Slide 1: Exelon Offer for NRG: Then Low Value/High Risk, Now Lower Value/Higher Risk
Exelon Offer for NRG: Deutsche Bank May 27, 2009 Then -- Low Value / High Risk Now -- Lower Value / Higher Risk
Slide 2: Safe Harbor Statement
Safe Harbor Statement Important Information This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of proxy of any stockholder of NRG Energy, Inc. ("NRG"). NRG filed a preliminary proxy statement on Schedule 14A with the Securi
Slide 3: Exelon-NRG -- Current Status
Exelon-NRG -- Current Status After three months, Exelon's conditional "exchange offer" process is back with its third expiration date on June 26, 2009 While the third expiration date will not and can not result in the actual exchange of a single NRG share into Exelon shares any more than the first o
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 contracting for the sale of MIBRAG, our German lignite business, at significa
Slide 5: S&P Risk Factor and the Probability for Equity Issuance
S&P Risk Factor and the Probability for Equity Issuance: What it Means for NRG Stockholders 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 E
Slide 6: The Shrinking Exchange Offer
The Shrinking Exchange Offer 10/19/08 Exelon's original offer 0.485 at $55(1) /ps = 5/22/09 Exelon's offer today 0.485 at $47(2) /ps = Future Exelon's effective offer 0.454 at $47(2) /ps = if issues $2 billion of new equity to fund its credit rating aspirations $26/ share $23/ share $21/ share With
Slide 7: Trading Value
Trading Value THEN: Exelon in its own words NOW NOW: Should Exelon choose to update their statements... "Assuming that NRG's stock price maintained its historic relationship to movement in the IPP index, NRG stock would have declined ~16% since October 17, 2008 in the absence of the Exelon offer"1 (
Slide 8: Conclusion
Conclusion... Exelon should put an equitable (funded) offer on the table which offers appropriate value to NRG shareholders - or they should go away as their "coldblooded(1)" and "hardheaded value basis(1)" is, in fact, hurting the value proposition of both companies and their respective shareholder
Slide 9: Four Key Investor Factors
Four Key Investor Factors NRG
Slide 10: Four Key Factors
Four Key Factors 1. Value Equation Key Questions Trend Favors Which company over the last six months has executed on its plan to deliver enhanced value to its shareholders? 2. The Washington Factor 3. Hedging Program Which company's hedge position provides greater protection through the current comm
Slide 11: Factor 1: Value Equation: Free Cash Flow
Factor 1: Value Equation: Free Cash Flow THEN: Exelon in its own words NOW "NRG's position [with respect to Free Cash Flow dilution] is only for a single year [2008]" and... "ignores PECO PPA roll-off in 2011 and Exelon carbon uplift"1 Free Cash Flow dilution to NRG shareholders Implied Exchange Rat
Slide 12: Factor 1: Value Equation - First Key Exelon Growth Driver, PJM RPM
Factor 1: Value Equation - Analyzing First Key Exelon "Growth" Driver1 PJM RPM Auction Results ($/MW-day) Cash Flow uplift from RPM? NOW THEN 85% 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 / 20
Slide 13: Factor 1: Value Equation - Second Key Exelon Growth Driver, PECO PPA
(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 14: 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 15: Factor 2: Washington Legislation - Climate Change
Factor 2: Washington Legislation - Climate Change THEN: Exelon in its own words NOW If you take a look at Exelon on a standalone and you analyze us on a standalone from carbon, and you assume that we would get the full benefit of the potential value, it's about $1 billion for every $10 of tax, and t
Slide 16: 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 17: Factor 2: Washington Legislation -- Renewables Impact
PJM/MISO Renewable Standards: IL 25% by 2025; PA 20% by 2020; MN 25% by 2025 Renewable Penetration: PJM and MISO are far from meeting compliance requirements; serves about 2% of average demand Transmission: Green Power Express, $10-12 Bn cost, received conditional FERC approval; allows access to 12
Slide 18: 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 19: 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 20: 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 21: 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 22: 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 23: Key Takeaways
Key Takeaways Exelon's offer is underwhelming from a price, strategic rationale and transaction risks perspective NRG believes in industry consolidation and is a willing buyer or seller at adequate value Exelon's offer is at a discount, not a premium, to NRG's fundamental value, and is highly diluti
Slide 24: Time to up the Ante
"Time to up the Ante: Exelon needs to substantially up its merger offer for NRG to close the deal..." - -- Angie Storozynski Macquarie Research Equity, May 26, 2009
Slide 25: Appendix
NRG ) APPENDIX
Slide 26: Washington Legislation - Waxman-Markey Climate Change Bill
Washington Legislation - Waxman-Markey Climate Change Bill (H.R. 2454) Note: early program price and allocations Allocation as a Percent of Emissions Bingaman - Specter $35 Coal - gas fuel switching $7 0% 100% 75% 50% 35% ? House: Boucher - Dingell Lieberman - Warner Positions of Key Legislative Pol
Slide 27: 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 28: Strategic Rationale - Commercial Hedging and Collateral Uncertainty
Strategic Rationale- Commercial Hedging and Collateral Uncertainty Ratable 5-Year Hedge Strategy: Applying any hedging strategy to the combined company's portfolio requires a well thought out and robust collateral support structure Ratable 3-Year Hedge Strategy: Exelon has not provided their planned
Slide 29: Pre-Tax Run Rate Synergies Offset by Transaction Costs
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 30: Unfunded Pension and OPEB 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 31: 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 32: Corporate Participants
CORPORATE PARTICIPANTS David Crane NRG Energy, Inc. — President and CEO PRESENTATION Unidentified Participant Good morning. I’m (inaudible) from the Deutsche Bank utilities and power equity research team. We wanted to welcome everybody to 2009 Deutsche Bank Energy Utilities and Power Conference. We