NRG Energy tightening its O&M belt by $100m

NRG Energy (NYSE:NRG) is seeking a $100m reduction in near-term cost for operations and maintenance (O&M) without compromising safety or reliability, NRG President and CEO David Crane said during a Nov. 4 earnings call with financial analysts.

NRG management’s “immediate focus … has been on cost cutting” as part of its effort to become a simpler, less-leveraged company, Crane said during the call. In addition to cutting O&M by $100m in 2016, NRG also said that its effort to reduce annual general and administrative/development and marketing cost by $150m is “underway and on target.”

NRG announced in September that it was moving to “reset” its business in part by selling 75% of the equity interest of a major wind portfolio to affiliate NRG Yield (NYSE:NYLD). NRG Energy then received $210m in total cash consideration on Nov. 3 for the sale of that 75% equity interest.

Executive Vice President Mauricio Gutierrez elaborated on the cost cutting efforts by pointing to certain coal plants that NRG is already moving to suspend or retire.

NRG has undergone a “line by line” review of its operations, Gutierrez said. Additional fossil plants that are facing negative cash flows and expensive environmental retrofits could be targeted for retirement, he said.

NRG Energy could also renegotiate certain coal supply and rail transportation agreements, Gutierrez said.

In response to a question, NRG Senior Vice President/Commercial Operations Chris Moser said the coal supply situation looks good for this winter.

“We are working with our whole supply chain,” Moser said. Both the rail carriers and coal producers have been good partners and want to ensure that the coal continues to flow this winter, Moser said.

NRG had improved coal and nuclear availability and reliability in the past quarter. The combined NRG coal and nuclear availability was 90.7% in the third quarter compared to 88% in 3Q 2014. In addition the equivalent forced outage rate was improved from the same time last year, NRG said.

Mild weather, cheap gas, environmental rules drive NRG markets

 Short-term gas prices are being affected by year-long mild weather, NRG said in its presentation.

The 2014-2015 winter season was the 20th warmest in the last 120 years, NRG said. The long-term natural gas fundamentals remain strong. NRG envisions increasing natural gas exports both to Mexico and other nations via liquefied natural gas (LNG).

In the Electric Reliability Council of Texas (ERCOT) region, sustained low prices and stringent environmental rules could lead to accelerated retirements.

NRG sees robust capacity results benefitting NRG across Northeast region. Additional nuclear retirements are expected in New England, PJM and New York markets, NRG Energy said.

NRG reported third quarter Adjusted EBITDA of $1.145bn.  Year-to-date adjusted cash flow from operations totaled $1.728bn. Net loss for the first nine months of 2015 was ($78m), or ($0.25) per diluted common share compared to net income of $35 million, or $0.02 per diluted common share for the first nine months of 2014.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.