10-Q 1 nrg2014033110q.htm 10-Q NRG 2014 03.31 10Q
                                                                                                                                            

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
 
For the Quarterly Period Ended: March 31, 2014
 
 
 
o
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-15891
NRG Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
 
41-1724239
(I.R.S. Employer
Identification No.)
 
 
 
211 Carnegie Center, Princeton, New Jersey
(Address of principal executive offices)
 
08540
(Zip Code)
(609) 524-4500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x       No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No x
As of April 30, 2014, there were 337,240,638 shares of common stock outstanding, par value $0.01 per share.
 


                                                                                                                                            

TABLE OF CONTENTS
Index
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
GLOSSARY OF TERMS
PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4 — CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
ITEM 1A — RISK FACTORS
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
ITEM 4 — MINE SAFETY DISCLOSURES
ITEM 5 — OTHER INFORMATION
ITEM 6 — EXHIBITS
SIGNATURES



2

                                                                                                                                            

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of NRG Energy, Inc., or NRG or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. The words "believes," "projects," "anticipates," "plans," "expects," "intends," "estimates" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause NRG's actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Item 1A — Risk Factors Related to NRG Energy, Inc., in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2013, including, but not limited to, the following:
General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;
Volatile power supply costs and demand for power;
Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards;
The effectiveness of NRG's risk management policies and procedures, and the ability of NRG's counterparties to satisfy their financial commitments;
The collateral demands of counterparties and other factors affecting NRG's liquidity position and financial condition;
NRG's ability to operate its businesses efficiently, manage capital expenditures and costs tightly, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
NRG's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices;
The liquidity and competitiveness of wholesale markets for energy commodities;
Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws and increased regulation of carbon dioxide and other greenhouse gas emissions;
Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately compensate NRG's generation units for all of its costs;
NRG's ability to borrow additional funds and access capital markets, as well as NRG's substantial indebtedness and the possibility that NRG may incur additional indebtedness going forward;
NRG's ability to receive Federal loan guarantees or cash grants to support development projects;
Operating and financial restrictions placed on NRG and its subsidiaries that are contained in the indentures governing NRG's outstanding notes, in NRG's Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;
NRG's ability to implement its strategy of developing and building new power generation facilities, including new renewable projects;
NRG's ability to implement its econrg strategy of finding ways to address environmental challenges while taking advantage of business opportunities;
NRG's ability to implement its FORNRG strategy to increase cash from operations through operational and commercial initiatives, corporate efficiencies, asset strategy, and a range of other programs throughout the company to reduce costs or generate revenues;
NRG's ability to achieve its strategy of regularly returning capital to stockholders;
NRG's ability to maintain retail market share;
NRG's ability to successfully evaluate investments in new business and growth initiatives;
NRG's ability to successfully integrate, realize cost savings and manage any acquired businesses; and
NRG's ability to develop and maintain successful partnering relationships.
Forward-looking statements speak only as of the date they were made, and NRG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in any forward-looking statements included in this Quarterly Report on Form 10-Q should not be construed as exhaustive.

3

                                                                                                                                            

GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2013 Form 10-K
 
NRG’s Annual Report on Form 10-K for the year ended December 31, 2013
ASC
 
The FASB Accounting Standards Codification, which the FASB established as the source of authoritative U.S. GAAP
ASU
 
Accounting Standards Updates which reflect updates to the ASC
Baseload
 
Units expected to satisfy minimum baseload requirements for the system and produce electricity at an essentially constant rate and run continuously
BTU
 
British Thermal Unit
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAISO
 
California Independent System Operator
Capital Allocation Program
 
NRG's plan of allocating capital between debt reduction, reinvestment in the business, investment in acquisition opportunities, share repurchases and shareholder dividends
CCS-EOR
 
Carbon Capture and Sequestration with Enhanced Oil Recovery project
Cirro Energy
 
Cirro Energy, Inc.
CO2
 
Carbon dioxide
CPUC
 
California Public Utilities Commission
CSAPR
 
Cross-State Air Pollution Rule
CWA
 
Clean Water Act
Distributed Solar
 
Solar power projects, typically less than 20 MW in size, that primarily sell power produced to customers for usage on site, or are interconnected to sell power into the local distribution grid
DNREC
 
Delaware Department of Natural Resources and Environmental Control
EME
 
Edison Mission Energy
Energy Plus Holdings
 
Energy Plus Holdings LLC
EPA
 
U.S. Environmental Protection Agency
ERCOT
 
Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
ESPP
 
Employee Stock Purchase Plan
Exchange Act
 
The Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
GenOn
 
GenOn Energy, Inc.
GenOn Americas Generation
 
GenOn Americas Generation, LLC
GenOn Americas Generation Senior Notes
 
GenOn Americas Generation's $850 million outstanding unsecured senior notes consisting of $450 million of 8.55% senior notes due 2021 and $400 million of 9.125% senior notes due 2031
GenOn Mid-Atlantic
 
GenOn Mid- Atlantic, LLC and, except where the context indicates otherwise, its subsidiaries, which include the coal generation units at two generating facilities under operating leases
GenOn Senior Notes
 
GenOn's $1.9 billion outstanding unsecured senior notes consisting of $725 million of 7.875% senior notes due 2017, $675 million of 9.5% senior notes due 2018, and $550 million of 9.875% senior notes due 2020
GHG
 
Greenhouse gases
Green Mountain Energy
 
Green Mountain Energy Company
GWh
 
Gigawatt hour
Heat Rate
 
A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWhs generated. Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output measured is gross or net generation and is generally expressed as BTU per net kWh
High Desert
 
TA - High Desert, LLC

4

                                                                                                                                            

ISO
 
Independent System Operator
ITC
 
Investment Tax Credit
Kansas South
 
NRG Solar Kansas South LLC
kWh
 
Kilowatt-hours
LIBOR
 
London Inter-Bank Offered Rate
LTIPs
 
Collectively, the NRG Long-Term Incentive Plan and the NRG GenOn Long-Term Incentive Plan
Marsh Landing
 
NRG Marsh Landing, LLC (formerly known as GenOn Marsh Landing, LLC)
Mass
 
Residential and small business
MATS
 
Mercury and Air Toxics Standards promulgated by the EPA
MDE
 
Maryland Department of the Environment
MISO
 
Midcontinent Independent System Operator, Inc.
MMBtu
 
Million British Thermal Units
MOPR
 
Minimum Offer Price Rule
MW
 
Megawatt
MWh
 
Saleable megawatt hours, net of internal/parasitic load megawatt-hours
MWt
 
Megawatts Thermal Equivalent
NAAQS
 
National Ambient Air Quality Standards
Net Exposure
 
Counterparty credit exposure to NRG, net of collateral
Net Generation
 
The net amount of electricity produced, expressed in kWh or MWhs, that is the total amount of electricity generated (gross) minus the amount of electricity used during generation
NJDEP
 
New Jersey Department of Environmental Protection
NOL
 
Net Operating Loss
NOV
 
Notice of Violation
NOx
 
Nitrogen oxide
NPDES
 
National Pollutant Discharge Elimination System
NPNS
 
Normal Purchase Normal Sale
NRC
 
U.S. Nuclear Regulatory Commission
NRG Yield
 
Reporting segment including the following projects: Alpine, Avenal, Avra Valley, AZ DG Solar, Blythe, Borrego, CVSR, GenConn, Marsh Landing, PFMG DG Solar, Roadrunner, South Trent and Thermal.
NSPS
 
New Source Performance Standards
NSR
 
New Source Review
Nuclear Decommissioning Trust Fund
 
NRG's nuclear decommissioning trust fund assets, which are for the Company's portion of the decommissioning of the STP, units 1 & 2
NYISO
 
New York Independent System Operator
NYSPSC
 
New York State Public Service Commission
OCI
 
Other comprehensive income
PADEP
 
Pennsylvania Department of Environmental Protection
Peaking
 
Units expected to satisfy demand requirements during the periods of greatest or peak load on the system
PG&E
 
Pacific Gas & Electric Company
PJM
 
PJM Interconnection, LLC
PPA
 
Power Purchase Agreement
PUCT
 
Public Utility Commission of Texas
Reliant Energy
 
Reliant Energy Retail Services, LLC
Repowering
 
Technologies utilized to replace, rebuild, or redevelop major portions of an existing electrical generating facility, generally to achieve a substantial emissions reduction, increase facility capacity, and improve system efficiency

5

                                                                                                                                            

Retail Business
 
NRG's retail energy brands, including Cirro Energy, Reliant Energy, Green Mountain Energy, Energy Plus and NRG Residential Solutions
Revolving Credit Facility
 
The Company's $2.5 billion revolving credit facility due 2018, a component of the Senior Credit Facility
RGGI
 
Regional Greenhouse Gas Initiative
RMR
 
Reliability Must Run
RSS
 
Reliability Support Service
RTO
 
Regional Transmission Organization
Senior Credit Facility
 
NRG's senior secured facility, comprised of the Term Loan Facility and the Revolving Credit Facility
Senior Notes
 
The Company’s $6.4 billion outstanding unsecured senior notes, consisting of $1.1 billion of 7.625% senior notes due 2018, $299 million of 8.5% senior notes due 2019, $709 million of 7.625% senior notes due 2019, $1.1 billion of 8.25% senior notes due 2020, $1.1 billion of 7.875% senior notes due 2021, $990 million of 6.625% senior notes due 2023, and $1.1 billion of 6.25% senior notes due 2022
SO2
 
Sulfur dioxide
STP
 
South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest
Term Loan Facility
 
The Company's $2.0 billion term loan facility due 2018, a component of the Senior Credit Facility
U.S.
 
United States of America
U.S. DOE
 
U.S. Department of Energy
U.S. DOJ
 
U.S. Department of Justice
U.S. GAAP
 
Accounting principles generally accepted in the United States
Utility Scale Solar
 
Solar power projects, typically 20 MW or greater in size (on an alternating current basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level
VaR
 
Value at Risk
VIE
 
Variable Interest Entity


6

                                                                                                                                            

PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended March 31,
(In millions, except for per share amounts)
2014
 
2013
Operating Revenues
 
 
 
Total operating revenues
$
3,486

 
$
2,081

Operating Costs and Expenses
 
 
 
Cost of operations
2,733

 
1,753

Depreciation and amortization
335

 
307

Selling, general and administrative
226

 
227

Acquisition-related transaction and integration costs
12

 
42

Development activity expenses
19

 
18

Total operating costs and expenses
3,325

 
2,347

Gain on sale of assets
19

 

Operating Income/(Loss)
180

 
(266
)
Other Income/(Expense)
 
 
 
Equity in earnings of unconsolidated affiliates
7

 
3

Other income, net
11


4

Loss on debt extinguishment
(41
)

(28
)
Interest expense
(255
)

(196
)
Total other expense
(278
)
 
(217
)
Loss Before Income Taxes
(98
)
 
(483
)
Income tax benefit
(31
)
 
(152
)
Net Loss
(67
)
 
(331
)
Less: Net (loss)/income attributable to noncontrolling interest
(11
)
 
1

Net Loss Attributable to NRG Energy, Inc.
(56
)
 
(332
)
Dividends for preferred shares
2

 
2

Loss Available for Common Stockholders
$
(58
)
 
$
(334
)
Loss Per Share Attributable to NRG Energy, Inc. Common Stockholders
 
 
 
Weighted average number of common shares outstanding — basic and diluted
324

 
323

Net loss per weighted average common share — basic and diluted
$
(0.18
)
 
$
(1.03
)
Dividends Per Common Share
$
0.12

 
$
0.09

See accompanying notes to condensed consolidated financial statements.

7

                                                                                                                                            

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
Three months ended March 31,
 
2014
 
2013
 
(In millions)
Net Loss
$
(67
)
 
$
(331
)
Other Comprehensive Income, net of tax
 
 
 
Unrealized (loss)/gain on derivatives, net of income tax (benefit)/expense of $(3) and $9
(9
)
 
7

Foreign currency translation adjustments, net of income tax expense of $2 and $0
6

 

Available-for-sale securities, net of income tax expense of $2 and $1
6

 
2

Defined benefit plans, net of tax expense of $0 and $5
2

 
5

Other comprehensive income
5

 
14

Comprehensive Loss
(62
)
 
(317
)
Less: Comprehensive (loss)/income attributable to noncontrolling interest
(15
)
 
1

Comprehensive Loss Attributable to NRG Energy, Inc.
(47
)
 
(318
)
Dividends for preferred shares
2

 
2

Comprehensive Loss Available for Common Stockholders
$
(49
)
 
$
(320
)
See accompanying notes to condensed consolidated financial statements.

8

                                                                                                                                            

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31, 2014
 
December 31, 2013
(In millions, except shares)
(unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
3,187

 
$
2,254

Funds deposited by counterparties
4

 
63

Restricted cash
209

 
268

Accounts receivable — trade, less allowance for doubtful accounts of $32 and $40
1,149

 
1,214

Inventory
781

 
898

Derivative instruments
1,573

 
1,328

Cash collateral paid in support of energy risk management activities
687

 
276

Deferred income taxes
78

 
258

Renewable energy grant receivable
116

 
539

Prepayments and other current assets
599

 
498

Total current assets
8,383

 
7,596

Property, plant and equipment, net of accumulated depreciation of $6,885 and $6,573
19,644

 
19,851

Other Assets
 
 
 
Equity investments in affiliates
462

 
453

Notes receivable, less current portion
69

 
73

Goodwill
2,038

 
1,985

 Intangible assets, net of accumulated amortization of $1,248 and $1,977
1,300

 
1,140

Nuclear decommissioning trust fund
557

 
551

Derivative instruments
333

 
311

Deferred income taxes
1,416

 
1,202

Other non-current assets
759

 
740

Total other assets
6,934

 
6,455

Total Assets
$
34,961

 
$
33,902

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Current portion of long-term debt and capital leases
$
685

 
$
1,050

Accounts payable
1,082

 
1,038

Derivative instruments
1,504

 
1,055

Cash collateral received in support of energy risk management activities
4

 
63

Accrued expenses and other current liabilities
950

 
998

Total current liabilities
4,225

 
4,204

Other Liabilities
 
 
 
Long-term debt and capital leases
16,803

 
15,767

Nuclear decommissioning reserve
298

 
294

Nuclear decommissioning trust liability
324

 
324

Deferred income taxes
24

 
22

Derivative instruments
257

 
195

Out-of-market contracts
1,157

 
1,177

Other non-current liabilities
1,230

 
1,201

Total non-current liabilities
20,093


18,980

Total Liabilities
24,318

 
23,184

3.625% convertible perpetual preferred stock (at liquidation value, net of issuance costs)
249

 
249

Commitments and Contingencies


 


Stockholders’ Equity
 
 
 
Common stock
4

 
4

Additional paid-in capital
7,842

 
7,840

Retained earnings
3,594

 
3,695

Less treasury stock, at cost — 77,275,933 and 77,347,528 shares, respectively
(1,940
)
 
(1,942
)
Accumulated other comprehensive income
10

 
5

Noncontrolling interest
884

 
867

Total Stockholders’ Equity
10,394

 
10,469

Total Liabilities and Stockholders’ Equity
$
34,961

 
$
33,902

See accompanying notes to condensed consolidated financial statements.

9

                                                                                                                                            

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three months ended March 31,
 
2014
 
2013
 
(In millions)
Cash Flows from Operating Activities
 
 
 
Net loss
$
(67
)
 
(331
)
Adjustments to reconcile net loss to net cash provided/(used) by operating activities:
 
 
 
Distributions and equity in earnings of unconsolidated affiliates
(2
)
 

Depreciation and amortization
335

 
307

Provision for bad debts
21

 
9

Amortization of nuclear fuel
11

 
6

Amortization of financing costs and debt discount/premiums
(5
)
 
(13
)
Loss on debt extinguishment
19

 
2

Amortization of intangibles and out-of-market contracts
13

 
31

Amortization of unearned equity compensation
8

 
18

Changes in deferred income taxes and liability for uncertain tax benefits
(111
)
 
(215
)
Changes in nuclear decommissioning trust liability
5

 
10

Changes in derivative instruments
525

 
317

Changes in collateral deposits supporting energy risk management activities
(407
)
 
(226
)
Gain on sale of assets
(19
)
 

Cash used by changes in other working capital
65

 
(39
)
Net Cash Provided/(Used) by Operating Activities
391

 
(124
)
Cash Flows from Investing Activities
 
 
 
Acquisitions of businesses, net of cash acquired
(218
)
 
(18
)
Capital expenditures
(237
)
 
(813
)
Decrease/(Increase) in restricted cash, net
3

 
(13
)
Decrease in restricted cash to support equity requirements for U.S. DOE funded projects
56

 
12

Decrease/(Increase) in notes receivable
1

 
(9
)
Investments in nuclear decommissioning trust fund securities
(188
)
 
(95
)
Proceeds from sales of nuclear decommissioning trust fund securities
183

 
85

Proceeds from renewable energy grants
387

 
16

Proceeds from sale of assets, net of cash disposed of
77

 

Cash proceeds to fund cash grant bridge loan payment
57

 

Other
3

 
(1
)
Net Cash Provided/(Used) by Investing Activities
124

 
(836
)
Cash Flows from Financing Activities
 
 
 
Payment of dividends to common and preferred stockholders
(41
)
 
(31
)
Payment for treasury stock

 
(20
)
Net (payments for)/receipts from settlement of acquired derivatives that include financing elements
(223
)
 
98

Proceeds from issuance of long-term debt
1,564

 
736

Contributions and sale proceeds from noncontrolling interest in subsidiaries
9

 
20

Proceeds from issuance of common stock
3

 
1

Payment of debt issuance costs
(23
)
 
(5
)
Payments for short and long-term debt
(873
)
 
(219
)
Net Cash Provided by Financing Activities
416

 
580

Effect of exchange rate changes on cash and cash equivalents
2

 

Net Increase/(Decrease) in Cash and Cash Equivalents
933

 
(380
)
Cash and Cash Equivalents at Beginning of Period
2,254

 
2,087

Cash and Cash Equivalents at End of Period
$
3,187

 
$
1,707

See accompanying notes to condensed consolidated financial statements.

10

                                                                                                                                            

NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Basis of Presentation
NRG Energy, Inc., or NRG or the Company, is a competitive power and energy company that aspires to be a leader in the way residential, industrial and commercial consumers think about, use, produce and deliver energy and energy services in major competitive power markets in the United States. NRG engages in the ownership and operation of power generation facilities; the trading of energy, capacity and related products; the transacting in and trading of fuel and transportation services and the direct sale of energy, services, and innovative, sustainable products to retail customers. The Company sells retail electric products and services under the name “NRG” and various brands owned by NRG. Finally, NRG aspires to be a clean energy leader and is focused on the deployment and commercialization of potentially transformative technologies, like electric vehicles, Distributed Solar and smart meter/home automation technology that collectively have the potential to fundamentally change the nature of the power industry, including a substantial change in the role of the national electric transmission grid and distribution system.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the SEC's regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the financial statements in the Company's 2013 Form 10-K. Interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of March 31, 2014, and the results of operations, comprehensive loss and cash flows for the three months ended March 31, 2014, and 2013.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain prior period depreciation amounts have been recast to revise provisional purchase accounting estimates for the GenOn acquisition.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes. The reclassifications did not affect results from operations or cash flows.
Note 2Summary of Significant Accounting Policies
Other Cash Flow Information
NRG’s investing activities exclude capital expenditures of $63 million which were accrued and unpaid at March 31, 2014.
Noncontrolling Interest
The following table reflects the changes in NRG's noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2013
$
867

Contributions from noncontrolling interest
17

Distributions to noncontrolling interest
(8
)
Non-cash adjustments for equity component of NRG Yield, Inc. convertible notes
$
23

Comprehensive loss attributable to noncontrolling interest
(15
)
Balance as of March 31, 2014
$
884


11

                                                                                                                                            


Recent Accounting Developments
The following accounting standard was issued in 2013 and was adopted on January 1, 2014:
ASU 2013-11 - In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, or ASU No. 2013-11.  The amendments of ASU 2013-11 require an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction of a deferred tax asset for a net operating loss, or NOL, a similar tax loss or tax credit carryforwards rather than a liability when the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and the entity intends to use the deferred tax asset for that purpose.  The adoption of this standard did not impact the Company's results of operations or cash flows as the unrecognized tax benefits relate to state issues and the Company either has no NOL's or the NOL's are limited for that particular jurisdiction.

12

                                                                                                                                            

Note 3Business Acquisitions
The Company has completed the following business acquisitions which are material to the Company's financial statements:
Acquisition of Dominion's Electric Retail Business
On March 31, 2014, the Company acquired the retail electric business of Dominion Resources, Inc., or Dominion. The acquisition of Dominion's retail electricity business is expected to add approximately 500,000 customers in Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, Pennsylvania and Texas, after customary transitions, to NRG's retail portfolio by the end of 2014. The acquisition supports NRG's ongoing efforts to expand the Company's retail footprint in the Northeast and to grow its retail position in Texas. The Company paid approximately $195 million as cash consideration for the acquisition, including $165 million of purchase price and $30 million paid for working capital balances, which was funded by cash on hand. The purchase price was provisionally allocated to the following: $50 million to accounts receivable-trade, $145 million to customer relationships, $10 million to current assets, $20 million to derivative assets and $30 million to current and non-current liabilities. The provisional amounts are subject to revision until the evaluations are completed to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date.
EME Acquisition
On April 1, 2014, the Company acquired substantially all of the assets of Edison Mission Energy, or EME.  EME, through its subsidiaries and affiliates, owned, operated, and leased a portfolio of approximately 8,000 MW consisting of wind energy facilities and coal- and gas-fired generating facilities. The Company paid an aggregate purchase price of $3.4 billion, which was comprised of the following:
 
Original Purchase Price
Purchase Price on Acquisition Date
Cash and equivalents (a)
2,285

3,021

Common shares (b)
350

401

Total purchase price
$
2,635

$
3,422

Less: cash acquired
 
1,422

Net purchase price
 
$
2,000

(a) The increase in cash paid relates to an increase in acquired cash on hand as well as changes in cash collateral, restricted cash and cash related to unconsolidated subsidiaries. It also reflects lease and debt payments in 2014.
(b) The increase in the value of the common shares reflects an increase in trading price of NRG common shares between October 18, 2013 and April 1, 2014. The shares of NRG common stock were given a value of $350 million in determining the cash purchase price, which was based upon the volume-weighted average trading price over the 20 trading days prior to October 18, 2013.

The purchase price was funded through the issuance of 12,671,977 shares of NRG common stock on April 1, 2014, the issuance of $700 million in newly-issued corporate debt, as described in Note 7, Debt and Capital Leases, and cash on hand. The Company also assumed non-recourse debt of approximately $1.2 billion
In connection with the transaction, NRG agreed to certain conditions with the parties to the Powerton and Joliet, or POJO, sale-leaseback transaction subject to which an NRG subsidiary assumed the POJO leveraged leases and NRG guaranteed the remaining payments under each lease, which total $485 million through 2034. In connection with this agreement, NRG has committed to fund up to $350 million in capital expenditures for plant modifications at Powerton and Joliet to comply with MATS.
The acquisition was recorded as a business combination under ASC 805, with identifiable assets acquired and liabilities assumed provisionally recorded at their estimated fair values on the acquisition date. The initial accounting for the business combination is not complete because the evaluation necessary to assess the fair values of certain net assets acquired is still in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. The allocation of the purchase price may be modified up to one year from the date of the acquisition as more information is obtained about the fair value of assets acquired and liabilities assumed.




13

                                                                                                                                            


The purchase price of $3.4 billion was provisionally allocated as follows:
 
 
(In millions)
Assets
 
 
Cash
 
$
1,422

Current assets
 
502

Property, plant and equipment
 
2,576

Intangible assets
 
1,062

Non-current assets
 
655

Total assets acquired
 
6,217

 
 
 
Liabilities
 
 
Current and non-current liabilities
 
905

Out-of-market contracts and leases
 
288

Long-term debt
 
1,249

Total liabilities assumed
 
2,442

Less: noncontrolling interest
 
354

Net assets acquired
 
$
3,421

The Company incurred and expensed acquisition-related transaction and integration costs of $3 million in the quarter ended March 31, 2014.
Fair value measurements
The provisional fair values of the property, plant and equipment, intangible assets and out-of-market contracts at the acquisition date were measured primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820. Significant inputs were as follows:
Property, plant and equipment - The estimated fair values were determined primarily based on an income method using discounted cash flows and validated using a market approach based on recent transactions of comparable assets. The income approach was primarily relied upon as the forecasted cash flows more appropriately incorporate differences in regional markets, plant types, age, useful life, equipment condition and environmental controls of each asset. The income approach also allows for a more accurate reflection of current and expected market dynamics such as supply and demand, commodity prices and regulatory environment as of the acquisition date.
Intangible assets - The fair values of the power purchase agreements, or PPAs, acquired were determined utilizing a variation of the income approach where the expected future cash flows resulting from the acquired PPAs were reduced by operating costs and charges for contributory assets and then discounted to present value at the weighted average cost of capital of an integrated utility peer group adjusted for project-specific financing attributes. The values were corroborated with available market data.
Out-of-market lease contracts - The estimated fair values of the acquired leases were determined utilizing a variation of the income approach under which the fair value of the lease was determined by discounting the future lease payments at an appropriate discount rate and comparing it to the fair value of the property, plant and equipment being leased.







14

                                                                                                                                            

Supplemental Pro-forma Information
The following supplemental pro-forma information represents the results of operations as if NRG had acquired EME on January 1, 2013:
 
 
For the quarter ended
 
For the year ended
 
 
March 31, 2014
 
December 31, 2013
 
 
(in millions except per share amounts)
Operating revenues
 
4,044

 
$
12,598

Net loss attributable to NRG Energy, Inc.
 
(49
)
 
(1,040
)
Loss per share attributable to NRG common stockholders:
 

 

Basic
 
$
(0.15
)
 
$
(3.09
)
Diluted
 
$
(0.15
)
 
$
(3.09
)
The supplemental pro-forma information has been adjusted to include the pro-forma impact of depreciation of property, plant and equipment, amortization of lease obligations and out-of-market contracts, based on the preliminary purchase price allocations. The pro-forma data has also been adjusted to eliminate non-recurring transaction costs incurred by NRG, as well as the related tax impact. There were no transactions during the periods between NRG and EME. The pro-forma results are presented for illustrative purposes only and do not reflect the realization of potential cost savings or any related integration costs. The Company expects to achieve certain cost savings from the acquisition; however, there can be no assurance that these cost savings will be achieved.
2013 Acquisitions
Energy Systems Acquisition
On December 31, 2013, NRG Energy Center Omaha Holdings, LLC, an indirect wholly owned subsidiary of NRG Yield LLC, acquired 100% of Energy Systems Company, or Energy Systems, for approximately $120 million. The acquisition was financed from cash on hand. Energy Systems is an operator of steam and chilled thermal facilities that provides heating and cooling services to nonresidential customers in Omaha, Nebraska. The acquisition was recorded as a business combination under ASC 805, with identifiable assets acquired and liabilities assumed provisionally recorded at their estimated fair values on the acquisition date. The purchase price was primarily allocated to property, plant and equipment of $60 million, customer relationships of $59 million, and working capital of $1 million. The initial accounting for the business combination is not complete because the evaluations necessary to assess the fair values of certain net assets acquired and the amount of goodwill to be recognized are still in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date.
Gregory Acquisition
On August 7, 2013, NRG Texas Gregory, LLC, a wholly owned subsidiary of NRG, acquired Gregory Power Partners, L.P. for approximately $245 million in cash, net of $32 million cash acquired. Gregory is a cogeneration plant located in Corpus Christi, Texas, which has generation capacity of 388 MW and steam capacity of 160 MWt. The Gregory cogeneration plant provides steam, processed water and a small percentage of its electrical generation to the Corpus Christi Sherwin Alumina plant. The majority of the plant's generation is available for sale in the ERCOT market. The acquisition was recorded as a business combination under ASC 805, with identifiable assets acquired and liabilities assumed provisionally recorded at their estimated fair values on the acquisition date. The purchase price was provisionally allocated primarily to property, plant, and equipment of $248 million, current assets of $13 million, and other liabilities of $16 million. The initial accounting for the business combination is not complete because the evaluations necessary to assess the fair value of certain net assets acquired are still in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date.


15

                                                                                                                                            

Note 4Fair Value of Financial Instruments
This footnote should be read in conjunction with the complete description under Note 4, Fair Value of Financial Instruments, to the Company's 2013 Form 10-K.
For cash and cash equivalents, funds deposited by counterparties, accounts and other receivables, accounts payable, restricted cash, and cash collateral paid and received in support of energy risk management activities, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy. The estimated carrying amounts and fair values of NRG's recorded financial instruments not carried at fair market value are as follows:
 
As of March 31, 2014
 
As of December 31, 2013
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable (a)
$
97

 
$
97

 
$
99

 
$
99

Liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion
17,478

 
17,631

 
16,804

 
17,222

(a) Includes the current portion of notes receivable which is recorded in prepayments and other current assets on the Company's consolidated balance sheets.
The fair value of the Company's publicly-traded long-term debt is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non publicly-traded long-term debt, and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates, or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy.
Recurring Fair Value Measurements
Debt securities, equity securities, and trust fund investments, which are comprised of various U.S. debt and equity securities, and derivative assets and liabilities, are carried at fair market value.
The following tables present assets and liabilities measured and recorded at fair value on the Company's condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:
 
As of March 31, 2014
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
    non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
18

 
$
18

Available-for-sale securities
8

 

 

 
8

Other (a)
22

 

 
11

 
33

Trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
1

 

 

 
1

U.S. government and federal agency obligations
37

 
3

 

 
40

Federal agency mortgage-backed securities

 
62

 

 
62

Commercial mortgage-backed securities

 
25

 

 
25

Corporate debt securities

 
90

 

 
90

Equity securities
280

 

 
56

 
336

Foreign government fixed income securities

 
3

 

 
3

Other trust fund investments:
 
 
 
 
 
 
 
U.S. government and federal agency obligations
1

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
366

 
1,408

 
120

 
1,894

Interest rate contracts

 
12

 

 
12

Total assets
$
715

 
$
1,603

 
$
205

 
$
2,523

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
$
257

 
$
1,337

 
$
97

 
$
1,691

Interest rate contracts

 
70

 

 
70

Total liabilities
$
257

 
$
1,407

 
$
97

 
$
1,761

(a) Primarily consists of mutual funds held in rabbi trusts for non-qualified deferred compensation plans for certain former employees.

16

                                                                                                                                            

 
As of December 31, 2013
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
16

 
$
16

Available-for-sale securities
2

 

 

 
2

Other (a)
37

 

 
10

 
47

Trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
26

 

 

 
26

U.S. government and federal agency obligations
40

 
5

 

 
45

Federal agency mortgage-backed securities

 
62

 

 
62

Commercial mortgage-backed securities

 
14

 

 
14

Corporate debt securities

 
70

 

 
70

Equity securities
276

 

 
56

 
332

Foreign government fixed income securities

 
2

 

 
2

Other trust fund investments:
 
 
 
 
 
 
 
U.S. government and federal agency obligations
1

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
346

 
1,126

 
147

 
1,619

Interest rate contracts

 
20

 

 
20

Total assets
$
728

 
$
1,299

 
$
229

 
$
2,256

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
$
216

 
$
831

 
$
134

 
$
1,181

Interest rate contracts

 
69

 

 
69

Total liabilities
$
216

 
$
900

 
$
134

 
$
1,250

(a) Primarily consists of mutual funds held in rabbi trusts for non-qualified deferred compensation plans for certain former employees.
There were no transfers during the three months ended March 31, 2014 and 2013 between Levels 1 and 2. The following tables reconcile, for the three months ended March 31, 2014 and 2013, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements, at least annually, using significant unobservable inputs:
 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended March 31, 2014
(In millions)
Debt Securities
 
Other
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance as of December 31, 2013
$
16

 
$
10

 
$
56

 
$
13

 
$
95

Total gains/(losses) — realized/unrealized:
 
 
 
 
 
 
 
 
 
Included in earnings

 
1

 

 
16

 
17

Included in OCI
2

 

 

 

 
2

Purchases

 

 

 
(21
)
 
(21
)
Contracts acquired in Dominion acquisition

 

 

 
3

 
3

Transfers into Level 3 (b)

 

 

 
18

 
18

Transfers out of Level 3 (b)

 

 

 
(6
)
 
(6
)
Ending balance as of March 31, 2014
$
18

 
$
11

 
$
56

 
$
23

 
$
108

Gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of March 31, 2014
$

 
$

 
$

 
$
19

 
$
19

(a)
Consists of derivative assets and liabilities, net.
(b)
Transfers in/out of Level 3 are related to the availability of external broker quotes and are valued as of the end of the reporting period. All transfers in/out are with Level 2.

17

                                                                                                                                            

 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended March 31, 2013
(In millions)
Debt Securities
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance as of January 1, 2013
$
12

 
$
47

 
$
(12
)
 
$
47

Total (losses)/gains — realized/unrealized:
 
 
 
 
 
 
 
Included in earnings

 

 
(27
)
 
(27
)
Included in OCI
1

 

 

 
1

Included in nuclear decommissioning obligations

 
3

 

 
3

Purchases

 

 
(1
)
 
(1
)
Transfers into Level 3 (b)

 

 
15

 
15

Transfers out of Level 3 (b)

 

 
30

 
30

Ending balance as of March 31, 2013
$
13

 
$
50

 
$
5

 
$
68

Losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of March 31, 2013
$

 
$

 
$
(21
)
 
$
(21
)
(a)
Consists of derivative assets and liabilities, net.
(b)
Transfers in/out of Level 3 are related to the availability of external broker quotes and are valued as of the end of the reporting period. All transfers in/out are with Level 2.
Realized and unrealized gains and losses included in earnings that are related to the energy derivatives are recorded in operating revenues and cost of operations.
Derivative Fair Value Measurements
A portion of NRG's contracts are exchange-traded contracts with readily available quoted market prices. A majority of NRG's contracts are non-exchange-traded contracts valued using prices provided by external sources, primarily price quotations available through brokers or over-the-counter and on-line exchanges. The remainder of the assets and liabilities represent contracts for which external sources or observable market quotes are not available for the whole term or for certain delivery months or the contracts are retail and load following power contracts. These contracts are valued using various valuation techniques including but not limited to internal models that apply fundamental analysis of the market and corroboration with similar markets. As of March 31, 2014, contracts valued with prices provided by models and other valuation techniques make up 6% of the total derivative assets and 6% of the total derivative liabilities.
The fair value of each contract is discounted using a risk free interest rate. In addition, the Company applies a credit reserve to reflect credit risk which is calculated based on published default probabilities. As of March 31, 2014, the credit reserve was not a material amount. As of March 31, 2013, the credit reserve resulted in a $5 million increase in fair value which is composed of a $3 million gain in OCI and a $2 million gain in operating revenue and cost of operations.
Concentration of Credit Risk
In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, to the Company's 2013 Form 10-K, the following is a discussion of the concentration of credit risk for the Company's contractual obligations. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. NRG is exposed to counterparty credit risk through various activities including wholesale sales, fuel purchases and retail supply arrangements, and retail customer credit risk through its retail load activities.

18

                                                                                                                                            

Counterparty Credit Risk
The Company's counterparty credit risk policies are disclosed in its 2013 Form 10-K. As of March 31, 2014, counterparty credit exposure, excluding credit risk exposure under certain long term agreements, was $688 million and NRG held collateral (cash and letters of credit) against those positions of $24 million, resulting in a net exposure of $666 million. Approximately 82% of the Company's exposure before collateral is expected to roll off by the end of 2015. Counterparty credit exposure is valued through observable market quotes and discounted at a risk free interest rate. The following tables highlight net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market and NPNS, and non-derivative transactions. The exposure is shown net of collateral held, and includes amounts net of receivables or payables.
 
Net Exposure (a)
Category
(% of Total)
Financial institutions
41.3
%
Utilities, energy merchants, marketers and other
33.1

ISOs
21.4

Coal and emissions
4.2

Total as of March 31, 2014
100
%
 
Net Exposure (a)
Category
(% of Total)
Investment grade
92.0
%
Non-rated (b)
7.0

Non-investment grade
1.0

Total as of March 31, 2014
100
%
(a)
Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices.
(b)
For non-rated counterparties, a significant portion are related to ISO and municipal public power entities, which are considered investment grade equivalent ratings based on NRG's internal credit ratings.
NRG has counterparty credit risk exposure to certain counterparties, each of which, represent more than 10% of total net exposure discussed above. The aggregate of such counterparties' exposure was $218 million. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. Given the credit quality, diversification and term of the exposure in the portfolio, NRG does not anticipate a material impact on the Company's financial position or results of operations from nonperformance by any of NRG's counterparties.
Counterparty credit exposure described above excludes credit risk exposure under certain long term agreements, including California tolling agreements, South Central load obligations, and solar PPAs. As external sources or observable market quotes are not available to estimate such exposure, the Company values these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of March 31, 2014, aggregate credit risk exposure managed by NRG to these counterparties was approximately $2.3 billion, including $627 million related to assets of NRG Yield, Inc., for the next five years. The majority of these power contracts are with utilities or public power entities with strong credit quality and public utility commission or other regulatory support. However, such regulated utility counterparties can be impacted by changes in government regulations, which NRG is unable to predict.
Retail Customer Credit Risk
NRG is exposed to retail credit risk through the Company's retail electricity providers, which serve commercial, industrial and governmental/institutional customers and the Mass market. Retail credit risk results when a customer fails to pay for products or services rendered. The losses may result from both nonpayment of customer accounts receivable and the loss of in-the-money forward value. NRG manages retail credit risk through the use of established credit policies that include monitoring of the portfolio, and the use of credit mitigation measures such as deposits or prepayment arrangements.
As of March 31, 2014, the Company's retail customer credit exposure was diversified across many customers and various industries, as well as government entities.

19

                                                                                                                                            


Note 5Nuclear Decommissioning Trust Fund
NRG's Nuclear Decommissioning Trust Fund assets are comprised of securities classified as available-for-sale and recorded at fair value based on actively quoted market prices. NRG accounts for the Nuclear Decommissioning Trust Fund in accordance with ASC 980, Regulated Operations, because the Company's nuclear decommissioning activities are subject to approval by the PUCT with regulated rates that are designed to recover all decommissioning costs and that can be charged to and collected from the ratepayers per PUCT mandate. Since the Company is in compliance with PUCT rules and regulations regarding decommissioning trusts and the cost of decommissioning is the responsibility of the Texas ratepayers, not NRG, all realized and unrealized gains or losses (including other-than-temporary impairments) related to the Nuclear Decommissioning Trust Fund are recorded to nuclear decommissioning trust liability and are not included in net income or accumulated other comprehensive income, consistent with regulatory treatment.
The following table summarizes the aggregate fair values and unrealized gains and losses (including other-than-temporary impairments) for the securities held in the trust funds, as well as information about the contractual maturities of those securities.
 
As of March 31, 2014
 
As of December 31, 2013
(In millions, except otherwise noted)
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted-average Maturities (In years)
 
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted-average Maturities (In years)
Cash and cash equivalents
$
1

 
$

 
$

 

 
$
26

 
$

 
$

 

U.S. government and federal agency obligations
40

 
1

 

 
10

 
45

 
1

 
1

 
9

Federal agency mortgage-backed securities
62

 
1

 
1

 
24

 
62

 
1

 
1

 
24

Commercial mortgage-backed securities
25

 

 

 
30

 
14

 

 

 
29

Corporate debt securities
90

 
2

 
1

 
9

 
70

 
1

 
1

 
9

Equity securities
336

 
205

 

 

 
332

 
204

 

 

Foreign government fixed income securities
3

 

 

 
12

 
2

 

 

 
9

Total
$
557

 
$
209

 
$
2

 
 
 
$
551

 
$
207

 
$
3

 
 
The following table summarizes proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales. The cost of securities sold is determined on the specific identification method.
 
Three months ended March 31,
 
2014
 
2013
 
(In millions)
Realized gains
$
3

 
$
1

Realized losses
1

 
1

Proceeds from sale of securities
183

 
85


20

                                                                                                                                            

Note 6Accounting for Derivative Instruments and Hedging Activities
This footnote should be read in conjunction with the complete description under Note 5, Accounting for Derivative Instruments and Hedging Activities, to the Company's 2013 Form 10-K.
Energy-Related Commodities
As of March 31, 2014, NRG had energy-related derivative financial instruments extending through 2019. The Company voluntarily de-designated all remaining commodity cash flow hedges as of January 1, 2014, and prospectively marked these derivatives to market through the income statement.
Interest Rate Swaps
NRG is exposed to changes in interest rates through the Company's issuance of variable and fixed rate debt. In order to manage the Company's interest rate risk, NRG enters into interest rate swap agreements. As of March 31, 2014, the Company had interest rate derivative instruments on non-recourse debt extending through 2032, the majority of which are designated as cash flow hedges.
Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by commodity, excluding those derivatives that qualified for the NPNS exception as of March 31, 2014 and December 31, 2013. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date.
 
 
Total Volume
 
 
March 31, 2014
 
December 31, 2013
Commodity
Units
(In millions)
Emissions
Short Ton
2

 

Coal
Short Ton
50

 
51

Natural Gas
MMBtu
(111
)
 
(166
)
Oil
Barrel
1

 
1

Power
MWh
(35
)
 
(27
)
Interest
Dollars
$
1,439

 
$
1,444

The decrease in the natural gas position was the result of additional purchases entered into during the year to hedge our retail portfolio as well as the settlement of positions during the period.  These amounts were slightly offset by natural gas sales entered into during the year to hedge our conventional power generation. 
Fair Value of Derivative Instruments
The following table summarizes the fair value within the derivative instrument valuation on the balance sheets:
 
Fair Value
 
Derivative Assets
 
Derivative Liabilities
 
March 31, 2014
 
December 31, 2013
 
March 31, 2014
 
December 31, 2013
 
(In millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
Interest rate contracts current
$

 
$

 
$
32

 
$
35

Interest rate contracts long-term
8

 
14

 
31

 
29

Commodity contracts current

 

 

 
1

Commodity contracts long-term

 

 

 
1

Total derivatives designated as cash flow hedges
8

 
14

 
63

 
66

Derivatives not designated as cash flow hedges:
 
 
 
 
 
 
 
Interest rate contracts current

 

 
5

 
4

Interest rate contracts long-term
4

 
6

 
2

 
1

Commodity contracts current
1,573

 
1,328

 
1,467

 
1,015

Commodity contracts long-term
321

 
291

 
224

 
164

Total derivatives not designated as cash flow hedges
1,898

 
1,625

 
1,698

 
1,184

Total derivatives
$
1,906

 
$
1,639

 
$
1,761

 
$
1,250


21

                                                                                                                                            

The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. In addition, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. The following table summarizes the offsetting of derivatives by counterparty master agreement level and collateral received or paid:
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
Gross Amounts of Recognized Assets / Liabilities
 
Derivative Instruments
 
Cash Collateral (Held) / Posted
 
Net Amount
As of March 31, 2014
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
$
1,894

 
$
(1,501
)
 
$

 
$
393

Derivative liabilities
 
(1,691
)
 
1,501

 
38

 
(152
)
Total commodity contracts
 
203

 

 
38

 
241

Interest rate contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
12

 
(8
)
 

 
4

Derivative liabilities
 
(70
)
 
8

 

 
(62
)
Total interest rate contracts
 
(58
)
 

 

 
(58
)
Total derivative instruments
 
$
145

 
$

 
$
38

 
$
183

 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
Gross Amounts of Recognized Assets / Liabilities
 
Derivative Instruments
 
Cash Collateral (Held) / Posted
 
Net Amount
As of December 31, 2013
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 

Derivative assets
 
$
1,619

 
$
(1,032
)
 
$
(62
)
 
$
525

Derivative liabilities
 
(1,181
)
 
1,032

 
18

 
(131
)
Total commodity contracts
 
438

 

 
(44
)
 
394

Interest rate contracts:
 
 
 
 
 
 
 

Derivative assets
 
20

 
(12
)
 

 
8

Derivative liabilities
 
(69
)
 
12

 

 
(57
)
Total interest rate contracts
 
(49
)
 

 

 
(49
)
Total derivative instruments
 
$
389

 
$

 
$
(44
)

$
345

Accumulated Other Comprehensive Loss
The following table summarizes the effects of ASC 815 on the Company's accumulated OCI balance attributable to cash flow hedge derivatives, net of tax:
 
Three months ended March 31, 2014
 
Energy Commodities
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$
(1
)
 
$
(22
)
 
$
(23
)
Reclassified from accumulated OCI to income:
 
 
 
 
 
Due to realization of previously deferred amounts

 
(1
)
 
(1
)
Mark-to-market of cash flow hedge accounting contracts

 
(8
)
 
(8
)
Accumulated OCI ending balance, net of $17 tax
$
(1
)
 
$
(31
)
 
$
(32
)
Losses expected to be realized from OCI during the next 12 months, net of $7 tax
$
(1
)
 
$
(13
)
 
$
(14
)

22

                                                                                                                                            

 
Three months ended March 31, 2013
 
Energy Commodities
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$
41

 
$
(72
)
 
$
(31
)
Reclassified from accumulated OCI to income:
 
 
 
 
 
Due to realization of previously deferred amounts
(8
)
 
3

 
(5
)
Mark-to-market of cash flow hedge accounting contracts
9

 
3

 
12

Accumulated OCI ending balance, net of $15 tax
$
42

 
$
(66
)
 
$
(24
)
Gains/(losses) expected to be realized from OCI during the next 12 months, net of $19 tax
$
42

 
$
(10
)
 
$
32

(Losses)/Gains recognized in income from the ineffective portion of cash flow hedges
$
(1
)
 
$
1

 
$

Amounts reclassified from accumulated OCI into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to operating revenue for commodity contracts and interest expense for interest rate contracts. There was no ineffectiveness for the three months ended March 31, 2014.
Impact of Derivative Instruments on the Statements of Operations
Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedges and ineffectiveness of hedge derivatives are reflected in current period earnings.
The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges, ineffectiveness on cash flow hedges and trading activity on the Company's statement of operations. The effect of commodity hedges is included within operating revenues and cost of operations and the effect of interest rate hedges is included in interest expense.
 
Three months ended March 31,
 
2014
 
2013
Unrealized mark-to-market results
(In millions)
Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges
$
3

 
$
(25
)
Reversal of gain positions acquired as part of the Reliant Energy, Green Mountain Energy and GenOn acquisitions
(78
)
 
(88
)
Net unrealized losses on open positions related to economic hedges
(193
)
 
(149
)
Losses on ineffectiveness associated with open positions treated as
    cash flow hedges

 
(1
)
Total unrealized mark-to-market losses for economic hedging activities
(268
)
 
(263
)
Reversal of previously recognized unrealized gains on settled positions related to trading activity

 
(28
)
Reversal of gain positions acquired as part of the GenOn acquisitions
(1
)
 
(2
)
Net unrealized gains/(losses) on open positions related to trading activity
16

 
(13
)
Total unrealized mark-to-market gains/(losses) for trading activity
15

 
(43
)
Total unrealized losses
$
(253
)
 
$
(306
)
 
Three months ended March 31,
 
2014
 
2013
 
(In millions)
Unrealized losses included in operating revenues
$
(316
)
 
$
(521
)
Unrealized gains included in cost of operations
63

 
215

Total impact to statement of operations — energy commodities
$
(253
)
 
$
(306
)
Total impact to statement of operations — interest rate contracts
$
(4
)
 
$
2

The reversal of gain or loss positions acquired as part of the Reliant Energy, Green Mountain Energy and GenOn acquisitions were valued based upon the forward prices on the acquisition dates.

23

                                                                                                                                            

For the three months ended March 31, 2014, the unrealized loss from open economic hedge positions was primarily the result of a decrease in value of forward sales of natural gas and electricity due to an increase in forward natural gas and electricity prices.
For the three months ended March 31, 2013, the unrealized loss from open economic hedge positions was primarily the result of a decrease in value of forward sales of natural gas and electricity due to an increase in forward natural gas and electricity prices.
Credit Risk Related Contingent Features
Certain of the Company's hedging agreements contain provisions that require the Company to post additional collateral if the counterparty determines that there has been deterioration in credit quality, generally termed “adequate assurance” under the agreements, or requires the Company to post additional collateral if there were a one notch downgrade in the Company's credit rating. The collateral required for contracts with adequate assurance clauses that are in a net liability position as of March 31, 2014 was $55 million. The Company is also a party to certain marginable agreements where NRG has a net liability position, but the counterparty has not called for the collateral due, which was approximately $21 million as of March 31, 2014.
See Note 4, Fair Value of Financial Instruments, to this Form 10-Q for discussion regarding concentration of credit risk.

24

                                                                                                                                            

Note 7Debt and Capital Leases
This footnote should be read in conjunction with the complete description under Note 12, Debt and Capital Leases, to the Company's 2013 Form 10-K. Long-term debt and capital leases consisted of the following:
(In millions, except rates)
 
March 31, 2014
 
December 31, 2013
 
Current interest rate % (a)
 
 
 
Recourse debt:
 
 
 
 
 
 
Senior notes, due 2018
 
$
1,130

 
$
1,130

 
7.625
Senior notes, due 2019
 
709

 
800

 
7.625
Senior notes, due 2019
 
296

 
602

 
8.500
Senior notes, due 2020
 
1,063

 
1,062

 
8.250
Senior notes, due 2021
 
1,128

 
1,128

 
7.875
Senior notes, due 2022
 
$
1,100

 

 
6.250
Senior notes, due 2023
 
990

 
990

 
6.625
Term loan facility, due 2018
 
1,997

 
2,002

 
L+3.00/L+2.00
Indian River Power LLC, tax-exempt bonds, due 2040 and 2045
 
247

 
247

 
5.375 - 6.00
Dunkirk Power LLC, tax-exempt bonds, due 2042
 
59

 
59

 
5.875
Fort Bend County, tax-exempt bonds, due 2038, 2042, and 2045
 
67

 
67

 
4.750
Subtotal NRG recourse debt
 
8,786

 
8,087

 
 
Non-recourse debt:
 
 
 
 
 
 
GenOn senior notes, due 2017
 
778

 
782

 
7.875
GenOn senior notes, due 2018
 
774

 
780

 
9.500
GenOn senior notes, due 2020
 
618

 
621

 
9.875
GenOn Americas Generation senior notes, due 2021
 
501

 
503

 
8.500
GenOn Americas Generation senior notes, due 2031
 
434

 
435

 
9.125
Subtotal GenOn debt (non-recourse to NRG)
 
3,105

 
3,121

 
 
NRG Marsh Landing, due 2017 and 2023
 
465

 
473

 
L+2.75 - 3.00
South Trent Wind LLC, due 2020
 
68

 
69

 
L+2.625
NRG Energy Center Minneapolis LLC, due 2017 and 2025
 
125

 
127

 
5.95 - 7.25
NRG Solar Alpine LLC, due 2022
 
158

 
221

 
L+2.50
NRG Solar Borrego I LLC, due 2024 and 2038
 
78

 
78

 
L+2.50/5.65
NRG Solar Avra Valley LLC, due 2031
 
62

 
63

 
L+2.25
NRG Yield Inc. Convertible Senior Notes, due 2019
 
323

 

 
3.5
NRG Yield - other
 
102

 
102

 
various
 Subtotal NRG Yield debt (non-recourse to NRG)
 
1,381

 
1,133

 
 
CVSR High Plains Ranch II LLC, due 2037
 
798

 
1,104

 
2.339 - 3.579
NRG West Holdings LLC, due 2023
 
520

 
512

 
L+2.50 - 2.875
Agua Caliente Solar LLC, due 2037
 
889

 
878

 
2.395 - 3.633
Ivanpah Financing, due 2014, 2015 and 2038
 
1,588

 
1,575

 
1.116 - 4.256
NRG Peaker Finance Co. LLC, bonds due 2019
 
127

 
154

 
L+1.07
TA - High Desert LLC, due 2014, 2023 and 2033
 
79

 
80

 
L+2.50/5.15
NRG Solar Kansas South LLC, due 2014 and 2031
 
58

 
58

 
L+2.00 - 2.625
NRG - other
 
146

 
102

 
various
 Subtotal NRG non-recourse debt
 
4,205

 
4,463

 
 
Subtotal non-recourse debt (including GenOn and NRG Yield)
 
8,691

 
8,717

 
 
Subtotal long-term debt (including current maturities)
 
17,477

 
16,804

 
 
Capital leases:
 
 
 
 
 
 
Chalk Point capital lease, due 2015
 
9

 
10

 
8.190
Other
 
2

 
3

 
various
Subtotal long-term debt and capital leases (including current maturities)
 
17,488

 
16,817

 
 
Less current maturities
 
685

 
1,050

 
 
Total long-term debt and capital leases
 
$
16,803

 
$
15,767

 
 
(a) As of March 31, 2014, L+ equals 3 month LIBOR plus x%, with the exception of the NRG Solar Kansas South LLC cash grant bridge loan which are 1 month LIBOR plus x% and NRG Solar Kansas South LLC term loan which is 6 month LIBOR plus x%.

25

                                                                                                                                            

NRG Recourse Debt
Senior Notes
Issuance of 2024 Senior Notes
On April 21, 2014, NRG issued $1.0 billion in aggregate principal amount at par of 6.25% senior notes due 2024. The notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is payable semi-annually beginning on November 1, 2014, until the maturity date of May 1, 2024. The Company expects to utilize the proceeds to redeem all of the outstanding 8.5% and 7.625% 2019 Senior Notes, as described below.
In connection with the 2024 Senior Notes, NRG entered into a registration payment arrangement. For the first 90-day period immediately following a registration default, additional interest will be paid in an amount equal to 0.25% per annum of the principal amount of 2024 Senior Notes outstanding, as applicable. The amount of interest paid will increase by an additional 0.25% per annum with respect to each subsequent 90-day period until all registration defaults are cured, up to a maximum amount of interest of 1.0% per annum of the principal amount of the 2024 Senior Notes outstanding, as applicable. The additional interest is paid on the next scheduled interest payment date and following the cure of the registration default, the additional interest payment will cease.
Issuance of 2022 Senior Notes
On January 27, 2014, NRG issued $1.1 billion in aggregate principal amount at par of 6.25% senior notes due 2022. The notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is payable semi-annually beginning on July 15, 2014, until the maturity date of July 15, 2022. The proceeds were utilized to redeem the 8.5% and 7.625% 2019 Senior Notes, as described below, and to fund the acquisition of EME, as further described in Note 3, Business Acquisitions and Dispositions.
In connection with the 2022 Senior Notes, NRG entered into a registration payment arrangement. For the first 90-day period immediately following a registration default, additional interest will be paid in an amount equal to 0.25% per annum of the principal amount of 2022 Senior Notes outstanding, as applicable. The amount of interest paid will increase by an additional 0.25% per annum with respect to each subsequent 90-day period until all registration defaults are cured, up to a maximum amount of interest of 1.0% per annum of the principal amount of the 2022 Senior Notes outstanding, as applicable. The additional interest is paid on the next scheduled interest payment date and following the cure of the registration default, the additional interest payment will cease.
Redemptions of 8.5% and 7.625% 2019 Senior Notes
On February 10, 2014, the Company redeemed $308 million of its 8.5% 2019 Senior Notes and $91 million of its 7.625% 2019 Senior Notes through a tender offer, at an average early redemption percentage of 106.992% and 105.500%, respectively. A $33 million loss on debt extinguishment of the 8.5% and 7.625% 2019 Senior Notes was recorded during the three months ended March 31, 2014, primarily consisting of the premiums paid on the redemption and the write-off of previously deferred financing costs.
On April 21, 2014, the Company redeemed $74 million of its 8.5% 2019 Senior Notes and $337 million of its 7.625% 2019 Senior Notes through a tender offer and call, at an average early redemption percentage of 105.250% and 104.200%, respectively. A $22 million loss on debt extinguishment of the 8.5% and 7.625% 2019 Senior Notes will be recorded during the three months ended June 30, 2014, primarily consisting of the premiums paid on the redemption and the write-off of previously deferred financing costs.
On April 21, 2014, NRG gave the required notice to redeem for cash all of its remaining 7.625% 2019 Senior Notes on May 21, 2014.  The Company expects to redeem all of its remaining 8.5% 2019 Notes when such notes become callable. 

Senior Notes Repurchases
On December 17, 2012, NRG entered into an agreement with a financial institution to repurchase up to $200 million of the Senior Notes in the open market by February 27, 2013.  In the first quarter of 2013, the Company paid $80 million, $104 million, and $42 million, at an average price of 114.179%, 111.700%, and 113.082% of face value, for repurchases of the Company's 2018 Senior Notes, 2019 Senior Notes and 2020 Senior Notes, respectively. A $28 million loss on the debt extinguishment of the 2018 Senior Notes, 2019 Senior Notes and 2020 Senior Notes was recorded during the three months ended March 31, 2013 which primarily consisted of the premiums paid on the repurchases and the write-off of previously deferred financing costs.


26

                                                                                                                                            


NRG Non-Recourse Debt
NRG Yield, Inc. Convertible Notes
During the first quarter of 2014, NRG Yield, Inc. closed on its offering of $345 million aggregate principal amount of 3.50% Convertible Senior Notes due 2019, or the NRG Yield Senior Notes. The NRG Yield Senior Notes are convertible, under certain circumstances, into NRG Yield, Inc. Class A common stock, cash or a combination thereof at an initial conversion price of $46.55 per Class A common share, which is equivalent to an initial conversion rate of approximately 21.4822 shares of Class A common stock per $1,000 principal amount of NRG Yield Senior Notes. Interest on the NRG Yield Senior Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2014. The NRG Yield Senior Notes mature on February 1, 2019, unless earlier repurchased or converted in accordance with their terms. Prior to the close of business on the business day immediately preceding August 1, 2018, the NRG Yield Senior Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The notes are accounted for in accordance with ASC 470-20. Under ASC 470-20, issuers of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components. The equity component, the $23 million conversion option value, was recorded to NRG's noncontrolling interest for NRG Yield, Inc. with the offset to debt discount. The debt discount will be amortized to interest expense over the term of the notes.
NRG Yield LLC and NRG Yield Operating LLC Revolving Credit Facility
NRG Yield LLC and NRG Yield Operating LLC, entered into a senior secured revolving credit facility, which provides a revolving line of credit of $60 million. The revolving credit facility can be used for cash or for the issuance of letters of credit. There was no cash drawn or letters of credit issued under the revolving credit facility as of March 31, 2014. On April 25, 2014