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NRG Energy Inc. Reports Operating Results (10-K)

February 28, 2012 | About:

NRG Energy Inc. (NYSE:NRG) filed Annual Report for the period ended 2011-12-31.

Nrg Energy Inc has a market cap of $4.1 billion; its shares were traded at around $17.456 with a P/E ratio of 16.2 and P/S ratio of 0.5. Nrg Energy Inc had an annual average earning growth of 27.3% over the past 10 years. GuruFocus rated Nrg Energy Inc the business predictability rank of 2.5-star.

Highlight of Business Operations:

Generation gross margin — decreased by $672 million, including intercompany sales, during the year ended December 31, 2011, compared to the same period in 2010, due to:

Retail gross margin — Green Mountain Energy's gross margin of $174 million for the year ended December 31, 2011, reflects increasing customer count during the year and higher than normal customer usage due to the impact of an unprecedented heat wave in Texas in the third quarter. Certain extraordinary weather events during the year led to abnormally high power prices in Texas, which resulted in increased cost of sales for the incremental customer usage. Revenues were generated 63% and 37% from residential and commercial customers, respectively. Total metered customer counts, including utility partner customers, were approximately 411,000 and increased approximately 15%, or 55,000 in the twelve months ended December 31, 2011.

NRG's equity earnings from unconsolidated affiliates decreased by $9 million during the year ended December 31, 2011, compared to the same period in 2010. The decrease is due primarily to the changes in fair value of Sherbino's forward gas contract of $10 million and a decrease in equity earnings from Gladstone of $15 million, offset by an increase in equity earnings of $10 million from GenConn, as the Devon and Middletown peaking facilities commenced commercial operations in June 2010 and June 2011, respectively, and an increase of $2 million from Saguaro.

NRG's equity earnings from unconsolidated affiliates increased by $3 million during the year ended December 31, 2010, compared to the same period in 2009. The 2010 results included increased equity earnings of $15 million from Sherbino, which related to the fair value of a hedge, and $7 million from Gladstone. In 2009, NRG recognized equity earnings of $15 million from MIBRAG, which was sold in June 2009.

In addition, NRG has granted first liens to certain counterparties on substantially all of the Company's assets. NRG uses the first lien structure to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedge agreements for forward sales of power or MWh equivalents. To the extent that the underlying hedge positions for a counterparty are in-the-money to NRG, the counterparty would have no claim under the lien program. The lien program limits the volume that can be hedged, not the value of underlying out-of-the-money positions. The first lien program does not require NRG to post collateral above any threshold amount of exposure. Within the first lien structure, the Company can hedge up to 80% of its baseload capacity and 10% of its non-baseload assets with these counterparties for the first 60 months and then declining thereafter. Net exposure to a counterparty on all trades must be positively correlated to the price of the relevant commodity for the first lien to be available to that counterparty. The first lien structure is not subject to unwind or termination upon a ratings downgrade of a counterparty and has no stated maturity date.

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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