Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (02-11-09 04:35 AM)

Filed with the SEC from Jan 29 to Feb 04:

NRG Energy (NRG)
Solus Alternative Asset Management agrees with the NRG board's view that Exelon's unsolicited offer to buy the company for $6.5 billion is inadequate. Solus is the investment adviser to Sola Ltd. and Solus Core Opportunities Master Fund, which, combined, own 14 million NRG Energy shares (6% of the total outstanding).

BUSINESS OVERVIEW

General

NRG Energy, Inc., or NRG or the Company, is a wholesale power generation company with a significant presence in major competitive power markets in the United States. NRG is engaged in the ownership, development, construction and operation of power generation facilities, the transacting in and trading of fuel and transportation services, and the trading of energy, capacity and related products in the United States and select international markets. As of December 31, 2007, NRG had a total global portfolio of 191 active operating generation units at 49 power generation plants, with an aggregate generation capacity of approximately 24,115 MW, and approximately 740 MW under construction which includes partners’ interests. Within the United States, NRG has one of the largest and most diversified power generation portfolios in terms of geography, fuel-type and dispatch levels, with approximately 22,880 MW of generation capacity in 175 active generating units at 43 plants. These power generation facilities are primarily located in Texas (approximately 10,805 MW), the Northeast (approximately 6,980 MW), South Central (approximately 2,850 MW), and West (approximately 2,130 MW) regions of the United States, with approximately 115 MW of additional generation capacity from the Company’s thermal assets. NRG’s principal domestic power plants consist of a mix of natural gas-, coal-, oil-fired and nuclear facilities, representing approximately 46%, 33%, 16% and 5% of the Company’s total domestic generation capacity, respectively. In addition, 15% of NRG’s domestic generating facilities have dual or multiple fuel capacity, which allows plants to dispatch with the lowest cost fuel option. NRG’s domestic generation facilities consist of baseload, intermediate and peaking power generation facilities, the ranking of which is referred to as Merit Order, and include thermal energy production plants. The sale of capacity and power from baseload generation facilities accounts for the majority of the Company’s revenues and provides a stable source of cash flow. In addition, NRG’s generation portfolio provides the Company with opportunities to capture additional revenues by selling power during periods of peak demand, offering capacity or similar products to retail electric providers and others, and providing ancillary services to support system reliability.

NRG’s Major Initiatives

The Company’s strategy is reflected in its five major initiatives, four of which were announced and began implementation in 2006. The fifth, “Focus on ROIC @NRG”, or FOR NRG, successfully concluded its third year in 2007. NRG’s five major initiatives, described below, are designed to enhance the Company’s competitive advantages of the opportunities and surmount the challenges faced by the power industry.


I. FOR NRG is a companywide effort, introduced in 2005, and is designed to increase the return on invested capital, or ROIC, through operational performance improvements to the Company’s asset fleet, along with a range of initiatives at plants and at corporate offices to reduce costs or, in some cases, generate revenue. The FOR NRG earnings accomplishments disclosed in NRG’s SEC filings and press releases include both recurring and one time improvements measured from a 2004 baseline, with the exception of the Texas region where benefits are measured using 2005 as the base year. For plant operations, the program measures cumulative current year benefits using current gross margins times the change in baseline levels of certain key performance indicators. The plant performance benefits include both positive and negative results for plant reliability, capacity, heat rate and station service. FOR NRG contributed $39 million to pre-tax earnings in 2005 and $144 million were achieved through the end of 2006. For 2007, the Company attained its previously announced target of $220 million which includes $11 million of one-time benefits.


lI. Repowering NRG is a comprehensive portfolio redevelopment program designed to develop, construct and operate new multi-fuel, multi-technology, highly efficient and environmentally responsible generation capacity over the next decade. Through this initiative, the Company anticipates retiring certain existing units and adding new generation to meet growing demand in the Company’s core markets, with an emphasis on new baseload capacity that is expected to be supported by long-term power purchase agreements, or PPAs, and financed with limited or non-recourse project financing.

llI. econrg represents NRG’s commitment to environmentally responsible power generation. econrg seeks to find ways to meet the challenges of climate change, clean air and water, and protecting our natural resources while taking advantage of business opportunities. This initiative builds upon its foundation in environmental compliance and embraces environmental initiatives for the benefit of our communities, employees and shareholders, such as encouraging investment in new environmental technologies, pursuing activities that preserve and protect the environment and encouraging changes in the daily lives of our employees.


IV. Future NRG is the Company’s workforce planning and development initiative and represents NRG’s strong commitment to planning for future staffing requirements to meet the on-going needs of the Company’s current operations in addition to the Company’s Repowering NRG initiatives. Future NRG encompasses analyzing the demographics, skill set and size of the Company’s workforce in addition to the organizational structure with a focus on succession planning requirements, training, development, staffing and recruiting needs. Included under the Future NRG umbrella is NRG University, which develops leadership, managerial, supervisory and technical training programs and includes individual skill development courses.


V. NRG Global Giving - Respect for the community is one of NRG’s core values. NRG’s Global Giving Program invests the Company’s resources to strengthen the communities where NRG does business and seeks to make investments in four focus areas: community and economic development, education, environment and human welfare.

Business Strategy

NRG’s strategy is to optimize the value of the Company’s generation assets while using its asset base as a platform for growth and enhanced financial performance which can be sustained and expanded upon in the years to come. NRG plans to maintain and enhance the Company’s position as a leading wholesale power generation company in the United States in a cost-effective and risk-mitigating manner in order to serve the bulk power requirements of NRG’s existing customer base and other entities that offer load or otherwise consume wholesale electricity products and services in bulk. NRG’s strategy includes the following principles:

Increase value from existing assets — NRG has a highly diversified portfolio of power generation assets in terms of region, fuel-type and dispatch levels. Through the FOR NRG initiative, NRG will continue to focus on extracting value from its portfolio by improving plant performance, reducing costs and harnessing the Company’s advantages of scale in the procurement of fuels and other commodities, parts and services, and in doing so improving the Company’s ROIC.

Reduce the volatility of the Company’s cash flows through asset-based commodity hedging activities — NRG will continue to execute asset-based risk management, hedging, marketing and trading strategies within well-defined risk and liquidity guidelines in order to manage the value of the Company’s physical and contractual assets. The Company’s marketing and hedging philosophy is centered on generating stable returns from its portfolio of baseload power generation assets while preserving an ability to capitalize on strong spot market conditions and to capture the extrinsic value of the Company’s intermediate and peaking facilities and portions of its baseload fleet. NRG believes that it can successfully execute this strategy by leveraging its (i) expertise in marketing power and ancillary services, (ii) its knowledge of markets, (iii) its balanced financial structure and (iv) its diverse portfolio of power generation assets.

Pursue additional growth opportunities at existing sites — NRG is favorably positioned to pursue growth opportunities through expansion of its existing generating capacity and development of new generating capacity at its existing facilities. NRG intends to invest in its existing assets through plant improvements, repowerings, brownfield development and site expansions to meet anticipated requirements for additional capacity in NRG’s core markets. Through the Repowering NRG initiative, NRG will continue to develop, construct and operate new and enhanced power generation facilities at its existing sites, with an emphasis on new baseload capacity that is supported by long-term power sales agreements and financed with limited or non-recourse project financing. NRG expects that these efforts will provide one or more of the following benefits: improved heat rates; lower delivered costs; expanded electricity production capability; an improved ability to dispatch economically across the regional general portfolio; increased technological and fuel diversity; and reduced environmental impacts, including facilities that either have near zero greenhouse gas, or GHG, emissions or can be equipped to capture and sequester GHG emissions.

Reduce carbon intensity of portfolio while taking advantage of carbon-driven business opportunities — NRG continues to actively pursue investments in new generating facilities and technologies that will be highly efficient and will employ no and low carbon technologies to limit CO 2 emissions and other air emission. Through the Repowering NRG and econrg initiatives, NRG is focused on the development of low or no GHG emitting energy generating sources, such as nuclear, wind, ’clean’ coal and gas, and the employment of post-combustion capture technologies, which represent significant commercial opportunities.

Maintain financial strength and flexibility — NRG remains focused on cash flow and maintaining appropriate levels of liquidity, debt and equity in order to ensure continued access to capital for investment, to enhance risk-adjusted returns and to provide flexibility in executing NRG’s business strategy. NRG will continue to focus on maintaining operational and financial controls designed to ensure that the Company’s financial position remains strong. At the same time, the Company’s ongoing capital allocation objective includes scheduled repayment of debt based on the amount of cash flow by the Company each year, as well as an annual return of capital to shareholders, targeted at an average rate of 3% of market capitalization, of approximately $250 million to $300 million per year.

Pursue strategic acquisitions and divestures — NRG will continue to pursue selective acquisitions, joint ventures and divestitures to enhance its asset mix and competitive position in the Company’s core markets. NRG intends to concentrate on opportunities that present attractive risk-adjusted returns. NRG will also opportunistically pursue other strategic transactions, including mergers, acquisitions or divestitures.

Competition and Competitive Strengths

Competition — Wholesale power generation is a capital-intensive, commodity-driven business with numerous industry participants. NRG competes on the basis of the location of its plants and ownership of multiple plants in various regions, which increases the stability and reliability of its energy supply. Wholesale power generation is basically a local business that is currently highly fragmented relative to other commodity industries and diverse in terms of industry structure. As such, there is a wide variation in terms of the capabilities, resources, nature and identity of the companies NRG competes with depending on the market.

Scale and diversity of assets — NRG has one of the largest and most diversified power generation portfolios in the United States, with approximately 22,880 MW of generation capacity in 175 active generating units at 43 plants as of December 31, 2007. The Company’s power generation assets are diversified by fuel-type, dispatch level and region, which help mitigate the risks associated with fuel price volatility and market demand cycles. NRG’s U.S. baseload facilities, which consist of approximately 8,700 MW of generation capacity measured as of December 31, 2007, provide the Company with a significant source of stable cash flow, while its intermediate and peaking facilities, with approximately 14,180 MW of generation capacity as of December 31, 2007, provide NRG with opportunities to capture the significant upside potential that can arise from time to time during periods of high demand. In addition, approximately 15% of the Company’s domestic generation facilities have dual or multiple fuel capability, which allows most of these plants to dispatch with the lowest cost fuel option.

Reliability of future cash flows — NRG has sold forward or otherwise hedged a significant portion of its expected baseload generation capacity through 2013. The Company has the capacity and intent to enter into additional hedges in later years when market conditions are favorable. In addition, as of December 31, 2007, the Company had purchased forward under fixed price contracts (with contractually-specified price escalators) to provide fuel for approximately 59% of its expected baseload coal generation output from 2008 to 2013. The hedge percentage is reflective of the current agreement of the Jewett mine in which NRG has the contractual ability to adjust volumes in future years. These forward positions provide a stable and reliable source of future cash flow for NRG’s investors, while preserving a portion of its generation portfolio for opportunistic sales to take advantage of market dynamics.

Favorable cost dynamics for baseload power plants — In 2007, approximately 87% of the Company’s domestic generation output was from plants fueled by coal or nuclear fuel. In many of the competitive markets where NRG operates, the price of power is typically set by the marginal costs of natural gas-fired and oil-fired power plants that currently have substantially higher variable costs than solid fuel baseload power plants. As a result of NRG’s lower marginal cost for baseload coal and nuclear generation assets, the Company expects the baseload assets in ERCOT to generate power nearly 100% of the time they are available.

Locational advantages — Many of NRG’s generation assets are located within densely populated areas that are characterized by significant constraints on the transmission of power from generators outside the particular region. Consequently, these assets are able to benefit from the higher prices that prevail for energy in these markets during periods of transmission constraints. NRG has generation assets located within New York City, southwestern Connecticut, Houston and the Los Angeles and San Diego load basins; all areas with constraints on the transmission of electricity. This gives the Company the opportunity to capture additional revenues by offering capacity to retail electric providers and others, selling power at prevailing market prices during periods of peak demand and providing ancillary services in support of system reliability. These facilities also are often ideally situated for repowering or the addition of new capacity, because their location and existing infrastructure give them significant advantages over newly developed sites in their regions.

In understanding NRG’s business, the Company believes that certain performance metrics are particularly important. These are industry statistics defined by the North American Electric Reliability Council and are more fully described below:

Annual Equivalent Availability Factor, or EAF: — Measures the percentage of maximum generation available over time as the fraction of net maximum generation that could be provided over a defined period of time after all types of outages and deratings, including seasonal deratings, are taken into account.

Gross heat rate: — NRG calculates the gross heat rate for the Company’s fossil-fired power plants by dividing the average amount of fuel in BTUs required to generate one kWh of electricity by the generator output.

Net Capacity Factor: — The net amount of electricity that a generating unit produces over a period of time divided by the net amount of electricity it could have produced if it had run at full power over that time period. The net amount of electricity produced is the total amount of electricity generated minus the amount of electricity used during generation.

Texas Region — As of December 31, 2007, NRG’s generation assets in the Texas region consisted of approximately 5,325 MW of baseload generation assets and approximately 5,480 MW of intermediate and peaking natural gas-fired assets. NRG realizes a substantial portion of its revenue and cash flow from the sale of power from the Company’s three baseload power plants located in the ERCOT market that use solid fuel: W.A. Parish which uses coal, Limestone which uses lignite and coal, and an undivided 44% interest in two nuclear generating units at South Texas Project, or STP, which uses nuclear fuel. Power plants are generally dispatched in order of lowest operating cost and as of December 31, 2007, approximately 72% of the net generation capacity in the ERCOT market was natural gas-fired. In the current natural gas price environment, NRG’s three baseload facilities have significantly lower operating costs than gas plants. NRG expects these three facilities to operate nearly 100% of the time when available, subject to planned and forced outages.

Northeast Region — As of December 31, 2007, NRG generation assets in the Northeast region of the United States consisted of approximately 6,980 MW generation capacity from the Company’s power plants within the control areas of the New York Independent System Operator, or NYISO, the Independent System Operator — New England, or ISO-NE, and the PJM Interconnection LLC, or PJM. Certain of these assets are located in transmission constrained areas, including approximately 1,415 MW of in-city New York City generation capacity and approximately 535 MW of southwest Connecticut generation capacity. As of December 31, 2007, NRG’s generation assets in the Northeast region consisted of approximately 1,870 MW of baseload generation assets and approximately 5,110 MW of intermediate and peaking assets.

South Central Region — As of December 31, 2007, NRG generation assets in the South Central region of the United States consisted of approximately 2,405 MW of generation capacity, making NRG the third largest generator in the Southeastern Electric Reliability Council/Entergy, or SERC-Entergy, region. The Company’s generation assets in the South Central region consists of its primary asset, Big Cajun II, a coal-fired plant located near Baton Rouge, Louisiana which has approximately 1,490 MW of baseload generation assets and 1,360 MW of intermediate and peaking assets. A significant portion of the region’s generation capacity has been sold to eleven cooperatives within the region through 2025. In addition, the region also operates 445 MW of peaking generation in Rockford, Illinois under the PJM region.

West Region — As of December 31, 2007, NRG generation assets in the West region of the United States consisted of approximately 2,130 MW. On January 3, 2007, NRG completed the sale of the Red Bluff and Chowchilla II power plants with a combined generation capacity of approximately 95 MW to an entity controlled by Wayzata Investment Partners LLC. On August 1, 2007, the Company successfully completed and commissioned the repowering of 260 MW of new gas-fired generating capacity at its Long Beach Generating Station.

International Region — As of December 31, 2007, NRG had net ownership in approximately 1,235 MW of power generating capacity outside the United States in Australia, Brazil, and Germany. In addition to traditional power generation facilities, NRG also owns equity interests in certain coal mines in Germany. On December 18, 2007, NRG entered into a sale and purchase agreement to sell its 100% interest in Tosli Acquisition B.V., which holds all of NRG’s interest in ITISA, to Brookfield Asset Management Inc. for the purchase price of $288 million, plus the assumption of approximately $60 million in debt. NRG anticipates the completion of the sale transaction during the first half 2008.

Thermal — NRG owns thermal and chilled water businesses that generate approximately 1,040 MW thermal equivalents. In addition, NRG’s thermal segment owns certain power plants with approximately 116 MW of power generating capacity located in Delaware and in Pennsylvania.

Commercial Operations Overview

NRG seeks to maximize profitability and manage cash flow volatility through the marketing, trading and sale of energy, capacity and ancillary services into spot, intermediate and long-term markets and through the active management and trading of emissions allowances, fuel supplies and transportation-related services. The Company’s principal objectives are the realization of the full market value of its asset base, including the capture of its extrinsic value, the management and mitigation of commodity market risk and the reduction of cash flow volatility over time.

NRG enters into power sales and hedging arrangements via a wide range of products and contracts, including power purchase agreements, fuel supply contracts, capacity auctions, natural gas swap agreements and other financial instruments. The power purchase agreements that NRG enters into require the Company to deliver MWh of power to its counterparties. In addition, because changes in power prices in the markets where NRG operates are generally correlated to changes in natural gas prices, the Company hedges a portion of its generation portfolio power using natural gas swaps and other financial instruments.

Fuel Supply and Transportation

NRG’s fuel requirements consist primarily of nuclear fuel and various forms of fossil fuel including oil, natural gas and coal, including lignite. The prices of oil, natural gas and coal are subject to macro- and micro-economic forces that can change dramatically in both the short- and long-term. The Company obtains its oil, natural gas and coal from multiple suppliers and transportation sources. Although availability is generally not an issue, localized shortages, transportation availability and supplier financial stability issues can and do occur. Issues related to the sources and availability of raw materials are fairly uniform across the Company’s business segments.

Coal The Company is largely hedged for its domestic coal consumption over the next few years. Coal hedging is dynamic, and is based on forecasted generation and market volatility. As of December 31, 2007, NRG had purchased forward contracts to provide fuel for approximately 59% of the Company’s requirement from 2008 through 2013. NRG arranges for the purchase, transportation and delivery of coal for the Company’s baseload coal plants via a variety of coal purchase agreements, rail transportation agreements and rail car lease arrangements. The Company purchased approximately 38 million tons of coal in 2007, and is one of the largest coal purchasers in the United States.

MANAGEMENT DISCUSSION FROM LATEST 10K

In this discussion and analysis, the Company discusses and explains the financial condition and the results of operations for NRG for the year ended December 31, 2007, that will include the points below:


• Factors which affect NRG’s business;

• NRG’s earnings and costs in the periods presented;

• Changes in earnings and costs between periods;

• Impact of these factors on NRG’s overall financial condition;

• A discussion of new and ongoing initiatives that may affect NRG’s future results of operations and financial condition;

• Expected future expenditures for capital projects; and

• Expected sources of cash for future operations and capital expenditures.

As you read this discussion and analysis, refer to NRG’s Consolidated Statements of Operations, which present the results of the Company’s operations for the years ended December 31, 2007, 2006 and 2005. The Company analyzes and explains the differences between the periods in the specific line items of NRG’s Consolidated Statements of Operations. This discussion and analysis has been organized as follows:


• Business strategy;

• Business environment in which NRG operates including how regulation, weather, and other factors affect the business;

• Significant events that are important to understanding the results of operations and financial condition;

• Results of operations including an overview of the Company’s results, followed by a more detailed review of those results by operating segment;

• Financial condition addressing its credit ratings, sources and uses of cash, capital resources and requirements, commitments, and off-balance sheet arrangements; and

• Critical accounting policies which are most important to both the portrayal of the Company’s financial condition and results of operations, and which require management’s most difficult, subjective or complex judgment.

Executive Summary

Overview

NRG Energy, Inc., or NRG or the Company, is a wholesale power generation company with a significant presence in major competitive power markets in the United States. NRG is engaged in the ownership, development, construction and operation of power generation facilities, the transacting in and trading of fuel and transportation services, and the trading of energy, capacity and related products in the United States and select international markets. As of December 31, 2007, NRG had a total global portfolio of 191 active operating generation units at 49 power generation plants, with an aggregate generation capacity of approximately 24,115 MW and approximately 740 MW under construction which includes partnership interests. Within the United States, NRG has one of the largest and most diversified power generation portfolios in terms of geography, fuel-type and dispatch levels, with approximately 22,880 MW of generation capacity in 175 active generating units at 43 plants. These power generation facilities are primarily located in Texas (approximately 10,805 MW), the Northeast (approximately 6,980 MW), South Central (approximately 2,850 MW), and West (approximately 2,130 MW) regions of the United States, with approximately 115 MW of additional generation capacity from the Company’s thermal assets. NRG’s principal domestic power plants consist of a mix of natural gas-, coal-, oil-fired and nuclear facilities, representing approximately 46%, 33%, 16% and 5% of the Company’s total domestic generation capacity, respectively. In addition, 15% of NRG’s domestic generating facilities have dual or multiple fuel capacity, which allows plants to dispatch with the lowest cost fuel option. NRG’s domestic generation facilities consist of baseload, intermediate and peaking power generation facilities, the ranking of which is referred to as Merit Order, and include thermal energy production plants. The sale of capacity and power from baseload generation facilities accounts for the majority of the Company’s revenues and provides a stable source of cash flow. In addition, NRG’s generation portfolio provides the Company with opportunities to capture additional revenues by selling power during periods of peak demand, offering capacity or similar products to retail electric providers and others, and providing ancillary services to support system reliability.

Business Strategy

NRG’s strategy is to optimize the value of the Company’s generation assets while using its asset base as a platform for growth and enhanced financial performance which can be sustained and expanded upon in the years to come. NRG plans to maintain and enhance the Company’s position as a leading wholesale power generation company in the United States in a cost-effective and risk-mitigating manner in order to serve the bulk power requirements of NRG’s existing customer base and other entities that offer load or otherwise consume wholesale electricity products and services in bulk. NRG’s strategy includes the following principles:

Increase value from existing assets — NRG has a highly diversified portfolio of power generation assets in terms of region, fuel-type and dispatch levels. Through the FOR NRG initiative, NRG will continue to focus on extracting value from its portfolio by improving plant performance, reducing costs and harnessing the Company’s advantages of scale in the procurement of fuels and other commodities, parts and services, and in doing so improving the Company’s return on invested capital, or ROIC.

Reduce the volatility of the Company’s cash flows through asset-based commodity hedging activities — NRG will continue to execute asset-based risk management, hedging, marketing and trading strategies within well-defined risk and liquidity guidelines in order to manage the value of the Company’s physical and contractual assets. The Company’s marketing and hedging philosophy is centered on generating stable returns from its portfolio of baseload power generation assets while preserving an ability to capitalize on strong spot market conditions and to capture the extrinsic value of the Company’s intermediate and peaking facilities and portions of its baseload fleet. NRG believes that it can successfully execute this strategy by (i) leveraging its expertise in marketing power and ancillary services, (ii) its knowledge of markets, (iii) its balanced financial structure and (iv) its diverse portfolio of power generation assets.

Pursue additional growth opportunities at existing sites — NRG is favorably positioned to pursue growth opportunities through expansion of its existing generating capacity and development of new generating capacity at its existing facilities. NRG intends to invest in its existing assets through plant improvements, repowerings, brownfield development and site expansions to meet anticipated requirements for additional capacity in NRG’s core markets. Through the Repowering NRG initiative, NRG will continue to develop, construct and operate new and enhanced power generation facilities at its existing sites, with an emphasis on new baseload capacity that is supported by long-term power sales agreements and financed with limited or non-recourse project financing. NRG expects that these efforts will provide one or more of the following benefits: improved heat rates; lower delivered costs; expanded electricity production capability; an improved ability to dispatch economically across the Merit Order; increased technological and fuel diversity; and reduced environmental impacts, including facilities that either have near zero GHG, emissions or can be equipped to capture and sequester GHG emissions.

Reduce carbon intensity of portfolio while taking advantage of carbon-driven business opportunities — NRG continues to actively pursue investments in new generating facilities and technologies that will be highly efficient and will employ no and low carbon technologies to limit CO 2 emissions and other air emission. Through the Repowering NRG and econrg initiatives, NRG is focused on the development of low or no GHG emitting energy generating sources, such as nuclear, wind, ‘clean’ coal and gas, and the employment of post-combustion capture technologies, which represents significant commercial opportunities.

Maintain financial strength and flexibility — NRG remains focused on cash flow and maintaining appropriate levels of liquidity, debt and equity in order to ensure continued access to capital for investment, to enhance risk-adjusted returns and to provide flexibility in executing NRG’s business strategy. NRG will continue to focus on maintaining operational and financial controls designed to ensure that the Company’s financial position remains strong. At the same time, the Company’s ongoing capital allocation objective includes scheduled repayment of debt based on the amount of cash flow by the Company each year, as well as an annual return of capital to shareholders, targeted at an average rate of 3% of market capitalization, of approximately $250 million to $300 million per year.

Pursue strategic acquisitions and divestures — NRG will continue to pursue selective acquisitions, joint ventures and divestitures to enhance its asset mix and competitive position in the Company’s core markets. NRG intends to concentrate on opportunities that present attractive risk-adjusted returns. NRG will also opportunistically pursue other strategic transactions, including mergers, acquisitions or divestitures.

Business Environment

General Industry — Emerging trends impacting the power industry include (a) increased regulatory and political scrutiny, (b) financial credit market disruptions triggered by sub-prime investment losses which may have, in part, contributed to current recessionary pressures, and (c) the development of power capacity markets intended to induce new investment in order to address tightening reserve margins. The industry dynamics and external influences that will affect the Company and the power generation industry in 2008 and for the medium term include:

Carbon — At the national level and at various regional and state levels, policies are under development to regulate GHG emissions, including CO 2 , the most common pollutant, thereby effectively putting a cost on such emissions in order to create financial incentive to reduce them. It is almost certain that GHG regulatory schemes will encompass power plants, with the impact on the Company’s financial performance depending on a number of factors, including the overall level of GHG reductions required under any such regulation, the price and availability of offsets, and the extent to which NRG would be entitled to receive GHG emissions allowances without having to purchase them in an auction or on the open market. While the passing and timing of legislation remains uncertain, the Company expects that the impact of such legislation on the Company’s financial performance, as such legislation is currently proposed, to have a minimal impact through the next decade. Thereafter, the impact would depend on the level of success of the Company’s multifold strategy, which includes (a) shaping public policy with the objective being constructive and effective federal GHG regulatory policy, and (b) pursuing its Repowering NRG and econrg programs. The Company’s multifold strategy is discussed in greater detail in Item 1, Business under Carbon Update.

Financial Credit Market Availability and Domestic Recessionary Pressures. Triggered largely by the decay in sub-prime credit markets, the cost of credit has sharply increased while credit availability has declined. Capital intensive generators rely on the credit markets for liquidity and for the financing of power generation investments. Concurrently, economic indicators are pointing towards a potential slowdown in the United States economy. A sharp downturn in U.S. housing, the tighter credit conditions, and disappointing employment numbers, amongst other data have highlighted the risk of economic recession. Historically, an economic recession results in lower power demand and power prices. If an economic recession does occur in the near term it is unlikely to have a material impact on the Company due to the hedged position of its portfolio.

Consolidation — Over the long-term, industry consolidation is expected to occur, with mergers and acquisitions activity in the power generation sector likely to involve utility-merchant or merchant-merchant combinations. There may also be interest by foreign power companies, particularly European utilities, in the American power generation sector. However, for the near-term, and particularly in the coming year, given the current financial market environment along with the uncertainty surrounding domestic carbon legislation, consolidation is less likely.

Infrastructure Development — In response to record peak power demand, tightening reserve margins, and volatile natural gas prices, the power generation industry has announced significant expansion plans for both transmission and generation. In addition to traditional gas-fired capacity, much of the new generation announced would be from non-gas fuel sources, including nuclear and renewable sources. During 2007, 18 gigawatts of previously announced pulverized coal generation projects were canceled due to increasing public and political concern regarding carbon emissions. The Energy Policy Act of 2005 created financial incentives for non-traditional baseload generation, such as advance nuclear and “clean coal” technologies in order to reduce reliance on the more traditional pulverized coal technologies. Depending on the timing and location of this new construction, as well as the construction activity in the oil and petrochemical sectors, access to experienced engineers, skilled operators, and maintenance workers could impact the timing and costs of these projects.

Market Developments — A number of the markets NRG serves are currently undergoing changes. NE-ISO held its first auction in February 2008 for 2010 capacity commitments as part of its FCM, while in California, MRTU is scheduled to go into effect on April 1, 2008. PJM completed its first RPM auctions during 2007. The primary objective of these market re-designs are to provide timely and accurate market signals to encourage new investment in transmission and new generation in the locations where the new investment is needed. In addition to these capacity market developments, in December 2008, ERCOT is expected to fully implement the “Texas Nodal Protocols,” which will revise the wholesale market design to incorporate locational marginal pricing, replacing the existing zonal wholesale market design. The ERCOT market design is expected to reduce local transmission congestion costs, with impacts on pricing uncertain at this time.

Competition

Wholesale power generation is a capital-intensive, commodity-driven business with numerous industry participants. NRG competes on the basis of the location of its plants and owning multiple plants in its regions, which increases the stability and reliability of its energy supply. Wholesale power generation is basically a local business that is currently highly fragmented relative to other commodity industries and diverse in terms of industry structure. As such, there is a wide variation in terms of the capabilities, resources, nature and identity of the companies NRG competes against depending on the market.

Weather

Weather conditions in the different regions of the United States influence the financial results of NRG’s businesses. Weather conditions can affect the supply and demand for electricity and fuels. Changes in energy supply and demand may impact the price of these energy commodities in both the spot and forward markets, which may affect the Company’s results in any given period. Typically, demand for and the price of electricity is higher in the summer and the winter seasons, when temperatures are more extreme. The demand for and price of natural gas and oil are higher in the winter. However, all regions of North America typically do not experience extreme weather conditions at the same time, thus NRG is typically not exposed to the effects of extreme weather in all parts of its business at once.

Other Factors

A number of other factors significantly influence the level and volatility of prices for energy commodities and related derivative products for NRG’s business. These factors include:


• seasonal daily and hourly changes in demand;

• extreme peak demands;

• available supply resources;

• transportation and transmission availability and reliability within and between regions;

• location of NRG’s generating facilities relative to the location of its load-serving opportunities;

• procedures used to maintain the integrity of the physical electricity system during extreme conditions; and

• changes in the nature and extent of federal and state regulations.

These factors can affect energy commodity and derivative prices in different ways and to different degrees. These effects may vary throughout the country as a result of regional differences in:


• weather conditions;

• market liquidity;

• capability and reliability of the physical electricity and gas systems;

• local transportation systems; and

• the nature and extent of electricity deregulation.

Stock Split

On April 25, 2007, NRG’s Board of Directors approved a two-for-one stock split of the Company’s outstanding shares of common stock which was effected through a stock dividend. The stock split entitled each stockholder of record at the close of business on May 22, 2007 to receive one additional share for every outstanding share of common stock held. The additional shares resulting from the stock split were distributed by the Company’s transfer agent on May 31, 2007. All share and per share amounts within this Form 10-K retroactively reflect the effect of the stock split.

Environmental Matters, Regulatory Matters and Legal Proceedings

NRG discusses details of its other environmental matters in Item 15 — Note 23, Environmental Matters , to its Consolidated Financial Statements and Item 1, Business — Environmental Matters, section. NRG discusses details of its regulatory matters in Item 15 — Note 22, Regulatory Matters , to its Consolidated Financial Statements and Item 1, Business — Environmental Matters, section. NRG discusses details of its legal proceedings in Item 15 — Note 21, Commitments and Contingencies , to its Consolidated Financial Statements. Some of this information is about costs that may be material to the Company’s financial results.

Impact of inflation on NRG’s results

Unless discussed specifically in the relevant segment, for the years ended December 31, 2007, 2006 and 2005, the impact of inflation and changing prices (due to changes in exchange rates) on NRG’s revenues and income from continuing operations was immaterial.



MANAGEMENT DISCUSSION FOR LATEST QUARTER

Introduction and Overview

NRG Energy, Inc., or NRG, or the Company, is a wholesale power generation company with a significant presence in major competitive power markets in the United States. NRG is primarily engaged in the ownership, development, construction and operation of power generation facilities, the transacting in and trading of fuel and transportation services, and the trading of energy, capacity and related products in the United States and select international markets. As of September 30, 2008, NRG had a total global portfolio of 189 active operating generation units at 48 power generation plants, with an aggregate generation capacity of approximately 24,020 MW and approximately 472 MW under construction. Within the United States, NRG has one of the largest and most diversified power generation portfolios in terms of geography, fuel-type and dispatch levels, with approximately 22,940 MW of generation capacity in 177 active generating units at 43 plants. These power generation facilities are primarily located in Texas (approximately 10,815 MW), the Northeast (approximately 7,020 MW), South Central (approximately 2,860 MW), and the West (approximately 2,130 MW) regions of the United States, with approximately 115 MW of additional generation capacity from the Company’s thermal assets. NRG’s principal domestic power plants consist of a mix of natural gas-, coal-, oil-fired and nuclear facilities, representing approximately 46%, 33%, 16% and 5% of the Company’s total domestic generation capacity, respectively. In addition, 15% of NRG’s domestic generating facilities have dual or multiple fuel capacity, which allows plants to dispatch with the lowest cost fuel option, and consist primarily of baseload, intermediate and peaking power generation facilities, the ranking of which is referred to as the Merit Order, and also include thermal energy production plants. The sale of capacity and power from baseload generation facilities accounts for the majority of the Company’s revenues. In addition, NRG’s generation portfolio provides the Company with opportunities to capture additional revenues by selling power during periods of peak demand, offering capacity or similar products to retail electric providers and others, and providing ancillary services to support system reliability.

The Company’s strategy is reflected in five major initiatives, described below. These initiatives are designed to enable the Company to take advantage of opportunities and surmount the challenges faced by the power industry.

1. FOR NRG is a companywide effort designed to increase the return on invested capital, or ROIC, through operational performance improvements to the Company’s asset fleet, along with a range of initiatives at plants and at corporate offices to reduce costs, or in some cases, monetize or reduce excess working capital and other assets. The FOR NRG accomplishments disclosed in NRG’s SEC filings and press releases include both recurring and one-time improvements measured from a prior base year. For plant operations, the program measures cumulative current year benefits using current gross margins multiplied by the change in baseline levels of certain key performance indicators. The plant performance benefits include both positive and negative results for plant reliability, capacity, heat rate and station service. During 2007, the Company announced the acceleration and planned conclusion of the FOR NRG 1.0 program by bringing forward the previously announced 2009 target of $250 million to 2008. Improvements in reliability throughout the baseload fleet, coupled with higher gross margins, especially in the Texas region, were the drivers of the year-to-date program performance. Through September 2008, the Company has estimated the cumulative value of implemented FOR NRG improvements will achieve a value in excess of the established a goal of $250 million by December 31, 2008. The FOR NRG 1.0 program was measured from a 2004 baseline, with the exception of the Texas Region where benefits were measured using 2005 as the base year.

Beginning in January 2009, the Company will transition to FOR NRG 2.0 and target an incremental 100 basis point improvement to the Company’s return on invested capital by 2012. The initial targets for FOR NRG 2.0 will be based upon improvements in the Company’s ROIC as measured by increased cash flow. The economic results of FOR NRG 2.0 will focus on: (1) revenue enhancement, (2) cost savings, and (3) asset optimization including reducing excess working capital and other assets. FOR NRG 2.0 program will measure its progress towards the FOR NRG 2.0 goals by using the Company’s 2008 financial results as a baseline, while plant performance calculations will be based upon the average full year plant key performance indicators for years 2006-2008.

2. Repowering NRG is a comprehensive portfolio redevelopment program designed to develop, construct and operate new multi-fuel, multi-technology, highly efficient and environmentally responsible generation capacity over the next decade. Through this initiative, the Company anticipates retiring certain existing units and adding new generation to meet growing demand in the Company’s core markets, with an emphasis on new capacity that is expected to be supported by long-term hedging programs, including power purchase agreements, or PPAs, and financed with limited or non-recourse project financing.

3. econrg represents NRG’s commitment to environmentally responsible power generation. econrg seeks to find ways for NRG to meet the challenges of climate change, clean air and water, and conservation of our natural resources while taking advantage of business opportunities that may inure to NRG as a result of our demonstration and deployment of “green” technologies. Within NRG, econrg builds upon a foundation in environmental compliance and embraces environmental initiatives for the benefit of our communities, employees and shareholders, such as encouraging investment in new environmental technologies, pursuing activities that preserve and protect the environment and encouraging changes in the daily lives of our employees.

4. Future NRG is the Company’s workforce planning and development initiative and represents NRG’s strong commitment to planning for future staffing requirements to meet the on-going needs of the Company’s current operations in addition to the Company’s Repowering NRG initiatives. Future NRG encompasses analyzing the demographics, skill set and size of the Company’s workforce in addition to the organizational structure with a focus on succession planning, training, development, staffing and recruiting needs. Included under the Future NRG umbrella is NRG University, which provides leadership, managerial, supervisory and technical training programs and individual skill development courses.

5. NRG Global Giving — Respect for the community is one of NRG’s core values. Our Global Giving Program invests NRG’s resources to strengthen the communities where we do business and seeks to make community investments in four FOCUS areas: community and economic development, education, environment and human welfare.

NRG’s 2007 Annual Report on Form 10-K includes a detailed discussion of various items impacting its business, results of operations and financial condition. These include:


• Introduction and Overview section which provides a description of NRG’s business segments;

• Strategy section;

• Business Environment section, including how regulation, weather, and other factors affect NRG’s business; and

• Critical Accounting Policies section.

Critical accounting policies are the accounting policies that are most important to the portrayal of NRG’s financial condition and results of operations and require management’s most difficult, subjective or complex judgment. NRG’s critical accounting policies include revenue recognition and derivative accounting, income taxes and valuation allowance for deferred taxes, evaluation of assets for impairment and other than temporary decline in value, goodwill and other intangible assets, and contingencies.

This discussion and analysis explains the general financial condition and the results of operations for NRG, including:


• factors which affect the business;

• earnings and costs in the periods presented;

• changes in earnings and costs between periods;

• sources of earnings;

• impact of these factors on NRG’s overall financial condition;

• expected future expenditures for capital projects; and

• expected sources of cash for further operations and capital expenditures.

As you read this discussion and analysis, refer to the consolidated statements of income which present the results of operations for the three and nine months ended September 30, 2008 and 2007. NRG analyzes and explains the differences between periods in the specific line items of the consolidated statements of income.

NRG has organized the discussion and analysis as follows:


• changes to the business environment during the period;

• results of operations beginning with an overview of NRG’s consolidated results, followed by a more detailed discussion of those results by major operating segment;

• financial condition, addressing liquidity, the sources and uses of cash, capital resources and commitments; and

• known trends that will affect NRG’s results of operation and financial condition in the future.

Changes in Accounting Standards

See Note 1 to the condensed consolidated financial statements of this Form 10-Q as found in Item 1 for a discussion of recent accounting developments.

Business Environment — Financial Credit Market Availability and Domestic Recessionary Pressures

A sharp economic downturn in the US and overseas during the latter part of 2008 was prompted by a combination of factors: tight credit markets, speculation and fear regarding the health of the US and global financial systems, and weaker economic activity in general prompting fears of an economic recession. Power generation companies are capital intensive and, as such, rely on the credit markets for liquidity and for the financing of power generation investments. In addition, economic recessions historically result in lower power demand, power prices, and fuel prices. NRG has a diversified liquidity program, with $3.0 billion in total liquidity, and a first and second lien structure that enables significant strategic hedging while reducing requirements for the posting of cash or letters of credit as collateral. NRG expects to continue to manage commodity price volatility through its strategic hedging program, under which the Company expects to hedge revenues and fuel costs. This program should provide the Company with the flexibility to enter into hedges opportunistically, such as when gas prices are increasing, while at the same time protecting NRG against longer-term volatility in the commodity markets. The Company believes that an economic recession is unlikely to have material impact on the Company’s cash generation in the near term due to the hedged position of its portfolio. NRG transacts with a diversified pool of counterparties and actively manages our exposure to any single counterparty. See Part 1, Item 1 — Liquidity and Capital Resources , and Part 1, Item 3 — Quantitative and Qualitative Disclosures about Market Risk for further discussion.

Unsolicited Exelon Proposal

On October 19, 2008, NRG received an unsolicited proposal from Exelon Corporation to acquire all of the outstanding shares of NRG at a fixed exchange ratio of 0.485 Exelon shares for each NRG common share. NRG’s Board of Directors is reviewing Exelon’s proposal with their advisors and will determine the appropriate response in due course. As of the date of the filing of this quarterly report, NRG stockholders have been advised to take no action at this time pending the review by NRG’s Board of Directors.

Environmental Matters

Carbon Update

At the national level and at various regional and state levels, policies are under development to regulate GHG emissions, including CO 2 , thereby effectively putting a cost on such emissions in order to create financial incentives to reduce them. The Northeast states are furthest along where six of ten participating states held the first CO 2 allowances auction on September 25, 2008. The effective start date is January 1, 2009. California under legislation enacted in 2007 known as AB32, the seven states and four Canadian provinces in the Western Climate Initiative, and the six states in the Midwest GHG Accord continue to develop market based programs for their respective jurisdictions. It is almost certain that all GHG regulatory schemes will encompass power plants. The impact on the Company’s financial performance will depend on a number of factors, including the overall level of GHG reductions required under any such regulation, the price and availability of offsets, and the extent to which NRG would be entitled to receive GHG emissions allowances without having to purchase them in an auction or on the open market. Despite current fiscal and economic concerns, Congressional leaders continue to seek an approach to national climate change legislation that will gain the support necessary to become law. In October 2008, Representatives Boucher and Dingell introduced a climate change discussion draft into Congress that, along with basic cap and trade architecture, offers a menu of options for dealing with a number of important details such as allocations and factors that could affect allowance price. In addition, the climate change discussion draft continues the trend of all major climate legislation in Congress to provide significant support for low carbon investments such as those involved in the Company’s Repowering NRG and econrg programs. Information regarding the Company’s carbon strategy is discussed in greater detail in Part I, Item 1, Carbon Update in NRG Energy, Inc.’s 2007 Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

On April 2, 2007, the US Supreme Court issued a decision in Massachusetts v. EPA that the USEPA has authority under Title II of the Clean Air Act or CAA to regulate CO 2 emissions from new motor vehicles. The actual treatment of CO 2 under the CAA is contingent upon an official finding by the USEPA on whether these emissions endanger public health and the environment. While such a finding, based on the Supreme Court decision, would be specific to mobile sources, the outcome would also be applicable to the regulation of stationary sources including electric generating units. On July 30, 2008, the USEPA released an Advance Notice of Proposed Rulemaking, or ANPR, inviting public comment on the benefits and ramifications of regulating GHG emissions under the CAA with comments due to EPA by November 28, 2008. Given this schedule it appears unlikely that there will be any regulation of CO 2 under the CAA during the remainder of 2008. At this time, NRG cannot predict the outcome of the ANPR process, any resulting changes to federal regulations, nor the impact on Company operations.

Federal Environmental Initiatives

On May 18, 2005, the USEPA published the Clean Air Mercury Rule, or CAMR, to permanently cap and reduce mercury emissions from coal-fired power plants. CAMR imposed limits on mercury emissions from new and existing coal-fired plants and created a market-based cap-and-trade program to reduce nationwide emissions of mercury. The rule was challenged by New Jersey and ten other states. On February 8, 2008, the US Court of Appeals for the D.C. Circuit vacated USEPA’s rule delisting coal- and oil-fired electric generating units from regulation under CAA § 112, or the Delisting Rule, and CAMR. Power plant emissions are now subject to Section 112 of the CAA which requires installation of maximum achievable control technology, or MACT, to reduce emissions. The USEPA plans to develop MACT standards and existing power plants will need to provide plans to meet the new requirements. Certain states in which NRG operates coal plants, such as Delaware, Massachusetts and New York, adopted state implementation plans in lieu of the CAMR federal implementation plan and these state rules remain unchanged. Texas and Louisiana adopted the federal CAMR.

On May 12, 2005, the USEPA published the market based Clean Air Interstate Rule, or CAIR. This rule applied to 28 eastern states and the District of Columbia, or D.C., and capped both SO 2 and NO x emissions from power plants in two phases; 2010 and 2015 for SO 2 and 2009 and 2015 for NO x . CAIR applies to some of the Company’s power plants in New York, Massachusetts, Connecticut, Delaware, Louisiana, Illinois, Pennsylvania, Maryland and Texas. On July 11, 2008, the D.C. Circuit Court ruled that CAIR should be vacated in its entirety. The USEPA petitioned for rehearing en banc on September 24, 2008. The D.C. Circuit Court must grant or deny the petition over the next few months after which it will be reheard or the USEPA can appeal for a hearing before the Supreme Court. The Court has not yet stayed the rule leaving January 1, 2009 as the effective date for the CAIR annual and seasonal NO x trading program. NRG’s SO 2 and NO x plans are driven primarily by state requirements and consent orders. NRG’s estimate for environmental capital expenditures reflects changes in schedule and design related to the current status of both CAIR and CAMR. The timing and substantive provisions of any ensuing revised or replacement regulations or legislation may alter the composition and rate of spending for environmental retrofits at our facilities.

On September 30, 2008, the NRG Texas region held a bank of emissions allowances with a net carrying value of $748 million, consisting of $504 million for SO 2 and $244 million for NO x . These are classified as long-term intangible assets and are carried at average cost. The D.C. Circuit Court ruling has resulted in a decline in current SO 2 market prices. NRG has estimated its SO 2 allowance requirement needed for generation based on the new ruling and evaluated any excess SO 2 allowances for potential impairment. Variability in generation assumptions and any ensuing regulations or legislation will alter our assumed rate of excess SO 2 allowances. NRG does not expect that CAIR and the D.C. Circuit Court ruling will have a material impact on the carrying value of our excess SO 2 allowances.

On March 12, 2008, the USEPA strengthened the primary and secondary ground level ozone National Ambient Air Quality Standards, or NAAQS, (eight hour average) from 0.08 ppm to 0.075 ppm. The USEPA plans to finalize ozone non-attainment regions by March 2010 and states would likely submit plans to come into attainment by 2013. The Company is unable to predict with certainty the impact of the states’ future recommendations on NRG’s operations.

Regional Environmental Initiatives

Northeast Region — On December 20, 2005, 10 northeastern states entered into a Memorandum of Understanding, or MOU, to create the Regional Greenhouse Gas Initiative, or RGGI, to establish a cap-and-trade GHG program for electric generators. Electric generating units in participating RGGI states will have to procure one allowance for every US ton of CO 2 emitted with true up for 2009-2011 occurring in 2012. NRG units located in Connecticut, Delaware, Maryland, Massachusetts and New York emitted approximately 13 million US tons of CO 2 in 2007. NRG believes that to the extent allowance costs will not be fully reflected in wholesale electricity prices, the direct financial impact on the Company is likely to be negative as costs are incurred to secure the necessary RGGI allowances and offsets at auction and in the market.

Regulatory Matters

As an operator of power plants and a participant in the wholesale markets, NRG is subject to regulation by various federal and state government agencies. In addition, NRG is subject to the market rules, procedures, and protocols of the various ISO markets in which NRG participates. These wholesale power markets are subject to ongoing legislative and regulatory changes. In some of NRG’s regions, interested parties have advocated for material market design changes, including the elimination of a single clearing price mechanism, as well as proposals to re-regulate the markets or require divestiture by generating companies in order to reduce their market share. The Company cannot predict the future design of the wholesale power markets or the ultimate effect that the changing regulatory environment will have on NRG’s business.

Northeast Region

New England — On July 1, 2008, ISO-NE filed proposed revisions to its market rules tariff addressing the compensation for units needed for reliability purposes after June 1, 2010 (the scheduled date for the implementation of the forward capacity market). These rule changes will impact NRG’s units that have operated pursuant to RMR agreements and that seek to delist in the forward capacity auctions such as Norwalk Power’s units 1 and 2 which submitted a delist bid in the first forward capacity auction. On October 28, 2008, FERC determined that units, such as Norwalk Power’s units, that submitted a dynamic delist bid that was rejected by ISO-NE for reliability reasons should be required to operate at their bid amount, not a cost of service rate, notwithstanding mitigation rules that restricted the ability of the units to submit a higher delist bid. As a result, the Norwalk Power units will be compensated at their delist bid of $5.99/kw-mo. for the first FCM capacity year.

On October 20, 2008, Northeast Utilities Service Company, or NU, the parent company of Connecticut Light and Power, filed an application with the Connecticut Siting Council for the Greater Springfield Reliability component of the New England East-West Solution, or NEEWS, transmission project, a significant reinforcement of the 345 kV transmission system. If constructed, the NEEWS line will increase the import capacity into Connecticut by approximately 1,100 MW.

New York — On March 7, 2008, FERC issued an order accepting the NYISO’s proposed market reforms to the in-city Installed Capacity, or ICAP, market, with only minor modifications. The NYISO proposal retains the existing ICAP market structure, but imposes additional market power mitigation on the current owners of Consolidated Edison’s divested generation units in New York City (which include NRG’s Arthur Kill and Astoria facilities), who are deemed to be pivotal suppliers. Specifically, the NYISO proposal imposes a new reference price on pivotal suppliers and requires bids to be submitted at or below the reference price. The new reference price is derived from the expected clearing price based upon the intersection of the supply curve and the ICAP Demand Curve if all suppliers bid as price-takers. The NYISO’s proposed reforms became effective March 27, 2008.

Texas Region

ERCOT has adopted “Texas Nodal Protocols” that will revise the wholesale market design to incorporate locational marginal pricing (in place of the current ERCOT zonal market). Major elements of the Texas Nodal Protocols include the continued capability for bilateral contracting of energy and ancillary services, a financially binding day-ahead market, resource-specific energy and ancillary service bid curves, the direct assignment of all congestion rents, nodal energy prices for resources, aggregation of nodal to zonal energy prices for loads, congestion revenue rights (including pre-assignment for public power entities), and pricing safeguards. The Public Utility Commission of Texas, or PUCT, approved the Texas Nodal Protocols on April 5, 2006, and full implementation of the new market design was scheduled to begin in 2008. On May 20, 2008, ERCOT announced that it would delay the implementation of the Texas Nodal Protocols, and has not provided a new target implementation date.

In May 2008, the ERCOT real-time energy market experienced periods of high prices as a result of limited intervals during which two zonal constraints were simultaneously binding, and this congestion was irresolvable through the dispatch of available resources. In response, ERCOT enacted revised protocols, effective June 9, 2008, for addressing such zonal congestion, providing ERCOT with greater authority to manage such congestion through the use of out-of-market mechanisms towards the goal of lowering prices. In addition, on June 17, 2008, ERCOT enacted revisions to its price cap procedures in order to further dampen the volatility and high prices. Thus, it is unlikely that the circumstances contributing to the price spikes of May 2008 will be repeated.

On July 17, 2008, as part of its determination of Competitive Renewable Energy Zones, or CREZ, the PUCT approved a significant transmission expansion plan to provide for the delivery of approximately 18,500 MW of energy from the western region of Texas, primarily wind generation. The schedule for construction of the transmission upgrades (approximately 2,300 miles of new 345 kV lines and 42 miles of new 138 kV lines) will be determined in subsequent PUCT proceedings. If completed as currently approved, the transmission upgrades and associated wind generation could impact wholesale energy and ancillary service prices in ERCOT. The PUCT issued its written order on August 15, 2008.

West Region

CAISO has indicated that its Market Redesign and Technology Upgrade, or MRTU, program will not be implemented before February 1, 2009. Significant components of the MRTU include: (i) locational marginal pricing of energy; (ii) a more effective congestion management system; (iii) a day-ahead market; and (iv) an increase to the existing bid caps. NRG considers these market reforms to be a positive development for its assets in the region.

On October 22, 2008, FERC issued a definitive order regarding the provision of station power in California. The FERC’s order reaffirmed the right of generators to engage in monthly netting of their station power needs and, further, clarified that local transmission-owning utilities are preempted from imposing state-based charges on such generators. This order should allow the Company to engage in monthly netting and thus avoid buying power at retail for many of its stations and, further, to avoid the other charges that the local transmission-owning utilities have been imposing. The Company is proceeding with preparation of a station power plan for submission to the California Public Utility Commission, or CPUC, and expects to realize savings in operation costs as a result of this order.

CONF CALL

Nahla Azmy - Director of Investor Relations

Thank you, Pamela. Good morning and welcome to our third quarter 2008 earnings call. This call is being broadcast live over the phone and from our website at www.nrgenergy.com. You can access the call presentation and press release furnished with the SEC through a link on the Investor Relations page of our website. A replaying podcast of the call will be posted on our website. This call, including the formal presentation and question-and-answer session, will be limited to one hour.

And now for the obligatory Safe Harbor Statements. During the course of this morning's presentation, management will reiterate forward-looking statements made in today's press release regarding future events and financial performance. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risk factors contained in our press release and other filings with the SEC that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. In addition, please note that the date of this conference call is October 30, 2008 and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events.

During this morning's call, we will refer to both GAAP and non-GAAP financial measures of the company's operating and financial results. For complete information regarding our non-GAAP financial information to most directly comparable GAAP measures and consecutive reconciliation of these figures, please refer to today's press release and this presentation.

Finally, before get started, as you probably know on October 19, we received an unprecedented proposal from Exelon Corporation to acquire NRG. We issued a press release the following day confirming the receipt of the proposal stating our Board of Directors will review and determine the appropriate response in due course and advising our stockholders not to take any actions pending that review. Our Board is continuing to review the proposal. With that said, please keep in mind that the purpose of today's call is to discuss our third quarter performance and that we'll not be making any formal remarks nor commenting on any aspects of Exelon's proposal until an official Board response have been issued. We ask that the questions be focused on third quarter performance.

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

David Crane - President and Chief Executive Officer

Thank you Nahla and good morning everyone. Today I am joined here by Bob Flexon, our Chief Operating Officer and Clint Freeland, our Chief Financial Officer and they will both be giving part of today's presentation. Clint will be giving the lion's share of today's presentation.

Also with me and available to answer questions here are Mauricio Gutierrez, our Head of Commercial Operations potentially not answering question is Mauricio plus Drew Murphy, our General Counsel. Allow me to get started.

Ladies and gentleman in this world and in the marketplace searching for good news we are here today to bring you some. Today we are announcing record safety performance, record operating performance, record achievement by FORNRG which is our internal improvement program and what it all adds up to is record financial performance as manifested in a $100 million increase in full year 2008 EBITDA guidance. And that also translates into record liquidity passing out at over $3 billion.

And again Bob is going to talk about how we achieved all this and I really have only one comment that I want to make before I hand it over to Bob and that's this; this is the 20th quarterly earnings call in the history of the new NRG and many of you on the phone have been with us through the whole time. However as a result of the recent acquiring initiatives some of you on the phone may just be getting acquainted with the company. What you need to know is that this company was born at the last down turn in the electric industry back in 2002, 2003. That experience had formed the type company that we set out to be.

We sought to build a company that would be both nimble enough to capitalize on the extraordinary attractive value enhancing opportunity that periodically arise in our industry. But also solid enough to withstand the down cycle that can do such damage in an industry which is both capital intensive and multi-commodity price driven to a company that gets it wrong and by getting it wrong I mean either getting your capital structure wrong or your commodity strategy wrong or worse of all both.

As a result of who you are and where we came from, over the past five years we have resisted the temptation to over lever our balance sheet as some call upon us to do particularly in the wake of the TXU going private transaction. We've refused many times in fact to chase acquisition at excessive price levels and we have rejected complaints by various observers during the last commodity price up cycle that we should reduce our base load hedging activity and stay open to the market, an arguments that was made to us on the basis that we would not realize the full benefit of the commodity price upswing.

Now after a couple of years of relative plenty and by that I mean rising gas pricing, rising heat rates, and cheap capital, we find ourselves in a challenging environment. An environment which is fair to say considerably more challenging than anything that we are or anyone else seems to have ever contemplated. We obviously find the current market environment less attractive than twelve to eighteen months ago, for instance. But it has provided a real life test of the robustness of our business model.

It's hard to recall now but fittingly natural gas prices peaked on the last day of the second quarter of this year. So the third quarter has been the first full quarterly test of our robustness, and as such I am extremely gratified by our quarterly results, and the position we find ourselves in going into the balance of the year, from the point of view of full financial performance, liquidity, and operating and commercial performance.

This exceptional company performance is the direct result of and attribute to the exceptional professionalism of all NRG operational and commercial personnel, in all functions and in all regions. Now as we all know, one successful quarter and down market does not guarantees future success, but I believe that a vivid real life demonstration of the type of above expectation performance that we have delivered to our shareholders over the past twenty quarters, and the type of performance we will continue to deliver in the future. In my opinion this is what makes NRG a breed apart. Bob?

Robert Flexon - Executive Vice President and Chief Operating Officer

Thank you, David. Beginning on slide 7, I have provided a summary of the primary operational and commercial highlights for both the quarter and year-to-date, and following up on David's opening comments and consistent with the company's overall performance result this quarter and hear from our operations group and our commercial team is also their best ever all around performance since our beginning in December of '03. Our 2008 safety performance improved dramatically from 2007 which had already achieved a performance level significantly better than industry average. Equivalent availability factors or EAF for the coal base flow generation portfolio reached an all time quarterly high at 95.4% bringing the year-to-date EAF up to 91.1%.

I also want to take this moment to recognize our world class nuclear operating team at STP. The STP facility which has earned more honors than any other U.S. nuclear power plant has, for the third time received the industry's top honor. On May 7, 2008 STP received the industry's top honor, the B. Ralph Sylvia Best of the Best award. STP is the only received winner of this award.

In addition during the past four years, STP's track record of avoiding unplanned shutdowns for two units has allowed us to produce more power than any of the other 32 to reactive plants in the nation. The other highlight I would point out is the continued progress made in achieving our FORNRG $250 million pre-tax income improvement goal. As of September 30, 2008 improvements realized to date combined with our completed initiatives that will benefit the fourth quarter performance will lead to our exceeding the $250 million goal by year end. In a moment I will provide information and target for FORNRG 2.0 which is scheduled to kick off on January 1, 2009.

Slide 8 provides a further look at our year-to-date safety performance for coal inventory position at September 30th, and the quarterly and year-to-date generation. In addition to my opening comments on facing our year-to-date performance as benchmarked across fuel generators is just below our performance goal of deciles. Reportable incidents through September 30, was 22 versus 40 during the same period last year, a 45% improvement. While this clearly is exceptional performance we're not stopping here and we'll continue to pursue in accident free environment.

Total inventories declined during the quarter to an average of 37 days on hand at September 30th. Declines primarily relates back to the second quarter when lower inventory levels at Big Cajun II and WA Parish facilities resulted from rail and barge disruptions during the quarter in connection with the Midwest floods and high water levels on the Mississippi. And also supply interruptions in September caused Hurricane Gustav. All shipping routes have returned to normal operation and inventory levels are building.

The generation decline in Texas and South Central region was largely attributable to the impact of Hurricane Ike in Texas and Gustav in Louisiana during September. Generation from the Taxes gas plants was impacted by low demand resulting from wide stretch transmission outages. The baseload generation in South Central was lower in September, as transmission out of the plant was restricted due to the line outage.

The financial impact to the company at both resulted in lost revenues and opportunity cost as well as higher maintenance expenses in the $15 million to $20 million range. Lower generations for the quarter in the North East was a result of declining natural gas prices coupled with higher coal cost, that lead to reduced runtime at our Indian River and Summer Set plants.

Slide 9 updates our commodity hedging position. With high levels of commodity price volatility during 2008, there is an opportunity throughout the year to lead significant amount of power and power equivalent hedges dating up to 2013. During the third quarter 18.3 terawatt hours of power hedges were added bringing the total for the year to 53.4 terawatt hours. The addition of these hedges is inline with our hedged fuel position, appropriately locking in gross margins. Additional coal hedges have also been added during the course of 2008 for the forward five year period.

The right hand side of the slide provides the gross margin sensitivity the portfolio will have to changes in the natural gas prices. And heat rate on an equal probability basis through 2013, considering 2009 hedge levels this variability of our base load gross margin during 2009 is expected to be limited.

In executing our hedging strategy our lean program remains the center piece that allows us to efficiently hedge longer term power and power equivalent positions without the liquidity risk, traditional cash intensive hedging requires. Slide 10 illustrates the hedging capacity under the lean structure which is a function of available capacity rather than a dollar driven limitation. We are lean positioned against the assets for half of the money hedges of September 30, 2008 and October 23, 2008 was approximately $421 million and $187 million respectively. On the right hand side of the slide is our counter party risk grouped by ratings and type of counter party. We manage our credit risk by utilizing a number of different risk mitigation methods, purchase credit limits, netting agreements, collateral of threshold, volume metric limits, and counter party diversification.

Counter party interest in participating in our lean structure remains strong and we recently converted a second lean participant to first lean status that resulted in a $75 million letter of credit posting being returned to the company. Slide 11 provides a high level look at the market practice influencing natural gas, heat rates, and their cost and coal. While near-term energy and natural gas prices have been under pressure of late we remain bullish on our longer term outlook for natural gas prices. Active supporting our view include NRG imports to the U.S. have declined significantly in 2008 compared to 2007 and 2006. With global NRG prices significantly above U.S. prices; we don't expect a shift in this trend in the near term.

Environmental and permitting trends are driving higher demand for natural gas as an energy source over coal and oil and the supply side is faced with rising exploration, production, and financing cost. Published reports put the margin of cost including capital return for unconventional gas sources in excess of $8 per million DTO. In addition declining natural gas prices coupled with the ongoing seizure of credit markets has resulted in announcements from producer's scaling back capital budgets for 2009 in excess of $6 billion. Many of the unconventional producers are sub-investment grade and rely heavily on capital markets to fund projects.

Heat rates in our cost have been under pressure of late due to the combination of new generation and reduced liquidity in the market place. This combined with the current state of the financial market is resulting in the delay for cancellation of new build projects including transmission that otherwise would increase supply.

Longer-term and post recession, reserve margins should tighten quickly in a recovering market with the corresponding strengthening of heat rates. PRB as our primary solid fuel source continues to be a significant cost advantage for NRG as compared to the cost of other domestic coals. Performance for our PRB coal and real transportation providers has been excellent during 2008 reflecting the benefits from infrastructure investments made by all parties.

Our latest milestone as shown on slide 12 is the achievement of our performance improvement goal originally targeted for December 2009 subsequently accelerated to December 2008 and now virtually locked in at September 30th. FORNRG has improvements in place that bring our total contribution by December 2008 in excess of our $250 million goal. The history of our progress is on the top left side of the slide. While this has been a company wide efforts of contribution from our operations group, corporate, and regional offices and procurement. I finally did feel the operational improvement as example of the accomplishments achieved under the banner FORNRG 1.0. Our drive and determination to improve how we operate has yield valuable learning that will benefit our team for years to come while contributing to the record setting here.

What's next with FORNRG is covered on slide 13, we're preparing for the January 1, 2009 launch the goal of FORNRG 2.0. The goal of 2.0 is an increase to our return on invested capital by an incremental 100 basis points over the next 4 years. This equates to approximately a $150 million in higher pre cash flows upon goal achievement. In pursuing this goal, we will use what we learned from our FORNRG 1.0 experience and capitalize on additional opportunities that we make. Our scope will broaden comprehensively address the three primary growth drivers, revenues, expenses and invested capital.

Highlighted on the slide are the areas where our initial efforts will be directed. Moving all of our base load planned performance levels to top decile from quartile which FORNRG 1.0 will accomplish will provide roughly one third of the FORNRG 2.0 goal. Finally slide 14, details our operating mission in which we see, our goal of being the premier merchant portfolio operator. Our definition of premier is top decile safety in operating performance Add to that our leading capabilities in commercial operations and risk management and the picture comes into focus why we're able to deliver exceptional performance and record results during such a difficult economic climate. At this time I will turn to Clint for the third quarter financial review.

Clint Freeland - Chief Financial Officer and Senior Vice President

Thank you Bob. At no time during the almost five year history of the new NRG; have we seen our experience to more challenging, operating, and financial environment than during the four month period since the end of the second quarter. Despite financial market dislocations, general economic slowing, and major hurricanes hitting two of our core business regions, NRG steadfast commitment, proven balance sheet management, robust liquidity, risk management, and operational excellence enabled the company to deliver record quarterly adjusted EBITDA, record year-to-date adjusted EBITDA, record earnings and a record level of total liquidity as outlined on slide 16.

NRG's previous record quarterly adjusted EBITDA was achieved during the third quarter of last year, but results for this quarter exceeded it by 7% which in turn led to record year-to-date results as well. At the same time, the company's total liquidity rose by $432 million since June 2008 or over 17% as cash from operations and net counter party collateral movement boosted total liquidity to over $3 billion equivalent to almost 50% of NRG's current market capitalization on a fully diluted basis.

The exceptional financial performance during the first three quarters has put NRG on track to exceed previously announced adjusted EBITDA guidance of $2.3 billion for the year. Given the significant hedge position and related earnings visibility for the fourth quarter, NRG is raising its full year adjusted EBITDA guidance by $100 million to $2.4 billion.

As has been customary for NRG on its third quarter's earnings call, we are also initiating adjusted EBITDA guidance for 2009 today at $2.2 billion. While this is lower than what we ultimately anticipate for 2008, it is flat to our initial guidance provided to investors this time last year for full year 2008. Additionally, today we are providing an outline of NRG's 2009 capital allocation plan which is highlighted by further debt reduction, lower re-powering investments in 2008, and continued return of capital to shareholders which at this time is targeted at $300 million.

So, the story for this quarter is simple, NRG's unwavering commitment to prudent capital management, proactive hedging, and safe and reliable planned performance demonstrated its value this quarter enabling NRG to deliver record performance even in the midst of dramatic financial market disruptions and economic deteriorations.

Moving to slide 17, adjusted EBITDA for the third quarter totaled $758 million, a 7% increase over 2007 record quarter, primarily due to improved results in the company's Texas region. Despite flat base load and lower gas plant generation, energy margins in Texas actually rose by $52 million as the company's hedged base load power prices in 2008 were higher than prices realized the previous year which included lower price legacy power contract inherited in the Texas Genco transaction that was not reset in 2006.

Capitalizing STP 3 and 4 costs in 2008 versus expensing them in 2007 resulted in a $35 million reduction in regional development expense during the quarter and this offset somewhat by higher O&M expenses accounted for the balance of the quarter-over-quarter improvement. Despite being hit by Hurricane Gustav in September and seeing meaningful transmission disruptions as a result, NRG's South Central region recorded a $4 million increase in adjusted EBITDA from $42 million in 2007 to $46 million in 2008.

An increase in the value of power contracts in the region more than offset lower Big Cajun II generation, resulting from transmission constraints after the hurricane which limited the amount of power the facility could deliver to the grid. Adjusted EBITDA for NRG's Northeast region decreased $11 million quarter-over-quarter from $204 million in 2007 to $193 million in 2008. Lower base load generation at Indian River and Somerset, reduced gas plant generation across the fleet, lower contract margins, and weaker capacity revenues during the period more than offset the benefit of higher emission sales and operating cost reductions.

The $25 million unfavorable variance illustrated in the corporate column of this slide is mainly comprised of a $19 million write down of two previously disclosed commercial paper investments which became distressed last year, one of which was restructured during the most recent quarter.

Before turning to the year-to-date results, you may recall that the company reported a $713 million mark-to-market loss during the first half of the year as the sharp run up in natural gas prices adversely impacted the value of certain positions in our hedging program. As shown on this slide, that mark-to-market loss more than reversed in the third quarter as natural gas prices retreated, leading to an $826 million mark-to-market gain. For further detail on the various components of these gains we have included a slide in the appendix of this presentation for your reference.

Slide 18 reflects NRG's year-to-date performance. In each of the first three quarters of the year, NRG reported year-over-year increases in adjusted EBITDA resulting in a record year-to-date total of $1.966 billion up 13% over 2007. While each of the company's regions stepped up and made a disproportionate contribution at different times throughout the year, the primary driver of this improvement is NRG's Texas region where adjusted EBITDA increased $261 million over the previous year. While flat during the first quarter, the Texas region outperformed 2007 during the second and third quarters, as exceptional base load plant performance, higher realized merchant energy prices, and advantages hedge positions came together to drive the region's results for the year. The region also benefited from $22 million in emission sales in 2008 while development expenses decreased by $81 million as STP 3 and 4 costs were capitalized during 2008 instead of being expensed in 2007.

Slide 19 shows NRG's cash flow generation during the first nine months of 2008.

Cash flow from operations increased $65 million from $976 million in the first nine months of 2007 to $1.041 billion for the first nine months of 2008. But if we net out the impact of cash collateral movement to see the true cash generation of the business, cash from operations rose 26% from $1.083 billion to $1.361 billion. Virtually all of these year-over-year increase in cash from operations excluding collateral can be attributable to strong adjusted EBITDA results and improved working capital levels.

NRG's free cash flow for the nine months ended September 30, 2008 was $384 million compared to $626 million in 2007 as both environmental and re-powering investments accelerated. The year-over-year increase in environmental CapEx is related to the back end control projects that are at Huntley and Dunkirk locations while the re-powering investments will primarily focus on wind developments including Shelbina I and Elbow Creek wind farms in Texas, Cedar Bayou 4 combined cycle gas plant outside of Houston, and a Cos Cob peaking facility in Connecticut. Re-powering investments also includes continued investment in the STP 3 and 4 initiative which is recorded net of the $50 million contribution received from our partner, Toshiba.

Moving to slide 20, NRG's robust and diverse liquidity program remains a differentiating factor for the company. NRG is in an enviable position of having the liquidity and cash generation profile to be self funding and therefore self sufficient enabling the company to continue executing its strategic plan, during this period of financial market disruption. As outlined here, total liquidity at the end of the third quarter stood right over $3 billion, up $432 million since June 30th. This increase was attributable to a $222 million increase in cash balances resulting from strong cash flow from operations and a $207 million increase in letter of credit capacity resulting from the return of LCs previously posted in support of commercial operations activity.

As I mentioned earlier, NRG continues to perform exceptionally well through the third quarter and this together with the earnings visibility associated with our hedge position for the rest of the year enables us to increase our 2008 guidance by $100 million to $2.4 billion as outlined on slide 21. Despite this improvement in adjusted EBITDA, cash flow from operations is expected to remain virtually flat as higher cash collateral requirements for the year offset the benefit of higher earnings. I would note however, that as commodity prices continue to weaken, this net collateral out flow may diminish which would in turn benefit cash flow.

Projected cash flow from operations exclusive of collateral movements increased by $114 million from our previous guidance. We expect higher interest expense for 2008 as a result of the $45 million CSF1 call option settlement during the quarter and anticipate higher cash taxes resulting from increased earnings. The impact of these items to cash flow from operations should be minimal though due to offsetting improvements in working capital.

While projected cash flow from recurring operations remains virtually unchanged. We expect our free cash flow to increase approximately $82 million due to reductions in our re-powering investments primarily related to delays in our... project. So, as we look out to rest of the year, we expect to see continued strong free cash flow from recurring operations before environmental and re-powering CapEx. And at yesterdays closing share price of recurring free cash flow yield of approximately 24%. As we move towards 2009, we have updated our forecast and the results are outlined on slide 22.

Our initial adjusted EBITDA guidance for next year is $2.2 billion which is lower than expectations for full year 2008, primarily due to four factors, our expectations of less volatile natural gas and power prices, incremental cost related to REGE compliance in the Northeast, lower emission credit sales, and weaker New York capacity prices.

As we've previously disclosed, NRG's cash tax rate is anticipated to rise to approximately 30% of forecasted pre-tax income. Net of available tax loss carry forwards which accounts for the meaningful increase in expected cash taxes for the year. These factors combined with slightly higher cash interest expense associated with the repayment of the CSF2 financing result in cash flow from operations guidance of $1.3 billion.

Given the volatility that we've seen this year, in tax collateral postings, we've decided to remove collateral movements from our cash flow guidance and instead focus on the underlined cash flow generation of the business absent the cash flow timing impacts of margin fluctuation.

Free cash flow from recurring operations after $255 million in maintenance CapEx and $33 million in preferred dividend remained strong at $1.012 billion and will provide the company with the capital to internally fund $256 million in environmental CapEx, primarily the completion of backend control project that Humly [ph] and Dunkirk and increased backend spending at Indian River.

Environmental capital projections may vary in response to changes in clear litigation or other legislative actions. The free cash flow from recurring operation will also fund NRG's $118 million in re-powering investments, net of partner contributions, anticipated construction financing, and equity sell downs. Re-powering investments include completion of Cedar Bayou, initiation of the Connecticut... projects with our partner United Illuminating and final payments on one set of GE wind turbines.

Our forecast assumes that continued investment in STP 3 and 4 nuclear project will be managed on a cash neutral basis to NRG. This re-powering investment forecast includes only those projects that the company is currently committed to. Any other investments are considered discretionary at this point given the current state of the capital markets and will be carefully considered before adding them to the capital budget.

As slide 23 outlines, the robust cash flow generation of the company coupled with the proceeds from the sale of our ITISA asset earlier this year has enabled NRG to achieve record levels of liquidity while remaining on track with its capital allocation program. In addition to the CapEx investments I spoke of a moment ago, NRG remained balanced in its approach to returning capital to investors, returning $202 million to debt holders in 2008 and $217 million to shareholders, as part of it $300 repurchase commitment. Additionally NRG settled the call options related to the CSF 1 financing during the third quarter for a total of $45 million.

As we look forward to the rest of 2008; we intent to complete our capital allocation plan for the year with an additional $30 million in share repurchases, assuming we have an open window before year end. As we look forward to 2009, we intend to pursue the investments in our existing fleets and re-powering initiatives that I outlined a moment ago. We also anticipate further de-levering of the balance sheet in the first quarter of 2009, as we offer our personal lean lenders as required under our existing credit agreement, 50% of the excess cash flow generated by the company during 2008.

Given the current trading level of that debt we expect lenders to accept the entire amount which will be determined when we close the books for 2008. Historically, when sizing our annual share repurchase programs we've targeted 3% of the market capitalization of the company which equated to approximately $250 million $300 million. Given the significant decline in the company's share price recently however, the 3% target would be closer to $150 million.

Considering our current level of liquidity, projected cash flow in 2009 and compelling share price though, we intend to again target at least a $300 million buyback or 6% of current market cap in 2009. We do however want to remind everyone that the commitment we have made is 3% and as such reserve the rights to return to the 3% target for periods beyond next year. So, as we look forward to the remaining months of 2008 and full year 2009, the prospects for NRG remains solid. While we expect financial market and general economic conditions to remain challenging for the foreseeable future, the company's relentless focus on prudent balance sheet management, robust liquidity, strategic hedging, and operational excellence has positioned the company to deliver outstanding 2008 results and a solid 2009. With that I'll turn it back to you David.

David Crane - President and Chief Executive Officer

Thank you Clint. And just as we finish the final pages of the slide there can particularly slide 25 it goes back to the theme that I started which was the theme of differentiation. I think this slide provides a fairly detailed review of what we believe differentiates us from other companies and I think this, together with our track record is demonstrated by this exceptional third quarter and year-to-date performance. When we put those two together, it'd all add up to quite simply and to coin a phrase is that NRG is the best investment available in power industry.

With that before we open it for questions, I think Nahla has one more thing to say and then we will answer your questions.

Nahla Azmy - Director of Investor Relations

Once again, thank you for joining us on our call. I would like to remind you that the purpose of today's is to talk about our financial results for the third quarter of 2008 and to provide you with an update on our business and we ask that you keep questions focused on these results. We will not be taking questions on the Exelon proposal. In the interest of time we ask that you please limit yourself to one question with just one follow up. With that Pamela, we are ready to open up the line for questions.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

1069 Views