Heat and high electricity prices boost profits
NRG Energy, one of the biggest generators and retailers of electricity in Texas, was boosted last year by a hot summer that drove electricity prices higher.
The company, headquartered in Houston and Princeton, N.J., increased its profits by more than 10 times to $4.4 billion from $268 million in 2018. Revenues rose 3.6 percent to $9.8 billion in 2019.
NRG’s earnings per share also rose by more than 10 times, positioning the company at No. 4 on the Houston Chronicle’s list of top-performing public companies. NRG, whose retail brands include Reliant Energy and Green Mountain Energy, has 4,200 employees, including 1,800 in Houston.
“In 2019, we made significant progress in advancing our strategy to redefine what power can be in the lives of our customers, with continued focus on operational and financial excellence,” said CEO Mauricio Gutierrez.
Last year’s strong performance has helped the company to navigate the challenges — such as a drop in electricity demand — presented by the COVID-19 pandemic, he said.
A string of days with triple-digit temperatures last summer boosted NRG’s bottom line by driving wholesale electricity prices to the state’s maximum price of $9,000 per megawatt hour. Prices could shoot up again this summer if Texas gets another bout of extremely hot weather, but the state is in better shape to withstand a surge in demand and avoid extreme price spikes because Texas has more power generating capacity available.
The state’s grid manager the Electric Reliability Council of Texas predicts that the reserve margin — a barometer of the power supply that Texas has available to handle heat waves, unexpected power plant outages and unusually low wind energy output — will be 10.6 percent this summer, 2 percentage points higher than last summer.
NRG, which has struggled with low share prices, floated the idea of going private earlier this year when it reported its earnings for all of 2019. A move like that would follow in the footsteps of another Houston power company, Calpine.
Calpine also struggled with slumping stock prices, lackluster earnings and the changing dynamics of power markets. It went private two years ago when it sold itself to investors led by a private equity company, Energy Capital Partners of New Jersey.
In the meantime, NRG executives said they’ll likely launch another round of stock buybacks, a move that would help support share prices, if the company can’t find investments for the cash it has on hand.