Good day, ladies and gentlemen, and welcome to the NRG Energy, Inc. First Quarter 2018 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. I would now like to turn the call over to Kevin Cole, Head of Investor Relations. Please go ahead.

Thank you, Ayesha. Good morning, and welcome to NRG Energy's first quarter 2018 earnings call. This morning's call will be 45 minutes in length and is being broadcast live over the phone via webcast, which can be located in the Investors section of our website at www.nrg.com under Presentations & Webcasts. As this is the earnings call for NRG Energy, any statement made on this call that may pertain to NRG Yield will be provided from NRG's perspectives. 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. Actual results may differ materially. We urge everyone to review the Safe Harbor in today's presentation as well as the Risk Factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. And now, with that, I'll turn the call over to Mauricio Gutierrez, NRG's President and CEO.

Thank you, Kevin, and good morning, everyone. Joining me this morning is Kirk Andrews, our Chief Financial Officer. Also on the call and available for questions, we have Elizabeth Killinger, Head of Retail Mass Business; and Chris Moser, Head of Operations. Before we begin today, I want to take a moment to thank those who participated in our Analyst Day just about a month ago. It was a pleasure to share our story and value proposition with so many of you. It is an exciting time for our company, and I am confident that our path forward will create value for all of our stakeholders. So now turning to slide 3, I'd like to start by highlighting the three key messages for today's presentation. First, we are reporting strong financial results for the first quarter, up 43% from last year, while continuing to make good progress on our Transformation Plan objectives. Second, our integrated platform is well positioned for upside in our markets today and well into the future. This includes our position going into the summer in ERCOT. And, third, as we committed to you, we held an Analyst Day in March where we outlined our long-term strategic vision and plan and the significant excess cash we will be able to generate in the coming years. Moving to slide 4, let me review the financial and operational results for the quarter. We have again achieved top decile safety performance. I want to thank my colleagues for keeping safety a top priority, particularly as we continue to execute on asset sales and cost savings. We are reporting first quarter adjusted EBITDA of $549 million and maintaining our full-year guidance of $2.8 billion to $3 billion. Our first quarter result is 43% higher than it was last year, primarily driven by…

Thank you, Mauricio. Turning to the financial summary you'll find on slide 10, first quarter consolidated adjusted EBITDA was $549 million, which is a $164 million improvement over the first quarter of last year. Generation renewables delivered $172 million in adjusted EBITDA during the quarter. Our retail and yield contributed $188 million and $189 million respectively. Our strong first quarter results were driven primarily by higher power prices and retail load in Texas. Those results were further enhanced by the impact of cost reductions across the organization, as we continue our progress on the Transformation Plan. Although first quarter results were strong and summer prices in ERCOT remain robust, given we're still only a few months into 2018 with the summer still ahead of us, we're maintaining our 2018 guidance ranges of $2.8 billion to $3 billion in EBITDA and $1.55 billion to $1.75 billion in free cash flow. During the first quarter, NRG successfully re-priced our $1.9 billion term loan, reducing the LIBOR spread by 50 basis points to $175 million over, which will generate annual cash savings of approximately $9 million. Additionally, as I mentioned at Analyst Day, we've also entered into an agreement with a third party to sell our Canal 3 project, a transaction which will enhance 2018 capital available for allocation by approximately $130 million. And shortly after Analyst Day, we also completed the sale of Buckthorn Solar to NRG Yield, closing the first of several Transformation Plan asset sales we had announced in early February. And finally, we made good progress in the quarter on our share repurchase program, which was launched in early March following our earnings call and the subsequent announcement of changes to our board of directors. Through the first quarter, we exsiccated approximately $93 million of the $500 million share…

Thank you, Kirk. Now, turning to slide 14, I want to provide you with a few closing thoughts on our 2018 priorities and expectations. We remain focused on delivering on our Transformation Plan objectives. We are making good progress on completing our announced asset sales, and I look forward to providing you with updates relating to these transactions as we move into the second half of the year. We also continue to move closer to the final resolution of GenOn, which is expected to emerge from bankruptcy in 2018. And finally, our Analyst Day provided a longer-term strategic discussion of our business. Our path forward will generate significant excess cash by leveraging our strengths, capitalizing on market trends and making execution of our Transformation Plan our number one priority. So with that, I want to thank you for your time and interest in NRG. Ayesha, we're now ready to open the line for questions.

Thank you. Our first question is from Julien Dumoulin-Smith with Bank of America. Your line is now open.

Hey, congratulations.

Thank you, Julien. Good morning.

Good morning. So, perhaps just to kick it off, let's focus on ERCOT, seeing that where on the press this is summer here. Can you give us a little bit more commentary on how you think about your sensitivity? I know you released some kind of generic ones in the appendix here, but can you talk a little bit more about how you think about the potential upside in the 2018? You haven't updated that for a little bit here. You also cautioned that you're purchasing insurance and other things. I mean, should we think about the sensitivities here for 2018 as being fairly linear or is there sort of a capping out with collars and things like that? And then maybe a second question, at the same time, I'll throw it to you is, can you talk about the backwardation in the curve in 2019 and 2020 and just what you're seeing out there in terms of trends of new supply? Clearly, in recent weeks, we've seen some unmothballing of assets and things like that, so to be curious for an update.

Sure. Well, let me tackle the first one and then I'll turn it over to Chris. So, there's a few things that we did this time around on the earnings slides. The first is we provided you a position report specifically for Texas, which in the past we haven't done and we wanted to do that. So, people would at least have a view in terms of for balance of the year how we're positioned. Obviously, for competitive reasons, we cannot provide a breakdown month-by-month. Now, what we – like I said in the call, I mean, I feel very comfortable because we're actually going into the summer long. I'm not going to tell you how much, but we are. And we have complemented that with other things like additional insurance for any operational risk that we have. As a matter of fact, we have done that before. It has worked out very well for us and we just continue to do that going forward. The second thing is we provided also the sensitivities on the appendix and a change in terms of prices from where we set the guidance and where the market is today. I think if you use the sensitivities and our open position, you will get very close to where we actually at least expected prices will be paid. Obviously, we have to see how the summer plays out. Hopefully, with these two additional elements, you can at least have an idea of where, I would say, on a mark-to-market we would look like. But obviously, we have to wait for how things develop in Texas. Now, to your second question about the backwardation on the curve, Chris?

Yeah. It's obviously backwardated with $150 for this summer and then a $125-ish for 2019. Quite frankly, I still think 2019 has room to come up and we're pretty well set up for that with plenty of open space out in 2019 still. When the final CERA came out a couple of days ago, it did show things were 500 megawatts better than we thought, to your point mostly because of a couple of units that came back, Barney Davis was one. That was around 300 megawatts. Gibbons Creek I think was always in the numbers or at least was no surprise to the market that one was expected to come back. So, there was a little bit of move there for this summer. Interestingly though, if you go look at 2019, the reserve margin actually went down some. It was 11.7% I think in the last CERA and this CDR came out at about 11%. What they did there was they actually reduced load by 500 megawatts, and then actually reduced generation by 1,000 megawatts. So it's kind of going the wrong direction for them in 2019 with some of these assets (25:51), for instance, actually pushing back three years from 2019 to 2022, I think, was the was the most recent number there. So, we have to see how that works. I mean, obviously, part of the issue with the backwardation is going to impact that new build situation. I mean, we don't think at this point that it's high enough or long enough to incent new build, and we're hoping that the irrational new build is a thing of the past.

Yes. And I think just if you look at our position for 2019 and 2020, we're pretty open.

Very open.

And we expect that backwardation will correct itself. Obviously, everybody is waiting to see how this summer plays out. But fundamentally, we believe 2019 and 2020 to have a lot more room, and we're well positioned for that.

Excellent. And then just a quick little detail here on the structure of the buyback program. Just curious, the amount purchased of late just versus the target, you're still firmly committed to executing against the full number by the end of the year?

Yes, Julien. I mean, my expectation is that we will be executing the $1 billion by end of 2018.

Excellent. All right. Thank you.

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

Good morning. Congratulations on a good quarter.

Thank you, Abe. Good morning.

Shifting to the cost cuts, is the $80 million that you did in Q1, is that all recurring? So will that just translate to $320 million by the end of the year? And then just a follow-up to that is where do you expect the balance of the cost cuts to come from?

Yeah. So, the first – yeah, the $80 million is recurring. I think you were extrapolating that and multiplying by four. I think that's incorrect. I mean, we're going to see a ramp-up on cost savings as we go into the second and third quarter particularly, as you know, we have more clarity and visibility on the asset sales processes, and we continue to streamline the organization. So, I think what you should expect is a ramp-up as we go into Q2, Q3 and the end of the year, I mean. So, that's what I would caution you not to extrapolate the $80 million as you did. And then what was your last question?

That was the – you answered both of them with that. Thank you.

Okay, great.

Our next question is from Steve Fleishman with Wolfe Research. Your line is now open. If your phone is on mute, please unmute it. Our next question is from Greg Gordon with Evercore. Your line is now open.

Thanks. Good morning.

Good morning, Greg.

A couple of my key questions were answered. The first one is – that hasn't been answered is looking at the performance of the retail segment in the quarter. It looks like you guys did phenomenally well in terms of not just EBITDA, but in terms of adding customer counts, but you're not necessarily counting that towards your sort of margin enhancement initiatives, right? That's coming from just underlying organic tailwinds. Can you maybe talk a little bit more about what you're seeing there?

Yes. So, let me start and then I'll turn it over to Elizabeth. I mean, first, I think the result of Q1 is it was driven by the cost savings. I mean, you're starting to see the benefit of our cost savings initiative. Number two, if you'll remember, we had a very cold January, loads were pretty healthy in Texas and the Northeast. And so that basically drove two things; higher usage and in combination with cost savings, we were able to put these numbers for retail. Now, Elizabeth, I don't know if you have any additional comments or color in terms of the customer.

Yeah, sure. Thank you, Mauricio, and thank you for the question. What I would say is the results for the first quarter versus first quarter last year, Mauricio touched on, they're split pretty evenly between lower operating cost, increased margin, and weather. And if you look at that and you think about, well, why is that not showing up in the margin enhancement for the program, it's because those numbers are net of operating expenses. So, we're making those investments. We are seeing increases in gross margin from some of the activities, but we're counting Transformation results on a net basis, not a gross basis. So, you'll continue to see that. And you're right on it being a large portion of the underlying engine that's creating that. And year-over-year, we have just over 45,000 customer count increase versus first quarter last year and also a couple of thousand in customer count growth just between year-end and now.

Great. Kirk, any chance you can give us an insight into how many shares you've repurchased since the books closed on the quarter?

Greg, all I will tell you is that we're continuing to execute on buyback since the quarter end, and we're pleased with the progress, moving along nicely. That's all the level of detail that I'm going to share at this stage, but we'll certainly update when we get to the second quarter call.

Okay. Thank you. Last question, you indicated in the release that part of the first quarter revenue result in the generation business was sale of NOx credits. Can you just tell us how much that was and whether we should consider that sort of a one-off or whether that's something that could be more built into a periodic ability to make ongoing sales?

Sure. Directionally, what I'd tell you is I think you probably find this in the details in our press release around the Gulf Coast region. I think we had a $57 million quarter-over-quarter increase and I'd think about that as being roughly 60%/40% NOx credits versus prices.

Yeah, we had...

Sorry. Go ahead.

No. I was just going to say that we've got a decent bank of those and while we don't have a staged programmatic program to roll those out. When we when we see good numbers, we may move some from here and there.

Great. Thanks, guys.

Thank you.

Our next question is from Michael Lapides with Goldman Sachs. Your line is now open. Michael Lapides - Goldman Sachs & Co. LLC: Hey, guys. Thanks for taking my question. Mauricio, a question on Texas, there's the old adage that the best cure for high prices are high prices. Just curious what your level of concern is regarding the price moves incentivizing new forms of generation and that doesn't necessarily have to be peaking or combined cycle gas. It could be significantly more than expected amounts of utility scale solar end of the market.

Okay. So, Michael, I mean, your question is the, what kind of pricing we need to see to incentivize new capital going into the market. I'm just trying to understand what... Michael Lapides - Goldman Sachs & Co. LLC: Yeah. I'm trying to get your view on whether you see an increase or a ramp in activity related to either new gas-fired generation coming back into Texas or significantly more amounts of utility scale solar coming to supply that high peak price?

Okay, got it. Well, I mean, the first thing is we need to see not only high prices to incentivize new capital going into the market but also, not only high prices but long enough so people feel comfortable making 20 year, 25 year investment decisions. So far, what we have seen is only the expectation on one summer of high prices and we just talked about the backwardation that exists in the curve in 2019. So what we need to see in an energy-only market, price is everything. It provides the right signal and incentive for developers and companies to start putting capital to work in that market. So, you need to see two things, you need to see them high enough and you need to see them long enough to attract this capital investment. Now, we are not seeing actually the contrary and we've been talking about it, the slowdown on new generation is very real and you can still see it in the latest CDR or CERA report that Texas put out. And I think Chris already mentioned some of these units are being pushed out one or two years. With respect to other technologies, I don't see that really taking off only with one year of high prices. I mean, they basically follow the same behavior as any combined cycle. I don't see Texas putting a program of out-of-market payments to see whether it's battery storage or other technologies like that. I mean, Texas has been very clear and ERCOT has been very clear in competitive market signals in energy-only market. And we just need to make sure that we just let it work. Michael Lapides - Goldman Sachs & Co. LLC: Got it. One quick follow-up. Does your analytical team believe outside of the retirements in PJM that have been announced already? There is another significant wave of retirements coming assuming no incremental subsidies versus what's already been announced.

Chris?

Hey, Michael. This is Chris. If I remember right, I think that the amount of unclear generation in the last auction boarded on 18,000. So, I think just doing the quick math I think that leans you towards, yeah, you probably got some other units out there that are teetering on the brink. Michael Lapides - Goldman Sachs & Co. LLC: Got it. Thank you, guys. Much appreciated.

Thank you, Michael.

Our next question is from Ali Agha with SunTrust. Your line is now open.

Thank you. Good morning.

Good morning, Ali.

Mauricio, in your comments, you had talked about the various puts and takes, pluses and minuses for the upcoming PJM capacity auction, ComEd and EMAAC specifically. At least when you put it all together, and I know bidding behavior obviously is impossible to map out from the outside, but generally speaking, your expectation because of the retirements that we should see some better pricing perhaps this year versus what we saw last year?

Well, I mean, I'm not going to speculate specifically on the pricing on the next capacity auction versus the 2021. What I will tell you and I think what we tried to put here are some of the big market drivers. Obviously, the retirements and the additional – I think we said a little over 7 gigawatts, close to 7.5 gigawatts have been added to the deactivation list. But obviously, that is uncertain because of all these out-of-market conversations that are happening today. Now, I am encouraged by seeing FERC and the different ISOs to take a very specific stance in terms of the protection of competitive markets and making sure that they don't negatively impact those markets. Now, I don't know what's going to happen in the next auction in terms of the slowdown in new builds. All we're saying is that in the last auction, we saw almost half of the new builds that we have seen in the last three years. And if that continues well, you can see that as a perhaps as a positive catalyst along with the retirements if they happen. On the other hand, you see obviously we just talked about state subsidies, zonal transfer and the stagnant load. So, I think you have pluses and minuses, it's very difficult, and I think at this point quite uncertain to determine the direction of where this can go. It's going to depend on the outcome of some of these out-of-market, I guess, out-of-market discussions that are happening now.

I see. Second question, and as you laid out right now on the buyback front excluding the first $500 million. And if I heard you right, the second $500 million gets firmed up once the asset sale process starts to close as well. But in the first $500 million, just curious, is that driven the liquidity as you're seeing it? Is it driven by the way you see the price which you think is being undervalued? Just curious how the thought process is in this current buyback program.

Yeah. This is Kirk. I mean obviously on the second part of that question, certainly it's driven by what we see as an attractive price in the market. But certainly, the other half of that, your instinct is correct. We want to strike a good balance between taking advantage of that attractive price and also managing our existing liquidity, which is certainly significantly enhanced as we move forward to making good on closing those asset sales. But as you know in following the company, the early part of the year, that is our more acute liquidity need. So, this allows us to strike that balance and still have good robust access to the market to take advantage of that stock price.

Okay. And last question. As you ramp up the margin enhancement program on the retail side, is there any concern that as part of that? I mean, the stickiness of customers and your competitors obviously watching your moves, is there any concern about customer churn as this program starts to get more active going forward?

Yes. Well, I mean, I think the margin enhancement, as I've said, this is not about just increasing prices. I mean, we went through a very detailed conversation during Analyst Day on how we're enhancing our platform both in terms of sales channels, products, and digital experience, and the technology platform that we have. So, I think what you need to think about the margin enhancement is not increasing prices. I mean, it is a lot more, and it's investing significant capital on it. I mean, we are devoting close to $75 million in supporting that margin enhancement. So, I don't expect – I don't think you should – our concern is not about increasing churn. And with respect to our competitors watching closely, we said, I mean, we're going to provide you a general view in terms of where we are going to make these investments and where we're getting the margin enhancement. But we're not going to provide what we think is competitively sensitive information or, as I said on the Analyst Day, the secret sauce of how we're going to get it. But, Elizabeth, is there anything else that you want to add on it?

The only thing I would add is our strategy is to balance EBITDA and customer count. It's not to just maximize margins, as Mauricio said, and so one of the initiatives within our program is actually to improve retention performance and ensure that customers are accepting the offers that we give them. So, there is quite a bit of work going on, and we feel like our position with competitors actually through the margin enhancement program will get even stronger than it is now.

Understood. Thank you.

Our final question comes from the line of Steve Fleishman with Wolfe Research. Your line is now open.

Can you hear me?

Yes. Good morning, Steve.

Now, we finally can hear you.

Okay. All right. That was actually I just want to test that my phone is working. All set. Thank you. No. Okay. So, just on the – could you maybe just give a comment on how the asset sale program is progressing in terms of approvals and just have any issues come up? And I know you had a lot of leg work to do, particularly on the consents and such for NRG Yield. So just is your conviction higher today than where it was then when you announced that you'll get this done?

Yeah, no. So, Steve, the approval process or processes are going very well. We're making a good progress. We have actually received now HSR approval for yield, renewables and ligand (43:22). And I mean in terms of yield, we have now received the majority consent on all of our contracts. So, we're making really good progress. I mean, if things continue like they are, my expectation is that we could potentially close on yield and renewables by September, early October. So, I know that we've been saying second half of the year, but I think if the progress that we're making today continues, I think there is an expectation that by September, October, we can we can close these transactions.

Okay, great. Thank you.

Thank you, Steve. Well, with that, I want to thank you all for your interest in NRG and I look forward to continue our conversations in the weeks and months to come. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Everyone have a great day.