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NRG Sees Reversal of Coal-to-Gas Switch for Texas Power

NRG Energy Inc. (NRG), the best performer on the Standard & Poor’s 500 Utilities Index today, said rising natural-gas prices are reversing the trend of power plants switching from using coal in Texas.

“Particularly in Texas, with the combination of that and some heat-rate recovery, we have seen the reversal of that coal- to-gas switching that we experienced in January,” Chief Operating Officer Mauricio Gutierrez said on a conference call with analysts today.

Increasing gas prices have made use of Powder River Basin coal more economic and it’s “starting to get closer” to costs for eastern U.S. coal, Gutierrez said. The trend of switching back to coal from gas is expected to continue for the balance of the year, given the increase in gas prices and heat rates, Gutierrez said in an e-mailed statement after the call.

The amount of fuel required to produce a fixed amount of power, the so-called heat rate, increased 38 percent in Texas during the second quarter as less-efficient gas plants came online to meet surging demand from a heat wave, Andy DeVries, a New York-based analyst at CreditSights Inc., said in an phone interview. That helped raise electricity prices in the market, DeVries said.

NRG, the largest power producer in Texas after Energy Future Holdings Corp., uses Powder River Basin to fuel its coal generators in the state, David Knox, a spokesman for the Princeton, New Jersey-based company, said in an e-mail.

Texas Results

The company, which agreed to buy GenOn Energy Inc. (GEN) last month for $1.8 billion to become the largest U.S. independent power-plant owner, reported second-quarter profit today that beat analysts’ estimates as costs fell and it added customers.

Its Texas generation unit reported a 5.1 percent second quarter increase in adjusted earnings before interest, taxes, depreciation and amortization on higher nuclear output and additional contracts for power plants, according to a statement.

Gas futures reached a seven-month settlement high last week of $3.214 per million British thermal units in New York on forecasts for hotter-than-normal weather. The fuel, which settled at $2.933 per mmBtu today, has rebounded from a 10-year low of $1.902 on April 19.

NRG rose 3.6 percent to $20.24, its highest price since Nov. 18 and the biggest gain among the 31 members of the S&P utilities (S5UTIL) index.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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