NRG seeks simpler strategy in post-Crane era

By Edward Klump | 03/01/2016 07:41 AM EST

NRG Energy Inc., which ousted its CEO last December, outlined an updated strategy yesterday that includes reducing debt, slashing the dividend and refining its approach to renewables.

NRG Energy Inc., which ousted its CEO last December, outlined an updated strategy yesterday that includes reducing debt, slashing the dividend and refining its approach to renewables.

Mauricio Gutierrez, the company’s new CEO, said NRG will seek to simplify its business — "both for external perception and internal focus."

The company has been an important player in large wind and solar projects, and Gutierrez said NRG must stay involved with renewables in light of state targets, customer needs and financial incentives.


"However, I am committed to ensuring that our efforts in this area match our skills and capabilities and are executed in a way that is value-creating to our shareholders," Gutierrez told analysts and investors on a conference call.

Gutierrez thanked David Crane, NRG’s previous CEO, for his years of service and said the company is grateful for Crane’s "many contributions." NRG announced on Dec. 3 that Crane was stepping down as CEO, effective immediately. Crane later wrote in a piece on GreenBiz’s website that he had been fired amid his efforts at transformation.

NRG’s stock plunged last year amid weak power prices. Toward the end of the year, the company faced mounting concern about its sprawling holdings and criticism from some corners that Crane had put too much emphasis on green and emerging businesses, ahead of NRG’s conventional power plants. Costs tied to a residential solar business came under fire, and observers have wondered to what degree NRG’s new leadership will retreat from those investments.

Yesterday, Gutierrez said the company is looking to sell its home solar business and investments in electric vehicle charging stations. The CEO said "active negotiations" are underway with potential buyers.

Before Crane left, NRG announced plans to develop renewable and clean technology assets through a "GreenCo" vehicle. Gutierrez said yesterday that the company has pulled the plug on the original GreenCo structure and plans to reintegrate NRG Renew, an operation that includes renewables for commercial and industrial customers, into the larger company. The company plans to retain utility-scale renewables.

Gutierrez also voiced support for NRG Yield Inc., a vehicle that has purchased interests in a number of contracted assets.

"Our efforts in renewables will mirror the strengths of our integrated platform," Gutierrez said. "And when augmented by our partnership with NRG Yield, our renewables business, which is net cash positive on a full-year basis, does not require permanent capital from NRG."

CreditSights was pleased with NRG’s moves, and it upgraded the power company’s bonds to market perform from underperform. In a report, CreditSights said NRG will allocate nearly three-quarters of $1.5 billion in available capital this year to debt reduction.

"We never thought we would see the day when we upgraded NRG bonds based on management actions but the new CEO is evidently guiding NRG in a very new direction," CreditSights said. "Our outlook for continued pressure from wind, solar (utility-scale and rooftop) and cheap gas prices as well as our 2017 outlook is keeping us from going to outperform."

Taking a loss

NRG said yesterday that it plans $500 million of targeted asset sales in 2016, while the annual dividend is plunging to 12 cents a share from 58 cents a share. Gutierrez said the decision to lower the dividend was in line with a capital-intensive and cyclical industry.

While $145 million in savings from the dividend decision may not seem like a lot, CreditSights said that "the optics of a cut clearly show management is focused on the balance sheet more than pleasing shareholders in the short-term."

NRG shares were down 2.7 percent yesterday. The stock fell 56 percent in 2015, according to Yahoo Finance.

Also yesterday, NRG said adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — was $3.34 billion for 2015.

But NRG saw billions in non-cash charges for asset and goodwill impairments in light of low commodity prices. Coal-fired plants in Texas were among the impairment factors. For the fourth quarter, NRG’s net loss was about $6.4 billion.

When asked about Texas coal and nuclear plants on yesterday’s call, Gutierrez said NRG has some of the most "cost-advantaged" plants of that type in the state. He said a recalibration of the market should be coming.

"If and when these plants are not economic and the prospects of these plants are not positive, we will act," he said.

Gutierrez said a stronger balance sheet would aid NRG, which also seeks cost savings. NRG could take advantage of market opportunities in the short term and benefit from a market recovery in the medium to long term, he said.

The new CEO said he had heard concerns that NRG’s "story" and its capital structure were too complicated, with too much money ending up outside of core competencies. He said power generation, including renewables, and retail will be the focus.

"Everything from the way NRG is perceived in the market to the way we discuss information to the way we run our platform will be greatly simplified over the next several quarters," he said.

Gutierrez stressed the importance of diversity in generation and business lines, and he spoke of investing in areas with a competitive advantage.

"It does not mean trying to be everything to everyone," he said.