Earnings Call Transcript - NRG Q1 FY2026

Operator

Good day and thank you for standing by. Welcome to the NRG Energy Incorporated's first quarter 2026 earnings call. At this time, all our participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Brandon Mulhern, Head of Investor Relations.

Brendan Mulhern, Head of Investor Relations

Please go ahead. Thank you. Good morning and welcome to NRG Energy's first quarter

Brendan Mulhern, Head of Investor Relations

2026 earnings call. This morning's call is being broadcast live over the phone and via webcast. The webcast, presentation, and earnings release can be found in the investors section of our website at www.nrg.com under presentations and webcasts. Please note that today's discussion may contain forward-looking statements, which are based upon assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the safe harbor in today's presentation, as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to our earnings released in the non-GAAP reconciliations and supplemental data file located in the Investor section of our website. With that, I will now turn the call over to Robert Gaudet, NRG's President and Chief Executive Officer.

Robert J. Gaudette, CEO

Good morning, and thank you for joining us. I'm joined today by Bruce Chung, our CFO, and other members of the management team who are available for questions. Before we get into the quarter, I want to briefly acknowledge the CEO transition. I've been with NRG for over two decades and have worked across the company through multiple market cycles. That experience shapes how I think about and operate this business. I want to thank Larry Coben for his leadership over the past several years and the impact he's had on this company. I also want to acknowledge our employees across the business. The work you do every day is what makes this company run and positions us to deliver for our customers and our shareholders. As I step into this role, I view our responsibility clearly. We are stewards of your capital. Our job is to allocate it with discipline, operate efficiently, and deliver consistent long-term returns. That's how I'll run this company. i've seen this business at its best and at its most challenging over time outcomes come down to how well we operate and how we put your capital to work we've positioned the business for where the market is going and i see a clear opportunity to build on that and drive the next phase of performance i have a high level of confidence in where we are and i'm excited about the opportunity in front of us. With that, let me turn to slide four and walk through our key three messages. First, we delivered strong operational performance and are reaffirming our 2026 financial guidance and capital allocation. The business is tracking the plan, our teams are executing, and the results reflect the underlying conditions this quarter. Second, we're seeing a sustained shift in power demand outlooks across our markets, with regulatory frameworks continuing to evolve in response. What matters is not just that electricity load is growing. It's the pace, the location, and the duration. Near-term conditions remain variable, and that is reflected in current market signals. And third, we're positioned to capture significant value from this environment. We have built a platform for where the market is going, with the flexibility to develop capacity alongside long-term demand as those opportunities evolve. Our base plan stands on its own. It does not require incremental contribution from large load or new development to hit our numbers. Those remain upside. Our job is to execute, allocate capital effectively, and convert the opportunity in front of us into results. Turning to slide five, first quarter results reflect a soft market environment Texas was mild with heating degrees day days down 30% year-over-year and the market offered limited opportunity where storm fern drove significant price spikes across PJM in late January but we closed the LS power transaction on January 30th after most of the storm had passed so those assets were not part of our fleet during that period bruce will take you through the numbers what i want to be clear about none of that changes our view of the business or the year we are reaffirming guidance and the business is on track integration of the ls portfolio is underway and progressing well the assets are performing as expected and we're focused on fully incorporating them into our operating and commercial platform Our first Texas Energy Fund project, T.H. Wharton, is expected to come online in May, on time, on cost, and on spec, qualifying for the TEF completion bonus. Our remaining TEF projects continue to progress on schedule. At one and a half gigawatts, these three projects will power roughly 300,000 Texas homes at peak demand, arriving just as the state continues to add nearly 400,000 new residents a year. Very few companies have recent experience developing new natural gas generation. We have, and we're good at it. These projects were developed at well below current new build costs because we identified the opportunity and prepared the sites years before the TEF program existed. When the moment came, we were ready. If we execute on what is in front of us, this capability will be one of the most important competitive advantages in our industry. This is what you should expect from NRG. We look around the corner, we prepare, and when the opportunity is there, we bring it home on time and on budget. Turning to slide 6 for an overview of our key markets. Demand expectations continue to increase. This quarter's earnings season reinforced the scale of investment being directed toward AI infrastructure, and the implications for power demand are significant. ERCOT the numbers are straightforward the system's all-time peak demand is more than 85 gigawatts the preliminary long-term load forecast filed this month shows the pipeline of large load requests reaching over 367 gigawatts by 2033 that is more than four times today's record peak in under a decade not all of that materializes but even if a fraction of what is in that pipeline arrives on those timelines, this market looks fundamentally different from the one we're operating in today. Senate Bill 6 and the large load batch process are bringing more structure to how new demand connects to the grid, and we support those reforms. I want to specifically thank the PUCT and ERCOT teams for including Bring Your Own Generation support in the initial batch process. That's an important step in aligning new demand with new supply and supporting reliable system growth. In PJM, the reliability backstop procurement is an important step to help bring new capacity forward, and we appreciate the coordination across PJM, state policymakers, and the federal government in advancing these efforts. Within our existing fleet, we see up two gigawatts of upgrade and commercial conversion opportunities this represents an incremental one gigawatt above the previously disclosed ct to ccgt conversion opportunity with the additional capacity coming from more traditional natural gas upgrades we will pursue those where structures and returns support it through the procurement process or bilaterally where appropriate we'll move forward selectively each opportunity must compete for capital meet our return thresholds and be supported by long-term commitments from high quality customers turning to slide seven i want to be specific about what makes our position in this market different because i do not think it's fully appreciated yet we serve commercial and industrial customers at a scale very few companies in this industry can match that's not something you acquire it's built over decades to relationships credit operational track record and the ability to structure complex agreements across multiple markets we have that foundation and it's the reasons customers come to us when problems get hard on flexible load we acquired C power because this is the leading commercial and industrial demand response business in the country our Texas residential virtual power plant is targeting one gigawatt of capacity and we can only operate at that scale because we have the retail electricity business and smart home technology behind it no one else has both of those running inside a generation and retail platform at our size when load needs to move we can move it on generation we operate a large dispatchable natural gas fleet primarily in ERCOT and PJM these assets run when the system needs them they did demonstrated that again this quarter and they provide real earnings leverage as load growth materializes in our markets On development, our TEF projects are under construction. Our partnership with GEV and Kiewit gives us construction capability, equipment access, and execution readiness that most companies in the space are still trying to establish. As the right opportunities emerge with the right structures, we are ready to move. At EJM, we have additional development opportunities across up rates and conversions that we will pursue through the procurement process or bilaterally where structures and returns support it. Taken together, this is the platform this market is asking for. We can solve complex load problems. We know how to develop and build. We have equipment and labor access. We can move load when the grid needs it. And we have the customer relationships and scale to back it all up. I am confident in where we are going discussions on large load agreements are active and progressing these are complex long duration structures and we're moving forward in a disciplined way we are seeing strong engagement in the right top types of opportunities and we feel good about how these discussions are developing based on what I'm seeing today I have a high level of confidence in this company's position with that I'll turn it over to Bruce

Bruce Chung, CFO

Thank you, Rob. Turning to slide nine for a discussion on our first quarter financial results. Before I go into the results, I wanted to be sure to highlight three items, and on track to deliver within our 2026 guidance ranges, and as such, we are reaffirming those ranges today. Second, during Winter Storm Fern, our generation fleet demonstrated excellent operating and reliability performance, once again reflecting the benefits of our robust Generation CapEx program over the past few years. And finally, as a reminder, the LS Power Portfolio acquisition closed on January 30th. As such, our first quarter 2026 results reflect approximately two months of earnings contribution from the recently acquired portfolio. Now, on to our financials. NRG delivered adjusted EBITDA of $1.08 billion, adjusted net income of $308 million, and adjusted EPS of $1.49 for the first quarter of 2026. Year-over-year adjusted EBITDA was lowered by $46 million. This reflects the impacts of milder weather in Texas for most of the quarter and increased supply costs in the east due to winter storm fern offsetting incremental earnings from our newly acquired portfolio. It is also worth mentioning that favorable weather was a big factor in making 1Q25 a record first quarter for NRG, thereby making the year-over-year comp for 1Q26 more challenging. To finish on consolidated results, both adjusted EPS and adjusted net income were also lower on a year-over-year basis. The declines reflect higher interest expense and depreciation and amortization associated with the LS Power portfolio acquisition, as well as the partial period contribution of the acquired assets. Turning to segment results, Texas experienced the impact of unfavorable weather on our home energy volumes, as well as lower average power prices and minimal market volatility, which weighed on both our retail consumer business and commercial optimization activities. Specifically, Houston on-peak prices averaged $29 per megawatt hour, down approximately 13% from last year. Notwithstanding the general lack of weather during the quarter, our fleet was well-prepared to handle any moments of extreme volatility due to weather as evidenced by fleet performance during winter storm fern. Increased investment in our generation assets has been an important focus for the company over the past few years, and it is great to see that investment paying off. Our each segment results benefited from our recently acquired portfolio, reflecting the immediate contribution these assets are making to the combined platform. However, these gains were offset by higher regional power supply costs incurred during Winter Storm Fern. PJM West Hub on peak prices for the quarter averaged $103 per megawatt hour, up approximately 72% from last year, a tailwind for our generation dispatch, but a headwind for our retail supply costs since we had not closed on the acquisition at the time of Winter Storm Fern. As a reminder, we closed the LS Power acquisition late in the storm, so we did not have access to those assets for most of the events. Segment results benefited from higher retail power margins driven by lower supply costs and favorable customer mix and include the impact of the expiration of the Cottonwood lease, which ended in May 2025. Smart home results reflect continued organic customer growth and expanded net service margins, supported by sustained customer demand for our connected home platform. The business ended the quarter with approximately 2.37 million customers, a year-over-year increase of 9%, well ahead of the 5% to 6% net customer growth embedded in our long-term growth plan. Moving to slide 10 for a look at our 2026 capital allocation, which remains unchanged from what I outlined on our fourth quarter call and is fully consistent with our previously disclosed priorities. As a reminder, the waterfall on the left begins with $3.05 billion of capital available for allocation, reflecting the midpoint of our updated free cash flow before growth guidance range. As part of our ongoing commitment to a strong balance sheet, we expect to execute approximately $1 billion toward debt repayments throughout the year. On that front, I want to highlight an important balance sheet action completed subsequent to quarter end. On April 28th, we closed on $3.5 billion of new financing, retiring the $1.5 billion Lightning Senior Secure Dotes and reducing revolver borrowings, a key step in our post-acquisition deleveraging plan and consistent with our three-times net leverage target. This financing paves the way for the future removal of the ring fencing we had in place when we closed on the acquisition and will result in more than $10 million of annual net interest savings. Turning to return of capital, we remain on track to return at least $1.4 billion of capital to shareholders in the form of share repurchases and common dividends. Through April 30, 2026, the company completed $817 million in share repurchases, inclusive of our negotiated repurchase of 1.83 million shares from LS Power. Finally, we are allocating the remaining capital to continued investments in our core portfolio with $310 million directed towards growth. NRG delivered solid first quarter results in a challenging weather environment, once again demonstrating the resilience of our integrated platform. Our guidance reaffirmation today reflects confidence in the full-year outlook, underpinned by disciplined capital allocation, prudent liability management, and the growing contribution from the LS Power portfolio. With LS Power integration well underway and tracking ahead of plan, we are well positioned for the remainder of 2026. I look forward to updating you on our progress in the quarters ahead. With that, I'll turn it back to you, Rob.

Robert J. Gaudette, CEO

Thank you, Bruce. Let me close with our priorities on slide 12. We will run the fleet with a relentless focus on safety, reliability, and performance. That's the foundation this company is built on. We will continue to serve our customers with discipline, focusing on value, retention, and the integration of our retail, smart home, and flexible demand capabilities to strengthen those relationships over time. We will be disciplined in how we allocate capital, maintain a strong balance sheet, and continue to return capital to shareholders. We're advancing our key growth initiatives and are on track to deliver at least 14% adjusted EPS and free cash flow per share growth over the next five years before any contribution from large load or incremental development. As I step into this role, that's where my focus will be, running this business with discipline and consistency, driving efficiency, allocating your capital with accountability, and converting the opportunities in front of us into results.

Brendan Mulhern, Head of Investor Relations

Operator, we're ready to open the line for questions.

Operator

Thank you. At this time, we will conduct a question and answer session. As a reminder again, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by as we compile the Q&A roster. First question comes from the line of Char Perez from Wells Fargo. Your line is now open.

Char Perez, Analyst — Wells Fargo

Hey, guys. Good morning. Morning, Char. Morning, Char. Rob, big congrats on your first earnings call. I know it's going to be one of many. I know, obviously, the focus is on ERCOT, but in terms of PJM and the regulatory process there, do you guys see FERC, PJM co-location rules, opening up opportunities to bring both new generation and upside in existing assets in that market? I mean, it looks like, you know, peers are having conversations with customers, so there is an opportunity with the asset base there as we're thinking about a tentative framework on things like new capacity versus existing capacity matching.

Robert J. Gaudette, CEO

Yeah, so great question. I believe that the PJM process, and look, I applaud, you know, all the effort that's going on between the states, PJM, the White House, to try to make things happen up there. I think it presents kind of three opportunities for NRG, if you think about it. We've obviously got up to about two gigs, what we talked about today, and up rates around existing assets that we picked up through the LS acquisition. We have the opportunity to take the GE turbines up there if the economics makes sense and a customer is willing to go there. And then the third piece, and I think this is kind of the place where it's new, is the potential to offer in kind of the load management side. So the BPP that the team's building down in ERCOT, that's something we can use up north. And, you know, through CPOWER, we've got a real capability around demand response. I think all of those pieces are opportunities for NRG, and I think they're also real reasons to think about how to solve the equation up in PJM.

Char Perez, Analyst — Wells Fargo

Does that answer your question? Yeah, totally, Rob. I appreciate that. And then in terms of the 5-gigawatt plan in Texas, do you still anticipate all the capacity to be utilized front of the meter, or is there a higher return option with BTM deals? As we've seen an increase in behind-the-meter announcements with higher implied levelized revenues in the 150 range. Maybe any thoughts on how you're thinking about the 90 to 95 range that you had previously talked about? Thanks.

Robert J. Gaudette, CEO

Yeah, so the 90 to 95 was kind of where we kind of put the top end for like a normal data center deal, depending on the structure and where we would go. You know, the thing that we're going to capture, Char, is what our returns require. So the prices could go up depending on the environment. Our primary focus is front of the meter generation, front of the meter data center, because we believe that's the right thing for the market. But, you know, we'll look at everything. We'll look at behind-the-meter solutions. We'll look at all of it. The conversations that we have today are front-of-the-meter conversations, and they're progressing, you know, as well as they have been over the last 12 months. We continue to push really hard to get that done. I think front-of-the-meter is the right solution, and we're getting to a place now where we're going to get something done quickly.

Char Perez, Analyst — Wells Fargo

And just I'll echo again one more time, just a big congrats to you on Phase 2 and just do me a favor, make sure you work, Bruce, a little bit harder than Larry does. Thank you.

Operator

Thank you. Our next question comes from the line of Julian DeMullen-Smith from Jefferies, LLC. Your line is now open.

Julian DeMullen-Smith, Analyst — Jefferies

Hey, good morning, Rob. Thanks again for the time. Congratulations on the role. And Bruce, man, hang in there. I've got to tell you, watch out. Thank you. Good morning. there we go i love it uh well look let me let me follow quickly on here i mean obviously talked about mild weather here in the quarter etc but how do you think about offsets for 26 and then more probably more importantly here how do you think about what we've seen in the power curve moves thus far i mean rob you've been watching these markets for a long time how do you how do you view you know the the move in the forwards here in irk out of late relative to any potential delays and bad zero or any other interpretations maybe it's just transposing what we've seen in softness year-to-date forward, or what have you. Let me get perspective here. And also hedging

Robert J. Gaudette, CEO

views around that. Right. So I'll take that in parts. Let's talk about the markets first. You know, the markets are, you know, they showed up, you know, physically weaker in the quarter. That's a reflection of, you know, the supply demand and just lack of weather, right? There just wasn't any real weather in ERCOT. The traded markets tend to have a recency bias. So when and people aren't excited, they kind of lean out the back and you see the curves kind of trade down a little bit. And then what I would also tell you, and, you know, we've talked about this in the past, you know, as far as out the curve, the real transaction capability or the things that are going on that are setting that curve are the large C&I customers and what they're doing around the markets. You think about the macroeconomic environment that we're in today, that puts question marks into our big customers and what they're thinking. And so as that cleans up as the conflicts around the world help people have a little bit better view into what their business looks like, in five years, that helps them get back out into the market and provide some support in the market. There's no natural buyer out there unless you're a large industrial trying to lock up your time. As far as, I don't remember the second question, Julian. What was it?

Julian DeMullen-Smith, Analyst — Jefferies

Well, I mean, I was thinking about just offsets on 26 here. Just if you think about, like, you know, softnesses of the year, see the REAF firm, is there anything that we should be keeping in mind there?

Robert J. Gaudette, CEO

Well, so I think that, you know, the way our markets work is, you know, I talk about how we, what's left in the year. You still have summer in front of you, Julian, right? We still got, you know, potential heat in Texas anytime. And so we've got to manage through that. We've invested in it so that our plants are ready to capture it. And then we've got the retail businesses ready to serve our customers. As far as offsets go and the way that we think about it, I'll turn it to Bruce, but, you know, obviously he and I are going to work to ensure that we deliver what we told you guys we're going to deliver.

Bruce Chung, CFO

Yeah, Julian, look, I think it's really as simple as this is just the first quarter. As you know, our company and our business has always been sort of seasonally weighted towards the last three quarters anyway. So I think that's why we feel comfortable being able to reaffirm the ranges that we've put out there. And certainly, you know, that's the case on an EBITDA basis. I'd say we're even more confident on a free cash flow basis. We see certain working capital items sort of unwinding themselves over the remainder of the year that give us a lot of comfort that we're still going to be able to hit a free cash flow number that we put out there. Nice.

Julian DeMullen-Smith, Analyst — Jefferies

Rob, bigger picture question here, right? You've taken over. How do you think about the strategic direction of the company here? I just want to ask bluntly here and give you the opportunity to respond. I mean, obviously, the company is already moving towards building new gen on contract, adding duration to the overall contract portfolio. It seems like that's the direction you all are going. You are doubling down on that statement, it seems like, today with yet more gen build, given the increase in the opportunity in PGM here. But look, I just want to – if you were to define the strategy in a way with your fingerprint here, How would you add or evolve what I've just described?

Robert J. Gaudette, CEO

Yeah, so Bruce, I, others, we're all part of the transition or transformation with Larry. So it's not going to sound too different, Julian, but if there was something I was going to put my finger on the scale on, I would say we are definitely putting more focus around contracted cash flows, looking for duration of cash flows with counterparties. that leads us to things like, you know, data center deals and new build generation, but it also leads us to thinking about, you know, the total addressable market differently, right? We have historically been kind of in the competitive markets only. I see an opportunity for us to find contracted cash flows by partnering with regulated entities that may not have the capital or the relationships or equipment or development capability that NRG has. We have a really solid platform, and we should be able to take that to address other customers' needs from the Atlantic to the Pacific.

Julian DeMullen-Smith, Analyst — Jefferies

That's awesome. I don't want to put words in your mouth, but that sounds more like a contract to gen build strategy like a NextEra than it does like a Vistra, not to point at others.

Robert J. Gaudette, CEO

Well, so I'm not going to try to figure out what other people are doing. I'm really focused on what we're doing. But to say it, you know, succinctly, I think that we can create value for investors by putting their capital to work in generation or other programs, right, with long-term contracts.

Julian DeMullen-Smith, Analyst — Jefferies

Yeah, I like it. Well, I'm curious to see where you go with it all. And best of luck to you and the team here. Thank you, Julie. Thanks, Julie.

Operator

Thank you. Our next question comes from the line of Michael Sullivan from Wolf Research. Your line is now open. Hey, good morning. Congrats, Rob. Hey, Bruce.

Michael Sullivan, Analyst — Wolfe Research

Maybe if you could just give us a little more color on what you mean by on track for the year in terms of a data center deal. It seems like you've had a sense of price and economics for some time now. So what are kind of the main areas you're progressing on? And to hit the 2029 COD, what we need to do in terms of equipment and procurement for this year? Sure.

Robert J. Gaudette, CEO

So I'll answer your question in reverse. To hit 29, we've got to get something done in 26. We haven't given anything more specific than that, and I'm not going to start today. And as far as the things that we're working through, the economics are pretty straightforward. We know where we need to kind of hammer to to get our returns and we know where our customers need to be for them to get their returns so that's not the issue the real conversations and the work that's still you know ongoing and it's probably on every project out there is around infrastructure so think interconnections for gen and load and then depending on the location sites etc what's that gas infrastructure look like too and all things that we can manage through and I'm confident that we will it's just stuff that takes a little more time. And it's not as simple as just, okay, what's the number? It's a conversation with multiple parties. It's a conversation with regulated entities. And we're working through this. And I have confidence that we will get that done. Okay, great. Thanks. And then,

Michael Sullivan, Analyst — Wolfe Research

you know, the pace of buybacks was pretty quick year to date. Anything to read into that? I know a chunk of it was the direct transaction with LS, but any chance you go above a billion or, yeah, just anything to make of being a bit ahead of pace there on the buyback?

Bruce Chung, CFO

Yeah, I mean, Sully, I think the read-in to that is we didn't like where our stock was trading during periods of the first quarter, and so we tried to be as opportunistic as we could. As we sit here today, you know, the average price that we bought back shares over the course of the quarter is well below what we had planned in our guidance. So on a per share basis, we certainly expect to see some potential upside on that basis. Whether we would go above the billion dollars right now, right now the plan remains a billion dollars, but to the extent that we see opportunities for extra cash flow, you can probably assume that we'll be pretty laser focused on being able to deploy it in the form of share of purchases.

Michael Sullivan, Analyst — Wolfe Research

Okay, great. Thank you very much. Thanks, Holly.

Operator

Thank you. Our next question comes from the line of Nick Amicucci from Evercore ISI. Nick, your line is open.

Nick Amicucci, Analyst — Evercore ISI

Hey, good morning, guys. And I know Larry would want me to congratulate Bruce as well, so congratulations. Thank you, Nick.

Robert J. Gaudette, CEO

Never getting on another call, Nick.

Nick Amicucci, Analyst — Evercore ISI

um i i wanted to uh to kind of dig in a little bit on the uh on the residential side of the house um and just kind of thinking through that as well as kind of the opportunity now with um you know the cs power guys uh the cs power folks in the door um just kind of you know how that how you can leverage kind of the both the residential as well as kind of visit um segments and business lines to within that kind of offering of a VC the VPP opportunity sure it's a

Robert J. Gaudette, CEO

great question and it's it's something that you know gives us a unique opportunity to both create value but also help manage affordability for customers the portfolio by having what we're doing around VPP by having the tech stack that we've got through the smart home business and by adding C power which is more of a CNI play but they do have an understanding of how to of make things move those all set us up for success so I'm gonna let Brad talk about like kind of where you know what our kind of milestones are going to be and and how we're addressing that if that helps yeah the residential side

Speaker 10

we're really pleased with our performance we have made some choices around kind of the quality of customers we want in and around Texas and we've seen that pay off into the bad debt and kind of record churn on that front however There are some segments where I think we're underpenetrated, so I do anticipate returning that to growth. On the home automation side, we're seeing, you know, we finished 2025 with record growth, and we've continued that momentum. So really pleased, not only on the acquisition side, but record retention numbers for Vivint, all the while driving a growth in margin and keeping acquisition costs in check. So we see a lot of opportunity there. And then we also spend a lot of time how we bring these two products together to create even more affordability for customers in a bundle type service. So a lot of positive momentum on the residential side.

Nick Amicucci, Analyst — Evercore ISI

Great. Thanks. And then if I can just kind of follow up to on Julian's question before, when we think about obviously you guys mentioned kind of, you know, there was no weather really in ERCOT from a pricing perspective. But just any kind of color you could provide just on the impact of kind of the RTC plus B initiatives and just kind of the normalization, I guess we could say, of the ancillary costs that could be impacting that?

Robert J. Gaudette, CEO

Yeah, so I've been following that since I first started talking about it. You know, it kind of showed up the way we expected it. You know, honestly, Nick, like the ERCOT market boils down to, you know, a couple of facts, right? You saw a big solar build a few several years ago. Then you saw a battery build over the last couple of years. Both of those have kind of slowed down or will slow down in the next year or so. And then we haven't had any weather to really stick a marker out there for anybody to get excited about where those markers are, right? The goal was set or the peak was set a couple of years ago. You know, you get one hot summer with a couple of handful of days where people remember that the price can go to $5,000, and these curves change radically. That's what we're building for. That's what we're supported on, and that's how we manage our portfolio. This market is going to look very different, like I said in the scripted remarks, once you start adding generation – or, sorry, load that starts to kind of eat up any marginal megawatts that were out there.

Nick Amicucci, Analyst — Evercore ISI

Thanks, guys.

Operator

Thank you. Our next question comes from the line of Carly Davenport from Goldman and Sachs.

Speaker 1

Your line is now open. Hey, good morning. Thanks so much for taking my question. Maybe just to start on the LS assets, just kind of maybe could you talk a little bit about as you're integrating those assets, kind of what the key learnings have been so far, any opportunities for synergies that you see today that perhaps weren't contemplated in your

Robert J. Gaudette, CEO

original plans so when we acquire or after we've gotten under the hood on the assets after we closed in the middle of fern um you know look we the assets kind of came in where we expected them to right our our assessment during uh due diligence for the acquisition was was pretty spot on uh so no big surprises there we where we have seen some opportunities if you remember when we announced the acquisition we saw a gigawatt of potential up rates as we continue to look at these assets depending on the market structure carly right you've got to get the rules right and we've got to get an opportunity in front of us but we could take that up to two gigs so that's a plus and that's exciting and as far as synergies go you know recall the acquisition was heavy on generation facility personnel so you know guys who make the plants go not a lot of synergy there But what we're going to work through over time is how we work that into the portfolio. And that will create, you know, better opportunities for us to think about hedging, better opportunities for how we serve customers and serve in those markets. So I see an opportunity there. We just haven't put our finger on that yet.

Speaker 1

Okay, great. We'll stay tuned there. And then maybe just on the test development, seems like you're really close here on TH Wharton. Maybe can you just provide some detail on what is left there to get the asset online and then just maybe a status update on the process on cedar bayou and greens bayou just as you progress those towards the 2028 and service dates yeah we're very happy with def

Robert J. Gaudette, CEO

projects we're extremely excited about where they are and i'm going to let matt give you an update

Speaker 14

on ph wharton and then the other two that come in 28. good morning carly the uh on ph wharton the the kind of remaining steps between where we are and cod is just sinking the units of the grid getting ERCOT to give us the blessing that they show up the way we expect. So that's all on track and on schedule. And then when you pivot over to Cedar Bayou and Greens Bayou, each of those projects are kind of in a 2028 COD. So there are various stages of construction, but they're all moving along right where we expect them to be at this point in time to hit that 2028 COD as well.

Speaker 1

Thank you for the color.

Robert J. Gaudette, CEO

Thanks, Carly.

Operator

Thank you. Our next question comes from the line of Moses Sutton from B&P Paribas. Your line is now open.

Moses Sutton, Analyst — BNP Paribas

Hi, Rob and team. Thanks for taking my question. So we continue to see the ERCOT load pipeline rising. Slide six, you show supply demand we see as kind of believable too, if not conservative. How should we size up the upside to your uneconomic gen in Texas in terawatt hours per year? Could we see 10, 15 terawatt hours upside as ERCOT thermal fleet gets called upon more and more? thinking into the out years trying to frame this tailwind and is it fair to assume that that incremental gen would go wholesale and not be integrated into the retail business so anything to give us on that down-the-road talent yeah so

Robert J. Gaudette, CEO

you know we that's a great question and it's something that we we think about every day if I was gonna advise you as to how to think about it and how to kind of put your finger on that pulse first you're you're spot-on right that the incremental generation wouldn't be attributed to retail load right it should be open and the reason why I say that is because we're obviously managing the position with the market curves where we are today right so we're going to cover that up which means that the generation if it comes if prices move to the right place that generation will become economic and that's additional megawatts so the way I would think about how you frame it up is you know think about what that supply demand list we gave you a pretty decent graph or a slide on slide 14 that lets you take a look at what these price curves look like and then what those impacts to the generation are right so I think we've kind of given you the numbers the thing you need to think through is what what do you believe price impacts look like and what does that actually do from a you know, overall impact to ERCOP pricing? No, it's not the answer you want, but I'm trying to point you to where you can get to.

Moses Sutton, Analyst — BNP Paribas

No, no, no, it's very helpful. And I guess it's a little bit tied to this, and you kind of mentioned it in one of the prior answers, like specifically on the industry battery build in Texas.

Char Perez, Analyst — Wells Fargo

You know, the returns have been abysmal now.

Moses Sutton, Analyst — BNP Paribas

The pipeline kind of remains there, which is strange. So how do you think of the battery impact on the curves in particular? I know you mentioned it a bit, but do you still see multi-gigawatt builds still coming, even if they don't have returns? Are these tolling agreements? What is still coming on the battery side in Texas that might be impacting the curves, and how do you see that cadence of the decline? Because you kind of mentioned that in your solar and battery comment earlier.

Robert J. Gaudette, CEO

Yeah, so my commentary around battery build and how I think it's going to decline is based exactly on the facts you just pointed out, right? The economics just aren't working for them. And so what batteries do to ERCOT is it kind of pushes the pressure point out a couple hours when you get tight, right? Right now, you have peak demand that's around, call it 4 or 5 o'clock in the afternoon, but you have peak price around 7 or 8 o'clock in the evening in the summer. What batteries would do is push that out to call it 9 or 10. But they still have to draw, so it provides support for the markets in some parts of the day, and then it would kind of discharge during the peaks if we get even a percentage of what this data center load looks like um coming into the grid between now and 2033 you know like i've alluded to before this market is off to the races um you know you eat through all of that battery push uh and all of a sudden you've got the tight market that we all know ercott has been and can be that we saw in 22 and 23.

Moses Sutton, Analyst — BNP Paribas

Super helpful. I'll pass it on.

Operator

Thank you. Our next question comes from the line of James West from Mellius Research. Your line is now open, James.

Speaker 11

Thanks. Good morning, guys. And, Rob, congrats again on your first conference call as CEO.

Robert J. Gaudette, CEO

Thank you, and good morning.

Speaker 11

And I also find it humorous sitting there in Texas complaining about mild temperatures in the first quarter for the first quarter results when we know it's going to get bad. We'll talk again in July and see how you feel about it. But, like, I wanted to touch on kind of the large load new data center opportunities, both in ERCOT and PJM, a lot of regulatory kind of movements, trying to kind of, I think, clear the market to speed things up, to help the process. But there's also, you know, it's a free market and you can contract, you know, without going through the auction process and certainly can contract without needing the help of regulators, particularly NERCOS. But where are the conversations and the development process now? Are the hyperscalers waiting for some type of regulatory clarity before they contract? Are things, you know, stalled because of that? Are we waiting a couple of, you know, a month or so in PJM? And, you know, maybe we're there in our cut. And I'm just going to get some clarity or some color, I guess, on kind of when we should expect to see this, you know, enormous demand because these things are being built, so they need power. You know, when we should see some type of movement here on, you know, on contracting.

Robert J. Gaudette, CEO

Yeah, so let's take it in pieces. ERCOT, I would say that the regulatory structure and where the PUCT is on putting out rules around SB6 is pretty well developed. Like, that's definitely moving. I think that the counterparties, both on the data center side, but also on the generation side, we know the rules, or we have a pretty good idea of what they're going to look like. And so I wouldn't say that that is the long pole in the tent on stuff in Texas. I think it's, like I said, infrastructure, interconnections, and, you know, working with our partners from a, you know, regulated entity perspective. And I know that everybody's working hard to deliver data centers to Texas, every party involved at once a piece of time. So let's talk about PJM. So in PJM, you've got, you know, the new long-term auction, which they're working through at the behest of, you know, the White House, and it's a good solution, and it's a good answer to help get things kind of moving and over the line. What I would tell you is that in conversations with counterparties there, you know, so our potential customers, they're open to bilaterals too, right? And we're in a unique position. Well, we, like with a couple others, are in unique positions to offer bilateral solutions that don't need that PJM auction. The auction to me is more of a backstop for conversations that we could have, right? The auction priced right with the right rules, that's a great way to put two gigawatts of up rates into our fleet. But I can also have a conversation with a hyperscaler and put a gigawatt of that in at the same time right or you know in lieu of so we kind of have two levers most of the conversation there directly with the customer uh is hey i don't want to do a bilateral with you and then have to pay the rba thing and i think that stuff all gets worked out uh over time here i believe the pgm's trying to do the right thing. I know they're trying to solve reliability and affordability. We support the work they're doing. And we're obviously in the middle of all of those conversations because PJM is a big part of our lives now. Okay. Okay. Very, very helpful. And then a big quick follow

Speaker 11

up for me because so much of this power generation is going to come from natural gas. You guys are more uniquely positioned than others given your generation is natural gas. You know, there's a lot of, I don't want to maybe call it chaos, but there's a lot of midstream activity going on. The gas producers are trying to get gas from where it is being produced to where it needs to be for power generation. How do you feel that you guys are aligned with that process so you have the security of supply? Because that's one thing I think maybe is getting missed in the whole conversation is, okay, you can put a turbine here and build some co-location or attach to the grid, but can you get the actual hydrography?

Robert J. Gaudette, CEO

Yeah, so you raise a very important point. We do have a great gas platform, right? And we've been serving C&I customers for decades. We've also been serving power plants that are ours and some that aren't ours through the gas side. So because of that, we've got really good relationships both with the midstream guys, but also the upstream guys. And so if we want to procure long-term gas, we know the right folks to call. And it will do that if our customer wants that. But, you know, I feel really good about the platform that we have and its ability to actually create value in addition for our customers, but also for our company.

Speaker 11

Okay. Got it. Thanks, Rob.

Robert J. Gaudette, CEO

Yep. Thank you.

Operator

Thank you. Our last question comes from the line of Andrew Whistle from Scotiabank. your line is now open. Thank you. Good morning, everyone.

Speaker 7

Morning. A couple of follow-up on PJM, a couple of interrelated questions, actually. So first of all, impressive to see the pickup on the uprate potential from one gig to two. Am I hearing you right? Most of the incremental sounds like it's coming from the LS power assets as opposed to the legacy, I think. Would you only pursue those? Great. Would you only pursue those if they're backed by a long-term contract, whether bilateral or from the auction, or could any of those make economic sense even without a hyperscaler contract? And then also, given the uncertainty around the network upgrade costs, how comfortable would you be bidding Greenfield build into PJM? Or would that only be existing assets or upgrades and all of the new build would be in ERCOT?

Robert J. Gaudette, CEO

So we could build new build in PJM, but you bring up one of the risk adjustments that we'd obviously have to make. The second point I would make is we're not going to put capital to work without contracts or long-term revenue. We've got a fleet in PJM. We're in a good place from a position perspective, but I'm not going to go put money after stuff on a merchant basis. So, you know, we can find a bilateral deal or go through the PJM auction process to help backstop that new build, but we're not going to do it without it. and then the last piece I would say is that you know when you compare and contrast ERCOT from a get things done perspective we're trying to move this these turbines and this capital to get to work as soon as possible and like I laid out earlier you know ERCOT's a little bit further ahead on the regulatory process which lends you know us leaning that direction but we can take those turbines anywhere and for the right economics with the right counterparty that's exactly what we'll do thank you very clear then second more

Speaker 7

of a philosophical question but over the years we're seeing more and more extreme winter storm and similar weather events at the same time you as a company are clearly trying to de-risk and increase the predictability and stability of earnings and cash flows you've talked a little bit about this earlier but do you think there are any additional actions you can take specifically to protect you from these weather events, whether that's hedging or insurance or something more big like M&A or

Robert J. Gaudette, CEO

other corporate actions? So we made a big step towards de-risking the portfolio for the winter by closing on the acquisition of LS, right? So what that gave us is steel on the ground in the eastern markets where we have exposures. And there is, you know, I can financially hedge my exposures around retail businesses, but there is no better hedge than flexible dispatchable natural gas assets. And that's exactly what we did. Bruce and I and the team think about our risk, our hedging every day. We're thinking about how we position the portfolio because managing through those storms in the winter or managing through a heat event in the summer is what you guys pay us to do. So that's what we're working on. Great point. I was thinking

Speaker 7

more micro. That's more macro, but very, very true. And the timing of that deal closing was pretty coincidental, but point taken. Thank you very much.

Operator

Thank you. Thank you all. This concludes our Q&A session. I would like to turn it back to Robert Cadet for closing.

Robert J. Gaudette, CEO

Thank you everyone for joining us this morning and for your continued interest in NRG. I'm excited about the opportunity ahead and honored to step into this role at such an important time for the company and the industry. We've built a strong platform. We're operating from a position of strength, and I'm confident in our ability to execute and create significant long-term value for our shareholders. Thank you again for your time today. Ladies and gentlemen,

Operator

thank you for joining us and participating in today's conference call. This concludes our program. You may now disconnect.