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American States Water: Temporary Factors & Analyst Downgrade Lead To Buying Opportunity

This week, American States Water (NYSE: AWR ) popped up on my radar as an oversold dividend growth stock with a long history of dividend increases. Shares of AWR have fallen nearly 17% since February 24th when the company released earnings that beat on the top and bottom line. The results were better than expected, however, earnings were down year/year and to add to that, the stock was downgraded by Ladenburg Thalmann from neutral to sell on February 26th and the stock fell over 9% just that day and has continued its downward trajectory ever since. I believe the sell-off in AWR is extremely overdone and the reasons why AWR earnings were down year/year are easily explainable and show that they are temporary in nature. Those items include billings, drought and government projects. Billings In the earnings press release for the 4th quarter, the company noted that results for its water business were down because of ” a delay in recognizing $1.4 million of Water Revenue Adjustment Mechanism (WRAM) revenue.” AWR was delayed in recognizing because of water conservation measures taken by the state of California. Simply put the drought had a negative impact on AWR because it was not able to recognize $1.4 million in revenues during the year, however, they will make up for it in 2016 as the statement from the earnings release shows. ” The impact of state-mandated water-conservation targets on customer usage, GSWC recorded large WRAM balances during 2015. Under current CPUC amortization guidelines, surcharges ranging from 12 – 36 months will be implemented in 2016 to recover the recorded WRAM balances, as well as the $1.4 million not recorded.” Drought Last year California had a very bad drought where as noted about there were mandatory water conservation measures put into place, which affected the results for AWR. This year is looking much better in terms of rainfall and snowfall for California. Rainfall data from the California/Nevada River Forecast Center, which is part of NOAA, showed that of the 49 California locations that monitor rainfall, 33 [67%] had increased rainfall totals from October 2015-March 2016 compared to October 2014-March 2015. In addition, as the following comparison of snowfall totals from the California Department of Water Resources shows, 2016 snowfall totals are massively ahead of where they were last year. The left side of the chart shows that snowfall, as a percentage of normal for this time of year in 2015 was 10%, 13% and 13% in the three regions. This year however, the snowfall totals are significantly better with those same regions posting 102%, 95%, and 79% of normal. With the significant increase in rainfall and snowfall totals 2016 should be a much better year for AWR because there should not be the water shortage like there was in 2015. Click to enlarge [Images from California Department of Water Resources ] Government Projects In the earnings press release for AWR, it was noted that its American States Utility Services subsidiary, which focuses on utility projects for military bases had lower earnings year/year because of a large project that was completed at the end of 2014 and AWR did not have a similar large project completed during the fourth quarter of 2015. This is the most appealing aspect of AWR because they currently operate & maintain water and wastewater systems at nine military bases throughout the United States under 50 year contracts. These long-term contracts give the business current growth as well as long-term stability because of the duration of the contracts. As was noted in an investor presentation in December, “Numerous military bases still to be privatized; active bids are currently in process. Significant water and wastewater contracts to be awarded over the next 5 years.” With its existing portfolio of military bases and the potential for more bases to be served over the coming years, AWR is set up for continued stable growth going forward. Dividend Growth History & Potential AWR has a long history of dividend increases [61 years], with the company classified as a “Dividend King”, that means they have increased their dividend for a minimum of 50 years in a row. With the ability to consistently increase its dividend through any market environment AWR can be a place investors look to for dividend safety in times where there are adverse market conditions. Click to enlarge [AWR December Investor Presentation ] Dividend Growth Potential As you can see in the table below, AWR has a weighted dividend growth rate of 7.15% and I expect the dividend to continue growing over the next 5 years. To determine if that rate of dividend growth is sustainable over the next five years, I conducted an analysis to see if dividends paid as a percentage of net income was less than my self-imposed threshold of 80%. For my calculations, I used the dividend growth rate of 7.15% and I calculated the net income growth excluding discontinued operations over the last five years to be 9.49% and applied that growth for the next five years. The table below shows if AWR continues growing its dividend at its current pace that it will continue to be well below my 80% threshold. Based on my estimates, by 2020, AWR could be paying an annual dividend of $1.24/share or about $0.311/quarter, which is just about 39% above the current quarterly dividend. Estimated Dividend Div Growth Rate Weight Div Rt*Weight 5 Yr 12.28% 20.00% 2.46% 3 Yr 7.24% 30.00% 2.17% 1 Yr 5.05% 50.00% 2.52% Weighted Dividend Growth Rate 7.15% Current Quarterly Dividend 0.224 Shares Outstanding 37.6 Net Income Growth Last 5 years 9.49% Calendar Year Est. Div/Share Shares Divs $ Paid Proj. Net Income Proj. Div as % of Net Inc. 2016 est. 0.94 37.6 35.50 66.24 53.59% 2017 est. 1.01 37.6 38.03 72.53 52.44% 2018 est. 1.08 37.6 40.75 79.41 51.32% 2019 est. 1.16 37.6 43.67 86.94 50.23% 2020 est. 1.24 37.6 46.79 95.19 49.15% ` 2020 Div 1.244 2020 Quarterly 0.311 Current Quarterly 0.224 % Dividend Upside 38.89% Valuation To determine the upside opportunity for AWR, I conducted a discounted cash flow analysis (table below) and found that shares are undervalued at current levels. Because of the nature of its business and the variable nature of free cash flows due to changes in CAPEX, I used cash flows from operations, which are more stable and better reflect the value of cash flows for AWR. Cash flow data is from GuruFocus, long-term growth rate is from Zacks and to determine the discount rate & terminal growth rate, I used the following calculators. I found that shares of AWR are slightly undervalued by just under 10%. While, this may seem low, as I noted in the first section, AWR has potential to increase its cash flows if they were to win the contracts for the military bases that are up for bidding. Discount rate calculator Terminal Growth calculator TTM CF/Share: $2.53 Proj. Long-term growth rate: 3.85% Terminal growth rate: 0.11% Discount rate: 3.47% Fair Value Calculator Assumptions EPS grows for next 5 years. After that, growth levels off to the terminal rate for 15 years. AWR DCF Calculations CF/Share PV Year 1 1 2.63 $2.54 Year 2 2 2.73 $2.55 Year 3 3 2.83 $2.56 Year 4 4 2.94 $2.57 Year 5 5 3.06 $2.58 Year 6 6 3.06 $2.49 Year 7 7 3.06 $2.41 Year 8 8 3.07 $2.33 Year 9 9 3.07 $2.26 Year 10 10 3.07 $2.18 Year 11 11 3.08 $2.11 Year 12 12 3.08 $2.04 Year 13 13 3.08 $1.98 Year 14 14 3.09 $1.91 Year 15 15 3.09 $1.85 Year 16 16 3.09 $1.79 Year 17 17 3.10 $1.73 Year 18 18 3.10 $1.68 Year 19 19 3.10 $1.62 Year 20 20 3.11 $1.57 Fair Value $42.76 Current Price $38.92 Upside/Downside 9.87% Technical Outlook Looking at the technical chart, you can see that AWR has two significant levels of support just below where the stock is currently priced. The upward trending line of support [Red Line] has acted as support for the last four and half years and is currently just below where the stock is currently priced. In addition, if shares of AWR were to breach the upward trend line there is another level of support at $36 [Blue Line], which is another strong level of support. This is where shares failed to break above at the end of 2014 and after shares of AWR broke above the level in 2015, it acted as a strong level of support, making a double bottom during the middle of 2015. With both these levels of strong support nearby, I think shares of AWR are near a bottom. Click to enlarge [Chart from ThinkorSwim Platform] Closing Thoughts In closing, I believe American States Water is worth considering as an addition to dividend growth portfolios because they have increased their dividend each year for the last 61 years, which shows the strength of their business through any type of market. In addition, American States Water has a stable dividend payout ratio, which will allow them to continue increasing their dividend going forward. With the issues that caused the recent sell-off being temporary in nature, an improvement in billings and weather in 2016, along with the potential for increased revenues from new military base contracts, American States Water is poised for a strong rebound from current levels in my opinion. Disclaimer: See here . Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AWR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

How Benjamin Graham Will Possibly Invest In A World Without Net-Nets

Net-Nets Disappearing In The U.S. In Chapter 7 of the value investing classic “The Intelligent Investor,” Benjamin Graham referred to net-nets as “The type of bargain issue that can be most readily identified is a common stock that sells for less than the company’s net working capital alone, after deducting all prior obligations. This would mean that the buyer would pay nothing at all for the fixed assets – buildings, machinery, etc., or any good-will items that might exist.” When Benjamin Graham did a compilation of net-nets in 1957, he found approximately 150 net-nets. But Benjamin Graham also added that “during the general market advance after 1957 the number of such opportunities became extremely limited, and many of those available were showing small operating profits or even losses.” Based on market data as of March 11, 2016, there were 95 net-nets (trading under 1x net current asset value) listed in the U.S., excluding over-the-counter stocks. If I include a market capitalization criteria of the stock being greater than $20 million, the list of net-nets is almost halved to about 54 names. Assuming the market capitalization criteria is further tightened to $50 million, only 27 net-nets remain on the list. Among the 27 net-nets, only nine of them were profitable in the trailing twelve months. There are two key factors that have been commonly attributed to the disappearance of net-nets in the U.S. Firstly, investors armed with sophisticated screening tools have found it easier to screen for net-nets, compared with the limitations of using a pencil and a calculator in the past. As a result, it can be said that the net-net investment opportunity has been arbitraged away. Secondly, as America made the shift from an industrial economy to a knowledge-based one over the past decades, the value of most U.S.-listed companies no longer resides with their tangible assets. Deep value investors have always sought out cheap stocks, but struggled to find a common denominator for undervaluation. Net current asset value, as a proxy for liquidation value, is probably the closest that one can come to identifying a worst-case scenario valuation metric that is easily calculated and applicable across most situations. However, if one digs deeper into the concept of deep value and the underlying rationale of net-net investing, it is possible to widen the deep value investment universe considerably beyond net-nets. Deep value, whose definition may vary widely, is premised on downside protection in the form of asset values, in my opinion. As I will highlight in the sections below, there are still plenty of deep value investment opportunities in the U.S. and in the Asian markets as well. I will apply the $50 million minimum market capitalization for the screens and specific stocks I am discussing below. Net Cash Stocks / Negative Enterprise Value Stocks Net cash stocks refer to companies with net cash (cash and short-term investments net of all interest bearing liabilities) accounting for a significant percentage of their market capitalization. In the extreme case, some of these stocks might have net cash exceeding their market capitalization, and they are also referred to as negative enterprise value stocks. I see net cash stocks as a special case of the classic sum-of-the-parts valuation, where an investor is backing out the easy-to-quantify elements (usually cash and listed investments) of a stock to ultimately get to the stub value of the remaining parts of the company, typically what is difficult to understand and value. For negative enterprise value stocks, the stub value is zero or negative, implying investors are getting certain assets or businesses for free by virtue of the purchase price. I found 126 U.S. stocks trading at 2 times net cash or less (in other words, net cash accounts for over 50% of market capitalization), and 18 negative enterprise value stocks. One example of a net cash stock is RealNetworks (NASDAQ: RNWK ) whose net cash accounts for approximately 61% of market capitalization, implying that the stub (operating businesses excluding Rhapsody) trades at a trailing enterprise value-to-revenues of 0.48 times. RNWK is a digital media services company operating under three business segments: RealPlayer Group, Mobile Entertainment, and Games, which accounted for 23%, 52% and 25% of its 2015 revenue, respectively. RNWK’s operating businesses are not doing well. With the declining popularity (that is an understatement) of RealPlayer and the deteriorating performance of its Mobile Entertainment, and Games businesses, RealNetworks is looking increasingly like a melting ice cube with its top line decreasing in every year from $605 million in 2008 to $125 million in 2015. It was also loss-making in four of the past five years. But there are some recent positive developments in the past year. RNWK sold its social casino games business, including Slingo, for $18 million, which was first announced in July 2015. This implies management is open to the possibility of monetization and divestment, when the right opportunity arises. In November 2015, RNWK announced a partnership with Verizon Communications Inc. (NYSE: VZ ) to allow it to offer its customers the ability to share, transfer and create digital memories with RealNetworks’ newest video app, RealTimes. RNWK also has a hidden asset in the form of its 43% stake in Rhapsody carried on the books at zero value, which boasts close to 3.5 million paying subscribers. Music subscription service peers like Deezer and Spotify were valued at between $270 and $425 on a per-subscriber basis, based on actual and planned fund raising activities. If I apply the lower end of the valuation range to Rhapsody ($270 per subscriber), the value of RNWK’s interest in Rhapsody should be worth $406 million, more than 2.5 times RNWK’s current market capitalization. Robert Glaser, the founder of RNWK, returned as interim CEO in 2012 and assumed the role as permanent CEO in 2014. His 35% interest in RNWK suggests that his interests are firmly aligned with that of minority shareholders. He is likely to act in the best interests of himself and minority shareholders to eventually halt monetizing the value of RNWK’s assets, if he does not manage to turn around RNWK’s operating businesses. The key risk factors for RNWK include the continued cash burn at its operating businesses being unsuccessful and the decline in the value of Rhapsody due to competition. Net cash stocks with the following characteristics should be heavily discounted: the company is a melting ice cube and burning through cash rapidly (RNWK is an exception considering its stake in Rhapsody and the alignment of interests between the CEO/founder and minority shareholders); the nature of the company’s business requires it to hold cash for either working capital or expansion opportunities; there is a timing issue e.g. a huge special cash dividend has been factored into the price, but not the company’s financials yet, or the company may have an element of seasonality which causes it to accumulate cash at a certain point of the year and draw down the cash to meet liabilities later; the company has significant off-balance debt; the bulk of the stock’s cash is held at partially owned subsidiaries where the possibility of repatriating the cash to the parent company is low; the stock may have certain operating subsidiaries which are mandated by laws and regulations to maintain a certain cash balance. Low P/B Stocks One has to go back to Eugene Fama and Kenneth French’s 1992 research paper titled “The Cross-Section of Expected Stock Returns” to find the first (as far as I know and have read) academic study showcasing the outperformance of low P/B stock relative to their high P/B counterparts. Moving from theory to practice, Donald Smith is one of a handful of fund managers who devotes himself exclusively to the low P/B deep value approach. On his firm’s website, it is emphasized in the Investment Philosophy and Process section that “Donald Smith & Co., Inc. is a deep-value manager employing a strict bottom-up approach. We generally invest in stocks of out-of-favor companies that are valued in the bottom decile of price-to-tangible book value ratios. Studies have shown, and our superior record has confirmed, that this universe of stocks substantially outperforms the broader market over extended cycles.” Fishing in the bottom decile of price-to-tangible book value ratios as opposed to net-nets has its advantages, considering that there will always be stocks (10% of the universe) trading in the bottom decile of price-to-tangible book value ratios even as an increasing number of stocks are valued above net current asset value. One such deep value low P/B stock is Orion Marine Group (NYSE: ORN ). Orion Marine trades at 0.54 times P/B & around tangible book, and it is trading towards the lower end of its historical valuation range. Click to enlarge Started in 1994 and listed in 2007, Orion Marine is a leading marine specialty contractor serving the heavy civil marine infrastructure market in the Gulf Coast, Atlantic Seaboard & Caribbean Basin, the West Coast, as well as Alaska and Canada. Its heavy civil marine construction segment services include marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. In 2015, the Company started its new commercial concrete business segment with the acquisition of TAS Commercial Concrete. Founded in 1980 and headquartered in Houston, Texas, TAS Commercial Concrete is the second-largest Texas-based concrete contractor and provides turnkey services covering all phases of commercial concrete construction. While Orion Marine is no wide moat stock, it does benefit from moderate entry barriers. Dredging and marine construction are immune to foreign competition, thanks to the Jones Act. Orion Marine also benefits from its longstanding working relationships with the government which grants the necessary security clearances. This gives the Company an edge over new entrants in the bidding for public projects. The decent future growth prospects for Orion Marine in the mid-to-long term should increase its capacity utilization and enhance profit margins. Firstly, funding for public projects remains healthy. For example, the U.S. Army Corp of Engineers funds the country’s waterways and is focused on expanding the usability of the Gulf Intracoastal Waterways. Its annual budgets for Operations and Maintenance and Construction are $2.9 billion and $1.7 billion, respectively. Another example is The RESTORE Act (the Resources and Ecosystems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act), signed into law in July 2012, is focused on coastal rehabilitation along the Gulf Coast and is expected to be a long-term driver (estimated $10-$15 billion over the next 15 years) of coastal restoration work. Secondly, the expansion of the Panama Canal (Gulf and East Coast Ports deepening channels and expanding facilities to handle larger ships), expected to be completed in 2016, requires ports along the Gulf Coast and Atlantic Seaboard to expand port infrastructure and perform additional dredging services, to cater to increases in cargo volume and future demands from larger ships transiting the Panama Canal. Thirdly, the Company currently serves several popular cruise line destinations, making it a beneficiary of port expansion and development to meet increasing demands as a result of the growing number and size of cruise ships. Orion Marine is less vulnerable to oil price declines as its energy & energy-related opportunities are largely concentrated with the midstream or downstream energy segments. The key risk factor for Orion Marine is that it runs a capital-intensive business with high fixed costs (operating leverage implies that the bottom line will decrease to a significantly larger extent compared with the top line), so revenue and capacity utilization are key to profitability. Furthermore, the Company has a history of M&A, which can be potentially value-destroying. Click to enlarge Interestingly, Orion Marine is a holding of Charles Brandes of Brandes Investment. Charles Brandes met Benjamin Graham when he was managing the front desk of a small brokerage firm in La Jolla, California, which inspired him to start his investment firm operated along Graham principles. On the investment firm’s website, Brandes Investment Partners writes that it “believes the value-investing philosophy of Benjamin Graham – centered on buying companies selling at discounts to estimates of their true worth – remains crucial to delivering long-term returns. This singular focus has allowed Brandes to help clients worldwide with their investment needs since the firm’s founding in 1974.” Brandes Investment has been aggressively adding to its position in Orion Marine in the past three quarters, purchasing 58,150 shares, 26,245 shares and 40,464 shares in Q2 2015, Q3 2015 and Q4 2015, respectively, effectively tripling its stake over this period. It is noteworthy that Brandes Investment claims to be “among the first investment firms to bring a global perspective to value investing” in its corporate brochure , and this links well to the next section on replicating the net-net investment strategy outside of the U.S. Asian Net-Nets Going back to net-nets that I first touched upon at the beginning of the article, the opportunity set for net-nets still exists, if one is willing to look beyond the U.S. market, particularly Asia. There are approximately 256 Asian-listed (including Japan, Hong Kong, Australia and South East Asia, but excluding Korea and Taiwan) net-nets with market capitalizations above $50 million, of which 206 were making money in the last twelve months. Japan (including the Tokyo and Nagoya Stock Exchanges) accounts for more than half of the 206 names with 111 net-nets, while Hong Kong is a close second with 74 profitable net-nets. I have written extensively about Asian net-nets in articles published here , here and here . Graham’s Final 1976 Interview In Benjamin Graham’s last published interview in 1976 with the Financial Analysts Journal, he still expressed his strong conviction in net-nets, when asked “how an individual investor should create and maintain his common stock portfolio.” My first, more limited, technique confines itself to the purchase of common stocks at less than their working-capital value, or net-current-asset value, giving no weight to the plant and other fixed assets, and deducting all liabilities in full from the current assets. We used this approach extensively in managing investment funds, and over a 30-odd year period we must have earned an average of some 20 per cent per year from this source. For a while, however, after the mid-1950’s, this brand of buying opportunity became very scarce because of the pervasive bull market. But it has returned in quantity since the 1973-74 decline. In January 1976 we counted over 300 such issues in the Standard & Poor’s Stock Guide – about 10 per cent of the total. I consider it a foolproof method of systematic investment – once again, not on the basis of individual results but in terms of the expectable group outcome. Graham acknowledged that net-net investing in the U.S. “appears severely limited in its application, but we found it almost unfailingly dependable and satisfactory in 30-odd years of managing moderate-sized investment funds.” He proposed an alternative investment approach involving “buying groups of stocks at less than their current or intrinsic value as indicated by one or more simple criteria.” Graham’s preferred metric was trailing P/E under 7, but he suggested other metrics as well, including dividend yields exceeding 7% and book value more than 120 percent of price (which is equivalent to a P/B ratio of under 0.83). Note: Subscribers to my Asia/U.S. Deep-Value Wide-Moat Stocks get full access to the watchlists, profiles and idea write-ups of deep-value investment candidates and value traps, which include net-nets, net cash stocks, low P/B stocks and sum-of-the-parts discounts. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

NRG Energy’s (NRG) CEO Mauricio Gutierrez on Q4 2015 Results – Earnings Call Transcript

Operator Good day, ladies and gentlemen. Welcome to the NRG Energy Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the call over to Kevin Cole, Senior Vice President of Investor Relations. Sir, you may begin. Kevin Cole Thank you. Good morning, and welcome to NRG Energy’s full year and fourth quarter 2015 earnings call. This morning’s call is being broadcast live over the phone and via the webcast, which can be located on the Investor Relations section of our website at www.nrg.com under Presentations & Webcasts. As this is a call for NRG Energy, any statements made in this call that may pertain to NRG Yield will be provided from NRG 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 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 the reconciliation to the most directly comparable GAAP measures, please refer to today’s press release and presentation. With that, I’ll now turn the call over to Mauricio Gutierrez, NRG’s President and Chief Executive Officer. Mauricio Gutierrez Thank you, Kevin, and good morning, everyone. Joining me today and covering the financial part of the presentation is Kirk Andrews, our Chief Financial Officer. In addition, Elizabeth Killinger, Head of Retail; and Chris Moser, Head of Commercial Operations are available for questions. Let me also formally welcome Kevin Cole, as our new Head of Investor Relations. He is well-known by many of you, having spent a number of years in the energy sector on both the buy and sell side. I also want to thank Chad Plotkin for providing transitional support over the past few months and wish him well, as he moves on to take other responsibilities within the Company. Before we begin, I want to take a moment to acknowledge and thank David Crane for his years of service at NRG. We are grateful for his many contributions to the Company for over a decade. And I want to wish him well in his next endeavors. Today is my first time, addressing you as CEO of NRG. So, I’m going to deviate slightly from our normal earnings agenda because I want to use this time to not only report on the results of our business, which were exceptional, but also to give you my perspective on the strategic direction of the Company and our immediate priorities. So, let’s begin on slide four, where I have outlined the key messages you should take away from today’s call. First, as our financial performance has shown time and time again, we have the right portfolio and the right platform to succeed in this environment. Our business delivers strong results, during periods of low prices and importantly, our generation fleet remains significantly levered till market recovers. Second, in this environment, we will benefit from having a stronger balance sheet. We have initiated a comprehensive plan to reduce debt, streamline costs, and replenish capital. We are proactively doing this to take advantage of market opportunities in the short-term, so we can benefit from a market recovery in the medium to long run. Third, in order to afford ourselves maximum flexibility on our capital allocation decisions, we are recalibrating our dividend to be consistent with the capital intensive and cyclical nature of our industry. Finally, we are focused on bringing the GreenCo process to a closure that maximizes value for our shareholders. We are reintegrating business renewables back into the NRG platform with no change to our financial guidance and reinforcing our strategic relationship with NRG Yield. We are continuing to sell process of EVgo and NRG Home Solar. All of these actions support our objective to continue building and operating the best integrated competitive power company. Now, let me elaborate in more detail. Starting on slide six with the financial performance of our business, I am very pleased to report that we achieved the upper range of our adjusted EBITDA guidance in 2015, despite the challenging power markets, a company-wide restructuring, and changes in management. We remained focused on our business and delivered top quartile safety business with our retail business having a record year, demonstrating the consistency and value of our integrated platform. So, to every one of my colleagues, job well done. There are a few points that I want to highlight. We are reaffirming 2016 financial guidance, which now includes our business renewables. Our commercial team continues to execute superbly and have mitigated the impact of lower prices for the year. We are off to a good start on our plan to strengthen the balance sheet. Since November, we have retired close to $700 million in high-yield debt at a significant discount bar. We are expanding this by an additional $925 million of debt reductions, which Kirk will cover in more detail. We remain focused in replenishing capital with $500 million in targeted asset sales in 2016 and we are accelerating our cost savings timeline. And as I mentioned before and something I will discuss in more detail in a few slides, we are reducing the annual dividend to $0.12 per share from $0.15 per share, which afford us maximum flexibility in our capital allocation program, during this market period. Let me now move to the strategic part of the presentation and provide you my perspective on where NRG’s today and what I believe separate us from others in our industry. Stakeholders repeatedly tell me that NRG story and capital structure is too complicated about the company’s spending too much money on businesses that are outside of its core competencies. I have taken this seriously and I am here today telling you that simplification of our business is an imperative, both for external perception and internal focus. Efforts are already under way to address this concern. Everything from the way NRG’s preceding the market to the way we disclose information, to the way we run our platform will be greatly simplified over the next several quarters. Simplification starts with the way that we think about the business. The graphic on the left side of slide seven represents our thinking. NRG has and continues to be comprised of two main businesses, generation, inclusive all renewable; and retail. That is our focus and there should be no mistake about that. But, it is not only these two businesses independently that create a most value for NRG, it is the interaction between the two through our scalable operating platform. This is truly a case where the whole is greater than the sum of its parts. The plus points between our generation and retail businesses underpin the NRG value for position. A generational fleet that is well diversified in terms of location, merit-order and fuel price minimizing exposure to downturns in any one market, but flexible enough to benefit from specific areas like we saw during the polar vortex, a complementary business model that helps insulate revenues from commodity risks. Today, two-thirds of our economic gross margin comes from sources that are counter or non-correlated to gas, like retail; capacity revenues or long-term contracts. A cash flow machine, even in what has become a very difficult commodity cycle that is enhanced by our ability to replenish capital through NRG Yield. While I believe it’s not fully appreciated, much to our own doing is the shared and scalable platform that we have built. Our ability to leverage our common platform to grow our business and realize cost synergy in the processes absolutely unique in this industry. And not only is it unique but later in the presentation, I’ll explain why I think it is necessary to succeed. In summary, my view of the business is that it’s simple, focused and differentiated within the competitive power space. Turning now to slide eight, I want to take a step back and give you my perspective on the competitive power industry and what I believe it takes to be successful. This industry’s currently undergoing a paradigm shift. We are in periods of sustained low natural gas prices, load growth that has slowed in most markets except Texas and the Gulf Coast, [indiscernible] technologies are coming on to the grid, changing traditional dispatch, market growths are focused on reliability, particularly in the face of retirement, renewables continue to enter the market as regulation focuses on limiting emissions from conventional power. Being a pure IPP player is no longer enough to succeed in the market today and defiantly not tomorrow. The company that can successfully navigate all the risks and changes in the competitive power industry is one that is diversified, not only in terms of its generation portfolio, but also in terms of its business line. It is too easy for any one fuel type or any one business line to experience turmoil or disruption in the current shifting market. As I mentioned before, the operational platform has become a value differentiator and to a great extent, a source of incremental revenue. Operational excellence is always non-negotiable, regardless of the industry. But in ours, building an operational platform that enables economies of scale is even more fundamental. For NRG, this operational platform has become a differentiated means of margin enhancement, as complementary businesses intersect and create opportunities for companies to startle different markets. But this is just the foundation. In the competitive power industry, companies need to remain leveraged to the upside by constantly assessing the markets and the economic viability of opportunities to grow the businesses in a disciplined manner, as markets evolve. For me, this means investing in areas where you can have a competitive advantage. It does not mean trying to be everything to everyone. Last, I believe financial discipline needs to be a top priority for companies in our sector. It is not prudent to take a myopic approach to managing the balance sheet and capital allocation. These decisions must be made on a portfolio level, looking at all parts of the business and align decision making with current market opportunities. So, how do we start up against these principles? I have already stressed how pleased I am with the operational execution across the business within NRG. We have made great strides in diversifying our business and revenues to protect us from low natural gas and power prices. At the same time, we remain well-positioned for growth, looking for low cost development opportunities and to monetize assets through our static relationship within NRG Yield. These unique attributes, position NRG for sustained success in the industry. As you saw in the earlier slides, we have identified cost control and financial discipline, as one of our key opportunities for improvement. While we have already begun a period of cost savings, I still believe we can do more. And I am actively working with the teams to uncover new opportunities. Our other area of focus will be in how we approach capital allocation and how we manage our capital structure. I want to make sure that our capital decisions meet with the current and near term market cycles. We plan to be transparent in our capital allocation. And there should be no head scratching when it comes to how we deploy capital. And on that note, our focus right now needs to be on deleveraging the business to ensure we stay ahead of this market cycle, so we can take the advantage of the opportunities that will result from it. We have already made significant progress and we will continue to do so until we see market conditions change. As we just discussed, NRG operates a large and well-diversified integrated portfolio with assets that are environmentally well-controlled. While it is important to have a good foundation, there is no one size fits all approach when it comes to regional dynamics. On the slide nine, we outlined what I refer to as our go-to-market strategy that reflects each of our regions, specific trends and market dynamics. In the East region, it’s all about reliability or capacity revenues. We have seen system-operators support for capacity products that reward reliability and performance, particularly in the face of retirements and weather events such as the polar vortex. For example, in the first capacity performance auction in PJM, we cleared close to 90% of our fleet and increased capacity revenues by 80% over the next three years. We are about to finish the repositioning of our portfolio to shift our margin mix from energy to capacity, via fuel conversations, which reduces operating costs significantly and environmental retrofits to maintain a cheap option on key assets to capitalize on higher power prices. In the Gulf, we continued to benefit from our integrated platform in this lower price environment where our retail operation continues to over perform. Let me just say that our retail business in Texas is virtually impossible to replicate due to its scale and linkage with generation. We have demonstrated the value of our retail franchise for the past seven years with 2015 being our best year yet. This is a key differentiator of ours and one that we will continue to focus on, and grow. Our generation fleet has the scale and environmental controls needed to sustain this weak price environment, where we should see further supply rationalization. At the same time, there is still the potential for the market to self-correct and be enhanced by improvements in market structure and feed pricing. The West region is a story of renewables and distributor resources, and maintaining a capacity fleet that supports the grid, given the intermittent nature of these resources. There is a need for quick start, well-located assets. And that is exactly what NRG has been successful in that market. Securing contracted assets and developing sites in favorable locations that can then be monetized through NRG Yield, providing us a long-term dividend payment. So far, we have developed over 1,800 megawatts of quick start generation and won nearly 800 megawatts of repowering at our Carlsbad and Puente sites. We have been successful in growing our renewable and distributor portfolio and with the reintegration of the renewables group into NRG, this will continue to be a growth area. Now, turning to slide 10, we remain focused on streamlining the organization. I am pleased with our efforts in taking close to $350 million in costs out of the system, but I am not satisfied and we continue to look for more. So today, I am announcing an accelerated timeline for our target cost savings of $150 million under our core NRG continuous improvement process, which has yielded so many benefits across the organization over the years. We expect this EBITDA accretive cost savings to be realized through end of 2017. Additionally, we continue to prune our portfolio to bring incremental capital back into the Company. We have executed on $138 million in asset sales thus far and are on track with our $500 million target. Last, we are nearing the completion of our current generation fleet modernization program, which reduces our CapEx commitment by nearly $650 million in 2017, providing us additional flexibility on capital allocation in the next five years. Moving on to slide 11, I know there has been a lot of questions about my perspective on renewables and how this relates to the GreenCo process that we announced late last year. Let me be clear. As the CEO of not only the largest competitive generation owner in the country, but also one of the largest renewable companies, I recognize that this market represents a significant development opportunity, given said renewable targets, customer needs, our competencies and financial incentives, and it is one in which we must participate. However, I am committed to ensuring that our efforts in this area match our skills and capabilities and are executed in a way that is value-creating for shareholders. I am mindful of what has and continues to be a very deliberate process around GreenCo to determine the best way to create value in these business areas. So, let me summarize where we are now. First, from here on out, we will no longer refer to GreenCo, as described in our September update call. As we think about the individual business strategies moving forward, it no longer makes sense to group them under one headline. Not all renewable businesses are viewed the same in terms of fit and value for NRG. Today, I am announcing the reintegration of our traditional NRG business. Everything but the utility scale, since that was never part of the GreenCo process, back into the Company to ensure we’ll maintain our advantage position and skills to participate in the changing landscape of the power industry. It is important to recognize that many of our C&I customers expect us to be able to integrate renewables on and offsite. Said another way, our efforts in renewables will mirror the strength of our integrated platform. And when augmented by our partnership with NRG Yield, our renewables business, which is net cash positive on a full year basis, does not require permanent capital from NRG. In addition, the reintegration of NRG Renew will not cause any change to our financial guidance. I am also pleased to announce that NRG and NRG Yield have reallocated $50 million in previously committed cash equity from the residential solar partnership to the business renewable partnership. This change reinforces our alignment with NRG Yield with mutual focus in renewable energy development. Finally, as you will know from the slide, we are in active negotiations around strategic transactions Home Solar and EVgo, so my comments will be limited. I do expect to complete this process in the second quarter. Turning on to slide 12, I want to walk you through our revised approach to NRG dividend. The dividend was launched in 2012 for several reasons, to better highlight the value of our contracted assets; to enable ownership by dividend restricted income funds; and to add yield support. Today, our world looks much different than it in 2012. We now have a deliberate dividend paying vehicle in NRG Yield to highlight the value of contracted generation and the assumed volatility in the IPP sector has mitigated our ability to realize yield support. And so, we meet our fundamental view that a static dividend approach is not an appropriate use of capital, given the deep cyclical nature of our sector. With that, we are reducing the dividend to $0.12 per share from $0.58 per share or to about 1% yield. I want to be crystal clear that this reduction is not due to balance sheet constrains. It is simply aligning our dividend approach with our broader focus on adaptability, while at the same time, maintaining a differentiated platform that appeals to a broad range of investors and creating shareholder value through all commodity, credit and development cycles. Moving to slide 13, this is one of the most important topics of today’s call. My core fundamental view on capital allocation is to stay focus on what we want to become. However, given the deep cyclical nature of the sector, we must first ensure the robustness of our balance sheet when deploying capital. We are proactively taking the necessary steps to not only there’s no doubt about our strength during this cycle but also to take advantage of opportunities that arise during market dislocations. Kirk will discuss in more detail the specifics, but I want to offer three takeaways. One, the nearing conclusion of our large capital reinvestment program provides us the latitude to effectively harvest strong free cash flows through our asset optimization program, as I believe we have a good line of sight on market prices and environmental requirements, at least through the end of the decade. Next, paying down debt is fundamental as it assures our equity holders that NRG has the flexibility to create strong returns for them when the market recovers, and it assures our customers a stronger counterparty. My goal is to create no doubt in the strength of our balance sheet. So, at this time, maintaining our current target ratio of four and a quarter corporate debt to corporate EBITDA gives us ample headroom to our bound covenants and it is consistent with our credit ratings. Last, I remain committed to returning cash to shareholders when we feel that our capital structure is strong enough to allow for flexibility in the event of our prolonged commodity and capital market downturn. I ask that you don’t take our focus on the deleveraging in 2016 as an indication that NRG has turned away from returning capital to shareholders. Rather, I think of it as assuring that our shareholders can have confidence that NRG will be in a strong position to benefit from opportunities and better market conditions. I will now turn it over to Kirk for the financial review. Kirk Andrews Thank you, Mauricio and good morning everyone. Beginning with the financial summary on slide 15, NRG delivered a total of $3.34 billion in adjusted EBITDA and $1.127 billion in free cash flow before growth in 2015. Our 2015 results highlight the benefits and resilience of our integrated platform as the low commodity price environment helped Home Retail deliver $739 million in adjusted EBITDA, exceeding our original 2015 guidance of that segment by more than 20%. Business and Renew achieved $1.881 billion in EBITDA for the year, while NRG Yield which was aided by robust wind conditions in California late in the fourth quarter, contributed $720 million. NRG completed $786 million in dropdowns to NRG Yield in 2015, helping expand capital available for allocation and allowing us to return over $1.3 billion to stakeholders. $628 million of this capital was returned to shareholders including the repurchase of approximately 7% shares outstanding. Having shifted our capital allocation focus late in 2015, since November and through this past month, NRG has retired approximately $700 million in unsecured debt, including over $400 million at the NRG level and $274 million at GenOn. Our reduced unsecured debt allowances will also help increase recurring cash flow with over $50 million in annualized interest savings realized so far, as a result of these efforts. I’d also like to briefly address one element of our 2015 results outside of EBITDA and free cash flow that is the non-cash impairment charges we took in the fourth quarter. On an annual basis, we test our long lived assets and goodwill for potential impairment. Given the prolonged low commodity price outlook, we adjusted our long-term view of power prices, which resulted in a non-cash impairment charge of approximately $5.1 billion, consisting of a write-down of certain fixed assets as well as goodwill. Due to the lack of robust forward prices in ERCOT, this change — charge rather, is primarily related to impairments of our two coal plants in that market as well as goodwill related to the 2006 acquisition of Texas Genco, of which these two coal plants were a part. Based on the robust commodity price outlook at the time of the acquisition, we allocated the substantial portion of the Texas Genco purchase price to the coal plants with minimal value allocated to the gas plants. And although since that time the Texas Genco portfolio has delivered over $8.5 billion of unlevered free cash flow and provided the platform for our expansion into retail with the acquisition of Reliant in 2009, the outlook in the ERCOT market is nonetheless shifted substantially, currently favoring gas over coal. The impairment of our two ERCOT coal plants aligns the book value of these assets with their forward cash flow profile, as implied by the current market environment. And while the shift in market dynamics also implies the value of our gas portfolio in Texas now substantially exceeds its book value, as many of you are aware accounting rules permit only the write-down of asset book values and do not permit a write-up. These impairment charges also resulted in cumulative net income for the prior three-year period falling below the threshold prescribed for evaluation allowance against our net deferred tax asset balance, largely associated with NRG’s tax NOLs. As a result, our one-time fourth quarter charges also include a $3 billion non-cash charge to tax expense, resulting from a contra asset entry on NRG’s balance sheet, as required under GAAP as a valuation allowance offsetting our net deferred tax asset balance. That said, this accounting charge has no bearing on our ability to utilize our NOLs against future taxable income, and we continue to fully expect to do so. Finally, turning to our 2016 guidance, we are reaffirming the previously announced guidance ranges for adjusted EBITDA and free cash flow before growth, which as Mauricio indicated earlier, reflect our expectations for consolidated 2016 results including business renewables, which was previously part of GreenCo. A point of clarification, business renewables NRG’s commercial and industrial distributed solar business, our utility scale renewable assets were not part of the GreenCo business previously excluded from our guidance. Turning to slide 16, I’d like to briefly summarize our capital allocation progress in 2015, focusing on the NRG level, which excludes cash and capital projects at various excluded subsidiaries, primarily GenOn and NRG Yield. Total NRG level capital available through 2015 was $1.7 billion that is shown on the left of the slide. Capital available to NRG includes three components: First NRG level excess cash at the end of 2014, which is basically cash and cash equivalents, less our $700 million minimum cash liquidity reserve, net of any cash collateral posted as of the year-end; second, the portion of our consolidated free cash flow before growth at the NRG level, which is in 2015 was just over $800 million; and finally, during 2015, as I mentioned earlier, NRG receives $786 million proceeds from NRG Yield, which comprises the third component of capital available. During 2015, NRG level capital allocated totaled approximately $1.2 billion with more than half of that amount returned to our shareholders. Having shifted our focus late in the year toward debt reduction, we ended 2015 by retiring $246 million of principal across various maturities of NRG’s unsecured notes, which significantly expanded the reduction of corporate debt beyond the amortization of our term loan facility. And as I mentioned earlier, we continued that deleveraging process through the first two months of the year, which I’ll address more comprehensively when we turn to 2016 capital allocation in a moment. The remaining $312 million was allocated toward growth investments. Importantly, this amount represents a reduction of over $450 million versus our original growth investments forecast provided on our first quarter 2015 earnings call. At that point, we projected approximately $960 million in consolidated growth investments with nearly $800 million of that amount expected at the NRG level. This reduction in NRG level spend was the result of both the slower pace of Home Solar as well as the elimination of other growth investments. Turning to our 2016 NRG level capital allocation plans on slide 17 and building on the delevering process — progress, rather, we’ve made since November 2015. I will see — 2016 will see a more significant shift towards further debt reduction, leaving no doubt that our balance sheet strength and credit ratios will remain resilient even if the current low commodity prices continue beyond the current year. We expect approximately $1.5 billion of capital available for allocation at the NRG level in 2016, which again represents excess capital beyond our minimum cash balance reserve for liquidity, which is further supplemented by our $2.5 billion credit facility. 2016 capital available for allocation consists of the excess cash balance at the NRG level at year-end 2015 plus the mid-point of our NRG level free cash flow before gross guidance and expected proceeds from dropdown to NRG Yield of approximately $125 million in 2016. These expected dropdown proceeds consistent of the substantial portion of what remains under our residential solar and business renewable or DG partnerships at NRG Yield, and represents the return of the portion of our 2016 growth investments toward these two businesses. This month, in order to align the size of these two partnerships with NRG’s strategic priorities, we have reached an agreement with NRG Yield to shift the amount of capital between Home Solar and the business renewables partnership. As a result, the Home Solar partnership was reduced by $50 million to $100 million with a corresponding $50 million increase to the business renewables partnership, reflecting the more robust and reliable pipeline of business renewables which has now been reintegrated within NRG. We expect to allocate approximately 75% of our 2016 NRG level capital or over $1 billion towards further debt reduction in 2016. This consists of ongoing term loan amortization as well as over $150 million in NRG corporate debt already retired, year-to-date. We plan to supplement this deleveraging in two ways. First, we will allocate $600 million of capital towards NRG debt retirement through open market purchases or tenders. And second, being mindful of our next NRG bond maturity in 2018, which is now approximately $1 billion in principal outstanding and the backdrop of the current dislocation in high yield market, we will reserve an additional $325 million toward the retirement of our 2018 notes in connection with the coincident refinancing of the balance when market conditions are more favorable. While our current priority is to ensure an efficient retirement and refinancing of our 2018 notes, as conditions evolve, we will continue to evaluate the best use of this debt reduction capital and may choose to allocate it toward different maturities, should this alternative prove more favorable. In any event, we expect this capital to ultimately be allocated toward corporate debt reduction, in order to meaningfully advance our efforts to further strengthen our balance sheet and ensure adherence to our target balance sheet metrics, even through an extended low cycle and commodity prices. As Mauricio indicated earlier, we have now adjusted our dividend rate to a level consistent with both our capital allocation priorities and a cyclical and capital intensive nature of our business. And while the current depressed level of our share price undoubtedly represents the compelling return opportunity, we believe it is prudent to continue our progress in right-sizing corporate debt and strengthening ratios, which will enable us the flexibility to capitalize on value enhancing opportunities for shareholders. Such opportunities are only made truly compelling by first ensuring the strength of the balance sheet, which supports this. For 2016, we expect just over $300 million of growth investments, consisting primarily of our P.H. Robinson peaker project, Carbon 360 and our commitment pursuant to the California EVgo settlement. During 2016, we are also focused on executing on opportunities to further expand capital available for allocation, including $250 million of non-recourse financing included as part of our reset announcement last year. As I indicated on our third quarter call, we are now fully prepared to launch this financing when market conditions are more favorable. In addition, we continue to expect the next utility-scale dropdown offer to NRG Yield to be our remaining stake in CVSR and plan to offer this yield in 2016. We are currently exploring this yield the best mean to efficiently finance this dropdown towards this yield and prudently managing its liquidity while continuing to replenish capital to NRG. I expect we’ll have more to share with you on the timing and the payment structure later this year. And finally, tuning to slide 18, in light of our significantly deleveraging progress and having provided an extended look at our 2016 capital allocation plan, I would like to update the information we provided last quarter regarding NRG capital structure and 2016 corporate credit metrics. Focusing on recourse debt at the NRG level, which prior to deleveraging, we had expected to be approximately $8.8 billion as of year-end 2016, on our third quarter call, we indicated our intention to reduce that debt by at least $500 million. Having completed half of this objective during the fourth quarter alone, we ended 2015 with just over $8.5 billion in recourse debt. Since then and through February, we completed an additional $171 million in debt reduction, as shown on the far right column of the slide. And as a result, based on the midpoint of our guidance and our implied 2016 corporate debt to corporate EBITDA ratio is already nearly in line with our four and a quarter target. However, our goal is to maintain adherence to that target in 2017 and beyond, taking into account the possibility of sustained low commodity prices. This objective drives our continued focus on further debt reduction over the course of 2016. As I indicated previously in reviewing 2016 capital allocation, we expect to further reduce corporate debt by at least another $600 million this year. Taking that additional deleveraging into account, we are on track to drive corporate debt below $8 billion by the end of the year, which would place our corporate debt to corporate EBITDA ratio at approximately four times. And finally, factoring on and the effective releasing the $325 million of additional capital, we have currently reserved for further reducing our 2018 maturity. That 2016 ratio would be reduced to 3.8 times. One way to consider that number is that it allows us to maintain adherence to our four and a quarter target ratio, even if corporate EBITDA were to be reduced by approximately $200 million, as a result of sustained low commodity prices. With that, I’ll turn it back to Mauricio. Mauricio Gutierrez Thank you, Kirk. And we have taken a lot of time this morning. So, let me just end with our priorities for 2016 on slide 20. We have the right portfolio and the right platform to succeed in this environment. And with the further strengthening of our balance sheet, we will be in a great position to seize opportunities during this challenging market and greatly benefit to when it turns around. I look forward to the next phase of NRG. Thank you. And operator, let’s open the lines now for Q&A. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question is from Greg Gordon with Evercore ISI. You may begin. Greg Gordon Thanks. Good morning, guys, a few questions. I’ll start with the detailed one. So, I just want to be clear on page 10, when you talk about the $150 million of EBITDA by year-end ‘17. Should we assume that that’s an aspiration to improve your run rate EBITDA by that amount? Mauricio Gutierrez Correct. Greg Gordon Or is that just accumulative impact on EBITDA of 150? Mauricio Gutierrez No. Good morning, Greg. And no, the objective here is to make it a recurring $150 million cost reduction that will impact EBITDA directly. Greg Gordon Great, thanks. And on page 17, when you talk about the CVSR and non-recourse fainting below the lines; if those are not included in your available capital, so should you be successful in achieving those that would be accretive? Kirk Andrews That’s correct. Those would be incremental to capital available for allocation, Greg. Greg Gordon Okay. And that would be my big picture question, Mauricio. So sort of the first thing that happened after you took over the CEO role was we saw that in terms of a capital allocation decision as we saw that you cleared a new power plant in the New England auction, which was a little bit disconcerting to investors who are looking for a capital allocation program that was more focused on shrinking the balance sheet. Obviously that’s the core message that you’re giving us today. So, can you characterize, if you were to disbursement [ph] free up this incremental dropdown money on non-recourse financing, how do you think about each incremental dollar for capital allocation going forward and how do you characterize what you’re doing in New England in the context of the message you are giving us today? Mauricio Gutierrez Thank you, Greg. And I understand that that was the first news. And the timing with the New England capacity auction is something that I don’t control. Let me just start by providing you kind of the general — my general take on capital allocation and then I’ll go into the specifics of Canal. As you can see from all the actions that we’re taking today, one of my key priorities, the first 90 days of being the CEO, was to focus on capital allocation, first being mindful and aware of the current commodity cycle that we are today and then second the dislocation that we have in our capital markets. It was important to me to afford us the maximum flexibility when deploying capital and to exert absolute financial discipline. I already talked about the actions that we’re taking, one on deleveraging and strengthening our balance sheet, and ensuring that we go through this cycle with the strong position to capitalize on opportunities, but importantly that we’re ready when the market turns around; two, the recalibration of the dividend; and then three, is the focus on cost savings and streamlining the cost structure on the organization. So, when I think about to Canal, it is not a capital allocation decision for 2016, it’s a capital allocation decision that we will make in 2018 and at that point, we will evaluate the current environment. And on that perspective then, we’ll make the determination what is the best use of our capital. But I want to make sure that we continue to generating low cost options at good returns, given the opportunity that we have to lock for seven years a very constructive capacity prices. And as I told you in the prepared remarks, in our focus in the Northeast and particularly in New England is focus on capacity revenues. And now is a dual fuel peaker that is needed in that market at good returns and it’s a capital allocation decision that we will make not today, where we are focusing all our attention on strengthening the balance sheet but in two years. Operator Thank you. Our next question is from Julien Dumoulin-Smith with UBS. You may begin. Julien Dumoulin-Smith Hi, good morning. Congratulations Mauricio and Kevin. Mauricio Gutierrez Thank you, Julien. Good morning. Julien Dumoulin-Smith So, perhaps first the follow-up on Greg’s last question on capital allocation. Can you elaborate on your latest thinking on the wholesale portfolio itself? Obviously it’s been under a good bit of strain, [ph] how do you think about reinvesting in your exiting asset portfolio and timing for rationalization, as you continue to see current — before it manifest itself? Mauricio Gutierrez Yes, Julien. So first of all, I — we are actually in the last year of what I consider a high water mark with respect to reinvesting in our portfolio. After acquiring GenOn and EME, we increased our portfolio significantly to close to 50,000 megawatts. We went through a process where we optimized that portfolio through fuel conversions and environmental retrofit. So, as you know, we have been executing that plan and this year is the last year of that. What I expect in the next couple of years is really to harvest on that investment. All the market dynamics that we were expecting when we made those investments are playing out, particularly around reliability and capacity for all three Northeast markets, whether it’s PJM for capacity performance New England and New York. We are moving forward that; we saw that during the polar vortex, we acted upon. And it’s playing out the way we thought it was going to play out. Now, with respect to other parts of the country, you know that I will expect absolute financial discipline when it comes to the profitability of our assets. If it’s not economically viable, we will shut them down, just like we have done in the past and just like we are doing today, in New York. If the market conditions don’t support our generation portfolio, we will take action on it. But we need to also take into consideration, not only the current state of the commodity cycle but also the prospective opportunities that we see. Julien Dumoulin-Smith And then coming back to what you were just talking about, the expansion was done on the EME. How do you think auction that’s on here? I mean, obviously it’s a dynamic situation but you paid down some debt there and cash on hand. What you think about next step and the timing of that? Mauricio Gutierrez Right. Look, I mean Julien, most of the — bulk of the GenOn portfolios and PJM, we value significantly our strategic in the Northeast in particular in the PJM area. But what I’ll tell you is in the spirit of streamlining our organization that applies to streamlining our capital structure, I would like to see that. But, we will only do it if it is add value and not having a negative impact on our credit profile. And that’s the option that we are going to continue to maintain going forward. Kirk, do you have any additional comments? Kirk Andrews Sure. I mean first of all, I agree with that obviously, we have taken an important step obviously towards deleveraging, as you acknowledged, Julien. But as I have indicated in my past remarks, at various conferences and one-on-ones, that order of magnitude is certainly helpful and necessary but sufficient in order to bring about rightsizing that balance sheet. I’ll remind folks, certainly we have got some near-term maturity with GenOn, we are focused on that as part and parcel of why we went at the delevering that we did. And as you saw in GenOn — in Mauricio’s remarks, rather we have continuation of our asset sale program, which as we have indicated previously going back to the reset as focused on the Northeast. So, we’d expect it’s likely, more likely that that would probably come out of the GenOn complex which would enhance liquidity. But as the year progresses, certainly I would believe 2016 as the key inflection point, given those loan maturities. And we are mindful of the options obviously, continuing to delever through the open market purchase, as we have done before. We are recognizing — we recognize that we have got some secured debt capacity there that provides us some alternative as well. So, what I would tell you is that as the year unfolds, I would expect you to hear more from us in terms of what we plan on executing there. And we are hopeful in terms of addressing and rightsizing the capital structure but — and by reiterating what Mauricio said, we are only going to do that being mindful of preserving the integrity of the NRG balance sheet and the process. Operator Thank you. Our next question is from Jonathan Arnold with Deutsche Bank. You may begin. Jonathan Arnold One quick one, Mauricio, I think when you talked about the dividend, you talked about a static dividend being inappropriate in the context of the reduction. But, could you just clarify what we should be expecting going forward from this lower level, is it just to stay here as a token to allow yield investors to own the stock, or do you look to grow it modestly over time? Mauricio Gutierrez Yes. No, Jonathan, I mean first of all, the actions that we are taking on the dividend are — I guess there are two main reasons. One, I think this level is consistent with the nature of power industry, capital intensive and cyclical. But certainly, when I look at the current dividend that we have and the underlying premises or principles that we used to implement it in 2012, a lot of them are not valid anymore. If you recall, when we announced the dividend back then, it was to highlight the value of contracted assets. Since then, we created NRG Yield; we already talk about — one of the objectives was the yield support. And in this current market environment and with the level of volatility that we’re seeing in the stocks, it really doesn’t accomplish that objective. So, when I put the two together, one the nature of our industry and two, some of the principles that we had when we initiated, it’s just inconsistent. I think what you should expect is this number is the right number today and it afford us the maximum flexibility for capital deployment and capital allocation. And that is my assessment right now on the dividend. Jonathan Arnold Okay, makes sense. And just another topic, you’ve obviously been streamlining management structures out of the cost reductions et cetera. Can you just maybe give us a little more insight into what some of the key changes have been; where you are in that process; are they largely behind now, just some of the operational changes that may have gone on? Mauricio Gutierrez Look, I mean, I think with respect to the streamlining the organization, we started the end of last year. We went through significant efforts to reduce the cost structure. And over the past three months, I have continued with that effort on rationalizing and focusing the organization into our core strengths and as I articulated already in my remarks, focusing on what I think is the core value of energy, which is putting together generation and retail and the plus points around it. So, I am very comfortable today with the management team that I have. This is an area that I am going to continue evaluating in the weeks to come. And I think you should expect from me additional announcements, as I go to even further in line of our businesses, particularly as we go through the outcome of the GreenCo process. Operator Thank you. Our next question is from Michael Lapides with Goldman Sachs. You may begin. Michael Lapides Hey, guys. Two questions, one capital structure related. Just curious, you’ve announced a lot of debt reduction at the NRG level for 2016. Curious what your thoughts are about the debt reduction targets at the GenOn level in 2016. The only reason I ask that is you highlight the NRG debt maturity coming in 2018, but obviously GenOn has some too, and that some of the growth for NRG, meaning the Canal expansion that just cleared or even the Mandalay repowering that has a contract, those are actually assets owned within the GenOn box. So just curious about kind of the balance between debt reduction at GenOn and some of those growth projects of assets that are at the GenOn box that are actually part of NRG, Inc.’ growth trajectory? Mauricio Gutierrez Good morning, Michael. And let me just handle it to Kirk to answer the first part of the GenOn question, and I’ll take the next. Kirk Andrews Sure. Thanks Mauricio. Michael, first of all on the Cana, which as I said in addressing Julien’s question, we’ve obviously begun to make progress in terms of delevering that’s been our confidence in doing that, we’re mindful of balancing, maintaining adequate liquidity at GenOn with the need to obviously attack the capital structure at the same time, which is why the asset sale process obviously kick started that. We got a head start on it at the end of the year having announced a couple of asset sales and we’re moving forward obviously to close the second of those two and continuing to focus on completing the remaining 500 or the remainder of the 500 that we announced on the reset, which as I indicated Julien, given the fact that we’re very clear about the fact that we expect those still be in the Northeast, the expectation, the knock-on expectation certainly is that that would continue to be at the GenOn level. So, we use the proceeds of those asset sales to continue to deploy towards deleveraging. And as we move through year, we’re mindful of that 2017 maturity, which is why supplemented by those asset sales, as I indicated also to Julien’s question, we’re focused on the best means apprehensively to use the options that are disposable, not only asset sales, but obviously we’ve got some secured debt capacity there that we’re remindful of. So, all I can tell you as we progress through the year, we’re going to focus on those alternatives and the best means possible, as I said though, always being mindful of preserving the integrity of the balance sheet of NRG given the non-recourse nature of the GenOn subsidiary, which will continue to be the case. Michael Lapides Got it. Mauricio Gutierrez Michael, with respect to your second part of the question, what I will say is that we’re going to continue developing options to grow the portfolio. When we have long-term contracts, we’re going to do it in close partnership with NRG Yield to continue replenishing capital; when it doesn’t have the profile to be able to be dropdown, that’s not a capital decision — capital allocation decision that we need to make today. And we’re going to evaluate it when we have to actually deploy that capital. But I think it is important to continue to generate these projects in the context of growing our portfolio at good economics. Michael Lapides Got it. And one follow on Texas related, just curious our view is that coal plants in Texas are struggling to have cash break even right now. And even more importantly nuclear plants are generating limited cash flow, maybe positive but limited. At what point do you start considering coal retirement at ERCOT? Mauricio Gutierrez That’s a great question, Michael. And so, let me give you my perspective on it. The current market in Taxes has been very disappointed, despite what I consider is still pretty strong fundamentals, strong demand and a pricing that doesn’t incentivize new build economics, even though we have seen something, what I can say that out of not economical engine. When I look at our portfolio, particularly Parish and Limestone for and STP, they are very large in scale; they are environmentally controlled; and I would say that they are probably one of the most cost advantage based load plants or coal and nuclear plants in the state. We have identified what we believe is the least competitive assets in the supply stack when it comes to coal. And we believe that if the market continues to be at these levels, it will not be possible to sustain the operation of some of these assets. So that’s why I think there is going to be a supply rationalization in the immediate term and we should see a recalibration of the market. I feel comfortable right now with the three of our base load plants. But I think we have a pretty good track record in terms of if and when these plants are not economic and the prospects of these plants are not positive, we will act upon. And we have done that in other regions and there is no reason why we’d do it in Texas. But right now still not the time and I think the supply stack will react before we get to that point. Operator Thank you. Our next question is from Steve Fleishman with Wolfe Research. You may begin. Steve Fleishman The $513 million of available capital at year-end that you are using in 2016, is that above kind of your normal cash levels? And if so, what cash do you have kind of available beyond that? Mauricio Gutierrez It is — Steve — and I’ll let Kirk give you specific details, but this is above the cash reserve that we have for both NRG and GenOn. Kirk Andrews Sure. And this was — good morning, Steve. This is one of the reasons why — I think in a couple of points in my prepared remarks I made specific reference to contextualize capital available for allocation, which we consider to be a cash surplus versus cash on the balance sheet. And so, when we calculate that, we start with the minimum cash balance that we reserve at the NRG level. So, we set aside $700 million for liquidity. Now that — part of that liquidity is what we need for cash collateral proceeds for example. So, as we post cash collateral, we consider that a utilization of the minimum cash reserve. So, whatever we deduct at any given time, think it about as $700 million in minimum cash minus the amount of cash collateral we posted. Comprehensively, and this is outside of capital available for allocation, we focus on liquidity separately. So, liquidity is that $700 million of minimum cash at the NRG level plus the $2.5 billion corporate credit facility. That’s separate in a part from what we consider excess capital, which is with that $513 million that you refer to represents. Does that help? Steve Fleishman Yes, I think so. One other question, just on NRG Yield. Mauricio, as you thought about NRG yield, what is your view of kind of a long term strategy around it? And if it stays at a relatively depressed stock price, what are your options? Mauricio Gutierrez Yes, Steve. Well, I mean I’ll answer it from the NRG standpoint, and we are going to have the NRG Yield call in about 30 minutes. So, let me just say that the relationship between NRG and NRG Yield is there is a lot of synergies and it’s a symbiotic relationship. It’s of great importance for NRG. This is a way for us to access low cost of capital to replenish our capital, particularly on the development front in this type of commodity cycle. We need to have a good development platform for NRG Yield to have clear line of sight in terms of the growth and the potential dropdown that we have. That will benefit energy yield and a healthy NRG Yield is good for NRG in terms of our ability to stay competitive in developing new sites. So, that’s kind of my take on it. And I want to be very careful that I give you the answer from kind of the NRG perspective. And we can go into more detail when we go through the NRG Yield call. Operator Thank you. We have time for one more caller. Our last question is from Neel Mitra with Tudor, Pickering. You may begin. Neel Mitra Hi, good morning. I just had a follow-up question on the ERCOT coal power plant. Are there any opportunities to renegotiate the transport agreements or lower your PRB coal costs, so that those plants are more cost advantage at this point? Mauricio Gutierrez Good morning, Neel. And I will discipline myself to pass the mic to Chris Moser, who is the Head of Commercial Operations. Although under my watch, COO, I renegotiated a number of rail contracts. They have been good partners in this downturn of — this commodity cycle downturn. But Chris, what are your thoughts on that? Chris Moser No, I think that’s fair. I think we continue to work with our coal supply partners, both the mines — the coal miners and the railroad company as well to make sure that we add to the plants competitiveness, to the extent that we can. They, as Mauricio just alluded to, have been good partners with us so far and we continue to look forward to working them with them in the future. Mauricio Gutierrez Thank you. And I recognize that you may have a lot more questions. We will get to them, and Kevin and the IR team will be available for any follow-ups. But unfortunately, we have a hard stop; we have to get NRG Yield call ongoing. So, thank you. And I look forward to continue this conversation. Thank you, operator. Operator Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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