UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) September 26, 2006
NRG Energy, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
| 001-15891 | 41-1724239 | |
| (Commission File Number) | (IRS Employer Identification No.) | |
| 211 Carnegie Center | Princeton, NJ 08540 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
609-524-4500
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01
Regulation FD Disclosure
David Crane, President and Chief Executive Officer of NRG Energy, Inc., will present at the Merrill
Lynch Global Power and Gas Leaders Conference on Tuesday, September 26, 2006. He will participate
in a panel discussion, “Texas and Beyond,” scheduled for 10:30 a.m. eastern.
A copy of the slides to be presented at the conference by Mr. Crane is being furnished as Exhibit
99.1 to this Current Report on Form 8-K. The presentation slides contained in Exhibit 99.1 include
statements intended as “forward looking statements,” which are subject to the Safe Harbor Statement
set forth in the exhibit. Certain of the slides in Exhibit 99.1 also contain non-GAAP financial
information. The reconciliation of such non-GAAP financial information to GAAP financial measures,
to the extent available without unreasonable effort, is included in Exhibit 99.1
The information contained in this Item 7.01 is not filed for purposes of the Securities Exchange
Act of 1934, as amended, and is not deemed incorporated by reference by any general statements
incorporating by reference this report or future filings into any filings under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent NRG
specifically incorporates the information by reference. By including this Item 7.01 disclosure in
the filing of this Current Report on Form 8-K and furnishing this information, we make no admission
as to the materiality of any information in this report that is required to be disclosed solely by
reason of Regulation FD.
Item 8.01 Other Events
NRG Energy, Inc. is disclosing that it has revised its estimates for environmental capital
expenditures for the period 2007 through 2011, and has developed estimates for such expenditures in
2012. Exhibit 99.2 to this Current Report on Form 8-K, which is incorporated herein by reference,
contains a slide that provides these estimates by region for 2007 through 2012, and compares our
revised estimates as of September 26, 2006, to our previous estimates as of December 31, 2005.
The changes in expected 2007-2012 environmental capital expenditure are primarily the result of two
factors: the increase in the expected cost of environmental retrofit equipment, and changes in the
equipment selected and timing of investment.
A significant portion of the increase in investment is in our South Central region, specifically
the Big Cajun II plant. Our current contracts with our rural electrical cooperative customers in
the South Central region allow recovery of up to approximately 93% of costs incurred by complying
with new laws, including interest, over the asset life of the required expenditures; actual
recoveries may be less and will depend, among other things, on the duration of the contracts and
the treatment of the expenditures thereunder.
Safe Harbor Disclosure
This Current Report on Form 8-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements are subject to certain risks, uncertainties and assumptions and
typically can be identified by the use of words such as “will,” “expect,” “estimate,” “believe,”
and similar terms. Although NRG believes that its expectations are reasonable, it can give no
assurance that these expectations will prove to have been correct, and actual results may vary
materially.
NRG undertakes no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Factors that could cause NRG’s actual
results to differ materially from those contemplated in the forward-looking statements included in
this news release should be considered in connection with information regarding risks and
uncertainties that may affect NRG’s future results included in NRG’s filings with the Securities
and Exchange Commission at www.sec.gov.
Item 9.01
Financial Statements and Exhibits
| Exhibit No. | Document | |
99.1
|
NRG Energy, Inc. slide presentation to the investor community at the Merrill Lynch Global Power and Gas Leaders Conference on September 26, 2006 | |
99.2
|
NRG Energy, Inc. Estimated Environmental Capex as of September 26, 2006. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NRG Energy, Inc. (Registrant) |
||||
| By: | /s/ TIMOTHY W.J. O'BRIEN | |||
| Timothy W. J. O'Brien | ||||
| Vice President and General Counsel | ||||
Dated: September 26, 2006
3
| Capitalizing on Powerful Trends in Power: Texas and Beyond Merrill Lynch, Global Power & Gas Leaders Conference New York, New York September 26, 2006 |
| Safe Harbor Statement This Investor Presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to certain risks, uncertainties and assumptions and typically can be identified by the use of words such as "expect," "estimate," "should," "anticipate," "forecast," "plan," "guidance," "believe" and similar terms. Such forward-looking statements include our adjusted EBITDA and cash flow operations guidance, expected earnings, future growth and financial performance, our comprehensive repowering initiative and growth drivers, our acquisition, hedging, repowering and carbon strategy, expected benefits of the FORNRG initiatives, locational capacity markets, expected benefits, timing of the capital allocation program, and back-end compliance costs. Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, weather conditions, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets, changes in government regulation of markets and of environmental emissions, the condition of capital markets generally, our ability to access capital markets, unanticipated outages at our generation facilities, our ability to convert facilities to use western coal successfully, adverse results in current and future litigation, failure to identify or successfully implement acquisitions and repowerings, the inability to implement value enhancing improvements to plant operations and companywide processes, and our ability to realize value through our hedging strategy. NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The adjusted EBITDA, cash flow from operations and free cash flow guidance is an estimate as of August 1, 2006 and is based on assumptions believed to be reasonable as of that date. NRG disclaims any current intention to update such guidance from August 1, 2006. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in the forward-looking statements included in this Investor Presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at www.sec.gov. |
| Agenda Industry Trend Highlights Review of Trends NRG vis-a-vis Trends Q&A |
| Notable Trends & Developments: 2006 Industry Consolidation: Takes a Turn Credit Ratings: Capital Optimizing at Junk Locational Capacity Markets: When, Not If Reserve Margins: Ever Tighter NRG and TXU new builds: Avoiding the Sins of the Past Long term Off-Take: The Return of the PPA Summer Gas: No Longer Just a One Way Street Back-End Controls: Who Can Afford Them? Carbon: The 800 Pound Gorilla Shareholder Activism: Comes to Power Generation |
| Trend 1: Power Industry Consolidation in the Post Exelon/PSEG World worse same better never Acquirer Target IOU Deregulated Genco Regulated T & D - - Non-regulated Sub-investment grade Growth - - Regulated Investment grade Yield Disaggregation of hybrid utilities to capture full generation value becomes more logical... Deregulated Gencos and Merchant Generators are logical combinations, providing the requisite scale, geographic and fuel diversity Next wave of power industry consolidation no longer likely to be initiated with a wave of "mega-utility" mergers Consolidation Regulatory Compatibility Matrix Regulated IOU Merchant Generator Regulated IOU Merchant Generator Merchant Generator |
| Trend 2: Merchant Generation Credit Ratings "Double B" credit metrics results in most efficient WACC, but leaves open the question of credit support for commercial operations Investment grade credit rating is neither possible nor preferable for a merchant generation company [This is not a new trend] Cost of Capital Analysis Cost of Equity WACC Cost of Debt |
| Trend 2: Merchant Generation and Credit Support for Trading Allows NRG to increase working capital efficiency NRG Debt to T. Capital Baseload Power Hedges Margin Efficiency Having maintained our commitment to BB metrics throughout, our second lien structure implemented in 2006 has dramatically reduced the cash intensivity of NRG's commercial operations activities 73% 69% 93% 89% 83% |
| Trend 3: Locational Capacity Markets: When, Not If New York Established NEPOOL Implementation PJM Awaiting Approval NEPOOL and PJM capacity markets trending towards more appropriate returns on existing asset values while incenting future repowering May 12, FERC approved the New England locational forward reserve market (LFRM) to be implemented October, 2006 Provides capacity-like payment to fast-start reserves in Connecticut Initial prices of $14/kw-mo, likely to decline with additional entry June 16, FERC approved settlement of LICAP case with transition payments until 2010 and forward capacity market (FCM) April 20, FERC approved basic concepts of PJM's RPM market and set details for paper hearing and/or settlement Demand curve and locational components approved by FERC Should enhance capacity prices for NRG Delmarva fleet FERC expected to issue final order early Fall 2006 for implementation by 2007 NY in-city capacity Rest of State capacity California In Transition June 20, CPUC Resource Adequacy (RA) Order added locational capacity requirement for physical, year-round capacity July 20 Order required SCE to issue RFP & contract for 1,500 MW of new capacity in SP 15 by June 2007 Phase II of RA will focus on transition to centralized capacity markets FERC September 21 MRTU Order is a major step towards robust locational energy market design |
| Trend 4: Reserve Margins Tightening; Market Heat Rates Rising Realized Heat Rate 1.5 point spread ERCOT - does not include mothball capacity expected to return to service ERCOT PJM West New Record Energy Demand Significant market tightness has resulted in gas on the margin with increased frequency and implied higher heat rates 13.5% Summer '06 Summer '05 17.0% ERCOT Reserve Margin1 26.5% Summer '06 Summer '05 28.0% PJM West Reserve Margin2 *Deficit implies below 15% reserve margin threshhold Apr Fwd Heat Rate Realized Heat Rate Apr Fwd Heat Rate 2 point spread Energy Velocity |
| Trend 7: Domestic Natural Gas Natural Gas Weekly Injection/Withdrawals US Lower 48 States First ever summer withdrawals No matter what the price of gas, when it comes to meeting incremental increases in power demand, it is the only game in town Source: Energy Information Administration |
| Trend 5: NRG and TXU New Build Program Please Attend/Listen To the Analyst Conference |
| Trend 6: Long Term Offtake: Return of the PPA Region Schedule of RFPs MW Amount Requested Term Of Contract Bid Due Date Award Date NRG Bid Response Northeast: Delaware Q4-06 TBD 10-25 yrs Q4 2006 Q1 2007 Indian River New York Q3-06 600 MW 10-20 yrs Q4 2006 Q4 2006 Huntley Connecticut Q3-06 600+ MW 10-15 yrs Q4 2006 Q2 2007 Montville California: Los Angeles (SCE) Aug-06 1,500 MW 10 yrs Submitted Sept. 19 Q1 2007 El Segundo, Long Beach The Key to NRG's Repowering Program |
| Trend 8: Back-End Compliance Costs: The Bubble Rises Suppliers of back-end controls, with a full backlog, are seeking a premium for 2010 installation (see above); focus for NRG is on retro-fitting post the 2010 peak AEP: "Prices ... tell us that it is better to wait for the bow wave of people to get done with what they're doing [emissions control investments] and we'll come back again." Michael Morris, CEO AYE: Citing escalating materials costs and construction challenges, AYE announced higher than expected costs for scrubber installations... $Millions 2007 2008 2009 2010 2011 2012 Estimated Environmental Capex 2005 Est. Current Est. Note: More than 90% of South Central compliance costs are recoverable through co-op obligations. |
| A program to reduce portfolio's carbon intensity and address carbon's impact on all phases of NRG's business Baseload Alternatives Carbon Hedge Increased Credibility Increased Credibility Carbon Hedge Policy Outreach Responsible Planning Phased, Certain Equal Treatment Carbon R&D "Test Bed" Sequestration Bioreactor IGCC First Mover Nuclear Expansion Wind Power 2005 2015 Per Mwh ~0.9 tons/Mwh ~0.7 tons/Mwh1 w/IGCC CO2 sequestration NRG's Carbon Pentagon Note: includes impact of 2,700MW of nuclear, 2,250MW of IGCC, 1,800MW of coal, 3,100MW of gas and 1,000MW of wind. All MW are before any potential equity sell down. 1 Assumes full impact of 2,700MW at STP. With only 44% ownership of STP, carbon intensity would be ~0.06 tons/Mwh higher NRG Fleet: Projected Carbon Intensity Trend 9: Carbon and the Power Industry |
| Trend 10: Shareholder Activism ....Touches the Competitive Power Generation Sector Non-Core Asset Sales removed debt of $1.4bn and provided cash of over $670mm NRG Shares Outstanding Sources: (1) MSCI Barra (2) Advantage Data Derailed certain merger proposals But has not acted as a catalyst to industry consolidation...yet Duty to articulate medium-term value proposition Duty to allocate capital efficiently/return excess capital to shareholders Impact on Sector Influence on NRG NRG emerged from bankruptcy Repurchase 13mm shares Repurchase 6.3mm shares Texas Genco Acquisition: Issued 56mm shares 2006 Share Repurchase: $500M targeted by year end. 55% completed to date 2007 Share Repurchase: $250M targeted buyback |
| 2006 Trends - Summary Impact to NRG 6. NRG/TXU new builds ? More attractive as target, more opportunities as partner Reduction in cash collateralization allows more efficient use of capital Direct and immediate positive financial impact across Northeast ISOs Direct impact on market clearing heat rates. Longer term inducement for repowering Facilitates new build program (subject to execution risk) NRG new build program (subject to execution risk) NRG benefits from continuation of high gas price environment But impact can be moderated by a savvy site remediation policy Depends on our success in reducing NRG's carbon intensity Positive Positive Positive Positive Positive Positive Negative TBD! Positive Positive 7. Summer gas 8. Backend controls 2. Credit 1. Consolidation 3. Locational Capacity Markets 9. Carbon 10. Shareholder Friendly 4. Reserve Margins 5. Return of PPAs Impact on NRG Explanation TSR plus regular return of capital to shareholders Industry Issue |
| NRG Execution NRG: Proven Ability to Execute Effectively on Multiple Fronts Simultaneously Doubled our domestic baseload generation capability through the acquisition of NRG Texas Increased our annual estimated economic EBITDA and FCF by more than double Recapitalized our balance sheet entirely Initiated a $16 billion/10,500MW repowering initiative Enhanced our baseload hedging strategy Solved the credit support question Begun to address and mitigate the carbon issue Announced and began to implement a $750 million share buyback program Since September 2005, NRG has: |
| Questions and Answers |
| Appendix: Reconciliations |
| Reg. G Reconciliation Appendix Table A-1: Net Debt to Total Capital Reconciliation Appendix Table A-1: Net Debt to Total Capital Reconciliation Appendix Table A-1: Net Debt to Total Capital Reconciliation Appendix Table A-1: Net Debt to Total Capital Reconciliation 30-June-06 30-June-06 Numerator Gross Debt 7,756 Total Cash 1,015 Net Debt 6,741 Denominator Net Debt 6,741 Mezzanine Preferred 1,138 Book Value of Equity 4,964 Capital 12,844 Net Debt to Capital 52.5% |
| Reg. G Reconciliation EBITDA and Adjusted EBITDA are nonGAAP financial measures. These measurements are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that NRG's future results will be unaffected by unusual or non-recurring items. EBITDA represents net income before interest, taxes, depreciation and amortization. EBITDA is presented because NRG considers it an important supplemental measure of its performance and believes debt-holders frequently use EBITDA to analyze operating performance and debt service capacity. EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are: • EBITDA does not reflect cash expenditures, or future requirements for capital expenditures, or contractual commitments; • EBITDA does not reflect changes in, or cash requirements for, working capital needs; • EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debts; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and • Other companies in this industry may calculate EBITDA differently than NRG does, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to use to invest in the growth of NRG's business. NRG compensates for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally. See the statements of cash flow included in the financial statements that are a part of this presentation. Adjusted EBITDA is presented as a further supplemental measure of operating performance. Adjusted EBITDA represents EBITDA adjusted for reorganization, restructuring, impairment and corporate relocation charges, discontinued operations, and write downs and gains or losses on the sales of equity method investments; factors which we do not consider indicative of future operating performance. The reader is encouraged to evaluate each adjustment and the reasons NRG considers it appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. In addition, in evaluating Adjusted EBITDA, the reader should be aware that in the future NRG may incur expenses similar to the adjustments in this presentation. |
Exhibit 99.2
