Energy Firms Merge

Monday, July 23, 2012 @ 05:07 PM gHale

Princeton, NJ-based NRG Energy Inc. will pay $1.7 billion to pick up rival Houston-based GenOn Energy Inc. which would create the largest competitive power company in the U.S.

The combined company would have 47,000 megawatts of power plants across the U.S. and have an enterprise value of $18 billion, the companies said.

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NRG President and Chief Executive David Crane will maintain his current positions at the combined company. GenOn Chairman and Chief Executive Edward R. Muller will join the NRG board as vice chairman.

Both companies considered merger opportunities over the last few years as a way to cut costs and expand their footprints to better compete. Muller said he contacted Crane this past spring to discuss a potential deal.

After both companies ran the numbers, they discovered the savings they would gain from merging, some $300 million a year, were larger than both had anticipated, Muller said.

“The compelling logic of the combination made it such that once the two parties focused on it, everything worked smoothly toward a successful conclusion,” Crane said.

The companies’ plans come as U.S. power-plant operators have struggled against some of the lowest wholesale power prices in a decade, as a natural-gas production boom has kept gas prices and power prices at record lows. Companies such as NRG and GenOn that primarily sell into the wholesale power markets are much more exposed to the ups and downs of commodity prices than companies such as Duke Energy Corp. and Southern Co., which operate utilities in states where regulators oversee their operations and set rates and investment returns.

By combining their operations, NRG and GenOn expect to boost earnings before interest, taxes and other costs by $200 million by 2014, because of lower interest costs and other savings they expect to see from operating their fleets as one company. They expect an additional $100 million in savings related to the amount of cash the companies have to keep on hand to back their forward power sales.

The deal requires the approval of both companies’ shareholders, as well as the Federal Energy Regulatory Commission, the New York Public Service Commission and the Public Utility Commission of Texas.

NRG operates 24,000 megawatts of nuclear, natural gas and coal-fired power plants in Texas, New York, Connecticut, California and other states. That capacity is enough to serve about 20 million homes. The company has a growing retail-power business, which sells electricity to customers in deregulated states such as Texas, New Jersey, Pennsylvania, Maryland and Illinois. NRG has a large solar-power business and has obtained more than $3 billion in federal loan guarantees to help build three large solar farms in California and Arizona.

GenOn owns about 23,000 megawatts of natural gas, coal and oil- fueled power plants in Maryland, New Jersey, New York, Pennsylvania, California and other states.

The combined company will have financial headquarters in Princeton and operational headquarters in Houston.

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