NRG Energy Inc. Chief Financial Officer Kirkland Andrews is focusing his attention on reviewing the energy company’s costs and pricing strategy after it wrapped up a $3.6 billion deal to acquire Direct Energy earlier this month.
NRG, which is based in Houston and Princeton, N.J., generates electricity and sells it to retail customers mostly in Texas and states across the Northeast. First announced last summer, the purchase of Direct Energy, an electricity, natural gas and home protection services provider, doubled the number of NRG’s retail customers to six million and increased its workforce from about 4,500 to 7,500.
In the months ahead, cutting costs will be a key focus for Mr. Andrews. NRG in July outlined plans for $300 million in cost savings over three years after closing the Direct Energy transaction, including $135 million during the first 12 months. NRG at the time identified back-office functions such as billing and accounting as areas for possible redundancies.
Mr. Andrews, NRG’s finance chief since 2011, was involved in negotiating the deal and obtaining regulatory approval from the Federal Energy Regulatory Commission, which was granted in November.
Asked about NRG’s planned cuts and whether they have started, Mr. Andrews declined to provide specifics, noting that “it’s early days.”
The acquisition came after years of restructuring to bolster NRG’s balance sheet and efforts to make the company more profitable. During the 2019 calendar year, NRG earned $4.4 billion, compared with $268 million a year earlier and a loss of $2.2 billion in 2017.
Kirkland Andrews, chief financial officer of NRG Energy Inc.
Photo: NRG Energy Inc.
Over the past five years, NRG reduced its net debt by about $10 billion to $5.4 billion, slashed hundreds of millions of dollars in expenses and sold assets in areas such as renewable energy. The company didn’t add any production facilities to its fleet of 32 energy plants through the takeover.
NRG also is taking a close look at pricing structures across its brands, Mr. Andrews said. Price increases weren’t part of the company’s initial projections for the Direct Energy transaction, but the acquisition of the former subsidiary of U.K.-based Centrica PLC, gives customers more options, including access to premium brands providing renewable energy, he said.
The combined company retails electricity in deregulated energy markets in the U.S., meaning it can compete on price compared with electric utilities in regulated markets that face constraints on prices they can charge.
Mr. Andrews said there is little overlap between NRG and its newly acquired business in the same geographic areas. The combined company has about 3 million retail customers in Texas and 3.3 million in the Northeast and Canada. NRG’s power plants are located across the Northeast as well as in Texas, Illinois and California.
The combination with Direct Energy makes power generation from fossil fuels such as coal and gas a smaller part of NRG’s business, analysts said. They estimate NRG’s retail business accounted for about half of its earnings before interest, taxes, depreciation and amortization in 2020. The company recorded Ebitda of $1.7 billion in the 2019 calendar year.
The coronavirus pandemic has had mixed effects on NRG and the broader energy industry, prompting residential customers to use more electricity and businesses to consume less, said Travis Miller, an analyst at Morningstar Inc., a financial information firm.
NRG earned $683 million for the first nine months of 2020, compared with $1.1 billion during the same period a year earlier, in part due to pandemic-related changes to consumption and milder weather in Texas.
Write to Kristin Broughton at [email protected]
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