NRG Energy Inc (NRG) — Q4 2021 Earnings Call Transcript

Great. Thank you, Amy. Good morning and welcome to NRG Energy's fourth quarter 2021 earnings call. This morning's call 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 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 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 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. This is my 25th earnings call as CEO and I wanted to start with a quick look back on what we have achieved. Over the past six years, we have transformed our company from a complex industrial story into one that is much simpler and focused on our core strengths. Along the way, we have made significant progress in our strategy to get closer to the customer, optimize our generation portfolio to serve those customers, strengthen the financial health of our company and created significant shareholder value. We now turn to the next phase in our evolution of growing our business and realizing the potential around the customer. I am excited about the future and look forward to sharing our progress with all of you in the months to come. Moving on to the three key messages of today's presentation on slide four. Our business delivered results in line with the 2021 guidance, effectively navigating supply chain constraints and volatile market conditions, further validating the strength and durability of our model. Next, I am pleased to report that we have successfully executed our winter storm Uri mitigation plan and we are increasing 2022 capital available for allocation. Finally, we continue to advance our five-year strategic road map in moving closer to the customer and our commitment to being excellent stewards of shareholder capital. The 2021 financial and operational results are on slide five. Beginning with our scorecard. We executed on all our priorities. I want to thank all the employees at NRG for maintaining focus during a challenging year, which included a global pandemic, Winter Storm Uri, asset sales and the integration of Direct Energy. Importantly, we were able to operate through these conditions while setting another record for safety. This is the fourth straight year we have set a new company safety record, an incredible accomplishment worthy of recognition. Direct Energy integration remains ongoing and we are on track to achieve our run rate synergies. During the year, we outperformed our initial expectations, achieving $175 million versus our original expectation of $135 million. This integration is led by the same team and supported by the same governance of the transformation plan, which gives me the utmost confidence in our ability to reach if not exceed our run rate targets. Following multiple years of rightsizing our business, 2021 marked a significant milestone in capitalizing our best-in-class consumer services platform. We added roughly 3 million customers to our portfolio and expanded the scale and scope of home power and natural gas services. Also during the year, we monetized 4.8 gigawatts of non-core fossil assets in our East and West regions. And now the retirement of 1.6 gigawatts of coal assets in the East and signed an additional 800 megawatts of renewables PPAs. Next, we continue to adhere to our disciplined capital allocation principles. In late 2021, we announced a $1 billion share repurchase program to be completed throughout 2022. We also increased our dividend per share by 8% in line with our stated dividend growth rate of 7% to 9%. In June, we held our Investor Day where we revealed our five-year strategic road map to create significant stakeholder value by moving closer to the customer while also returning significant capital to our shareholders. Moving to the right-hand side of the slide for the financial results. We delivered $433 million of adjusted EBITDA for the fourth quarter, 31% higher than the prior year. This brings our full year results to $2.42 billion of adjusted EBITDA, 21% higher than the prior year primarily driven by the acquisition of Direct Energy and excluding the impact from Winter Storm Uri. Finally, we are maintaining our 2022 adjusted EBITDA and free cash flow before growth guidance ranges. We are seeing promising results in mitigating winter supply chain constraints, and I look forward to updating you next quarter. As a result of our Winter Storm Uri mitigation plan, we are increasing our 2022 capital available for allocation by $212 million, which Alberto will discuss in more detail. Now turning to slide 6 for a brief update on the ERCOT market. Following Winter Storm Uri, it was clear that market reforms from well-head to light bulb 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. In 2021, Texas made significant progress in hardening the electric grid through power plant and transmission weatherization standards, improved market design with changes in scarcity pricing, ancillary reforms and consumer protection improvements. In 2022, we expect Texas to expand its focus on hardening the natural gas infrastructure and implementation of phase 2 of power reforms which includes resource adequacy by establishing a load-side reserve requirement and on-site fuel security. I want to commend Texas's governor's office, legislature, PUCT and ERCOT for taking swift action and accelerating effective reforms that would normally take years and addressing them within months. While our work is not done yet, we believe Texas performance through a tough winter is a strong reflection of effective actions and policies. Moving to the right-hand side of the slide for an update on the financial impact from Winter Storm Uri. I am pleased to announce that we have successfully executed our mitigation strategy. Today, we're updating the net financial impact from the storm to $380 million from our prior expected range of $500 million to $700 million. Now turning to slide 7. It is important that we recognize our ESG principles and highlight a few of our 2021 accomplishments. We created a sustainable framework with a strong foundation based on our corporate values and our sustainability program that brings all stakeholders working together with a common purpose from our customers to our employees to our operations. Our sustainability program consistently upholds a high standard of accountability and transparency across the pillars of environmental leadership, social focus, and strong governance. I want to start with an update on our environmental leadership. As you know, we committed to a stringent decarbonization path in line with the 1.5-degree Celsius scenario, which has been certified by the science-based target initiative. That means reducing our carbon emissions by 50% by 2025 and net zero by 2050. As you can see on the right-hand side of the slide since 2014 we have reduced our carbon emissions by 44% and we have a clear line of sight to our 2025 goal. To put this in perspective, this is equivalent to taking 5.8 million passenger vehicles off the road for a year. In addition, as advocates for the electrification of transportation, in 2021 we set a goal to electrify 100% of our light-duty vehicle fleet by 2030, further demonstrating our commitment to progress. All these efforts have resulted in the diversification of our revenue streams to cleaner solutions. Since 2014 coal generation as a percentage of revenues has decreased by 80% and now represents less than 5% of our total revenues. If you recall not long ago coal made up almost one-third of our revenues. We still have much work to do, but I am confident we are on the right track and have the right team to succeed in our goals. On the social front, our engagement with our employees, communities, and customers continues to advance. As I mentioned in my opening remarks, in 2021 we once again achieved top-decile employee safety performance. We also implemented employee programs to support financial, physical, and mental well-being. Our diversity, equity, and inclusion values continue to shape our culture and inform our decision-making as we strive to unlock the power of DEI as a way to better understand our customers and the communities we serve, while also making our team stronger. In our communities, we supported more than 750 non-profit organizations through our philanthropic arm Positive Energy. We also focused our volunteer efforts on food security through virtual and in-person food donations and packaging meals for those in need. For our customers, we are always innovating. We have been a leader in facilitating renewable energy for our residential customers, as well as providing a path for small and medium-sized businesses to participate in the sustainable energy transition. More than ever, the home is the center of our lives. So we continue to advocate for individual customer choice in the products and services that best suit their values and lifestyle, delivered with reliability and affordability. Finally, regarding our strong governance, I am particularly proud of our transparency in reporting and accountability on our goals. This past year, we released our 11th annual Sustainability Report, our fifth reporting compliance with SASB standards, and 12 CDP or climate disclosure project questionnaires. We also formally issued our first TCFD or task force on climate-related financial disclosure as a way to improve and ensure our stakeholders have the right tools to make informed decisions and track our progress. In 2021, we issued our second sustainability-linked bond. If you recall, we were the first company in North America to do it back in 2020. These bonds tie our financing costs to achieving our carbon reduction goals. Our culture of sustainability is ingrained in every part of our organization, and we continue to play an integral part in our transition to a consumer services company. I look forward to sharing more details of our ESG journey with you later this spring in our 2021 sustainability report. Now, I want to provide you an update on our growth program. As I shared with you during the Investor Day, our focus over 2021 and 2022 is twofold: optimizing the core and setting the stage for growing the core. In terms of optimizing the core, we continue to remain on track to integrate Direct Energy into our business and have been successful in optimizing our generation portfolio to support our customer-facing business. We are also making solid progress on our efforts around growing the natural gas and dual-fuel customer portfolio. Let me give you a couple of specific examples for both. One, we are seeing early success in achieving our customer count by leveraging our existing and long-standing partnerships with big-box retailers to sell natural gas and expand our geographic footprint. Second, we are advancing our digital experience so customers can easily enroll in both electricity and natural gas plans. These efforts are relatively new, and I will share more details as we make progress later in the year. Now, moving on to growing the core you will remember that our plan is focused in two areas: Energy Services and Home Services. The housing picture on the left gives you a sense of the various customer solutions that are on our growth roadmap. Some of these solutions are already operational such as power, natural gas, and storage, while others such as solar and EV are in the pilot or development phase. The table on the right slide provides the status on each of these targeted customer solutions. The important key takeaway is that we are not starting our growth program from zero. We have meaningful existing capabilities to deliver many of our targeted customer solutions and we are leveraging those capabilities as we speak. For those customer solutions that are not currently operational, we will use 2022 as a staging period for us to prudently test and learn, optimize our participation model, and refine the go-to-market approach such that when we get to 2023, we will have confidence in deploying capital against that growth. Moving to Slide 9. As you can see, our capital allocation track record is cycle appropriate and directly in line with our roadmap to stabilize, right-size, redefine, and now enhance our company. During 2016 and 2017 our primary focus was simplifying and strengthening the balance sheet. In 2018 and 2019 with the balance sheet significantly improved, we were able to shift to returning capital to shareholders and growth. In 2020 and 2021, the Direct acquisition meant more of our capital shifted towards growth and debt reduction. Now moving to 2022, we turn our focus towards achieving our per-share growth objectives and growing into our investment-grade credit metrics through the full realization of Direct Energy run rate earnings and our growth program. Like I said earlier, 2022 remains a staging year for growth which provides significant excess cash to be returned through dividends and share repurchases. I will provide you an update on the remaining unallocated cash throughout the year. So, with that, I will pass it over to Alberto for the financial review.

Thank you, Mauricio. I will now turn to Slide 11 for a review of the full year results. We finished the year achieving our 2021 adjusted EBITDA and free cash flow before growth targets in line with guidance, realizing more than $2.4 billion in adjusted EBITDA and $1.5 billion in free cash flow before growth. Adjusted EBITDA reflects a $419 million increase compared to 2020, primarily due to the acquisition of Direct Energy in January 2021. This is despite several unexpected challenges including the extended forced outage at the Limestone Unit 1 power plant, additional planned and unplanned outages in Texas, and increased ancillary charges. The results also include the achievement of $175 million in Direct Energy synergies, surpassing the initial 2021 target of $135 million. Free cash flow before growth was $1.512 billion, which is $22 million above the midpoint of 2021 guidance, mainly due to lower capital expenditure. Moving to the highlights, 2021 was a productive year in getting closer to the customer. We finalized the Direct Energy acquisition and successfully kicked off the integration. In December, we closed the sale of 4.8 gigawatts of non-core fossil generation assets. We also reduced our debt by $755 million and aligned our financial performance with our climate goals while reducing interest expenses through refinancing callable debt via a $1.1 billion sustainability-linked bond. Regarding Winter Storm Uri, we have significantly improved the net impact from the storm. At the end of Q3, we expected mitigants to range from $370 million to $570 million with a net impact of approximately $500 million to $700 million. We are now lowering this net impact to $380 million due to effective mitigation efforts and management of customer bad debt. We fully recognized these mitigants in 2021 via a reduction in cost of goods sold, though the cash impact differs. The mitigated loss includes bill credits to commercial and industrial customers and other items that will materialize as cash flow in 2022, totaling $97 million at the end of December. The $696 million from the securitization will be received in Q2 2022, while the cash impact of Uri in 2021 resulted in a net outflow of $979 million, which will be offset by a cash inflow of $599 million in 2022. For 2022, we are maintaining our adjusted EBITDA guidance of $1.95 billion to $2.25 billion and free cash flow before growth guidance of $1.14 billion to $1.44 billion. As Mauricio mentioned earlier, we are making positive progress in addressing our winter supply chain constraints and look forward to providing updates in the next quarter after the winter season. Since our last earnings call in December, we announced and commenced our $1 billion share repurchase program, executing $120 million in repurchases to date including $39 million in December and $81 million year-to-date, with the remaining program to be completed throughout 2022. Additionally, our Direct Energy integration and synergy plan is on track. Turning to Slide 12, our free cash flow before growth in 2021 was $22 million above the midpoint of guidance, while the actual increase in cash was $41 million, lower than the previously planned $150 million. In the fourth quarter, we concluded the purchase price adjustment for Direct Energy, resulting in a $25 million increase from the prior earnings call. Winter Storm Uri caused a cash outflow of $979 million in 2021, with an expected net inflow of $599 million in 2022. We achieved another $500 million in debt reduction during the quarter, bringing the annual total to $755 million, using part of the $623 million from the sale of the 4.8 gigawatt generation asset. A total of $48 million went towards share repurchases including $39 million for the repurchase program. Thus, the capital available for allocation by the end of 2021 has been fully allocated. In Slide 13, combining the midpoint of our 2022 free cash flow guidance with the expected net cash from the securitization proceeds gives us nearly $1.9 billion for deployment in 2022. We plan to raise the minimum cash to $650 million, distribute about $339 million in dividends, and complete the remaining $961 million of the share repurchase. Please note that the dividend figure is based on current shares outstanding, and we will provide updates as we progress with the share repurchase program. In the investments column, we have committed $170 million thus far, including $70 million for continuing the integration of Direct Energy, $50 million for small acquisitions, $25 million for land preparation at Encina for a future sale, and $25 million for other smaller projects. We anticipate having $310 million of remaining capital available for allocation in 2022. Moving to Slide 14, we ended 2021 with a net debt to EBITDA ratio of approximately 3.2 times after adjusting for non-cash items and excluding EBITDA from recent asset sales. Our long-term financial strategy remains unchanged, aiming for a strong balance sheet while targeting investment grade credit metrics of 2.5 to 2.75 through the full realization of Direct Energy synergies and growth initiatives. We will keep you updated on our progress towards investment-grade metrics as we implement these initiatives. Back to you, Mauricio.

Thank you, Alberto. Moving to our 2022 priorities and expectations on slide 16. First, we will always be focused on the blocking and tackling of delivering on our financial, operational, and ESG commitments while adhering to our capital allocation principles. Beyond this, we're focusing our efforts in two key areas, provide additional disclosure to help better model our business and provide greater detail around our growth strategy. First, on our disclosures. Following the Direct Energy acquisition and our move towards consumers, we're working on a comprehensive rework that will enhance your ability to model the value of the customer. In the meantime, I want to start with the new hedging methodology slide in the appendix of today's presentation, which should help shed light on our rigorous risk management and supply optimization program that helps stabilize our business. On growth, as I discussed earlier, we will be transparent in the process and I look forward to updating you on this throughout the year. Finally, while 2021 was a challenging year, today our company is stronger and more promising than ever before. I am very excited about 2022 and the significant opportunities we have to create shareholder value. So with that, I want to thank you for your time and interest in NRG. Amy, we're now ready to open the line for questions.

Hi, good morning guys.

Hey Jonathan, good morning.

Mauricio, thank you for the mention on the new disclosures that you just made. I'm just curious, if you can give us some sort of gauge of when we might expect to see those? Is that kind of mid-year, next quarter or later in the year, just some framework there?

Yes. No, Jonathan. So, I hope that you find useful the new hedging disclosures. And obviously, Kevin will be available if you have any questions since this is new information. With respect to the disclosures to help better model the value of the customer, my expectation is that it will be done sometime either later in the year or the beginning of next year. We are working hard to ensure that key performance indicators are aligned with our financial disclosures, and we want to make sure that they are useful as opposed to rushing and giving you something mid-year that you have to reconcile before and after. These types of changes, I appreciate, they're always better at the end of the year. So, I would think that we are going to try to time it when we are ready, when we believe it's going to be very useful and when we don't make you do a lot of work in reconciling before and after. So, I hope that this provides you some idea when we're planning to move.

Yes, thank you, Mauricio. One thing I noticed is that you're now discussing growing into the credit metrics. I recall that previously you mentioned anticipating reaching that point by the end of 2023. Is this a change, or am I misinterpreting the slide?

Yes, I mean our commitment continues to be up 2.5 to 2.75. Obviously, we need to stay flexible. As you can appreciate there are a lot of things moving around this year. I mean it's a transition year because of the growth program that we have, the optimization that we have. So, our goal is to grow into the metrics. But obviously we will have to remain flexible in this environment. Just Jonathan before I forget I wanted to make sure that the additional hedging disclosures are available now and they're in the appendix of the presentation okay just to make sure that that's crystal clear.

I noticed those details, and I'd like to ask a quick question while I have the opportunity. It appears that you're about 15% over-hedged or covered. How would you best describe that in ACA? Can you provide some insight into how that looks by season? Is there a difference between winter and summer? Anything beyond just the annual perspective would be helpful.

Yes Jonathan. So, obviously, we feel comfortable providing the yearly disclosures. Why don't you start getting into the seasons, it is competitive-sensitive and in conversations with our commercial team, we wanted to make sure that we just provided this level of granularity to make sure that we don't compromise our commercial activities. So, I think that the two big takeaways from my perspective on the hedging slide are number one, we're pretty well hedged against our expected load. And then number two, it is a combination of electricity that we generate plus market purchases and our commercial team is responsible for optimizing between the two. So, that to me is a big takeaway on that slide and we wanted to just show how much our market purchases versus electric generation. One thing to note is this is just the economic generation in the money hedges, so you should assume also that we have some flex capacity that is out of the money both on the generation that we own and some of the tools and options that we buy from the market. So, just keep that in mind.

Great. Thank you very much for all the time guys.

Thank you, Jon.

Thank you for taking my question. Mauricio, over the years during mergers and acquisitions, it's common for us to see a year or more post-acquisition where discussions of potential synergy savings arise. Now that we are just over a year since the Direct Energy acquisition, and considering the unusual circumstances we've faced with Uri and other factors, how do you evaluate the potential for additional savings in broader cost management or specifically in the synergy savings related to Direct?

Yes Michael. Good morning. So, obviously, the integration of Direct Energy was a three-year integration if you remember, Michael. I am just very pleased with the performance of the team and achieving the synergies. We actually increased the synergies that we achieved in our first year. As we enter into the second year, I will tell you this I am incredibly comfortable that we're going to achieve them. But being mindful that this was a three-year program and we're literally just entering the second year. I will assess the potential of additional synergies. I think what you should expect is throughout the year we will give you an update on our performance there. I remain very confident that we're going to achieve our numbers. We'll update you if throughout the year we decide to provide an update on that.

Got it. One quick follow-up. If I look at the balance sheet, current assets are significantly higher, meaning the spread between accounts receivable and accounts payable is about $1 billion positive, indicating that accounts receivable is greater than accounts payable. Additionally, the current asset for derivatives is much larger than the current liability. This suggests there are substantial working capital cash inflows expected. However, when I review your free cash flow guidance, it doesn't seem to reflect that. Am I misinterpreting this, or are there other factors that significantly counterbalance those items?

Okay. Michael, I will turn that over to Alberto. Obviously, as you said, I mean I think this was a little technical and we can always follow up with you. But Alberto, is there something that you want to add here?

I want to highlight a few points, Michael. Firstly, the value of the derivative is influenced by both the growth of the gas business and the rising gas prices, which has notably enhanced its value on the asset side. In terms of current assets, it’s important to note that we've included proceeds from the securitization within that category. Additionally, acquiring another business has increased our working capital needs. We are addressing this matter and have put initiatives in place to manage it effectively. Overall, we remain confident in our projections.

And Michael, I want to remind you that working capital was a key focus during our transformation, and we achieved significant success in that area. We have developed a roadmap for optimizing our working capital, and we are applying all the lessons we've learned during the integration of Direct Energy.

Got it. Thank you guys. Much appreciated.

Thank you, Michael.

Hi, good morning.

Hey, good morning, Paul.

I wanted to check in on kind of your achievement on the customer growth strategy and just any insights you can share on customer counts given some of the commodity volatility and if you're seeing any change in attrition recently?

I mean I'll pass it over to Elizabeth for the attrition, but I would say it's remained pretty constant. I think that's what we experienced during the last year; our retention numbers were really good. So Elizabeth, do you want to provide a little color here?

Yeah. Thanks for the question. We definitely achieved our customer count commitment for the year and what we had planned to achieve. We actually beat it by a bit. But as Mauricio mentioned, retention was extremely strong, really one of our best years ever. That is a product of some of the efforts over the last five years of increasing the tools and techniques we use, leveraging the data that we have to make sure we're putting the right renewal offers in front of customers that will entice them to stay with us. We did have some opportunity to recover in our sales channels as well with COVID; our face-to-face channels were set back quite a bit. We saw some improvements there. Finally, on the DE integration front, we met or beat our expectations for retaining those customers. As you all know and have seen from us over the years, as we acquire customers, whether it's through M&A or small books, you see some attrition in the year or two following that. As long as we keep meeting or beating what we expect from that, we're going to be really pleased. I'm super proud of the work the team has done from the frontline folks either face-to-face or in our call centers and the digital teams for all that they've done, and I'm excited about the potential for 2022 and beyond.

Okay. That's great to hear. And then a separate unrelated question. I know you all have been very proactive with some of the strategic asset sales as you repositioned the business. Do you see more opportunities to continue that trend and become more capital-light, particularly in Texas on that theme?

Yes. I mean, as you know, we completed a pretty large divestiture in 2021 and the optimization of the portfolio is a focus of ours. As you remember on the Investor Day presentation, I said that growing the core is one of our key strategic priorities. That's going to continue. The North Star of that is we're going to have assets that better help us serve our customers. So whatever those are, they are core. If not they're not core and we're going to look to optimize. With respect to Texas, obviously, we have our capital-light renewable PPA strategy that has been very successful close to 2.60 gigawatts. We're going to continue to focus on that. We're constantly in the market, we're running RFPs basically on a continuous basis. We're going to be very selective on that. It already has yielded tremendous value for us. That's going to continue to be a focus now. As Texas is changing some of the market design changes to incentivize dispatchable generation, we are definitely looking into that. We have lots of sites that we can evaluate opportunities. As we have done in the East, we're going to do it in Texas if we find the right partner, we're going to do it. We're going to do it in a way that is a good use of our capital. So I expect that to continue. I know the teams are completely focused on evaluating additional opportunities that we have to bring additional supply to serve our customers.

Great. Thank you very much.

Great. Thank you.

Thank you. So given what's happening in Europe and your disclosures on gas hedges, is it fair to say that even though there's this wide expansion of the positive gas bases in New England that should not have any negative impact on your gas retail margins in 2022?

That's correct Angie.

Okay.

Just to clarify our natural gas business, think of it as a logistics operation. We do not take on commodity price risk like NYMEX Henry Hub. Most of our risk is related to basis. While serving customers, we benefit from a vast network of logistics pipeline capacity and local distribution company relationships. This network enables us to manage and optimize our basis risk. Based on the information we've shared, we feel very confident. Of course, there is always some risk to handle, but I'm quite comfortable with our current position. Chris Moser, do you have anything to add?

No. I think you hit the high points. Thanks, Mauricio.

Okay. And then…

Great.

Secondly, I know you're going to be providing an update on your guidance, I think on the first quarter call. But just looking at the drivers that you showed us on the fourth quarter call, it seems like any issues with coal and trona supplies have sort of subsided. Then, power prices in Texas this winter have been really weak. So the outage at your coal plant shouldn't be very painful from an EBITDA perspective. I'm kind of struggling to see what are the offsets to those mitigating factors to the negatives that you showed us on the year-over-year change between 2021 and 2022 EBITDA?

Yes Angie. So if you remember, we provided you, I think we call it, transitory items on all three; I think they're very constructive and positive signs that we're going to mitigate them. Obviously, we're just in February. So I want to wait for the first quarter call. But Alberto, can you just provide a little bit more specificity on where we are on all these three items that we highlighted on the last earnings?

Absolutely. First of all, we can confirm that, regarding Limestone, we still expect that Unit 1 will be back running in mid-April and the amount of the impact that we have quantified being $50 million during our third-quarter call is basically confirmed. Let me just also remind you that we have not included in 2022 any reimbursement from insurance coming both for property damages and business interruption, first of all, because it is difficult to quantify, and normally it's a long process to get there. We expect it to happen in 2023. We are working on it. But again, as I said, it's a long process. Second, regarding the coal supply chain, we quantified it in $100 million of which $60 million is Texas and $40 million in the East. So far, we have been able to make some progress against the challenges. We confirm at this moment the same number and we will update you in Q3. Regarding the Texas ancillary services which was an impact of $70 million. We confirm the numbers and the actions that we have taken which is basically we pass through the increases in price with the exception to all the customer with the exception where we have a fixed-rate contract and this will naturally happen when these contracts will be renewed.

Right. Just to put a little finer point on the ancillary services concerning the customers that are reopening contracts, we will be able to pass through these ancillary services. I think of it as a change in law. I am just incredibly pleased with the commercial team and how they've been managing the supply chain constraints around coal. We're still in the middle of the winter, but so far, they've done a fantastic job, and we will have an opportunity to provide you additional visibility and quantify that in the next earnings call.

Good. Thank you.

Great. Thank you, Angie. So with that, I want to thank you all for your interest and look forward to updating you on our exciting growth plan and other priorities throughout the year. Thank you and stay safe.