By Michael Kuser

NRG Energy reported net income of $24 million ($0.23/share) in the second quarter, compared with a $16 million loss (-$1.98/share) a year earlier. Earnings from continuing operations were $121 million in the quarter, up 22% from the same period last year.

The company credited cost-cutting measures, the sale of assets and the consummation of a settlement with its spun-off GenOn Energy business. “Our portfolio is demonstrating once again the value of integration between retail and generation during the volatile summer months, particularly in Texas,” CEO Mauricio Gutierrez said during an earnings call Thursday.

The company has realized $225 million in cost savings through the second quarter of 2018 and is on track to close up to $3 billion in asset sales this year.

Record Peak in Texas

Gutierrez noted that the supply/demand balance in ERCOT is the tightest it has been in many years because of steady load growth and the retirement of nearly 5 GW of generation in the past 12 months.

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“This market tightening led to an increased probability of scarcity conditions this summer, which was reflected in higher forward prices,” he said. “So far, demand has not disappointed, setting a new record peak of over 73 GW in July. However, this record load was met with equally impressive reliability across the grid, which tempers real-time pricing.” (See ERCOT Sets New All-time Demand Record; Prices Spike.)

“In other words, it took nearly perfect systemwide reliability to meet the summer peak demand,” he said.

“These conditions create an opportunity for both sides of our business and highlight the longer-term value of our integrated approach.”

Big East

Results from the PJM capacity auction this past May reflected fewer new builds and significant amounts of uncleared capacity, signaling more disciplined development and bidding behavior, Gutierrez said. On a “same-store” basis, NRG cleared more megawatts at higher prices than the previous auction, he added.

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Going forward, the company will seek assets in “premium locations,” Gutierrez said, noting that NRG now has 85% of its PJM fleet in the ComEd zone, which separated to clear at $196/MW-day.

“Throughout the East, we are encouraged by the multiple regulatory avenues for market reform that could benefit both our generation and retail businesses,” Gutierrez said.

NRG increased its bet on retail sales in June, when it completed its acquisition of XOOM Energy, an electricity and natural gas provider with more than 300,000 customers primarily in the East, for $208 million. The company expects XOOM to add $11 million of net income and $45 million of adjusted EBITDA annually.

Faster Asset Sales

The company also highlighted its progress in unwinding its relationship with GenOn, the product of the merger of RRI Energy and Mirant, which NRG purchased in 2012 for $1.7 billion. GenOn filed for Chapter 11 bankruptcy in 2017. NRG executed a settlement in July that included releases from GenOn and will terminate shared services on Aug. 15. Other than certain pension and post-retirement obligations and certain claims for REMA, an indirect GenOn subsidiary, the settlement provides NRG full releases from GenOn and its debtor and non-debtor subsidiaries.

GenOn is planning to exit bankruptcy on Oct. 1.

NRG closed on the sale of Boston Energy Trading and Marketing, as well as on its Spanish Town asset, a solar facility in the Virgin Islands, while reaching an agreement to sell its interest in two additional assets, the Keystone and Conemaugh coal-fired power plants in Pennsylvania.

“We actually had anticipated selling these assets in 2019, but we were able to accelerate this timeline and execute on the opportunity to monetize these assets ahead of schedule,” Gutierrez said.

The sale of NRG Yield has received all necessary regulatory approvals and should close in the third quarter, he said. The company’s sale of its South Central portfolio — 3,555 MW of gas- and coal-fired generation on the Gulf Coast — is also expected to close in the second half of this year.

Analyst call transcript courtesy of Seeking Alpha.