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NRG To Acquire Xoom Energy

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

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Copyright 2010-17
Reporting by Paul Ring •

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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             30%
Competitor 1    23%
Competitor 2    10%
- 50 Others   <7% each

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%
NRG                    2%

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

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