10-Q 1 nrg2016093010q2.htm 10-Q Document

                                

 
 
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: September 30, 2016
 
 
 
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.)
 
 
 
804 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 October 31, 2016, there were 315,442,997 shares of common stock outstanding, par value $0.01 per share.
 




TABLE OF CONTENTS
Index



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, 2015, and 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;
Counterparties' collateral demands 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 GHG emissions;
Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately and fairly compensate NRG's generation units;
NRG's ability to mitigate forced outage risk for units subject to capacity performance requirements in PJM, performance incentives in ISO-NE, and scarcity pricing in ERCOT;
NRG's ability to borrow 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 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 2016 Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;
GenOn's ability to continue as a going concern;
Cyber terrorism and inadequate cybersecurity, or the occurrence of a catastrophic loss and the possibility that NRG may not have adequate insurance to cover losses resulting from such hazards or the inability of NRG's insurers to provide agreed upon coverage;
NRG's ability to develop and build new power generation facilities, including new renewable projects;
NRG's ability to develop and innovate new products as retail and wholesale markets continue to change and evolve;
NRG's ability to implement its strategy of finding ways to meet the challenges of climate change, clean air and protecting natural resources while taking advantage of business opportunities;
NRG's ability to sell assets to NRG Yield, Inc. and to close drop-down transactions;
NRG's ability to achieve its strategy of regularly returning capital to stockholders;
NRG's ability to obtain and maintain retail market share;
NRG's ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives;
NRG's ability to engage in successful mergers and acquisitions activity;
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.

3



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.

4



GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2015 Form 10-K
 
NRG’s Annual Report on Form 10-K for the year ended December 31, 2015
2016 Revolving Credit Facility
 
The Company’s $2.5 billion revolving credit facility, a component of the 2016 Senior Credit Facility. The revolving credit facility consists of $289 million of Tranche A Revolving Credit Facility, due 2018, and $2.2 billion of Tranche B Revolving Credit Facility, due 2021.
2016 Senior Credit Facility
 
NRG’s senior secured credit facility, comprised of a $1.9 billion term loan facility and a $2.5 billion revolving credit facility, which replaces the Senior Credit Facility.
2016 Term Loan Facility
 
The Company's $1.9 billion term loan facility due 2023, a component of the 2016 Senior Credit Facility.
AEP
 
American Electric Power Company Inc.
ARO
 
Asset Retirement Obligation
ASC
 
The FASB Accounting Standards Codification, which the FASB established as the source of authoritative GAAP
ASU
 
Accounting Standards Updates, which reflect updates to the ASC
Average realized prices
 
Volume-weighted average power prices, net of average fuel costs and reflecting the impact of settled hedges
BACT
 
Best Available Control Technology
BETM
 
Boston Energy Trading and Marketing LLC
BTU
 
British Thermal Unit
Buffalo Bear
 
Buffalo Bear, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Buffalo Bear project
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAISO
 
California Independent System Operator
CDD
 
Cooling Degree Day
CDFW
 
California Department of Fish and Wildlife
CDWR
 
California Department of Water and Resources
CenterPoint
 
CenterPoint Energy, Inc. and its subsidiaries, on and after August 31, 2002, and Reliant Energy, Incorporated and its subsidiaries prior to August 31, 2002
CERT
 
Combustion Emissions Reduction Technologies, LLC
CFTC
 
U.S. Commodity Futures Trading Commission
COD
 
Commercial Operation Date
ComEd
 
Commonwealth Edison
Company
 
NRG Energy, Inc.
CPP
 
Clean Power Plan
CPS
 
Combined Pollutant Standard
CPUC
 
California Public Utilities Commission
CSAPR
 
Cross-State Air Pollution Rule
CVSR
 
California Valley Solar Ranch
CWA
 
Clean Water Act
D.C. Circuit
 
U.S. Court of Appeals for the District of Columbia Circuit
DGPV Holdco 1
 
NRG DGPV Holdco 1 LLC
DGPV Holdco 2
 
NRG DGPV Holdco 2 LLC
Discrete Customers
 
Customers measured by unit sales of one-time products or services, such as one-time in-home product installation/maintenance, portable solar products and portable battery solutions
Distributed Solar
 
Solar power projects that primarily sell power produced to customers for usage on site, or are interconnected to sell power into the local distribution grid

5



DSI
 
Dry Sorbent Injection with Trona
Economic gross margin
 
Sum of energy revenue, capacity revenue and other revenue, less cost of fuels and other cost of sales
EGU
 
Electric Generating Unit
El Segundo Energy Center
 
NRG West Holdings LLC, the subsidiary of Natural Gas Repowering LLC, which owns the El Segundo Energy Center project
EMAAC
 
Eastern Mid-Atlantic Area Council
EME
 
Edison Mission Energy
Energy Plus Holdings
 
Energy Plus Holdings LLC and Energy Plus Natural Gas LLC
EPA
 
U.S. Environmental Protection Agency
EPC
 
Engineering, Procurement and Construction
ERCOT
 
Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
ESCO
 
Energy Service Company
ESP
 
Electrostatic Precipitator
ESPP
 
NRG Energy, Inc. Amended and Restated Employee Stock Purchase Plan
ESPS
 
Existing Source Performance Standards
Exchange Act
 
The Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
FirstEnergy
 
FirstEnergy Corp.
FPA
 
Federal Power Act
FTRs
 
Financial Transmission Rights
GAAP
 
Accounting principles generally accepted in the U.S.
GenConn
 
GenConn Energy LLC
GenOn
 
GenOn Energy, Inc.
GenOn Americas Generation
 
GenOn Americas Generation, LLC
GenOn Americas Generation Senior Notes
 
GenOn Americas Generation's $695 million outstanding unsecured senior notes consisting of $366 million of 8.5% senior notes due 2021 and $329 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 $1.8 billion outstanding unsecured senior notes consisting of $691 million of 7.875% senior notes due 2017, $650 million of 9.5% senior notes due 2018, and $489 million of 9.875% senior notes due 2020
GHG
 
Greenhouse Gases
GWh
 
Gigawatt Hour
HAPs
 
Hazardous Air Pollutants
HDD
 
Heating Degree Day
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
HLBV
 
Hypothetical Liquidation at Book Value
HLM
 
High Lonesome Mesa, LLC
IASB
 
Independent Accounting Standards Board
IFRS
 
International Financial Reporting Standards
IL CPS
 
Illinois Combined Pollutant Standard
ILU
 
Illinois Union Insurance Company
ISO
 
Independent System Operator

6



ISO-NE
 
ISO New England Inc.
January 2015 Drop Down Assets
 
The Laredo Ridge, Tapestry and Walnut Creek projects, which were sold to NRG Yield, Inc. on January 2, 2015
KPPH
 
1,000 Pounds Per Hour
kWh
 
Kilowatt-hours
Laredo Ridge
 
Laredo Ridge Wind, LLC, the operating subsidiary of Mission Wind Laredo, LLC, which owns the Laredo Ridge project
LIBOR
 
London Inter-Bank Offered Rate
LSE
 
Load Serving Entity
LTIPs
 
Collectively, the NRG Long-Term Incentive Plan and the NRG GenOn Long-Term Incentive Plan
MAAC
 
Mid-Atlantic Area Council
Marsh Landing
 
NRG Marsh Landing, LLC (formerly known as GenOn Marsh Landing, LLC)
Mass Market
 
Residential and small commercial customers
MATS
 
Mercury and Air Toxics Standards promulgated by the EPA
MDE
 
Maryland Department of the Environment
Midwest Generation
 
Midwest Generation, LLC
MISO
 
Midcontinent Independent System Operator, Inc.
MMBtu
 
Million British Thermal Units
MW
 
Megawatts
MWG
 
Midwest Generation, LLC
MWh
 
Saleable megawatt hours, net of internal/parasitic load megawatt-hours
MWt
 
Megawatts Thermal Equivalent
NAAQS
 
National Ambient Air Quality Standards
NEPOOL
 
New England Power Pool
NERC
 
North American Electric Reliability Corporation
Net Exposure
 
Counterparty credit exposure to NRG, net of collateral
Net Generation
 
The net amount of electricity produced, expressed in kWhs or MWhs, that is the total amount of electricity generated (gross) minus the amount of electricity used during generation
NOL
 
Net Operating Loss
NOx
 
Nitrogen Oxides
NPDES
 
National Pollutant Discharge Elimination System
NPNS
 
Normal Purchase Normal Sale
NRC
 
U.S. Nuclear Regulatory Commission
NRG
 
NRG Energy, Inc.
NRG Wind TE Holdco
 
NRG Wind TE Holdco LLC
NRG Yield
 
Reporting segment that includes the projects held by NRG Yield, Inc.
NRG Yield 2019 Convertible Notes
 
$345 million aggregate principal amount of 3.50% Convertible Senior Notes due 2019 issued by NRG Yield, Inc.
NRG Yield 2020 Convertible Notes
 
$287.5 million aggregate principal amount of 3.25% Convertible Notes due 2020 issued by NRG Yield, Inc.
NRG Yield, Inc.
 
NRG Yield, Inc., the owner of 53.3% of the economic interests of NRG Yield LLC with a controlling interest, and issuer of publicly held shares of Class A and Class C common stock
NRG Yield Operating 2024 Senior Notes
 
NRG Yield Operating LLC's $500 million of 5.375% unsecured senior notes due 2024

NRG Yield Operating 2026 Senior Notes
 
NRG Yield Operating LLC's $350 million of 5.00% unsecured senior notes due 2026
NSR
 
New Source Review
NSPS
 
New Source Performance Standards
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

7



NYAG
 
State of New York Office of Attorney General
NYISO
 
New York Independent System Operator
NYSERDA
 
New York State Energy Research and Development Authority
NYSPSC
 
New York State Public Service Commission
OCI
 
Other Comprehensive Income/(Loss)
Peaking
 
Units expected to satisfy demand requirements during the periods of greatest or peak load on the system
PG&E
 
Pacific Gas and Electric Company
Pinnacle
 
Pinnacle Wind, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Pinnacle project
PJM
 
PJM Interconnection, LLC
PM
 
Particulate Matter
PPA
 
Power Purchase Agreement
PSD
 
Prevention of Significant Deterioration
PUCO
 
Public Utility Commission of Ohio
PUCT
 
Public Utility Commission of Texas
RAPA
 
Resource Adequacy Purchase Agreement
RCRA
 
Resource Conservation and Recovery Act of 1976
REMA
 
NRG REMA LLC, which leases a 100% interest in the Shawville generating facility and 16.7% and 16.5% interests in the Keystone and Conemaugh generating facilities, respectively
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
RESA
 
Retail Electric Supply Association
Retail Mass
 
Reporting segment that includes NRG's residential and small commercial businesses which go to market as Reliant, NRG and other brands owned by NRG
Retail Mass Recurring Customers
 
Customers that subscribe to one or more recurring services, such as electricity, natural gas and protection products, the majority of which are retail electricity customers in Texas and the Northeast
Revolving Credit Facility
 
Prior to June 30, 2016, the Company's $2.5 billion revolving credit facility due 2018, a component of the Senior Credit Facility. On June 30, 2016, the Company replaced the Senior Credit Facility, including the Revolving Credit Facility, with the 2016 Senior Credit Facility.
RGGI
 
Regional Greenhouse Gas Initiative
RMR
 
Reliability Must-Run
RPV Holdco
 
NRG RPV Holdco 1 LLC
RTO
 
Regional Transmission Organization
SCE
 
Southern California Edison
SDG&E
 
San Diego Gas & Electric Company
SEC
 
U.S. Securities and Exchange Commission
Securities Act
 
The Securities Act of 1933, as amended
Senior Credit Facility
 
Prior to June 30, 2016, the Company's senior secured facility, comprised of the Term Loan Facility and the Revolving Credit Facility. On June 30, 2016, the Company replaced the Senior Credit Facility with the 2016 Senior Credit Facility.
Senior Notes
 
As of September 30, 2016, the Company’s $5.8 billion outstanding unsecured senior notes, consisting of $584 million of 7.625% senior notes due 2018, $399 million of 7.875% senior notes due 2021, $992 million of 6.25% senior notes due 2022, $869 million of 6.625% senior notes due 2023, $734 million of 6.25% senior notes due 2024, $1.0 billion of 7.25% senior notes due 2026 and $1.25 billion of 6.625% senior notes due 2027.
Seward
 
The Seward Power Generating Station, a 525 MW coal-fired facility in Pennsylvania
Shelby
 
The Shelby County Generating Station, a 352 MW natural gas-fired facility in Illinois

8



SO2
 
Sulfur Dioxide
STP
 
South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest
S&P
 
Standard & Poor's
Taloga
 
Taloga Wind, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Taloga project
TCPA
 
Telephone Consumer Protection Act
Term Loan Facility
 
Prior to June 30, 2016, the Company's $2.0 billion term loan facility due 2018, a component of the Senior Credit Facility. On June 30, 2016, the Company replaced its Senior Credit Facility, including the Term Loan Facility, with the 2016 Senior Credit Facility.
TSA
 
Transportation Services Agreement
TWCC
 
Texas Westmoreland Coal Co.
UPMC
 
University of Pittsburgh Medical Center
U.S.
 
United States of America
U.S. DOE
 
U.S. Department of Energy
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
Walnut Creek
 
NRG Walnut Creek, LLC, the operating subsidiary of WCEP Holdings, LLC, which owns the Walnut Creek project

9



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 September 30,
 
Nine months ended September 30,
(In millions, except for per share amounts)
2016
 
2015
 
2016
 
2015
Operating Revenues
 
 
 
 
 
 
 
Total operating revenues
$
3,952


$
4,434


$
9,819


$
11,663

Operating Costs and Expenses
 
 
 
 
 
 
 
Cost of operations
2,793


3,042


6,738


8,551

Depreciation and amortization
357


382


979


1,173

Impairment losses
8


263

 
123


263

Selling, general and administrative
282


327


802


878

Acquisition-related transaction and integration costs


3


7


16

Development activity expenses
23


38


67


109

Total operating costs and expenses
3,463

 
4,055

 
8,716

 
10,990

Gain on sale of assets and postretirement benefits curtailment, net
266




215


14

Operating Income
755

 
379

 
1,318

 
687

Other Income/(Expense)

 

 

 

Equity in earnings of unconsolidated affiliates
16


24


13


29

Impairment loss on investment
(8
)



(147
)


Other income, net
9


4


35


27

Loss on debt extinguishment, net
(50
)

(2
)

(119
)

(9
)
Interest expense
(280
)

(291
)

(841
)

(855
)
Total other expense
(313
)
 
(265
)
 
(1,059
)
 
(808
)
Income/(Loss) Before Income Taxes
442


114


259


(121
)
Income tax expense/(benefit)
49


47


95


(43
)
Net Income/(Loss)
393


67


164


(78
)
Less: Net (loss)/income attributable to noncontrolling interest and redeemable noncontrolling interests
(9
)

1


(49
)

(10
)
Net Income/(Loss) Attributable to NRG Energy, Inc.
402


66


213


(68
)
Gain on redemption, net of dividends for preferred shares


5


(73
)

15

Income/(Loss) Available for Common Stockholders
$
402

 
$
61

 
$
286

 
$
(83
)
Earnings/(Loss) per Share Attributable to NRG Energy, Inc. Common Stockholders
 
 
 
 
 
 
 
Weighted average number of common shares outstanding — basic
316


331


315


334

Earnings/(Loss) per Weighted Average Common Share — Basic
$
1.27


$
0.18


$
0.91


$
(0.25
)
Weighted average number of common shares outstanding — diluted
317


332


316


334

Earnings/(Loss) per Weighted Average Common Share — Diluted
$
1.27


$
0.18


$
0.91


$
(0.25
)
Dividends Per Common Share
$
0.03


$
0.15


$
0.21


$
0.44

See accompanying notes to condensed consolidated financial statements.

10




NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In millions)
Net Income/(Loss)
$
393


$
67


$
164


$
(78
)
Other Comprehensive Income/(Loss), net of tax

 

 

 

Unrealized gains/(losses) on derivatives, net of income tax (benefit)/expense of $(1), $(12), $1 and $(6)
27


(6
)

(8
)

(2
)
Foreign currency translation adjustments, net of income tax benefit of $0 , $5, $0 and $6
3


(8
)

6


(10
)
Available-for-sale securities, net of income tax expense of $0, $6, $0 and $1


(7
)

1


(11
)
Defined benefit plans, net of tax expense of $0, $2, $0 and $6
31


3


32


9

Other comprehensive income/(loss)
61

 
(18
)
 
31

 
(14
)
Comprehensive Income/(Loss)
454

 
49

 
195

 
(92
)
Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interests
(2
)

(17
)

(70
)

(34
)
Comprehensive Income/(Loss) Attributable to NRG Energy, Inc.
456

 
66

 
265

 
(58
)
Gain on redemption, net of dividends for preferred shares


5


(73
)

15

Comprehensive Income/(Loss) Available for Common Stockholders
$
456

 
$
61

 
$
338

 
$
(73
)
See accompanying notes to condensed consolidated financial statements.

11



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 
September 30, 2016
 
December 31, 2015
(In millions, except shares)
(unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
2,435


$
1,518

Funds deposited by counterparties
16


106

Restricted cash
480


414

Accounts receivable, net
1,362


1,157

Inventory
1,017


1,252

Derivative instruments
964


1,915

Cash collateral paid in support of energy risk management activities
337


568

Renewable energy grant receivable, net
34


13

Current assets held-for-sale


6

Prepayments and other current assets
369


442

Total current assets
7,014


7,391

Property, plant and equipment, net
18,203


18,732

Other Assets
 
 
 
Equity investments in affiliates
900


1,045

Notes receivable, less current portion
21


53

Goodwill
999


999

 Intangible assets, net
2,106


2,310

Nuclear decommissioning trust fund
605


561

Derivative instruments
256


305

Deferred income taxes
189


167

Non-current assets held-for-sale


105

Other non-current assets
1,198


1,214

Total other assets
6,274


6,759

Total Assets
$
31,491


$
32,882

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Current portion of long-term debt and capital leases
$
1,221


$
481

Accounts payable
945


869

Derivative instruments
969


1,721

Cash collateral received in support of energy risk management activities
16


106

Current liabilities held-for-sale


2

Accrued expenses and other current liabilities
1,150


1,196

Total current liabilities
4,301


4,375

Other Liabilities
 

 
Long-term debt and capital leases
18,018


18,983

Nuclear decommissioning reserve
284


326

Nuclear decommissioning trust liability
309


283

Deferred income taxes
47


19

Derivative instruments
475


493

Out-of-market contracts, net
1,065


1,146

Non-current liabilities held-for-sale


4

Other non-current liabilities
1,480


1,488

Total non-current liabilities
21,678


22,742

Total Liabilities
25,979


27,117

2.822% convertible perpetual preferred stock


302

Redeemable noncontrolling interest in subsidiaries
19


29

Commitments and Contingencies





Stockholders’ Equity



Common stock
4


4

Additional paid-in capital
8,370


8,296

Retained deficit
(2,791
)

(3,007
)
Less treasury stock, at cost — 102,140,814 and 102,749,908 shares, respectively
(2,399
)

(2,413
)
Accumulated other comprehensive loss
(142
)

(173
)
Noncontrolling interest
2,451


2,727

Total Stockholders’ Equity
5,493


5,434

Total Liabilities and Stockholders’ Equity
$
31,491


$
32,882


See accompanying notes to condensed consolidated financial statements.

12



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine months ended September 30,
 
2016
 
2015
 
(In millions)
Cash Flows from Operating Activities
 
 
 
Net Income/(Loss)
$
164


$
(78
)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:



Distributions and equity in earnings of unconsolidated affiliates
44


28

Depreciation and amortization
979


1,173

Provision for bad debts
36


49

Amortization of nuclear fuel
39


36

Amortization of financing costs and debt discount/premiums
3


(9
)
Adjustment to loss on debt extinguishment
21


9

Amortization of intangibles and out-of-market contracts
73


68

Amortization of unearned equity compensation
23


37

Impairment losses
270


263

Changes in deferred income taxes and liability for uncertain tax benefits
29


(72
)
Changes in nuclear decommissioning trust liability
24


1

Changes in derivative instruments
82


180

Changes in collateral deposits supporting energy risk management activities
231


(180
)
Proceeds from sale of emission allowances
47


(6
)
Gain on sale of assets and equity method investments, net and postretirement benefits curtailment
(224
)

(14
)
Cash used by changes in other working capital
(108
)

(93
)
Net Cash Provided by Operating Activities
1,733


1,392

Cash Flows from Investing Activities
 

 
Acquisitions of businesses, net of cash acquired
(18
)

(31
)
Capital expenditures
(898
)

(889
)
Increase in restricted cash, net
(30
)

(41
)
(Increase)/decrease in restricted cash to support equity requirements for U.S. DOE funded projects
(36
)

1

Decrease in notes receivable
2


10

Purchases of emission allowances
(32
)

(40
)
Proceeds from sale of emission allowances
47


45

Investments in nuclear decommissioning trust fund securities
(378
)

(500
)
Proceeds from the sale of nuclear decommissioning trust fund securities
354


499

Proceeds from renewable energy grants and state rebates
11


62

Proceeds from sale of assets, net of cash disposed of
636


1

Investments in unconsolidated affiliates
(23
)

(357
)
Other
44


8

Net Cash Used by Investing Activities
(321
)

(1,232
)
Cash Flows from Financing Activities
 

 
Payment of dividends to common and preferred stockholders
(66
)

(152
)
Payment for treasury stock


(353
)
Payment for preferred shares
(226
)


Net receipts from settlement of acquired derivatives that include financing elements
129


138

Proceeds from issuance of long-term debt
5,237


679

Payments for short and long-term debt
(5,357
)

(954
)
Distributions from, net of contributions to, noncontrolling interest in subsidiaries
(127
)

651

Proceeds from issuance of common stock
1


1

Payment of debt issuance costs
(70
)

(14
)
Other - contingent consideration
(10
)

(22
)
Net Cash Used by Financing Activities
(489
)

(26
)
Effect of exchange rate changes on cash and cash equivalents
(6
)

15

Net Increase in Cash and Cash Equivalents
917


149

Cash and Cash Equivalents at Beginning of Period
1,518


2,116

Cash and Cash Equivalents at End of Period
$
2,435


$
2,265

See accompanying notes to condensed consolidated financial statements.

13



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 an integrated competitive power company that aims to create a sustainable energy future by producing, selling and delivering energy and energy products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. NRG has one of the nation's largest and most diverse competitive generation portfolios balanced with a leading retail electricity platform. The Company owns and operates approximately 46,000 MW of generation; engages in the trading of wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG,” "Reliant" and other retail brand names owned by NRG.
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 consolidated financial statements in the Company's 2015 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 September 30, 2016, and the results of operations, comprehensive income/(loss) and cash flows for the three and nine months ended September 30, 2016 and 2015.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes. The reclassifications did not affect results from operations, net assets or cash flows.
The Company decreased accumulated depreciation and facilities and equipment within total property, plant and equipment by approximately $1 billion respectively, to adjust amounts previously presented as of December 31, 2015. This adjustment had no impact on net assets at December 31, 2015. Accordingly, the Company does not consider the adjustment to be material to the consolidated balance sheet. Consolidated operating income and net income for the three months and nine months ended September 30, 2016 were not impacted by the adjustment.


14



Note 2Summary of Significant Accounting Policies
Other Balance Sheet Information
The following table presents the allowance for doubtful accounts included in accounts receivable, net; accumulated depreciation included in property plant and equipment, net; accumulated amortization included in intangible assets, net and accumulated amortization included in out-of-market contracts, net.
 
September 30, 2016
December 31, 2015
 
(In millions)
Accounts receivable allowance for doubtful accounts
$
28

$
26

Property plant and equipment accumulated depreciation
6,424

5,761

Intangible assets accumulated amortization
1,729

1,590

Out-of-market contracts accumulated amortization
740

639

Other Cash Flow Information
NRG’s investing activities exclude capital expenditures of $112 million which were accrued and unpaid at September 30, 2016.
Noncontrolling Interest
The following table reflects the changes in NRG's noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2015
$
2,727

Distributions to noncontrolling interest
(135
)
Dividends paid to NRG Yield, Inc. public shareholders
(68
)
Comprehensive loss attributable to noncontrolling interest
(45
)
Sale of assets to NRG Yield, Inc.
(37
)
Redemption of noncontrolling interest
(7
)
Contributions from noncontrolling interest
16

Balance as of September 30, 2016
$
2,451


Redeemable Noncontrolling Interest
The following table reflects the changes in the Company's redeemable noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2015
$
29

Distributions to redeemable noncontrolling interest
(46
)
Contributions from redeemable noncontrolling interest
61

Comprehensive loss attributable to redeemable noncontrolling interest
(25
)
Balance as of September 30, 2016
$
19

Recent Accounting Developments
ASU 2016-16 — In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory, or ASU No. 2016-16.  The amendments of ASU No. 2016-16 were issued to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory.  Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party which has resulted in diversity in practice and increased complexity within financial reporting.  The amendments of ASU No. 2016-16 would require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and do not require new disclosure requirements.  The amendments of ASU No. 2016-16 are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.  Early adoption is permitted and the adoption of ASU No. 2016-16 should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.  The Company is currently evaluating the impact of the standard on the Company’s results of operations, cash flows and financial position.

15



ASU 2016-15 — In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, or ASU No. 2016-15. The amendments of ASU No. 2016-15 were issued to address eight specific cash flow issues for which stakeholders have indicated to the FASB that a diversity in practice existed in how entities were presenting and classifying these items in the statement of cash flows. The issues addressed by ASU No. 2016-15 include but are not limited to the classification of debt prepayment and debt extinguishment costs, payments made for contingent consideration for a business combination, proceeds from the settlement of insurance proceeds, distributions received from equity method investees and separately identifiable cash flows and the application of the predominance principle. The amendments of ASU No. 2016-15 are effective for public entities for fiscal years beginning after December 15, 2017 and interim periods in those fiscal years. Early adoption is permitted, including adoption in an interim fiscal period with all amendments adopted in the same period. The adoption of ASU No. 2016-15 is required to be applied retrospectively. The Company is currently evaluating the impact of the standard on the Company's statement of cash flows.
ASU 2016-09 — In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), or ASU No. 2016-09. The amendments of ASU No. 2016-09 were issued as part of the FASB's Simplification Initiative focused on improving areas of GAAP for which cost and complexity may be reduced while maintaining or improving the usefulness of information disclosed within the financial statements. The amendments focused on simplification specifically with regard to share-based payment transactions, including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. The guidance in ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company does not expect the standard to have a material impact on its results of operations, cash flows and financial position.
ASU 2016-07 — In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323), or ASU No. 2016-07. The amendments of ASU No. 2016-07 eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting with no retroactive adjustment to the investment. In addition, ASU No. 2016-07 requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The guidance in ASU No. 2016-07 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU No. 2016-07 is required to be applied prospectively and early adoption is permitted. The Company does not expect the standard to have a material impact on its results of operations, cash flows and financial position.

16



ASU 2016-02 — In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU No. 2016-02. The amendments of ASU No. 2016-02 complete the joint effort between the FASB and the International Accounting Standards Board, or IASB, to develop a common leasing standard for GAAP and International Financial Reporting Standards, or IFRS, with the objective to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and to improve financial reporting. The guidance in ASU No. 2016-02 provides that a lessee that may have previously accounted for a lease as an operating lease under current GAAP should recognize the assets and liabilities that arise from a lease on the balance sheet. In addition, ASU No. 2016-02 expands the required quantitative and qualitative disclosures with regards to lease arrangements. The guidance in ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. The adoption of ASU No. 2016-02 is required to be applied using a modified retrospective approach for the earliest period presented and early adoption is permitted. The Company is currently working through an adoption plan which includes the evaluation of lease contracts compared to the new standard and evaluating the impact of ASU No. 2016-02 on the Company's results of operations, cash flows and financial position.
ASU 2016-01 — In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU No. 2016-01. The amendments of ASU No. 2016-01 eliminate available-for-sale classification of equity investments and require that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be generally measured at fair value with changes in fair value recognized in net income.  Further, the amendments require that financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset.  The guidance in ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. The Company is currently evaluating the impact of the standard on the Company's results of operations, cash flows and financial position.
ASU 2015-16 — In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, or ASU No. 2015-16. The amendments of ASU No. 2015-16 require that an acquirer recognize measurement period adjustments to the provisional amounts recognized in a business combination in the reporting period during which the adjustments are determined. Additionally, the amendments of ASU No. 2015-16 require the acquirer to record in the same period's financial statements the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the measurement period adjustment, calculated as if the accounting had been completed at the acquisition date as well as disclosing either on the face of the income statement or in the notes the portion of the amount recorded in current period earnings that would have been recorded in previous reporting periods. The guidance in ASU No. 2015-16 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The amendments should be applied prospectively. The Company adopted ASU No. 2015-16 for the year ended December 31, 2016, and the adoption did not have a material impact on the Company's results of operations, cash flows and financial position.
ASU 2014-09 — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU No. 2014-09. The amendments of ASU No. 2014-09 complete the joint effort between the FASB and the IASB, to develop a common revenue standard for GAAP and IFRS, and to improve financial reporting. In addition to ASU No. 2014-09, the FASB has issued additional guidance which provides further clarification on Topic 606 including ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12. The guidance under Topic 606 provides that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services provided and establishes a four step process to be applied by an entity in evaluating its contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, which formally deferred the effective date by one year to make the guidance of ASU No. 2014-09 effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted, but not prior to the original effective date, which was for annual reporting periods beginning after December 15, 2016. The Company is working through an adoption plan which includes the evaluation of revenue contracts compared to the new standard and evaluating the impact of Topic 606 on the Company's results of operations, cash flows and financial position.


17



Note 3Business Acquisitions and Dispositions
The Company has completed the following business acquisitions and dispositions that are material to the Company's financial statements:
Acquisitions
2015 Acquisition of Desert Sunlight
On June 29, 2015, NRG Yield, Inc., through its subsidiary NRG Yield Operating LLC, acquired 25% of the membership interest in Desert Sunlight Investment Holdings, LLC, which owns two solar photovoltaic facilities that total 550 MW located in Desert Center, California from EFS Desert Sun, LLC, an affiliate of GE Energy Financial Services, for a purchase price of $285 million. The Company accounts for its 25% investment as an equity method investment.
SunEdison Utility-Scale Solar and Wind Acquisition
On September 15, 2016, the Company entered into an agreement with SunEdison to acquire (i) an equity interest in a tax-equity portfolio of 530 MW mechanically-complete solar assets of which NRG’s net interest based on cash to be distributed will be 265 MW, and an additional 937 MW of solar and wind assets in development, (ii) a 154 MW construction-ready solar facility in Texas and (iii) a 182 MW portfolio of construction-ready and development solar assets in Hawaii.  The acquisition of the portfolio of solar assets in Hawaii was completed on October 7, 2016 for upfront cash consideration of $2 million and the acquisition of the 530 MW tax equity portfolio and 937 MW development assets was completed on November 2, 2016 for upfront cash consideration of $111 million. The Company expects to pay total upfront cash consideration for the three acquisitions of $129 million, with an estimated $59 million in additional payments contingent upon future development milestones.
SunEdison Solar Distributed Generation Acquisition
On October 3, 2016, the Company acquired a 29 MW portfolio of mechanically-complete and construction-ready distributed generation solar assets from SunEdison for cash consideration of approximately $68 million, subject to post closing adjustments.  The Company expects to sell these assets into a tax-equity financed portfolio within the DGPV Holdco partnership between NRG and NRG Yield, Inc.
Dispositions
Potrero Disposition
On September 26, 2016, NRG Potrero LLC, or Potrero, an indirect wholly owned subsidiary of GenOn Americas Generation, completed the sale of real property at the Potrero generating station located in San Francisco, CA to California Barrel Company, LLC for total consideration of $86 million, consisting of $74 million of cash received, which is net of $8 million of closing costs and $4 million to be held in escrow in order to cover post closing obligations. This transaction resulted in a gain on sale of $74 million.
Disposition of Majority Interest in EVgo
On June 17, 2016, the Company completed the sale of a majority interest in its EVgo business to Vision Ridge Partners for total consideration of approximately $39 million, including $17 million in cash received, which is net of $2.5 million in working capital adjustments, $15 million contributed as capital to the EVgo business and $7 million of future contributions by Vision Ridge Partners, all of which were determined based on forecasted cash requirements to operate the business in future periods. In addition, the Company has future earnout potential of up to $70 million based on future profitability targets. NRG retained its original financial obligation of $102.5 million under its agreement with the CPUC whereby EVgo will build at least 200 public fast charging Freedom Station sites and perform the associated work to prepare 10,000 commercial and multi-family parking spaces for electric vehicle charging in California. NRG has contracted with EVgo to continue to build the remaining required Freedom Stations and commercial and multi-family parking spaces for electric vehicle charging required under this obligation and EVgo will be directly reimbursed by NRG for the costs. As a result of the sale, the Company recorded a loss on sale of $78 million during the second quarter of 2016, which reflects the loss on the sale of the equity interest of $27 million and the accrual of NRG's remaining obligation under its agreement with the CPUC of $56 million, of which $50 million remains as of September 30, 2016. At September 30, 2016, the Company's remaining 35% interest in EVgo of $10 million was accounted for as an equity-method investment.

18



Rockford Disposition
On May 12, 2016, the Company entered into an agreement with RA Generation, LLC to sell 100% of its interests in the Rockford I and Rockford II generating stations, or Rockford, for cash consideration of $55 million, subject to adjustments for working capital and the results of the PJM 2019/2020 base residual auction. Rockford is a 450 MW natural gas facility located in Rockford, Illinois. The transaction triggered an indicator of impairment as the sales price was less than the carrying amount of the assets and as a result, the assets were considered to be impaired. The Company measured the impairment loss as the difference between the carrying amount of the assets and the agreed-upon sales price. The Company recorded an impairment loss of $17 million during the quarter ended June 30, 2016 to reduce the carrying amount of the assets held for sale to the fair market value. On July 12, 2016, the Company completed the sale of Rockford for cash proceeds of $56 million, including $1 million in adjustments for the PJM base residual auction results. For further discussion on this impairment, refer to Note 7, Impairments.
Aurora Disposition
On May 12, 2016, GenOn entered into an agreement with RA Generation, LLC to sell the Aurora Generating Station, or Aurora, for cash consideration of $365 million, subject to adjustments for working capital and the results of the PJM 2019/2020 base residual auction. Aurora is a 878 MW natural gas facility located in Aurora, Illinois. On July 12, 2016, GenOn completed the sale of Aurora for cash proceeds of $369 million, including $4 million in adjustments for the PJM base residual auction results and estimated working capital, which is subject to further adjustment. The Company recorded a gain of approximately $188 million recognized within the Company's consolidated results of operations during the quarter ended September 30, 2016.
Seward Disposition
On November 24, 2015, GenOn entered into an agreement with Seward Generation, LLC and an affiliate of Robindale Energy Services, Inc. to sell the Seward Generating Station, a 525 MW coal-fired facility in Pennsylvania, for cash consideration of $75 million. At December 31, 2015, GenOn had classified on its balance sheet the assets and liabilities of Seward as held for sale. On February 2, 2016, GenOn completed the sale of Seward and received gross cash proceeds of $75 million, excluding $3 million cash on hand transferred to the buyer. GenOn will also receive $5 million in deferred cash consideration in five $1 million annual installments and up to $2.5 million in payments contingent upon certain environmental requirements being imposed by August 2017. In addition, Robindale committed to future inventory purchases from GenOn of $13 million through 2019.
Shelby Disposition
On November 9, 2015, GenOn entered into an agreement with an affiliate of Rockland Power Partners II, LP to sell the Shelby Generating Station, a 352 MW natural gas-fired facility located in Illinois for cash consideration of $46 million. At December 31, 2015, GenOn had classified on its balance sheet the assets and liabilities of Shelby as held for sale. On March 1, 2016, GenOn completed the sale of Shelby for cash proceeds of $46 million, which resulted in a gain of $29 million recognized during the first quarter of 2016. In addition, GenOn retained $10 million related to future revenue rights retained as part of the agreement of which $7 million had been received as of September 30, 2016.
Transfer of Assets under Common Control
On September 1, 2016, the Company completed the sale of its remaining 51.05% interest in the CVSR project to NRG Yield, Inc. for total cash consideration of $78.5 million, plus an immaterial working capital adjustment. In addition, NRG Yield, Inc. assumed non-recourse project level debt of $496 million.
On November 3, 2015, the Company sold 75% of the Class B interests of NRG Wind TE Holdco, which owns a portfolio of 12 wind facilities totaling 814 net MW, to NRG Yield, Inc. NRG Yield, Inc. paid total cash consideration of $209 million, subject to working capital adjustments. NRG Yield, Inc. is responsible for its pro-rata share of non-recourse project debt of $193 million and noncontrolling interest associated with a tax equity structure of $159 million (as of the acquisition date). In February 2016, the Company made a final working capital payment of $2 million to NRG Yield, Inc. reducing total cash consideration to $207 million.



19




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 2015 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 September 30, 2016
 
As of December 31, 2015
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable (a)
$
50

 
$
50

 
$
73

 
$
73

Liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion (b)
19,411

 
18,888

 
19,620

 
18,263

(a) Includes the current portion of notes receivable which is recorded in prepayments and other current assets on the Company's consolidated balance sheets.
(b) Excludes deferred financing costs, which are recorded as a reduction to long-term debt 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. The following table presents the level within the fair value hierarchy for long-term debt, including current portion as of September 30, 2016 and December 31, 2015:
 
As of September 30, 2016
 
As of December 31, 2015
 
Level 2
 
Level 3
 
Level 2
 
Level 3
 
(In millions)
Long-term debt, including current portion
$
11,767

 
$
7,121

 
$
11,028

 
$
7,235



20



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 September 30, 2016
 
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
$

 
$

 
$
17

 
$
17

Available-for-sale securities
10

 

 

 
10

Other (a)
10

 

 

 
10

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
24

 

 

 
24

U.S. government and federal agency obligations
51

 
1

 

 
52

Federal agency mortgage-backed securities

 
68

 

 
68

Commercial mortgage-backed securities

 
17

 

 
17

Corporate debt securities

 
87

 

 
87

Equity securities
301

 

 
54

 
355

Foreign government fixed income securities

 
2

 

 
2

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
308

 
798

 
107

 
1,213

Interest rate contracts

 
7

 

 
7

Total assets
$
705

 
$
980

 
$
178

 
$
1,863

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
375

 
773

 
133

 
1,281

Interest rate contracts

 
163

 

 
163

Total liabilities
$
375

 
$
936

 
$
133

 
$
1,444

(a) Consists primarily of mutual funds held in a Rabbi Trust for non-qualified deferred compensation plans for certain former employees.

21



 
As of December 31, 2015
 
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
$

 
$

 
$
17

 
$
17

Available-for-sale securities
9

 

 

 
9

Other (a)
14

 

 

 
14

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
6

 

 

 
6

U.S. government and federal agency obligations
54

 
1

 

 
55

Federal agency mortgage-backed securities

 
59

 

 
59

Commercial mortgage-backed securities

 
25

 

 
25

Corporate debt securities

 
81

 

 
81

Equity securities
280

 

 
54

 
334

Foreign government fixed income securities

 
1

 

 
1

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
622

 
1,449

 
149

 
2,220

Total assets
$
986

 
$
1,616

 
$
220

 
$
2,822

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
868

 
1,036

 
182

 
2,086

Interest rate contracts

 
128

 

 
128

Total liabilities
$
868

 
$
1,164

 
$
182

 
$
2,214

(a) Primarily consists of mutual funds held in rabbi trusts for non-qualified deferred compensation plans for certain former employees and a total return swap that does not meet the definition of a derivative.
There were no transfers during the three and nine months ended September 30, 2016, and 2015 between Levels 1 and 2. The following tables reconcile, for the three and nine months ended September 30, 2016, and 2015, the beginning and ending balances for financial instruments that are recognized at fair value in the condensed consolidated financial statements, at least annually, using significant unobservable inputs:
 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended September 30, 2016
 
Nine months ended September 30, 2016
(In millions)
Debt Securities
 
Trust Fund Investments
 
Derivatives(a)
 
Total
 
Debt Securities
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance
$
16

 
$
51

 
$
7

 
$
74

 
$
17

 
$
54

 
$
(33
)
 
$
38

Total gains/(losses) — realized/unrealized:
 
 
 
 
 
 


 
 
 
 
 
 
 


Included in earnings

 

 
2

 
2

 

 

 
9

 
9

Included in OCI
1

 

 

 
1

 

 

 

 

Included in nuclear decommissioning obligation

 
3

 

 
3

 

 
(1
)
 

 
(1
)
Purchases

 

 
(26
)
 
(26
)
 

 
1

 
3

 
4

Transfers into Level 3 (b)

 

 
(12
)
 
(12
)
 

 

 
(5
)
 
(5
)
Transfers out of Level 3 (b)

 

 
3

 
3

 

 

 

 

Ending balance as of September 30, 2016
$
17

 
$
54

 
$
(26
)
 
$
45

 
$
17

 
$
54

 
$
(26
)
 
$
45

Gains/(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 September 30, 2016
$

 
$

 
$
1

 
$
1

 
$

 
$

 
$
(14
)
 
$
(14
)
(a)
Consists of derivative assets and liabilities, net.
(b)
Transfers into/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.

22



 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended September 30, 2015
 
Nine months ended September 30, 2015
(In millions)
Debt Securities
 
Other
 
Trust Fund Investments
 
Derivatives(a)
 
Total
 
Debt Securities
 
Other
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance
$
18

 
$

 
$
55

 
$
49

 
$
122

 
$
18

 
$
11

 
$
52

 
$
80

 
$
161

Total losses — realized/unrealized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in earnings

 

 

 
(17
)
 
(17
)
 

 
(11
)
 

 
(95
)
 
(106
)
Included in nuclear decommissioning obligations

 

 
(6
)
 

 
(6
)
 

 

 
(4
)
 

 
(4
)
Purchases

 

 

 
9

 
9

 

 

 
1

 
44

 
45

Transfers into Level 3 (b)

 

 

 
(10
)
 
(10
)
 

 

 

 
1

 
1

Transfers out of Level 3 (b)

 

 

 
2

 
2

 

 

 

 
3

 
3

Ending balance as of September 30, 2015
$
18

 
$

 
$
49

 
$
33

 
$
100

 
$
18

 
$

 
$
49

 
$
33

 
$
100

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 September 30, 2015
$

 
$

 
$

 
$
(9
)
 
$
(9
)
 
$

 
$

 
$

 
$
(37
)
 
$
(37
)
(a)
Consists of derivative assets and liabilities, net.
(b)
Transfers into/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.

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 September 30, 2016, contracts valued with prices provided by models and other valuation techniques make up 9% of the total derivative assets and 9% of the total derivative liabilities.
NRG's significant positions classified as Level 3 include physical and financial power and physical coal executed in illiquid markets as well as financial transmission rights, or FTRs. The significant unobservable inputs used in developing fair value include illiquid power and coal location pricing which is derived as a basis to liquid locations. The basis spread is based on observable market data when available or derived from historic prices and forward market prices from similar observable markets when not available. For FTRs, NRG uses the most recent auction prices to derive the fair value.











23



The following tables quantify the significant unobservable inputs used in developing the fair value of the Company's Level 3 positions as of September 30, 2016 and December 31, 2015:
 
Significant Unobservable Inputs
 
September 30, 2016
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
Power Contracts
$
53

 
$
78

 
Discounted Cash Flow
 
Forward Market Price (per MWh)
 
$
11

 
$
81

 
$
27

Coal Contracts

 
5

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
44

 
44

 
44

FTRs
54

 
50

 
Discounted Cash Flow
 
Auction Prices (per MWh)
 
(63
)
 
55

 

 
$
107

 
$
133

 
 
 
 
 
 
 
 
 
 
 
Significant Unobservable Inputs
 
December 31, 2015
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
Power Contracts
$
86

 
$
100

 
Discounted Cash Flow
 
Forward Market Price (per MWh)
 
$
10

 
$
92

 
$
27

Coal Contracts

 
12

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
28

 
45

 
35

FTRs
63

 
70

 
Discounted Cash Flow
 
Auction Prices (per MWh)
 
(98
)
 
87

 

 
$
149

 
$
182

 
 
 
 
 
 
 
 
 
 
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of September 30, 2016 and December 31, 2015:
Significant Unobservable Input
 
Position
 
Change In Input
 
Impact on Fair Value Measurement
Forward Market Price Power/Coal
 
Buy
 
Increase/(Decrease)
 
Higher/(Lower)
Forward Market Price Power/Coal
 
Sell
 
Increase/(Decrease)
 
Lower/(Higher)
FTR Prices
 
Buy
 
Increase/(Decrease)
 
Higher/(Lower)
FTR Prices
 
Sell
 
Increase/(Decrease)
 
Lower/(Higher)
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 September 30, 2016, the credit reserve resulted in a $2 million decrease in fair value, which is composed of a $3 million gain in OCI and a $5 million loss in operating revenue and cost of operations. As of September 30, 2015, the credit reserve resulted in a $7 million increase in fair value, which was composed of a $4 million gain in OCI and a $3 million gain in operating revenues 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 2015 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.

24



Counterparty Credit Risk
The Company's counterparty credit risk policies are disclosed in its 2015 Form 10-K. As of September 30, 2016, the Company's counterparty credit exposure, excluding credit risk exposure under certain long term agreements, was $635 million with net exposure of $607 million. NRG held collateral (cash and letters of credit) against those positions of $45 million. Approximately 79% of the Company's exposure before collateral is expected to roll off by the end of 2017. 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 by Industry Sector
(% of Total)
Financial institutions
33
%
Utilities, energy merchants, marketers and other
42

ISOs
25

Total as of September 30, 2016
100
%
 
Net Exposure (a)
Category by Counterparty Credit Quality
(% of Total)
Investment grade
90
%
Non-rated (b)
3

Non-investment grade
7

Total as of September 30, 2016
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 $295 million as of September 30, 2016. 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, Gulf Coast load obligations, wind and solar PPAs, and a coal supply agreement. As external sources or observable market quotes are not available to estimate such exposure, the Company estimates its credit exposure for 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 September 30, 2016, aggregate credit risk exposure managed by NRG to these counterparties was approximately $4.1 billion, including $2.6 billion related to assets of NRG Yield, Inc., for the next five years. This amount excludes potential credit exposures for projects with long-term PPAs that have not reached commercial operations. 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 and other technology and market factors, which NRG is unable to predict. In the case of the coal supply agreement, NRG holds a lien against the underlying asset, which significantly reduces the risk of loss.
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 September 30, 2016, the Company believes its retail customer credit exposure was diversified across many customers and various industries, as well as government entities.


25



Note 5Nuclear Decommissioning Trust Fund
This footnote should be read in conjunction with the complete description under Note 6, Nuclear Decommissioning Trust Fund, to the Company's 2015 Form 10-K.
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 OCI, 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 September 30, 2016
 
As of December 31, 2015
(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
$
24

 
$

 
$

 

 
$
6

 
$

 
$

 

U.S. government and federal agency obligations
52

 
4

 

 
11

 
55

 
1

 

 
11

Federal agency mortgage-backed securities
68

 
2

 

 
25

 
59

 
1

 

 
25

Commercial mortgage-backed securities
17

 

 
1

 
26

 
25

 

 
2

 
28

Corporate debt securities
87

 
3

 
1

 
11

 
81

 
1

 
1

 
10

Equity securities
355

 
213

 

 

 
334

 
199

 

 

Foreign government fixed income securities
2

 

 

 
9

 
1

 

 

 
9

Total
$
605

 
$
222

 
$
2

 
 
 
$
561

 
$
202

 
$
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.
 
Nine months ended September 30,
 
2016
 
2015
 
(In millions)
Realized gains
$
7

 
$
14

Realized losses
3

 
10

Proceeds from sale of securities
354


499


26



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 2015 Form 10-K.
Energy-Related Commodities
As of September 30, 2016, NRG had energy-related derivative instruments extending through 2027. The Company marks these derivatives to market through the statement of operations.
Interest Rate Swaps
NRG is exposed to changes in interest rates through the Company's issuance of variable rate debt. In order to manage the Company's interest rate risk, NRG enters into interest rate swap agreements. As of September 30, 2016, the Company had interest rate derivative instruments on recourse debt extending through 2021, which are not designated as cash flow hedges. The Company had interest rate swaps on non-recourse debt extending through 2032, most 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 category, excluding those derivatives that qualified for the NPNS exception, as of September 30, 2016 and December 31, 2015. 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
 
 
September 30, 2016
 
December 31, 2015
Category
Units
(In millions)
Emissions
Short Ton
1

 
1

Coal
Short Ton
29

 
35

Natural Gas
MMBtu
73

 
293

Oil
Barrel

 
1

Power
MWh
(35
)
 
(74
)
Capacity
MW/Day
(1
)
 
(1
)
Interest
Dollars
$
3,219

 
$
2,326

Equity
Shares
1

 
1

The decrease in the natural gas position was primarily the result of settlement of generation and retail hedge positions. The increase in the interest rate position was primarily the result of entering into new interest rate swaps to hedge the Term Loan Facility, as described in Note 8, Debt and Capital Leases.
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
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
 
(In millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 

 
Interest rate contracts current
$

 
$

 
$
31


$
42

Interest rate contracts long-term
1

 

 
99


68

Total derivatives designated as cash flow hedges
1

 

 
130


110

Derivatives not designated as cash flow hedges:

 
 
 
 

 
Interest rate contracts current

 

 
8


5

Interest rate contracts long-term
6

 

 
25


13

Commodity contracts current
964

 
1,915

 
930


1,674

Commodity contracts long-term
249

 
305

 
351


412

Total derivatives not designated as cash flow hedges
1,219

 
2,220

 
1,314


2,104

Total derivatives
$
1,220


$
2,220

 
$
1,444


$
2,214



27




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 September 30, 2016
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
$
1,213

 
$
(1,027
)
 
$
(23
)
 
$
163

Derivative liabilities