10-Q 1 yieldco2014093010q.htm 10-Q YieldCo 2014 09.30 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: September 30, 2014
 
 
 
o
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-36002
NRG Yield, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
 
46-1777204
(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 o
 
Accelerated filer o
 
Non-accelerated filer x
 
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, 2014, there were 34,586,250 shares of Class A common stock outstanding, par value $0.01 per share, and 42,738,750 shares of Class B common stock outstanding, par value $0.01 per share.
 

1
                                
                                                                                                

TABLE OF CONTENTS
Index

2
                                
                                                                                                

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of NRG Yield, Inc., or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the 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 the Company'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 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:
•
The Company's ability to maintain and grow its quarterly dividend;
•
The Company's ability to successfully identify, evaluate and consummate acquisitions;
•
The Company's ability to raise additional capital due to its indebtedness, corporate structure, market conditions or otherwise;
•
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 the Company may not have adequate insurance to cover losses as a result of such hazards;
•
The Company's ability to operate its businesses efficiently, manage maintenance capital expenditures and costs effectively, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
•
The willingness and ability of the counterparties to the Company's offtake agreements to fulfill their obligations under such agreements;
•
The Company's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices as current offtake agreements expire;
•
Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws;
•
Operating and financial restrictions placed on the Company and its subsidiaries that are contained in the project-level debt facilities and other agreements of certain subsidiaries, the NRG Yield Operating LLC revolving credit facility and Senior Notes or the Company's convertible notes; and
•
The Company's ability to borrow additional funds and access capital markets, as well as the Company's substantial indebtedness and the possibility that the Company may incur additional indebtedness going forward.

Forward-looking statements speak only as of the date they were made, and the Company 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 the Company'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 Yield, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013
Alta Sellers
 
Terra-Gen Finance Company, LLC and certain of its affiliates
Acquired ROFO Assets
 
The TA-High Desert, RE Kansas South and El Segundo projects, which were acquired from NRG on June 30, 2014
ASC
 
The FASB Accounting Standards Codification, which the FASB established as the source of
authoritative U.S. GAAP
ASU
 
Accounting Standards Updates - updates to the ASC
CO2
 
Carbon dioxide
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
El Segundo
 
NRG West Holdings LLC, the subsidiary of Natural Gas Repowering LLC, which owns the El Segundo Energy Center project
EME-NYLD-Eligible Assets
 
Certain assets of Edison Mission Energy that fit within the Company's asset portfolio
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
EWG
 
Exempt Wholesale Generator
Exchange Act
 
The Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
GHG
 
Greenhouse gases
ISO
 
Independent System Operator
ISO-NE
 
ISO New England Inc.
LIBOR
 
London Inter-Bank Offered Rate
Marsh Landing
 
NRG Marsh Landing LLC, formerly GenOn Marsh Landing LLC
MMBtu
 
Million British Thermal Units
MW
 
Megawatt
MWh
 
Saleable megawatt hours, net of internal/parasitic load megawatt-hours
MWt
 
Megawatts Thermal Equivalent
NERC
 
North American Electric Reliability Corporation
Net Exposure
 
Counterparty credit exposure to NRG Yield, Inc. net of collateral
NOL
 
Net operating loss
NRG
 
NRG Energy, Inc.
NRG Yield

 
Accounting predecessor, representing the combination of the projects that were acquired by NRG Yield LLC in July 2013
NRG Yield, Inc.
 
NRG Yield, Inc., or the Company
NRG Yield LLC

 
The holding company, owned by NRG, the holder of Class B common units, and NRG Yield, Inc., the holder of the Class A common units
NRG Yield Operating LLC
 
The holding company that owns the project companies and is a wholly owned subsidiary of NRG Yield LLC
NSPS
 
New Source Performance Standards
OCI/OCL
 
Other comprehensive income/loss
PPA
 
Power Purchase Agreement
PUCT
 
Public Utility Commission of Texas
PURPA
 
Public Utility Regulatory Policies Act of 1978
QF
 
Qualifying Facility under PURPA
RE Kansas South
 
NRG Solar Kansas South LLC, the operating subsidiary of NRG Solar Kansas South Holdings LLC, which owns the RE Kansas South project
Senior Notes
 
NRG Yield Operating LLC's $500 million of 5.375% unsecured senior notes due 2024

4
                                
                                                                                                

TA High Desert
 
TA-High Desert LLC, the operating subsidiary of NRG Solar Mayfair LLC, which owns the TA High Desert project
Terra-Gen
 
Terra-Gen Operating Company, LLC
U.S.
 
United States of America
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, or AC, 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


5
                                
                                                                                                

PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
NRG YIELD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions, except per share amounts)
2014
 
2013 (a)
 
2014
 
2013 (a)
Operating Revenues
 
 
 
 
 
 
 
Total operating revenues
$
161

 
$
126

 
$
435

 
$
261

Operating Costs and Expenses
 
 
 
 
 
 
 
Cost of operations
52

 
44

 
157

 
105

Depreciation and amortization
34

 
18

 
94

 
38

General and administrative — affiliate
3

 
1

 
7

 
5

Acquisition-related transaction and integration costs
2

 
—

 
2

 
—

Total operating costs and expenses
91

 
63

 
260

 
148

Operating Income
70

 
63

 
175

 
113

Other Income (Expense)
 
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
11

 
12

 
26

 
18

Other income, net
1

 
—

 
2

 
1

Interest expense
(41
)
 
(21
)
 
(97
)
 
(32
)
Total other expense
(29
)
 
(9
)
 
(69
)
 
(13
)
Income Before Income Taxes
41

 
54

 
106

 
100

Income tax expense
10

 
5

 
15

 
5

Net Income
31

 
49

 
91

 
95

Less: Pre-acquisition net income of Acquired ROFO Assets
—

 
9

 
17

 
10

Less: Predecessor income prior to initial public offering on July 22, 2013
—

 
9

 
—

 
54

Net Income Subsequent to Initial Public Offering and Excluding Pre-acquisition Net Income of Acquired ROFO Assets
31

 
31

 
74

 
31

Less: Income attributable to NRG (b)
25

 
22

 
58

 
22

Net Income Attributable to NRG Yield, Inc.
$
6

 
$
9

 
$
16

 
$
9

 
 
 
 
 
 
 
 
Basic and Diluted Earnings per Share Attributable to Class A Common Stockholders
 
 
 
 
 
 
 
Weighted average number of Class A common shares outstanding
31

 
23

 
25

 
23

Basic and Diluted Earnings per Class A Common Share
$
0.20

 
$
0.39

 
$
0.62

 
$
0.39

Dividends per Class A Common Share
$
0.365

 
$
—

 
$
1.045

 
$
—

 
 
 
 
 
 
 
 
 
(a) Retrospectively adjusted as discussed in Note 1, Nature of Business.
(b) The calculation of income attributable to NRG excludes pre-acquisition net income of the Acquired ROFO Assets.

See accompanying notes to consolidated financial statements.

6
                                
                                                                                                

NRG YIELD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
 2013 (a)
 
2014
 
2013 (a)
 
(In millions)
Net Income
$
31

 
$
49

 
$
91

 
$
95

Other Comprehensive Income (Loss), net of tax
 
 
 
 
 
 
 
Unrealized gain (loss) on derivatives
7

 
5

 
(17
)
 
34

Other comprehensive income (loss)
7

 
5

 
(17
)
 
34

Comprehensive Income
38

 
54

 
74

 
129

Less: Predecessor comprehensive income prior to initial public offering on July 22, 2013
—

 
9

 
—

 
73

Less: Pre-acquisition net income of Acquired ROFO Assets
—

 
9

 
17

 
10

Less: Comprehensive income attributable to NRG
30

 
28

 
48

 
38

Comprehensive Income Attributable to NRG Yield, Inc.
$
8

 
$
8

 
$
9

 
$
8

 
(a) Retrospectively adjusted as discussed in Note 1, Nature of Business.

See accompanying notes to consolidated financial statements.

7
                                
                                                                                                


NRG YIELD, INC.
CONSOLIDATED BALANCE SHEETS
 
September 30, 2014
 
December 31, 2013 (a)
(In millions)
(unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
372

 
$
59

Restricted cash
54

 
67

Accounts receivable — trade
80

 
51

Accounts receivable — affiliate
4

 
5

Inventory
17

 
15

Derivative instruments
—

 
1

Notes receivable
6

 
6

Renewable energy grant receivable
—

 
147

Prepayments and other current assets
22

 
27

Total current assets
555

 
378

Property, plant and equipment
 
 
 
In service
3,535

 
2,459

Under construction
7

 
6

Total property, plant and equipment
3,542

 
2,465

Less accumulated depreciation
(266
)
 
(174
)
Net property, plant and equipment
3,276

 
2,291

Other Assets
 
 
 
Equity investments in affiliates
230

 
227

Notes receivable
17

 
21

Notes receivable — affiliate
—

 
2

 Intangible assets, net of accumulated amortization of $17 and $6
1,517

 
103

Derivative instruments
7

 
20

Deferred income taxes
204

 
146

Other non-current assets
93

 
50

Total other assets
2,068

 
569

Total Assets
$
5,899

 
$
3,238

 
(a) Retrospectively adjusted as discussed in Note 1, Nature of Business.

See accompanying notes to consolidated financial statements.

8
                                
                                                                                                


NRG YIELD, INC.
CONSOLIDATED BALANCE SHEETS (Continued)

 
September 30, 2014
 
December 31, 2013 (a)
(In millions, except share information)
(unaudited)
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities
 
 
 
Current portion of long-term debt
$
157

 
$
214

Accounts payable
15

 
42

Accounts payable — affiliate
48

 
52

Derivative instruments
30

 
31

Accrued expenses and other current liabilities
52

 
30

Total current liabilities
302

 
369

Other Liabilities
 
 
 
Long-term debt
3,926

 
1,569

Out-of-market contracts
5

 
5

Derivative instruments
23

 
16

Other non-current liabilities
29

 
27

Total non-current liabilities
3,983

 
1,617

Total Liabilities
4,285

 
1,986

Commitments and Contingencies

 

Stockholders' Equity
 
 
 
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued
—

 
—

Class A common stock, $0.01 par value; 500,000,000 shares authorized; 34,586,250 shares issued
—

 
—

Class B common stock, $0.01 par value; 500,000,000 shares authorized; 42,738,750 shares issued
—

 
—

Additional paid-in capital
1,336

 
621

Retained earnings
5

 
8

Accumulated other comprehensive loss
(6
)
 
—

Noncontrolling interest
279

 
623

Total Stockholders' Equity
1,614

 
1,252

Total Liabilities and Stockholders’ Equity
$
5,899

 
$
3,238

 
(a) Retrospectively adjusted as discussed in Note 1, Nature of Business.

See accompanying notes to consolidated financial statements.

9
                                                

NRG YIELD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine months ended September 30,
 
2014
 
2013 (a)
 
(In millions)
Cash Flows from Operating Activities
 
 
 
Net income
$
91

 
$
95

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Distributions and equity in earnings of unconsolidated affiliates
17

 
(10
)
Depreciation and amortization
94

 
38

Amortization of financing costs and debt discount/premium
8

 
1

Amortization of intangibles and out-of-market contracts
8

 
2

Changes in deferred income taxes
15

 
5

Changes in derivative instruments
(5
)
 
(14
)
Changes in other working capital
(34
)
 
(27
)
Net Cash Provided by Operating Activities
194

 
90

Cash Flows from Investing Activities
 
 
 
Payment for Alta Acquisition
(901
)
 
—

Payment to NRG for Acquired ROFO Assets
(357
)
 
—

Capital expenditures
(28
)
 
(339
)
Decrease (increase) in restricted cash
28

 
(88
)
Decrease in notes receivable, including affiliates
6

 
4

Proceeds from renewable energy grants
137

 
24

Investments in unconsolidated affiliates
(17
)
 
(19
)
Other
11

 
—

Net Cash Used in Investing Activities
(1,121
)
 
(418
)
Cash Flows from Financing Activities
 
 
 
Capital contributions from NRG
2

 
150

Return of capital to NRG
(23
)
 
—

Payment of dividends and distributions
(72
)
 
(707
)
Proceeds from issuance of long-term debt — external
924

 
558

Payment of debt issuance costs
(26
)
 
(5
)
Payment of borrowings from affiliate
—

 
(2
)
Payments for long-term debt — external
(195
)
 
(35
)
Proceeds from the issuance of Class A common stock
630

 
468

Net Cash Provided by Financing Activities
1,240

 
427

Net Increase in Cash and Cash Equivalents
313

 
99

Cash and Cash Equivalents at Beginning of Period
59

 
22

Cash and Cash Equivalents at End of Period
$
372

 
$
121

 
(a) Retrospectively adjusted as discussed in Note 1, Nature of Business.


See accompanying notes to consolidated financial statements.

10
                                
                                                                                                

NRG YIELD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Nature of Business
NRG Yield, Inc., or the Company, was formed by NRG as a Delaware corporation on December 20, 2012. On July 22, 2013, the Company issued 22,511,250 shares of Class A common stock in an initial public offering. The Company utilized the net proceeds of the initial public offering to acquire 19,011,250 Class A units of NRG Yield LLC from NRG, in return for $395 million and 3,500,000 Class A units of NRG Yield LLC directly from NRG Yield LLC in return for $73 million.  In connection with the acquisition of the Class A units, the Company also became the sole managing member of NRG Yield LLC, thereby acquiring a controlling interest in NRG Yield LLC.
Immediately prior to the acquisition, NRG Yield LLC acquired a portfolio of contracted renewable and conventional generation and thermal infrastructure assets, primarily located in the Northeast, Southwest and California regions of the United States, from NRG in return for Class B units in NRG Yield LLC.  These assets were simultaneously contributed by NRG Yield LLC to its direct wholly owned subsidiary NRG Yield Operating LLC at their historical cost in accordance with ASC 805-50, Business Combinations - Related Issues. 
As of June 30, 2014, the Company and NRG owned 34.5% and 65.5% of NRG Yield LLC, respectively. On July 29, 2014, the Company issued 12,075,000 shares of Class A common stock for net proceeds, after underwriting discount and expenses, of $630 million. The Company utilized the proceeds of the offering to acquire 12,075,000 additional Class A units of NRG Yield LLC and, as a result, as of September 30, 2014, the Company owns 44.7% of NRG Yield LLC, and consolidates the results of NRG Yield LLC through its controlling interest, with NRG's 55.3% interest shown as noncontrolling interest in the financial statements.

The following table represents the structure of the Company as of September 30, 2014:

11
                                
                                                                                                

For the period prior to the initial public offering, the accompanying unaudited combined financial statements represent the combination of the assets that NRG Yield LLC acquired and were prepared using NRG's historical basis in the assets and liabilities. For the purposes of the unaudited combined financial statements, the term "NRG Yield" represents the accounting predecessor, or the combination of the acquired businesses. For all periods subsequent to the initial public offering, the accompanying unaudited consolidated financial statements represent the consolidated results of the Company, which consolidates NRG Yield LLC through its controlling interest.

12
                                
                                                                                                

As of September 30, 2014, the Company's operating assets are comprised of the following projects:
Projects
 
Percentage Ownership
 
Net Capacity (MW) (a)
 
Offtake Counterparty
 
Expiration
Conventional
 
 
 
 
 
 
 
 
GenConn Middletown
 
49.95
%
 
95

 
Connecticut Light & Power
 
2041
GenConn Devon
 
49.95
%
 
95

 
Connecticut Light & Power
 
2040
Marsh Landing
 
100
%
 
720

 
Pacific Gas and Electric
 
2023
El Segundo
 
100
%
 
550

 
Southern California Edison
 
2023
 
 
 
 
1,460

 
 
 
 
Utility-Scale Solar
 
 
 
 
 
 
 
 
Alpine
 
100
%
 
66

 
Pacific Gas and Electric
 
2033
Avenal
 
49.95
%
 
23

 
Pacific Gas and Electric
 
2031
Avra Valley
 
100
%
 
25

 
Tucson Electric Power
 
2032
Blythe
 
100
%
 
21

 
Southern California Edison
 
2029
Borrego
 
100
%
 
26

 
San Diego Gas and Electric
 
2038
CVSR
 
48.95
%
 
122

 
Pacific Gas and Electric
 
2038
Roadrunner
 
100
%
 
20

 
El Paso Electric
 
2031
RE Kansas South
 
100
%
 
20

 
Pacific Gas and Electric
 
2033
TA High Desert
 
100
%
 
20

 
Southern California Edison
 
2033
 
 
 
 
343

 
 
 
 
Distributed Solar
 
 
 
 
 
 
 
 
AZ DG Solar Projects
 
100
%
 
5

 
Various
 
2025 - 2033
PFMG DG Solar Projects
 
51
%
 
5

 
Various
 
2032
 
 
 
 
10

 
 
 
 
Wind
 
 
 
 
 
 
 
 
Alta I
 
100
%
 
150

 
Southern California Edison
 
2035
Alta II
 
100
%
 
150

 
Southern California Edison
 
2035
Alta III
 
100
%
 
150

 
Southern California Edison
 
2035
Alta IV
 
100
%
 
102

 
Southern California Edison
 
2035
Alta V
 
100
%
 
168

 
Southern California Edison
 
2035
Alta X
 
100
%
 
137

 
Southern California Edison
 
2038(c)
Alta XI
 
100
%
 
90

 
Southern California Edison
 
2038(c)
South Trent
 
100
%
 
101

 
AEP Energy Partners
 
2029
 
 
 
 
1,048

 
 
 
 
Thermal
 
 
 
 
 
 
 
 
Thermal equivalent MWt(b)
 
100
%
 
1,346

 
Various
 
Various
Thermal generation
 
100
%
 
123

 
Various
 
Various
Total net capacity (excluding equivalent MWt)
 
 
 
2,984

 
 
 
 
(a) Net capacity represents the maximum, or rated, generating capacity of the facility multiplied by the Company's percentage ownership in the facility as of September 30, 2014.
(b) For thermal energy, net capacity represents MWt for steam or chilled water and excludes 118 MWt which is available under the right-to-use provisions contained in agreements between two of NRG Yield Inc.'s thermal facilities and certain of their customers.
(c) PPA begins on January 1, 2016.

Substantially all of the Company's generation assets are under long-term contractual arrangements for the output or capacity from these assets. The thermal assets are comprised of district energy systems and combined heat and power plants that produce steam, hot water and/or chilled water and, in some instances, electricity at a central plant. Three of the district energy systems are subject to rate regulation by state public utility commissions while the other district energy systems have rates determined by negotiated bilateral contracts.

13
                                
                                                                                                

The historical combined financial statements include allocations of certain NRG corporate expenses. Management believes the assumptions and methodology underlying the allocation of general corporate overhead expenses are reasonable. The allocated costs include legal, accounting, tax, treasury, information technology, insurance, employee benefit costs, and other corporate costs. However, such expenses may not be indicative of the actual level of expense that would have been incurred if the Company had operated as an independent, publicly-traded company during the periods prior to the initial public offering or of the costs expected to be incurred in the future. Allocation of NRG corporate expenses was $4 million for the period beginning on January 1, 2013 and ending on July 22, 2013. In connection with the initial public offering, the Company entered into a management services agreement with NRG for various services, including human resources, accounting, tax, legal, information systems, treasury, and risk management. Costs incurred by the Company under this agreement were $1 million for the period beginning July 23, 2013 and ending September 30, 2013 and $7 million for the nine months ended September 30, 2014.
For all periods prior to the initial public offering, member's equity represents the combined equity of the Company's subsidiaries, including adjustments necessary to present the Company's financial statements as if the Company were in existence as of the beginning of the periods presented. Member's equity represents NRG's equity in the subsidiaries, and accordingly, in connection with the initial public offering, the historical equity balance as of that date was reclassified into noncontrolling interest. Subsequent to the initial public offering, stockholders' equity represents the equity associated with the Class A common stockholders, with the equity associated with the Class B common stockholders, or NRG, classified as noncontrolling interest.
As described in Note 3, Business Acquisitions, on June 30, 2014, NRG Yield Operating LLC acquired the TA High Desert, RE Kansas South, and El Segundo projects from NRG for total cash consideration of $357 million plus assumed project level debt. The acquisition of the TA High Desert, RE Kansas South, and El Segundo projects from NRG on June 30, 2014 was accounted for as a transfer of entities under common control. The guidance requires retrospective combination of the entities for all periods presented as if the combination has been in effect since the inception of common control. Accordingly, the Company prepared its consolidated financial statements to reflect the transfer as if it had taken place on January 1, 2013, or from the date the entities were under common control, which was May 13, 2013 for RE Kansas South and March 28, 2013 for TA High Desert, which represent the dates these entities were acquired by NRG. Member's equity represents NRG's equity in the subsidiaries, and accordingly, in connection with the acquisition by the Company, the balance was reclassified into noncontrolling interest.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission’s, or SEC’s, regulations for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP 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 Company’s consolidated financial statements in the 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 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, 2014, and the results of operations, comprehensive income and cash flows for the nine months ended September 30, 2014, and 2013.

14
                                
                                                                                                

Note 2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during the reporting period. Actual results could be different from these estimates.
Noncontrolling Interest
The following table reflects the changes in the Company's noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2013 (As previously reported)
$
382

Net Assets of Acquired ROFO Assets as of December 31, 2013
241

Balance as of December 31, 2013 (As currently reported)
623

Payment to NRG for Acquired ROFO assets
(357
)
Comprehensive income, including pre-acquisition net income from Acquired ROFO Assets
65

Non-cash contributions
13

Cash distributions, net of cash contributions
(65
)
Balance as of September 30, 2014
$
279

Distributions
On January 30, 2014, NRG Yield LLC declared a distribution on its units of $0.33 per unit, which was paid on March 17, 2014. On May 5, 2014, NRG Yield LLC declared a distribution on its units of $0.35 per unit, which was paid on June 16, 2014. On July 29, 2014, NRG Yield LLC declared a distribution on its units of $0.365 per unit, which was paid on September 15, 2014. The portion of the distributions paid by NRG Yield LLC to NRG was recorded as a reduction to the Company's noncontrolling interest balance.
On June 30, 2014, the Company acquired the TA High Desert, RE Kansas South, and El Segundo projects, as discussed in Note 3, Business Acquisitions. The difference between the cash paid and historical value of the entities' equity of $113 million was recorded as a distribution to NRG and reduced the balance of its noncontrolling interest. In addition, as the TA High Desert, RE Kansas South and El Segundo projects were owned by NRG until June 30, 2014, the pre-acquisition earnings of such projects are recorded as attributable to NRG's noncontrolling interest. Prior to the date of acquisition, El Segundo made a distribution to NRG of $24 million.
Recent Accounting Developments
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 International Accounting Standards Board, or IASB, to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards, or IFRS, and to improve financial reporting. The guidance in ASU No. 2014-09 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 the following steps to be applied by an entity: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation. The guidance of ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early adoption is not permitted. The Company is currently evaluating the impact of the standard on the Company's results of operations, cash flows and financial position.

15
                                
                                                                                                

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 requires 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 an NOL, a similar tax loss or tax credit carryforwards rather than a liability when the 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 guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 with early adoption permitted. The Company adopted this standard effective January 1, 2014. The adoption of this standard did not impact the Company's results of operations or cash flows as the Company has no uncertain tax benefits as of September 30, 2014.
Note 3 — Business Acquisitions
2014 Acquisitions
Acquisition of EME-NYLD-Eligible Assets from NRG
On November 4, 2014, the Company and NRG entered into a definitive agreement regarding the acquisition of the following NRG facilities: (i) Walnut Creek, (ii) Tapestry (Pinnacle, Buffalo Bear and Taloga) and (iii) Laredo Ridge for total expected cash consideration of $480 million plus assumed project level debt and working capital adjustments to be calculated at close. The sale is subject to customary closing conditions and is expected to close by the end of the fourth quarter of 2014. The Company expects to fund the acquisition with cash on hand and drawings under the Company's revolving credit facility.
Alta Wind Portfolio Acquisition — On August 12, 2014, the Company acquired 100% of the membership interests of Alta Wind Asset Management Holdings, LLC, Alta Wind Company, LLC, Alta Wind X Holding Company, LLC and Alta Wind XI Holding Company, LLC, which collectively own 7 wind facilities that total 947 MW located in Tehachapi, California and a portfolio of associated land leases, or the Alta Wind Assets. Power generated by the Alta Wind Assets is sold to Southern California Edison under long-term PPAs with 21 years of remaining contract life for Alta I-V and 22 years, beginning in 2016, for Alta X and XI.
The purchase price for the Alta Wind Assets was $923 million, which consisted of a base purchase price of $870 million, as well as a payment for working capital of $53 million, plus the assumption of $1.6 billion of non-recourse project-level debt. In order to fund the purchase price, the Company completed an equity offering of 12,075,000 shares of its Class A common stock at an offering price of $54.00 per share on July 29, 2014, which resulted in net proceeds of $630 million, after underwriting discounts and expenses. In addition, on August 5, 2014, NRG Yield Operating LLC issued $500 million of Senior Notes, which bear interest at a rate of 5.375% and mature in August 2024. Interest on the Senior Notes is payable semi-annually on February 15 and August 15, commencing on February 15, 2015. The excess of the equity proceeds over the amount utilized for the acquisition is available for general corporate purposes, including future acquisitions.
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.

16
                                
                                                                                                

The purchase price of $923 million was provisionally allocated as follows:
 
 
(In millions)
Assets
 
 
Cash
 
$
22

Current and non-current assets
 
49

Property, plant and equipment
 
1,057

Intangible assets
 
1,420

Total assets acquired
 
2,548

 
 
 
Liabilities
 
 
Debt
 
1,591

Current and non-current liabilities
 
34

Total liabilities assumed
 
1,625

Net assets acquired
 
$
923

The Company incurred and expensed acquisition-related transaction costs related to the acquisition of the Alta Wind Assets of $2 million for the three and nine months ended September 30, 2014.
Fair value measurements
The provisional fair values of the property, plant and equipment and intangible assets 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 cost approach based on the replacement cost of the assets less economic obsolescence. The income approach was applied by determining the enterprise value for each acquired entity and subtracting the fair value of the intangible assets and working capital to determine the implied value of the tangible fixed assets. This methodology was primarily relied upon as the forecasted cash flows incorporate the specific attributes of each asset including age, useful life, equipment condition and technology. The income approach also allows for an accurate reflection of current and expected market dynamics such as supply and demand and regulatory environment as of the acquisition date.
Intangible assets - The fair values of the PPAs acquired were determined utilizing a variation of the income approach where the incremental future cash flows resulting from the acquired PPAs compared to the cash flows based on current market prices were discounted to present value at the weighted average cost of debt of the utility off-taker, as the PPA was determined to be a debt-like instrument for the off-taker. The values were corroborated with available market data. The PPA values will be amortized over an average period of 22 years.
Supplemental Pro Forma Information
Since the acquisition date, the Alta Wind Assets contributed $18 million in operating revenues and $7 million in net losses. The following supplemental pro forma information represents the results of operations as if the Company had acquired the Alta Wind Assets on January 1, 2013:
 
 
For the nine months ended
 
For the year ended
(in millions except per share amounts)
 
September 30, 2014
 
September 30, 2013
 
December 31, 2013
 
 
Operating revenues
 
$
551

 
$
385

 
$
562

Net income
 
67

 
99

 
110

Net income attributable to NRG Yield, Inc.
 
16

 
12

 
11

Basic and Diluted Earnings per share attributable to NRG Yield, Inc. Class A common stockholders:
 
$
0.47

 
$
0.33

 
$
0.31


17
                                
                                                                                                

The supplemental pro forma information has been adjusted to include the pro-forma impact of depreciation of property, plant and equipment and amortization of PPAs, based on the preliminary purchase price allocations. The pro forma data has also been adjusted to reflect the additional interest expense in connection with the issuance of Senior Notes, adjustment to the non-controlling interest due to the change in NRG's interest to 55.3% from 65.5% effective July 29, 2014, as well as the related tax impact. There were no transactions during the periods between NRG and the Alta Wind Assets. 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.
Acquired ROFO Assets — On June 30, 2014, NRG Yield Operating LLC acquired the El Segundo, TA High Desert, and RE Kansas South projects for a total cash consideration of $357 million, which represents a base purchase price of $349 million and $8 million of working capital adjustments. In addition, the acquisition included the assumption of $612 million in project level debt. The assets and liabilities transferred to the Company relate to interests under common control by NRG and accordingly, were recorded at historical cost in accordance with ASC 805-50. The difference between the cash proceeds and historical value of the net assets was recorded as a distribution to NRG and reduced the balance of its noncontrolling interest. Since the transaction constituted a transfer of net assets under common control, the guidance requires retrospective combination of the entities for all periods presented as if the combination has been in effect since the inception of common control.
The following is a summary of assets and liabilities transferred in connection with the acquisition:
 
RE Kansas South
 
TA High Desert
 
El Segundo
 
(In millions)
Current assets
$
1

 
$
3

 
$
43

Property, plant and equipment
50

 
67

 
625

Non-current assets
2

 
13

 
76

Total assets
53

 
83

 
744

 
 
 
 
 
 
Debt
35

 
57

 
520

Other current and non-current liabilities
2

 
—

 
30

Total liabilities
37

 
57

 
550

Net assets acquired
$
16

 
$
26

 
$
194

The following table presents historical information summary combining the financial information for the Acquired ROFO Assets transferred in connection with the acquisition:
 
December 31, 2013
 
As Previously Reported
 
RE Kansas South
 
TA High Desert
 
El Segundo
 
As Currently Reported
 
 
 
(In millions)
 
 
Current assets
$
267

 
$
25

 
$
28

 
$
58

 
$
378

Property, plant and equipment
1,541

 
51

 
63

 
636

 
2,291

Non-current assets
505

 
3

 
10

 
51

 
569

Total assets
2,313

 
79

 
101

 
745

 
3,238

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Debt
1,133

 
58

 
80

 
512

 
1,783

Other current and non-current liabilities
169

 
5

 
3

 
26

 
203

Total liabilities
$
1,302

 
$
63

 
$
83

 
$
538

 
$
1,986


18
                                
                                                                                                

 
Three months ended September 30, 2013
 
Nine months ended September 30, 2013
 
As Previously Reported
 
RE Kansas South
 
TA High Desert
 
El Segundo
 
As Currently Reported
 
As Previously Reported
 
RE Kansas South
 
TA High Desert
 
El Segundo
 
As Currently Reported
 
 
 
 
 
(In millions)
 
 
Operating revenues
$
95

 
$
2

 
$
3

 
$
26

 
$
126

 
$
227

 
$
2

 
$
6

 
$
26

 
$
261

Operating income
45

 
2

 
3

 
13

 
63

 
95

 
2

 
4

 
12

 
113

Net income
$
40

 
$
—

 
$
2

 
$
7

 
$
49

 
$
85

 
$
1

 
$
2

 
$
7

 
$
95

2013 Acquisitions
Energy Systems — On December 31, 2013, NRG Energy Center Omaha Holdings, LLC, an indirect wholly owned subsidiary of NRG Yield LLC, acquired 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 water 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 $1 million of working capital. The accounting for Energy Systems was completed as of September 30, 2014, at which point the provisional fair values became final with no material changes.
Note 4 — Property, Plant and Equipment
The Company’s major classes of property, plant, and equipment were as follows:
 
September 30, 2014
 
December 31, 2013
 
Depreciable Lives
 
(In millions)
 
 
Facilities and equipment
$
3,487

 
$
2,411

 
5 - 40 Years
Land and improvements
48

 
48

 
 
Construction in progress
7

 
6

 
 
Total property, plant and equipment
3,542

 
2,465

 
 
Accumulated depreciation
(266
)
 
(174
)
 
 
Net property, plant and equipment
$
3,276

 
$
2,291

 
 
Renewable Energy Grants
The Borrego solar project achieved commercial operations on February 12, 2013 and transferred the construction in progress to property, plant and equipment. On May 16, 2013, the Borrego solar project, as a qualified renewable energy project, applied for a cash grant in lieu of investment tax credit from the U.S. Treasury Department in the amount of $39 million. A receivable for the cash grant was recorded when the application was filed, which resulted in a reduction to the book basis of the property, plant and equipment. In addition, the receivable was reduced to $36 million as a result of the federal government’s sequestration, which was put into effect on March 1, 2013. The related deferred tax asset of $10 million was recorded with a corresponding reduction of the book value of Borrego’s property, plant and equipment. In March 2014, the Company received payment of $30 million for the cash grant related to Borrego. The Company recorded a reserve for the shortage and is in the process of evaluating all of its options for recovering the full amount of the reserve.
The TA High Desert solar project achieved commercial operations on March 25, 2013 and transferred the construction in progress to property, plant and equipment. On May 22, 2013, the TA High Desert solar project, as a qualified renewable energy project, applied for a cash grant in lieu of investment tax credit from the U.S. Treasury Department in the amount of $25 million. A receivable for the cash grant was recorded when the application was filed, which resulted in a reduction to the book basis of the property, plant and equipment. In addition, the receivable was reduced as a result of the federal government’s sequestration, which was put into effect on March 1, 2013. The related deferred tax asset of $6 million was recorded with a corresponding reduction of the book value of TA High Desert's property, plant and equipment. In April 2014, TA High Desert received a payment of $20 million for the cash grant and reduced the book value of its property, plant and equipment by the amount by which the grant was reduced.

19
                                
                                                                                                

The RE Kansas South solar project achieved commercial operations on June 7, 2013 and transferred the construction in progress to property, plant and equipment. On June 27, 2013, the RE Kansas South solar project, as a qualified renewable energy project, applied for a cash grant in lieu of investment tax credit from the U.S. Treasury Department in the amount of $23 million. A receivable for the cash grant was recorded when the application was filed, which resulted in a reduction to the book basis of the property, plant and equipment. In addition, the receivable was reduced to $21 million as a result of the federal government’s sequestration, which was put into effect on March 1, 2013. The related deferred tax asset of $6 million was recorded with a corresponding reduction of the book value of RE Kansas South's property, plant and equipment. In April 2014, RE Kansas South received a payment of $21 million for the cash grant.
Note 5 — Variable Interest Entities, or VIEs
GenConn Energy LLC — The Company has a 49.95% interest in GCE Holdings LLC, the owner of GenConn Energy LLC, or GenConn, which owns and operates two 190 MW peaking generation facilities in Connecticut at the Devon and Middletown sites. Each of these facilities was constructed pursuant to a 30-year cost of service type contract with the Connecticut Light & Power Company. All four units at the GenConn Devon facility reached commercial operation in June 2010 and were released to the ISO-NE by July 2010. In June 2011, all four units at the GenConn Middletown facility reached commercial operation and were released to the ISO-NE. GenConn is considered a VIE under ASC 810, however the Company is not the primary beneficiary, and accounts for its investment under the equity method.
The project was funded through equity contributions from the owners and non-recourse, project level debt. As of September 30, 2014, the Company's investment in GenConn was $114 million and its maximum exposure to loss is limited to its equity investment. On September 17, 2013, GenConn refinanced its existing project financing facility. As of September 30, 2014, the refinanced facility has a $228 million note with an interest rate of 4.73% per annum and a maturity date of July 2041 and a $35 million working capital facility that matures in 2018 which can be used to issue letters of credit at an interest rate of 1.875% per annum. The refinancing is secured by all of the GenConn assets.
The following table presents summarized unaudited financial information for GCE Holdings LLC:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Income Statement Data:
(In millions)
Operating revenues
$
18

 
$
21

 
$
62

 
$
60

Operating income
10

 
11

 
30

 
34

Net income
7

 
8

 
21

 
23

 
September 30, 2014
 
December 31, 2013
Balance Sheet Data:
(In millions)
Current assets
$
26

 
$
32

Non-current assets
442

 
453

Current liabilities
15

 
18

Non-current liabilities
224

 
231


20
                                
                                                                                                

Note 6 — Fair Value of Financial Instruments
For cash and cash equivalents, restricted cash, accounts receivable — trade, accounts payable, affiliate accounts payable and receivable, accrued expenses and other liabilities, 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 the Company’s recorded financial instruments not carried at fair market value are as follows:
 
As of September 30, 2014
 
As of December 31, 2013
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable — affiliate
$
—

 
$
—

 
$
2

 
$
2

Notes receivable, including current portion
23

 
23

 
27

 
27

Liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion
4,083

 
4,157

 
1,783

 
1,785

The fair value of notes receivable and long-term debt are based on expected future cash flows discounted at market interest rates, or current interest rates for similar instruments and are classified as Level 3 within the fair value hierarchy.
Fair Value Accounting under ASC 820
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
•
Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
•
Level 2—inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
•
Level 3—unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
In accordance with ASC 820, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The Company records its derivative assets and liabilities at fair market value on its consolidated balance sheet. The following table presents assets and liabilities measured and recorded at fair value on the Company's consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:
 
As of September 30, 2014
 
Fair Value (a)
(In millions)
Level 2
 
Level 3
 
Total
Derivative assets:
 
 
 
 
 
Commodity contracts
$
—

 
$
—

 
$
—

Interest rate contracts
7

 
—

 
7

Total assets
7

 
—

 
7

Derivative liabilities:
 
 
 
 
 
Commodity contracts
1

 
—

 
1

Interest rate contracts
52

 
—

 
52

Total liabilities
$
53

 
$
—

 
$
53

(a) There were no assets or liabilities classified as Level 1 as of September 30, 2014.

21
                                
                                                                                                

 
As of December 31, 2013
 
Fair Value (a)
(In millions)
Level 2
 
Level 3
 
Total
Derivative assets:
 
 
 
 
 
Commodity contracts
$
1

 
$
—

 
$
1

Interest rate contracts
20

 
—

 
20

Total assets
21

 
—

 
21

Derivative liabilities:
 
 
 
 
 
Commodity contracts
1

 
1

 
2

Interest rate contracts
45

 
—

 
45

Total liabilities
$
46

 
$
1

 
$
47

(a) There were no assets or liabilities classified as Level 1 as of December 31, 2013.
The following table reconciles, for the three and nine months ended September 30, 2014, the beginning and ending balances for derivative 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 - Derivatives (Level 3)
 
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions)
 
2014
 
2014
Beginning balance
 
$
(1
)
 
$
(1
)
Included in earnings
 
1

 
1

Ending balance as of September 30, 2014
 
$
—

 
$
—

Derivative Fair Value Measurements
A majority of the Company's contracts are non-exchange-traded and valued using prices provided by external sources. For the Company’s energy markets, management receives quotes from multiple sources. To the extent that multiple quotes are received, the prices reflect the average of the bid-ask mid-point prices obtained from all sources believed to provide the most liquid market for the commodity. The remainder of the assets and liabilities represent contracts for which external sources or observable market quotes are not available. 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.
The fair value of each contract is discounted using a risk free interest rate. In addition, a credit reserve is applied to reflect credit risk, which is calculated based on credit default swaps. To the extent that the net exposure is an asset, the Company uses the counterparty’s default swap rate. If the exposure is a liability, the Company uses its default swap rate. The credit reserve is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the liabilities or that a market participant would be willing to pay for the assets. It is possible that future market prices could vary from those used in recording assets and liabilities and such variations could be material.
Concentration of Credit Risk
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. The Company monitors and manages credit risk through credit policies that include: (i) an established credit approval process; (ii) a daily monitoring of counterparties' credit limits; (iii) the use of credit mitigation measures such as margin, collateral, prepayment arrangements, or volumetric limits; (iv) the use of payment netting agreements; and (v) the use of master netting agreements that allow for the netting of positive and negative exposures of various contracts associated with a single counterparty. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty risk by having a diversified portfolio of counterparties. The Company also has credit protection within various agreements to call on additional collateral support if and when necessary. Cash margin is collected and held at the Company to cover the credit risk of the counterparty until positions settle.

22
                                
                                                                                                

Counterparty credit exposure includes credit risk exposure under certain long-term agreements, including solar and other PPAs. As external sources or observable market quotes are not available to estimate such exposure, the Company estimates the exposure related to 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, 2014, credit risk exposure to these counterparties attributable to the Company's ownership interests was approximately $1.7 billion for the next five years. The majority of these power contracts are with utilities 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 the Company is unable to predict.
Note 7 — Accounting for Derivative Instruments and Hedging Activities
Energy-Related Commodities
As of September 30, 2014, the Company had forward contracts for the purchase of fuel commodities relating to the forecasted usage of the Company’s district energy centers extending through 2017. At September 30, 2014, these contracts were not designated as cash flow or fair value hedges.
Interest Rate Swaps
As of September 30, 2014, the Company had interest rate derivative instruments on project-level debt extending through 2031, some of which are designated as cash flow hedges.
Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buy/(sell) of the Company's open derivative transactions broken out by category as of September 30, 2014 and December 31, 2013.
 
 
Total Volume
 
 
September 30, 2014
 
December 31, 2013
Category
Units
(In millions)
Natural Gas
MMBtu
3

 
2

Interest
Dollars
$
2,125

 
$
1,234

The increase in the interest rate position was primarily the result of the interest rate swaps acquired with the Alta Wind Assets.
Fair Value of Derivative Instruments
The following table summarizes the fair value within the derivative instrument valuation on the balance sheet:
 
Fair Value
 
Derivative Assets
 
Derivative Liabilities
 
September 30, 2014
 
December 31, 2013
 
September 30, 2014
 
December 31, 2013
 
(In millions)
Derivatives Designated as Cash Flow Hedges:
 
 
 
 
 
 
 
Interest rate contracts current
$
—

 
$
—

 
$
24

 
$
26

Interest rate contracts long-term
5

 
14

 
18

 
16

Total Derivatives Designated as Cash Flow Hedges
5

 
14

 
42

 
42

Derivatives Not Designated as Cash Flow Hedges:
 
 
 
 
 
 
 
Interest rate contracts current
—

 
—

 
5

 
3

Interest rate contracts long-term
2

 
6

 
5

 
—

Commodity contracts current
—

 
1

 
1

 
2

Commodity contracts long-term
—

 
—

 
—

 
—

Total Derivatives Not Designated as Cash Flow Hedges
2

 
7

 
11

 
5

Total Derivatives
$
7

 
$
21

 
$
53

 
$
47


23
                                
                                                                                                

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. As of September 30, 2014 and December 31, 2013, there was no outstanding collateral paid or received. The following table summarizes the offsetting of derivatives by counterparty master agreement level:
 
Gross Amounts Not Offset in the Statement of Financial Position
 
Gross Amounts of Recognized Assets/Liabilities
 
Derivative Instruments
 
Net Amount
As of September 30, 2014
(In millions)
Commodity contracts:
 
 
 
 
 
Derivative assets
$
—

 
$
—

 
$
—

Derivative liabilities
(1
)
 
—

 
(1
)
Total commodity contracts
(1
)
 
—

 
(1
)
Interest rate contracts:
 
 
 
 
 
Derivative assets
7

 
(5
)
 
2

Derivative liabilities
(52
)
 
5

 
(47
)
Total interest rate contracts
(45
)
 
—

 
(45
)
Total derivative instruments
$
(46
)
 
$
—

 
$
(46
)
 
Gross Amounts Not Offset in the Statement of Financial Position
As of December 31, 2013
Gross Amounts of Recognized Assets/Liabilities
 
Derivative Instruments
 
Net Amount
Commodity contracts:
(In millions)
Derivative assets
$
1

 
$
—

 
$
1

Derivative liabilities
(2
)
 
—

 
(2
)
Total commodity contracts
(1
)
 
—

 
(1
)
Interest rate contracts:
 
 
 
 
 
Derivative assets
20

 
(12
)
 
8

Derivative liabilities
(45
)
 
12

 
(33
)
Total interest rate contracts
(25
)
 
—

 
(25
)
Total derivative instruments
$
(26
)
 
$
—

 
$
(26
)
Accumulated Other Comprehensive Loss
The following table summarizes the effects on the Company’s accumulated other comprehensive loss, or OCL, balance attributable to interest rate swaps designated as cash flow hedge derivatives, net of tax:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In millions)
 
(In millions)
Accumulated OCL beginning balance
$
(24
)
 
$
(19
)
 
$
—

 
$
(48
)
Reclassified from accumulated OCL to income due to realization of previously deferred amounts
1

 
4

 
8

 
9

Mark-to-market of cash flow hedge accounting contracts
6

 
1

 
(25
)
 
25

Accumulated OCL ending balance, net of income tax benefit of $3 and $1, respectively
(17
)
 
(14
)
 
(17
)
 
(14
)
Accumulated OCL attributable to NRG
(11
)
 
(6
)
 
(11
)
 
(6
)
Accumulated OCL attributable to NRG Yield, Inc.
$
(6
)
 
$
(8
)
 
$
(6
)
 
$
(8
)
A loss of $12 million is expected to be realized from OCL during the next 12 months, net of $2 million tax.
Amounts reclassified from accumulated OCL into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to interest expense.

24
                                
                                                                                                

Impact of Derivative Instruments on the Statements of Operations
The Company has interest rate derivative instruments that are not designated as cash flow hedges as well as ineffectiveness on cash flow hedge derivatives. The effect of interest rate hedges is recorded to interest expense. For the three months ended September 30, 2014 and 2013, the impact to the consolidated statements of operations was $0 million and a gain of $1 million, respectively. For the nine months ended September 30, 2014 and 2013, the impact to the consolidated statements of operations was a loss of $6 million and a gain of $10 million, respectively.
The Company’s derivative commodity contracts relate to its Thermal business for the purchase of fuel commodities based on the forecasted usage of the Thermal district energy centers. Realized gains and losses on these contracts are reflected in the fuel costs that are permitted to be billed to customers through the related customer contracts or tariffs and accordingly, no gains or losses are reflected in the statement of operations for these contracts.
See Note 6, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk.

25
                                
                                                                                                

Note 8 — Long - Term Debt
This footnote should be read in conjunction with the complete description under Note 9, Long - Term Debt, to the Company's 2013 Form 10-K. Long-term debt consisted of the following:
 
September 30, 2014
 
December 31, 2013
 
Current interest rate % (a)
 
(In millions, except rates)
NRG Yield Inc. Convertible Senior Notes, due 2019 (b)
$
325

 
$
—

 
3.50
NRG Yield LLC Senior Notes, due 2024
500

 
—

 
5.375
Project-level debt:
 
 
 
 
 
Alta Wind I, lease financing arrangement, due 2034
263

 
—

 
7.01
Alta Wind II, lease financing arrangement, due 2034
207

 
—

 
5.70
Alta Wind III, lease financing arrangement, due 2034
215

 
—

 
6.07
Alta Wind IV, lease financing arrangement, due 2034
139

 
—

 
5.94
Alta Wind V, lease financing arrangement, due 2035
222

 
—

 
6.07
Alta Wind X, due 2020
300

 
—

 
L+2.00
Alta Wind XI, due 2020
191

 
—

 
L+2.00
Alta Realty Investments, due 2031
34

 
—

 
7.00
Alta Wind Asset Management, due 2031
20

 
—

 
L+2.375
NRG West Holdings LLC, due 2023
506

 
512

 
L+2.25 - 2.875
NRG Marsh Landing LLC, due 2017 and 2023
477

 
473

 
L+ 1.75 - 1.875
NRG Solar Alpine LLC, due 2022
166

 
221

 
L+2.50/L+1.75
NRG Energy Center Minneapolis LLC, due 2017 and 2025
122

 
127

 
5.95 - 7.25
NRG Solar Borrego LLC, due 2024 and 2038
76

 
78

 
L+ 2.50/5.65
South Trent Wind LLC, due 2020
66

 
69

 
L+2.75
NRG Solar Avra Valley LLC, due 2031
64

 
63

 
L+ 1.75
TA High Desert LLC, due 2023 and 2033
57

 
80

 
L+2.50/5.15
NRG Roadrunner LLC, due 2031
42

 
44

 
L+ 2.01
NRG Solar Kansas South LLC, due 2031
36

 
58

 
L+2.00
NRG Solar Blythe LLC, due 2028
23

 
24

 
L+ 2.75
PFMG and related subsidiaries financing agreement, due 2030
31

 
32

 
6.00
NRG Energy Center Princeton LLC, due 2017
1

 
2

 
5.95
Subtotal project-level debt:
3,258

 
1,783

 
 
Total debt
4,083

 
1,783

 
 
Less current maturities
157

 
214

 
 
Total long-term debt
$
3,926

 
$
1,569

 
 
(a) As of September 30, 2014, L+ equals 3 month LIBOR plus x%, except for Kansas South where L+ equals 6 month LIBOR plus x%.
(b) Net of discount of $20 million as of September 30, 2014.
The financing arrangements listed above contain certain covenants, including financial covenants, that the Company is required to be in compliance with during the term of the arrangement. As of September 30, 2014, the Company was in compliance with all of the required covenants.

26
                                
                                                                                                

The discussion below lists changes to or additions of long-term debt for the nine months ended September 30, 2014.
NRG Yield, Inc. Convertible Notes
During the first quarter of 2014, the Company closed on its offering of $345 million aggregate principal amount of 3.50% Convertible Notes due 2019, or the Convertible Notes.  The Convertible Notes are convertible, under certain circumstances, into the Company’s 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 Convertible Notes. Interest on the Convertible Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2014. The Convertible 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 Convertible 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 Convertible Notes are guaranteed by NRG Yield Operating LLC and NRG Yield LLC.
The convertible notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options. 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 application of ACS 470-20 resulted in the recognition of $23 million as the value for the equity component with the offset to debt discount. The debt discount will be amortized to interest expense using the effective interest method over the term of the Convertible Notes.
NRG Yield Operating LLC Senior Notes
On August 5, 2014, NRG Yield Operating LLC issued $500 million of senior unsecured notes, or the Senior Notes. The Senior Notes bear interest at 5.375% and mature in August 2024. Interest on the notes is payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2015. The Senior Notes are senior unsecured obligations of NRG Yield Operating LLC and are guaranteed by NRG Yield LLC, and by certain of NRG Yield Operating LLC’s wholly owned current and future subsidiaries. The Senior Notes were issued as “Green Bonds,” and all proceeds from the Senior Notes were used to purchase the Alta Wind Assets, which qualify as eligible green projects. 
NRG Yield LLC and NRG Yield Operating LLC Revolving Credit Facility
In connection with the Company's initial public offering of Class A common stock in July 2013, as further described in Note 1, Nature of Business, NRG Yield LLC and NRG Yield Operating LLC entered into a senior secured revolving credit facility, which provided a revolving line of credit of $60 million. On April 25, 2014, NRG Yield LLC and NRG Yield Operating LLC amended the revolving credit facility to increase the available line of credit to $450 million and extend its maturity to April 2019. The revolving credit facility can be used for cash or for the issuance of letters of credit. There was no cash drawn and $27 million of letters of credit issued under the revolving credit facility as of September 30, 2014.
Project - level Debt
NRG West Holdings Credit Agreement
On August 23, 2011, NRG West Holdings LLC, or West Holdings, entered into a credit agreement with a group of lenders in respect to the El Segundo project, or the West Holdings Credit Agreement. The West Holdings Credit Agreement is comprised of a $540 million two tranche construction loan facility with additional facilities for the issuance of letters of credit or working capital loans and is secured by the assets of West Holdings.
The two tranche construction loan facility consists of the $480 million Tranche A Construction Facility, or the Tranche A Facility, and the $60 million Tranche B Construction Facility, or the Tranche B Facility. The Tranche A and Tranche B Facilities, which mature in August 2023, convert to a term loan and have an interest rate of 3-month LIBOR, plus an applicable margin which (i) increases by 0.125% periodically from conversion through year eight for the Tranche A Facility, and (ii) increases by (A) 0.125% upon term conversion and on the third and sixth anniversary of the term conversion and (B) by 0.025% on the eighth anniversary of the term conversion for the Tranche B Facility. The Tranche A and Tranche B Facilities amortize based upon a predetermined schedule over the term of the loan with the balance payable at maturity. The construction loan converted to a term loan on January 28, 2014.
The West Holdings Credit Agreement also provides for the issuance of letters of credit and working capital loans to support the El Segundo project's collateral needs. This includes letter of credit facilities on behalf of West Holdings of up to $90 million in support of the PPA, up to $48 million in support of the collateral agent, and a working capital facility which permits loans or the issuance of letters of credit of up to $10 million.

27
                                
                                                                                                

As of September 30, 2014, under the West Holdings Credit Agreement, West Holdings had $447 million outstanding under the Tranche A Facility, $59 million under the Tranche B Facility, issued a $33 million letter of credit in support of the PPA, a $48 million letter in support of debt service and a $1 million letter of credit under the working capital facility.
Alpine Financing
On March 16, 2012, NRG Solar Alpine LLC, or Alpine, entered into a credit agreement with a group of lenders for a $166 million construction loan that was convertible to a term loan upon completion of the project and a $68 million cash grant loan. On January 15, 2013, the credit agreement was amended, reducing the cash grant loan to $63 million. On March 26, 2013, Alpine met the conditions under the credit agreement to convert the construction loan to a term loan. Immediately prior to the conversion, the Company drew an additional $164 million under the construction loan and $62 million under the cash grant loan. The term loan amortizes on a predetermined schedule with final maturity in November 2022.
In January 2014, Alpine repaid the $62 million of outstanding cash grant loan, including accrued interest and breakage fees, with the proceeds that it had received from the U.S. Treasury Department, as further described in in Note 4, Property, Plant and Equipment. On June 24, 2014, Alpine amended the credit agreement to increase its term loan borrowings by an additional $13 million and to reduce the related interest rate to 3 month LIBOR plus 1.75% through June 30, 2019 and 3 month LIBOR plus 2.00% through November 2022. The proceeds were utilized to make a distribution of $11 million to NRG Yield Operating LLC with the remaining $2 million utilized to fund the costs of the amendment.
TA High Desert Facility
The TA High Desert Facility is comprised of $53 million of fixed rate notes due 2033 at an interest rate of 5.15%, $7 million of floating rate notes due 2023, $22 million of bridge notes due the earlier of ten days after receipt of the cash grant or May 2014, and a revolving facility of $12 million. The floating rate notes have an interest rate of 3 month LIBOR plus 2.5% with LIBOR floor of 1.5%, while the bridge notes have an interest rate of 1 month LIBOR plus 2.50%. As described in Note 4, Property, Plant and Equipment, in April 2014, TA High Desert received payment of $20 million for its cash grant and utilized the proceeds, along with an additional $2 million of cash contributed by NRG to repay the cash grant bridge loan. The revolving facility can be used for cash or for the issuance of up to $9 million in letters of credit. As of September 30, 2014, $57 million of notes were outstanding and $8 million of letters of credit were outstanding under the revolving facility.  The notes amortize on predetermined schedules and are secured by all of the assets of TA High Desert.
RE Kansas South Facility
The RE Kansas South Facility includes a $38 million term loan due 2031 and a $21 million cash grant bridge loan due ten days after receipt of the cash grant. The term loan has an interest rate of 6 month LIBOR plus an applicable margin of 2.625% and increases by 0.25% every 4 years. The cash grant bridge loan had an interest rate of 1 month LIBOR plus an applicable margin of 2.00%. The term loan amortizes on a predetermined schedule and is secured by all of the assets of RE Kansas South. As described in Note 4, Property, Plant and Equipment, in April 2014, the Company received payment of $21 million for the cash grant related to RE Kansas South and utilized the proceeds to repay the cash grant bridge loan. As of September 30, 2014, $36 million was outstanding under the term loan and $4 million of letters of credit were issued under the RE Kansas South Facility. On September 26, 2014, RE Kansas South amended its credit agreement to change the interest rate to 6 month LIBOR plus 2.00% through September 30, 2019 and to 6 month LIBOR plus 2.250% thereafter.
Additional Project-level Debt Amendments
On July 9, 2014, Avra Valley amended its credit agreement to increase its borrowings by $3 million and to reduce the related interest rate from 3 month LIBOR plus an applicable margin of 2.25% to 3 month LIBOR plus 1.75%. The proceeds were primarily utilized to make a distribution to NRG Yield Operating LLC.
On July 17, 2014, Marsh Landing amended its credit agreement to increase its borrowings by $34 million and to reduce the related interest rate for the Tranche A borrowings from 3 month LIBOR plus an applicable margin of 2.75% to 3 month LIBOR plus 1.75% through December 2017 and to 3 month LIBOR plus 2.00% thereafter; and for the Tranche B to reduce the related interest rate from 3 month LIBOR plus 3.00% to 3 month LIBOR plus 1.875% through December 2017 and to 3 month LIBOR plus 2.125% thereafter. The proceeds from the borrowings were utilized to make a distribution of $29 million to NRG Yield Operating LLC and to fund the costs of the amendment.
Alta Wind Financing Arrangements
As described in Note 3, Business Acquisitions, the Company acquired the Alta Wind Assets on August 12, 2014. In connection with the acquisition, the Company assumed the following debt arrangements:

28
                                
                                                                                                


Term loan and note facilities
Amount in millions, except rates
 
Term Loan Facility
 
Letter of Credit Facility
 
Notes Payable
Non-Recourse Debt
 
Amount Outstanding as of September 30, 2014
 
Interest Rate
 
Maturity Date
 
Amount Outstanding as of September 30, 2014
 
Interest Rate
 
Maturity Date
 
Amount Outstanding as of September 30, 2014
 
Interest Rate
 
Maturity Date
Alta Realty
 
$
—

 
—
 
—
 
$
—

 
—
 
—
 
$
34

 
7.00%
 
1/31/2031
AWAM
 
20

 
3-Month LIBOR + 2.375%
 
5/15/2031
 
—

 
—
 
—
 
—

 
—
 
—
Alta X
 
300

 
3-Month LIBOR + 2.00%
 
3/31/2020
 
5

 
2.00%
 
3/31/2020
 
—

 
—
 
—
Alta XI
 
191

 
3-Month LIBOR + 2.00%
 
3/31/2020
 
—

 
—
 
—
 
—

 
—
 
—
Total
 
$
511

 
 
 
 
 
$
5

 
 
 
 
 
$
34

 
 
 
 
All of the assets of Alta X and Alta XI are pledged as collateral under their respective agreements.
Lease financing arrangements
Alta Wind Holdings (Alta Wind II - V) and Alta I have finance lease obligations issued under lease transactions whereby the respective operating entities sold and leased back undivided interests in specific assets of the project. All of the assets of Alta I - V are pledged as collateral under these arrangements. The sale and related lease transactions are accounted for as financing arrangements as the operating entities have continued involvement with the property.
Amount in millions, except rates
 
Lease Financing Arrangement
 
Letter of Credit Facility
Non-Recourse Debt
 
Amount Outstanding as of September 30, 2014
 
Interest Rate
 
Maturity Date
 
Amount Outstanding as of September 30, 2014
 
Interest Rate
 
Maturity Date
Alta Wind I
 
$
263

 
7.015%
 
12/30/2034
 
$
16

 
3.250%
 
1/5/2016
Alta Wind II
 
207

 
5.696%
 
12/30/2034
 
25

 
2.750%
 
12/31/2017
Alta Wind III
 
215

 
6.067%
 
12/30/2034
 
25

 
2.750%
 
4/13/2018
Alta Wind IV
 
139

 
5.938%
 
12/30/2034
 
18

 
2.750%
 
5/20/2018
Alta Wind V
 
222

 
6.071%
 
6/30/2035
 
28

 
2.750%
 
6/13/2018
Total
 
$
1,046

 
 
 
 
 
$
112

 
 
 
 

29
                                
                                                                                                

Interest Rate Swaps — Alta Wind Project Financings
Certain of Alta Wind's project subsidiaries entered into interest rate swaps, intended to hedge the risks associated with interest rates on non-recourse project level debt. These swaps amortize in proportion to their respective loans and are floating for fixed where the project subsidiary pays its counterparty the equivalent of a fixed interest payment on a predetermined notional value and will receive quarterly the equivalent of a floating interest payment based on the same notional value. All interest rate swap payments by a project subsidiary and its counterparty are made quarterly and LIBOR is determined in advance of each interest period. The following table summarizes the swaps related to Alta Wind project level debt as of September 30, 2014:

Non-Recourse Debt
 
% of Principal
 
Fixed Interest Rate
 
Floating Interest Rate
 
Notional Amount at September 30, 2014
(In millions)
 
Effective Date
 
Maturity Date
Alta X
 
100%
 
various
 
3-Month LIBOR
 
$
216

 
December 31, 2013
 
December 31, 2015
Alta X
 
100%
 
various
 
3-Month LIBOR
 
84

 
December 31, 2013
 
December 31, 2025
Alta X
 
100%
 
various
 
3-Month LIBOR
 
162

 
December 31, 2015
 
December 31, 2020
Alta X
 
100%
 
various
 
3-Month LIBOR
 
103

 
December 31, 2020
 
December 31, 2025
Alta XI
 
100%
 
various
 
3-Month LIBOR
 
138

 
December 31, 2013
 
December 31, 2015
Alta XI
 
100%
 
various
 
3-Month LIBOR
 
53

 
December 31, 2013
 
December 31, 2025
Alta XI
 
100%
 
various
 
3-Month LIBOR
 
103

 
December 31, 2015
 
December 31, 2020
Alta XI
 
100%
 
various
 
3-Month LIBOR
 
65

 
December 31, 2020
 
December 31, 2025
AWAM
 
100%
 
2.47%
 
3-Month LIBOR
 
20

 
May 22, 2013