Hello, and welcome to the Dynegy Inc. Third Quarter 2012 Results Teleconference. At the request of Dynegy, this conference is being recorded for instant replay services. [Operator Instructions] Now I'd like to turn the conference over to Ms. Laura Hrehor, Senior Director, Investor Relations. Ma'am, you may begin.

Good morning, everyone, and welcome to Dynegy's investor conference call and webcast covering the company's third quarter 2012 results. As is our customary practice, before we begin this morning, I would like to remind you that our call will include statements reflecting assumptions, expectations, projections, intentions or beliefs about future events and views of market dynamics. These and other statements not relating strictly to historical or current facts are intended as forward-looking statements. Actual results, though, may vary materially from those expressed or implied in any forward-looking statement. For a description of the factors that may cause such a variance, I would direct you to the forward-looking statements legend contained in today's news release and in our SEC filings, which are available free of charge through our website at dynegy.com. With that, I will now turn it over to our President and CEO, Bob Flexon.

Good morning, and thank you for joining us today for Dynegy's earnings call. Here with me this morning are several members of Dynegy's management team including Kevin Howell, our Chief Operating Officer; Clint Freeland, our Chief Financial Officer; and our General Counsel, Catherine Callaway. For this morning's call, our agenda is highlighted on Slide 3, and since this is our first post emergence and restructuring earnings call, I won't be following our traditional agenda this call, as I would like first to review the company's longer-term positioning within the IPP sector, why invest in restructured Dynegy and the value drivers in the near to medium term. I'll follow that with our traditional third quarter operational and financial performance highlights for the Coal and Gas segments. Kevin will then follow with a review of our operating performance for the quarter and provide updates on our commercial hedge positions, 2013 commodity price trends and additional commentary on modeling Dynegy's portfolio. Clinton will provide the third quarter 2012 financial results highlighting the key factors impacting the performance for the Coal/Gas and DNE segments. Clinton will also cover the third quarter's 2012 cash flows, liquidity and today's announcement concerning the early repayment of $325 million of GasCo's and CoalCo's term loan debt. I'll close out our prepared remarks with final thoughts on investment valuation considerations for the emerged and restructured Dynegy and why investing in Dynegy today offers an excellent risk/reward profile. With the remaining time, we'll open up the discussion for Q&A with the management team. Starting off on Slide 4, post-emergence, Dynegy's well-positioned for success as restructuring went far beyond the balance sheet. While the bankruptcy process has resulted in Dynegy having the least leverage and best credit profile in the IPP sector, as we enter 2013 we not only benefit from…

Thanks, Bob. Please turn to Slide 11 for a review of our operational highlights. As Bob mentioned earlier, our total generation volumes increased 14% period-over-period due to improved spark spreads for a majority of our combined cycle fleet. Our Gas segment volumes increased almost 39% period-over-period, primarily due to higher on- and off-peak spark spreads at Kendall, Independence and Moss Landing. The Coal segment experienced only 4% lower volumes period-over-period due to lower off-peak pricing. I will provide more detail about the impacts of pricing on the capacity factors of the entire fleet in a few slides. The Coal segment performed well, with strong end-market availability of 93% during the quarter. The Coal segment's equivalent availability factor increased slightly due to fewer planned outages taken during the quarter. I am pleased to report the Gas segment had outstanding end-market availability of over 99% during the third quarter. Considering these units have been operating at greater levels than they have historically, this performance is quite an achievement. Equivalent availability factor decreased slightly period-over-period primarily due to forced outages at our Moss Landing and Kendall facilities. Throughout the year, safety has been a top priority for Dynegy employees and the management team. The hard work to improve our safety performance is starting to show results. However, we still have more work ahead as we target top decile performance in 2013. Please move to the next slide, where I'll provide more explanation on the fleet capacity factor performances for the quarter. As the graph on this slide indicates, our gas fleet has continued to see improved capacity factors period-over-period. As in prior quarters, this improvement is due to a combination of higher on- and off-peak sparks spreads in most of the regions. Kendall and the PJM region has seen the biggest improvement in…

Thank you, Kevin. Slide 17 outlines the company's financial summary. And as you can see, third quarter adjusted EBITDA for the Coal and Gas segments, together, totaled $50 million, down from $102 million last year. As in the first 2 quarters of this year, lower realized prices at the Coal segment and the settlement of legacy commercial positions at the Gas segment negatively impacted results. However, in the third quarter, there was further downward pressure on Gas segment earnings as a result of the contract terminations at Morro Bay and Moss Landing. These 3 factors alone reduced gross margin by $89 million during the quarter compared to last year. However, this was somewhat offset by higher Gas segment energy margin, lower G&A and operating expenses and a reversal in option premiums from a net expense in 2011 to net revenues in 2012. Year-to-date, the Coal and Gas segments generated a combined $98 million in adjusted EBITDA compared to $310 million in 2011. This $212 million reduction was driven by 4 factors: lower realized prices at the Coal segment, lower option premium revenues, the settlement of legacy put option positions and the termination of tolling and RA contracts with SCE. Together, these items reduced gross margin by $227 million. And while there were other variances throughout the year, they generally offset one another in total. Total available liquidity at November 2, 2012, stood at $803 million, including $429 million in unrestricted cash, $13 million in Letter of Credit capacity and $361 million of restricted cash in our segregated collateral posting accounts. As you can see, total liquidity is down by $219 million since the end of September, and that's primarily due to the company paying $200 million in cash to creditors as part of its emergence from bankruptcy, in accordance with…

Thanks, Clint. Turning to Slide 23, we recognize success is built upon a foundation of executing well, operating safely and efficiently, hitting our targets and thoughtful capital allocation decisions. While the current market environment presents challenges, our combined cycle fleet is performing particularly well as expected in this environment, while our compliant coal fleet will be the primary beneficiary of tightening markets and rising power prices. As these changes occur, either one or both will likely have a dramatic impact on the company's value, and our job is to ensure the fleet is well-managed and positioned to take advantage of changing market conditions, as well as to realize the full intrinsic value of the fleet today, which is why we remain committed to our PRIDE initiative. Finally, on Slide 24, as I covered earlier, if we allocate today's enterprise value entirely to GasCo, that results in a relatively conservative $368 per kW for GasCo, while CoalCo can be considered an embedded option at no cost to investors, providing significant upside value given the quality of the fleet and market positioning. Again, our focus is to execute well, make prudent capital allocation decisions, and capture the full value for each of these portfolios. At this time, I'd like to open the lines for questions.

[Operator Instructions] Our first question now is from Brandon Blossman, Tudor, Pickering, Holt & Co.

Let's see. How about the -- looks like some nice hedging going on in the quarter on the coal fleet. Can you give us any indication of what -- I assume that they weren't costless collars. What kind of cost associated with those floors?

Well, again, they were not costless because we put the floors in typically at more of a at-the-money-type position, and we were selling out-of-the-money calls to partially offset it, but we had enough liquidity to cover the rest. I don't know if we've actually disclosed the premium outlay, have we?

No, we haven't. But like Kevin said, I think there is a net cost associated with that. But I would say that it's been relatively modest and kind of the single million dollar type of net cost.

Okay, great, that's very helpful. And then just any more color that you can give around the -- Kevin or Clint, around the basis change particularly at INDY Hub year-over-year?

Well, I'd say that year-over-year, the total basis change, as far as a period-over-period adjustment, is not that significant. What we are seeing is that just the periods that it shows up and the volatility around it are what is really -- we're trying to drill in on now and trying to come up with some better solutions to manage that.

Yes. And as Kevin said, I think what we saw, is that year-to-date over the 9 months, I don't think it's been significantly different than what we saw in 2011. I think we did see an uptick, particularly on-peak basis, during the third quarter. But when averaged against on-peak -- excuse me, off-peak basis, it was kind of, say, in the mid-$1 to $2 range around the clock for the quarter.

And finally, I would say that on Slide 14, when you look at the history of basis, it's relatively consistent. And when I think about our priorities for 2013, we've allocated more resources to Kevin and his team to understand the congestion points and what are the alternatives that we can do to try to minimize that basis in the absolute amount, as well as dealing with the risk management objective of those times of high volatility that Kevin was describing. So that clearly is -- when we think about various PRIDE initiatives in 2013, understanding transmission, transmission constraints and how to optimize the coal fleet, particularly for Baldwin, is a top priority for us going forward.

And definitely it's interesting to see how that plays out, and obviously a lot of upside leverage on that play.

Our next request is from Jon Cohen, ISI Group.

I guess, I just had a couple of questions on the MISO power market dynamics. So looking at your Slide 7, I guess most people take it for granted that retirements will necessarily lead to higher heat rates and higher power prices. But I would imagine, most of the retirements are coming in the eastern part of MISO where you have a lot of bituminous coal plants that are unscrubbed. If that's the case, and you're already seeing congestion from Central Illinois into Indiana, wouldn't that just be exacerbated by retirements if they were in the eastern portion of MISO?

I mean, as far as the retirements, I mean we certainly do see it more in the eastern segments. Regarding congestion, Kevin, any thoughts of that?

Well, yes. I think it is something we'll have to keep an eye on. The theory that you're laying out there has some merit to it, and we'll have to look at that. But it's not only in the eastern, I think, we're going to see the retirements. I think as you go further north into MISO as well, you're going to see a lot of retirements.

Okay. And then I guess the other question is, if the retirements are from regulated entities, are you aware of any plans to replace those retirements with new build? Or do we have to wait and see what's retired before they announce plans for new build versus. . .

Yes, I don't think there's any. We don't see anything on the radar in terms of the new build coming in. And when we think about retirements and you talk about energy prices a moment ago with congestion, and again, we're going to do what we can to manage congestion and transmission. One of the main points that I wanted to drive through with that slide as well is the capacity construct in MISO as compared to PJM, and the fact that you don't have the forward capacity market, which leads to your second point that there aren't any signals for new build in these markets. And when you think about the capacity prices that our Kendall facility receives in Illinois just to the north, if we apply that same capacity price that Kendall gets in 2015, '16 timeframe, the impact on the CoalCo fleet is well over $100 million a year in terms of EBITDA versus what we realized today in capacity payments. So when I think about retirements, we certainly do expect there'll be impact on energy revenues and prices that are favorable. But the one thing that we're also trying to get out there and make public is that there should be a dramatic impact on the capacity revenues that the coal fleet receives compared to what it receives today.

But does that assume -- I guess does that assume that regulated entities in the eastern portions of MISO will opt to contract with your assets versus build their own under regulated construct? And the second question, I guess, is if they have to meet a load obligation with capacity, are they able to use contracted plants and parts of MISO that don't necessarily have a transmission path to the load pocket?

Well, on the first question around the new build and whether they build their own or contract with us, remember MATS comes in 2015. And if they're going to go -- if the utilities are going to go for rate review or to get new build approved, permanent, built, operational, you're not talking about 2015. You -- just the construction time period is 36 to 40 months. So in terms of timing, it just doesn't fit with MATS. So you're going to have these tightening of reserve margins that come pretty quickly. And while yesterday I indicated here that we thought it's unlikely that MATS gets repealed, I feel even more strongly about that today, given what happened last night with the election. So that capacity market is going to dramatically tighten in 2015.

Our next request, Ken Miller, Cantor Fitzgerald.

I was wondering if you can give us some insight into the bidding at Danskammer/Roseton and also the extent of the damage. And the third part is what happens to any insurance proceeds and how they would run to the waterfall of distribution value?

Yes. Regarding the bids, the bid deadline was November 5, it was just the other day. And we received a handful of bids. We're going through evaluating them now. Not all the bids were prepared the same way. So we're still going through and understanding all that. And the public process around that is November 15. Regarding the damage, I'll let Kevin give you an update on the damage, and then we'll talk about the insurance after that.

The primary damage we saw at the facility really was from rising water. The staff up there had tried to sandbag the facility ahead of the storm, but just the amount of storm surge they received is greater than anything they've seen probably in the last 35 years there. So we did have an issue at Danskammer where there was water in the basement. I think it was up to 6, 7 feet of water in the basement area, which primarily affects the equipment down in the basement. You've got various pumps, switch gears, stuff like that down there. The turbines themselves really are not impacted. But we're in a situation now of assessing all the damage of which motors we need to pull apart. That's brackish water that came in there, so you basically have to break all that equipment down and clean it up. So that's really the extent of the damage. It was mainly in the basement, on the pumps and switch gear. We've also got a little bit of damage at the dock that we're assessing as well.

Regarding the insurance and the amount of the financial impact of this, early estimates from our facility are in the order of magnitude of the $3 million range. But that's still a very rough estimate being developed. The insurance adjuster, as well as our team, were out at site earlier this week going through that assessment and detailing it. Regarding the coverage, the first million dollars is a deductible on the policy. And then for every million dollars after that, I think we have to meet a 10% co-pay, if you will, requirement. So that would all be funded through DNE. DNE has the cash to make that level of investment. But again, it's too early to conclude what happens next since we're still trying to assess the full extent of the damage.

I would also add that Roseton facility sits up on a little bit higher elevation and was not impacted. It's fully available to the market.

Our next request now from Julien Dumoulin-Smith, UBS.

First question, more of a strategic one. Now having a couple of months under your belt or what have you, what are you thinking in terms of taking the company from a strategic perspective? I suppose scale is always important in this business. Are you more of a buyer here? And perhaps could you talk about the thought process potentially protracted here over what is desirable, when it is, et cetera?

Julien, I'll just talk a little more broadly about capital allocation. We had our first formal meeting with the Board of Directors last week. And we went through these topics. And we've got another meeting with the Board in December where we're going to bring in even more detailed suggestions or alternatives that we think we ought to be looking at. But at this point in time and talking through the various alternatives with the Board, when we think about capital allocation, right now all alternatives are open and on the table and being discussed. And our first capital allocation decision, which the Board fully supported and endorsed, was the repayment of the term debt, the $325 million. In terms of the next type of decisions around capital allocation, we're going to look at everything around adding to the portfolio, we'll look at additional debt restructuring or repayment and we'll also look at share repurchases. So all of it will be considered by the Board. I think we've got ideas in each of those areas that we'll review with the Board. And the bottom line is going to be, we're going to select what we believe is the best risk-adjusted return for the shareholders. So right now, it's all on the table, more work being done and to be reviewed with the Board later in the fourth quarter.

Great. And a complementary question there, you talked about paying down debt. First, why not the full $100 million at CoalCo? And secondly, perhaps, if you could talk more broadly, pulling down the collateral, establishing a new revolver, what is the timeline there just in terms of sort of refreshing your liquidity situation?

Yes, Julien. I think for the first question as far as kind of why we're not repaying the full $100 million. Really the reason for that is that we only have $75 million to $76 million sitting in the collateral account at CoalCo today. And we -- the cash that's in that account is the only cash that we can use to pay down the term loan. We can't use unrestricted cash to pay that down. We can't use the restricted cash that's still remaining over at GasCo to pay down the term loan debt. So we're basically limited to what we have in the CoalCo restricted account, and that's the $75 million today. I think to the extent that we're able to pull some more collateral back in at CoalCo and bring that balance back up, I think we would seriously look at paying down some more of the CoalCo term loan should that occur. So more to come on that. As far as timing of revisiting our liquidity program, to me I think that needs to be done in conjunction with a potential refinancing and maybe a larger type of exercise. To me, that -- given some of the prepayment penalties that we would incur in refinancing early, I think that's probably more likely a 2013 event. And frankly, given kind of where the markets are, where the prepayment penalties are, we would want to wait until we have high confidence that the right transaction can be done, and that it could can be done economically. So I don't know that something will be done in the near term, but it certainly is something that we're continuing to monitor and we'll execute at the right time.

What's the right excess cash balance to think about, just to be blunt?

Well, I think -- I tend to think about it in terms of liquidity and whether that's in cash, whether it's in letter of credit capacity, revolver capacity or so forth. I think kind of where we are, I think, is a fairly good place. We have a little bit more liquidity maybe than we need. What I referenced in the slides here was we'd like to have a total, or we think we need, about $700 million to $800 million in total liquidity. We've deployed about $450 million already. So that would imply -- you'd probably want another at least $350 million in liquidity. We have a little bit more than that today. But again, I think, we want to have a margin of error here. So I'm fairly comfortable with where we are right now.

And sorry, just a real quick last question. We've talked a lot about MISO retirements. Just to follow up on that thesis here, when you look at your own portfolio, how do you think about the timing here? Obviously, we've seen, for example, the NI hubs units haven't come out in 2015, at least per the capacity auction necessarily. What's going to drive or trigger these events ultimately, as you see it? I mean, perhaps as you think about your own portfolio here, I mean, is there a triggering event where it's just we're going to take units the out because they're just not worth the pain?

Well, I think it's 2 things. If the smaller plants, like -- we retired Vermillion. So to the extent you've got plants that are subscale that aren't scrubbed, I mean, even in this gas environment, they're absorbing some level of pain, and there's a point in time that as gas prices start dropping down again, that pain could be sufficient to take them out of the market, just like Dominion did with the nuclear unit just with the announcement last week. So I think the low gas prices will continue to inflict some pain that can cause some of that. Other than that, I think it's the triggering date that there's a compliance deadline. And again, if you're not in the process of installing those controls now, you're not going to make 2015. You're not going to do anything for 2015. So it's either the gas prices, low gas prices, that's going to cause retirements or the MATS deadline.

Our next request now is from Brian Chin, Citigroup.

Most of my questions have been asked and answered, but there's still a wide variety of EBITDA estimates out there. When are you guys thinking of giving 2013 guidance? And to what extent would you consider giving out maybe longer-term gross margin guidance on some of the other IPPs?

Right now our target would be when we do the Analyst Day, which will be in July. We'll give the -- I'm sorry, I was hoping it was July. The January Analyst Day meeting, we'll give out the guidance. And to the extent we go -- we need think to think about, how do we split out that guidance between the portfolios, or do we just give one number? And then at some point in time, we'll need to think about do we go beyond 2013. And all of those decisions and discussions we haven't drawn any conclusions yet. So it's too early for me to say, Brian, whether we would provide something beyond 2013 for gross margin or not. But it's something we'll evaluate and consider as we plan for the Analyst Day in a couple of months.

Great, great. And then just one follow-up question that's unrelated. On slide 18, you've got, in that lower-left side, the coal segment, and you've got outages and volumes $3 million impact year-over-year. Should we assume that, that $3 million isn't the right number to read for the Baldwin planned outage because 2011, you also had a similar outage? And if so, can we get a sense of how big, of that outage, did that have an affect on EBITDA had that outage not occurred in September?

Well, I think the $3 million, some of that, I think, is likely as of the Baldwin outage. But again, because we had a significant outage last year, I think it's probably a small portion of that, if any. I think most of that's probably going to be some of your off-peak volume that's been coming down because of off-peak prices and ramping down the facility in off-peak hours.

So if I can just rephrase my question, what was the impact of the outage for September 2012 in total, with regards to EBITDA, as opposed to a year-over-year number?

Yes, again, the year-over-year will be relatively consistent because of the 2 outages are similar. Yes, I think in total, the -- I would say on an adjusted EBITDA basis, the impact this year -- and I don't know exactly how much would fit before September 30 versus land in October. But for the total outage you've got about an impact of about $5 million between gross margin and OpEx for this outage. That's not in comparison to last year. That just this year's impact of that outage.

Our last request now is from Will Frohnhoefer of BTIG.

I guess most of my questions have already been asked and answered. I guess the one thing I would have left is, what are the prospects? I mean, given obviously where gas prices are, it's kind of a challenge. What were the prospects for new capacity agreements out West on the gas side?

For new capacity agreements for the California fleet?

Correct.

Well, right now, when I think about Morro Bay, we're in the mediation agreements with the SCE that had provided the tolling arrangement that we had in the past. We're going through those discussions now, and we're in the very middle of that. So at this point in time it's hard to say whether or not we'll have a tolling agreement there as part of the settlement or not. So I can't really comment regarding Morro Bay. As far as Moss Landing 6 and 7, the tolling arrangements there are that they end 2014. So our thinking about that is that the capabilities, particularly of Moss 6 and 7, giving the renewable requirements in California and the ramping capability of Moss 6 and 7, that will be a highly desirable plant to have capacity, some type of capacity arrangements. So I'd say we're pretty optimistic for the plant in the north, and Morro Bay, time will tell. We'll see how the settlement discussions go on that. Thank you. And operator, that concludes our call. Thank you, everyone, for participating.

As the conference has now concluded, again thank you for your participation. All lines may please disconnect.