Ladies and gentlemen, thank you for standing by and welcome to NRG Energy Inc’s Fourth Quarter and Full Year 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I’d now like to hand the conference over to your speaker for today, Kevin Cole, Head of Investor Relations. You may begin.

Thank you, Twanda. Good morning and welcome to NRG Energy’s fourth quarter and full year 2019 earnings call. This morning’s call is scheduled for 45 minutes in length and is being broadcast live over the phone and via webcast, which can be located in the Investors section of our website at www.nrg.com under Presentations & Webcasts. 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. And thank you for your interest in NRG. I'm joined this morning by Kirk Andrews, our Chief Financial Officer. Also on the call and available for questions we have Elizabeth Killinger, Head of our Retail Mass business and Chris Moser, Head of our Operations. This earnings call marks the four year anniversary since we started a new direction for NRG. We have accomplished many things together. We refocus and streamline our business to better serve our customers. We significantly reduced our total debt and strengthened our balance sheet which is now on a path to an investment grade rating. We provided discipline and transparency on how we invest our capital and most importantly we have done it the right way for our employees and our stakeholders. The company has never been stronger or with a brighter future than it is today. I'd like to start by highlighting the key messages for the quarter on a slide 3. First our integrated business delivered EBITDA in line with our 2019 expectations during a period of volatile market conditions further validating the benefits of integration between retail and wholesale. As such we're also reaffirming 2020 guidance. Second we have a comprehensive sustainability framework with industry leading carbon reduction goals. Given that I view these frameworks as foundational to our business and an integral part of our long term strategy I will provide additional details later in the presentation. And third we continue to execute our capital allocation strategy by adhering to our principles and our commitment to being excellence towards shareholder capital. Moving to the business of financial highlights on Slide 4. Beginning with our 2019 scorecard on the left hand side of the slide we executed well on all our priorities. We delivered a strong…

Thank you, Mauricio. Turning to the financial summary on slide 10, NRG finished 2019 with $1.977 billion in adjusted EBITDA and $1.212 billion in free cash flow before growth. Retail delivered $920 million in adjusted EBITDA, a $32 million decrease versus 2018 largely due to higher supply costs in the ERCOT region. Highlighting the benefits of our integrated platform posted higher wholesale prices particular in ERCOT benefited our generation segment which delivered $1.057 billion in 2019. Moreover as our prior year 2018 generation results included approximately $180 million in EBITDA from assets subsequently sold as well as (inaudible) results prior to their deconsolidation. On a same store basis, our 2019 generation EBITDA results represented over $400 million year-over-year increase in EBITDA. Our consolidated 2019 results also include the benefit of the full run rate of $590 million from cost savings as well as $135 million of margin enhancement from our transformation plan. 2019 free cash flow before growth was $1.212 billion. Although these results represent a $92 million increase over 2018 free cash flow fell short of our guidance range of $1.25 billion to $1.35 billion due to the impact of a delay in the timing of certain cash flow items which will now contribute to 2020 free cash flow. In total on a net basis the impact of these timing-related items was approximately $60 million. The largest component of these items was to delay in the receipt of $34 million in A and B credit refunds due to NRG in 2019 as a result of the Tax Reform and Jobs Act. NRG filed the required documentation associated with these refunds on time. And we fully expect to receive them in 2020. The balance of the net timing impact primarily consists of other working capital-related items which we now expect…

Thank you, Kirk. Turning to Slide 15 I want to provide you a few closing thoughts on our 2020 priorities and expectations. As always our top priority remains delivering on our financial and operational objectives and adhering to our capital allocation principles. In addition to completing our transformation plan, we remain focused on further perfecting and growing our business. These means rebalancing our current portfolio through additional asset optimization efforts and growing our customer base with compelling retail products supported by capital light generation supply. With a large asset sales completed, we're looking at further optimizing single assets and our real estate portfolio at large. An example of that is what we're doing at the Encine site getting it ready for commercial redevelopment and the development on sale of canal 3. These type of projects are generally highly creative, don't use permanent capital and further simplify our story. We will also continue to enhance and simplify our disclosures to better line with the way we manage our integrated business. In the next earnings call, we will provide additional disclosures around our ERCOT platform. Finally and like I said earlier, our company today is stronger than it has ever been. We have the financial flexibility to continue perfecting our platform to make it simpler and more predictable, while consistently returning significant capital to shareholders. I am very excited for 2020 and the future of our company and I want to thank you for your time and interest in NRG. With all, Twanda, we're now ready to open the line for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Michael Lapides with Goldman Sachs. Your line is open.

Hey, guys. Thanks for taking my question. I really have two. One is how far into the year will you kind of seek growth-related opportunities before you decide to pivot and utilize that capital for share – for share buybacks? That's question one. Question two, just wanted to think about the – the asset base and how you're looking at whether it's the -- some of the fossil plants in the northeast or some of the gas plants in California, what could potentially you know not be a long-term core asset for NRG?

Yes, Michael. Good morning and thank you for your questions. I mean the first one related to the timing on you know whether we allocate this capital to grow or we reallocated to share buybacks. I think during the second half of the year, we're going to have more clarity in whether we have actionable growth opportunities that not only meet our financial thresholds but are better than the opportunity cost of buying our own shares. So you know I think at that time we will now start you know reallocating the capital to share buybacks. And then with respect to your second -- yes with respect to your second question about I think it's more broadly just what is core generation in our portfolio. I think in the past I said you know Texas is pretty well balanced and we're actually complementing our supply generation with PPAs. In the East and particularly California, I mean in the east we -- our generation is bigger than our retail supply. So either we grow our retail or we reduce our generation position and we're evaluating that. Now keep in mind that you know the model that we have going forward is we really want generation that serves our a purpose and that purpose is to you know better serve our customers in the most cost efficient way. So we're constantly and continuously going to evaluate you know our generation portfolio in light of that – of that priority. California is less – strategic less because you know we don't have a retail business so you know while we have you know benefited from an increasing capacity price in California, you know we're going to continuously evaluate that portfolio through the lenses of our long term strategic goals.

Got it. Thank you very much for that. And then finally when you're looking at cost management opportunities kind of longer term, where do you think the greatest opportunities exist and I'm thinking kind of post 2020?

I think you know first I'm assuming you're talking about opportunities for growth or is that what you're referring to Michael?

No I'm talking about costs management. So reducing OpEx…

Oh costs management?

Yes. Yes.

Okay. Well a couple of things, you know we've been completely focused right now on executing our transformation right now. So I mean I'm very pleased with the progress that we have made. We're not done yet. We've got to deliver on the margin enhancement. You know as we finalized that, we're going to start looking you know how do we – you know where are the other opportunities are, as we integrate the portfolio and simplify the story, even beyond the – let's call it the big asset sales, I think there is an opportunity to further streamline the inner workings of our organization which will translate in cost savings.

Got it. Thank you, guys. Much appreciate it.

Thank you. Our next question comes from Praful Mehta with Citigroup. Your line is open.

Thanks so much. Hi, guys.

Good morning.

Can you hear me?

Yes, good morning.

Okay, morning. All right. So the first question was on PJM and Mauricio you talked about the assets are basically getting more capacity rather than energy. Given the uncertainty with what's happening with the FERC ruling allowed capacity auctions and the capacity market, do you see any concern that if every state were to step away from the PJM capacity market that it has a risk for you in terms of your capacity revenue or kind of how do you see that playing out?

Yes. So let me provide you just a little bit of context and perhaps I – I'll turn it over to Chris to talk about how it’s going to play out. I mean I want to remind everyone that our total exposure to PJM is less than 5% of our EBITDA. While we have been and very active on the PJM discussion, I also -- I’m mindful that is – the exposure that we have is just less than 5% of our EBITDA so we need to allocate resources accordingly to that. Having said that I will tell you that I was very pleased with the third quarter. I think it is very consistent with what they have done in previous years which is maintain the integrity of competitive markets which have greatly benefited consumers across the PJM footprint. So with that said, Chris in terms of what to expect next?

Hey, Praful, it’s Kirk. I would say that I agree with Mauricio there that FERC MOPR ruling was positive for competitive markets and should help mitigate some of the impact of handouts to some local utilities. You're talking about states pulling out arguably that’s the FRR process and I think as states look at that they may see that FRR is an inferior alternative for consumers who have a region wide capacity market. I mean if you look at the history of FRRs they’ve consistently cost the consumers in that area three times to 10 times the prevailing auction rate. They shift risk on to a captive set of ratepayers locked into local monopoly. The latest numbers I saw from the IMM indicates that the nukes that are getting the right now are profitable without them so it's unclear to me why an FRR would be the choice of anybody except the ones receiving those subsidies. So yes there's obviously a lot of smoke around this right now and a lot of states are talking about it. But I mean if you dig into what FRRs have done in the past and what they're expected to do in the future it doesn't seem like a great idea for me.

Got it. Well that's super helpful color there. Maybe moving on to more strategic question which is as you know ESG and you've talked about it as well in your slides. It’s become a big focus investor focus has changed and continues to change with environmental becoming a big factor. Do you see at some point going private is an option that you would consider or how would you look at that go private given how generally investor perception is changed over time.

Yes. Well first I agree that ESG has gotten a lot of focus lately. For us this has been a focus of the company since I became CEO. I mean as you can see from the progress and the details that I provided today on the presentation I mean you don't build this overnight. This is the result of 3.5 years you know 4 years of intense work and intense focus on ESG. So not only it’s important for us it's foundational and it's imbedded in everything that we do. To your second question around going private. Right now, it’s not most on me that you know where our stock price is and you know the difference between that it really doesn’t reflect the fundamental value of our company. We continued to be focused on executing and delivering on our results, we believe that the value proposition that we have of a business that is balanced between generation and retail, that provides a stable and predictable earnings, with a you know, investment grade metric balance sheet and a meaningful return of capital shareholders is compelling and you know if that doesn't translate, you know we will evaluate all options, my goal – my mandate is to maximize shareholder value and everything that we do and all the decisions that we take on allocating capital is with that mindset. So you know, I mean right now we're going to be focused on executing but it’s not a lot for me that at some point we will have to evaluate all options.

Got you. And just to clarify on that when you say to evaluate all options is there a time window, we should be thinking about in terms of -- if the public market works or not, how should we think about that?

Yes I mean right now we're still in the final year of a three year transformation plan that we have done. We are on a path to achieving investment grade credit rating. I think, when we start seeing the all of those things finalizing and you know obviously we already provided enhanced visibility on our capital allocation. So when these things start you know all visible to shareholders and you know, we just don't see, we continue to see a significant gap between the stock price and the fundamental value of our company. I think that will be the time to start evaluating all other options.

Got it. Very helpful, very clear. Thanks so much, Mauricio.

Thank you.

Thank you. [Operator Instructions] Our final question comes from the line of Julien Dumoulin-Smith of Bank of America. Your line is open.

Hey. Good morning to you. Thanks for the time again. Just following up on sort of the capital allocation conversations here. Can we talk a little bit more about the unallocated piece and just how you think about finding opportunities that meet this more stringent hurdle rate? And again I'll say it I mean I appreciate the capital allocation diligence that you've articulated here but given just how high of a threshold that is, how do you think about maybe the timing but also related to that the opportunities that that might be available at that sort of 15% beyond just retail, it would seem as if buybacks would be the obvious default here and so. Any thoughts on that?

Yes, Julien. Well, first of all, the recent price of our stock is never lost on me and particularly when it comes to capital allocation. So as I think about these growth opportunities as I said before and not only they have to meet our financial hurdles, but they need to be superior to the cost of not buying back our own shares. So having said that, there are some areas of opportunities that are consistent with our long term strategy, I will say that retail while there has been a lot of consolidation, there's still some opportunities I would say in the small to medium size companies. And given the scale that we have and the scope of our operational platform, we can achieve significant synergies when looking at these opportunities. I don't see the same attractive opportunities in the generation side. That’s why we have been executing on our capital like PPA strategy. So I mean, I don’t disagree with you I mean, particularly with the recent performance of our stock price, it makes it so much harder to allocate capital to growth or in this case you know it makes the probability of reallocating that capital from growth to share buybacks, you know much more probable.

Got it and if I can follow up on one more niche type issue here, how are you thinking about New York ultimately given some of the new rags and compliance and just strategic options broadly?

Hey Julien, Kirk here. You – if you go look at that 10-K there's a line in there that says in effect late last year New York finalized the more stringent regulation that will result in the retirement of the asset of the story at Pratt & Whitney’s in early 2023.

Okay. All right. So it's pretty definitive?

Yes, I mean the filing will go in, in a couple of days but that line is in the 10-K somewhere.

Okay. All right. Excellent. Thank you all very much.

No. Yes. The one thing that I will say just keep in mind that you know that is you know it's very valuable to look to New York City and as we always do with our portfolio, we try to evaluate you know what is the most you know profit maximizing way of you know – or looking up that you know these real estate sites.

Thanks.

Thank you, Julien.

Thank you. Due to the interest of time, that is all the time we have for questions. I would now like to turn the call over to Mauricio Gutierrez for to close.

Thank you, Twanda. Once again, thank you very much for your interest in NRG and I look forward to continuing our conversation. Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.