Winning in Texas: Mauricio Gutierrez Chief Operating Officer, NRG Energy. Jason Few Executive Vice President and President, Reliant Energy

Transcription

1 Winning in Texas: NRG s Integrated Platform Mauricio Gutierrez Chief Operating Officer, NRG Energy Jason Few Executive Vice President and President, Reliant Energy Bank of America Merrill Lynch 2012 Megawatt Roundup Conference March 28, 2012

2 Safe Harbor Statement This presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of Forward-looking statements are subject to certain risks, uncertainties and assumptions and typically can be identified by the use of words such as expect, estimate, should, anticipate, forecast, plan, guidance, believe and similar terms. Such forward-looking statements include our retail and wholesale strategy in Texas. Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, weather conditions, competition in wholesale and retail power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale and retail power markets, the condition of capital markets generally, our ability to access capital markets and government funding and tax programs, failure to successfully integrate acquired businesses, the inability to develop successful partnering relationships, and our ability to realize value through our commercial operations strategy. NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The foregoing review of factors that could cause NRG s actual results to differ materially from those contemplated in the forward-looking statements included in this Investor Presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at Statements made in connection with the exchange offer are not subject to the safe harbor protections provided to forward-looking statements under Private Securities Litigation Reform Act. 1

3 Agenda I. Texas Fundamentals and NRG s Integrated t Platform II.Texas Retail Outlook M. Gutierrez J. Few 2

4 I. NRG in Texas Overview and Summary Wholesale Retail West Zone Sherbino Elbow Creek Langford South Trent North Zone Dallas Limestone TH T.H. Wharton Total: 10,755 MW Coal: 4,190 MW Nuclear: 1,175 MW 1 Wind: 450 MW Gas: 4,940 MW Greens Bayou San Jacinto Cedar Bayou S.R. Bertron Houston As of 12/31/ % owned South Zone W.A. Parish South Texas Project Total Volume: 55 TWh Total Customers: 1.9 MM Second Largest Asset Portfolio in TX Largest by Volume and Total Meters The NRG Value Proposition: 1. Scale and Scope in the strongest power market 2. Environmentally controlled, diversified generation portfolio that stands to benefit from heat rate expansion 3. Integrated retail: driver of full-cycle stability 4. Best retail growth platform NRG is uniquely positioned to benefit in the TX market 3

5 I. Texas Economy Update and Review: Key Macroeconomic Drivers + Best-in-Nation Population Growth Trends + Quickest Recovery Out of Recession Average Annual Population Growth (CAGR), % Texas Source: US Census Bureau, 2010 Census 0.9% Total U.S. Civilian Nonfarm Labor Force (Dec 2007= 100) Growth in Labor Force, 12/7-12/11 #1: Texas Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Source: Bureau of Labor Statistics. Seasonally adjusted + Robust Economy Supported by Petrochemical Strength =Strong (and Sustainable) Demand Growth AZ AR CA CO DE FL GA ID IL IN IA KS KY LA ME MD MI MN MS MT NE NV NY NC ND OH PA TX VA WA WY 74% Share of US refined product exports TX/Gulf Coast (PADD 3) ~60% Share of US Chemical Production Source: EIA (2011 data), Texas Chemical Council, NRG Research. Note: PADD=Petroleum Petroleum Administration for Defense District; PADD 3 includes TX, NM, LA, MI, AL, and AR TX Indexed De emand Growth, TWh (2 2001=100) Historical i Energy Demand Growth (TWh), TX and rest of U.S Rest of US Source: EIA, ERCOT Capacity, Demand, and Reserves 2011 Winter Update ERCOT 2011 ~2.5% CAGR, Texas is the most attractive power market in the US 4

6 I. ERCOT Wholesale Market Update: Strong Fundamentals... TX PUCT Instituting Market Design Changes and Higher Price Caps Helping Forward Heat Rates Move Closer to New Build Economics (although not there yet) 2 $10,000 ERCOT Price Caps ($/MWh) $8,000 $6,000 $4,000 $3,000 $2,000 $2,250 $1,000 $1,500 Mar-08 Feb-11 Mar-07 $0 Source: ERCOT, NRG Research t ERCO OT Reserve Margin 15% 13% 10% 8% 5% 3% 2/14/2012 3/26/ NTM, ERCOT reserve margin CCGT New target, Entry 13.75% % $15 $20 $25 $30 $35 On-Peak Spark Spread $/MWh (7 HR) Source: ERCOT Capacity, Demand, and Reserves 2011 Winter Update, NRG Research NRG Portfolio: Second Largest in TX, with Capacity Across the Merit Order and with Spark Spread Portfolio Optimally Positioned for Summer Scarcity Conditions ~11 GW capacity Luminant NRG Calpine CPS LCRA Energy Source: Energy Velocity and company websites, as of Q reporting. 1 NRG ownership s margin Incremental gross $MM +$350 +$300 +$250 +$200 +$150 +$100 +$50 ~5,000 MW TX gas assets 2013 spark, 2/14/ spark, 3/26/12 / CCGT new entry $ $5 $10 $15 $20 $25 $30 $35 On-Peak Spark Spread $/MWh (7 HR) leads to an optimal position for NRG s wholesale portfolio 2 NRG estimates. Margin required to justify new build economics for a CCGT based on $800-1,000/KW capital cost net of A/S and O&M. Sensitivity based on open gas portfolio. Spark Spread=(Houston Hub On-Peak Power - 7 heat rate x Henry Hub Gas) 5

7 I. Integrated Wholesale/Retail Portfolio: The Value of Integration NRG Texas: Wholesale and Retail (Nameplate Capacity ~ 11,000 MW) Retail Risk Management: Supply and Load Summer month on-peak duration curve Peaking Total Peak Load 95 th percentile load Normal load GW 8 6 Intermediate GW Options Incremental options 4 Baseload Block and shape 2 Priced load 0 Year 1 Year 2 Year 3 Year Hours Wholesale portfolio benefits from heat rate expansion Reducing retail tail risk Note: Illustrative purposes only Exposure to robust market fundamentals while managing volatility in retail load 6

8 I. NRG s Wholesale Platform Key Takeaways Near Term: Long Term: Natural Gas Heat Rate Weak fundamentals Significantly hedged baseload plants Strong fundamentals Periods of scarcity pricing Up to ~11 GW heat rate exposure More constructive fundamentals (coal retirements, LNG exports) Remain open to market recovery Environmentally controlled and diversified baseload portfolio Robust Texas market Repowering sites Retail Integration Collateral and transaction cost synergies Diverse retail platform geared towards high performance across the cycle Well positioned for full cycle performance in the ERCOT market 7

9 II. State of the Texas Retail Market: Best Retail Opportunity titive of total US compet load % Source: KEMA 34% 63% Largest Retail Market Competitive Load, 2011: Total = 659 TWh Residential = 131 TWh 12% 11% 9% 11% 7% 9% 6% 1% 26% 13% TX IL PA OH NY Other Total Competitive TWH s Residential Competitive TWH s Limited Meaningful Top Residential Competitors NRG: Overall Leader with Growing Residential Share Dominion 2% Spark 2% Startex 3% Gexa 2% Other 2% Just Energy 6% Ambit 5% Residential ERCOT Share Stream 7% TXU Energy 29% Direct Energy & First Choice 14% NRG Energy 28% Reliant 1,314k Green Mountain & Energy Plus 266k Source: KEMA, Sep NRG Retail includes Reliant, Energy Plus, and Green Mountain; 10K Filings with Broad Range of Pricing Across Channels Primary >300k Residential Customers NRG Direct Stream Just Energy Source: KEMA Secondary 300k-100k Residential Customers Tertiary <100k Residential Customers TXU Ambit 30+ REPs, including: Startex (Constellation) Spark Gexa Dominion Bounce Champion Amigo Texas Power Cirro Dynowatt $/kwh Retail Energ gy Price $0.15 $0.13 $0.11 $0.09 $0.07 $0.05 Source: Vector Report & PUC Data Range of Introductory Prices Introductory Product Offerings Source: Vector Report & PUC Data; PTC website kwh usage level NRG is the leader in the most robust competitive retail market 8

10 II. NRG Well Positioned in Texas: Drivers for Continued Strong Performance Diversified Retail Platforms..with Full Arsenal of Sales Channels Retail Brand Value Proposition Franchise value coupled with innovative products and excellent customer service Loyal customers seeking green and sustainable products Long-term relationships through exclusive affinity and customer reward programs Higher Visibility Lower Power to Choose Other Online Direct Mail Relative Relative Price Price Point Door to Door Call Center Higher Leader in Product Innovation Operational Expertise and Customer Focus NRG Customers Using Value- (000s) Customer Complaint Rate Added Products and Services 500 Home Solutions Smart Energy NRG s diversified retail platform well positioned to perform through the commodity cycle 9

11 II. NRG s High Performing Retail Business: Positioned for Growth Delivering Attractive EBITDA Expanding Retail Footprint $642 NRG s Retail EBITDA ($MM) $700 $720 $665 $625 $800 >30% switched >20%, <30% switched >10%, <20% switched <10% switched NRG generation assets $600 ~21% (55 TWh) of residential TWhs in NE markets now served by competitive providers, a 43% CAGR in last 5 years E Run Rate 1 Note: A GAAP reconciliation of adjusted EBITDA to Net Income is provided in the Regulation G schedules supplied in Appendix tables A2-A4. A GAAP reconciliation of the projected 2012 adjusted EBITDA to Consolidated Cash from Operations is provided in the Reg G schedule in Appendix table A1. 1 Extended commodity down cycle run rate range of $ MM Customer Growth (000s) Source: KEMA Retail Energy Outlook, Q and NRG Research. Colors indicate MWhs switched Volume Growth (TWh) 1,597 1,877 2, Successfully maintaining count in core markets while pursuing growth and achieving strong EBITDA performance 10

12 II. NRG s Retail Business Model: Why NRG Wins? Wholesale/ Retail Integration Maximize collateral and transaction synergies Optimize counter-cyclicality cyclicality of earnings Multi-Brand Multi-Channel Three leading REPs with complementary brands Leadership position in Texas: scale, broad channel coverage Operational expertise and customer focus Product Innovation Leader in delivering innovative products and sustainable solutions to expand share of wallet Geographic Expansion Replicable model for new geographies (e.g., Northeast) Well-positioned to sustain and grow in the customer-focused retail space while delivering $ MM EBITDA at this point in the cycle 11

13 Appendix

14 Strong Plant Operations in 2011 Safety Top Decile OSHA Recordable Rate 1 Net Production (TWh) Top Quartile = Top Decile = TWh Cottonwood TX SC 3 West NE NRG Top Decile OSHA Recordable Rate based on Edison Electric Institute 2009 Total Company Survey results Coal Availability (EAF) 4 2 All domestic generation 3 South Central includes an additional 4.9 TWh from Cottonwood in 2011 Gas Gas Reliability 10,000 9, % Top Quartile = # sta rts 9,000 8,000 7,000 6,000 6,457 6,239 6,574 6, % 98.3% 98.0% 97.8% Starting Re eliability Equivalent Availability Factor (EAF) measures % of maximum equivalent generation available 5, Number of Starts t Reliability 97.5% Consistent top operating performance across key metrics 13

15 99% Active Hedging Program Provides Forward Earnings Visibility Baseload Generation and Retail Hedge Position (1)(2)(5)(6) Coal and Transport Hedge Position (1)(4) 10 0 % 10 0 % 82% 86% 87% 69% 57% 56% 67% 59% 24% 24% 23% 22% 19 % 18 % 8% 3% 1% Baseload Hedged Energy Open Baseload Energy Priced Load Un-priced Load Change since prior quarter Baseload Gas Price, Coal and Heat Rate Sensitivity i i (1)(3) (1) (5) (46)(47) (5) (14) (15) (17) (119) (157) (180) (191) (329) (350) Gas Up by $1/mmBtu Gas Down by $1/mmBtu HR Up by 1 mmbtu/mwh HR Down by 1 mmbtu/mwh Coal Up by 10% Coal Down by 10% Hedged C oal Open Coal Transporatation Hedged Open Transportation Change since prior quarter Near Term Commercial Strategy Increased natural gas hedges in to protect from further price erosion Maintain heat rate upside, particularly in ERCOT Ensure collateral synergies between wholesale/retail Successful extension of Claiborne Electric Co-op and Washington-St. Tammany Electric Co-op contracts (pending LPSC approval) (1) Portfolio as of 02/14/2012; (2) Retail load includes Reliant, Green Mountain, and Energy Plus for Texas, PJM, ISONE and NYISO regions. Retail Priced Loads are 100% hedged; (3) Price sensitivity reflects gross margin change from $1/MMBtu gas price, 1 MMBtu/MWh heat rate move, and 10% movement in coal price; (4) Coal position excludes existing coal inventory; (5) Baseload includes coal and nuclear electric power generation capacity normally expected to serve loads on around-the-clock basis throughout the calendar year; (6) Hedge % include swaps and delta of options sold which is subject to change 14

16 Appendix: Reg. G Schedules

17 Reg. G: 2012 Guidance Appendix Table A-1: 2012 Guidance EBITDA Reconciliation $ in millions 2/28/2012 Guidance 11/3/2011 Guidance Wholesale $1,200-$1,300 $1,200-$1,300 Retail Consolidated adjusted EBITDA $1,825-$2,000 $1,825-$2,000 Interest Payments (650) (650) Income Tax (50) (50) Collateral - - Working capital/other (50) - Cash flow from operations $1,050-$1,250 $1,100-$1,300 Maintenance CapEx (240)-(260) (240)-(260) Environmental CapEx, net - (50)-(60) Preferred Dividends (9) (9) Free cash flow - before growth investments $800-$1,000 $800-$1,000 16

18 Reg. G Appendix Table A-2: FY 2009 Regional Adjusted EBITDA Reconciliation The following table summarizes the calculation of adjusted EBITDA and provides a reconciliation to net income Reliant South ($ in millions) Energy Texas Northeast Central West International Thermal Corporate Total Net Income/(Loss) $ 966 $ 672 $ 291 $ (41) $ 40 $ 150 $ 8 $ (1,145) $ 941 Plus: Net (Gain)/Loss Attributable to Non- Controlling Interest Income Tax Interest Expense Amortization of Finance Costs Amortization of Debt (Discount)/Premium Depreciation Expense ARO Accretion Expense Amortization of Power Contracts 258 (57) - (22) Amortization of Fuel Contracts (49) (42) Amortization ot ato of Emission sso Allowances EBITDA $ 1,347 $ 1,311 $ 465 $ 52 $ 53 $ 167 $ 23 $ (93) 3,325 Early Termination of CSRA 89 (4) Exelon Defense Cost Reliant Integration Cost FX Loss on MIBRAG Sale Proceeds Settlement of Pre-Existing Relationship with Reliant Energy (31) (31) Gain on Sale of Equity Method Investmen (128) - - (128) Less MTM Forward Position Accruals 138 (43) 38 (29) Add. Prior Period MtM Reversals (656) (588) Less: Hedge Ineffectiveness - 47 (2) Adjusted EBITDA, excluding MtM $ 642 $ 1,329 $ 468 $ 81 $ 53 $ 59 $ 25 $ (39) $ 2,618 17

19 Reg. G Appendix Table A-3: FY 2010 Regional Adjusted EBITDA Reconciliation The following table summarizes the calculation of adjusted EBITDA and provides a reconciliation to net income Reliant South ($ in millions) Energy Texas Northeast Central West International Thermal Corporate Total Net Income/(Loss) $ 358 $ 876 $ 13 $ (7) $ 39 $ 45 $ 4 $ (852) $ 476 Plus: Net Gain/(Loss) Attributable to Non- Controlling Interest Income Tax Interest Expense 5 (67) Depreciation and Amortization Expense ARO Accretion Expense - 3 (3) Amortization of Contracts (21) EBITDA 663 1, ,437 Dynegy/Cottonwood Acquisition and Integration p costs Investment MTM losses/gains 48 (107) (25) 72 Adjusted EBITDA 711 1, (16) 2,514 18

20 Reg. G Appendix Table A-4: FY 2011 Regional Adjusted EBITDA Reconciliation The following table summarizes the calculation of adjusted EBITDA and provides a reconciliation to net income Reliant South ($ in millions) Energy Texas Northeast Central West International Thermal Corporate Total Net Income/(Loss) (74) (12) (475) 197 Plus: Income Tax (850) (843) Interest Expense 4 (5) Loss on Debt Extinguishment Depreciation and Amortization Expense ARO Accretion Expense Amortization of Contracts (20) EBITDA (487) 1,304 Impairment and write-off of investment, intangibles and fixed assets MTM losses/(gains) (45) (155) (5) (161) Adjusted d EBITDA ,820 19