NRG Energy Charges Up in First-Quarter 2014 with Key Acquisitions, Ups Earnings Outlook for Full Year

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Researched by Industrial Info Resources (Sugar Land, Texas)--Executives at U.S. power generation leader NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey) reported solid overall improvement for first-quarter 2014, citing growth driven by the wholesale business and a flurry of acquisitions, including the recent purchase of Edison Mission Energy, which will give NRG the second-largest generating capacity in the U.S. The company reported losses of $58 million, compared with losses of $334 million in first-quarter 2013.

In a quarterly press release, NRG executives stressed that results were more representative of the company's performance when excluding interest expense; income taxes; depreciation; amortization, including that of contracts; net income that is attributable to non-controlling interests; mark-to-market gains and losses on economic hedges; integration and transaction costs; and other exceptional factors. Using this measurement, which NRG classifies as "adjusted EBITDA," income for the quarter stood at $816 million, compared with $383 million in first-quarter 2013.

Total operating revenues stood at $3.49 billion, compared with $2.08 billion in the same period last year. Colder-than-expected weather, driven by the polar vortex, resulted in strong margins in the South Central Gulf Coast and Eastern geographic segments, which also benefited from stronger pricing. The Retail segment benefited from improved operational efficiency. However, the Texas Gulf Coast segment reported weaker adjusted EBITDA following a major outage at the South Texas Project near Bay City, as well as maintenance at the WA Parish plant near Houston and the Limestone plant in Jewett.

NRG Yield Incorporated (NYSE:NYLD), which owns and operates contracted renewable and conventional electricity generation, more than doubled its adjusted EBITDA, having benefited from the weather and from starting commercial operations at both conventional and renewable facilities. NRG Yield, which went public in July 2013, recently agreed to receive three major assets in a drop down from NRG Energy for $349 million in cash consideration: TA High Desert, a 20-MW solar facility near Los Angles, California; RE Kansas South, a 20-MW solar facility near Kings County, California; and most significantly, the El Segundo Energy Center, a 550-MW gas-fired plant in Los Angeles. Capacity revenues from El Segundo helped to boost NRG Energy's Western segment adjusted EBITDA tenfold during the quarter.

Capital expenditures for the quarter were reported to be $237 million, compared with $813 million in the same period last year.

Industrial Info is tracking more than $7.8 billion in projects involving NRG, including the planned, $250 million construction of the P.H. Robinson Peaking Station in Bacliff, Texas. The project involves installing and relocating six used, 65-MW, natural gas-fired General Electric (NYSE:GE) MS7001E combustion turbine generators to provide a total 390 MW of peaking power to the local grid. The project is expected to kick off in June.

"How do we maintain base-load fuel diversity long-term across all markets, in a world that's becoming increasingly carbon-constrained?" said David Crane, the president and chief executive officer of NRG, in a conference call. "The obvious solution is to take the carbon out of existing coal plants post-combustion. Today, I am very pleased to inform you of Petra Nova, our Carbon Capture to Enhance Oil Recovery, or CCEOR, project at our giant Parish coal-fired plant outside Houston. The Petra Nova project effectively will sequester 1.6 million tons per year of carbon into nearby oil fields. In so doing, it will enable oil production that will provide the economic return we need in an environment where there is not yet a price on carbon. Petra Nova is scheduled for financial closing in just a few short weeks."

NRG executives expect adjusted EBITDA for the full year to be between $3.2 billion and $3.4 billion, an increase from last quarter's estimate of between $2.7 billion and $2.9 billion. Maintenance capital expenditures are expected to be between $375 million and $395 million, and environmental capital expenditures are expected to be between $320 million and $340 million.

Executives also are enthusiastic about three major acquisitions that were closed recently:

• Edison Mission Energy, formerly owned by Edison International (NYSE:EIX) (Rosemead, California), which will add 7,700 MW of generation assets to bring NRG's total capacity to 53,000 MW. This gives NRG the second-largest fleet in the U.S. It was acquired for about $2.64 billion.
• The competitive retail electricity business formerly owned by Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia), which is expected to add about 500,000 customers to NRG's retail business by the end of the year. It was acquired for about $165 million.
• Roof Diagnostics Solar, a leading residential solar company in the U.S.

"We remain convinced that the highest-growth opportunity for NRG in solar, wind and other clean energy solutions is migrating from the utility-scale deals that have previously been our principal focus, to the business-to-business and business-to-consumer solar markets, both of which are potentially enormous," Crane said in the conference call. "In these markets, NRG Yield, and the certainty of competitive costs of capital that it can offer for bundled portfolios for business-to-business and business-to-consumer deals, will be an enduring, competitive advantage for NRG."

For more information, visit Industrial Info's North American Power Project Database.

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