Slide 1: Exelon Offer to NRG Shareholders: The Price is Not Right
Exelon Offer to NRG Shareholders: July 1, 2009 The Price is Not Right
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: Overview
Overview 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 o
Slide 4: Financial Performance Focused on Cash Generation
2004 2005 2006 2007 2008 2009E EBITDA 0.976 0.731 1.502 2.279 2.291 2.2 Stock Price 18.03 23.56 28.01 43.34 23.33 24.95 Adjusted CFO 0.71 0.489 0.923 1.633 1.5 1.509 Financial Performance Focused on Cash Generation ... .... with substantial benefits realized by shareholders until the market dislocat
Slide 5: Agenda
Agenda I. NRG - Continuous Creation of Shareholder Value: Market Outlook Growth Plan Capital Allocation Blueprint II. Exelon Offer for NRG: Inadequate Value Market and Growth Outlook Combination Risks III. Conclusion / Next Steps
Slide 6: NRG is about Value Creation
I. NRG is about Value Creation... Market Outlook Growth Plan Capital Allocation Blueprint Insulated against near-term commodity weakness; poised for the rebound Nuclear led low carbon growth initiatives will become more valuable over time Return of substantial capital to shareholders through regular
Slide 7: NRG's Markets: Gas and Heat Rates Moving Gross Margin in our Favor
$5.29/share A. NRG's Markets: Gas and Heat Rates Moving Gross Margin in our Favor... Natural Gas NYMEX Henry Hub(1) ERCOT - Houston Zone Round the Clock Market Heat Rates1 ERCOT - Houston Zone Round the Clock Market Heat Rates1 (1) Source: ERCOT Houston zone forward market heat rate quotes and NYMEX
Slide 8: NRG Market Outlook: Strengthened Credit Standing
A. NRG Market Outlook: Strengthened Credit Standing Despite Current Environment "We raised power producer NRG Energy's corporate credit rating reflective of our view of standalone credit quality... The upgrade is unusually timed amidst sharply lower gas prices, but reflects expected strong and stabl
Slide 9: NRG Growth: Building Blocks to Success
B. NRG Growth: Building Blocks to Success Top quality, risk mitigated growth leads to shareholder value Intrinsic Growth Core Assets 550 MW Cedar Bayou 4 500 MW eSolar Solar Thermal 400 MW GenConn 150 MW Wind Langford 120 MW Wind Elbow Creek Repowering NRG Nuclear Renaissance STP 3&4 Follow-on proje
Slide 10: NRG Growth: Cost and Performance Improvements
2008 2005 2006 2007 2008 2013 EBITDA 8 100 150 220 258 87 FCF 60 90 132 155 FORNRG 1.0 EBITDA Improvements ($ In millions) O Top decile performance § Reliability § Availability O Revenue Opportunities O Top decile performance § Heat Rate O Procurement O Corporate O Improved inventory management O Re
Slide 11: NRG Growth: Vertical Integration Through Reliant Retail
B. NRG Growth: Vertical Integration Through Reliant Retail A Natural Strategic Fit for NRG Leading provider of electricity and energy services in ERCOT Highest ranking in overall residential customer satisfaction among 3 largest retailers Lowest in PUCT complaints Serves two groups of customers tota
Slide 12: NRG Growth: Repowering Initiative
B. NRG Growth: Repowering Initiative Advances Low to No Carbon Technologies NRG is investing in technologies that will underpin the businesses promoted by federal legislation for climate change and sustainability Project GenConn 400 MW Gas Peakers $534 million financing for GenConn projects meets al
Slide 13: NRG Growth: NINA's Unique Value of Leading the Nuclear Renaissance
B. NRG Growth: NINA's Unique Value of Leading the Nuclear Renaissance Toshiba Base Investment of $150mm for 12% of NINA Implies total value of NINA of $1.250 Billion (~ $4 per NRG Share) Recent Developments Comparative Advantage NRC Schedule for STP 3&4 issued Open book period followed by Fixed Pric
Slide 14: NRG Growth: The Right Way to Develop Nuclear
B. NRG Growth: The Right Way to Develop Nuclear 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 Maximize ec
Slide 15: NRG Growth: A Clear Charted Path
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 .... Creating value today and in the future for NRG shareholders B. NRG Growth: A Clear Charted Path... 2004 NRG Classic 1 2008 Current NRG N
Slide 16: NRG Capital Allocation: Proven Record & Future Plan
C. NRG Capital Allocation: Proven Record & Future Plan $330M approved as 2009 share repurchase program; $630M capacity under restricted payment basket $490M in 2009 Complete in 2009 $330M+ in share repurchases $430M plan debt paydown in 2009 625 MW brought on-line or under construction in 2009 2004-
Slide 17: Exelon's Offer vs. NRG's Value
Exelon's Offer vs. NRG's Value
Slide 18: Exelon's Offer is Deficient in Multiple Ways
II. Exelon's Offer is Deficient in Multiple Ways: This transaction is significantly cash flow dilutive to NRG shareholders as NRG produces 30% of the pro forma cash flows but will receive only 17% of the pro forma ownership through at least 2012 Exelon's offer represented a discount of 14% to NRG's
Slide 19: Inadequate Value: Exchange Ratio Represents a Discount, Not a Premium
4-Week Premium A. Inadequate Value: Exchange Ratio Represents a Discount, Not a Premium Exelon's approach to NRG occurred at close to a 2-year low trading ratio; the proposed exchange ratio is at a discount to the average historical trading ratio and is well below the premiums offered in precedent a
Slide 20: Inadequate Value: Free Cash Flow Contribution
A. Inadequate Value: Free Cash Flow Contribution Free Cash Flow dilution to NRG shareholders Implied Exchange Ratio 2012 2011 2010 2009 2008 East 27 27 30 34 31 West 73 73 70 66 69 Exelon Exchange Offer of 0.485 = Implied Ownership of 17% 34% 30% 66% 70% 1.237x 0.900x 2009E 2012E 27% 27% 2010E 2011E
Slide 21: Replacement Cost Value of NRG vs. Exelon Offer
Reflects change in value of exchange offer since 10/17/08 NRG Other Growth Projects and International Assets (4) (1) Offer pricing date of 10/17/2008. Current pricing date of 6/29/09. NRG diluted share count 276M. $3000+/kw sourced from Exelon presentation dated February 2, 2009 (2) Replacement cost
Slide 22: NRG shareholders are rejecting the EXC Offer
II. Exelon's Offer is Deficient in Multiple Ways: NRG shareholders are rejecting the EXC Offer: Only 12% tendered Clearly Inadequate Value for NRG Fails to Account for Exelon's Weakened Prospects Does Not Address Multiple Combination Risks This transaction is significantly cash flow dilutive to NRG
Slide 23: EXC Markets: NRG's Assets in More Attractive Power Markets
B. EXC Markets: NRG's Assets are Located in More Attractive Power Markets than Exelon's Businesses We believe NRG shareholders are best leveraged to benefit from Texas power market recovery as compared to other markets Note: wind derated to 10% of nameplate capacity Gas sets the marginal price of po
Slide 24: EXC Markets: Exelon Gross Margin Under Severe Pressure
Natural Gas Impact Heat Rate Impact Increasing long-term natural gas prices. 2014 Henry Hub up $0.20 B. 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) $236
Slide 25: Exelon's Hedge Position is Not What it was Once Touted to be
B. Exelon Markets: Exelon's Hedge Position is Not What it was Once Touted to be... (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
Slide 26: Exelon Markets: Washington Legislation - Climate Change
B. Exelon Markets: 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, Ber
Slide 27: Combination Risks: Exelon Thinks and Manages Like a Traditional Utility
II. Combination Risks: Exelon is a Competitive Power Company that Thinks, Acts, and Manages Like a Traditional Utility... ....And that is both risky and suboptimal from the point of view of value creation to the shareholders of NRG Clearly Inadequate Value for NRG Fails to Account for Exelon's Weake
Slide 28: Combination Risks: Synergies Offset by Transaction and Financing Costs
Pre-Tax Run Rate Synergies 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 and costs to implement synergies de
Slide 29: Combination Risks: Unfunded Pension and OPEB
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 C. Combination Risks: 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 in
Slide 30: Combination Risks: Negative Impact of Market Changes on Exchange Ratio
C. Combination Risks: Negative Impact of Market and Portfolio Changes on Exchange Ratio- Exelon Gross Margin Impacts Our Conclusion: Exelon's offer was inadequate to begin with, and keeps getting worse... Market and other changes affecting Exelon since 10/17/08 reflects an implied 21% increase in Ex
Slide 31: NRG Ownership and Exchange Ratio Scenarios
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 Scenario of: $1.0B Exelon Equity Issuance 16.4% 0.470x $2.0B Exelon Equity Issuance 16.0% 0.456x 3.1% 6.1% (2) 1
Slide 32: Combination Risks: NRG Generates Positive Cash Flows
....Which Exelon could drain for debt reductions triggered by higher-cost financing, transaction costs and to satisfy rating agencies (1) From Exelon's SEC filings and Q1 2009 Earnings Presentation dated 4/23/2009. (2) Includes one-time costs; See slide 27; costs are after-tax assuming at 39% (3) NR
Slide 33: Combination Risks: Exelon's Approach to Balance Sheet Management
Little, if any, capital will remain for NRG's growth opportunities Equity issuance will further dilute NRG stockholder ownership and FCF profile Asset sales in the worst possible environment since the Great Depression will yield suboptimal proceeds Will Exelon dividend need to be cut to reduce cash
Slide 34: Exelon in its own words: THEN and NOW
THEN: Exelon in its own words NOW NOW We believe the market will likely discount NRG's standalone growth prospects given: NRG's development model requires external solutions that as a standalone company it cannot implement on its own; and The potential cost to finance its development projects and th
Slide 35: Exelon Nuclear Uprates vs. NRG's STP 3&4
Exelon Uprates(1) NRG STP 3&4 Peak New MWs 1,326 1,080 MW Years (MWs available each year times number of years) 35,026 66,420 Overnight Cost ($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 36: Exelon's Flawed Rationale For The Hostile Transaction
Exelon's Flawed Rationale For The Hostile Transaction: Exelon's Arguments Bigger company has potential for greater share price appreciation Exelon's stock is more liquid Combined company would be more diversified, particularly geographically Combined company, with a better balance sheet, would be be
Slide 37: Next Steps: Exelon Raises Its Offer or Withdraws
Next Steps: Exelon Raises Its Offer or Withdraws
Slide 38: Next Steps: What We Believe the Market is Signaling
Next Steps: What We Believe the Market Signaling Relative Price Performance(1) Given underperformance versus peer group, we believe EXC's offer has constrained NRG share performance 1) Data includes trading period from 12/2/2003 through 6/29/2009; 2) 5 year average reflects period 12/2/2003 through
Slide 39: Next Steps: What NRG Will Do
Next Steps: What NRG Will Do ... .... if Exelon raises offer: The current NRG Board has the experience, the independence and the demonstrated business judgment to preside over all of the activities and make the right decisions for the benefit of shareholders ....if Exelon withdraws: Continue impleme
Slide 40: Appendix
NRG ) APPENDIX
Slide 41: NRG Board of Directors: Independent, Qualified, & Committed
NRG Board of Directors: Independent, Qualified, & Committed to NRG Stockholders Composition of NRG Board of Directors A five-year track record of stockholder value creation and returns, before broad market dislocation swamped the energy sector Independence: Most members selected by the creditors' co
Slide 42: Washington Legislation -- Renewables
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 transmission s
Slide 43: Nuclear Power at South Texas Project: Environmental and Energy Independence
Environmental Air Emission Displaced1 Energy Independence1 Nuclear power is the most efficient "zero carbon" power generation available Nuclear at STP Avoids 37.6 million barrels of oil/p.a. Avoids 177 bcf of gas/p.a. Avoids 13.1 million tons of coal/p.a. Avoids 8,100 MW or 202,500 acres of land for
Slide 44: Fundamentals Will Drive Commodity Price Recovery
Fundamentals Will Drive Commodity Price Recovery Near-term market constraints setting the stage for longer term recovery NG 12-month forward strip price ($/mmbtu) Source: Bloomberg 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 U.S. Gas Rig Count Recovery Drivers / T
Slide 45: NRG )
a A NRG )