New Jersey-based NRG Energy's Q2 net income nearly triples year-over-year to US$621M, as revenues grow 7% to US$2.28B on favorable weather, improved retail, wholesale results, increased retail sales, generation volumes

Rachel Carter

PRINCETON, New Jersey , August 4, 2011 (press release) – EBITDA Guidance and Increases 2011 Share Repurchase Program by $250 Million

Financial Highlights
- $517 million of adjusted EBITDA in the second quarter of 2011
- $972 million of adjusted EBITDA in the first half of 2011
- $3,253 million of total liquidity at end of the second quarter with $2,084 million in cash
- Restructured $3.9 billion first-lien debt by extending maturities and simplifying covenant package
- Completed redemption and refinancing of 2016 senior notes
- Raising adjusted EBITDA guidance range to $1,900-$2,000 million Capital Allocation
- Increasing share repurchases by an additional $250 million bringing total 2011 targeted share repurchases to $430 million
- Intend to complete 2017 senior notes redemption and refinancing over coming months

Growth Projects and New Business
- 200-megawatt (MW) GenConn Middletown repowering project became operational in June
- Partnered with Prologis Inc. on a large-scale distributed solar rooftop generation program to be financed by a facility provided by Bank of America and backed by a Department of Energy (DOE) loan guarantee
- NRG and Washington Redskins to install solar power and electric vehicle charging stations at FedExField

NRG Energy, Inc. (NYSE: NRG) today reported second quarter 2011 adjusted EBITDA of $517 million and cash flow from operations of $93 million. NRG retail subsidiary, Reliant Energy, contributed $176 million of adjusted EBITDA while wholesale adjusted EBITDA contributed $341 million. Favorable weather positively impacted both retail and wholesale results during the quarter, leading to increased retail sales and generation volumes while a year-over-year improvement in plant availability benefited the wholesale business. Also, for the second straight quarter, Reliant experienced an increase in customer count as a focus on customer retention continued to yield positive results. NRG reported a second quarter 2011 net income of $621 million, or $2.53 per diluted common share compared to net income of $210 million, or $0.81 per diluted common share, for the second quarter last year. Following the completion of a federal tax audit, net income increased by over $600 million primarily due to the reversal of tax liabilities resulting from the affirmation of the Company’s net operating loss positions.

Adjusted EBITDA for the six months ended June 30, 2011, was $972 million and cash flow from operations was $309 million. Reliant Energy contributed $327 million of adjusted EBITDA while wholesale adjusted EBITDA contributed $645 million. Favorable year-to-date results benefited from weather conditions, continued improvement in operational performance and the contribution from new assets and businesses. Net income for the first half of 2011 was $361 million, or $1.44 per diluted common share compared to net income of $268 million, or $1.03 per diluted common share, for the first half of 2010.

“Our relentless focus on execution across the Company has resulted in solid financial results for the second quarter, enabling the Company to generate substantial free cash flow even after investing close to $700 million year-to-date in our exciting growth projects,” commented David Crane, NRG President and Chief Executive Officer. “We are in a good position now to complete the simplification of our capital structure in a way that allows the Company to optimize the allocation of capital for the benefit of all of its stakeholders.”

Regional Segment Results

Reliant: Second quarter adjusted EBITDA was $176 million, $19 million lower than the second quarter of 2010 result of $195 million. A decline in gross margins of $14 million was driven by lower unit margins which are consistent with competitive rates. Offsetting the decline in unit margins were increased volumes resulting from favorable weather as Texas experienced its warmest June on record. Also, a continued focus on retention resulted in a second straight quarter of increased customer counts with 17,000 new customers since year end 2010.

Texas: Adjusted EBITDA for the second quarter of 2011 was $215 million compared to the second quarter of 2010 adjusted EBITDA of $343 million. The difference in year-over-year results was driven by lower energy margins of $121 million, as a combination of lower hedge prices and increased fuel costs impacted results. Higher generation of 8% partially offset the decline as a 3% improvement in capacity factors allowed for the region to benefit from increased demand resulting from favorable weather during the quarter.

Northeast: Adjusted EBITDA for the second quarter was $47 million, compared to $101 million from the second quarter of 2010. Energy margins declined $42 million primarily due to a 38% decline in realized energy prices, partly offset by an 11% increase in generation. This was coupled with a $25 million decrease in capacity revenues driven by lower prices in New York and NEPOOL, where realized Locational Forward Reserve Market prices were down 80% compared to the second quarter of 2010. Partially offsetting these decreases were lower operating expenses of $20 million.

South Central: Adjusted EBITDA for the second quarter was $37 million, $17 million higher than the $20 million reported in the same quarter in 2010. Co-op and contract energy and capacity sales rose 10% and merchant activity increased by over 650,000 megawatt-hours (MWh) as the region benefited from the newly acquired Cottonwood facility. Also driving the year-over-year improvement were lower operating expenses of $8 million as a result of lower maintenance costs at the Company’s Big Cajun unit II plant.

West: Adjusted EBITDA for the second quarter of 2011 was $14 million, up $3 million from the second quarter of 2010 due to increased merchant sales at El Segundo and partially offset by higher operating expenses.

International: Adjusted EBITDA for the second quarter of 2011 was $9 million, $23 million lower than the second quarter of 2010. The change was due to a combination of $12 million in second quarter 2010 foreign exchange gains and a contract settlement which resulted in an $8 million liability reversal.

Liquidity and Capital Resources

In comparison to December 31, 2010, total liquidity decreased $999 million to $3,253 million. This decrease is largely a result of the following cash disbursements — $562 million of debt pay-downs associated with refinancing activities and term-loan payments, $113 million of cash paid for maintenance and environmental capital expenditures (net of financing), $309 million for solar and repowering growth projects (net of financing), and $130 million of share repurchases, partially offset by $309 million of cash from operations.

Growth Initiatives and Developments

The Company made substantial progress on a considerable number of solar and other repowering projects during the second quarter:

- GenConn Middletown – our new 200MW Middletown peaker project, 50/50 joint venture with The United Illuminating Company, successfully entered into commercial operations in June.

- Project Amp - NRG and Prologis Inc. are partnering on a distributed solar rooftop generation project in southern California to be financed by a Bank of America facility with the support of a DOE loan guarantee. NRG has committed up to $22.5 million of equity towards the first 15MW. The power generated will be sold to a local utility under long-term power purchase agreements that have been approved and executed. NRG Energy has committed to be the lead investor for the first phase of the project over the next 18 months.

- Redskins – NRG is teaming with the Washington Redskins to bring renewable energy to FedExField. We are in the process of installing three different types of solar panels that will generate 2MW of electricity. The new solar power installations integrated into the stadium and in the parking lot and multiple electric vehicle charging stations from NRG’s eVgosm charging network will be completed in September.

- Roadrunner – On May 19, our Roadrunner project, a 20MW PV generating facility located in Santa Teresa, New Mexico, closed on debt financing of $73 million. The project is expected to achieve commercial operation during the third quarter of 2011.

Outlook for 2011

2011 Share Repurchase Plan
As a result of the recent positive resolution of a federal tax audit, NRG’s restricted payment basket expanded significantly. Accordingly, the Company is increasing its share repurchases by an additional $250 million. Coupled with the remaining $50 million from its original plan, total 2011 share repurchases will be $430 million. As previously announced, the Company repurchased $130 million of shares during the first quarter of 2011 and now intends to complete, as market conditions permit, the remaining $300 million of share repurchases by year end.

Simplified Capital Structure
On July 1st NRG completed the first stage of a plan to simplify its capital structure by refinancing $3.9 billion first-lien debt. The first-lien structure now includes a $2.3 billion revolving credit facility maturing in 2016 and a $1.6 billion Term Loan B facility maturing in 2018. As part of the second stage of the plan, the Company refinanced the 2016 senior notes and, over the coming months, will look to complete the simplification of its capital structure by refinancing the 2017 senior notes, as market conditions permit. When completed, these financings will better align all covenant packages and extend debt maturities. A simplified covenant package will also enable NRG to invest more opportunistically in future growth initiatives and enhance its ability to more efficiently return capital to its investors.

Guidance Update
As our Reliant retail business continues to benefit from favorable conditions, we have raised our full-year 2011 guidance for adjusted EBITDA to $1,900 to $2,000 million. We are narrowing our free cash flow before growth investments guidance to $1,000 to $1,100 million as a result of our first-lien refinancing effort and current collateral needs supporting commercial operations.

Earnings Conference Call
On August 4, 2011, NRG will host a conference call at 9:00 a.m. eastern to discuss these results.

Investors, the news media and others may access the live webcast of the conference call and accompanying presentation materials by logging on to NRG’s website at http://www.nrgenergy.com and clicking on “Investors.” The webcast will be archived on the site for those unable to listen in real time.

About NRG
NRG Energy, Inc. is a Fortune 500 and S&P 500 Index company that owns and operates one of the country’s largest non-utility power generation and retail electricity businesses. Headquartered in Princeton, NJ, the Company’s power plants provide more than 25,000 megawatts of generation capacity—enough to supply approximately 20 million homes. NRG’s retail businesses, Reliant Energy and Green Mountain Energy Company, combined serve nearly 1.9 million residential, business, commercial and industrial customers in Texas and, increasingly in select markets in the Northeast United States. With investments in solar and wind as well as electric vehicle infrastructure, NRG is working to help America transition to a clean energy economy. More information is available at www.nrgenergy.com.

Industry Intelligence Editor’s Note: In an omitted table, the company reported Q2 operating revenues of US$2.28 billion. For the same period a year ago, the company reported operating revenues of US$2.13 billion.

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