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NRG Reports Higher Adjusted EBITDA Excluding Uri Impact, On Direct Energy Acquisition

NRG Reports Impairment Losses Due To Planned Retirement Of PJM Assets

August 5, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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NRG Energy reported Adjusted EBITDA, (excluding Winter Storm Uri impacts), of $656 million for the quarter ending June 30, 2021, up from $574 million a year ago.

The increase is primarily due to the Direct Energy acquisition, partially offset by higher supply costs in Texas, as the year-ago supply costs had benefited from the economic shutdown

NRG said that $89 MM in Direct Energy synergies have been achieved year-to-date, as the company reaffirmed 2021 and full plan targets

For NRG's Texas segment, second quarter Adjusted EBITDA was $321 million, $57 million lower than second quarter of 2020. This decrease is driven by less favorable customer load in 2021 as a result of weaker weather and stay-at-home trends as well as increased costs to serve retail load, partially offset by the acquisition of Direct Energy.

Second quarter Net Income was $1,078 million, $765 million higher than second quarter 2020, driven by the acquisition of Direct Energy and the resulting mark-to-market on economic hedge positions in 2021 versus 2020 driven by large movements in gas prices and ERCOT heat rates partially offset by $306 million in impairment losses due to the planned retirement of certain PJM coal assets.

On June 17, 2021, NRG announced the retirement of 55% (or 1,600 MW) of its PJM coal fleet by June 2022 due to the decline in forward PJM capacity prices.

Based on results of the capacity auction and the announced retirements, NRG recorded $306 million of impairment losses on the PJM generating assets and goodwill during the quarter ended June 30, 2021.

The company also announced it is conducting a strategic review of its remaining PJM generation fleet, evaluating the viability of the remaining portfolio

NRG reported that, on July 30, 2021, PJM identified reliability impacts resulting from the proposed deactivation of Indian River 4. The company has until August 29, 2021 to notify PJM if it elects not to pursue continued operations.

NRG reported 2Q21 retail volumes as follows:

37 TWh Electricity

       14 TWh Home / Residential 
       23 TWh Business / C&I

379 MMDth Natural Gas
       25 MMDth Home / Residential 
      353 MMDth Business / C&I

NRG is maintaining the expected net financial impact from Winter Storm Uri (($500-700 MM)), though the gross impact increased primarily from load re-settlements and bad debt, but such increase was offset by expected mitigation

The company expects Winter Storm Uri's total 2021 loss before income tax to be $1,060 million driven by resettlement data, ERCOT system wide counterparty defaults, provisions for credits losses, increased uplift charges to load, ancillary charges and other estimates including results from other regions. The company plans to mitigate the loss by a range of $360-$560 million which includes, but is not limited to, customer bad debt mitigation, counterparty default recovery, ERCOT default and uplift regulatory securitization as noted above, and one-time cost savings. The total net impact to cash flow is expected to be $600 million based on the mid-point of the mitigants of which $150 million will to be realized [sic] in 2022 for bill credits owed to large Commercial and Industrial (C&I) customers.

As of June 30, 2021, NRG cash was at $0.4 billion, and $3.0 billion was available under the company’s credit facilities. Total liquidity was $3.3 billion. Overall liquidity as of the end of the second quarter 2021 was approximately $3.7 billion lower than at the end of 2020, driven by the closing of the $3.6 billion Direct Energy acquisition and the impact of Winter Storm Uri.

NRG said that the company’s deleveraging program will extend into 2023 by reducing debt as of December 31, 2021 to achieve a strong balance sheet of 3x net debt-to-adjusted EBITDA and then by 2023, grow into its target investment grade metrics of 2.5 - 2.75x, primarily through the full realization of Direct Energy’s run-rate earnings. The company remains committed to maintaining a strong balance sheet and to achieve investment grade credit metrics, NRG said

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