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Deutsche Bank Electric Power Conference
Deutsche Bank Electric Power Conference
June 14, 2004June 14, 2004
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Safe Harbor StatementSafe Harbor Statement 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 and typically can be identified by the use of words such as “expect,” “estimate,” “anticipate,” “forecast,” “plan,” “believe” and similar terms. Such forward-looking statements include, but are not limited to, expected earnings, future growth and financial performance, deployment of capital, development of major capital expenditures approval process, refining our risk management procedures, strengthening our coal procurement supply chain, resolution of commercial issues with our California plants, successfully completed targeted asset sales, debt reduction, developing domestic regional strategic plans, refining our international strategy and developing an acquisition strategy and process. Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets and related government regulation, the condition of capital markets generally, our ability to access capital markets, unanticipated outages at our generation facilities, our ability to convert facilities to burn western coal, our substantial indebtedness and the possibility that we may incur additional indebtedness, adverse results in current and future litigation, the willingness of counterparties to negotiate new contracts in California, the failure to develop and successfully implement strategies and processes, and the amount of proceeds from asset sales.
NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG’s actual results to differ materially from those contemplated in the forward-looking statements included in this presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at www.sec.gov.
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 and typically can be identified by the use of words such as “expect,” “estimate,” “anticipate,” “forecast,” “plan,” “believe” and similar terms. Such forward-looking statements include, but are not limited to, expected earnings, future growth and financial performance, deployment of capital, development of major capital expenditures approval process, refining our risk management procedures, strengthening our coal procurement supply chain, resolution of commercial issues with our California plants, successfully completed targeted asset sales, debt reduction, developing domestic regional strategic plans, refining our international strategy and developing an acquisition strategy and process. Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets and related government regulation, the condition of capital markets generally, our ability to access capital markets, unanticipated outages at our generation facilities, our ability to convert facilities to burn western coal, our substantial indebtedness and the possibility that we may incur additional indebtedness, adverse results in current and future litigation, the willingness of counterparties to negotiate new contracts in California, the failure to develop and successfully implement strategies and processes, and the amount of proceeds from asset sales.
NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG’s actual results to differ materially from those contemplated in the forward-looking statements included in this presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at www.sec.gov.
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Strong first quarter operating performanceStrong first quarter operating performance– $266 million in adjusted EBITDA$266 million in adjusted EBITDA– $316 million in Free Cash Flow (includes $125 $316 million in Free Cash Flow (includes $125
million from Xcel distributions and $3 million million from Xcel distributions and $3 million in asset sale proceeds)in asset sale proceeds)
Liquidity continues to strengthen – $1.4 billion at Liquidity continues to strengthen – $1.4 billion at end of Q1end of Q1
Post-Chapter 11 emergence plan solidly on track Post-Chapter 11 emergence plan solidly on track
Internal reorganization proceeding in Internal reorganization proceeding in accordance with planaccordance with plan
First Quarter 2004 HighlightsFirst Quarter 2004 Highlights
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NRG – Back to BasicsNRG – Back to Basics
Our Back-to-Basics strategy is in full swing Our Back-to-Basics strategy is in full swing and visible progress is being made:and visible progress is being made:
Reduced corporate burdenReduced corporate burden 33% reduction in 33% reduction in corporate headcountcorporate headcount
Sale of noncore assetsSale of noncore assets $293 million in cash and $672 $293 million in cash and $672 million in debt reduction in 2003 million in debt reduction in 2003 and year to date 2004 with more and year to date 2004 with more to cometo come
Delevering of balance sheetDelevering of balance sheet In connection with asset sales In connection with asset sales and with mandatory offer and with mandatory offer
Optimizing plant operations /Optimizing plant operations / Investment in PRB conversion,Investment in PRB conversion,fuel handling processesfuel handling processes coal handling and environmental coal handling and environmental
remediationremediation
Fixing Connecticut and Fixing Connecticut and Connecticut on track; on to Connecticut on track; on to California California CaliforniaCalifornia
Our Back-to-Basics strategy is in full swing Our Back-to-Basics strategy is in full swing and visible progress is being made:and visible progress is being made:
Reduced corporate burdenReduced corporate burden 33% reduction in 33% reduction in corporate headcountcorporate headcount
Sale of noncore assetsSale of noncore assets $293 million in cash and $672 $293 million in cash and $672 million in debt reduction in 2003 million in debt reduction in 2003 and year to date 2004 with more and year to date 2004 with more to cometo come
Delevering of balance sheetDelevering of balance sheet In connection with asset sales In connection with asset sales and with mandatory offer and with mandatory offer
Optimizing plant operations /Optimizing plant operations / Investment in PRB conversion,Investment in PRB conversion,fuel handling processesfuel handling processes coal handling and environmental coal handling and environmental
remediationremediation
Fixing Connecticut and Fixing Connecticut and Connecticut on track; on to Connecticut on track; on to California California CaliforniaCalifornia
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Our Core Regional Businesses*Our Core Regional Businesses*
South CentralSouth Central
WestWest
NortheastNortheast
Gas 980 MW
40% Coal 1,489 MW
60%
Gas 693 MW
56%
Dual Fuel 628 MW
44%
Regional Regional concentrations concentrations with fuel and with fuel and dispatch-level dispatch-level
diversitydiversityOur Competitive AdvantagesOur Competitive Advantages
Sizeable asset base in the right marketsSizeable asset base in the right markets
Long-term contracts / relationships with retail cooperatives in South CentralLong-term contracts / relationships with retail cooperatives in South Central
Locational advantageLocational advantage
Healthy balance sheetHealthy balance sheet
Flexibility to act in best interest of stakeholdersFlexibility to act in best interest of stakeholders
Our Competitive AdvantagesOur Competitive Advantages
Sizeable asset base in the right marketsSizeable asset base in the right markets
Long-term contracts / relationships with retail cooperatives in South CentralLong-term contracts / relationships with retail cooperatives in South Central
Locational advantageLocational advantage
Healthy balance sheetHealthy balance sheet
Flexibility to act in best interest of stakeholdersFlexibility to act in best interest of stakeholders * Other North America includes 4,172 MW outside of core regions
GasGas842 MW 842 MW
11%11%
Coal 2,407 MW
30%
Dual Fuel 2,284 MW
29%
Oil2,350 MW
30%
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Corporate Strategy – Moving beyond Back to BasicsCorporate Strategy – Moving beyond Back to Basics
Each wholesale power generation company represents a different commodity risk proposition but their overall strategies have stayed in lockstep with each other
Each wholesale power generation company represents a different commodity risk proposition but their overall strategies have stayed in lockstep with each other
MPoM MPoM BtB BtB BtBMPoMMPoM MPoM
“Asset-light”
19981998 19991999 20032003 2004200419971997 2001200120002000 20022002IPP IPP
Industry Industry StrategiesStrategies
Mothball marginal assetsMothball marginal assets
GreenfieldGreenfield
TradingTrading
Leverage off logistics platformLeverage off logistics platform(service provider)(service provider)
Fuel mismatchFuel mismatch
Economy–driven Economy–driven (demand side) price recovery(demand side) price recovery
Sell noncore assetsSell noncore assets
Cut G&ACut G&A
ReliantReliantAlleghenyAlleghenyWilliamsWilliamsEl PasoEl PasoCalpineCalpineDynegyDynegyCurrent Stated StrategiesCurrent Stated Strategies
Exit power businessExit power business
Trading
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Back to Basics - StrategyBack to Basics - Strategy
Capital intensive - yes;Labor intensive - no
Capital intensive - yes;Labor intensive - no
Highly cyclical, inelastic demand, supply driven
Highly cyclical, inelastic demand, supply driven
Pure commodity, but inability to store causes very high volatility
Pure commodity, but inability to store causes very high volatility
Assets relatively illiquid and generally immovable
Assets relatively illiquid and generally immovable
MUST be geographically diversified, in multiple markets
MUST be geographically diversified, in multiple markets
MUST accumulate generating portfolio at competitive costMUST accumulate generating portfolio at competitive cost
MUST develop scale in key marketsMUST develop scale in key markets
MUST develop and expand our route to market through contracting with retail load providers, trading, direct sales, etc.
MUST develop and expand our route to market through contracting with retail load providers, trading, direct sales, etc.
Four fundamentalsFour fundamentals Four imperativesFour imperatives
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22
33
44
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Why is Scale Important?Why is Scale Important?
Economies in procurement, staffing, etc
Flexibility in operational regimes
Diversity of fuel and across merit order enhances hedging and reduces risk
Reduction in available generation supply principally benefits other generators
Economies in procurement, staffing, etc
Flexibility in operational regimes
Diversity of fuel and across merit order enhances hedging and reduces risk
Reduction in available generation supply principally benefits other generators
Controlling a fair share of supply is the only way to impact the supply demand balance (if only by equalizing the negotiating strength between the generators and the retail load providers)
Controlling a fair share of supply is the only way to impact the supply demand balance (if only by equalizing the negotiating strength between the generators and the retail load providers)
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Hedging – in the FutureHedging – in the Future
Generation that is price competitive on both a SRMC and LRMC basis;
Generation that competitively serves load-shaping requirements through base, intermediate and peaking capacity;
Generation from various fuels such that we can offer the retail load providers at least a partial hedge against gas price spikes
Generation that is price competitive on both a SRMC and LRMC basis;
Generation that competitively serves load-shaping requirements through base, intermediate and peaking capacity;
Generation from various fuels such that we can offer the retail load providers at least a partial hedge against gas price spikes
What are the elements of a successful strategy to hedge a substantial portion of our generation capacity with retail load providers?
What are the elements of a successful strategy to hedge a substantial portion of our generation capacity with retail load providers?
We must own . . .We must own . . . . . . plus it helps if we have . . .. . . plus it helps if we have . . .
The scale to negotiate as equals
Limited or no competitors with comparable capabilities
The scale to negotiate as equals
Limited or no competitors with comparable capabilities
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NRG: Working Toward a Super-Regional Business ModelNRG: Working Toward a Super-Regional Business Model
We are transitioning NRG from a loose collection of power plants into three coherent regional businesses, each focused on developing as a foundation to their businesses, commercial relationships with the in-market retail load providers
We are transitioning NRG from a loose collection of power plants into three coherent regional businesses, each focused on developing as a foundation to their businesses, commercial relationships with the in-market retail load providers
Locational advantageLocational advantageBase load coal /Base load coal /long term contractslong term contracts
Base load coalBase load coalPrincipal StrengthPrincipal Strength
2% (4% gross)2% (4% gross)5%5%4%4%Market ShareMarket Share
1,321 (2,692 gross)1,321 (2,692 gross)2,4692,4697,8847,884Our MWsOur MWs
60,00060,00050,00050,000180,000180,000Total MWsTotal MWs
WestWestSouth CentralSouth CentralNortheastNortheastRegionRegion
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In Summary - The New NRGIn Summary - The New NRG
WestWestCoastCoast
SouthSouthCentralCentral
NortheastNortheastExtracting Extracting maximum value maximum value
from existing fleetfrom existing fleet
Reinvestment in Reinvestment in repowering of key repowering of key
assetsassets
Selective acquisitions to fill Selective acquisitions to fill out regional lineupsout regional lineups
Objective: To create a set of regional businesses with Objective: To create a set of regional businesses with sustainable low (total) cost, fuel diversified asset portfolio sustainable low (total) cost, fuel diversified asset portfolio
competitively positioned to secure their key customerscompetitively positioned to secure their key customers
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