Leases

12 Months Ended

Dec. 31, 2021

The Company leases generating facilities, land, office and equipment, railcars, fleet vehicles and storefront space at retail stores. Operating leases with an initial term greater than twelve months are recognized as right-of-use assets and lease liabilities in the consolidated balance sheets. The Company made an accounting policy election, as permitted by ASC 842, for all asset classes not to recognize right-of-use assets and lease liabilities in the consolidated balance sheets for its short-term leases, which are leases that have a lease term of twelve months or less. For the initial measurement of lease liabilities, the discount rate that the Company uses is either the rate implicit in the lease, if known, or its incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, over a similar term an amount equal to the payments for the lease. The Company recognizes lease expense for all operating leases on a straight-line basis over the lease term. In the future, should another systematic basis become more representative of the pattern in which the lessee expects to consume the remaining economic benefit of the right-of-use asset, the Company will use that basis for lease expense.

The Company considers a contract to be or to contain a lease when both of the following conditions apply: 1) an asset is either explicitly or implicitly identified in the contract and 2) the contract conveys to the Company the right to control the use of the identified asset for a period of time. The Company has the right to control the use of the identified asset when the Company

has both the right to obtain substantially all the economic benefits from the use of the identified asset and the right to direct how and for what purpose the identified asset is used throughout the period of use.

Lease payments are typically fixed and payable on a monthly, quarterly, semi-annual or annual basis. Lease payments under certain agreements may escalate over the lease term either by a fixed percentage or a fixed dollar amount. Certain leases may provide for variable lease payments in the form of payments based on usage, a percentage of sales from the location under lease, or index-based (e.g., the U.S. Consumer Price Index) adjustments to lease payments. The Company has no leases which contain residual value guarantees provided by the Company as a lessee.

As described in Note 4, Acquisitions, Discontinued Operations and Dispositions, upon the close of the South Central Portfolio sale in 2019, the Company entered into an agreement to leaseback the Cottonwood facility through May 2025. The lease was accounted for in accordance with ASC 842-40, Sale and Leaseback Transactions, as an operating lease and accordingly, a right-of-use asset and lease liability were established on the lease commencement date and will be amortized through the end of the lease.

Lease Cost:


	For the Year Ended December 31,
(In millions)	2021		2020		2019
Finance lease cost	$	4	$	3	$	—


Operating lease cost	91		100		109
Short-term lease cost	3		3		3
Variable lease cost	9		6		6
Sublease income	(2)		(17)		(17)
Total lease cost	$	105	$	95	$	101

Other information:


	For the Year Ended December 31,
(In millions)	2021		2020		2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	102	$	101	$	104

Financing cash flows from finance leases	6		1		—
Right-of-use assets obtained in exchange for new finance lease liabilities	16		5		—
Right-of-use assets obtained in exchange for new operating lease liabilities	47		4		215

Lease Term and Discount Rate for leases:


	December 31, 2021		December 31, 2020
Finance leases:
Weighted average remaining lease term (in years)	3.6		1.1
Weighted average discount rate	2.46	%	4.79	%

Operating leases:
Weighted average remaining lease term (in years)	4.7		5.3
Weighted average discount rate	5.44	%	5.63	%

As of December 31, 2021, annual payments based on the maturities of NRG's operating leases are expected to be as follows:


	In millions
2022	$	96
2023	89
2024	76
2025	52
2026	11
Thereafter	48
Total undiscounted lease payments	$	372
Less: present value adjustment	(55)
Total discounted lease payments	$	317