NRG Energy Replaces CEO in Activist Investor–Influenced Shuffle

NRG Energy has appointed the chair of its board of directors, Dr. Lawrence Coben, as its interim president and CEO and appointed four new independent directors to its board, signaling a major leadership reshuffle partly influenced by activist investor firm Elliott Investment Management.

The Houston-headquartered energy giant on Nov. 20 said Mauricio Gutierrez, NRG’s long-time and influential president and CEO, “has departed the Company and resigned from the Board.” The company’s board “has initiated a search to identify a permanent CEO and retained a leading search firm to assist with this process,” it said.

NRG also announced that, pursuant to a “cooperation agreement” with Elliott, it would add four new independent directors to its board. These include Marwan Fawaz, a former executive at Google, Alphabet, Nest, and Motorola Home; Kevin Howell, who served as COO of Dynegy Inc. and Regional President of NRG Texas; Alex Pourbaix, the executive chair and former CEO of Cenovus Energy; and Marcie Zlotnik, who co-founded and led StarTex Power as COO and Chair.

The new directors “were identified as part of NRG’s previously announced Board refreshment process and in collaboration with Elliott,” NRG said. With the appointments, NRG’s board now comprises 13 directors, 12 of whom are independent.

Finally, NRG said it would also “conduct a comprehensive review of its operations and cost structure to identify additional opportunities to become more efficient and further enhance capital return to shareholders,” it said. “The review will be undertaken with a continued commitment to reliability in the markets NRG serves and with the support of external advisors.”

Pressure from an Activist Investor

The changes follow repeated calls by utility investor and hedge fund Elliott for a new CEO and “enhancements” to the board of directors. Elliott in May notified NRG it had spent $1 billion and claimed to hold a 13% “economic interest” (through stock and derivatives) in NRG. In a letter sent to NRG’s board, the firm suggested the company had “meaningfully underperformed due to a number of operational and strategic missteps.” Among the missteps the firm outlined is NRG’s $2.8 billion purchase earlier this year of Vivint Home, a “smart-home” platform.

Vivint’s acquisition, as POWER has reported in-depth, marked a step change for the historically generation-focused competitive energy provider—which was once the nation’s largest independent power producer. But it was designed as a strategic effort to shape the company’s future market standing as electrification gains pace and the residential sector adopts smart and connected devices. According to Elliott, however, the acquisition, “measured by the one-week market reaction following its announcement, was the single worst deal in the power and utilities sector in the past decade.”

Elliott has notably said its recent intervention echoes activism in 2017 when it recommended NRG rein in its focus on its core merchant power and retail electricity business. The effort culminated in the company’s “Transformation Plan,” reinvigorating the company’s financial initiatives, including $1.065 billion of total cost and margin improvement, $2.5 billion to $4.0 billion of asset divestitures, and $13 billion of debt reduction, the firm has claimed. During that time, NRG relinquished GenOn’s 15.4-GW fleet—nearly a third of its fleet—to its creditors and unloaded a 3.4-GW renewable asset portfolio in NRG Yield.

In June, Elliott once again called for a new leader, shifting blame directly on CEO Gutierrez, who it claimed had “lost the confidence of the core investor base.” The board “lacks the will to make the right decision for the company,” it said. In response, NRG Board of Directors Chair Coben in a statement said the board fully supported Gutierrez, the company’s management team, and the company’s strategy “to drive substantial, sustainable shareholder value.”

But in July, Elliott asked the Federal Energy Regulatory Commission (FERC) for permission to buy up to 20% of NRG’s stock. The firm’s power play raised concerns from consumer advocacy group Public Citizen, which in August called on FERC to investigate Elliott’s proposed acquisition, suggesting that Elliott’s relationship with coal supplier Peabody Energy raised anti-competitive concerns. Public Citizen has urged FERC to require more details of all derivative contracts it used to acquire NRG’s “economic interest” as well as clarify what role its executives will play on NRG’s board.

NRG Reaches Cooperation Agreement with Elliott

Under Elliott’s cooperation agreement with NRG reached on Monday, NRG’s board will have a maximum of 13 directors until NRG’s 2024 annual meeting, and then reduce it to 11 directors afterward. This size adjustment is conditioned on a new CEO’s appointment or by Dec. 31, 2024. If any new director appointed under the agreement cannot serve or leaves before the end of the Cooperation Period—which is slated with conditions to end in November 2024—NRG and Elliott will jointly select a replacement, provided Elliott still owns at least 1% of NRG’s outstanding common stock.

On Monday, Elliott appeared to laud NRG’s abrupt reshuffle. “We invested in NRG because we believed that a renewed focus on best-in-class operations and returns-driven capital allocation would strengthen NRG and enable it to deliver significant upside for shareholders,” said Elliott Partner John Pike and Portfolio Manager Bobby Xu in a statement. “The changes announced today, including the addition of four new Board members with strong operational backgrounds, represent a key milestone toward this end. We look forward to continuing our dialogue with the Company as it works to execute on this opportunity.”

Coben, who has served as NRG’s board of directors chair since 2017 and has been a member of the company’s board since 2003, thanked Guitierrez “for his contributions in helping to build NRG’s solid foundation as we prepare for the next generation of leadership.”

The new directors, Coben suggested, will bring “complementary experience as proven operators in the energy industry and in leading growing innovative home technology companies with iconic brands. Their expertise will help ensure we capture the value we create by offering a smarter, cleaner and more digitally enhanced energy ecosystem. We welcome them to the Board,” he said.

—Sonal Patel is a POWER senior associate editor (@sonalcpatel, @POWERmagazine).