NRG Energy Inc. will defer $900 million in construction spending planned for next year to help support cash flow, in addition to other measures to shore up the balance sheet, company officials said Friday.
CEO Dave Peterson told analysts the Minneapolis, Minn.-based independent power company won’t compromise earnings or credit quality, “just for the sake of growth.” Peterson said the market is penalizing high-growth companies in the wake of the Enron Corp. debacle.
“While NRG’s long-term business model is growth-based, we cannot ignore the current market situation,” he said. “You don’t want to be on edge. You want to have a little cushion.”
Despite reassurances, NRG shares joined most energy companies on a roller coaster ride that has lasted most of the week. Company shares were up 1.2% to $14.31 in midafternoon trading Friday, but traded down as low as $12.74 earlier in the day.
The company previously reported plans to sell some assets to raise cash. Thursday, Xcel Energy Inc.’s, board authorized a $300 million equity investment in NRG, an affiliated company. Xcel said it acted after Moody’s placed NRG on credit watch and in response to recent stock declines experienced by NRG and other independent power producers.
Peterson said the equity investment should help alleviate Moody’s concerns about the company’s proposed $1.5 billion acquisition of four power plants from FirstEnergy Corp.’s and the need to raise $1.35 billion to complete the transaction. Moody’s indicated the ratings watch is expected to remain in place until NRG has permanent financing in place, Petersen said.
He noted the purchase includes a 4-year contract under which Akron, Ohio-based FirstEnergy will purchase 90% of the plants’ electricity output.
With respect to deferred construction, Craig Mataczynski, senior vice-president, said projects scheduled to be completed next year will be not be delayed with one exception. He said other projects in the planning stage will be evaluated later.
Peterson said it’s too early to identify what assets the company will sell. “We are not going to have a fire sale,” he said. He said the properties will be identified at a later time.
Responding to the market’s intense interest in credit quality, executives emphasized the company is sound. NRG has $400 million available under a corporate revolving line of credit and about $1.2 billion under a construction revolving credit line.
Both are due in the first quarter of 2002, but NRG officials said it expected no problem renewing them. The company also expects to receive an extension on a $580 million loan in place to complete another acquisition.
While Xcel hasn’t discussed a reacquisition of NRG, Petersen said the company “might be better off” at the [stock] “prices we have seen.” He complained the market is no longer rewarding NRG for being a high-growth company. He said the best strategy might be to scale back to a 20% range after 2002, or even cut its growth plan to 10% and consider issuing a dividend.
Poor economic conditions and warm weather have hurt revenue in the Northeast “somewhat,” he said, but contracts in place also protect against the downside. About 50% of the company’s electric generation is under long-term contract, 25% is under medium term, and 25% is sold on the spot market, Peterson said.
He noted NRG has taken a conservative approach to the application of hedge accounting, resulting in an unrealized after-tax gain of $35.9 million as of Sept. 30. The gain will reverse through profit and loss accounts when the underlying transactions are executed, the company said.