NRG Energy Launches Transformation Plan

PRINCETON, N.J.–(BUSINESS WIRE)–NRG Energy, Inc. (NYSE: NRG) today announced its “Transformation Plan.”

The Transformation Plan Targets:

• $1.065 Billion Recurring Cost and Margin Improvements, including:
  • $855 Million Recurring Annual Free Cash Flow before Growth (FCFbG)
    Accretive Improvements
  • $210 Million Permanent SG&A Reduction from Asset Sales and
    Divestments
• $2.5-$4.0 Billion Targeted Asset Sale Net Cash Proceeds, plus
• Removal of $13 Billion Total Debt From Balance Sheet

Pro Forma Effect of Transformation Plan¹:

• Pro Forma Annual Adjusted EBITDA: $1.845 Billion
• Pro Forma Annual FCFbG: $1.230 Billion
• Pro Forma Net Debt: $6 Billion or 3.0x Net Debt / Adj EBITDA
• Excess Cash to Deploy: Up to approximately $6.3 Billion through 2020
  ($20/share²), including $4 Billion by end of 2018
  ($12.5/share³)

The Business Review Committee (BRC) unanimously recommended the
Transformation Plan and it received the unanimous support and approval
by the NRG Board of Directors and management.

Mauricio Gutierrez, President and CEO, NRG: “The transformation plan
announced today demonstrates our commitment to simplify and strengthen
the company to thrive through any market cycle. This plan is the result
of a comprehensive review of our entire business by the board and
management to simplify our business, right-size our portfolio and
strengthen our balance sheet to create significant value for all our
stakeholders.”

Larry Coben, Chairman of the NRG Board of Directors: “By establishing
the BRC, the Board kick-started an exhaustive four-month review where
nothing was sacred. The Board and management scrutinized and challenged
every available opportunity that could create value for our shareholders
– and embraced the plan being announced today. The Board unanimously and
enthusiastically supports this transformational plan.”

John Wilder, Chairman of the NRG Business Review Committee: “The BRC,
composed of five experienced and skillful directors and supported by two
exceptionally qualified independent advisors, worked continuously for
four months on a comprehensive review of NRG’s operations and cost
structure to dramatically improve NRG’s financial performance and
competitiveness. We developed an extremely detailed transformation plan
that was unanimously approved by the BRC and the board. We targeted
divesting businesses that represent over 60% of NRG’s EBITDA to generate
$2.5-4.0 billion of net proceeds and facilitate $13 billion of debt
reduction. We targeted rapidly executing annual improvements with 72% of
run rate annual benefits of $1.07 billion achieved in 2018, 92% in 2019,
and 100% achieved in 2020. Finally, we established a rigorous capital
allocation process to ensure NRG is financially flexible for years to
come and to ensure NRG wisely allocates its expected 2017-2020 $6
billion of excess cash flow in 12-15% or better unlevered internal rate
of return investments, or distributes the excess cash to our
shareholders.”

Jeff Rosenbaum, Portfolio Manager at Elliott Management: “NRG’s
management and Board deserve substantial praise for the hard work and
clear thinking reflected in their truly transformational plan announced
today. This new business rightsizing strategy, recommended by CEO
Mauricio Gutierrez and Business Review Committee Chair John Wilder and
backed unanimously by the Board, will focus NRG on substantial cost
cuts, portfolio streamlining, balance sheet deleveraging and a strong
capital investment / shareholder return program. All of the stated
objectives have transparent and achievable targets. We are pleased that
this process has delivered such a strong plan for shareholders.”

The Transformation Plan

The Transformation Plan is designed to significantly strengthen earnings
and cost competitiveness, lower risk and volatility, and create
significant shareholder value. The three-part, three-year plan is
comprised of targets in the areas of operational and cost excellence,
portfolio optimization, and capital structure and allocation
enhancement. Importantly, the majority of targets and results are
achievable by the end of 2018, providing investors and the company with
clear line of sight to results. This plan is the product of a
comprehensive, “blank slate” evaluation of all NRG businesses, assets,
and functions, collectively conducted by the BRC, NRG management, and
independent consultants and advisors to the BRC. The Transformation
Plan’s components consist of:

1. Operations and cost excellence:

$1.065 billion total annual cost and margin enhancement (approximately
70% expected to be achieved by year-end 2018), including $855 million
recurring, annual FCFbG accretive cost and margin enhancement that
consist of: $590 million Adj. EBITDA-accretive cost savings⁴
(approximately 85% expected to be achieved by year-end 2018), $215
million Adj. EBITDA-accretive margin enhancement program (net of
recurring costs), and $50 million maintenance capex reduction. The total
cost reduction also targets $210 million in permanent SG&A reduction
associated with asset sales and divestments (run rate realized in 2018).

The plan also expects to realize (i) $370 million non-recurring working
capital improvements through 2020 and (ii) approximately $290 million in
one-time costs to achieve.

2. Portfolio optimization:

Targeting $2.5-$4.0 billion of asset sale net cash proceeds⁵,
including divestitures of 6 gigawatts (GWs) of conventional generation
and businesses⁶ and 50-100% of NRG’s interest in NRG Yield
and its leading renewables platform.

NRG is well underway in a process to explore strategic alternatives for
its interest in NRG Yield and the renewables platform. The strategic
alternatives span a variety of ownership structures and partnership
types, including the potential partial or full monetization of the
renewables platform and NRG’s interest in NRG Yield with a goal to
optimize how NRG participates in renewables and to deconsolidate the
associated debt. Beyond creating value, NRG seeks to simplify its
corporate and business structure while preserving the ability to provide
comprehensive energy solutions to customers.

In addition, as previously disclosed, NRG has entered into a
restructuring support agreement to restructure and divest its ownership
interest in GenOn Energy, Inc. (approximately 15 GW). On June 14, 2017,
GenOn filed for a pre-arranged Chapter 11 bankruptcy with 93%
noteholders’ support and expects emergence before year-end 2017.

With respect to asset sales and the strategic alternatives process, NRG
expects to announce signed agreements during the fourth quarter of 2017.
NRG has engaged Citi, Goldman Sachs and Morgan Stanley for certain asset
sale processes that are well underway.

3. Capital structure and allocation enhancements:

A clearly prioritized capital allocation strategy that targets a
reduction in consolidated net debt from approximately $18 billion to
approximately $6 billion of consolidated net debt / Adj. EBITDA from 6.4x⁷
to 3.0x by year-end 2018. In addition to achieving the 3.0x target
leverage ratio, the plan expects to provide up to $6.3 billion of excess
cash for allocation through 2020, including up to $4 billion of excess
cash by year-end 2018. NRG expects to deploy this excess cash in either
projects or investments with at least 12-15% unlevered pre-tax returns
or shareholder return programs.

The full Board of Directors will maintain oversight of the execution of
the Transformation Plan with monthly updates provided to the Board’s
Finance and Risk Management Committee. A score card will be provided to
the investment community and will be updated on future quarterly
earnings calls.

Analyst Day

NRG plans to host an Analyst Day following the full announcement of
asset sales and the NRG Yield and Renewable process to provide an
updated comprehensive strategic plan. The Analyst Day is targeted for
late 2017 / early 2018.

2017 Guidance

NRG is maintaining its guidance range for fiscal year 2017 with respect
to both Adjusted EBITDA and FCFbG investments and adjusting for the
deconsolidation of GenOn and the impact of the Transformation Plan on
2017.

¹ Pro Forma results assume the 100% sale of NRG’s interest in
NYLD and Renewables platform.
² Based on 4/30/2017
shares outstanding of 316,082,221.
³ Based on 4/30/2017
shares outstanding of 316,082,221.
⁴ Excludes recurring
costs to support margin enhancement activities.
⁵ In
addition to consolidated net debt reduction of $8.5 billion related to
these assets.
⁶ Excluding the disposition of GenOn
Energy, Inc. and its subsidiaries.
⁷ Based on
consolidated net debt as of March 31, 2017 and midpoint of 2017 Adjusted
EBITDA guidance.

^{a. Non-GAAP financial measure; see Appendix Table A-11
for GAAP Reconciliation to Net Income that excludes fair value
adjustments related to derivatives. The Company is unable to provide
guidance for Net Income due to the impact of such fair value adjustments
related to derivatives in a given year.}

Investor Conference Call

NRG will host a conference call today, July 12, 2017, at 8:30 a.m.
Eastern to discuss the Transformation Plan. Investors, the news media
and others may access the live webcast of the conference call and
accompanying presentation materials by visiting NRG’s investor website
at http://investors.nrg.com
and clicking on “Presentations & Webcasts.” The webcast will be archived
on the site for those unable to listen in real time.

About NRG

NRG is the leading integrated power company in the U.S., built on the
strength of our diverse competitive electric generation portfolio and
leading retail electricity platform. A Fortune 500 company, NRG creates
value through best in class operations, reliable and efficient electric
generation, and a retail platform serving residential and commercial
businesses. Working with electricity customers, large and small, we
implement sustainable solutions for producing and managing energy,
developing smarter energy choices and delivering exceptional service as
our retail electricity providers serve almost three million residential
and commercial customers throughout the country. More information is
available at www.nrg.com.
Connect with NRG Energy on Facebook and follow us on Twitter @nrgenergy.

Safe Harbor Disclosure

In addition to historical information, the information presented in this
press release includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Exchange Act. These statements involve estimates, expectations,
projections, goals, assumptions, known and unknown risks and
uncertainties and can typically be identified by terminology such as
“may,” “should,” “could,” “objective,” “projection,” “forecast,” “goal,”
“guidance,” “outlook,” “expect,” “intend,” “seek,” “plan,” “think,”
“anticipate,” “estimate,” “predict,” “target,” “potential” or “continue”
or the negative of these terms or other comparable terminology. Such
forward-looking statements include, but are not limited to, statements
about the anticipated benefits of acquisitions, the Company’s future
revenues, income, indebtedness, capital structure, plans, expectations,
objectives, projected financial performance and/or business results and
other future events, and views of economic and market conditions.

Although NRG believes that its expectations are reasonable, it can give
no assurance that these expectations will prove to be correct, and
actual results may vary materially. Factors that could cause actual
results to differ materially from those contemplated herein include,
among others, general economic conditions, hazards customary in the
power industry, weather conditions, including wind and solar
performance, competition in wholesale power markets, the volatility of
energy and fuel prices, failure of customers to perform under contracts,
changes in the wholesale power markets, changes in government
regulations, the condition of capital markets generally, our ability to
access capital markets, unanticipated outages at our generation
facilities, adverse results in current and future litigation, failure to
identify, execute or successfully implement acquisitions, repowerings or
asset sales, our ability to implement value enhancing improvements to
plant operations and companywide processes, our ability to implement and
execute on our publicly announced transformation plan, including any
cost savings, margin enhancement, asset sale, and net debt targets, our
ability to proceed with projects under development or the inability to
complete the construction of such projects on schedule or within budget,
risks related to project siting, financing, construction, permitting,
government approvals and the negotiation of project development
agreements, our ability to progress development pipeline projects, the
timing or completion of the GenOn restructuring, the inability to
maintain or create successful partnering relationships, our ability to
operate our businesses efficiently including NRG Yield, our ability to
retain retail customers, our ability to realize value through our
commercial operations strategy and the creation of NRG Yield, the
ability to successfully integrate businesses of acquired companies, our
ability to realize anticipated benefits of transactions (including
expected cost savings and other synergies) or the risk that anticipated
benefits may take longer to realize than expected, our ability to close
the Drop Down transactions with NRG Yield, and our ability to execute
our Capital Allocation Plan. Debt and share repurchases may be made from
time to time subject to market conditions and other factors, including
as permitted by United States securities laws. Furthermore, any common
stock dividend is subject to available capital and market conditions.

NRG undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise, except as required by law. The adjusted EBITDA and free cash
flow guidance are estimates as of July 12, 2017. These estimates are
based on assumptions the company believed to be reasonable as of that
date. NRG disclaims any current intention to update such guidance,
except as required by law. The foregoing review of factors that could
cause NRG’s actual results to differ materially from those contemplated
in the forward-looking statements included in this Earnings Presentation
should be considered in connection with information regarding risks and
uncertainties that may affect NRG’s future results included in NRG’s
filings with the Securities and Exchange Commission at www.sec.gov.

Appendix Table A-1: 2017 and Pro Forma Adjusted EBITDA Guidance
Reconciliation

The following table summarizes the calculation of Adjusted EBITDA
providing reconciliation to net income:

Appendix Table A-2: 2017 and Pro Forma FCFbG Guidance Reconciliation

The following table summarizes the calculation of Free Cash Flow before
Growth providing reconciliation to Cash from Operations:

EBITDA and Adjusted EBITDA are non-GAAP financial measures. These
measurements are not recognized in accordance with GAAP and should not
be viewed as an alternative to GAAP measures of performance. The
presentation of Adjusted EBITDA should not be construed as an inference
that NRG’s future results will be unaffected by unusual or non-recurring
items.

EBITDA represents net income before interest (including loss on debt
extinguishment), taxes, depreciation and amortization. EBITDA is
presented because NRG considers it an important supplemental measure of
its performance and believes debt-holders frequently use EBITDA to
analyze operating performance and debt service capacity. EBITDA has
limitations as an analytical tool, and you should not consider it in
isolation, or as a substitute for analysis of our operating results as
reported under GAAP. Some of these limitations are:

• EBITDA does not reflect cash expenditures, or future requirements for
  capital expenditures, or contractual commitments;
• EBITDA does not reflect changes in, or cash requirements for, working
  capital needs;
• EBITDA does not reflect the significant interest expense, or the cash
  requirements necessary to service interest or principal payments, on
  debt or cash income tax payments;
• Although depreciation and amortization are non-cash charges, the
  assets being depreciated and amortized will often have to be replaced
  in the future, and EBITDA does not reflect any cash requirements for
  such replacements; and
• Other companies in this industry may calculate EBITDA differently than
  NRG does, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered as a
measure of discretionary cash available to use to invest in the growth
of NRG’s business. NRG compensates for these limitations by relying
primarily on our GAAP results and using EBITDA and Adjusted EBITDA only
supplementally. See the statements of cash flow included in the
financial statements that are a part of this news release.

Adjusted EBITDA is presented as a further supplemental measure of
operating performance. As NRG defines it, Adjusted EBITDA represents
EBITDA excluding impairment losses, gains or losses on sales,
dispositions or retirements of assets, any mark-to-market gains or
losses from accounting for derivatives, adjustments to exclude the
Adjusted EBITDA related to the non-controlling interest, gains or losses
on the repurchase, modification or extinguishment of debt, the impact of
restructuring and any extraordinary, unusual or non-recurring items plus
adjustments to reflect the Adjusted EBITDA from our unconsolidated
investments. The reader is encouraged to evaluate each adjustment and
the reasons NRG considers it appropriate for supplemental analysis. As
an analytical tool, Adjusted EBITDA is subject to all of the limitations
applicable to EBITDA. In addition, in evaluating Adjusted EBITDA, the
reader should be aware that in the future NRG may incur expenses similar
to the adjustments in this news release.

Management believes Adjusted EBITDA is useful to investors and other
users of NRG’s financial statements in evaluating its operating
performance because it provides an additional tool to compare business
performance across companies and across periods and adjusts for items
that we do not consider indicative of NRG’s future operating
performance. This measure is widely used by debt-holders to analyze
operating performance and debt service capacity and by equity investors
to measure our operating performance without regard to items such as
interest expense, taxes, depreciation and amortization, which can vary
substantially from company to company depending upon accounting methods
and book value of assets, capital structure and the method by which
assets were acquired. Management uses Adjusted EBITDA as a measure of
operating performance to assist in comparing performance from period to
period on a consistent basis and to readily view operating trends, as a
measure for planning and forecasting overall expectations, and for
evaluating actual results against such expectations, and in
communications with NRG’s Board of Directors, shareholders, creditors,
analysts and investors concerning its financial performance.

Adjusted cash flow from operating activities is a non-GAAP measure NRG
provides to show cash from operations with the reclassification of net
payments of derivative contracts acquired in business combinations from
financing to operating cash flow, as well as the add back of merger,
integration and related restructuring costs. The Company provides the
reader with this alternative view of operating cash flow because the
cash settlement of these derivative contracts materially impact
operating revenues and cost of sales, while GAAP requires NRG to treat
them as if there was a financing activity associated with the contracts
as of the acquisition dates. The Company adds back merger, integration
related restructuring costs as they are one time and unique in nature
and do not reflect ongoing cash from operations and they are fully
disclosed to investors.

Free cash flow (before Growth investments) is adjusted cash flow from
operations less maintenance and environmental capital expenditures, net
of funding, preferred stock dividends and distributions to
non-controlling interests and is used by NRG predominantly as a
forecasting tool to estimate cash available for debt reduction and other
capital allocation alternatives. The reader is encouraged to evaluate
each of these adjustments and the reasons NRG considers them appropriate
for supplemental analysis. Because we have mandatory debt service
requirements (and other non-discretionary expenditures) investors should
not rely on free cash flow before Growth investments as a measure of
cash available for discretionary expenditures.

Free Cash Flow before Growth Investment is utilized by Management in
making decisions regarding the allocation of capital.

Contacts

NRG Energy, Inc.
Media:
Marijke Shugrue, 609-524-5262
or
Investors:
Kevin
L. Cole, CFA, 609-524-4526
or
Lindsey Puchyr, 609-524-4527

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