NRG Energy Inc. shares plunged Nov. 4 after executives disclosed 2022 guidance that was lower than expected and the company recorded an additional $85 million hit from February's severe winter weather.
The independent power producer blamed the supply chain constraints impacting many other electricity providers for the need to reduce 2022 EBITDA guidance to between $1.95 billion and $2.25 billion from a previous range of $2.4 billion to $2.5 billion. During midday trading, the company's stock was down 10% to $35.97 per unit.
"In addition to our Limestone unit 1 outage, which is now extended to mid-April 2022, constraints in the availability of coal are impacting both costs and volumes," Executive Vice President and CFO Alberto Fornaro said during a third-quarter earnings conference call. "In addition, our [Midwest Generation LLC] coal plants are impacted by a shortfall in necessary chemicals to run the environmental controls of the fleet."
In a note following the call Nov. 4, however, CreditSights questioned whether a Texas power plant outage accounted for the $50 million reduction in guidance and whether access to coal supplies accounted for another $100 million impact. Instead, CreditSights analysts said NRG is short power compared with retail contract commitments amid a surging power price environment.
Specifically, NRG sent 108 million MWh to retail customers, "over twice the 50 million MWh of production from its owned power plants," during the year ended June 30, CreditSights said.
"CreditSights strongly believes the lower guidance is mainly due to the fact they are short power and these retail contracts are generally 6-12 months in length," analysts wrote, so if power prices remain high, NRG may not be able to return to a run rate of $2.5 billion in annual EBITDA until the third quarter of 2022.
During the call, NRG President and CEO Mauricio Gutierrez explained why procuring coal is a supply chain issue.
"When natural gas prices move up, our coal generation flexes up and ... our coal supply chain doesn't flex up as quickly as you would like it to be, whether it's the commodity, the delivery, which is rail, or chemicals, which is to control the emissions," Gutierrez told analysts and investors.
"I actually wouldn't characterize it as a retail concern," Gutierrez added.
NRG also said it expects a total 2021 loss related to February's winter storm, before income taxes, of $1.07 billion, compared with prior estimates of approximately $967 million.