart energy products and services for the home and we believe an assertive expansion of these clean energy products and services aimed at the end use energy consumer, and the seamless integration of them into a conventional retail offering of system power will have multiple benefits.

It will differentiate our retail value proposition, promote customer retention, and act as its own distinct and attractive sales channel.

I think we will be able to report on very positive developments in the retail space by the end of 2013.

Now turning to Slide 7. The other major area of management focus which you should be tracking is our Company's very substantial construction program.

For the last couple years, we have carried forward a multi-billion dollar construction program.

From your perspective to date, there has been little to show for it in terms of current EBITDA contribution.

In 2013 and 2014, our construction program bears fruit in a significant way.

In 2013, we expect over 2,000 megawatts of utility scale conventional and solar generation to come on line.

These projects should generate over $500 million in incremental EBITDA, almost all of which is fully contracted.

So far, all these projects are performing fully or close to fully in line with our expectations with respect to both time and schedule.

You'll be hearing more from us as meaningful milestones are achieved in our construction program in the months to come.

Beyond these projects, we continue to make substantial investment in a robust development program aimed at both revitalizing our conventional fleet in key locations and continuing the attractive growth of our industry leading solar portfolio.

With respect to the latter, we have over 900 megawatts of mid to late stage tier 2 utility scale solar projects in development in key markets across the United States, 72 megawatts of which are already under contract.

We also see and are pursuing significantly sized solar development programs at the sub utility scale level in industry, commercial and arising out of government procurement.

Now, turning to Slide 8 and to capital allocation, which is the fourth part of NRG strategy for value enhancing growth, as mentioned previously, the Company stands to be substantially free cash flow positive, both in 2013 and 2014, notwithstanding the continued weakness of the underlying gas price fundamentals.

And that free cash flow generation will add to the cash already on NRG's balance sheet which we already have acknowledged as liquidity in excess of current need.

Without undermining our eternal and unyielding commitment to prudent balance sheet management, or PBSM as it's referred to in the upper part of this slide, we are now in a position to consider our options with respect to the optimization of your capital without the artificial constraints imposed in previous years upon us by various restricted payment baskets.

You will note and Kirk will elaborate further that as a first salvo in this regard we have chosen to do two things, an increase in our annual dividend on common stock back to a level which approximates 2% per year, the average dividend yield of the S&P 500, plus a buyback of $200 million worth of common stock.

Together these two actions represent a return to shareholders of close to 5% of our market capitalization.

While we hope we have accomplished with these two actions is first having initiated the common dividend just last year, this year we are acknowledging the principal that the dividend should grow over time.

And second, with the share buyback, that we will not sit indefinitely on all of our excess capital.

We see a lot of opportunities across our wholesale to retail business footprint within our industry and with our industry in a considerable state of flux, with our own internal development opportunities and with the clean energy industry still struggling to figure out where it fits with the conventional business.

We are highly confident that we can deploy the Company's capital in a way that generates cash, outearns our own cost of capital and enhances the strength of our overall asset portfolio and business model going forward.

And with that, I'll turn it over to Mauricio.

Thank you, David and good morning, everyone.

NRG closed 2012 on a high note and delivered another year of strong performance across-the-board.

I want to take this opportunity to join David and recognize every one of our colleagues at NRG for making this year the safest in our nine year history.

It was also our best year from an environmental standpoint.

These are outstanding accomplishments that make us all proud in the foundation for our best-in-class operations.

Now, back to the results for the quarter on Slide 10.

Our integrated platform delivered on our goal despite the low commodity price environment.

Retail grew customer count and margins and our commercial group was very successful in managing the retail load and maximizing the value of our generation portfolio in a year where many of our markets saw the lowest electricity prices in a decade.

As we work through the integration process, it is important to start by providing you with a post-transaction view in key areas of operations, hedging disclosures and environmental spend.

To that effect, the environmental capital plan of the combined company will be $630 million through 2017.

This includes the $100 million reduction primarily related to mass compliance at our Big Cajun II facility that we announced during our third quarter call.

The entire operations group is very focused on further optimizing our combined spend through our successful core NRG program and executing on operational synergies.

As you know, the program has delivered significant improvement in the past and this year was no exception.

You can expect to hear from us in this area in the weeks and months to come.

Finally, on the construction front, we commissioned 280 megawatts of utility scale solar generation in 2012 with Boreggo and Alpine coming online at the beginning of this year.

El Sugundo and Marsh Landing made significant progress in 2012 and remain on track for commercial operations in 2013.

During the year, we also kicked off the construction of our Parish Peaker project for operation leader in the year.

Turning to our operational metrics on Slide 11, and starting with safety, we achieved the lowest recordable injury rate in NRG's history and for the fourth year out of the last five, the chief top decile performance in our industry.

During the fourth quarter, 97 out of 104 locations were without a single reportable injury.

I mention this post merger count to highlight that we have combined two strong safety cultures and we expect the continuation of great results going forward.

The continuously improving culture that drives our safety performance translates to results in the larger organization.

For the fourth quarter, our generation was up 8% compared to last year, driven primarily by the West region which tripled the amount of generation and the Northeast assets.

For the year, generation was down 10% compared to 2011, driven almost entirely by Texas due to coal to gas switching in the early part of the year based on availability and milder weather.

Our coal availability was 85% for the year.

As I mentioned in the past, in this commodity price environment, we need to balance operating performance and margin at risk by proactively taking outages during economic periods with little opportunity costs.

Our gas portfolio performed well with almost 8,000 starts and 98% starting reliability.

On January 8, we had failure on one of our two main transformers at STP Unit 2 causing directly a unit trip but impacting one of the low volume pumps.

We experienced blade damage due to the turbine costing down without lubrication.

Repair work is in the progress and we expect to have the unit back online by early May.

The problem was isolated to the power side of the plant and there was never a nuclear safety issue nor was anyone hurt during the incident.

Our FORNRG program had a very successful start with $36 million above our target for the year.

A combination of recurring and non-recurring items on assets of limitation, property tax relief, retail synergies, and knowledge of limitation work helped us achieve these results.

This program creates the right framework to achieve our operational synergies and one that will leverage best practices across a portfolio of now 100 plants and 330 fossil units.

Moving on to Slide 12, our retail business has finished the year strong, delivering $656 million of EBITDA, slightly ahead of expectations driven primarily by an increasing customer count, higher volumes and sustained retail margins.

In 2012, NRG grew customer count organically by 142,000 customers with two thirds of them coming outside of Texas.

A compelling 7% growth rate overall.

These results were driven by our effective sales and service execution, as well as the introduction of additional innovative promotions, products, channels and partnerships.

Our investment in geographic growth to enter and further penetrate the Northeast markets was also effective where we grew customer count by 43% year-over-year.

2012 was another year with intense competition in the C&I markets and we remain committed to diligently manage the business, making tradeoffs to insure profitable growth.

Recognizing the Texas and Northeast markets are unique and consumers have distinct preferences for brand, channel and product combination, we refocused our business regionally in the fourth quarter.

These will enable our multi-brand business to launch relevant promotions, sales and products for each market while leveraging our customer operation scale, efficiencies and bad debt effectiveness across all of our brands and markets.

Finally, the result for the quarter and the year is that we once again balanced customer count and margin consistent with our long term strategy, and this strong performance has enabled NRG to remain the largest retail business in Texas with a healthy growing presence in the Northeast.

Moving on to Slide 13, I'd like to share a few comments in two of our core markets.

Starting with our most immediate opportunity, we continue to see reserve margins below the target level despite downward revisions and low growth estimates [by customers in the latest report].

Spreads have improved recently and are now indicated at the top end of the six-month trading rate but remain below new build economics by $4 to $5 per megawatt hour, as you can see on the upper left chart.

The ongoing debate around [retail static growth] solutions and the recently announced changes at the commission will likely push any long term decision back in the summer.

In the meantime, we continue to work closely with [our Board] and other stakeholders to improve the realtime price formation prior to this summer.

Specifically, we are addressing realtime price mitigation and expansion of operating reserves which, if properly addressed, should help to provide the appropriate economic signals to the market.

In PJM, we see potential recovery in the medium term with tightening coming from supply side in the form of announceable retirements or [all coal] megawatts as shown in the upper right hand chart, with the potential to lose another two to four gigawatts of average New Jersey head units.

You can see on the chart the combination of significant retirements plus a heavy reliance on demand response to meet the reserved margin target would indicate to us the need for some premium in the market which is noticeably absent as we look at the spark spreads on the chart below.

Based on new build economics, the potential offset will be close to $6 per megawatt hour.

The entire fleet will be well positioned to benefit from.

Turning to our hedging disclosure on Slide 14, we have fully hedged our 2013 expected coal and nuclear generation.

In the medium to long term, we retain significant exposure so as markets improve we stand to benefit from heat rate expansion and gas recovery.

On the coal supply, we remain opportunistic to hedge the remaining over-exposure in 2013 and since our last call, we executed a coal transportation agreement for our Maryland units.

I'm also pleased to report that the commercial integration so far has been relatively smooth and we expect to finalize all changes to systems and personnel prior to this summer.

Finally, Slide 15 summarizes the goals and priorities for the operations group.

We're focused first on completing the integration of the GenOn portfolio and executing on operations, commercial, and construction objectives.

Second, on delivering the operational synergies that we committed across the fleet, both of which laid the foundation for our success in 2013 and beyond.

With that, I will turn things over to Kirk for the financial review.

Thank you, Mauricio.

Beginning with the financial summary on Slide 17, NRG is reporting fourth quarter 2012 adjusted EBITDA of $420 million.

For the full 12 months of 2012, adjusted EBITDA totaled over $1.9 billion with nearly $1.2 billion from wholesale, $656 million from retail and $86 million from our solar projects.

Our fourth quarter and full year 2012 results include the impact of the GenOn transaction which contributed approximately $10 million in adjusted EBITDA following the closing of the merger on December 15.

Meanwhile, 2012 adjusted cash flow from operations was a robust $1.1 billion, driving free cash flow before growth of approximately $900 million for the year and leading to a $1.3 billion improvement in liquidity since year-end 2011.

Turning to capital allocation, I'm pleased to announce that we have now completed over 98% of the $1 billion debt reduction target announced in mid 2012 in connection with the GenOn transaction, significantly strengthening NRG's consolidated balance sheet.

We achieved nearly $800 million in debt reduction by year-end 2012 through the combination of the 2017 refinancing and the repayment of the GenOn term loan.

In 2013, NRG launched a debt open market repurchase program which has now been completed, resulting in the repurchase of $200 million in NRG unsecured notes of various maturities and representing the balance of our $1 billion deleveraging target.

In addition, having achieved our minimum deleverring objective, we have now captured $93 million of the $100 million in annual free cash flow from balance sheet efficiencies announced in connection with the merger.

Importantly, we now expect the $10 million increase in cost synergies which will lead to at least $310 million in free cash flow benefits resulting from the GenOn transaction.

The reduction in total debt, when combined would substantially increased adjusted EBITDA and free cash flow in 2013 and beyond, now places us in line with target prudent balance sheet management metrics, providing NRG the flexibility to allocate its substantial excess capital towards both enhanced return to shareholders and a continued investment in NRG's future growth.

In the third quarter of 2012, NRG initiated its first ever dividend as our committed vehicles for annual return to capital shareholder at a rate of $0.36 per share.

This initial dividend was based primarily on the growing contracted cash flows from our successful renewable investment efforts.

With the completion of our equity investments in our Tier 1 solar projects by the end of 2012, we see all of these projects reach COD by 2014 and deliver over $300 million in adjusted EBITDA.

Finally, in the third quarter of 2012, NRG announced a 20% reduction in expected environmental CapEx further enhancing free cash flow and capital for allocation by a total of $100 million through 2017.

In 2013, with our balance sheet now significantly strengthened, our credit metrics in line, previous RP constraints now lifted and a significant portion of our cash flow synergies captured, we are now pleased to announce a $200 million share buyback program which, when combined with an intended 33% increase in our annual dividend of $0.48 per share, represents a substantial increase in total capital we return to shareholders in 2013 versus 2012.

Turning briefly to the guidance overview on Slide 18.

We are reaffirming the recently announced increased guidance ranges for adjusted EBITDA and free cash flow before growth for 2013 and 2014.

Turning to Slide 19.

Beginning in 2013, NRG is changing the methodology used to calculate adjusted EBITDA and free cash flow before growth.

We believe this new methodology, when combined with enhanced quarterly disclosure regarding NRG's proportion and share of debt and partially owned investments, will provide investors clarity to assist in evaluating NRG's enterprise value and leverage.

The changes to adjusted EBITDA include the following.

First, we will now include our pro rata portion of the EBITDA of our equity investments in unconsolidated affiliates instead of using a pro rata portion of net income.

Second, we will discontinue the deduction of non-controlling interest and will provide separately the proportion amount of adjusted EBITDA and debt attributable to our partners in consolidated investments.

Third, given the significant increase in plant retirements resulting from the GenOn transaction, we will now exclude non-recurring plant deactivation costs from the calculation of adjusted EBITDA.

And finally, we will now exclude interest income from adjusted EBITDA and instead report it as a reduction of interest expense in the build up of adjusted EBITDA in our Reg G disclosures.

In addition, we will be giving adjusted free cash flow before growth investments for distributions to non-controlling interest.

This was previously deducted below this line to arrive at a change in cash or capital for allocation.

However, as we do not currently anticipate making distributions to non-controlling investors until 2015, our revised methodology does not affect our free cash flow before growth investments guidance under the new methodology.

With a number of our projects partially owned, we believe this new EBITDA methodology enhanced disclosure will permit us to provide our investors with a clearer picture of NRG's adjusted EBITDA.

Slide 20 provides you with a break down of the impact of these changes in methodology on our 2013 and 2014 adjusted EBITDA guidance ranges.

The total impact of these changes is approximately $80 million in 2013 and $60 million 2014, resulting in a revised adjusted EBITDA ranges of $2.615 billion to $2.815 billion in 2013 and $2.760 billion to $2.960 billion in 2014.

These changes impact the wholesale and solar guidance ranges only with no impact in retail adjusted EBITDA guidance under the revised method.

These revised adjusted EBITDA ranges are now more closely aligned with NRG's consolidated debt balances and will also provide investors the basis for understanding NRG's proportionate share of adjusted EBITDA and debt, which I will cover on Slide 21.

Turning to Slide 21 and focusing on 2014, the year in which our Tier 1 solar projects have all reached COD, at the top of the slide and starting with our adjusted EBITDA guidance and the revised methodology, we have deducted our partner share of EBITDA to arrive at NRG's proportionate share of adjusted EBITDA guidance.

In the blue section of the slide, we have also provided adjustments to our projected consolidated debt balance for 2014, deducting our partners share of debt and adding NRG's share of debt associated with investments in unconsolidated affiliates to arrive at NRG's projected proportionate share of 2014 debt of $15 billion.

This compares apples-to-apples to NRG's proportionate share of EBITDA of $2.65 billion to $2.85 billion for 2014.

Finally, in the yellow section of the slide, we have also provided separately NRG's proportionate share of both adjusted EBITDA and projected 2014 non-recourse debt associated with our solar projects.

Going forward, we will be providing our partner share of adjusted EBITDA and debt as a part of the appendix to our quarterly presentation as we believe this additional information will permit investors a clearer understanding of NRG's leverage, the leverage levels of our solar projects in particular and provide the basis for EBITDA multiple-based valuation of NRG.

Turning to corporate liquidity on Slide 22.

NRG's current liquidity increased by $1.3 billion in 2012 to approximately $3.4 billion.

This increase is primarily due to an increase in cash and cash equivalents of $983 million due to the cash acquired in the GenOn transaction which is net of cash used to retire the GenOn term loan, and an increase in the revolver availability of $385 million primarily due to the reduction in letters of credit resulting from the sell down of Agua Caliente.

Our 2012 year-end cash, which significantly exceeds our targeted minimum balance of $900 million, when combined with our substantial free cash flow generation, forms the basis for capital available for allocation which I will review in further detail shortly.

Turning to Slide 23.

As a part of our 2013 capital allocation program, we intend to increase our annual dividend by 33% from $0.36 to $0.46 per common share beginning in the second quarter of 2013.

The El Segundo project, when combined with the Marsh Landing project acquired in connection with the GenOn project, will both be online in 2013 and will begin contributing substantial cash distribution.

These significant distributions, when combined with the cash flows from renewable assets which form the basis for establishing our initial dividend, provide an expanded base of contracted cash flows to support NRG's increased dividend rate.

By 2014 we expect total distributions from these long term contracted projects to exceed the 2013 dividend rate by approximately $25 million and expect this excess to grow to nearly $75 million by 2015, providing the basis for potential continued dividend growth.

In a market environment with reliable yield hard to come by and many utility dividend pay out rates now under pressure, we are pleased to now be in a position to provide an enhanced current return to our investors based on the successful prior allocation of capital to these contracted investments.

Moreover, NRG's increased dividend rate also represents only around 15% of our free cash flow before growth, providing a broader base of certainty, support and potential growth for this important vehicle for return of shareholder value.

And finally, turning to capital allocation on Slide 24.

NRG ended 2012 with an excess cash balance of $1.062 billion which consists of cash and cash equivalents less our targeted cash balance of $900 million and $125 million of cash at certain excluded project subsidiaries which is not currently distributable to NRG.

This excess cash balance, when combined with NRG's 2013 free cash flow before growth investments, leads to $1.962 billion to $2.162 billion in cash available for allocation in 2013, representing more than a 60% increase over 2012.

Approximately $900 million of 2013 cash available for allocation has already been allocated to a combination of previously committed growth investments, scheduled debt amortization in 2013, the capital deployed since year-end to complete the open market purchase of NRG unsecured notes, integration costs associated with the GenOn transaction and finally, a reserve for NRG's intended increased dividend.

We have now also allocated $200 million toward an authorized share repurchase program to be deployed during 2013 which, when combined with the dividend increase, represents a significant increase in return of shareholder capital.

After the capital allocation measure announced today or implemented, NRG's ongoing cash flow generation through 2013 will still provide nearly $1 billion in cash liquidity in excess of current commitment.

We believe that type of financial flexibility as the year unfolds is a huge advantage in the dynamic marketplace and fluid capital markets in which we currently operate.

However, consistent with our commitment to enhancing cash flow, exceeding our cost of capital and providing clear shareholder communication, we will continue to adhere to these disciplines in evaluating and executing any investment decision.

With that, I'll turn it back to David for his closing remarks.

Thanks, Kirk.

As has been my tradition during my nine years at NRG, on Slide 26, which is the last slide, we're ending our first earnings deck of the year with a checklist of key objectives for the year ahead.

My goal in doing this is obviously so you can follow along and hold us accountable as we succeed or fail in our effort to lead the Company you own going forward.

Most of these specific goals were touched upon by Mauricio, Kirk or myself previously in this presentation, so I'm going to elaborate further on any of the individual goals unless you want me to, so I'll end by making only one point.

I think the fundamental strength of NRG is that we are not wedded to generation or loan or to retail loan, or to any other single link in the energy value chain.

We're not wedded to one technology, to one source of fuel or to one geographic location.

We can go wherever in the industry we see the potential for profitable growth and shareholder value creation and we have built a company now that has the ability to do just that.

We look forward in 2013 to building on the momentum generated by a very successful 2012 for the benefit of all of you, the owners of NRG.

And with that, Patrick, we're happy to take a few questions.

(Operator Instructions)

Brandon Blossman, Tudor, Pickering, Holt & Company.

First off, David, CO2 legislation/EPA regulation, just your general thoughts about where we are say versus four years ago and where we are today versus pre-election?

Well, Brandon how much time do you have?

From my perspective, a considerable amount of work has been done particularly, actually on the GenOn side of the equation in terms of back end control.

It seems to me that where we're at, quite frankly, on the coal side of the conventional power industry is the plants that have put on the back end controls I think have a medium to long term future.

The ones that don't at this point, it doesn't make a huge amount of economic sense to put more back end controls on.

With the idea of the EPA regulating carbon by regulation, I assume that's a path we're on now.

I don't see -- there's obviously been more talk about climate change and the like with the reelection of President Obama but I don't see any sort of legislation passing through Congress.

So it's up to the EPA and I think they will take action, but the nature of EPA action will be so slow moving once it works its way through the whole process that it's almost not really even in our short to medium term planning horizon.

It's something really for virtually for the next decade, so in that sense, I don't think there's been a fundamental change as opposed to the last results of the election cycle.

I don't think there's any talk in any circles about a rebirth of the Waxman-Markey style legislation, so I think we're in a pretty good place.

The amount of money that we're talking about spending to finish out the back end controls, I think that's really it and we're going to be pretty well set.

Did that answer your question at all?

Because, I could go on and stop and let you ask one back up question or second follow-up question, right, Chad?

Yes, that's helpful, and it may lead into the follow-up question which is about growth.

You guys have proven to be head and shoulders above the peers as far as being opportunistic around looking for new or often places for growth.

Say over the next three years balance between returning cash to shareholders in new growth opportunities, where do you see that waiting, bias towards one direction or another over the next three years?

Well, Brandon, the first way I'd answer that question is to punt and basically say it's the last five years that I've been in this industry, which is really actually like the five years before that has proven one thing is that none of us have any idea what the next five years are going to be about, and I think what we've really done is built a company now with the financial resources that can go in either direction.

We actually do, I think maybe unlike some of the other companies in our sector, see a lot of opportunities across the space and I would say right now, in terms of re-investing in the business, I would say we've got a lot going on, on the generation side but what really animates me when I get up in the morning is what we can do on the retail space and around the customer and bringing together conventional retail and new clean energy and products which will be appealing to the consumer.

The thing though about those types of investments, Brandon, is they tend not to be as capital intensive and the bets are smaller, hopefully the pay-back is quicker, or as they say, if you're going to fail at something fail quickly and cheaply.

And so as we move and try new things in that area, I think it will still leave a lot of capital for the return of capital to shareholders.

Obviously, we're excited about what we did today in terms of the increase of the dividend in particular.

We would like to do more of that in the future, but obviously we aren't committing ourselves to a particular rate of increase and, as Kirk talked about, it's going to be sort of tied to how much we get accomplished in terms of contracted investments.

And I think that we will see more -- in this natural gas price environment, if there's going to be more built in the United States on the generation side, it's all going to be based on bilateral contract.

We've got great sites, we've got the people, we've got the ability to re-power conventional and renewable and so hopefully we can grow the dividend off the back of an ever increasing amount of contracted revenue stream, so that's my long winded answer.

My short winded answer is I think we can do both.

We can continue to return capital to shareholders and really stakeholders in terms of debt pay down and reinvest across our portfolio of businesses.

Okay, I'd call that all good news and significantly better than a punt.

Thanks, David.

Thank you, Brandon.

Jon Cohen, ISI.

Hi, good morning guys.

I had two questions, one for David and one for Kirk.

David, do you have any sense of when we'll get an update on the O&M synergies in 2013?

How long will it take you to do your review and what that would amount to?

Well, what I would tell you is we would, Jon, probably tell you more than I should.

We would like to disclose the greater synergies about the time or on the next earnings call but I can't commit to that 100% because we have a clear idea commercially of what we would like to do but we need to do a sort of technical review of some of our plants as to make sure the plants can back up what we want to do on the commercial end.

And that involves things like boiler inspections and analysis which are far beyond my intellectual capacity to understand and if those take longer than the next earnings cycle, then we're going take a little bit longer because when we do come out, we want to be 100% certain that we can accomplish what we tell you we're going to accomplish but certainly our goal is the next earns call.

Got you, okay thanks and Kirk, what are the opportunities for further de-levering, aside from just open market repurchase?

So I know a lot of the debt, especially the GenOn debt is trading at pretty high levels here but what's the timeline on when various pieces of that become callable?

And the second question is, are you happy to hang on to some of that excess deployable cash until the call dates or is that too far out?

Well, I'll take your questions, the components of your question in reverse order.

No, I'm not happy to hang on to excess deployable cash for an undefined period of time for any purpose but I feel comfortable that we've got sufficient cash flow generation and liquidity to be able to address the opportunities that may arise on the debt side of the equation.

But in terms of the opportunities that I see currently, what hamstrings us, at least opportunistically, clearly we were focused on and are pleased to have achieved the $1 billion de-levering objective which is what the last component of that open market purchase program was all about, taking care of that last few hundred.

Looking forward, given the fact that our balance sheet is in line with our targets and return to strength, my view is any further de-levering constitutes opportunistic de-levering and given the trading levels of our bonds as you acknowledge, the fact to answer your question they aren't currently callable.

Our 2014 maturity at the GenOn level, obviously, comes due in relatively short order but our remaining maturities are not callable until 2014.

I think we've got a couple, are 2019 or two tranches of 2019 bonds are both callable in '14.

But until that time, those call premiums are significantly lower than the current trading levels of our bonds which in my view don't represent a compelling level, both from a yield and total or both from a current return and total return perspective to warrant allocation of capital opportunistically but we'll continue to look at alternatives around that.

But for right now, I think we're satisfied with where we are.

And then just one little thing on Slide 24.

You have the green chunk in the pie charts as growth investments of 226.

Should that not be net of project financing so in one of your later slides, I think you had $163 million of project financing.

Should that be in addition to what's shown here?

No, the growth investments of 226 which is in the green section, that is equity investment.

That is net of project financing.

That's net of project financing?

Correct.

Great.

Thank you very much.

Thanks, Jon.

Neil Mehta, Goldman Sachs.

At a high level, what are all of the options we have in terms of monetizing your solar assets and how are you thinking about the timing there?

Well, I'll answer the easier second part of the question and then drop it to Kirk to say what he wants to say about the first half of the question.

Our timing is that since really we've sold down part of Agua Caliente to mid American which is now over a year ago, we've been communicating with the investment community that we feel that the best time -- having demonstrated that we could sell down the assets, the solar assets, add value, that the best time to actually do that to optimize that is around the time of commercial operation of the assets.

And the bigger assets in particular are all achieving or coming very close to achieving commercial operation during 2013.

So to the timing, the answer to the timing portion of your question is our timetable is this year.

As to what our options are, Kirk, how much do you want to say or not say in that direction?

The only thing I'd add is clearly, as David said, we're focused on 2013 in part because that's when these assets come on line and with all of them now at COD, we see the realm or universe of potential partners or investors or sell down candidates as expanding and the return expectations given the fact that the perceived risk at least having achieved COD is now lower.

As far as alternatives, I think I'd only say certainly transactions not unlike what you saw with Agua Caliente I certainly continue to see as being a possibility, both at the individual asset level and those less likely, those still possible at the sub portfolio level but beyond that, I wouldn't elaborate.

I think those are probably the two most likely categories but we're continuing to evaluate those and like I say, I think as we get closer to COD and we are on the precipice right now, those opportunities will present themselves more readily.

That's awesome, thank you.

And second question is around STP Unit 2. What's left to do on that project in order for it to come back in early May?

Mauricio?

Hi, Neil.

So right now we're working on reblading the turbine, the ones that were damaged and we remain on track to be operational and available prior to the summer.

So right now, our estimate is the beginning of May.

And Neal, Mauricio makes an important point there and it's one of the points that sort of showed up in our availability figures for 2012 as well.

There's not much money to be made, to be frank, in the generation business during the shoulder seasons, but we are obviously focused like a laser beam on the conditions in Texas this summer.

So the instructions we've given to the plant management at STP is obviously we want you to make these repairs as quickly as you can but the most important thing is that you need to be there for the Texas summer, reliably operating so if it takes an extra few days, take those extra days.

So that's very much the sort of marching orders there.

That makes a lot of sense, thank you.

Julien Dumoulin-Smith, UBS.

Excellent.

So first, just following up on the GenOn subsidiary, talking about distributions and what expectations are, I know you commented already a little about debt pay down but broadly speaking, what kind of distribution should we be looking for over this year and coming or what's your stated policy if you will?

Julien, just to make sure, the question has to do with distributions up from the GenOn subsidiary up to parent NRG and what you should expect in that front, is that what you're saying?

Absolutely.

Okay, Kirk?

Well first of all, Julien, as I think you probably are aware that there are RP constraints, or restricted payments calculations, largely similar to those in our own NRG indentures on the GenOn unsecured notes, and the impact of that is -- and I think we make this clear in our annual disclosure this year and we talked about this before -- there's about a $250 million basket that currently exists for distributions to NRG.

Clearly, we're now, of course, the only shareholder at this point.

Beyond that, there is an inter company agreement for shared services between GenOn and NRG where the way to think about it is the task and responsibility that we formally performed and represented by GenOn standalone G&A are now being performed by NRG, and there is an inter company payment for those services provided by NRG to GenOn.

Beyond that, there is an inter company revolving credit facility relationship between the two and there are certain elements of the GenOn operations which are currently -- which are not related to the specific physical assets which are now being performed at the NRG level.

So it's a combination of there are changes in the operations in terms of the flows but in terms of degrees of freedom, with that $250 million basket combined with the significant payment annually that is basically a G&A compensation payment, that is the way to think about the flows between the two from a distribution standpoint.

Hopefully that addresses your question.

Yes, thank you.

Then just following up on the capital allocation broadly speaking, seems like you have a number of organic investment opportunities this year I'm thinking specifically Astoria and LCAP contract still outstanding.

How do you think about potentially pursuing those opportunities exposed this year?

The sort of development in the conventional space is the province of our regional presidents and we think we have a competitive advantage in terms of repowering at our existing sites with the cost savings and the location advantages on the grid, projects like Astoria which I think is still the only fully permitted new project in the New York City zone.

Someone give us a credit worthy PPA and we're off to the races.

The one thing I would say, of course, is that this goes back to the question of capital available for allocation.

On the conventional side, obviously building new power plants is an expensive proposition but with long term PPAs and project financed debt and the equity sort of going in over the two to three year construction period, it's not likely actually to consume an enormous amount of our capital in 2013, so we would like to do as much as we can in terms of repowering, revitalizing at our existing sites and certainly Astoria is one of our top priorities for 2013.

Great, thank you.

Thanks.

Keith Stanley, Deutsche Bank.

Good morning.

In New York, can you talk about your expectations for capacity pricing as it looks like they're raising their reserve margin and also the local capacity requirement in New York City, so any sort of directional expectation on prices there?

And then also, just could you remind me, do you generally hedge New York capacity price as much in advance or should we assume you receive close to the auction prices going forward?

Okay, Mauricio?

Yes, good morning, Keith.

We manage our capacity in a similar way as we do our energy, opportunistically and exerting some sort of market view.

So I think we already pointed out that in retrospect that a reserve margin requirement increase from 16% to 17% in New York City, the location capacity requirement actually moved up much higher than that, 83% to 86%.

So the combination of that and then some retirement that we have seen, particularly around [advanced camera], really pushed off both New York City and retro state prices, significantly in 2013.

We said in a couple of calls ago that we remain bullish New York that we felt that the supply demand balance could have shifted fairly quickly by changes in the supply stack.

We certainly did that so I think it's fair to assume that we will benefit from it but having said that I just want to -- we do hedge our capacity portfolio and you shouldn't account for one-to-one benefit on our portfolio.

Okay, thank you.

And then in Texas, you've talked in the past about the year round spark spread needed for a new CCGT to be economic and there's been some news I think about a week ago that you were looking to potentially build some peaking capacity at the Robinson plant.

How can we think about what's needed in Texas for you to move forward with construction on peakers since that's more -- seems like a trickier calculation based more on scarcity pricing and some are spark spreads?

Yes, so in the past we have given what I refer to as the cost of new entry spark spread around $30 per megawatt hour.

The composition of that spark spread is heavily bias towards the summer months and if I have to point out, it's basically heavily biased towards a few hours of scarcity pricing.

So clearly the market signals that we have right now if any generation will be billed is more peaking capacity rather than combined cycle base load capacity.

Having said that, I think some of the construction that we're seeing, not just from us but other developers, is product specific.

If you have an event that is a specific project, whether you're sharing common facilities or you have access to favorable debt, I think those are the products that are going to move forward.

Now I think there is a finite amount of those projects and when you look at the amount of reserve or capacity that is required to meet the reserve margin that Texas is targeting, it's a whole lot more than what has been announced today.

Thank you.

Keith, let me just add a little bit on that too because you have to recognize the relatively unique situation we are in when it comes to those scarcity pricing moments in Texas with -- it's an opportunity on the generation side but it's a time to play defense on the retail side.

And we have a lot of peaking generation in Texas but because the legacy of where those plants came from we don't have a lot of really fast start peaking in and sometimes you need to be able to move very quickly to capture those one or two hour time periods.

So I think there's a whole bunch of reasons why the initiative you're talking about is not really -- it's a very specific niche need and opportunity for us that I think is hard to draw sort of systemic wide conclusions from that one instance.

And if I can just add one more thing, when we look at bringing some of these capacities really around originating some of our older, slow start capacity, so as we're bringing these new fast capacity we're wanting to evaluate the whole fleet and see if we need to retire them or put them in mothball status.

Operator, Patrick, we've gone a little bit over the hour which is entirely our own fault because of our long winded answers.

I'd like to -- I'm mindful of everyone's time.

We would like to accommodate two more callers if we could and then for the other callers in the queue, we'll get their names and Chad will follow-up with myself and Mauricio and Kirk if necessary to make sure we get their questions answered.

So let's take two more callers and call it a day if we could.

Stephen Byrd with Morgan Stanley.

Good morning and congrats on a good year.

Thanks, Stephen.

Wanted to go back, Mauricio, to what you'd mentioned about the disconnect in PJM in 2015 in the sense that a large number of retirements and [four curves] don't appear to be indicative of where things would need to be.

Can you speak a little bit to what catalysts might be needed to cause a correction in that regard or how you sort of see that disconnect playing out?

Well from my perspective, it's twofold.

One is and I think on the chart, we break out announced retirements versus project retirements and when I think about projected retirements, these generations that hasn't clear but not necessarily has been determined whether they are going to exit the market or not.

So I think there is a lot of optimization and evaluations going on right now in the market, so that's one potential check in the supply demand balance.

The second one is demand response and whether or not we have hit saturation point.

So when you have half of your reserve margin made up by demand response and this is probably more regulatory rather than a market question, how quickly we're going to level the playing field between demand response and generation.

So if I have to point to two, those would be the two big catalysts that will spark a recovery on spark spreads.

Great.

Thanks so much and as follow-up on retail, I wondered if you all could talk a bit about your experiences in expansion in the Northeast, what kind of competitive dynamics you're seeing?

I know you have a number of clean energy initiatives there but just more broadly as you expand there, what kind of competition are you seeing?

Are margins in line with your expectations or how is that going?

Good question, Stephen.

Jim Steffes is going to answer that question.

Sure, thanks, Stephen.

I think in general the Northeast markets, specifically in the C&I side, they are competitive and highly competitive.

As we expand the markets give us different opportunities each date each market will be different and we do see some pockets of opportunity.

On the mass market side, margins are in line with what we're expecting and we see continued growth in those markets.

Great.

Thanks so much.

Good, so last caller?

Angie Storozynski, Macquarie.

Hi, I made it.

Thank you very much.

Nobody asked a question about the upcoming PJM capacity auction.

You are entering the auction with a very large portfolio, the market is highly consolidated at this point.

You talked about additional coal plant retirements.

Could you tell us if some of those plants would be yours and what are your expectations for the auction?

Well I'll leave it to Mauricio to probably not -- first of all, it makes my day to end this call by listening to your question, and equally it will make my day by basically not answering the questions.

So I'll leave that to Mauricio to talk to you about his expectations for the 2016-2017, but let me start by not answering the first part of your question which is no.

In terms of future plant retirements, our position going into this call is the same as before.

The announcements that were previously made or made on the GenOn side, we have no reason at this point to change the outcomes or add to that.

Having said that's all part of the sort of asset review that we have under way which is what's across the entire portfolio but certainly its focus in the East and specifically in the East, more in the PJM footprint than anywhere else.

And so that's a sort of thing that you'll hear more from us about hopefully on the next quarterly earnings call.

So the 2016-1017 auction, Mauricio?

So [our price target ease].

As you know, we haven't disclosed this and all I can tell you is when we look at the parameters that we published earlier, there is a couple of pluses and minuses.

We actually think that the auction results may be sideways to slightly lower than '15-'16 auctions, so I will leave it at that.

In terms of asset optimization retirements, we are, as David already alluded, completely focused on doing a plant by plant evaluation on which units are going to continue operation and which units is not economical to put the back end control.

So that's going to be an ongoing conversation.

I will tell you that earlier we announced that Gilbert and Werner which were two plants in the past GenOn had continuing operations beyond 2015.

We actually have filed for the activation of mothball, so but there is a lot of evaluation going on right now.

That's the only two that have been publicly announced and I'll just leave it at that, Angie.

Thank you, Angie.

And thank you all for participating on the call.

We apologize for going eight minutes over and we look forward to talking to you on the next quarter.

Thank you, Patrick.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a good day.