Annual Statements Open main menu

NRG ENERGY, INC. - Quarter Report: 2015 June (Form 10-Q)

                                                                                                                


 
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: June 30, 2015
 
 
 
o
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-15891
NRG Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
 
41-1724239
(I.R.S. Employer
Identification No.)
 
 
 
211 Carnegie Center, Princeton, New Jersey
(Address of principal executive offices)
 
08540
(Zip Code)
(609) 524-4500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x       No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No x
As of July 31, 2015, there were 330,655,311 shares of 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 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, 2014, and the following:
General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;
Volatile power supply costs and demand for power;
Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards;
The effectiveness of NRG's risk management policies and procedures, and the ability of NRG's counterparties to satisfy their financial commitments;
Counterparties' collateral demands and other factors affecting NRG's liquidity position and financial condition;
NRG's ability to operate its businesses efficiently, manage capital expenditures and costs tightly, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
NRG's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices;
The liquidity and competitiveness of commodities markets;
Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws and increased regulation of carbon dioxide and other GHG emissions;
Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately compensate NRG's generation units for all of their costs;
NRG's ability to borrow additional funds and access capital markets, as well as NRG's substantial indebtedness and the possibility that NRG may incur additional indebtedness going forward;
NRG's ability to receive 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 agreed upon coverage;
NRG's ability to develop and build new power generation facilities, including new renewable projects;
NRG's ability to implement its strategy;
NRG's ability to sell assets to NRG Yield, Inc. and to close drop-down transactions;
NRG's ability to achieve its strategy of regularly returning capital to stockholders;
NRG's ability to obtain and maintain retail market share;
NRG's ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives;
NRG's ability to successfully integrate, realize cost savings and manage any acquired businesses; and
NRG's ability to develop and maintain successful partnership relationships.
Forward-looking statements speak only as of the date they were made, and NRG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in any forward-looking statements included in this Quarterly Report on Form 10-Q should not be construed as exhaustive.

3

                                                                                                                


GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2014 Form 10-K
 
NRG’s Annual Report on Form 10-K for the year ended December 31, 2014
Alta Wind Assets
 
Seven wind facilities that total 947 MWs located in Tehachapi, California and a portfolio of land leases
ASC
 
The FASB Accounting Standards Codification, which the FASB established as the source of authoritative U.S. GAAP
ASU
 
Accounting Standards Updates, which reflect updates to the ASC
B2B
 
Business-to-business, which includes demand response, commodity sales, energy efficiency and energy management services
BACT
 
Best Available Control Technology
BTU
 
British Thermal Unit
Buffalo Bear
 
Buffalo Bear, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Buffalo Bear project
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAISO
 
California Independent System Operator
Capital Allocation Program
 
NRG's plan of allocating capital between debt reduction, reinvestment in the business, investment in acquisition opportunities, share repurchases and shareholder dividends
CCF
 
Carbon Capture Facility
CCPI
 
Clean Coal Power Initiative
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
C&I
 
Commercial, Industrial and Governmental/Institutional
CO2
 
Carbon Dioxide
COD
 
Commercial Operations Date
ComEd
 
Commonwealth Edison
CPS
 
Combined Pollutant Standard
CPUC
 
California Public Utilities Commission
CSAPR
 
Cross-State Air Pollution Rule
CWA
 
Clean Water Act
D.C. Circuit
 
U.S. Court of Appeals for the District of Columbia Circuit
DGPV Holding
 
NRG Yield DGPV Holding LLC
Discrete Customers
 
Customers measured by unit sales of one-time products or services, such as connected home thermostats, portable solar products and portable battery solutions
Distributed Solar
 
Solar power projects that primarily sell power produced to customers for usage on site, or are interconnected to sell power into the local distribution grid
Dominion
 
Dominion Resources, Inc.
DSI
 
Dry Sorbent Injection with Trona
EME
 
Edison Mission Energy
Energy Plus Holdings
 
Energy Plus Holdings LLC and Energy Plus Natural Gas LLC
EPA
 
U.S. Environmental Protection Agency
EPSA
 
Electric Power Supply Association
ERCOT
 
Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
ESP
 
Electrostatic Precipitator

4

                                                                                                                


ESPP
 
NRG Energy, Inc. Amended and Restated Employee Stock Purchase Plan
Exchange Act
 
The Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FCM
 
Forward Capacity Market
FERC
 
Federal Energy Regulatory Commission
FPA
 
Federal Power Act
GEM
 
GenOn Energy Management, LLC
GenConn
 
GenConn Energy LLC
GenOn
 
GenOn Energy, Inc.
GenOn Americas Generation
 
GenOn Americas Generation, LLC
GenOn Americas Generation Senior Notes
 
GenOn Americas Generation's $850 million outstanding unsecured senior notes consisting of $450 million of 8.50% senior notes due 2021 and $400 million of 9.125% senior notes due 2031
GenOn Mid-Atlantic
 
GenOn Mid-Atlantic, LLC and, except where the context indicates otherwise, its subsidiaries, which include the coal generation units at the Dickerson and Morgantown generating facilities under operating leases
GenOn Senior Notes
 
GenOn's $2.0 billion outstanding unsecured senior notes consisting of $725 million of 7.875% senior notes due 2017, $675 million of 9.5% senior notes due 2018, and $550 million of 9.875% senior notes due 2020
GHG
 
Greenhouse Gases
GWh
 
Gigawatt Hour
HAPs
 
Hazardous Air Pollutants
Heat Rate
 
A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWhs generated. Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output measured is gross or net generation and is generally expressed as BTU per net kWh
High Desert
 
TA - High Desert, LLC
IL CPS
 
Illinois Combined Pollutant Standard
IPPNY
 
Independent Power Producers of New York
ISO
 
Independent System Operator
JX Nippon
 
JX Nippon Oil Exploration (EOR) Limited
Kansas South
 
NRG Solar Kansas South LLC
kV
 
Kilovolts
kWh
 
Kilowatt-hours
Laredo Ridge
 
Laredo Ridge Wind, LLC, the operating subsidiary of Mission Wind Laredo, LLC, which owns the Laredo Ridge project
LIBOR
 
London Inter-Bank Offered Rate
LSEs
 
Load Serving Entities
LTIPs
 
Collectively, the NRG Long-Term Incentive Plan and the NRG GenOn Long-Term Incentive Plan
Mass
 
Residential and Small Business
MATS
 
Mercury and Air Toxics Standards promulgated by the EPA
MDE
 
Maryland Department of the Environment
Midwest Generation
 
Midwest Generation, LLC
MISO
 
Midcontinent Independent System Operator, Inc.
MMBtu
 
Million British Thermal Units
MW
 
Megawatt
MWh
 
Saleable megawatt hours, net of internal/parasitic load megawatt-hours
MWt
 
Megawatts Thermal Equivalent
NAAQS
 
National Ambient Air Quality Standards

5

                                                                                                                


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 kWh 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 Oxide
NPNS
 
Normal Purchase Normal Sale
NRC
 
U.S. Nuclear Regulatory Commission
NRG Marsh Landing
 
NRG Marsh Landing, LLC (formerly known as GenOn Marsh Landing, LLC)
NRG Yield
 
Reporting segment that includes the projects held by NRG Yield, Inc.
NRG Yield, Inc.
 
NRG Yield, Inc., the owner of 53.3% of NRG Yield LLC with a controlling interest, and issuer of publicly held shares of Class A common stock
NSPS
 
New Source Performance Standards
NSR
 
New Source Review
Nuclear Decommissioning Trust Fund
 
NRG's nuclear decommissioning trust fund assets, which are for the Company's portion of the decommissioning of the STP, units 1 & 2
NYAG
 
State of New York Office of Attorney General
NYISO
 
New York Independent System Operator
NYPA
 
New York Power Authority
NYSPSC
 
New York State Public Service Commission
OCI
 
Other Comprehensive Income/(Loss)
Peaking
 
Units expected to satisfy demand requirements during the periods of greatest or peak load on the system
PG&E
 
Pacific Gas and Electric Company
Pinnacle
 
Pinnacle Wind, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Pinnacle project
PJM
 
PJM Interconnection, LLC
Plan
 
The plan of reorganization that was approved in conjunction with Mirant Corporation's emergence from bankruptcy protection on January 3, 2006
PM
 
Particulate Matter
POJO
 
Powerton and Joliet, of which the Company leases 100% interests in Unit 7 and Unit 8 of the Joliet generating facility and the Powerton generating facility, through Midwest Generation
PPA
 
Power Purchase Agreement
PPTA
 
Power Purchase Tolling Agreement
PSD
 
Prevention of Significant Deterioration
PUCT
 
Public Utility Commission of Texas
RCRA
 
Resource Conservation and Recovery Act of 1976
Recurring Customers
 
Customers that subscribe to one or more recurring services, such as electricity, natural gas and protection products, the majority of which are retail electricity customers in Texas and the Northeast
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, generally to achieve a substantial emissions reduction, increase facility capacity, and improve system efficiency
Revolving Credit Facility
 
The Company's $2.5 billion revolving credit facility due 2018, a component of the Senior Credit Facility
RFP
 
Request For Proposal
RGGI
 
Regional Greenhouse Gas Initiative
Right of First Offer Agreement
 
Amended and Restated Right of First Offer Agreement by and between NRG Energy, Inc. and NRG Yield, Inc.

6

                                                                                                                


RMR
 
Reliability Must-Run
RPM
 
Reliability Pricing Model
RPV Holding
 
NRG Yield RPV Holding LLC
RSSA
 
Reliability Support Services Agreement
RTO
 
Regional Transmission Organization
Sabine
 
Sabine Cogen, L.P.
SCE
 
Southern California Edison
SCR
 
Selective Catalytic Reduction Control System
SDG&E
 
San Diego Gas & Electric
SEC
 
U.S. Securities and Exchange Commission
Senior Credit Facility
 
NRG's senior secured facility, comprised of the Term Loan Facility and the Revolving Credit Facility
Senior Notes
 
The Company’s $6.4 billion outstanding unsecured senior notes, consisting of $1.1 billion of 7.625% senior notes due 2018, $1.1 billion of 8.25% senior notes due 2020, $1.1 billion of 7.875% senior notes due 2021, $1.1 billion of 6.25% senior notes due 2022, $990 million of 6.625% senior notes due 2023, and $1.0 billion of 6.25% senior notes due 2024
SF6
 
Sulfur Hexafluoride
SO2
 
Sulfur Dioxide
STP
 
South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest
SunPower
 
SunPower Corporation, Systems
Taloga
 
Taloga Wind, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Taloga project
TCPA
 
Telephone Consumer Protection Act
Term Loan Facility
 
The Company's $2.0 billion term loan facility due 2018, a component of the Senior Credit Facility
U.S.
 
United States of America
U.S. DOE
 
U.S. Department of Energy
U.S. GAAP
 
Accounting principles generally accepted in the U.S.
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
Yield Operating
 
NRG Yield Operating LLC

7

                                                                                                                


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 June 30,
 
Six months ended June 30,
(In millions, except for per share amounts)
2015
 
2014
 
2015
 
2014
Operating Revenues
 
 
 
 
 
 
 
Total operating revenues
$
3,397

 
$
3,621

 
$
7,223

 
$
7,107

Operating Costs and Expenses
 
 
 
 
 
 
 
Cost of operations
2,434

 
2,828

 
5,496

 
5,565

Depreciation and amortization
396

 
386

 
791

 
721

Selling, general and administrative
291

 
257

 
554

 
479

Acquisition-related transaction and integration costs
3

 
40

 
13

 
52

Development activity expenses
41

 
21

 
75

 
40

Total operating costs and expenses
3,165

 
3,532

 
6,929

 
6,857

Gain on postretirement benefits curtailment and sale of assets



 
14


19

Operating Income
232

 
89

 
308

 
269

Other Income/(Expense)
 
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
8


14

 
5


21

Other income, net
4


5

 
23


16

Loss on debt extinguishment
(7
)

(40
)
 
(7
)

(81
)
Interest expense
(263
)

(274
)
 
(564
)

(529
)
Total other expense
(258
)
 
(295
)
 
(543
)
 
(573
)
Loss Before Income Taxes
(26
)
 
(206
)
 
(235
)
 
(304
)
Income tax benefit
(17
)

(126
)

(90
)

(157
)
Net Loss
(9
)
 
(80
)
 
(145
)
 
(147
)
Less: Net income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interests
5


17

 
(11
)

6

Net Loss Attributable to NRG Energy, Inc.
(14
)
 
(97
)
 
(134
)
 
(153
)
Dividends for preferred shares
5

 
3

 
10

 
5

Loss Available for Common Stockholders
$
(19
)
 
$
(100
)
 
$
(144
)
 
$
(158
)
Loss per Share Attributable to NRG Energy, Inc. Common Stockholders
 
 
 
 
 
 
 
Weighted average number of common shares outstanding — basic and diluted
333

 
337

 
335

 
331

Loss per Weighted Average Common Share — Basic and Diluted
$
(0.06
)
 
$
(0.30
)
 
$
(0.43
)
 
$
(0.48
)
Dividends Per Common Share
$
0.14

 
$
0.14

 
$
0.29

 
$
0.26

See accompanying notes to condensed consolidated financial statements.

8

                                                                                                                


NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In millions)
Net Loss
$
(9
)
 
$
(80
)
 
$
(145
)
 
$
(147
)
Other Comprehensive Income/(Loss), net of tax
 
 
 
 
 
 
 
Unrealized gain/(loss) on derivatives, net of income tax expense/(benefit) of $12, $(3), $6 and $(6)
16


(19
)
 
4

 
(28
)
Foreign currency translation adjustments, net of income tax expense/(benefit) of $6, $2, $(1) and $4
9

 
(3
)
 
(2
)
 
3

Available-for-sale securities, net of income tax benefit of $(3), $(6), $(7) and $(4)
(3
)
 
7

 
(4
)
 
13

Defined benefit plans, net of tax expense/(benefit) of $0, $(7), $4 and $(7)
(1
)
 
10

 
6

 
12

Other comprehensive income/(loss)
21

 
(5
)
 
4

 

Comprehensive Income/(loss)
12

 
(85
)
 
(141
)
 
(147
)
Less: Comprehensive income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interests
12

 
12

 
(17
)
 
(3
)
Comprehensive Loss Attributable to NRG Energy, Inc.

 
(97
)
 
(124
)
 
(144
)
Dividends for preferred shares
5

 
3

 
10

 
5

Comprehensive Loss Available for Common Stockholders
$
(5
)
 
$
(100
)
 
$
(134
)
 
$
(149
)
See accompanying notes to condensed consolidated financial statements.

9

                                                                                                                


NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30, 2015
 
December 31, 2014
(In millions, except shares)
(unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
2,146


$
2,116

Funds deposited by counterparties
33

 
72

Restricted cash
433


457

Accounts receivable — trade, less allowance for doubtful accounts of $19 and $23
1,413

 
1,322

Inventory
1,153

 
1,247

Derivative instruments
1,805

 
2,425

Cash collateral paid in support of energy risk management activities
299

 
187

Deferred income taxes
193

 
174

Renewable energy grant receivable, net
19

 
135

Prepayments and other current assets
516

 
447

Total current assets
8,010

 
8,582

Property, plant and equipment, net of accumulated depreciation of $8,611 and $7,890
22,304

 
22,367

Other Assets
 
 
 
Equity investments in affiliates
1,077

 
771

Notes receivable, less current portion
65

 
72

Goodwill
2,555

 
2,574

 Intangible assets, net of accumulated amortization of $1,506 and $1,402
2,428

 
2,567

Nuclear decommissioning trust fund
576

 
585

Derivative instruments
491


480

Deferred income taxes
1,454

 
1,406

Other non-current assets
1,405

 
1,261

Total other assets
10,051

 
9,716

Total Assets
$
40,365

 
$
40,665

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Current portion of long-term debt and capital leases
$
636


$
474

Accounts payable
1,080

 
1,060

Derivative instruments
1,638


2,054

Cash collateral received in support of energy risk management activities
33

 
72

Accrued expenses and other current liabilities
1,082

 
1,199

Total current liabilities
4,469

 
4,859

Other Liabilities
 
 
 
Long-term debt and capital leases
19,661


19,900

Nuclear decommissioning reserve
318

 
310

Nuclear decommissioning trust liability
311

 
333

Deferred income taxes
18

 
21

Derivative instruments
522


438

Out-of-market contracts, net of accumulated amortization of $613 and $562
1,193

 
1,244

Other non-current liabilities
1,527

 
1,574

Total non-current liabilities
23,550


23,820

Total Liabilities
28,019

 
28,679

2.822% convertible perpetual preferred stock
296

 
291

Redeemable noncontrolling interest in subsidiaries
33

 
19

Commitments and Contingencies
 
 
 
Stockholders’ Equity
 
 
 
Common stock
4

 
4

Additional paid-in capital
8,365

 
8,327

Retained earnings
3,346

 
3,588

Less treasury stock, at cost — 86,245,318 and 78,843,552 shares, respectively
(2,166
)
 
(1,983
)
Accumulated other comprehensive loss
(170
)
 
(174
)
Noncontrolling interest
2,638

 
1,914

Total Stockholders’ Equity
12,017

 
11,676

Total Liabilities and Stockholders’ Equity
$
40,365

 
$
40,665

See accompanying notes to condensed consolidated financial statements.

10

                                                                                                                


NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six months ended June 30,
 
2015
 
2014
 
(In millions)
Cash Flows from Operating Activities
 
 
 
Net loss
$
(145
)
 
$
(147
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Distributions and equity in earnings of unconsolidated affiliates
40

 
39

Depreciation and amortization
791

 
721

Provision for bad debts
29

 
30

Amortization of nuclear fuel
23

 
20

Amortization of financing costs and debt discount/premiums
(7
)
 
(9
)
Adjustment for debt extinguishment
7

 
21

Amortization of intangibles and out-of-market contracts
32

 
22

Amortization of unearned equity compensation
24

 
24

Changes in deferred income taxes and liability for uncertain tax benefits
(98
)
 
(514
)
Changes in nuclear decommissioning trust liability
(4
)
 
6

Changes in derivative instruments
186

 
535

Changes in collateral deposits supporting energy risk management activities
(112
)
 
(297
)
Loss on sale of emission allowances
(6
)
 
2

Gain on postretirement benefits curtailment and sale of assets
(14
)
 
(19
)
Cash used by changes in other working capital
(288
)
 
(64
)
Net Cash Provided by Operating Activities
458


370

Cash Flows from Investing Activities
 
 
 
Acquisitions of businesses, net of cash acquired
(30
)
 
(1,817
)
Capital expenditures
(583
)
 
(507
)
Increase in restricted cash, net
(3
)
 
(6
)
Decrease in restricted cash to support equity requirements for U.S. DOE funded projects
27

 
21

Decrease in notes receivable
7

 
2

Investments in nuclear decommissioning trust fund securities
(354
)
 
(340
)
Proceeds from the sale of nuclear decommissioning trust fund securities
358


334

Proceeds from renewable energy grants and state rebates
61

 
429

Proceeds from sale of assets, net of cash disposed of
1

 
77

Cash proceeds to fund cash grant bridge loan payment

 
57

Investments in unconsolidated affiliates
(353
)
 
(22
)
Other
9

 
19

Net Cash Used by Investing Activities
(860
)

(1,753
)
Cash Flows from Financing Activities
 
 
 
Payment of dividends to common and preferred stockholders
(102
)
 
(91
)
Payment for treasury stock
(186
)
 

Net receipts from/(payments for) settlement of acquired derivatives that include financing elements
91

 
(167
)
Proceeds from issuance of long-term debt
629

 
3,886

Distributions from, net of contributions to, noncontrolling interest in subsidiaries
670

 
10

Proceeds from issuance of common stock
1

 
8

Payment of debt issuance costs
(12
)
 
(43
)
Payments for short and long-term debt
(662
)
 
(2,969
)
Net Cash Provided by Financing Activities
429


634

Effect of exchange rate changes on cash and cash equivalents
3

 
(24
)
Net Increase/ (Decrease) in Cash and Cash Equivalents
30

 
(773
)
Cash and Cash Equivalents at Beginning of Period
2,116

 
2,254

Cash and Cash Equivalents at End of Period
$
2,146

 
$
1,481

See accompanying notes to condensed consolidated financial statements.

11

                                                                                                                


NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Basis of Presentation
NRG Energy, Inc., or NRG or the Company, is a competitive power company, which produces, sells and delivers energy and energy products and services in major competitive power markets primarily in the U.S. while positioning itself as a leader in the way residential, industrial and commercial consumers think about and use energy products and services. NRG is responding to a consumer-driven change to the U.S. energy industry by offering cleaner, smarter and ultimately more portable energy while enabling personal energy choice, building on the strength of one of the nation’s largest and most diverse competitive power generation portfolios. The Company owns and operates approximately 50,000 MWs 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 name “NRG” and various other retail brand names owned by NRG.
On June 29, 2015, NRG Yield, Inc. closed on its offering of 28,198,000 shares of Class C common stock at a price of $22 per share, which included 3,678,000 shares of Class C common stock purchased by the underwriters through an over-allotment option. Net proceeds to NRG Yield, Inc. from the sale of the Class C common stock were $600 million, net of underwriting discounts and commissions of $20 million. The additional equity offering reduced the Company's economic interest in NRG Yield, Inc. to 46.7% and its voting interest to 55.1%. The Company continues to consolidate NRG Yield, Inc. through its controlling interest.
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 2014 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 June 30, 2015, and the results of operations, comprehensive income/(loss) and cash flows for the three and six months ended June 30, 2015, and 2014.
Use of Estimates
The preparation of financial statements in conformity with U.S. 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.

12

                                                                                                                


Note 2Summary of Significant Accounting Policies
Other Cash Flow Information
NRG’s investing activities exclude capital expenditures of $33 million which were accrued and unpaid at June 30, 2015.
Noncontrolling Interest
The following table reflects the changes in NRG's noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2014
$
1,914

Sale of assets to NRG Yield, Inc.
(27
)
Distributions to noncontrolling interest
(83
)
Contributions from noncontrolling interest
140

Increase to noncontrolling interest due to NRG Yield, Inc. acquisitions
74

Proceeds received from NRG Yield, Inc. public offering
600

Non-cash adjustments for equity component of NRG Yield, Inc. convertible notes
23

Non-cash increase to noncontrolling interest
14

Comprehensive loss attributable to noncontrolling interest
(17
)
Balance as of June 30, 2015
$
2,638


NRG RPV Holdco 1 LLC
On April 9, 2015, NRG and NRG Yield, Inc. entered into a partnership, through their ownership of NRG RPV Holdco 1 LLC, or RPV Holdco, that will invest in and hold operating portfolios of residential solar assets developed by NRG Home Solar, including: (i) an existing, unlevered portfolio of over 2,200 leases across nine states representing approximately 17 MW with a weighted average remaining lease term of approximately 17 years, in which NRG Yield, Inc. invested $26 million in April 2015; and (ii) in-development, tax equity financed portfolios of approximately 13,000 leases representing approximately 90 MW with an average lease term for the existing and new leases of approximately 17 to 20 years. NRG Yield, Inc. has committed to invest up to an additional $150 million of cash contributions into the partnership over time, excluding the $26 million noted above. As of June 30, 2015, NRG Yield, Inc. has contributed $14 million of the $150 million committed contributions. The following illustrates the structure of RPV Holdco:

13

                                                                                                                


Alta Wind X-XI TE Holdco, LLC
On June 30, 2015, NRG Yield Operating LLC, a subsidiary of NRG Yield, Inc., sold an economic interest in Alta Wind X-XI TE Holdco LLC, or Alta TE Holdco, holder of the Alta Wind X and Alta Wind XI projects, to a financial institution in order to monetize cash and tax attributes, primarily production tax credits. The net proceeds of $119 million are reflected as noncontrolling interest in the Company's balance sheet.
NRG Yield, Inc. Issuance of Class C Common Stock and Convertible Notes
On June 29, 2015, NRG Yield, Inc. issued 28,198,000 shares of Class C common stock for net proceeds of $600 million, as described in Note 1, Basis of Presentation, and issued $287.5 million in aggregate principal amount of 3.25% Convertible Senior Notes, due 2020, as described in Note 7, Debt and Capital Leases. The value of the conversion option of $23 million is reflected in the NRG Yield, Inc. noncontrolling interest balance.
Redeemable Noncontrolling Interest in Subsidiaries
Redeemable noncontrolling interest in subsidiaries represents third-party interests in the net assets under certain arrangements that the Company has entered into to finance the cost of certain projects, including solar energy systems under operating leases and wind facilities eligible for certain tax credits.  To the extent that the third party has the right to redeem their interests for cash or other assets, the Company has included the noncontrolling interest attributable to the third party as a component of temporary equity in the mezzanine section of the consolidated balance sheet. The following table reflects the changes in the Company's redeemable noncontrolling interest balance for the six months ended June 30, 2015:
 
(In millions)
Balance as of December 31, 2014
$
19

Non-cash contributions from noncontrolling interest
9

Cash contributions from noncontrolling interest
6

Comprehensive loss attributable to noncontrolling interest
(1
)
Balance as of June 30, 2015
$
33

Gain on Postretirement Benefits Curtailment
During the first quarter of 2015, the Company recognized a gain of $14 million related to the curtailment of certain of the Company's postretirement plans.
Recent Accounting Developments
ASU 2015-03 — In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU No. 2015-03. The amendments of ASU No. 2015-03 were issued to reduce complexity in the balance sheet presentation of debt issuance costs. ASU No. 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standard. The guidance in ASU No. 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The adoption of this standard is not expected to have a material impact on the Company's balance sheets on a gross basis and will have no impact on net assets.
ASU 2015-02 — In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, or ASU No. 2015-02. The amendments of ASU No. 2015-02 were issued in an effort to minimize situations under previously existing guidance in which a reporting entity was required to consolidate another legal entity in which that reporting entity did not have: (1) the ability through contractual rights to act primarily on its own behalf; (2) ownership of the majority of the legal entity's voting rights; or (3) the exposure to a majority of the legal entity's economic benefits. ASU No. 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The guidance in ASU No. 2015-02 is effective for periods beginning after December 15, 2015. Early adoption is permitted. The Company adopted the standard effective January 1, 2015 and the adoption of this standard did not impact the Company's results of operations, cash flows or financial position.

14

                                                                                                                


ASU 2014-16 — In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity, or ASU No. 2014-16. The amendments of ASU No. 2014-16 clarify how U.S. GAAP should be applied in determining whether the nature of a host contract is more akin to debt or equity and in evaluating whether the economic characteristics and risks of an embedded feature are "clearly and closely related" to its host contract. The guidance in ASU No. 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company adopted the standard effective January 1, 2015 and the adoption of this standard did not impact the Company's results of operations, cash flows or financial position.
ASU 2014-09 — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU No. 2014-09. The amendments of ASU No. 2014-09 complete the joint effort between the FASB and the 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. On July 9, 2015, the FASB voted to defer the effective date by one year to make the guidance of ASU No. 2014-09 effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted, but not prior to the original effective date, which was for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of the standard on the Company's results of operations, cash flows and financial position.
Note 3Business Acquisitions and Dispositions
The Company has completed the following business acquisitions and dispositions that are material to the Company's financial statements:
2015 Acquisitions and Dispositions
Acquisition of Desert Sunlight
On June 29, 2015, NRG Yield, Inc., through its subsidiary Yield Operating, acquired 25% of the membership interest in Desert Sunlight Investment Holdings, LLC, which owns two solar photovoltaic facilities that total 550 MWs located in Desert Center, California from EFS Desert Sun, LLC, an affiliate of GE Energy Financial Services, for a purchase price of $285 million. The Company accounts for its 25% investment as an equity method investment.
Sale of Assets to NRG Yield, Inc.
On January 2, 2015, the Company sold the following facilities to NRG Yield, Inc.: Walnut Creek, the Tapestry projects (Buffalo Bear, Pinnacle and Taloga) and Laredo Ridge. NRG Yield, Inc. paid total cash consideration of $489 million, including $9 million of working capital adjustments, plus assumed project level debt of $737 million. The sale was recorded as a transfer of entities under common control and the related assets were transferred at carrying value of $405 million.


15

                                                                                                                


2014 Acquisitions and Dispositions
Sale of Sabine
On December 2, 2014, the Company, through its subsidiaries GenOn Sabine (Delaware), Inc. and GenOn Sabine (Texas), Inc., completed the sale of its 50% interest in Sabine to Bayou Power, LLC, an affiliate of Rockland Capital, LLC. Sabine owns a 105 MW natural gas-fired cogeneration facility located in Texas. The Company received cash consideration of $35 million at closing. A gain of $18 million was recognized as a result of the transaction and recorded as a gain on sale of equity-method investments within the Company's consolidated statements of operations.
Acquisition of Alta Wind
On August 12, 2014, NRG Yield, Inc., through its subsidiary Yield Operating, completed the acquisition of 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 seven wind facilities that total 947 MWs located in Tehachapi, California and a portfolio of land leases, or the Alta Wind Assets. Power generated by the Alta Wind facilities is sold to Southern California Edison under long-term power purchase agreements, with 21 years of remaining contract life for Alta I-V. The Alta X and XI power purchase agreements begin in 2016 with a term of 22 years and currently sell energy and renewable energy credits on a merchant basis.
The purchase price of the Alta Wind Assets was $923 million, which was comprised of a purchase price of $870 million and $53 million paid for working capital balances. In order to fund the purchase price of the acquisition, NRG Yield, Inc. issued 12,075,000 shares of its Class A common stock on July 29, 2014, for net proceeds of $630 million. In addition, on August 5, 2014, Yield Operating issued $500 million in aggregate principal amount at par of 5.375% senior notes due August 2024. Interest on the notes is payable semi-annually on February 15 and August 15 of each year, and commenced on February 15, 2015. The notes are senior unsecured obligations of Yield Operating and are guaranteed by NRG Yield LLC, Yield Operating’s parent company, and by certain of Yield Operating’s wholly owned subsidiaries.
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. The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of December 31, 2014, as well as adjustments made through June 30, 2015. The purchase price of $923 million was provisionally allocated as follows:
 
Acquisition Date Fair Value at December 31, 2014
 
Measurement period adjustments
 
Revised Acquisition Date
 
(In millions)
Assets
 
 
 
 
 
Cash
$
22

 
$

 
$
22

Current and non-current assets
49

 
(2
)
 
47

Property, plant and equipment
1,304

 
6

 
1,310

Intangible assets
1,177

 
(6
)
 
1,171

Total assets acquired
2,552

 
(2
)
 
2,550

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Debt
1,591

 

 
1,591

Current and non-current liabilities
38

 
(2
)
 
36

Total liabilities assumed
1,629

 
(2
)
 
1,627

Net assets acquired
$
923

 
$

 
$
923


16

                                                                                                                



Disposition of 50% Interest in Petra Nova Parish Holdings LLC
On July 3, 2014, the Company, through its wholly owned subsidiary Petra Nova Holdings LLC, sold 50% of its interest in Petra Nova Parish Holdings LLC to JX Nippon, a wholly owned subsidiary of JX Nippon Oil & Gas Exploration Corporation.  As a result of the sale, the Company no longer has a controlling interest in and has deconsolidated Petra Nova Parish Holdings LLC as of the date of the sale. On July 7, 2014, the Company made its initial capital contribution into the partnership of $35 million, which was funded with a portion of the sale proceeds of $76 million. On March 3, 2014, Petra Nova CCS I LLC, a wholly owned subsidiary of Petra Nova Parish Holdings LLC, entered into a fixed-price agreement to build and operate a CCF at the W.A. Parish facility with a consortium of Mitsubishi Heavy Industries America, Inc. and TIC - The Industrial Company.  Notice to proceed for the construction on the CCF was issued on July 15, 2014, and commercial operation is expected in late 2016. 
Petra Nova Parish Holdings LLC also owns a 75 MW peaking unit at W.A. Parish, which achieved commercial operations on June 26, 2013. The peaking unit will be converted into a cogeneration facility to provide power and steam to the CCF.  The project is being financed by: (i) up to $167 million from a U.S. DOE CCPI grant, (ii) $250 million in loans provided by the Japan Bank for International Cooperation and Mizuho Bank, Ltd., and (iii) approximately $300 million in equity contributions from each of the Company and JX Nippon. NRG’s contribution will include investments already made during the development of the project. 
Sale of Assets to NRG Yield, Inc.
On June 30, 2014, the Company sold the following facilities to NRG Yield, Inc.: High Desert, Kansas South, and El Segundo Energy Center. NRG Yield, Inc. paid total cash consideration of $357 million, which represents a base purchase price of $349 million and $8 million of working capital adjustments, plus assumed project level debt of approximately $612 million. The sale was recorded as a transfer of entities under common control and the related assets were transferred at their carrying value of $236 million.
Acquisition of Dominion's Competitive Electric Retail Business
On March 31, 2014, the Company acquired the competitive retail electricity business of Dominion. The acquisition of Dominion's competitive retail electricity business increased NRG’s retail portfolio by approximately 540,000 customers in the aggregate by the end of 2014. The acquisition supports NRG's ongoing efforts to expand the Company's retail footprint in the Northeast and to grow its retail position in Texas. The Company paid approximately $192 million as cash consideration for the acquisition, including $165 million of purchase price and $27 million paid for working capital balances, which was funded by cash on hand. The purchase price was allocated to the following: $40 million to accounts receivable-trade, $64 million to customer relationships, $9 million to trade names, $14 million to current assets, $21 million to derivative assets, $47 million to current and non-current liabilities, and goodwill of $91 million of which $8 million is deductible for U.S. income tax purposes in future periods. The factors that resulted in goodwill arising from the acquisition include the revenues associated with new customers in new regions and through the synergies associated with combining a new retail business with the Company's existing retail and generation assets. The assets acquired and liabilities assumed are included within the NRG Home Retail segment. The accounting for the Dominion acquisition was completed as of March 30, 2015, at which point the provisional fair values became final with no material changes.
EME Acquisition
On April 1, 2014, the Company acquired substantially all of the assets of EME.  EME, through its subsidiaries and affiliates, owned or leased and operated a portfolio of approximately 8,000 MW consisting of wind energy facilities and coal- and gas-fired generating facilities. The Company paid an aggregate purchase price of $3.5 billion, which was funded through the issuance of 12,671,977 shares of NRG common stock on April 1, 2014, the issuance of $700 million in newly-issued corporate debt and cash on hand. The Company also assumed non-recourse debt of approximately $1.2 billion
In connection with the transaction, NRG agreed to certain conditions with the parties to the POJO sale-leaseback transaction subject to which an NRG subsidiary assumed the POJO leveraged leases and NRG guaranteed the remaining payments under each lease, which total $405 million through 2034. In connection with this agreement, NRG has committed to fund up to $350 million in capital expenditures for plant modifications at Powerton and Joliet to comply with environmental regulations, as discussed further in Note 15, Environmental Matters.

17

                                                                                                                


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 accounting for the EME acquisition was completed as of March 31, 2015, at which point the fair values became final. The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of December 31, 2014, as well as adjustments made through March 31, 2015, when the allocation became final. Measurement period adjustments primarily reflect the tax impact of the acquisition date fair values and final estimates for asset retirement obligations.
The purchase price of $3.5 billion was allocated as follows:
 
Acquisition Date Fair Value at December 31, 2014
 
Measurement period adjustments
 
Revised Acquisition Date
 
(In millions)
Assets
 
 
 
 
 
Cash
$
1,422

 
$

 
$
1,422

Current assets
724

 
72

 
796

Property, plant and equipment
2,438

 
(3
)
 
2,435

Intangible assets
172

 

 
172

Goodwill
334

 
(56
)
 
278

Non-current assets
773

 

 
773

Total assets acquired
5,863

 
13

 
5,876

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current and non-current liabilities
629

 
13

 
642

Out-of-market contracts and leases
159

 

 
159

Long-term debt
1,249

 

 
1,249

Total liabilities assumed
2,037

 
13

 
2,050

Less: noncontrolling interest
352

 

 
352

Net assets acquired
$
3,474

 
$

 
$
3,474


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 2014 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 June 30, 2015
 
As of December 31, 2014
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable (a)
$
85

 
$
85

 
$
91

 
$
91

Liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion
$
20,292

 
$
20,380

 
$
20,366

 
$
20,361

(a) Includes the current portion of notes receivable which is recorded in prepayments and other current assets on the Company's consolidated balance sheets.
The fair value of the Company's publicly-traded long-term debt is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non publicly-traded long-term debt and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates, or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy.

18

                                                                                                                


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 June 30, 2015
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
    non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
18

 
$
18

Available-for-sale securities
19

 

 

 
19

Other (a)
21

 

 

 
21

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
4

 

 

 
4

U.S. government and federal agency obligations
47

 
3

 

 
50

Federal agency mortgage-backed securities

 
62

 

 
62

Commercial mortgage-backed securities

 
29

 

 
29

Corporate debt securities

 
85

 

 
85

Equity securities
289

 

 
55

 
344

Foreign government fixed income securities

 
2

 

 
2

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
650

 
1,336

 
306

 
2,292

Interest rate contracts

 
4

 

 
4

Total assets
$
1,031

 
$
1,521

 
$
379

 
$
2,931

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
$
595

 
$
1,181

 
$
257

 
$
2,033

Interest rate contracts

 
127

 

 
127

Total liabilities
$
595

 
$
1,308

 
$
257

 
$
2,160

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

19

                                                                                                                


 
As of December 31, 2014
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
18

 
$
18

Available-for-sale securities
30

 

 

 
30

Other (a)
21

 

 
11

 
32

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
14

 

 

 
14

U.S. government and federal agency obligations
44

 
3

 

 
47

Federal agency mortgage-backed securities

 
74

 

 
74

Commercial mortgage-backed securities

 
25

 

 
25

Corporate debt securities

 
78

 

 
78

Equity securities
292

 

 
52

 
344

Foreign government fixed income securities

 
3

 

 
3

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
1,078

 
1,515

 
309

 
2,902

Interest rate contracts

 
2

 

 
2

Equity contracts

 

 
1

 
1

Total assets
$
1,480

 
$
1,700

 
$
391

 
$
3,571

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
$
1,004

 
$
1,093

 
$
230

 
$
2,327

Interest rate contracts

 
165

 

 
165

Total liabilities
$
1,004

 
$
1,258

 
$
230

 
$
2,492

(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.

20

                                                                                                                


There were no transfers during the three and six months ended June 30, 2015, and 2014 between Levels 1 and 2. The following tables reconcile, for the three and six months ended June 30, 2015, and 2014, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements, at least annually, using significant unobservable inputs:
 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended June 30, 2015
 
Six months ended June 30, 2015
(In millions)
Debt Securities
 
Other
 
Trust Fund Investments
 
Derivatives(a)
 
Total
 
Debt Securities
 
Other
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance
$
18

 
$
11

 
$
54

 
$
34

 
$
117

 
$
18

 
$
11

 
$
52

 
$
80

 
$
161

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

 
(11
)
 

 
(23
)
 
(34
)
 

 
(11
)
 

 
(78
)
 
(89
)
Included in OCI

 

 

 

 

 

 

 

 

 

Included in nuclear decommissioning obligation

 

 

 

 

 

 

 
2

 

 
2

Purchases

 

 
1

 
39

 
40

 

 

 
1

 
35

 
36

Transfers into Level 3 (b)

 

 

 
(4
)
 
(4
)
 

 

 

 
11

 
11

Transfers out of Level 3 (b)

 

 

 
3

 
3

 

 

 

 
1

 
1

Ending balance as of June 30, 2015
$
18

 
$

 
$
55

 
$
49

 
$
122

 
$
18

 
$

 
$
55

 
$
49

 
$
122

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 June 30, 2015
$

 
$

 
$

 
(8
)
 
$
(8
)
 
$

 
$

 
$

 
$
(28
)
 
$
(28
)
(a)
Consists of derivative assets and liabilities, net.
(b)
Transfers in/out of Level 3 are related to the availability of external broker quotes and are valued as of the end of the reporting period. All transfers in/out are with Level 2.

21

                                                                                                                


 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended June 30, 2014
 
Six months ended June 30, 2014
(In millions)
Debt Securities
 
Other
 
Trust Fund Investments
 
Derivatives(a)
 
Total
 
Debt Securities
 
Other
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance
$
18

 
$
11

 
$
56

 
$
23

 
$
108

 
$
16

 
$
10

 
$
56

 
$
13

 
$
95

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

 

 

 
(12
)
 
(12
)
 

 
1

 

 
4

 
5

Included in OCI

 

 

 

 

 
2

 

 

 

 
2

Included in nuclear decommissioning obligations

 

 
1

 

 
1

 

 

 
1

 

 
1

Purchases

 

 
1

 
(63
)
 
(62
)
 

 

 
1

 
(84
)
 
(83
)
Contracts acquired in Dominion and EME acquisition

 

 

 
36

 
36

 

 

 

 
39

 
39

Transfers into Level 3 (b)

 

 

 

 

 

 

 

 
18

 
18

Transfers out of Level 3 (b)

 

 

 
4

 
4

 

 

 

 
(2
)
 
(2
)
Ending balance as of June 30, 2014
$
18

 
$
11

 
$
58

 
$
(12
)
 
$
75

 
$
18

 
$
11

 
$
58

 
$
(12
)
 
$
75

Gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of June 30, 2014
$

 
$

 
$

 
$
2

 
$
2

 
$

 
$

 
$

 
$
21

 
$
21

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

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 June 30, 2015, contracts valued with prices provided by models and other valuation techniques make up 13% of the total derivative assets and 12% 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.





22

                                                                                                                


The following tables quantify the significant unobservable inputs used in developing the fair value of the Company's Level 3 positions as of June 30, 2015 and December 31, 2014:
 
Significant Unobservable Inputs
 
June 30, 2015
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
Power Contracts
$
207

 
$
182

 
Discounted Cash Flow
 
Forward Market Price (per MWh)
 
$
7

 
$
86

 
$
37

Coal Contracts
2

 
11

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
46

 
60

 
47

FTRs
97

 
64

 
Discounted Cash Flow
 
Auction Prices (per MWh)
 
(45
)
 
34

 

 
$
306

 
$
257

 
 
 
 
 
 
 
 
 
 
 
Significant Unobservable Inputs
 
December 31, 2014
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
Power Contracts
$
195

 
$
154

 
Discounted Cash Flow
 
Forward Market Price (per MWh)
 
$
15

 
$
92

 
$
47

Coal Contracts
3

 
1

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
53

 
56

 
54

FTRs
111

 
75

 
Discounted Cash Flow
 
Auction Prices (per MWh)
 
(29
)
 
30

 

 
$
309

 
$
230

 
 
 
 
 
 
 
 
 
 
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of June 30, 2015 and December 31, 2014:
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 June 30, 2015, the credit reserve resulted in a $3 million increase in fair value, which is composed of a $1 million gain in OCI and a $2 million gain in operating revenue and cost of operations. As of June 30, 2014, the credit reserve resulted in a $1 million increase in fair value, which is a gain in OCI.
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 2014 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.

23

                                                                                                                


Counterparty Credit Risk
The Company's counterparty credit risk policies are disclosed in its 2014 Form 10-K. As of June 30, 2015, counterparty credit exposure, excluding credit risk exposure under certain long term agreements, was $948 million and NRG held collateral (cash and letters of credit) against those positions of $50 million, resulting in a net exposure of $866 million. Approximately 95% of the Company's exposure before collateral is expected to roll off by the end of 2016. Counterparty credit exposure is valued through observable market quotes and discounted at a risk free interest rate. The following tables highlight net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market and NPNS, and non-derivative transactions. The exposure is shown net of collateral held, and includes amounts net of receivables or payables.
 
Net Exposure (a)
Category
(% of Total)
Financial institutions
44
%
Utilities, energy merchants, marketers and other
31

ISOs
25

Total as of June 30, 2015
100
%
 
Net Exposure (a)
Category
(% of Total)
Investment grade
98
%
Non-rated (b)
1

Non-investment grade
1

Total as of June 30, 2015
100
%
(a)
Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices.
(b)
For non-rated counterparties, a significant portion are related to ISO and municipal public power entities, which are considered investment grade equivalent ratings based on NRG's internal credit ratings.
NRG has counterparty credit risk exposure to certain counterparties, each of which represent more than 10% of total net exposure discussed above. The aggregate of such counterparties' exposure was $270 million as of June 30, 2015. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. Given the credit quality, diversification and term of the exposure in the portfolio, NRG does not anticipate a material impact on the Company's financial position or results of operations from nonperformance by any of NRG's counterparties.
Counterparty credit exposure described above excludes credit risk exposure under certain long term agreements, including California tolling agreements, Gulf Coast load obligations, wind and solar PPAs, and a coal supply agreement. As external sources or observable market quotes are not available to estimate such exposure, the Company estimates its credit exposure for these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of June 30, 2015, aggregate credit risk exposure managed by NRG to these counterparties was approximately $3.8 billion, including $2.4 billion related to assets of NRG Yield, Inc., for the next five years. This amount excludes potential credit exposures for projects with long-term PPAs that have not reached commercial operations. The majority of these power contracts are with utilities or public power entities with strong credit quality and public utility commission or other regulatory support. However, such regulated utility counterparties can be impacted by changes in government regulations and other technology and market factors, which NRG is unable to predict. In the case of the coal supply agreement, NRG holds a lien against the underlying asset, which significantly reduces the risk of loss.
Retail Customer Credit Risk
NRG is exposed to retail credit risk through the Company's retail electricity providers, which serve commercial, industrial and governmental/institutional customers and the Mass market. Retail credit risk results when a customer fails to pay for products or services rendered. The losses may result from both nonpayment of customer accounts receivable and the loss of in-the-money forward value. NRG manages retail credit risk through the use of established credit policies that include monitoring of the portfolio, and the use of credit mitigation measures such as deposits or prepayment arrangements.
As of June 30, 2015, the Company believes its retail customer credit exposure was diversified across many customers and various industries, as well as government entities.


24

                                                                                                                


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 2014 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 June 30, 2015
 
As of December 31, 2014
(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
$
4

 
$

 
$

 

 
$
14

 
$

 
$

 

U.S. government and federal agency obligations
50

 
2

 

 
9

 
47

 
2

 

 
11

Federal agency mortgage-backed securities
62

 
1

 

 
24

 
74

 
2

 

 
25

Commercial mortgage-backed securities
29

 

 
1

 
29

 
25

 

 
1

 
30

Corporate debt securities
85

 
1

 
1

 
9

 
78

 
2

 
1

 
11

Equity securities
344

 
209

 

 

 
344

 
211

 

 

Foreign government fixed income securities
2

 

 

 
14

 
3

 
1

 

 
16

Total
$
576

 
$
213

 
$
2

 
 
 
$
585

 
$
218

 
$
2

 
 
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.
 
Six months ended June 30,
 
2015
 
2014
 
(In millions)
Realized gains
$
9

 
$
7

Realized losses
5

 
3

Proceeds from sale of securities
358


334


25

                                                                                                                


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 2014 Form 10-K.
Energy-Related Commodities
As of June 30, 2015, NRG had energy-related derivative instruments extending through 2024. The Company voluntarily de-designated all remaining commodity cash flow hedges as of January 1, 2014, and prospectively marked these derivatives to market through the income statement.
Interest Rate Swaps
NRG is exposed to changes in interest rates through the Company's issuance of variable and fixed rate debt. In order to manage the Company's interest rate risk, NRG enters into interest rate swap agreements. As of June 30, 2015, the Company had interest rate derivative instruments on non-recourse debt extending through 2032, most of which are designated as cash flow hedges.
Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by category, excluding those derivatives that qualified for the NPNS exception, as of June 30, 2015, and December 31, 2014. 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
 
 
June 30, 2015
 
December 31, 2014
Category
Units
(In millions)
Emissions
Short Ton
4

 
2

Coal
Short Ton
40

 
57

Natural Gas
MMBtu
(13
)
 
(58
)
Oil
Barrel

 
1

Power
MWh
(65
)
 
(56
)
Capacity
MW/Day
(1
)
 

Interest
Dollars
$
2,452

 
$
3,440

Equity
Shares
2

 
2

The decrease in the interest rate position was primarily the result of settling the Alta X and Alta XI interest rate swaps in connection with the repayment of the project-level debt, as described in Note 7, Debt and Capital Leases.
Fair Value of Derivative Instruments
The following table summarizes the fair value within the derivative instrument valuation on the balance sheets:
 
Fair Value
 
Derivative Assets
 
Derivative Liabilities
 
June 30, 2015
 
December 31, 2014
 
June 30, 2015
 
December 31, 2014
 
(In millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 

 
Interest rate contracts current
$

 
$

 
$
48


$
55

Interest rate contracts long-term
4

 
2

 
63


74

Total derivatives designated as cash flow hedges
4

 
2

 
111


129

Derivatives not designated as cash flow hedges:

 
 
 
 

 
Interest rate contracts current

 

 
7


8

Interest rate contracts long-term

 

 
9


28

Commodity contracts current
1,805

 
2,425

 
1,583


1,991

Commodity contracts long-term
487

 
477

 
450


336

Equity contracts long-term

 
1

 



Total derivatives not designated as cash flow hedges
2,292

 
2,903

 
2,049


2,363

Total derivatives
$
2,296


$
2,905

 
$
2,160


$
2,492



26

                                                                                                                



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 June 30, 2015
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
$
2,292

 
$
(1,778
)
 
$
(33
)
 
$
481

Derivative liabilities
 
(2,033
)
 
1,778

 
53

 
(202
)
Total commodity contracts
 
259

 

 
20

 
279

Interest rate contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
4

 
(3
)
 

 
1

Derivative liabilities
 
(127
)
 
3

 

 
(124
)
Total interest rate contracts
 
(123
)
 

 

 
(123
)
Total derivative instruments
 
$
136

 
$

 
$
20

 
$
156

 
 
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, 2014
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 

Derivative assets
 
$
2,902

 
$
(2,155
)
 
$
(72
)
 
$
675

Derivative liabilities
 
(2,327
)
 
2,155

 
27

 
(145
)
Total commodity contracts
 
575

 

 
(45
)
 
530

Interest rate contracts:
 
 
 
 
 
 
 

Derivative assets
 
2

 
(2
)
 

 

Derivative liabilities
 
(165
)
 
2

 

 
(163
)
Total interest rate contracts
 
(163
)
 

 

 
(163
)
Equity contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
1

 

 

 
1

Total derivative instruments
 
$
413

 
$

 
$
(45
)

$
368

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 June 30, 2015
 
Six months ended June 30, 2015
 
Energy Commodities
 
Interest Rate
 
Total
 
Energy Commodities
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$
(1
)
 
$
(83
)
 
$
(84
)
 
$
(1
)
 
$
(67
)
 
$
(68
)
Reclassified from accumulated OCI to income:
 
 
 
 
 
 
 
 
 
 
 
Due to realization of previously deferred amounts

 
2

 
2

 

 
4

 
4

Mark-to-market of cash flow hedge accounting contracts

 
19

 
19

 

 
1

 
1

Accumulated OCI ending balance, net of $37 tax
$
(1
)
 
$
(62
)
 
$
(63
)

$
(1
)

$
(62
)
 
$
(63
)
Losses expected to be realized from OCI during the next 12 months, net of $8 tax
$
(1
)
 
$
(13
)
 
$
(14
)
 
$
(1
)
 
$
(13
)
 
$
(14
)

27

                                                                                                                


 
Three months ended June 30, 2014
 
Six months ended June 30, 2014
 
Energy Commodities
 
Interest Rate
 
Total
 
Energy Commodities
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$
(1
)
 
$
(31
)
 
$
(32
)
 
$
(1
)
 
$
(22
)
 
$
(23
)
Reclassified from accumulated OCI to income:
 
 
 
 
 
 
 
 
 
 
 
Due to realization of previously deferred amounts

 
(7
)
 
(7
)
 

 
(8
)
 
(8
)
Mark-to-market of cash flow hedge accounting contracts

 
(12
)
 
(12
)
 

 
(20
)
 
(20
)
Accumulated OCI ending balance, net of $29 tax
$
(1
)
 
$
(50
)
 
$
(51
)

$
(1
)

$
(50
)
 
$
(51
)
Amounts reclassified from accumulated OCI into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to operating revenue for commodity contracts and interest expense for interest rate contracts. There was no ineffectiveness for the three and six months ended June 30, 2015, and 2014.
Impact of Derivative Instruments on the Statements of Operations
Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedges and ineffectiveness of hedge derivatives are reflected in current period earnings.
The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges, ineffectiveness on cash flow hedges and trading activity on the Company's statement of operations. The effect of 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 June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Unrealized mark-to-market results
(In millions)
Reversal of previously recognized unrealized gains on settled positions related to economic hedges
$
(36
)
 
$
(5
)
 
$
(150
)
 
$
(2
)
Reversal of acquired gain positions related to economic hedges
(24
)
 
(84
)
 
(50
)
 
(162
)
Net unrealized gains/(losses) on open positions related to economic hedges
57

 
(30
)
 
(81
)
 
(223
)
Total unrealized mark-to-market losses for economic hedging activities
(3
)
 
(119
)
 
(281
)
 
(387
)
Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity
(15
)
 
5

 
(36
)
 
5

Reversal of acquired gain positions related to trading activity
(5
)
 
(19
)
 
(12
)
 
(20
)
Net unrealized (losses)/gains on open positions related to trading activity
(4
)
 
14

 
2

 
30

Total unrealized mark-to-market (losses)/gains for trading activity
(24
)
 

 
(46
)
 
15

Total unrealized losses
$
(27
)
 
$
(119
)
 
$
(327
)
 
$
(372
)
 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In millions)
Unrealized losses included in operating revenues
$
(137
)
 
$
(48
)
 
$
(246
)
 
$
(364
)
Unrealized gains/(losses) included in cost of operations
110

 
(71
)
 
(81
)
 
(8
)
Total impact to statement of operations — energy commodities
$
(27
)
 
$
(119
)
 
$
(327
)
 
$
(372
)
Total impact to statement of operations — interest rate contracts
$
35

 
$
(3
)
 
$
21

 
$
(7
)
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 revenue or cost of operations during the same period.
For the six months ended June 30, 2015, the $81 million unrealized loss from open economic hedge positions was primarily the result of a decrease in value of forward purchases of ERCOT electricity and coal due to decreases in ERCOT power and coal prices partially offset by an increase in value of forward sales of PJM electricity due to decreases in PJM power prices.

28

                                                                                                                


For the six months ended June 30, 2014, the $223 million unrealized loss from open economic hedge positions was primarily the result of a decrease in value of forward purchases due to decreases in ERCOT heat rates combined with a decrease in value of forward sales of natural gas and electricity due to increases in East power and natural gas 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 June 30, 2015, was $153 million. The collateral required for contracts with credit rating contingent features as of June 30, 2015, was $41 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 $20 million as of June 30, 2015.
See Note 4, Fair Value of Financial Instruments, to this Form 10-Q for discussion regarding concentration of credit risk.

29

                                                                                                                


Note 7Debt and Capital Leases
This footnote should be read in conjunction with the complete description under Note 12, Debt and Capital Leases, to the Company's 2014 Form 10-K. Long-term debt and capital leases consisted of the following:
(In millions, except rates)
 
June 30, 2015
 
December 31, 2014
 
June 30, 2015 interest rate % (a)
 
 
 
Recourse debt:
 
 
 
 
 
 
Senior notes, due 2018
 
$
1,130

 
$
1,130

 
7.625
Senior notes, due 2020
 
1,063

 
1,063

 
8.250
Senior notes, due 2021
 
1,128

 
1,128

 
7.875
Senior notes, due 2022
 
1,100

 
1,100

 
6.250
Senior notes, due 2023
 
990

 
990

 
6.625
Senior notes, due 2024
 
1,000

 
1,000

 
6.250
Term loan facility, due 2018
 
1,973

 
1,983

 
L+2.00
Tax-exempt bonds
 
434

 
406

 
4.125 - 6.00
Subtotal NRG recourse debt
 
8,818

 
8,800

 
 
Non-recourse debt:
 
 
 
 
 
 
GenOn senior notes
 
2,109

 
2,133

 
7.875 - 9.875
GenOn Americas Generation senior notes
 
924

 
929

 
8.500 - 9.125
GenOn Other
 
58

 
60

 
various
Subtotal GenOn debt (non-recourse to NRG)
 
3,091

 
3,122

 
 
NRG Yield Operating LLC Senior Notes, due 2024
 
500

 
500

 
5.375
NRG Yield LLC and NRG Yield Operating LLC Revolving Credit Facility, due 2019
 
267

 

 
L+2.50
NRG Yield, Inc. Convertible Senior Notes, due 2019
 
328

 
326

 
3.500
NRG Yield, Inc. Convertible Senior Notes, due 2020
 
264

 

 
3.250
NRG West Holdings LLC, due 2023 (El Segundo Energy Center)
 
489

 
506

 
L+1.625 - L+2.25
NRG Marsh Landing, due 2017 and 2023
 
454

 
464

 
L+1.75 - L+1.875
Alta Wind I - V lease financing arrangements, due 2034 and 2035
 
1,016

 
1,036

 
5.696-7.015
Alta Wind X, due 2021
 

 
300

 
L+2.00
Alta Wind XI, due 2021
 

 
191

 
L+2.00
Walnut Creek, term loans due 2023
 
381

 
391

 
L+1.625
Tapestry Wind LLC, due 2021
 
185

 
192

 
L+1.625
Laredo Ridge Wind LLC, due 2026
 
106

 
108

 
L+1.875
NRG Solar Alpine LLC, due 2022
 
161

 
163

 
L+1.750
NRG Energy Center Minneapolis LLC, due 2017 and 2025
 
112

 
121

 
5.95 - 7.25
NRG Yield - other
 
480

 
489

 
various
Subtotal NRG Yield debt (non-recourse to NRG)
 
4,743

 
4,787

 
 
Ivanpah Financing, due 2033 and 2038
 
1,176

 
1,187

 
2.285 - 4.256
Agua Caliente Solar LLC, due 2037
 
904

 
898

 
2.395 - 3.633
CVSR High Plains Ranch II LLC, due 2037
 
802

 
815

 
2.339 - 3.775
Viento Funding II, Inc., due 2023
 
193

 
196

 
L+2.75
NRG Peaker Finance Co. LLC, bonds due 2019
 
102

 
100

 
L+1.07
Cedro Hill Wind LLC, due 2025
 
106

 
111

 
L+3.125
NRG - other
 
357

 
350

 
various
Subtotal other NRG non-recourse debt
 
3,640

 
3,657

 
 
Subtotal all non-recourse debt
 
11,474

 
11,566

 
 
Subtotal long-term debt (including current maturities)
 
20,292


20,366

 
 
Capital leases:
 
 
 
 
 
 
Chalk Point capital lease, due 2015
 
2

 
5

 
8.190
Other
 
3

 
3

 
various
Subtotal long-term debt and capital leases (including current maturities)
 
20,297


20,374

 
 
Less current maturities
 
636


474

 
 
Total long-term debt and capital leases
 
$
19,661


$
19,900

 
 
(a) As of June 30, 2015, L+ equals 3 month LIBOR plus x%, with the exception of the Viento Funding II term loan and Kansas South which is 6 month LIBOR plus x% and the NRG Marsh Landing term loan, Walnut Creek term loan, and NRG Yield Operating LLC Revolving Credit facility which are 1 month LIBOR plus x%.

30

                                                                                                                


NRG Recourse Debt
Senior Notes
Issuance of 2022 Senior Notes
On January 27, 2014, NRG issued $1.1 billion in aggregate principal amount at par of 6.25% senior notes due 2022. The notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is payable semi-annually beginning on July 15, 2014, until the maturity date of July 15, 2022. The proceeds were utilized to redeem the 8.5% and 7.625% 2019 Senior Notes, as discussed below, and to fund the acquisition of EME.
Issuance of 2024 Senior Notes
On April 21, 2014, NRG issued $1.0 billion in aggregate principal amount at par of 6.25% senior notes due 2024. The notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is payable semi-annually beginning on November 1, 2014, until the maturity date of November 1, 2024. A portion of the cash proceeds were used to redeem all remaining of its 7.625% 2019 Senior Notes, as discussed below, and the rest of the proceeds were used to redeem all remaining $225 million of its 8.5% 2019 Senior Notes in September 2014.

Redemptions of 8.5% and 7.625% 2019 Senior Notes
On February 10, 2014, the Company redeemed $308 million of its 8.5% 2019 Senior Notes and $91 million of its 7.625% 2019 Senior Notes through a tender offer, at an average early redemption percentage of 106.992% and 105.500%, respectively. A $33 million loss on debt extinguishment of the 8.5% and 7.625% 2019 Senior Notes was recorded during the three months ended March 31, 2014, primarily consisting of the premiums paid on the redemption and the write-off of previously deferred financing costs.
On April 21, 2014, the Company redeemed $74 million of its 8.5% 2019 Senior Notes and $337 million of its 7.625% 2019 Senior Notes through a tender offer and call, at an average early redemption percentage of 105.250% and 104.200%, respectively. A $22 million loss on debt extinguishment of the 8.5% and 7.625% 2019 Senior Notes was recorded during the three months ended June 30, 2014, primarily consisting of the premiums paid on the redemption and the write-off of previously deferred financing costs.
On May 21, 2014, the Company redeemed for cash all of its remaining 7.625% 2019 Senior Notes at an average early redemption percentage of 103.813%. An $18 million loss on debt extinguishment of the 7.625% 2019 Senior Notes was recorded during the three months ended June 30, 2014, primarily consisting of the premiums paid on the redemption and the write-off of previously deferred financing costs.
NRG Non-Recourse Debt
The Company has non-recourse debt that is secured by acquired or developed projects that are held in several of its subsidiaries.  In the event of a bankruptcy, receivership, liquidation or similar event involving a subsidiary, the assets of such subsidiary would be used to satisfy claims of creditors of the subsidiary, including liabilities under the non-recourse debt associated with such subsidiaries, rather than the creditors of NRG. As described in Note 3, Business Acquisitions and Dispositions, through the Company's acquisitions of EME on April 1, 2014 and Alta Wind on August 12, 2014, the Company acquired approximately $1.2 billion and $1.6 billion, respectively, of non-recourse debt.
Alta Wind X and Alta Wind XI due 2021
On June 30, 2015, the Company entered into a tax equity financing arrangement through which Yield Operating, a subsidiary of NRG Yield, Inc., received $119 million in net proceeds, as described in Note 2, Summary of Significant Accounting Policies. These proceeds, as well as proceeds obtained from the June 29, 2015, NRG Yield, Inc. common stock issuance and the 2020 Convertible Notes issuance, were utilized to repay all of the outstanding project indebtedness associated with Alta Wind X and Alta Wind XI facilities. The Company also settled interest rate swaps associated with the project level debt for Alta Wind X and Alta Wind XI and incurred a fee of $17 million.

31

                                                                                                                



NRG Yield, Inc. Convertible Notes
On June 29, 2015, NRG Yield, Inc. closed on its offering of $287.5 million aggregate principal amount of 3.25% Convertible Senior Notes due 2020, or the 2020 Convertible Notes. The 2020 Convertible Notes are convertible, under certain circumstances, into NRG Yield, Inc. Class C common stock, cash or a combination thereof at an initial conversion price of $27.50 per Class C common share, which is equivalent to an initial conversion rate of approximately 36.3636 shares of Class C common stock per $1,000 principal amount of notes. Interest on the 2020 Convertible Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2015. The 2020 Convertible Notes mature on June 1, 2020, unless earlier repurchased or converted in accordance with their terms. Prior to the close of business on the business day immediately preceding December 1, 2019, the 2020 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 2020 Convertible Notes are accounted for in accordance with ASC 470-20. Under ASC 470-20, issuers of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components. The equity component, the $23 million conversion option value, was recorded to NRG's noncontrolling interest for NRG Yield, Inc. with the offset to debt discount. The debt discount will be amortized to interest expense over the term of the notes.
During the first quarter of 2014, NRG Yield, Inc. closed on its offering of $345 million aggregate principal amount of 3.50% Convertible Senior Notes due 2019, or the 2019 Convertible Notes. The 2019 Convertible Notes were convertible, under certain circumstances, into NRG Yield, Inc. Class A common stock, cash or a combination thereof at an initial conversion rate of approximately 21.4822 shares of Class A common stock per $1,000 principal amount of 2019 Convertible Notes. Effective May 15, 2015, the conversion rate was adjusted to 42.9644 shares of Class A common stock per $1,000 principal amount of 2019 Convertible Notes in accordance with the terms of the related indenture. Interest on the 2019 Convertible Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2014. The 2019 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 2019 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 notes are accounted for in accordance with ASC 470-20. The equity component, the $23 million conversion option value, was recorded to NRG's noncontrolling interest for NRG Yield, Inc. with the offset to debt discount. The debt discount will be amortized to interest expense over the term of the notes.
NRG Yield LLC and NRG Yield Operating LLC Revolving Credit Facility
On June 26, 2015, the Company amended the revolving credit facility to, among other things, increase the availability from $450 million to $495 million. As of June 30, 2015, $267 million of borrowing and $32 million of letters of credit were outstanding. In July 2015, the Company repaid $190 million utilizing proceeds from the issuance of the 2020 Convertible Notes and Class C common stock.
NRG West Holdings LLC
On May 29, 2015, NRG West Holdings LLC amended its financing agreement to increase borrowings under the Tranche A facility by $5 million and to reduce the related interest rate to LIBOR plus an applicable margin of 1.625% from May 29, 2015 to August 31, 2017, LIBOR plus an applicable margin of 1.75% from September 1, 2017, to August 31, 2020, and LIBOR plus 1.875% from September 1, 2020 through the maturity date; to reduce Tranche B loan interest rate to LIBOR plus an applicable margin of 2.25% from May 29, 2015, to August 31, 2017, LIBOR plus 2.375% from September 1, 2017, to August 31, 2020, and LIBOR plus an applicable margin of 2.50% from September 1, 2020 through the maturity date and to reduce the working capital facility by $9 million. The proceeds of the increased borrowing were used to pay costs associated with the refinancing. Further, the amendment resulted in a $7 million loss on debt extinguishment.

Peakers
On February 21, 2014, NRG Peaker Finance Company LLC elected to redeem approximately $30 million of the outstanding bonds at a redemption price equal to the principal amount plus a redemption premium, accrued and unpaid interest, swap breakage, and other fees, totaling approximately $35 million in connection with the removal of Bayou Cove Peaking Power LLC from the Peaker financing collateral package, which also involved limited commitments for certain repairs on other assets that were funded concurrently with the December 10, 2013, debt service payment. On March 3, 2014, Bayou Cove Peaking Power LLC sold Bayou Cove Unit 1, which the Company continues to manage and operate.

32

                                                                                                                


High Lonesome Mesa Facility
Prior to the Company's acquisition of EME, an intercompany tax credit agreement related to the High Lonesome Mesa facility was terminated. The termination resulted in an event of default under the project financing arrangement. As a result, the balance under the project financing arrangement is classified as current and the lender can request repayment at any time. The facility is secured by the assets of High Lonesome Mesa and is non-recourse to NRG.

Note 8Variable Interest Entities, or VIEs
Entities that are not Consolidated
NRG has interests in entities that are considered VIEs under ASC 810, Consolidation, but NRG is not considered the primary beneficiary.  NRG accounts for its interests in these entities under the equity method of accounting.
GenConn Energy LLC Through its consolidated subsidiary, Yield Operating, the Company owns a 50% interest in GenConn, which owns and operates two 190 MW peaking generation facilities in Connecticut at NRG's Devon and Middletown sites. NRG's maximum exposure to loss is limited to its equity investment, which was $113 million as of June 30, 2015.
Sherbino I Wind Farm LLC NRG owns a 50% interest in Sherbino, a joint venture with BP Wind Energy North America Inc. NRG's maximum exposure to loss is limited to its equity investment, which was $80 million as of June 30, 2015.
Entities that are Consolidated
Capistrano Wind Partners Through the acquisition of EME, the Company has a controlling financial interest in Capistrano Wind Partners, whose Class B preferred equity interests are held by outside investors. Capistrano Wind Partners holds 100% ownership in five projects generating 411 MW of wind capacity. The five wind projects include Cedro Hill located in Texas, Mountain Wind Power I located in Wyoming, Mountain Wind Power II located in Wyoming, Crofton Bluffs located in Nebraska, and Broken Bow I located in Nebraska.
Under the terms of the Capistrano Wind Partners formation documents, the holders of the Class B preferred equity interests receive 100% of the cash available for distribution, up to a scheduled amount to target a certain return and thereafter cash distributions are shared. The Company retains indirect beneficial ownership of the wind projects and retains responsibilities for managing the operations of Capistrano Wind Partners. Accordingly, the Company consolidates these projects. The Company does not consolidate Capistrano Wind Partners for tax purposes.
The summarized financial information for Capistrano Wind Holdings, the parent company of Capistrano Wind Partners, consisted of the following:
(In millions)
June 30, 2015
Current assets
$
25

Net property, plant and equipment
570

Other long-term assets
127

Total assets
722

Current liabilities
35

Long-term debt
177

Other long-term liabilities
150

Total liabilities
362

Noncontrolling interests
339

Net assets less noncontrolling interests
$
21



33

                                                                                                                


Note 9Changes in Capital Structure
As of June 30, 2015, and December 31, 2014, the Company had 500,000,000 shares of common stock authorized. The following table reflects the changes in NRG's common stock issued and outstanding:
 
Issued
 
Treasury
 
Outstanding
Balance as of December 31, 2014
415,506,176

 
(78,843,552
)
 
336,662,624

Shares issued under LTIPs
1,235,939

 

 
1,235,939

Shares issued under ESPP

 
124,625

 
124,625

Shares repurchased under Capital Allocation Program

 
(7,526,391
)
 
(7,526,391
)
Balance as of June 30, 2015
416,742,115

 
(86,245,318
)
 
330,496,797

Employee Stock Purchase Plan
As of June 30, 2015, there were 1,435,427 shares of treasury stock available for issuance under the ESPP. In July 2015, 158,514 shares of NRG common stock were issued to employee accounts from treasury stock under the ESPP.
NRG Common Stock Dividends
The following table lists the dividends paid during the six months ended June 30, 2015:
 
Second Quarter 2015

First Quarter 2015
Dividends per Common Share
$
0.145


$
0.145

On July 15, 2015, NRG declared a quarterly dividend on the Company's common stock of $0.145 per share, payable August 17, 2015, to stockholders of record as of August 3, 2015, representing $0.58 on an annualized basis.
The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations.
2015 Capital Allocation Program 
In December 2014, the Company was authorized to repurchase $100 million of its common stock under the 2015 Capital Allocation Program. In March 2015, the Company was authorized to repurchase an additional $100 million of its common stock under the 2015 Capital Allocation Program. In addition, in the second quarter of 2015, the Company's board of directors authorized the repurchase of an additional $81 million of the Company's common stock, for a total authorized share repurchase of $281 million.
The following table reflects the repurchases made under the 2015 Capital Allocation Program:
 
 
Total number of shares purchased
 
Average price paid per share (a)
 
Amounts paid for shares purchased  (in millions) (a)
2015 Capital Allocation Program
 
 
 
 
 
 
December 2014