01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
NRG Energy, Inc. reported a transformed 2006 after acquiring Texas Genco LLC (now its Texas region) on February 2, 2006 for approximately $6.2 billiona.
Operating revenues rose to $5,623 millionb from $2,430 million, and operating income to $1,438 million from $237 million. Net income was $621 million, compared with $84 million in 2005. Total generation capacity stood at approximately 24,175 MW globally and 22,940 MW in the United States at December 31, 2006, with about 45% of domestic capacity natural gas-fired, 34% coal-fired, 16% oil-fired and 5% nuclear.
The company's central initiative is Repowering NRG, a program to add up to approximately 10,350 MW of new generation at existing sites, with a total capital cost that NRG estimates could reach about $16 billionc if fully implemented as proposed. NRG states it expects its own cash contributions to range from $500 million to $2.0 billion over the next decade, and that full implementation is extremely unlikely. Liquidity was approximately $2.2 billion at year end.
Net cash from operations was $408 milliond, with $4,176 million used in investing activities and $4,053 million provided by financing activities. Investors should note the heavy leverage: long-term debt including current maturities and capital leases was $8,777 million at year end, and the 2006 Hedge Reset cost approximately $1.35 billion in payments to counterparties.
The company also completed a $1 billion Capital Allocation Program of share repurchases and repaid $400 million of term loan debt, with Phase II expected to finish in the first half of 2007. NRG disclosed significant legal and regulatory exposures, including a Wholesale Electricity matter tied to WCP and the California Department of Water Resources contract, where the alleged overcharges totaled approximately $940 million for 2001 and 2002.
02—Key points
Key Highlights
- Total operating revenues rose to $5,623 million in 2006 from $2,430 million in 2005, driven mainly by the Texas Genco acquisition, which contributed $3,088 million.
- Net income was $621 million in 2006 versus $84 million in 2005; diluted EPS was $4.07 versus $0.75.
- Hedge Reset in November 2006 cost approximately $1,347 million in settlement payments, reduced revenues by a net $129 million, and is expected to increase cash flows to shareholders between 2007 and 2010 by approximately $1.5 billion.
- Repowering NRG program targets up to 10,350 MW of new generation, with an estimated total capital cost of approximately $16 billion if fully implemented as proposed, and NRG's expected share of cash contributions between $500 million and $2.0 billion over the next decade.
- Total long-term debt including current maturities and capital leases was $8,777 million at December 31, 2006, up from $2,505 million a year earlier; total liquidity was approximately $2.2 billion.
- The Capital Allocation Program repurchased approximately 14,800,581 shares for about $732 million in 2006, with Phase II expected to be completed in the first half of 2007.
- Environmental capital expenditures of approximately $1.28 billion are estimated for 2007 through 2012, primarily for CAIR, CAMR and Phase II 316(b) compliance.
03—Questions
Frequently Asked Questions
What drove the large increase in NRG's 2006 revenues and earnings?
The February 2, 2006 acquisition of Texas Genco LLC, now the Texas region, contributed $3,088 million of operating revenues and $881 million of operating income for the period from February 2 to December 31, 2006. Also, risk management activities produced a $124 million gain in 2006 versus a $292 million loss in 2005. Net income rose to $621 million from $84 million.
What is the Repowering NRG program and what might it cost?
Repowering NRG is a program to develop, finance, construct and operate new multi-fuel, multi-technology generation capacity at existing sites, adding up to approximately 10,350 MW. NRG estimates a total capital cost of approximately $16 billion if fully implemented as currently proposed, though it considers full implementation extremely unlikely. NRG expects its share of cash contributions to range from $500 million to $2.0 billion over the next decade, with expected mitigation through partnerships, project financing and long-term PPAs.
How leveraged is NRG and what debt obligations does it face?
Long-term debt including current maturities and capital leases was $8,777 million at December 31, 2006, compared with $2,505 million in 2005. The filing lists $4.7 billion of unsecured senior notes and approximately $3.1 billion outstanding under the term loan. Principal payments on debt and capital leases total $136 million for 2007 and $8,013 million thereafter. NRG's target net debt to total capital ratio range is 45% to 60%, and its reported ratio of debt to total capitalization was 57.48.
What is the Hedge Reset and how does it affect future cash flows?
In November 2006, NRG net settled legacy Texas region out-of-market power contracts and gas swaps at current market prices. The company paid counterparties approximately $1,347 million, funded largely by $1.1 billion of 7.375% Senior Notes due 2017. The filing states the transaction reduced operating revenues by a net $129 million in 2006 but is expected to increase cash flows available to shareholders between 2007 and 2010 by about $1.5 billion, and it increased the baseload hedge profile.
What significant legal and regulatory risks does NRG disclose?
NRG discloses several matters, including California electricity litigation involving subsidiaries of WCP, with Dynegy providing indemnification for most cases. The California Department of Water Resources contract matter, after a Ninth Circuit reversal, could lead to refunds; overcharges alleged against WCP totaled approximately $940 million for 2001 and 2002, and NRG states it cannot predict whether refunds will be required. Other matters include Connecticut congestion and station service disputes, and environmental issues such as the Delaware Reg 1146 challenge and a Big Cajun II Clean Air Act notice of violation.
04—Continue