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'Minimizing' Natural Gas Called Key to NRG Power Transformation

In the midst of a strategic effort to simplify and refocus operations, Princeton, NJ-based NRG Energy Inc.'s CEO Mauricio Gutierrez said the company intends to transform from a traditional independent power producer (IPP) to a combination generator/retailer by minimizing the role of natural gas in its portfolio.

By taking a more customer-driven approach in re-balancing the extensive generating plant portfolio, NRG will "minimize the impact of natural gas as the main value driver for our business," Gutierrez said at a Wall Street analyst meeting on Tuesday.

"Our exposure to natural gas will be reduced significantly by right-sizing our portfolio and by hedging. There is no better place to start a discussion about the merchant power industry than the price of natural gas."

Gutierrez said NRG is no longer generation-driven, and therefore, no longer gas driven. "We are a customer-driven integrated power model, taking us away from the historical feast-or-famine existence in the IPP sector," he said.

NRG expects the transformation to result in an estimated 60% of annual earnings from the retail energy business centered in an increasingly competitive Texas power market. Gutierrez said the business has been "robust and resilient," following the 2009 purchase of Texas-based Reliant Energy retail unit.

Operators in the U.S. power industry don't make decisions based on today's prices but future price strips, and Gutierrez said operators have to "follow the money" on future prices and overlay plans for enhancements to infrastructure.

To put NRG's "gas-lite" portfolio in context, Gutierrez said 2000-2008 was the era of IPPs and rising gas prices, while the last 10 years since the Great Recession has seen a period of low gas prices caused by the shale revolution and the economic downturn.

The last decade also was a period of increasing reliance on renewables and closing inefficient plants. For IPPs like NRG, it’s been bumpy roller-coaster ride, Gutierrez said.

Looking ahead, NRG executives think the industry appears to be beginning "a whole new cycle" defined by cheap gas, more renewables and consumer engagement.  "The next few years will be driven as much by consumers as by development," he said. "Electricity users can now choose the source of their power and how and when to use it."

Consumer engagement and increased commercial activism represent what he called "a significant opportunity" for NRG. In seeking to align the company's bottom line more closely with emerging consumer demands, he said NRG has reduced the size of its generation fleet by more than half with the separation of GenOn and the sale of master limited partnership NRG Yield.

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