Q4 2020 NRG Energy Inc Earnings Call
And then.
Okay.
[music].
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, thank you for your patience and please standby.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the NRG Energy, Inc. Fourth quarter and full year 2000, and 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be it.
Today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to one of your speakers today, Mr. Kevin Cole head of Investor Relations. Sir. Please go ahead.
Thank you Michele good morning, and welcome to NRG Energy's fourth quarter and full year 2020 earnings call. This call is being broadcast live over the phone or via webcast, which can be located and the investors section of our website at www Dot NRG dot com under presentations and webcast. Please note that today's discussion may contain forward looking statements.
Which are based on assumptions that we believe to be reasonable as of this day.
Actual results may differ materially we urge everyone to review the safe Harbor, and today's presentation as well as risk factors and our SEC filings and we undertake no obligation to update these statements as a result and future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures for information regarding non-GAAP financial measures and.
The issues and the most directly comparable GAAP measures. Please refer to todays presentation and now with that I'll now turn the call over to Mauricio Gutierrez, Nrg's President and CEO.
Thank you Kevin Good morning, everyone and thank you for your interest and NRG.
I am joined this morning by Gagan from our interim Chief Financial Officer also on the call and available for questions. We have at least heard killinger channel from retail and price amongst our head of operations.
I'd like to start this call by expressing our utmost concern for the millions of Texas impacted by Winter storm.
We're actively working in our communities and with our customers to provide support and relief to <unk> need.
I also want to recognize all of the men and women from NRG, who on their frigid conditions, we're working tirelessly to keep our power plants running and those employees, who worked day and night through this event to inform and support our customers.
All while facing their own hardship at all.
From everyone at NRG. Thank you.
Let's move on to slide three for the three key messages of the call.
First above all else our top priority and core focus today is helping our Texas communities recover from the devastating winter storm.
The system wide energy failure that occurred in Texas is unacceptable and we are committed to work and we've all stakeholders to prevent this from happening again.
Next our integrated platform continues to deliver stable results through unprecedented events like the COVID-19, pandemic and extreme weather events.
And validating the strength of our model.
Finally, we continue to advance our customer centric strategy by redefining our platform to better serve our customers.
In January we closed on the direct energy transaction.
And the leading North America integrated energy and home services company now serving a network of 6 million customers.
Today, we are announcing the sale of a four eight gigawatt portfolio of noncore <unk> assets, which I will detail later in the presentation.
Turning to slide four.
Starting on the left hand side Winter storm was simply historic.
It was the third call. This three day stretch on record and Texas.
Blanketing the stage four days with record cold temperatures and precipitation.
Putting on precedent that the stress on the entire energy system.
This winter storm exceeded all planning parameters and highlighted the interdependency between the natural gas and power systems.
On adjusted estimated peak load of 77, Gigawatts, surpassing not just the winter peak, but the all time peak.
And due to weather related system and plant specific issues and 52 gigawatts of capacity and the market were forced offline at one time or another.
Last week, we committed to work with regulators and legislators on a comprehensive and exhaustive root cost analysis of what went wrong and the energy system from.
From fuel supply.
The production and delivery of electricity.
Our goal is to have a system that is more resilient to prevent this from happening again.
Turning to the right hand side of this slide.
Our work to prepare for winter conditions began well before the onset of frigid temperatures.
As part of our winter readiness program, we executed a comprehensive winter rotation program that starts with the lessons learned from prior winter seasons.
And then every September our power plants in each of our markets, including Texas and begin a well defined process of preparing for winter operations.
The results are presented to me in early November by the head of operations and each plant manager.
We did submit our declaration of completion of the winter weather recession, and preparations to ERCOT and the PUC PUC by November 30.
In early February we recognize the threat of the significant winter storm.
Safety of our employees customers and communities is always our top priority.
For our customers, we sent cold weather alerts and energy conservation notifications across all of our retail brands.
And work with our large C&I customers to proactively reduce their loan.
For our generation fleet.
We put all plants at the highest level of alert.
<unk> made all operational units available to the market.
And secured additional and critical supplies at our sites.
This included moving personnel from the northeast with extreme cold weather experienced.
And technical expertise to Texas plants.
Ahead of the storm. We also took additional steps of increasing our available generation capacity by bringing back nearly two gigawatts of power generation typically refer only for summer months.
We also executed additional natural gas and power hedges.
Our available generation portfolio performed at roughly 80% capacity factor on average.
When comparing our generation production to a similar period of earlier and demand.
We produced almost twice as much electricity.
And $2 billion in adjusted EBITDA and over one $5 billion in free cash flow before growth.
So our adjusted EBITDA for the year is in line with our 2020 guidance and I would note that it includes the impact of COVID-19, So that came in at the only $25 million or highest of all of our original cost expectations.
Moving to free cash flow before growth yearend results of $47 million higher than our latest midpoint of guidance driven by the inclusion of $43 million in distribution from Agua Caliente in 2020, just prior to the sale of the project in early February.
Finally from a balance sheet standpoint, 2020, whether so very successful with the urine leverage close to two and a half the time debt to EBITDA, which is at the strongest end of our targeted range.
In addition, we had over $7 billion of liquidity accumulated in anticipation of the acquisition of direct energy in early January.
A portion of that liquidity proved very useful during the recent winter storms.
Moving to 2021 guidance I've included in the closing announcements will direct the energy.
We increased our adjusted EBITDA guidance to a range of $2 for $2 billion to $6 billion.
Our 2021 free cash flow guidance to a range of $1 44 to $1 64 billion.
As mentioned by Mauricio before we are maintaining our guidance range for 2021 based on our preliminary analysis of the impact of the winter storms in Europe on our results.
Based on the strength of 96, we believes that the financial impact on the guidance range could vary by plus or minus $100 million.
Subject to final customer meaner and sentiment data.
Counterparty credit risk.
And expected ERCOT default type location.
Finally, we of sign of PSA to sell for eight Gigawatts of generation assets in our east West region to an affiliate of Arclight for $760 million and we anticipate closing to occur by the end of the game.
These assets contribute approximately 190 million of adjusted EBITDA, and approximately 130 million of free cash flow before growth to NRG.
I would note that these numbers have not been yet deducted from our guidance range.
Turning to the sources and uses for direct energy on slide 11.
We wanted to provide the bridge between the numbers reported during our last earnings call in early November when we discussed eliminating the need for $750 million of preferred equity.
And the actual results after closing the acquisition last January.
So starting from the left with the $3 745 billion of total sources and uses as discussed last quarter, we first lower energy cash by 100 million to reflect the lower cash reserves available at your end as shown on slide two.
22 of the appendix.
This was offset with an equivalent of temporary draw under the revolver at closing.
Next we used 13 million of incremental financing cost savings minus two minions of initial discount on all the bond issuance to reduce the temporary draw under the revolver by $11 million.
In the next column, we reflected the 77 million for a purchase price adjustment that was paid to centrica.
During the fall towards the larger cash balance available at the direct energy when we acquired the company.
This was also finance for a temporary draw under our revolver.
Finally, we show the impact from acquired cash and margin collateral.
<unk> at closing direct energy at $233 million in cash margin posted and 152 million of cash and cash equivalents for a total of $385 million of cash on its and equivalents on its balance sheet.
This was higher than we had anticipated last quarter and we were able to use it after closing to repay the 160 million of temporary draw under the revolver and reduce the NRG cash allocated to the acquisition by $219 million.
More importantly, it also means more cash is available for deleveraging in 2021.
Which eliminates the need to use future asset sales proceeds to achieve our investment grade credit metrics by year end.
I will now turn to slide 12, where we are updating for the combined 2021 capital allocation provided last quarter.
Please note that changes on the slides are indicated in blue.
Starting from the left we have adjusted the 2021 excess cash to reflect the final $715 million of Cafe reserve at the end of 2020.
So the $1 54 billion the updated free cash flow before growth, including direct energy based on the midpoint of our guidance range and.
And finally, the $120 million of net proceeds from the sale of our remaining equity stake in Agua Caliente.
All of these represent a total of $2 $3 75 billion of available.
Then moving onto the net change on the sub column, we updated the capital allocated to the direct acquisition, which is now at $496 million as shown on the previous line.
Finally, given the reduced cash needs for the acquisition. We are locating our addition of excess cash of $219 million to debt reduction.
This brings our total debt reduction to nearly $1 $2 billion, bringing us to within our targeted investment grade metrics in 2021.
And importantly, without the need for asset sale proceeds that we had mentioned before.
Yeah.
Finally on slide 13, I will start on the left with our 2021 credit metrics, which is now based on all finalized plans shown in the middle of economy.
After adjusting our corporate balance for the increased debt reduction from 2021 capital allocation of.
2021, net debt balance is approximately $7 billion.
Which based on the midpoint of the adjusted EBITDA implies the pro forma ratio of 265 times net debt to EBITDA.
And within the range of our targeted investment grade metrics.
Turning to the right. We also wanted to update you on our strong liquidity position at the end of last week, which at three $8 billion is ample enough to continue supporting home business, even during periods of stress the lax we experience, although the last two weeks.
In conclusion and as discussed earlier.
After proving so resilient performance of our integrated model. During these trying times for Texas, and our capital allocation plan to achieve investment grade credit metrics by the end of 2021.
We continue to believe in our ability to reach investment grade ratings by the end of 2001 or early 2022.
Back to you of Maurizio.
Thank you gave them turning to slide 15.
Our top priority today is helping the excellence recover from the impact of of winter storm jewelry.
Texas is our home.
Our customers employees friends and families were all impacted by these events.
And while we have committed an initial $10 million for relief efforts I want to make clear we are going to be there for our communities today and tomorrow.
Helping them recover in any way we can.
Moving to our 2021 priority for use on expectations.
As always we strive to deliver on our financial and operational objectives and adhering to our capital allocation principles.
With the direct energy acquisition complete.
We turn our focus to integration and achieving synergies.
Our efforts are well underway and I look forward to updating you on our progress.
Finally.
I look forward to providing all of you a comprehensive update on our business strategy at our spring out of this day.
So with that Michelle we're ready to open the line for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press star one on your Touchtone telephone. Thank for your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead.
Hey, good morning team. Thanks for the time of the opportunity can act.
Good morning, Joe Johnson of like.
And congratulations again on the outcome.
If I can connect at the outset here I mean, you guys gave a lot of remarks, but when you think about the guidance range reaffirmation here can you give a little bit more commentary, how you'd think about some of the caveat for your counterparties any of any remaining questions you talked about stress testing. It here can you talk about any assumptions on the fourth with your Counterparties.
Flowing through any of it.
Any further context, you can provide would be very much appreciate it.
Sure Julien I mean first of all.
The you know, we're maintaining our financial guidance Vc's inclusive of the expectation that we have on the entire portfolio across our.
Our operations.
It also includes our where our preliminary the preliminary assessment on the impact of winter of storm Europe, that's already within the guidance that we're mapping.
Now having said that you know, we we know that we only have preliminary information on the customer meter and the settlement data.
We are we are stress testing the counterparty risk and also the aspect of air coffee for pad locations.
So once we'd be the stress that that's why we are putting these you know of plus or minus $100 million, which I think is prudent.
Given the joke the preliminary nature of these three key components of it.
Got it excellent and then if I can ask the very quickly how do you think about the the remainder of the balance of your fossil portfolio. How do you think about the divestment timeline, how do you think about positioning it against the I suppose.
For the latest wave of re.
Positioning.
Oh, well I mean, we are very pleased to announce the the asset sale today of five said.
I think you need to look at our portfolio through the prism of our you know the integrated platform and moving closer to the customer of whatever helps for us a better some of our customers that is going to be the guidepost for us in terms of executing.
Now we're focused on beef.
I said I mean, the portfolio optimization is a continuous process.
And you know we're going to continue to evaluate you know the rest of our portfolio and we'll provide you an all day when we're ready to go with it.
Excellent. Thank you very much.
Thank you Julien.
Thank you and our next question comes from the line of Steves question with Wolfe Research. Your line is open. Please go ahead.
Yes, hi, good morning.
Good morning, Steve Hi.
Hi, Nice released today. Thank you.
Yes.
Just on the.
<unk> I know it may be a little early for this but maybe just kind of high level.
How are you thinking about some of the solutions.
For making sure this doesn't happen again in Texas I know.
You owe some feedback for the legislature.
By the end of the week.
Just high level, maybe some of the parts of what you have.
Well I think the first step which is what the textbook legislature already started for you see a comprehensive root cause analysis across the entire system not just power generation, but I think everybody appreciates the interdependence between natural gas and power. So.
I think that process is going to take some time and the first steps already happened last week.
Everybody have seen the the hearings of down in Austin I had the opportunity to participate and that to me. It is the the prudent for a step up.
Having spent some time down there and you know just looking comprehensively up the.
And what happened I will say that there is perhaps three themes that.
You know our legislature of some other stakeholders will be looking at it.
Firstly of the hardening of the energy system from natural gas to power generation.
I think it is clear then when you know the power generation is made.
Good off of you know of close to 50% of the total capacity fueled by natural gas.
Naturally we got the natural gas system becomes critical and the needs to be higher than just us.
As of <unk> out of the power generation system the.
The second thing I think there is going to be a conversation around the market the sign.
And you know.
The focus from my perspective should be around the reserve margins and what is the what is the excess capacity.
We want a halving of the aircraft system.
To make sure the.
This doesn't happen again, we you know perhaps more.
More extreme weather conditions than in the past and I think part of these.
Excess capacity is not just the quantity of capacity, but also the quality of capacity and what I mean about the quality ease of use it is a fuel diversification and then I think finally it is the communications.
And to me it is clear that communications are needed to be a lot more than what you know what we experienced last week firstly the communication between the power of the natural gas systems and the coordination between the two.
The second is that the the communication between television use who were responsible of implementing the power outage of directed by aircraft.
And the reps who have the relationship with the customer.
I mean 19, the communication needs to be a lot stronger and and we need to evaluate them and of says.
A perhaps a an alert system that tells our communities when something like this is going to happen and the potential risk.
And then finally I just I mean, I think it is important that we record of mines.
The magnitude of this winter storm.
I mean any way you see it was historic and as we are assessing these three things, particularly the hardening, we just need to make sure the is that the <unk>.
Are we rebase lining.
Our winter recession the efforts with these.
100 year Winter storm that we all live so that would be my initial my initial comments, Steve Obviously I mean, you know we're only in the beginning phase of these but.
And I think we need to you know I think all of the parties from what I can gather in my time in the in Austin. They wanted to take their time to make sure that they really fully understand what caused it. So they can so they can be for ROE and ER and and half is.
Changes that will be effective and long lasting.
That's very helpful. I guess I'll ask one other big picture question just.
Given the potential changes coming just how do you kind of manage your.
Your generation to retail.
Matching so to speak in a way given that we may have some.
Clark for changes and other things is there.
Do you have a way to make sure that there's going to be an ability to.
Two.
The kind of reflect that.
Appropriately.
Well I mean the size.
As I've said before.
We are.
Maintaining our integrated approach as we're moving closer to the customer.
I think I've said it in the past the.
Generation the portfolio of generation that we have has to help us better serve our customers.
So when you think of step back obviously owning physical generation it is important.
But.
We can get some of the characteristics of physical generation through bilateral agreements. It doesn't we don't have to own. It all the time are always to be able to have those characteristics. We can actually structure some of those.
Agreed.
The agreements so we can.
The benefit of utilize.
These are the characteristics of physical generation I will say that the strength that we saw in the system. The last week is going to is giving US already you know lessons learned on how we should be thinking about kind of party performance counterparty risk and.
The team is already.
Looking at the lessons learned on our commercial team.
Of which by the way I just want to give a big kudos to both the commercial operation of some plant operations because.
Absolutely.
Maximize the amount of generation that we were giving to the system of the same time line thing the stability and the balance on our portfolio. So that's how I think about it Steve.
Obviously, you know our matching of generation of retail is always informed by market conditions. So it's not like you know set it and forget it.
Great. Thank you.
Thank you and our next question comes from the line of Shark, Inc.
The nine partners. Your line is open. Please go ahead.
Hey, good morning, guys good morning, Sean.
The merchant.
Couple of questions.
The testimony last week indicated that the company had several assets that come off line during the storm like STP unit one for a couple of days to what extent did the concentration of load shedding in Houston help you in sort of free up the generation and PT and sort of the purchase power just trying to really understand.
And whether this is a product of really good risk management, some load shedding for a combination of the two especially as investors are weighing the thesis in the sector and sort of thinking about these type of events potentially reoccur again.
Well I think this is the result of.
You know really good risk management commercial and plant operations all around the execution.
We as we were approaching the storm the commercial team took the necessary steps to strengthen our position going into the storm of both on natural gas.
Power hedges.
In addition to the our plant operations people brought in almost 2000 megawatts of generation that normally in most all of the circumstances never ran in the winter and we actually have it reserved for summer operations. So that's another testament of.
Strengthening our.
Our position as we go into the store and then ask of you as.
You were looking at if you look at our load obligations across the state is pretty well diversified between Houston.
And the Alex on the North shore.
So I think it was.
Good good solid execution with the route of the right Foundation in terms of the integrated portfolio.
And the necessary steps to get the.
To get ready for it. So I'm curious is there something more of a do you want the app.
Hey, Shar, Chris Moser here.
Okay.
If you look at it our strategy is to have a mix of physical Jan and the end market purchases and notwithstanding the problems we face frankly on both sides right with the unit outages and then counterparty issues that we're working through.
This strategy of diversified supply seems to have held together pretty well as we saw the forecast get colder and colder we brought more generation like Mourinho mentioned out of seasonal layout and we bought more power from the market like let's be clear we were prepping to cover of loads in the high <unk> and low kind of low Seventy's you know what I mean in terms of in terms of thousands of megawatts of load.
We were also don't forget able to use our gas storage and transportation contracts and our ability to find and buy what I will politely described as at the sema expensive gas in order to keep those gas if those gas units of ours, producing the megawatts that the grid needed I know that not everybody was able to do that but the combination of our contra.
<unk> in working out in the market, we were able to cover it so.
It is kind of how the whole thing worked out to where we think we're still within the guidance range of plus or minus the 100.
Got it so I would say our strategy of.
A mix of a bunch of different stuff.
Paid off.
Got it and then just one last one for me the agencies seem to be kind of laser focused on sort of the events in Texas and they have issued the slew of watches Marcia have you had any conversations with them on the events and sort of your broader trajectory for an upgrade the especially on today's better than expected storm impact seems that youre.
Kind of book, ending 22, potentially as Iga versus the year end 'twenty. One so just a quick sense there.
Yes, I mean, I'll turn it to get them, but I will say you know first we needed to prove the strength of our business model I think we have than we needed to ensure that we deliver on our credit metrics I think we have.
So.
I think we have done what we needed to do but the gates.
Some have I know the gates on half of <unk>.
Very open and continuous conversation with the rating agencies case of yes, Thats right, yes shelf good morning, yes.
Throughout the crisis, we had of continuous dialogue with the rating agencies obtaining for him on what we saw in the market and our liquidity position.
And it was a very.
Very transparent from from our side just like the dialogue, we've had for years with them and just like Maurice Youre, saying the ethane now we've shown that's already resilience of the platform through COVID-19 true last summer cirrhosis stress case, and we continue to perform and to be within the.
Our targeted range for investment grade. So we're doing a site of the day and we're going to continue the dialogue in the.
<unk> expenses and toward the hope that say, it's going to be.
That's going to that's going to bring us to investment grade by the end of the year again or early next year.
Terrific. Thank you guys I'll jump in the queue I appreciate it.
Thank you Sean.
Thank you and our next question comes from the line of Amc's total Pinsky with Seaport Global Your line is open. Please go ahead.
Thank you and congrats.
Congratulations on the results.
The Dayton quite of timing to take okay.
This one I mean honestly.
Yeah.
Daily from here.
Thank you Andy.
But the thing that I noticed the <unk>.
Again the BC.
The.
The stress that the people.
So for the world.
Last two weeks is that we do.
Don't really know much about the yard of direct energy portfolio of meaning.
You have some.
Retail gas exposure that we Couldnt E. The pinpoint.
Pinpoint that as far as geography line closure or so.
So could you I mean, I know that the analyst day is coming but could you give us a sense of how well you've managed that portion of the retail book not just Texas the taller.
Yes, I mean the.
Operations that we did was integrated NRG and direct energy so the.
What we are.
The evaluation that we've done the assessment of our withdrawn is across the board.
Just keep in mind, the direct energy all of their gas the gas.
And this is outside of Texas don't forget that in.
Remember they will I will be also providing you during the analyst day.
More detail around the the redefinition that we're doing our business on moving closer to the customer of becoming more a consumer of energy company, where he is not just one product electricity for the benefits of bringing secondary products.
And actually I think the what the.
The.
The.
The impact that we saw on our business.
On the some precedent the winter storm validates that our core business is solid any of these are great Foundation too.
To start looking at other secondary products that can improve the the.
Customer lifetime value of our portfolio so.
But we will be sharing more around our combined operations between NRG and direct.
On this day.
All of them and just one.
The point here.
Knowing of the EBIT.
So that's kind of go away along with the divestiture of the north eastern assets.
Our California assets.
Can you give us the sand.
That amount can be replenished by growth either by the Hickey.
For.
Synergies of direct energy organic growth in the retail portfolio.
At least directionally.
No detriment to EBITDA, EBIT and cash flow for the combined company.
All excess cash.
The you know that.
Results from these we're going to use our capital allocation framework.
And I think that's how you should be thinking about all of our excess cash.
Okay. Thank you.
Thank you Angie.
Thank you and our next question comes from the line of Jonathan Arnold with vertical Research partners. Your line is open. Please go ahead.
Good morning, guys and thank you for the update today.
Good morning, Jonathan quick one on just where do you think about the the obviously you're saying that.
The range of outcomes is still sort of plus or minus 100 versus the guidance range and you've talked about some of the the still moving parts could you give us a bit more of.
Of a sense of is it.
The billing issue not really.
Necessarily knowing what usage was the metering the.
Of the the biggest swing factor.
For credit or just a little more sensitive.
Just what the afternoon I'm curious with where you think how soon it will be before you really know.
Have a good sense of some of these metering issues.
Well I mean first I will say that I think we have a pretty good sense I mean, the the team does a shadow of settlements.
And.
With respect to how much load we serve but obviously we don't have these are preliminary estimates and we don't have final numbers, so I feel very comfortable.
The assessment that we have made on these I would say three big categories.
The customer meter and settlement of data from ERCOT the.
Probable of counterparty risk and the expected arc of default. So that's why you should be thinking about Jonathan I mean, these are the three big drivers for them.
I feel that the team has done a pretty pretty good job in terms of getting comfortable with it.
Which is why we are.
We feel that the.
Maintaining our hour.
Earnings Guide on these appropriate and then we also perform of stress test and that's why we're providing you the plus minus 100 so.
I think thats. The I think the team has done a lot of information here I mean, but I mean, there are things that the hospital run their course, I mean, you know the settlement of data from our club Yukon initial seven day settlement that you kind of another settlement of 55 days and then the final one is the 180 day softer so.
You just have the the.
The process needs to run its course, but.
This is not something that we don't do every day.
Every day, we run we run.
Shadow settlement profit so that's why we're comfortable with it but.
I will say that we just have to wait until we have more information on these three big categories.
Maybe mercy of I could just the the.
When you say plus or minus the 100 or you are you talking sort of relative to your.
Were you a point estimate of where you think today or should we be thinking of that as sort of in.
In addition to the you know the.
The $200 million range that there is in guidance.
Thank you.
As of the ladder. So this is a plus minus $100 million to the guidance range. Okay. So that's how you should think about it.
Thank you and then just one quick one.
You have a sense on timing for the analyst day before first quarter earnings or after.
Well I was planning to provide a bit of a quite candidly, but I think our priority right. Now is on the aircraft as you all know we run a pretty lean management team.
We need to make sure that we focus on that but.
I will give you.
A lot of time before we announce it.
And my expectation is that is going to happen in the spring of this year, that's correct, but as to whether it's before or after the next call that still TBD.
TBD Okay. Thank you.
Thank you and our next question comes from the line of Michael the pits with Goldman Sachs. Your line is open. Please go ahead.
Hey, guys. Thank you for taking my questions.
<unk>.
A lot of the issues that.
Cause the events in Texas in mid February for power.
<unk> related.
But many of them are actually further upstream from the power plant, meaning gas infrastructure right now there.
How do you think about changes like that and that could impact debt I mean, we couldnt the state of Texas could increase the winter reserve margin by a material amount, but if you can't get the GAAP there.
We could run into the same day issue how.
How do you think about the changes that the state may consider.
That are kind of outside of the power sector, but the impact of the power sector.
Well I mean, I think of as I mentioned.
Sure.
When when I'm thinking about the <unk>.
That's the.
Are the themes that are coming.
Already in it.
In the wake of the hearings of the first one is the hardening of the system and I was very clear the hardening of the system.
Cannot only happened on the power generation side. It has to happen also on the natural gas system.
145% of our total generation capacity in Texas is fueled by natural gas.
They're completely interdependent and so that is the dependency.
Needs to be expanded.
When we're thinking of all of the hardening of the system that we enter recession of the system.
The second thing is the communications, obviously, there needs to be a lot more coordination between natural gas and power.
And just like we were talking about fuel diversification on power generation, we need to be thinking of a redundancy on critical parts of the.
The GAAP system like compressor stations does it makes sense to have <unk>.
Marco generation what are the standard for wintry station at the wellhead I mean, there is a number of things that can happen on the cash system size and that will also we need to review the winter recession protocols on the power generation side I mean, the last time.
Was the recommendation was in until in 2011 and.
And the when the storm in 2011, I mean I have the stock.
Can put distinction perspective, the three they stretch temperature.
These winter storm I think ranks of the third coldest in the last 130 years 2011 was the 60 or.
So I think that should give you a pretty good context in terms of what was the baseline that we that was used for the winter recession of the power generation and I think theres going to be of conversation about.
Rebase lining the so so.
So some of that is going to happen and I think.
The cost will be also beyond power generation.
It has to be around the customer and the communications with the customer I mean.
When youre talking about power outages and rolling power out of this first you need to make sure that you communicate with our with our with the customers. The TV use are responsible for implementing.
Of the slow shifts of the direction of ERCOT that is balancing the system.
And so do we need to review of the protocol in terms of how that is implemented and what is the communication protocol between the the transmission and distribution utilities and the retail energy.
Energy providers that have the relationship with the customer. So all of these things are going to have to be taken into consideration and I think I have to say the text of legislature is really doing the right thing in terms of doing this exhaustive and comprehensive root cause analysis.
Got it. Thank you Mauricio one other question just a quick follow up.
This changed your view on the need.
The the one who owns the generation to serve the retail load, meaning could we see NRG add generation to the portfolio, especially.
Dispatch of both generation to ensure your team's control of the operations that are needed to sort of your retail customers.
I mean I think are for.
I said the characteristics of physical generation can be achieved.
By the contractual arrangement and non necessarily buy.
By ownership and.
I think there are some good lessons learned in terms of what are the additional perhaps.
Credit performance.
Classes that need to be part of the of that agreement and I know that the team is already doing here, our commercial our credit and risk management team our.
Legal team they are already looking at the.
The what are the provision that we need to have in these in these type of contracts. So we actually can utilize all of these.
<unk>.
The characteristics of physical generation.
Got it thank you Mauricio much appreciate it.
Youre welcome.
Thank you and this does conclude today's question and answer session and I would like to turn the conference back over to Mauricio Gutierrez for any further remarks.
Thank you well I appreciate everyone's.
Interest in NRG and look forward to talking to you in the future of thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.
[music].
The.
[music].
[music].
[music].
[music].