Nrg Energy, Inc. · NYSE:NRG
Nrg Energy — Merger or Acquisition (July 2009)
46 slides from Nrg Energy's merger presentation, Jul 8, 2009
Slide 1: Exelon Offer to NRG Shareholders: The Price Remains Inadequate
Exelon Offer to NRG Shareholders: July 8, 2009 The Price Remains Inadequate... But There is a Basis for More
Slide 2: Safe Harbor Statement
Safe Harbor Statement Important Information In connection with its 2009 Annual Meeting of Stockholders (the "2009 Annual Meeting"), NRG Energy, Inc. ("NRG") has filed a definitive proxy statement on Schedule 14A with the Securities and Exchange Commission (the "SEC"). INVESTORS AND STOCKHOLDERS OF N
Slide 3: Agenda
Agenda I. Exelon Revised Offer for NRG: Inadequate Value Growth Prospects Combination Risks and Opportunities II. NRG Business Update: Operational Performance Commercial Operations Financial Outlook
Slide 4: Exelon's Offer vs. NRG's Value
Exelon's Offer vs. NRG's Value
Slide 5: NRG Response to Exelon's Improved Offer
I. NRG Response to Exelon's Improved Offer Exelon's revised offer remains unacceptable as it still does not adequately reflect NRG's value proposition and growth potential relative to Exelon's own prospects Exelon's increase is driven by incremental synergies which, if substantiated and fairly share
Slide 6: Value: Market Premiums -- Fact vs Fiction
A. Value: Market Premiums -- Fact vs Fiction Exelon's indicative premium is based on hypothetical stock price performance derived from imperfect peers Ignores negative impacts to EXC's earnings and growth outlook Ignores all the positive events affecting NRG stock price since Exelon offer Ignores NR
Slide 7: Inadequate Value: Free Cash Flow Contribution
A. Inadequate Value: Free Cash Flow Contribution Free Cash Flow dilution to NRG stockholders applies in any year in the short and long term A great deal for Exelon stockholders; still negative for NRG stockholders (1) Source: Sell-side research; (2) FCF defined as Cash from Operations less maintenan
Slide 8: Implied Value of NRG per Share
$26.91 / Share (7) NRG Other Growth Projects and International Assets (4) (5) (1) Implied value of NRG valuing Texas baseload assets at $3000+/kw sourced from Exelon presentation dated February 2, 2009. Per share value assumes 275M shares outstanding. (2) Replacement cost for assets other than Texas
Slide 9: Inadequate Value: NRG Growth Building Blocks
$0.10/ NRG share $1.00/ NRG share A. Inadequate Value: NRG Growth: Building Blocks to Success Exelon's offer has a long way to go in terms of adequately acknowledging NRG's growth Intrinsic Growth Core Assets 550 MW Cedar Bayou 4 500 MW eSolar Solar Thermal 400 MW GenConn 150 MW Wind Langford 120 MW
Slide 10: Growth: Reliant Energy Retail Materially Undervalued by Exelon
Mid-cycle adjusted EBITDA run rate Implied equity value/share(1) at EBITDA multiples of: Reliant projected contribution for eight months of 2009: B. Growth: Reliant Energy retail Materially Undervalued by Exelon Leading provider of electricity and energy services in ERCOT Highest ranking in overall
Slide 11: Growth: NINA's Unique Value of Leading the Nuclear Renaissance
B. Growth: NINA's Unique Value of Leading the Nuclear Renaissance NRG leading position in nuclear is definitely worth more than zero Recent Developments Comparative Advantage NRC Schedule for STP 3&4 issued Open book period followed by Fixed Price Turnkey construction period provides price certainty
Slide 12: NRG's Future Growth Based on Proven History of Delivering
NRG Classic ForNRG West Texas Hedge Reset Texas Genco Acquisition Repowering 2008 514 714 726 1810 2269 activity 514 200 12 1084 459 30 2291 negative activity .... for which we believe NRG stockholders should derive and retain the benefits B. Growth: NRG's Future Growth is Based on a Proven History
Slide 13: Combination: Synergies
C. Combination: Synergies - Potentially Positive for Both Companies' Shareholders... .... but unclear how Exelon extracts this level of synergies out of NRG Amounts ($ in millions) Exelon: Economist and Consultants' View Cost Synergy Categories NRG Management's Initial View
Slide 14: Combination: Exelon Synergies Once Firmed Up
.... A solid rationale for Exelon to pay much more for NRG than 0.545x C. Combination: Exelon Synergies: Once Firmed Up... (1) Based on 0.545x exchange ratio and Exelon's 7/1/09 share price of $51.56, 275M NRG shares outstanding. (2) EXC's announced synergies allocated to NRG per page 10 of EXC's 7/
Slide 15: Combination: Exelon's Revised Asset Divestiture Plan
C. Combination: Exelon's "Revised" Asset Divestiture Plan This is Not the Best Market to be a Forced Seller of Assets Previous Plan Revised Plan EXC ERCOT 2400 2400 EXC Contracts 1200 1200 NRG PJM-E 1000 1000 NRG South Central 0 2400 NRG International 0 1000 ". . . we question whether EXC can achiev
Slide 16: Summary
Summary We believe Exelon's offer, on October 19, 2008, made during the nadir of the financial crisis, grossly undervalued NRG Since that time, NRG has created substantial additional shareholder value on an absolute basis and on a comparative (to Exelon) basis, which is not recognized in Exelon's or
Slide 17: Business Update
NRG ) Business Update
Slide 18: Midyear Business Update
II. Midyear Business Update Operational Performance Safety Performance - top quartile YTD Texas Baseload Fleet - top decile performance availability and reliability FORNRG2.0 2009 Goal - Achieved in June 2009 Commercial Operations Integrated Retail Supply into Commercial Operations Comprehensive Ris
Slide 19: Operations Update
A. Operations Update 2005 2006 2007 2008 2009 YTD* 2.92 2.04 1.63 0.84 1.35 1.53 2009 2010 2011 2012 20 47 73 100 23 23 23 23 Operating Excellence OSHA Recordable Rate - Exceeds Top Quartile Preliminary Estimate YTD through June 2009 2.92 2.04 1.63 0.84 1.35 Top Quartile 1.52 20 bps 47 bps 73 bps 10
Slide 20: STPNOC STP 1&2 Nuclear Operations vs. Peers
Dummy Range 5-year Average STP (2) 0.903 0.1127 0.969 EXC (17) 0.93455 0.0089 0.938 CEG (5) 0.92455 0.01555 0.933 ETR (11) 0.895 0.024 0.908 PGN (5) 0.8945 0.043 0.903 D (7) 0.888 0.026 0.902 SO (6) 0.889 0.0405 0.902 TVA (5) 0.883 0.049 0.895 FPL (6) 0.873 0.035 0.885 DUK (7) 0.873 0.009 0.877 Non-
Slide 21: Managing Commodity Price Risk
B. Managing Commodity Price Risk Baseload Hedge Position1,2 Opportunistic and collateral efficient hedging 1 Portfolio as of 7/01/2009; 2009 values reflect positions from August 09 through December 09 only 2 "New Hedges" represents hedged positions added since Q1'09 (as of 4/09/2009) Baseload Gas Pr
Slide 22: Reliant Energy Retail Update
C. Reliant Energy retail Update Integration and Risk Management C&I sales channels restarted and generating profitable growth C&I margins improving Restarted mass sales channels at full force Managing mass business to reduce customer attrition Leading retail franchise backed by Texas generation asse
Slide 23: 2009 Guidance
C. 2009 Guidance Note: Cash Flow Yield based on common stock share price of $22.08 as of July 7, 2009 23% Recurring Free Cash Flow Yield $5.13 Recurring Free Cash Flow Per Share Note: Adjusted EBITDA Guidance excludes Exelon defense costs and Reliant retail transaction and integration expenses Recor
Slide 24: Financial Summary: First Half of 2009
C. Financial Summary: First Half of 2009 Adjusted EBITDA Guidance increased to $2.5 billion Over $200 million of EBITDA generated from Reliant Energy retail in first two months Hedging program insulates Wholesale business Liquidity Increased $1.0 billion to more than $4.0 billion Bond proceeds of $6
Slide 25: 2009E IPP EBITDA Multiples
C. 2009E IPP EBITDA Multiples NRG Pre Increase NRG Post Increase CPN MIR RRI DYN Multiple 6.2 5.4 8.9 4.4 11.8 8.9 Weighted Peer Average 8.5 8.5 8.5 8.5 8.5 8.5 As a result of the increased guidance, NRG's EBITDA multiple is further disconnected from other IPPs "Exelon acknowledges that the value of
Slide 26: Closing Remarks
NRG ) Closing Remarks
Slide 27: NRG: A Track Record of Growth and Financial Success
2004 2005 2006 2007 2008 2009E EBITDA 0.976 0.731 1.502 2.279 2.291 2.5 Stock Price 18.03 23.56 28.01 43.34 23.33 22.08 Adjusted CFO 0.71 0.489 0.923 1.633 1.5 1.769 Financial Performance Focused on Cash Generation ... .... with substantial benefits realized by shareholders until the market dislocat
Slide 28: Appendix
NRG ) APPENDIX
Slide 29: Waxman-Markey Summary and Implications
Waxman-Markey Summary and Implications Passed in the House of Representatives on June 26th by a vote of 219-212 Emissions targets of 2005 base are 97% by 2012, 83% by 2020, 58% by 2030 and 17% by 2050 Allocations: Formula allocates about 40% of historical emissions to merchant coal in first year Dec
Slide 30: Will Waxman-Markey Pass in the Senate?
Will Waxman-Markey Pass in the Senate? Arguments for Passage in Senate Arguments Against Passage in Senate "Rowe's assessment of the likelihood of passage was...less than a 50/50 chance of passage by the Senate" - - Sanford Bernstein 6/10/2009 Momentum from passage by the House Strong support from P
Slide 31: Multiple Risks to Exelon's Carbon Value Proposition
Multiple Risks to Exelon's Carbon Value Proposition Exelon shows attractive carbon upside to shareholders ... .... but their scenarios don't consider a broad enough set of outcomes Carbon bill passage is not a given If passed, it will include a renewable standard, bringing wind from Dakotas into Chi
Slide 32: NRG Path for Cost Certainty on New Nuclear
NRG Path for Cost Certainty on New Nuclear NRG Path for Cost Certainty on New Nuclear Exelon's examples cited for comparison of overnight costs are not comparable to NRG estimate All projects are First of a Kind Engineering with unproven records of construction or operation vs that of NRG's ABWR tec
Slide 33: Exelon Nuclear Uprates vs. NRG's STP 3&4
Exelon Uprates(1) NRG STP 3&4 Peak New MWs 1,326 1,080 MW Years (MWs available each year times number of years) 35,026 66,420 Overnight Cost ($M) $3,500 $4,000 Average Cost per kw ($) $2,600 $3,700 Cost per KW Year ($) $99 $60 Recourse Capital ($M) $3,500 $600(2) Recourse Capital per kw ($) $2,600 $
Slide 34: Creating Cost Certainty - Overnight Reference
Creating Cost Certainty - Overnight Reference Significant risk mitigation by selecting ABWR technology which has been built four times Provides history of full engineering and nearly all quantities required for construction are known NRG will have a closed book, fixed price contract at financial clo
Slide 35: Develop Nuclear Off the Balance Sheet
The Right Way to Develop Nuclear is OFF the Balance Sheet, Not ON it CPS $4 B NINA (with new partner) $6 B 40% 60% $10 B US & Japan Loan $4.8 B NINA Equity $1.2 B $6 B 80% 20% Representative Project Cost and Sources of Funds (1) NINA Share Equity Sources Toshiba $300 MM NRG $600 MM $1.2 B New Partne
Slide 36: EPC Contract Executed
EPC Contract Executed EPC Contract executed by all parties on February 24, 2009 Key features include: Open book period followed by Fixed Price Turnkey construction period Contractual terms substantially the same as large fossil project Subcontract between Fluor and Toshiba completed Other benefits u
Slide 37: Nuclear Supply Chain
The lack of a mature supply chain in the US and limited capacity of supply globally for critical components is a significant challenge for most new nuclear technologies, except the ABWR Non-US Sourced Digital I&C NSSS Components Reactor Pressure Vessel Steam Generators Reactor coolant pumps Turbine
Slide 38: Training and Recruiting; Location
Training and Recruiting Increase in refining, petrochemical, and power projects has catalyzed recruitment and vocational training initiatives STPNOC, partnered with training schools, has initiated nuclear specific training programs Location Texas projects are "open shop" which have proven to have hi
Slide 39: Toshiba's BWR and ABWR Experience
Toshiba's BWR and ABWR Experience 1970 1975 1980 1985 1990 1995 2000 2005 2010 1965 1960 Under Construction Plants in Operation Planning Fukushima Daiichi 1 Hamaoka 1 Fukushima Daiichi 5 Fukushima Daiichi 6 Hamaoka 2 Onagawa 1 Hamaoka 3 Kashiwazaki Kariwa 2 Hamaoka 4 Onagawa 2 Onagawa 3 Hamaoka 5 Fu
Slide 40: STPNOC: Top Nuclear Power Operator
STPNOC is a top nuclear power operator with a performance record equal to top fleet operators STPNOC: Industry Leader Productivity Top decile marginal cost per EUCG Low Fuel cost One of the lowest reported production cost (1.35¢/kwh) Highest producing two-unit nuclear plant (out of 33) three years i
Slide 41: Analyzing Key Exelon Growth Driver
Analyzing Key Exelon "Growth" Driver(1) Current ExGen Contract Exelon's "prediction"2 of average PECO Rates 1. Exelon February investor presentation, page 9 2. Exelon EEI Conference November 2008 page 73. Exelon estimate on energy and capacity 3. Exelon Press release. ExGen winning offers. 6/17/09.
Slide 42: RPM Capacity Auction Results in PJM
RPM Capacity Auction results in PJM: "norm" for RTO? "The results of the recent RPM capacity auction are not anticipated to reflect a new 'norm' due to an anticipated market response to low clearing prices and rule changes for demand response bidding" Exelon Investor Presentation, July 2009 Pg. 41 1
Slide 43: Federal Renewable Standards in Midwest and PJM
Federal Renewable Standards could require 80-100 GW of renewable generation in the Midwest and PJM regions CREZ Transmission Green Power Express Transmission 12008 PJM and MISO demand grown at 1%/year to 1350 TWh/year, 20% RES requirement = 270 TWh of REC volume to meet 20% RPS requirement; To meet
Slide 44: Natural Gas Impact and Heat Rate Impact
Natural Gas Impact Heat Rate Impact Increasing long-term natural gas prices. 2014 Henry Hub up $0.20 EXC Markets: Exelon Gross Margin Appears to be Under Severe Pressure Exelon appears to be forward hedging into sharply declining heat rate market Capacity Auction Impact $/MW-day ($1,090M)(2) $236M(3
Slide 45: Negative Impact of Market Changes on Exchange Ratio
Negative Impact of Market and Portfolio Changes on Exchange Ratio- Exelon Gross Margin Impacts Market and other changes affecting Exelon since 10/17/08 would imply a 19% increase in the Exchange Offer ratio Implied Changes in Exchange Ratio(1) Gross Margin (2) Pension Liability (3) PJM Capacity (2)
Slide 46: Conference Call Transcript
NRG PRESENTATION Operator Good day, ladies and gentlemen, and welcome to the NRG Energy conference call to discuss Exelon’s revised unsolicited proposal and upcoming annual stockholders’ meeting. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer se