NRG Energy Inc (NRG) — Q2 2021 Earnings Call Transcript

Thank you, Ray. Good morning and welcome to NRG Energy's Second Quarter 2021 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 Webcasts. Please note that today's discussion may contain forward-looking statements, which are based on assumptions that we believe to 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 the 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 Mauricio Gutierrez, NRG's President and CEO.

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, Chief Financial Officer. Also on the call and available for questions, we have Elizabeth Killinger, Head of Home Retail; and Chris Moser, Head of Operations. Just a few weeks ago, we hosted our comprehensive Investor Day. Since then, we have had the opportunity to speak with many of you in detail about our strategic plan, which will position us as the leading energy consumer services company and create tremendous stakeholder value. I look forward to updating you on our progress in the coming quarters. But for this call, we will keep our remarks brief and focus on our quarterly results. Turning to Slide 3. I would like to start with the three key messages for today's call. Our integrated platform delivered strong results during the second quarter, up 14% compared to the same period last year. And today, we are reaffirming our 2021 guidance ranges. Next, following Winter Storm Uri, the Governor and Texas legislature acted swiftly to begin to address critical issues and improve grid reliability. The Public Utility and Railroad Commissions are now in the process of implementing these directives to strengthen both the electric and natural gas systems to improve reliability and protect customers. I want to thank the Governor and the Texas legislature for their leadership on these issues. Finally, in June, we held our Investor Day focused on our long-term strategic outlook, our roadmap through 2025, and the compelling value proposition of our consumer platform. Now moving to the financial and operational results for the quarter on Slide 4, beginning on the left-hand side of the slide. We again delivered top decile safety performance. This is the ninth straight quarter we have achieved top decile safety, an incredible accomplishment for the entire company. As we start to come back to the office, we will continue to adhere to the CDC guidelines to ensure the safety and well-being of our people. During the quarter, we continued to make progress on our strategic initiatives with a focus on integrating Direct Energy, advancing our capital-light decarbonization efforts, and expanding our secondary product capabilities. Starting with the Direct Energy integration. Through the second quarter, we achieved $89 million in synergies or two-thirds of our 2021 target. Today, we're reaffirming both the 2021 and full plan targets. Next, we continue to perfect our customer-centric model through advancing non-core asset sales and retirements and expanding our renewable PPA strategy across all of our markets. Moving to the right-hand side of the slide, we are reporting $656 million of adjusted EBITDA for the second quarter or 14% growth year-on-year and $1.223 billion or 33% growth year-to-date. Strong second quarter results were largely driven by the Direct Energy acquisition and favorable weather in the East, further demonstrating the value of our diversified platform of consumer services. Alberto will discuss in more detail the quarterly drivers in his section. Turning to Slide 5 for a brief update on our core markets, beginning on the left-hand side of the slide. Following Winter Storm Uri in February, it was clear that market reforms were necessary to improve grid resilience. In the months following the event, we actively engaged in discussions with legislators, regulators, and other market participants to introduce comprehensive and competitive solutions across the entire system to address areas that failed and to ensure an event like this does not happen again. The Texas legislature acted swiftly in addressing these issues, passing Senate Bills 2 and 3, which were signed into law by the Governor on June 8, focused on reliability from the wellhead to the lightbulb. Importantly, Senate Bill 3 provides the Public Utility Commission, Railroad Commission, and other parties the tools they need to get it done right. The PUCT and ERCOT are now working to implement the power market portions of the reform. We are focused on supporting them in implementing these policies and procedures to ensure the market functions properly in the future. We expect the focus over coming months to be on improving price formation through mechanisms to incentivize reliability. It will also establish clear winterization and maintenance outage standards and protocols for the electric system. Importantly, the PUCT is focused on customer bills and ensuring these actions do not materially impact affordability, which has been a compelling attribute of living and doing business in Texas. We believe that the PUCT will be able to address the key issues of market design, system hardening, and modernization this year for the power sector. Next, moving to the bottom left-hand side of the slide. The Governor and legislature recognized the financial harm of socializing the cost of defaults by regulated entities like Brazos and Rayburn across competitive markets. The legislation also addresses unhedgeable costs due to ERCOT's management of the grid, particularly during the final 32 hours of the event. The Texas legislature passed and the Governor signed into law necessary securitizations to address both default allocations and uplift charges. We expect to have greater line of sight on our costs eligible for securitization later this year. Finally, our expected net financial impact from Winter Storm Uri remains unchanged at $500 million to $700 million. From last quarter, our gross impact increased by $85 million primarily due to resettlements and bad debt, which we expect to be fully offset through our mitigation strategy. Moving to the right-hand side of the slide for an update on our ongoing portfolio and real estate optimization efforts. First, during the quarter, PJM held its first capacity auction in roughly three years, which provided disappointing results. Subsequently, given market conditions, we announced our intention to retire 1.6 gigawatts or 55% of our PJM coal generation by 2022 and the strategic review of our remaining PJM portfolio. Next, our previously announced 4.8-gigawatt asset sale remains on track to close in the fourth quarter. Finally, our portfolio repositioning and optimization is a continuous process. We are committed to our business model, and we'll continue to provide updates on our progress. On the next two slides, I want to review some of the highlights from our Investor Day, beginning on Slide 6 with our strategy and platform. This was our first Investor Day since 2018. And in three short years, we underwent a significant transformation: doubling the number of customers we serve, optimizing our generation fleet to serve our customers, building an efficient operating platform, and strengthening our balance sheet while returning significant excess cash to our shareholders. The acquisition of Direct Energy in January marked the next step in our journey as we completed the three-year transformation plan and began our decisive transition into a consumer services company. While historically, our core product has been electricity, the addition of Direct Energy brought scale to our retail natural gas and services businesses. With consumers increasingly seeking a trusted partner to provide home solutions, our advantaged consumer platform is uniquely positioned to meet our customer needs in ways other providers cannot match. Just yesterday, Green Mountain Energy filed an application to provide its 100% renewable electric product in Arizona. We're constantly on the lookout for new markets and to grow our service offering in existing ones. As we offer adjacent products and services, we can leverage our existing platform to access cost synergies. This economic advantage, coupled with better insights and more personalization, results in a better experience for our customers. For NRG, this advantage means broader insights into how consumers interact with their homes, additional margin, and better retention on our core product. And then the cycle repeats as we grow, creating a more valuable business. As you can see on the right-hand side of the slide, we have provided you a roadmap of our strategic priorities through 2025. Over the near term, our focus is on optimizing our core, which includes integrating Direct Energy, decarbonizing our retail supply, and expanding our current dual-fuel customer base. Next, beginning in 2022, our focus will shift to growing the core through residential power and home services. Finally, throughout this entire period, we will be returning significant capital to shareholders. To summarize our roadmap, we're starting with our foundation as a best-in-class integrated energy retailer. We will leverage our operating platform to become a trusted partner for power services, and then we will broaden our offerings and partnerships to become a provider of select home services. Finally, we have quantified for you what I believe is an achievable growth opportunity over the course of this strategic roadmap. In total, we have identified $720 million of incremental EBITDA growth opportunity, which will be achieved through the Direct Energy integration and the deployment of up to $2 billion of growth investments in both CapEx and OpEx opportunities. This capital will be deployed to the maximum return opportunity, and you can expect transparency as we begin to allocate investment dollars. Given our near-term focus on integrating Direct Energy and growing dual-fuel customers, you should expect this capital to be weighted towards the second half of our roadmap.

Thank you, Mauricio, for your kind words, and good morning, everyone. I am excited to be with you this morning and to join NRG during its transformation to become a consumer services company. Now more than ever, customer experience and engagement are key priorities for leading companies, and I feel fortunate to be part of an organization that is completely focusing on the customer to continue to grow. I look forward to the dialogue with our analysts and investment community over the months to come. Hopefully, we will be able to meet in person sometime in the near future. Moving to the quarterly results, I will now turn to Slide 9 for a brief review of our financials. For the quarter, NRG delivered $656 million in adjusted EBITDA or $82 million higher than the second quarter of last year. The increase in consolidated earnings was driven by the acquisition of Direct Energy and the related addition of synergies achieved in Q2. Specifically, by region, these benefitted from the expected contribution from the Direct Energy acquisition. In addition, favorable weather resulted in outperformance by both our electric and natural gas businesses. Finally, we enjoyed favorable intra-year timing of demand response revenues. Next, our Texas region partially offset these benefits due to lower residential demand driven by milder weather and return-to-work trends as well as to higher retail supply costs. As a reminder, we benefited last year from exceptionally low market power prices realized during the start of the COVID-driven economic shutdown. On a year-to-date basis, our progress in terms of incremental profitability was even more significant. It demonstrates the value of our diversified consumer services platform and its ability to absorb the possible impact of headwinds, such as the current forced outage we are dealing with at Limestone Unit 1, which will extend until year-end. Our expectation for the net impact from Winter Storm Uri remains at $500 million to $700 million with an $85 million increase in one-time costs, offset by a similar increase in the range of expected mitigants. This is primarily due to the positive development of the Texas securitization legislation during the quarter. The total negative cash impact is still expected to be $350 million to $550 million in 2021 and $150 million in 2022 due to the estimated bill credits on to large commercial and industrial customers. Now turning to Direct Energy integration. We are confirming our goal to achieve a run rate of $300 million synergies by 2023. We are on track to achieve $135 million of synergies for 2021 with $89 million realized year-to-date. Synergy expectations as well as synergies achieved so far are fully embedded, respectively, in our 2021 guidance and year-to-date actuals. Overall, we are off to a great start in the first half of the year, and we are reaffirming guidance at $2.4 billion to $2.6 billion for adjusted EBITDA and $1.44 billion to $1.64 billion for free cash flow before growth.

I will now turn to Slide 10 where we are updating our planned 2021 capital allocation. As in the past, our practice on this slide is to highlight changes from last quarter in blue. Starting from the left, on the third column, the net capital required for the Direct Energy acquisition was increased by $35 million based on the latest estimate of the post-closing working capital adjustments. We anticipate finalizing the working capital adjustments during the third quarter. Moving to the next column, and as discussed on the previous slide, the midpoint for net estimated cash impact from Winter Storm Uri remains at $450 million. This includes the increase of $85 million for one-time costs in 2021 and a similar increase in expected mitigants driven primarily by the latest Texas legislation. As you are aware, the much anticipated securitization bills, HB4492 and SB1580, have been approved and are being finalized by ERCOT and PUCT. Clarity about the expected completion should come later this year. Moving to the next column. To achieve a 3.0 net debt to adjusted EBITDA ratio, we expect to deleverage by $255 million plus an early reduction fee of $9 million, totaling $2,264 million of capital to be allocated. This leaves $461 million of remaining capital available for allocation. A large portion of this capital is dependent on the successful conclusion of the ERCOT securitization processes. Finally, as a reminder, today, the capital allocation waterfall does not include the impact from our pending 4.8-gigawatt asset sale, which is expected to close in the fourth quarter. Net cash proceeds will be utilized partly for debt reduction, $500 million to maintain leverage neutrality and the remaining $100 million to $150 million after purchase price adjustments to be available for general capital allocation. Finally, on Slide 11. After reducing our corporate debt balance for the expected 2021 debt reimbursement and for the minimum cash, our 2021 net debt balance will be approximately $7.9 billion, which when based at the midpoint of the adjusted EBITDA implies a ratio of 3.0 net debt to adjusted EBITDA. As discussed during the Investor Day, given our growth profile, we have revised our timeline to achieve investment-grade metrics of 2.5 to 2.75x net debt to adjusted EBITDA ratio. We plan on achieving a stronger 3.0 ratio by year-end 2021 and growing into our longer-term targets of 2.5 to 2.75 ratio by 2023 primarily through the full realization of Direct Energy run rate earnings. We remain committed to a strong balance sheet and to achieve credit metrics aligned with an investment-grade rating. We are very comfortable in achieving our target and are continuing to maintain a constructive dialogue with the rating agencies. Back to you, Mauricio. Thank you, Alberto. Turning to Slide 13, I want to provide a few closing thoughts on today's presentation. During the quarter, we made significant progress on our priorities: integrating Direct Energy, perfecting and growing our platform, and executing disciplined capital allocation. NRG has never been stronger. We have the stability and financial flexibility to thrive and take advantage of opportunities through all market cycles. At our Investor Day, we outlined for you the tremendous opportunity to deliver value for shareholders, and I have never been more excited about the future of this company. I look forward to updating you on our progress along the way. So with that, Ray, we'll open the line for questions.

Just in brief, if you can comment on the federal nuclear efforts, perhaps the best way to define, you can comment on that just in brief, and what that might mean for your specific opportunities here, if you don't mind.

I'm sorry, Julien, you were breaking up a little bit. Are you talking about the nuclear PTC?

Exactly. Indeed. And what that might be at the federal level for your asset.

First of all, I would like to emphasize that concerning regional or market-specific out-of-market subsidies, whether for nuclear energy or any other technology, we prefer competitive incentives in our markets. However, if a national Production Tax Credit is introduced, it would alter our viewpoint. We would consider getting involved with that through our South Texas project in Texas, which would positively affect that particular asset. That's my perspective on the national Production Tax Credit, but I want to stress its national significance. If it remains just regional, it could create complex dynamics within the markets that may not be beneficial for competitive practices.

I would like to hear your thoughts on the current situation. Additionally, could you provide some insight into the overall commodity landscape? There has been significant movement in the forward curve, and your position may not be clearly understood in terms of being net short or long, depending on the market. Can you share your perspective on your overall position today, especially considering the longer-term outlook and how it aligns with the targets you've previously mentioned?

Sure, Julien. As I've mentioned before, our integrated platform has effectively minimized our exposure to the underlying commodity prices. The increases in natural gas and power prices impact all market participants and retail providers. Consequently, these rising commodity prices can be passed on to customers. It's not just us feeling the effects; it's a broader issue. With the acquisition of Direct Energy, our natural gas business complements our operations well and underscores the benefits of our diversified portfolio. In the Eastern region, this effect is even more pronounced. While rising gas prices may have a short-term impact on our power business, they actually benefit our substantial natural gas business. Therefore, I believe investors should view our company as relatively insulated from the fluctuations in commodity prices. Chris, do you want to add anything regarding the direction of price movements and expectations, as I've already touched on the implications for our portfolio?

Yes. The only thing I would add is, I mean, look, gas has been strong because there's a lot of increased demand out there, right? LNG is going crazy overseas with Europe on bid against Asia, that's driving things up. I think that the U.S. just recently became the largest exporter of LNG in the world, passing Australia, which is a hell of a thing. I haven't seen that before. Storage is low right now. So yes, we're in a bit of an upcycle right here. But like Mauricio said, it's something that we can price in, right? So if we're pricing to our customers off of the curves that we see and we're covering it off of the curves as they happen or off of our generation, we're in a good spot where we tack on the margin, move on our merry way. So I think Mauricio is right. The integrated platform is a great way to play this, whether it's an upcycle or downcycle.

Are you confident about the transition? I understand we are still early after your Analyst Day, but can you provide any insights on the early indications of a strategic pivot in retail? I realize it's still a bit early for this.

Okay. Julien, I want to understand your question. I mean any confidence on our people to...

Just early planning as you think about executing against the full $700 million uplift.

We are very confident in our efforts and have already begun several initiatives in power and home services. Our top priority is integrating Direct Energy and achieving $300 million in synergies. This is the most straightforward way to create value, and we are focused on it. Following that, we will explore opportunities such as optimizing our dual-fuel customers, as we have good visibility on them. We want our power customers to also purchase natural gas and vice versa, which makes the cost of acquisition appealing. We will concentrate on these areas for the remainder of 2021 and into 2022. We are currently testing and learning about opportunities in power and home services, and if a particular opportunity looks promising, we will scale it up quickly; if not, we will abandon it promptly. Most of our investment is expected in the latter half of our planning period, around 2023 and beyond. We are excited about a pilot program on home solar that is generating valuable insights into customer preferences. We are initiating these programs with a small capital investment but are gaining a lot of knowledge.

It's actually James for Shar. Congrats on the results. I just had a few housekeeping questions on the quarter. Can we just unpack the February impact shifts a little bit more? It looks like the buckets moved around $85 million. On the growth side, what's the breakdown there between resettlement and bad debt? And then just on the mitigation side, is that entirely securitization recovery assumption?

Yes. As Alberto mentioned, the buckets shifted slightly, moving by $85 million in total. The majority of this change is attributed to resettlements, which make up 70%, while 30% is related to bad debt. We feel very confident that, with the clarity we now have regarding securitization, we will be able to offset that impact. Overall, there is no change in the effect of Winter Storm Uri. However, as I previously noted, fluctuations will occur, and we experienced some of that this quarter. We have the upcoming 180-day settlement in a few weeks, which we are closely monitoring. I believe its impact will be minimal, but I do expect some movement, whether that is up or down. With the visibility on securitization, I feel reassured in maintaining our range. To provide some context, when we discuss the PJM fleet, we are mainly referring to the Midwest generation fleet, which represents a significant portion of our earnings, approximately 5%. This context is vital as we consider the disappointing auction results that led to the announcement of the retirement of 50% of our coal fleet. Given the shifts in capacity prices in PJM, it is sensible for us to conduct a thorough review of the rest of our portfolio. This review is currently underway, focusing on reliability and development prospects among other factors. We are evaluating everything as part of this strategic assessment, and I will keep you updated as we move forward.

There are a few key points to address. First, a major concern for investors regarding NRG is the short position in Texas, which indicates that you may not have enough generation to cover your retail load. How do you plan to adjust your disclosures in the future to alleviate concerns about this short position? Will you provide details about your power purchase agreements or tolling agreements, or the hedging strategies for future demand? While I don't expect another event like Uri, weather events will occur in both summer and winter, even if they aren't as severe. Recently, the Grid was forecasting one in Texas. Clearly, this short exposure represents the greatest risk for NRG. How will you adapt your disclosures regarding your long or short positions with respect to contracting physical assets and other hedging strategies?

Right. To clarify, NRG does not have a short position. When I discuss our integrated model, every megawatt we sell to our customers is back-to-backed, whether through our own generation, contracted generation in the market, or purchases on the open wholesale market. It's important to emphasize that NRG is not short electricity or any products we sell. We back-to-back everything. Additionally, we don't need to own every single megawatt. We can achieve the same benefits of owning generation through contracts. We have several renewable power purchase agreements and work with other counterparties. This includes tolling agreements and physical transactions, allowing us to engage with the open market in advance. The critical takeaway from Winter Storm Uri is the necessity of diversifying our supply. Relying on one major power plant could pose a significant risk if it fails. We are committed to preventing such risks by utilizing a top-notch commercial team to source megawatts from our own plants, other plants, and the open market. This strategy is effective, especially if we can execute it in a capital-light manner that preserves our cash flow while maintaining a strong free cash flow to EBITDA ratio. I don't share the concern that NRG's primary risk stems from a short position.

Can I follow up on that quickly? Do you have enough megawatt hours from your own generation or long-term contracts to meet the expected peak demand during summer and winter?

I mean everything we do is about maintaining a balanced portfolio. I expect the commercial team to adjust our position based on various factors like commodity prices and weather when looking at the short term. However, we're focusing on optimization rather than making long-term commitments. If you're asking whether we have enough megawatts, I would say yes. Our portfolio has sufficient nameplate capacity to meet the network demand we sell. But our goal is to optimize our supply to ensure the company is positioned as effectively as possible given our market outlook.

First, on capital allocation, would you expect the $461 million of cash available from the slide to be fully allocated this year? Or is it more likely a good chunk of that gets pushed to next year just because you need the cash back from the year you offset still?

Yes, Keith, we allocate capital when we have the cash available to us. We have created some financial flexibility from changes made to achieve our investment-grade credit metrics, but this is still dependent on when we will receive funds from the Uri mitigation plan and the sale of our Eastern California asset. Those are the two significant triggers. Once we have that excess cash, I will apply our capital allocation principles. I expect to provide an update on the third quarter call, and I anticipate that this money will begin coming in during the fourth quarter. As always, we will allocate that excess cash when it is actually available. That’s how you should think about the timing, Keith.

Got it. The second question, just can you give an update? Curious how retail margins sort of ignoring the changes in power prices, if you can isolate it, just how retail margins are tracking after the shakeout from the winter storm. Are you seeing less competition in the Texas market given the volatility event? Or just any comment on trends in margins.

I believe margins have remained stable. Although the winter storm had a significant impact, especially on the regulated side and also on the unregulated side, many retail providers have protective measures in place. As a result, only a small number of participants were affected by the open market, and those that were faced challenges, but they were few in number. I wouldn't say that there was a large group under intense pressure on the retail side. Therefore, margins have continued to be relatively stable. Competition persists, similar to what we have experienced in the past.

Can I ask about the mitigation regarding storm Uri? Has any of that been achieved yet, or is it still forthcoming?

Most of it is still to come. As you know, the securitization process is ongoing while they pass the law. We expect to have a hearing in August, and by October, we should have an order that defines how they will allocate that money. I anticipate that by October, we will have a clearer view of the allocation methodology regarding the securitization. The bad debt issue is a continuous process, and the heat recall option we initiated will take a bit more time due to the legal route we are pursuing.

Looking ahead and considering the new targets and strategy presented at the Analyst Day, should we expect more detailed information regarding the differences between customer types, such as single fuel and dual fuel? How can we track your performance related to that plan over time? Additionally, when do you anticipate starting to share this kind of incremental information?

That's a great point, Jonathan. As I mentioned earlier, we are working on increasing our disclosures, particularly following the strategic update we shared a month ago. You can expect to see more transparency regarding our progress from our current margin to our target margin for 2025, including the steps we are taking. We will discuss the various initiatives related to deploying the $2 billion of capital. Right now, we are in a test-and-learn phase, but as we begin to scale any of these initiatives, we will communicate with you in advance about the opportunities, the capital required, and the associated EBITDA. There will be additional disclosures regarding the $2 billion capital deployment and the opportunities it presents, along with details about our customer portfolio and the longevity of these customers. No. My goal is to include it in the quarterly updates. I believe that will likely start towards the end of the year and carry into the new year with updated financials. We are already working on it now, and you can expect more disclosures as we move into 2022.

I was about to ask a similar question about disclosures. It seems to me that the business has become somewhat opaque for us. We don't fully understand the exposure to gas margins and the increased seasonality of Direct Energy. Therefore, we would appreciate more disclosures. I did hear Mauricio's comments about not being short on power, so I understand that from a long-term perspective. However, how do you reconcile the changes in the forward power curves with your reliance on market-based power purchases for medium-term margins on the retail side? I understand that you align your contracts with market purchases, but timing this perfectly seems challenging. So please explain how the movements in forward curves should have affected your retail margins.

Sure, Angie. I think it's important to differentiate between customers on their fixed price and those on variable rates. For fixed price customers, we secure the supply and lock in the margin once we sign them. We base our pricing on the forward curve, which eliminates exposure for us. You're likely referring to variable rates and whether we can manage those. A variable rate means we can adjust prices if the underlying commodity prices change. This flexibility allows us to pass through costs, and all retail energy providers face similar shifts in power prices. Consequently, it doesn’t put us at a disadvantage; it affects the supply cost for all providers. You'd expect a comparable response to offset any price increases. I'm also unclear on why some investors think we're short on power. With variable price customers, we can adjust pricing in response to market changes, whether that means raising or lowering prices. Regarding the medium term, which I assume is 12 to 18 months, we have sufficient time to adjust pricing as necessary. We've consistently managed this in the past. Therefore, I feel confident about our exposure, especially with fixed price customers going multiyear, particularly in commercial and industrial sectors.

Okay. And then just one last follow-up on capital allocation. So I mean I'm really glad to see that you will be restarting your share buyback program. Now is that in any way implicitly stating that your investment-grade rating is sort of delayed inherently given the Uri storm? And as such, there is no point in trying to delever as quickly as possible, hence, you have some more flexibility? Because, again, I would have expected that you're going to try to go back to that, say, 2.5 to 2.75 net debt to EBITDA as quickly as possible. And clearly, buybacks are not going to help with this.

We have revised our life path to a range of 2.5 to 2.75. Our targets for investment-grade credit metrics remain unchanged, but we've adjusted the path to achieve them based on discussions with rating agencies following Winter Storm Uri. This adjustment aligns with our ongoing conversations with the agencies. The timing of credit ratings is beyond our control; it rests with the rating agencies. We consider a 3x balance sheet to be very strong, but we are still aiming for the 2.5 to 2.75 target. However, this new trajectory has given us some financial flexibility. If we have excess cash, which we expect by the end of the year, we will use it according to our clear and communicated guidelines. Therefore, I anticipate beginning to allocate this excess cash, which may include share buybacks toward the end of the year, but this will depend on when we finalize the asset sale and start receiving funds from the Uri mitigation efforts.

Great. Thank you. Well, thank you for your interest in NRG and look forward to continue updating you in this exciting new opportunity and phase for NRG. Thank you, everyone.