NRG Energy (NRG) Q1 2025 Earnings Call May 12, 2025 09:00 AM ET Company Participants Kevin Cole - SVP, Corporate Finance – Treasury & IRLarry Coben - Chairman, CEO and PresidentBruce Chung - EVP & CFOShahriar Pourreza - Senior Managing Director - Head of Energy/Power/UtilitiesDavid Arcaro - Executive Director - Equity ResearchCarly Davenport - Vice President - Equity ResearchRasesh Patel - EVP, President of NRG Consumer Conference Call Participants Julien Dumoulin-Smith - Research AnalystSteve Fleishman - M ...

NRG Energy (NRG) Q1 2025 Earnings Call May 12, 2025 09:00 AM ET Company Participants Kevin Cole - SVP, Corporate Finance – Treasury & IRLarry Coben - Chairman, CEO and PresidentBruce Chung - EVP & CFOShahriar Pourreza - Senior Managing Director - Head of Energy/Power/UtilitiesDavid Arcaro - Executive Director - Equity ResearchCarly Davenport - Vice President - Equity ResearchRasesh Patel - EVP, President of NRG Consumer Conference Call Participants Julien Dumoulin-Smith - Research AnalystSteve Fleishman - M ...

Financial Data and Key Metrics Changes - NRG delivered the strongest first quarter adjusted EBITDA in company history, surpassing last year's record by 30% [8] - Adjusted EPS for the first quarter was $2.68, an 84% increase compared to the first quarter of last year [10][25] - Adjusted net income was $531 million and free cash flow before growth was $293 million, reflecting a significant increase from the previous year [25][26] Business Line Data and Key Metrics Changes - Each segment executed exceptionally in the first quarter, producing strong financial results over the prior year, driven by expanded margins and favorable weather [25][26] - The acquisition of the LS Power portfolio is expected to significantly expand earnings potential and enhance virtual power plant operations [8][14] Market Data and Key Metrics Changes - The acquisition adds approximately 11 gigawatts of natural gas-fired capacity in the East, with 75% in PJM, enhancing NRG's competitive position in key markets [16][20] - The company expects to generate enough output from its own plants to serve its residential retail load in Texas and produce more than twice the energy required for retail customers in PJM [18] Company Strategy and Development Direction - The acquisition reshapes NRG's competitive position, doubling its generation capacity and enhancing its ability to serve customers [8][14] - NRG is committed to a balanced capital allocation approach, targeting $1 billion in annual share repurchases while maintaining a strong balance sheet [22][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the acquisition's ability to capture value as markets tighten and customer demand for customized supply solutions increases [21][43] - The company anticipates a compound annual growth rate of 14% in adjusted EPS through 2029, reflecting contributions from the acquisition and existing growth plans [9][42] Other Important Information - The acquisition is valued at approximately $12 billion, with LS Power receiving $2.8 billion in equity, which will make them a significant shareholder in NRG [13][14] - NRG plans to reduce debt by $3.7 billion over the next 24 to 36 months post-acquisition [31][40] Q&A Session Summary Question: Clarification on EBITDA assumptions and Sea Power's contribution - Management chose to use previous pricing assumptions for simplicity, indicating that current market prices would yield significantly higher numbers [50] - Sea Power is expected to be a powerful tool, with synergies not factored into the initial EBITDA projections [51][53] Question: Strategic growth opportunities in retail - The acquisition provides optionality across customer bases, enabling customized long-term solutions [54] Question: Insights on Eastern market positioning - Management expressed confidence in the PJM market, citing tightening capacity markets and the potential for significant upside [66][67] Question: Path to deleveraging post-acquisition - The company expects to be around 3.5 times leverage after year one, gradually reducing to three times over the following two years [75] Question: Home VPP opportunity tracking - The home VPP initiative is tracking well, with strong consumer reception and significant growth in demand response capacity expected [95]

Financial Data and Key Metrics Changes - The company reported first quarter GAAP earnings of $0.56 per share, an increase from $0.42 per share in Q1 2024 [21] - Adjusted for special items, first quarter earnings from ongoing operations were $0.60 per share, an 11% increase from $0.54 per share a year ago [7][21] - The company remains confident in achieving its 2025 ongoing earnings forecast of $1.75 to $1.87 per share, with a midpoint of $1.81 per share [7] Business Line Data and Key Metrics Changes - Kentucky segment results increased by $0.05 per share compared to Q1 2024, driven by higher sales volumes due to mild weather [23] - Pennsylvania Regulated segment results increased by $0.03 per share, also due to higher sales volumes and increased transmission revenue from capital investments [23] - Rhode Island segment results decreased by $0.01 per share, primarily due to lower transmission revenues and higher operating costs [24] Market Data and Key Metrics Changes - In Pennsylvania, nearly 11 gigawatts of data center projects are in advanced planning stages, up from nearly 9 gigawatts [14] - The potential capital investment related to these data centers ranges from $700 million to $850 million, with $400 million already in the plan [15] - In Kentucky, the company is managing nearly 6 gigawatts of active data center requests, with recent legislative changes expected to attract more data centers [16] Company Strategy and Development Direction - The company is focused on its "Utility of the Future" strategy, which includes significant infrastructure improvements and capital investments [8] - Plans include over $4 billion in infrastructure improvements in 2025 to enhance grid reliability and resiliency [7] - The company aims for average annual rate base growth of 9.8% from 2025 to 2028, with a target of $20 billion in capital investment needs [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic uncertainties and trade tariffs, noting that 70% to 80% of capital projects are labor-based and most materials are sourced domestically [19] - The company is well-positioned to manage supply chain disruptions and is optimistic about achieving its long-term business plan [20] - Management highlighted ongoing economic development in Kentucky and the importance of new generation resources to support this growth [11] Other Important Information - The company filed a CPCN request with the Kentucky Public Service Commission for new generation needs and received regulatory approval for cost recovery related to the retirement of Mill Creek Unit 1 [9][10] - In Pennsylvania, the company secured approval to increase PPL Electric Utilities' DISC revenue cap to 7.5% [12] Q&A Session Summary Question: Advantages of resource adequacy legislation versus IPPs - Management discussed the limitations of the current capacity market and the benefits of a regulated utility model for stability and predictability in power pricing [31] Question: Consideration of block equity or ATM sufficiency - Management confirmed that the ATM program is the primary tool for equity needs, but they will remain opportunistic in assessing all options [35][36] Question: Impact of tariffs on battery storage projects - Management is actively working with vendors to minimize potential tariff impacts on battery projects and sees a need for these projects due to increasing demand [42] Question: Concerns regarding coal executive order and generation planning - Management does not expect immediate impacts from the executive order on generation planning but will analyze demand and retirement schedules [50] Question: Status of data center announcements in Pennsylvania - Management indicated that they are making progress on projects but do not control the timing of data center announcements [58] Question: Flexibility in large load tariff structures - Management expressed that they are already achieving objectives with existing ESA agreements and would want to maintain flexibility if a model tariff is introduced [62]