Good day, ladies and gentlemen, and welcome to the NRG Energy Incorporated Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Kevin Cole, Head of Investor Relations. Sir, you may begin.

Thank you, Joelle. Good morning and welcome to NRG Energy's third quarter 2018 earnings call. This morning's call is being broadcast live over the phone and via webcast, which can be located in the Investors section of our website at www.nrg.com, under Presentations and Webcasts. Please note that today's discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the Safe Harbor in today's presentation, as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. And now with that, I'll turn the call over to Mauricio Gutierrez, NRG's President and CEO.

Thank you, Kevin, and good morning, everyone, and thank you for your interest in NRG. Joining me this morning is Kirk Andrews, our Chief Financial Officer and also on the call and available for questions, we have Elizabeth Killinger, Head of our Retail Mass Business and Chris Moser, Head of Operations. I'd like to start the call by highlighting the three key messages for today's presentation on slide 4. First, we continue to demonstrate the earnings predictability of our integrated platform. We are narrowing our 2018 earnings guidance to the upper half of the range and initiating 2019 financial guidance above our transformation plan pro forma. Second, we achieved a significant milestone in our efforts to right-size our business by closing on the sale of NRG Yield and Renewables. With the transformational plan, asset sales and cost savings nearly behind us, we're now pivoting to margin enhancement in 2019. Finally, we are announcing an incremental $500 million share repurchase in addition to the $1 billion announced earlier in the year. This brings our total share repurchase program to $1.5 billion and completes our 2018 capital allocation plan. Moving to our third quarter business update on slide 5, as you can see on the left-hand side of the slide, during the third quarter, we delivered $677 million of adjusted EBITDA or 23% higher than last year. This was primarily driven by higher realized power prices and continued execution on accretive cost savings initiatives while achieving top quartile safety results. I am very pleased with the operational and financial performance of our integrated platform during a period of extreme price volatility. As we have discussed with you in the past, during periods of high prices, our Generation business benefits while our Retail business experiences some margin compression. It is exactly in this…

Thanks, Mauricio. Turning first to the financial summary on slide 11, for the third quarter, NRG delivered $677 million in adjusted EBITDA, a 23% increase over last year. Having successfully closed the sale of NRG Yield and Renewables in August, our quarterly and year-to-date results now no longer include the contribution from these businesses, which are now treated as discontinued operations as a result of the sale. Through the first nine months of 2018, NRG has delivered nearly $1.6 billion in adjusted EBITDA with approximately $375 million of cost savings realized, which places us on track to achieving our 2018 cost savings target of $500 million. With these solid results and the important summer months now behind us, we're also narrowing and revising our 2018 guidance toward the upper half of our previous range, which I'll discuss in greater detail shortly. With the closing of NRG Yield and Renewables transaction, combined with $640 million in discretionary debt redemptions which I'm pleased to announce, are now completed, we have now removed approximately $10 billion of debt from NRG's balance sheet in 2018. This not only significantly simplifies NRG's balance sheet for our investors but makes the achievement of our 3 times net debt-to-EBITDA target in 2018 all the more transparent. As you'll recall, part of our plan to achieve our target balance sheet ratio in 2018 included $640 million in debt repayment, which we achieved following the third quarter in two parts. First, in October, we redeemed the remaining $485 million balance of our 2022 senior notes, eliminating our nearest maturity in the process. Second, we repaid $155 million of our term loan facility. We are required under the terms of this facility to offer a portion of the proceeds from certain assets sales to the lenders at par. In keeping…

Thank you, Kirk. A few closing thoughts on our 2018 scorecard on slide 18. As you can tell, it has been quite a busy year so far and we have made excellent progress across the board on our 2018 priorities. I am very pleased with what our team have been able to accomplish. As I look forward to 2019, we're focusing our efforts into three key areas, redefining our business by further perfecting our integrated model; shifting the focus of our transformation plan to margin enhancement and completing the announced asset sales; and finally, disciplined allocation of the significant excess capital that we will have available. I am very excited about the future of our company. I want to thank you for your time and interest in NRG. So, with that, Joelle, we're ready to open the line for questions.

Thank you. Our first question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Your line is now open.

Hey, good morning, team. How are you?

Good morning, Julien.

Hey, excellent. Hey, wanted to follow up a little bit on just the hedges here. I wanted to understand a little bit what's going on in Texas on 2020? There's been a little bit of a change in the weighted average hedge price there on a per-megawatt-hour basis. It seems as if you've largely kept the hedge percentage intact, but if you could elaborate a little bit here?

Sure. Well, as we were discussing – I mean, we're seeing power prices increase in 2019 and 2020. We actually have taken this opportunity to increase our hedges, and you know, most of the move has been around the summer. So, you can expect that the hedges that we have put in place have been really around the June through September strip. But, Chris, I mean, are there any – anything else, more details around our hedge strategy and then some of the dynamics you're seeing particularly in 2020?

Yeah. I think when we're looking at hedging, we're looking at trying to lock in good numbers against the expected generation with the idea that we'll still leave some – you know, to cover up operational risk and load variability, obviously in combination with buying options, and weather options, and outage insurance, and the rest of that. What you probably – and we can dig into this later, Julien, but what you're probably looking at is, is as we try and take off the summers, especially in 2019, we were also doing longer dated pieces, not just summer. Those are done at a lower level. Obviously I'm selling April off-peak or around-the-clock, that's going to move the number down a little bit.

Got it. So, that explains the move from $42 to $36?

Yeah.

The bulk of it. Okay. Excellent. And then just secondly here, Mauricio, I mean, I think folks are taking note this morning of some of the changes on the board, but I also take note of your commentary earlier with respect to continued execution of the transformation plan. You've announced for the first time here, your 2019 full-year EBITDA, how do you think about continuing some of the cost savings that we've seen in 2018 into 2019? How do you think about what's reflected and ultimately, is there anything to be read from the changes on board here – I mean, on the board composition this morning too.

Well, I don't think there is anything to read on the board composition. The entire board supported the transformation plan, including myself. Management is committed to executing our transformation plan and I think we have done excellent progress, with the – John decided to step down from the board and what I can tell you is that he's been a good and insightful board member and I look forward to continue having him as a long-term shareholder. So, I think we have the support from our shareholders in terms of our transformation plan, the direction that we are – that we're going. Did that answer all your question, Julien? I know that it was – I think a two or three-part question.

Well, I – yeah. Well, I mean, maybe the – to be a little bit more direct about this, how are your transformation plans shaping up for further cost savings into 2019? Obviously you're holding on to a few more assets than you originally anticipated; does that provide for incremental cost savings and are you continuing to evaluate that at a board or even within the company from a cost savings perspective?

Yes. So, with respect to the cost savings or on the transformation plan, we have line of sight on the $590 million. We're executing to that and that's going to start doing in – we're going to do that in 2019. Obviously, our cost savings, this is something that is a continuous improvement process. It doesn't end with a transformation plan. We're always looking at doing things more efficiently. So, we're going to continue doing that. And if there is an opportunity to reduce the cost on some of the assets that we're retaining, believe me, I mean, we are already looking at that and then evaluating that. So, I am very confident that we're going to achieve our numbers by – in 2019 and I am very confident also of the culture that we have on continuous improvement that I believe, you know, before transformation plan was for NRG and this is something that we all feel very strongly. So, I don't think you should expect that, you know, after the transformation plan this is basically done and over.

Excellent. All right. I'll leave it there. Thank you all.

Thank you, Julien.

Thank you. Our next question comes from Greg Gordon with Evercore ISI. Your line is now open.

Good morning, guys. It's actually Phil here for Greg.

Thank you, Greg.

Phil. But...

Phil, I'm sorry. Phil. We're getting a little echo here on our end.

Okay. Let me try to adjust my headset. Anyway, congrats on the quarter. I just want to clarify a couple of items you discussed. So, to be clear, the incremental $500 million announced today, that's not allocated, it's not eating into the $2.6 billion CAFA that you're allocating for 2019.

That is correct.

So, theoretically, if you were to use all that for buybacks, you can allocate north of $3 billion from here.

Yes. I mean, the $500 million plus $2.6 billion, yes, that's correct.

Got you. In the 2019 guidance you laid out, is that marked to end of the quarter curves?

Yes.

Okay. So is it fair to say that where we sit from here today that curves look still a little bit better on a fresher mark-to-market or how are you – what are you seeing...

Yes. I mean, I would say that they are just a tad better, but keep in mind, when you're looking at the 2019 guidance, you have to take up a few things into consideration. Number one is power curves; number two, the level of hedges that we have. So, I mean it's not just one, and obviously supply cost for our Retail business. So, I mean, there's multiple things that you need to take into consideration, so it's not just one-dimensional.

Understood. And I guess to that point, I mean, yeah, Kirk, your commentary on Retail essentially with the higher wholesale prices going into 2019, you won't be able to capture that 1:1 on the Retail side next year, but as you move through time, you can start to work that into future rates. So it's kind of a margin lag. Am I thinking about that correctly?

Yeah. That's correct and I mean, let me just – I mean as we have seen different prices is going to change a little bit the distribution between Generation and Retail in our earnings, but keep in mind, I mean from my perspective, what we are focused on is having an earnings profile that is stable and predictable for the integrated platform. So, if power prices are increasing, it benefits power generation business perhaps more than any part of Retail business and truly it's the other way. So – but at the end of the day, what we are focused on is the total earnings line of the integrated platform, and this is what we want to demonstrate, you know, the stability and predictability of our platform, which I think, we have done in 2018 and with the guidance we're providing today, it's a reaffirmation of that.

Sure. And you've done a good job of that so far for sure. Last question, and then I'll cede the floor. Can you just provide any color or commentary around the 2020 trajectory from here, relative to 2019?

I mean, what I will tell you, since we're only introducing 2019 guidance today, is, some of the drivers that you should be looking at for 2020 obviously is power prices, the hedges and something that Kirk was mentioning, which is, you know, some of the compression that we get by higher power prices in our Retail business. But aside from that, I will not – obviously, if the assumptions are the same in 2020 than in 2019, then you can make an inference of that. Obviously, you also have the incremental transformation plan targets that we have going in 2020, but I'm not going to – I'm not going to – and I'm not going to be providing 2020 guidance in the call.

Understood. Thanks, guys. Congrats.

Thank you.

Thank you. Our next question comes from Abe Azar with Deutsche Bank. Your line is now open.

Good morning. Congratulations.

Thank you, Abe. Good morning.

Thanks. With the backwardation in the Texas prices, at least the ones that are quoted right now, can you remind us what Retail's positive sensitivity is for lower prices, you know, absent the margin enhancement program?

Yeah. I mean, we haven't provided the specific sensitivity on our Retail business because – I mean, there is a number of things that come into play; it's not just the cost of our sales, but also you have to look at where your margins are, your attrition rates, your bad debts. So, it's not – I wouldn't say that it's as direct or as directly correlated as CDC in the Generation business. I mean, there is a lot more variable that needs to be taken into consideration. So, I think what I will tell you is, the benefits that we see on the Generation business tends to be one-to-one when power prices increase, and we have ability to pass some of that to our Retail customers, so, it's not one-to-one. That's why we say our Generation business tends to benefit more than it impacts our Retail business, but that's – I think that's the dynamic that – and the complementary nature of our business. And that's the level of detail that we're comfortable providing.

Got it. And then on 2018, the implied Q4 guidance is a lot lower than Retail and Generation have done in the prior years; is there something unique about this year in Q4?

No. Nothing unique at all. It's kind of difficult to extrapolate from there, because remember – and again I'm not sure if you're referencing, when you talk about Retail and Generation, those two being the significant component parts of our overall performance in our guidance. In the past, Retail is basically same store from that perspective, but as a reminder, Generation, which we used to call Generation & Renewables for an obvious reason, included everything. So, I'm not sure whether you're accounting for the fact that we've significantly streamlined and changed the overall makeup of the portfolio, but in the context of the assets that remain, which is a phrase or a term that I used in my remarks, fourth quarter is in line with what we would normally expect. Just a lot of noise with things moving in and out this quarter.

Understood. Thank you.

Thank you. Our next question comes from Angie Storozynski with Macquarie. Your line is now open. Angie Storozynski - Macquarie Capital (USA), Inc.: Thank you. So, two questions. So, one is, in the past you've mentioned that you were planning to acquire some retail businesses in the Northeast. Well, you haven't announced anything yet and just wondering if we're waiting for cash to come in from the Louisiana assets or if there's any other limiting factor here. And also, if you could put it in the context, so you have $2.6 billion in cash to be allocated. I understand that there are only really two ways to allocate it; one is that retail acquisition and the other one is buybacks, and is it safe to say that given the size of retail books that are available, only about maybe $700 million of that could be spent on Retail?

Yes. Good morning, Angie. So, let me tackle your – the first part of your question. Just to be completely clear, what I have said in the past is that we're going to be looking at perfecting our integrated model. In the East, we have more Generation than Retail, so we can actually achieve that rebalancing in two ways. We can either grow our Retail business or we can reduce our Generation business. Both are available to us, and we know that the retail space has been very active, but – and if we see something that is consistent with our portfolio and meets our capital allocation and hurdle rates, then we're going to evaluate. But there are different ways that we can perfect our model, and we're not locked in or – to one specific one. To your second question around what we can do with our excess cash in 2019, I would say that there are three different ways that we can allocate it. One, we can always find opportunities to grow our portfolio, our business, if they are compelling. Two, we can return capital to shareholders both ways, share buybacks, given the undervaluation of our stock, it is today and as a preferred one, but we also have another avenue, and we are open to it if it's dividends. And then finally, we also have to evaluate, you know, continue paying down debt, and while we are completely comfortable with 3 times today, that doesn't mean that, in the future, it's something that we just set it and forget it. So, that's what I would characterize our capital allocation for 2019 or at least the philosophy. Angie Storozynski - Macquarie Capital (USA), Inc.: Okay. And on an unrelated note, Midwest Gen, so, PJM will be reforming its MOPAR rule. It does sound like Illinois might be leaning towards stripping out all of their nuclear plants from the PJM auction, keeping the Illinois customers basically neutral as far as their capacity payments, which I understand, that the capacity payments would be coming then from coal plants like the ones that Midwest Gen owns. So, in that context, how do you see the earnings power of this portfolio going forward?

Okay. Chris, do you want to take that?

Yeah. Angie, for that to happen, you need to believe two different things. You need to believe that Illinois is willing to quintuple the number of nuclear subsidies that they're already providing from 2,000 to give or take 10,000, which is hopefully a stretch. And then, you also have to believe that FERC will allow a state to subsidize one particular set of generation and crush wholesale prices, which is in direct opposition to what they've written in the past – previous three orders. So, I mean I think that's very theoretical, and I think there's a lot of wood to chop to get from here to there. Angie Storozynski - Macquarie Capital (USA), Inc.: Okay. Thank you.

Thank you, Angie.

Thank you. Our next question comes from Praful Mehta with Citigroup. Your line is now open.

Thanks so much. Hi, guys.

Hey. Good morning, Praful.

Good morning. So, I mainly wanted to get to the hedging a little bit, and link that with the drop we saw in the 2020 hedge prices. I guess you talked about, and we all know about the tight reserve margins in ERCOT; given that tight reserve margin, I would guess that your preference would be to keep it more open to benefit from tightening prices in the curves in 2020, and clearly the curve is right now are backwardated. So, I guess, just wanted to understand more broadly the hedging policy views, and then secondly, a little bit more clarity of the almost $6 drop in 2020, kind of what prompted that hedging if you're kind of seeing this more broader tightening in ERCOT?

Okay.

Praful, Chris again. So if you're looking at back on page 24 and you look at total Generation portfolio, when you look at the open heat rate, you'll see that 2020 went from pretty darn low to 27%, and nuclear went from relatively low to 36%. So what you have is two different moving pieces here. What you've got is a big hunk of hedges that went in, that were arguably not just summer, but they were full year, on-peak around the clock kind of numbers. And you also have the lot of small numbers which is, if you have a small number that was only summer, and then you mix that with a full year piece, which was, you know, and that second quantum was bigger than the first quantum, you're going to get a move there. Trust me, when we're selling 2020, the summers are included. So we're locking in – we're locking in big chunks of value.

Got you. That's helpful. And so more broadly, just understanding the 2020 and just the hedging policy in general, is there a view that ERCOT is going to tighten further and that curves don't reflect that today and you want to keep more open or do you feel that the curves are relatively opportunistic or wherever there is an opportunity, you would go in and lock in further hedges?

No, fair question. I mean, I think if you look at the position where we're sitting, 30% – basically 27% to 36% hedged depending on which chunk of the portfolio, coal and nuke or total, you know, I think that we're saying that this thing has some room to run, so we're only 27% hedged. Now, I will say that we've seen a nice price rally since the summer and there's plenty of expectation that the PUCT, later today, may make some changes to the ORDC pricing mechanics and we're hopeful that they do because newbuilds are either being pushed off or cancelled. So, something needs to happen and we – I encourage the PUCT to take action.

Praful, and let me just add; in 2020 we are 70% open. I think that should give you an indication, our view in the Texas market. We continue to see that is very constructive, but we want to be prudent. We saw a pretty significant increase in 2020 on prices. We reacted to it, we were opportunistic, we laid out some hedges, but keep in mind, we're still 70% open.

Got you. That's helpful. And then just on capital allocation more broadly, clearly there is both a growth opportunity and a potential to buy back shares. From a growth perspective, is Retail the only direction you see or are there other avenues of growth that we should be thinking about, that will hit your return thresholds that you could also kind of look at?

I mean there is – we see multiple avenues. I mean, clearly the one that has been getting more headlines is Retail, just because of the value proposition where Retail is today, the implied valuations that we have, and the fact that we can actually put it in our Retail business that is scalable. So, we can achieve significant cost synergies. But we see opportunities in other areas, we're evaluating them particularly on the business – business solutions side, working with our customers, and the one thing that I will say is Generation perhaps is limited, given the very long-term nature of the investments and the fact that we have – we're adhering to our capital allocation principles. So, I would characterize it that way and that informs more or less where we start we're looking at – where we are looking at possible opportunities.

Got you. Super helpful. Thank you, guys.

Thank you.

Thank you. Our last question comes from the line of Ali Agha with SunTrust. Your line is now open.

Thank you. Good morning.

Good morning, Ali.

Good morning. First up, Kirk, I guess just wanted to clarify the slide 12 numbers you gave us, as you walked from the pro forma to the actual guidance for 2018. So, if I read that right, there's about $145 million of EBITDA that you're adding back in for the BETM and so on and so forth, but the midpoint of the two adjusted guidances only went up by $55 million. So, what am I missing there in that math?

I think the way that you've summarized that is effectively correct, right? Nominally speaking, you have a significant – a more significant increase, but thinking about it – and perhaps this is where you're going – thinking about – ignoring the nonrecurring elements, right? When I talk about nonrecurring elements, I'm talking about Agua Caliente, I'm talking about the BETM, the Boston Energy Trading business, which still is reflected in our numbers even though it was sold intra-year. Yeah, you've got about $50 million of sort of same-store outperformance, which is why I characterize it as towards the upper half of our previous range on an apples-to-apples basis, right? That was part of the reason why I unpacked that because, nominally speaking, relative to the $1.6 billion pro forma, it looks like $150 million higher, but when you adjust that for the asset sales, your number is probably the right way to think about that on a same-store basis – if that makes sense, Ali.

Yeah. But then, Kirk, if you take it to your next column, the updated and narrowed guidance column, you know, that number – shouldn't that – if you took the column before that, this previous guidance adjustment column, and moved right, shouldn't that have gone up by that $140 million that you're adding in there?

No, it's the opposite.

Okay. I'll come back to you guys on that.

Yeah. I know we'd get a follow-up call, but I'm happy to try to make that clearer.

Yeah. A separate question; I know that, obviously, you guys are not giving 2020 guidance here, but just in the context of your net debt EBITDA targets, certainly on the 2019 numbers, you're hitting those targets as the way you've laid out to us, but if this backwardation in the forward curve continues even with the margin enhancement improvement, I mean the sense is directionally 2020 EBITDA is slightly lower than 2019. So, does that figure into your calculations thinking about net debt to EBITDA if you were to use a 2020 denominator versus 2019, and how you might think about capital allocation in 2019 and maybe lay down more debt than you're currently showing us? Is that a fair way to think about this dynamic?

I know the direction you're coming from. A couple of things of note, right. As I mentioned, you got $80 million of margin enhancement from 2019 to 2020. That's $135 million of margin enhancements in the 2019 number, going to $215 million in 2020, right? That's $240 million of debt capacity right there and I think we'll sort of take that as it comes going forward, but certainly, that provides a pretty significant cushion having achieved that in 2019 to get to that 3 times net debt to EBITDA ratio. But I don't feel at all that we're going to need to allocate additional capital to maintain the 3 times. As Mauricio said, we will always continue to reevaluate the three as we move forward. So, my bias would believe – would be if there is any additional delevering, it would be by our choice as opposed to, for a lack of a better phrase, by necessity in terms of just maintaining the three times, if that makes sense.

That makes sense. Yes. Last question, Mauricio, as you look at all this excess capital that you are accumulating and as you said, the growth opportunities are fairly limited, Retail right now makes sense, but there isn't that much Retail; if we keep going down this road, and I'm not just talking 2019, but longer-term, is there a scenario where you just buy out and you know, just take the company private? I mean if you keep buying back stock with excess capital, where do we end then?

Well – I mean I think our focus right now, like I said in the past, is to execute on our transformation plan and then as we laid out the long-term strategy of the company, it's very compelling. This is where we believe we can create maximum shareholder value. I will tell you, as you just mentioned, the excess capital that we have, and it's a – it's going to be – it's a priority for the board and for us, how to allocate this capital. I've said it on the call and I will reiterate that again, from where our stock is valued today, it does not reflect the fundamental value and buying back our stock is still the most compelling opportunity. So, this is where we're focused and as we progress in 2019, if we see opportunities, if we see other alternatives, we always have to look at them through the prism and through the barometer of the implied returns that we have in our own stock. So, we believe that we're on the right track, we have the right priorities, we're executing well, we have the right team and I'm just very pleased where the company is going.

Thank you.

Thank you. I would now like to turn the call back over to Mauricio Gutierrez for any closing remarks.

Thank you, Joelle. Well, I want to thank you all for your interest in NRG. Look forward to talking to you in the future. Thank you and have a great weekend.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a great day.