NRG NRG Energy Inc

By Cassandra Sweet 

Low electricity prices are making it less profitable to be a power plant operator.

Companies that sell electricity to utilities, such as Dynegy Corp., Calpine Corp and NRG Energy Inc., reported slim profits or losses in the third quarter compared to the same period a year ago, as they continue to be battered by wholesale power prices that have fallen in recent years along with prices for natural gas.

Average wholesale electricity prices have dropped 15% this year to $29.70 a megawatt-hour, according to a Wall Street Journal analysis of power market data from the Energy Department. That is 43% below the 2014 average.

On Friday, NRG reported a quarterly profit of $393 million, compared to $67 million a year earlier. After adjusting for a $266 million increase from asset sales and other one-time items, net income declined $203 million, due to lower energy margins and costs related to paying down debt. Revenue was $3.95 billion, down from $4.43 billion a year earlier.

"Our generation business performed well during some very challenging market conditions," NRG Chief Executive Mauricio Gutierrez said during a conference call Friday with analysts.

NRG's shares traded up 10% higher Friday morning at about $11.10 after its results beat analysts' expectations, but are down 5% year-to-date.

Dynegy on Tuesday posted a quarterly loss of $249 million, on $1.18 billion of revenue, compared to a $24 million loss on $1.23 billion in revenue a year earlier. Calpine last week reported net income of $295 million, up 8% from the previous year, on revenue of $2.36 billion, but its profit for the first nine months of the year net was just $68 million, down 76% from the previous year.

"It's an adverse environment because of the low gas prices, and it's aggravated by the growth of renewables," said Hugh Wynne, an analyst at investment research firm SSR LLC in Stamford, Conn.

Dynegy, which owns about three dozen coal and natural gas-fueled plants across the U.S., aims to navigate the low prices by buying plants and streamlining operations. It is also ramping up lobbying efforts with state and federal regulators, and lawsuits, to preserve competition in the power markets, Chief Executive Bob Flexon said.

Those efforts include opposing a plan New York officials approved last August to provide subsidies to money-losing nuclear power plants to keep them operating.

"You've undermined wholesale price formation because out-of-the money assets are given billions of dollars to stick around," he said of the subsidies. Shares of the Houston-based company have dropped 38% year to date, to about $8.39 on Friday.

Exelon Corp. has been faring better than some rivals since it also owns regulated utilities. They have more stable profits, because utilities can pass on their costs to their customers in the form of higher rates and can usually rely on a guaranteed rate of return on their investments. Shares of Exelon were trading Friday at about $32.83, up about 18% this year.

But while the company last week posted a higher third-quarter profit overall, its ExGen commercial power generation unit reported net income of $236 million, 37% less than a year earlier.

"We're not happy with the outlook that we see at ExGen," Exelon Chief Executive Christopher Crane said last week during a conference call with analysts.

Power plant owners that don't own utilities, such as Dynegy and Calpine Corp., have had a tougher time.

Calpine, which owns several dozen gas-fired power plants, peaker plants and geothermal power generators, narrowed its full-year guidance range for adjusted earnings before interest, taxes and other items to between $1.8 billion and $1.85 billion, from $1.8 billion to $1.95 billion. Calpine's shares are down about 21% year to date, at about $11.43 Friday.

"The wholesale power markets have disappointed in 2016," Calpine Chief Executive Thad Hill said during a conference call with analysts last week. He added that he expects wholesale prices will begin to rise as early as next year in some areas, as more companies shut unprofitable power plants and electricity supplies get tighter. "There is a reason to believe in recovery."

Write to Cassandra Sweet at cassandra.sweet@wsj.com

(END) Dow Jones Newswires

November 04, 2016 11:32 ET (15:32 GMT)

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