While Princeton-based NRG Energy has grown its retail electricity supply business to more than 2 million customers in Texas, the company has not seen significant growth in its retail sector in New Jersey, despite its acquisition of Philadelphia-based Energy Plus Holdings LLC last year.
But NRG President and CEO David Crane said the company's $1.7 billion acquisition of GenOn Energy Inc., announced Sunday, will give it the boost in the wholesale electricity market to set the foundation for further retail expansion in the Northeast, including New Jersey.
"We don't like to do naked retail. We like to do it with backup wholesale generation, and this transaction lets us do that in the Northeast and duplicate what we do in Texas," Crane said in a conference call today. "We've been at this point before, and we've now got the platforms for more retail. We like our current platform (in New Jersey) and we push it hard, but we want to be engaged in a business that makes money."
According to GenOn Chairman and CEO Edward R. Muller, both companies have recently lost revenues as a result of declining wholesale power prices and sluggish economic growth, but they expect the acquisition will cut costs, boost efficiency and increase cash flow by diversifying their power capacity across fossil fuel, nuclear, solar and wind throughout the most competitive markets.
Crane said part of the projected annual increase of $300 million in free cash flow beginning in 2014 will be invested into improvements in energy infrastructure, since "we're sitting on an aging fleet of power plants in (the) United States, many of which are around 40 years old."
"Since the financial crisis in 2008, very little infrastructure has been built in this country. We're in a very good position to be a major player by generating 47,000 megawatts, and we're going to go where the prospects are," Crane said. "We're glad we're going to have some money to do that."
Crane said the deal is expected to close by the first quarter of 2013, with the combined company forming dual headquarters — with operational headquarters in Houston and financial and commercial headquarters in Princeton — which he called "a recognition of where our companies have skill sets."
"Houston is a strong center of technical expertise for both companies, but our trading floor and financial functions are already in Princeton," Crane said. "This is a capital-intensive industry, and New York is still the financial capital of the world."