Hello and welcome to the Dynegy Incorporated First Quarter 2017 Financial Results Teleconference. [Operator Instructions]. I'd now like to turn the call over to Mr. Rodney McMahan, Vice President of Investor Relations. Sir, you may begin..

Thank you, Cindy. Good morning, everyone and welcome to Dynegy's investor conference call and webcast covering the Company's first quarter 2017 results.

As is our customary 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 Web site at dynegy.com. With that, I will now turn it over to our President and CEO, Bob Flexon..

O&M costs from plant retirements, fewer outages and the addition of the ENGIE fleet in February of this year. While mild winter took its toll on spark spreads, the impact was dampened by Dynegy's hedging program which protected a sizable portion of the Company's first quarter gross margin.

We are reaffirming our 2017 full-year adjusted EBITDA guidance and raising our full-year adjusted free cash flow guidance by $150 million, bringing our 2017 adjusted free cash flow range to $300 million to 500 million.

This change was possible due to the diligent work of our operations team who spent the past couple of months reviewing our cost structure which led to the reduction of forecasted 2017 cash maintenance CapEx of approximately $150 million. We're consolidating our ownership of the Ohio jointly owned operating units.

In connection with this, we reached agreement with AES to purchase its ownership interest in the Miami Fort and Zimmer generating stations. This transaction in conjunction with the previously announced transaction with AEP will result in Dynegy earning 100% of both Miami Fort and Zimmer generating station.

We've also agreed to retire Stuart and Killen, which will eliminate approximately 3 gigawatts of baseload coal generation from PJM. We're currently in the second and final round of bidding for the asset sales required to meet FERC’s market mitigation requirement in Southeast New England.

And once EPSA assign, we will launch the next asset sale package. Finally in our presentation posted last night, we outline our path to repay the $2.1 billion of unsecured notes, which mature in November of 2019. Even though its maturity is over two years away, we expect to address this maturity well in advance of the due date.

Cash generation by the business in 2017 and 2018 together with proceeds from announced or in process asset sales and existing liquidity, are more than sufficient to fully repay the notes in advance of maturity. Our top priority remains to raise leverage over the coming months in continued execution to meet our 2017 financial objectives.

At this point, Cindy, I’d like to open-up the session for Q&A..

Thank you. [Operator Instructions] Our first question is from Greg Gordon of Evercore ISI. Sir, your line is now open..

Good morning, guys..

Good morning, Greg..

Couple of questions. So, you guys gave the -- that disclosure on April 11 after you had that issue with inadvertent disclosures.

And so, you pretty much knew what you have in the first quarter when you gave that guidance, correct?.

Yes..

Okay.

So your guidance at that juncture reflected the fact that you were a smidge below consensus, but we can assume that that was in the books when you gave the -- that outlook?.

That’s right, Greg..

Okay. Then I just want to make sure I’m parsing your words correctly.

You’re saying taken into consideration the '17 and '18 cash from ops proceeds from the two asset sales that were already been announced, right?.

That’s right..

You have an existing liquidity. You see a clear path to repay the entire $2.1 billion maturity.

So you don't need the -- you don't need this next pending asset sale to close or the one after that to close to have enough liquidity to retire that maturity, correct?.

That’s correct, right. It kind of goes back to your question, I think a couple of weeks ago with capital markets unlike as we went through, I wanted to kind of refine the answer a little bit to your very good question last times.

We don't need the capital markets to repay these -- for 2019 maturity between the asset sales, cash generation, existing liquidity. We have what we need to settle the 2.1 billion..

Can you give us what your total secured financing capability is as of today?.

Yes, Greg. This is Clint. It's frankly pretty limited. Its under a$100 million and incremental secured capacity above and beyond the full revolver. The limitation on secured indebtedness is in our indentures 30% of total assets on the balance sheet, which is right over $13 billion today.

And so, when you look at that, that gets you to roughly $3.9 billion to $4 billion and when you look at the outstanding term loan and the full billion 650 and revolvers, that uses most of that capacity..

All right.

But the bottom line is you’ve overcome that and you don’t need it to retire the $2.1 billion maturity?.

That’s right. I think the slide that we put in the deck today just provides a view on our cash flow over the next two years. That’s not even including 2019 and obviously the debt maturity is in November of that year. So it doesn't include that. Just cash flow in '17 and '18.

It's proceeds from the two asset sale that the LS power asset sales that -- sale that is already done and the second asset sale in process.

And then with the stuff that’s left over after those two things, we have two times coverage just using our existing liquidity, and obviously you have other sources that could be available over time, but even if you ignore those you still again have about two times coverage on what’s left..

Okay. And did you say that you're going to proceed with the next round of asset sales once this one closes, Bob? I just want to make sure I was clear on that..

Yes, that’s right, Greg. Once we get these second rounds, which is the final round for the New England assets, then we would launch a third package. So when that PSA is signed which we would expect that to be in the June timeframe..

Okay.

So once you have a contract in hand for sale of these assets, you will proceed with the next round?.

That's correct..

Okay. And then finally, it looks like you also made some progress in further creating earnings visibility both for this year and next year and a little bit into '19 from bilateral capacity sales. I think the MISO auction in particular was particularly dreary number? And yes, it looks like you were -- is still able to make some bilateral sales.

Can you comment on what's going on in the bilateral market and why it's so different from proceeding in that auction?.

Well, certainly a good portion of those bilateral sales and like you said Greg, when you think about planning your '17, '18 where we’ve sold the average price of the capacity. We sold as over $4 per KW a month versus the $0.04 that it cleared in the recent auction.

It's certainly great to have the outlet and not rely on the capacity market and for '18, '19 we certainly have a good chunk of our open capacity sold at $4.79 per KW a month. So that's obviously a very strong sales. A lot of that is because of our retail business there's some longer-term contracts that are embedded in there as well.

The wholesale side and our origination team continues to look do that I think. Question mark for us going forward is to see with such a low clear, does that impact our ability to continue to pull through those types of numbers or not. But let me deferral, so to Hank to comment on it..

I think I will just add one other point that the MISO auction is really a residual capacity auction/ Its structured much differently than the other capacity auctions that we participate in. So until the point of the vertical demand curve, there's value in megawatts post on the other side of vertical demand curve there is no value.

Our customers and our offers are tailored to our cost basis. And the customer base understands that expect that..

And we will continue as we've been doing for the past 18 months or so is to match our ability to place capacity in the market through these bilateral channels will match with the amount of generation that we have. We’re not going to rely on a MISO capacity auction and try to still unsold capacity.

We can't do it through these other channels, those plants -- the ability those plants to continue will be limited..

Great. And then just one final question and it's a new answer. Just looking at slide 17, as you’ve answered my financial reference question you show that you have sufficient liquidity to pay off the 19 maturity as is, but to the extent that you continue to generate asset sale proceeds or improve on your cash flow profile between now and '19.

We should presume that you would rely on those proceeds or not. The revolver to pay-off the maturity for ….

That’s right..

Okay..

That’s right, Greg..

You just kind of showing that push comes to show and you didn’t improve from here. You could still do it..

That’s absolutely right..

Okay. I will stop asking questions. I was going back to queue. Thanks..

Well, thanks Greg..

Thank you. Next question is from Ali Agha of SunTrust. Your line is now open..

Thank you. Good morning..

Good morning, all. Bob, given the move recently in your stock price, it looks like the market hasn’t embraced the plan you’ve led out for us.

I’m just wondering when you see that, does that cause you to get more aggressive on the asset monetization deleveraging front, then what do you mean baking in as your base case or how do you see that given, how your stock keeps moving..

Here, first of all, Ali, let say that measuring lots of company and I would say we're not the only IPT that hasn’t been embraced of light, so I think there is a fundamental lack of support and confidence in the market around IPTs and again I think the number one reason of that is the regulatory environment that currently exist.

I think that has created a lack of confidence in the space. Now that said, for that to the side, we think the best and highest use of our capital and our path forward right now is the one that we’re on? For going through these..

Asset sale monetizations. We got -- continue to drive down our leverage and just execute as well as it possibly can it. Maybe it's a real disconnect in underlying value and where our stock is priced at and I didn’t like -- I go to bed and my thinking I got candle facility is worth.

Equal to our market cap and it's just a fundamental just connection in the marketplace right now between true underlying value of these assets that are in the right market, there is a right assets position really well relative to gas supply and I like. But there is just a lack of sponsorship in the space.

And we don’t want to do something which is they need reaction to do something that we would not one that we were regret, spoke in the longer term, so we’re going to continue to focus on this path, they were on the continuing liquidity, our cash position of making sure we’re sending our capital to the highest and best use places in right now, that’s just strengthening up the balance sheet and we’re trying to fight the good fight on the regulatory side.

And I would say is, we highlighted on Page 5 in the deck that we’re seeing some positive movements. I think the FERC technical conference this week on Monday and Tuesday was a real positive. I’ve got complete confidence to say that Cheryl LaFleur understands the issue and wants to drive a solution.

And she is right now one commissioner in a agency that should have five, but great support from shareholder and you saw our two key markets, I would say New England and PJM come out with proposed changes to the capacity market design that would isolate the impact of subsidies to the very state that are doing these things.

And I think that’s a massive -- massively positive thing for us. So hopefully it will work through those things and get the regulatory environment straightened out and we’re going to really strong balance sheet to enjoy the year. The benefits of that..

And as a follow-up to that, Bob, I know a knee jerk reaction probably isn't the best response, but do you feel that the public equity markets will ever give you fair value for your portfolio and as you think through this longer term, conceptually does it make sense that, that portfolio is probably better owned and private hands..

Well, certainly with the existing regulatory environment, I would probably tend to agree that it's just -- its really I think difficult to for investors right now investing in the space, when you see states that are doing things that interfere with proper price formation when you see the most uneconomic projects possible.

We are the most uneconomic assets out there like nuclear, getting massive subsidies or building offshore wind that 10 to 20 times the cost of combined cycle generation. You see these things that cannibalize the market and you’re left with the competitive guys that have the most efficient assets out there by less fighting over smaller market.

And that’s where to continue then I would say that these portfolios are better in the hands of private enterprise where they actually take these assets and trade on based upon cyclical moves in the market. But when you look at right now we're sitting with a 50% free cash flow yield.

I mean it's just a copy that a solid balance sheet we are going to strength even further no liquidity risk, plenty of access to capital, we're sitting with a 50% free cash flow yield. It somewhat boggles my mind..

Absolutely. Different topic. I also wanted to be clear, the call back on the April 11 call, at that time you mentioned that you had line of sight about two-thirds of cash resources to cover your November majority 19 and today its 100%.

So can you just explain like where that extra one-third came from?.

Yes, I think, Ali, what we did on that call, we were looking at, if you read it on Page 17 and Greg I think touched on it earlier, we were answering it before in the context of not touching any existing liquidity or revolver capacity and the like so.

What we look to just keeping that existing liquidity in place when you take into account the asset sales and cash generation like that was roughly two-thirds of that balance.

So, Greg asked a very good question on that April call, saying what if the capital markets are closed? Well, the answer to that is we have existing liquidity and revolver capacity that can take out that entire 2.1.

So it's really just a refinement of the answer from April 11 then and relying on existing liquidity and cash resources to meet that obligation..

Understood. And last question also coming back to that call, at that point you guys had disclosed to us your single point EBITDA numbers for '17 and '18.

As you look roughly a month forward and you mark them to market now, are those still good benchmarks think about for '17, '18?.

Yes, Ali. This is Clint. Since then we've seen a little bit of pressure on curves, but it hasn't been meaningful..

Okay, got it. Thank you..

Thank you. Next question is from Michael Lapides of Goldman Sachs. Your line is now open..

Hey, guys. Thank you for taking my question. Most power markets are still long and demand growth outside of Texas is pretty anemic, and whether it's in market are out of market, onshore or offshore, solar, wind, hydro, the one thing I know is more renewables are coming.

So, I guess, my question is when you look at the fleet, you’ve talked a lot about asset sales.

I’d like to come back to the discussion of which assets do you think are economically challenged? And therefore are ones where you would consider retirement options and how you think the retirement options of specific Dynegy assets could impact the markets for the remaining assets that they’re -- that you own in those particular regions?.

Well, Mike, I think when I look specifically to our portfolio, our challenge assets are Zone 4 in MISO. And that is more to do with market design than anything else as Hank noted earlier.

It's a residual capacity market, so anybody that has residual megawatts are dumping them in their zero and certainly if you’re getting big nuclear subsidies you’re incentivized to dump them at zero as well.

So to the extent that we have length in our MISO portfolio, we don't have access to capacity revenues beyond what we were able to do ourselves in the bilateral markets and if we can't place all the -- all of those megawatts in bilateral markets, then there the assets that are at risk for retirement.

Miami Fort and Zimmer where we’ve full ownership and one thing that I think a mild winter, but yet look at those capacity factors. In the first quarter, 82% and 84% for those two units very good assets they can support themselves. I don't see them at risk.

It's Stuart and Killen are the ones that we own jointly with AEP and AES, which all of us jointly agreed that retirement is the proper path for those two locations, which we would expect that retirement to happen June of next year.

So that's -- they’re the ones that have large environmental liabilities and the like and they’ve -- at least Stuart anyway has struggled with reliability. So they are the ones that that go. I don't see any other assets in our portfolio in PJM or ISO-New England at risk.

I think maybe the only other one at risk for us would possibly Coleto Creek if they’re required to put on environmental controls under bar..

At what point for your Zone 4 assets do you stop waiting for the MISO magical regulatory fix and just say, okay enough. I’m a big company I can live without it. And no -- and you've done a really good job over the last couple years of rationalizing the Zone 4 fleet. But maybe reaccelerating that process in the next couple of years..

I’ve certainly turned the quarter a while ago on betting on MISO to fix it. MISO is not going to fix their market, I mean, Zone 4 should be in PJM period.

The only I would say outside help for Zone 4 is that the state of Illinois gets involved and it may start procuring capacity for their polar load or like similar to what the only power authority does today. So that would be the only thing that I see that actually provides an additional channel to deal with length on the capacity.

But on Page 11 when we highlighted what we sold under planning year '17 and '18 and planning year '18, '19 you'll see that available capacity drops by 600 megawatts and that's again Baldwin, which we had talked about mothballing a year-ago, but we're able to find additional megawatts to sell-through some of these bilateral markets.

We're presuming that we're not able to do that again, so I would say that that's probably the next asset that comes out of the stack and that's what we disclosed on Page 11, not -- it wasn't necessarily jumping out of the page at it, but you can see that the available capacity is down and we noted in the footnote that it's -- it deals with Baldwin..

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

Thanks, Michael..

Thank you. Next question is from Jeff Cramer of Morgan Stanley. Your line is now open..

Hi, guys. Thanks..

Hi, Jeff..

Just while we’re talking about coal, on the Zimmer and Miami Fort acquisitions, it definitely seem to get it for cheap price, which is good. And despite not getting much credit for your coal-fired capacity, obviously the flipside is the evaluation read through for your coal fleet.

Can you just talk about the puts and takes of the evaluation and fact that it was delevering, would you consider doing that again with other low-priced coal-fired assets either at Ohio or Pennsylvania?.

Generally speaking, I would say no. These are plants -- we know the unique circumstances around the IPH fleet and around Miami Fort and Zimmer for that worthy operator. We know the assets and -- like you said, it was accretive to do this for these units.

But I don't necessarily see going out and using capital for some of the -- somewhat call whether it's orphaned or stressed coal assets in the market out beyond what we have. So I don't see doing that. I don’t think that's -- are best used on allocating capital at the current time..

Got it. Okay. Just to, I guess, confirm on where you are on the MISO assets.

At this point, there's even kind of both the auction, you’re kind of wait and see how the bilateral go before considering rationalizing additions like Baldwin 1 for example or other units?.

Yes, I mean I think right now its Baldwin 1, but we will continue to evaluate that and it could be more behind it.

And when you know normally go back to the other question for a moment on the coal plant, so one thing that's not necessarily a financial slide that I wanted to include in the deck is just to show over the past few years on Page 8 how the environmental emission profile of Dynegy has changed.

And we're moving much closer to average CO2 intensity of a combined cycle fleet rather than where we were years ago which was much closer to disappear coal fleet.

So when you think about where the market and where a lot of the political pressure is which is things like CO2 emissions, CO2 reduction things of that nature, just wanted to highlight that traditionally people would think about Dynegy as a coal generator and you look at our emissions profile today and again I think we've now got to point we're actually closer to a gas generator with some coal assets versus what we used to be, which was a coal generator with some gas.

So that's the direction the market has clearly has moved.

That’s the direction we're continuing to move and the other thing on the slide that doesn't get any airplay, but again it's not necessarily a financial metric, but we continue to get closer and closer to our goal of recycling all of our coal ash, which has great CO2 benefits in the marketplace.

It creates an incremental revenues for us, but the other point is it allows us to reduce capital or known M costs related to storing and handling coal ash and coal ash residual. So that’s a continued important path forward for us. So going backwards and adding more coal would be inconsistent with that..

All fair points. Thanks and maybe Clint, just a housekeeping item.

What interest rate are you I think like to do you kind of what interest rate are you deferring the capacity monetizations at?.

Yes, roughly equivalent to our term loan B. So very competitive rates..

Got it. Okay. I guess, just given that, it looks like you’re pretty well buttoned up on the 2019 maturity or getting pretty close, given where your bonds are trading right now with discounts.

Into what point do you start considering buying back bonds in the open market?.

I think that’s something that that we will be evaluating..

Okay. Thanks, guys..

The next question is from Shar Pourreza of Guggenheim Partners. Your line is now open..

Good morning, Bob..

Good morning, Shar..

Thanks for the additional color on sort of focus around the 2019. Hopefully it's kind of the pieces a lot of investor concerns. Let me ask you the one thing that I noticed is missing from your slide decks this time around the sort of little bit more on to your leverage targets and how to get to your target 4.5, hopefully around 2018 timeframe.

Should -- I’m assuming we shouldn't read into the fact that the slide sort of missing and that you really just wanted to focus on 2019 maturity?.

Shar, that’s exactly right. I mean, there is no real change there. That continues to be our goal to drive to that and doing it the same ways that we’ve talked about. So there is no change. We continue to have that out there and it's all about reducing leverage for us at this point in time. So, yes, there is nothing you need to read in about that..

Okay, terrific. That’s what I thought. And then just lastly, just a little bit on your ERCOT hedges. You guys hedged really aggressively for not only the '17, but also for 2018.

Sort of just curious on what the thought process is there with $11 to $12 spark spread environment ahead of potential weather, summer weather that ever transpires and maybe a potential tipping point with coal assets.

So I’m kind of curious on how you're thinking about why you hedge so aggressively? And then, how you think about your hedging profile there in light of potential some near-term catalysts?.

This is Hank. In terms of -- there's multiple factors that go into our thinking. One is a desire and need for earning certainty. That's one of the trade-offs that’s involved. So the -- we aggressively -- we inherited a fleet that was substantially unhedged and aggressively took some of that risk off the table.

There are certainly ample link there, if the scarcity premium kicks in this summer or if there are retirements announced this fall. There is still ample length in the fleet in '17, '18 and certainly beyond to benefit from that..

Okay.

So you’re comfortable right now at your hedge profile where I think you will probably take a little bit more of a wait-and-see approach?.

Yes, we intentionally took some big pieces of initially to take that risk off the table and now we can afford to be a little bit more opportunistic..

Okay. That’s helpful. And then, Bob, you kind of touched on this a little bit on your prepared remarks around retail.

I’m sort of curios on what you're seeing as far as the market, maybe generalize a little bit on what you're seeing from a margin standpoint, because you're seeing a lot of consolidation in the industry, you're seeing a lot of assets change hands, and there is some signal that the business can start to turn into a little bit more of an oligopoly right.

So you do have a little bit more pricing power.

So I’m kind of curious on what you're seeing in retail, in general?.

I think you’re right. I think you’re seeing some level of consolidation, and it's becoming more and more likely that a lot of this independent retailers that don't have a big balance sheet behind them, need the generation and somewhat with what’s going in the market, some of the wholesale generation portfolios benefit from having the retail.

For us, Zone 4 has always been a very particularly good market, because we’ve got leading positions on both. So that's when you go back and look at the MISO capacity sales that were on Page 11, that’s largely attributable to the strength of that retail book and we're seeing the same thing with our Ohio retail franchise. So that’s very positive.

And then, again in the marketplace there is a number of small books that are out there that are marketing themselves. So you’re seeing it tightening up and that's -- I think it's a decent good path for generators to be adding that. So right now, we’re certainly looking to grow that organically in Pennsylvania and Massachusetts.

And as I’ve said on prior calls, goal one is our leverage. Goal two would be further expansion of our retail footprint. But we can only do two, if its neutral or positive to step one. So our efforts are primarily on the leverage, but we certainly continue to look and assess the retail market, because the trends are favorable as you described..

Great focus. Thanks, guys..

Thank you..

Thank you. Next question is from Angie Storozynski of Macquarie. Your line is now open..

Thank you. So we are inching closer to the PJM capacity auction. There given the location of your assets, you don’t necessarily have much of a pricing power. I think you would agree with that, that you are largely a price maker.

On the flip side, do you have numerous portfolio of assets that are struggling and trying to be free cash flow negative even before any deck service and yet none of these assets have filed the activation notices. And as such, they will be betting into the PJM auction.

From your perspective given the design of the PJM capacity market, I mean can these assets bid in or just basically did that zero? And then expect that either that restructuring or no shutdowns of these assets basically bail them out from the capacity obligation? I mean, that seems like a flaw in the market if that's the case..

Well, Angie, I mean, I don't -- like you said we’ve zero pricing power just to make sure that the minutes properly reflect that. And we will be like, we typically, generally dealing that economically. What I -- I think your points are relevant one with there's some distressed assets out there.

Some distressed portfolios that are edging towards potentially filing and does that change the bidding behavior? Not, I don't know.

Obviously, what they intend to do or not and sometimes I -- from my own perspective, I wonder if they would just go in as price takers because they're getting ready to drop into a Chapter 11 process that maybe the safest thing for them to do and then worry about it on the other side.

So they would be going in and they’re not economic already and that not necessarily going to help. So I don't know that’s going to have an impact on clearing prices or not. We certainly hope that plants that don't have the viability will just retire, but as we've all seen, people hanging around a little bit longer than maybe what they should.

But I don't know how that will impact us, but I do have that concern that some of the distressed portfolios that if they’re going to Chapter 11, they’re just going as price takers in the auction..

And is it because under Chapter 11 all of these obligations applications would be voided?.

Well, I think its -- again, this is just me thinking if I was in their position and I’m speculating perhaps even do this, but if you’re the trustee or whatever, the person has a fiduciary duty for those assets.

It's really, I think they might find themselves in a little awkward position if they’re bidding some of the assets inside of the distressed portfolio and some of the assets outside of a portfolio and the distressed ones don't actually clear the auctions, but yours do, that seems to be that opens up some level of controversy with creditors and the like.

But again, I don’t know the specific examples or the specific positions of these other places, but that's the concern that I have looking from afar..

Okay. Thank you..

Thank you. Next question is from Neel Mitra of Tudor, Pickering. Your line is now open..

Hi, good morning..

Good morning..

On Page 17 of your presentation, you noted that you get roughly $220 million to $250 million from mitigation asset sale proceeds.

Could you talk about what that is referencing? Is that the New England asset sales or what does that encompass?.

So, Neil, I’m glad you brought is forward. So, the actual label says mitigation asset proceeds and other, okay. So it does include the Southeast New England sale and include some other things and we just have more than just asset proceeds in there. We got a few other things in there.

We don't want to get specific as to specifically what the New England asset sales are, because we got six or seven active bidders in the final round and for us to be talking price on the phone for these assets is probably even more clarity than I even like to give, but it's not entirely for those asset sales.

There is some other things that are embedded in there..

So just to be clear, is that the CCGT's or CTs in New England?.

Its Milford Mass and Dighton both of which are CCGTs..

Okay.

So the net proceeds of that would be less than the $220 million to $250 million?.

It would -- that and other things would be in that range. That's as far as I can really go today since we're anticipating receiving final bids in just a couple of weeks..

Okay. Okay, great.

Second question I had were Stuart and Killen did they clear the last auction or how long have they been out of the auction if they have …?.

They cleared the last auction. And so for all of the partners that have ownership, they have to cover that capacity obligation or buy it back. For us, we just recently transferred Hennepin and Joppa into PJM. So we will pick up that capacity obligation for those units, which previously were uncovered as it related to capacity.

So it worked out actually quite well for us. And then they won't be bidding into the current auction..

Got it. And then with the ELG capital spend, you mentioned that you could differ the spend at least two years, but you also mentioned that you -- the rules been remanded back to the EPA.

What's the best case outcome in your opinion as to what could happen with that $252 million spend, could go away all together or do you think it could just be deferred farther out?.

Well, I think it can be either of those. I think that its going back to the EPA and under the current administration. I think it could be anything up to including the rule is canceled. So I think it deferral or over repeal is two very, very possible outcomes from it..

Okay.

So there's a possibility that the higher free cash flow profile that you got it to 2017 could be permanent if the spend ….?.

Yes, under that scenario which I will just label is best cases as it relates to cash flows..

Okay. Perfect. Thank you very much..

Thank you..

Thank you. Next question is from Abe Azar of Deutsche Bank. Your line now open..

Good morning..

Good morning, Abe..

Can you provide an update on the O&M expectations for '17 and beyond.

Even some of the major cuts and deferrals this year?.

Hey, Abe. This is Clint. Yes, I think in our guidance slide and the back of the deck, we provide a range of 950 to a billion fifty. And I think that range is still good. I think it's taken into account a number of the changes that we’ve talked about.

Now you will -- you will be in different points within that range typically driven by your outage schedules. So as outages are deferred and some of that outage related O&M, we will go with it.

But I think that's still a good range to be added and to give some thought to where you would end up within that range, you really ought to look at the CapEx spend and the outage schedule to tell you are you on the higher end, on the lower end, somewhere in the middle.

The other thing to keep in mind is that -- I think about 10% of that is variable O&M that tracks one-time. And so that’s another factor to keep an eye on as what is your generation level and the generation volumes. What is that doing? Could that could affect that number as well.

But again I think that range in total is still a good place to be and its more likely going to be affected by your outage schedules in one-time..

Great. Shifting back to the carbon discussion.

Would you be a net beneficiary of a potential carbon tax in PJM? What is the sensitivity for your portfolio?.

I’m not sure I -- most of our generation and PJM is gas oriented. So most of it's combined cycle generation which just assuming that get you to a neutral place. So I don't well -- yes, I’m thinking on the fly here, one third of the generation out of PJM is coal. The majority of generation from Dynegy in PJM is gas.

So I would expect if there was a carbon tax, if you will, in PJM that we would be a beneficiary, because we are more gas oriented PGM versus the overall market..

Great. And then have you decided on whether you’re committed to selling the high-quality CCGTs beyond the mitigation assets or is that still in a evaluation phase..

Well, we’re going to go ahead with the third package of assets that’s in June and its going to be a CCGT and New England and one in PJM.

We continue to go back and forth exactly which one in PJM and we’re preparing the package and I guess, I said earlier I always just think about the value like a candle facility 1,200 megawatts in common, which happens to be from a Dynegy standpoint equal to our market cap.

So with view that as a bit stunning, but we are absolutely going forward with it because the market values that I think that we can achieve are much greater than what’s embedded in our underlying equity of this Company and it will get us towards our deleveraging goals that we’re pursuing. So once we get that PSA signed in New England, that's next..

Great. Thank you..

Next question is from Julien Smith of UBS. Your line is now open..

Hi. Good morning.

Can you hear me?.

Yes, we can, Julien..

Okay. So quick question, I wanted to play a little bit of cleanup with some of the past questions. Can you elaborate have you seen bilateral done in the MISO market, since the option? At what levels have those are done and what duration. Just to follow-up on Greg's earlier question..

Julien this is Hank Jones. There has been no meaningful bilateral activity in my so post option. The primary route to market for our remaining capacity will be for our retail business and that will come in each season. But there is no real price discovery out there right now..

Got it. But let me just make sure I heard you right.

Are you still confidence is a bilateral market are relatively intact versus where you were signing them before?.

I want to make a distinction between bilateral and retail. The bilateral market is a very thinly traded over-the-counter market and it's not particularly robust. I have confidence that our retail business has ample opportunity to place our capacity..

Yes and I will say is putting a number on our retail moves about 60% of our MISO capacity. So that is the primary channel to market..

Got it. Excellent. Can you talk about some of the -- well it was twofold. The Miami Fort and Zimmer can you talk about the EBITDA profile and just explain the latest transaction. It was done at a pretty eye-poppingly low dollar per kilowatt price.

Can you talk about some of the considerations there? And also, if you can comment in a similar vein are all of the synergies from the NG transaction reflected in your '17 guidance are there, actually further benefits in '18 onwards.

And I know you provided something of a forward year guidance as well now beyond '17, but just to be very clear about what's reflected in your expectations?.

Well first on the Miami Fort, Zimmer acquisition at $50 million that’s on a multiple, that’s roughly 1.5x to 2x what we paid. So yes, it is deleveraging lower cost, we're a natural owner and that was just where we reached agreement with AES for the sale of those assets.

Everything with Angie previously disclosed around the synergy target and implementation as embedded in '17, if there is another round of upside which we're not there yet, that would not be, but that would likely even if they where that would like be in and out year not in '17..

Got it.

And with Miami Fort and Zimmer, was there any liability you guys assumed like a de-comp kind of thing that would have driven the price that low?.

Well, no. It's -- the only thing I would say maybe in the near-term, I guess scheduled maintenance and CapEx that’s a little heavier than normal when you look at the overall cycle, things around the cooling towers and the like, but I mean that’s -- its just the agreement we reached with AES..

Excellent. And then last clarification, in the three or four year that you provided earlier, '17, '18, '19, does that already reflects all of the benefits from the retirements of Stuart and Killen here just to be very clear about that.

And also are we confirm that Stuart and Killen have gotten PJM approval to indeed retire at this point of time?.

Yes, Julien, this is Clint.

I assume that you’re referencing the model assistance slide in the appendix, as far a three-year look?.

Yes, I was actually thinking about the inadvertent disclosure earlier with the point estimates?.

Yes, so that disclosure was for '17 and '18. So I don’t think there was anything around '19, but certainly that disclosure reflected our internal forecast, point estimates for '17 and '18.

Obviously Stuart and Killen are retiring mid-year '18, so those forecast would have taken into account our view of those two assets in our fleet for those two years. And '18 certainly would've included some level of shutdown costs and severance and things like that..

And in response to ….

[Multiple speakers] please go for it..

So, Julien, this is Hank. I just want to respond to your -- the second part of your question. We can confirm that we received notification from PJM that we have an exception and don't have to offer into the upcoming auction. So we're good to go on retirement..

Got it.

And just to be clear, what’s the EBITDA uplift from '18 and '19 for Stuart and Killen, just the [technical difficulty]?.

Hold on just a second. Yes, I don’t have '19 in particular. Julien, so I don’t have a specific number for uplift between the two, but what you end up having and we can get some thought to that in the future, but the dynamics that you have is that you're going to be able to reassign those capacity revenues from Stuart and Killen to other plants.

So you will be able to maintain that component of gross margin. But for the back half of '18 and then for full-year of '19, you’re going to be able to offload your O&M associated with those assets. And just to give you a sense, right now the estimate for O&M for those two assets as far as the change between '18 and '19 is about $62 million, our share.

So you will be able to keep the capacity revenues, you'll be able to offload that O&M. Now you will lose some level of energy margin, but I don't think it's that significant. So I think there was the kind of three pieces that you should think about when you’re looking at the difference in the change between '18 and '19..

Excellent. Well, thank you all very much for the time..

Thank you, Julien..

Cheers..

Our next question is from Praful Mehta of Citi. Your line is now open..

Thank you. Hey, guys..

Hi, Praful..

So just firstly on Slide 10, I think it's really helpful you have the hedge value disclosure now, which gives us some good context. Just on that I wanted to understand or I guess this is 2018, you have a hedge value of, I guess, negative $0.26, so effectively you’ve hedged at a price below the forward curve.

Wanted to ask what the dynamic was? Is it hedging really for the off peak period that's causing that or just some color or context should be helpful..

Praful, this is Hank. There is multiple components to the hedge value calculation, including fuel contracts. So these fuel contracts that are embedded in our calculation are mark-to-market, and specifically the coal curves, coal market curves have dropped off substantially since some of the coal contracts were entered.

So that’s what shapes that number -- besides any power market movement, that’s what shape that number..

Got you. So from a pure modeling prospective, if you’re using forward curves of both power and fuel, then applying this one adjustment adjusting and effectively reflects the true hedge impact of both power and fuel in that..

That’s correct..

Got you. And that’s really helpful. All right.

Then on Slide 5, Bob, the market design concept and you saw the video you were there for these conferences, I wanted to get your perspective on how you think this will move forward and from a timing perspective what do you think are the next steps both at the FERC level and the capacity market proposals at PJM and ISO-New England..

Well, as multiple paths being pursued, certainly the least desirable for anybody is the litigation path to fix the market design and the litigation against the nuclear handouts in New York and in Illinois. We're certainly aggressively pursuing litigation there.

Ideally you’d have the FERC and the ISOs just exercising their authority to ensure that proper price formation is happening .And I -- again I have to commend both PJM and ISO-New England for bringing forward proposals on how to isolate the impact of subsidies in the market, and certainly FERC needs to really change from what they've been in the past couple of years of watching the train wreck to ensuring just and reasonable rates are out there.

And just being at that conference this week and being part of the dialogue to a very good at the FERC staff and Chairperson LaFleur is very much focused of this. So it's really as raise the awareness and I believe there will be good momentum to drive the proper result here.

Certainly as we go through the stakeholder processes in the various ISOs -- PJM and ISO-New England, and I’m sure that will be a colorful event as particularly from those players that had historically argued against subsidies now are the beneficiary of the biggest subsidies.

I'm sure they’re going to have that change their tune about making sure you got proper market design. But I think the one thing that came clear from the conference, at FERC isn't there to tell the states what they can and cannot do. If the states want to do something as foolish as give $10 billion for five plants for nuclear units.

So they will be doing things like that and the state should be responsible for that bill. And the mandate of FERX and the ISOs is to ensure that interstate wholesale pricing is not impacted the way the subsidies are absolutely impacting them today. We already see it happening. So I think we’ve got movement, it's going to take time.

I don't think it gets change for the next auction, but hopefully for the one after that we have new rules in place. And again, at Illinois wants to throw $3 billion at investment grade company that make the state of Illinois pay for that and not try to spread it through the other adjacent states and the like.

And if New York wants to throw $8 billion for three plants, then New York needs pay that bill.

And I think that's going to -- really I think act as a deterrent longer term that states should not do these things unless they’re really ready to ante up and pay that freight which at some point in time once the consumers figure it out that they’re getting fleeced, they’re really going to come back strong against the legislature about doing these types of things.

So I think that was a great conference. Credit to FERC for pulling it together and credit to ISO-New England and PJM for coming to the plate with proposals. So I feel good that we’re going in the right direction. Hopefully, the litigation path isn't what we always have to rely on now..

Got you. That’s great color, Bob. And finally as you brought up -- like some of your plans are actually may have higher market cap on high-value than your current market cap. I think the same way that potential is up here with synergies, especially based on what you guys have done with acquiring fleets and cutting costs.

That synergy opportunities here with other IPPs where the significant savings relative to the market cap at which you guys are trading. So, I'm just trying to figure out why there are markets [indiscernible] and other challenges.

Is that something we looked at? Is that something you guys are open to or do you think there are too many challenges from a change of control on the debt or something else that you think that’s an non-starter in the first place?.

Well, generally speaking, I would say that there is little to no issues. We change the control of the debt or market power. I think all of those can be managed. It really comes down what's the best thing for different parties, shareholders, and what's the right path.

I mean certainly we would always evaluate whatever we think is the best path for our shareholders and then in conjunction with our Board to make those decision. So we don't -- we don't lean one way or the other, but you shouldn’t do, it's -- what is the best path for our shareholders.

But I would say market power and change in control to debt are not limiting issues whatsoever. I think that's greatly overstated in the marketplace..

That’s interesting. But then, I'm assuming, Bob, you’re getting -- you’re anxious to get your hands on other fleets, because if you can execute pride whatever, 6, 7, other fleets there is a huge opportunity to rationalize and improve and fight this trend of variety piece are going right now..

Well, certainly with market cap is being what they’re today, the impact of synergies is significant on the value of combined companies.

But we always have to have two parties interested in doing something and that -- often becomes the issue, but again maybe we’re always open to ideas and thoughts and we will do whatever path is the best path for our shareholders..

Got you. Very helpful, guys. Thank you all..

I would say, but I would say Praful, I do think the one thing that’s been important to us from day one is to be efficient, learn how to always find better ways to do things and keep an eye and just it real focus and effort on what you want to be known for? We want to be known for running lean, and running well.

Running safely, running an environmentally responsible way than that’s something that ingrained here. And our team when they come to integrating assets. I think the track record speaks volumes for that when you think that we don't get into transition service arrangements, recapture the vast majority of synergies they want.

We -- we are going to reorganize our Company and the combined company get the right people in the right spots and I would say that when we look back on the acquisitions we've done we have some terrific people here that have come in from Ameren, that have come in from [indiscernible], that have come in from Duke and ECP, and it's really a great environment here and the team works really well together and it's worked really well on our pride initiatives and works really well on integration.

So it's something that we've worked hard at over the years and I think we've gotten pretty good at it..

Great. And I think you have the [indiscernible] market for it. I think it's just surprising that there isn't more activity on the broader M&A topic, given where everybody is trading, because that’s why the genesis of the question..

Yes, I understood..

Right. Thank you, guys..

Thank you..

Thank you. And our last question is from Steve Fleishman of Wolfe Research. Your line is now open..

Yes. Hi. Good morning, Bob..

Hi, Steve..

Just one -- couple of quick questions on the market structure issue.

So you didn’t mentioned anything I don’t -- I didn’t hear on the DOE study and review? And do you have any view on what the DOE might do?.

Yes, I haven't I didn’t cover that because I’m not sure, right. I’m not sure what to necessarily expect from that and I guess from the little that I do know, I'm it just seems to be focused more on the impact of the intermittent subsidized generation on really the fossil.

But I don't necessarily know what all of that means, and certainly we're going to weigh in as much as we possibly can on that. And from a Dynegy perspective, we've always been and I think even speak for Calpine, if you will, and the other IPPs that the only thing we ever asked for is just to level the playing field.

Let us just compete, stop the subsidies, and the customers will win. And if we can get a message to, if DOE and others is -- that’s what we want to push on. We are not looking for subsidies like us. I know the nuclear guys will be throwing themselves at their feet, trying to get more subsidies on a federal level.

We will be throwing ourselves at their feet saying stop the subsidies, let us all compete and let the cheapest megawatt get to the customer and that will bring innovation. That will bring the desired effect for maybe more renewable energy and rather than crowded out, because you're subsidizing the most expensive things.

Let them compete and if they can't compete that's their problem. But I don't know what really -- what to expect in the 60 day study, that's been done and to the extent we can weigh in and we’re going to try..

Okay.

And then one other question, just -- is there any limitations on ECP owning more Dynegy stock, given the stock is obviously a lot lower than where they bought in at this point?.

Well, I think Steve, I’ve got a General Counsel here to help me, but I believe they’re in a six-month standstill from the point in time in which we closed.

And ones that standstill ends, I believe can they acquire more at that point in time Catherine?.

I think they’re still [indiscernible]..

So we will have to get back to you on that, Steve. I haven't looked at that recently, but right now they’re on a standstill..

Okay. Thank you..

We will get back to you on that. Operator, Cindy, I believe that we’ve done through all the questions. I’d like to thank everybody for calling in and participating. Thank you..

Thank you. And that concludes today’s conference. Thank you all for joining. You may now disconnect..