Acquisition Serves To Balance NRG Generation, Load In East, Expands Retail Gas Business
NRG CEO: "Need To Start Thinking About NRG Not In Terms Of Megawatts We Own, But In Terms Of Customers We Serve"
March 28, 2018 Email This Story Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
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During an analyst day yesterday, NRG Energy announced that it would acquire XOOM Energy for $210 million, including working capital and $6 million in transaction costs
The acquisition is an all-cash transaction, funded with $75 MM from excess cash and $135 MM debt
XOOM serves over 300,000 customer equivalents, primarily in the East
Discussing the acquisition with analysts, NRG CEO Mauricio Gutierrez said that the acquisition of retail supplier XOOM serves to balance NRG's generation portfolio in the East, where NRG is long even with the disposition of GenOn.
The transaction grows NRG's retail natural gas business, and also enhances NRG's multi-brand and multi-channel strategy, adding XOOM's referral-based sales channel
NRG said that XOOM generates $45 million in annual EBITDA, and that the transaction represents 4.5x EV/EBITDA, and is immediately accretive
Discussing NRG's strategy, Gutierrez said, "As we transition to a more customer-focused business, we need to start thinking about NRG not in terms of megawatts we own, but in terms of customers we serve."
Gutierrez added, "We need to continue rebalancing our portfolio to better match generation and retail. We need to change the way we are organized to better align with our customers, and achieve further integration between generation, retail, and corporate functions."
In a statement to EnergyChoiceMatters, NRG said of the XOOM acquisition that, "We are excited about this acquisition and the opportunity to serve these new customers in these new markets, once the deal is final. This transaction aligns with the overall corporate strategy of evolving into a more customer-focused company and growing our retail business. This acquisition expands our retail East business significantly."
NRG is targeting a Q2 2018 close for the XOOM acquisition.
NRG also discussed strategy and outlook for the retail business during the analyst day.
NRG said that its mass market business in Texas leads in market share at 30%, with 2.2 million customers and 36 TWh served
NRG listed Texas residential market shares as follows:
NRG said that improving its Texas market share by 1% is a $20+ million annual Adj. EBITDA opportunity
In the east, NRG listed aggregate residential market shares as:
Incumbent Utilities 69%
Largest Competitor 4%
In Pennsylvania, NRG listed residential market shares as:
Incumbent Utilities 66%
NRG (Largest) 6%
Next Largest REP 2%
NRG said that its leading competitive market share in Pennsylvania reflects its focus on the Pennsylvania market, as it allocates resources in the most attractive markets, while it is more opportunistic in other eastern markets
In the east, NRG said that improving its market share by 1% is a $50+ million annual Adj. EBITDA opportunity
NRG also listed what it termed "emerging" retail markets: California, Nevada, Virginia, and Florida
NRG listed the EBITDA opportunity from a 5% market share in these states as follows:
Residential Load EBITDA Opportunity
(TWh) From 5% Share
California 88 $45 - $70 MM
Nevada 13 $5 - $15 MM
Virginia 45 $25 - $40 MM
Florida 123 $60 - $100 MM
NRG also provided an update on its retail margin enhancement plan, which it said has two major programs, each with three projects, which build up to $180 MM in margin enhancement with increasing intensity through 2020.
A Value Expansion Program (VEP) is being seen as contributing $105 MM, from Retention Performance Improvements ($25 MM), Platform Enhancements ($50 MM), and Secondary Product Penetration ($30 MM)
A Customer Growth Program (CGP) is being seen as contributing $75 MM, from Digital Enhancements ($15 MM); Channel Performance Improvements ($30 MM), and Channel Expansion ($30 MM)
The Retention Performance Improvements include tools to identify and mitigate retention risks, improved customer lifecycle communications, and a customizable and enhanced portal and mobile app
Platform Enhancements include improved data management of customer & campaign information, Artificial Intelligence (AI) powered tools to match customers with products, and robust and ongoing analysis of customer behavior
Secondary Product Penetration (SPP) includes deepening the penetration of secondary products like natural gas, security, and services into the current customer base where the product(s) drive increased tenure, and adding secondary products to customer acquisition channels where the product increases electricity close rate and value
Digital Enhancements include enhanced digital tools and an improved online sales experience
Channel Performance Improvements include agent level performance enhancements, increased close rates, and improved marketing spend
Channel Expansion includes expanded direct sales channels, expanded online sales channels, and expanded alternative sales channels