DYN - NASDAQ

Hello and welcome to the Dynegy Incorporated Second Quarter 2017 Financial Results Teleconference. Please note that all lines will be in a listen-only mode, until the question-and-answer portion of today’s call. [Operator Instructions] I'd now like to turn the conference over to Mr. Rodney McMahan, Vice President, Investor Relations. Sir, you may begin.

Thank you, Ash. Good morning, everyone and welcome to Dynegy's investor conference call and webcast covering the Company's second quarter 2017 results. As is our practice, before we begin this morning I'd like to remind you that our call will include statements reflecting assumptions, expectations, projections, intentions or beliefs about future events and views of market dynamics. These and other statements not relating strictly to historical or current facts are intended as forward-looking statements. Actual results, though, may vary materially from those expressed or implied in any forward-looking statements. For a description of the factors that may cause such a variance, I'd direct you to the forward-looking statements legend contained in last night's news release and in our SEC filings which are available free of charge through our website at dynegy.com. With that, I will now turn it over to our President and CEO, Bob Flexon.

Good morning and thank you for joining us today. With me today are Clint Freeland, our Chief Financial Officer; Hank Jones, our Chief Commercial Officer; Catherine James, our General Counsel; Marty Daley, our Chief Operating Officer; Carolyn Burke, our Head of Strategy; Dean Ellis, our Head of Regulatory Affairs We posted our earnings release, presentation and management's prepared remarks on our website last night. Following a few brief opening remarks, we will devote most of our schedule time to your questions. I want to begin by highlighting our measurably improved safety performance. Our total recordable incident rate was top decile for the second quarter in a row. This represents a 40% reduction in recordable injuries since 2015 when we completed our Duke and EquiPower transactions. We will continue to work to drive further downward trend in injuries. We are pleased to report that our adjusted EBITDA for the second quarter of 2017 increased by $53 million to $240 million as higher capacity revenues of the IPH segment and $60 million contribution from the assets acquired from ENGIE in February of this year will partially offset by lower energy margins. Also impacting our results is a one time benefit of $25 million from a continued cash receipt received in the second quarter of this year. We are reaffirming our 2017 full-year adjusted EBITDA and adjusted free cash flow guidance ranges despite a few changing circumstances since we established our guidance originally. Our hedging program and active cost management has largely offset the energy margin declines from commodity price weakness and a loss of approximately $55 million in EBITDA associated with assets that were sold during the year and a delayed ENGIE closing. Our focus on reducing leverage remains a top priority. Our disciplined asset sales process to date when finalized would generate nearly $800 million in cash. During the quarter, we complete the sale of Troy and Armstrong and reached agreements to the sell the Dighton, Milford Mass and Lee Energy facilities. We plan to utilize these proceeds to pay down existing debt in particular our November 2019 debt maturity. In addition to recent asset sales, we are preparing to launch the next generation of our PRIDE program. We are proud of our position as the lowest cost operator in the industry, but we know there is always room for further improvement. Over the past several years we've integrated multiple businesses and rationalized the combined cost structures as evidenced by achieving $370 million in aggregate synergies. We are now focused on elevating the financial and operator performance of the combined fleet and our work-to-date indicates that are significant opportunities to do so. In scope is approximately $2 billion of fixed and variable operating cost and G&A expenditures and approximately $500 million in working capital and capital. Preliminary work-to-date suggests that the vast majority of the opportunity will be around the generation fleet. We are using an outside resource to help bolster our internal efforts on this front and expect to update the investor community later in the year. Finally, Dynegy and other independent power producers continue to support competitive power markets. Although recent federal court rulings on the

Thank you. We will now begin the question-and-answer session of today’s conference. [Operator Instructions] The first question comes from Greg Gordon of Evercore. Greg, your line is now open.

Thanks, good morning.

Good morning, Greg.

I've got few questions, the first is – well first is congratulations on a great quarter. But when I look at it there is $25 million of cash flow that came in from what looks like a one-time gain associated with cash flow related to the Ameren acquisition from a few years ago. Now even if I reduce the number by that amount you still had to be in the quarter, but can you can you talk about what that - where that money came from and the sort of how you view the quality of the quarter as a function of that?

Yes, Greg, this is Clint. The $25 million was cash that when IPH was owned by Ameren they’ve posted out that cash to a third-party. And when we bought the IPH entity that was – first of all that was cash and obviously it never came to us it was still residing with the counterparty and there was uncertainty as to whether or not to cash whatever comes back to us. There were a lot of scenarios under which the counterparty would end up keeping that cash as we roll through purchase accounting because of its contingent nature and uncertainty as to whether or not we would ever receive that it was an included and purchase accounting. So I guess over the last quarter that cash is now come back to us and as a result it is not a balance sheet item has a role for your income statement through other income. And so the cash has now been received it is in the Dynegy Treasury has part of our unrestricted cash balances and we're free to use it anyway that we want to sell. Because of that is another income item and as we calculate our EBITDA and just is included in that number.

Okay. And so that wasn't cash flow that you had budgeted receiving at the beginning of the year when you gave your cash flow guidance?

That’s right.

So its accretive cash is cash that's great. The second question I have is on Page 11 on the on the hedge disclosures. It's not clear to me exactly what happened as you move from the first quarter to the second quarter on the 2017 hedged profile because the profile went from $77.3 million megawatt hours hedge to $1.38 at that then balance of the year $53.7 now hedged in a $1.2. It just seems odd that the numbers change that way when you were in a shoulder period. So does it have to do with a either monetize hedges that were you know expected to be consumed in forward periods or did your dispatch model change because spark spreads or dark spreads improves and therefore you have higher expected generation.

Greg, this is absolutely the latter I mean there isn't anything that we have done to buyback hedges or tried to manage any type of earnings by doing anything such that it was all for the right reason where we've got with the movement of spark spreads we've got higher expected generation than what we previously had.

Great. My last question is – on this next phase of pride when you brought in the third-party consultant side. Apologize for being slightly ADD and I was distracted when you were going through those numbers on the script. Can you talk again about the quantity of dollars in terms of operating costs that you're looking at? And again please forgive me for being skeptical. But as you pointed out, you're already a very lean company. So what's the quantity of dollars you're looking at and if you were sort of wildly successful, what sort of percentage improvement do you think you might be able to achieve?

Okay, but this time you have to pay attention, Greg.

Okay, no problem.

The total quantum is $2.6 billion, but if I split that between what’s in the income statement and what’s on the balance sheet. It's – roughly call it $2 billion of operating expenses. So that would be around the generation fleet. That would be around procurement. That would be around G&A. In those three buckets if you will total about $2 billion. That would be – fixed in variable cost. And then on the balance sheet, we've got around $250 million of working capital under review and in terms of kind of recurring CapEx about $300 million or so year that's under review as well. And what we found in our work to-date on it, certainly when we try to validate say on the G&A side, first of all I would say that the third-party that's working with us, which is a well known – well respected international firm. They basically benchmark all of our G&A cost to top decile and they certainly not going to spend any time on it. But I'll continue to spend time on that because I think we start some more opportunities, not significant. But the vast majority, the opportunity is going to be around the generation fleet. Things around how we actually operate the fleet. So it deals with heat rates. It deals with ramp rates. It deals with how – where you can take the minimum loads to, and then certainly utilizing more of our scale on the procurement side. I think that's always been an area that we've started off slow at and there's more work to do there. But that's where the vast majority of the opportunities, and we'll put a final point on the number later this year. But I expect it a fairly significant goal for us and pursuing these things I guess the first time that again we'll share numbers on that. Right now I would anticipate it be in our next quarterly call that we have.

Okay. I do have one more question.

Okay.

Pardon me for adding it. You had said in prior conversations with Investors, but that you were done with this first round of assets sales that you would start a process to pursue sale of – some of your higher value combined cycles in either PJM or New York, New England. Has that in fact started and when do you get to a decision point on whether you're going to execute on those sales?

That’s a great question, Greg. And certainly what we've found through the sales process right now is that the market for assets is we can have been in terms of the players that are coming in and bidding for the assets. So we will be absolutely opportunistic on this. We have all the information, data room and the like together. So we're going to see who shows up for the auction or for the sales process and if it's not a strong group of buyers, we're not to spend a lot of time on it. It's got to be the leveraging for us to do it everything to-date has been around making sure we've got the 2019 is well on hand, which we do meeting the requirements for the FERC divestiture, which are now – which is now complete, and then anything beyond that has to be deleveraging to actually do it. And that's one of the things that gave me the incentive to start working with a third-party and say for us is our leverage goals, what's the best way we're going to do it and we've always said it's going to be through multiple avenues to get there. And when you think about every $25 million in cost savings is the 0.1 reduction leverage. And again as by using, we can turn out another $100 million of improvement. There's 0.4 for right there and I would say that the preliminary analysis of our cost savings that we just spoke about, I would expect to even exceed that that number. So we're still driving to our leverage goal and this would be the latest cost improvement programs going to be a big contributor that and we're going to go through the asset sale process and if it's deleveraging, we’ll move forward. If it's not, we won't and that's one of the reasons I want to have multiple paths here because the case one path doesn't turn out as well as you hoped then you have something else and you don't have to sub optimize our portfolio. So we'll see in the next month or two whether or not it’s a strong buying market or not.

Okay. Thank you very much. Take care.

Thanks Greg.

Thank you. Our next question comes from Abe Azar of Deutsche Bank. Abe go ahead please.

Good morning and nice quarter guys.

Thanks Abe.

Is there are any interest in acquiring a large retail book in PJM or do you prefer to grow that business organically?

Well we're certainly going to grow it organically, so that's underway and we'll continue to do that. And in terms of actually acquiring anything I mean that we can only be in the context where it doesn't do anything to impede our progress to our leverage target. So as we've done for years, we make sure we're aware of the different opportunities around us whether that's on the wholesale or the retail side and just at least understand I mean as we find something that we think makes sense. We will evaluate it, but it's got to be. One it can't impede our progress sort of leverage target and two it has to be accretive to our shareholders. And if it doesn't meet those two objectives then we'll just continue to work organically. Organically, we've got the infrastructure. We're going in the new communities. Pennsylvania, Massachusetts are new communities for us and we'll continue to penetrate it using our existing model. So we don't have to go out and do anything, but if there's something, again opportunistically that clears those first two hurdles we would look at it.

Great. Can you update us on any plans to further rationalize the Illinois or California assets?

In California, we continue to get periodically inbound requests for it. We don't necessarily have any active processes going on for California, so we continue to run the most landing asset, but if the right buyer came along, we would sell. Illinois, we continue to evaluate the portfolio and if there's any units that in fact can't be free cash flow positive they would be a candidate for shutdown. There's probably an asset or two that's going to be challenged and right now we're working various past to improve the profitability not only through the cost improvement program that I just described, but also with some of our suppliers like that they need to – if they want to see these plants continuing to run, they need to participate in the economic improvement as well.

Got it. On the cost improvement program. Is that the preliminary analysis exceeding $100 million, is that an addition to the $50 million of PRIDE accretion that you had scheduled for next year, or is that…?

Well we're in the process of kind of bringing in two approaches together. I would think that the vast majority of it would be incremental.

Okay. And then can you provide a little more color on the 2016 supplier settlement? Is that something that could have affected in future periods?

Abe, this is Clint. So the 2016 supplier settlement was out in California. It was a one-time rebate to a number of different gas users out in that market, so I would view that as a one-time event last year.

Okay. Understood. Thank you.

Thank you. Our next question comes from Ali Agha of SunTrust. Ali, go ahead please.

Thank you. Good morning.

Good morning, Ali.

Robert, I hear you on the new phase of PRIDE and the cost cutting you're doing, but if you look around your neighborhood two of your public peers have taken very drastic measures and announced program that are been very positively received by the market. I'm wondering if there are any lessons learned about Dynegy from how the public markets have reacted to those two very aggressive programs.

So the two aggressive programs, being NRG and the second being Calpine. Well I mean NRG obviously they're having a retrenchment of their business model and going back obviously and being much more tax eccentric and bringing their cost structure really in line – much more aligned with where we say Dynegy and Calpine are on costs. So they've got apparently – I think they've got a lot of work to do to get there. Obviously, it’s been well received by the market. It's been well thought out. Calpine in terms of – again I don't know anything specifically about Calpine other than what I read that they're entertaining a go private scenario. They have a different situation from us in that. They can go private and not trigger a change of control the way they are in the standard in their bonds where that would not be the case for us. If we had a combination would say with a strategic say like a Calpine or somebody else we can manage it through where it doesn't trigger a change of control on our debt. However, if it's just kind of a go private that we could not structure where it would not trigger that change of control. So it’s a little different situation for us versus Calpine their debt as the double trigger to it.

I see okay. And then second question you talked about potentially seeing some softness and the market for asset sales. And I'm just wondering if you could walk us through a little bit more on Dighton and Milford expedience as you call starting to expectations was 150 to 200 maybe at the high end of that we ended up in 119. So just to give us a little more flavor of how that all played out?

Sure, I think when we started the process for that we had a very strong buying community. We had strategics in the process and whole host of different private equity firms. As we further in the process you kind of left with some of the smaller private equity firms that they specialize more in some of these smaller a single asset type acquisitions. In certain seems like the larger private equity in the strategics became tied up in more complex and higher transactions that require far more capital. So we're dealing with a kind of a different buying universe and I don't know if we go out with - we coming out with the combine cycle unit which university we get the ones that kind of that the smaller private equity that really is tried to be super opportunistic or is the broader community that makes it a much more competitive process with different types of buyers whether it's strategic foreign pension or smaller private equity and what we were left with Dighton and Milford was the smaller private equity firms that came in. So that's where we saw the price coming in certainly being that we had to divest and we had to have a purchase and sale agreement by July. It's kind of where we end up the price slid back on a sale we were little disappointed in that price, but by selling Lee as well opportunistically the total proceeds coming in from the after sales this year of $800 million it's certainly a great influx capital which again goes pretty much rate to our 2019 maturity.

On the deal averaging target I know you guys have been targeting you know this four times net debt to EBITDA. It appears that the market is now pushing more aggressively and again it appear at least that the new targets folks trying out there are more like three times. I'm wondering if that such enviable for you or would you consider that again given the favorable market reaction to even deleveraging?

Well, I mean we're certainly just going to keep trying to drive the leverage down and we're going to work every lever we possibly can to do that and take it down as far as we can and as we make our progress will always evaluate where we are I think the one thing that’s unfortunate in our portfolios that the capacity market gives us roughly 40% of our gross margin. So essentially have some level of hedging going several years out automatically just from the capacity auctions and then the energy margin we can also manage to hedges over time. So we can certainly support the leverage where it is now but as we certainly drive it down having that characteristics of the portfolio reduces the risk profile of the company. But that's I will continue just to you know our goal is to keep just driving it down and you know first stop along the way is going to be 4.5 target.

I see. Last question Bob I believe correctly if I'm wrong, but I believe the lockup period of ECP expires on August 7 any conversations you had with them or what their thinking is on there on the shipyard?

Not it all. I mean the Tyler or ECP is still obviously a holder and Tyler readers still on our board and no conversations all with their future plans.

I see. Thank you.

Thank you.

Thank you. Our next question comes from Shahriar Pourreza of Guggenheim Partners. Shahriar, go ahead please.

Hey, Bob.

Hi, Shahriar.

So let me just most of my questions were answered. Just let me – just touch a little bit on your ERCOT and your hedge profile. I'm curious what you're seeing if you go further out into 2018? What the liquidity looks like because I mean obviously some of your competitors have clearly highlighted that it's a very illiquid markets and I'm curious on how you think about hedging that market. One, given the illiquidity and second of all, how you're thinking about the coal retirements right that that could come about? So how aggressively you’re going to look to hedge your ERCOT?

Shahriar, this is Hank Jones. As you can see on Page 11, our hedge percentages in ERCOT were increased 42% on March 31 to 63% as of June 30 for 2018 with the – market has priced in some probability of coal retirements that's our assessment and as prices have increased, we've initiated more hedges in 2018. So I think the market will watch closely as we come to the end of the summer season to see if any decisions are made on the large coal plants in Texas and will respond accordingly.

Got it. Just on your internal forecasts, are you still around five or six gigs that are still on economical at this kind of an environment?

Yes.

Okay, good. And then just I know – Bob, I know this is probably going to be a long winded answer, but the

Yes Shahriar, a great point and you're right, I mean one path is the federal core process and I think that path has a long drawn out timeline of appeals and cases and things of that nature. We will continue to go down that path. I think the more effective paths are through FERC and through the ISOs and we have a quorum now at FERC. We have three people now at FERC that I think are all pro markets certainly at the FERC technical conference that we had a month or two ago. The problem was clearly discussed with all parties there. And knowing the background of Cheryl, and Rob Powelson and Neil Chatterjee, I mean these are pro market people. And I think that I'm optimistic that they will take the appropriate action that FERC needs to take to defend the competitive market, the model in which they created. And so I think I've got a level of optimism around there that recognizing that I think FERC’s view from what I have been told from my discussions with them is that they know that there are certain state policy that they need to work side by side in accommodate, but we've got to keep the integrity of the competitive market in place. And I'm optimistic that they're going to take steps to support that and then I think we've already seen positive movement at PJM and ISO-New England on redesigning the capacity auctions, which will have a significant impact on mitigating the subsidies and what I weigh is – support in very much PJM market monitor's been a strong advocate for is just create a MOPR or Minimum Offer Price Rule for existing generation that if you're being subsidized into the market, you need to bid in at avoided cost. That's a really, really quick fix and we have standing complaints with FERC to decide on those issues and now that there's a quorum in place. We hope that's taken up.

Got it, thanks. That was it and congrats on the solid result this morning.

Thank you.

Thank you. Our next question comes from Neel Mitra of Tudor Pickering. Neel, your line is now open.

Hi, good morning.

Good morning, Neel.

I just wanted to follow-up on your recourse with the nuclear subsidies and specifically with the FERC. What exactly can FERC do to kind of neutralize the state subsidy programs? Can they order the ISOs to implement Mopar or what other avenues of action can they take – let's say if you aren't successful in appealing the decisions in New York and Illinois?

I’m going to let – I’ll take the last shot at it. I’m going to let our Head of Regulatory, Dean Ellis give you his take on.

Neel, good morning. This is Dean. I think there are several things that FERC could do. Obviously, FERC could direct the ISOs to implement Mopar or similar market design changes to accommodate the state subsidy programs. FERC also we would like to see rule on the existing Mopar complains that are out there. The complains that have been launched in the PJM market and the New York market. So that's a quick action that FERC could take with regard to the complaints. I also believe that there will be a lot of discussions around the proposed market design changes and we would like to see FERC act very quickly once the ISOs do file those with FERC.

Okay, great.

Neel, just one other thing I'd add to it. And this is a little bit off the topic, but I think the other energy price reforms that PJM is pursuing is very helpful to the competitive markets in general. And this is something where I think all of the independent power producers in the PJM marketplace agree with and that’s the energy price formation rules which are a couple decades old, need to be updated. And one of the proposals that PJM has out there is for units that are being called on to support reliability, but currently do not set the price, only the flexible units in the marketplace are setting price and they're looking potentially to change that that if a unit is needed to be brought on for reliability for good stability that in fact then can set the price. And we think that will have a meaningful impact on energy prices as we go forward. And it also should likely eliminate a lot of negative pricing that shows up periodically. So that's a very positive reform that PJM is looking at for 2018.

Got it. And my second question is I’m little confused on how you're approaching asset sales with the higher value CCGTs, you said the market soft and if you don't find a solid set of buyers or interested buyers and you won't go through the process. So could you just describe how that works or do you kind of reach out informally to stakeholders or and then conducting auction process? How do you actually gauge the interest if there's solid buyers actually going through the auction process?

Sure. And I'll try to be as sync to this as I can. So we'll put together an offering memorandum. It will go out to a universe that would be prospective buyers. We will get indications of interest. And based upon the nature of the buyers that show up and the quality of their indicative offers will decide whether or not we move forward or not.

Okay, great. And last question, as far as spread compression in PJM. Is that a function of coal setting the price of power and gas increasing so the spread is kind of narrowing?

Yes.

And what point since we have so much gas capacity coming in PJM do you think that coal will no longer set the price of power for such a large portion of the time that the spreads once compressed if gas prices up.

I think there's a couple things to watch, one is potential retirements of high heat rate units and/or the coal fired facilities, the other is to watch the individual gas supply basins, how the base this market responds to various pipeline expansions and the timing of those expansions and also to keep an eye on the gas production particularly in the Marcellus and Utica to see how that relates to the pipeline expansions.

Okay, great. Thank you very much.

Thank you.

Thank you. Our next question comes from Praful Mehta of Citigroup. Praful, your line is now open.

Thanks so much. Hi guys.

Hi Praful.

So I also want to touch on the hot topic of M&A. I couldn't finish the call without it. So just broadly on M&A, you’ve talked about before the opportunity for synergies that on corporate M&A being quite meaningful. Is there how should we think about timing or process or any price targets you have in mind in terms of what you think would be fair any kind of guidance or structure on how we should think about such a corporate transaction would be helpful.

And I'm not sure I follow on that - I mean it’s we're we can only focus on our business at hand and pursue our cost improvements that we're trying to do and there's anything along the line that comes down that looks like it's been going shareholder creative we would absolutely evaluate something like that. I think the latest round of cost of improvement things that we're doing I think the interesting part of that is, is the opportunities that we're seeing I think would be additive to any the synergies if we ever gotten to a situation where we're talking about some type of strategic combination. So I think this is one of those classic things where well let's pursue these improvements and drive up the value of the existing company and if there actually is a strategic opportunity sometime down the road I think these are just going to be additive to the value of the latest things that we've been doing. What’s different problem but this particular program again we're seeing the opportunity in our generation fleet and largely around a lot of the operating practices the communication between the commercial desk in the plant control room operators and also then looking at the ability of the units to ramp up, ramp down and to what levels. I think a lot of the opportunities going to be around those types of practices.

Gotcha. Fair enough. And then you said your benchmark always is – as long as it’s shareholder accretive. So I just wanted to check are there any particular criteria trying to hit or is it primarily price that needs to be there or you also going to be evaluate the ability to extract synergies and other criteria? So if you could just broadly what would be the criteria you would evaluate tell you that this is going to be in fact shareholder accretive?

Well, we would look any type of – if we are able to look again at a corporate level type transaction, I think the different things that we look at the level or on a risk adjusted basis we would look at balance sheet metrics, we would look at the strength of the company going forward the diversification, we would look at the level of synergies and we would look and try to understand our standalone value that we believe the underlying equity as worth of versus what does the combined entities combined equity value appear to be. And again you’d also have to look at that through a lens of a risk adjusted basis, either Dynegy, and then you look at the beta of Dynegy is pretty wide I mean we swing pretty had with the market and movements with the market because of the Tyler capital base I think if you're part of a bigger enterprise you reduce that volatility and that would be something that would also be I think considered in any type of evaluation.

Gotcha. That's very helpful Bob many thanks. Secondly just in terms of market reform you talked about FERC and PJM and Mopar. I thing all of that kind of fits some opportunity I guess in terms of how market reform could work? How do you see timing of this playing out if this 2018 event, 2019 event when do you think there is a realistic timeline of how this all gets implemented I guess?

I think because the visibility around this issue was really been raised I mean it's one thing to throw out a lot of subsidies to wind and solar where you don't have the density of the generation capacity, but what you start throwing out billions of dollars to just a few units in the marketplace that have a lot of energy density in a unit. It's a big deal. And FERC complements again to show with FERC I mean they really understand the issue. They understand what's going on. And so do the ISOs and PJM and New England in particular. So I think there's a lot of support and determination around trying to make sure that the market and price formation in the market is happening the right way. So I think with the level of visibility around all of this I think we'll see action in 2018. I think we'll see some action further action we've seen some things develop already in 2017 with proposals coming from the ISOs and the technical conference at FERC. So I think in 2018, we're going to see actual further action and hopefully implementation. Again things like putting in an existing unit MOPR that can happen fairly quickly and of course the thing that’s also hanging out there is the review from the department of energy. We're not sure when that comes out, I imagine it's close to coming out and also don't understand what's going to be added at this point in time, but that also may have some level of impact. But I think the bottom line is FERC knows there's a problem. The ISO knows there's a problem and there's a lot of energy around trying to fix the problem.

Thanks so much very guys.

Thank you.

Thank you. Our next question comes from Michael Lapides of Goldman Sachs. Michael, your line is now open.

Hey, guys. Congrats on a good quarter. I want to talk about – ask question or talk about the retail business because I don't know if this gets enough attention. Can you talk about how residential retail margins are in some of the regions where you participate states in PJM in Illinois, relative to maybe some of the regions where I don't think you have a big residential retail presence, but you do have generation markets like Texas?

Michael, I’ll let Sheree Petrone, VP of Retail to cover that.

So the markets – the state such as it is in PJM do result in lower margins and you see in taxes, when you compare it to the incumbent that are located in taxes. So there is a large spread between margins with – associated with the incumbent former utility loads and the new competitors of the smaller competitors in market and taxes. So I would compare a new entrance in Texas that the equivalent to what we see in the PJM markets, which are lower.

Got it, I would not imply and is this part of your strategy that trying to gain market share in Texas might be attractive or our customer acquisition costs really high?

I would say that there's a lot of competition in Texas, but we do a lot of business through broker channels. Our sales our sales channels are low cost that's what we pride ourselves on when we operate in the other states. So I would say that we have good relationships with people who are active in taxes and it would be a similar situation where we could be successful as a new entrant.

Got it. So when you're targeting the residential retail market, do you have kind of like your own mass marketing strategy? I mean you see the former incumbents got in Texas, on TV and print media, online, et cetera. So they're going direct-to-consumer, I'm just trying to get my arms around how your retail business in PJM works and compare it to some of the bigger ones, the former incumbents and Texas? Are using a similar strategy in PJM or do you have any intent to use one like that in either PJM and/or Texas?

So we have a very small group in PJM that operates in the direct mass market realm, largely it's a digital strategy, which is the low cost option, but fairly successful if you have a good name and reputation and brand which. We feel that we do and we choose to – on the other hand, we do a lot of residential business through large municipal aggregation contracts and we have good relationships with communities. That's why we're serving over 550 communities across PJM and now into ISO-New England. So if we did decide to expand our efforts in the mass market area, it will be very – it will be consider – a large consideration around how we approach it and how much we spend.

Got it. Thank you, guys. So one other question Bob or Hank, or even Clint, environmental CapEx and 2019 and 2020, we need to get clarity on whether you'll need to actually spend that higher environmental CapEx level in those out years?

Yes, Michael. I think that’s actually evolving. At this point, I think we talked about it on our last call. We see at least a two-year delay in that and so our estimates have been pushed out by a couple of years, but we continue to evaluate that. It's possible that it could be pushed out further, but at this point our plans and forecasting really just call for the two-year delay.

Got it. Thank you, guys. Much appreciated.

Thanks Michael.

Thank you. Our next question comes from Steve Fleishman of Wolfe Research. Steve, go ahead please.

Good morning, Bob.

Good morning, Steve.

Just a couple quick questions. ECP did mention in this Calpine process, so in the event that they do get involved with Calpine. Do they have to do anything with their stake in the company or the board seat?

Hi. This is Catherine James. It would really depend on the structure involvement between ECP and Calpine. It looks like there would be issues that they would need to evaluate both under FERC and DOJ regulations with respect to market power and interlocking board directorate. So it's really depends on the structure, but there certainly are structural fixes that could be implemented working with FERC and DOJ.

Okay. Is it more the board seat as opposed to investment?

I think it’s both on the board seat and the other would be in interlocking directorate issue that they had a controlling stake in Calpine under the Clayton Act, but then also they would need to look at market power issues and I think it would be obviously problematic if Calpine and Dynegy were considered affiliates for market power rules. So they would need to find a structure around that working with FERC and DOJ.

Steve, all can be structured around and there's rather simple fixes around – you’d say the amount of shares they actually were willing to vote in any type of corporate action. So that's one of things, so if something actually were to happen there again, I have absolutely no information whatsoever other than what I read. If something were to happen then we would certainly work with ECP to make sure we accommodate and don't create any certainly problems of the nature that Catherine highlighted with interlocking directorates and the like.

Okay. And then just on the new cost initiatives. I know you don't want to give numbers at this moment, but just in terms of thinking about timing of when they'd likely be implemented, would they be in for 2018 kind of full-year, how should we think about timing?

Well, I think we'll start seeing some benefits towards the end of this year and there was just kind of ramp up over the course of 2018. And I think that – but I would hope by the time we're at the end of 2018 that we've got the majority in place. Again there's still work to prove it all out. Again, so far we've been at this for about five weeks with the analysis. But I would hope that by the end of 2018 it pretty much everything is in place and we should see through the course of 2018 it ramping up. We probably think that we've been identifying. These are things that – it's not like many years to get there. I mean a lot of that can be done within I think 2018.

Okay. And then just quickly, I know it's still pretty full summer, but just how are you feeling within your range for this year?

Well, I mean affirming the guidance, so we are comfortable that we're in the range and we had the disclosure in the last quarter that we were at [253] or something like that if I remember correctly. And I would say not much has really changed. Since we've last provided the guidance, we fine tuned our numbers, so we're still hanging around in that zip code.

Great. Thanks.

Thanks Steve.

Thank you. Our next question comes from Terran Miller of Cantor Fitzgerald. Terran, your line is now open.

Good morning, Bob.

Good morning.

Given what you’ve just talked about in terms of the process on the next asset sale or potential asset sale. Is that something that you would disclose between now if there is progress between now and the next earnings call? Or do you think we're going to just have to wait, since this could be a fairly quick read that you're going in a different direction then proceeding?

Well, I think it's a wait. We'll probably not update anything until the next quarter call.

Okay, thank you.

Thanks.

Next question comes from Mitchell Moss of Lord, Abbett. Mitchell, your line is now open.

Hey, guys. I just wanted to find out if you’re seeing any impacts on forward power prices or gas prices and Permian gas supply coming in. Is that are you seeing any of that showing up in some of your forward curves?

This is Hank Jones, the Waha basis move from the Permian Basin that so Waha being index that for the direction headed into the Texas intrastate market has been dramatic. 2018 is market something around $0.45 below the Henry Hub 12 months ago that number was probably closer to $0.18. So there's been a dramatic expansion of that basis and it's helped to mitigate some of the downward pressure that wind has had in Texas by making gas cheaper for some of our facilities in North Texas.

Does it put pressure on your Colorado plant since its coal?

Actually, Colorado has performed very well due to some did to solar operations and competitively priced and delivered fuel and also due to its location broadly in the Houston area.

Oh, it can sell into the Houston zone?

Its South Texas, but its benefits from the competitors in the region and their gas supplies is Houston, the ship channel gas, as opposed to Waha gas. So when those units are on the margin setting prices and higher prices than what we would expect from Waha originated gas.

And more generally Bob you are talking about some plans that – what you said cash flow negative or if there sort of pressure. Could you just clarify that if that means negative cash flow or just starting to get close to breakeven but still positive cash flow and we think about what are some the drivers as to either closing or selling those assets.

Well, I think really when you think of the coal assets that would be marginal or the ones say at risk I think a lot of it that plays into it as future environmental CapEx spend. And that decision will be down the road. If the pricing or their cost don't get to a level that supports the environmental CapEx then they would be at risk for shutdown because we obviously we don't only carry assets that are generating negative cash flow. So it's depending upon that I think it's the trigger in all of this I think is we spend a large environmental CapEx expenditure comes their way. Remember for some of these assets to our retail book and so 60% or 50% or so of the capacity through these coal assets in particular in

Thank you, guys.

Thanks.

Thank you. Our last question in queue is from Abe Azar of Deutsche Bank. Abe, your line is now open.

Thanks. One follow-up. If you're successful on power market reforms is a possible that it ends up actually keeping the oversupply in the market the longer it's not a consideration that you guys have?

Well, our first consideration is ensuring that the market functions as it was intended in the original design, which certainly would have a bullish impact on capacity prices. And then if you have the right energy price rules within PJM, which we – I spoke to earlier, which allowing the inflexible units that are on for liabilities at the price that is going to send strong pricing into the market, which it could then have I think units that that we know new build could continue in PJM and that's the scenario. Now on the other side of that, units that are high cost units like again nuclear in particular will just be absolutely uneconomical. So states have a decision. They can go through their budget busting routine like they like to do and through billions of dollars out of units to keep it open. But it's going to be all on their neck. So I think that's the big difference is that states need to be accountable for their own subsidies. So rather than the State of Illinois, who are the state of New York, trying to subsidize their subsidies by depressing the market prices that's going to be stripped out. And so if New York wants any up right now $8 billion for three plants, they're probably going to get any up a few more billion dollars that we straighten up these things, the same thing with Illinois. So I think it's going to put more pressure on some of the existing uneconomic units. On the other hand, it's going to be a much more supportive price, competitive price that you get back towards new build economics, which we're happy to compete with anybody on a level playing field.

Okay.

Ash, I believe that's the last question.

My apologies, we still have two questions in queue. Do you wish to take it?

No, I’ll take one more. We’ve got time for one more. You pick Ash.

Thank you. Our next question comes from Shahriar Pourreza of Guggenheim.

Bob let me – I think this is may have gone through over people's head. But you mention ECP Calpine, if there is some sort of a transaction that there's some relatively easy fixes. If there is mitigation or if there's other things they have to work through. Can just maybe top level elaborate on what you meant by there's some easy fixes that they can work for?

Yes, so sincere I have no idea if there's a transaction happening or how structured on kind of speaking out of school. But and easy – one easy fix that's a possibility, again I don't know if it applies in this case or not, but one of the things that ECP could do is reach an agreement with FERC that that they wouldn't. They would only vote up to 10% of their shares and not the full 15%. That's a possibility. I don't know if it applies in this case or not. But that would be one of the things. ECP may decide that they put appoint an Independent Director on the Board and not Tyler. I don't know if they're the kind of things that I think they would have to think through if they did it and certainly if they have been an outstanding shareholder and we will work with them to – if there's things that need to be done, we'll do whatever we can to help them. But there are very good and very important shareholders. But again, I don't know any details of what they're doing and whether these things apply or not somewhat speculating here like I shouldn't and be found out by our General Counsel. So I'll leave it at that.

Thanks for taking my follow-up. Have a good morning.

All right, thanks Shahriar. End of Q&A

So Ash, we’re out of our time limit and want to thank everyone for dialing in and participating today.