Talen Energy Corp (TLN) 2015 Q3 法說會逐字稿

Good morning and welcome to the Talen Energy third quarter results conference call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Andy Ludwig, Director of Investor Relations. Please go ahead.

Thanks, Emily, and good morning, everyone. Thank you for joining the Talen Energy Corporation conference call to discuss third quarter results and business outlook. Today's presentation is being webcast and we are providing slides of the presentation on our website at TalenEnergy.com.

This presentation may contain forward-looking statements and we encourage you to review our filings with the SEC to learn more about certain risk factors that could cause actual results to differ from these forward-looking statements.

This presentation also will contain references to non-GAAP financial information that we use to measure our business. You can find the reconciliation between the non-GAAP financial measures we use and the most directly comparable GAAP measures in the schedules to our earnings release and in the appendix to today's presentation.

I'll now turn the call over to Paul Farr, Talen Energy President and CEO. Paul?

Thanks, Andy, and good morning, everyone. Joining me on the call today with prepared remarks is Jeremy McGuire, our CFO; as well as Joe Hopf, our Chief Commercial Officer and Tim Rausch, our Chief Nuclear Officer.

Our call today will follow our normal format as outlined on the agenda on slide 3. But prior to jumping into the slides, I wanted to make a few opening remarks concerning the commodity markets and our strategy. Some of the items I'll touch on will be covered in more detail in later remarks, but I want to emphasize what this team is doing to doing to drive shareowner value in this difficult commodity cycle.

We don't control commodity or capacity prices, but we do control our asset mix, our cost structure and to a great degree, our balance sheet. We believe scale, diversity, maintaining low operating costs and maintaining an appropriate balance sheet will be the primary determinants of successful, sustainable value creation and cash flow.

The spin for PPL and the Riverstone acquisition allowed us to achieve some more scale, a modest expansion into Texas from our core PJM footprint and a great opportunity to address our cost structure. What we're building is a scalable platform to drive down asset management costs, a commercial platform capable of optimizing the value of a fuel-diverse fleet across multiple RTOs and an improved risk profile for certain of our assets, should gas prices remain depressed for an extended period of time; all while maintaining appropriate leverage for the asset base we own and operate at any given point in time.

In our first 5 months of existence, we've executed strongly and accomplished a great deal towards these goals. We knew that to acquire the Riverstone assets, we'd have to commit to sales of approximately 1,400 megawatts of the newly combined portfolio to achieve FERC approval for that transaction. FERC concurred with our unique dual-option approach to divestiture and allowed a 1-year timeframe to enter into final sales contracts, both of which bought us great flexibility.

We reached agreements last month with three different parties to dispose of the Pennsylvania hydro assets, the Ironwood combined cycle facility and the Crane coal-fired generation facility in Maryland, resulting in approximately $1.5 billion in gross proceeds.

Given the strong indicative values we were seeing for Ironwood, we filed for a third option with FERC that would allow us to retain the 800-megawatt Sapphire gas portfolio in New Jersey, should they concur with our analysis that the three announced asset sales meet their concerns regarding asset concentration in Eastern PJM. We hope to hear from FERC in the coming weeks on that request.

We are still in a sales process for the Sapphire portfolio and remain open to a sale provided we receive bids consistent with our fundamental view of the value for those assets.

We had a strong belief that the market would find these mitigation assets attractive when we committed to buy the MACH Gen portfolio for $1.175 billion. This 2,500 megawatt portfolio of highly competitive, combined cycle gas units is very well situated to capture improved capacity and spark spread value from the markets they operate in, as cash-challenged nuclear and coal-fired generators in these regions have to make tough decisions on environmental spending, deal with the overhang of the clean power plan, make a bet on their forward view of and risk of natural gas and power pricing, and manage the risk of performance in markets with C.P. or pay-for-performance capacity constructs.

When you factor in our operating experience with now the largest fleet of Siemens 501 units in the US, and a strong partnership with Siemens to get more megawatts, more operating flexibility and an optimized outcome for Harquahala, this acquisition that closed on Monday meets the criteria for scale addition, fuel diversity, regional diversification, and risk reduction.

We're proud of the execution on all fronts for this negotiated deal and look forward to driving even more value as we execute further to enhance value from all three stations. All of these benefits are being created without stretching the balance sheet, given the known mitigation proceeds.

Beyond the mitigation asset sales, the renewables business sale and the MACH Gen acquisition, we highlighted a number of key value drivers on the Q2 earnings call for 2017 and beyond that ranged from $100 million to $140 million in adjusted EBITDA. We're on target to achieve each of those drivers, including the Brunner Island coal fire project that we expect to come online later next year.

We secured the final two property rights of way in the past few weeks and have begun letting contracts for the pipeline construction, keeping us on schedule and on budget on this key project. As a reminder, in lower gas price environments, the economics of this project improve beyond the $25 million to $35 million range we provided.

Beyond the strong economic returns, while this project does not add scale, it does mitigate risk for both low gas pricing and C.P. performance by turning Brunner into a dual-fuel facility.

While this is not an exhaustive list, and we continue to look for ways to add value, I'm extremely proud of this team's accomplishments in 5 months' time. The corporate culture is changing rapidly and in a very positive way. There's a sense of urgency to affect the needed change. Scale, diversity, cost control and the balance sheet will remain our focus.

With that by way of some [internal] remarks, let's turn to slide 4. Today we announced strong results for the quarter and year-to-date. We're controlling cost ahead of our synergy target for the year and getting very strong performance from the fleet, notably Susquehanna. Unit 1 has operated at 100% capacity factor year-to-date and so has Unit 2, excluding the planned refueling outage that took place this past spring.

Tim and his team have done an outstanding job improving equipment reliability and I want to thank the entire team up there for the urgency to drive performance improvement.

Jeremy will take you through the increase in our guidance for both adjusted EBITDA and adjusted free cash flow in his prepared remarks.

Since I already commented on the MACH Gen close and the announced mitigation sale, let's move to slide 5, where we've provided a summary of the economics of the asset additions and deletions. The EBITDA [Arb] between the 11 times multiple we sold the mitigation assets for and the much lower multiple we purchased MACH Gen for clearly drives shareowner value.

We accretively redeployed capital on assets that provide immediate EBITDA to free cash flow, added scale and added diversity and fuel mix, markets and geography. We're actively pursuing value-optimizing options for Harquahala and are on track to execute on our path forward for that facility within 2016.

On slide 6, we cover the key priorities that we've publicly disclosed. We remain fully on track to achieve each of these initiatives, as I said before, with the PJM C.P. auctions completed and much of the asset sale activity behind us.

I've already discussed a number of the other priorities, so let's move to the operations review beginning on slide 8. On an equivalent availability basis, we've seen very strong performance across all the assets, with Susquehanna leading the way as you can see in the data on the charts on the left-hand side of the page.

The Eastern Gas assets continue to see significant run times with on and off-peak spark spreads expanding for these units.

Looking forward to C.P., our forced outage experience has been very strong at all the plants in the East. We've seen a few unplanned outages at Colstrip primarily for boiler tube leaks, but market price signals in the West don't support proactively putting capital into the units at this time. So we'll continue to respond to those price signals as we maintain the units.

We still have a ways to go to get to top-quartile performance in safety, but I'm very encouraged by the focus and urgency from Tim and Joe's teams since early in the year and we'll continue to make this a top priority for the entire organization.

Turning to slide 9, I know you're aware of what's been transpiring with both Eastern and ERCOT spark spreads. PJM sparks continue to remain robust with declining gas prices and more resilient power prices. Texas clearly doesn't seem to be sustainable when you look at fully loaded cost of operations and negligible to negative free cash flow on a number of units in the system, especially coal and nuclear.

We continue to see relatively strong load growth even with depressed oil and gas prices, and saw number of new system peaks with a short burst of hot weather in August. So we do remain constructive on ERCOT.

As we move through time, we would expect to see pressure on Henry Hub prices given the improved high-pressure fracking methods being used on new wells in the Permian and other basins, as well as the reverse flow of gas from the Marcellus and Utica to the Southwest. This should improve the spark spreads of our ERCOT assets, especially if we get some protracted summer heat.

Before turning the call over to Jeremy, I'll finish up with some comments on our hedge levels as outlined on slide 10. We have hedged a bit more in the third quarter for 2016 and as expected, the MACH Gen gas portfolio closed almost fully open for next year. There was a modest amount hedged for the balance of 2015 when we took ownership.

I would expect that as we make our way through the balance of the year, we'll come into 2016 close to our 75% target at least for the non-MACH Gen assets.

Beyond the energy hedges, we did take advantage of an opportunity to reduce our coal commitment for 2015 and the next several years and closed those commitments out at a positive value relative to the mark to market on those required purchases. You can see that benefit versus prior disclosure in the reduced quantity hedge for 2016 and the lower hedge prices on that lower quantity. This reduced commitment will also let us take full advantage of the gas optionality for Brunner once those units are capable of firing on gas beginning later in 2016.

I'd now like to turn the call over to Jeremy to walk us through some more detailed financial update. Jeremy?

Thanks, Paul. Page 12 provides an overview of our third quarter financial performance. Third quarter adjusted EBITDA was up $110 million versus a year ago, driven primarily by improved margins. These margins were up 10% from increased Susquehanna output, higher PJM capacity prices, robust spark spreads for our gas fleet, and the consolidation of RJS as of June 1.

While ERCOT is a relatively small part of the overall portfolio, we had strong operational performance enabling us to take advantage of the heat-driven pricing in August.

O&M was also lower by $20 million year-over-year due primarily to lower corporate costs.

Let's turn to page 13. We are narrowing our guidance ranges and increasing our midpoints for 2015 adjusted EBITDA and adjusted free cash flow by 6% and 18% respectively reflecting our strong financial performance.

We have also updated our projected net debt balance excluding the pre-existing project debt acquired with MACH Gen and the debt incurred and cash used to fund the acquisition. The $200 million decrease is primarily the result of the $60 million increase in the free cash flow guidance midpoint, return of cash collateral and the net proceeds from the sale of Talen Renewable Energy, which closed earlier this week.

In connection with the MACH Gen purchase, $578 million of debt was assumed and it's non-recourse project debt.

To finance the balance of the purchase price, we borrowed $400 million under our revolving credit facility and used approximately $225 million of cash on hand, which would put it our end of year net debt at approximately $4.7 billion.

Turning to page 14, we've adjusted our 2016 estimates to reflect the sales of our hydro assets, the Ironwood Station and the C.P. Crane Station. The adjustment is to remove these assets from 2016 performance entirely. However, we anticipate closing sometime in the first quarter.

I would also note that the adjustment to free cash flow incorporates expected interest savings from using the asset sales proceeds to delever. The $4.785 billion net debt balance as of the end of 2015 was provided on our second quarter call and reflects the net proceeds from the sale of Talen Renewable Energy and the effects of the MACH Gen purchase, but does not reflect the other balance of year 2015 cash improvements discussed on the prior page.

The end of year 2016 estimated net debt balance of $3.2 billion picks up those improvements as well as the net proceeds from announced asset sales and the 2016 projected net change in cash.

Before I turn it back to Paul for some closing remarks, let's turn to page 15 to touch on capital allocation. In our press release on October 8 announcing the sale of our hydro assets and the Ironwood Station, we stated that we planned to use the proceeds to retire prepayable maturing debt in the near term. That would put our 2016 net debt to EBITDA ratio at about 3.8 times, below the midpoint of our leverage (inaudible).

With that, I'll hand it back to Paul.

Thanks Jeremy. Just by way of a quick update on slide 17, let me summarize by reiterating that our mission is to utilize the scale asset management in commercial platforms that we've built to drive down costs, optimize the value of a fuel-diverse fleet across the multiple RTOs that we operate in and improve the risk profile of our assets, especially in light of depressed commodity prices.

Over the long term, we believe that is what will drive strong sustainable free cash flow generation and we'll do all of that while maintain an appropriate balance sheet.

Operator, with that, by way of prepared remarks, we're ready to take questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Abe Azar, Deutsche Bank.

Congratulations on a good quarter. Should we think of your leverage at 3.8 times net debt to EBITDA as setting up for further debt-funded growth or supporting the balance sheet with backward-dated energy prices and spark spreads?

We clearly don't have anything to discuss publicly on a growth front. We wouldn't -- that wouldn't be normal course for us to do that. I think it clearly provides the opportunity to do that if we found something attractive and accretive to do. And in the meantime, as Jeremy indicated, the plan is to use those proceeds to get down to that 3.8 level. There is some -- a bit of backwardation looking forward, but I still look at our capability to both grow and manage as not being mutually exclusive so --

And I think as we've talked in the past, the way we think about adding assets to the portfolio, the different types of assets in this current gas price environment can support different sort of marginal amounts of leverage. So bringing in more gas to the fleet, depending on market, could have a hedging aspect to our cash flows. So those two things trade off of each other.

Great. And one follow-up related to low gas prices. Does that make the Montour dual-fuel project that much more attractive? And where are you in evaluating that and when could that be on the horizon?

Abe, I think similar to the comments that I made on Brunner, which is already committed to, as soon as we're able to see some of the regional pipeline activity near the station get advanced -- and there are multiple lines that progress is being made on which would give us different options from a supply perspective, all within that, [Joe], 12 to 15 miles of the station. It's the same roughly $100 million cost that the Brunner project is because Brunner has to underground some of the pipe. And in that region of Montour, it could stay above ground.

As soon as we have visibility to those pipelines, we would begin to move forward with that project. Because you're correct, the lower the gas prices go, the more value those types of projects have and that's that derisking element to the portfolio and the asset base that I was referring to in my comments.

Great. Thank you, guys.

Ali Ahga, SunTrust.

Paul, any sense -- the lockup period is expiring for Riverstone later this month. Any sense of what their plans are and is it an opportunity for you to utilize some of this cash position to potentially get rid of that -- of at least part of that overhang that could come up as that lockup expires?

Yes, so I don't really want to speak on behalf of Riverstone. I do believe that they see significant value in the company beyond what, on a day-to-day basis, may be reflected in the share price. But I really don't want to speak for them. When it comes to a potential buyback, especially with a large minority shareowner, things do get a little bit tricky. I think in most of the historical situations that I'm familiar with, those are typically bought back on a discounted basis to the share price. And I don't know that that would be in the cards. But whether it would be their shares or other shares, I don't think it really matters that much to the extent that we decide to do something like that.

So it's a -- I understand the point that it's a larger quantity of shares and I know each time we file, and that's one that triggers angst in the marketplace. Remember though, that we're obligated to register those shares pursuant to the shareowner agreement that we've got with them. So apologies for needing to update those periodically, but we have to do that. And I know it's not comfortable for the market, but I do think they see significant value in the Company and are looking for our continued execution to move the share price. And at some point in time obviously, they will take advantage of the market.

Okay. The second question as you pointed out, the transactions that you have had so far to sell your assets have gone at significant premiums to where your own portfolio is being valued in the public equity market. I'm just curious if that causes you to relook at the portfolio? If there is such a huge disparity between private and public market valuations, is that strategically perhaps a different approach to maximize shareholder value from your perspective?

Yes, to the extent that there was an opportunity that was actionable for the Company that drove significant shareowner creation beyond what was represented in the daily price, the board would have to evaluate those as those situations or those offers kind of came. So yes, it is challenging. I think all of the CEOs in the space look at their share prices, look at their free cash flow yields, even with some level of backwardation, as hedges roll off, of frustration.

Again, I -- we don't control those commodity prices; we control the asset mix, the balance sheet, the cost execution. And we'll look for ways to drive shareowner value until or if some of those opportunities that you're kind of inferring come along. So I -- we just have to continue to execute through this and continue to improve the resiliency.

As Jeremy indicated, certain gas and/or other fuel type profiles tend to provide, you can use the term hedge or resiliency to low gas. We've been very fortunate to be able to replace the assets there we're disposing of with an all-gas asset portfolio that our turbines and units that we're very familiar with running with, and we're getting a lot of support from Siemens on. So we feel good about that. I just can't really predict a what-if situation and at what values.

And last question -- just related to that, as you mentioned, the Sapphire portfolio is still out there for sale, although if the FERC comes in your favor, you may not sell. I'm just wondering rather than perhaps scaling up and building capacity if it is such a sellers' market, would you perhaps even consider selling more assets beyond just what you have to sell for mitigation purposes?

I think what we've found in the buyer for the hydro to owned an asset directly upstream could create some level of value that drove the offer that they had. The decision to sell Ironwood, it was a compelling value. I guess as we see basis improving locally here in our -- as we sit kind of right on top of the Marcellus as these new pipelines get built, there's challenge to assets like that as well. These huge spark spreads we don't think last forever. So there was some backward-dated view to that, but at the same time, as I just indicated, those gas assets provide resiliency and we can't predict where the commodity is going to go. It's a really difficult market today to sell coal assets into.

Had we been able to find something on that front, that let us keep Ironwood and maybe -- probably not the hydros, but at least Ironwood -- we would've probably preferred to do that. But on a risk-adjusted basis with the bids in the market, there just wasn't a strong enough bid for that versus what we think we can do with those assets, especially in terms of coal firing and that optionality value. And then there's nuclear.

So I think we're very comfortable with the portfolio and fuel diversity that we've got. We've started to create some RTO and regional diversity beyond just the core PJM footprint.

I would just add that a piecemeal liquidation of the Company presents I think a number of challenges. First of all, it's enormously tax inefficient and that hits the shareholders because it's a corporate-level tax. And then you start to introduce real kind of scale considerations around kind of what's left.

Right.

And you get very cost inefficient on a per-unit of production basis. So we're not at all adverse to the idea of Talen going private, so to speak, if as Paul said, if a compelling offer comes. But I think a piecemeal sell-down of the portfolio I think is enormously inefficient for shareholders.

Understood. Thank you.

Julian Dumoulin-Smith, UBS.

So perhaps first quick somewhat administerial question, but the mark to market, what are you assuming on the 2016 guidance just as of what date? I suppose I'm trying to get a sense here if it's updated or not.

So what we -- so I -- it's updated to take you from the walk that we provided previously. It's not fully updated in terms of all the variables that go into our business plan. As we indicated on Q2 and earlier in the year, we would expect to provide the full guidance with the range on it on the year-end call. What I can say though is that we just did a first-round review of the multiyear forward business plan with the board in late October that used the end of August as a margin buildup for the curves at that point.

There's been some degradation from there, but that's just one of the data points that goes into the plan. So we'll react to that as well, but the only data point that I have, in having looked at a fully generated plan, is from late August, the end of August.

Got it. All right.

We'll look to update that, as we said previously, on the year-end call.

Excellent.

And then very much likely now that -- once we have, we'll know what will happen with Sapphire. We're almost fully transitioned with Riverstone and the business planning elements there. I'd very much hope that come next year, that this team will be on a cycle where we'd be able to provide the following year and get the board on the schedule too -- the following year's guidance in Q3 in line with what we know our peers are just doing now as well.

Got it. But you don't anticipate marking to market the guidance quarterly?

I don't.

Okay.

Because we don't really do a full rerun. If we're comfortable with it, we'll say that, and just knowing where all the variables, for 1 year for the -- we were the first one out with 2016. So on the year that we provide, yes, we'll say whether or not in Q1 2016, Q2, Q3, Q4 2016, yes.

So just to add that [really], so as you're well aware and most people are all aware, we gave kind of a point estimate for 2016. And so it makes it, as commodity -- we've been above that number; we've been below that number. But we've always been within a chip-shot of that number. Even with the downtick in prices recently, I would say that [845] still remains an achievable target from a business planning perspective. We just don't have the luxury of a range around that number to say, yes, we're still in the range.

Got it, excellent. And then just in terms of costs of late, your peers have seemingly alluded to rail savings as more of a Western phenomenon. I'm curious if you're seeing anything change with your counter-parties?

Beyond the buyout, the coal buyout, from a mine perspective, we had committed on a rail basis about 3 years ago and have a couple of years left to run on that contract. That gets us into low 20s delivered for the legacy Brunner Montour facilities. And then inherited the [barge and local] situation down in Maryland. So nothing to update on the transportation side. We did update the commodity side.

All right, excellent. And then just to be very clear about this also, the long-term synergy estimate you've provided sort of as part of the RJS combination, are those still intact given the number of portfolio changes? Obviously, you sold quite a few [assets] in place (inaudible) kind of reiterate that number?

Yes, with the [155 plus the 10 to 20] that we had on the improvements list last year, that as we get into years like 2018 I would think we'll be improving that number as well out in that timeframe. In the very shortest term, 2016 and maybe into very early 2017, we're still reliant on the transition services agreement with PPL. Those legacy systems and business processes and platforms to be able to provide a lot of the needed -- just the needed day-to-day activity, closing the books, supply chain.

So as we're able to get off of those and start experiencing what's possible in -- with the new mini-ERP that we're building in that lower cost model, I think we'll get a better idea as to how much more is possible. The asset mix, in and of itself, given the nature of the assets that are being sold is not a strong determinant of our ability to maintain or improve the previously provided numbers.

And then hopefully a quick last one -- obviously, we've discussed in the past C.P.-related retirements down the line. What's your latest thinking after the auction happening now? Do you have like an estimate of what you think that could be or a range? And especially, as you think about your own portfolio and having some of them clear or not clear, how does that drive your thinking?

The not-clearing was -- and I think I've said this on at a couple of conferences already. The not-clearing was a tactical decision-making around what prices we thought were fair relative to the risk that was being absorbed, and a recognition of the fact that the units that likely weren't going to be clearing behind us were ones that were not necessarily tactically bidding, but absolutely had to see higher prices to justify taking on that risk, given their forced outage rates and the investment they had not put into their plant.

So we were very comfortable with the relatively modest amount that didn't clear and the three subsequent auction opportunities that we'll have for 2018, 2019. I would say on top of that though, we do see 9,000 to 10,00 megawatts of additional exposed primarily coal and some nuclear units in the system. Especially, as we've seen a stepdown in prices.

That's why in my -- in the comments and prepared remarks that I had, whether you're talking about Texas and the cash flow or negative cash flow situation in this environment, or you're talking PJM and lower gas and dark spreads, especially in Ohio where you've got the Utica and a large amount of new gas coming without a pipeline system that can take that away easily, we think there's more at risk.

And as people start to experience lower dark spreads, lower economics on the units, even with the improved pricing which we don't think is fair relative to the risk necessarily, but the market is the market. They may be challenged to justify keeping those old units open and a lot of people cleared fleets. And we've got some megawatts that we'll be happy to sell them when they come calling and decide that on an all-in energy and capacity basis, it's still not a good cash flow situation.

Got it, great. Thank you.

Steve Fleishman, Wolfe Research.

I'm sorry, I just wanted to clarify your commentary on kind of the [26] guidance and price decks and the like. So the guidance reflects the update for the asset sales as of the second quarter [call] and price decks. So and then Paul, you said you've seen the numbers through like August end. And I might have missed it.

Yes, but (inaudible) --

Did you say that based on at least that, you're still kind of in that same range or --

Well, we -- okay. So let me -- Jeremy provided a subsequent comment, so let me put the two together. So it was meant to be a lock from the [16] that we had provided on Q2. We did a first round business plan, draft business plan review with the board in late October, which we used end of August forward curves, which completely was on top of that [845] number. Since that time obviously, prices have moved a bit, but in the context of what would be a very normal range -- and everybody has kind of got the same plus or minus range around the midpoint -- we would be -- still be very comfortable being well within the range for that number.

If I had to think about what we would do in response to some negative movement in prices and where we have a capability to react to that, we're still very comfortable with the number not far from that figure.

And things in terms of reactions are things like managing cost, dispatching plants differently, things like that I assume?

Yes, how, in some instances, how quickly we can get some of the technology improvements on some of the [Harq] stations, optionality value that we've put into the preliminary numbers around volume in Athens versus where we may be able to optimize a bit better for. So I would say don't use the term synergy, but both revenue and cost opportunities around the portfolio.

Obviously, we've got a significantly amount hedged and we do have a significantly amount of gas that, as things get pressured on the solid fuel plants, we've got positives on the gas plants. We could end up bringing in a component of Brunner before the end of the year on maybe even one of the units. So there are some offsets that are built into the fleet naturally on top of the hedges. And then we would look to further emphasize cost discipline in light of what near-term movements have been.

Okay. One other question just on taxes -- I know you guys have talked a lot about working on reducing your cash taxes. Can you maybe give us an update on that?

Yes. Jeremy?

Sure. So I think we're going to -- we have been making good progress there. We're not, as we sit today, not yet prepared to have a detailed discussion about that. But I would say that the progress has been in the right direction. We'll incorporate that into our guidance for the formal 2016 guidance when we give it in the Q4 call.

Some of those tax attributes that came from the MACH Gen acquisition, we weren't quite certain as to whether or not they were fully utilizable on an unlimited basis or had to be limited in their use. And some of those have gone in our favor. So as Jeremy indicated, when we provide the more fulsome guidance -- and we'll try to provide a multiyear look at the cash tax rate as well when we give that on the Q for our year-end call, Steve.

And just a reminder, the current guidance for 2016, what cash tax rate does it use?

We use --

Right around 20.

-- right around 20. We were upper 20s and then on Q2, we said 20 and it could be improved from there, and I think it will at the end of the day.

Okay. Thank you.

Evan Kramer, Silver Point Capital.

Hey, guys, you have Jason here. Great quarter; it looks like you guys are really executing the plan. [Thrilled] with the progress. I know you've been working hard, so great job on the quarter.

Thanks.

Then a question for you guys -- you have a slide in the past in your presentation that had kind of the upside options. I think it was $6 to $10 a share you thought you had in the stock that guys weren't getting credit for. And I guess a question for you -- and you mentioned that it seems like you guys are frustrated with the share price performance.

And the question I guess we have is we're curious why you're not, given the frustration and given that you're effectively getting your stock for free, if you think you have the $6 to $8 -- $6 to $10 a share of upside; why you're not more aggressively repurchasing shares like some of your peers are and just the signal that sends to shareholders. I just want to -- explain the logic of repurchasing shares at the current share price versus continuing to pursue an M&A strategy.

Okay. Thanks, Jason, for the question. Well, one, I guess we're not sitting on the $3.2 billion of net debt yet that Jeremy indicated. We still have to execute on the sales transactions. We don't think there will be any issues with FERC in terms of approving those transactions. We did lean on our credit facility a bit to be able to able to execute on MACH Gen. That closed on Monday net of the $100 million or so that we took in from the sale of renewables.

So as we sit today and we used, as Jeremy indicated, $200 million of existing cash or $225 million to close it. So as we're sitting today, we're not sitting flush with liquidity. We will be at some point in time in the future more than fully reloaded to look at options like share buybacks, look at opportunities for assets or portfolios in the marketplace.

I wouldn't want to be mutually exclusive on either one, but anything that we do will be in light of keeping the balance sheet relatively strong, so that we can take advantage of situations as they come along opportunistically. So it's something that we'll look at in the not too distant future, but as we sit right now, it's not something that I think we should action.

Do you think about when the balance sheet [is] -- [isn't] in better shape as -- I assume there's a timing difference of when you sell assets and when you have proceeds in. Would you consider share buybacks at the current -- if the stock price were to stay the same, just given the logic around if you think you got $6 to $10 a share that you're not getting credit for and the stock trades where it trades. Is that something you'd consider and how would you think about it?

Yes, it would definitely be considered. I should say the board would have that under consideration. One thing that we do think about though -- and I said it wasn't mutually exclusive. And Jeremy kind of indicated this earlier in terms of the asset composition. We did get some diversity in the Riverstone acquisition. We got some, especially from a gas diversification perspective, with MACH Gen. We are looking at a potential to relocate the Harqahala facility to the extent we don't find probably a local buyer at an attractive price for us. And so that's a capital commitment; Brunner is a capital commitment; Montour could be a capital commitment.

Those are all very manageable in the context of the balance sheet that we're talking about. But that concentration of the more solid fuel and a relatively robust gas supply market -- probably the most robust gas supply market in the US -- is something that we do consider from a risk perspective. So we'll look at the market; we'll look at the share price; we'll look at the buyback as an opportunity and make an unbalanced kind of a decision on the best way to deploy the balance sheet in light of long-term value creation, not just only from a short-term opportunistic perspective.

Got it. Thank you.

This concludes our question-and-answer session. I'd like to turn the conference back over to Paul Farr for any closing remarks.

Okay. Thanks, Emily. And as we indicated at the start of the call, this entire team is focused on delivering shareowner value and I alluded to that in that last comment from Jason. Everything is on the table.

I'm very proud of all the efforts of this team that have led to the improved 2015 guidance in EBITDA and free cash flow. We've accretively increased the scale of the business, improved the asset mix, diversified it and kept our balance sheet strong.

Thanks for your time and attention and questions on today's call. And we look forward to speaking with many of you at EEI next week. And Emily, that concludes our call for today.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.