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NRG CEO: Gas Could Go Lower Still

The large independent electricity generator has reactivated natural gas-fired plants in Texas expecting a profitable summer

Slammed by extraordinarily mild weather in all of its core markets and the continued wholesale natural gas price slide, major independent power producer NRG Energy Inc. CEO David Crane said Thursday gas prices could go even lower in the near-term, but he thinks NRG now has the "right balance" of wholesale and retail power, along with a growing renewable energy portfolio.

Although he thinks the bottom of the market for wholesale power may be near, Crane said he is not attempting to signal that the bottom for gas prices has been reached. "Like a lot of market analysts, we would not be surprised to see natural gas prices go down even farther over the next few months, given the extraordinary levels of gas currently in storage," Crane said.

"The near-term natural gas prices, however, are not the point. As a result of our hedge program, near-term gas prices are among the least relevant of all commodity prices to our financial performance."

Capacity prices are key, according to COO Mauricio Gutierrez, who described price increases in the New York market. "Since October 2011, summer capacity prices have nearly doubled with May spot prices clearing more than $17/kW-month. Likewise, the rest of the state capacity has increased 150% during the same period. The [power] market believes this increase is more than a temporary phenomenon as 2013 prices have moved up as well."

Using NRG's wholesale operations in Texas as an example, Crane said there are "two sides to the wholesale price equation in that state -- heat rates and gas prices." In anticipation of what NRG has projected will be a "very tight summer" for power supplies in Texas, NRG is "as well positioned as it possibly can be" at this time, he said, noting that the company has reactivated 1,100 MW of mothballed gas-fired power generation plants in the state.

"We also have increased capital maintenance expenses on our gas-fired fleet in an effort to make them more reliable after the extended runs and the many starts they were subjected to last summer," said Crane.

Crane also cited the positive impact of NRG's Encina gas-fired plant in Carlsbad, CA, in North San Diego County due to the extended outage at nearby San Onofre Nuclear Generating Station (Songs). "With Songs out, there is only one plant positioned well in that area, and that is Encina," he said. "Encina has experienced significant run times already and has performed magnificently, and we expect that to continue."

In New York state, the uncertainty of one nuclear plant, Indian Point, has led to increased potential generation from a repowered NRG plant in New York City and fuller use of two under-utilized plants in the western part of New York state. But none of this relates to the price of natural gas, Crane said.

"We see an immediate upside to our operations in New York, and that upside is not linked to the cost of natural gas," Crane said.

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