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NRG Energy Q4 2022 Earnings Call Transcript

Participants

Corporate Executives

  • Kevin Cole
    Head, Investor Relations
  • Mauricio Gutierrez
    President and Chief Executive Officer
  • Alberto Fornaro
    Chief Financial Officer

Analysts

Presentation

Operator

Good day and thank you for standing by. Welcome to the NRG Energy, Inc. Fourth Quarter 2022 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Cole, Head of Investor Relations.

Kevin Cole
Head, Investor Relations at NRG Energy

Thank you, Josh. Good morning and welcome to NRG Energy's fourth quarter 2022 earnings call. This morning's call will be 45 minutes in length and is being broadcast live over the phone and via webcast, as can be located in the Investors section of our website at www.nrg.com under Presentations and Webcast. 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 today's presentation. And with that, I'll now turn the call over to Mauricio Gutierrez, NRG's President and CEO.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Thank you, Kevin, and good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, Chief Financial Officer and also on the call and available for questions we have Elizabeth Killinger, Head of Home, Rob Gaudette, Head of Business and Market Ops, and Chris Moser, Head of Competitive Markets and Policy. Starting on Slide 4 with our key messages for today's presentation. We have made significant progress in advancing our strategic priorities in 2022. And while our financial results were lower than expected, our business is well-positioned in 2023. Today, we are reaffirming our 2023 financial guidance ranges. The Vivint Smart Home acquisition is on track to close by the end of the first quarter. Today. we are providing further disclosures around revenue synergies to ensure you have additional tools to properly value the transaction. Finally, the core of NRG is strong, supported by favorable fundamentals. The acquisition of Vivint enhances our ability to achieve our free cash flow before growth per share targets. Now turning to Slide 5 for the financial and operational results of 2022. Beginning with our scorecard for the year, we executed well across our strategic priorities. We delivered our second consecutive year of record safety performance. For me, it always starts and ends with the well-being of our people. I want to thank everyone at NRG for staying focused during a challenging year. Our retail group took deliberate actions to manage price volatility and delivered record customer retention and extended the average term of a new customer to two years. Also, our bad debt remained below historical levels, despite higher inflation and tightening financial conditions. Our plant operations performance was below expectations, primarily impacted by the outage at W.A. Parish right before the summer. We are taking additional steps to strengthen our supply and mitigate operational risk during these scarcity conditions. The Direct Energy integration is nearing completion and on track to deliver our run rate synergy targets in 2023. We executed on our Test & Learn programs during the year, which culminated in the announcement of the Vivint Smart Home acquisition. We also continue our portfolio optimization with 2 gigawatts of coal retirements and asset sales. Finally, on capital allocation, we executed $645 million of share repurchases our of the $1 billion program. We will execute the remaining amount when cash is available and when we have full visibility to achieve our targeted credit metrics. We also increased our dividend by 8%. Since it was reestablished in 2020, we have raised our dividend more than 25% and returned almost $1 billion to shareholders this way. I view our dividend as an integral part of our return on capital policy.

Moving to financial results, we delivered $435 million of adjusted EBITDA in the fourth quarter, bringing our 2022 full year result to $1.754 billion below expectations. For the fourth quarter, we highlighted in our last earnings call that reaching the bottom end of the financial guidance included a little over $100 million of optimization opportunities. Specifically, making our natural gas units available to capture value during periods of high power prices. This opportunity did not materialize as mild weather during the quarter, the power price was much lower than expected. We were also impacted by Winter Storm Elliott in late December, primarily from PJM capacity performance payments where we risk-adjusted downward, our bonus payments, pending additional information from PJM. Alberto will provide more information on our financial results.

Turning to Slide 6 for our 2023 outlook. We are reaffirming our 2023 financial guidance. We see improving fundamentals in our business, including more stable supply costs, driven by lower natural gas prices, less supply chain issues for coal and chemicals, more favorable retail market conditions in the East and economic resilience in our customer base. In the East, we see opportunity for customer growth, given rising rates from public utilities, enabling competitive retailers to demonstrate the value of our services to customers on an equal playing field.

In Texas. The Public Utility Commission proposed market design improvements that will result in more dispatchable generation and greater reliability of the [Indecipherable]. I want to commend the Texas governor's office, legislature, PUCT and ERCOT for taking swift action to enhance grid resilience, while ensuring the integrity of the competitive market. Also, retail competition will open in Lubbock, Texas in the fall, a city with more than 100,000 electric customers. We look forward to having the opportunity to earn and serve customers in that area later this year.

In 2023, We will continue executing on our strategic priorities, focusing on strengthening our core business while growing adjacent products and services as you can see on the right hand side of the slide. We continue our focus on optimizing our portfolio to better serve our customers. To that effect, we are targeting $500 million in net cash proceeds from asset sales by the end of the year. Having completed our Test & Learn phase in 2022, we are now focused on the next phase of our strategic roadmap, growing the business. This includes completing the Direct Energy integration and increasing the number of customers that purchase multiple products from us. Today. We have sold more than one product to 50% of our customers. We are making good progress on cross-selling and will provide additional disclosures as we integrate Vivint. To support this growth, we will continue to strengthen our power supply by extending our capital-light PPA program for renewables to dispatchable generation at some of our existing sites.

Finally. We are on track to close Vivint in the first quarter with all regulatory approvals received and no shareholder vote required. We expect to close financing soon and have begun on day one integration efforts. I want to provide additional insights on how Vivint enhances our core energy platform and brings additional capabilities at scale on Slide 7. Vivint is a leader in the smart home solutions with nearly 2 million, highly-engaged customers with an average life of nine years. Their system brings together automation, security and residential solar under a single proprietary technology and data platform. This business is highly complementary to our core energy offering. We will use their smartphone ecosystem to connect all our currently isolated products and services, including grid power, batteries, EVs and other products into a seamless experience that is highly engaging and personalized. This engagement will provide tremendous insights into pricing, customer experience, and new solutions that create greater brand loyalty and longer average customer lifetime. As we leverage the smart home ecosystem, we expect to optimize energy demand inside the home, providing valuable services to the wholesale markets. In other words, NRG will be the bridge between the home and energy markets with a unique ability to optimize and monetize value between the two.

Vivint will also complement our existing energy product offerings and sales channels by adding home automation, security and residential solar at-scale, including a proven acquisition engine with a solid track record of growth and nearly 2 million customers. On the right-hand side of the slide is the virtuous cycle that we have discussed in the past. By leveraging our existing platform, we can access meaningful cost synergies. This economic advantage, coupled with better insights and more personalization, result in a better experience for our customers. All of this translates into a deeper understanding of how consumers interact with their homes, additional margin and better retention on our core products. And then the cycle repeats as we grow, creating a more valuable business.

Now. I want to discuss the valuable opportunity that this combination represents on Slide 8. We have identified three main areas of value. Growing and optimizing our network of customers, leveraging the platform to achieve cost synergies, and improving the value of our core energy customers. With respect to the growth opportunity, we are targeting $300 million of incremental free cash flow before growth by 2025. We are encouraged by the preliminary work we have done on both sets of customers and look forward to fully optimize once the transaction closes. As you can see on the left-hand side of the slide, there is some overlap in our core energy markets, but it's relatively small. This is important because Vivint already has teams ready to be deployed in our core energy markets and because the addressable market opportunity for new customers will be even greater. We expect to achieve this growth target in several ways as we target Tier 1 customers, we we define as single-family homeowners with high credit scores within select urban areas. We will focus on two immediate and actionable opportunities. One, cross-selling existing products into our combined customer network of 7.5 million customers. Two, selling bundled offers to new customers outside of our network, representing 15 million potential households. In addition, we will grow Vivint organically in line with historical levels. These opportunities will be enhanced by optimizing our combined sales channels and best practices, leveraging the strength of both NRG and Vivint.

The capital required to achieve this growth is expected to range $500 million to $600 million over the next three years. For cost synergies, we have identified $100 million to be achieved by 2025, primarily from combining two public companies. For this, we expect $160 million of one-time cost to achieve. Finally, on our existing core energy customers, cross-selling means we can have direct access to our customers in the East and the opportunity to expand margin and extend customer lifetime value. In total, we see a $400 million opportunity by '25 and a larger opportunity beyond given the size of the smartphone addressable market. I am confident in our ability to deliver these targets as we have a strong history of integration and synergy achievement. Just to remind you, since 2016, we have achieved significant value on integration synergies, cost reductions and enhancement programs. This effort will be led by the same team of the transformational plan and Direct Energy integration. I look forward to providing you a more comprehensive update later this year during our Investor Day.

Now turning to Slide 9. We want to give you an update on our pro-forma outlook and how the Vivint transaction supports our growth targets. On the left-hand side of the slide is a free cash flow before growth pro-forma walk from 2023 and 2025, including the expected growth contribution from Vivint that we just discussed on the previous slide. This illustrates the earnings power of the company and will be further on track once the transaction is closed.

On the right-hand side of the slide is the expected capital allocation through 2025. As you can see, the combined platform provides the financial flexibility to have a balanced approach between growth and return of capital, while maintaining a strong balance sheet. The acquisition of Vivint and more specifically the growth opportunity that it represents will better support our per share growth targets while materially high grading our earnings quality and customer lifetime value.

So with that, I will pass it over to Alberto for the financial review.

Alberto Fornaro
Chief Financial Officer at NRG Energy

Thank you, Mauricio. I will now turn to Slide 11 for a review of 2022 results. During our third quarter call, we stated this higher profitability in the fourth quarter will enable us to deliver an adjusted EBITDA at the bottom of our 2022 full year guidance range. To realize this, we mentioned that the higher profitability was partially related to insurance proceeds for Limestone Unit 1 and Parish Unit 8, additional synergies and other cost reduction and the remaining from the opportunity to generate additional gross margin from the planned utilization of our gas fleet. Our forecasting process is based on the forward market curves and at the time the forward curves included high power prices for the fourth quarter, which would make the plant utilization of the gas fleet economical. Unfortunately, prices in the fourth quarter fell significantly below short-term expectations. On peak prices in Texas were 45% below expectation, resulting in lower profitability from our generation fleet. Near the end of December, the Winter Storm Elliott brought sharp reduction in temperature for a short time in December 20, 2022. During the storm, [Indecipherable] surge was faster and significantly higher than the upper level of the expected range in both ERCOT and PJM for several hours. This drove spikes in power prices. Our gas generation fleet in Texas, which was largely unutilized in the fourth quarter was called into action. Given the significant gap between actual and expected load, the fleet was unable to completely match the additional demand. As a result, we would trade additional power in the market at higher prices. In the East, higher load led to PJM reliability [Indecipherable] for our units without any notice. Several of our larger units, where reserve status at start with the event and have a longer start-up times, which led to capacity performance, a negative impact given the lack of notice. The lower than expected prices at the beginning of the quarter, coupled with the impact of the winter storm, drove unfavorable variances to our EBITDA expectation. The fourth quarter adjusted EBITDA of $455 million was below our implied guidance by $196 million. We estimated that the lower prices experienced for most of Q4 reduced the expected contribution of our gas generation by approximately $115 million. We also estimate that Winter Storm Elliott caused approximately $80 million in negative impact. This was primarily a result of the net impact of capacity performance in PJM as well as increased power purchases in [Indecipherable] that were partially offset by an expected capacity performance bonus for the cost of goods plant. When we look t the full-year adjusted EBITDA of $1.754 billion fell short of the mid point to our guidance at the beginning of 2022 by $346 million. There were two main drivers that impacted this results. First, the extended outage at Parish Unit 8 with $220 million of lost margin, that was partially offset by business interruption proceeds of $52 million. And second, the estimated $80 million impact of Winter Storm Elliott. There was also an incremental $44 million operation expenses resulting from reduced prices of financial assets in the second half of the year and some increased O&M expenses. Additional drivers include the $15 million of reduced earnings for the divestiture of Watson and $16 million of growth expenses. In 2022, free cash flow before growth came in at $568 million with a deficit to our third quarter guidance, driven primarily by the shortfall in EBITDA and two working capital drivers. First, the insurance proceeds for Parish and Limestone that were forecasted for 2022 were accrued in the fourth quarter, but received in January 2023, resulting at the end of the year in a $100 million increase in receivables. Second, working capital had an additional negative impact due to falling of gas prices in the quarter, which more rapidly impacted the accounts payables than we have come to receive.

Turning our attention to 2023, we are reaffirming our full year guidance for both adjusted EBITDA and free cash flow before growth. Before we review the 2023 cash available for allocation, I would like to provide updates on Winter Storm Uri and Direct Energy synergies. So 2021, net impact of Winter Storm Uri was $380 million. During 2022, we were able to increase significant [Phonetic] proceeds that reduced the total net cost to approximately $259 million. For future years, there will still be some cost recoveries associated with Uri, but we deem the amount to be immaterial and we will no longer update these figures. For Direct Energy synergies, we achieved a total of $84 million of additional synergies in 2022 with relatively integration cost of $74 million, bringing the total synergies achieved from the acquisition to $259 million. We are confident that we can achieve the remaining synergies, which are related to specific projects that will be completed in 2023. Therefore, we will no longer provide quarterly updates on our Direct Energy synergy progress, but we will provide the final summary at year end.

Now turning to Slide 12 for a brief update on our 2023 capital allocation. Moving left to right, with blue shading indicating updates, excess cash from 2022 is equal to $40 million at year end, plus the $209 million in proceeds from the sales of Astoria, which totaled $249 million in the bottom left. Next, for Vivint, we continue to utilize its 2022 pro forma full year figures provided in our December call. Full year free cash flow below growth of $1.730 includes energy standalone guidance of $1.620 billion plus pro forma $110 million for Vivint. This includes the expected impact from that financing. In addition, we included $300 million of cash available from Vivint. Next April [Phonitic], we are targeting $500 million of leverage-neutral net inflow from asset sales. The next investments [Indecipherable] by $29 million following early realization of previously included Winter Storm Uri [Indecipherable] in 2022. Now moving to the far right bar, we expect a total of $434 million available for future allocation. These will fund the remaining share repurchase program upon full visibility of the achieving of our 2023 target credit metrics, which are detailed on the next slide. Now quickly turning to Slide 13, we remain committed to a strong balance sheet. This slide has not changed since our last update. We are focused on achieving 2023 target credit metrics and investment grade credit metrics by late 2025 to 2026 through both debt reduction and growth. With that, I'll turn the call back over to Mauricio.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Thank you, Alberto. On a slight [Indecipherable], I want to briefly outline our 2023 priorities and expectations. First and foremost is delivering on our core energy business goals. We will continue to strengthen our integrated platform and further optimize our portfolio. Second, we are focused on closing the Vivint acquisition, integrating the business and delivering on our synergy commitments. Finally, we will stay disciplined on our capital allocation plan as we execute on our strategic priorities. I am excited about this next phase of our evolution and look forward to providing you a comprehensive update on our Investor Day later this year. So with that, I want to thank you for your time and interest in NRG. Josh, we're ready to open the line for questions.


Questions and Answers

Operator

Thank you. [Operator Instructions] Our first question comes from Julien Dumoulin-Smith with Bank of America. You may proceed.

Julien Dumoulin-Smith
Analyst at Bank of America Merrill Lynch

Hey, good morning, team. Thanks for the opportunity and time. Well done.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Hey, good morning, Julien.

Julien Dumoulin-Smith
Analyst at Bank of America Merrill Lynch

Hey, good morning, team. Listen, I wanted to talk to you guys about this '25 outlook and just clarify this. As it pertains to the original conversation around call it $1,250 a share of SBF [Phonetic]. Is this an implicit increase in expectations or roughly in the same ballpark? As I look at sort of what's implied on the numerator and denominator, it seems like it could be a slight increase there. I just want to come back and clarify that as best you guys see it and I have a quick follow-up.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yeah, so. I mean, well, let me see if I understand the question. The pro forma that we showed here and puts us in line with the free-cash flow before growth targets that we provided to you at Investor Day of 15% to 20%, so. As you mentioned, what Vivint does is complements our share buyback and capital allocation program with a very attractive growth engine that we articulated in the call today. Now the Vivint transaction, I'm expecting that is going to produce $400 million of free cash flow before growth on top of the 2023 pro forma or guidance for NRG. So, when I think about the 2025 pro forma, I will say that I'm very comfortable with with the NRG pro forma now that we have communicated the contribution of Vivint. I will tell you that we have pretty good line of sight to deliver on that commitment of 15% to 20% growth.

Julien Dumoulin-Smith
Analyst at Bank of America Merrill Lynch

Excellent. And just clarifying this. I know you discussed in Analyst Day here. Would you expect to roll that '25 forward at the time of the Analyst Day or could we get something sooner with the close and then considering that close, just super quick. If I can, we've seen some litigation out there around SPACs and what is possible, if you will, in recent days, can you clarify how that may be impacting the process itself at this point? Just if you don't mind for a moment.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yes, so, I think what you should expect is at Investor Day, we'll provide you the five-year plan that will go beyond 2025. I think that's the right time to articulate it. Obviously, at the close and in subsequent weeks after the close and most likely on the earnings call, we will provide additional clarity in 2023 with respect to Vivint, right? So, with respect to the litigation that you are mentioning on the on the SPAC, we actually have looked at that, evaluated it, and we see very little risk in terms of closing the transaction. So keep in mind that this is not only for our industry, this is for all SPACs across all industries and I see this more as just a clean off process than anything else, so the risk of impacting the closing of the transaction I would say is minimal.

Julien Dumoulin-Smith
Analyst at Bank of America Merrill Lynch

Excellent. Alright guys, we'll leave it there. Thank you so much. Good luck.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Thank you, Julien.

Operator

Thank you. Our next question comes from Angie Storozynski with Seaport. You may proceed.

Angie Storozynski
Analyst at Seaport Global Securities

Thank you. So, maybe first on the '23 guidance. I mean it seems like it's a pretty good setup for the year. I mean, power prices have fallen. You should have an advantage with gaining market share on the retail side, especially in the East given the collapse in power prices and natural gas prices. There's been an improvement in working capital, there is the cost to replace the power for the W.A. Parish outage should have come down and yet you kept the guidance range. So what's the offset to these positive drivers?

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yes, no, Angie. I mean I'm glad that you went down the list because when I think about 2023, I would say that is more conservative than we have been in 2022, not only from what we control. So if you think about the characteristics of our plans, the assumptions that we use in our forecast are more conservative. We have also, remember now this is the second year that we have increased maintenance capex around our plans, so we expect greater reliability on them and there is a lot of tailwinds on our guidance. You already mentioned the dynamics in the East where prices for the people service utility providers are much higher and I think we're going to have a great opportunity to gain market share with the falling gas prices that creates really good environment for us for for managing our EBITDA margins. So all of this is positive. Now, it's only February, right? So, I want to make sure that we see at least a couple of months and we have greater visibility on the rest of the year before we can provide you additional adjustments, but I think it's fair to say that I feel very confident that we can achieve our guidance and perhaps we are erring on the conservative side with a number, but I think it is prudent given the type of volatility and extreme weather that we have seen in the past couple of years.

Angie Storozynski
Analyst at Seaport Global Securities

All right. That's good, especially after two difficult years. Okay and then on the PJM capacity penalties. So it's my understanding of the disclosures that the generation companies were provided by PJM on Slide 8, you talked about penalties. So any sort of bonus capacity payments haven't been disclosed or calculated? So, I know that that's a '22 issue, but just talk to us about how you you accounted for those offsets to the penalties on the capacity side.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Sure, I'll let Alberto.

Alberto Fornaro
Chief Financial Officer at NRG Energy

Yeah. From the penalty side, it is relatively simple because we have considered based on our records what the potential payment is and take those into account. On the bonus side, there is lots of variables including potential bankruptcy that can change the amount that would be distributed. And therefore, what we have done with the limited information available, we have estimated what is the best-case scenario, what is the worst-case scenario and we have chosen a level we are comfortable. And therefore we have at the end of the day risk-adjusted the bonus for that we could get at the end of this process. We will know more in the next months, but we are comfortable with what we have done.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yeah. So, I think it's fair to say that depend on this, we have taken all of them into consideration and bonuses we need more information from PJM. So we have risk-adjusted that more about.

Angie Storozynski
Analyst at Seaport Global Securities

Okay and then lastly, so when you announced Vivint, there was a plan to execute on share buybacks, a pretty meaningful. $360 million I think. I mean, looking at the share count, you haven't done it. I understand that there is a plan for '23 to finish that $1 billion of the share buyback allocation. So just talk to me about the timing, why it hasn't happened yet, were you waiting for the proceeds from Astoria? Is it's somewhat of a reflection of the cash flow generation for '22? And again, just roughly about when we should expect those buybacks to happen.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yes, no. I mean, that's correct. So my expectation that it will happen this year, and obviously being very consistent with our capital allocation principles, we want to focus first on achieving our credit metrics and once we have stability ability in terms of achieving that and obviously as we get cash proceeds in the door throughout the year, we will be executing on the share repurchases. So, my commitment to everybody is that we will execute them, but we need to first have assurances that we meet our commitment on credit metrics and that we have the cash available. So that's how we're thinking about it.

Angie Storozynski
Analyst at Seaport Global Securities

The fact that you deferred the buybacks, it's in no way does that reduce the amount of financing that you'll need to raise for the Vivint transaction?

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

No.

Angie Storozynski
Analyst at Seaport Global Securities

Okay, thank you.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Thank you, Angie.

Operator

Thank you. Our next question comes from David Arcaro with Morgan Stanley. You may proceed.

David Arcaro
Analyst at Morgan Stanley

Hey, good morning. Thanks for taking my question.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Good morning, David.

David Arcaro
Analyst at Morgan Stanley

I was wondering if you could elaborate on what assets might be considered for sale and what the potential timing might look like in terms of executing any processes related to that?

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yeah, David. So, as you know, we are actually have been optimizing our portfolio now for a number of years. I think we have a pretty good track record on doing that. And the way I think about it is you have core assets and non-core assets, right? So core assets are whatever helps us best serve our customers and there is an asset that doesn't do that function, then it becomes a non-core asset, and we'll look at monetizing that. There is a second set of things that, if there is an asset that is more valuable in somebody else's business, we will definitely take a look at that and evaluate all the options. So what I can tell you is, this is an ongoing process. We sold and monetized some assets last year. We're going to go that. What I wanted today was to provide you more specificity around the amount that we are targeting and that these will be executed throughout 2023. In terms of timing, obviously, this will require two people coming to an agreement, but we will be updating you as soon as we have available information.

David Arcaro
Analyst at Morgan Stanley

Now. Okay, thanks, that's helpful and I was wondering if you could speak a bit to just fleet reliability and resilience here. I'm wondering just if you could talk to the strategy to improve the risk profile of the business during extreme heat and cold events? Are there further investments that you could make in your fleet to improve their resilience or more you could do to beef up the supply side of the equation?

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yeah, David. So, when you think about the reliability and resiliency, if you take a step back and you think about our supply strategy to serve our retail load. I think about it in three big buckets. The first one is the generation that we own. The second one is medium-term PPAs and then the third one is obviously you complement that with market purchases. Today, we are roughly 50% of the [Indecipherable] that we serve, we supply with our own generation, 50% with third party either sales or purchases. So what we have done on our own generation is twofold. Number one, we have been a little bit more conservative when we run our forecast and what we use to catch our low in terms of plant characteristics and that gives us a little bit more push on and so we're self-insuring. The second thing is, we have actually invested additional maintenance capex to increase the reliability on the units, specifically in areas where we have seen issues during scarcity conditions. So those two things really mitigate what I describe as the operational risk on our units. The other tool, we actually trade these operational risk for counterparty risk, credit risk. So while it is perhaps more firmer in terms of the megawatts, we have to monitor the health of the entities that we're transacting with. So what I like about this approach is that we are diversifying our risk. That is not a all generation, all operational risk. So we actually we actually diversify the risk and this one was one of the big lessons during Winter Storm Uri. So, I feel very comfortable, the risk adjustments that we have made. And then lastly, in terms of hedging our load, we are being a little bit more conservative. So we're leaning perhaps longer than we have done in the past and to make sure that we manage some of the scarcity periods where we see higher load, but obviously you cannot de-risk completely the business because it would be cost prohibited. So we're being very intentional, very thoughtful about it.

David Arcaro
Analyst at Morgan Stanley

Okay, got it. That makes sense. Thanks so much.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Thank you, David.

Operator

Thank you. Our final question comes from Steve Fleishman with Wolfe Research. You may proceed.

Steve Fleishman
Analyst at Wolfe Research

Thanks. I appreciate the time. Hi, Mauricio. Question on the 2023 kind of base pre Vivint. What are you you assuming in there, obviously, you're expecting a big recovery from '22 and some of the issues, just, but what are you assuming in there for outages, any lingering outage is and then related insurance money and then also are you including any asset sale gains or losses in the guidance for '23? I think you sold Astoria already at a decent price. Can you talk about that?

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yes, so, we already sold Astoria. Let me just give you my view on the on the 2023 guidance, which I started talking to Angie about it and then I'll pass it on to Alberto to tell you exactly what's in and out. The way to think about the 2023, Steve, is more conservative forecast that we have done in the past, both from an operational characteristics of the power plants, how we're managing our retail load, but also because of the dynamics that existed in 2022 that don't exist today, like if you remember, we have the supply chain issues on coal and chemicals that has abated for the most part. We falling to stable natural gas prices now that allows us to better manage our retail margins. We have an environment in the East where we feel very comfortable that we can gain market share on our retail business. So, I think in general, I would say that 2023 is a lot more conservative. The guidance is right on top of what we provided to you back at Investor Day when you adjust for asset sales, which we provided you the bridge back then. So all actually in the Investor Day bag, you have the ins and outs given the portfolio optimization that we have done and we're literally on top of where we should have been. So two things. One, I feel very confident that this is in line with what we provided you and two, we're taking a little bit more of a conservative approach in terms of the number. Obviously, we will update you throughout the year. But just keep in mind that we're just at the beginning of the year, but I don't know if there's anything else that we need to add, I mean.

Steve Fleishman
Analyst at Wolfe Research

Yeah, just Parish, like outage cost and insurance and asset sales.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yeah, so.

Steve Fleishman
Analyst at Wolfe Research

Could you identify what's in the guidance for those?

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yes, so in the guidance, obviously, we have Parish that is not in the first half of the year because it's on average. What I will tell you on Parish and I think that's probably the largest risk. The progress that we have made is pretty significant. As a matter of fact, I think just last week we had the generator now on-site, and have been lifted and put in the deck. So we're making really, really good progress on what I'm seeing today. I'm confident that we will come back on time. Obviously, the commercial team is monitoring very closely that with the plan. If there is any delays or there is any acceleration that we either mitigate the risk in the market or that we take advantage if it comes in earlier, but it's already embedded in guidance, but Alberto.

Alberto Fornaro
Chief Financial Officer at NRG Energy

Yeah, just to be a little bit more specific, Steve, regarding the Parish. We said that there is no impact in 2023 and the reason is because of the impact of the unavailability of the plant was matched by business insurance. We have received a little bit more than the business insurance in that 2022, however, we are recalculating the margin and net-net, it's still completely edged by the the loss margin is handled by what we are going to receive as insurance and therefore no change compared to the prior scenario, which was in the third quarter when we provided the guidance.

Steve Fleishman
Analyst at Wolfe Research

And then asset sales?

Alberto Fornaro
Chief Financial Officer at NRG Energy

Yes, we have factored Astoria basically, which has happened in January and for the moment until there are news, obviously, we are not adjusting.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

But Astoria has already been taken into consideration.

Alberto Fornaro
Chief Financial Officer at NRG Energy

Astoria has been considered because it was already -- should have happened at the end of 2022, it happened just a few days after '23 and we took positive direction in our guidance.

Steve Fleishman
Analyst at Wolfe Research

Okay and how much is that?

Alberto Fornaro
Chief Financial Officer at NRG Energy

It's small the full impact that. Consider that we have the tool for remaining short period. So it's very, very small.

Steve Fleishman
Analyst at Wolfe Research

Okay, great, thank you. I appreciate it. So, it's really a core business. Yeah, thanks.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Yes, thank you, Steve.

Operator

Thank you. This concludes the Q&A session. I'd now like to turn the call back over to Mauricio Gutierrez for any closing remarks.

Mauricio Gutierrez
President and Chief Executive Officer at NRG Energy

Thank you. Thank you for your interest in NRG and I look forward to updating you once we close the transaction on Vivint. Thank you.

Operator

[Operator Closing Remarks]

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