Good morning, and welcome to the Talen Energy Second Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Andy Ludwig, Director of Investor Relations. Mr. Ludwig, please go ahead.

Thanks, Ed, and good morning, everyone. Thank you for joining the Talen Energy Corporation conference call to discuss second quarter 2016 results. 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 presentation that we posted on our website. With that, I'll now turn the call over to Paul Farr, Talen Energy President and CEO.

Thanks, Andy, and thank you, all, for joining us on our Q2 earnings call this morning. Joining me on the call today besides Andy are Jeremy McGuire, our CFO, and Joe Hopf who leads our commercial and non-nuclear generation teams. Given the early June announcement of our go-private transaction with Riverstone, we're going to follow a different and more abbreviated approach today. As outlined on Slide 3, I'll provide some color on our Q2 financial results and our 2016 forecast and then provide a transaction update after which we'll take your questions. Let's turn to Slide 4 and look at highlights for the second quarter. Financial results were fully in-line with expectations driven by lower energy prices and nuclear availability. These drivers were partially offset by reduced O&M spending. We continue to identify areas to reduce costs and will continue executing on that front, especially in the face of challenging forward energy and capacity prices. Our year-to-date performance and expectations for the balance of the year drive the reaffirmation of our 2016 adjusted EBITDA and adjusted free cash flow guidance ranges. On June 3, we announced the go private transaction with Riverstone with shareowners receiving $14 per share in cash upon the close of the transaction. The close of the transaction is predicated on successful shareowner approval, various regulatory approvals, and other closing conditions. We remain on track to close the transaction by the end of the year. Since we have a separate slide covering an update on the transaction, I'll move to Slide 5. The big driver of adjusted EBITDA for Q2 2016 versus Q2 2015 was margins. Higher margins from the net asset change in Talen Energy's portfolio were more than offset by lower spark spreads in the East, lower prices and generation availability in the Pacific Northwest,…

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith of UBS. Please go ahead.

So quick question. Following up on the latest PJM capacity auction results, can you describe a little bit more in detail what is -- what your intentions are with respect to the assets that may or may not be impinged by CPO requirements? Just what you think about your compliance strategies and next year's auction moving that 100% threshold as well as just what the lower prices mean for some of the more peripheral assets.

I think I got your question, Julien. If I don't answer it fully, let me know. You kind of broke up in the middle there. So the strategy that we employed this past year was the same as the prior year. We basically risk assess and rank every asset in the portfolio as it relates to the clearing prices in the auction and trying to project what other folks are doing with their assets, looking at assets that are in the queue to be added, and the prices that we believe those owners would need to see relative to forward sparks and everything else to justify building those and create a bidding strategy accordingly. We would expect to -- and again, since there are no solid fuel or other constraints or requirements related to assets, technically all the assets that are there conform and are able to bid into the product -- the new product. So -- and we bid them as such. So, we'll continue that strategy moving forward. We do expect to see based upon those low prices depending what happens in certain states that are looking to provide subsidies for generation. The folks that have committed generation may not ultimately deliver that. When we look at those assets and see the negative cash flows coming off them, we don't understand how those owners can commit them that number of years forward, continue to maintain them from a CapEx perspective and operate them, and so we'll bid into the subsequent auctions, bilat arrangements as those evolve and we get closer to the delivery year. So I don't think our strategy changes at all moving forward.

Okay. Excellent. And then moving on to the nuclear assets and specifically Susquehanna, can you elaborate a little bit on where you think the State of Pennsylvania is and the state of your own asset following what happened in New York recently?

Yes. We're obviously still digesting what just transpired in New York and we'll -- as it relates to other situations where subsidies have been provided to competitive gen and other states we'll evaluate that. Nuclear is obviously a unique resource, and states like Pennsylvania and Illinois and New York and a few others that have a large percentage of nuclear in their generation mix as they assess the capability to meet clean air requirements going into the future, if any material portion of that generation were to go away, it becomes just -- given renewable dynamics here in the Northeast, it would be very challenging to meet those requirements. So, we understand that. Whatever would transpire in any given state, the construct needs to be a market-based solution, and that's a -- it's cheeky and easy to say that, but not all of the constructs that have been proposed we would stipulate are market-based solutions. We're looking at New York, the stakeholders in Pennsylvania, and nuclear generation owners in Pennsylvania have been engaged and in dialogue. I believe the State of Pennsylvania very much wants to defend maintaining competitive markets given the value that's been delivered to consumers, but we'll see how things kind of evolve going forward. So we're -- we could be a proponent of it under the right scenario and we would be an opponent of it in a wrong scenario.

So, and just to clarify your prior comment on the capacity auction results, did you say that you perceive all your assets as being compliant with the CP regs and perhaps here I'm specifically alluding to the Sapphire portfolio and its ability or limitations around gas elici considerations.

Yes. Again, to the extent that you -- there's a gas asset and it doesn't have firm transmission and storage or dual fuel, you're permitted to bid the asset in. The question becomes how much risk are you taking on should you not be able to get gas delivered to the unit during a CP event, you're subject to penalty exposure in that instance, but it's not that you're not permitted to bid the asset.

Right. Clearly. And maybe the follow-up there is how do you think about retirement for assets that did not clearly as auction. Perhaps you answered that by saying there are residual auctions we can bid into later, the incrementals.

That's correct. I don't see as a result of not clearing one or two capacity auctions the need or the desire to close any of the assets in the portfolio.

Got it. All right. Thank you very much. All the best.

Our next question comes from Ali Agha of SunTrust. Please go ahead.

Thank you. Good morning. On first question, when you look at the forward price curves in your key markets, PJM, ERCOT, etc., and you think about your own fundamental views on the market, do you see much of a disconnect in the way the forwards are versus where fundamentals should have them?

I guess when we do our business planning process, we -- for the first couple of years, the market's the market and that's what we're hedging into. Starting in year 3 and more in year 4 and almost fully in year 5, we start to blend in a fundamental view of where we think prices will go based upon inputs from WoodMac and [Seera] [ph] and others and then our own team's perspective. As you get towards that back end, we do see an uplift in our fundamental view versus what the forwards indicate, but the forwards are so illiquid. There's no natural buyers and sellers and there's no market makers out in those years that are doing anything of any quantity, so the market forwards -- I think that's more just a function of the lack of liquidity than it is whether things will ultimately deliver at those prices, and that's the conundrum that we all face is what's ultimately going to deliver as we move forward. We do not believe that we are going to come out on a sustained basis of these periods of very low gas prices given the quantum of gas that sits here in the Marcellus and the Utica, in the Southwest, and in Texas, and so we believe that that phenomenon will sustain. Could there be a pop in 2017? We've seen the numbers that people are at - $3, $3.25, maybe $3.50 - that could very well be the case, but given what the economics are of drilling for gas and ultimately the pipelines that will get built to get the gas out of this region to higher price markets, there's plenty of drillers that would love to hit that forward and hedge it and knock it right back down. So, I would say that as we think about our own forward view of things and fundamentals, I wouldn't say that we have an ultra-bullish perspective on natural gas as a driver of prices.

Okay.

And demand is what it is. It's somewhere between minus 1% and plus 1% depending on the market we're talking about.

Okay. Then secondly, in the past, obviously you guys had expressed strong desire to continue to look for opportunities to expand your portfolio build more critical mass. Fair to say given that you're in the midst of your own transaction that you're probably not at this stage a player as far as asset M&A activity is concerned?

I think that's a fairly accurate statement. I mean, Riverstone diligence, the Company, they understand the portfolio that they've committed to buy subject to the regulatory approvals that I talked about, and to the extent that we would pursue something, it would fully require their approval and given that we're required effectively under the agreement with them to maintain liquidity, we'll be focused on preserving that liquidity. We are continuing to move forward with gasification of both Brunner, which is -- Joe's here, that'll be ready later this month. We'll tie it in later in fall once we get through some of the peakier summer pricing here, and are moving forward with Montour, as well, but on an M&A basis on new asset additions. I wouldn't look to us as being involved in stuff like that.

Right, and then thirdly, from your vantage point as both an industry player/observer/participant and having been through the exercise as a public CEO, do you believe that the public market is the right forum for the IPB sector?

That's a different - every company's got to answer that question for themselves. I do think that when it becomes -- and they're more than just little shallow divots where it's hard to raise capital, it seems like this sector trades more in line with oil prices than does gas prices, actually, and so it's kind of a unique space. And, again, as I said, every company's got to take their own -- make their own call on that front, and I wouldn't want to prejudge for others what's right for them, but as our Board assessed the offers that were in front of it and we thought about our size, our scale, our diversity, this was the right transaction for us.

Okay. Thank you.

Our next question comes from Abe Azar of Deutsche Bank. Please go ahead.

Good morning. Is there any update on your optimization efforts at Harquahala?

No update there. We're still engaged with a number of parties, many that serve load and some that are looking at the site for the value of the gen and other purposes. There are RFPs that are out, some that are looming here in the near future, and so we're continuing to dialogue with a number of different entities in the Southwest.

Great, and then just following up on the minimum liquidity condition in the merger. How much cushion do you have to those levels from where you see going to the end of the year and is there anything that you could foresee that might put that in jeopardy, like an extended outage at Susquehanna or something like that?

I'll let Jeremy answer this question.

Yes, I don't know that -- well, I know we haven't specifically talked publicly about sort of cushion levels. Yes, I mean, you can look at cash in the balance sheet and where our revolver's drawn and kind of do some math around that. It's a provision that was -- we spent a lot of time on trying to make sure we got right in terms of having acceptable closing risk profile to shareholders. We don't expect running afoul of that and we even took into consideration some sort of unpredictables if you will in terms of sort of shocking the liquidity system, and we felt pretty comfortable. We're even under -- unanticipated scenarios will still be able to close.

And we still feel very confident as we sit today that that won't be an issue to close.

Thank you.

[Operator Instructions] Our next question comes from Jeff Cramer of Morgan Stanley. Please go ahead.

Good morning. Just want -

Jeff, you're cutting out.

Pardon me. This is the conference operator. Mr. Cramer, it looks like your call may have dropped out from the question queue. We do apologize. I'm not sure what had happened, but your phone line did drop during the question queue. [Operator Instructions]

If Mr. Cramer's listening, he can follow up with Andy Ludwig with his question, if there are no other questions.

I am not showing any further questions at this time, so this does conclude our question and answer session. And I would like to turn the conference back over to management for any closing remarks.

Okay. Thank you, all, for joining us on the call today, and we look forward with chatting with you in the future. Thanks.