NRG "Transformation Plan" Emphasizes Investment in Retail Business
Includes Retail "Margin Enhancement" Plan
Plan Includes Divesting 6 GW Of Conventional Generation, 50-100% of NRG's Interest in NRG Yield and Renewables Platform
NRG Targeting $2.5-$4.0 Billion of Asset Sale Net Cash Proceeds
Asked About Potential NRG Texas Retirements, CEO Says "Very Comfortable" With Current Retail-Generation Balance in ERCOT
July 12, 2017 Email This Story Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
NRG Energy this morning announced the results from its business review committee process, launching a transformation plan that includes divesting 6 GW of conventional generation, as well as 50-100% of NRG's interest in NRG Yield and its Renewables platform
NRG is targeting net cash proceeds of $2.5 billion to $4.0 billion from, "opportunistic asset sales to optimize the NRG portfolio."
This includes divesting about 6 GW of conventional generation and businesses. This amount excludes the previously announced exit from the GenOn business. NRG is to divest 21 GW of conventional generation when including GenOn
NRG said that it cannot disclose the assets included in the 6 GW at this time, but said that it is in advanced stages of the process
Pressed by an analyst about potential additional NRG retirements in ERCOT, NRG CEO Mauricio Gutierrez stated that asset rationalization will be driven by the overarching strategy of matching retail load to generation through its integrated platform.
"In Texas, I feel very comfortable with the balance that we have between generation and retail," Gutierrez said
However, "make no mistake," NRG will retire plants that are uneconomic, Gutierrez said
NRG will also monetize 50% to 100% of NRG’s interest in NRG Yield and its Renewables business, "to deconsolidate and simplify NRG structure while maintaining ability to provide comprehensive energy solutions"
The expected $2.5 billion to $4.0 billion net cash proceeds range is primarily based on the 50%-100% monetization of NRG’s interest in NRG Yield and the Renewables platform
NRG expects an announcement of asset sales by 4Q17 with 100% associated costs and debt reductions realized in 2018
"NRG is well underway in a process to explore strategic alternatives for its interest in NRG Yield and the renewables platform. The strategic alternatives span a variety of ownership structures and partnership types, including the potential partial or full monetization of the renewables platform and NRG’s interest in NRG Yield with a goal to optimize how NRG participates in renewables and to deconsolidate the associated debt. Beyond creating value, NRG seeks to simplify its corporate and business structure while preserving the ability to provide comprehensive energy solutions to customers," NRG said
The plan "materially increases" NRG's investment in its Retail business, and enhances the company's scalable retail platform
The plan includes a $215 million margin enhancement plan, accomplished through investing in strategies and technology to enhance and grow the NRG Retail business by:
• Driving investment in the Retail business to increase margins (e.g., enhanced analytics systems, expanded sales channels)
• Further integration of the NRG wholesale – retail platform and increasing commercial optimization
Additional specific Retail actions include an emphasis on technologies and abilities that will further optimize NRG's ability to target new customers and grow the business, and expanding product lines and sales channels
The plan includes strategies to enhance generation through further dispatch optimization, heat rate improvements, and capacity up rates
NRG said that as a result of the plan, the majority of its exposure will now be in the "tightening" ERCOT market, with its matched generation-retail footprint
NRG announced a series of measures to achieve $640 million in cost savings. Among these announced measures is increasing retail e-bill adoption and, "streamlin[ing] C&I back-office support"
NRG is targeting a 50% decrease in C&I operating costs per MWh
NRG announced $1.065 billion in recurring cost and margin improvements, including $855 million in recurring Annual Free Cash Flow before Growth (FCFbG) Accretive Improvements and $210 million in Permanent SG&A Reduction from asset sales and divestments
The plan is to remove $13 billion total debt from NRG's balance sheet
The to-be divested businesses represent over 60% of NRG’s EBITDA. Pro Forma Annual Adjusted EBITDA of the post-transformation company is $1.845 billion
NRG's 2017 guidance for its Retail business is unchanged at $700-$780 million in Adjusted EBITDA