NRG Energy Inc (NRG) 2013 Q3 法說會逐字稿

Great day, ladies and gentlemen, and welcome to the third-quarter 2013 NRG Energy, Inc.

earnings conference call.

My name is Ginayda and I will be your coordinator for today.

(Operator Instructions)

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

I would now like to turn the presentation over to Mr. Chad Plotkin, Vice President of Investor Relations.

Please proceed.

Thank you, Ginayda, and good morning.

I would like to welcome everyone to NRG's third-quarter 2013 earnings call.

This morning's 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, including the presentation and Q&A session will be limited to one hour, we please ask that you limit yourself to one question with just one follow up.

In addition, as this is the earnings call for NRG Energy, any statements made on this call that may pertain to NRG Yield will be provided from NRG's perspective.

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 in the press release and in this conference call.

In addition, please note that the date of this conference call is Tuesday, November 12, 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 date these statements as a result of future events, except as required by law.

During this morning's 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, the most directly comparable GAAP measures, and a quantitative reconciliation of those figures, please refer to today's press release and this presentation.

With that I would like to turn the call over to David Crane, NRG's President and Chief Executive Officer.

Think you, Chad.

Good morning, everyone.

Thank you for joining us.

I know many of you have taken time out of your schedule from the EEI conference in Orlando, so I thank you in particular for joining us.

I think you should consider yourself lucky that you are in Orlando because it is snowing up here in Princeton, New Jersey.

I am sure many of you will likely dial back later in the morning for the first-ever NRG Yield earnings call so we're going to try and be very brief in our remarks on both calls today.

Joining me here for the NRG call are Jim Steffes and Elizabeth Killinger who run our Northeast Retail and Texas Retail businesses, respectively, and Chris Moser who runs our Commercial Operations.

All three of them will be available to answer any specific questions you might have in their areas.

Plus, of course, I'm joined by Kirk Andrews, our Chief Financial Officer; and Mauricio Gutierrez, our Chief Operating Officer.

They will both be presenting after me and then also available to answer your questions.

Beginning with slide 3 in the presentation deck, even with Wholesale power prices in our core markets persistently weak throughout the summer period, I'm generally satisfied with the Company's performance, financial and otherwise.

As you know, the third quarter is by far our most important quarter.

And this year we generated $1 billion of adjusted EBITDA.

In the weak Wholesale power market environment that we remain mired in, $1 billion is a good result.

Indeed, it is the most EBITDA NRG has ever generated in a third quarter.

Given the average summer weather and the almost total absence of scarcity pricing in our core markets, this record performance is obviously a product of the key strategic initiatives we have executed over the past few years.

Ultimately, while we had to reduce our 2013 financial guidance last quarter, this quarter's performance affords us the ability to stay within our revised 2013 financial guidance.

One clear impact of this summer's weather and subdued market pricing that followed it has been a continuous decline in the forward price curve across all of our core Wholesale markets, but especially in Texas.

As such, we feel it is prudent at this time to reduce our 2014 guidance, which reduction, as Kirk will address in more detail, is entirely driven by the earnings expectations of our core Wholesale business.

The other parts of our competitive energy platform, our retail business and our clean energy business continue to deliver strong support for the long-term investment thesis for NRG.

Indeed, our free cash flow before growth for 2013 is extremely robust, with $896 million produced after three quarters, well on our way to a full-year result in the upper end of our previous guidance range.

And free cash flow before growth in 2014 is projected to be somewhat lower than previously expected as a function of reduced EBITDA guidance.

But, nonetheless, is expected to remain strong with an over $1 billion midpoint in our revised 2014 guidance for free cash flow before growth.

As regard to our strategic initiatives, NRG is, as you know, a Company that does not sit still.

We move towards where the opportunity is in our sector.

And in the course of so doing we feel that we have established a record over the past several years of investing the Company's excess cash generation wisely, both for capital allocation and through reinvestment in our asset platform.

And we believe the most recent examples of this reinvestment in our asset platform, the GenOn deal and now Edison Mission Energy are further proof that we are deploying a good portion of that capital in acquisitions that will be accretive over time through a combination of operational and cost synergies even under near-term market conditions, while preserving for NRG the significant upside that will accrue to us in the event of a significant upturn in these typical commodity markets.

Taking these two acquisitions in chronological sequence, and turning to slide 4, I now this is a slide you have seen before, so I will be brief.

But it's important to note that a lot of hard work is still going on within NRG to ensure the successful conclusion of the integration program arising out of the GenOn transaction.

With nearly 90% of the identified cash flow synergies now executed upon, we are positioned to realize the full benefit of the combined Company, beginning, as planned, on January 1, 2014.

Since the one-year anniversary is approaching I want to again thank our integration team led by Anne Cleary and Patti Helfer for their extraordinary effort and this positive result.

Under their leadership we have not only improved our ongoing cost structure as a function of our overall size, we have improved the basic functioning of our Company.

Now moving to slide 5, the EME transaction and what comes next.

I know we announced a proposed acquisition of Edison Mission Energy just over 3 weeks ago, and have not provided much detail to date.

Even though Kirk will be providing some additional commentary on this call, I fear that the paucity of information we are providing, particularly financial information, will be frustrating to you.

Unfortunately, the information blackout needs to continue at least until the go-shop period expires on December 6.

Strategically, I would like to reiterate that the proposed acquisition of Edison Mission drives value on multiple fronts for NRG, both directly and through our majority ownership interest in NRG Yield.

With nearly 1,600-megawatts of both conventional and wind assets eligible for future drop-down to NRG Yield, the EME acquisition will increase the megawatts available to Energy Yield owned by NRG by over 150% compared to the ROFO assets.

Secondly, by expanding our base of conventional assets at a value we believe is appropriate, NRG achieves more geographic and dispatched diversity, which is likely to prove quite important over the Wholesale price cycle, particularly as the supply-demand dynamics in our various core regions separate from each other.

Importantly, though, in light of the tremendous success we have experienced in realizing synergies from the GenOn combination, our confidence in both right-sizing the acquired platform, as well as creating incremental value from leveraging the lessons learned from GenOn, is quite high.

With that said, let me update you on a few elements of the transaction on slide 6. First, while we remain in the go-shop period through December 6, two key milestones already have been achieved, and the necessary regulatory filings remain well on track.

The bankruptcy court approved our bid protection which provide us some consideration for our effort should a higher bidder come along.

In addition, 74% of the bondholders of EME have now signed on to the plan's support agreement entered into between EME and us.

These are both important milestones in the progress of this deal.

On the right side of page 6 you will see areas of potential value creation we see in the EME transaction.

We look forward to sharing more of our thoughts around these areas when the timing is more appropriate, and as we become more intimately familiar with the operations of the EME assets.

Turning to slide 7, as we move into the final months of 2013, our priorities are clear.

First, we need to finish strong and improve all of our operational and financial metrics, led of course by safety.

Beyond achieving strong day-in, day-out performance, there are several strategic initiatives the implementation of which looms large.

The most notable of these strategic implementation projects are listed on this slide 7. And most, if not all, of them should be familiar to you.

You will be hearing more about each of these in the months and quarters to come.

And with that, let me turn the call over to Mauricio.

Thank you, David.

And good morning, everyone.

With our first summer behind us as a combined company, and with over 47-gigawatts of generation under management, I was quite pleased with our third-quarter performance.

Our Wholesale and Retail units performed well.

We have made significant improvements in safety.

And the continued execution on our operational improvement initiatives across the organization allowed us to achieve record quarterly financial performance.

While the overall summer was challenging in terms of Wholesale prices in Texas and the Northeast, we are encouraged by the clear signs of market design improvements across our key markets.

Specifically, we were pleased to see the Public Utility Commission of Texas making clear their commitment to a mandate of reserve margin, eliminating some uncertainty in our largest market.

As David mentioned, as a result of the weak summer prices in Texas, and the increasing gas production in the Northeast, forward gas and power prices have continued to be under significant pressure, and, importantly, have not recovered to the levels we saw earlier this year.

As such, we are now recalibrating our expectations for our Wholesale business for 2014.

Our development program continues to achieve significant milestones.

During the quarter we achieved commercial operations at El Segundo Energy Center and Agua Caliente.

And with CVSR coming online in October, brings our total solar portfolio to over 700-megawatts in operation.

Finally, Ivanpah remains on track to achieve operations by the end of the fourth quarter.

Turning to our operations review on slide 10, and starting with safety, our performance improved during the quarter as our direct result of the initiatives we implemented prior to the summer.

We had 110 out of 119 facilities finish the quarter without a single recordable injury, and we remain well on track to deliver another year of good safety performance.

Our total generation was down 9% for the quarter, driven primarily by lower gas generation on our East region, which was down close to 20% from last year.

A combination of low power prices in PJM, the retirement of bunkers 3 and 4, and unplanned outages in our PJM coal fleet drove generation down for the East.

Our other operating regions were relatively stable, with South Central and California experiencing slightly lower generation, driven by higher gas prices.

And Texas roughly flat to last year.

Regarding plant performance, despite lower starts our gas fleet performed at 98% starting reliability.

But as I mentioned earlier, coal availability metrics were impacted during the quarter by unplanned outages at Morgantown and Cheswick.

This happened during periods of low power prices.

And with exceptional work by our commercial operations team, the economic impact was muted.

It is important to note that when it mattered the most, the portfolio performed exceptionally well during the two heat waves in the Northeast this summer.

Regarding our continuous improvement effort under the four NRG program, or the operational synergies from the GenOn combination, our Plant Operations group continues to do an outstanding under in balancing operational performance with maintenance spend consistent with market conditions.

From both our historical practices and the lessons learned from the GenOn combination, the foundation has been set to execute on the synergy numbers we have committed to you, and sets the stage for our next effort, the Edison Mission transaction.

Moving on to slide 11, our Retail business performed within our revised expectations for the third quarter, where we delivered $167 million in adjusted EBITDA compared to $173 million last year.

Our Texas mass business remains strong and stable, with unit margins up slightly during the third quarter, along with continued customer growth.

And bolstered by the introduction of innovative products and services.

In the Northeast, we launched sales of NRG-branded electricity plans to residential customers, including customizable products and time-of-use offers.

While margin pressure and competition in the Northeast mass business remains intense, we're being disciplined in acquiring customers and managing profits.

Moving to the Commercial and Industrial business, as we have mentioned on prior calls, we continue to be very diligent in our efforts across all competitive markets, where we are winning profitable deals and walking away from those that do not meet our return threshold.

To avoid just competing on price, we are intensifying our efforts to provide comprehensive solutions to our customers beyond system power.

Including backup generation, solar, and demand response.

Consistent with this strategy, we closed the acquisition of Energy Curtailment Specialists, a demand response provider, this quarter.

Across our entire Retail segment, we will continue to manage the business in order to optimize customer growth and near-term earnings while protecting long-term value.

For the 11th consecutive quarter we increased customer count.

And at the same time, our cost reduction efforts continue to produce strong results with third-quarter operating expenses down 8% year-over-year, and SG&A per customer down 9% year to date.

Turning to slide 12, while our overall quarterly performance was quite strong, the type of this summer was a disappointment should be no surprise.

Beginning with Texas, a combination of higher wind generation at peak hours, lower unplanned outages, and a lack of sustained heat resulted in low power prices with no scarcity hours.

From our perspective, this was not the result of weak demand but a healthier supply stack.

While we expected to see a recovery in the forward markets throughout the summer, given the tight fundamentals, the weak summer prices have put significant pressure on the forward markets, as you can see on the lower right chart, further exacerbating the challenges to justify new investments.

On the regulatory front, we were very encouraged by the clear direction from the PUCT to move forward with a mandated reserve margin and the implementation of an operating reserve demand curve, ORDC.

We will continue working with all stakeholders to ensure an adequate level of reliability and the most efficient method to achieve it.

We remain bullish on Texas and the prospects for our integrated generation and Retail businesses, which we just expanded with the acquisition of the Gregory cogeneration plant at a value significantly below replacement cost.

Moving on to PJM, prices this summer cleared higher than last year driven primarily by higher gas prices and two short heat wave events that led to some scarcity pricing.

As you can see on the right side of the slide, gas prices have moved up from the lows seen in 2011.

In the Northeast, the most recent trend is the abundance of gas coming from the Marcellus Shale, which is changing the market dynamics and flows of gas in PJM in New York.

The compression in gas prices have been more than offset by the increasing gas prices at Henry Hub, thus keeping coal to gas switching at a relatively low level this summer.

We continue to see a significant opportunity for our portfolio in the medium term as a result of anticipated coal retirements, improvements in the energy market reflecting greater scarcity pricing, and potential changes in the capacity market around imports and demand response.

Finally, moving to New York, on our last call we recognized the New York ISO for the market design changes made that improved price formation during resource shortage events this summer.

Unfortunately, we are disappointed by the recent actions by the MISO to reduce capacity prices.

Last week the MISO asked FERC to phase in implementation of the Lower Hudson Valley capacity zone, immediately after successfully convincing FERC that such a zone was necessary and proper.

Further, next week the PSC is going to consider whether to formally rescind the retirement of the Danskammer facility.

Taken together, these actions seriously undermine confidence in the New York market.

Our regulatory team is working very closely with all stakeholders to ensure we maintain the integrity of competitive markets.

As you can see on slide 13, we have significantly increased our hedges in 2014, and are now less than 10% open for the nuclear and coal fleet.

We are slightly more open on heat rates due to a few factors.

Implementation of ORDC and ERCOT, increases in price caps from $5,000 to $7,000 per megawatt hour, and the fact that forwards remain depressed due to the lack of liquidity in the market and the weak pricing this past summer.

We constantly evaluate the benefits of crossing megawatts with our Retail companies versus being opportunistic or hedging in the Wholesale market.

This inherent functionality has the potential to mitigate the impact of financial plays leaving the space due to financial reforms.

We remain fairly open in the outer years as we see an opportunity for market recovery in 2015 and beyond.

Incremental demand due to coal retirements, LNG exports and industrial activity should help support gas prices.

In our core power markets, tightening reserve margins, market-designed changes, tighter rules for demand response, and exit of non-economic capacity will provide upside for our existing portfolio.

As we have done in the past, we will continue to position our portfolio consistent with our fundamental view.

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

Thank you, Mauricio.

Turning to slide 15, although higher power prices failed to materialize over the summer months, NRG generated $1 billion in adjusted EBITDA during the third quarter.

Place us at just under $2 billion for the first 9 months of the year, and on track with our guidance range for 2013.

Third-quarter EBITDA was comprised of $741 million from Wholesale, $176 million from our Retail businesses, and $83 million from NRG Yield.

Turning to highlights, on the strength of $844 million in adjusted cash flow from operations, and nearly $1.2 billion year to date, NRG's liquidity improved to a robust $3.7 billion as of the third quarter.

In October, we reached full commercial operations at CVSR on time and on budget, putting us in a position to offer our remaining interest in the project, along with three other ROFO assets through 2014, which I will describe in greater detail shortly.

Finally, during the quarter we worked to complete negotiations with the relevant stakeholders in the Edison Mission bankruptcy, culminating in an agreement to acquire substantially all of EME's assets for $2.635 billion, or $1.572 billion net of acquired cash.

Turning to the guidance overview on slide 16, with the summer now behind us, we are narrowing our 2013 guidance ranges for both adjusted EBITDA and free cash flow by $100 million.

Specifically, we expect 2013 adjusted EBITDA of $2.55 billion to $2.6 billion.

While the lack of any meaningful hot weather over the summer has caused us to reduce the upper end of our guidance ranges for both Wholesale and Retail by $50 million, we remain on track to end the year within the revised ranges we provided on our last earnings call.

Guidance for 2013 adjusted EBITDA for NRG Yield remains unchanged at $240 million.

We've also narrowed the range of our 2013 free cash flow guidance by $100 million, largely reflecting the impact of the narrowed expectations for adjusted EBITDA.

However, while the range has narrowed, we have increased the lower end of the free cash flow guidance by $75 million, reducing the upper end by only $25 million.

This is largely due to a reduction in expected working capital and reduced capital expenditures over the balance of the year.

Turning to 2014 guidance, as a result of declines in forward power prices in both ERCOT and PJM, and the corresponding impact in the expected financial performance for our competitive generation business, we are reducing Wholesale adjusted EBITDA guidance by $150 million, or about 7.5% reduction versus our prior Wholesale guidance.

Importantly, however, 2014 adjusted EBITDA guidance for both Retail and NRG Yield remains unchanged.

These guidance ranges continue to reflect our expectations for NRG standalone without giving effect to the potential impact of the pending EME transaction.

Finally, as a result of the reduction in EBITDA guidance, we have also reduced our guidance range for 2014 free cash flow before growth by $150 million.

However, despite lower forward Wholesale prices and a reduction in guidance, we still expect NRG to deliver approximately $1 billion in free cash flow before growth in 2014.

Turning to slide 17, as of September 30, as I mentioned, driven by strong operating cash flow, NRG's liquidity now stands at just under $3.7 billion, an increase of over $600 million since our second-quarter update, and $300 million year to date.

During the third quarter NRG generated over $800 million in adjusted cash flow from operations, leading to nearly $1.2 billion year to date, which, as shown in the Sources and Uses table to the right of the slide, was the primary driver, further strengthening corporate liquidity.

I will now turn to slide 18 for an update on the Edison Mission transaction, which we expect to close in the first quarter of 2014.

While the expected timing of closing is not yet known, as previously disclosed we expect the EME asset to deliver approximately $330 million in adjusted EBITDA for the full year 2014.

With $185 million of this EBITDA delivered by 1,600-megawatts of long-term contracted wind and gas generation, which is highly consistent with the NRG Yield asset profile in quality, counterparty credit and average contract duration.

Walnut Creek, a brand-new 500-megawatt combined cycle gas-fired facility, which reached COD in May of 2013, under a 10-year contract with Southern California Edison, is highly comparable to NRG Yield's Marsh Landing facility, as well as NRG's El Segundo Energy Center, which is one of the right-of-first-offer assets.

Approximately 1,100-megawatts of EME's long-term contracted wind portfolio makes up the balance of NRG Yield's eligible megawatts, and complements NRG and NRG Yield's growing contracted renewable portfolio, enhancing geographic and counterpart diversity.

We expect this substantial high-quality contracted generation portfolio to generate project cash distribution of approximately $60 million to $70 million, an implied ratio of CAFD, or cash available for distribution, to EBITDA roughly equal to that of the current NRG Yield portfolio.

When combined with the six right-of-first-offer assets, this will create a pipeline of drop-down candidates, representing more than 1.5 times the cash available for distribution to be generated by NRG Yield's current portfolio in 2014.

Through NRG Yield we expect to more effectively highlight the value of the contracted portion of EME's asset base, replenish and expand NRG capital for allocation, while further driving dividend growth and total return at NRG Yield.

The balance of the Edison Mission portfolio further enhances NRG's geographic and fuel diversity, and includes an additional 4,300-megawatts of coal and 1,100-megawatts of gas, providing NRG new opportunities to apply asset optimization best practices.

Turning to funding for the transaction, the table to the right of the slide illustrates Sources and Uses based on the purchase price and implied adjustments, using EME's balance sheet cash as of September 30, plus our estimate of anticipated changes in nonrecourse project debt over the remainder of 2013.

For the asset purchase agreement, the actual purchase price will be adjusted based on the differences between actual project debt and cash at the time of closing, versus the amount scheduled in the asset purchase agreement.

Beginning with Uses, and using the September 30, 2013 cash balance as an example, along with our estimate of year-end project debt, the implied purchase price adjustment would be $306 million.

At closing, we expect approximately $800 million of EME cash to be immediately available to fund a portion of the purchase price.

We further expect the remaining cash will become available in the months following the closing of the transaction.

Excluding the nonrecourse debt, which will be assumed as a part of the transaction, total implied Uses, net of $800 million of estimated EME cash available at closing, will be just over $2.15 billion.

Turning briefly to Sources, the purchase price for the transaction will be paid in cash plus 12.7 million shares of NRG common stock.

We expect to fund the cash portion of the purchase price using a combination of $800 million in NRG excess cash, $700 million in corporate debt, which is sized to permit us to maintain our target balance sheet management ratio, with the balance funded through a temporary draw of NRG's revolving credit facility, which we'll repay using the expected release of EME working capital during 2014.

Moving to slide 19, I'd like to provide an update on the impact of the EME transaction on NRG's 2013 capital allocation.

On the far left of the chart we begin with $1.105 billion in 2013 excess cash at the midpoint, as shown in our capital allocation slide from the second quarter.

Changes in excess cash since our last update include an increase of $200 million, which consists of $25 million based on the increase in the midpoint of our 2013 free cash flow guidance, with the balance due to the suspension of the remaining $175 million in share repurchases for 2013.

This increase in cash is basically offset by uses of excess cash since the second quarter update of $198 million, which largely consists of acquisition and integration activity, plus changes in growth investments.

Leaving excess cash unchanged since our second-quarter update prior to taking into account the EME transaction.

As I reviewed on the preceding slide, we are reserving $800 million of excess NRG cash to fund the transaction.

On a pro forma basis, however, after giving effect to the expected release of additional EME cash of approximately $250 million, NRG will use approximately half of our 2013 excess cash to fund the EME transaction.

Importantly, this is before giving effect to any proceeds resulting from the drop-down of ROFO assets offered to NRG Yield, which we'd expect through 2014, and I will review in greater detail on the next slide.

And, in addition, beyond the ROFO assets, drop down of EME's substantial portfolio of NRG Yield-eligible assets would further serve to expand NRG's capital following the EME transaction.

And we'd expect to provide further clarity on this once the transaction is closed.

Finally, turning to slide 20, I'd like to provide an update on our intentions for NRG's assets under the right of first offer, or ROFO, agreement with NRG Yield.

NRG intends to offer four of the six ROFO assets through 2014.

Specifically, we intend to offer NRG Yield the opportunity to acquire El Segundo, High Desert, Kansas South and NRG's remaining interest in CVSR, which on a combined basis represent over 700-megawatts and approximately $55 million in cash available for distribution.

This represents more than a 50% increase in cash available for distribution over the current NRG Yield portfolio.

Beyond 2014, NRG currently expects to offer the remaining ROFO assets, including NRG's 51% in Agua Caliente and our 50.1% interest in Ivanpah.

These assets are expected to provide an additional $45 million in cash available for distribution.

And, when combined with the cash from the ROFO assets to be offered through 2014, would double the cash available for distribution at NRG Yield.

These potential transactions will not only provide NRG Yield the opportunity to meaningfully increase cash available, driving dividend growth and total return, but will allow NRG to optimize value and meaningfully increase cash available for allocation via the cash portion of drop-down proceeds.

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

Thank you, Kirk.

As I have typically done in the past, and because this is the last earnings call of the year, I would like to take a few moments to assess the progress we have made this year in meeting the goals we set at the beginning of the year.

And this is on slide 22.

It would be easy for me to say our stock price has performed pretty well this year, so we have had good performance.

But we like to think of good stock price performance in mathematical terms as the product of our top decile operating performance times the aggressive and effective implementation of well thought through strategic initiatives.

On both fronts, I feel like we have had a great year.

Across our conventional portfolio, while Wholesale prices in Texas did not come through like we had hoped, we brought online, on time and on budget over 1,400-megawatts of new gas-fired generation across the fleet nationally.

Additionally, we increased the amount of free cash flow synergies from the GenOn combination by over 60%, from the original $300 million a year identified when we first announced the transaction to over $480 million now.

In our Retail business, even though we've experienced some challenges in both the Northeast and in the C&I parts of the Retail business, our leading Retail franchise in Texas remains quite strong.

And we continue to bundle new products and services, such as demand response, with our energy solutions to further strengthen the Retail business, which remains a very significant and steady contributor to NRG's corporate-wide strong cash flow.

And across our clean energy franchise we now have over 1,650-megawatts gross of solar and wind assets, which are soon to be augmented by another 1,700-megawatts of renewable generation from the Edison Mission fleet.

We also vowed at the beginning of 2013 to make the most important goal we set for ourselves in this area was to highlight the full value of our leading solar platform.

And with the success of NRG Yield we feel that we have done just that.

Before I close, I would be remiss in not mentioning our existing $200 million stock buyback program, which the EME transaction has prevented us from completing.

With respect to capital allocation we have always prided ourselves on being prudently balanced and on being value maximizing.

This has required us to be flexible so that we can deploy capital when we see value enhancing opportunities in front of us, such as the Edison Mission transaction.

As such, while completing our 2013 share buyback program is off the table for the time being, we look forward to fulfilling our commitment once the EME transaction is completed and our unrestricted funds have been replenished.

Now I would like to turn the call back over to the operator, to Ginayda, we can answer your questions.

(Operator Instructions)

Paul Patterson, Glenrock Associates.

Just on the increased financial information that you plan on providing after the go-shop period, I am wondering how soon after the go-shop ends in December we might get that information.

We haven't picked a time specifically yet.

I would be interested in your feedback.

But with the holidays coming up fairly shortly after there, I think we were thinking early January.

One thing is for certain, we're not going to ask people to wait until our next call, which would be in late February.

But if there is a big difference, you think, between early January and the call we would otherwise schedule on December 25, we would be happy to hear about it.

Okay, that's all.

Thanks a lot.

Paul Zimbardo, UBS.

Hi, this is Paul from [Drillingstein].

My question is about if you could just provide -- I know it's a sensitive topic -- some high-level color on some of the synergies with the Edison transaction, particularly your plans for the new coal plants, Waukegan and Will County.

Paul, I don't really think we can.

I think that, for the most part, about all I can tell you is that if you look at the play book that we followed for the GenOn transaction, it is pretty precisely the play book we plan on following for Mission.

So, I would expect the same sort of thing.

There's a certain amount that we are going to be able to talk about in terms of what we think we can achieve by putting the company together.

But in the same way, when we did the GenOn transaction there were things that we were not comfortable estimating in quantitative terms until we had actually owned the assets and got the level of detail that comes with ownership as opposed to the level of detail that comes with due diligence.

Then we felt more comfortable to talk more specifically.

I think the coal assets in Illinois, they definitely fall in the second category.

That is the more complicated part of the story.

The way we look at them and evaluate them in Illinois is going to be very much the way we evaluated the GenOn acquisition and the new assets we had in Pennsylvania, in particular, but also in Maryland.

Okay, thank you.

And just a quick follow up, now that you are undertaking this transaction, what are your thoughts on further M&A at this point?

There is no doubt that we like to pride ourselves as a Company that we can do several things at one time.

But this is a big transaction.

And the big transactions tend to be sequential, number one.

Number two, the more transactions you do, the less potential transactions there are left to be done.

I wouldn't say that we've shut down our ability to look at what is available in the industry.

But I would say, Paul, what we want to do is we want to be actively engaged in the market.

Because, as you could tell by the general context of our earnings call, the commodity price environment at the wholesale side of the business remains extremely challenged.

The time that you want to be a buyer of assets in this space is when there is no hope.

When the future looks as dire as possible, that is when you want to be a buyer, because that sense of giving up is what causes the price to be at a level where we can continue to do what we've tried to do, which is to accumulate assets in the sector in a way where basically we can reduce the cost structure.

Because this is a scale business.

So, we want to be as active as we can because we think it is a good time to be a buyer, precisely because the commodity price environment is so weak.

But we have to recognize that with GenOn just on and Edison Mission still in our forward sights, there are limits to what else we can do until the Edison Mission deal is done.

Thank you very much.

(Operator Instructions)

Travis Miller, Morningstar.

I want to think about this EME and think about the retail impact.

Is there anything there that would either offer revenue synergies, cost synergies, any expansion opportunity on the retail side?

I'm going to ask Jim Steffes to talk a little bit about it.

Travis, what I would say is, at best, that would be not even a secondary -- maybe even a tertiary or whatever comes after secondary.

I think there has been some.

We have watched with interest a little bit what goes on on the retail side in Illinois with community aggregation and all of that.

Not that we have been that interested in playing in that space at the margins that we have seen there.

Clearly having generation in Illinois would probably get us to take a slightly harder look at that market.

But I would absolutely not say that anything having to do with retail was a driver of the Edison Mission transaction.

But, Jim, do you have anything?

No, I think I agree completely with that, David.

Which is, it does position us to look again at Illinois on the retail side and see where that market will evolve to, and how much more NRG and our multi-brand strategy can take to move into that market.

But it is something that we will be looking at over time, as the transaction before it.

Travis, do you have anything else on your mind because we sort of threw a wet blanket on that question?

No, that is exactly what I was thinking, if you are thinking about expanding.

Obviously we have seen Dynergy talk about that expansion in Illinois and potential margins there.

But, secondary, on another subject then, similar, but you talked about, and you have for several quarters, about the financial players, the liquidity issues.

How has that changed?

Let's look back three years or so or four years ago, how does that liquidity changed?

So maybe liquidity three or four years ago was better as we looked out to three years forward, and now maybe it's two years.

Again, I'm just putting words in your mouth, but how has that liquidity shrunk, if you get what I'm saying?

Chris Moser is going to answer that question.

But, Travis, I just want to make sure I understand.

So, you're asking about liquidity in terms of how it's effecting our ability to hedge as we want to in our core markets?

Or are you saying the liquidity discount that often makes the out years of trading to us look unnatural from what we actually expect to see in those years?

Because when you said two years out, we used to debate that all the time internally.

Are the markets a realistic proxy of what is going to happen for two years or three years or whatever.

Is that what you're wanting to ask about as well?

Yes, the latter.

Whether you thought, three or four years ago when you had some more financial players, perhaps even some more industry players.

Whether you were better able to capture what you thought were fair prices three years out, let's say, and relative to now maybe you can only capture fair prices two years out.

Good question.

Chris?

Travis, this is Chris.

As I rewind the clock and go back into 2008, 2009, there were certainly more banks with bigger appetites out there willing to serve us.

At the same time, with the general chaos in the markets back in 2008 and 2009, there were some pretty huge spreads in terms of CDS and what-not.

Which actually made it pretty costly for us to go too far out in terms of the credit charges that the banks were charging back then.

It is the reverse now.

Things have calmed down on the CDS side but there are just less and less banks that are interested in that with big prop books.

One of the things I will emphasize, though, is I think we are in a much better position now than we were back then simply because we have the retail side.

And we can cross internally as deep in the curve as we want and not have to worry about what the banks are doing or what the CDSs are doing.

So think that is a really nice choice that we have.

We can go to the market if we choose to.

We can choose to leave it open or we can cross with retail, because they are always -- retail is priced agnostic from the perspective, as they're pricing deals all the time.

It doesn't matter if we think prices are high or low, they are pricing deals all the time.

Whereas from the wholesale side, the perspective is always we would rather sell it when prices are high.

So, that outlet, the retail outlet is a very good one, a very good option for us to use in cases when we see less liquidity.

Can you get that three years out?

I know retail contracts tend to be a little shorter than that.

Is there a [three year] out period where you see that liquidity and that mispricing right now?

Yes, I would say that the retail contracts in terms of the residential and what-not tend to definitely be of the shorter term nature.

But the C&I certainly extends beyond three years.

And that is not a small part of the portfolio that we have.

Great.

Thanks so much for the detail.

Jon Cohen, ISI group.

A couple questions.

First of all, I noticed that you kept the guidance range $200 million wide despite adding a lot of hedges in the third quarter.

Can you just run through what the drivers that will determine where you will fall in the guidance range, what those are now?

John, it is Kirk.

I would say that the two primary drivers of that would be the upside on the retail side and, most notably, the formation of scarcity prices, especially obviously in ERCOT.

And certainly on a weather upside, as well, which has an influence on that.

Because we're more or less open, or we lean long on the heat radar, on the gas side of our portfolio, that is probably the most significant component of what would lead us toward the upper end of that range.

Okay.

And then just one other question.

If in PJM the gas dynamics don't improve, or if they even get worse, are there levers that you can pull either on the cost side or additional shutdowns that will mitigate some of the revenue impact to the wholesale part of the business?

John, is this question motivated by this idea that gas in the PJM is going to trade at a discount to Henry Hub because of Marcellus excess supply?

Just to be more specific, is that what you're asking?

Yes.

If you persistent low gas prices that continued to pressure power prices, are there other things that you would do in how you operate your fleet?

Mauricio.

John, good morning.

I tried to elaborate a little bit on the earnings slide.

Certainly gas bases have been under a lot of pressure because of the gas glut that we're seeing out of the Marcellus shale.

We need to make sure that the absolute total price that is paid is the one that is going to drive the power dynamics in the East.

I tried to show that actually Henry Hub prices have moved from theirs lows that we saw in 2011.

So, the absolute price of gas in the Northeast has actually increased from two years ago, making the coal to gas switching less.

I tried to depict 2014 and 2015 gas bases, and we see even potentially a further compression on that.

But you need to also take into consideration the Henry Hub price or the absolute price.

Now, the other dynamic here that will affect what we do with our plants, keep in mind there is a very robust capacity market.

And that capacity market, there are some market design changes that I think, in our perspective, will be supportive of our capacity prices, whether it is limiting imports into the capacity auction or changing or tightening the rules around demand response.

I think all of those changes will be supportive and we will make a determination in light of, not just energy markets, but also capacity markets, John.

Okay, thank you.

This concludes the Q&A portion for today's call.

I would now like to turn the call back over to Mr. David Crane for any closing remarks.

Ginayda, I want to thank you.

And I want to thank everyone again who participated on the call for taking time out from their schedule in Orlando or otherwise for participating.

And we look forward to talking to you before next quarter about the Edison Mission transaction.

Thank you very much.

Ladies and gentlemen, this concludes the presentation.

You may now all disconnect.

Have a great day.