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Edited Transcript of DYN earnings conference call or presentation 24-Feb-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Dynegy Inc Earnings Call

HOUSTON Feb 25, 2017 (Thomson StreetEvents) -- Edited Transcript of Dynegy Inc earnings conference call or presentation Friday, February 24, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Rodney McMahan

Dynegy Inc. - VP of IR

* Bob Flexon

Dynegy Inc. - President & CEO

* Clint Freeland

Dynegy Inc. - CFO

* Hank Jones

Dynegy Inc. - Chief Commercial Officer

* Marty Daley

Dynegy Inc. - COO

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Conference Call Participants

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* Greg Gordon

Evercore ISI - Analyst

* Praful Mehta

Citigroup - Analyst

* Devin McDermott

Morgan Stanley - Analyst

* Julien Dumoulin-Smith

UBS - Analyst

* Abe Azar

Deutsche Bank - Analyst

* Ali Agha

SunTrust Robinson Humphrey - Analyst

* Jeff Cramer

Morgan Stanley - Analyst

* Angie Storozynski

Macquarie Research Equities - Analyst

* Neel Mitra

Tudor, Pickering, Holt & Co. Securities - Analyst

* Michael Lapides

Goldman Sachs - Analyst

* Srinjoy Banerjee

Barclays Capital - Analyst

* Shar Pourreza

Guggenheim Partners - Analyst

* Keith Stanley

Wolfe Research - Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the Dynegy Incorporated fourth quarter and full-year 2016 financial results teleconference. Please note that all lines will be in a listen only mode until the question-and-answer portion of today's call.

(Operator instructions).

I'd now like to turn the conference over to Mr. Rodney McMahan, Vice President, Investor Relations. Sir, you may begin.

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Rodney McMahan, Dynegy Inc. - VP of IR [2]

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Thank you. Good morning, everyone, and welcome to Dynegy's investor conference call and webcast covering the Company's full year and fourth quarter 2016 results. As is our customary practice, before we begin this morning I would like to remind you that our call will include statements reflecting assumptions, expectations, projections, intentions or beliefs about future events and views of market dynamics.

These and other statements not relating strictly to historical or current facts are intended as forward-looking statements. Actual results, though, may vary materially from those expressed or implied in any forward-looking statements. For a description of the factors that may cause such a variance, I would direct you to the forward-looking statements legend contained in last night's news release and in our SEC filings, which are available free of charge through our website at dynegy.com.

With that I will now turn it over to our President and CEO, Bob Flexon.

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Bob Flexon, Dynegy Inc. - President & CEO [3]

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Good morning, and thank you for joining us today. With me today are Clint Freeland, our Chief Financial Officer; Hank Jones, our Chief Commercial Officer; Catherine James, our Executive Vice President and General Counsel; Marty Daley, our Chief Operating Officer; Sheree Petrone, our Executive Vice President of Retail; Dean Ellis, our Senior Vice President of Regulatory Affairs; and Carolyn Burke, our Executive Vice President of Strategy.

We posted our earnings release, presentation and Management's prepared remarks on our website last night, and prior to opening up the call for questions I want to highlight a few items from the fourth quarter and several recent developments.

Our 2016 adjusted EBITDA was $1.007 billion versus $850 million in 2015. The year over year improvement was primarily driven by the full-year contributions from the Duke and EquiPower plants in 2016 versus the nine months in 2015. Partially offsetting this benefit were lower energy margins across most segments, primarily due to mild temperatures in the first quarter of 2016 and lower capacity revenues in PJM and ISO-New England as a result of lower previously cleared capacity pricing.

2016 adjusted free cash flow was $263 million versus $186 million in 2015. Both adjusted EBITDA and adjusted free cash flow were within the Company's established guidance ranges. We are affirming our 2017 full-year adjusted EBITDA and adjusted free cash flow guidance ranges today.

While weak winter weather has negatively impacted market power prices and spark spreads, Dynegy's hedging program has provided a meaningful offset. Additionally, our 2017 O&M and capital expenditure budgets have been revisited in light of the current commodity price environment and the five-week delay in the ENGIE closing. These cost reductions, together with cash interest savings from the recent term loan repricing, completely offset the market price weakness we have seen to-date.

On February 7, we closed the acquisition of ENGIE's US fossil generation portfolio and settled out our obligation to Energy Capital Partners. As planned Dynegy issued 13.7 million shares of its common stock to ECP at closing for total consideration of $150 million or $10.94 per share, and simultaneously Dynegy paid $375 million for the purchase of ECP's interest in Atlas Power, the subsidiary that purchased the fleet. The acquisition at 9 GW of primarily high-quality natural gas plants in the desirable markets of PJM, New England and ERCOT.

Transaction energies have been increase from $90 million to $120 million, with the bulk of these synergies related to adjusted EBITDA improvements including lower LTSA costs, gas plant upgrades, improved outage management and eliminating redundant corporate overhead costs. Consolidation to a single headquarters was completed day one, and approximately 75% of targeted synergies have been achieved. We would expect to capture about 90% of the synergy target by year-end.

With the transformation of our wholesale generation fleet largely complete, refining the portfolio and strengthening the balance sheet has moved to the forefront. During the fourth quarter, we closed the sale of the Elwood facility and received $173 million in cash proceeds.

We also entered a prepackaged restructuring process for IPHs Genco subsidiary, which culminated with its emergence on February 2. The restructuring eliminated $825 million in unsecured Genco notes with the 92% of participating bondholders receiving $113 million in cash, $182 million in seven year unsecured Dynegy Inc. level debt, and warrants for 8.7 million shares of Dynegy common stock with a $35 strike price and tenor of seven years from closing.

Bondholders who did not initially participate in the exchange have 165 days from the emergence dates to do so. If all remaining bondholders elect to participate, it would result in additional $27 million in consideration from Dynegy in the form of both cash and notes. At this point of the restructuring, however, the net debt taken on by Dynegy is roughly 1 times IPH's forecasted 2017 adjusted EBITDA before G&A allocations.

Consolidating ownership of the Ohio joint operating units, or JOUs, continues to be an objective of the JOU partners. In connection with this we've announced be transfer of our ownership of the Conesville plant to AEP in exchange for their ownership in the Zimmer plant. Conesville is operated by AEP, whereas Dynegy operates Zimmer. While no additional consideration will be exchanged, a $58 million letter of credit previously posted by Dynegy to AEP will be returned.

Regarding other co-owned plants, we are in advanced discussions with our partners concerning the potential mid-2018 retirement of the Stuart and Killen plants which are operated by AES. If both retirements occur 2,900 MW of base-load coal generation would leave PJM. Dynegy acquiring the remaining outstanding stake of Zimmer and Miami Fort also remains a possibility.

Also announced today is a signed purchase and sale agreement with LS Power for the sale of two PJM peaking units, Armstrong and Troy, recently acquired from ENGIE. The sales price is $480 million or about $380 per KW, and we expect the sale to close in the second half of 2017. Proceeds from the sale will be allocated to debt reduction. Over the course of the year additional portfolio changes are likely in order to meet our required market mitigation actions in Southeast New England as well as for other select asset sale opportunities.

In one final comment before we move to the question and answer session. We have established 4.5 times as our targeted net leverage ratio by the end of 2018. Based on today's market curves and actions discussed today the ratio projects out to be about 5 times. Our commitment to get to 4.5 times will be achieved by doing what we do best, and that is working our available levers through pride, through synergies, portfolio management, debt reduction and just grinding it out 0.1 turn at a time.

At this point in time I'd like to open up the session for Q&A. Ashley?

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Questions and Answers

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Operator [1]

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Thank you.

(Operator Instructions)

Greg Gordon, Evercore ISI.

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Greg Gordon, Evercore ISI - Analyst [2]

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Thanks, good morning, guys. Hi, Bob.

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Bob Flexon, Dynegy Inc. - President & CEO [3]

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Good morning, Greg.

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Greg Gordon, Evercore ISI - Analyst [4]

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So I know somebody's going to ask you this question, so I might as well just get it out of the way. When you look at the guidance range of $1.2 billion to $1.4 billion today, forward curve's never the offsets you've articulated. Would you say you're at the low end of the range today, the midpoint or closer to the high end?

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Bob Flexon, Dynegy Inc. - President & CEO [5]

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First, Greg, I appreciate you asking the question to get this one out of the way. The only thing I'd want to say about the guidance is that we have the range of $1.2 billion to $1.4 billion. We are within that range.

When we established the guidance at our call for the third quarter of last year, we talked about adding a little bit of conservatism in there in case we have a kind of a winter bust, which seemingly has occurred, so I wouldn't say it's really that much different from where we were at that point in time. In addition to the changes that we've made in some of our O&M spending and the like, so we're able to manage through that.

Rather than doing guidance based on normalized weather, we've ratcheted it back a little bit so we remain relatively where we were back in November.

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Greg Gordon, Evercore ISI - Analyst [6]

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Great. I mean when I look at the details you've given and I look at slide 28, it looks like you've modestly improved the capacity revenue uptake through 2019 by selling more MISO capacity. It looks like $35 million a year, 2017 through 2019, and you -- the numbers here in terms of cash maintenance, CapEx, interest and principal payments are -- in terms of uses of cash are significantly lower. I should look at that as improvements from sort of the Reg G guidance that you gave in the 8-K. Is that right?

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Bob Flexon, Dynegy Inc. - President & CEO [7]

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That's right. That's right, and you can see on that slide as well where we have the significant reduction in the CapEx say in for 2017 and the O&M and use of cash is down, what's roughly was at $141 million. I think it was. Something like that.

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Greg Gordon, Evercore ISI - Analyst [8]

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That's right. The one piece you didn't explicitly call out though, and maybe you're not willing to and that's fine is, you said that you've reduced capital expense, interest expenses down, capacity payments are up. You also said you've right-sized O&M, but you didn't give us sort of a quantification of how much lower that might be relative to what the plan was in the EI.

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Clint Freeland, Dynegy Inc. - CFO [9]

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So Greg, this is Clint. Good morning. So from an O&M standpoint, we've reduced from our original guidance forecast. We've reduced O&M by $45 million to $50 million. That order of magnitude, and it's really kind of throughout the fleet. There's been some adjustments for NG, some at IPH. We've made some adjustments to Stuart and Killen, given the challenges that they face and the discussions that are ongoing around retirements.

And then also on the DI side, so really throughout the fleet, we've taken a new look at that and again, cut O&M by $45 million to $50 million for this year compared to the original forecast.

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Greg Gordon, Evercore ISI - Analyst [10]

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Thanks. Two more questions then I'll let someone else ask stuff. One, have you done any incremental hedging since -- did the deck you're giving us is from February 7, based on the footnotes? Has there been any incremental hedging done subsequent to that, especially in Texas?

And then can you articulate what your asset sale aspirations are for the remainder of the year now that you've gotten the peakers behind you?

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Hank Jones, Dynegy Inc. - Chief Commercial Officer [11]

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Greg, this is Hank Jones. I'll take the hedging question. Post closing of the ENGIE transaction, we aggressively hedged the output, particularly at ERCOT. The updated percentages for our hedge position in 2017 and 2018 in ERCOT is 40% and 30%, respectively.

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Greg Gordon, Evercore ISI - Analyst [12]

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Thanks. And plans for further asset sales?

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Bob Flexon, Dynegy Inc. - President & CEO [13]

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Well the next one that I would say is that it moves to the front of the queue as we have to do the market mitigation in Southeast New England. So we have two assets that we will be taking to market there and it's likely to be Milford, Massachusetts and Dighton.

And on Milford, you may have noticed, Greg, in the slides that we cleared an upgrade for Milford, and it was the size of which allowed the entire facility to qualify for seven-year rate lock so Milford, Mass, which I think is I think just over 200 MW has known capacity payments for the next 10 years. So we viewed that along with Dighton to be two very attractive assets that should garner quite a good bit of interest, and we're getting plenty of incoming calls on those as we speak. So that's next up in the cue, I would also say that on the peaker sales that we just did the two, our original intent actually was to sell three. And on the third, we had a value -- a different view on value, so we ended up with two sales.

So it's likely that there's probably be another peaker sale during the year as well, but when you're doing these other asset sales, you also get inquiries from the buyers about having things are taking things out. You'll see during the course of the year that there could be some more movement just even beyond just the market mitigation effort that we need to do next.

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Greg Gordon, Evercore ISI - Analyst [14]

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Thanks a lot, guys.

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Bob Flexon, Dynegy Inc. - President & CEO [15]

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Greg, I think Clint wanted to make one additional comment.

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Clint Freeland, Dynegy Inc. - CFO [16]

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Yes, Greg, back to one of your questions around slide 28 around interest expense, you noted that the interest expense, the cash interest for this year is down about $30 million compared to what we shared in the fall. And it's really due to two things.

First is the repricing that we did on the term loans for the ENGIE acquisition. That's about half of it. That should be permanent going forward, obviously. There's about another $15 million that's more of a timing issue related to 2017 versus 2018, and it has to do with the bond that we issued, the $750 million bond that we issued in October.

I think the payment dates on that are January and July, and since we issued in October, what you'll end up having is the next payment will be in July and that will be for all accrued interest to date. But all of the remaining interest for the balance of the year will be due and payable January of 2018, so it will fall outside of 2017.

So that's more of a timing issue. So as you think about the cash interest for this year, I would say half of that is more permanent in nature. The other half is more timing related to issuance and payment.

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Greg Gordon, Evercore ISI - Analyst [17]

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Okay, but that's reflected in the $617 million you expect in 2018?

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Clint Freeland, Dynegy Inc. - CFO [18]

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Yes, that's right. That's right because then we get on a more normal schedule.

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Greg Gordon, Evercore ISI - Analyst [19]

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Okay, thank you.

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Bob Flexon, Dynegy Inc. - President & CEO [20]

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Thanks, Greg.

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Operator [21]

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Praful Mehta, Citigroup.

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Praful Mehta, Citigroup - Analyst [22]

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Hi guys, thanks.

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Bob Flexon, Dynegy Inc. - President & CEO [23]

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Hi, Praful.

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Praful Mehta, Citigroup - Analyst [24]

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Hi. So firstly on the maturity and the debt schedule, 2019 clearly is still the big majority. Wanted to understand how covered are you right now, how are you looking at that maturity and any other plans as we should think about that maturity?

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Bob Flexon, Dynegy Inc. - President & CEO [25]

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Well, the way that I think about it is we've got this tree in 2019 that we're going to take down and it's going to be done one swing at a time. So we do these peaker sales so that you can see there's $500 million right away that's allocated to pay down the 2019s.

We've got some of our cash proceeds or cash balances, they are a little higher than what we forecasted because we needed less for ENGIE, and the IPH cash was greater, so we can allocate some of that cash and market mitigation asset sales will go to that. So we will continue to keep chopping at that, and I would say by the end of 2018, the amount of outstanding 2019 bonds, which should be relatively inconsequential. The first call date is May of this year at what, 103, 103.5?

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Clint Freeland, Dynegy Inc. - CFO [26]

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Yes, 103 and 3/8.

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Bob Flexon, Dynegy Inc. - President & CEO [27]

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So we will just continue to attack that over the course of the next year and a half. Again, it matures November of 2019, but by the time we get to 2019, I don't expect much left of that balance and that'll be through pay down and potentially some smaller chunk could be refinanced as well.

So it's certainly one of our priorities. And when I think about the balance sheet, two things really stand out. You get to our 4.5 times, which I'm sure we will talk about more this morning. And the other was take care of the 2019s well in advance of 2019.

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Praful Mehta, Citigroup - Analyst [28]

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Got you. That's helpful. And getting on that 4.5 point, clearly asset sales, like you said, is an important element of that to bridge from the 5 to the 4.5.

Given it sounds like there's going to be a bunch of assets in the market, right? You're looking to sell it sounds like there are other IPPs who might be looking to sell assets. Do you see there to be enough appetite still in the market?

And what prices do you expect there to be any weakness in pricing, or how are you looking at that strategy because clearly, you want to be able to manage what pricing you can get for the asset sales.

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Bob Flexon, Dynegy Inc. - President & CEO [29]

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Yes, I think from our standpoint, we want to maintain price discipline, make sure we get the appropriate value. And again, I think we just kind of demonstrated that with this peaker sale as well, but the assets that we have coming to -- potentially coming to market are very high-quality assets. I think they'll compete very well.

There's still a significant amount of buyer interest out there, and not only of, say, US private equity firms. You're seeing a lot foreign interest as well. And when you have plants like Milford, Mass that have 10 years of visible capacity payments, it will bring the right buyers.

And overall to get to the 4.5 times, it certainly asset sales is a component of it, but the other component of it and kind of described internally here, I mean we've just got to hit a bunch of singles to get there. This is not something that's necessarily easy or we want to just say trust us.

This is things that we've just got to grind out, and we've talked about hitting signals how I describe that this isn't the line drive up the middle. These are the bumps that you really have to really sprint to first to get there, but we'll just keep working at this to get it down to 4.5 through cost improvements, through portfolio changes, asset sales.

We will get there but we're going to have to just have to dig in and do the things that get us the last 0.5 turn that we need versus where the market projects us out today.

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Praful Mehta, Citigroup - Analyst [30]

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Got you, and just finally one last thing. On the zero emission credit, ZECs, how are we looking at that from, regarding that administration FERC. Any views on how that will play out now and you probably get a little bit more support from other IPPs who have activists coming in there? Is there any other further support that you think comes in from other participants on the IPP side, and how do you see the administration looking at it -- the current administration looking at it, any change in perspective?

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Bob Flexon, Dynegy Inc. - President & CEO [31]

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Yes, I think there's multiple fronts of that we'd kind of refer to. Maybe I'll start with FERC and having Cheryl Lafluer as the Chair is an excellent move, and Cheryl understands competitive markets, she's a defender of competitive markets, and recognizes that what's happening at the state level is pulling apart the competitive model that was designed to work. And the ZECs are right at the heart of that.

So I think you've got, I think we've got a sympathetic ear in Washington with someone who understands what's going on. I would also say through EPSA, with the membership of EPSA and our overall organization is that we are absolutely focused on this and all of the participants EPSA, which is our peer companies, whether it be Calpine or NRG or Talen or others, they're all -- we're all absolutely focused on defending the competitive market.

And so that is something that we will continue to do. I would also say in our meetings with PGM as an example, Andy Ott is very focused on this and understanding what this is doing to the PGM marketplace and changes that need to be made in how energy and capacity price formation needs to occur given the various state initiatives so what are the things that PJM can do that can work with the states, where they can -- the states can accomplish their objectives, but yet not compromise how price formation actually happens.

Joe Bowring, the independent market monitor, is a tremendous advocate for getting the market to work right. So it's coming from all directions now where's there's a lot of momentum to get it right. Maybe the final thing that I would say is that we will to everything that we can to educate public on what actually is happening, why you shouldn't pay $8 billion for three plants in New York and why that doesn't make any sense.

Or why in the State of Illinois do you want to pay $3 billion over the course of 12 years for two plants that are completely uneconomic. Why throw the money down the drain. There's better ways to spend that money in the states.

There's better ways to invest in the communities and the neighborhoods and the like, rather than sticking this money to invest in a great company that just dividend it out to shareholders. So we're going to be working all those fronts to fight against ZECs. Of course, the legal cases in New York and Illinois are coming as well.

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Praful Mehta, Citigroup - Analyst [32]

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Got you. Thanks so much, guys.

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Bob Flexon, Dynegy Inc. - President & CEO [33]

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Thanks.

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Operator [34]

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Devin McDermott, Morgan Stanley.

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Devin McDermott, Morgan Stanley - Analyst [35]

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Good morning, thanks. I wanted to follow up actually on Praful's question in terms of hitting the 4.5 times, that the EBITDA target you mentioned the potential for some smaller singles in achieving that goal, two of which would be the cost improvements and also potential additional synergies.

Given how lean your cost structure already is relative to peers, can you talk a bit about how you would think about finding additional cost cutting opportunities or additional synergy potential, what that could look like and comment on magnitude as well?

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Bob Flexon, Dynegy Inc. - President & CEO [36]

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Sure, I'll give you a couple of examples, Devin. I'll start first with one that's obviously known in IPH, so we restructured IPH, we bring it on to the Dynegy level balance sheet and we're bringing on at 1 times, net debt to EBITDA. And I'll refer to Clint here in a moment. But it takes Stuart and Killlen, two plants that have roughly speaking breakeven to negative EBITDA and negative free cash flow.

We have moved Hennepin and Joppa into PJM where they otherwise would be bidding into incremental auctions. It's far more efficient for us to take our capacity obligation for Stuart and Killlen, put it over to Hennepin and Joppa.

These plants, Hennepin and Joppa, are free cash flow positive. Joppa has a new rail transportation contracts so these are very viable plants, and that allows us to support and endorse the retirement of Killen and Stuart, and we will be eliminating negative EBITDA, significantly negative free cash flow, and that will be accretive to our balance sheet and we don't have to lose the capacity revenues from those two facilities because we've positioned Hennepin and Joppa and PJM and they are open in PJM.

So that's an example. Clint, you can maybe put a little bit finer point on the numbers, what it looks like for those facilities over the next few years.

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Clint Freeland, Dynegy Inc. - CFO [37]

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Devin, this is Clint. So as we kind of look at the potential shutdown of Killen and Stuart and kind of what it means, once you take those capacity revenues from Stuart and Killlen and reallocate those to Hennepin and Joppa, then what you have is, you've got plants that over the 2017, 2018 timeframe on an EBITDA basis were breakeven to maybe slightly positive, and that's with the capacity revenues, right?

And it certainly gets more significant as you get out into 2019 and 2020. And when you reallocate those capacity revenues and you then look at the fact that that cost structure at Killen and Stuart are going away, well that's a meaningful, basically kind of an avoided EBITDA loss and free cash flow loss once you put CapEx on top of that.

I would say over the -- just to give you order of magnitude, over the next five years, 2017 to 2021, the EBITDA benefit to us of this is order of magnitude called $150 million in aggregate. And then on a CapEx, between maintenance CapEx that you're not going to spend and big free CapEx that you're not going to spend on those two plants, that's probably another $200 million.

So on a free cash flow, an actual cash basis even net of the AROs that you are going to need to pay for, net of severance, shutdown costs, what have you, you are talking about $300 million to $350 million of cash benefit, again over a five-year timeframe. And a lot of that is from 2019 to 2021, since the plants will still be in operation 2017 and for partial year of 2018 but what we have done for 2017 and 2018 is we have kind of given our expectations for what's going to happen with these plants.

We have gone in and taken a fresh look at the maintenance schedules and the O&M that we're spending and the CapEx investments that we originally were planning to make, and we've cut those back, and so again, I think when you look at the impact of this, particularly the 2019 to 2021 timeframe, it can be very, very significant.

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Devin McDermott, Morgan Stanley - Analyst [38]

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Got it.

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Bob Flexon, Dynegy Inc. - President & CEO [39]

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Devin, I would give maybe one more example since we're on the JOU so, and then I as mentioned in the opening, we still have an interest in working with AES to bring in the remaining share of Zimmer and Miami Fort. And if we did, if we do accomplish that, if you look at maybe the investment over the EBITDA ratio, it would be well below, significantly below our leverage target.

So that again would chip away at it. So you've just got a whole lot of things on our list here of things to do where you get 0.05 here, 0.1 here, 0.1 here, so like I said, we just have to grind it out to get there, but we've got a list of things that we're going to work through to get there.

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Devin McDermott, Morgan Stanley - Analyst [40]

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That all makes sense and very helpful detail. I wanted to shift over then to the retail strategy. You're showing some good success I think on organic growth of the retail business. Longer term, what do you see as the right size for this business? And I guess as a follow-up to that, any plans to enter Texas retail with your new position there.

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Bob Flexon, Dynegy Inc. - President & CEO [41]

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As I previously expressed, the first and foremost goal is balance sheet, and as we do that, I do see when we think about our commercial portfolio, very much like where we are with the wholesale fleet, we would benefit from additional retail. And our position in Illinois and Ohio is solid and growing.

We're moving into Pennsylvania and Massachusetts organically. But it would be a nice add to our portfolio to add competitive retail around the generation assets, whether that's in ERCOT or up in the Northeast, and we will continue to look at what opportunities are there. But it can't run in conflict with the balance sheet. But if we can do it, we will. But it's a second order of priority.

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Devin McDermott, Morgan Stanley - Analyst [42]

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Great. Thank you very much.

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Operator [43]

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Julien Dumoulin-Smith, UBS.

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Julien Dumoulin-Smith, UBS - Analyst [44]

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Good morning.

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Bob Flexon, Dynegy Inc. - President & CEO [45]

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Good morning, Julien.

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Julien Dumoulin-Smith, UBS - Analyst [46]

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So perhaps just a first quick question if you can talk about value. Was the 7 times give or take on the asset transaction about what you were expecting? And can you comment more broadly on the transactions to common in terms of implied multiples that you're looking for? Or should we at least think of them as being higher at the minimum?

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Bob Flexon, Dynegy Inc. - President & CEO [47]

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Well, we're talking about different types of assets, so for peaker assets if you look at recent transactions, I think where we ended up at roughly $380 per KW is consistent with where the market has been for some time. If you look at comparable transactions and 7 times multiple, again I think it's kind of consistent.

The peaking plants are plants that private equity likes to buy. They have minimal CapEx requirement, minimal staffing, and it fits their model quite well. So I think it's consistent. Maybe we sell another peaker, one, maybe two. I think our sales now more migrate to some of the combined cycles, so the market mitigation I mentioned earlier being CCGTs should fetch a higher price.

The CCGTs, is the way I think about it is, they will bring a fair amount of deleveraging because there your multiples will be north, well north of 7 times and the dollars for per KW much higher than the 380, so I would expect that to be different in going forward and maybe in one of the packages whether it's the mitigation.

We also have one further package that has a couple CCGTs that depending on where things look like on the markets, whether we pull the trigger or not, but we have that process about to go as well and maybe there is a peaker in there, but I would expect the multiples dollars per KW to be much reflective of what a CCGT in the Northeast is fetching these days.

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Julien Dumoulin-Smith, UBS - Analyst [48]

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Got it, all right, excellent. And then perhaps just on the second side of this. Obviously Ohio, you're talking about some shifts here. Can you talk about first one the potential synergies of the shift in the asset transfer? And then two in Ohio, can you talk about the potential for the DPL region to accrue separately and how you're thinking about the potential third plant retirement here of Stuart. Is that really being driven by the outcome of the auction here?

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Bob Flexon, Dynegy Inc. - President & CEO [49]

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Well the economics of us owning 100% of Zimmer and Miami Fort for us, being we are the operator so we're running it in the manner which we run plants. So we've invested in those plants, we've taken the forced outage rate of Zimmer from call it 30% to right now it's running at 5%, 6%, I mean less than 10% we will say. So we're just seeing much greater levels of reliability.

So we've taken another example when we got Miami Fort and Zimmer that the moorage on barges was $5 million a year. This past year, we spent $400,000 on the moorage, so just significant ways to find value and we've been doing that and we really love those two plants. They run well. We've invested in them, and we went to have just full ownership of them.

For Stuart and Killlen, as Clint mentioned earlier, the free cash flow profile for those plants going out for the next several years is in the hundreds of millions of dollars negative. So there's no capacity auction that's going to save those two plants. It's just too far out of the money. Stuart has had a history of reliability problems. And so I would expect that 2,900 MW leaves that market.

And as you and others have talked about with new build coming on, you should be seeing some changeover in nature of the portfolio. And this is kind of that, 2,900 MW I would expect will not be bidding into the upcoming PJM auction because those plants will be slated for retirement. And Hank, I'll just refer to you about Julien's question regarding any potential separation in the capacity auction.

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Hank Jones, Dynegy Inc. - Chief Commercial Officer [50]

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We have no reason to think that the big PowerLite area will separate from the RTO.

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Julien Dumoulin-Smith, UBS - Analyst [51]

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Got it. And just the last point following up on Greg's question about guidance, you were assuming probably the asset sale of the peaker to close midyear which would implicitly take out a certain chunk of EBITDA that you would have otherwise planned for in maintaining your current guidance. Is that a fair piece of nuance?

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Bob Flexon, Dynegy Inc. - President & CEO [52]

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The peakers are in fact, they are in the guidance, and again roughly that's about $70 million of EBITDA. If it closes midyear, I'd be very surprised being that FERC doesn't have enough commissioners and things are backing up. I'm not very good at predicting when FERC will actually close on a transaction. I think I might go for three in the past two years.

So I'm not the best one to ask. But it just seems to me that they don't expect a full quorum for FERC until after Memorial Day, sometime after Memorial Day, and I don't know how far later than Memorial Day. And then there's just a whole lot of work. Obviously the staff is still there working hard trying to get things done. But it's hard to say when. I would really be surprised if it's before the fourth quarter.

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Julien Dumoulin-Smith, UBS - Analyst [53]

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Thank you.

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Operator [54]

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Abe Azar, Deutsche Bank.

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Abe Azar, Deutsche Bank - Analyst [55]

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Good morning.

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Bob Flexon, Dynegy Inc. - President & CEO [56]

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Good morning, Abe.

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Abe Azar, Deutsche Bank - Analyst [57]

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So most of my questions were already asked and answered. But when you say that the asset sales are at 7 times, what year are you referring to in particular with the capacity prices all over the place?

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Clint Freeland, Dynegy Inc. - CFO [58]

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Abe, this is Clint. That's kind of generally on average over the next three to four years. You do see an increase in EBITDA in 2018 simply because that's the shape of the PJM capacity but then it comes back down in 2019 to relatively where we are in 2017. As Bob mentioned, we're kind of $65 million to $75 million in EBITDA this year, and as you go further out into 2019 and 2020, you see a similar type of profile again. It bumps up a little bit in 2018 but kind of when you look through the next several years on average, you wrap about 7 times.

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Abe Azar, Deutsche Bank - Analyst [59]

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Great. And when you look at your net debt to EBITDA target of 4.5 times and doing a similar analysis looking out several years beyond 2018, how does that look further out and are there additional steps you need to take to keep it up 4.5 times rather than just get there and turn back up?

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Bob Flexon, Dynegy Inc. - President & CEO [60]

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Yes, Abe. I think if all you do is assume that the curbs liquidate as they stand today, that would suggest that you have additional work to do beyond 2018 to maintain the 4.5, assuming that the curbs liquidate as they stand today assuming that nothing is done with your cost structure, assuming that you've done nothing else to change the company or the financial position of the company, then there would be more work to be done.

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Abe Azar, Deutsche Bank - Analyst [61]

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Outside of the plans you already have to shut the assets that you talked about.

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Bob Flexon, Dynegy Inc. - President & CEO [62]

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Yes.

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Abe Azar, Deutsche Bank - Analyst [63]

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Okay. And then shifting to New England, does your locking in the New England capacity payments for three years forward imply that you expect prices to fall further in the future and what's driving that expectation?

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Bob Flexon, Dynegy Inc. - President & CEO [64]

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Are you talking about for the origination deals?

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Abe Azar, Deutsche Bank - Analyst [65]

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Yes.

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Bob Flexon, Dynegy Inc. - President & CEO [66]

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Abe, we have a very active origination group. We're interacting with customers in all the major regions and tried to reduce our dependency upon the auction for all of our capacity. So we like to position New England with this series of two seven-year rate locks from the up rates in the auction and we highlighted to 75 MW three-year trades, one that was done last year at $7.50 and one that was done this year at $5.50 for a three-year stretch. So we look at it as risk mitigation.

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Abe Azar, Deutsche Bank - Analyst [67]

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Great. Thank you.

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Operator [68]

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Ali Agha, SunTrust.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [69]

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Thank you, good morning. Bob, just a little more clarification and granularity on net debt to EBITDA numbers. So I think in the slide you talk about 6.8 times as your starting point at the end of 2017. But can you just give us on a pro forma basis today where we are on that net debt to EBITDA?

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Bob Flexon, Dynegy Inc. - President & CEO [70]

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Yes, Ali. I'm not sure that we would kind of update that. I think the 6.8 is kind of what we would intend to go with right now.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [71]

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But that's not -- what I'm saying is that's at the end of 2017. We're sitting at the beginning of 2017. So where are we today on those numbers?

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Bob Flexon, Dynegy Inc. - President & CEO [72]

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Yes, Ali. I'd have to go back.

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Clint Freeland, Dynegy Inc. - CFO [73]

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It's very close to that. The 6.8 assumes $517 million in cash, which we actually are at that if not higher than that today. And then the only difference in your gross debt is going to be amortizations throughout the year which are fairly modest in relation to the total debt so I don't think it would change all that much.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [74]

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Okay. And then also to that point, clearly the big move from that 6.8 to 5 is coming from the EBITDA improvement. Can you just remind us again, just quantify those buckets that you are showing us? How much is EBITDA, how much is the debt amortization, how much is cash just to get a better feel of this?

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Clint Freeland, Dynegy Inc. - CFO [75]

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Yes, so from the earnings uplift is about 1.4 times and then between the cash build and the debt amortization, that's about another 0.4 to 0.5.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [76]

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Okay. Okay. And then if I heard you right on the remarks on your EBITDA improvement, as you mentioned looking at where the forward curves are and looking at the capacity auction profile, is it fair to say absent any other moves, et cetera, that we are looking at 2019 currently sort of bending back down versus 2018 just given with this macro factors are right now?

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Clint Freeland, Dynegy Inc. - CFO [77]

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Yes, like I mentioned a little bit earlier, if you assume that the curves today just simply liquidate as they are quoted and you assume no changes in our cost structure, you assume no changes in our business, then that would suggest that that net debt calculation or that ratio is going back up and you have some work to do to keep it where it is at 4.5.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [78]

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And that factors in all those 2019 maturities as well, et cetera, that you will be tackling.

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Clint Freeland, Dynegy Inc. - CFO [79]

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That's right.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [80]

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Okay. And then Bob, just to clear up on the asset sales, it sounded like there are various different portfolios or packages as you call them, that you're short of contemplating, some related to mitigation, others market, et cetera. Can you just give us a better sense?

I mean, how many packages are we talking about? I know in the past you talked about Moss Landing, you talked about Independence. We haven't really seen the right buyers there. So can you just give us a sense of what you would consider core versus non-core to be monetized in this portfolio?

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Bob Flexon, Dynegy Inc. - President & CEO [81]

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Yes, Ali. I'd break it down into three groups. Group one would be peaker sales. And kind of the base plan on the peaker sale was that we'd have roughly three peaking units that we would take to market. So obviously, we just did two so there's another one that we would continue to think about. So group one is peakers and any proceeds used to deal with the 2019 maturity.

The second basket would be market mitigation. That's two combined cycle units up in ISO New England and that's going to be Milford, Mass and Dighton. So those two units combined in round numbers is just under 400 MW and Milford, Mass is the one that has 10 years of capacity payments. So that's group two. We have six months from February 7 to sign a PSA under our agreement with FERC as part of the ENGIE transaction.

And then the third group would be two combined cycle units. One would be in PJM and one would be in ISO New England. And I always say this with a little bit of hesitation because these are two very high quality combined cycle units that we will take the market, whether we go all the way through with it enough depends on what we are seeing in forward market curves, where does our leverage target stand.

Again, we want to do this in a structured way. We've got 2017 and 2018 to work with. But if we see that the forward curves are not strengthening alike and to get the 4.5 times, we need to move forward with that third package. These are two -- would be two very highly desirable units that would fetch a very strong price and we're not talking Moss Landing or Independence.

We're talking about kind of the best of the best. Ones that continually set production records, great access to low-cost gas, very good reliability. So these would be two very attractive assets in the marketplace.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [82]

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Okay.

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Bob Flexon, Dynegy Inc. - President & CEO [83]

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And it hurt saying it. So we'll decide if it's the right thing to do or not but we will be taking it to market.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [84]

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Okay. And just to be clear, so this group C may or may not transact this year depending on market pricing but the other two groups should be completed this year. Is that the way to think about it?

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Bob Flexon, Dynegy Inc. - President & CEO [85]

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Yes.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [86]

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And the last remaining peaker, that's also a PJM?

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Bob Flexon, Dynegy Inc. - President & CEO [87]

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Yes.

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Ali Agha, SunTrust Robinson Humphrey - Analyst [88]

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Okay. Thank you.

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Operator [89]

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Jeff Cramer, Morgan Stanley.

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Jeff Cramer, Morgan Stanley - Analyst [90]

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Good morning, thank you. Bob, just to clarify on the debt reduction that you talked about, the bunts and the singles but then just now talking about the group 3 combined cycles which I guess would probably be closer to triples. I mean, is that definitively on the table? Or it's really kind of let's get through 2017 and then in 2018 you would revisit that -- revisit selling the two combined cycles?

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Bob Flexon, Dynegy Inc. - President & CEO [91]

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No, we're engaged in that. We've got the SIM set to go. We'll be opening up [data room] in the very near future so we're going. We're going because the top priority is to get to 4.5 times. And you're right, those units, that's not a single or a double. That's at least a standup triple.

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Jeff Cramer, Morgan Stanley - Analyst [92]

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Okay, thanks. And maybe just shifting to PRIDE for a minute. Obviously made a lot of PRIDE on the balance sheet side. There's still some loose ends there I think just on the transactions. The $58 million LC from AEP. The $60 million from IPG once is finalized. I didn't see those on slide 27. Are there other pluses or minuses to liquidity or balance sheet initiatives that in addition to those and what's on slide 27 that we should consider?

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Bob Flexon, Dynegy Inc. - President & CEO [93]

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I would say that there are a number of initiatives that we're pursuing, but I wouldn't say that they're advanced enough at this point to talk publicly about them. I think the $58 million certainly is front and center as an additional injection of liquidity to the Company as we get that letter of credit back.

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Jeff Cramer, Morgan Stanley - Analyst [94]

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And the $60 million also, right, from IPG?

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Bob Flexon, Dynegy Inc. - President & CEO [95]

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That's right.

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Jeff Cramer, Morgan Stanley - Analyst [96]

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Okay. And those are the two kind of remaining items from the various transactions. There's no others?

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Bob Flexon, Dynegy Inc. - President & CEO [97]

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That's right.

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Jeff Cramer, Morgan Stanley - Analyst [98]

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Okay. And then the $65 million PRIDE EBITDA target for 2017, that is part of guidance?

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Bob Flexon, Dynegy Inc. - President & CEO [99]

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Yes.

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Jeff Cramer, Morgan Stanley - Analyst [100]

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Got it. Okay. And then just lastly a cleanup item on Stuart and Killlen, how much are those on the balance sheet for?

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Clint Freeland, Dynegy Inc. - CFO [101]

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Stuart has been fully written off. Killen is currently at $20 million on the balance sheet and obviously we'll be reviewing that this quarter.

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Jeff Cramer, Morgan Stanley - Analyst [102]

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Great, thank you.

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Bob Flexon, Dynegy Inc. - President & CEO [103]

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Thank you.

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Operator [104]

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Angie Storozynski, Macquarie.

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Angie Storozynski, Macquarie Research Equities - Analyst [105]

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Thank you. I wanted to talk about M&A. I know it's a bit of a Monday morning quarterbacking, but so you're considering shutting down a number of assets you acquired from Duke not that long ago. You just completed a transaction for a portfolio of gas-fired plants in PJM.

I mean, how would you defend potential skepticism about this M&A strategy which would be that you are buying a portfolio of gas plants that's peak or diminishing spark spreads, with diminishing spark spreads going forward and your shutting down assets that you've recently acquired. I mean, I know that there are changes in forward power curves, but how would you pitch the strategy, the M&A strategy?

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Bob Flexon, Dynegy Inc. - President & CEO [106]

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Sure. So I would have to go back to 2012 would we exited our restructuring and had 9,000 MW, 5,500 MW which still are running today. And if we had done nothing, we wouldn't be having this call today. And what we've done over the past several years is to build a portfolio, right markets, right assets with longevity.

And the differentiating thing in doing that is that we combine mixed portfolios of gas and coal and we bring something to the table that no one else does, and that's the best cost structure in the industry. So we bring our platform. We get significant synergies. You can see from our numbers in the slides, we are the most efficient guy out there.

And do you get every single plant, do you get every single plant in the portfolio you buy is perfect? It's not but the overall portfolio, the synergies that you get, and the shift to gas has transformed this Company that otherwise would be stuck with coal assets in MISO. So what I think we've done over the past few years is the transformation of our portfolio of 2012 to 2016, we've done more to actively manage this portfolio than anyone and we've done it on the back of being the most efficient guy out there.

And there are going to be assets that we're going to have to sell. There are going to be some assets we have to shut down but we're still left with some of the best of the best. We're the largest combined cycle generator in PGM and ISO-New England. Access to low-cost gas that these plants are having four of the six PGM combined cycle plants set production levels this year.

So yes, there are some things in there that shut down and the like, but net-net, we are a much better stronger Company today with what we've done and will continue to try to lever our strengths that way.

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Clint Freeland, Dynegy Inc. - CFO [107]

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And Bob, if I could maybe add one thing. As you look at the assets, particularly the ones that are being retired, none of them are surprises and virtually all of them were known as troubled plants are challenged plants at the time of acquisition. Brayton Point, we knew it was going to be retired in 2017.

Stuart, we knew that that was a very challenged plant economically and factored that into the acquisition consideration. Killen, not quite as challenged as Stuart but certainly was on the radar screen. Newton, we've shut down a unit there that we acquired from Ameren. We knew that that plant was challenged because of the scrubber requirement and that's something would have to be done there, and again, we didn't really pay much or pay much of anything for Ameren anyway.

And so as you kind of look at the individual instances of the assets that are being retired, I would say that through the due diligence, we understood that those plants were challenged. We understood economics of that and factored that into the original transaction. And then as you look at the peakers that we are selling now in PJM, those are at relatively fair market value and I think that's consistent with how we would have thought about paying for them in the past.

So I think as you look across the fleet at the steps that have been taken, particularly around the retirements, certainly nothing is a surprise and was known and considered at the time of the deal announcement

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Angie Storozynski, Macquarie Research Equities - Analyst [108]

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Great. Just one follow up. This one is on California. So the CPUC and [Kiesel] are holding seminars on potential reform to the resource adequacy market or system. What do you think? Could this make a difference to your plans in what's in general the strategy and timeline for it for California?

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Bob Flexon, Dynegy Inc. - President & CEO [109]

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Okay. For us with Moss Landing, again, we're not a natural owner of assets in California, so for us it's continue to see if at some point in time whether that asset, we can sell it for a reasonable value or not. So that's kind of us in California.

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Angie Storozynski, Macquarie Research Equities - Analyst [110]

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Okay. Thank you.

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Bob Flexon, Dynegy Inc. - President & CEO [111]

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Thanks, Angie.

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Operator [112]

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Neel Mitra, Tudor, Pickering.

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Neel Mitra, Tudor, Pickering, Holt & Co. Securities - Analyst [113]

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Hello, good morning.

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Bob Flexon, Dynegy Inc. - President & CEO [114]

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Good morning, Neel.

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Neel Mitra, Tudor, Pickering, Holt & Co. Securities - Analyst [115]

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Most of my questions have been answered but one question I had, now that you're looking at retiring some of your uneconomic plants in Ohio, have you thought about what you're going to do with Coleto Creek in Texas now that you own the ENGIE portfolio?

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Clint Freeland, Dynegy Inc. - CFO [116]

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With collateral, we have a new rail agreement that goes into the facility. So it continues to be economic. The question for Coleto is going to be what happens with the regional haze and bark rulings in Texas.

If they come through where we have to put on wet scrubbers, that would really challenge the longevity of Coleto. If that doesn't happen, it's a positive contributor to the business with the new rail agreement that we just signed that just became effective this year.

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Neel Mitra, Tudor, Pickering, Holt & Co. Securities - Analyst [117]

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Okay. When think about the economics of Coleto from a fleet-wide prospective, do you think you -- it's contributing as a whole to the portfolio such as if you were to retire it, would it benefit the rest of your gas assets? Or are you looking at it standalone?

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Clint Freeland, Dynegy Inc. - CFO [118]

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We just looked at the assets adding economic value to us from the free cash flow standpoint. Again, I think really the decision on Coleto is really going to come down on the federal ruling as to whether we need to put scrubbers on it or not.

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Neel Mitra, Tudor, Pickering, Holt & Co. Securities - Analyst [119]

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Okay. So basically the takeaway is that the plant is going to stay open so long is there are no environmental CapEx.

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Bob Flexon, Dynegy Inc. - President & CEO [120]

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At this point in time, yes.

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Neel Mitra, Tudor, Pickering, Holt & Co. Securities - Analyst [121]

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Okay. Thank you.

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Operator [122]

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Michael Lapides, Goldman Sachs.

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Michael Lapides, Goldman Sachs - Analyst [123]

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Hello, guys. Thank taking my question. One operational one, and I'm looking at what I think is slide 40 in your slide deck, and it shows the output levels of all your coal plants.

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Bob Flexon, Dynegy Inc. - President & CEO [124]

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That's the [effective] slide.

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Michael Lapides, Goldman Sachs - Analyst [125]

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Yes, and it shows it year over year. And the most interesting bar to us is the orange bar, the unplanned outage bar. Where except for maybe Zimmer and a little bit on the margin with Havana, there haven't really been big year-over-year improvements in this bar. What are the things you can do and your team can do to help reduce the number of unplanned outages, which adds cost, meaning it adds O&M, and therefore get the output levels of these plants up which would add to margin?

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Bob Flexon, Dynegy Inc. - President & CEO [126]

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Well, the core of our PRIDE program always is around driving reliability, and these are the things that we do with analysis of where plants are vulnerable. It tends to be first and foremost in the boilers and boiler tube and so we do our various tracking and tracing and inspection programs with that. So I mean we continue to try to drive the reliability on all this through our PRIDE programs and I'll defer to Marty for any additional comments.

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Marty Daley, Dynegy Inc. - COO [127]

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Yes, I think that's right. We have what we call a boiler tube failure assessment program and that's been the primary reason for many of the outages, the unplanned outages in the coal fleet. But generally speaking, I don't think they've materially affected our markets considerations and MISO.

I think we've had some of those. They've been in relatively weak pricing situations. So I think, again, I think our investments and targeting against the areas that look like boiler tube failures and what we can do about them. So again, I think we've done a fairly decent job of managing costs but also targeting the right investment in those assets.

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Bob Flexon, Dynegy Inc. - President & CEO [128]

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I would also add that if you looked at the trend since 2012, we really have invested and reliability and the lost opportunity costs have actually come down significantly. The reliability has improved significantly. One thing I would say I think Marty alluded to, when plants are in a shoulder order or in a period of price weakness, you don't work around the clock on an unplanned outage.

You don't want to incur the overtime or the stress on the workforce or the like for the costs of trying to accelerate responding to an unplanned outage. So you look at the economic analysis of whether it makes more sense just to kind of stretch it and do it while you are in a period of softness. Or if it's in a high demand period, well then you absolutely do that. That's part of the story here that's not told.

I think the thing there that would probably provide a little more clarity around this is what are the lost opportunity costs associated with this. And that's something that we certainly track and when we make our decisions on how fast do we want to bring a plant back on, it's definitely ties to what's happening in market prices. But PRIDE is in Marty's organization and it has just a heavy, heavy lean on what can we do to get more gross margin? And that comes through things like reliability.

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Michael Lapides, Goldman Sachs - Analyst [129]

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Got it. Another follow-up and apologize, this is a little bit down in the weeds. But when I look at your modeling assistance page on slide 28, the environmental capital projects, which you really put in two different buckets.

One you include in adjusted free cash and another you exclude from adjusted free cash, but it's still cash flow. That second line, so the $62 million, the $151 million, the $40 million, how optional is that? Meaning do you have flexibility around the amount that you're likely to spend, the years you're likely to spin this in, or whether this gets spent at all?

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Clint Freeland, Dynegy Inc. - CFO [130]

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Yes, Michael. That line is predominantly ELG spend. And so to the extent that the plant is economic and has a future, that's the investment that we need to make in that plant to have it continue on to the future. So at this point, this spend is envisioned.

It is forecasted for the fleet, and the situation under which that spend would change would be if a plant is ultimately going to be retired and you're not going to make that investment to keep it around. But at this point, this is our forecast.

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Michael Lapides, Goldman Sachs - Analyst [131]

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And which plants need that spend the most? I mean, are we talking about kind of core units like Baldwin or are we talking about some of the stuff where a lot of this call is focused on potential retirements of units, whether it's Stuart, Killen, or some of the other Ohio plants?

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Clint Freeland, Dynegy Inc. - CFO [132]

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It's really throughout the fleet, and its just a matter of timing. And I'd have to kind of go back and look at the individual years to give you specific plants. As you can see, it's ticked up in 2018. So as an example, Baldwin has a meaningful ELG spend in 2018 but it's really throughout the fleet.

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Michael Lapides, Goldman Sachs - Analyst [133]

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Got it. And then last question and this one it's either for Bob or for Hank. When you look at the forward energy markets across your core region, so Texas, New York, New England, PJM, MISO, where do you think the energy markets are most wrong? There's not a lot of liquidity way out in the forward markets after about 12 to 18 months or so. When you look at the curves, where do you think the curves are most wrong?

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Bob Flexon, Dynegy Inc. - President & CEO [134]

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So this sounds like a trick question. (laughter)

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Hank Jones, Dynegy Inc. - Chief Commercial Officer [135]

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This is Hank. I wouldn't say any of the curves are wrong. They are thinly traded -- the power curves are thinly traded, and I think there are several things that could be jarring to the market. I'm sure several of which we can't imagine what they might be but they'll happen. but the other is it could go either way.

But I think the lack of a scarcity premium event in PJM and in ERCOT has put a sense of calm in the marketplace and people are not attaching risk premiums to -- or volatility. My experience has been that just when everybody gets very comfortable all that changes. So I would look for scarcity premium events in ERCOT and PJM and New England as potential drivers for a meaningful change in the future.

Those are -- all the reliability penalties were put in place for a reason and that has yielded some results which has improved reliability across the aggregate fleet. But I think there will be events along the way that can spark a price movement.

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Michael Lapides, Goldman Sachs - Analyst [136]

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Got it, guys. Thank you. Much appreciated.

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Bob Flexon, Dynegy Inc. - President & CEO [137]

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Thanks, Michael.

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Operator [138]

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Srinjoy Banerjee, Barclays.

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Srinjoy Banerjee, Barclays Capital - Analyst [139]

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Hello. Thank you for taking my question. Which is essentially that when you think about the 2019 maturity, are you looking to really take that out this year? And then you're talking about possibly refinancing a portion of that maturity. What level would you think about refinancing and then what form? Thanks.

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Clint Freeland, Dynegy Inc. - CFO [140]

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Yes, I would say as it relates to the 2019s, as Bob talked about a little bit earlier, our intention is to chip away at that throughout the year through various means, whether it's through asset sale proceeds. We have some additional cash on the balance sheet that be able to used or cash from ops. I could also see if there if was a window in the financing markets to refinance a portion of that. I think we would certainly look at doing that. I guess I don't have a particular target for the end of the year but certainly intend to make a meaningful dent in it throughout 2017.

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Bob Flexon, Dynegy Inc. - President & CEO [141]

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And Clint, I think of the target by the time we get to 2018 is just to have the vast majority of the 2019s already addressed.

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Srinjoy Banerjee, Barclays Capital - Analyst [142]

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Right, and that's sort of the end of 2018 you'd like to have the vast majority addressed?

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Bob Flexon, Dynegy Inc. - President & CEO [143]

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Yes.

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Srinjoy Banerjee, Barclays Capital - Analyst [144]

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Okay. Great. Thank you.

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Operator [145]

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Thank you. Shar Pourreza, Guggenheim Partners.

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Shar Pourreza, Guggenheim Partners - Analyst [146]

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Hello, Bob, how you doing?

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Bob Flexon, Dynegy Inc. - President & CEO [147]

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Hello, Shar.

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Shar Pourreza, Guggenheim Partners - Analyst [148]

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So I think most of my questions were answered, but I think if you sort of look at the call today, you've appeased a lot of concerns around how you would bridge from 5 to 4.5 times. But when you sort of look at sort of your building blocks and how you would further delever whether it's these one-off singles and the CCGTs and you throw in your cash flow, the synergies, the potential sale of Moss Landing. Is it far-fetched to assume that you could breach 4.5 times?

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Bob Flexon, Dynegy Inc. - President & CEO [149]

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I can live with that upside. I think the big maybe the wildcard in all of this is that when you think about 2018, we have 85 million MW hours open today. And that will certainly be hedged, but our price and our EBITDA maybe more so than others because we generate more megawatt hours than our peers now. But you get a dollar move in the curve and now there's $85 million right there. And obviously that's very significant. And EBITDA has certainly a more impactful part of the equation when you think about the leverage ratios. So I think the wildcard in all of this is what happens to the forward curves over the time period and where do we lock it in at.

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Clint Freeland, Dynegy Inc. - CFO [150]

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And just to give you an order of magnitude or a sensitivity, a 0.1 turn improvement is equal to $33 million in EBITDA in 2018. So to Bob's point, a $1 move on the 85 million MW hours, that's a 0.25, almost a 0.3 turn improvement right there before you do any of the other things we've talked about this morning. So that kind of gives you an older magnitude of how meaningful that component can be.

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Shar Pourreza, Guggenheim Partners - Analyst [151]

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Okay, so that's helpful. And then just lastly, just taking that sort of sensitivity just sort of provided, and shifting it over to Texas and then obviously ERCOT, how are you sort of thinking about layering on additional hedges in ERCOT especially with I don't know 6, 6.5 gigs of coal assets operating at negative free cash flows, especially with the recent downturn in gas. Are you sort of comfortable on where your hedge profile is in 2018 or are you looking on layering on additional hedges?

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Hank Jones, Dynegy Inc. - Chief Commercial Officer [152]

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So we aggressively hedged a portion of the ERCOT fleet in the days after the close, as I mentioned earlier. All that happened before, the precipitous fall in gas price on Monday of this week. So for the moment, that feels like a good position to be in. We'll now start to focus a lot on our -- specifically on Q3 of 2017 and we'll continue to watch it closely. I think you're right that the big potential catalyst is the decision around the [late night] plants. And also, any of the scarcity premium events that we talked about earlier. Those are the two triggers that we would see as having a meaningful impact on ERCOT forwards.

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Bob Flexon, Dynegy Inc. - President & CEO [153]

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And Hank, on the hedging for Texas, you mentioned earlier for 2017, were up to just over 40%.

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Hank Jones, Dynegy Inc. - Chief Commercial Officer [154]

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That's right.

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Bob Flexon, Dynegy Inc. - President & CEO [155]

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And of that, if you looked at it on peak for 2017, we're up mid-50%s.

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Hank Jones, Dynegy Inc. - Chief Commercial Officer [156]

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Right.

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Shar Pourreza, Guggenheim Partners - Analyst [157]

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All right. Congrats, guys. Keep doing what you're doing.

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Bob Flexon, Dynegy Inc. - President & CEO [158]

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Thank you.

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Operator [159]

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Keith Stanley, Wolfe Research.

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Keith Stanley, Wolfe Research - Analyst [160]

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Hello, good morning. One quick clarification. Bob, I think you said you were expecting the CCGTs, obviously they'll get a higher dollar per KW price, but I think you said you also expected them to get a higher multiple on sales. I just want to confirm that. And is that based on indications of interest you've gotten on some of the combined cycles?

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Bob Flexon, Dynegy Inc. - President & CEO [161]

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I absolutely expect to get a better than 7 times. And I would say that that's my view of the market. And these, whether it's the mitigation package or the other CCGTs, these are just very valuable assets, so that's my expectation. I wouldn't say that anybody's been putting in offers where I would comment on anything, and since we are in a process, I wouldn't be commenting on it anyway. But the expectations, when you look at other comparable transactions that have occurred in the market over the past 12, 18 months, it clearly shows that it would the above 7.

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Keith Stanley, Wolfe Research - Analyst [162]

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Okay, great. Thank you.

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Bob Flexon, Dynegy Inc. - President & CEO [163]

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Thanks, Keith.

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Operator [164]

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Greg Gordon, Evercore ISI.

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Greg Gordon, Evercore ISI - Analyst [165]

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All right. Book ends. Great. Just a question of clarification, guys. You back in November at EEI, you gave the debt roll and said you were comfortable you could get 5 times and then 4.5 with a little self-help. You basically said the same thing today. I just want to make sure, you did announce the asset sales so is the 5 times target still before any self-help or is the 5 times target inclusive of the asset sale already announced?

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Bob Flexon, Dynegy Inc. - President & CEO [166]

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The 5 times is before the self-help, and that's just looking at where we are today, looking at the forward market curves. And where we expect our earnings to be in 2017 and 2018 under existing hedge levels and market curves.

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Greg Gordon, Evercore ISI - Analyst [167]

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Okay. That's what I thought. I just wanted to be clear. Thank you.

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Bob Flexon, Dynegy Inc. - President & CEO [168]

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Thank you, Greg.

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Rodney McMahan, Dynegy Inc. - VP of IR [169]

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Okay, Ashley, I think that's it.

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Operator [170]

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Yes, you may go ahead and proceed.

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Rodney McMahan, Dynegy Inc. - VP of IR [171]

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Great. Thanks, everyone, for joining us.

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Operator [172]

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Thank you and that concludes today's conference. Thank you all for joining. You may now disconnect.