Q4 2022 NRG Energy Inc Earnings Call

February 16, 2023

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

[music].

Good day, and thank you for standing by and welcome to the NRG Energy, Inc. Fourth quarter 2022 earnings 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.

I'll need to press Star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Kevin Cole head of Investor Relations.

Thank you Josh good morning, and welcome to NRG Energy's fourth quarter 2022 earnings call. This morning's call will be 45 minutes online is being broadcast live over the phone and via webcast, which can be located in the investors section of our website at www Dot NRG dot com under presentations and webcast. Please note that today's does.

And may contain forward looking statements, which are based on assumptions that we believed to be reasonable as of this date actual results may differ materially.

Everyone to review the Safe Harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law.

In addition, we will refer to both GAAP and non-GAAP financial measures for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures. Please refer to today's presentation and with that I'll now turn the call over to Mauricio Gutierrez Nrg's, President and CEO . Thank you, Kevin and good morning, everyone and thank you for your interest in NRG.

I'm joined this morning by Albert before narrow our Chief Financial Officer, and also on the call and available for questions. We have at least killinger Palm broke out there ahead of business a market ups and Chris Moser head of competitive markets on policy.

Starting on slide four with our key messages for today's presentation.

We have made significant progress in advancing our strategic priorities in 2022.

And while our financial results were lower than expected our business is well positioned in 2023.

Today, we are reaffirming our 2023 financial guidance ranges.

Sure.

The <unk> smartphone acquisition is on track to close by the end of the first quarter.

Today, we are providing further disclosures around revenue synergies to ensure you have additional tools to properly value of that transaction.

Finally, the board of NRG is strong supported by favorable fundamentals.

The acquisition of women enhances our ability to achieve our free cash flow before growth per share targets.

Now turning to slide five of the financial and operational results of 2022.

Beginning with our scorecard for the year, we executed well across our strategic priorities.

We delivered our second consecutive year of record safety performance.

For me it always starts and ends with a well being of our people I want to thank everyone at NRG for staying focused during a challenging year.

Our retail group took deliberate actions to manage price volatility and delivered record customer retention and extended the average term of our new customer to two years.

Also our bad debt remained below historical levels, despite higher inflation and tightening financial conditions.

Our plant operations performance was below expectations, primarily impacted by the outage Abdullah parish right before the summer.

We are taking additional steps to strengthen our supply and mitigate operational risks during scarcity conditions.

And direct energy integration is nearing completion and on track to deliver our run rate synergy targets in 2023.

We executed on our test on in our programs during the year, which culminated in the announcement of the dividend smartphone acquisition.

We also continue our portfolio optimization with two gigawatts of coal retirements and asset sales.

Finally on capital allocation, we executed $645 million of share repurchases out of the $1 billion program.

We will execute the remaining amount with cashless available and when we couple this ability to achieve our targeted credit metrics.

We also increased our dividend by 8%.

Since it was reestablished in 2020, we have raised our dividend more than 25% and returned almost $1 billion to shareholders. This way.

View, our dividend as an integral part of our return of capital policy.

Moving to financial results, we delivered $435 million of adjusted EBITDA in the fourth quarter, bringing our 2022, our full year results to $1 75 4 billion below expectations.

For the fourth quarter, we highlighted in our last earnings call that reaching the bottom end of our financial guidance included a little over $100 million of optimization opportunities.

Specifically, making our natural gas units available to capture value during periods of high power prices.

This opportunity did not materialize.

Mild weather during the quarter power prices much lower than expected.

We were also impacted by winter storm area in late December .

Primarily from PJM capacity performance payments.

Where we risk adjusted downward our bonus payments pending additional information from PJM.

Alberto will provide more information on our financial results.

Turning to slide six for our 2023 outlook.

We are reaffirming our 2023 financial guidance.

We see improving fundamentals in our business, including more stable supply cost driven by lower natural gas prices led supply chain issues or call on chemicals more favorable retail market conditions in the east as economic resilience in our customer base.

In the east we.

We see opportunity for customer growth given rising rates from utilities.

Enabling competitive retailers to demonstrate the value of our services to customers on an equal playing field.

In Texas the <unk>.

Public utility Commission proposed market designs improvements that will result in more spectrum old generation and greater reliability.

Good.

I want to commend the Texas Governor sources legislature PUC at ERCOT for taking Swift action to enhance grid resiliency, while ensuring the integrity of the competitive market.

Also retail competition will open in Lubbock, Texas in the fall.

CD with more than 100000 electric customers.

We look forward to having the opportunity to earn and serve customers in that area. Later this year.

In 2023.

We will continue executing on our strategic priorities.

Focusing on a strict on strengthening our core business, while growing our adjacent products and services as you can see on the right hand side of the slide.

We continue our focus on optimizing our portfolio to better serve our customers.

To that effect.

We are targeting $500 million in net cash proceeds from asset sales by the end of the year.

Having completed our test and learn phase in 2022.

We are now focused on the next phase of our strategic roadmap growing the business.

This includes completing the direct clinical integration and increasing the number of customers that purchased multiple products from us.

Today, we have sold more than one product to 15% of our customers.

We are making good progress on cross selling and will provide additional disclosures as we integrate vivid.

To support this growth we will continue to strengthen our fire supply by expanding our capital light PPA program for renewables to these possible generation at some of our existing sites.

Finally.

We are on track to close <unk> in the first quarter with all regulatory approvals received and no shareholder vote required.

We expect to close to announcing soon and have begun pay one integration efforts.

I want to provide additional insights on how business enhances our core energy platform and brings additional capabilities at scale on slide seven.

<unk> is a leader in the smart home solutions with nearly 2 million highly engaged customers with an average life of nine years.

The system brings together automation security and residential solar under a single proprietary technology and data platform.

This business is highly complementary to our core energy offering.

We will use their smartphone ecosystem to connect all our currently isolated products on services, including BREIT power batteries, Evs and other products into a seamless experience that is highly engaging and personalized.

This engagement will provide tremendous insight into pricing customer experience, a new solution to create greater brand loyalty and longer average customer lifetime.

As we leverage the smart home ecosystem, we expect to optimize energy demand inside the home.

Providing valuable services to the wholesale markets.

In other words.

NRG will be the bridge between the home and energy markets with a unique ability to optimize and monetize value between the two.

Vivek will also complement our existing energy product offerings and sales channels by adding home automation security and residential solar at scale.

Including our proven acquisition engine with a solid track record of growth.

And nearly 2 million customers.

On the right hand side of the slide is the virtuous cycle that we have discussed in the past.

By leveraging our existing platform, we can access a meaningful cost synergies.

This economic advantage.

Coupled with that our insights and more personalization.

Results in a better experience for our customers.

All of this translates into a deeper understanding of how consumers interact with their homes additional margin and better retention on our core product.

And then the cycle repeats as we grow creating a more valuable business.

Now I want to disclose the value of opportunity that this combination represent on slide eight.

We have identified three main areas of value.

Growing and optimizing our network of customers.

Leveraging the platform to achieve cost synergies.

And improving the value of our core energy customers.

With respect to the growth opportunity.

We are targeting $300 million of incremental free cash flow before growth by 2025.

We are encouraged by the preliminary work, which are down on both sets of customers.

And look forward to fully optimize once the transaction closes.

As you can see on the left hand side of the slide.

There is some overlap in our core energy markets, but it's relatively small.

This is important because <unk> already has teams ready to be deployed in our core energy markets.

And because the addressable market opportunity for new customers will be even greater.

We expect to achieve these growth targets in several ways as we target tier one customers.

Which we define as single family homeowners with high credit scores.

In select urban areas.

We will focus on two immediate and actionable opportunities.

One cross selling existing products into our combined customer network of $7 5 million customers.

Two <unk>.

Selling bundle offers to new customers outside of our network, representing 15 million potential households.

In addition, we will grow the dividend organically in line with historical levels.

These opportunities will be enhanced by optimizing our combined sales channels and best practices.

Leveraging the strength of both NRG and visits.

The capital required to achieve this growth is expected to range $500 million to $600 million over the next three years.

Okay.

For cost synergies, we have identified $100 million to be achieved by 2025, primarily from combining two public companies.

For these we expect $160 million of one time cost to achieve.

Finally on our existing core energy customers.

Cross selling means we can have direct access to our customers in the east.

And the opportunity to expand margin and extend customer lifetime value.

In total we see a $400 million opportunity by 'twenty five.

And a larger opportunity beyond given the size of the smartphone addressable market.

I am confident in our ability to deliver these targets as we have a strong history of integration and synergy achievement.

Just to remind you.

Since 2016, we have achieved significant value on integration synergies cost reductions and enhancement programs.

This effort will be led by the same theme of the transformation plan and direct energy integration.

I look forward to providing you a more comprehensive update later this year during our Investor day.

Now turning to slide nine.

We wanted to give you an update on our pro forma outlook and how the Devon transaction supports our growth targets.

On the left hand side of the slide is a free cash flow before growth pro forma walk from 2023 to 2025.

Including the expected growth contribution from <unk> that we just discussed on the previous slide.

This illustrates the earnings power of the company and will be further unpack once that transaction is closed.

On the right hand side of the slide.

Is the aspects of capital allocation through 2025.

As you can see the combined platform provides the financial flexibility to have a balanced approach between growth and return of capital, while maintaining a strong balance sheet.

The acquisition of dividend.

And more specifically the growth opportunity that <unk> represents.

Will better support our first share growth targets.

Materially hydrating, our earnings quality and customer lifetime value.

So with that I will pass it over to Alberto for the financial review.

Thank you Mauricio.

I will now turn to slide 11 for a review of 2022 zones.

During our third quarter call, we stated that as higher profitability in the fourth quarter will be enable us to deliver an adjusted EBITDA at the bottom of our 2022 full year guidance range.

To realize these we mentioned that the higher profitability was partially related to insurance proceeds towards <unk> unit, one in Pattis unity additional synergies and other cost reductions.

And the remaining from the opportunity to generate additional gross margin from the planned utilization of our gas fleet.

Our forecasting process is based on the forward market curves and at the time the forward curves included.

Power prices for the fourth quarter.

Which would make the plant utilization of the gas fleet economical.

Unfortunately prices in the fourth quarter fell significantly below.

Short of expectation.

On peak prices in Texas were 45% below expectation, resulting in lower profitability from our January should.

Near the end of December weakest immediately brought the sharp reduction in temperature for short ton December 'twenty 'twenty four.

During the storm load search was faster and significantly higher.

The upper level of the expected range in both Eric and PJM for several hours.

This drove spikes in power prices.

Our gas generation fleet in Texas, which was largely unutilized in the fourth quarter was called into action.

Given the significant gap between actual and expected load the fleet was unable to completely match the additional demand.

As a result, we put three additional power in the market today.

Right.

In the east higher load led to a PJM reliability code for our units without any notice.

All of our larger units, where we have reserves.

The event and to have a longer stepped up times, which should lead to capacity performance the negative impact given the lack of notice.

The lower than expected prices at the beginning of the quarter, coupled with the impact of the winter.

Drove unfavorable variances to our EBITDA expectation.

The fourth quarter, but adjusted EBITDA was $453 million was below our implied guidance by $196 million.

We estimated that the lower price prices experienced for most of the Q4 <unk>.

<unk> the expected contribution of our generation by approximately $150 million.

Also estimated the weakest or media caused approximately $80 million negative impact.

This was primarily a result of the net impact of capacity performance with PJM as well as increased by repurchases generic that were partially offset by an expected capacity performance bonds for the coastal plants.

When we look at the full year adjusted EBITDA over $1.754 billion and short of the midpoint of <unk> guidance at the beginning of 2022 by $346 million.

There were two main drivers that impacted the results. These results first for the extended outage hepatic unity with $220 million. The lowest margin that was partially offset by business interruption proceeds of 52.

And second the estimated $80 million impact of winter storm.

There was also an incremental $44 million of pension expenses.

<unk> <unk> from reduced prices of financial assets in the second half will be in some increased O&M expenses.

Additional drivers include the $15 million of reduced earnings for the divestiture of Watson and $16 million of growth opportunities.

In 2022 free cash flow before growth came in at $568 million with the deficit to pool, our third quarter guidance driven primarily by the shortfall in EBITDA in two working capital drivers.

First pet insurance proceeds for parish and limestone.

The Westwood accounted for 2022 were accrued in the fourth quarter, but received in January 2023, resulting at the end of the year and 100 million dollar increase in receivables.

Secondly, working capital as an additional negative impact due to falling gas prices in the quarter, which more rapidly impacted that.

Vehicles than the account receivable.

Turning our attention to 2023, we are reaffirming our full year guidance for both adjusted EBITDA and free cash flow before.

Before we review the 2023 cash available for allocation I would like to provide updates on weakness book annuity and director and as you've seen it.

For 2021 net impact of weakness to annuity was $380 million. During 2022, we were able to increase significant proceeds.

The total net cost of approximately 259 million.

For future years.

We will still be some cost recoveries associated with doing that within the amount to be material and we will no longer update to the speakers.

For direct to introducing hedges, we achieved a total of $84 million of additional synergies in 2022 with related integration costs of $74 million, bringing the total synergies achieved from the acquisition with $259 million.

We are confident that we can achieve the remaining synergies which are related to specific projects that will be completed in 2023.

Therefore, we will no longer provide quarterly updates on our directory and reducing energy process progress, but we will provide the final summary.

Now turning to slide 12 for a brief update on our 2023 capital allocation.

Moving left to right with blue shading, indicating updates excess cash from 2022 equal to $40 million at year end, plus the $290 million proceeds from the sale of his ability which totaled $249 million in the bottom left.

Mexico, we continued to utilize its 2022 pro forma full year figures provided in our December call.

Full year free cash flow below growth of $1 billion $730 million includes energy Standalone guidance of $1 620 million plus.

<unk> pro forma $110 million this quarter vis.

This includes the expected impact from debt financing in <unk>.

We included the 300 million of cash available from B.

Next we are targeting $500 million of leverage neutral net inflow from asset <unk>.

Our next.

Investments on a year by 29 million. Following early realization of previously included the weakest annuity meet you again in 2022.

Now moving moving to the far right bar, we expect a total of $434 million available for future relocation due to the wind funded the remaining share repurchase program upon fully visibility, we'll be achieving of our 2023 target credit metrics, which are detailed on the.

Next slide.

Now quickly turning to slide 15, we remain committed to a strong balance sheet. This slide has not changed since our last update we are focused on achieving 2023 target credit metrics and investment grade credit metrics may lead to 2025 to 2026 through debt reduction.

And group.

With that I'll turn the call back over to <unk>. Thank you Alberto.

On slide 15, I want to briefly outline our 2023 priorities on expectations.

First and foremost delivering on our core energy business goals.

We will continue to strengthen our integrated platform and further optimize our portfolio.

Second we are focused on closing dividend acquisition integrating the business and delivering on our synergy commitments.

Finally, we will stay disciplined on our capital allocation plan as we execute on our strategic priorities.

I am excited about this next phase of our evolution and look forward to providing you a comprehensive update at our Investor Day later this year.

So with that I want to thank you for your time and interesting NRG, Josh we're ready to open the line for questions.

Okay.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Our first question comes from Julien Dumoulin Smith with Bank of America You May proceed.

Hey, good morning team, thanks for the opportunity against time.

Well done listen good morning Julien.

Hey, good morning team.

I wanted to talk to you guys.

Five outlook and just to clarify that.

We're seeing the original conversation around call. It $12 50, a share of FCS is this an implicit increase in expectations of roughly in the same ballpark as I look at sort of what's implied on the numerator and denominator seems like it could be a slight increase there I wanted to come back and clarify that as best you guys see it and I have a quick follow up.

Yes, so I mean.

Well, let me see if I understand.

Kevin.

The pro forma that we showed here.

In line with the free cash flow before growth targets that we provided you at Investor day of 15% to 20% so.

As you as you mentioned.

<unk>.

What given $1 is complements our share buyback on capital allocation program.

With a very attractive.

Growth engine that we in.

Articulated in the call today, now that driven transaction.

Spectrum that is going to produce $400 million of free cash flow before growth on top of the 2023 pro forma guidance for NRG. So when I think about.

The 2025 pro forma I will say that I'm very comfortable with without the NRG pro forma now that we have communicated the contribution of David I will tell you that.

We have pretty good line of sight to deliver on that.

Commitment of 50% to 20% growth.

Excellent and just clarifying that you are and I know you've discussed in analyst day here would you.

Spect a role that 25 board at the time of the analyst day or could we get something sooner with the close.

And then considering that close at Super quickly if I can we've seen some.

Litigation out there around specs and what is possible. If you will in recent days can you clarify how that maybe impacting the process itself at this point.

If you don't mind for a moment.

Yes, So I think what you should expect you saw our Investor day, we will provide you the five year plan.

That goes well beyond 2025, I think that the right kind of articulated.

The net loss in subsequent weeks after the close and most likely on the earnings call we will.

I'll provide additional clarity in 2023 with respect Aveva right itself.

With respect to the litigation that you are mentioning on the on the spot we actually.

Look at that evaluated it and we see very little risk in terms of closing the transaction. So keep in mind that this is not only for our industry vicious for all stocks across all industry and I see this more as just a clean up.

Sure.

Anything else so.

The risk off.

Impacting the closing of the transaction I would say is minimal.

Excellent alright, guys I will leave it there. Thank you so much good luck. Thank you Joanne.

Thank you.

Our next question comes from Angie <unk> with <unk> you May proceed.

Thank you so maybe first on the 23 guidance.

Seems like.

That's a pretty good setup for the pellet prices have fallen and you should have an advantage with the <unk>.

Gaming.

Market share on the retail side, especially on the east given the collapse in power prices and natural gas prices and improvement in working capital.

The cost to replace the <unk>.

The palace.

Good afternoon parish outage, that's come down and yet you kept the guidance range.

What's the offset to these positive drivers.

Yes.

I mean I.

Im glad that you are.

Went down the list because when I think of Aqua Basel III I would say that is more conservative than we have.

And so talking about <unk>.

Not only from what we control. So if you think about the characteristics of our plants.

Actions that we used in our forecast are more conservative we have also and we have also remember now. This is the second year that we have increased maintenance capex of our clients. So we expect greater reliability on them and there is a lot of.

Tailwind.

On our on our guidance you already mentioned the dynamics in the east where prices or the default service utility providers are much higher and I think we're going to have a great opportunity to.

Gain market share with a falling gas prices that creates really good environment for us for managing our retail margin. So all of this is positive now let's just it's only February right. So.

I E.

I want to make sure that we see at least a couple of months and we have greater visibility on the rest of the year before we can provide you.

Additional adjustments, but.

It's fair to say that I feel.

I'm very confident that we can achieve our guidance and perhaps we are erring on the conservative side.

With a number but I think it is I think is prudent given the.

Type of volatility and extreme weather that we have seen in the past couple of years.

Alright.

That's good.

Okay.

And then.

On the PJM capacity.

Penalties. So is my understanding of the disclosures that.

The generation companies have provided by PJM on slide eight.

Talked about penalties, so any sort of bonus capacity payments.

I haven't been disclosed disclosed calculated so so I know that Thats, a 22 issue, but just talk to us about how you accounted for those offsets to the table.

The penalties on the capacity side.

Sure I'll, let Alberto Culver.

Yes.

It is.

From the penalty side is relatively simple because we have consider based on our records what is that.

The potential for Mlps and take those into account on the bundle side, there is lots of variables, including potential bankruptcy that can change that.

Can change as the amount of debt that will be distributed and therefore, what we have done with the limited information available. We have estimated we will be the best case scenario.

The worst case scenario.

We have chosen a level we're comfortable.

Therefore, we have at the end of the day risk adjusted the bonus for.

If we could get at the end of this process, we will know more in the.

In the next months, but we are comfortable with what we have done. So I think it's fair to say that penalties, we have taken all of them into consideration on bonuses, we need more information from PJM. So we'd have to risk adjust that got more of that.

Okay, and then lastly, so when.

You announced event that was the plan to execute on share buybacks are pretty meaningful.

$360 million.

I mean looking at the share count you haven't done it.

I understand that there is a plan for 'twenty three to finish that billion dollar.

The share buyback allocation.

So just talk to me about the timing why it hasnt happened, yet where you're waiting for the proceeds from our story is it somewhat of a reflection of the.

We think cash flow generation for 'twenty, two and again, just just lastly about when we should expect those buybacks will happen.

Yes, no I mean, that's correct. So my expectation that it will compound in this year, and obviously being very consistent with our capital allocation principles.

We want to focus first on achieving our credit.

Metrics and then we will once we have that visibility in terms of achieving that and obviously as we get cash proceeds in the door throughout the year, we will be executing on the share repurchases. So.

The company had meant to everybody is that we will execute them, but we need to call first assurance as that.

Okay.

But we meet our.

Our procurement our credit metrics that we have.

Cash available so that's about solid we're thinking about it.

So it's not like.

The fact that you deferred the buybacks.

It's now in no way does that reduce the amount of financing that you will need to raise for the <unk> transaction.

No.

Okay. Thank you.

Thank you Ed.

Thank you.

Our next question comes from David or Karl with Morgan Stanley You May proceed.

Hey, good morning, Thanks for taking my question.

Morning, David.

I was wondering if you could elaborate on what assets might be considered for sale and what the potential timing might look like in terms of executing any processes related to that.

Yes, David so.

As you know we are actually have been.

Optimizing our portfolio now for a number of years. So I think we have a pretty good track record on doing that and the way I think commodities you have core assets and noncore assets right. So core assets are.

Whatever helps us better serve our customers.

And is there some asset that's awesome.

Do that function then it becomes a noncore asset then we'll look at.

Monetizing that there is a second set of things to that.

He is very fine asset that is more valuable in somebody else's business, we will definitely take a look at that.

And evaluate all the options. So what I can tell you is this is an ongoing process we saw.

Sold and monetize some assets last year, we're going to do that what I wanted to be able to provide you more specificity around that.

The amount that we are targeting and that these will be executed throughout 2023 in terms of timing. Obviously these will require.

People coming to an agreement and what we will be updating you as soon as we have available information.

Okay. Thanks Thats helpful.

And then I was wondering if you could speak a bit to just fleet reliability and resilience here I'm wondering.

Just if you could talk to the strategy to improve the risk profile of the business during extreme heat and cold events are there further investments that you could make in your fleet to improve their resilience or more due to beef up the supply side of the equation.

Yes, David So when you think about.

The reliability and resiliency I actually if you take a step back and you think about our supply strategy to serve our retail low I think about it in three big buckets. The first one is the generation that we own the second one is medium.

Medium term Ppas and then the third one is obviously you complement that with market purchases.

Today, we are roughly 50% of the megawatts that we serve.

Supply with our own generation of 50%.

Third party.

Pulse our purchases so what we have done on the on our own generation is twofold number one we have been a little bit more conservative when we run our forecast and what we use to hedge our where our low in terms of black characteristics and that gives us a lot.

More push on so we're self insuring. The second thing is we have actually.

Additional maintenance Capex to increase the reliability of the units specifically in areas, where we have seen.

Issues during scarcity conditions.

Those two things really mitigate what I describe as the operational risk on our.

On our units.

The other the other tool, we actually trades as these operational risk or counterparty risk credit risk. So while it's perhaps more firmer impacts of the megawatts. It also we have to monitor that.

The health of the entities that were that were transacting with so why <unk>.

Like about this approach is that we're diversifying out of our risk that is not a all generation all operational risk. So we actually we actually diversify our risk and this one was one of the big vessels with our star view already so I feel very comfortable the risk adjustment that we have.

Hey.

And then lastly in terms of hedging our LOE, we're being a little bit more conservative so were leaning perhaps longer than we have done in the past and to make sure that we manage some of the.

Scarcity.

Here is where we see higher loan, but obviously you cannot there is completely the business because it would be cost prohibitive.

We're being very very intense from a very thoughtful about.

Okay got it that makes sense. Thanks, so much.

Thank you Dave.

Thank you.

Our final question comes from Steve Fleishman with Wolfe Research you May proceed.

Thanks, I appreciate the time.

<unk>.

Ken on <unk>.

Im a ratio.

Question on the 2023.

Kind of base pre vivid.

What are you what are you assuming in there I guess, obviously, you're expecting a big recovery from 'twenty, two and some of the issues, but what are you.

Assuming in there for.

Outages any lingering outages.

The related insurance money.

And then also on are you, including any asset sale gains or losses and in the guidance for 'twenty three I think you've sold the story already.

Decent price.

Yes, so I'll just talk about that.

Yes, so we already sold a story let me just give you my view on the on the 2023 guidance, which is product market glad you about it and then I'll pass it on to tell you exactly what's in and out but.

The way to think about 2023 Tvs.

More conservative forecast that we have done in the past both from an operational characteristics of the power plants.

How we are managing our retail load.

But also because of the dynamics that existed in 2022 of ophthalmic Cisco. They like if you remember we have the supply chain issues on the call that the chemicals that has updated for the most part.

<unk>.

Falling to stable natural gas prices now that allows us to better manage our retail margins, which are a.

And environment in the east, where we feel very comfortable that we can gain market share off on our retail business. So I think in general I would I would say that 2023 is a lot more conservative the guidance is right on top of what we.

Provided to you back at Investor Day, when you adjust for asset sales, which we provided you. The bridge back then so actually in the in the Investor day back in Newcastle.

The ins and outs given the portfolio optimization that we have done and we're literally on top of where we should have been so two.

Two things one I feel very confident that this is in line with what we provided you on tool that is taking were taken a little bit more of a conservative approach and so the number obviously, we will update you throughout the year, but just keep in mind that we're just at the beginning of the year, but I don't know if theres anything else that we need to.

Yes.

Paresh Paresh outage cost insurance and asset.

Yes.

Could you identify what's in the guidance for those.

So in the guidance, obviously, we have the.

Paresh studies not in the first half of the year, because it's on outage, but I will tell you on parish and I think thats, probably the largest risk.

Uh huh.

The progress that we have made is pretty significant as a matter of fact I think just last week, we had the generator now on site and has been lifted and put in the in the deck. So we're making really really good progress on what I'm seeing today I'm confident that we will come back all the time.

Obviously, the commercial team is monitoring very closely that with the plan. If there is any delays or there is any acceleration that we.

Are there mitigating risk in the market or that we take advantage if it comes in.

Earlier, but.

Sure.

It's already embedded in guidance, Alberta, yes, it'll just be a little bit more specific Steve regarding the padding as soon as data. We said that there is no impact in 2023 and the reason is because of the impact of the unavailability of the plant was matched by business insurance, we have received a little bit.

More than the business issue that saying that 2022, however, we have recalculating the margin and net net it's still completely agile by the lost margin easy hazard by what we are going to receive as insurance and therefore, no change compared to the prior scenario.

Which was in the third quarter when we provided today.

Yeah.

Yes.

And then asset sales.

The asset sales we are factors for your basic during the week.

Future is happening in January .

Yes.

We are doing.

For the moment until the data there are news.

We are not adjusting.

But it is already has already been taken into custody that story has been has been considered because of rate okay should.

Should that happen at the end of 2022 at that in just a few days after 'twenty three and we took it to consideration in our guidance.

Okay, and how much is that.

I would like to fairly fairly small.

The full impact.

Consider that we have a tool for our remaining short period. So it's very very small.

Okay, great. Thank you appreciate it so it's really the core business, yes. Thanks.

Yes, Thank you Steve.

Okay.

Thank you. This concludes the Q&A session I would now like to turn the call back over to Mauricio Gutierrez for any closing remarks.

Thank you. Thank you for your interest in NRG and I look forward to updating you.

Once we close that transaction on <unk>.

Thank you.

Okay.

Thank you ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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Need to press Star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Kevin Cole head of Investor Relations.

Thank you Josh good morning, and welcome to NRG Energy's fourth quarter 2022 earnings call. This morning's call will be 45 minutes in length and is being broadcast live over the phone and via webcast, which can be located in the investors section of our website at www Dot NRG dot com under presentations and webcast. Please note that today's does.

It may contain forward looking statements, which are based on assumptions that we believe the reasonable as of this date actual results may differ materially.

Urge everyone to review the Safe Harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law.

In addition, we will refer to both GAAP and non-GAAP financial measures for information regarding our non-GAAP financial measures and a reconciliation to most directly comparable GAAP measures. Please refer to today's presentation and with that I'll now turn the call over to Mauricio Gutierrez Nrg's, President and CEO . Thank you, Kevin and good morning, everyone and thank you for your interest in NRG.

I am joined this morning by Alberto for narrower Chief Financial Officer, and also on the call and available for questions. We have Elizabeth Killinger head of home broke out there ahead of business a market ups and <unk> malls are ahead of competitive markets on policy.

Starting on slide four with our key messages for today's presentation.

We have made significant progress in advancing our strategic priorities in 2022.

And while our financial results were lower than expected our business is well positioned in 2023.

Today, we are reaffirming our 2023 financial guidance ranges.

Yes.

The <unk> Smart home acquisition is on track to close by the end of the first quarter.

Today, we are providing further disclosures around revenue synergies to ensure you have additional tools to properly value of that transaction.

Finally, the board of NRG is strong supported by favorable fundamentals the acquisition of <unk> enhances our ability to achieve our free cash flow before growth per share targets.

Now turning to slide five of the financial and operational results of 2022.

Beginning with our scorecard for the year, we executed well across our strategic priorities.

We delivered our second consecutive year of record safety performance.

For me it always starts and ends with a well being of our people.

Want to thank everyone at NRG for staying focused during a challenging year.

Our retail group took deliberate actions to manage price volatility and delivered a record customer retention and extended the average term of our new customer to two years.

So our bad debt remained below historical levels, despite higher inflation and tightening financial conditions.

Our plant operations performance was below expectations, primarily impacted by the outage at <unk> parish right before the summer.

We are taking additional steps to strengthen our supply and mitigate operational risks during scarcity conditions.

And direct energy integration is nearing completion and on track to deliver our run rate synergy targets in 2023.

We executed on our test on our programs during the year, which culminated in the announcement of the dividend smartphone acquisition.

We also continue our portfolio optimization.

Gigawatts of coal retirements and asset sales.

Finally on capital allocation, we executed $645 million of share repurchases out of the $1 billion program.

We will execute the remaining amount, but cashless available and when we have this ability to achieve our targeted credit metrics.

We also increased our dividend by 8%.

Since it was reestablished in 2020, we have raised our dividend more than 25% and returned almost $1 billion to shareholders. This way.

I view, our dividend as an integral part of our return of capital policy.

Moving to financial results, we delivered $435 million of adjusted EBITDA in the fourth quarter, bringing our 2022 full year result to one 700 by $4 billion below expectations.

For the fourth quarter, we highlighted in our last earnings call that reaching the bottom end of the financial guidance.

Included a little over $100 million of optimization opportunities.

Specifically, making our natural gas units available to capture value during periods of high power prices.

This opportunity did not materialize as.

As mild weather during the quarter at power prices much lower than expected.

We were also impacted by winter storm area in late December .

Primarily from PJM capacity performance payments were.

<unk> risk adjusted downward our bonus payments pending additional information from PJM.

Alberto will provide more information on our financial results.

Turning to slide six for our 2023 outlook.

We are reaffirming our 2023 financial guidance.

In the east, we see opportunity for customer growth given rising rates from our utilities.

Enabling competitive retailers to demonstrate the value of our services to customers on an equal playing field.

In Texas the.

Public utility Commission proposed market designs improvements that will result in mortgage spectrum old generation and greater reliability.

Good.

I want to commend the Texas Governor sources legislature, PUC and aircrafts for taking Swift action to enhance grid resiliency, while ensuring the integrity of the competitive market.

Also retail competition will open in Lubbock, Texas in the fall.

Sitting with more than 100000 electric customers.

We look forward to having the opportunity to earn and serve customers in that area. Later this year.

In 2023.

We will continue executing on our strategic priorities.

Focusing on a strict on strengthening our core business, while growing our adjacent products and services as you can see on the right hand side of the slide.

We continue our focus on optimizing our portfolio to better serve our customers.

To that effect.

We are targeting $500 million in net cash proceeds from asset sales by the end of the year.

Having completed our test and learn phase in 2022.

We are now focused on the next phase of our strategic roadmap growing the business.

This includes completing the direct energy integration and increasing the number of customers that purchased multiple products from us.

Today, we have sold more than one product to 15% of our customers.

We are making good progress on cross selling and will provide additional disclosures as we integrate dividend.

To support this growth we will continue to strengthen our fire supply by expanding our capital light PPA program for renewables to responsible generation at some of our existing sites.

Finally.

We are on track to close dividend in the first quarter with all regulatory approvals received and no shareholder vote required.

We expect to close financing soon and have begun on day, one integration efforts.

I want to provide additional insights on how business enhances our core energy platform and brings additional capabilities at scale on slide seven.

<unk> is a leader in the smart home solutions with nearly 2 million highly engaged customers with an average life of nine years.

The system brings together automation security and residential solar under a single proprietary technology and data platform.

This business is highly complementary to our core energy offering.

We will use their smartphone ecosystem to connect all our currently isolated products on services, including Green power batteries, Evs and other products into a seamless experience that is highly engaging and personalized.

This engagement we will.

We'll provide tremendous insight into pricing customer experience, our new solutions that create greater brand loyalty and longer average customer lifetime.

As we leverage the smart home ecosystem, we expect to optimize energy demand inside the home <unk>.

Providing valuable services to the wholesale markets.

In other words.

NRG will be the bridge between the home and energy markets with a unique ability to optimize and monetize value between the two.

Vivek will also complement our existing energy product offerings and sales channels by adding home automation security and residential solar at scale.

Including our proven acquisition engine with a solid track record of growth.

And nearly 2 million customers.

On the right hand side of the slide is the virtuous cycle that we have discussed in the past.

By leveraging our existing platform, we can access meaningful cost synergies.

This economic advantage.

Coupled with that our insights and more personalization.

Results in a better experience for our customers.

All of this translates into a deeper understanding of how consumer consumers interact with their homes additional margin and better retention on our core product.

And then the cycle repeats as we grow creating a more valuable business.

Now I want to disclose the valuable opportunity that this combination represent on slide eight.

We have identified three main areas of value.

Growing and optimizing our network of customers.

Leveraging the platform to achieve cost synergies.

And improving the value of our core energy customers.

With respect to the growth opportunity.

We are targeting $300 million of incremental free cash flow before growth by 2025.

We are encouraged by the preliminary work we have done on both sets of customers.

And look forward to fully optimize once the transaction closes.

As you can see on the left side of the slide.

There is some overlap in our core energy markets, but it's relatively small.

This is important because <unk> already have teams ready to be deployed in our core energy markets.

And because the addressable market opportunity for new customers will be even greater.

We expect to achieve this growth target in several ways as we target tier one customers, which.

Which we define as single family homeowners with high credit scores within select urban areas.

We will focus on immediate and actionable opportunities.

One cross selling existing products into our combined customer network of $7 5 million customers.

Two.

Selling bundle offers to new customers outside of our network, representing 15 million potential households.

In addition, we will grow the dividend organically in line with historical levels.

These opportunities will be enhanced by optimizing our combined sales channels and best practices.

Leveraging the strength of both NRG and visits.

The capital required to achieve this growth is expected to range $500 million to $600 million over the next three years.

Okay.

For cross synergies, we have identified $100 million to be achieved by 2025, primarily from combining two public companies.

For these we expect $160 million of one time cost to achieve.

Finally on our existing core energy customers.

Cross selling means we can have direct access to our customers in the east.

And the opportunity to expand margin and extend customer lifetime value.

In total we see a $400 million opportunity by 'twenty five.

And a larger opportunity beyond given the size of the smartphone addressable market.

I am confident in our ability to deliver these targets as we have a strong history of integration and synergy achievement.

Just to remind you.

Since 2016, we have achieved significant value on integration synergies cost reductions and enhancement programs.

This effort will be led by the same theme of the transformation plan and direct energy integration.

I look forward to providing you a more comprehensive update later this year during our Investor day.

Now turning to slide nine.

We wanted to give you an update on our pro forma outlook and how the Devon transaction supports our growth targets.

On the left hand side of the slide is a free cash flow before growth pro forma walk from 2023 to 2025.

Including the expected growth contribution from David that we just discussed on the previous slide.

This illustrates the earnings power of the company and will be further unpack once that transaction is closed.

On the right hand side of the slide is this.

Aspects of capital allocation through 2025.

As you can see the combined platform provides the financial flexibility to have a balanced approach between growth and return of capital Wildlife painting, a strong balance sheet.

The acquisition of dividend.

And more specifically the growth opportunity that <unk> represents will better support our per share growth targets, while materially hydrating, our earnings quality and customer lifetime value.

So with that I will pass it over to Alberto for the financial review.

Thank you Mauricio I will now turn to slide 11 for a review of 2022 results.

During our third quarter call. We stated this higher profitability in the fourth quarter will be enable us to deliver an adjusted EBITDA at the bottom of our 2022 full year guidance range.

To realize these we mentioned that the higher profitability was partially related to insurance proceeds toward limestone unit, one and Faddish unity additional synergies and other cost reductions.

And the remaining from the opportunity to generate additional gross margin from the planned utilization of our gas fleet.

Our forecasting process is based on the forward market curves and at the time the forward curves included.

Power prices for the fourth quarter.

Which would make the plant utilization of the gas fleet economical.

Unfortunately prices in the fourth quarter fell significantly below.

Short of expectation.

On peak prices in Texas, with 45% below expectation, resulting in lower profitability from our regenerative should.

Near the end of December weaker some idiot broke a sharp reduction in temperature for short ton December 'twenty 'twenty four.

During the storm surge was faster and significantly higher.

The upper level of the expected range in both Erica and PJM for several hours.

This drove spikes in power prices.

Our gas generation fleet in Texas, which was largely unutilized in the fourth quarter was called into action.

Given the significant gap between actual and expected load the fleet was unable to completely match the additional demand.

As a result, we put three additional power in the market at higher prices.

In the east higher load led to a PJM reliability for our units.

Also any notice.

All of our larger units, where we reserve status with the start to the event and to have a longer startup times, which should lead to capacity performance the negative impact given the lack of notice.

The lower than expected prices at the beginning of the quarter, coupled with the impact of the winter.

Drove unfavorable variances to our EBITDA expectation.

The fourth quarter adjusted EBITDA was 450 <unk> million was below our implied guidance by $196 million.

We estimated that the lower price prices experienced for most of the Q4 <unk>.

<unk> the expected contribution of our generation by approximately $115 million.

Also estimated the weakness for media caused approximately $80 million negative impact.

When we look at the full year adjusted EBITDA over $1.754 billion and charter the midpoint of <unk> guidance at the beginning of 2022 by $346 million.

There were two main drivers that impacted the results. These results firstly extended outage hepatic yearly date with 220 million of lost margin that was partially offset by business interruption proceeds of 52.

And second the estimated 80 million impact of winter storm.

There were there was also an incremental $44 million of pension expenses.

<unk> reduced prices of financial assets in the second half will be in some increased O&M expenses.

Additional drivers include the $15 million of reduced earnings towards the divestiture of Watson and $16 million growth expenses.

In 2022 free cash flow before growth came in at $568 million with the deficit to pool, our third quarter guidance, driven primarily by the shortfall in EBITDA into working capital drivers.

Cost of insurance proceeds for parish and limestone.

The Westwood passed it for 2022 were accrued in the fourth quarter, but received in January 2023, resulting at the end of the year and 100 million dollar increase in the receivables.

Second working capital they have an additional negative impact due to falling gas prices in the quarter, which more rapidly impacted that.

Vehicles than the account receivable.

Turning our attention to 2023, we are reaffirming our full year guidance for both adjusted EBITDA and free cash flow before.

Before we review the 2023 cash available for allocation I would like to provide updates of weakness book annuity and direct energy synergies for 2021 net impact of winters to annuity was $380 million. During 2022, we were able to increase the <unk> proceeds to reduce.

The total net cost of approximately $259 million.

For future years.

There will still be some cost recoveries associated with jewelry that within the amount to be material and we will no longer update to these fees.

For direct energy synergies, we achieved a total of $84 million of additional synergies in 2022 with related integration cost of $74 million, bringing the total synergies achieved from the acquisition with $259 million.

We are confident that we can achieve the remaining synergies the travel related to specific projects that will be completed in 2023. Therefore, we will no longer provide quarterly updates on our <unk> synergy process progress, but we will provide the final summary SDA.

Now turning to slide 12 for a brief update.

Our 2023 capital allocation moving left to ramp with blue shading, indicating updates excess cash from 2022 is equal to $40 million with year end plus the 209 million proceeds from the sale of Astoria, which totaled 249 million in the bottom left.

Mexico, we continued to utilize into 2022 pro forma full year figures provided in our December call.

Full year free cash flow below growth of $1 billion $730 million includes energy standalone guidance of $1 $620 million.

<unk> pro forma $110 million quarter. This includes the expected impact from that cleanup.

In addition, we included a $300 million of cash available from B.

Next day Blue, we are targeting $500 million of leverage neutral net inflow from asset <unk>.

The next.

Investments are our year by 29 million. Following early realization of previously included Winters community meeting again in 2022.

Now moving moving to the far right bar, we expect a total of $434 million available for future relocation that will fund the remaining share repurchase program upon fully visibility, we'll be achieving of our 2023 target credit metrics, which are detailed on the.

Next slide.

Now quickly turning to slide 13, we remain committed to a strong balance sheet.

<unk> has not changed since our last update we are focused on achieving 2023 target credit metrics and investment grade credit metrics may lead to 2025 to 2026 through both debt reduction and group.

With that I'll turn the call back over to Mogens. Thank you Alberto.

On slide 15, I want to briefly outline our 2023 priorities on expectations.

First and foremost delivering on our core energy business goals.

We will continue to strengthen our integrated platform and further optimize our portfolio.

Second we are focused on closing dividend acquisition integrating the business and delivering on our synergy commitments.

Finally, we will stay disciplined on our capital allocation plan as we execute on our strategic priorities.

I am excited about this next phase of our evolution and look forward to providing you a comprehensive update at our Investor Day later this year.

So with that I want to thank you for your time and interest in NRG, Josh we're ready to open the line for questions.

Okay.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Our first question comes from Julien Dumoulin Smith with Bank of America You May proceed.

Hey, good morning team thanks for the opportunity at a time.

Well done listen.

Morning Julien.

Hey, good morning team.

I wanted to talk to you guys.

25 outlook and just to clarify that.

As it pertains to the original conversation around call. It $12 50, a share of SPF is this an implicit increase in expectations of roughly in the same ballpark as I look at sort of what's implied on the numerator and denominator. It seems like it could be a slight increase there just want to come back and clarify that as best you guys see it and I have a quick follow up.

Yes.

Well, let me see if I understand.

Kevin.

Format that we showed here.

Puts us in line with the free cash flow before growth targets that we provided you at Investor day of 15% to 20% so.

As you as you mentioned.

What given $1 is complements our share buyback and capital allocation program.

With a very attractive.

Growth engine that we.

<unk> in the call today, now that driven transaction I'm expecting that is going to produce $400 million of free cash flow before growth on top of the 2023 pro forma guidance for NRG. So.

When I think about that.

2025 pro forma I will say that I'm very comfortable with the NRG our pro forma now that we have communicated the contribution of David I will tell you that we have pretty good line of sight to.

To deliver on that.

Commitment of 50% to 20% growth.

Excellent.

Clarifying that you are and I know you've discussed in analyst day here.

You expect to roll that 25 board at the time of the analyst day or could we get something sooner with the close and then considering that close at Super quickly if I can we've seen some.

Hum litigation out there around specs and what is possible. If you will in recent days can you clarify how that maybe impacting the process itself at this point.

If you don't mind for a moment.

Yes, So I think what you should expect you saw our Investor day, we will provide you a five year plan.

That will go beyond 2025, I think that the right kind of articulated obviously a net loss.

Subsequent weighted subset of claws, and most likely on the Earth.

Earnings calls we will.

Provide additional clarity in 2023 with respect Aveva right itself.

With respect to the litigation that you are mentioning on the on the spot we actually have looked at that evaluated it and we see very little risk in terms of closing the transaction. So keep in mind that this is not only for our industry. This is for all stocks across all industry are nicely.

These more as just a clean up.

Sure.

Process than anything else so.

The risk off.

Impacting the closing of the transaction I would say is minimal.

Excellent alright, guys I'll leave it there. Thank you so much good luck. Thank you Julien.

Thank you.

Our next question comes from Angie <unk> with <unk> you May proceed.

Thank you.

Maybe first one about 23 guidance.

It seems like that's a pretty good setup for the.

Power prices have fallen you should have an advantage with that.

Gaining.

On the retail side, especially in the east given the collapse in power prices and natural gas prices.

Movement in working capital.

Yes.

Cost to replace the <unk>.

The policy.

Good afternoon potash outage.

Down and yet you kept the guidance range. So what's what's the offset to these positive drivers.

Yes, no Angie I mean.

I am glad that you are.

Went down the list because when I think of Aqua <unk> thousand 23, I would say that is more conservative than we have.

And in talking about <unk> not.

Not only from what we control. So if you think about the characteristics of our plants the assumptions that we used in our forecast are more conservative. We have also and we have also remember now. This is the second year that we have increased maintenance capex of our clients. So we expect greater reliability on them and.

There is a lot of.

Tailwind.

On our on our guidance you already mentioned the dynamics in the east where prices or the default service utility providers are much higher and I think we're going to have a great opportunity to.

Gained market share with a falling gas prices that creates really good environment for us for managed managing our retail margin. So all of this is positive now let's just it's only February right. So.

I E.

I want to make sure that we see at least a couple of months and we have greater visibility on the rest of the year before we can provide you.

Additional adjustments, but I think it's fair to say that I feel.

I'm very confident that we can achieve our guidance that perhaps we are erring on the conservative side.

With a number I think it is I think is prudent given the.

Type of volatility and extreme weather that we have seen in the past couple of years.

Alright.

That's good to hear.

Okay.

Okay and then.

On the PJM capacity.

Penalties. So is my understanding of the disclosures that.

But the generation companies have provided by PJM on Friday.

Talked about penalty, so any sort of bonus capacity payments.

Haven't been disclosed disclosed calculated so so I know that Thats, a 22 issue, but just talk to US about how you are you accounting for those offsets could be.

The penalties on the capacity side.

Sure I'll, let Alberto Culver.

Yes.

It is.

From the penalty side is relatively simple because we have consider based on our records what is the potential for mlps and take those into account on the bonus side. There is lots of variables, including potential bankruptcy that can change that.

Can change as the amount of debt will be distributed and therefore, what we have done with the limited information available. We have estimated would be the best case scenario.

The worst case scenario.

We have chosen a level we're comfortable.

Therefore at the end of the day risk adjusted the bonus for.

That we could get at the end of this process, we will know more in the.

In the next months, but we are comfortable that we have done so.

So I think it's fair to say that penalties, we have taken all of them into consideration on bonuses, we need more information from PJM. So we have risk adjusted that more of that.

Okay, and then lastly, so when you announced the then there was the plan to execute on share buybacks are pretty meaningful.

$360 million.

Looking at the share count you haven't done it.

I understand that there is a plan for 'twenty three to finish that billion dollar.

The share buyback allocation.

So just talk to me about the timing why it hasnt happened yet what are you waiting for the proceeds from our store, yes is it somewhat of a reflection of the.

Free cash flow generation for 'twenty, two and again, just just lastly about when we should expect those buybacks to happen.

Yes, no I mean thats correct. So my expectation on variable comp this year, and obviously being very consistent with our capital allocation principles.

We want to focus first on achieving our credit.

My commitment to everybody is that we will execute them, but we need to cloud first assurance is that we have.

<unk>.

But we meet our.

Our procurement our credit metrics on that.

Cash available so that's about solid we're thinking about it.

So it is not bad.

The fact that you deferred the buybacks.

Now in no way does that reduce the amount of financing that you will need to raise for the vivendi transaction no.

Okay. Thank you.

Thank you Ed.

Thank you.

Our next question comes from David or Karl with Morgan Stanley You May proceed.

Hey, good morning, Thanks for taking my question.

Good morning, David.

I was wondering if you could elaborate on what assets might be considered for sale and what the potential timing might look like in terms of executing any processes related to that.

Yes, David so.

We are actually have been optimizing our portfolio now for a number of years I think we have a pretty good track record on doing that and the way I think commodities you have core assets and noncore assets right. So core assets are.

Whatever helps us to best serve our customers.

And if there is an asset that's awesome.

<unk> function, then it becomes a noncore asset.

We'll look at.

Monetizing that there is a second set of things that he's very phenomenon that is more valuable in somebody else's business, we will definitely take a look at that.

And evaluate all the options. So what I can tell you is this is an ongoing process we saw.

So and monetize some assets last year, we're going to do that what I wanted to be able to provide you more specificity around the the amount that we are targeting and that these will be executed.

Throughout 2023 in terms of timing obviously these will require two people coming to an agreement and but we will be updating you as soon as we have available information.

Okay. Thanks, that's helpful.

And then I was wondering if you could speak a bit to just fleet reliability and resilience here I'm wondering.

Yes, David So when you think about.

Medium term Ppas and then the third one is obviously you complement that with market purchases.

Today, we are roughly 50% of the megawatts that we serve.

We supply with our own generation of 50%.

Third party data.

Pulse our purchases so what we have done on the on our own generation is twofold number one we have been a little bit more conservative when we run our forecast and what we use to hedge out where our LOE in peso black characteristics and that gives us a little.

More push on so we're self insuring. The second thing is we have actually invested additional maintenance capex to increase the reliability of the units specifically in areas, where we have seen.

No issues during scarcity conditions. So those two things really mitigate what I describe as the operational risk on our.

On our units.

The other the other tool, we actually trades as these operational risk or counterparty risk credit risk. So while it's perhaps more firmer in parts of the megawatts you'd also we have the multicore.

The health of the entities that were that were transacting with so what I like about this approach is that we're diversifying our our risk that is not a <unk>.

All generation all operational risk so we actually we actually diversify our risk and this one was one of the big lessons with our star view of it so I feel very comfortable the risk adjustment that we have made.

And then lastly.

So hedging our loads were being a little bit more conservative so were leaning perhaps.

Longer than we have done in the past and to make sure that we manage some of the.

Scarcity.

Periods, where we see higher low, but obviously you cannot the risk completely the business because it would be cost prohibitive.

We are being very very intense amount very thoughtful about.

Okay got it that makes sense. Thanks, so much.

Thank you Dave.

Thank you.

Our final question comes from Steve Fleishman with Wolfe Research you May proceed.

Yeah.

Thanks, I appreciate the time.

Just one question on.

<unk> ratio.

Question on the 2023.

Kind of base pre Vivian.

What are you what are you assuming in there I guess, obviously, you're expecting a big recovery from 'twenty, two and some of the issues, but what are you.

Assuming in there for.

Outages any lingering outages.

And then related insurance money.

And then also are you, including any asset sale gains or losses and in the guidance for 'twenty three I think you've sold the story already.

Some price.

Yes, so I'll just talk about that.

Yes, so we already sold a story let me just give you my view on the on the 2023 guidance, which I started talking about it and then I'll pass it off Roberto to tell you exactly what's in and out but.

The way to think about that.

7003 Cvs.

More conservative forecast that we have done in the past both from an operational characteristics of the power plants.

Our managing our retail load.

But also because of the dynamics that existed in 2022 of our thumb exist today like if you remember we have the supply chain issues.

Chemicals has updated for the most part.

Falling to stable natural gas prices now that allows us to better manage our retail margins, which are a a.

<unk>.

An environment in the east, where we feel very comfortable that we can gain market share.

On our retail business. So I think in general I would I would say that 2023 is a lot more conservative the guidance is right on top of what we provided to you back at Investor Day, when you adjust for asset sales, which we provided you the bridge.

<unk> been so actually in the in the Investor day back in <unk>.

The ins and outs given the portfolio optimization that we have done and we're literally on top of where we should have been so.

Two things one I feel very confident that BCS in line with what we provided you on tool that is taking were taken a little bit more of a conservative approach and so the number obviously, we will update you throughout the year, but just keep in mind that we're just at the beginning of the year, but I don't know if there is anything else that we need to.

Yes.

Parish, Paris, like outage cost insurance and <unk>.

Yes.

Could you identify what's in the guidance for those.

So in the guidance, obviously, we have the.

Paresh studies not in the first half of the year, because it's on outage, but I will tell you in Paris, and I think thats, probably the largest risk.

The progress that we have made is pretty significant as a matter of fact I think just last week, we got the generator now on site and has been lifted and put in the in the deck. So we're making really really good progress on what I'm seeing today I'm confident that we will come back.

Time, obviously, the commercial team is monitoring very closely that with the plan. If there is any delays or there is any acceleration that we.

Are there mitigating risk in the market or that we take advantage if it comes in.

Earlier, but.

Sure.

It's already embedded in guidance, Alberta, yes, it will just be a little bit more specific Steve regarding the padding as soon as data. We said that there is no impact in 2023 and the reason is because of the impact of the unavailability of the plant was matched by business insurance, we have received a little bit.

More than the business issue that stating that 2022, however, we have recalculating the margin and net net it's still completely agile by the the loss margin easy hazard by what we're going to receive as insurance and therefore, no change compared to the prior <unk>.

<unk>.

Which was in the third quarter when we provided today.

<unk>.

And then asset sales.

The asset sales, we expect that our story basically.

Future is happening in January .

Yes.

We are done.

And for the moment until that there are news.

We are not adjusting.

But it is already has already been taken annual cardiovascular has been has been considered because already showed.

Should that happen at the end of 2022 at that in just a few days after 'twenty three and we took the full consideration in our guidance.

Okay, and how much is that.

I would like to fairly fairly small.

The full impact.

Consider that we have a tool for remaining short period. So it's very very small.

Okay, great. Thank you I appreciate it so it's really the core business, yes. Thanks.

Yes, Thank you Steve.

Okay.

Thank you. This concludes the Q&A session I would now like to turn the call back over to Mauricio Gutierrez for any closing remarks.

Thank you. Thank you for your interest in NRG and I look forward to updating you.

Once we close that transaction on <unk>.

Thank you.

Okay.

Thank you ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.

Q4 2022 NRG Energy Inc Earnings Call

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