Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Vistra Energy 2017 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Molly Sorg, Vice President, Investor Relations, you may begin the conference.

Thank you, Chris, and good morning everyone. Welcome to Vistra Energy's 2017 results investor conference call, which is being broadcast live via web cast from the Investor Relations section of our web site at www.vistraenergy.com. Also available on our web site are a copy of today's investor call presentation, our 10-K and the related earnings release. Joining me for today's call are Curt Morgan, President and Chief Executive Officer; Bill Holden, Executive Vice President and Chief Financial Officer; Jim Burke, Executive Vice President and Chief Operating Officer; and Sara Graziano, Senior Vice President of Corporate Development. We also have a few additional senior executives in the room to address questions in the second part of today's call, as necessary. Before we began our presentation, I encourage all listeners to review the Safe Harbor Statements included on slides 1 and 2, which explain the risks of forward-looking statements and the use of non-GAAP financial measures. Today's discussion will contain forward-looking statements, which are based on assumptions we believe can be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. Further, our earnings release, slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are in the earnings release and in the appendix to the investor presentation. I will now turn the call over to Curt Morgan to lead our discussion.

Thank you, Molly, and good morning to everyone on the call today. As always, we appreciate your interest in Vistra Energy. I would like to begin our discussion today on slide 5 of the presentation that we provided, with a brief highlight of our 2017 financial results. For the full year 2017, I am pleased to announce that Vistra Energy delivered adjusted EBITDA of $1.455 billion. This in the top quartile of our narrowed guidance range, reflecting very strong business performance by our operations teams, and tenacious cost containment across the organization in the face of significant headwinds during the year, including persistent mild weather and a two month unplanned outage at Comanche Peak Unit 2 during the summer. Adjusted free cash flow for the full year was $831 million, which was roughly a conversion ratio from EBITDA to cash flow of almost 60%, and we are right in the middle of our narrowed guidance range, demonstrating the stability and significant dropdown of cash from EBITDA delivered by our low leverage, low cost integrated model. In fact, our business model converts substantially more EBITDA to free cash flow, than other commodity based energy businesses, reflecting relatively lower capital required to sustain our business and our focus on lower leverage. We believe this is a key differentiator for Vistra, and one that investors and analysts will begin to recognize and focus on. For Vistra Energy to deliver these strong financial results in the face of such significant headwind throughout the year, demonstrates the resilience of our business and the dogged focus of our company on maximizing shareholder value. I would like to point out a few key highlights in 2017. We identified run rate EBITDA enhancements of more than $50 million through our fossil fuel operations performance initiative, what we call…

Thank you, Curt. Let's turn now to slide 9 to briefly discuss the 2017 commercial highlights. Consistent with our Fossil Fleet performance in the first three quarters of the year, we have once again delivered high levels of commercial availability in the fourth quarter, finishing the year at 96%. As we have noted in the past, it is critical for operations teams to ensure units are available when market prices are most attractive. This will be even more important in 2019, given the tighter reserve margins expected in ERCOT, increasing the probability of scarcity events. In addition, strong commercial availability supports Vistra's ability to opportunistically hedge our assets; which as you know, is critical to our ability to deliver a more stable and higher earnings profile in volatile power price environments. For the full year of 2017, Luminant's commercial operations team realized prices that were nearly 44% higher than settled prices. It is this active asset management approach we take to our hedging and dispatching our generation fleet, that has allowed Vistra to realize prices that are materially higher than settled prices in periods of sustained low wholesale market prices. You will see however that Vistra is forecasting a much smaller hedge premium in 2018, which is exactly what you would expect in an up market. Vistra opportunistically hedges its assets, in order to mitigate risk, from dramatic changes in power prices, particularly to the downside. Over the past several years, as power prices have been falling, Vistra has been able to realize prices materially above settled prices, as a result of its opportunistic hedging approach. We are always willing to take the risk of higher settled prices, as Vistra is generally net long and can capitalize on scarcity pricing events, should they occur. In fact, as power prices rise,…

Thank you, Jim. Turning now to slide 12, we wanted to spend a few minutes discussing the latest ERCOT CDR report, as well as our view of the potential for a new [indiscernible] in ERCOT. As many of you know, ERCOT issued its latest EDR report in summer of last year, reflecting material changes from this prior version published in May of 2017. Of note, ERCOT's 2018 summer reserve margin is now projected to be 9.3%, down from 18.9% in its prior forecast. The primary difference between December and May estimates, is the inclusion of more than 5,000 megawatts of recently announced retirements, which include Vistra's three coal plants retirement, totaling approximately 4,200 megawatts. It is our view, that these recent retirements indicate, that market forces are working as designed in ERCOT, as uneconomic assets have now exited the market, following a period of sustained low wholesale power prices. With the now tighter supply demand dynamics in ERCOT, forward prices have improved, and the probability for future scarcity events has increased. Despite the recent uptick in forward curve, it remains our view that new thermal resources are uneconomic to develop in ERCOT, and we continue to believe developers will struggle to attract debt and equity capital. It can be very difficult to finance these developments in ERCOT's energy only markets, which lacks any type of capacity [indiscernible] to support the debt service [ph]. This is particularly true of peaking assets, that rely heavily on scarcity events to capture revenue stream. On the equity side, we calculate unlevered returns, both CCGP and gas peaking assets, to be in the 5% to 7% range in the current pricing environment. As a result, while it might be easy for developers to obtain necessary permits and secure EPC contracts for newbuild projects, we continue…

Thanks Sara. I will start with the financial results on slide 15. As Curt highlighted at the beginning of the call, adjusted EBITDA for the consolidated business was $1.455 billion for the full year, and adjusted free cash flow in 2017 was $831 million. Full year adjusted EBITDA was in the top quartile of Vistra's narrowed guidance range of $1.375 billion to $1.475 billion, and adjusted free cash flow is right in the middle of Vistra's narrowed guidance range of $770 million to $900 million. For the full year, the retail segment's adjusted EBITDA was $779 million. In the middle of the guidance range of $760 million to $810 million. This result reflects solid performance by our operations teams, following a difficult start to the year, as a result of the unprecedented mild weather in the first quarter. In fact, February 2017 was the warmest February on record in North Texas, with an average temperature of 60 degrees and nine days at or above 80 degrees. Through disciplined margin and cost management, and superior customer acquisition and retention efforts, our retail team largely overcame the negative impact of this mild weather, delivering solid financial results for the full year. Now turning to our wholesale segment, full year adjusted EBITDA was $696 million, above Vistra's guided range of $630 million to $680 million. Strong commercial performance and expense discipline throughout the year drove these results, which were partially offset by Comanche Peak Unit 2, the unplanned summer outage. As Curt mentioned, all of our operating teams displayed a true dedication to achieving maximum results for the business in 2017, and their disciplined execution enabled Vistra to achieve financial results at the top end of our guidance range, despite some fairly significant headwinds. We are now taking the same disciplined approach, as…

[Operator Instructions]. Your first question comes from Greg Gordon with Evercore ISI. Your line is open.

Thanks. Good morning and congratulations on a solid, solid year.

Thanks Greg.

Just to go back and level set, when I look at the Vistra-Dynegy pro forma that you gave when you announced the deal, you were looking at a 2018 annualized range of $2.875 billion to $3.125 billion, is that right? I am looking at page 16 of the investor presentation?

Yeah, that's right.

And you're saying that -- you are not updating guidance at this point, but you think that the OPI is going to likely be better -- overall level of synergies is likely to be better? And independent of all that, just increases in the forward outlook in both PJM and ERCOT, would reset the natural form as well. So sort of three different drivers we have to contemplate, when we think about the update you will give us when you close the deal?

That's right. That's exactly right. Those are the three drivers.

Fantastic. I do have a question on a totally separate tangent; I appreciate actually the conversation that you guys are engaging in on renewable resource development in Texas. I am increasingly getting questions on battery storage, as this pertains to being bid in collocation with wind and solar, in different regions, and at what point that might become a threat to volatility, via the ability to sort of shift peak? Do you have an ability to talk about that at all on this call? If not, we can follow-up. But I think that's something people are increasingly worried about? Although it doesn't seem like the market structure in Texas would support the viability of that in the near future, from my perspective?

Yeah. So Greg, I will tell you that we have immersed ourselves into the battery world, and just to give you a little bit of insight. There could be some opportunities for us, seeing around some of the sites that Dynegy has in California. That's probably the best place to experiment with batteries, given the support they have. It is tougher in ERCOT. But what I will tell you, we are looking at in ERCOT too, around Upton 2, and what we found is that, you got to get in this, and you got to understand, and you got to be an investor to really get under the hood. But I think I have said this before, we believe that batteries are real and that they are going to play a role in our business; and you know you have got two options, when you are a traditional generator, you can stick your head in the sand, or you can participate, we view it as an opportunity. The solar investment for us in Upton 2 was a way for us to get into that business, and we did it in an economic way. There could potentially be something around batteries, where we could offer product to our retail customers that is battery related, which I think there some people who tend to be green oriented, that might like a product that's a solar battery combination, and we are working through that. I will just say that, we are aware that batteries are going to play their role and we are trying to participate, and we are just looking for the best places to do it; because as you guys know, you can't really participate in these new fledgling technologies and lose a bunch of money. Investors are just not going to put up with that. So we have to find a way to participate in a way that we can make money. And the one nice thing about us is that, our integrated business does allow us to do that, and you should expect to hear more from us around that in the future.

Okay. But you don't see the economics of batteries as being in a position in the near term or medium term in Texas, where they could become a meaningful load shift at a return that would be viable for a large new entrant?

We do not see that, even with the enhanced forward curves. One thing about the forwards is that people probably -- we didn't really articulate, but it is important. Forwards really kind of popped up in the 18, 19, a little bit into 20. But then they come off, and I guess the market is expecting something to happen, like newbuild. It would be tough. By the time you would do something, put it in place, I mean, I just don't think that the forwards are where they are right now, and the backwardation in those curves would support the battery investments. It's really tough to make it happen. It's just purely a merchant battery investment that, would be difficult. But I think that we may be able to do that, supported by a retail offering, that had significant margin to it. We don't know yet whether that's something that our customers are interested in. But we are working through that.

Okay. Thank you very much.

Thank you. Thanks Greg.

Your next question comes from Shar Pourreza with Guggenheim Partners. Your line is open.

Good morning guys.

Hey Shar.

So just on a consolidated entity, appreciate waiting for deal closure. But maybe we could chat directionally. If you think about sort of north of $1.5 billion in free cash flows post merger with upside from additional synergies, the curves, price formation, maybe another one to two more coal retirements outside of ERCOT for Dynegy. I mean, Curt, you sort of talked about the dividend and buybacks in your prepared remarks. But how are your thoughts sort of evolving around the ultimate balance sheet leverage targets you currently guide? So sort of the way I am thinking about is for a company that has so much excess cash, post the dividend and buybacks, is 2.5 to 3 times net of gross debt really appropriate, or you are thinking something tighter over the long term, similar to other cyclical energies industries [ph]?

Yeah. So that is a very good question. I think we have a target to get to a 2.5 net. I think when we get there though, and where NFPs where we pay down debt and we have excess cash. I think -- and that the investment community as well as the rating agencies have gotten more comfortable with our integrated business and the resilience of it and the stability of the earnings, I think we may want to turn our attention to a discussion about whether we can get a investment grade integrated power company again. And to do that, we think we would have to carry less leverage than the 2.5 times net, but that could be advantageous to our company to take that next step. And so I think for us, we would want to sort of walk before we run here, we want to get -- prove to the market we could get these synergies and the OP savings, generate the cash flow, pay down the debt, look for some tuck-in asset types things around our retail business. And if we could do that and hit the numbers, it'd be consistent. I think we are going to want to turn our attention to what's the next phase for the company in terms of leverage, and in terms of return of capital to shareholders. Clearly, that is a board discussion and will happen in 2019, and we were talking about that, we just had a board meeting last week, and we had this conversation. But I think in point to a very interesting concept is the 2.5 we are already in, or do you go somewhere from there; I think that is really dependent on whether there is value to go into that next level of reducing debt, and that puts is in a better position to execute our strategy at that point in time. So it clearly will be on the table as a discussion point.

That's helpful. That's good. And then just Curt, just on a standalone EBITDA guidance range on -- just for Vistra, obviously, we have seen the move in sparks, I mean you clearly highlighted it in your slide decks. As you sort of think about Vistra, and if you back out the asset closure segments and sort of the non-recurring items, are you -- if you were to mark, are you sort of guiding to the top end of that 2018 range, or are you sort of thinking, it’s a brand new higher range?

Yeah, I think what we would say is that there is that opportunity to move in that direction. Remember we are very heavily hedged in 2018, and we did that from a risk management standpoint, not knowing if we were going to shut down the units and whether we could get there or not, and obviously that's history now. We have done some things to reposition our portfolio, that we think will be good for us in 2018. I will tell you that, the bigger upside for us is in 2019, and we believe that as we roll through 2018, especially when we see the summer, the 2019 curves are going to move up. That's why you haven't seen us take a bunch of this off the table for 2019, because we believe it will move up in the range of where 2018 is right now. So I think that's the bigger play, but there is still some room to move, and I think you are -- directionally, you are probably not too far off from what we see, this kind of curve dues left in it for 2018.

Okay, great. So the summer of 2018 is likely the inflection point for your forward hedges? Excellent. Thanks guys. Have a good morning.

All right, Shar. Thank you.

Your next question comes from Julien Dumoulin-Smith with Bank of America. Your line is open.

Hey good morning. Congratulations.

Hey Julien, thanks a lot.

Yeah. Well wanted to just focus on tax reform a little bit here. Obviously, you have got projected pretty minimal cash taxes in 2018, but how are you thinking about that over the sort of longer term here? What normalized you would be? And how do you think about optimizing Dynegy's NOL position into 2019 and onwards? Is there any way to think about tax reform and the cash tax rate, either on a percentage term or nominal term? How are you thinking about it, in the exposure and mitigating strategies?

Yeah hey Julien, this is Bill. I think our current view is still based on what we showed in the 8-K that we issued in January, where you will see we are a nominal taxpayer, very small amount in 2019. We did pay cash taxes on the margin -- sorry in 2018. But we did pay cash taxes on the margin on 2019 and beyond. The one thing I would add, I think Dynegy mentioned in their earnings release, that they have AMT credit refunds coming. Vistra will succeed to those AMT credits and the related refunds or at least any that haven't already been received by or filed by Dynegy prior to the merger close. We are still calculating the amount and timing of the benefit to the combined company, but I think certainly we think that those -- those AMT credits will be an incremental benefit to the cash tax schedule that we showed in the 8-K.

Got it. And that shouldn't be too material?

I think the numbers in the Dynegy 8-K actually were pretty significant, and I think -- we think there is going to be real benefit to the combined company as well.

Got it. Okay. Excellent. And just to clarify there, your other comment on dividend? You had alluded to a 3% to 4% yield, how do you think about like a payout ratio if you will, against the core business and growth of the company? I mean, is this predicated on growth of the retail company or growth of the overall company? And would you be paying conceptually a dividend against one side of the business or the other overall?

Well I think the dividend would be, when you think about it overall, I do think that the one thing we have looked at though and we know this, but you know the conversion from EBITDA to cash flow over our retail business is substantial, right? It's almost -- its in the 90%. If you think about -- it's in the worst place that you could be, where your wholesale operations cover your costs essentially other than the retail business, and you just have the retail business generating cash, in the $700 million or $750 million range, and then a 3% or 4% yearly dividend, we will easily be able to cover that. And that, just from a pure risk management standpoint, we feel pretty comfortable, given the conversion and the total conversion for the company is in the 50% to 60% range that we predict, and that's obviously been improved, that conversion -- given the tax situation that we expect to have, when we close the Dynegy deal. So I think at the end of the day, we feel pretty comfortable with that kind of range. in terms of the trade-off, I think it sounds simple, but it's not. I mean, at the end of the day, we don't control the opportunities that come our way to grow our business. So we have to be somewhat opportunistic, and I think we will be that way. But I think we are going to be a lot steady here about investments in the generation side of our business, outside of maybe renewables that support -- and batteries and other things that support our retail business, and I think our bigger focus is going to be more around our retail business. You know this, but we are significantly long in PJM and…

I think you already got it. Thank you.

All right Julien. Thank you.

Your next question comes from Steven Fleishman with Wolfe Research. Your line is open.

Yeah hi. Good morning guys. Just on the asset closure segment, is there any way to get a sense of the -- how long this might last and that the ultimate size? Just if you want to pull out the EBITDA going forward, it would be good to know, kind of what range of the total cost would be?

Yeah. So we are going to provide that Steve for the Q1 call. We are working on that and there is a couple of things we want to do. We just want to draw your attention to the costs associated with that segment, so that you know exactly what it is, and we are also going to give you a run-off off that. So that's coming, but we definitely understand, in order to really do this right, we have to provide you with those cash expenditures, so that you guys can value it as cash, right? I mean, that's the only way to do it. We are discussing, whether we want to provide a separate ARO for that segment relative to the rest of the company, because right now, you could argue that our ARO is somewhat of an estimate for that, but we have been discussing whether we want to separate those, because we are going to have an ARO for Oak Grove and when we closed with Dynegy for those plants. But I think what we probably need to do is show you that, and that probably is good of NPV look at the cost of those expenditures that we have. In fact, it's pretty darn good the way we do it, it's a pretty good estimate.

Okay. So maybe the AROs --

Yeah, go ahead Steve.

The AROs that you have on the books at yearend, might be at least the starting point for that?

Just remember, it has got -- our gas plants in Oak Grove and Martin Lake in it. But yes, that's a reasonable starting point on that, and then we will have to provide you with the specific information. And we really plan to do that.

Great. And then just -- I want to just make sure, because it's great you have talked about upsides to the merger guide and just on costs and synergies and the forwards. Just to round that out though, is there anything that has gone against you since you gave that guidance, or is everything else kind of okay, and these are all just pure upsides?

Yeah. I would say the one thing that -- I don't know that it went against us, because it was within our range, but it was in the lower end of our range. The EISA New England capacity clear was disappointing. And I think, it's interesting Steve, that I think it kind of indicates the flawed market, right? On one hand, EISA New England's [indiscernible], we are going to run out of generation. On the other hand, your market clears 463. Those seem to be inconsistent. The good news is, as I think they understand that, and they are trying to fix it to some extent, which I think is actually a reasonable step forward with the dual clear that they are -- I think people are calling it CASPER [ph], I think that has a chance of providing an exit for plants that really want to get out, and it's really hard to do that right now in that market. But that was a disappointing -- we were hopeful they would be more in the range of where it could come out to previous year at the 530 range, it came in at 463. The effect of that though is, relatively immaterial, and clearly, we think the upside is greater than the negative on that. But I have to be honest with you, we would have liked to see a better clear, and we are hopeful that these capacity market reforms will move things in a better direction.

Okay. And then just last clarification, tax gains at Dynegy that you mentioned that they disclosed, those are all incremental to the tax disclosure that you put out at the beginning of the year, for tax reform. So if you put that out again, your tax payments would be further reduced?

That's correct.

That's right.

Okay. Great. Thank you.

All right. Thanks Steve.

Your next question comes from Abe Azar with Deutsche Bank. Your line is open.

Good afternoon, I guess. Following up on the ERCOT fundamental discussion, at what price level do you think newbuild gas projects can get financed in Texas? And relatedly, given the constraints on land and transmission, where do you see peak renewable penetration?

So on the combined -- I think you are thinking of combined simple cycle. So we have some that -- I have a guess on that, but I hate throwing out guesses.

Yeah. It's not necessarily [indiscernible] to translate it into a power price change, because it depends on really what happens in the summer, with this less of more peak pricing.

I thought we had one time, steam we had done -- steam [indiscernible]. I will tell you what, because I think we have done this work before, and we could give you kind of what we think an on-peak five by 16 the summer would have to be, to kind of support the economics of the combined cycle plant. So give us an opportunity here to do that and then maybe we can provide it. I just don't have it at my fingertips right now.

Makes sense. And on the renewable front, do you have some sort of penetration rate, where you think the system doesn't expand beyond that, just because of land and transmission constraints?

Well we have roughly -- I think, we show there is roughly 2,000 megawatts of solar penetration, and what do we have there -- we have about almost 6,000 megawatts of wind coming in, and I think we would argue that that's stressing the system at that level. But we do believe, that that will come in, so you can add those things together. But it's probably in the 8,000 megawatts of wind and solar, that will put you up against congestion. We are also seeing, I think we have talked about this, I don't see a big appetite here in Texas, after spending roughly $6 billion on credits, to really actually help additional renewables get to the market. In fact, many of the politicians here now question what they have done, because obviously, they shut down 4,200 megawatts of coal and associated with that, I think with the mines and the coal plants, with upwards almost 1,000 people that were let go, those are voters, and they had to think about that a little bit. And then when you do obviously renewables, the amount of people you need to run those is very small. So I don't see an appetite to really expand that, but I think we believe that you could put in 8,000, 9,000 megawatts of wind and solar, and probably the system may get stressed at times, but you can probably find a way to make that work with the current system, maybe with a few smaller investments to make it work.

As we said, the best economics are actually in the panhandle, but that should become saturated from a transmission perspective probably around the end of 2019. So that will have to shift investment, predominantly to West Texas, that has lower overall capture rates really.

Got it. Thanks.

Your next question comes from Michael Lapides with Goldman Sachs. Your line is open.

Hey guys, easy question. As you look at the combined portfolios, are there any regions of the country, where you would like to have a bigger or a different type of presence? And are there any regions of the country, where you may have a presence, but you kind of look at that region as a bit non-core or the portfolio you have in that region is non-core?

That's a good question. So look, I think the way that we think about it is, the regions that we feel the most comfortable with, and really where the local value was with PJM and EISA New England. I am not sure that one asset in New York is a strategy, and so we will have to make a decision. It's a good asset. Not saying anything against the asset. Also not sure about the long term market in New York. I have been in that market for many years, and we will have to take a hard look at that. MISO, I think is -- that has got multilevels of work to do. We have got a good retail business there, but we have some challenges around that asset base there, both in terms of performance, but also just economics and I know that Dynegy and Bob are working on that. I mean, they are working on the multi-pollutant standard to basically create flexibility to make decisions about what assets we are in, what assets we are out. They also were trying to do capacity market reform, which I think has been tough sledding to get done. MISO tried to take something and pushed it back on them, although seems like there maybe another tip of that cap. But at the end of the day, I think that's going to be tough to get, and just in that zone, it's going to be tough just to get a reform there. And so at some point, when you don't get the reform, and you are successful at doing what you need to do around the multi-pollutant standard and freeing up the assets, we have got a portfolio optimization exercised to do no different than what we did in Texas, and…

No that's perfect. Thank you, guys. Much appreciated.

All right. Thanks.

This concludes the Q&A session for the conference. I'd now like to turn it back to Mr. Curt Morgan for closing remarks.

Well once again, we appreciate everybody on the call. Sorry, we went a little bit long here. We got a lot to talk about obviously, and we look forward to continuing our dialog about our company. Lot of good stuff going to happen in 2018, that we are going to need to stay both [ph] with you and communicate as we go through it. We are incredibly excited about it. We can't wait to get the deal closed and be able to come out and talk to you about the upside around this thing. We just -- in order of return, we feel like we got some really strong wins at our back and we want to communicate it, and we will do so, once we close the transaction. Thank you.

This concludes today's conference call. You may now disconnect.