NRG Energy Q2 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the NRG Energy Inc Second Quarter 2024 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Kevin Cole, Head of Treasury and Investor Relations. Please go ahead.

[Kevin Cole, Head of Treasury and Investor Relations at NRG Energy]

Thank you. Good morning, and welcome to NRG Energy's second-quarter 2024 Earnings call. This morning's call will be 45 minutes in length and is being broadcast live over the phone and via webcast, which can be located in the Investors section of our website at www.nrg.com under presentations and webcast. Please note that today's discussion may contain forward-looking statements, which are based upon assumptions that we believe be reasonable as of this date. Actual results may differ materially.

We urge everyone to review the safe-harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly-comparable GAAP measures, please refer to today's presentation. And with that, I'll now turn the call over to Larry Coben, NRG's Chairman and CEO.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Bruce Chung, our Chief Financial Officer. We also have members of the management team on the call and they are all available to answer questions. First, I just want to express how excited I am to be leading NRG as Chairman, President and CEO. I'm grateful for the outpouring of support I've received from the investment community, employees, and other stakeholders over the last nine months and again in the last week following the Board's announcement of August 1. We are laser-focused on delivering exceptional shareholder value by meeting the growing and evolving needs of our customers while returning billions of dollars in capital.

We believe we have the right strategy and the best team to fix the depressed valuation of our company once and for all. Let's begin with NRG's strategic positioning. For those new to NRG, we have the largest energy and smart home platform in North-America. We're the trusted partner to over 8 million residential customers, offering tailored energy and smart home solutions. We are also the second-largest energy and energy services provider as well as the largest natural gas provider to commercial and industrial companies.

If there's been one takeaway from today's discussion that you should have, it's that our business and financial outlook has never been stronger. We are witnessing a structural long-term tightening in power supply and demand, driving a step-change improvement in fundamentals. Customers across our platform are using more of our products and increasingly requesting premium customized experiences as well as innovative offerings focused on convenience, sustainability, and cost. Our integrated platform enables us to stabilize and increase our near-term earnings while capturing medium to long-term growth opportunities.

We generate significant excess cash well beyond our current business needs, resulting in the financial flexibility to grow earnings, while at the same time returning substantial capital to our shareholders and maintaining a strong balance sheet. The strength of our business and financial outlook has positioned us to capitalize on what we believe to be the beginning stages of an exceptional time for our industry. And an exciting time for our company, I have never been more excited about the opportunities in front of us than I am today.

Let's dive into the key messages on Slide 5. Our business performance exceeded expectations in the second-quarter and year-to-date. We are reaffirming our financial guidance ranges and trending toward the upper end of that guidance range. Next, electrification trends compounded by Gen AI data center and other large load growth continue to materialize. We expect competitive markets such as ours to realize outsized benefits from this trend, driven by business-friendly policies, available resources, and the ability to take projects quickly.

Additionally, we have made progress on the strategic priorities discussed in our last earnings call. This includes submitting our brownfield development projects to the Texas Energy Fund and continuing to advance with our portfolio of sites. Finally, we continue to fulfill our capital allocation commitments with our share repurchase program underway and line-of-sight to achieving our balance sheet targets. Turning to Slide 6, we delivered $935 million in adjusted EBITDA in the second-quarter, a 14% year-on-year increase.

This brings year-to-date adjusted EBITDA to $1.784 billion, up 22% from last year. Following the strong first-half, we are reaffirming our financial guidance ranges and again trending toward the upper part of that range. All of our businesses are excelling and demonstrating strong performance across the board. Our consumer segments demonstrated strong year-on-year growth. Home energy subscribers increased by 8% at stable margins. Smart home had a 5% increase in subscribers and 7% growth in revenue and delivered industry-leading retention rates and expanded margins. We continue to make substantial progress toward our virtual power plant offering and look-forward to sharing more about that by the time of our third-quarter earnings call.

On the supply-side, we continue to experience significant improvements in the availability and reliability of our generation assets, thanks to the investments we have made in them in recent years. We are well-prepared for the summer and winter seasons across our fleet after successfully completing our spring maintenance outages. This level of preparedness helps ensure we can meet demand and consistently deliver exceptional service to our customers. A shout-out to our incredible team of plant operators as our assets delivered 97% reliability during Hurricane Beryl in July with no storm induced or caused outages or lost generation.

I'm also happy to report that our cost and growth synergies are on track. Today, we're reaffirming our plan of $550 million in synergies by the end of 2025 and we remain on track to achieve our 15% to 20% free cash flow before growth per share growth target even as our rising stock price means repurchasing shares at higher prices, much higher prices than projected a year ago. On share repurchases, we've completing -- we've completed $176 million of the current buyback program with $649 million to be completed over the balance of the year.

Lastly, we are announcing the sale of Airtron HVAC, which will result in $400 million in net cash proceeds. Turning to Slide 7, I'd like to provide you a little additional context on the strong demand outlook we are seeing in Texas. In the first-half of the year, Texas experienced over 3% weather-normalized load growth, setting new record peaks in January, April, and May. Looking ahead, ERCOT continues to anticipate substantial load growth in the coming years. ERCOT's latest projection indicates that more than 60 gigawatts of growth through 2030 will take place, driven by onshoring, data centers, and other large load customers.

Notably, many of these new loads are backed by contracts with the transmission and distribution utilities in ERCOT or have been confirmed by an officer of TDU[Phonetic], adding credibility to the projected growth. Within our own portfolio, we continue to advance our 1.5 gigawatts of brownfield natural gas development in Texas. We filed applications for all three projects with the Texas Energy Fund in June. We anticipate the PUCT will announce later this month which projects are advancing to the due-diligence phase, which is expected to last four to eight months depending on the quality of the projects and their applications.

Following that, loan agreements will be executed. We believe our projects are well situated for a timely approval given their shovel-ready nature and the completeness of the applications that we submitted. Finally, we've received numerous questions about our site portfolio since our first-quarter call. Our singularly devoted development team is diligently working to maximize the value of these sites. As a reminder, our portfolio includes 21 sites encompassing 21,000 acres of land in competitive markets.

These sites are ideally suited for new large loads and power plant development, offering co-location opportunities both behind and in front of the meter. To identify the sites best-suited for data centers, key factors include access to water for cooling, premium fiber-channel access for low-latency, and existing grid access and infrastructure for rapid market entry. As you can see, our sites possess these attributes, but also have potential for other large load applications.

In the appendix, we provide several paths to value under consideration. I look-forward to discussing this more with you as we progress. With that, let me turn it over to Bruce Chung for the financial review. Bruce?

[Bruce Chung, Chief Financial Officer at NRG Energy]

Thank you, Larry. Turning to Slide nine, NRG delivered another strong quarter of financial and operational performance with adjusted EBITDA of $935 million, an increase of $116 million over the prior year. Free-cash flow before growth was $663 million, exceeding prior year results by $238 million. Each segment of our business performed well, with much of the performance underscored by positive momentum and growing subscriber counts, increased volumes, and margin expansion.

Starting with our results in our East, West, Services Other segments, we saw strong performance producing $282 million of adjusted EBITDA, a $184 million increase over the prior year, $132 million of the year-over-year increase came from the East segment, where an increase in subscriber counts and lower realized retail supply costs were the primary drivers of performance. The remainder of the year-over-year growth was driven by a decrease in realized power supply costs in the West. Adjusted EBITDA in Texas for the second-quarter was $452 million, a slight decline compared to prior year.

Texas performance was driven by favorable hedging activity, along with increased volumes and subscriber counts in the region. This favorability was offset by an estimated $40 million due to the impact of last year's STP and Gregory asset sales as well as $50 million in higher maintenance costs from the extended plant outage program we deployed in the quarter to ensure our plants are well-positioned for this summer's operations and beyond. This marks our third year of enhanced preventative investment to improve reliability and flexibility across our fleet.

Our plants have performed well through the year and we expect them to continue to do so as the summer rolls on. Our smart home business has continued to execute well, growing subscriber count by 5% and service margins by 4% year-over-year and generating $201 million of adjusted EBITDA in the quarter. While that represents a slight decrease from the prior year, it is important to point out the decrease was primarily driven by an expected increase in the amortization of fulfillment expenses, which began impacting EBITDA after we closed on the acquisition of the business.

Absent this non-cash impact and other non-recurring adjustments, adjusted EBITDA for this segment would have shown an increase of 6% year-over-year. Key performance indicators for the Smart home segment continued to remain strong as the average smart home subscriber interacts with their systems more than 16 times per day and we see this high-level of engagement carried through to our best-in-class retention, which is nearly 90%. Our free-cash flow before growth came in at $663 million, $238 million higher than the prior year and driven by our significant growth in adjusted EBITDA and favorable working capital.

We are reaffirming our 2024 guidance of $3.3 billion to $3.55 billion for adjusted EBITDA and $1.825 billion to $2.075 billion for free-cash flow before growth. Our strong year-to-date performance, coupled with the investments we have made in our plants give us confidence that we are trending towards the upper-end of guidance. We continue to see growth and momentum in our business platforms and the continued execution of our diversified supply strategy positions us well through the remainder of the year.

Turning to Slide 10 for a current view of our 2024 capital allocation. As you can see, there have been few changes since our first-quarter call. We are on track to deliver on nearly $600 million of liability management initiatives and $1.2 billion in return of capital through share repurchases and the common dividend. As I mentioned last time, the strength of our share price performance has made our convertible notes one of the most expensive pieces of paper in our capital structure, and we subsequently seized the opportunity to mitigate that through strategic repurchases as part of our liability management program.

We repurchased $343 million or approximately 60% of the original issuance. For the remainder of these notes, we have fully hedged the premium we will pay when the notes are retired. Turning briefly to share repurchases, we have completed $176 million of the $825 million share repurchase target for 2024 via open-market repurchases, bringing us to over 40% of our total $2.7 billion authorization. We see tremendous value in buying our shares and we'll continue to take advantage of our currently depressed stock price through share repurchases. The only substantial change to our capital available for allocation relates to the sale of our Airtron HVAC business for $500 million, which will yield approximately $400 million of net proceeds.

We expect the transaction to close before the end-of-the year. Finally, we now show $441 million of unallocated capital available for allocation in 2024 after taking into account the incremental $400 million of net proceeds from the Airtron transaction. We will -- we will evaluate the use of this unallocated capital as we move into the latter part of the year and after closing of the Airtron sale. With that, I will turn it back to you, Larry.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thank you, Bruce. On Slide 12, I'd like to share a few closing thoughts on our 2024 priorities and expectations. During the quarter, we've made significant progress on our strategic initiatives and I'm confident we have the right platform and strategy to deliver on our commitments to both our customers and our shareholders. As CEO, I'm deeply committed to driving NRG forward to create significant additional shareholder value. We are seeing a long-term step-change improvement in fundamentals across our platform.

You can expect a continued heightened focus on operational excellence, prudent growth, and being good stewards of you, our investors' capital. I have never been more excited about the potential of our company than I am today. Thank you for your time and continued interest in NRG. Operator, we're now ready to open the line for questions.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question comes from Shahriar Pourreza from Guggenheim. Please go-ahead.

[Shahriar Pourreza, Analyst at Guggenheim Partners]

Hey guys, good morning.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Good morning Shar.

[Shahriar Pourreza, Analyst at Guggenheim Partners]

Morning. Larry, I know since we last spoke, we've seen something like 40 to 60 gigs get in line for the energy fund. Do you think the state could do a second fund if this one helps meet the demand? Do you think this means the curves could revert to backwardation? And could you get involved with more generation assuming an expanded program next year? So do you have more bandwidth? Thanks.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Is that one question Shar or three, but all great questions. And look, at this date has talked about -- I think you probably saw the Governor and the Lieutenant Governor talk about adding a second tranche to the TEF [Phonetic] and I think we'll then see what happens and what the availability is. I think the bigger question, Shar, is, first of all, how much of these are real, and we don't know yet. We know that ours are shovel-ready. But if you look at people who've applied for transmission studies and the like, it's an awful lot less than 40 gig. I think it's about 12 to be exact. And so -- there's a long way to go before a lot of those projects become real and ready to go. Some of them, I'm sure will, but many will not.

So I don't see the -- while in the short term, we've seen some fluctuation in curves. I don't see what we've seen from the TEF filings to have a major impact on what the long-term market is going to look like. I'm sorry, there was a second half to your question, Shar, I think?

[Shahriar Pourreza, Analyst at Guggenheim Partners]

Just assuming like you see an expanded program, do you guys have like kind of bandwidth to do additional generation?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Absolutely, we do. Our customers and clients continue to need it and is optimal for our portfolio strategy. Though remember, as we've talked about before, the lead times for development, primarily because of turbines and other equipment is several years. So if you don't have a place in the turbine queue today, there's no way you're getting a new project online before 2030 at the earliest.

[Shahriar Pourreza, Analyst at Guggenheim Partners]

Got it. Perfect. And then just lastly, Larry, just on transitioning to EPS, I mean, I know I asked you this on the last call, but has your thoughts evolved around just maybe changing disclosures and guidance a little bit?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

My thoughts have evolved. I'll let Bruce expand on how my thoughts have evolved.

[Bruce Chung, Chief Financial Officer at NRG Energy]

Shar. I guess, in short, Larry's thoughts have evolved such that there has been no change in terms of what we're thinking about. I think what we had indicated last time is that we are working towards making that transition. We see our third quarter earnings as being the optimal time to be able to do that, and that's what we're currently working towards.

[Shahriar Pourreza, Analyst at Guggenheim Partners]

Okay. That's perfect color. Thanks. Larry, big congrats. I know a couple of quarters ago, I highlighted that we do not want you to leave and just stay as the CEO. So we're glad the Board listened. Thanks guys.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Well, Shar, I mean the thing has taken off like a rocket ship, you want to wait until you get to the stars before you get off. [Speech Overlap]

[Shahriar Pourreza, Analyst at Guggenheim Partners]

That is right. Congrats guys.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thanks Shar.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Angie Storozynski from Seaport. Please go ahead.

[Angie Storozynski, Analyst at Seaport Global Securities]

Thank you. So maybe -- I mean, we're all trying to be as excited as you are, Larry, about the prospect of power markets. I mean, clearly, the curves disagree. And I'm just wondering if you can explain to us why do you think we've had this short pullback in Texas power curves given the load outlook you see and we see?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Sure. Good morning Angie, I'm going to let Rob kind of take you through that because it's something we talk about a lot. But Rob, maybe?

[Robert Gaudette, EVP of NRG Business at NRG Energy]

Yes. So Angie, we -- obviously, we've seen the same moves and curves that you have. You know as well as I do that to start with, the long-term curve gets impacted by the noise of whatever is going on in the front end of the market. We've had a warm but not very pricey summer, and that's kind of impacted things out the curve. What I would tell you is as we look at these curves, regardless of whether or not you see a bunch of demand come into ERCOT or not, the back end of the curve actually looks like a place where we would be buyers, right?

So '27 and '28 summers look cheap. The market itself is constructive or would be constructive, and we think these are the right levels that for us to step in because we think they're undervaluing what the curve looks like. And that's before you add demand. So I'm pretty bullish on what you -- what the market looks like. We feel very strongly about where our portfolio is. And we think that our retail business will continue to churn out the earnings that it's done over time. So I'm not very concerned about that curve.

[Angie Storozynski, Analyst at Seaport Global Securities]

Speaking about retail business, if you could talk to us about what's happening in New England. Any potential reviews to the retail electric market and how that could impact your business?

[Rasesh Patel, Chief Operating Officer at NRG Energy]

Good morning Angie, this is Rasesh. To put the context of what's happening in the Northeast. Our retail business overall performed really -- delivered a very strong quarter, right, 8% subscriber growth, double-digit growth in volume and strong margin performance. In the Northeast, there are a couple of things going on that we watch very carefully. The regulatory environment and some of the changes in the specific states, as an example, Massachusetts ended up not making any changes. In Maryland, where we have seen some changes as a result of [Indecipherable] that's a very, very small part of our overall earnings stream. And so the impact of that will be negligible to our results. But we watch that -- the environment very closely.

[Angie Storozynski, Analyst at Seaport Global Securities]

Okay. And then back to the generation assets. So I mean, this whole discussion about new build and the need to actually supply additional generation capacity. I'm just wondering, I mean, those are assets with four-year lives and you guys are making decisions based on two to three-year visibility into the profitability of these assets. So one is, how you approach the new build, given that previous cycles were very painful for IPPs. And two, I mean, is there a way to basically maybe pursue new builds through long-term contracts as opposed to a truly merchant new build? I mean if the demand is truly there, I mean, one could argue that the demand should be comfortable with signing PPAs to support new build as opposed to just truly merchant assets, both actually in ERCOT and PJM.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Angie, I'm going to let Rob expand on that. But remember that we have the ability to contract and use all of the power -- this isn't a merchant build for us. We have the ability to cross it to ourselves or utilize it ourselves. And so we're not doing speculative merchant bill. That's not the business that we're in. This is part of the supply stack that Rob and team are really crucially putting together to meet all of our customers' needs going forward. But I don't know, Rob, do you want to?

[Robert Gaudette, EVP of NRG Business at NRG Energy]

Larry covered it. This is for our portfolio. Like these assets were designed, built and planned to support the retail portfolio regardless of what we see kind of long term. We have a long-term consumer-facing business, and we support that.

[Angie Storozynski, Analyst at Seaport Global Securities]

And nothing about potential long-term contracts? I'm clearly fishing for some comments about those Brownfield sites if the monetization of those could come through newbuilds backed by PPAs.

[Robert Gaudette, EVP of NRG Business at NRG Energy]

So Angie, as we consider the sites and the strategy that we do with the sites, right? So as we've disclosed before, 2/3 of those at least are up in PJM, where we don't play with generation quite as much as we do down in Texas. All of the answers that Larry and I just gave were in reference to the three new build projects that are on the way. When I think about the sites themselves, if we have an opportunity to build generation on one of those sites and it's for a customer, then we obviously will be thinking about PPAs and different structures to support the capital for those.

[Angie Storozynski, Analyst at Seaport Global Securities]

Okay, thank you.

[Robert Gaudette, EVP of NRG Business at NRG Energy]

Sure.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thanks Angie.

[Operator]

Thank you. [Operator Instruction] Our next question comes from Antoine Aurimond from Jefferies. Please go ahead.

[Antoine Aurimond, Analyst at Jefferies Financial Group]

Hey, guys, hope you're doing well. Congrats on the results.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thank you.

[Antoine Aurimond, Analyst at Jefferies Financial Group]

And Larry, congrats on the permanent appointment. I guess on that note, just more broadly, taking a step back, how do think about just the strategic trajectory of the company under your new leadership, right? Over the past year, NRG, emphasized physical generation asset-light strategy. Do you think that's still the best positioning in the current market conditions and any other strategic shifts we should be considering?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

I mean, Antoine, I think our strategy isn't changing, but I've never really liked the description, asset-light. I have always considered it to be supply optimal. I mean, a good mix of our own generation and other instruments or tolls in order to be able to do that. And that's continuing. One of the reasons we would like to have more iron than we did a year or two ago is because our customers and clients are demanding more electricity. And so as we construct the appropriate supply portfolio or supply stack, and when we optimize that having more hard metal in the ground is a good thing for us. And so we're doing that. But we're also going to have more of the other types of instruments that we use as well because as you can see from this presentation, and I know you follow the industry, so you don't need me to tell you. The growth in power demand is continuing, and we need to be in a position to meet our clients' needs to do that.

[Antoine Aurimond, Analyst at Jefferies Financial Group]

Yeah, that makes sense. And then I guess on the data center opportunity, can you maybe comment on status of any discussions you may have with data center providers, type of contracts that you may be contemplating, how advanced you are in negotiation process? And how should we think about sort of timeline, potential announcements?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Look, Antoine, one of the things we did was we were getting so many inbounds that we just kind of pulled back for a strategic review of it all. And you can see the kinds of things we're contemplating on that slide in the appendix, say, is it 18 or.

[Unidentified Speaker, at NRG Energy]

21.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

21, sorry. And I think as we land on a strategy, we're obviously going to share that with you. And I'm sure that'll be sometime probably before the end of the year. But we were getting lots of people throwing us bids for our sites, and we're like, well, we know they think we're just a bunch of power guys who don't know anything about data centers. So if that's what they're bidding us, we really need to look at this because it means there's a lot more value in there than the bids that we're receiving. So can't really comment too much more on it now, but look forward to sharing more with you as we have it.

[Antoine Aurimond, Analyst at Jefferies Financial Group]

Fair enough. And then lastly, under $400 million of net proceeds from HVAC divestiture, I guess somewhat unexpected. Where do you expect to allocate that extra cash?

[Bruce Chung, Chief Financial Officer at NRG Energy]

I'm sorry, can you just repeat that last part, Antoine?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Where do you expect to allocate that?

[Bruce Chung, Chief Financial Officer at NRG Energy]

Yeah. So look, yeah. We'll -- from an allocation standpoint, we'll certainly provide more visibility around the allocation once we close and we get the proceeds in place. But you should expect that we'll remain consistent with our capital allocation principles.

[Antoine Aurimond, Analyst at Jefferies Financial Group]

Okay, great. Thank you so much, guys. Talk to you soon.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thank you.

[Operator]

Thank you. [Operator Instruction]. Our next question comes from Steve Fleishman from Wolfe Research. Please go ahead.

[Steve Fleishman, Analyst at Wolfe Research]

Hey, good morning. And congrats, Larry.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thank you, Steve. Appreciate it. Good morning.

[Steve Fleishman, Analyst at Wolfe Research]

Yeah. So just a couple kind of nearer term questions. First, how should we think about if we do end up having a kind of a milder, lower-priced summer in Texas? You've done a lot to kind of make sure you were ready for a high-priced hot summer, just protection from the opposite. And I assume that's kind of embedded in seeing to the upper end. But just Larry[Phonetic] how should we think about that?

[Robert Gaudette, EVP of NRG Business at NRG Energy]

Hey, Steve, it's Rob. We don't talk about it often, but we also do manage to the downside. The great thing about our portfolio is that we have those assets that we can turn down in markets that aren't constructive, like you've seen for the last two quarters. As far as the way we look forward into the year, we contemplate both up and down scenarios and where we feel we're going to land on guidance.

[Steve Fleishman, Analyst at Wolfe Research]

Okay. And then also just kind of more. We had this PJM auction outcome. Just how should we think about that capacity price flow through the retail business? I don't know how much you'd already contracted or it's just not enough of a scale to matter much.

[Robert Gaudette, EVP of NRG Business at NRG Energy]

Yes. So the BRA print for this last auction is, indicative of kind of the supply-demand structure that we kind of see across the country. So it's going to provide additional dollars towards generation. We don't have a very large portfolio in PJM. So it is what it is. On the C&I and retail sides, think about our consumer business as very short-term, so don't expect a lot of impact there. And then on the C&I side, we contract with these guys, and depending on what changes in the markets, we can use change in law depending on what happens if we chose. But as we look at the impacts to the book, on the retail side, it's de minimus[Phonetic] state. It's nothing that I would even talk about.

[Steve Fleishman, Analyst at Wolfe Research]

Okay, thank you. And then just-- sorry to go back to Texas, new build. But -- so obviously, the TEF has the low cost loans and performance bonuses and the like, but then you do have to kind of have a market price for return on equity. So just, I mean, is your messaging that basically, hey, this works for us at any forward curve? And just how should we think about kind of protecting equity? [Speech Overlap]

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

I know you don't mean any forward curves.

[Steve Fleishman, Analyst at Wolfe Research]

I don't. But I'm just trying to understand the thought process on -- Yeah.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

If we actually believed that a depressed curve was reality, that would -- a depressed curve[Phonetic] here was reality, that would obviously impact our decision. But as Rob discussed earlier, what we're really seeing in terms of increased demand is somewhat belies the short-term blip in the curve. But we look at that all the time, and there is a place where we wouldn't do the project. I don't think we're not there today.

[Steve Fleishman, Analyst at Wolfe Research]

Go ahead, Rob.

[Robert Gaudette, EVP of NRG Business at NRG Energy]

Steve, the one thing I would add to the math, or as you think about like the value of these assets, flexible gas generation is a function of both power price, but it's also a function of volatility, right? And so the volatility curves, which are not very transparent, you can't see them by looking into megawatt daily. Those are still up. And so the value of these projects is something that can move around with our load continues to support us developing them and putting them into the portfolio.

[Steve Fleishman, Analyst at Wolfe Research]

Got it. That's helpful. And then one last quick one just on the Q3 disclosures you've talked about the earnings and VPPs, just the site -- the 21 sites, do you think we'll get some update on kind of the Q3 call, or is that more kind of late-year or next year? Like what timeline on that?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

We're pushing to do that, but it's a slow and iterative process a bit, Steve. I'm sure we'll have some updates. It may not be as complete one as you all would like, that may have to wait till the first quarter of next year or some conference in between. But we are working expeditiously, but it's more important that we get it right than do it fast.

[Steve Fleishman, Analyst at Wolfe Research]

Understood. Thank you very much.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thanks, Steve.

[Operator]

Thank you. [Operator Instruction]. Our next question comes from Neil Kalton from Wells Fargo. Please go ahead.

[Neil Kalton, Analyst at Wells Fargo & Company]

Hi, guys. Just a quick question on the economic outlook. How do you think about -- so we've seen a softening in the consumer side. How do you think about the impacts to your business? Thinking both the home security business, retail energy, as well are you seeing any evidence that the consumer is stepping back, weakness, et cetera?

[Rasesh Patel, Chief Operating Officer at NRG Energy]

Hey, Neil, this is Rasesh. Good morning. We delivered a really strong quarter with 5% year-over-year subscriber growth, 7% revenue growth for the Smart Home business. And that sort of -- think of that as that's in an environment where we have high interest rates and a slowdown in housing activity. As that normalizes, we would expect that to potentially deliver a tailwind to the business and I think it's largely a function of the fact that we've got a business that has a very high-quality customer base with an average FICO score of greater than 700.

And so you saw, we posted near all-time record results for retention -- customer retention, which is almost at 90% on an annualized basis. And we're still largely in an underpenetrated market. And so we see opportunities to not only continue to grow the customer base at the mid-single digit rate but also grow the number of devices and services we provide to the customer within the home. And so we feel really -- really good about our position and with a potential for a tailwind if rates normalized and housing activity picks up.

[Neil Kalton, Analyst at Wells Fargo & Company]

Got it. Thank you. Very helpful.

[Operator]

Thank you. One moment for our last question. Our last question comes from Durgesh Chopra from Evercore ISI. Please go ahead.

[Durgesh Chopra, Analyst at Evercore ISI]

Thank you. Larry, congrats.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thanks, Durgesh. Appreciate it.

[Durgesh Chopra, Analyst at Evercore ISI]

I've got two questions. Sure, thanks. Two questions. First, just for housekeeping, August 29, will we get a list of projects? Will that be formally announced? Or how will we know which ones kind of made it to the second round of due diligence by the PUCT?

[Chris Moser, Senior Vice President, Head of Competitive Markets and Policy at NRG Energy]

Hey, this is Chris. Yeah. What we've been led to believe is that the PUCT will have either an order or a draft order, which would list the assets, the projects that are moving forward towards due diligence. And that has been targeted for the August 29th meeting.

[Durgesh Chopra, Analyst at Evercore ISI]

Okay, perfect. Thank you. And then just, Larry, back to you. As you take the permanent role, obviously, there was this transaction announced here. Are there other non-core assets that we could potentially see being liquidated for cash proceeds back into the core portion of the company? How are you thinking through that?

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Look, I mean, we always look to optimize everything we own. I guess there's nothing on the horizon that I see that would be divestable. But sometimes people walk in the door with very attractive offers for things that we own. And we would be silly not to take a look at those, especially given we have a broad and amazing range of opportunities, number one, in which to invest capital. And number two, we have a very undervalued stock in which to invest capital as well. So when we look at those two things, if we can make a transaction that makes sense, we'll obviously do that. I don't see anything on the horizon today, but if the opportunity arises, we will certainly look at it hard and try to take advantage of it.

[Durgesh Chopra, Analyst at Evercore ISI]

Understood. Thanks for squeezing me in here. Thank you.

[Operator]

Thank you. We have one last question. The last question comes from David Arcaro from Morgan Stanley. Please go ahead.

[David Arcaro, Analyst at Morgan Stanley]

Hey, thanks so much. The last, last question here. Hey, I was just curious on the -- on the PJM market, just reflecting on the capacity print that we just saw. Is there an opportunity for you to look at new build there? Like, does new build economics work at this point? And do you have any opportunities to look at that market in terms of power plant expansion?

[Robert Gaudette, EVP of NRG Business at NRG Energy]

Hey, it's Rob. So the print is constructive as it comes to actually highlighting the supply demand picture in the market. So I think that's a positive. We have new build sites which regardless -- or we have sites, regardless if you new build them or not, that print is definitely supportive in the overall value as we think about them from a development perspective, whether that's for load or for generation. The one thing I would tell you, David, is that one print isn't going to get a bunch of generation running into the market. So I wouldn't expect to see a whole bunch of people applying to build generation based on one PJM print. But we do have another mark in December, which I expect would be supportive. And so the supply dynamics in PJM aren't going to improve anytime soon. But I believe that ultimately competitive energy players are rational and will build when it makes sense.

[David Arcaro, Analyst at Morgan Stanley]

That's helpful. Thanks. And just maybe on expanding on that a little bit, do you have a sense as to when new gas plants could realistically get built in the PJM market, given the supply chain challenges that you mentioned in your outlook for energy prices, too, in the context of that?

[Robert Gaudette, EVP of NRG Business at NRG Energy]

So there's two challenges in PJM. One is PJM-specific, and that's the interconnection queue, right? It's very deep and very slow, and so it's probably frustrating a lot of people. The second piece is the one that is a global issue, which Larry alluded to earlier, which is if you want to build a power plant today and you're not in the queue, you're not going to get anything on the ground before 2030. So demand is coming faster than that supply window. So I expect tight markets, both from a capacity and an energy perspective over the next several years.

[David Arcaro, Analyst at Morgan Stanley]

Okay, great. Very helpful. Thanks for the color. And congratulations, Larry.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thank you, David. Appreciate it.

[Operator]

Thank you. I am showing no further questions at this time. I will turn it back over to Larry Coben for closing remarks.

[Larry Coben, Chairman and Chief Executive Officer at NRG Energy]

Thank you all for being on the call and for your interest in NRG. And on a more personal note, for all the kind words and congratulations on my appointment. I'm here and we're all here because we are super excited about the future of NRG. I think you all know that I've been here for 20 years and I've never been more excited or more optimistic about the prospects. So I hope you'll stick with us and join us as we continue to execute well and take advantage of the amazing strategic opportunities and initiatives in front of us. Thank you all very much.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Kevin Cole, Head of Treasury and Investor Relations
• Larry Coben, Chairman and Chief Executive Officer
• Bruce Chung, Chief Financial Officer
• Robert Gaudette, EVP of NRG Business
• Rasesh Patel, Chief Operating Officer
• Unidentified Speaker
• Chris Moser, Senior Vice President, Head of Competitive Markets and Policy

Analysts

• Shahriar Pourreza, Guggenheim Partners
• Angie Storozynski, Seaport Global Securities
• Antoine Aurimond, Jefferies Financial Group Inc.
• Steve Fleishman, Wolfe Research
• Neil Kalton, Wells Fargo & Company
• Durgesh Chopra, Evercore ISI
• David Arcaro, Morgan Stanley