Nrg Energy, Inc. · NYSE:NRG
Nrg Energy — Merger or Acquisition (October 2005)
40 slides from Nrg Energy's merger presentation, Oct 3, 2005
Slide 1: Safe Harbor
Safe Harbor This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks, uncertainties and assumptions that include, but are
Slide 2: Agenda
Agenda Transaction Overview -- David Crane Texas Genco Overview -- Jack Fusco Financial Review -- Robert Flexon Moving Forward -- David Crane Summary and Q&A
Slide 3: Transaction Overview
Transaction Overview David Crane NRG Energy, President and CEO
Slide 4: Key Transaction Terms
Key Transaction Terms $5.8 billion (Equity Value) Consideration Estimated Closing Sources of Cash $4.0 billion in cash, $1.4 billion in equity (35.4 million shares) and $400 million in preferred stock $2.5 billion in debt, $500 million in mandatory convertible, and $1 billion in common equity First
Slide 5: A Compelling Combination
A Compelling Combination Financial strength and flexibility for combined company Immediately and significantly accretive to NRG's earnings and cash-flow/per share Larger, more diversified cash flows, substantially hedged to 2010 Prudent financing structure and strong cash flows preserves NRG's exist
Slide 6: Texas Genco - A Perfect Fit
Texas Genco - A Perfect Fit Jack Fusco Texas Genco, Chairman and CEO
Slide 7: A Presence in the ERCOT Market
South Zone Houston Zone North Zone Greens Bayou San Jacinto Cedar Bayou S.R. Bertron W.A. Parish South Texas Project T.H. Wharton Limestone A Presence in the ERCOT Market Limestone 2 Units 1,629 MW South Texas Nuclear Project 2 Units 2,560 MW (1,127 net MW) W.A. Parish 8 Units 3,550 MW (2,464 baselo
Slide 8: Baseload Asset Reliability
Baseload Asset Reliability Historical Forced Outage Rates (%) 4.1% 2.8% 2.6% 5-Year Ave. 2004 YTD (8/31) 2005 YTD (8/31) Extremely Reliable Baseload Fleet
Slide 9: Upgrades and Expansion Projects
Upgrades and Expansion Projects South Texas Project (STP) Texas Genco owns 44.0% (1,127 MW) of STP Approved Turbine Modernization project to expand STP by 32 MW (16 MW per unit) in 2006 and 2007 Limestone Plant Limestone Unit 2 is scheduled to be up-rated by mid 2006 by 99 MW (approximately $330/kW)
Slide 10: Well Positioned in ERCOT Region
3,316 5,456 7,142 10,939 15,742 TXU Texas Genco Calpine CPS FPL Well Positioned in ERCOT Region Source: Energy Velocity Associates Net Generation Capacity (in MW) Total ERCOT: 78,300MW CPS 7% FPL 4% All Others 44% CPN 11% Texas Genco 14% TXU 20% The Second Largest Generator in Texas
Slide 11: ERCOT is an Attractive Market
2005 Texas Genco Net Generation by Fuel Type (MWh)2,3 ERCOT is an Attractive Market 2005 ERCOT Capacity by Fuel Type (MW)1 2005 Texas Genco Capacity by Fuel Type (MW)2 Gas 73% Coal & Lignite 19% Nuclear 6% Other 2% Gas 62% Coal & Lignite 30% Nuclear 8% Gas 16% Coal & Lignite 68% Nuclear 16% Although
Slide 12: ERCOT Favorable Supply/Demand Dynamics
ERCOT Favorable Supply/Demand Dynamics According to the 2005 ERCOT Report on Capacity, Demand, and Reserves, the ERCOT market is expected to grow at attractive rates relative to the national average and continue to have declining reserve margins Source: ERCOT (2005 Report on the Capacity, Demand, an
Slide 13: Texas Genco - Matched Power and Fuel Strategy
Texas Genco - Matched Power and Fuel Strategy % of Available Baseload1 Capacity Sold Forward 1 Available Baseload defined as Total Baseload Capacity (5,220MW in 2005PF) adjusted for planned outages and does not take into account unplanned outages and does not take into account unplanned outages. 2 I
Slide 14: Texas Genco - A Perfect Fit
Texas Genco - A Perfect Fit High quality baseload asset portfolio with near term growth opportunities Second largest generator in ERCOT, a mature and fast-growing market with attractive supply and demand fundamentals Substantially hedged on fuel and power through 2009
Slide 15: Financial Review
Financial Review Robert Flexon NRG Energy, Executive Vice President and CFO
Slide 16: Financial Objectives - M&A
Financial Objectives - M&A Purchase price discipline Acquisition price multiple approximately 20% below NRG equity trading levels Prudent balance sheet management Forecasted capital structure within targeted range by year end 2006 Adequate liquidity to hedge portfolio Improved collateral structure I
Slide 17: Valuation Summary - Texas Genco Acquisition
Valuation Summary - Texas Genco Acquisition TGN Pre-Tax Income $1,775 Purchase Price $8,300 Interest Expense 175 Present Value of Tax Benefits1 (500) Depreciation & Amortization 366 Purchase Price after Tax Benefits $7,800 Amortization of Out-of-Market Contracts (1,216) Purchase Price Multiple befor
Slide 18: Purchase Price Funding
Purchase Price Funding Interim Financing from Morgan Stanley and Citigroup: $10.0 billion commitment $5.1 billion bridge facility Permanent Financing: Both 1st Lien Term Loan B's retired; flexibility to address both sets of bonds in the event of a change of control put $4.0 billion new capital raise
Slide 19: Key Transaction Rationale
Key Transaction Rationale Purchase price driven by substantial hedge position with A-rated counterparties Fair valuation and substantial improvement return on invested capital Maintain prudent balance sheet management Strong accretion to earnings/share and cash flow/share Enhanced balance sheet flex
Slide 20: Moving Forward
Moving Forward David Crane NRG Energy, President and CEO
Slide 21: Investment Highlights
Investment Highlights Profitable, regionally focused asset portfolio Strong balance sheet with substantial cash flow Lean organization Efficiencies to be realized Positioned to be leading industry player No management distraction on legacies Decisions not driven by financial distress Ability to retu
Slide 22: Intrinsic Growth - Key to Systemic Value Creation
Intrinsic Growth - Key to Systemic Value Creation Growth Plant Performance Commercial Operations Cost Reductions NRG: Improve reliability Texas Genco: Increase capacity Texas Genco: Structured commodity contracts NRG: Commodity hedging and trading Texas Genco: Underway NRG: In progress Brownfield Op
Slide 23: Post-Closing Phase
Post-Closing Phase Transaction Closing Phase Closing and Post-Closing Priorities Focus on ROIC @ Combined Company Capture cost synergies and revenue enhancements due to scale in fuel procurement, storage and transport Credit and structured transactions for efficient collateral support of trading CCG
Slide 24: Positioned for the Future and Value Creation
Positioned for the Future and Value Creation Scale with a Purpose Financial Strength and Flexibility Significant Business in all Domestic Competitive Markets Multi-fuel, Across-the-Merit order Portfolio of Assets Operational & Commercial Excellence Strong and Stable Free Cash Flow
Slide 25: Questions & Answers
Questions & Answers David Crane President and CEO, NRG Energy Jack Fusco Chairman and CEO, Texas Genco Robert Flexon Executive Vice President and CFO, NRG Energy Thad Miller General Counsel, Texas Genco
Slide 26: Appendix
NRG ) Appendix
Slide 27: Texas Genco Portfolio
Texas Genco Portfolio (;
Slide 28: High Quality Asset Base
W.A. Parish (Coal) 2,464 4 PRB Coal 1977-82 Limestone 1,629 2 Lignite/PRB Coal 1985-86 South Texas Project 1,127 2 Nuclear 1988-89 Total Baseload Plants 5,220 8 Cedar Bayou 1,492 2 Gas 1970-74 T.H. Wharton 1,090 17 Gas 1960-75 W.A. Parish (Gas) 1,086 5 Gas 1958-68 San Jacinto 162 2 Gas 1995 S.R. Ber
Slide 29: Limestone Plant Overview
Limestone Plant Overview Newest of Texas Genco's solid-fueled steam generating assets Commenced operations in 1985 - 1986 Located on a 3,800-acre site approximately 150 miles north/northwest of Houston Provides 1,629 MW of baseload capacity through two operating units which can burn lignite, Powder
Slide 30: South Texas Project Overview
South Texas Project Overview STP is the sixth largest nuclear-powered generating facility in the U.S. (based on total net generating capacity) Commenced operations in 1988 - 1989 Comprised of two units located on a 12,200 acre site about 90 miles southwest of Houston Continues to be one of the lowes
Slide 31: Favorable Dispatch Position
Favorable Dispatch Position 2005 ERCOT Supply Stack (MW) The baseload plants are low cost and are expected to dispatch nearly 100% of the time they are available
Slide 32: Operating Gas Plants
Operating Gas Plants Cedar Bayou 1,492 2 1970-74 T.H. Wharton 1,090 17 1960-75 W.A. Parish (Gas) 1,086 5 1958-68 San Jacinto 162 2 1995 S.R. Bertron 784 6 1956-67 Greens Bayou 715 7 1973-76 P. H. Robinson 390 1 1967 Total Operating 5,719 40 Mothballed or Retired Cedar Bayou 760 1 1974 T. H. Wharton
Slide 33: Strong Operational Performance
Strong Operational Performance 8-month period ended August 31 of each year:
Slide 34: Texas Genco - Forward Power Sales Generate Significant, Stable Revenues
Baseload Capacity (MW) 5,220 5,366 5,382 5,382 5,382 5,346 5,382 Available Baseload Capacity1 (MW) 4,793 4,946 5,133 5,120 5,127 5,024 5,124 Forward Firm Sales (MW) 3,869 3,279 4,071 3,650 2,275 3,429 500 Forward Firm Gas Swaps (MW) - 541 - 351 1,149 408 872 Forward non-Firm Sales (MW) 602 450 200 1
Slide 35: Favorable Environmental Position
Favorable Environmental Position - Substantial Credits with Significant Value NOx Reduction Program Fleet currently operates at one of the lowest NOx emissions rates in the country Invested over $700 million in NOx controls since 1999 Emissions from Houston area plants reduced by approximately 88% f
Slide 36: Combined Profile
NRG ) Combined Profile
Slide 37: Portfolio with Scale and Diversity
Portfolio with Scale and Diversity South Central Western Gas 980 MW 40% Northeast Gas 842 MW 11% Coal 2,407 MW 30% Dual Fuel 2,284 MW 29% Oil 2,350 MW 30% Oil 622 MW 59% Gas 427 MW 41% Texas Combined Scale Dual Fuel 2,284 MW 10% Nuclear 1,127 MW 5% Oil 2,972 MW 14% Gas 7,968 MW 35% Coal 7,989 MW 36%
Slide 38: Enhanced Platform for Growth
Enhanced Platform for Growth Geographic Generation Breakdown NRG Energy Texas Genco Projected Texas 49% Western 5% South Central 11% Northeast 35% Texas 100% Meaningful Presence in All Key Competitive Markets South Central 22% Western 9% Northeast 69%
Slide 39: Combined Coal Operations
Combined Coal Operations Attributes of the combined company 36MM tons - ranks us in the top 5 coal buyers in the US 92% of our fleet has sourcing and transportation flexibility 5,495 privately leased or owned rail cars in the fleet Better than 97% of transportation under firm contract through 2009 B
Slide 40: Projected Common Shares Outstanding
Projected Common Shares Outstanding 141.1 25 16.1 19.3 80.7 Outstanding Treasury Shares Issued to Sellers Common Shares Issued to Sellers Common Shares Planned Offering(1) Projected Issued and Outstanding 35.4 million Will represent 25 % of outstanding common shares (1) Assumes $40/share We estimate