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NRG Reports Expanded Margins, "Near-Record" Retention

NRG Sees $200MM Margin Opportunity From ERCOT VPP

Reports 10% Increase In Home Demand Response Participation

November 2, 2023

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Copyright 2010-23
Reporting by Paul Ring •

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NRG Energy reported earnings for the three months ended September 30, 2023 (third quarter of 2023)

NRG said, "The home and business integrated retail platforms continued to trend above plan with expanded margins, near-record retention, and increased customer count through the sale of energy and secondary products tailored to meet customers’ growing individual needs."

NRG said that it recorded "strong retail performance" and ended the third quarter of 2023 with 7.6 million Home customers. This compares to 7.5 million Home customers as of the end of the second quarter of 2023

NRG said that it grew its Home customers by 2% year-to-date, with retention exceeding its target

Smart Home subscribers were 2.1 million as of the third quarter of 2023, up from 2.0 million as of the second quarter of 2023

NRG said that Home energy Demand Response participation increased 10% year-to-date

NRG said it has ~2.5 GW of Commercial & Industrial Demand Response capacity under management

NRG touted the opportunity in Virtual Power Plants, peak load management plus VPP services.

NRG identified a 1 GW VPP opportunity in ERCOT representing a ~$200 MM margin opportunity (reflecting 1 GW of demand response in July-August 2023 using 15-minute Houston zone LMP)

NRG Adjusted EBITDA was $973 million for the third quarter of 2023, versus $480 million a year ago. NRG said that improved operations and margins accounted for $125 million of the year-over-year increase

For the Texas segment, third quarter 2023 Adjusted EBITDA was $552 million, $356 million higher than the third quarter of 2022. NRG said that this increase was primarily driven by lower retail supply costs, including the impact of lower realized power prices, NRG's diversified supply strategy, and improved plant performance coupled with the 2022 impact of the W.A. Parish Unit 8 extended outage, and lower restorations costs for W.A. Parish in the third quarter of 2023 as compared to the third quarter of 2022.

In May 2022, W.A. Parish Unit 8 came offline as a result of damage to the steam turbine/generator. The extended forced outage ended in mid-August with a partial (~50%) return to service. In early September, the unit returned to full operations.

For the East segment, third quarter Adjusted EBITDA was $171 million, $12 million lower than the third quarter of 2022. This decline was primarily driven by asset retirements.

NRG said, "Given the strong financial performance, NRG has been able to execute on its debt reduction and share repurchase programs on an accelerated basis. Through October 31, 2023, NRG reduced debt by $800 million and repurchased $200 million of common stock. Following the closing of the STP transaction, NRG plans to execute $600 million of debt reduction before the end of the year and initiate a $950 million accelerated share repurchase program."

"NRG is increasing its 2023 share repurchase allocation from $997 million to $1.15 billion following strong year-to-date financial and operational performance, and the sale of Gregory. During the three months ended September 30, 2023, the Company completed $50 million of share repurchases at an average price of $37.82. Through October 31, 2023, an additional $150 million of share repurchases were executed at an average price of $40.17. Following the closing of the STP transaction, the Company plans to initiate a $950 million accelerated share repurchase program," NRG said

"As part of the plan to achieve its target investment grade credit metrics, the Company plans to reduce debt by $1.4 billion in 2023 with $900 million funded from cash from operations and an additional $500 million with proceeds from the sale of STP. As of October 31, 2023, NRG had reduced debt by $800 million. Following the closing of STP, the Company plans to execute the remaining $600 million in debt reduction by year end," NRG said

NRG announced its 2024 capital allocation plan which includes $500 million in debt reduction, $825 million in share repurchases, an 8% increase of the annual common dividend to $1.63 per share consistent with the Company’s 7-9% long-term growth target, and $342 million in growth and other.

$32 million is allocated to small book acquisitions under the 2024 capital allocation

NRG is raising the mid-point of its 2023 Adjusted EBITDA guidance by $95 million, inclusive of the negative impacts of an earnings reduction from the sale of STP and an increase in accruals as part of the Company's annual incentive plan reflecting the expected financial outperformance for the year.

Revised Adjusted EBITDA guidance for 2023 is $3,150 million to $3,300 million

In addition to raising its 2023 guidance, NRG initiated 2024 financial guidance above its June 2023 Investor Day plan.

Adjusted EBITDA guidance for 2024 is now $3,300 million to $3,550 million

As previously reported (buyer revealed here), on October 2, 2023, NRG closed on the sale of its 100% ownership in the Gregory natural gas generating facility in Texas, with NRG reporting that the sale price was for $102 million.

NRG reported 3Q23 retail volumes as follows:

47 TWh Electricity

     19 TWh Home / Residential 
         (78% of volumes are in Texas)

     28 TWh Business / C&I  
         (43% of volumes are in Texas)

400 MMDth Natural Gas
     9 MMDth Home / Residential 
   391 MMDth Business / C&I


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