Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 NRG Energy Earnings Conference Call. My name is Lacey, 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 your host for today's call, Nahla Azmy, Senior Vice President of Investor Relations. Please proceed.

Thank you, Lacey. Good morning, and welcome to our third quarter 2011 earnings call. This call is being broadcast live over the phone and from our website at www.nrgenergy.com. You can access the call presentation and press release through a link on the Investor Relations page of our website. A replay of the call will be available on our website. This call, including the formal presentation and the question-and-answer session, will be limited to one hour. [Operator Instructions] And now for the obligatory Safe Harbor statement. During the course of this morning's presentation, management will reiterate forward-looking statements made in today's press release regarding future events and financial performance. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risk factors 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 in this press release and this conference call. In addition, please note that the date of this conference call is November 3, 2011, 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 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 and the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release and this presentation. Now I'd like to turn the call over to David Crane, NRG's President and Chief Executive Officer.

Thank you, Nahla, and good morning, everyone, and thank you for joining us on this, our third quarter call. I'm joined here today by Mauricio Gutierrez, our Chief Operating Officer; and Kirk Andrews, our Chief Financial Officer, both of whom will also be participating in the presentation. Also joining us are Jason Few, who runs Reliant, our principal retail company at NRG; and Chris Moser, who runs the commercial operations of that group. Both Jason and Chris will be available to answer your questions. I'm going to get right into my presentation. I'm going to be referring to a slide presentation, which you can refer to on our website. And kicking off with Slide 3. I mean, during this call, we want to look back at the results for the quarter that just concluded, but even more so, we want to look ahead at where the company is headed over the months and quarters to come. As we look forward, and I want to tell you this upfront so that you're not surprised, my call is to convince you that the company is extremely well positioned to take advantage of and benefit from the opportunities available to it in this market environment and under current commodity prices. During 2011, we have committed a substantial amount of the company's growth capital and a series of value-enhancing investments in areas where the company has both special confidence and competitive advantage. Importantly, given the commodity price environment that we live in, all of these projects and businesses offer revenue streams that either do not rise and fall in correlation with the short-term fluctuations in natural gas prices, or in the case of retail, actually are negatively correlated with natural gas prices. Three of these growth areas are highlighted on Slide 3. With the…

Thank you, David, and good morning, everyone. Beginning with a few highlights for the third quarter on Slide 9. Our available portfolio performed exceptionally well during the quarter, improving in both availability and reliability metrics as compared to the third quarter of 2010. On the commercial front, we increased our hedges in 2012 given the weak fundamentals we continue to see in the gas market. In October, the EPA released an update to the cash [indiscernible] increasing the allocation of allowances for the state where we operate. These changes provide us with greater flexibility for compliance as we continue to prepare for our 2012 start date. Also in the compliance front, we're in the process of integrating back-end controls at Indian River during the current fall outage and are on track to be fully operational by January 1, 2012. With respect to our growth projects, we began commercial operations for the 21-megawatt Roadrunner solar PV project this summer, ahead of schedule and under budget. The El Segundo combined cycle repowering project began construction and is on track to be in service by the summer of 2013. Last, our EPC organization continues to focus on supporting the solar buildout, which I will cover in more detail later in the presentation. Starting with safety on Slide 10. Starting with our top decile performance with an OSHA recordable rate of 0.75, with 38 out of 45 sites without a recordable injury this quarter. This quite remarkable given the extreme weather conditions that our operators experience at many of our sites and further demonstrates our safety culture. Net generation increased by 11% during the third quarter compared to 2010. This increase was driven primarily by higher generation in Texas due to the record heat and the additional cost of goods added into our central…

Thank you Mauricio. Beginning with the financial summary on Slide 16. NRG is reporting third quarter and year-to-date adjusted EBITDA results of $458 million and $1.43 billion, respectively. Reliant Energy, which contributed $135 million of adjusted EBITDA for the quarter, reported its first year-over-year improvement in mass customer since our acquisition. Reliant's customer expansion, however, was partially offset by lower unit margins resulting to some degree from competitive offerings but in larger part as a result of increased energy costs. Meanwhile, NRG's wholesale business and $323 million of adjusted EBITDA during the third quarter. $183 million of this adjusted EBITDA came from our Texas region, which benefited from a 1.2 terawatt hour increase in generation versus the third quarter of 2010. Year-over-year adjusted EBITDA decreased $205 million, however, as increased baseload availability was eclipsed by a combination of lower baseload hedges and the August impact. In the Northeast region, adjusted EBITDA for the quarter was $47 million. The approximately $58 million decline versus the third quarter of 2010 was driven by lower hedge prices, decreased coal generation and a substantial decline in capacity revenues. These decreases were offset by lower operating costs and favorable equity earnings from GenConn Middletown, which came online in June of this year. The West asset had a very strong quarter, contributing $35 million of adjusted EBITDA, which is an increase of $10 million from the prior quarter -- prior year quarter as the region is contributing -- continue to realize increased volumes and favorable capacity prices in California. The South Central region delivered $44 million of adjusted EBITDA in the third quarter of 2011, which is a $5 million increase over the third quarter of 2010. Year-to-date 2011 adjusted EBITDA totaled $1.43 billion, and that was split between $462 million from Reliant and $968 million…

Thank you, Kirk. And, Lacey, I think we've taken up a good part of the hour already, so we'll open the floor to questions right away.

[Operator Instructions] And our first question will come from the line of Ted Durbin with Goldman Sachs.

I'm just wondering is your appetite now, it sounds like it's shifting more towards the distributed investments and maybe away from the large-scale solar? Or would you say you'll kind of continue to go after both?

Well, I think, Ted, first, I'd tell you the easier part for us to do is the big projects. I mean, we're geared up to do that. That's the type of company we are, so we're not walking away from that part of the industry. But what I would say to you is I think for a large, very large utility-sized solar, I'm sure they will come a day when we see another wave of 300-plus megawatt and large solar projects. But these projects are more than $1 billion projects and without federal loan guarantees, there's not that much Wall Street money to provide the debt on that. So I think that the utility-scale solar world is going to sort of drop back to 20 to 100-megawatt size deals, and we're going to pursue that aggressively. But what I'm trying to signal is that I think that, that's not the only solar world. And I think over time the distributed residential is going to end up sort of swapping the big-scale projects. So we'll stay in the utility sized space, but I just what the market to know that we're positioning ourselves hard to take advantage of the opportunity we see on the distributed and the residential side.

I got it. That makes sense. That's helpful. And if I can just -- on the guidance for next year, you've got interest payments down from $800 million this year to about $650 million. Can you just walk through the details of how you get there? Is the refis? Is it actual debt pay downs? So what are sort of the drivers there?

In that future year, that number, that reduction in the future guidance represents premiums, as well as reductions in interest expense as we move forward.

Is there an actual dollar amount of debt paydowns that you're actually forecasting in that number? I don't know if you can go there.

Ted, the only amount of debt paydowns that are foreseeable in that number currently is the amount of amortization on our existing term loan facility for 2012 as well as a small amount of amortization on some of the nonrecourse debt of the subsidiaries.

And our next question will come from the line of John Cohen with ISI Group.

Dave, I know that you can't comment specifically on M&A opportunities. But given your commitment to solar and sustainability, how willing or enthusiastic would you be to look at coal plants in PJM? There seem to be like 3 that I can think of that most people think you're in the pull position to pick up an -- there might even be an entire company out there that you can get for not much money down. But how much -- I guess the question is how much risk are you willing to take on the environmental side of the equation? And how much upside to current market prices and current capacity prices would you be willing to sort of work into your evaluation?

Well, John, I'm not sure I can answer the question too specifically. I would say that we have this communication internally all the time. Because I end up talking a lot of these new business areas doesn't mean that we're going to ignore the conventional business. In fact, I've said for years and years long before NRG got involved in the renewables business that I thought the natural people to be in the renewables business were people who were actually in the conventional business. So we're not afraid of owning conventional generation. We're very proud of our coal plants, the way they operate environmentally and everything. What I would tell you is just a couple of things. One, is we would definitely like to own more generation in the Northeast. We've said that for years now. We have not been successful to be able to acquire generation at prices that we thought made sense. We would not shy away. I mean, we already own coal plants both in the Northeastern Texas, so whether we own more or not, we don't think that really changes what the company is about. But the main thing I would tell you right now is the economics of coal plants in the Northeast are just phenomenally challenged right now. And I don't know -- we are being as assertive with asset management as one can be with our own coal plants, and it's not a pretty picture. And so if we were to buy coal plants in the Northeast, I'm pretty confident that other people are looking at the same sort of numbers that we're looking at. And to be frank, most of those numbers have parentheticals around them. And so I would say that we would be interested in looking at coal plants in the Northeast, but the price would have to reflect the value. And I think we've referred to it. I mean, it's almost an option value play. So I guess that's what I would tell you.

Okay. Just one another quick question. I know that the customer numbers seem to be picking up now in Reliant. Is that associated with a corresponding decrease in average margins? Or what's the driver behind the growth in the customer numbers, and also would does that represent in terms of market share? Are you picking up market share or is that just growth in the entire market?

John, Jason is going to answer that question.

What you're seeing is a couple of things. One, is we've always talked about -- we make trade-offs between the margin that we drive and customer account, and in 2011 we committed to showing a net 0 attrition against our customer base. So the growth that you're seeing does include some margin compression in terms of acquisition pricing, not against our core base of customers. The other thing that you're seeing is that we're seeing growth through the innovation that we're delivering on both on the product side, as well as value added services. So what we've done is we've fundamentally shifted our focus in 2011 more around customers. And I think you'll see us continue to deliver against that.

And our next question will come from the line of Ameet Thakkar with Bank of America Merrill Lynch.

Just looking at strategic priorities for 2012, I guess, one, I didn't see and I don't know if this is still a strategic priority for 2011 -- was the equity selldown in the solar business. Could you provide us an update on where that process stands?

Yes, Ameet. Well, let me talk about that. We did start that process in the first part of the year, but what we found is, I mean, if you look at our 8 projects or whatever, obviously, by far the most capital is going into the 3 DOE projects. And for a variety of reasons, some of which I'd be willing to elaborate on if you want and some of which I won't, what we found is that in the final stages of the loan guarantee process with the DOE, it was not practical to both be negotiating with the DOE and trying to sort of arrange a selldown. Basically, pencils went down on the selldown efforts sort of at the beginning to midsummer, and we just focused on gaining these projects across the line with the DOE. So that ended, obviously, close to midnight on September 30, and now it’s the beginning of November. So we've restarted that process, and I think we'll have more to talk about in the weeks and months to come. Kirk, do you have anything to add to that?

Yes, I think that's true. I mean, we're certainly focusing on the 3 big projects now that we are fully through the DOE process. I think that moves a significant amount of time that we focused on that, and also, it gives us greater clarity around these projects so we focus on the selldown. So we'd expect that to move that at a greater pace now, correct.

All right. And then just turning to the 2012 guidance, the $625 million to $700 million of EBITDA contribution from the retail business. I'm just trying to like get a little more granularity on that. I mean, is it fair to say that the energy process just kind of accounts for $30 million to $35 million, and then Green Mountain is another $70 million to $80 million of that?

We don't get into that level of detail, but I think you're not embarrassing yourself, Ameet, if you're in those time zones.

And our next question will come from the line of Jay Dobson with Wunderlich Securities.

I was going to follow-up actually on a question or 2 ago. The guidance and for retail in 2012, Jason, I was hoping if you could give us a little sort of zip code around margins indicated you gave up some margins to get customers this year. Are these margins sort of that in '12, improving, or is there a continued focus on customers?

I think you should look at 2012 margins and assume that they will be relatively flat to what you've seen in 2011. And from a customer perspective, and we'll continue to focus on the right balance between customers and margins and growing share like we've done in 2011.

Okay. That's great. And then, Kirk, the Texas wholesale down $205 million sort of year-over-year. If I go back to the October third conference call, you sort of indicated that, that cut in guidance was about $55 million associated with sort of Texas weather. Is that $55 million comparable to the $205 million, such that I would say take $55 million out, $150 million was sort of all other elements associated with Texas retail away from weather?

I think, Jay, the way to think about that is that $55 million of guidance certainly included the components of that, what was also based on an overall revision in our outlook at the time that the revised guidance on October 3. I think the best place to focus your attention in getting greater clarity on the components around the August event versus the $205 million, versus the $55 million change in guidance is in the third quarter Q. In some of the footnotes, you will find a breakout of a reconciliation of how those changes took place in the quarter around what we have referred to or generally referred to as the August event.

Got you. So you're suggesting those notes will be better and so I should not. That's apples to oranges, $55 million to $205 million?

Yes. And again, within the $55 million is that $205 million impact, and within the $205 million, one component of that is what took place in August. But again, it is apples and oranges in terms of saying those are both absolutes. That's correct.

And our next question will come from the line of Julien Dumoulin-Smith with UBS.

Quick question first on the access deployable cash guidance, $575 million, $775 million. I was wondering [indiscernible] what's the total amortization across all of these that require debt paydown for next year?

That number in 2012, you can expect to be lower than what we've seen historically, as the new turbulence [ph] facilities don't have the magnitude of cash sweep that the old ones did. I think the right way to circle in on that number around and aggregate magnitude for 2012 is think about it as being about $70 million of if you will, mandatory amortization on that tranche.

Great. And then with regards to the, call it the 2012 acceleration from the repurchase front in 2011, as we think about that as taking away from some of the cash deployable next year? Or is that sort of a number available to next year, if you will?

I think the better way to characterize that is if you look at what is now the revised 2012 and beyond plan in terms of equity investments that I showed you on that side. Those numbers reflect a net reduction that is consistent with the increases or the accelerations we showed you for 2011.

All right, great. And then moving over to retail, I mean, you've made a number of acquisitions clearly this year. I wanted to get a sense looking when you're forward, how much load, how many customers would you anticipate having, not just in Texas, but perhaps another geography, specifically the Northeast? And maybe to be specific here, do you anticipate lining that up against your underlying generation portfolio? Or do you feel comfortable getting ahead of yourself there?

Well, I mean, I think the -- I mean, essentially on the last part of the question, I'm going to turn it over to Jason to answer the first part of the question. Yes, I mean we do want to sort of line up the generation with retail. I mean, we feel that the model that we're pursuing in Texas over the last couple of years between the GenCo and Reliant has been overwhelmingly successful, notwithstanding August of this year. So we would like to essentially do the same thing in the North Northeast. And we have 7,000 megawatts in the Northeast. So we start being very long on the generation site. I don't know that Jason is going to give you specific targets on customers and things like that and all, but I'm looking forward to hearing what he says about the answer to the first part of your question.

Julien, the way you should maybe think about customer count is it will be in the probably 21 to 22 range in terms of millions of customers between the 3 retail companies. And in terms of terawatt hours for 2012, you should be thinking in the range of mid-60 terawatt-hour-type of numbers.

Great. Maybe just a quick clarification as it comes to the solar CapEx, if you will, or the net equity investment. Should we think also about the excess deployable cash as you sell down that solar business that's becoming incrementally available next year? Just want to be explicit there.

Yes. I mean, it's Kirk. On the pie chart that we showed on the last slide of my section, that excess deployable cash reflects the full load, if you will, moving forward of our solar CapEx. And obviously, the extent to which would be in the realized greater clarity around the sell down and the magnitude of those numbers, that would increase that portion of pie, if you will, for capital allocation on a dollar-for-dollar basis.

And our next question will come from the line of Steven Beard with Morgan Stanley.

Just following up on the excess deployable cash in 2012. You mentioned the potential to accelerate some of your growth initiatives. Can you talk a little bit more about the extent to which you could accelerate and what criteria do you use for making that decision?

Sure. On the first part of that question, in part, I'm simply acknowledging a little bit of the phenomenon that obviously occurred during the third quarter, which represented an acceleration of those. We would evaluate those on an ongoing basis. I do not expect those opportunities to be of a significant magnitude. However, if there is an opportunity to accelerate a project like Agua Caliente, for example, that the acceleration of our equity capital results in a commensurate and compelling increase or move forward, if you will, in the COD of that project. We'd evaluate that incremental return as we would evaluate any capital investment. So we take an individual point of view about that and make a decision at the time. But again, I don't expect the magnitude of those acceleration opportunities to be significant. I'm simply acknowledging the possibility that the timing may change as we saw in the third quarter.

Perfect, understood. And just on the Agua Caliente, there was a brief reference to the DOE consent for an application for the grant. Can you talk perhaps a little more about the timing and the process for the cash grant on Agua Caliente?

We'll, yes. I mean, I'd be happy to talk about it. I think I'm understanding your question correctly. Agua Caliente is the one project in here that is not currently entitled to apply for the cash grant. And that happened as part of the DOE loan guarantee process where it was made clear to us that if we did not -- if we try to apply for the cash grant, then we wouldn't get the loan guarantee before the loan guarantee program expired. So that's the state of Agua Caliente at this point.

[Operator Instructions] And at this time, I show that we have no questions in queue.

Okay. Well, thank you, Lacey, and thank you all for joining us on this call. And we look forward to talk to you next quarter for our year-end results. Thank you very much.