Founded: 1989
NAIC: 221121 Electric Bulk Power Transmission and Control
Based in Princeton, New Jersey, NRG Energy, Inc. is a wholesale power generation company with ownership interest in 58 power generating facilities located in the United States, Australia, Brazil, and Germany. These facilities are capable of generating nearly 25,000 net megawatts of electricity from a variety of fuel types, including oil, natural gas, nuclear, diesel, jet, and hydro. In addition to power generation, the company markets commodities such as coal, natural gas, and oil, and through subsidiary NRG Thermal L.L.C. operates cogeneration facilities, providing both heat and power to customers, and district heating and cooling facilities, which supply steam, hot water, or chilled water to specific areas, such as an office building or factory, for heating, cooling, or industrial uses. Another subsidiary, NRG Engine Services, repairs and maintains power generating equipment. NRG is a public company listed on the New York Stock Exchange.
Ties to the 19th Century
NRG grew out of Minneapolis-based Northern States Power Company, whose founder, Henry Marison Byllesby, was a pioneer of power generation. An engineer, he went to work for famed inventor Thomas Edison in 1881 as a draftsman for a New York City power plant. Four years later, at the age of 26, he was lured away by another legendary inventor, George Westinghouse, who made Byllesby a vice-president and general manager of Westinghouse Electric. He first moved to the Minneapolis area in 1891 when he went to work for Thomson-Houston Electric Company and was put in charge of a St. Paul, Minnesota subsidiary. In 1902 Byllesby became involved with utility mogul Samuel Insull, buying and upgrading struggling Midwestern utilities. He became an owner himself, in 1912 acquiring Minneapolis General Electric of Minnesota. Four years later the company would take the name Northern States Power Company (NSP).
Over the first 20 years NSP acquired 25 Upper Midwest utility companies, emerging as one of the leading utility holding companies, but the Public Utility Holding Company Act of 1935 forced NSP to sell off interests and required many of its well-healed backers to sell their stock back to the company. NSP struggled through the rest of the 1930s and business did not pick up again until the demand for electricity surged with the United States' entry into World War II. NSP continued to grow in the postwar years and by the mid-1950s was one of the nation's top ten utilities.
In the late 1980s the game changed for government-regulated utilities including NSP. Deregulation was on the horizon, offering a myriad of opportunities for companies to take advantage of changing conditions. In 1989 NSP formed subsidiary NRG Energy to acquire, build, own, and operate nonregulated power and energy businesses in both the United States and overseas. The ten-person operation was headed by President Dave Peterson, an NSP veteran who had been vice-president, non-regulated generation, for NSP. NRG Energy, Inc. would then be incorporated in Delaware in May 1992.
NRG quickly displayed what Minneapolis' Star Tribune described as a "go-go, entrepreneurial culture." In the early years it became involved in a wide variety of projects, often in conjunction with partners. In 1991 it gained half-ownership of Jackson Valley Energy Partners. A year later it acquired 45 percent interests in three San Joaquin Valley Energy operations. All four of the facilities were cogeneration plants located near Fresno, California, which sold their power to Pacific Gas & Electric on long-term agreements. Another early venture was the ownership of three Minnesota steam lines, providing steam to two corporations as well as a Minnesota prison. NRG was also active internationally. In 1993 it became part of the Scudder Latin American Trust for Independent Power, an investment fund that bought and built power plants in Latin America and the Caribbean. NRG also acquired interests in power plants in Germany, the Czech Republic, and Australia.
Business began to accelerate for NRG in the second half of the 1990s, as deregulation began to spread across the United States. NRG would acquire primarily aging power plants around the country, put on the block by old-guard utility companies who in response to deregulation would be increasingly inclined to sell off generating capacity in order to focus on transmission and distribution. Once these plants became available, NRG was willing to take on an enormous amount of debt because the window of opportunity was limited. As Peterson explained to CityBusiness, a Minneapolis business publication, "Once these markets open up and these properties get sold, it usually doesn't happen a second time." According to CityBusiness, "Once power plants are in the stable, NRG's next challenge is to recreate them in its own entrepreneurial image. Often, the plants NRG buys were considered inefficient or environmental burdens to their previous owners. ... NRG usually cuts staff, adds performance incentives and makes each plant's management keep records of the facility's income." Until they came into the NRG fold, many of the plants' managers were disconnected from their parent company's accounting. "Most of them had no idea what kind of money they were making for their company," Peterson told CityBusiness.
Strong Growth in the Final Years of the Century
From 1996 to 1999, NRG grew its business 35 percent per year and began to focus on three core markets in the United States--the Northeast, South Central, and southern California markets--all of which were expected to lack enough generating capacity to meet rising demand in the near future. NRG started the new century in the same way it ended the last, by spending money on U.S. power plants in these core markets, especially the Northeast. It paid $550 million for Consolidated Edison Co. generating facilities in Staten Island and Queens in New York City, $445 million for three western New York generating plants, and another $460 million for plants in Connecticut. NRG also bought two other fossil-fuel facilities located in Delaware and Maryland, as well as minority stakes in a pair of Pennsylvania plants. In March 2000 NRG acquired power plants in Louisiana for about $1 billion.
Contributing about 20 percent of NSP's total revenues, NRG had become the largest growth vehicle for the parent company, whose stock was struggling as the 1990s came to a close. NSP made plans to merge with New Century Energies Inc. of Denver and began taking steps to spin off NRG in a public offering of stock. NSP would sell off 20 percent of the company, a move it hoped would untap the full value of NRG operating as a separate, independent company. The partial spinoff was completed in May 2000, and the initial public offering (IPO) of stock netted NRG $423 million, the largest IPO of a Minnesota company ever. Of that amount, about $300 million was earmarked to trim the company's massive debt and for general corporate purposes. Shares of NRG stock now began to trade on the New York Stock Exchange under the ticker symbol "NRG." NSP subsequently completed its merger with New Century Energies and took the name Xcel Energy, Inc.
In the early months as an independent company, NRG soared. The price of its stock rose from the IPO price of $15 per share to $37 in the fall of 2000, and for the year NRG recorded revenues of $2.16 billion and net income of $182.9 million. Taking advantage of its momentum, the company conducted a secondary offering of stock to further repay debt and fund the development of pending projects.
NRG continued to fly high in 2001. It was now the United States' third largest independent power generator in terms of net equity in megawatts. In 2001 NRG grew sales to more than $2.4 billion and net income topped $265 million. But it also carried nearly $5 billion in debt, of which $3 billion was bond debt, another $1 billion unsecured bank debt, and about $900 million obligations in power plant financing. Moreover, NRG had another $5 billion of project financing on its plants, secured in large part by the plants themselves. By the end of the year there were rumblings of trouble ahead for NRG and the nonregulated power generation industry because of declining power prices and the collapse of Enron. In December 2001, NRG's debt was put under review for possible downgrade to junk status.
Thinking NRG's depressed stock price provided an opportunity to reacquire its growth engine at a reasonable price, in February, Xcel Energy tried to rescue NRG by announcing its intention to reacquire the company. Xcel Energy made a $300 million cash infusion in March 2002 in a feckless effort to prevent the downgrade of its debt. NRG backed out of pending acquisitions and began to shed assets; but nothing could prevent a downgrading of its corporate bonds to junk and the company defaulting on its debt payments. Peterson and other top executives either retired or resigned, and then filed an involuntary Chapter 11 suit against NRG when their severance and retirement packages went unpaid by Xcel. That matter was settled in February 2003 while NRG inched closer to bankruptcy.
Bankruptcy: 2003
NRG finally filed for Chapter 11 bankruptcy protection in May 2003 in what was, in effect, a prearranged settlement with unsecured creditors, who would receive about 54 cents on the dollar while secured creditors were paid 100 cents on the dollar, all in all an acceptable outcome. For its part, Xcel gave up its ownership interest in NRG and paid the former subsidiary $752 million to meet some creditor claims as well as provide some working capital. The reorganization plan was accepted by a federal bankruptcy judge in November 2003. When the dust settled, NRG retained about 14,000 megawatts of U.S.-based electric generating plants and another 3,000 megawatts in Australia, Germany, and Latin America. In December 2003, the company received a new CEO, David W. Crane, an energy industry veteran.
Given that the bulk of NRG's assets were located in the Northeast, Crane decided that it made sense for NRG to move its headquarters closer to the center of its business. A five-state search was conducted in the Northeast and the company finally settled on Princeton, New Jersey, an area familiar to Crane, who held a Bachelor of Arts degree from Princeton University's Woodrow Wilson School of Public and International Affairs. As an inducement, New Jersey provided a business employment incentive grant to NRG.
Crane succeeded quickly in turning around the new NRG, and in 2004 the company reported revenues of $2.36 billion and net income of $185.6 million, results that exceeded management's expectations. Progress continued in 2005, when sales increased to more than $2.7 billion and NRG posted net income of $84 million. Once again, the company was able to achieve external growth. In February 2006, it completed the acquisition of Texas Genco for $4.4 billion in cash, $2.7 billion in assumed Texas Genco debt, and 35.4 million shares of NRG common stock. As a result, NRG doubled its asset base and gained a much needed presence in Texas, complementing its energy assets in the Northeast, South Central, and Western regions of the United States.
Principal Subsidiaries
NRG Thermal L.L.C.; NRG Engine Services.
Principal Competitors
The AES Corporation; Calpine Corporation; Mirant Corporation.
Further Reading
Berman, Dennis K., Henny Sender, and Rebecca Smith, "NRG Is in Talks to Buy Texas Genco," Wall Street Journal, September 28, 2005, p. A3.
Pacelle, Mitchell, "NRG Proposed Chapter 11 Filing to Its Creditors," Wall Street Journal, November 8, 2002, p. A2.
Price, Dave, "Xcel Makes Last-Ditch Effort to Save NRG Energy," Finance and Commerce Daily Newspaper (Minn.), February 16, 2002.
Reilly, Mark, "A Power Surge," CityBusiness (Minneapolis, Minn.) March 10, 2000, p. 1.
St. Anthony, Neal, "NRG Raises $423 Million in Offering," Star Tribune, May 31, 2000, p. 1D.
------, "NRG Spinoff Could Turn Up Heat Under Shares of NSP," Star Tribune, February 1, 2000, p. 1D.
Smith, Rebecca, "NRG Is Cleared for Emergency from Chapter 11," Wall Street Journal, November 25, 2003, p. B5.
— Ed Dinger
