NRG Energy Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 16, 2023

Key Takeaways

  • NRG reaffirmed its 2023 financial guidance, citing more stable supply costs, favorable retail market dynamics in the East, and Texas grid resilience measures.
  • In 2022, adjusted EBITDA was $1.754 billion, missing midpoint guidance by $346 million due to the WA Parish outage, Winter Storm Elliott impacts, and lower-than-expected gas fleet utilization.
  • The Vivint Smart Home acquisition is on track to close in Q1 2023, with a target of $300 million of incremental free cash flow before growth and $100 million of cost synergies by 2025.
  • Direct Energy integration is nearing completion, having delivered $259 million of synergies to date and expecting the remaining run-rate targets to be achieved in 2023.
  • NRG plans to optimize its portfolio with $500 million of net proceeds from asset sales and will complete remaining share repurchases once targeted credit metrics are met.
AI Generated. May Contain Errors.
Earnings Conference Call
NRG Energy Q4 2022
00:00 / 00:00

There are 8 speakers on the call.

Operator

Day and thank you for standing by. Welcome to the NRG Energy Inc. 4th Quarter 2022 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

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.

Speaker 1

Thank you, Josh. Good morning and welcome to NRG Energy's Q4 2022 earnings call. This morning's call will be 45 minutes in length is being broadcast live over the phone and via webcast, which can be located in the Investors section of our website at www dot nrg.com under Presentations and Webcasts. Please note that today's discussion may contain forward looking statements, which are based upon that we believe to be reasonable as of this date. Actual results may differ materially.

Speaker 1

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.

Speaker 2

Thank you, Kevin. 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 Gaudet, 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.

Speaker 2

We have made significant progress in advancing our strategic priorities 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 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.

Speaker 2

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 2nd consecutive year of record safety performance. For me, it always starts and ends with the well-being of our people.

Speaker 2

I want to thank everyone at NRG for staying focused during the 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 2 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 WA Parish right before the summer. We are taking additional steps to strengthen our supply and mitigate operational risk during scarcity conditions. The Direct Energy integration is nearing completion and on track to deliver our run rate synergy targets in 2023.

Speaker 2

We executed on our test and learn program during the year, which culminated in the announcement of the Dividend Smart Home acquisition. We also continue our portfolio optimization with 2 gigawatts of coal retirements and asset Finally, on capital allocation, we executed $645,000,000 of share repurchases out of the $1,000,000,000 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 $1,000,000,000 to shareholders this way.

Speaker 2

I view our dividend as an integral part of our return on capital policy. Moving to financial results, we delivered $435,000,000 of adjusted EBITDA in the 4th quarter, bringing our 2022 full year result to 1 $754,000,000 below expectations. For the Q4, we highlighted in our last earnings call that reaching the bottom End of the financial guidance included a little over $100,000,000 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 kept our prices 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.

Speaker 2

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.

Speaker 2

In Texas, the Public Utility Commission proposed market design improvements that will result in more dispatchable generation and greater reliability of the ERCOT grid. 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 Hyacinth products and services as you can see on the right hand side of the slide.

Speaker 2

We continue our focus on optimizing our portfolio to better serve our customers. To that effect, We are targeting $500,000,000 in net cash proceeds from asset sales by the end of the year. Having completed our test and learn phase in 2022, we are now focused on the next phase of our strategic roadmap, This includes completing the Direct Energy integration and increasing the number of customers that purchase multiple products Today, we have sold more than one product to 15% of our customers. We are making good progress on cross selling and we'll provide additional disclosures as we integrate Vivint. To support this growth, We will continue to strengthen our fire supply by expanding our capital light PPA program for renewables to dispatchable generation at some of our existing sites.

Speaker 2

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 day 1 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 smart home solutions with nearly 2,000,000 highly engaged customers with an average life of 9 years. Their system brings together automation, security This business is highly complementary to our core energy offering.

Speaker 2

We will use their smart home 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 2. 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 2,000,000 customers.

Speaker 2

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. These 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 product. And then the cycle repeats as we grow creating a more valuable business.

Speaker 2

Now I want to disclose the value prop opportunity that this combination represents on Slide 8. We have identified 3 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 $300,000,000 of incremental free cash flow before growth by 20 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.

Speaker 2

We expect to achieve this growth target in several ways as we target Tier 1 customers, which we define as single family homeowners with high credit scores within select urban areas. We will focus on 2 immediate and actionable opportunities. 1, cross selling existing products into our combined customer network of 7,500,000 customers. 2, selling bundle offers to new customers outside of our network representing 15,000,000 potential households. In addition, we will grow dividend organically in line with historical levels.

Speaker 2

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 $500,000,000 to $600,000,000 over the next 3 years. For gross synergies, We have identified $100,000,000 to be achieved by 2025, primarily from combining 2 public companies. For these, we expect $160,000,000 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.

Speaker 2

In total, we see a $400,000,000 opportunity by 2025 and a larger opportunity beyond given the size of the smart home 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. These efforts will be led by the same team as the transformation plan and Direct Energy Integration. I look forward to providing you a more comprehensive update later this year during our Investor Day.

Speaker 2

Now turning to Slide 9, we want to give you an update on our pro form a 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 form a walk from 2023 to 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 unpacked 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.

Speaker 2

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.

Speaker 3

Thank you, Mauricio. I will now turn to Slide 11 for a review of 2022 results. During our Q3 call, We stated that higher profitability in the 4th quarter would 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 partly related to insurance proceeds for Unit 1 and Parrish 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 forward market curves and at the time the forward curves included High power prices for the 4th quarter, which would make the planned utilization of the gas fleet economical.

Speaker 3

Unfortunately, prices in the 4th quarter fell significantly below, short of expectation. On peak prices in Texas were 45% below expectation resulting in lower profitability from our generation fleet. Near the end of December, winter storm Elliott brought a sharp reduction in temperature for a short time in December 23, 2024. During the storm, load 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.

Speaker 3

Our gas Generation fleet in Texas, which was largely unutilized in the 4th 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 put trade additional power in the market at higher prices. In the East, Higher load led to a PJM reliability code for our units without any notice. Several of our larger units were in reserve That was the start of the event and have a longer start up times, which led to capacity performance negative impact given the lack of notice.

Speaker 3

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 4th quarter adjusted EBITDA of $435,000,000 was below our implied guidance by by $196,000,000 We estimated that the lower prices experienced for most of Q4 reduced the expected contribution of our gas generation by approximately $115,000,000 We also estimated a winter storm immediate totaled approximately $80,000,000 in negative impact. This was primarily a result of the net impact of capacity performance at PJM as well as increased power purchases in ERCOT that were partially offset by an expected capacity performance bonus for the Kothombu plant. When we look at the full year, adjusted EBITDA of 1,754,000,000 have short of the midpoint of our guidance at the beginning of 2022 by 346,000,000 There were 2 main drivers that impacted these results. First, the extended outage at Parrish Unit 8 with $220,000,000 of lost margin that was partially offset by business interruption proceeds of 52,000,000 And second, the estimated $80,000,000 impact of winter storm yield.

Speaker 3

There was also an incremental $44,000,000 of pension expenses resulting from reduced prices of financial assets in the second half of the year and some increased O and M expenses. Additional drivers include $15,000,000 of reduced earnings for the divestiture of Watson and $16,000,000 of growth expenses. In 2022, free cash flow before growth came in at 568,000,000 With the deficit to our Q3 guidance driven primarily by the shortfall in EBITDA and 2 working capital drivers. First, the insurance proceeds for Perish and Limestone that were forecasted for 2022 were accrued in the Q4, but received in January 2023, resulting at the end of the year in a 100,000,000,000 dollar increase in receivables. 2nd, working capital has an additional negative impact due to falling UVA gas prices in the quarter, which more rapidly impacted the account payables than the account receivables.

Speaker 3

Turning our attention to 20 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 Beauty and Direct Energy synergies. The 2021 net impact of Winterspell Newry was $380,000,000 During 2022, we were able to increase the MidiBuilt proceeds reduced the total net cost to approximately $259,000,000 For future years, there there will still be some cost recoveries associated with Juri, but within the amount to be material and we will no longer update these figures. For Direct Energy synergies, we achieved a total of $84,000,000 of additional synergies in 2022 with related integration cost of $74,000,000 bringing the total synergy achieved from the acquisition to 259,000,000 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 process progress, Patuvi will provide the final summary at the end.

Speaker 3

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 $40,000,000 at year end plus $209,000,000 in proceeds from the sales of Astoria, which totaled $249,000,000 in the bottom left. Next for Vivint, we continue to utilize its 2022 pro form a full year figures provided in our December call. Full year free cash flow below growth of $1,730,000,000 includes energy standalone guidance of $1,620,000,000 plus pro form a $110,000,000 for Vivint. This includes the expected impact from that financing. In addition, we included $300,000,000 of cash available from Vivi.

Speaker 3

Next in blue, we are targeting $500,000,000 of leverage neutral net inflow From asset sales, the next investments are higher by $29,000,000 following early realization of previously Now moving to the far right bar, We expect a total of $434,000,000 available for future allocation. These will fund the remaining share repurchase program Upon fully 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 later 2025 to 2026 for both debt reduction and growth.

Speaker 3

With that, I'll turn the call back over to Mauricio.

Speaker 2

Thank you, Alberto. On Slide 15, I want to briefly outline our 2023 priorities and expectations. 1st and foremost is delivering on our 4 energy business goals. We will continue to strengthen our integrated platform and further optimize our portfolio. 2nd, we are focused on closing the dividend acquisition, integrating the business and delivering on our synergy commitments.

Speaker 2

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 at 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.

Operator

Thank you. Our first question comes from Julien Dumoulin Smith with Bank of America. You may proceed.

Speaker 4

Hey, good morning team. Thanks for the opportunity and the time. Well done. Listen, I think Good morning, Gillian. Hey, good morning team.

Speaker 4

Listen, I wanted to talk to you guys about this 'twenty five outlook and just clarify this. As it pertains to the original conversation around, call it, $12.50 a share of FDF, is this an implicit increase And expectations are 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.

Speaker 2

Yes. I mean, let me see if I understand Good question. The pro form a that we showed here puts us in line with the Free cash flow before growth targets that we provided 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 That is going to produce $400,000,000 of free cash flow before growth on top of the 2023 Pro form a or guidance for NRG. So when I think about the 2025 pro form a, I will say that I'm very comfortable with the NRG performance.

Speaker 2

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.

Speaker 4

Excellent. And just to clarify this, I know you discussed Analyst Day here. Would you expect to roll that 25 forward at the time of the Analyst Day or could we get 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.

Speaker 4

Yes. So I think what

Speaker 2

you should expect is at Investor Day, we'll provide you the 5 year plan that will go beyond 2025. I think that's the right time to articulate it. Obviously, in the close and in Subsequent, we started the close and most likely the earnings call, we will provide additional clarity in 2023 with respect to the event, right. So With respect to the litigation that you're mentioning 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 stacks across all industry and I see this more as just a cleanup process than anything else.

Speaker 2

The risk of impacting the closing of the transaction, I would say, is minimal. Excellent.

Speaker 4

All right, guys. We'll leave it there. Thank you so much. Good luck.

Speaker 2

Thank you, Julien.

Operator

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

Speaker 5

Thank you. So maybe first on the 2023 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 There's been an improvement in working capital.

Speaker 5

There's the cost to replace the power for the WA Parish outage should have come down and yet you kept the guidance range. So what's the offset for these positive drivers?

Speaker 2

Yes. No, Angie, I mean,

Speaker 3

I'm glad that

Speaker 2

you went down the list because when I think about 2023, I would say that it's 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 2nd year that we have increased maintenance CapEx around our plants. 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 default 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 managing our retail market.

Speaker 2

So all of this is positive. Now let's just it's only February, right? So I want to make sure that we see at least a couple of months and we have greater 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 I think it's prudent given the type of volatility and extreme weather that we have seen in the past couple of years.

Speaker 5

Good. That's good, especially after 2 difficult years. Okay. And then On the PJM capacity penalties, so it's my understanding that the disclosures that the generation companies were provided by PJM on Friday, only talked about penalties. So any sort of bonus capacity payments haven't been disclosed or calculated.

Speaker 5

So I know that that's a 2022 issue, but just talk to us about how you accounted for those offsets to the penalties on the capacity side?

Speaker 2

Sure. I'll let Alberto.

Speaker 3

Yes. No, I mean, it is from the penalty side, it is relatively simple because we have considered based on our records what is The potential penalties that take those into account. On the bonus side, there is a lot of variables, including potential bankruptcy That can change the amount that will be distributed and therefore what we have done with the limited information available, we have estimated what is the best 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 month, but we are comfortable with what we have done.

Speaker 2

Yes. So I think it's fair to say that penalties, we have taken all of them into And bonuses, we need more information from PJM. So we have risk adjusted down more than that.

Speaker 5

Okay. And then lastly, so when you announced Vivint, there was a plan to execute on share buybacks, a pretty meaningful I think $60,000,000 I mean looking at the share count, you haven't done it. I understand that there is a plan for 2023 to finish that $1,000,000,000 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?

Speaker 5

Is it somewhat of a reflection of the Weak free cash flow generation for 2022. And again, just roughly about when we should expect those buybacks to happen?

Speaker 2

Yes. No, I mean that's correct. So my expectation that it will happen this year and obviously being very consistent with our And with our capital allocation principles, we want to focus first on achieving our credit metrics and then we will once we have the visibility 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 You have first assurances that we have that we meet our commitment on credit metrics and that we have the So that's how we're thinking about it.

Speaker 5

So it's not like this the fact that you deferred the buybacks, It's no in no way does that reduce the amount of financing that you will need to raise for the Vivint transaction? No. Okay. Thank you.

Speaker 2

Thank you, Angie.

Operator

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

Speaker 6

Hey, good morning. Thanks for taking my question.

Speaker 2

Good morning, David.

Speaker 6

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?

Speaker 2

Yes, David. As you know, we actually have been optimizing our portfolio 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.

Speaker 2

And if there is an asset that doesn't do that function, then it becomes a non core 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 modified some assets last year. We're going to do that.

Speaker 2

What I wanted today was to provide you more specificity around the amount that we are targeting and that this will be executed throughout 2023. In terms of timing, obviously, these We'll require 2 people coming to an agreement and but we will be updating you as soon as we have available information.

Speaker 6

Okay, thanks. That's helpful. And then I was wondering if you could speak a bit to just File 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 it's due to beef up the supply side of the equation?

Speaker 2

Yes, David. So when you think about the reliability and resiliency, I actually if you take a step back And you think about our supply strategy to serve our retail low, I think about it in 3 big pockets. 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 Purchases. Today, we are roughly 50% of the megawatts that we serve, we supply with our own generation, 2% with 3rd party either calls or purchases. So what we have done on the on our own generation It's twofold.

Speaker 2

Number 1, we have been a little bit more conservative when we run our forecast and what we use to hedge our load in terms of plan characteristics and that gives us a little bit more cushion. 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 described as the operational risk on our units. The other 2, we actually trade these operational risk for counterparty risk, Credit risk.

Speaker 2

So while it's perhaps more firmer in terms of the megawatts, it also we have to monitor the health of the entities that we're transacting with. So what I like about this approach is that we're diversifying Our risk that is not a all generation, all operational risk. We actually diversified the risk and this one was one of the big lessons during winter storm Eurex. So I feel very comfortable the risk adjustments that we have made. And then lastly, in terms of hedging our load, we're being a little bit more conservative.

Speaker 2

So we're leaning perhaps Longer than we have done in the past and to make sure that we manage some of the scarcity In a period where we see higher load, but obviously you cannot derisk completely the business because it would be cost prohibitive. So we've been very intentional and very thoughtful about it.

Speaker 6

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

Speaker 2

Thank you, Dave.

Operator

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

Speaker 7

Thanks. I appreciate the time. Just a question on hi, Mauricio. Question on the 2023 kind of base pre Vivint. What are you assuming in there, I guess, Obviously, you're expecting a big recovery from 2022 and some of the issues.

Speaker 7

Just but what are you assuming in there for Outages, any lingering outages and then the related insurance money? And then also on are you including any asset sale gains or losses in the guidance for 2023? I think you've sold Astoria already At a decent price.

Speaker 2

Yes. So Could you talk about that? Yes. So we already saw the story. Let me just give you my view 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.

Speaker 2

But 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 updated for the most part. We have falling to stable natural gas prices now that allows us 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 actually in the investor day deck, 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.

Speaker 2

So 2 things. 1, I feel very confident that this is in line with what we provided you. And 2, that is taking 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 is anything else that we need to add. I

Speaker 3

mean Yes.

Speaker 7

Parrish, like outage cost and insurance and Asset sales, could you identify what's in the guidance for those?

Speaker 2

Yes. So in the guidance, obviously, we have the tariffs That is not in the first half of the year because it's on outage. What I will tell you on Parrish, 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.

Speaker 2

So We're making really, really good progress on what I'm seeing today. I'm confident that we'll come back on time. Obviously, the commercial team It is monitoring very closely that with the plant, 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?

Speaker 3

Yes. Just to be a little bit more specific, Steve, regarding Periscontinitiate, we 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 We have received a little bit more than the business insurance in 2022. However, we are recalculating the margin and net net it's still completely hedged by the the loss margin is headed by what we're going to receive as insurance and therefore no change compared to the prior scenario, Which was in the Q3 when we provided the guidance.

Speaker 7

And then asset sales?

Speaker 3

Yes. I would say we have factored a story basically. The change happened in January and For the moment until there are news, obviously we are not adjusting.

Speaker 2

But it's already Astoria has already been taken into consideration.

Speaker 3

Astoria has been considered because it was already Okay. Should have happened at the end of 2022. It happened just a few days after 2023 and we took it to consolidation in our guidance.

Speaker 7

Okay. And how much is that?

Speaker 3

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

Speaker 7

Okay, great. Thank you. Appreciate it. So it's really the core business.

Speaker 2

Yes. Thanks. Yes. Thank you, Steve.

Operator

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

Speaker 2

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

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.

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