Christmas comes in July for NRG Energy executives

The heat wave last month was miserable for most of us in Texas. But to the NRG Energy executives extolling their financial performance on a conference call Thursday with analysts, the days of temperatures above 100 degrees were divine.

Hot summer weather is to power generators what Christmas is to retailers: It’s the time when they make their profits for the year.

That’s because when it’s hot, consumers and businesses use more electricity, which can strain supplies and cause prices to rise and rise sharply. Life is good for producers like NRG when they get the call from power regulators that buyers are willing to pay what it takes to make sure Texas doesn’t run out of electricity when it needs it the most. Prices for dayahead pricing — the energy market that secures commitments from producers a day in advance — peaked one hot afternoon in July at $2,172.70 per megawatt-hour. The average last year was $28 per megawatt-hour.

Those price peaks will likely turn into big-time profits for NRG during the third quarter, which the company will report in the fall. But the company, which is headquartered in Houston and Princeton, N.J., is already enjoying the financial upside, thanks to the warmest May on record. The same supply and demand factors were at work during the spring for NRG, which reported a profit of $96 million in the second quarter ending June 30, compared with a $642 million loss in the same quarter one year earlier.

NRG CEO Mauricio Gutierrez referred to the company’s cost-cutting efforts, share buyback program and asset sales during the conference call. But he kept coming back to the Texas heat and scarcity pricing to explain why the company did so well this quarter and why next quarter will likely be even better.

“The fundamentals in Texas are incredibly strong,” Gutierrez said.

The retail end of the business — NRG owns several retail electricity providers, including Reliant Energy, Pennywise Power, Green Mountain Energy and Cirro Energy — also performed well, he said. Electricity demand is rising, and so is the customer count, with NRG adding about 10 percent more customers over the quarter mostly through acquisitions. Just last week, Cirro Energy picked up an undisclosed number of customers from Pioneer Energy of Sugar Land and Stat Energy of Richardson.

NRG already did well in the first half of the year, Gutierrez told analysts. But the warmest months, he added, are still ahead.

Talk about Christmas in July. And maybe August.

“The fundamentals in Texas are incredibly strong.” Mauricio Gutierrez, NRG‘s CEO