Good day, ladies and gentlemen, and welcome to the NRG Energy Incorporated Q4 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to disperse this conference call. Mr. Chad Plotkin, you may begin.

Thank you, Kevin, and good morning everyone, and welcome to NRG's full year and fourth quarter 2014 earnings call. This morning's call is being broadcast live over the phone and via webcast, which can be located on the Investors section of our website at www.nrg.com under Presentations & Webcasts. Because this call will be limited to one hour, we ask that you limit yourself to only one question with one follow-up. As this is the earnings call for NRG Energy, any statements made on this call that may pertain to NRG Yield will be provided from NRG's perspective. Please note that today's discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Such statements are subject to risks and uncertainties that could cause actual results to differ materially. We urge everyone to review the Safe Harbor statement provided in today's presentation as well as the risk factors contained in our SEC filings. 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 refer to both GAAP and non-GAAP financial measures of the company's operating and financial results. For information regarding our non-GAAP financial measures and reconciliation to the most directly comparable GAAP measures, please refer to today's press release and this presentation. And with that, I'll now turn over the call to David Crane, NRG’s President and Chief Executive Officer.

Good morning, everyone, and thank you, Chad. Even before I go through the familiar ritual of introducing my colleagues, I want to draw your attention to the latter part of today’s earnings release, where we announced that Chad Plotkin is stepping down from being Head of Investor Relations from both NRG and NRG Yield in order to take up a position as Head of Finance for NRG Home Solar. Chad came to the IR position three years ago as a rising star in our strategy and M&A group at a time when we decided that our company and our investors were best served by an IR Head who had been deeply and directly involved in the business of the company. And in two years, Chad has worked tirelessly to explain the complexities of NRG to our current and hopefully future investors, but Chad has been more than that during his tenure, he has been a trusted advisor to Kirk, Mauricio, myself, and the rest of the Executive Leadership team. As he moves through a clerically important finance position in Home Solar, our loss becomes Kelcy Pegler and Steve McBee’s gain. For our part, we wish him well in this new position and for your part as investors in the NRG group of companies; I think you should expect doing counter him again. Chad’s successor Matt Orendorff who liked Chad before him rises out of our strategy and M&A group is similarly a rising star deeply immersed in and familiar with the key initiatives of the company. But I will wait to see other good things about him until he proves himself in his new position. As always, joining me today are Kirk Andrews, our Chief Financial Officer; and Mauricio Gutierrez, our Chief Operating Officer and President of NRG Business. Additionally…

Thank you, David, and good morning everyone. The extreme market conditions that prevailed in 2014 highlighted some of the strength of our integrated platform. Our diverse fleet in the Northeast benefited from the severe cold weather earlier in the year and our integrated wholesale retail platform combined with our commercial and operational performance help mitigate the impact of a very mild summer and allowed us to deliver our 2014 financial results. Perhaps more relevant to you today is the fact that we aggressively hedged the portfolio for 2015 during the fourth quarter allowing us to reaffirm guidance. While it is still early in the year, I am pleased to say that we are off to a good start with a solid performance during the most recent quarter. Slide 7 returns to goals that I provided to you last year and as you can see with the levered across the board on our safety operational and commercial metrics. We successfully integrated Edison Mission’s 8 gigawatt portfolio delivered on operational synergies and announced a comprehensive asset optimization plan for the mid-west fleet at attractive economics. On our distributor generation efforts, we successfully integrated the Omaha District Energy System and were awarded a contract for 178 megawatt for preferred resources in California. We now have a full suite of distributive solutions for businesses. These combined with our commercial wholesale platform and access to low cost capital through Energy Yield, positions the growth for a significant growth in 2015. You will hear more about these efforts in the months to come. The critical part of our strategy is the repositioning of our portfolio to out survive the current way of retirements and benefits from changes in capacity markets and repowering opportunities. Slide 8 provides a summary of our comprehensive asset optimization and development plan.…

Thank you, Mauricio, and good morning everyone. As we discussed recently at our Investor Conference in Houston and as David mentioned this morning in his remarks, it’s our view at NRG that traditional centralized energy service models are significantly at risk. We believe that the future eventually will belong to demand driven decentralized models of service that empower individual consumers through sustainable energy solutions that are affordable, personalized, convenient and reliable. NRG Home will continue to serve our customers through a robust traditional retail electric service franchise while at the same time position the business to win in a world where we believe at growing share of the market is going to want and expect to generate and manage a larger share of their own energy. As you can see from the data on page 14, our strong performance in 2014 positions us well to achieve both our near and longer term strategic and financial objective. Our Home Retail platform delivered at the upper end of our original financial guidance with adjusted EBITDA of $604 million enabled in part by customer and product growth as well as by our ongoing commitment to continuous operational improvement to drive material reduction both in per customer cost and in bad debt. Our recurring customer account grew by 28% driven primarily by the Dominion acquisition which included customer contracts in the Northeast as well as the Cirro business in Texas. We are pleased with the success of the Dominion acquisition which beat estimates of earnings and customer count delivered in 2014. We expect to continue to report the Dominion customer contracts separately to 2015 as many of the Northeast customers will roll off during the year’s precious term contracts expire. Our customer growth also positions us retail business to accelerate and deepen cross selling…

Thank you, Steve. Getting with the financial summary on slide 17, NRG is reporting fourth quarter 2014 adjusted EBITDA of $625 million, with $382 million from Business & Renew, or $165 million from Home Retail, a $34 million negative contribution from Home Solar as we continue to position that business for growth, and $114 million from NRG Yield. For the full year, adjusted EBITDA totaled $3.128 billion with $2.134 billion from Business & Renew combined, $604 million from Home Retail, a full year of negative contribution from Home Solar of $65 million, and $455 million from NRG Yield. Compared to the fourth quarter of 2013, Business & Renew performance was down $26 million primarily from milder weather but partially offset by the acquisition of the EME assets, full commercial operation of CVSR and Ivanpah in 2014, and lower operating cost across the fleet. Retail EBITDA was lower by $15 million also driven by milder weather which was partially offset from the incremental margin from increased customers following the Dominion acquisition. Yield results improved by $21 million driven by the acquisition of the Alta Wind assets while we increased our investment in Home Solar by $32 million in the fourth quarter as compared to 2013. Free cash flow before growth totaled $951 million for the full year with $139 million inflow in the fourth quarter. Turning your attention to our 2015 guidance and as discussed at our Investor Day, given our hedge levels, we are again reaffirming our adjusted EBITDA guidance range of $3.2 billion to $3.4 billion which now excludes the expected negative contribution of $100 million from investment in our growing Home Solar business. Free cash flow before growth guidance is also reaffirmed as we continue to expect between $1.1 billion and $1.3 billion in 2015. Turning to slide…

Thank you Kirk. Let me close by turning to slide 21. Every year on this call I set forth my overarching goals across the enterprise so that you can follow our progress during the year. Given the reorientation of NRG into the NRG Group of companies, this year I’m providing our key goals, or summarizing our key goals in the context of each of our businesses. Now in the sphere of my opening remarks because we have taken up a lot of your time already, I will spear you from going through each of these sets of goals, but I will leave with the following. We remain steadfast as in orientation delivering on our commitments and while there are many goals on this page, we hope in excess effect that by the end of the year many of the newer initiatives that we have been nurturing and growing over the past few years will reach a size in the level of momentum where they will start to have a meaningful positive value impact on the overall NRG group alongside the intrinsic value of our almost 50,000 megawatts of conventional generation and our nearly 3 million retail customers. And with that, Kevin, we are happy to take questions.

[Operator Instructions] Our first question comes from Angie Storozynski with Macquarie Capital.

Yeah thank you. I have two questions here. First of all on the new share structure at NRG Yield, I mean it seems relatively complex and I’m a little bit struggling here why wouldn’t NRG be willing to simply accept a share of future equity issuances from NRG Yield, I mean in lieu maybe for cash and that way you could maintain not only your voting rights, but also the economic interest and best cash flow that will be flowing from NRG Yield. So, why wouldn’t you want to actually keep the share of cash going forward?

Angie do you want to give us your second question too, so we can get time to think about.

Yeah the second one is about residential solar, so it seems like NRG Yield would be just a tax equity investor in those projects and also it seems like you might have actually augmented the size of the residential portfolio since the Analyst Day. Thank you.

Well, so I think Kirk is going to answer the first question and half the second in terms of - I think you had a question about the growth trajectory of Home Solar as well?

Yes.

Yes, so Kelcy will address that as well, but Kirk can you go ahead.

Sure. Angie the first part of your question as I think you know largely due to the successful equity issuance to fund the Alta Wind acquisition that being a third party acquisition, our current ownership stake in NRG Yield was about 55% and while we recognized the possibility at the offset that when we dropped down assets in the NRG Yield we may take some portion of that consideration in kind, it is a different proposition entirely to consider the possibility of incremental cash investment in NRG Yield to help support that ownership relationship. What I mean by that is if you extrapolate it forward on a potential third party acquisition the size of the Alta Wind for example, in order for NRG to remain - to maintain its 50% plus ownership that would require NRG to actually allocate capital and invest in Yield equity, effectively investing in those types of projects over the long run and while certainly those projects are financially compelling. It was a very motivation behind the creation of NRG Yield to separate those kind of investments so that they reside in a vehicle that’s properly positioned for that kind of risk in a return profile. So - because those assets are high EBITDA multiple that would be tandem out to NRG investing capital or allocating capital towards a high EBITDA multiple. This allows us to allocate that capital appropriately towards the types of investments conventional in the life and towards some of the growth initiatives at NRG that are more appropriately our core focus. I think on the second part of your question although I think we’ve outlined the structure within the relationship between NRG and NRG Yield the important distinction here is we plan of tax equity financings, primarily the tax attributes from residential solar leases as they drop down to NRG Yield. NRG Yield’s participation in that is actually investing in the residual equity after tax equity. So, NRG Yield is not providing tax equity and using tax equity allows us to manage effectively the duration of that tax holiday or that tax run way if you will. We have the flexibility from time to time to drop down assets without tax attributes giving NRG Yield the ability to augment its tax yielding ability, but I think given the nature of the broader portfolio we use tax equity to out manage that.

Kelcy, do you like to say about sales.

Sure. So in 2014, we’ve really focused on building out and optimizing our platform for the residential solar space as we talked about in Investors Day, and we finished 2014 with over 13,000 cumulative customers of which 9,000 were acquired in 2014. As we look forward to ’15, we will continue this momentum and we continue to target 35,000 to 40,000 cumulative customers for 2015.

Okay and then just one follow-up to that again David, the recapitalization of NRG Yield, should we imply from it that there is basically a big third party acquisition coming that you don’t want to chip in with cash and hence the change in the share structure.

Angie, Angie, Angie. Do you know, we never comment on anything that…

I have to try.

May or may not be happening, but having said that I won’t comment on it – I don’t think that that’s the right premise in terms of any specific thing. This recapitalization is just forward-looking looking at how suboptimal it is to use high cost NRG equity capital in NRG Yield, but we are trying to maintain alignment on the control side. I would say though while you’re not going to wake up tomorrow and read about some massive NRG Yield acquisition, it is a target rich environment for NRG Yield, small, medium, large, there is a lot of things knocking about. So we are active in that market, but this was not driven by any specific transaction that may or may not happen.

Thank you.

Our next question comes from Greg Gordon with Evercore ISI.

Thanks. Good morning.

Morning.

Looking at the full year results and then trying to compare them back to the third quarter guidance ranges for the segments and then bridging for the new segments, just want to make sure I am reading correctly that Business/Renew came in more or less inside the range but it looks like you’re may be still a little bit more upfront on Home Solar and you are initially projected and came in a little light in Retail. Is that the correct read or the wrong read because while the outlook for ’15 looks great, you came in on a low side of the guidance ranges for adjusted EBITDA and free cash flow before growth in ’14.

Sure. Greg, its Kirk. And I am just referring you back to some of my remarks at the Investor Day presentation where we went through recasting the components of those segments. We’ve recast the segments on a historic basis in 2014 to reflect Home Retail as oppose to what we used to call for Retail. That segment that was Retail that was comprised of our guidance contain about $50 million of EBITDA from the C&I business. That $50 million, that portion of our performance, is now reflected in the business segments. So that $604 million you see from Retail in 2014 is simply the mass retail component of that. And yes, the $65 million in negative EBITDA contribution from Home Solar is slightly ahead of what we expected, but that was due to some advanced investments in cost initiatives and marketing like as we position ourselves continually to realize that significant growth objective in 2015.

Great. And on that front, it does seem to appear that you’re slightly ahead of plan in terms of the number of Home Solar customers you signed up into the end of the year, is that right or not?

I think we are right within the ballpark of the growth trajectory through the full year of 2015.

Great. And the cross selling opportunities you mentioned earlier, are they significantly accretive to the base case plan you laid out. Are you seeing more cross selling opportunities than you would have expected in the base case plan at this juncture or is it more or less along the trend of that plan?

Greg, I would think that the way you should think about cross selling and I got to tell you the number of ways within our company that see cross selling opportunity is the number of permutations and combinations. I mean the obvious one may be between system power retail and solar power, but the correlation between solar power, Home Solar and electric vehicle charging is a 58% correlation. But in terms of impacting our results, what I would tell you right now is, we feel in the cross selling area that we have to prove with you and get it to a scale where it’s actually having impact before we start asking you to value it. And I will say right now, we will consider ourselves more in the demonstration phase. Kelcy is working with Elizabeth, they’re going to be working with the electric vehicle charging folks and so we are just proving things out and we are just telling you that stay tuned. Kirk, do you?

Yeah. I think, Greg, one of your questions about our performance in 2014 if I recall I think I may have missed addressing the question you had on free cash flow, is that correct?

Yeah.

Yes. Our free cash flow before growth in 2014 of $951, obviously that’s within the range of guidance we provided obviously towards the lower end of that range. That’s primarily due to the fact that despite when we guided in the third quarter in anticipation of potential colder weather learning from the lessons and the success we had of the polar vortex. We chose to make some additional investments in a be prepared strategy specifically in our fuel inventory going into 2015 actually around oil in anticipation of potential colder weather, and that’s primarily the reason why the free cash flow before growth for 2014 although within our range was trending toward the lower end.

Got it. Thank you guys.

You bet.

Thanks, Greg.

Our next question comes from Paul Zimbardo with UBS.

Hi, thank you, good morning.

Good morning, Paul.

A follow-up question on the proposed change in share classes? Just a high level question, where there any kind of lessons learned from some of the subsequent yield curves that you tried to add to the structure or was there some reason why you didn’t opt to try and add some permutation of incentive distribution right.

Well, I think in terms of the other structures that are out there, I think we feel comfortable with the incremental impact on the governance perspective that’s quite in line with the governance provisions contained in some of the yield curves that followed. But as I’ve said a number of times, our primary goal is to ensure that NRG Yield has a maximum competitive advantage and low cost of capital. And from our perspective, the best means to do is for NRG Yield to realize the maximum incremental potential CAFD without the drag if you will of an IDR. The other element of that is that the NRG level because the IDR would basically be cash flow or EBITDA back to NRG which obviously goes back to an entity with a lower EBITDA multiple, we wanted to maximize that portion of the cash flows that was associated with those contracted plans to ensure that it traded at the higher valuation. And we think the absence of an IDR addresses that issue as well as the fact it ensures the NRG Yield can be more competitive and we will have a competitive advantage from a realization of accretion relative to some of the other competitors out there whose IDRs can deter or detract from the accretion when we compete for assets and third party market.

Hey, Paul, can I just add something more general to what Kirk saying because this question of IDR, while Kirk just tried to explain the IDR is about 16 times and I am just mentally and capable of understanding. But I would tell you in general terms when it comes to yield curves, we monitor closely all the activity in the general yield coal market. And it seems to me and you probably could tell me, you can certainly tell me better if this is true or not that the market is now to the point where as oppose to buying every yield curve that comes out, they are starting to differentiate between quality yield curves and lesser quality. And we are committed at NRG that NRG Yield is going to be a top quality yield curve. So on every basic metric that the yield community is looking at, we want ours to be in the top tier and so we are constantly following the situation, that’s goal and we’re going to stick to it.

Okay great, thanks. I appreciate the color. And then a follow-up question on the Home Retail and Home Solar, for the target of the 35,000 to 40,000 customers, is that based primarily on conversion and cross selling of existing customers or is that expansion to new customers.

Kelcy?

No, it’s not based on cross selling. I think the cross selling initiatives that Elizabeth and I are working with Steve on are really in the developmental phase where we are getting proof of concept. The customer count of the 35,000 to 40,000 in ’15 is not based on the cross selling initiatives.

Okay, great. Thank you very much for the time.

Thank you.

Our next question comes from Stephen Byrd with Morgan Stanley.

Good morning.

Steven.

I wanted to start on Texas and just get your thinking on environmental regulations, looks like your coal fleet is in very good shape. Just curious as you think about all of the rules that are coming down the road here CSAPR and regional haze and clean power. Which in your mind are likely to be most impactful to your competition and what’s the general timeframe we should be thinking about in terms of the impact to your competition in the state?

Steven, thanks for the question and Mauricio is going to do the heavy lifting and answer the question. But I do want to say as a general rule may be for some of the investors on the phone that don’t follow this space as closely as you, because all of these environmental regulations either proposed in the court stay federal level, it’s very complicated. But I would say to you a general rule, even with the coal plants that we own because of our investment in the back and controls as you alluded to in Texas. For us as well as the rules that are imposed in a fair and reasonable way, tightening environmental regulations actually enhances relative to our competition. So with that general statement as to your specific question about I think you asked what is the most impactful of the environmental rules that may or may not come back. And is your question specifically about Texas or across the fleet?

Texas.

Okay.

Hey, Stephen, good morning.

Morning.

I think from our perspective and your question was the most impactful to our competitors.

Really more to your competitors and thinking about…

I think it was primarily our competitors given that as you already alluded and we tried to highlight that on our earnings slide. Our portfolio is pretty well positioned to comply with both maps, CSAPR and I think the latest one is regional haze. I think it’s fair to say that regional haze will have a significant impact on our competitors and not necessarily at NRG. With respect to Parish, we don’t think that is going to be applicable because even if we install scrubbers don’t have a significant impact on visibility. So take Parish shop and Langston will require minimal upgrades on the scrubbers that we have today. So I mean all of them will have some impact, right. The question is the timeline and the implementation of all these rules. But I think during Investor Day, we actually quantify the potential impact of each of these regulations on coal markets and what I would say is, most of that impact will happen on coal plants that are not owned by NRG.

Okay, great. Thank you very much.

Thanks, Stephen.

Our next question comes from Steve Fleishman with Wolfe Research.

Yeah, hi, good morning.

Hi, Steve.

Hi, couple of quick ones. First, at the Analyst Day I think you said you are tracking to the upper half of the 2015 guidance range. I don’t think I heard you say that again, is that still true?

To correct the record, we actually said to the upper most quartile. So, okay, Kirk, Steve Fleishman has called you out. What you’re going to say now?

Yes, Steve. You can infer which I’ll confirm right now by reaffirming our guidance that we also did on the Investor Day that, yes, our expectations are still consistent with that upper quartile.

Okay. Thank you.

Steve, what I deal with here, how hard it is to get him to say something.

And then just on the new structure for NRG Yield, I guess it’s for Kirk, will you still be consolidating it from an accounting standpoint and also does it change anyway that it’s treated from credit rating standpoint for you guys?

First of all, we don’t expect that to have much of an impact on the credit rating although early days and so we get some feedbacks from the rating agency, but I would not expect that to have an impact other than the fact that obviously it doesn’t entail or give some greater transparency of the lack of at least necessity for capital allocation towards maintaining that ownership by buying more NRG Yield shares if you will. So I don’t expect that to be the case. And forgive me, Steve, would you remain me your other question?

Accounting consolidation.

Oh sure, yes. Because this structure is really a structure that impacts economics and not vote and it is vote that is the determinant of consolidation from a GAAP perspective, we will continue to consolidate NRG Yield going forward.

Okay. And then lastly, I think Mauricio mentioned on the repowering and the like something about GCP capacity auction outcome maybe being reported to data point for some of them at least and continuing them, could you elaborate a little bit more on that?

Yes, Steven. Good morning. As we articulated on the Investor Day, we are looking at repositioning the portfolio particularly around field conversions and environmental CapEx. And as you can appreciate, some of those investments are focused primarily on capacity revenues. So the outcome of the capacity performance auction is pretty important. Now, we are encouraged by the data point that the most recent New England capacity auction provided to us. So while we have all the economic analysis and we have put out – we have outlined the asset optimization plan, we want to have some certainty in terms of what is the final rule and I guess the rules of the game before we make any incremental capital commitment.

Okay. Thank you.

Thanks, Steve. And Kevin, we want to end really at 10 o'clock as we have a 10:30 NRG Yield call, and we got some things to do in the meantime. So we will take two more questions please.

Our next question comes from Jonathan Arnold with Deutsche Bank.

Hi guys. Quick one on, you are not going to need to purchase more NRG Yield shares, but could you and under what circumstances might you consider selling down some of your interest post the conversion or should we just anticipate that the ownership percentage of decline is yield growth?

Addressing that reverse order, yes, that is what the expectation is, is that our ownership stake will reduce overtime as NRG Yield issues equity, not as NRG sells down equity. The latter of those two is not our intention, however just to be clear the structure affords us the ability to do so. We have to convert the units that we own into shares but that is not our intention at this time moving forward.

Thanks. Is the split is simply just for liquidity and future issuance optimization, is that right?

Basically, yes, that’s right.

Okay. Thank you.

Thanks, Jonathan. So last question.

Our next question comes from Gregg Orrill with Barclays.

Hi, thanks for taking my question. Just following up on the Carlsbad comments, you said you expect that to come online in fall of ’17. Just I guess may be more specifically how do you expect to run the facility and how much would your – the powering cost and how should we think about the benefits of that?

Sure, Gregg. It’s Kirk. We haven’t yet provided the capital cost of that. The best thing that I can give you is that, the Carlsbad project is a little over 600 megawatts in total size for that. And the one thing I can say is that and I provided guidance similar to this when folks have asked us about some of the conventional plants that were in the ROFO portfolio and how to think about things like CAFD. And certainly we expect the project to finance that using a construction facility in permanent amortizing loan in similar fashion we’ve done in the past. My expectation is that the cash available for distribution or the equity cash flows coming off of that project will be similar on average cash flow per megawatt basis. And to give you a sense if you look back and I’ve made these remarks before in addressing this question with respect to the assets that are in NRG Yield today, that range on our equity cash flow or CAFD per megawatt basis is in the $35 to $45 kw range.

Thank you.

So, Kevin, I think we are reaching the top of the hour. So I just want to thank everyone for participating in the call and for those who are going to participate in the NRG Yield call at 10:30, I am not sure there will be all that much more new information there, but at least you will get to see us wearing our NRG Yield hats if you choose to join. And thank you very much and we’ll look forward to talking to you next quarter.