Nrg Energy, Inc. · NYSE:NRG
Nrg Energy — Proxy Contest (June 2009)
37 slides from Nrg Energy's proxy contest presentation, Jun 17, 2009
Slide 1: Exelon's Exchange Offer for NRG: Unchanged and Unpersuasive
Exelon's Exchange Offer for NRG: Unchanged and Unpersuasive Investor Meetings June 2009 Assessing Developments in the Relative Value and Prospects of Exelon and NRG since the Launch of Exelon's Hostile Takeover Attempt in October 2008
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: Exelon-NRG -- Current Status
Exelon-NRG -- Current Status The third expiration date of Exelon's conditional "exchange offer" is June 26, 2009 While the third expiration date will not result in the actual exchange of a single NRG share into Exelon shares any more than the first or second expiration date did, the outcome will be
Slide 4: On the Other Hand, NRG has...
On the Other Hand, NRG has... ....Over the past three months: Succeeded in acquiring the retail electricity business of RRI Energy in a strategically complementary and significantly value accretive transaction Succeeded in sale of MIBRAG (June 10, 2009), our German lignite business, at significant v
Slide 5: Comparative Value Analysis
Comparative Value Analysis NRG
Slide 6: Exelon Gross Margin Outlook: Heat Rate Contraction in PJM
Exelon Gross Margin Outlook: Heat Rate Contraction in PJM Heat rate contraction in NIHub and PJM East: Recession: Destruction of Midwestern industrial production weakening near term fundamentals Major wind projects are being priced into heat rates. 100+ GW of wind projects in PJM and MISO interconne
Slide 7: Exelon Gross Margin Outlook: Capacity Auction Results in PJM
Exelon Gross Margin Outlook: Capacity Auction Results in PJM PJM RPM Auction Results ($/MW-day) Exelon Unforced Capacity, UCAP (MW)1 11,400 1,403 8,888 21,700 Capacity Revenue (Unhedged portfolio) 2011 / 2012 $458.8 $56.5 $357.7 $873.1 2012 / 2013 68.5 68.3 453.3 590.1 Projected Change in Gross Marg
Slide 8: NRG Gross Margin Outlook: NG and HR in Texas
NRG Gross Margin Outlook: NG and HR in Texas Reliant Transaction: Balanced portfolio positioned to offset short term market contraction and manage long term heat rate position Carbon Legislation: Increased policy clarity implies lower CO2 prices and continued support for allocations to initially hol
Slide 9: Gross Margin Trends: Exelon vs. NRG
Gross Margin Trends: Exelon vs. NRG Impact to energy margin due to contraction in heat rates and increase in natural gas drive a $6.60/share negative impact to Exelon Source: NRG analysis, based on Exelon disclosure before and after 10/17/08. Exelon generation from 2008 Fact Book on Exelon Investor
Slide 10: Implied Changes in Exchange Ratio
Implied Changes in Exchange Ratio(1) Impact of Market and Portfolio Changes on Exchange Ratio Source: NRG analysis, based on Exelon disclosure before and after 10/17/08. Notes: (1) Represents selected factors that impact the Exchange Ratio for illustrative purposes and is not representative of all f
Slide 11: Dilutive Effect of Exelon's Potentially Massive Equity Issuance
.... And that is Before Taking into Account the Dilutive Effect of Exelon's Potentially Massive Equity Issuance NRG Ownership Exchange Ratio Exelon's Offer on 10/17 16.9% 0.485x Effective Offer(2) Adjusted for Scenario of: Effective Offer(2) Adjusted for Scenario of: Effective Offer(2) Adjusted for
Slide 12: The Shrinking Exchange Offer
The Shrinking Exchange Offer 10/19/08 Exelon's original offer 0.485 at $55(1) /ps = 6/12/09 Exelon's offer today 0.485 at $50(2) /ps = Future Exelon's effective offer 0.455 at $50(2) /ps = if issues $2 billion of new equity to fund its credit rating aspirations $26/ share $24/ share $23/ share With
Slide 13: Exelon Nuclear Uprates vs. NRG's Advanced Nuclear Project (STP 3&4)
Exelon Uprates(1) NRG STP 3&4 Peak New MWs 1,326 1080 MW Years (MWs available each year times number of years) 35,026 66,420 Overnight Cost ($ MM) $3,500 $4,000 Average Cost per KW ($) $2,600 $3,700 Cost per KW Year ($) $99 $60 Recourse Capital ($ MM) $3,500 $500 Recourse Capital per KW ($) $2,600 $
Slide 14: Where Does Each Company's Growth Initiative Lead?
Where Does Each Company's Growth Initiative Lead? For NRG: For Exelon: NRG's First Mover Advantage in new nuclear can be realized in multiple ways ? Leadership in the Nuclear Renaissance with follow on value drivers in additional projects, intellectual property and development knowhow, construction
Slide 15: Trading Value: Exelon is Not "Propping Up" NRG's Share Price
Trading Value: Exelon is Not "Propping Up" NRG's Share Price THEN: Exelon in its own words NOW NOW: Should Exelon choose to update their statements... "Assuming that NRG's stock price maintained its historic relationship to movement in the IPP index, NRG stock would have declined ~16% since October
Slide 16: Four Key Investor Factors
Four Key Investor Factors NRG
Slide 17: Four Key Factors
Four Key Factors 1. Value Equation Key Questions Trend Favors Which company over the last six months has executed on its plan to deliver enhanced value to its shareholders? 2. The Washington Factor 3. Hedging Program Which company's hedge position provides greater protection through the current comm
Slide 18: Factor 1: Value Equation: Free Cash Flow
Factor 1: Value Equation: Free Cash Flow THEN: Exelon in its own words NOW "NRG's position [with respect to Free Cash Flow dilution] is only for a single year [2008]" and... "ignores PECO PPA roll-off in 2011 and Exelon carbon uplift"1 Free Cash Flow dilution to NRG shareholders Implied Exchange Rat
Slide 19: Waxman-Markey generally tracks USCAP Blueprint
Waxman-Markey generally tracks USCAP Blueprint To achieve passage, legislation will need to accommodate coal state legislators Impact on Exelon will depend on state tolerance of EXC's carbon uplift; Impact on NRG will depend on our own success with RepoweringNRG Climate Change Federal RES is progres
Slide 20: Factor 2: Washington Legislation - Climate Change
Factor 2: Washington Legislation - Climate Change THEN: Exelon in its own words NOW "If passed, John Rowe calculates the Waxman-Markey bill will add $700 to $750 million to Exelon's annual revenues for every $10 per metric ton (Mt) increase in the price of CO2 allowances" -- Hugh Wynne, Bernstein Re
Slide 21: Factor 2: Washington Legislation -- Renewables
Factor 2: Washington Legislation -- Renewables Both Senate and House are reaching compromises on Renewable Energy Standards Key features likely to include up to 20% of all energy delivered must be met by renewables, with 5% to 8% achievable by efficiency and "carve outs" for new nuclear Federal tran
Slide 22: Factor 3: Hedging Programs Compared: NRG
Factor 3: Hedging Programs Compared: NRG vs... THEN and NOW: Consistent Guidance on Hedge Profile(1) "We raised power producer NRG Energy's corporate credit rating reflective of our view of standalone credit quality... The upgrade is unusually timed amidst sharply lower gas prices, but reflects expe
Slide 23: Factor 3: Exelon Hedging
Factor 3: Exelon (1) Midpoint of expected generation hedged for each year as disclosed in April 15, 2009 Exelon Generation Hedging Program presentation Open Generation Much less hedged volumetrically 2011 onwards "Mitigating near-term cash flow volatility is a high level of physical hedges in 2009 a
Slide 24: Factor 4: Allocation of Capital
Factor 4: Allocation of Capital THEN: Exelon in its own words NOW NOW We believe the market will likely discount NRG's standalone growth prospects given: NRG's development model requires external solutions that as a standalone company it cannot implement on its own; and The potential cost to finance
Slide 25: Factor 4: Allocation of Capital -- Reliant Retail Valuation
Factor 4: Allocation of Capital -- Reliant Retail Valuation Using an EBITDA multiple of 5x - the ongoing implied equity value of the Reliant acquisition is $4.50 per share Purchase Price $288 Working Capital Adjustment 82 Total Purchase Price $370 Gross Margin1 $670 O&M and G&A ~420 Reliant Energy a
Slide 26: Four Key Factors
Four Key Factors 1. Value Equation Key Questions Trend Favors Which company over the last six months has executed on its plan to deliver enhanced value to its shareholders? 2. The Washington Factor Will climate and other energy legislation likely out of Washington, in aggregate, favor NRG or Exelon?
Slide 27: Appendix
NRG ) APPENDIX
Slide 28: Factor 1: Analyzing Second Key Exelon Growth Driver
(1) Exelon February investor presentation, page 9; (2) Energy, capacity and transmission service; (3) Exelon EEI presentation, 11/10/08; (4) Energy and Capacity, excluding transmission FE's recent auction (5/15/09) demonstrated lower prices and lower load serving margins, far below Wall Street and p
Slide 29: Strategic Rationale - Exelon: Caught in a Rating Agency Vicious Cycle
Strategic Rationale - Exelon: Caught in a Rating Agency Vicious Cycle Exelon seeks to maintain an investment grade rating primarily for the benefit of its utility business, not for the benefit of its much larger competitive power generation business Issue Equity (to maintain standalone credit rating
Slide 30: Pre-Tax Run Rate Synergies
Pre-Tax Run Rate Synergies Year 2 + Annual Cash Impact to Combined Company in millions Note: Estimated synergies are midpoint of Exelon's range of $180 - $300mm per year; with one half of synergies realized in Year One, all synergies realized by Year Two. Transaction Costs, refinancing interest rate
Slide 31: Unfunded Pension and OPEB Has Created a Significant Issue for Exelon
YE 2007 Q1 2008 Q2 2008 Q3 2008 YE 2008 Q1 2009 NRG 247 245 252 225 262 EXC OPEB 2494 2470 2477 2472 6366 Strategic Rationale: Unfunded Pension and OPEB Has Created a Significant Issue for Exelon, but Not for NRG - - S&P 500 Given further market deterioration, EXC Pension liabilities likely have inc
Slide 32: Strategic Rationale - Risk Summary: Exelon Adds Risk Across the Board
Strategic Rationale - Risk Summary: Exelon Adds Risk Across the Board 2009 - 2010 2010 - 2011 Distraction Retention and recruiting Economic waste Opportunity cost of missed partnerships and acquisitions Financing Rating Agencies Regulatory Approvals Integration Management Experience Ratings Downgrad
Slide 33: Allocating Capital Prudently
1. Complementary business assets West Coast Power - 2006 Texas Genco - 2006 Reliant Retail - 2009 2. Repowering and Renewables Padoma Wind eSolar NINA GennConn & Other 3. Environmental & Maintenance Allocating Capital Prudently Cash from Operations Asset Sales Capital Allocation >$8 billion 2004-200
Slide 34: The Right Technology: Advanced Boiling Water Reactor (ABWR)
The Right Technology: Advanced Boiling Water Reactor (ABWR) ABWR technology has been commercially deployed for 10 years in Japan with plants built "on time and on budget." Proven Design: Timely Construction, Flawless Operation Already certified by NRC Four units successfully commissioned ABWR is the
Slide 35: More Specifically, What Is NRG's Downside Before COL?
More Specifically, What Is NRG's Downside Before COL? 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 Partner $300 MM The a
Slide 36: Creating Cost Certainty - Overnight Reference
Creating Cost Certainty - Overnight Reference NRG's choice of ABWR, with a fixed price contract, creates significantly more price certainty than other developers Significant risk mitigation by selecting ABWR technology which has been built four times Provides history of full engineering and nearly a
Slide 37: ZAK
ZAK NRG )