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NRG: Retail Not Even a "Secondary" Consideration in Edison Mission Acquisition; But Does Allow a Second Look at Municipal Aggregation Market
The retail supply business was not even a secondary consideration of NRG Energy in deciding to enter into an agreement to acquire Edison Mission Energy, NRG CEO David Crane said on an earnings call yesterday, but the acquisition would allow NRG to take a "slightly harder" look at the municipal aggregation market in Illinois, which to date it has eschewed.
"We've watched with interest a little bit what goes on, on the retail side in Illinois with community aggregation and all that. Not that we've been that interested in playing that space at the margins that we've seen there. But clearly, having generation [from Edison Mission] in Illinois would probably get us to take a slightly harder look at that market," said NRG Energy CEO David Crane
Elaborating on Crane's comments, Jim Steffes, NRG's Retail Regional President for the Northeast, said that the Edison Mission acquisition would, "position us to look again at Illinois on the retail side and see where that market will evolve to and how much more NRG and our multi-brand strategy can take to move into that market. But it's something we'll be looking at over time as the transaction moves forward."
Providing greater detail on the retail business, NRG said that the Texas mass market retail business remains, "strong and stable, with unit margins up slightly during the third quarter." The Texas mass business has seen continued customer growth, bolstered by the introduction of innovative products and services, NRG said.
Margin pressure and competition in the Northeast mass market business "remain intense," and NRG is accordingly being "disciplined" in acquiring customers and managing profits.
NRG's slowing customer growth was first reported by EnergyChoiceMatters.com yesterday
In the Commercial and Industrial retail business, executives said that, "we continue to be very diligent in our efforts across all competitive markets where we're winning profitable deals and walking away from those that don't meet our return threshold."
To avoid just competing on price, NRG is intensifying efforts to provide comprehensive solutions to customers beyond system power, including backup generation, solar and demand response. Consistent with that strategy, NRG noted that it closed on the acquisition of Energy Curtailment Specialists.
NRG's retail segment reported third quarter Adjusted EBITDA of $176 million, up $3 million from $173 million a year ago. Lower operating expenses of $16 million, primarily from improved operating efficiencies and cost management, were partially offset by $13 million in lower gross margin driven by competitive pricing, a reduction in C&I load and higher supply costs.
At the corporate level, NRG narrowed 2013 guidance and lowered 2014 guidance largely due to the decline in the forward curves across all of its core wholesale regions over the past few months, as a result of the lack of scarcity pricing during the summer of 2013.
Specifically, guidance for 2013 Adjusted EBITDA was narrowed from $2.55-$2.7 billion to $2.55-$2.6 billion. Guidance for 2014 Adjusted EBITDA was lowered from $2.85-$3.05 billion to $2.7-$2.9 billion.
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November 13, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com
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