Attached files
| file | filename |
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| 8-K - FORM 8-K - GenOn Energy, Inc. | d324234d8k.htm |
 Bank of America/Merrill Lynch
Megawatt Round-up Conference
March 28, 2012
Edward R. Muller
Chairman and CEO
Morgantown Generating Station
Charles County, MD |
 Safe Harbor Statement
2
Forward-Looking Statements This presentation
contains statements, estimates or projections that are “forward-looking statements” as defined under U.S. federal
securities laws. In some cases, one can identify forward-looking statements by words such as
“will,” “expect,” “estimate,” “think,”
“forecast,” “guidance,” “outlook,” “plan,” “lead,”
“project” or comparable words. Forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from our historical experience
and our present expectations or projections. These risks include, but are not limited to: (i)
legislative and regulatory initiatives or changes affecting the electric industry; (ii)
changes in, or changes in the application of, environmental or other laws and regulations; (iii)
failure of our generating facilities to perform as expected, including outages for unscheduled
maintenance or repair;
(iv)
changes in market conditions or the entry of additional competition in our markets; and (v)
those factors contained in our periodic reports filed with the SEC, including in the “Risk
Factors” section of our most recent Annual Report on Form 10-K. The forward-looking
information in this document is given as of the date of the particular statement and we assume no duty to update
this information. Our filings and other important information are also available on the Investor
Relations page of our web site at www.genon.com. |
 GenOn and the Industry
•
Cross-State Air Pollution Rule (CSAPR) stayed
•
Mercury and Air Toxics Standards (MATS) compliance required in April 2015
•
Expect to deactivate 3,140 MWs of the GenOn fleet as forecasted returns on
investments necessary to comply with environmental regulations are
insufficient •
PJM identified 15,531 MWs
1
of announced and projected retirements in PJM
through
2015
related
to
environmental
rules
–
approximately
8%
of
PJM’s
capacity
•
Expect GenOn will invest ~$586 -
$726 million for major environmental controls
over the next 10 years
3
We expect higher earnings from price increases resulting from
industry retirements will more than offset reduced earnings from
GenOn unit deactivations
1.
Source document: PJM ISO “Generator-Owner (GO) Response to EPA Rules Preliminary
Summary Update” dated March 26, 2012. |
 Expected Changes in Generation Fleet
4
Plant
Location
MWs
Expected Timing
Driver
Elrama
PA
460
June 2012
MATS and market conditions
Niles
OH
217
June 2012
Portland
PA
401
January 2015
Cumulative effect of various environmental regulations
Avon Lake
OH
732
April 2015
MATS
New Castle
PA
330
April 2015
MATS
Shawville
PA
597
April 2015
Cumulative effect of various environmental regulations
Titus
PA
243
April 2015
MATS
Glen Gardner
NJ
160
May 2015
NJ High Energy Demand Day (HEDD) regulations
Subtotal
3,140
Indian River
FL
586
January 2012
Sold for $11.5 million
Vandolah
FL
630
May 2012
Tolling agreement expires
Potomac River
VA
482
October 2012
Retiring based on agreement with the City of Alexandria, VA
Contra Costa
CA
674
May 2013
Expected to retire upon expiration of PPA
Total reductions
5,512
Marsh Landing
CA
719
Mid-2013
Under construction –
on schedule and on budget
19,490 MWs of generating capacity after 2015
Units to be deactivated
Other fleet reductions
Fleet addition
1
1.
Our initial analysis indicates the forecasted return on environmental investments is insufficient. If
the analysis is confirmed, we anticipate retiring the coal-fired units in 2015. |
 Expected Environmental Investments
5
•
Expect investments of ~$586 -
$726 million in major controls over the next
10 years to meet current and anticipated environmental rules
Plant
Location
Control Technology
Expected
Timing
Driver
Investments
($ millions)
Kendall
MA
Backpressure steam turbine +
air-cooled condenser
2012 -
2014
Water regulations
$32 -
$35
Gilbert
NJ
SCR
2012 -
2015
New Jersey HEDD
regulations
$129 -
$151
Sayreville
Werner
Conemaugh
PA
Scrubber upgrade + SCR
2012 -
2015
MATS
$93 -
$102
Mandalay
CA
Variable speed pumps
2018 -
2019
Water regulations
$17 -
$20
Ormond Beach
Chalk Point
-
Unit 2
MD
SCR
2018 -
2021
More
stringent
PM
2.5
and
Ozone NAAQS
$315 -
$418
Dickerson
1.
Based on GenOn percentage (leased).
1 |
 Impact of Environmental Rules
•
Supply and demand tightening as a result of industry deactivations in PJM
6
Total PJM
Reserve Margin
2015E
16%
25%
1.
Pre-MATS estimated reserve margin is prior to and Post-MATS is after the
15.5 GW of total announced and projected retirements in the PJM ISO “GO
Response
to
EPA
Rules
Preliminary
Summary
Update”
dated
March
26,
2012.
Post-MATS
also
includes
retirements
related
to
NJ
High
Energy
Demand
Day NOx limits and only known additions that are not likely sensitive to
price. Pre-MATS
Post-MATS
1 |
 •
Over time, capacity prices should increase toward the Cost of New Entry
(Net CONE) as supply and demand tightens
7
Capacity Prices
We expect higher earnings from
increases in capacity prices
RTO
$/MW-day
MAAC
$/MW-day
1
2
1.
MAAC Combined Cycle (CC) Net CONE is based on PJM Area 4 (Rest of MAAC).
2.
RTO CC Net CONE is based on PJM Area 3 (Rest of RTO, excluding Dominion).
$136.50
$237.93
$267.61
$125.99
$266.04
$320.63
Clearing Price
(PY 2014/15)
Net CONE for CC
(PY 2015/16)
Net CONE for CT
(PY 2015/16)
Clearing Price
(PY 2014/15)
Net CONE for CC
(PY 2015/16)
Net CONE for CT
(PY 2015/16) |
 8
Energy Prices
•
Forward prices do not show an expansion in market implied heat rates
(MIHRs) as a result of announced deactivations
Based on forward prices as of March 16, 2012
1.
Around the clock PJM West hub power prices.
2.
NYMEX plus Transco zone 6 less non-NY basis.
•
Reduced supply generally leads to heat rate expansion
-5%
5%
15%
25%
2013
2014
2015
Power
Delivered Natural Gas
MIHR
2
1 |
 Summary
•
GenOn will invest only if expected return exceeds cost of capital
•
Expect to deactivate 3,140 MWs because forecasted returns on
investments necessary to comply with environmental regulations are
insufficient
•
Expect investments of ~$586 -
$726 million for major environmental
controls over the next 10 years
•
After 2015, GenOn will have 19,490 MWs after giving effect to the
deactivations, other fleet reductions and the addition of Marsh Landing
9
We expect higher earnings from price increases resulting from
industry retirements will more than offset reduced earnings from
GenOn unit deactivations |
 Bank of America/Merrill Lynch
Megawatt Round-up Conference
March 28, 2012
Edward R. Muller
Chairman and CEO
Morgantown Generating Station
Charles County, MD |