NRG Energy weathers sharp slumps in coal generation in Q1

NRG Energy (NYSE: NRG) on May 3 reported big slumps in coal generation in three market areas where it has coal-fired generation.

Texas: Adjusted EBITDA for the first quarter of 2012 was $138m; $99m lower compared to the first quarter of 2011. Lower generation of 4.1 TWh, as both coal and nuclear generation declined by 36% and 51% respectively, contributed to a $73m decline in gross margin.

Contributing to the decline in coal generation were 52 additional planned outage work days as compared to the first quarter 2011. The decline in nuclear generation was the result of the unplanned outage at STP (South Texas Project) unit 2 that is now back on line. Meanwhile, operating expenses increased $23m versus the first quarter of 2011 driven by the additional outage work at both Limestone and W A Parish as well as work to ready NRG’s gas fleet for the summer months. In addition, the company brought 1,100 MW of previously mothballed units back online. In the Texas region, NRG’s coal capacity is 1,690 MW (net) at Limestone and 2,490 MW (net) at Parish.

Northeast: Adjusted EBITDA for the first quarter of 2012 was $5m; down $3m from 2011. Gross margin declined $11m, driven by a decrease in capacity revenues due to lower pricing across the region, a 1.1 TWh decline in coal generation and a 16% decline in realized coal energy prices. Meanwhile, more favorable pricing on contracts and the addition of sales volume to Energy Plus, due to continued retail expansion into northeast markets, led to an increase in net contract margin. Partially offsetting the decline in gross margin were lower operating expenses of $6m, primarily driven by cost-cutting measures and the sale of the retired Somerset coal facility. In the Northeast, NRG’s coal capacity is at the Keystone, Conemaugh, Dunkirk, Huntley and Indian River plants.

South Central: Adjusted EBITDA for the first quarter of 2012 was $26m; flat from 2011. Gross margin was lower by $1m year-over-year as a 30% decline in coal generation combined with lower average realized prices of 6%. These results were partially offset by increased generation from NRG’s Cottonwood plant. Cottonwood generation jumped nearly 114% to 2.2 TWh due in large part to the lower gas price environment which resulted in substantially increased economic dispatch. In this region, NRG’s coal capacity is 1,495 MW (net) at the Big Cajun II power plant.

NRG Energy reported a first quarter net loss of $206m, compared to 2011’s first quarter net loss of $260m. The company said its financial results were negatively affected by extraordinarily mild weather in all of NRG’s core markets during the first quarter, the STP unit 2 outage for the entire quarter and substantial coal-to-gas switching. However, the return to service of STP unit 2 on April 24 plus the return of 1,100 MW of previously mothballed gas units has the company well-positioned for the summer months. Meanwhile, NRG’s new solar assets – Agua Caliente, Avenal and Roadrunner – and recently acquired retail provider Energy Plus, all have begun to contribute to the company’s financial performance.

“While the company’s performance for the quarter was weighed down by exceptionally mild weather and lower commodity prices generally, we have laid a strong foundation during the quarter for the company to benefit over the balance of the year from the strengthening of fundamentals in several of our core commodity and capacity markets,” said David Crane, NRG President and CEO.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.