Houston — Partly in reaction to tight supply conditions in the Electric Reliability Council of Texas footprint, NRG Energy announced Thursday plans to restart in June a 385-MW natural gas-fired combined-cycle plant in Corpus Christi, Texas, that has been mothballed since late 2016.

Not registered? Receive daily email alerts, subscriber notes & personalize your experience. Register Now

During Thursday's first-quarter 2019 earnings call, NRG CEO Mauricio Gutierrez said the Gregory plant near Corpus Christi, Texas, was taken offline in late 2016 because of the bankruptcy of its cogeneration partner, Sherwin Alumina.

Gutierrez said ERCOT's "supply-demand balance remains the tightest it has ever been, following some plant retirements and sustained low growth," of 7.4%, according to the grid operator's most recent calculation, which will be updated May 8.

In a separate announcement about the Gregory plant, Gutierrez said: "The Public Utility Commission of Texas' recent actions to further strengthen the ERCOT market reinforced our decision."

SCARCITY PRICE ADDER

In January, the PUC directed ERCOT to raise the loss-of-load probability used in calculating the Operating Reserve Demand Curve by 0.25 standard deviation this summer and another 0.25 standard deviation in time for the summer of 2020. This will raise the likelihood that the systemwide scarcity price adder would be used and the amount of that adder, thus raising real-time prices.

S&P Global Platts Analytics' analyst Travis Whalen said the shift of the Gregory plant from being mothballed to operational status may increase the reserve margin slightly, but does not affect Platts Analytics' price outlook for ERCOT, which indicates substantial upside risk. Platts Analytics projects systemwide on-peak ERCOT prices could average $217/MWh in August, if peakload approaches ERCOT's preliminary summer outlook forecast of 74,853 MW.

Gutierrez said: "Given our scalable [retail] platform and track record of integrating new businesses, the expected [increased] volatility in the market creates an opportunity to acquire small to medium-sized customer books and platforms to add value."

In the longer term, Gutierrez said ERCOT's December Capacity, Demand and Reserves Report, which covers summer reserve margins through 2023, relies on newbuild generation, mainly wind and solar, to maintain positive reserve margins for 2022 and 2023.

But that newbuild has a relatively high degree of uncertainty, particularly for new wind and conventional generation, Gutierrez said.

"We see limited wind [being] developed, given transmission constraints, and a few large gas projects remaining in the CDR have already been delayed by an average of four years," Gutierrez said. "We do, however, expect the majority of [the solar capacity] to be completed as purchased power agreements are executed, but remain skeptical of significant merchant development, given the economics."

EASTERN GENERATION PORTFOLIO

NRG also has 5 GW of generation in the PJM Interconnection, 2.9 GW in the New York Independent System Operator and 1.5 GW in ISO New England.

"Our existing portfolio is primarily large capacity and fuel-resilient generation located in key load centers and provides a solid foundation for continued growth of our retail business in the region," Gutierrez said. "While the regulatory activities in the region provide some uncertainty, we're optimistic about this regulatory outcomes and more importantly, believe our integrated platform is well-suited to succeeding in the region."

The US Federal Energy Regulatory Commission's order for PJM to implement tariff changes for fast-start resources "is a clear positive for energy price formation in the East," Gutierrez said.

PJM plans to carry out its 2022-23 capacity auction in August under existing rules, absent FERC guidance to the contrary. Several PJM states and member companies had urged the grid operator to delay the auction, already pushed back from May, until mid-April 2020 to ease significant market uncertainty after FERC's 2018 finding that PJM's existing capacity market tariff was unjust and unreasonable plus subsequent inaction on the grid operator's October proposal (EL18-178) to adjust its market rules.

"The timeline for FERC action remains uncertain, but we remain confident that FERC will protect the integrity of competitive markets," Gutierrez said.

In ISO New England, "reform is coming too slowly, and the current ISO New England fuel security proposal pending at FERC is insufficient," Gutierrez said.

In Q1, NRG reported income from continuing operations totaling $94 million, or $1.72/diluted share, with adjusted EBITDA totaling $333 million. In the same period of 2018, income from continuing operations totaled $238 million, or 87 cents/diluted share, with adjusted EBITDA totaling $336 million.

NRG reaffirmed its 2019 guidance of $1.85 billion to $2.05 billion for adjusted EBITDA, $1.405 billion to $1.605 billion for cash flow from operations and $1.25 billion to $1.45 billion for free cash flow before growth.

-- Mark Watson, markham.watson@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com