NRG Energy's CEO Discusses Q1 2011 Results - Earnings Call Transcript

| About: NRG Energy, (NRG)


Q1 2011 Earnings Call

May 05, 2011 9:00 am ET


David Crane - Chief Executive Officer, President, Executive Director and Member of Nuclear Oversight Committee

Christian Schade - Chief Financial Officer and Executive Vice President

Mauricio Gutierrez - Chief Operating Officer and Executive Vice President

Nahla Azmy - Vice President of Investor Relations


Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Angie Storozynski - Macquarie Research

Ameet Thakkar - BofA Merrill Lynch

Julien Dumoulin-Smith - UBS Investment Bank

James Dobson - Wunderlich Securities Inc.

Gregg Orrill - Barclays Capital


Good day, ladies and gentlemen, and welcome to NRG's First Quarter 2011 Earnings Conference Call. My name is Laura, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Nahla Azmy, SVP, Investor Relations. Nahla, please proceed.

Nahla Azmy

Thank you, Laura. Good morning, and welcome to our First Quarter 2011 Earnings Call. This call is being broadcast live over the phone and from our website at You can access the call presentation and press release through the link on the Investor Relations page of our website. A replay of the call will also be available on our website.

This call, including the formal presentation and question-and-answer session, will be limited to one hour. In the interest of time, we ask that you please limit yourself to one question with just one follow-up.

And now for the obligatory Safe Harbor statement. During the course of this morning's presentation, management will reiterate forward-looking statements made in today's press release regarding future events and financial performance. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risk factors contained in our press release and other filings with the SEC that could cause actual results to differ materially from those in the forward-looking statements in this press release and this conference call.

In addition, please note that the date of this conference call is May 5, 2011, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events except as required by law.

During this morning's call, we will refer to both GAAP and non-GAAP financial measures of the company's operating financial results. For complete information regarding our non-GAAP financial information and the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release and this presentation.

Now with that, I'd like to turn the call over to David Crane, NRG's President and Chief Executive Officer.

David Crane

Thank you, Nahla, and let me add my good morning, and welcome to Nahla’s. Today, I'm joined here by Mauricio Gutierrez, the company's Chief Operating Officer; and Chris Schade, the company's Chief Financial Officer, and they will also be giving part of the presentation.

We're also joined by Chris Moser, who runs the company's Commercial Operations; and Jason Few, who runs the Reliant Energy, and both will be available to answer any specific questions that you have in their area.

As all of us here are cognizant of the fact that we took up a good deal of your time just a couple of weeks ago discussing the STP 3&4 situation in light of the event in Japan, our prepared remarks today are going to be unusually brief. I'm also going to be referring to a slide deck, which I think is available on the website.

So as illustrated on Slide 3, to put it quite simply, we had a very good result in the first quarter of 2011, $455 million of adjusted EBITDA, ahead of our expectations and even when adjusted for seasonality, a good start in our objective of achieving or even exceeding our full-year guidance range.

Our better-than-expected financial performance was underpinned by a very robust operational and commercial performance by both our core generation business and our 2 retail energy providers, Reliant Energy and Green Mountain Energy. This robust performance was achieved notwithstanding long bouts of extreme winter weather experienced across our geographic footprint. While I know that the conventional wisdom is that wholesale generators are expected to do well financially during periods of extreme weather, what we found during the weather events that gripped the Texas market in early February is that there is often a divide between net expectation and reality. Reality depends on the dedication of hard-working employees and on their successful execution, and I am very pleased to report that this winter, our plants and our people performed exceptionally. Our retail load requirements were in aggregate properly hedged. And as a result, the company and its shareholders did very well.

The first quarter was generally marked by weak natural gas prices and wholesale electricity prices, which were unexceptional. But our results benefited substantially by the strong operating and financial performance of Reliant, which delivered $151 million of adjusted EBITDA for the quarter.

I noted previously that wholesale generation usually does well during extreme weather events. Conversely, retail load providers often can do poorly. In this regard, Reliant defied the conventional wisdom. It performed very well operationally and financially during the February weather events, and that is a testament not only to the exceptional operating performance of Reliant's management and staff, but to the intrinsic benefit of NRG's combined wholesale, retail business model.

Time and time again, over the past 2 years, but perhaps never more visibly than this quarter, we have demonstrated the advantages of the integrated business model of matching retail to generation, both in terms of commercial risk management and in terms of optimizing earnings and cash flow.

And from a cash perspective, the first quarter 2011 was another in a long string of highly cash-generative quarters for the company. This is important to us because as we often say, this is how we manage NRG and have managed through our 7 years at the company: To maximize cash generation and to allocate it efficiently and effectively.

The company, since the first quarter ended, executed $130 million out of our $180 million 2011 capital allocation program for share buybacks and repaid another $161 million of our outstanding debt as a result of the functioning of our mandatory cash sweep.

Finally, on Slide 3, the first quarter also was an eventful time in terms of the future shape of our industry, not only the events at Fukushima but the promulgation of the new EPA rules impacting coal plants, the enactment into law of the 33% renewable portfolio standard in California, the unexpected extension of certain Federal tax credits for renewable generation and even the seemingly inexorable rise in the price of crude oil and gasolines are all likely to have a profound impact on the future shape of our industry.

In part because Fukushima has impacted us quite directly, we have spent a considerable amount of time over the past months reflecting on these events and considering their impact on our businesses and our opportunities. Our conclusion that apart from the actions we already have announced and implemented with respect to our nuclear development program, the rest of our strategy is more compelling than ever. We're on the right track both in terms of focusing on our solar-focused renewable strategy and in putting more time and effort into our conventional gas-fired repowering efforts in high-value locations within our core markets. And I'm very pleased with the progress we've made in these 2 areas during the quarter.

With respect to our industry-leading Solar portfolio, we now have a clear line of sight into the financing of nearly 900 megawatts of solar projects, all which will begin construction by the end of this year. Most of these utility scale solar projects are solar PV projects, and all of them are being built with the benefit of long-term PPAs from either Pacific Gas & Electric or Southern California Edison.

Finally, there are big 3 solar projects. Ivanpah, California Valley Solar Ranch and Agua Caliente, have all received either a conditional loan guarantee commitment from the Department of Energy or in the case of Ivanpah, already have begun to draw down their DOE loan.

With respect to conventional power generation, we now have 1,400 megawatts of gas plants, either under construction or with long-term contracts at Middletown and Connecticut, El Segundo and California and Old Bridge in New Jersey. We have another 1,580 megawatts permitted at Astoria in New York City and Encina in California, which are seeking long-term offtake arrangements in order to move forward.

In short, both with respect to renewables and conventional repowerings, we have an attractive growth pipeline with limited risk and strong double-digit returns, and we see more opportunity in this area as a result of the pressure arising on incumbent baseload generation as a result of the events of the past few months, and we are in a good position to capitalize on these opportunities.

We expect to provide more detail around both our solar and our conventional growth pipeline on our second quarter call.

Turning to Slide 4. I have often said that the most important thing that we are directly responsible for as the executive management of NRG is capital allocation. As depicted on this slide, for the past 7 years, we have deployed a lot of capital, both from the substantial cash flow regularly generated by the company and from the external financing done in connection with the Texas Genco transaction.

We have been quite consistent in our approach to capitalize our allocation, our focused having been on being balanced, prudent and disciplined while maintaining the ability to act quickly when attractive opportunities arise, as we demonstrated both with the Texas Genco and with the Reliant acquisitions.

For the most part, our approach has worked to the benefit of our shareholders. Indeed, in the first quarter of 2011, around 90% of the company's EBITDA was generated by assets and businesses which we did not own when we started 7 years ago.

Further, we have taken the occasion of the STP 3&4 write-down to reassess our approach to capital allocation in light of the current circumstances and the risks and the opportunities of our industry. While there certainly are aspects of our approach which we are going to modify as a result of lessons learned, we're going to continue to emphasize balance, discipline and prudency with a dose of opportunism when attractive situations arise.

What is missing and what has been missing is capital flexibility. The restrictive covenants in our loan agreement simply make it impossible for us to allocate capital in the most efficient manner possible. Of course, we and all of you on the phone have known this for a long time. And indeed, we have attempted several times over the past years in various ways and with varying degrees of success to ease the constraints on our freedom of action with respect to the company's capital. But we have done so always guided by the fact that we need to gain that freedom of action in an economically rational way.

Today, we have announced that we are already pursuing a debt refinancing package that is designed ultimately to give us much greater freedom of action with respect to the deployment of the company's capital. Chris Schade is going to speak in much greater detail about our approach to this refinancing and the overall plans. So I simply want to point out as shown on Slide 5 that the ultimate goal of this program is to put us in a position where we have the opportunity to use a good chunk of the company's excess liquidity, to increase the stake of the company's existing shareholders and the extraordinary cash flow generation machine which is NRG.

Even in the currently subdued commodity price cycle, the company is demonstrating a high-teen free cash flow yield. As we go forward, we want to have the ability to protect and enhance that yield, not only by increasing free cash flow but also by significantly reducing the number of shares outstanding. This is one of the quickest and most certain ways in which we can clearly and demonstrably create incremental value for NRG shareholders.

Over the next several months, we will provide you with regular reports on our progress in implementing that financing plan. So now, I will turn it over to Mauricio.

Mauricio Gutierrez

Thank you, David, and good morning, everyone. Turning to Slide 7. Now, we're off to a positive start in 2011 with both our Wholesale and Retail businesses delivering strong operating performances during the first quarter. As David mentioned, EPA provided much awaited clarity around environmental rules affecting our generation portfolio. I will discuss those proposed rules in more detail in a moment.

But the key takeaway is that we do not expect at this time any additional environmental CapEx beyond what we have previously announced. With respect to our projects on the construction, the Middletown project is in the final commissioning phase and we expect these units to reach commercial operation in June. The Indian River Back-End Control project and the El Segundo Energy Center Repowering project are progressing according to schedule.

Finally, the Ivanpah Concentrated Solar Power project in California has started construction work, and it is expected to be fully operational in 2013.

As we have said in the past, the strong commitment to safety is a foundation to achieve superior operating results. And the first quarter of this year is a clear example of that.

Starting with safety on Slide 8. Our OSHA recordable rate of 0.66 was well within top decile in our industry, making it one of our best quarters ever. We have 35 sites out of 39 without a recordable injury in this first quarter.

Our overall net generation increased by 1.2 terawatt-hours, driven primarily by higher generation in Texas led by STP and the addition of Cottonwood to our subcentral portfolio. Generation in the Northeast was adversely impacted by lower coal dispatch in February and March. Our baseload plants performed exceptionally well, improving on last year's availability and reliability metrics, particularly when needed the most during the severe weather event that struck Texas in early February. The baseload availability factor was over 90% and reliability, measured by force outage rate, significantly improved compared to Q1 of 2010. Our gas and oil fleet maintained their superior start reliability of 97% while increasing the overall number of starts from prior year.

Turning to our retail operation on Slide 9. We delivered another quarter of strong financial results. As we indicated in our last call, we anticipated bringing our customer count to net 0 losses by the end of the year. In fact, this quarter, our net residential customer count grew by 11,000 since the end of 2010. Reliant also delivered lower bad debt expenses and our hedging strategy during the weather events in February was effective, avoiding any negative financial impact.

On the Residential segment, we continue to lead the market in Texas with innovative products and services that take advantage of smart meter capabilities, and we now have over 220,000 customers using at least one e-Sense product. We're also well along in the process to launch as a residential retail provider in the Northeast. We intend to fully leverage the integrated Energy Reliant model we have successfully executed in Texas. The C&I segment delivered the strongest performance since the acquisition and tripled fine load compared to Q1 of 2010. The C&I expansion into PJM has also preceded well and by the end of the first quarter, the team have signed nearly 1 terawatt-hours of term business.

Finally, the last 2 years, we have chosen to hedge at the retail portfolio exposure to our hurricane via structured transactions. This year, we have made the decision not to insure for a few reasons. Distribution system has been strengthened by the TMD [ph] company after Hurricane Ike. The risk of selling back high price supply at much lower prices have been reduced, and the cost of insurance has increased compared to last year.

Moving on to our market update on Slide 10. Texas continued to show strong fundamentals with demand growing by a healthy 1.8% on a weather normalized basis in the first quarter. And ERCOT is setting a new winter peak low of 57 gigawatts in February. On the supply side, we see little in terms of new generation and thus tightening our reserve margin should lead to higher forward heat rate in Texas.

We have also seen several positive developments for competitive capacity markets in the Northeast. In New York, FERC ordered an ISO to include property taxes and interconnection costs in its calculation of cost of new entries. In PJM, FERC approved a minimum offer price rule amendment and required new generation to bid no lower than 90% of net CONE.

Finally, in New England, FERC extended the price will [ph] through 2016 and instructed the ISO to develop a minimum offer price mechanism, similar to those using PJM in New York. All positive developments for our assets.

With respect to natural gas, prices have turned up, especially in the back end of the curve. I believe there are many factors, particularly demand driven, that are starting to change long-term market sentiments such as the prospect for nuclear power post-Fukushima, the incremental power demand from coal retirement and the possibility to export gas from the U.S.

As you can see on Slide 11, we have taken this opportunity to increase our hedges in 2012 from 52% to 60%, providing some downside protection where fundamentals continue to be vulnerable.

Beyond 2012, we remain on the sidelines given our fundamental view. Retail increased our price load obligations by 13% in 2011 and 8% in 2012. One of the benefits of our wholesale, retail combination is that we control when to vertically integrate the business and achieve maximum synergies and when to decouple it in go-to-market. These ongoing optimization translates into higher margins for our portfolio.

Our commercial group continues to focus on supporting our retail expansion in the Northeast and wholesale origination activities.

Just this quarter, we began serving two Arkansas series, totaling 350 megawatts of peak load on our South Central region. We will continue to build on our successes and the strength of our physical assets.

As I said in my opening remarks, March was a busy month for EPA. It released a proposed utility MACT and 316(b) rules. These rules, combined with a transport rule issued last July bring much needed clarity and certainty to the electric industry's planning process. I will just cover some of the highlights which I outlined on Slide 12 that allow NRG to reaffirm its compliant strategy.

As you recall, the transport rule is a new Cap & Trade program for SO2 and NOx. Important to our planning will be allocations, restriction on trading and limited requirements in Texas. The proposed MACT rule provides flexibility in that compliance can be achieved through facility averaging and company selected control technology. It also recognizes the inherent differences in mercury emissions from lignite coal.

Finally, the 316(b) rule, which addresses water usage, have not mandate cooling towers. These rules, while providing some flexibility for compliance, will have a significant impact in the power markets. We continue to expect between 30 to 40 gigawatts of capacity to be retiring in the next few years.

So in terms of NRG's generation portfolio, in the past week, I've disclosed the potential implications of a worst case regulatory scenario, with an incremental cost from our base plant of $900 million to $1 billion. Given that all 3 proposed EPA rules came within our expectation, while we await the final rules, we don't expect to incur any incremental CapEx, and we are reaffirming our base capital investment of $720 million for compliance with current regulations.

Now I will turn it over to Chris for the financial review.

Christian Schade

Thanks, Mauricio. Beginning with the financial summary on Slide 14. We are pleased with our strong first quarter results of adjusted EBITDA of $455 million and cash from operations of $216 million. Reliant Energy continued to perform well and contributed $151 million of adjusted EBITDA in the first quarter. Compared to the first quarter of 2010, Reliant's Q1 2011 results were approximately $40 million less and largely explained by a combination of lower volume sold and lower unit margins on both newly acquired and customer renewals.

As Mauricio also discussed, since acquiring Reliant, a primary goal has been to limit customer attrition and create new customer growth through a strategy of enhanced services and offerings. During the first quarter and as a direct result of these efforts, Reliant experienced favorable mass customer growth with the addition of 11,000 new customers since year-end 2010.

During Q1, our Wholesale Generation business contributed $304 million of adjusted EBITDA, an approximate $100 million decline compared to Q1 2010. Texas wholesale generation contribute $235 million of adjusted EBITDA, a strong performance in light of the challenging commodity markets but weaker than Q1 2010. The quarter-on-quarter decrease was caused by a combination of lower realized energy prices based on lower hedged prices and higher fuel transportation costs, which drove a 15% decline in realized margins per megawatt hour. Offsetting these declines were favorable quarter-on-quarter operating expenses of $14 million.

In the Northeast region, adjusted EBITDA declined $66 million due to a lower gross margin driven by a 25% decline in coal generation, lower hedged prices and a decrease to capacity revenues due to the expiration of RMR contracts in certain of our Connecticut plants, as well as lower realized LFRM prices and volumes. These decreases were partially offset by lower operating cost of $28 million as we look to reduce regional costs across the board but particularly at lower performing...

The West and South Central regions benefited from higher capacity revenue and increased merchant activity and together contributed $42 million of EBITDA during the first quarter of 2011, a 17% greater number than Q1 2010 performance.

At this time, we are maintaining 2011 EBITDA guidance range of $1.75 billion to $1.95 billion, an increase in free cash flow before growth guidance by $175 million to a range of $1 billion to $1.2 billion.

Before turning to the next slide, I would like briefly to provide an update to our 2011 capital allocation plans. We recently purchased $130 million of NRG shares or 6.2 million shares at an average price of $20.87. This leaves $50 million for additional purchases under the announced 2011 plan, which will be completed before year end. We will also continue to consider the possibility of further share repurchases within the confines of our existing restricted payment baskets and our high-yield notes.

Turning to Slide 15, total liquidity, excluding funds deposited by hedged counterparts, remained strong during Q1 at about $4 billion, which included total cash of $2.7 billion. This healthy liquidity position permits ample room for us to continue to execute on our near-term solar development program, as well as considered future capital allocation commitments.

Now turning to 2011 guidance on Slide 16. Although NRG has begun the year on a strong note, we are currently maintaining the 2011 EBITDA guidance as I've previously said at $1.75 billion to $1.95 billion. However, we are raising free cash flow growth by $175 million.

Increase in free cash flow guidance is directly a result of the increase in margin collateral received during the first quarter, as well as a reduction to environmental CapEx caused by the issuance of tax exempt funds associated with the Indian River Air Quality Control System project.

It is our goal to provide greater priority and performance by narrowing EBITDA guidance range throughout the year after Q1, since the summer weather conditions can meaningfully affect our performance.

On Slide 17, I would like to explain our goals to simplify our existing capital structure as David has previously stated. This undertaking will involve a 2-stage process and encompass our existing first lien facilities, as well as those senior notes containing certain restrictive covenants. Stage 1 is focused on our first lien debt and is expected to be completed around the end of Q2 or early Q3 of 2011. Our goal during Stage 1 is to issue a single $2.3 billion revolver to replace an existing $1 billion revolver and $1.3 billion letter of credit facility. We also intend to issue a new 7-year, $1.6 billion term loan B facility to replace 2 outstanding existing term loan B tranches. Our primary goal in this process will be to eliminate investment basket restrictions, cash flow sweep restrictions and mirror the covenant packages currently in the indentures governing our most recent bond issuances and specifically those in 2018, '19 and 2020.

Second in Stage 2. It is our goal to refinance the $3.5 billion of 2016 and 2017 notes over the coming 6 to 9 months. The completion of this stage is consistent with our strategy of refinancing these bonds at respective coal dates similar to the transaction we completed in January of this year and our 2014 maturity. As part of this refinancing, we expect to replace restrictive covenant packages with a more flexible structure, allowing us to return value to shareholders.

Furthermore, upon completion of the final refinancing, NRG will have a common covenant package across all debt maturities.

As a reminder, those common covenants of which I am referring to are governed by cash flow metrics rather than income, which we believe is better aligned and more suited with how NRG runs its business. Long term benefits NRG and its stakeholders through successful execution of this debt restructuring are numerous. First, there is an immediate improvement in the debt maturity profile with the nearest maturity of either our first lien debt or bonds no sooner than 2016. Second, a common covenant package will be aligned across the NRG capital structure permitting greater flexibility and a creation of a long range approach to capital allocations, both for a more efficient approach to the reinvestment in our business and/or return to shareholders. We look forward to sharing our long range of more predictable planning goals with you in the future as we complete this refinancing process and work through future growth plans and capital requirements.

Now, I'll turn it over to David for questions.

David Crane

Thank you, Chris. And before we open the floor to questions. Just one summary remark. We've been asked many times over the past few weeks whether we plan any new strategic initiatives to take the place of nuclear development. And the short and simple answer to that question is no. Our strategy was and still is a multi-pronged growth strategy incorporating many initiatives, which are designed to capitalize on what we see as being very attractive opportunities opened to the 21st century power companies. We think if we successfully execute on these initiatives, we will substantially enhance the shareholder value in the years to come. The dimmed prospect for the nuclear renaissance in the United States either have not affected our other initiatives or in some cases, they've actually enhanced the attractiveness of these other opportunities.

So our plan, quite simply, is to redeploy the time, energy and resources we were putting into new nuclear developments into a near -- people at NRG know that I'm a big fan of alliteration into the 4 Rs of renewables, repowerings, retail and repurchases. So with that, Laura, we'd be happy to answer any questions that people have.

Question-and-Answer Session


[Operator Instructions] Your first question comes from the line of Brandon Blossman from Tudor, Pickering, Holt & Co.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

So I know you've covered this in your prepared comments but more details on growth plans in conventional and renewables.

David Crane

I'm sorry, Brandon. The question is of what our growth plans are in conventional and renewables?

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Yes. You noted more details in the second quarter. You also noted that the STP being off the table doesn't change any plans, but you're at least reviewing your brownfield opportunities.

David Crane

Well, Brandon, just -- I mean, we have -- the main thing in the renewables front is we don't have any new initiatives in terms of onshore wind. We have NRG Bluewater that's pursuing offshore, but that's a long process still I think. It's overwhelmingly when you focused on solar, and we have this pipeline that we think will go into construction, we'll use the benefits of the cash ITC program that's available through the remainder of this year. As I mentioned, that's close to 1,000 megawatts. Beyond that, we have a development pipeline. It's earlier stage and so things can come and go, but that can be another couple thousand megawatts over the next few years. So we're going to have a lot of focus on that area. To date, that has been out in the southwest United States. We are looking to get more involved in solar further East, I mean, certainly in Texas but also actually in the East. But that's still a work in progress.

On the conventional side, one of the things that we think is going to come about obviously is that we've had sort of a reversal in terms of solid fuel baseload. While clearly, the prospects for a nuclear development in the country outside of the deep South have dimmed substantially. And now that we have much greater clarity about coal-fired generation because of the promulgation of the EPA rules, we at least have a sense of what's going to happen in that market and you can actually price opportunities and you can price gas as an alternative. We have a lot of great sites around the company in the Northeast and Texas and the West Coast. The transmission system depends upon power from a lot of our sites. So we have mainly a brownfield development, redevelopment effort at many different sites around the country, and I think we're going to be re-evaluating that and see if we can get more plants permitted. But I think with where our market prices are, we are currently operating on the assumption that anything we do is going to benefit one way or another from a long-term offtake arrangement. And we'll try to be more specific on the second quarter call because there are live projects that we think will have greater certainty by that time.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Okay, looking forward to that. And then just as a follow-on. Any incremental updates on I guess equity sell down in the larger solar projects?

David Crane


Christian Schade

Brandon, it's a process we just recently started and kicked off, so there's really no update. It's ongoing. The responses we've received from the initial potential investors we've seen has been very positive. But we expect it's going to go on through the rest of this quarter into the early part of the third quarter and we'll update it then.


Your next question comes from the line of Angie Storozynski from Macquarie Capital.

Angie Storozynski - Macquarie Research

I wanted to ask about your environmental CapEx. So your assessment is that you'll still see 30 to 40 gigawatts of coal plant retirements on the back of those new EPA regulations, and yet you no longer see any additional CapEx that is required for your coal plants. Could you comment in particular with regards to your Northeastern assets?

Mauricio Gutierrez

Angie, this is Mauricio. As you know, Huntley and Dunkirk and Indian River, they have been under constant degree [ph]. We have already made significant investments on those facilities. We believe that the back-end controls that we have installed in Huntley and Dunkirk or that we're installing in Indian River will be sufficient to comply with those rules. When we say 30 and 40 gigawatts, we really think that Eastern coal generators will have to install either significant environmental control equipment or retire. So whether we see that happening Midwest, Southeast and Mid-Atlantic, we think that, that's where the majority of the impact is going to be felt. So I think on our environmental CapEx, we really are focusing on controlling mercury to ACIs and for vacation [ph] needs of fabric filters to control mercury and SO2. And we think that with that, we will be able to comply with the rules.

David Crane

Angie, I just really want to emphasize because I know you're aware of this, but maybe not everyone in the call is as familiar as you are with this industry. But I just want to reiterate Mauricio's assessment that the rules that came down, I mean, you hear a lot of different noises from the industry about the EPA rules. Some people would say they are extremely harsh, others who say that they're workable and it really comes down to a Western coal versus an Eastern coal situation. And I'd like to take credit for it. But even before I was here 7 years ago, the decision to move the coal plants of NRG from Eastern coal to Western coal seems to have paid off in this situation. So it is all about these Eastern coal plants. And Mauricio, we're in a situation here with our fleet where we're not using much Eastern coal at all. Is that right?

Mauricio Gutierrez

Right. I mean, what is left is Indian River 4 and that is less than 5% of the total coal that we consume now in our fleet.

Angie Storozynski - Macquarie Research

Okay. Now, given the drop-off in earnings in the Northeast. I understand the RMR contract expired there and that was the biggest year-over-year driver. But is there, I mean, is there anything that you can actually do to either renew these contracts or is it just retire the facilities?

Mauricio Gutierrez

Well, Angie, I mean, 2 things. One, we had a warmer than normal February and March that really impacted the generation of power coal fleet in West New York. We're constantly evaluating the profitability of our plants. We think that the market is starting to rebound. We're going to go into the second quarter and third quarter where higher capacity prices and going into the summer will increase the profitability of our plants.

David Crane

Angie, can I just add though because you make a very good point which I think is one of the most interesting areas in the country in terms of the future of power generation mix is the Northeast. Because if you look at it, I mean, we actually performed pretty well. I mean, in terms -- the fact that our EBITDA result in the Northeast went from $77 million last year to $10 million is not because of a weak performance of our units. It's because that's what we got out of the marketplace in the quarter. And the Northeast fleet is older than the rest of the country's fleet and I think there's just a lot of question about what going to be the power generation in the future. But if someone like us with several thousand megawatts manages to extract $10 million in EBITDA, it's not a sustainable situation long-term.


[Operator Instructions] Your next question comes from the line of Gregg Orrill from Barclays Capital.

Gregg Orrill - Barclays Capital

I know you talked about the refinancing you're looking to do and how that would help you to allocate capital more efficiently. Is there anything specifically within your strategy that you feel that the way things are now is preventing you from doing? And maybe also within the context of the big cash balance that you have.

David Crane

Well, Greg, I mean, I may be misunderstanding your question but I mean there's nothing that I know of in the covenant package that's really and unduly restrictive in terms of reinvesting in the business. It's all -- because I feel that in the scheme of things, we've been very disciplined in that approach. The company has accumulated this large cash balance and as a high cost of capital company, it's clearly inefficient for us to be holding that amount of cash on our balance sheet. So really the only constraint that we're trying to relieve right now is our ability to return that capital to shareholders at this share price, through our share buyback. But if we were at a more reasonable share price, there are other ways of returning capital to shareholders. Chris, if you will.

Christian Schade

That's correct. And until we relieve the restrictions into the outstanding indentures governing the 2016 and '17 maturities, we're going to be prohibited from returning much more than the $180 million that we've currently announced for this year, perhaps maybe more in the margin. But the relief that we're going to get in the new maturities, which will mirror the indentures that we have and the other outstanding and new early issued bonds, is quite significant and allow us to look quite holistically at capital allocation across the...

Gregg Orrill - Barclays Capital

And then maybe a quick follow-up. How much would step B of the refinancing cost you in terms of calling the senior notes?

David Crane

Well, the call premium is 103 in 5 days [ph] roughly on the 2016. So on $2.4 billion, that would be the call premium there which is roughly $85 million of call premium that we would pay. The 2017s are yet callable. There was a make-up [ph] call which is depending on the day you choose treasuries of about 110 versus the call that comes due in January of 2012, about 103 in 5 days. So there's a significant difference between getting at the 2017s now and waiting for the call period in 9 months from now, which we expect to do. So that would be -- and that issue in 2017 is at $1.1 billion.


Your next question comes from the line of Jay Dobson from Wunderlich Securities.

James Dobson - Wunderlich Securities Inc.

David, I was wondering if maybe Mauricio could talk in a little more detail about the Texas impact on both retail and wholesale from February 4?

David Crane

I'm sure he would love to, Jay. Mauricio?

Mauricio Gutierrez

Well, I mean, I think we've been quite public about the excellent performance of our fleet during those days and the price spikes that happened, which basically demonstrates how competitive markets work.

On the retail side, the convention is that during these events, retail providers tend to be heard. In our case, through the hedge profile that we have provided to Reliant, they were no longer insulated on February 2 but to some extent benefited by the sudden decrease of our power prices following these events, with higher loads that were maintained because of our coal [ph] prices. So I think exactly on the days that happened, our Generation portfolio was ready to be deployed and in the aftermath where power prices decrease significantly, the Retail portfolio out-performed [ph]. But keep in mind that the result of our presenting, yes, I mean, the February 2 events held but this is in prior quarter results.

James Dobson - Wunderlich Securities Inc.

Okay, fair enough. So I'm trying to get my head around sort of $1 impact of either in retail and wholesale or aggregating the 2 together. You're suggesting the positive impact would be small.

David Crane

Well, let me just answer that by saying I don't even know a specific dollar impact to that event and so if I don't know, we're not going to tell you what exactly it is. But in the scheme of the quarter, I don't think it was a significant number. But it's always better on any given day to make more money than you lose. So we're pleased with the outcome on that day. But we don't have a specific number from the ISO event itself that we can give you.

James Dobson - Wunderlich Securities Inc.

Okay, great. And then just on Green Mountain. No, it's not the biggest piece of your business but you lumped it into corporate, just what the adjusted EBITDA contribution was?

Christian Schade

We said that Green Mountain would contribute $70 million to $80 million of EBITDA for the full year and their performance during the first quarter was good, and there's no reason to think that we will not be within that range at the end of the year.

James Dobson - Wunderlich Securities Inc.

Okay, fair enough. And then lastly, Chris, just the capacity under the RP basket at the quarter end?

Christian Schade

About $50 million. So we completed the $130 million, we said $180 million. So we have the $50 million remaining which we'll get to in short order.


Our next question comes from the line of Julien Dumoulin-Smith from UBS.

Julien Dumoulin-Smith - UBS Investment Bank

I want to find out with respect to the Ivanpah project, there's been some headlines out there about the BLM recent decision to partially suspend construction of the project at least on, I believe, 2 of the 3 units or sites? Do you mind commenting with respect to how that might shift in service of the total project?

David Crane

Well, Julien, there's no shift yet. I mean, the important thing as you say is on 2 of the 3 sites and that the most active -- I mean, like most good developments, Ivanpah was being built in a staggered approach. Ivanpah 1 first and then 2 and 3. And most of the activity, not all of the activity but most of the activity is around Ivanpah 1 which was not affected by the BLM action. And we believe and hope that, that action is just going to have a short-term impact on the day to day schedule. And at this point, there's no reason to think that the overall schedule is going to change at all.

Julien Dumoulin-Smith - UBS Investment Bank

Great. Exactly what I thought. And then secondly, with regards to NRG's decision to join MISO, I'd be very curious if you have any kind of read on what that would do for your own portfolio in the region, specifically, as it relates to potential capacity payments, et cetera.

David Crane

Well, I'm not sure that we're in a position yet to talk about specific capacity payments. I mean, I'll hand the floor over to Mauricio and I'm pretty sure he won't answer the question either. But I would say that overall, the decision to actually answer MISO is we think is significantly positive decision for our portfolio, but we're not getting excited about it. Too early because we've seen in the past that this can take several years to actually happen. So really anything that we said would be pretty speculated, would be pretty far out in the future. Mauricio, do you want to obfuscate around that further?

Mauricio Gutierrez

I mean, I would say that I think it's too early to tell and in general, we like organized markets where there is clear transparency on transmission and dispatch and clearly NRG moving to MISO you say it's a positive development for our portfolio. And you already mentioned on the capacity markets, I mean, I think show the characteristics of a proven organized market are going to be positive for our South Central region.

Julien Dumoulin-Smith - UBS Investment Bank

Great. And a very quick last question. You have a substantial cash balance, talk about refinancing the senior notes here. Is there a potential that you would use cash on the balance sheet as part of the refinancing plans, if you will? Or would you just basically refinance the dollar for dollar both of the 16 and 17?

Christian Schade

No, I think we're certainly looking to putting some cash towards the refinancing. I think to accomplish 2 things. One perhaps just to reduce overall leverage in maintaining our good balance sheet targets. And second, to relive any potential sort of reaching [ph] costs on refinancing lumpy tranches to try to remove some of the market risk that might exist around some very largely-sized tranches in any given maturity.


Your final question comes from the line of Ameet Thakkar from Bank of America Merrill Lynch.

Ameet Thakkar - BofA Merrill Lynch

Looks like you guys highlighted the Old Bridge project as a potential opportunity and then I guess in your presentation told, you kind of refer to the FERC ruling on the Melper [ph] provision. I guess how do you guys view [indiscernible] the project given the recent ruling by the FERC [indiscernible] supporting them over?

David Crane

Well, I think, Ameet, and again I'll ask Mauricio if he wants to amplify anything I say. But I think essentially the way we look at it is first of all, we support the FERC ruling. We think it's good for capacity markets throughout the Northeast. So it's a positive precedent. In terms of the impact on Old Bridge, obviously, there's a lot more water that's going to flow down the river on that with the disputes between the state and FERC and the litigation and all. But from our perspective, we feel a low cost option to proceed with the Old Bridge award if it makes sense to do so. And we'll just see how it plays out over the next year. Mauricio, do you want to add to that?

Mauricio Gutierrez

No. I think that’s…

David Crane

But it's very hard for us to predict specifically the way it's all going to pan out, but the burn rate in terms of the development of that project is quite low relative to other things that we are doing and have done in the past. So we're very pleased with where we sit. And Ameet, as I think we've said many times, to the extent that there are weaknesses in our portfolio, we would like to have more based intermediate load generation in PJM, particularly in Eastern PJM. So it was an attractive opportunity for us.

Ameet Thakkar - BofA Merrill Lynch


David Crane

So operator, with that, I think we will call it a day. We appreciate everyone taking the time to participate in this call. We look forward to talking to you on the second quarter call if not before. Thank you very much.


That concludes today's conference. You may now disconnect. Thank you for your participation.

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