Welcome to the NRG Energy Third Quarter 2009 Earnings Conference Call. (Operator Instructions). I would now like to turn the presentation over to your host for today, Ms. Nahla Azmy, SVP, Investor Relations. Please proceed.

Good morning and welcome to our third quarter 2009 earnings call. This call is being broadcast live over the phone and from our website, at www.nrgenergy.com. You can access the call presentation and press release furnished to the SEC through a link on the Investor Relations page of our website. A replay of the call will also be available on our website. This call, including the formal presentation and the question-and-answer session, will be limited to one hour. In the interest of time, we ask that you please limit yourself to one question with just one follow-up. Now, for the obligatory safe harbor statement. During the course of this morning's presentation, management will reiterate forward-looking statements made in today's press release regarding future events and financial performance. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risk factors contained in our press release and our filings with the SEC that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. In addition, please note that the date of this conference call is October 29, 2009, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events, except as required by law. During this morning's call, we will refer to both GAAP and non-GAAP financial measures of the company's operating and financial results. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please revert to today's press release and presentation. Now with that, I would like to turn the call over to David Crane, NRG's President and Chief Executive Officer.

I'm joined here today by Bob Flexon, our Chief Financial Officer; and John Ragan, our Chief Operating Officer, both of who will be handling the lion's share of the presentation. Other colleagues that I have with me who are available to answer questions today are Mauricio Gutierrez, who runs Commercial Operations, (inaudible), who heads our Risk Group; Jason Few, who runs Reliant; and Jim Ingoldsby, who is our Chief Accounting Officer. Finally, I'm joined by Gerry Luterman, who I think most of you know is going to be joining the company as our Interim Chief Financial Officer, succeeding Bob. He is here as our special guest and observer. As he is not on the payroll today, I don't really expect him to have to answer any questions. We want him here because, as we sit around here and we actually talk like this, for reporting purposes Bob Flexon owns this quarter, the third quarter 2009, from a reporting perspective. Gerry Luterman will own the fourth quarter of 2009 and the full year 2009. So next quarter, if all goes according to plan, Gerry will own the quarters thereafter. Today I'm going to focus more than usual on our actual third quarter and year-to-date 2009 financial performance and describing our initial view for 2010, as reflected in our EBITDA and free cash flow guidance for next year, released today for the first time. In terms of our various growth initiatives, the topic I usually cover, while we, of course, will happily answer any questions you might have about them, I intend to mention them only in passing during my prepared remarks. I don't want you to misconstrue this as connoting pessimism on my part. Quite to the contrary, all it indicates is that I'm trying to reserve on the growth discussion…

During the third quarter, NRG has continued to sustain the strong operating and commercial performance that it has achieved during the first two quarters of this year. On slide seven, we highlight some of these accomplishments. Our focus on safety across the organization has remained consistent and is delivering results. The year-to-date OSHA recordable rate improved to 1.29 in the third quarter from 1.31 in the second quarter. Our OSHA rate continues to exceed the top quartile benchmark for the industry of 1.52. Corporate and plant management continued to emphasize safety by making it a part of the daily observations and conversations that occur at all of our plants and by continuously developing a series of initiatives to help keep our employees safe. Our baseload coal operations have had another solid quarter with our plant personnel delivering top quartile performance even as we continue to face challenging market conditions. With gas generation being dispatched ahead of coal, we have experienced increased load cycling and periodic reserve shutdowns, especially in the Northeast. As I mentioned during the second quarter call, our EPC Group has successfully completed and delivered into operation the Huntley and Dunkirk 3 and 4 baghouses in New York and the Cedar Bayou 4 combined cycle unit in Texas. The Group is now close to delivering into operation the Dunkirk 1 and 2 baghouses with construction completing this fall. Additionally, we have made substantial progress on the construction of our new peaking units at the Devon plant in Connecticut. Our Commercial Operations Group has continued to effectively manage the hedging and dispatch of our wholesale generation portfolio, in addition to executing the integration and risk management requirements for the Reliant Energy retail supply portfolio. Providing more detail on the wholesale and retail performance metrics, on slide eight, the chart…

Beginning with the financial highlight on slide 13 and as David expressed, the company continues to achieve record financial results during a time period where many companies are facing serious financial challenges. Adjusted EBITDA for the third quarter and for the first nine months of 2009 was $906 million and $2.129 billion respectively. This represents the highest quarterly and nine months results NRG has ever posted. Cash from operations increased 18% to $1.28 billion for the first nine months of the year, while free cash flow from recurring operation was up over 19% to $1.09 billion compared to the first nine months of last year. The increased cash performance is attributable to Reliant Energy, which, in five months of ownership, has generated more cash than the original purchase price. Liquidity remains very comfortable $3.9 billion with nearly $2.3 billion of that in cash. We are raising our 2009 adjusted EBITDA guidance to $2.575 billion and that excludes an expected $85 million negative impact in the fourth quarter of hedges that were terminated early as part of the credit sleeve unwind, which I will discuss shortly. We are also initiating a 2010 full year guidance at $2.2 billion. As a reminder, on the second quarter conference call I stated two high level priorities for the second half of 2009, which were; one, unwinding the credit sleeve supporting Reliant Energy; and second, the successful execution and completion of our capital allocation plan, specifically the planned $500 million in share repurchases. On October 5, we successfully terminated the Merrill Lynch credit sleeve, one year earlier than originally planned. In addition, during the third quarter, we purchased $250 million of common shares through September 30 and an additional $250 million of shares are planned to be repurchased during the fourth quarter. The quarter-over-quarter comparison…

Our slide presentation concludes on page 21 where we have brought down our near term objective scorecard from the second quarter call. While several of our objectives remain uncompleted, every one remains on track or in progress and I remain very confident that all will be achieved. We hope and expect to be able to report further progress on these objectives when we meet in November, but even at our Investor Conference at a time when there will be six weeks remaining in 2009, there may be work that remains to be done on some or all of these objectives. I have every reason to believe that you will be pleased as I am with the present status and prospects for all the company's principal growth initiatives, and we very much look forward to walking you through them all in greater detail than is permitted by the 45-minute constraint of these quarterly calls. Now, as this is the 23rd and unfortunately the last quarterly call that I will have handled alongside Bob Flexon, I would be remiss if I did not further address the topic of his recently announced departure. As all of you know, over the past six years Bob has held at one time or another either the CFO title or the Chief Operating Officer title at this company. In our fluidly organized, nonhierarchical company, what Bob really has been over the past six years is the co-CEO. Indeed, over the past few years whenever people ask me how NRG really is run, I tell them that they should consider me CEO 1-A and Bob Flexon as CEO 1-B. I have been very pleased to effectively share this position with Bob over those years because we've been able to complement each other and leverage off each other in…

(Operator Instructions). Your first question will come from the line of Neel Mitra of Simmons & Company International.

Good morning. Can you comment on the implications of the recent merchant wind transmission line FPL brought into South Texas? What are the shorter implications right now for off peak power prices in ERCOT South or Houston? Does this have any affect on how you view the CREZ build out in terms of difficulties, building transmission into the South versus the North since the construction lead time was around 10 months?

To summarize, it's a two-part question. One is what's the direct impact of FPL's new transmission line on West to South and onto Houston, and second, what does this mean about how quickly CREZ will be built out, is that right?

That's right.

Mauricio, would you like to answer that question?

As you know, FPL announced they energized a few days ago 950 megawatt transmission line connecting four of their wind farms from the West zone into the South zone. Our analysis indicates that it's going to have a larger impact on the West heat rate than it will on the South and the Houston zones. Just the relative size of the line versus the markets between Houston and South, you are talking about 35 gigawatt market. So, the impact of 900 megawatts exporting from the West versus the impact on the South and Houston is significantly different. Now, with respect to your second question about if this changes our view on CREZ, keep in mind that this is a merchant line. It's very difficult to compare a merchant line versus a rate-based project like CREZ. We don't have enough information to know if FPL had any lead time in terms of securing rights of way. It looks like there was 10 months of construction, but we don't know exactly what was the lead time to be able to get everything ready. With respect to CREZ, there are significant challenges. First one is the financeability of the project and how are you going to distribute or socialize the transmission costs across the rate base, and two, it's a question of the cost. It has been said that the line is going to cost just shy of $5 billion. I think there have been some additional discussions whether or not that's close to $10 billion. So, there are still some hurdles around the CREZ project and we still believe that a 2013 timeline is aggressive.

Looking a little bit at FPL's comments, we never thought the actual physical construction of transmission lines was the thing that takes a long time when it comes to CREZ. As you say, it's the other aspect, it's the regulatory aspects, and it's the right of way.

The permitting, the siting…

Neel, do you have any follow-on on that or are you good?

I'm good on that. I just had a quick additional question. I just wanted to know if you could comment on the EBITDA impact of the new coal transportation contract into Texas. Also, how does that compare to the current coal costs that you are reporting in your presentations?

The way that I think about it, there are three main reasons that drove our EBITDA down. I said roughly they're about the same level of cost. So we're down about $375 million or so year over year. So you say about roughly one-third of that is roughly the rail. Parish brings in roughly 12 million tons of coal. That contract was repriced and begins on January 1. That contract had been around for 10 years, beginning of the decade. So, that basically puts it to the current market rates.

The next question comes from the line of Lasan Johong of RBC Capital Markets.

Bob, I'm going to miss you. I think you're an excellent CFO and I think you will make a great CFO for Foster Wheeler USA. Having said that, I need to ask you a clarification question on your 2010 guidance and this is kind of more macro stuff. Since you're hedged out on your wholesales, I am assuming that there is going to be very little price volatility due to natural gas, maybe a little to heat rates, but you're exposed on the retail business. Generally speaking, I would assume that if gas prices were going up as you forecast in your scenario, you've got very little upside gain from wholesale, but potentially a relatively large loss on retail due to higher gas prices. The $2.2 billion EBITDA guidance for next year I am assuming either incorporates that upside gas price move, and if it doesn't, then there is more risk to the downside to that guidance than there is upside to that guidance. Am I understanding this correctly?

On the retail piece, first of all, as John went through his presentation and talked about what's hedged and what isn't hedged, the piece that's currently not hedged is the one also where the revenue is not locked in either. So they will generally move together. If you see gas prices suddenly going up, Jason will have to make a determination whether he raises those prices at the retail level. So that part will continue to float, so we're not wearing that risk at this point in time. Anything that is fixed price on the retail side, as John mentioned, is basically a flat book. So, you don't have necessarily any downside or upside on that piece of the business. On the wholesale side of it, I'd agree with your comment that for your baseload generation it's pretty much hedged out. It's going to be what it's going to be. The one thing that's maybe a little bit different '10 versus '09 I think we saw that the margins coming from the gas assets in '09 were quickly compressed as gas prices came down and the like during the course of the year. I think in 2010 if I look to where is the upside in the wholesale portfolio, I think our assumptions right now on some of the margins from the gas assets is conservative in our guidance.

What you're saying is that the upside potential exists on generation from more gas fired generation, but if gas prices are going up, that's not likely to materialize, correct?

It depends on what happens with the heat rates. So it's more of a spark spread discussion. So, that's fair. I think the other thing going back to retail as well is what we've assumed this year, in 2010, is a normalized weather year which is how we always prepare our budgets. That really even applies on the wholesale as well. To the extent that you get hotter or colder will have some impact on that performance. As you know, in 2009 on the retail side the summer in Houston was particularly warmer than normal and we did have upside of roughly $80 million or so in 2009 from the Reliant piece. So, weather will have some impact on both parts of the portfolio in '10.

The structure of the hurricane insurance sounds interesting. Can you describe to me how that works and what it costs?

I am not sure. Mauricio is going to tell you specifically what it costs, but I would ask Mauricio to try and explain it succinctly.

We enter into an instrument that allowed us to hedge the gross margins that we would have lost due to our lost loads in the case of a hurricane event. In addition, since we run a flat book, we buy the supply for that expected load. So, any loss associated to the sellback of that supply was also part of that instrument. I will say that it is not an insurance, it is a derivative product that is tied to the cap bond market. We introduced price and load triggers that allowed us to lower the cost of that instrument for the business.

Was it a structured transaction or did you just put it together using commonly available derivative products, options and forwards?

It was a structured product, but it was a derivative product. It was not an insurance product.

Your next question comes from the line of Michael Lapides of Goldman Sachs.

Coming back to Texas in a little bit and the impact of wind, can you talk about how much wind, whether it's two years, five years, 15 years, let's stay in the more near term, so let's say next five to seven years, how much wind would it take to get if it came into South Texas before you would see coal on the margin in the off peak hours?

How much wind to get coal on the margin in the South Texas zone in the off peak hours? I don't have that answer off the top of my head.

I don't have it. I don't have the numbers, but I can follow-up with you later.

The next question comes from the line of Brandon Blossman of Tudor Pickering.

Good morning. I think this will be for Mauricio. ERCOT bilateral capacity market, can you kind of give some year-over-year '09 to '10 color, and then describe particularly in the higher heat rate products what you have open for '10, or what you have locked down?

I think what you are referring to is the capacity pricing that was embedded on the old contracts that Texas Genco had. There is no bilateral capacity market in Texas. You see a pure energy balancing market. So I want to make sure that I understand your question.

I guess I'm talking about both; one, what was embedded in those old contracts; and two, I do assume that you guys held some higher heat rate product as capacity on a month-to-month or quarter-to-quarter basis.

What I will say is the only capacity product that we have and that we report on our financials is the capacity component that was embedded on these old auctions that Texas Genco used to do. Prospectively, it's a pure energy market. What we do is we structure our transactions with other counterparties in the form of tolling agreements or heat rate coal options, but usually they are treated as energy options not as capacity.

Not to prolong this, but can you comment on what the market looks like year-over-year for those products? I don't want to get bury in the semantics, but for those tolls, if you will.

Well, one of the benefits of combining retail and wholesale is that in the past, Reliant was one of the large buyers of these products to manage their volumetric risk of load. Now that is a part of NRG. Monetizing the intrinsic value of our gas portfolio in the form of heat rates, it happens internally where wholesale will provide those insurance products to the retail group and the retail will price it to the end customers.

What's the transition for that?

It's already happened. We started in the summer of this year and we already are matching the generation and the load books for 2010 actively.

Much of the wholesale position we inherited from Reliant is worked off now at this point.

So we can expect '10 essentially just to think about that as an integrated entity, no residual supply book?

Think about lowering the volatility around your gas portfolio gross margin. I mean, the fact that you actually can now cross your gas portfolio with your load just is going to provide us more stable view on the gross margin associated to the gas portfolio.

Switching topics here real quick, residential gross margins on the retail side, I don't expect that you guys will comment on exactly what your target number is, but can you comment directionally where you'd be biased as far as attrition versus holding gross margin?

The way we think about margin for 2010 is we look at the current environment and you look at the forward curves. We think that pricing is going to be relatively stable and we think that we are in a position to be competitive on price. Right now, from an overall margin perspective, we don't see big movements in price downward through 2010.

Your next question comes from the line of Anthony Crowdell of Jefferies.

When I look at the 2010 guidance wholesale, it's about $1.7 billion. Bob had stated roughly about like $125 million of that or one-third of the drop off was from a roll off in hedges. You have another roll off in hedges from '10 to '11. Your weighted average price of hedges goes down, so I look at what you guys have hedged, roughly about like 48 million or 50 million megawatt hours. That's another drop-off of about like $250 million of EBITDA. Is that reasonable with what you've provided so far?

I think your math is to redisclose what the hedge prices are and I think in 2011 what we disclosed that 70% of the portfolio is hedged at about a gas price of about $7.27. If you look at 2009, we are about $8.37. So, 2010 is going to be somewhere in between the two. You're going to see those level of drop offs on the 50 million megawatt hours. So, your math is fair. You have to assume the right heat rate, but it's not an unreasonable way to look at it.

Your next question comes from Nitin Dahiya of Nomura Securities.

Bob, congratulations and best of luck in your new role. Just a maintenance question first, what is the RP basket at the end of the third quarter?

At the end of the third quarter, once we file the Q, it will be in round numbers about $750 million, and then in the fourth quarter you'll have reductions to that for the $250 million in planned share repurchases and also the settlement of CSF II of 181 million. So, by the time you are at the end of the year, you'll be sitting around $400 million to $450 million by the end of the year and before you file your K.

Now, obviously you have over $2 billion of cash on balance sheet. As you look ahead 12 to 18 months, could you share some thoughts of potential uses for that?

I think the approach that we outlined, to spice things up, we show it in a little different way. I always preferred this sort of pie chart approach where we show that we maintain a pretty balanced approach in terms of paying down debt. We continue to believe that the commitment, the undertaking that we made to our shareholders a few years ago in terms of return of capital to shareholders, either through share buyback or possibly a dividend, but until we can fix the restricted payment basket thing for a few years out and at these share price levels we are very focused on continuing with share buybacks. So, while we are not announcing a 2010 share buyback plan here when we still have a fair amount to do on 2009, we would certainly expect that to be part of the future. In addition to the money we reinvest in the existing assets, we see a lot of growth opportunities. In fact, a lot of ways in which we're sort of uniquely advantaged, particularly around the renewable space where as we've mentioned in here, we not only have the liquidity, but unusual in this market, we also have tax equity capacity in 2010. We see tremendous opportunities in that area. So, I think a good wedge out of the pie will be reinvestment in the business.

This is not discretionary. I think it will look a lot like it has in the past between capital investments, share repurchase and debt reduction. On the debt reduction piece, under our first lien next year the cash sweep, the mandatory offer and probably what the take will end up being is somewhere in the order of magnitude of between $400 million and $430 million pay down of term loan B under the mandatory offer that we have.

Any thoughts on revisiting amending the covenants on the old bonds, especially as it become callable?

I've been working and making sure I'm developing a good relationship with the bond group and the leader of the bond group, and I've been transitioning that to Chris Sotos, our Treasurer here. I think what we want to do here, as we look forward, is look at various alternatives on how the covenants can be effectively addressed, and then sit with the members of the bond group and review alternatives together and see what makes the most sense. I think the company will continue to work in that direction going into 2010. I think we've got some very good ideas on our side and we're just looking for the cooperative dialogue between us and the bondholders to do what's in all of our interest because there are certainly good reasons why the bond group should want to change the covenants because they don't effectively (inaudible) way the mark-to-market mechanism works in the covenant versus the way it works in the financial statement. So, that is good motivation on both sides of the table to get something that makes sense for both parties. I am optimistic that will happen in 2010.

As Bob suggests, there's going to be no hiatus in that work once Bob leaves. We will begin after that sooner rather than later.

I think I agree. Engaging with the bondholders on this makes a lot of sense. Bob, best of luck again, and talk to you soon.

Your final question comes from Angie Storozynski, Macquarie Capital.

I want to go back to the 2010 guidance. First of all, could you try to quantify potential upside from your gas plants. I know it very much depends on the future spark spreads, but what's the range? Is it say $100 million or is it a 200 million range? That's one. Secondly, David, you mentioned some cost cutting measures or some additional revenues that you guys are working on to boost the 2010 results. Any color on these would be helpful. Lastly, the $500 million EBITDA projected for the retail business, any takeaways for the run rate? Should we see the run rate for this business as rising or is this just a function of your prospectus of weak gas prices and that the counter-cyclicality of this business is driving earnings up?

That was a definitely multipart last question. Let me start with the part that I can address before handing it to Bob. I guess you guys are going to talk about maybe gas plant upside. The basic point I made, first of all, I think you have to recognize just the type of company we are. There's conservatism across our full range of forecasting. As we have every year in the past, we are constantly looking, as the old cliché, we are constantly looking at how to sweat the assets, what capital expenses really need to be done. We have the FORNRG program, which has been successful. There is an extension of the FORNRG program within Reliant, taking a careful look at the cost structure there. There's variety of ways that we have been looking at, very different and pretty micro at each of the plants. Within the Reliant business, they are looking at different ways of enhancing revenues, but there is no sort of one general theme. Each plant has sort of different ways. I would just also say that economic recovery, demand growth, natural gas prices increasing, we are not forecasting for any weather event. From our perspective, from my perspective, between sort of our natural conservatism in terms of the way we do this forecast on a static basis and the work that we've repeatedly shown every year as a management team that we can do to outperform, I'm confident that there's more conservatism in the number overall than there is aggressiveness.

Just a general comment on the guidance and these are just my own philosophy on doing guidance. When you are doing 2010 and 2009, I always like to start with a number where we've got a very high confidence level. During the course of the year, our challenge as a management team is to beat that. Consistently since I've been here, I've have always put some level of contingency in there for the unknown to the downside, recognizing that our shareholders are much more comfortable living with the upside than the downside. That said, on the gas assets, specific to that question, Mauricio mentioned how we will have increased pointing of the gas generation to the retail assets. We'll be recognizing that value through the transfer of wholesale into retail. The way that I generally think about 2010 and the gas assets versus 2009, historically we've always estimated that the gas assets generate somewhere between $100 million to $150 million of gross margin. In '09, we are at the very low end of that range, and I think going to '10, we could see more towards the upper end of that range. So, I think that's also kind of the way you can think about the margin from the gas assets.

Is the $150 million gross margin from gas already embedded in the guidance?

No. We have some level of that in there. Again, when we come up with a number, our number when you roll it all together, yes, total more than 2.2. We come out and put a 2.2 number that's out there to keep some level of conservatism there. So there's some shaving that happens across the board when we do it. Since the baseload portfolio is largely hedged, that haircut largely gets to the remaining open positions in wholesale, which is primarily gas and heat rate.

Any comments about the other retail business?

The retail business was, our sort of 250 mid cycle run rate, whether we were changing that?

No, we would not have a fundamental change in our view of the run rate for the retail business. When the market conditions sets itself up for us to over perform on that number, I mean that's the way we'll run the business, but you shouldn't fundamentally change your view on the run rate.

Or not on account of us at least. Anyway, Angie, thank you for that. We'll be happy if you want to have further discussions to take it offline, but I know from the reporting calendar there are a lot of companies reporting today. I think we're going to call it a day. I want to thank everyone for participating on the call. We look forward to seeing people down in Houston next month. Thank you again to Bob Flexon. So thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.