NRG Energy, Inc. (NRG)

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NRG Energy (NRG)

Q4 2010 Earnings Call

February 22, 2011 9:00 am ET

Executives

David Crane - Chief Executive Officer, President, Executive Director and Member of Nuclear Oversight Committee

Christian Schade - Chief Financial Officer and Executive Vice President

Mauricio Gutierrez - Chief Operating Officer and Executive Vice President

Nahla Azmy - Vice President of Investor Relations

Jason Few - SVP of Mass Markets and Operations, Reliant Energy, Inc.

Analysts

Anthony Crowdell - Jefferies & Co

Dan Eggers - Crédit Suisse AG

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Charles Fishman - Pritchard Capital Partners, LLC

Jonathan Arnold - Deutsche Bank AG

Ameet Thakkar - BofA Merrill Lynch

Theodore Durbin - Goldman Sachs Group Inc.

James Dobson - Wunderlich Securities Inc.

Brian Chin - Citigroup Inc

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2010 NRG Energy Earnings Conference Call. My name is Deanna, and I'll be your operator for today. [Operator Instructions] And I would now like to turn the call over to your host for today, Ms. Nahla Azmy, Senior Vice President of Investor Relations. Please proceed.

Nahla Azmy

Thank you, Deanna. Good morning, and welcome to our Fourth Quarter and Full Year 2010 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 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.

And 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 other 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 February 22, 2011, 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 the 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 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 refer to today's press release and this presentation.

And now with that, I'd like to turn the call over to David Crane, NRG's President and Chief Executive Officer.

David Crane

Thank you, Nahla, and good morning, everyone, and welcome to our year-end 2010 earnings call. Today, with me, and participating in the presentation is Mauricio Gutierrez, the company's Chief Operating Officer; and Chris Schade, the company's Chief Financial Officer. Also with me today and available to answer questions are Jason Few, who runs NRG's retail company, Reliant; and Chris Moser, who runs the commercial operations function for this company.

So without further ado, to begin -- so ladies and gentlemen, current and perspective shareholders of NRG, as we speak today, it's now been 32 months since natural gas prices began their relentless fall and the economy at large entered into a great recession, the likes of which, I'm sure none of us wish to experience again in our lifetimes, yet the financial performance of NRG during this period has been superb. And that financial performance has been built on the foundation of an equally exceptional operating performance across all phases of our operations and across all our regions.

In 2010, the second full year of the great recession, our financial performance surpassed all previous years of company results, save for fiscal year 2009, which was of course the first year of the great recession, a year in which we performed spectacularly, achieving both record financial performance and the acquisition of Reliant.

While I am, for the most part, extremely pleased with both the company's financial and its operating performance during 2010, I am acutely mindful of the fact that NRG shareholders did not see any of the benefits of our exceptional performance and share price appreciation during that year. As a management team, we recognize that we have a long way to go in presenting NRG's present value and future potential to the market.

In this presentation and in subsequent presentations that Mauricio, Chris and I will be making during the spring Investor Relations season, we intend to make a concerted effort to explain the NRG value proposition. From the competitive strength of our core businesses, even in a low commodity price environment, to the meaningful and measurable value of our growth opportunities, as well as our effective risk mitigation in areas which we believe to be of concern to the investment community.

So starting with 2010, as summarized on Slide 3, the company continued to generate a very high level of EBITDA in excess of $2.5 billion and also throw off a substantial amount of free cash flow. Indeed, in regard to what should perhaps be the most important metric to shareholders, free cash flow yield, our free cash flow yield for 2010 was a robust 29%, making our seven-year average exceed 23%. And in response to some people who said that we should measure free cash flow for these purposes after both maintenance and environmental CapEx, we have done it in that way but before growth CapEx.

A substantial amount of that free cash flow yield was redeployed back to stakeholders in the form of debt repayment and through our 2010 share buyback program and also into various growth initiatives, which we'll discuss in a minute. But over $650 million of excess free cash flow was returned as cash into the company's coffers, with the result being that our liquidity position at the end of 2010, $4.3 billion of total liquidity with $3 billion of cash on hand, is stronger than it has ever been.

It has always been my position that next to safety, the most important thing that we do as executive management at NRG is capital allocation, and given the amount that we are investing on an annual basis and the record amount that we currently have available either to invest in growth or to return to our equity and debt stakeholders, capital allocation has never been more important than it is now. As such, I'm going to focus the greater part of my remaining remarks on capital, which we expect to invest in our growth initiatives in the months and years to come. Chris will focus a good deal of his comments on capital to be returned to stakeholders.

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