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NRG Energy, Inc. (NRG) Q2 2018 Earnings Conference Call Transcript


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NRG Energy Inc (NYSE: NRG)
Q2 2018 Earnings Conference Call
Aug. 2, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to NRG Energy Inc.'s Second 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 be provided at that time. (Operator Instructions) And as a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Kevin Cole, Head of Investor Relations. Please go ahead.

Kevin Cole  -- Senior Vice President, Investor Relations

Great. Thank you, James. Good morning and welcome to NRG Energy's second quarter 2018 earnings call. This morning's call will be 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 and 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 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. Actual results may differ materially. We urge everyone to review the safe harbor in today's presentation as well as risk factors in our SEC filings. We undertake no obligations 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.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. Joining me this morning is Kirk Andrews, our Chief Financial Officer; and also on the call and available for questions, we have Elizabeth Killinger, Head of our Retail Mass Business; and Chris Moser, Head of Operations.

I'd like to start with the key messages for the second quarter on slide three. Our business performed exceptionally well during the quarter with earnings up 23% from the same period last year. We are making excellent progress on our Transformation Plan initiatives, and we are on track to hit all targets. Finally, our portfolio is demonstrating once again the value of integration between retail and generation during the volatile summer months, particularly in Texas. I am very pleased with our result so far, and I am confident we are well-positioned for the rest of the summer and beyond.

So now moving on to the highlights of the quarter on slide four. As you can see on the left-hand side of the slide, we delivered $843 million of EBITDA during the second quarter, driven primarily by higher realized prices in Texas, higher retail loads and the impact of accretive cost savings. Kirk will provide additional color on our results and the impact on our credit metrics.

For the first half of the year, our business has performed exceptionally well. But with the warmest and historically most volatile months still ahead of us, we are maintaining our 2018 EBITDA guidance range of $2.8 billion to $3 billion. And as has been our practice, we will update our 2018 guidance and initiate 2018 guidance on the third quarter call.

During the quarter, we also completed our first $500 million share buyback, in which we repurchased almost 16 million shares at an average price of $31.80 per share. Our commitment to returning shareholder capital continues, and we are on track to execute on our second $500 million share buyback, following the close of either NRG Yield and Renewables or our South Central portfolio.

I also want to highlight the progress we have made on GenOn, which continues to move forward toward final resolution. In July, we executed a settlement in which we received associated releases from GenOn. And on August 15, we will terminate shared services. GenOn is planning to exit bankruptcy on October 1st of this year.

We are also making significant progress on our transformation plan, which you can see by our scorecard on slide five. During the quarter, we removed an additional $145 million of costs, bringing our savings through the end of June to $225 million and placing us well on the path to achieving our 2018 target.

We also continue to make progress on our margin enhancement program. You will begin to see the results of this program on our scorecard during the second half of 2018 with the results really ramping up in 2019 and 2020. Both of our cost savings and our margin enhancement efforts remain on track for the current year and full plan targets.

As you know, asset sales remain a key focus for the organization. We closed on the sale of Boston Energy Trading and Marketing or BETM, and our Spanish Town asset, while reaching an agreement to sell our interest in two additional assets, Keystone and Conemaugh. We actually had anticipated selling these assets in 2019, but we were able to accelerate this timeline and execute on the opportunity to monetize these assets ahead of schedule.

Our NRG Yield sales process is moving along very well. We have received all necessary regulatory approvals and are finalizing the consents. We are making every attempt to bring this to conclusion as swiftly as possible, and are working hard to make this a third quarter close. The sale of our South Central portfolio is also making good progress and we continue to expect that this transaction will close in the second half of this year.

Although, we are in the middle of the summer in Texas, I wanted to provide you a brief update on the positioning of our integrated model on slide six. As you all know, ERCOT supply/demand balance is the tightest it has been in many, many years, following the retirement of nearly 5 gigawatts in the past 12 months and steady load growth. This market tightening led to an increased probability of scarcity conditions this summer, which was reflected in higher forward prices. So far demand has not disappointed, setting a new record peak of over 73 gigawatts in July. However, this record load was met with equally impressive reliability across the grid, which tamper real-time pricing as you can see on the left-hand side of the slide. In other words, it took nearly perfect systemwide reliability to meet the summer peak demand.

Now our generation fleet performed exceedingly well during this period, driven by the extensive planning and preparation we put going into the summer. I would like to comment our operational teams for achieving excellent results and having no recordable injuries during this recent heat wave. We also took measures to ensure the stability of our retail business. This included leveraging our integrated approach with generation to help manage supply cost and proactively helping our customers manage their bills.

These tight market conditions in Texas also created longer-term opportunities to increase the predictability of our earnings. We took advantage of higher prices and executed power hedges at attractive levels for the summers of 2019 and 2020. This is exactly the period that saw the majority of price increases. We also took the opportunity to hedge our shoulder months and off-peak periods with natural gas as a proxy for power in those same years.

I mean this summer so far has showcased the strength of our integrated model with complementary businesses that increase the predictability of our earnings. As I said before, we're only halfway through the summer, and historically, the more volatile months are still ahead of us. So we all at NRG remain focused across the organization on ensuring a successful summer.

Now moving to our market outlook, and starting with ERCOT on slide seven. Much like this summer, the longer-term outlook for ERCOT fundamentals remain very strong. As you can see on the left-hand chart, on a weather-normalized basis, total loads remain very robust and growing and continues to grow at 2% per year. This is a dynamic we don't expect to change anytime soon. We also continue to see project delays of generation -- of new generation anywhere between three to five years. And given that forward prices remain below new build economics, we also don't anticipate this dynamic to change in the near-term.

So, bottom line and for the foreseeable future, we expect tight reserve margins in ERCOT with higher probability of scarcity pricing and greater volatility as the system works to stay in balance. These conditions create an opportunity for both sides of our business and highlight the longer-term value of our integrated approach as you can see on the right hand side of the slide.

Our retail business is in a stronger position relative to other players in the market, due to the integration with generation and a scalable customer acquisition and retention engine. Increasing loads means an increased opportunity for new customers, while potential volatility creates opportunities to take market share from our competitors. And our generation business benefits from higher prices with greater opportunities to hedge the portfolio at attractive levels. Also higher hedge prices allows us to invest in our fleet to achieve higher reliability, increase the predictability of our earnings and mitigate the impact of volatility on our retail business.

Now on to the East on slide eight. PJM held its capacity auction for the planning year 2021-2022, this past May. The results reflected less new builds and significant amount of uncleared capacity, signaling more disciplined development and bidding behavior. As you can see on the left-hand side of this slide, on a same-store basis, NRG cleared more megawatts at higher prices than the previous auction. As we continue to optimize the fleet, we will focus on maintaining our assets in premium locations. We now have 85% of our PJM fleet in the premium ComEd zone, which once again separated to clear at a price of $196 per megawatt day.

Throughout the East, we are encouraged by the multiple regulatory avenues for market reform that could benefit both our Generation and Retail businesses. For example, FERC recently committed to protecting PJM's capacity market against the impact of state-driven subsidized generation. It's clear to us that FERC wants to see the true cost of all resources reflected into the market by putting a price floor on subsidized generation. This is a strong and clear pro-competitive position coming out of FERC.

As part of this process, FERC also requested additional comments on the possibility of carving out low and subsidized generation from the market. This is referred to as the Fixed Resource Requirement or FRR. We believe these request for comments and the idea of taking single units out of the market is countered to the spirit of FERC's ruling. We remain confident that FERC will act consistent with the pro-market principles communicated in its recent orders and either fix the FRR to ensure that it does not negatively impact transformation or perhaps reject it in its entirety. That said, details matter, and we're looking forward to actively engaging on this issue, both with PJM and FERC.

So with that, I will turn it over to Kirk for our financial summary.

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Thank you, Mauricio. Turning first to the financial summary, you'll find on slide 10. For the second quarter, NRG delivered $843 million in adjusted EBITDA, which is a 23% increase over the prior year. Our strong second quarter results were driven primarily by higher power prices and retail volume in Texas, and further enhanced by the impact of cost reductions across the organization as we continue our progress on the transformation plan. And for the first half of the year, NRG has delivered nearly $1.4 billion of adjusted EBITDA, and our cost improvement program is only now beginning to hit its stride.

Although we're very pleased with these year-to-date results and the summer prices in ERCOT continue to show strength, we are nonetheless 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. I will note however that our first half results combined with our outlook for the balance of the year, currently place our expectations for 2018 well above the midpoint of our guidance range, and we will update and narrow these ranges on our third quarter call. At that time, we'll also provide guidance for 2019, which will include the impact of more robust targets for cost savings and margin enhancement, with nearly $200 million in additional EBITDA expected from these initiatives in 2019 versus our 2018 targets.

As Mauricio mentioned earlier, we've also completed Phase 1 of our $1 billion share buyback program with 15.7 million shares repurchased at a price -- average price of $31.80. We remain highly focused on closing our two large asset sale transactions and we will launch the second half of that $1 billion share repurchase program following the first of these two transactions to close. Just likely to be the sale of NRG Yield and Renewables, later in this quarter.

During the second quarter, we also completed the issuance of $575 million in new convertible notes with a coupon of 2.75%. By repurchasing an equivalent amount of NRG's senior unsecured notes, NRG's aggregate debt balance will be unchanged and we expect approximately $20 million in annual interest savings, further augmenting free cash flow, as we retire shorter-dated and higher coupon maturities.

To this end, we've already repurchased $89 million of senior unsecured notes of varying maturities to-date, and have recently provided notice to repurchase $486 million of the 2022 notes, our nearest maturities, which will mark the completion of the senior note refinancing associated with the convertible issuance. As a reminder, we've also targeted $640 million of debt reduction, which we expect to complete later this year in order to achieve our three times net debt to EBITDA target ratio.

And finally this quarter, we successfully closed on the settlement with GenOn, which accelerated a significant portion of the item set forth in the original Restructuring Support Agreement, including the $261 million settlement payment by NRG, and the repayment by GenOn of the intercompany revolver, which were previously expected to take place at emergence. With the financial commitments associated with the GenOn bankruptcy now largely behind us and GenOn well advanced in its asset sale efforts, GenOn is targeting an emergence from bankruptcy, early in the fourth quarter.

Next, I'd like to take a few moments to update our pro forma financial summary, which you'll find on slide 11. As a reminder, this summary is based on the midpoint of our consolidated 2018 guidance and provides a view of 2018 EBITDA and free cash flow from retained businesses, net of any contribution for businesses and assets we are selling as a part of the Transformation Plan.

On the left side of the slide, under the heading prior pro forma, we start with the pro forma 2018 summary we provided on our last earnings call. Next, two second quarter events give rise to the need to adjust our pro forma view. First, the restructuring of the Ivanpah non-recourse project debt and the amendment of some of the projects' governing documents during the second quarter, resulted in a change in the accounting treatment for Ivanpah. As a result, as of the second quarter, Ivanpah is no longer consolidated in NRG's financial statements but will appear as an equity investment.

On a fully consolidated basis, Ivanpah's contribution to the midpoint of our EBITDA range was approximately $100 million. The impact of deconsolidation is the elimination of our partner's 45% share of Ivanpah EBITDA, leaving approximately $55 million of EBITDA from Ivanpah, reflecting only NRG's 55% stake in our revised pro forma. Importantly, aside from the impact of the income statement and adjusted EBITDA, Ivanpah's total non-recourse debt of approximately $1.1 billion will no longer appear on NRG's consolidated balance sheet.

Turning to the second adjustment to our pro forma view, with the closing of the XOOM acquisition, we are adding the annualized expected EBITDA of $45 million from XOOM to the retail portion of our pro forma EBITDA. Of note, this is an annualized number for XOOM on a pro forma basis, while the actual contribution for XOOM to our 2018 results will be a partial year reflecting EBITDA only for the second half of the year.

The EBITDA adjustment for deconsolidation of Ivanpah is offset by the addition of the annualized EBITDA for XOOM, and as a result, our total pro forma adjusted EBITDA remains $1.6 billion. The impact of Ivanpah's deconsolidation is limited to EBITDA, and as a result, the $45 million increase from EBITDA from XOOM is reflected in our revised pro forma consolidated free cash flow before growth which is now approximately $1.05 billion.

And finally, as I've noted previously, our pro forma EBITDA and free cash flow are based on the midpoint of 2018 guidance, which includes the impact of the 2018 Transformation Plan targets. Beyond 2018, we expect an additional $275 million of annual adjusted EBITDA and free cash flow by 2020 as the Transformation Plan reaches its final targets.

Turning to slide 12 for a very brief update on 2018 capital allocation, our 2018 capital available as well as our committed capital items are largely unchanged from the previous update. The only exception on the allocation front is having now settled most of the financial aspects of the GenOn bankruptcy, our capital outlay for GenOn has been reduced by $18 million to $160 million.

As shown in the dotted box below the chart, the only capital allocation item associated with the GenOn settlement which remains to be paid is our annual pension contribution of approximately $14 million, which will take place in the second half of this year. As a result of both the reduction in committed capital toward GenOn as well as the receipt of $12 million in proceeds from smaller asset sales previously not expected to occur until 2019, our remaining 2018 unallocated capital, shown on the far right, has increased by approximately $30 million resulting in approximately $700 million in 2018 capital remaining to be allocated.

Finally, on slide 13, we've again provided the 2018 pro forma net debt to EBITDA calculation, as well as the walk to our 2020 ratio all based on our 2018 pro forma EBITDA. This calculation is based on revised pro forma EBITDA which I reviewed earlier is largely unchanged from our previous disclosure. The adjustment for Ivanpah is now smaller due to the impact of deconsolidation.

As a reminder in 2018, we are temporarily reserving just over $1 billion in cash in order to achieve our three times net debt to EBITDA, and we expect this cash will be made available for capital allocation beyond 2018, as the additional EBITDA from the Transformation Plan initiatives, again beyond 2018, allows us to free up this cash by 2020, while still maintaining that important three times net debt to EBITDA ratio.

Having previously focused exclusively on three times net debt to EBITDA ratio established with the Transformation Plan in these updates, this quarter we're also providing two additional key credit metrics. Adjusted cash from operations to net debt, as well as the cash interest coverage ratio to provide you a more complete picture of the strength of our balance sheet credit profile.

Although, we remain a BB-rated company, this rating does not fully reflect the strength of these credit metrics. With consistent execution, continuing to demonstrate the strength and resiliency of our integrated platform, supported by our improved and simplified balance sheet, I believe, we have the opportunity to earn an improved credit rating.

And with that, I'll turn it back to Mauricio for his closing remarks.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you, Kirk. Turning to slide 15 [ph], I want to provide you with a few closing thoughts on our 2018 priorities and expectations. We continue to deliver solid financial and operational results, while remaining on track with all of our cost and margin targets under our Transformation Plan. Our integrated platform is working as designed through the volatile summer months and remains well-positioned for tight market conditions in the future. As I said, winning the summer and closing on our announced asset sales is our most immediate focus. I look forward to updating you on our progress and providing you more clarity on our capital allocation, as we move into the second half of the year.

So with that, I want to thank you for your time and interest in NRG. James, we're now ready to open the line for questions.

Questions and Answers:

Operator

Yes , sir. (Operator Instructions) Our first question will come from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch. Your line is now open.

Julien Dumoulin-Smith  -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. How are you?

Mauricio Gutierrez  -- President and Chief Executive Officer

Good. Good morning, Julian.

Julien Dumoulin-Smith  -- Bank of America Merrill Lynch -- Analyst

Hey. So, I wanted to follow-up here on the asset sale progress. Just wanted to get a little bit of clarity. First, with respect to the next round of buybacks in capital allocation, are you -- would you expect to potentially provide that prior to the next third quarter call seeing a timeline potentially on an expedited basis to close some of these larger transactions?

And then separately, with respect to the asset sales, how do you think about the execution of the balance, the smaller set that have yet to be announced? Obviously, you announced the Keystone and Conemaugh sales today, but what's the commitment level, have you reviewed the balance of the portfolio, and are you opting to hold on to some of these smaller stuffs?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yes, Julien. So, let me start with the first one. I mean we're going to launch the next round of the next $500 million of share buyback, once we close on either Yield renewables or South Central portfolio. So if that happens before our third quarter call, you will know, and all the investors will know.

With respect to your second question about the balance of the remaining asset sales, we are going to be providing you another update as we go through these evaluation toward the end of the year. But just keep in mind, I mean, right now our focus is to close on these two transactions. And as we move into the year, the team is now shifting gears and evaluating the other assets that will be down for closing. Now, as you can tell, we're -- if we see an opportunity like we did with some of the asset sales that we accelerated from 2019 to 2018 we're going to do it, but I just want to make sure, I mean, all the resources that we have right now are completely focused in closing Yield renewables and South Central.

Julien Dumoulin-Smith  -- Bank of America Merrill Lynch -- Analyst

Got it. Understood. And then secondly on retail, can you talk a little bit more about what you did in the quarter. You obviously alluded to it in the prepared remarks. But where does attrition stand today through kind of this period in August, and how do you think about the resiliency kind of going forward? Are you actually adding customers at this point, I'm sort of curious?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yeah. So, let me start by saying that, retail had a phenomenal quarter, the second quarter. We had warmer than normal temperatures. You know that basically pushed our loads and load usage. Keep in mind that we also added XOOM for one month and Business Solutions also performed well. So, it was a good quarter all around for retail. But Elizabeth, I mean, with respect to some of the attrition questions.

Elizabeth Killinger  -- Executive Vice President, NRG Retail

Sure. Thank you, Julian. We actually saw, as you can tell by our results, customer counts up over 10% largely driven by XOOM. Yeah, we have, what I would call pretty steady attrition and retention performance. There's a little bit of pressure, but nothing that I would say is out of the ordinary or unexpected. We're really pleased with the performance of both the acquisition and the retention engine through second quarter and are looking forward to strong third and fourth quarter as well.

Julien Dumoulin-Smith  -- Bank of America Merrill Lynch -- Analyst

Bottom line, on track with the targets that you delineated previously on the retail side?

Elizabeth Killinger  -- Executive Vice President, NRG Retail

Yes, sir.

Julien Dumoulin-Smith  -- Bank of America Merrill Lynch -- Analyst

Excellent. Thank you, all.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you, Julian.

Operator

Thank you. Our next question comes from Greg Gordon with Evercore. Your line is now open.

Greg Gordon  -- Evercore -- Analyst

Thanks. Good morning. Congratulations on a great quarter.

Mauricio Gutierrez  -- President and Chief Executive Officer

Good morning, Greg. Thank you.

Greg Gordon  -- Evercore -- Analyst

So, there's a bit of a debate in the market, Mauricio, that I'd like to hear your perspective on. On the one hand, the lack of really, really high levels of volatility this summer despite the strong load has been disconcerting to some investors who thought that those high levels of volatility would validate the pieces on the Texas market and your long-term view on power market there. But on the other hand, the lack of massive volatility has allowed you to continue to print stable profit margins and actually do some really solid hedging that may or may not have been actually maybe upside relative to what you promulgated in your outlook. So from a business perspective, what would you rather see the conditions you have now or massive levels of volatility that put more stress on the business that potentially bring a faster new entry cycle?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yes. Well, first is the -- I think the -- you need to look at the fundamentals in Texas. And what I was very pleased to see this summer is that demand is real. I mean setting a new record peak of 73.3 gigawatts in July, which is not normally the -- even the month that you'll see the most extreme weather was very encouraging. So, when you think about the fundamental picture of ERCOT, the supply/demand and the timings that exist hasn't changed. And actually this summer has validated that is here for the foreseeable future.

I think what you saw this summer, is just a combination of few things. One was a very strong demand, but that strong demand was met with, like I said, perfect performance by degree. I mean, when I say perfect performance, you have to just look at the forced outages that we had in that peak day, and I mean they were quite remarkable. And also wind performed as expected very close to normal.

So obviously, when you have these type of situation, you -- yeah, I mean real-time prices were below what people were expecting. They're not necessarily low, but they were below what people were expecting. And from my perspective, we want a market that has very strong fundamentals, and that has a really good market structure on both generation or retail, like the one we have in Texas. So that is the perfect combination. You don't want to see a market that is clearing too low, that necessarily doesn't reflect the fundamentals of the market, and that's why we have been so, I guess, frustrated over the past couple of years in ERCOT. But also we don't want to see a situation where you see -- where you have the scarcity pricing that leads to perhaps shading -- (inaudible) and none of those two extremes are good for our franchise, our integrated franchise of Generation and Retail is somewhere in the middle.

So the most important thing is that prices reflect the fundamentals of the market and from where I see the fundamentals in Texas are incredibly strong, and they're going to be continue -- very strong for the foreseeable future. I mean even if you look at the forward prices, I mean, they've been rising, but they're not at the point that are incentivized new build economics. So supply continues to be delayed on new generation. Demand, we just saw that it was very strong. So I mean, I want to see a market that is well functioning, not that it's bouncing on each -- either side of the extremes.

Greg Gordon  -- Evercore -- Analyst

Great, thank you. And are you in a position now to tell us where inside the guidance range you're trending year-to-date, or is the rest of the summer just too much of a wild card and you rather wait till Q3 to tighten the outlook?

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Greg, it's Kirk. I actually gave you a little bit of that in my remarks. I anticipated that question. And what I had said, just to repeat is, the performance year-to-date combined with our current outlook for the balance of the year places us well above the midpoint of our current guidance range. (Multiple Speakers)

Greg Gordon  -- Evercore -- Analyst

Sorry, Kirk, I missed that. Apologies.

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

That's OK, that's OK.

Greg Gordon  -- Evercore -- Analyst

And then I also saw that there were a couple of small retail transactions in the quarter that I just -- can you give us some more details on customer counts or multiples to EBITDA on those or were they just too small to call out?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yes. Greg, I mean, this is our -- this is just the normal course of business. We actually buy books. I mean, we have an engine in Elizabeth, and she is very effective in terms of identifying these opportunities. So I wouldn't think -- I mean, I wouldn't even think that they are representative of a transaction like XOOM. This is just a normal course of business. We're always looking for books that we can add to our retail business and that's what they were.

Greg Gordon  -- Evercore -- Analyst

Okay. Thank you, guys. Take care.

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Thanks, Greg.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you.

Operator

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

Abe Azar  -- Deutsche Bank -- Analyst

Good morning, and congratulations on solid progress across the board.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you, Abe. Good morning.

Abe Azar  -- Deutsche Bank -- Analyst

Thanks. Based on the forward curves and your hedging to-date, could there be more cash available over the next couple of years, above the $4.3 billion? And then have your thoughts on capital allocation changed at all, and do you remain confident that share buybacks are the best way to get the stock higher, closer to fair value?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yes. Well, let me just start by saying that we're not going to front run our third quarter earnings call, which we are going to be providing guidance for 2019. My thoughts on share buybacks continue to be the same. And for that matter all capital deployment, we're going to adhere strictly to our capital allocation principles. And as I see today given where the price of our stock is, I don't think that there is any other more compelling and attractive investment than our own stock. So until that changes, I think it's fair to assume that that's where we're going to be focusing on.

Abe Azar  -- Deutsche Bank -- Analyst

Great. And then shifting gears a little bit to Texas, can you discuss how you balance your hedging strategy with your fundamental view of the reserve margin and prices, particularly in 2020?

Mauricio Gutierrez  -- President and Chief Executive Officer

Sure. Chris Moser?

Chris Moser  -- Executive Vice President, Operations

Yeah. Good morning, Abe. This is Chris. Yeah, so as we're looking at 2019 and 2020, obviously, we've got a view on where things should be compared to the clears that we're seeing. But make no mistake, as we did in 2019 and 2020 when prices get to be a good level, and a good level of above where it was six, eight, 12 months ago, there is a certain amount of sense that comes from kind of sweeping some of that profit off the table and that's kind of the balance and the approach that we take.

Abe Azar  -- Deutsche Bank -- Analyst

Got it. Thank you.

Mauricio Gutierrez  -- President and Chief Executive Officer

Yeah. And Azar, just to make sure, I mean, we -- most of the hedging happen in the summer of 2019 and summer of 2020, right Chris?

Chris Moser  -- Executive Vice President, Operations

Yes, the hedges that were put on in Q2, the power hedges were mainly summer on-peak hedges, true.

Abe Azar  -- Deutsche Bank -- Analyst

Yeah. Okay. Got it.

Operator

Thank you. Our next question comes from Steve Fleishman with Wolfe Research. Your line is now open.

Steve Fleishman  -- Wolfe Research -- Analyst

Good morning. So on the Yield [ph] sale, you mentioned you're just finishing up, getting consents, could you be a little more specific on what consents you still need?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yes, good morning, Steve. Yes, I mean in the Yield renewables like I said, I mean all regulatory approvals are done, consents, we're well on our way to have all of them. At this point, we're not providing any specific details in -- which ones are remaining, but what I can tell you is that, I have confidence that we're going to be in a position to close on the third quarter. That's what I will share on that, Steve.

Steve Fleishman  -- Wolfe Research -- Analyst

Great.

Mauricio Gutierrez  -- President and Chief Executive Officer

But I -- we're making just great progress on the consents.

Steve Fleishman  -- Wolfe Research -- Analyst

That's great. And then just, I guess, this is just to -- to make it clear the market. So should we expect that this buyback will be -- assuming that closes in Q3 and that's the first one, the buyback $500 million will be announced at that time.

Mauricio Gutierrez  -- President and Chief Executive Officer

Yeah, not only will be announced, will be launched, as soon as we close on that transaction.

Steve Fleishman  -- Wolfe Research -- Analyst

Great. Okay. And then just in terms of the additional hedges, how meaningful were they to your kind of 2019, 2020 portfolio? How much more hedge to you?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yeah. Steve, if you go, if you look back in the appendix that's on -- what is the page -- page 21, you'll see -- you'll see the move there. We layered on a big chunk of natural gas equivalent hedges, think of that is covering kind of the shoulder months and off-peak time frame, and the assets up in Chicago. And then, you'll see that we did power hedging of 10% or 11% on an annual basis. But the hedge we're putting on, we're really more focused on specifically in the summer.

Chris Moser  -- Executive Vice President, Operations

Yes. So Steve, I mean from a percentages standpoint, while it appears on that disclosure, on an annualized basis, think of it as they were all put in the summer, so the summer percentages was much higher than what is showing in the --

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Yeah, I mean, it was the meaty part of the curve, right. It was the fixed part of the curve that we were trying to sell and use the liquidity that was out there, and I'm very happy with the hedges we've put on for 2019 and 2020.

Steve Fleishman  -- Wolfe Research -- Analyst

Okay. And just in that light, I mean your three-year guidance goes all the way back to last fall. Obviously, Texas prices are meaningfully higher since then, natural gas might be a little lower in the totality though or these hedges being put on at premiums to what your plan has been?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yeah, I mean, Steve, just to be perfectly clear, I mean what we provided was a pro forma with -- based on 2017 -- back then 2017 with the impact of the Transformation Plan. And yes, I mean if you look at the curve all else equal, I mean, it's been a positive move. Kirk?

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Yeah. Steve, it's Kirk. First, overall the answer is yes, and the reason I say that is you can look no further to the factors. When we first established guidance for 2018, for example, that would be in the third quarter -- the previous year, third quarter 2017. Generally speaking, our guidance is centered around the midpoint of our expectations and those expectations are informed by what the summer prices are, in this case, it's 2018 at that time.

And I think since our pro forma view is all anchored on that 2018, the degree to which 2019 and 2020 summer prices today, for example, are higher than where 2018 summer was at the time we established our guidance. And I can tell you the answer to that question is, yes, and you can quantify by looking back. That would give rise to the fact that all things being equal, that would give rise to an increase in net pro forma view since 2018 to be higher than it would have been expected at the time. And as I said, I confirm that our expectations are well above the midpoint of our range currently for 2018.

Steve Fleishman  -- Wolfe Research -- Analyst

That's great. And one last just quick thing on the Texas market. You mentioned very strong plant performance and also wind, I think being decent, just how about demand response and how much is that impacting this in you're thinking?

Mauricio Gutierrez  -- President and Chief Executive Officer

Sure. Chris?

Chris Moser  -- Executive Vice President, Operations

Yes. When I go back and if we look on the slide that Mauricio was talking about, I mean load was about 500 megawatts, or just talking about the peak hour on the 19th there, load was around 500 megawatts higher or worse compared to the CERA expectation. You had generation around 1,000 megawatts better, which was just really flawless execution across the grid. And I'm happy to say we put in some extra spring outages to be ready, and that really paid off for us. We had fantastic performance from the operations group. So anyway, so that -- those two net out to be give or take 500 megawatts better than the CERA, and the CERA had around 1,000 megawatts of space in it. So we really didn't get into the position where we needed a ton of other things to come to bear to save the market.

I will say that the market, it was an interesting set up because Thursday wasn't supposed to be the high day, so this is the 19th that was supposed to be that following Monday the 23rd, which was actually forecasted over 76,000 megawatts for the better part of that week. And so, I think a lot of the DR and whatnot was being prepared to be brought to bear on that Monday, and they may have missed the party a little bit because it turned out to be that Thursday was the high-day.

Steve Fleishman  -- Wolfe Research -- Analyst

Okay. Thank you.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you, Steve.

Operator

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

Praful Mehta  -- Citigroup -- Analyst

Thanks so much. Hi, guys.

Mauricio Gutierrez  -- President and Chief Executive Officer

Good morning, Praful.

Praful Mehta  -- Citigroup -- Analyst

Good morning. So, Kirk, just to clarify on the EBITDA guidance, well above the midpoint, is that for the retained assets or is there a split between what was retained and what is being sold in terms of what's kind of driving that uptick?

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Well, I'm not giving you specific about breaking beyond what our official guidance is, which is consolidated guidance. But if you take a step back, the big portion of the adjustment, if you will, to get to a pro forma view, is a portfolio that consists of two things primarily. One being LaGen, which is kind of an integrated type of business, not to say it doesn't have upside and downside, and the bulk of what remains is Yield, which is largely contracted, relatively low volatility, right. And you can look at because Yield provides point estimates on their own guidance, which is largely unchanged.

So I think you can infer from that to a large degree that outlook is anchored-off of our expectations for the balance of the portfolio. But I wouldn't go so far as to give you specifics other than I think it's reasonable to infer on the basis of what I've just described.

Praful Mehta  -- Citigroup -- Analyst

Got you. That's super helpful color. All right, and secondly just following up on the ERCOT and PJM questions. So firstly, on ERCOT, Mauricio do you worry that if there is no spike in ERCOT and price signal in 2018, that you reach that point whereby 2019 or 2020 you have these unsustainable reserve margins which are so low that it's actually not suitable for your business. Is there a concern of that and how do you think that gets mitigated?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yes, I mean, my concern is always that the prices do not reflect the fundamental view of the market. I mean that to me is what keeps me up at night, because if the prices don't reflect then developers, generators, we can't -- perhaps we have -- we're making decisions with not the best information. Now obviously, real time prices are just one aspect of it. I mean you have to look at the day ahead, you have to look at the forwards, and most of the decisions are made on forward pricing. And the day ahead market is also an indication on how people get set up, and the real time prices is what happens.

I mean so far we have been talking about real time prices which basically was the result of perfect performance of the grid and a very strong demand. But as I think about 2019 and 2020, obviously I want to make sure that the prices are reflecting the fundamental situation in Texas, and to the extent that that does, rational developers, rational market participants are going to react in the right way. So, that to me is the most important thing, strong fundamentals in a very strong market structure. That's what we're striving through today.

Praful Mehta  -- Citigroup -- Analyst

Got you. Thank you. And then finally on PJM. As you said, I think it's clear that FERC wants to do the right thing here and create the competitive market or the right competitive market in signals, but there's a pretty big gap between that and what the proposals are right now. Do you think there is enough time between now and January to get this done and/or do you think that gets pushed out next year maybe?

Mauricio Gutierrez  -- President and Chief Executive Officer

I mean, it's really hard to handicap the timing when it comes to FERC and when they're going to act. And so I'm not going to venture into that. What I will tell you is just, we have been very encouraged now for -- now a couple of orders on the position that FERC has taken in terms of protecting the integrity of competitive markets. If you go back domestic, the PJM and capacity, I mean there has been a lot of consistency coming out of FERC. So that's the data point that we have -- everything else, we don't have the details, then it's a speculation. So I don't think, we will be venturing into something that we don't have enough information to even quantify. So that's what I will say.

Praful Mehta  -- Citigroup -- Analyst

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

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Angie Storozynski with Macquarie. Your line is now open.

Angie Storozynski  -- Macquarie -- Analyst

Thank you. So, OK, I'm going to go back to the share buybacks question. So, Kirk, you're saying that now you expect excess cash of almost $700 million. It seems like you do have a line of sight for the NRG Yield transaction closing and yet you're not launching the next batch of buybacks. What am I missing here?

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Well, everything you just described is correct. The one thing to keep in mind is outside of the asset sale proceeds which we've given some indication about timing, our organic free cash flow generation is relatively back-end loaded, right. We need to get through the summer in order to start to build that cash. So, as we come into the fall, our cash balances begin to appreciate.

In the interim, during the summer months, while still waiting on that cash that also tends to be the more significant drawn liquidity, which we have ample supply of, but we have to be prepared that if we do see scarcity prices events or the anticipation thereof in the forward market that then entails a need for posting additional collateral. So we have to balance the liquidity, the reality that the organic cash flow is back-end loaded, supplemented by the receipt of the asset sale proceeds which is obviously determined on closing. So all of those factor into that timing (inaudible) as the expectation in terms of launching Phase 2.

Angie Storozynski  -- Macquarie -- Analyst

Okay. Just one more follow-up here. I mean, you seem to be indicating that you will be waiting for the transaction to actually close NRG Yield, I'm talking. I thought in the past, we were just talking about a line of sight of that transaction. And I know that it might be probably just a small difference as far as time is concerned, but I mean are you basically depending on that cash really entering your bank accounts, so that's worthy before the buyback can take off?

Mauricio Gutierrez  -- President and Chief Executive Officer

Angie, this is Mauricio. I mean, well, first, we launched the first $500 million, because we felt comfortable that the transactions have been announced, and we were making good progress. And I was very pleased with how we perform on this first $500 million. The second $500 million is going to be launched when we have closed. We feel comfortable with that. And, as Kirk is saying, I mean we have to balance when those proceeds are coming in and the back-end loaded of our cash flows coming in Q3 and Q4, particularly with the type of volatility that we're seeing in the market. It is important that we take extra precaution. And then once we do that, then on the third quarter call, what I said is any remaining capital that is available for our location, we will be providing that clarity. So I think that's the sequence that you should be expecting, Angie.

Angie Storozynski  -- Macquarie -- Analyst

Okay. And my last quick question. So you showed us the performance of your retail and generation portfolio in the second quarter. Can you say what happened in July in Texas, has that strength, especially in retail earnings continued?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yeah, I mean, what I will tell you is that, we actually with the benefit of the pricing that we receive in the forward markets, we got ready both on our generation and on our retail business to perform the way we have described we performed in July. I mean, aside from that information, I don't want to front run the earnings, the third quarter earnings, where we're going to be talking specifically about the summer months, but I felt it was important that many of you, our investors and -- wanted to know just what had happened in this first month.

And I think what I can tell you is that, we are very pleased with the performance of the fleet. I'm very pleased with how our integrated platform performed as a whole, generation and retail in the first summer months. And thus, I mean, I think that's what I'm comfortable right now sharing with. I mean, like I said we're just in the middle of the summer. I mean, the most volatile months are still ahead of us historically August and September, that's when you see lot of high consecutive high temperature days. So I want to make sure that the entire organization remains focused, and there's still a lot that can happen in the next two months. And I will be providing you an update as on the third quarter call on what happened this summer. But so far, I feel very good.

Angie Storozynski  -- Macquarie -- Analyst

Okay. Thank you.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you, Angie.

Operator

Thank you. Our final question comes from the line of Michael Lapides with Goldman Sachs. Your line is now open.

Michael Lapides  -- Goldman Sachs & Co. -- Analyst

Hey, guys, congrats on a good quarter and good first half of the year. I want to come back to the hedging slide a little bit, slide 22, but I'm just kind of comparing it to the same slide in the prior quarter deck. And I'm just looking at the total forward hedged revenue number, and I'm only looking at 2019 and 2020. So 2019, it's $1.2 billion, and 2020, it's $828 million. If I look at that same slide for the first quarter, cumulatively if I just take the differences between what you had hedged then and what you have hedged now, it's a $1 billion, $600 million in one year, $400 million in 2020. Does that all just dropped to the bottom line meaning that $600 million and that a $1 billion of incremental cash flow that will likely flow into NRG relative to what you may have thought or had hedged or had locked in three or four months ago?

Mauricio Gutierrez  -- President and Chief Executive Officer

Yes. Well, Michael, thank you and -- I mean, keep in mind that this is just the top line, this is revenue, this is not gross margin. So you have -- first you have another leg, I mean, you have to take into consideration what happened on the fuel side, right. I mean, and we haven't provided that here. So, and then secondly, I mean I think as we have said, I mean this is a -- this reflects the hedging that we did, the incremental hedging that we did on both natural gas equivalents and power. So, I don't think you should -- this is an indication, this is the direction, but it's not a one-to-one drops to the bottom line. I mean there is -- there are other things that are not captured completely in that line.

Michael Lapides  -- Goldman Sachs & Co. -- Analyst

Right. But if I just think about the fuel side, I mean we haven't seen PRB coal move a lot or lignite move a lot, and I think you'd probably already procured your uranium. So it's really just -- and gas prices haven't exactly spiked a ton in the last couple of months. So, unless it's just something dealing with the retail offset, you may be having retail contract that don't just pass through the fuel cause. I would assume that at least a large portion of this incremental $1 billion would flow to you if not all of it.

Mauricio Gutierrez  -- President and Chief Executive Officer

Yeah, well, I mean, with respect to retail, keep in mind that in 2019 and 2020, I mean any price changes affect every single retailer. So, I think, the dynamic that we have seen when prices increase and benefits wholesale in generation, and perhaps put some pressure on retail. That doesn't happen in 2019 and 2020 because all retailers are exposed to the same price of electricity. So I think that addresses your concern around retail.

And then with respect to -- that's why we provide the sensitivities. I mean, I think the sensitivities give you a sense on how our portfolio behaves, depending on the different market conditions. And I would actually -- I think that's a -- perhaps a more comprehensive way to look at the -- how our portfolio will -- how the changes in the prices will impact our portfolio. So I would direct you more to the sensitivities as opposed to this one line that is very specific on revenue.

Michael Lapides  -- Goldman Sachs & Co. -- Analyst

Got it. Thank you, much appreciated, guys.

Mauricio Gutierrez  -- President and Chief Executive Officer

Thank you, Michael.

Operator

Thank you. With that, we'll turn the conference back over to Mr. Gutierrez for closing remarks.

Mauricio Gutierrez  -- President and Chief Executive Officer

Well, thank you. It was great talking to you, and I look forward to continue our conversation in the third quarter call. Thank you, all.

Operator

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.

Duration: 56 minutes

Call participants:

Kevin Cole  -- Senior Vice President, Investor Relations

Mauricio Gutierrez  -- President and Chief Executive Officer

Kirkland Andrews  -- Executive Vice President and Chief Financial Officer

Julien Dumoulin-Smith  -- Bank of America Merrill Lynch -- Analyst

Elizabeth Killinger  -- Executive Vice President, NRG Retail

Greg Gordon  -- Evercore -- Analyst

Abe Azar  -- Deutsche Bank -- Analyst

Chris Moser  -- Executive Vice President, Operations

Steve Fleishman  -- Wolfe Research -- Analyst

Praful Mehta  -- Citigroup -- Analyst

Angie Storozynski  -- Macquarie -- Analyst

Michael Lapides  -- Goldman Sachs & Co. -- Analyst

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This article appears in: Personal Finance , Stocks
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