Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Ed Muller -- Chairman, President and CEO

Bill Holden -- CFO

Rob Gaudette -- CCO

Gary Garcia -- Treasurer

Dennis Barber -- IR

Analysts

Brandon Blossman -- Tudor, Pickering, Holt

Neil Mehta -- Goldman Sachs

Mark Barnett -- Morningstar Security Research

Ali Agha -- Suntrust Robinson Humphrey

Andrew Gay -- UBS

Jon Cohen -- ISI Group

Robert Howard -- Prospector Partners

Raymond Leung -- Goldman Sachs

GenOn Energy, Inc. (GEN) Q3 2012 Earnings Conference Call November 9, 2012 10:00 AM ET

Operator

Greetings and welcome to the GenOn Energy Third Quarter 2012 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Dennis Barber with GenOn Energy. Thank you, Mr. Barber. You may begin.

Dennis Barber

Thank you, Claudia, and good morning everyone. Thank you for participating in GenOn's conference call. Leading the call this morning are Ed Muller, our Chairman and CEO; and Bill Holden, our Chief Financial Officer. Following our prepared remarks, we will have a question-and-answer session. Also available to answer questions this morning are Rob Gaudette, our Chief Commercial Officer and Gary Garcia, the Treasurer.

The earnings release and the slide presentation we're using today is available on our website at www.genon.com in the Investor Relations section. A replay of this call will also be available on the website approximately two hours after the call is completed. As you'll recall, we suspended adjusted EBITDA guidance for GenOn in light of our pending merger with NRG and do not expect to provide guidance while the transaction is pending.

Turning to slides 2 and 3, any projections or forward-looking statements made today are based on our current expectations and are subject to the Safe Harbors contained in this slide. Actual results may differ materially from our projections or forward-looking statements as a result of many factors, including those described in these slides and in our SEC filings.

Additionally, we're using non-GAAP measures to provide additional insight into the operating results and reconciliations of the non-GAAP measures to GAAP figures are also available on the website.

I'll now turn the call over to Ed.

Ed Muller

Thanks very much Dennis and good morning everyone. I'll start on slide 5 with an update on our pending merger with NRG, which we announced on July 22nd. First, let me reiterate that the merger will be like the merger in 2010 of Mirant and RRI that created GenOn when the combination will create substantial value for the stockholders of both companies.

Key elements of that value creation will be $175 million of annual cost savings, $25 million of annual operational efficiency synergies and $100 million of annual balance sheet efficiencies. Second; about one hour ago, the stockholders of both GenOn and NRG approved the transaction by various substantial majorities.

Third, we now require only two remaining approvals prior to closing that from the Federal Energy Regulatory Commission and that from the New York Public Service Commission. We continue to expect to close the merger by the first quarter of 2013.

Turning to slide 6, I'll address several highlights for GenOn. Since it became clear that various environmental rules will lead us and others to deactivate plants, we've noted that a consequence of those deactivations will be a reduction of supply to meet, reducing supply inexorably means higher prices and that is good news for a supplier like GenOn.

As we've previously announced on October 1st, we deactivated seven units with collectively 762 megawatts. Those seven units ran hard during the heat waves this past summer. They will not be part of the supply next summer.

In February, we announced various unit deactivations to take place through 2015 because our forecasted returns on investments necessary to comply with environmental regulations are insufficient. We regularly assess our deactivation plans to determine whether incremental investments might be justified or whether previously assumed investments are still appropriate.

Based on that assessment, we've concluded that the return on the necessary investment in unit 8 at Gilbert in New Jersey is insufficient and now plan to retire the unit in January 2015. This retirement will reduce our capacity by 90 megawatts.

Notwithstanding the heat waves and significant demand on our fleet, I'm pleased to report that our plants have been running well. I'm also pleased to report that we did not suffer any material damage from Hurricane Sandy.

I'm also once again pleased to report the construction of Marsh Landing in Northern California continues to remain on schedule to be completed by mid 2013 and the project remains on budget. During more than a year and a half on construction and with over 350 construction workers currently on site, we have yet to have a single OSHA-reportable safety incident.

Turning to slide 7, we show our hedges as of October 8, both of the fleet and for our baseload coal. Our approach has not changed and you can see that for our baseload coal, we're always fully hedged for this year, heavily hedged for next year and 2014 and less hedged but nevertheless somewhat hedged for 2015 and 2016. The open white box in the power column for 2012 represents a decrease from what we last showed you and the change results from higher expected generation.

And with that, I'll turn things over to Bill Holden to walk you through the numbers.

Bill Holden

Thanks Ed and good morning everyone. I'll begin on slide 9. Adjusted EBITDA for the quarter was $321 million, which is an increase of $65 million from Q3 last year. Adjusted EBITDA was up principally because of a higher contribution from California, primarily resulting from higher capacity prices.

Adjusted EBITDA also was up because of lower project outage and maintenance expenses. These amounts were partially offset by lower energy gross margin from generation in Western PJM/MISO and lower capacity prices in PJM.

For the year-to-date, adjusted EBITDA was down 72 million compared to the same period last year. Energy gross margin was down by 248 million as compared to the same period for 2011, principally from lower generation resulting from contracting dark spreads in Eastern PJM and Western PJM/MISO.

Contracted and capacity was down 22 million compared to the same period last year, as lower capacity prices in PJM were only partially offset by higher capacity prices in California. These amounts were partially offset by higher realized value of hedges and lower operating and other expenses.

The increase in realized value of hedges resulted primarily from lower power prices, partially offset by lower fuel prices. The reduction in operating and other expenses resulted primarily from lower project outage and maintenance expenses of 33 million, Mirant/RRI merger cost savings of 12 million as well as a $10 million reduction in contractor and consulting fees.

Turning to slide 10, slide 10 summarizes debt and liquidity for GenOn at September 30, 2012. Total debt outstanding was a little over $4.4 billion. The increase of 93 million since June 30th was attributable to 95 million of new borrowings on the Marsh Landing credit facility slightly offset by term loan amortization of 2 million.

Total cash and cash equivalents was over 1.8 billion of which approximately 1.7 billion was held at GenOn or its subsidiaries other than GenOn Mid-Atlantic REMA. Including availability under the revolving credit facility, total available liquidity was just over $2.4 billion. Funds on deposit at September 30th were 394 million. In connection with the deactivation of Potomac River that Ed mentioned, I would also note that we received in October of the $32 million that had been held in escrow.

Turning to slide 11, this slide presents a breakdown of our projected capital expenditures for 2012 and 2013. Note that the amounts in this table reflect the expenditures for the full year 2012 and include expenditures made for the year-to-date. The 108 million shown for compliance with the Maryland Healthy Air Act reflects the settlement with Stone & Webster that was announced earlier this year.

Other environmental expenditures are estimated at $38 million this year and a $118 million for 2013. Construction expenditures include the estimated amounts for the construction of our Marsh Landing generating facility, which will commence operations in mid-2013. Other construction expenditures are primarily related to the ash beneficiation facility which is now operating at our Morgan Town plant.

With that, I'd turn the call back over to Ed to wrap up and open the call for questions.

Ed Muller

Thanks, Bill. I'll turn to slide 12 to sum up. The big news for GenOn is the pending merger with NRG. The merger will deliver substantial and immediate value to the stockholders of both companies. That value will come from $300 million in annual synergies and balance sheet efficiencies, from the creation of the largest competitive power company in the nation with approximately 47,000 megawatts of capacity and from geographical diversity.

We are making good progress and getting the various approvals we need to close on the first quarter of 2013. We're also pleased that our generating fleet has been performing well, especially during the heat waves this past summer in the East. And we're very pleased that Marsh Landing remains on schedule and on budget.

Now Claudia, we're ready for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Brandon Blossman with Tudor, Pickering, Holt. Please state your question.

Brandon Blossman -- Tudor, Pickering, Holt

Good morning, guys.

Ed Muller

Good morning, Brandon. How are you?

Brandon Blossman -- Tudor, Pickering, Holt

I am good. How are you, Ed?

Ed Muller

Just fine.

Brandon Blossman -- Tudor, Pickering, Holt

Good to hear. All right, well, we're in the last inning here. I guess probably let's start with California capacity payments, so it looks like there was -- at least from my perspective an upside surprise there. Any detail or color you can offer around that? And is that a one quarter item or is that a multi-quarter item?

Ed Muller

Bill, why don't you take that?

Bill Holden

The California capacity increase relative to Q3 of last year related to contracts that were put in place in the 2007-'08 timeframe, so I'm not sure why it would have been an upside surprise while we've suspended guidance, if you look at guidance that we've given in previous periods. That capacity value would have been included in the guidance.

Brandon Blossman -- Tudor, Pickering, Holt

And is that a third quarter item or will we see some of that in fourth quarter?

Bill Holden

I think we're not updating guidance, so it's hard for me to comment on forward-looking information.

Brandon Blossman -- Tudor, Pickering, Holt

And maybe just to follow-on on that, so you're not updating guidance but you're well ahead of full year guidance at this point in the year. Energy doesn't seem like it's changed that much, has it?

Bill Holden

I think and Rob may elaborate on this, but I think what we have seen is generation volumes have been up. And so Rob, you might want to just comment on what we've seen.

Rob Gaudette

Yeah, sure. I mean if you looked back over Q3 or just in the price movement since the last time we talked, prices are up. We saw a lot of generation that, kind of to your question and to our expectations that we weren't expecting and it's because of some heat activity that occurred in Q3 where more generation than was expected was needed. And our units performed during that time period and were called on during that time period where the forward markets may not have expected that. Including me, I wouldn't have expected that. Overall, we've seen without going into what we see in guidance, you can look at the price curves, natural gas is up and I think you can kind of draw your conclusions from that.

Bill Holden

Brandon, this is Bill. The one other thing I might add just thinking about your question on capacity. We do have a page in the appendix that shows the fixed contracted capacity and so I think that all give you sort of the current outlook for the fixed contracted capacity through 2016.

Brandon Blossman -- Tudor, Pickering, Holt

Fair enough and there are no big changes there. Okay. And then Bill just – thanks for the color, Rob. That actually was very helpful. And then Bill, just a small bookkeeping item. So Gilbert SCR out of the environmental queue, doesn't look like there's a big change in the New Jersey peaker costs on a go full environmental cycles spend basis. I think it was 147, I'm referring to page 18, $147 million for the New Jersey peakers. Is it down ex-Gilbert or is that not including Gilbert?

Bill Holden

Yeah, I'll tell you the – let me just find page 18. The Gilbert 8 is not in the 147, so essentially what we have seen is that we refined our estimates for what the cost of compliance in New Jersey will be. And so the 147 million reflects two things, it reflects our refined cost estimates to add SCRs to the CTs, but we also as part of refining those estimates took into account that in order to – when we add the SCRs to the CTs, there would have been additional work done at the Gilbert unit 8 in order to keep the plant operating and combined cycle mode. And it was those expenditures that were not economic, so we've taken them out of the CapEx.

Brandon Blossman -- Tudor, Pickering, Holt

Thanks, that's helpful. Thanks, guys, for all your help. Take care.

Ed Muller

Thanks, Brandon.

Operator

Your next question is coming from the line of Neil Mehta with Goldman Sachs. Please state your question.

Neil Mehta -- Goldman Sachs

Morning.

Ed Muller

Good morning, Neil.

Neil Mehta -- Goldman Sachs

Good morning. Congratulations on the shareholder approval here, really a terrific quarter as well. Can you remind us what is left in terms of regulatory approvals in the merger and are there any explicit dates that we should be watching out for?

Ed Muller

We have two approvals remaining that we need, having obtained everything else. One if from the Federal Energy Regulatory Commission and the second is from the New York Public Service Commission and there's no date specifically that I can point you to, other than to say that these are moving along and we don't expect any issues here.

Neil Mehta -- Goldman Sachs

Got it. And then on coal to gas switching, can you talk us through the different trends you're seeing in different parts of your footprint?

Ed Muller

Rob, you want to take this?

Rob Gaudette

Sure. So Neil, if you think about – this is a long answer to your question, but just to paint it out for you. If you think about the spring of this year, we had substantial amounts of coal to gas switching where we saw a bunch of deep in the money coal units or what we would expect to be in the money coal units not running or only running for reliability purposes and then we saw a lot of pickup in our big gas units like a Chalk Point 3 and 4 as well as our CCGT Hunterstown. We move into the summer and demand picked up, especially in heat events and the grid needed both the coal units and the gas units.

And so there is less coal to gas switching. During that same time period, you've seen natural gas prices go up and so you've seen the cost of gas units go up with it. And so what we're seeing now is more coal run than we saw back in the spring, but we still do see substantial gas running on an average day, our CCGT's obviously running. And on higher demand days, we see our big boiler Chalk 3, Chalk 4 type units running. Does that answer your question?

Neil Mehta -- Goldman Sachs

Yes, very helpful.

Operator

Thank you. Our next question is coming from the line of Mark Barnett with Morningstar Security Research. Please state your question.

Mark Barnett -- Morningstar Security Research

Good morning, everybody.

Ed Muller

Good morning.

Mark Barnett -- Morningstar Security Research

Just a quick question on the small impairment, is that related to the decision on Gilbert?

Bill Holden

No, the two impairments we took were at Portland and Titus and the background there is that we've viewed the merger announcement as a trigger event that required us to do an impairment analysis for all of our plants. And we did that during Q3, and then the two plants that were impaired where Portland units 1 and 2 and Titus. And essentially the way to the think about that is those were plants where we have announced plans to deactivate them. And so when we did the impairment analysis in light of current forward curves, there was an indication of impairment, so we wrote them down to their current fair value.

Mark Barnett -- Morningstar Security Research

Okay, understand that. I guess just a broader question and it's probably not terribly easy to answer, but given the outcome of the election and maybe a little bit more certainty on that lease, just the aggressiveness that you might see out of the EPA for the next four years. What do you think the odds are of us seeing additional pushback on CSAPR and how are you thinking about any additional regulation that might come down the pipe?

Ed Muller

I think there are two major regulatory initiatives that would affect the – how coal plants in particular either stay in service or are deactivated MATS and CSAPR. And as we have said before, the impact of CSAPR while adverse to us was a short-term phenomenon superseded by MATS which while it requires in the case of MATS deactivations for economic reasons, the net we expect overall is actually a positive because of the constraint that will be coming in on supply, not just -- we will not be the only ones and are not the only ones deactivating plants.

So CSAPR to remind you is being reheard on [DOCC] in the District of Columbia Circuit and what that will be in its timeline I don't know. But given just where it fits and the effective date for MATS, which is April 2015, surely MATS that is of any significance and our assumption frankly regardless of who had won the election is that MATS will take effect. There are challenges to it pending, but we are not challenging it and we do think it will remain in effect.

Mark Barnett -- Morningstar Security Research

Okay, thanks, and congratulations on the approval.

Ed Muller

Thank you.

Operator

Our next question is coming from the line of Ali Agha with Suntrust Robinson Humphrey. Please state your questions.

Ali Agha -- Suntrust Robinson Humphrey

Thank you. Good morning.

Ed Muller

Good morning, Ali.

Ali Agha -- Suntrust Robinson Humphrey

Ed or Bill, if I was hearing you guys correct, is it fair to say that results through the nine months particularly through the third quarter may have been ahead of what you may have budgeted at this point and the higher output maybe the key driver for that, did I hear that right?

Ed Muller

I'm going to let Bill answer, but I will remind you that given the announcement on July 22nd of our planned merger with NRG, we suspended guidance and so we're being very careful not to slip and slide back into giving guidance.

Ali Agha -- Suntrust Robinson Humphrey

I'm not asking for an updated guidance, but just to (inaudible) results that have come through?

Ed Muller

Ali, you broke up there. Could you repeat that?

Ali Agha -- Suntrust Robinson Humphrey

I was just saying I was not looking for you guys to update your guidance for the full year, but just to acknowledge what has transpired through the nine months and through the three quarters?

Bill Holden

Ali, I think it's the same answer if we're – since we're not updating guidance to kind of reconcile back to prior guidance within the quarter I think sort of does the same thing. And I don't think I have a lot more color to shed there.

Ali Agha -- Suntrust Robinson Humphrey

But did I hear you guys right that the output for your plants maybe because of the hotter summer has been greater than what you may have thought about? I did hear that somewhere.

Ed Muller

Yeah, that's correct. As Rob said, we had more generation than we would have expected.

Ali Agha -- Suntrust Robinson Humphrey

Yeah. And Ed, as you've said before I mean you've always modeled your budget on a look forward, based on the forward curves haven't tried to necessarily second guess them. But conceptually, given the fact that we're hearing from a lot of utility companies that demand growth is either coming in lower than expected or has we've been fairly muted. On the other hand, you talk about the supply constraints, et cetera and shutdowns. Are you thinking that the forward curves today reflect what should be the right supply-demand mix or is that a disconnect that some people have talked about?

Ed Muller

Well, I'm not clever enough to know whether the forward curves are right or wrong. They are what they are and they reflect of course the broad consensus and so we accept them as they are. I do want to reiterate what we said in August during our earnings call and I mentioned it somewhat lightly in this call. We had units that have not been deactivated, over 700 megawatts coal units that were called on and ran during the times when it was very hot in the East, times when not only they run, but everything else we had, CTs and so on, higher heat rate where everything was running and the system performed as it should.

Now that we're taken out because we have deactivated the units, including some units that at PJM request we operated through the summer beyond what we had planned to under our model arrangements, they're gone for the future. So if you assume the weather will repeat itself going forward, there's just going to be less supply by definition. And whether the low growth is what it appears to be to in forecast and whether the curves are right or not, the basics of changing supply and changing supply on units that are lower in the sack in terms of heat rate, is going to have an impact. This is simple arithmetic.

Ali Agha -- Suntrust Robinson Humphrey

Okay. But just to take that one step forward, then what you're implying is that that impact is not yet visible to us?

Ed Muller

How visible and there are many factors that affect curves, the power curves and the gas curves, supply, economic concerns, concerns on the so-called fiscal cliff and so on. But as I look out and as we look out and say, ultimately prices are determined by supply and demand. Now, the demand that you've spoken to but supply we are seeing significant changes in the supply and we are – the units we've just deactivated had a lot of run time and some of the units that we look to deactivate between now and the spring of 2015 will run heavily during that time without going unit by unit having looked this morning. Here we are in November and some of those units are running and running full out. So a day will come when they will not be there.

Ali Agha -- Suntrust Robinson Humphrey

Last question, Ed. I understand that two approvals are still left to be had, but as you sit here today, would you anticipate that GenOn standalone will have a year-end call as well?

Ed Muller

I won't go beyond saying that -- as we've said in July, we expect that we will close this merger and complete it by the first quarter of 2013 and we remain confident that we will close this merger by the first quarter of 2013.

Ali Agha -- Suntrust Robinson Humphrey

Fair enough. Thank you.

Operator

Our next question comes from the line of Julien Dumoulin-Smith with UBS. Please state your question.

Andrew Gay -- UBS

Good morning. It's actually Andrew Gay here. Congrats on a successful vote this morning.

Ed Muller

Thank you.

Andrew Gay -- UBS

Just wondering if you can provide an update on the negotiations on the coal contract – I'm sorry, on the rail contract you alluded to last quarter. Did pricing end up sort of as you expected?

Ed Muller

The negotiations are still underway and as a result of that, we won't comment further on that. When they're done, we'll be happy to talk about them.

Andrew Gay -- UBS

Okay. And then could you provide an update on sort of the latest in terms of what you're seeing on the Maryland subsidized generation contracts, whether those – you expect those projects to go forward?

Ed Muller

I don't know. We are, like any participant in the market, watching it carefully and having developed and built and currently been building – constructing a power plant. Every detail has to be worked out generally before projects can be financed and go forward and I don't know particularly where they are, but I don't think I've seen any steel going up in the air.

Andrew Gay -- UBS

Got you. And then last, should we expect any meaningful financial impact from Sandy at your assets themselves due to power market disruptions or loss alone?

Ed Muller

Well, we do have facilities in New Jersey that were affected. A lot of debris and so on and we will have some work to do. We have no material impact and we shouldn't expect any material impact.

Andrew Gay -- UBS

Got it. Thanks, guys.

Ed Muller

Certainly.

Operator

Our next question comes from the line of Jon Cohen with ISI Group. Please state your question.

Jon Cohen -- ISI Group

Good morning, guys.

Ed Muller

Good morning, Jon.

Jon Cohen -- ISI Group

I was actually surprised by how much cash you're carrying at the end of Q3. So if I look at your Q4 '11 balance sheet, you had 1,655 of available cash given the last time you gave guidance negative 300-ish of free cash flow guidance for '12. And if I look at your cash balance of Q3, it's 1,855. So you're actually doing $0.5 billion better than what people should have been expecting earlier in the year, which is obviously $1.50 of pro forma share. Is there anything strange going on there other than the Stone & Webster settlement? And are there any big negative outflows that we should be expecting in Q4?

Bill Holden

Jon, this is Bill. I don't think there's anything unusual going on there. As a reminder, the dollars related to the Stone & Webster settlement had previously been placed on funds on deposits. So there were taken out of cash and cash equivalents when on that time and then when the settlement was finalized, the dollars and funds on deposit were used to pay the settlement amount to Stone & Webster and then the excess dollars came back in the cash and cash equivalents. I think that's the biggest moving part other than just cash from operations for the year-to-date. Gary, is there anything else you can think of there.

Gary Garcia

Yeah. And look at the end of Q4 of '11, but there has been a trend of funds on deposit coming back, just collateral coming back to us in general.

Jon Cohen -- ISI Group

Okay, thank you.

Operator

Our next question comes from the line of Robert Howard with Prospector Partners. Please state your question.

Robert Howard -- Prospector Partners

Good morning.

Ed Muller

Good morning, Rob.

Robert Howard -- Prospector Partners

I guess you talked a little bit about Maryland, maybe if you have any comments about progress on upgrading or updating MOPR rules in PJM or things going on in New Jersey and just sort of all that – those issues of subsidized capacity?

Ed Muller

There's been an effort as I think is probably like that PJM working with a number of market participants, including GenOn. It has developed a proposed – some proposed revisions to MOPR which would have the system function I think more fairly and appropriately and eliminate the possibility of subsidies affecting how the market operates, which is for anyone who has studied basic economics how this thing ought to operate. This will require ultimately the approval of the Federal Energy Regulatory Commission and I think the breadth of the group that worked on this with PJM demonstrates that it has good broad support and I am generally optimistic that these changes should go forward, but they of course are subject to the approval of the commission.

Robert Howard -- Prospector Partners

Okay, great. And just a little bit more – Rob was talking earlier on the coal to gas switching issues and I guess the changes in production from different plants, I guess was any of that surprising at all, I mean as you went through seeing a lot more gas plants running than you would expect, just did the grid act differently or did you have to sort of – were there sort of any surprises that coal to gas switching created that you might not have expected and sort of lessons learnt on how to deal with that environment going forward, if something like that happens again with the gas price drop?

Rob Gaudette

Yeah, so just to – let me rephrase the question to make sure we're getting what we want. When we look back at the coal to gas switching that occurred over the last nine months, was there anything that surprised me? And secondly, did we learn anything from it? Is that close?

Robert Howard -- Prospector Partners

Yeah. Did things act differently than you might have expected or is there – if this situation happens again, we should work these plants in a different way or some kind of lessons learnt that you might be, better prepare you for another type of event like that?

Rob Gaudette

Sure. So the coal to gas switching that occurred over the last nine months is at unprecedented levels, anybody knows that, that's an awful lot. As far as surprising us or things to think about, the way we look at our fleet, we run economics based on fuels and so we kind of see and expect things to happen and for coal to gas switching to occur given the forward marks. If there was any surprise and it really wasn't that big of a surprise, but it was interesting is that we still have very important, very well located coal units in the grid that have got run. So we can talk coal to gas switching as much as we'd like, but some units – this grids were built around these big centralized power stations and some of our units, some of our very big coal units are essential to grid stability.

So even in a time where coal to gas switching you'd expect no coal to run, there still is a substantial amount of coal plants that are being run at the request of the ISO and that's for – so they can secure the grid and they can provide the power locationally where they need that. So if there's anything to take away here, it's that big important coal units are going to run – I can't say regardless of price, but they're going to run in even some of the most constrained environments that we've seen. Does that help?

Robert Howard -- Prospector Partners

Sure. Yeah, that's great. And I guess then continuing on that, are those constraints at something that, hey, have some new transmission line put in, it's $50 million fix or is it adding new transmission or making kind of tweaks to the grid, something that would alter that condition easily or was it sort of a complex issue to kind of get rid of these little bottlenecks that your plants are located within?

Rob Gaudette

I am happy to say that I am not an electrical engineer. I really don't – I know that transmission has been useful for long-haul fixes and the transmission companies know the best way to fix some of these markets, but the thing to walk away from is that the distribution grids that have been set up around major cities like D.C. or New York or whatever, has been built around these big stations. And so – we're not talking about small lines, we're talking 500 kV lines, we're talking stuff down two or three different levels. These plants have been built purposely to support that load. And I don't know if the economics makes sense to put in the transmission line to adjust for a gas to coal spread that moves every day. I'm just not that expert.

Robert Howard -- Prospector Partners

Okay, great. Thank you very much.

Ed Muller

Certainly.

Operator

Our last question comes from the line of Raymond Leung with Goldman Sachs. Please state your question.

Raymond Leung -- Goldman Sachs

Hey, guys. Congratulations on a good quarter and the shareholder vote. Couple of things. Can you guys talk a little bit about what you saw during the quarter for heat rates, given – and also talk a little bit about are you seeing in the forwards and sort of your thought process around the tightening markets, what do you see embedded in the forwards and maybe is it reflecting reality?

And then the other question is can you give us an update on your coal supplies where you stand, give a sense like you ran it more, you had a force majeure situation I believe a quarter of so ago, just give us an update there?

Rob Gaudette

Okay. So on the – let's just take the second question first. As far as coal supply goes, we did go into a force majeure earlier in the year and then we came out of that. We lifted it. We're working with our suppliers as far as working out carryovers and all that. We have coal in the ground. It's not as – we're not full to the gills like we were before, when we had -- for safety reasons to clear force majeure, additional runs, normal runs as opposed to very low runs like we saw in the spring have helped that. Going forward, I think our supply is in good shape and I'm not worried one way or the other as far as too much or too little supply.

Raymond Leung -- Goldman Sachs

Okay. In the context of coal supply average days or anything like that?

Rob Gaudette

It ranges by plants. I don't recall giving out that in the past, but I can give you a range. It runs from call it 10 to 15 days at a smaller plant up to 65 to 70 for a larger plant if that helps.

Raymond Leung -- Goldman Sachs

Okay, thank you.

Rob Gaudette

And those literally vary by station.

Raymond Leung -- Goldman Sachs

Right.

Rob Gaudette

Okay. And then as far as heat rates, I'm not going to talk about what my view of the heat rates are going forward, but what I can tell you is that we have seen and I'm sure you've seen drop offs in the heat rates and the forward curves between July and now to the tune of between 0.1 to 0.2 in the front years out to about 0.5 point in the back rather than me speculate what that means and kind of getting in trouble with Ed around giving guidance, I'm just going to say it is what it is.

Raymond Leung -- Goldman Sachs

All right, fair enough. Thanks.

Operator

Mr. Barber, there are no further questions at this time. I'll now turn the floor back over to you for closing remarks.

Dennis Barber

Thank you, Claudia, and thank you everyone for participating in our call this morning. A replay of this webcast will be available in about two hours. We hope you have a great day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: GenOn Energy's CEO Discusses Q3 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts