Attached files

file filename
EX-32 - EXHIBIT 32 - NRG ENERGY, INC.ex32q12017.htm
EX-31.3 - EXHIBIT 31.3 - NRG ENERGY, INC.ex313q12017.htm
EX-31.2 - EXHIBIT 31.2 - NRG ENERGY, INC.ex312q12017.htm
EX-31.1 - EXHIBIT 31.1 - NRG ENERGY, INC.ex311q12017.htm
                                    
                                

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
 
For the Quarterly Period Ended: March 31, 2017
 
 
 
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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No x
As of April 30, 2017, there were 316,082,221 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, 2016, and the following:
GenOn's and certain of its subsidiaries' ability to continue as a going concern;
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 (including wind and solar 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 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;
Changes in law, including judicial decisions;
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 Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;
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 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 increase cash from operations through operational and commercial initiatives, corporate efficiencies, asset strategy, and a range of other programs throughout NRG to reduce costs or generate revenues;
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;

3



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.
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:
2016 Form 10-K
 
NRG’s Annual Report on Form 10-K for the year ended December 31, 2016
Revolving Credit Facility
 
The Company’s $2.5 billion revolving credit facility, a component of the 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.
2023 Term Loan Facility
 
The Company's $1.9 billion term loan facility due 2023, a component of the Senior Credit Facility.
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
BRA
 
Base Residual Auction
BTU
 
British Thermal Unit
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAISO
 
California Independent System Operator
CDD
 
Cooling Degree Day
CDWR
 
California Department of Water Resources
CEC
 
California Energy Commission
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
CFTC
 
U.S. Commodity Futures Trading Commission
COD
 
Commercial Operation Date
ComEd
 
Commonwealth Edison
Company
 
NRG Energy, Inc.
CPP
 
Clean Power Plan
CPUC
 
California Public Utilities Commission
CSAPR
 
Cross-State Air Pollution Rule
CVSR
 
California Valley Solar Ranch
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
Distributed Solar
 
Solar power projects that primarily sell power to customers for usage on site, or are interconnected to sell power into a local distribution grid
DSI
 
Dry Sorbent Injection
Economic gross margin
 
Sum of energy revenue, capacity revenue, retail revenue and other revenue, less cost of fuels and other cost of sales
ELG
 
Effluent Limitations Guidelines
El Segundo Energy Center
 
NRG West Holdings LLC, the subsidiary of Natural Gas Repowering LLC, which owns the El Segundo Energy Center project
EME
 
Edison Mission Energy
Energy Plus Holdings
 
Energy Plus Holdings LLC
EPA
 
U.S. Environmental Protection Agency

5



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
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, $649 million of 9.5% senior notes due 2018, and $490 million of 9.875% senior notes due 2020
GHG
 
Greenhouse Gas
GWh
 
Gigawatt Hour
HAP
 
Hazardous Air Pollutant
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
IASB
 
Independent Accounting Standards Board
IFRS
 
International Financial Reporting Standards
ILU
 
Illinois Union Insurance Company
ISO
 
Independent System Operator
ISO-NE
 
ISO New England Inc.
ITC
 
Investment Tax Credit
LIBOR
 
London Inter-Bank Offered Rate
LTIPs
 
Collectively, the NRG Long-Term Incentive Plan, as amended, and the NRG GenOn Long-Term Incentive Plan
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
MDth
 
Thousand Dekatherms
Midwest Generation
 
Midwest Generation, LLC
MISO
 
Midcontinent Independent System Operator, Inc.
MMBtu
 
Million British Thermal Units
MW
 
Megawatts
MWh
 
Saleable megawatt hour net of internal/parasitic load megawatt-hour

6



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 Yield
 
Reporting segment including the projects owned 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 53.4% 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
NSR
 
New Source Review
Nuclear Decommissioning Trust Fund
 
NRG's nuclear decommissioning trust fund assets, which are for the Company's portion of the decommissioning of the STP, units 1 & 2
NYAG
 
State of New York Office of Attorney General
NYISO
 
New York Independent System Operator
NYSPSC
 
New York State Public Service Commission
OCI/OCL
 
Other Comprehensive Income/(Loss)
Peaking
 
Units expected to satisfy demand requirements during the periods of greatest or peak load on the system
PER
 
Peak Energy Rent
PG&E
 
Pacific Gas and Electric Company
PJM
 
PJM Interconnection, LLC
PM
 
Particulate Matter
PPA
 
Power Purchase Agreement
PSD
 
Prevention of Significant Deterioration
PTC
 
Production Tax Credit
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
Repowering
 
Technologies utilized to replace, rebuild, or redevelop major portions of an existing electrical generating facility to achieve a substantial emissions reduction, increase facility capacity and improve system efficiency
Retail
 
Reporting segment that includes NRG's residential and small commercial businesses which go to market as Reliant, NRG and other brands owned by NRG, as well as Business Solutions
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.
RGGI
 
Regional Greenhouse Gas Initiative
RMR
 
Reliability Must-Run

7



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.
Senior Notes
 
As of March 31, 2017, the Company’s $5.4 billion outstanding unsecured senior notes, consisting of $398 million of 7.625% senior notes due 2018, $207 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, $733 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
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
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.
TSA
 
Transportation Services Agreement
TWCC
 
Texas Westmoreland Coal Co.
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

8



PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
  
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended March 31,
(In millions, except for per share amounts)
2017
 
2016
Operating Revenues

 

Total operating revenues
$
2,759


$
3,229

Operating Costs and Expenses

 

Cost of operations
2,125


2,194

Depreciation and amortization
300


313

Selling, general and administrative
272


252

Development activity expenses
17


26

Total operating costs and expenses
2,714

 
2,785

Gain on sale of assets
2


32

Operating Income
47

 
476

Other Income/(Expense)

 

Equity in earnings/(losses) of unconsolidated affiliates
5


(7
)
Impairment loss on investment


(146
)
Other income, net
12


18

(Loss)/gain on debt extinguishment, net
(2
)

11

Interest expense
(269
)

(284
)
Total other expense
(254
)
 
(408
)
(Loss)/Income Before Income Taxes
(207
)

68

Income tax (benefit)/expense
(4
)

21

Net (Loss)/Income
(203
)

47

Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interests
(40
)

(35
)
Net (Loss)/Income Attributable to NRG Energy, Inc.
(163
)

82

Dividends for preferred shares


5

(Loss)/Income Available for Common Stockholders
$
(163
)
 
$
77

(Loss)/Earnings per Share Attributable to NRG Energy, Inc. Common Stockholders

 

Weighted average number of common shares outstanding — basic
316


315

(Loss)/Earnings per Weighted Average Common Share — Basic
$
(0.52
)

$
0.24

Weighted average number of common shares outstanding — diluted
316


315

(Loss)/Earnings per Weighted Average Common Share — Diluted
$
(0.52
)

$
0.24

Dividends Per Common Share
$
0.03


$
0.15

See accompanying notes to condensed consolidated financial statements.

9




NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
 
Three months ended March 31,
 
2017
 
2016
 
(In millions)
Net (loss)/income
$
(203
)

$
47

Other comprehensive income/(loss), net of tax

 

Unrealized income/(loss) on derivatives, net of income tax expense of $1, and $1
4


(32
)
Foreign currency translation adjustments, net of income tax expense of $0, and $0
7


6

Available-for-sale securities, net of income tax expense of $0, and $0


3

Defined benefit plans, net of income tax expense of $0, and $0


1

Other comprehensive income/(loss)
11

 
(22
)
Comprehensive (loss)/income
(192
)
 
25

Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interests
(39
)

(52
)
Comprehensive (loss)/income attributable to NRG Energy, Inc.
(153
)
 
77

Dividends for preferred shares


5

Comprehensive (loss)/income available for common stockholders
$
(153
)
 
$
72

See accompanying notes to condensed consolidated financial statements.

10



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 
March 31, 2017
 
December 31, 2016
(In millions, except shares)
(unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,513


$
1,973

Funds deposited by counterparties
3


2

Restricted cash
397


446

Accounts receivable, net
974


1,166

Inventory
1,140


1,111

Derivative instruments
682


1,062

Cash collateral paid in support of energy risk management activities
277


203

Current assets held-for-sale


9

Prepayments and other current assets
454


423

Total current assets
5,440


6,395

Property, plant and equipment, net
17,942


17,912

Other Assets
 
 
 
Equity investments in affiliates
1,148


1,120

Notes receivable, less current portion
13


17

Goodwill
662


662

 Intangible assets, net
1,957


2,036

Nuclear decommissioning trust fund
627


610

Derivative instruments
226


189

Deferred income taxes
223


225

Non-current assets held-for-sale
10


10

Other non-current assets
1,172


1,179

Total other assets
6,038


6,048

Total Assets
$
29,420


$
30,355

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Current portion of long-term debt and capital leases
$
1,688


$
1,220

Accounts payable
872


895

Derivative instruments
747


1,084

Cash collateral received in support of energy risk management activities
3


2

Accrued expenses and other current liabilities
887


1,181

Total current liabilities
4,197


4,382

Other Liabilities
 

 
Long-term debt and capital leases
17,672


18,006

Nuclear decommissioning reserve
291


287

Nuclear decommissioning trust liability
352


339

Deferred income taxes
20


20

Derivative instruments
315


294

Out-of-market contracts, net
1,017


1,040

Non-current liabilities held-for-sale
12


12

Other non-current liabilities
1,487


1,483

Total non-current liabilities
21,166


21,481

Total Liabilities
25,363


25,863

Redeemable noncontrolling interest in subsidiaries
44


46

Commitments and Contingencies





Stockholders’ Equity



Common stock
4


4

Additional paid-in capital
8,375


8,358

Retained deficit
(4,238
)

(3,787
)
Less treasury stock, at cost — 101,858,284 and 102,140,814 shares, respectively
(2,392
)

(2,399
)
Accumulated other comprehensive loss
(124
)

(135
)
Noncontrolling interest
2,388


2,405

Total Stockholders’ Equity
4,013


4,446

Total Liabilities and Stockholders’ Equity
$
29,420


$
30,355

See accompanying notes to condensed consolidated financial statements.

11



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three months ended March 31,
 
2017
 
2016
 
(In millions)
Cash Flows from Operating Activities
 
 
 
Net (loss)/income
$
(203
)

$
47

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



Distributions and equity in earnings of unconsolidated affiliates
8


17

Depreciation and amortization
300


313

Provision for bad debts
9


10

Amortization of nuclear fuel
12


13

Amortization of financing costs and debt discount/premiums
1


1

Adjustment for debt extinguishment


(11
)
Amortization of intangibles and out-of-market contracts
10


26

Amortization of unearned equity compensation
8


8

Impairment losses


146

Changes in deferred income taxes and liability for uncertain tax benefits
1


(25
)
Changes in nuclear decommissioning trust liability
36


9

Changes in derivative instruments
25


(50
)
Changes in collateral posted in support of risk management activities
(74
)
 
156

Proceeds from sale of emission allowances


47

Gain on sale of assets
(2
)

(32
)
Cash used by changes in other working capital
(199
)

(121
)
Net Cash (Used)/Provided by Operating Activities
(68
)

554

Cash Flows from Investing Activities
 

 
Acquisitions of businesses, net of cash acquired
(3
)

(6
)
Capital expenditures
(268
)

(279
)
Decrease/(increase)in restricted cash, net
13

 
(12
)
Decrease in restricted cash to support equity requirements for U.S. DOE funded projects
36

 
39

Decrease in notes receivable
4


1

Purchases of emission allowances
(9
)

(12
)
Proceeds from sale of emission allowances
11


7

Investments in nuclear decommissioning trust fund securities
(153
)

(200
)
Proceeds from the sale of nuclear decommissioning trust fund securities
117


191

Proceeds from renewable energy grants and state rebates


8

Proceeds from sale of assets, net of cash disposed of
14


120

Investments in unconsolidated affiliates
(12
)

(4
)
Other
18


4

Net Cash Used by Investing Activities
(232
)

(143
)
Cash Flows from Financing Activities
 

 
Payment of dividends to common and preferred stockholders
(9
)

(48
)
Net receipts from settlement of acquired derivatives that include financing elements
1


39

Proceeds from issuance of long-term debt
192


61

Payments for short and long-term debt
(177
)

(316
)
Payment for credit support in long-term deposits
(130
)


Proceeds from draw on revolving credit facility for long-term deposits          
125



Increase in long-term deposits                                                                                 
(125
)


Contributions to, net of distributions from, noncontrolling interest in subsidiaries
(5
)

10

Payment of debt issuance costs
(15
)


Other - contingent consideration
(10
)

(10
)
Net Cash Used by Financing Activities
(153
)

(264
)
Effect of exchange rate changes on cash and cash equivalents
(7
)

(6
)
Net (Decrease)/ Increase in Cash and Cash Equivalents
(460
)

141

Cash and Cash Equivalents at Beginning of Period
1,973


1,518

Cash and Cash Equivalents at End of Period
$
1,513


$
1,659

See accompanying notes to condensed consolidated financial statements.

12



NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Basis of Presentation
NRG Energy, Inc., or NRG or the Company, is a leading integrated power company built on the strength of the nation's largest and most diverse competitive electric generation portfolio and leading retail electricity platform. NRG aims to create a sustainable energy future by producing, selling and delivering electricity and related products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. 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 2016 Form 10-K. Interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of March 31, 2017, and the results of operations, comprehensive income/(loss) and cash flows for the three months ended March 31, 2017 and 2016.
GenOn Liquidity and Ability to Continue as a Going Concern
As of March 31, 2017, GenOn had cash and cash equivalents of $885 million, of which $305 million and $82 million were held by GenOn Mid-Atlantic and REMA, respectively. Under their respective operating leases, GenOn Mid-Atlantic and REMA are not permitted to make any distributions and other restricted payments unless: (a) they satisfy the fixed charge coverage ratio for the most recently ended period for four fiscal quarters; (b) they are projected to satisfy the fixed charge coverage ratio for each of the two following periods of four fiscal quarters, commencing with the fiscal quarter in which such payment is proposed to be made; and (c) no significant lease default or event of default has occurred and is continuing. Additionally, GenOn Mid-Atlantic and REMA must be in compliance with the requirement to provide credit support to the owner lessors securing their obligations to pay scheduled rent under their respective leases. As a result, GenOn Mid-Atlantic has not been able to make distributions of cash and certain other restricted payments since the quarter ended March 31, 2014 which was the last quarterly period for which GenOn Mid-Atlantic satisfied the conditions under its operating agreement. REMA has not satisfied the conditions under its operating agreement to make distributions of cash and certain other restricted payments since 2009.
As disclosed in Note 8, Debt and Capital Leases, $691 million of GenOn's Senior Notes, excluding $4 million of associated premiums, are current within the GenOn consolidated balance sheet as of March 31, 2017 and are due on June 15, 2017. GenOn's future profitability continues to be adversely affected by (i) a sustained decline in natural gas prices and its resulting effect on wholesale power prices and capacity prices, and (ii) the inability of GenOn Mid-Atlantic and REMA to make distributions of cash and certain other restricted payments to GenOn. GenOn is currently considering all options available to it, including negotiations with creditors and lessors, refinancing the GenOn Senior Notes, potential sales of certain generating assets as well as the possibility for a need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. If GenOn is unable to enter into a settlement with its creditors, refinance the senior notes or otherwise raise or generate sufficient capital, GenOn is not expected to have sufficient liquidity to repay the GenOn Senior Notes due in June 2017. Pending resolution, there is substantial doubt about GenOn's ability to continue as a going concern. As a result of the substantial doubt about GenOn’s ability to continue as a going concern, along with additional factors, there is substantial doubt about certain of GenOn’s subsidiaries’ ability to continue as a going concern.
During 2016, GenOn appointed two independent directors, retained advisors and established a separate audit committee as part of this process. On April 7, 2017, GenOn also appointed a new dedicated chief executive officer, effective immediately. Any resolution may have a material impact on the NRG's statement of operations, cash flows and financial position.

13



NRG, GenOn's parent company, has no obligation to provide any financial support to GenOn other than under the secured intercompany revolving credit agreement between NRG and GenOn and NRG Americas. As of March 31, 2017, $214 million was available to be used by GenOn under the $500 million revolving credit agreement. As controlled group members, ERISA requires that NRG and GenOn are jointly and severally liable for the NRG Pension Plan for Bargained Employees and the NRG Pension Plan, including the pension liabilities associated with GenOn employees.
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.



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:
 
March 31, 2017
 
December 31, 2016
 
(In millions)
Accounts receivable allowance for doubtful accounts
$
33

 
$
30

Property, plant and equipment accumulated depreciation
6,602

 
6,314

Intangible assets accumulated amortization
1,724

 
1,775

Out-of-market contracts accumulated amortization
666

 
765

Noncontrolling Interest
The following table reflects the changes in NRG's noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2016
$
2,405

Dividends paid to NRG Yield, Inc. public shareholders
(25
)
Comprehensive loss attributable to noncontrolling interest
(22
)
Distributions to noncontrolling interest
(21
)
Contributions from noncontrolling interest
48

Sale of assets to NRG Yield, Inc.
3

Balance as of March 31, 2017
$
2,388


Redeemable Noncontrolling Interest
The following table reflects the changes in the Company's redeemable noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2016
$
46

Contributions from redeemable noncontrolling interest
15

Comprehensive loss attributable to redeemable noncontrolling interest
(17
)
Balance as of March 31, 2017
$
44

Recent Accounting Developments - Guidance Adopted in 2017
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.  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.  The Company adopted the guidance in ASU No. 2016-16 effective January 1, 2017. In connection with the adoption of the standard, the Company recorded a reduction to non-current assets of $267 million with a corresponding reduction to cumulative retained deficit. 
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 Company adopted the guidance in ASU No. 2016-15 effective January 1, 2017. While the Company has applied this guidance retrospectively, the adoption of the standard did not have an impact on the statement of cash flow for the three months ended March 31, 2016.

15



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 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 Company adopted the guidance in ASU No. 2016-09 effective January 1, 2017 with no material adjustments recorded to the consolidated balance sheet.
Recent Accounting Developments - Guidance Not Yet Adopted
ASU 2017-07 — In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU No. 2017-07.   Current GAAP does not indicate where the amount of net benefit cost should be presented in an entity’s income statement and does not require entities to disclose the amount of net benefit cost that is included in the income statement.  The amendments of ASU No. 2017-07 require an entity to report the service cost component of net benefit costs in the same line item as other compensation costs arising from services rendered by the related employees during the applicable service period.  The other components of net benefit cost are required to be presented separately from the service cost component and outside the subtotal of income from operations. Further, ASU No. 2017-07 prescribes that only the service cost component of net benefit costs is eligible for capitalization. The amendments of ASU No. 2017-07 are effective for fiscal years beginning after December 15, 2017, including interim periods therein.  Early adoption is permitted and must be applied on a retrospective basis, except for the amendments regarding the capitalization of the service cost component, which must be applied prospectively. The Company is currently assessing the impact that the adoption of ASU No. 2017-07 will have on its results of operations, cash flows, and statement of financial position.
ASU 2016-18 — In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, or ASU No. 2016-18. The amendments of ASU No. 2016-18 require an entity to include amounts generally described as restricted cash and restricted cash equivalents, including funds deposited by counterparties with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The amendments of ASU No. 2016-18 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. 2016-18 will be applied retrospectively. The Company calculated the impact of ASU No. 2016-18 on the statement of cash flows to be a decrease of cash flows used by operating activities of $1 million and an increase of cash flows used by investing activities of $49 million for the three months ended March 31, 2017, and a decrease of cash flows provided by operating activities of $5 million and a decrease of cash flows used by investing activities of $27 million for the three months ended March 31, 2016.
ASU 2016-02 — In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or Topic 842, 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 by expanding the related disclosures. The guidance in Topic 842 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, Topic 842 expands the required quantitative and qualitative disclosures with regards to lease arrangements. The Company expects to adopt the standard effective January 1, 2019 utilizing the required modified retrospective approach for the earliest period presented. The Company expects to elect certain of the practical expedients permitted, including the expedient that permits the Company to retain its existing lease assessment and classification. The Company is currently working through an adoption plan which includes the evaluation of lease contracts compared to the new standard. While the Company is currently evaluating the impact the new guidance will have on its financial position and results of operations, the Company expects to recognize lease liabilities and right of use assets. The extent of the increase to assets and liabilities associated with these amounts remains to be determined pending the Company’s review of its existing lease contracts and service contracts which may contain embedded leases. As this review is still in process, it is currently not practicable to quantify the impact of adopting the ASU at this time.
ASU 2014-09 — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or Topic 606, which was further amended through various updates issued by the FASB thereafter. The amendments of Topic 606 completed the joint effort between the FASB and the IASB, to develop a common revenue standard for GAAP and IFRS, and to improve financial reporting. 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 five step model to be applied by an entity in evaluating its contracts with customers. The Company expects to adopt the standard effective January 1, 2018 and apply the guidance retrospectively to contracts at the date of adoption. The Company will recognize the cumulative effect of applying Topic 606 at the date of initial application, as prescribed under the modified retrospective transition method. The Company also expects to elect the practical expedient available under Topic 606 for measuring progress toward complete satisfaction of a performance obligation and for disclosure requirements of remaining performance obligations. The practical expedient allows an entity to recognize revenue in the amount to which the entity has the right to invoice such that the entity has a right to the consideration in an amount that

16



corresponds directly with the value to the customer for performance completed to date by the entity. The Company continues to assess the new standard with a focus on identifying the performance obligations included within its revenue arrangements with customers and evaluating the Company’s methods of estimating the amount and timing of variable consideration. Based on the assessment to date, the Company is currently evaluating the impact of the new standard on the Company’s results of operations, financial position or cash flows.
Note 3Dispositions
The Company completed the following transfer of assets under common control.
On March 27, 2017, the Company sold to NRG Yield, Inc.: (i) a 16% interest in the Agua Caliente solar project, representing ownership of approximately 46 net MW of capacity and (ii) NRG's interests in seven utility-scale solar projects located in Utah representing 265 net MW of capacity, which have reached commercial operations. NRG Yield Inc. paid cash consideration of $130 million, plus $1 million in working capital adjustments, and assumed non-recourse debt of approximately $328 million.
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 2016 Form 10-K.
For cash and cash equivalents, funds deposited by counterparties, accounts and other receivables, accounts payable, restricted cash, and cash collateral paid and received in support of energy risk management activities, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.
The estimated carrying amounts and fair values of NRG's recorded financial instruments not carried at fair market value are as follows:
 
As of March 31, 2017
 
As of December 31, 2016
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable (a)
$
30

 
$
30

 
$
34

 
$
34

Liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion (b)
19,539

 
18,726

 
19,406

 
18,566

(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 March 31, 2017 and December 31, 2016:
 
As of March 31, 2017
 
As of December 31, 2016
 
Level 2
 
Level 3
 
Level 2
 
Level 3
 
(In millions)
Long-term debt, including current portion
$
11,190

 
$
7,536

 
$
11,055

 
$
7,511



17



Recurring Fair Value Measurements
Debt securities, equity securities, and trust fund investments, which are comprised of various U.S. debt and equity securities, and derivative assets and liabilities, are carried at fair market value.
The following tables present assets and liabilities measured and recorded at fair value on the Company's condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:
 
As of March 31, 2017
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
    non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
18

 
$
18

Available-for-sale securities
4

 

 

 
4

Other (a)
8

 

 

 
8

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
16

 

 

 
16

U.S. government and federal agency obligations
55

 
1

 

 
56

Federal agency mortgage-backed securities

 
67

 

 
67

Commercial mortgage-backed securities

 
17

 

 
17

Corporate debt securities

 
100

 

 
100

Equity securities
309

 

 
58

 
367

Foreign government fixed income securities

 
4

 

 
4

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
245

 
534

 
79

 
858

Interest rate contracts

 
50

 

 
50

Total assets
$
638

 
$
773

 
$
155

 
$
1,566

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
307

 
541

 
137

 
985

Interest rate contracts

 
77

 

 
77

Total liabilities
$
307

 
$
618

 
$
137

 
$
1,062

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

18



 
As of December 31, 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
25

 

 

 
25

U.S. government and federal agency obligations
72

 
1

 

 
73

Federal agency mortgage-backed securities

 
62

 

 
62

Commercial mortgage-backed securities

 
17

 

 
17

Corporate debt securities

 
84

 

 
84

Equity securities
292

 

 
54

 
346

Foreign government fixed income securities

 
3

 

 
3

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
559

 
551

 
92

 
1,202

Interest rate contracts

 
49

 

 
49

Total assets
$
969

 
$
767

 
$
163

 
$
1,899

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
494

 
635

 
161

 
1,290

Interest rate contracts

 
88

 

 
88

Total liabilities
$
494

 
$
723

 
$
161

 
$
1,378

(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 months ended March 31, 2017 and 2016 between Levels 1 and 2. The following tables reconcile, for the three months ended March 31, 2017 and 2016, 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 March 31, 2017
(In millions)
Debt Securities
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance
$
17

 
$
54

 
$
(69
)
 
$
2

Total gains — realized/unrealized:
 
 
 
 
 
 


Included in earnings
1

 

 
6

 
7

Included in nuclear decommissioning obligation

 
4

 

 
4

Purchases

 

 
3

 
3

Transfers into Level 3 (b)

 

 
(8
)
 
(8
)
Transfers out of Level 3 (b)

 

 
10

 
10

Ending balance as of March 31, 2017
$
18

 
$
58

 
$
(58
)
 
$
18

Losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of March 31, 2017
$

 
$

 
$
(15
)
 
$
(15
)
(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.

19



 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended March 31, 2016
(In millions)
Debt Securities
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance
$
17

 
$
54

 
$
(33
)
 
$
38

Total losses — realized/unrealized:
 
 
 
 
 
 
 
Included in earnings

 

 
(17
)
 
(17
)
Included in nuclear decommissioning obligations

 
(2
)
 

 
(2
)
Purchases

 

 
5

 
5

Transfers into Level 3 (b)

 

 
27

 
27

Transfers out of Level 3 (b)

 

 
1

 
1

Ending balance as of March 31, 2016
$
17

 
$
52

 
$
(17
)
 
$
52

Losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of March 31, 2016
$

 
$

 
$
(24
)
 
$
(24
)
(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 March 31, 2017, contracts valued with prices provided by models and other valuation techniques make up 9% of the total derivative assets and 13% 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.











20



The following tables quantify the significant unobservable inputs used in developing the fair value of the Company's Level 3 positions as of March 31, 2017 and December 31, 2016:
 
Significant Unobservable Inputs
 
March 31, 2017
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
 
 
 
 
 
 
 
 
 
 
Power Contracts
$
43

 
$
97

 
Discounted Cash Flow
 
Forward Market Price (per MWh)
 
$
12

 
$
88

 
$
26

Coal Contracts

 
1

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
42

 
48

 
44

FTRs
36

 
39

 
Discounted Cash Flow
 
Auction Prices (per MWh)
 
(17
)
 
19

 

 
$
79

 
$
137

 
 
 
 
 
 
 
 
 
 
 
Significant Unobservable Inputs
 
December 31, 2016
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
 
 
 
 
 
 
 
 
 
 
Power Contracts
$
40

 
$
107

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

 
$
104

 
$
31

Coal Contracts

 
1

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
42

 
51

 
45

FTRs
52

 
53

 
Discounted Cash Flow
 
Auction Prices (per MWh)
 
(22
)
 
17

 

 
$
92

 
$
161

 
 
 
 
 
 
 
 
 
 
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of March 31, 2017 and December 31, 2016:
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 March 31, 2017, the credit reserve resulted in a $2 million decrease in fair value in operating revenue and cost of operations. As of December 31, 2016, the credit reserve resulted in an $11 million decrease in fair value in operating revenue and cost of operations.
Concentration of Credit Risk
In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, to the Company's 2016 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.

21



Counterparty Credit Risk
The Company's counterparty credit risk policies are disclosed in its 2016 Form 10-K. As of March 31, 2017, the Company's counterparty credit exposure, excluding credit risk exposure under certain long term agreements, was $191 million with net exposure of $188 million. NRG held collateral (cash and letters of credit) against those positions of $3 million. Approximately 76% of the Company's exposure before collateral is expected to roll off by the end of 2018. 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) (b)
Category by Industry Sector
(% of Total)
Utilities, energy merchants, marketers and other
91
%
Financial institutions
9

Total as of March 31, 2017
100
%
 
Net Exposure (a) (b)
Category by Counterparty Credit Quality
(% of Total)
Investment grade
87
%
Non-Investment grade/Non-Rated
13

Total as of March 31, 2017
100
%
(a)
Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices.
(b)
The figures in the tables above exclude potential counterparty credit exposure related to RTOs, ISOs, registered commodity exchanges and certain long term contracts.
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 $72 million as of March 31, 2017. 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.
RTOs and ISOs
The Company participates in the organized markets of CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in these markets is approved by FERC, or in the case of ERCOT, approved by the PUCT and includes credit policies that, under certain circumstances, require that losses arising from the default of one member on spot market transactions be shared by the remaining participants. As a result, the counterparty credit risk to these markets is limited to NRG’s share of overall market and are excluded from the above exposures.
Exchange Traded Transactions
The Company enters into commodity transactions on registered exchanges, notably ICE and NYMEX. These clearinghouses act as the counterparty and transactions are subject to extensive collateral and margining requirements. As a result, these commodity transactions have limited counterparty credit risk.

Long Term Contracts
Counterparty credit exposure described above excludes credit risk exposure under certain long term agreements, including California tolling agreements, Gulf Coast load obligations, and wind and solar PPAs. 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 March 31, 2017, aggregate credit risk exposure managed by NRG to these counterparties was approximately $4.4 billion, including $2.9 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, which NRG is unable to predict.

22



Retail Customer Credit Risk
NRG is exposed to retail credit risk through the Company's retail electricity providers, which serve commercial, industrial and governmental/institutional customers and the Mass market. Retail credit risk results when a customer fails to pay for products or services rendered. The losses may result from both nonpayment of customer accounts receivable and the loss of in-the-money forward value. NRG manages retail credit risk through the use of established credit policies that include monitoring of the portfolio, and the use of credit mitigation measures such as deposits or prepayment arrangements.
As of March 31, 2017, the Company believes its retail customer credit exposure was diversified across many customers and various industries, as well as government entities.
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 2016 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 March 31, 2017
 
As of December 31, 2016
(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
$
16

 
$

 
$

 

 
$
25

 
$

 
$

 

U.S. government and federal agency obligations
56

 
2

 

 
9

 
73

 
1

 

 
11

Federal agency mortgage-backed securities
67

 
1

 
1

 
24

 
62

 
1

 
1

 
25

Commercial mortgage-backed securities
17

 

 
1

 
26

 
17

 

 
1

 
26

Corporate debt securities
100

 
1

 
1

 
10

 
84

 
1

 
2

 
11

Equity securities
367

 
233

 

 

 
346

 
214

 

 

Foreign government fixed income securities
4

 

 

 
7

 
3

 

 

 
9

Total
$
627

 
$
237

 
$
3

 
 
 
$
610

 
$
217

 
$
4

 
 
The following table summarizes proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales. The cost of securities sold is determined on the specific identification method.
 
Three months ended March 31,
 
2017
 
2016
 
(In millions)
Realized gains
$
2

 
$
4

Realized losses
2

 
3

Proceeds from sale of securities
117


191


23



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 2016 Form 10-K.
Energy-Related Commodities
As of March 31, 2017, NRG had energy-related derivative instruments extending through 2031. 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 March 31, 2017, 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 2036, 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 March 31, 2017 and December 31, 2016. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date.
 
 
Total Volume
 
 
March 31, 2017
 
December 31, 2016
Category
Units
(In millions)
Emissions
Short Ton
(4
)
 

Coal
Short Ton
32

 
41

Natural Gas
MMBtu
162

 
85

Oil
Barrel

 
1

Power
MWh
(12
)
 
(28
)
Capacity
MW/Day
(1
)
 
(1
)
Interest
Dollars
$
3,369

 
$
3,429

Equity
Shares
1

 
1

The increase in the natural gas position was primarily the result of additional generation and retail hedge positions.

Fair Value of Derivative Instruments
The following table summarizes the fair value within the derivative instrument valuation on the balance sheets:
 
Fair Value
 
Derivative Assets
 
Derivative Liabilities
 
March 31, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
 
(In millions)
Derivatives designated as cash flow hedges:

 
 
 


 
Interest rate contracts current
$

 
$

 
$
22


$
28

Interest rate contracts long-term
12

 
12

 
31


41

Total derivatives designated as cash flow hedges
12

 
12

 
53


69

Derivatives not designated as cash flow hedges:

 
 
 
 

 
Interest rate contracts current
3

 

 
8


7

Interest rate contracts long-term
35

 
37

 
16


12

Commodity contracts current
679

 
1,062

 
717


1,049

Commodity contracts long-term
179

 
140

 
268


241

Total derivatives not designated as cash flow hedges
896

 
1,239

 
1,009


1,309

Total derivatives
$
908


$
1,251

 
$
1,062


$
1,378




24



The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. In addition, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. The following table summarizes the offsetting of derivatives by counterparty master agreement level and collateral received or paid:
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
Gross Amounts of Recognized Assets / Liabilities
 
Derivative Instruments
 
Cash Collateral (Held) / Posted
 
Net Amount
As of March 31, 2017
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
$
858

 
$
(732
)
 
$
(2
)
 
$
124

Derivative liabilities
 
(985
)
 
732

 
64

 
(189
)
Total commodity contracts
 
(127
)
 

 
62

 
(65
)
Interest rate contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
50

 
(4
)
 

 
46

Derivative liabilities
 
(77
)
 
4

 

 
(73
)
Total interest rate contracts
 
(27
)
 

 

 
(27
)
Total derivative instruments
 
$
(154
)
 
$

 
$
62

 
$
(92
)
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
Gross Amounts of Recognized Assets / Liabilities
 
Derivative Instruments
 
Cash Collateral (Held) / Posted
 
Net Amount
As of December 31, 2016
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 

Derivative assets
 
$
1,202

 
$
(1,005
)
 
$
(1
)
 
$
196

Derivative liabilities
 
(1,290
)
 
1,005

 
14

 
(271
)
Total commodity contracts
 
(88
)
 

 
13

 
(75
)
Interest rate contracts:
 
 
 
 
 
 
 

Derivative assets
 
49

 
(4
)
 

 
45

Derivative liabilities
 
(88
)
 
4

 

 
(84
)
Total interest rate contracts
 
(39
)
 

 

 
(39
)
Total derivative instruments
 
$
(127
)
 
$

 
$
13


$
(114
)
Accumulated Other Comprehensive Loss
The following table summarizes the effects of ASC 815 on the Company's accumulated OCI balance attributable to cash flow hedge derivatives, net of tax:
 
Three months ended March 31, 2017
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$
(66
)
 
$
(66
)
Reclassified from accumulated OCI to income:
 
 
 
Due to realization of previously deferred amounts
3

 
3

Mark-to-market of cash flow hedge accounting contracts
2

 
2

Accumulated OCI ending balance, net of $14 tax
$
(61
)
 
$
(61
)
Losses expected to be realized from OCI during the next 12 months, net of $4 tax
$
(15
)
 
$
(15
)

25



 
Three months ended March 31, 2016
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$
(101
)
 
$
(101
)
Reclassified from accumulated OCI to income:
 
 
 
Due to realization of previously deferred amounts
3

 
3

Mark-to-market of cash flow hedge accounting contracts
(52
)
 
(52
)
Accumulated OCI ending balance, net of $24 tax
$
(150
)
 
$
(150
)
Amounts reclassified from accumulated OCI into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to interest expense for interest rate contracts. There was no ineffectiveness for the three months ended March 31, 2017 and 2016.
Accounting guidelines require a high degree of correlation between the derivative and the hedged item throughout the period in order to qualify as a cash flow hedge. As of December 31, 2016, the Company's regression analysis for Viento Funding II interest rate swaps, while positively correlated, did not meet the required threshold for cash flow hedge accounting. As a result, the Company de-designated the Viento Funding II cash flow hedges as of December 31, 2016, and will prospectively mark these derivatives to market through the income statement.
Impact of Derivative Instruments on the Statements of Operations
Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedges and ineffectiveness of hedge derivatives are reflected in current period consolidated results of operations.
The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges, ineffectiveness on cash flow hedges and trading activity on the Company's statement of operations. The effect of energy commodity contracts is included within operating revenues and cost of operations and the effect of interest rate contracts is included in interest expense.
 
Three months ended March 31,
 
2017
 
2016
Unrealized mark-to-market results
(In millions)
Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges
$
16

 
$
(86
)
Reversal of acquired loss/(gain) positions related to economic hedges
2

 
(13
)
Net unrealized (losses)/gains on open positions related to economic hedges
(24
)
 
134

Total unrealized mark-to-market (losses)/gains for economic hedging activities
(6
)
 
35

Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity
(15
)
 
8

Net unrealized gains on open positions related to trading activity
1

 
11

Total unrealized mark-to-market (losses)/gains for trading activity
(14
)
 
19

Total unrealized (losses)/gains
$
(20
)
 
$
54

 
Three months ended March 31,
 
2017
 
2016
 
(In millions)
Unrealized gains included in operating revenues
$
114

 
$
45

Unrealized (losses)/gains included in cost of operations
(134
)
 
9

Total impact to statement of operations — energy commodities
$
(20
)
 
$
54

Total impact to statement of operations — interest rate contracts
$
5

 
$
(11
)
The reversals of acquired gain or loss positions were valued based upon the forward prices on the acquisition date. The roll-off amounts were offset by realized gains or losses at the settled prices and are reflected in operating revenue or cost of operations during the same period.

26



For the three months ended March 31, 2017, the $24 million unrealized loss from open economic hedge positions was primarily the result of a decrease in value of forward purchases of natural gas, coal, and ERCOT electricity due to decreases in natural gas, coal and ERCOT electricity prices.
For the three months ended March 31, 2016, the $134 million unrealized gain from open economic hedge positions was primarily the result of an increase in value of forward sales of power due to decreases in electricity prices partially offset by a decrease in value of forward purchases of coal due to decreases in coal prices.
Credit Risk Related Contingent Features
Certain of the Company's hedging agreements contain provisions that require the Company to post additional collateral if the counterparty determines that there has been deterioration in credit quality, generally termed “adequate assurance” under the agreements, or requires the Company to post additional collateral if there were a one notch downgrade in the Company's credit rating. The collateral required for contracts with adequate assurance clauses that are in a net liability position as of March 31, 2017, was $38 million. The collateral required for contracts with credit rating contingent features as of March 31, 2017, was $33 million. The Company is also a party to certain marginable agreements where NRG has a net liability position, but the counterparty has not called for the collateral due, which was approximately $4 million as of March 31, 2017.
See Note 4, Fair Value of Financial Instruments, to this Form 10-Q for discussion regarding concentration of credit risk.
Note 7Impairments

2016 Impairment Loss

Petra Nova Parish Holdings During the first quarter of 2016, management changed its plans with respect to its future capital commitments driven in part by the continued decline in oil prices. As a result, the Company reviewed its 50% interest in Petra Nova Parish Holdings for impairment utilizing the other-than-temporary impairment model. In determining fair value, the Company utilized an income approach and considered project specific assumptions for the future project cash flows. The carrying amount of the Company's equity method investment exceeded the fair value of the investment and the Company concluded that the decline is considered to be other than temporary. As a result, the Company measured the impairment loss as the difference between the carrying amount and the fair value of the investment and recorded an impairment loss of $140 million.



  

27




Note 8Debt and Capital Leases
This footnote should be read in conjunction with the complete description under Note 12, Debt and Capital Leases, to the Company's 2016 Form 10-K. Long-term debt and capital leases consisted of the following:
(In millions, except rates)
 
March 31, 2017
 
December 31, 2016
 
March 31, 2017 interest rate % (a)
 
 
 
Recourse debt:
 
 
 
 
 
 
Senior notes, due 2018
 
$
398

 
$
398

 
7.625
Senior notes, due 2021
 
207

 
207

 
7.875
Senior notes, due 2022
 
992

 
992

 
6.250
Senior notes, due 2023
 
869

 
869

 
6.625
Senior notes, due 2024
 
733

 
733

 
6.250
Senior notes, due 2026
 
1,000

 
1,000

 
7.250
Senior notes, due 2027
 
1,250

 
1,250

 
6.625
Term loan facility, due 2023
 
1,886

 
1,891

 
L+2.25
Revolving credit facility, due 2018 and 2021
 
125

 

 
L+2.25
Tax-exempt bonds
 
455

 
455

 
4.125 - 6.00
Subtotal NRG recourse debt
 
7,915

 
7,795

 

Non-recourse debt: