NRG Changes Reporting Segments For Earnings, Retail Results No Longer Reported Separately

NRG Reports Estimate For Expected Bad Debt From COVID-19

NRG "Monitoring" Retail Market For Potential Acquisitions From Stressed Retail Suppliers, But Not A Priority

May 7, 2020

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NRG has reported earnings for the first quarter of 2020. In doing so, NRG has changed its business segments for reporting earnings, and no longer reports results specific to Retail operations

"As part of seeking to perfect the integrated business model, with the majority of our generation serving our retail customers, the Company began managing its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus in 2020. As a result, the Company changed its business segments from Retail and Generation to Texas, East and West/Other beginning in the first quarter of 2020. The Company's updated segment structure reflects how management currently makes financial decisions and allocates resources," NRG said

Under the new segment reporting structure, the company's businesses are reported as follows:

• Texas, which includes all activity related to customer, plant and market operations in Texas. NRG noted that revenues in this segment will be primarily retail

• East, which includes the remaining activity related to customer operations, including all retail operations outside of ERCOT, and all activity related to plant and generation operations in PJM, NEPOOL, and NYISO

• West/Other, which includes the following assets and activities: (i) all activity related to plant and market operations in the West; (ii) activity related to the Cottonwood power plant that was sold to Cleco on February 4, 2019 and is being leased back through May 2025; (iii) the remaining renewables activity, including the Company’s equity method investments in Ivanpah Master Holdings, LLC and Agua Caliente, the remaining Home Solar assets and the remaining NFL stadium solar generating assets; (iv) activity related to the Company’s equity method investment for the Gladstone power plant in Australia; and (v) Corporate activities

Concerning its Texas segment, NRG noted that it has a 33% retail market share in ERCOT

For its East segment, NRG said that it continues to pursue additional portfolio rebalancing (generation-to-retail matching), and noted its "scalable retail platform (<5% market share)"

NRG reported quarterly retail volumes as follows:

NRG Retail Sales Volumes 
                         1Q19     1Q20
Texas
Mass Electricity (GWh)  7,990    7,748
C&I Electricity (GWh)   4,549    4,456

East
Mass Electricity (GWh)  2,494    2,548
C&I Electricity  (GWh)    282      389
Natural Gas (MDth)     10,547   10,509

In terms of quarterly results, NRG reported that its Texas segment recorded first quarter 2020 Adjusted EBITDA of $195 million, $16 million higher than the Adjusted EBITDA of $179 million recorded first quarter of 2019, driven by the previously reported acquisition of Stream Energy, higher revenues from margin enhancement activities, and lower supply costs, partially offset by higher operating costs driven by STP nuclear refueling outage in the first quarter of 2020 and emission credit sales in 2019.

On a consolidated basis, NRG reported first quarter 2020 Adjusted EBITDA of $349 million, up from $333 million a year ago

NRG is reaffirming its guidance range for 2020 for consolidated Adjusted EBITDA of $1.9 billion to $2.1 billion

NRG reported that the COVID-19 impact to first quarter results was "minimal." However, NRG said that the full impact of COVID-19 related customer bad debt and attrition remains unknown

NRG cited an expected increase in COVID related costs, including Bad Debt, with offsets from cost management and relief funds

NRG said that, at this point, it expects most of the adverse impact from COVID-19 to come from customer-payment related items, such as bad debt. At this point, NRG estimates that to be around $50 million

Concerning any potential retail acquisition opportunities due to stresses faced by other retail suppliers, Mauricio Gutierrez, NRG President and Chief Executive Officer, said that NRG is "monitoring" such opportunities, but said that any retail acquisition would not only have to meet NRG's financial metric hurdles for investment, but would also have to be superior to share buybacks in terms of a business case for allocating capital.

NRG said that it has, "Strong liquidity under current COVID-19 market conditions," with a precautionary $635 MM draw under a revolving credit facility

In terms of liquidity and capital resources, as of March 31, 2020, NRG cash was at $0.8 billion, and $1.2 billion was available under the Company’s credit facilities. Total liquidity was $2.0 billion, including restricted cash. Overall liquidity as of the end of the first quarter 2020 was $197 million lower than at the end of 2019 driven by the increase in dividends and share repurchases.

Due to market conditions, primarily as a result of COVID-19, the Company drew $552 million on its revolving credit facility in the first quarter of 2020 as a precaution and to proportionally increase cash on hand. As of May 7, 2020, $250 million of borrowings were outstanding.

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