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'We completely flipped the model': NRG CEO says consumers drive investments from SNL Power Daily with Market Report 'We completely flipped the model': NRG CEO says consumers drive investments BYLINE: Darren Sweeney SECTION: Q&A; Exclusive NRG Energy slashing debt and returning cash to shareholders NRG CEO says the power and retail provider is "always looking at opportunities" for growth Sustainability and customers are the cornerstone of NRG's strategy NRG Energy Inc., a New Jersey-headquartered retail provider and competitive power company, is nearing the end of a three-year transformation plan launched in July 2017. The plan is designed to strengthen earnings and slash debt, while generating strong cash flow and creating significant shareholder value through asset sales and operational improvements. S&P Global Market Intelligence sat down with NRG President and CEO Mauricio Gutierrez on April 17 at the Energy Thought Summit in Austin, Texas, to discuss NRG's long-term growth strategy and the CEO's view that the U.S. utility sector should embrace competition and new technologies in the ongoing energy transition. This is an edited transcript of the interview. S&P Global Market Intelligence: What do you view as NRG's role in this energy transformation that is happening? What do you think the company is doing and will continue doing to help spur this change? Mauricio Gutierrez: Three and a half years ago, we completely flipped the model. Instead of starting with generation and having customers just being, for lack of a better word, a hedge to that generation, we decided that we needed to focus on the customer. We needed to put our customers at the center of everything that we did from the products and services that we offer to the way we are organized internally. We needed to completely change the paradigm of a competitive power company. So, that's been the main focus of our transformation. NRG Energy President and CEO Mauricio Gutierrez Source: NRG Energy Inc. We've come a long way. Over the last three and a half years, we've been able to rightsize our business. If you look at our retail business and our generation business, they are almost now perfectly balanced. When you do that, when you focus on your core retail and generation business, you also have the opportunity to make your company a lot more nimble, a lot more cost efficient. And in this process, that is what we were able to do. Where does NRG's simplification plan stand right now? You have to think about the value proposition of NRG with three different points. The first one is a business model, a business engine, that is more stable and more predictable than the competitive power industry has been in the past. The value now in the competitive power space has really shifted, if you think about it, from the generation business to the retail business. Those margins are more stable. The second one is that afforded us an opportunity ... to significantly reduce our total debt and really shore up our financials. We are now targeting investment-grade credit metrics. The third one is as the business has improved and is more predictable, and we've taken care of our balance sheet and our financials, then we have an opportunity with all the excess cash that we are generating ... how do we invest that? Do we invest that in the business or do we return it to our shareholders? We have a lot of opportunities. We've been very transparent in terms of what are the financial returns that we need as a company. We never short-coin running our company. Then, we will return [the excess cash] to our shareholders and they will appreciate that. As our company starts getting revalued and it reflects the fundamental value of what we have done, then perhaps we can pivot to other things. Whether on the retail side or the generation side, do you have any near-term plans to be more active in M&A? What I will say is that we have now afforded us the financial flexibility that if we want to grow through acquisitions, then we actually have the means to do it. Our retail business is a great platform, the largest in the United States, but that creates also an opportunity to perhaps buy other companies and be able to integrate them easily in that platform. It's a natural thing for us to do. Do you think regulated utilities will accept exclusive roles as transmission and distribution providers to enable customers to have more energy choice? I actually think that's going to be driven and led by customers. I think eventually consumers want choice. They want to make their own decisions. I think in a digital future, where everything is connected when perhaps you drive an electric car, when your house is completely connected and automated, when information and electrons are just flowing in that world, electricity is very relevant to your life. You're not going to allow [there] to be ... only one company that can offer you one plan that may or may not meet your needs. That's why I think consumers are going to be the driving force in really bringing competition to the power sector. I don't think it's going to be the power companies, to tell you the truth. We are not going to take on the utilities ... consumers are going to ask for this. We are going to be there to make sure we enable that want and need. What is your stance on efforts to subsidize aging coal and nuclear generation during this energy transition? What I don't agree with is people having subsidies for units that perhaps don't need more money or they are not necessary for the system. Subsidies for nuclear and coal plants are decided somewhere with truly no regard for what the market needs ... because at the end of the day, markets serve consumers. In some cases, it's corporate welfare. It's for companies to increase their profitability, excess returns. If people want a clean energy standard, let's create one ... and then let's have competition determine the best way to get to that goal. Where does the increased focus on environmental, social and governance, or ESG, fit into NRG's plan? Sustainability is an integral part of our strategy. We have one of the most aggressive carbon goals of any company. We're going to reduce our carbon [emissions] 50% by 2030 and 90% by 2050. This is in line with the Paris climate agreement. And the baseline is 2014. We have already reduced our carbon emissions 37%. We are well ahead of our 2030 target and we are not waiting for some national policy. This is an internal commitment that we have made. The way that we achieve that is when we have plants that are uneconomic, we retire them. Second, when there is an opportunity to invest in our plants ... we'll do it. I think we have converted more coal generation to natural gas than any other company. Do you have any concerns about any potential overreliance on gas? If electricity is going to go from 20% consumption today to 50% in 30 years, which I think is super conservative, man we need everything. But it has to comport with the values and the needs of our customers. |
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