CreditSights on Feb. 23 downgraded NRG Energy Inc. bonds to "underperform" from "market perform" based on concerns about the power provider's recent performance as Arctic weather prompted widespread generation outages in Texas.
CreditSights analyst Andrew DeVries said the downgrade was necessary "simply because there is too much risk out there on a mismatch between customer load vs. owned plant output that could have flipped NRG from a seller of sky-high power prices to a buyer."
NRG and Texas power provider Vistra Corp. were initially believed to have had the most exposure to generation outages during the week of Feb. 15 in the Electric Reliability Council Of Texas Inc., given their large generation fleets in the state. Irving, Texas-headquartered Vistra on Feb. 17 disclosed that only about 1,000 MW of its more than 19,000 MW of generation was offline during the energy emergency.
NRG, headquartered in New Jersey, operates more than 10,000 MW of coal, gas and nuclear generation in Texas, according to S&P Global Market Intelligence data.
The company said in a Feb. 16 statement that the status of specific plants is proprietary and financially material. NRG President and CEO Mauricio Gutierrez is scheduled to appear before the Texas Legislature on Feb. 25, and the company has pushed the planned release of earnings results to March 1.
CreditSights said "there is zero excuse for not having a press release out with even general comments on the extreme weather event."
"We know one of their nuclear units was offline for two days and they haven't even disclosed that," DeVries wrote, referring to unit 1 at the company's 2,560-MW South Texas Project.
The nuclear plant is co-owned by City Public Service of San Antonio and Austin Energy.
The likelihood that NRG had to go into the spot market, where prices were set at $9,000/MWh, to purchase replacement power "increased significantly" based on the nuclear unit outage and data that shows NRG "delivered twice as much power in [Texas] than its plants generated" in the first quarter of 2020, DeVries added.
As fully integrated power providers, NRG and Vistra also own large retail electricity companies in Texas. Vistra has a "long" position, with more generation in Texas than retail load, while NRG has more retail load than generation.
"The rolling blackouts no doubt diminished their retail supply obligations but why hasn't NRG quantified any of this for us?" DeVries wrote.
Meanwhile, Vistra is seen as a "clear beneficiary" from the market movement, with the company reported to be offering to take on customers from other retailers in Texas and signaling that its retail customers were largely unscathed by price spikes. "While some may experience higher than normal bills due to higher usage during this cold weather period in February, we expect our customers will be insulated from storm-related rate increases," Vistra said in a Feb. 20 news release.
"[W]e have a high degree of confidence [Vistra] absolutely printed money last week in [Texas] and they will play a very delicate game keeping their windfall out of the press at a time when politicians are fuming and ratepayers are struggling," DeVries wrote.
