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NRG ENERGY, INC. - Quarter Report: 2016 September (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: September 30, 2016
 
 
 
o
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-15891
NRG Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
 
41-1724239
(I.R.S. Employer
Identification No.)
 
 
 
804 Carnegie Center, Princeton, New Jersey
(Address of principal executive offices)
 
08540
(Zip Code)
(609) 524-4500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x       No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No x
As of October 31, 2016, there were 315,442,997 shares of common stock outstanding, par value $0.01 per share.
 




TABLE OF CONTENTS
Index



2



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of NRG Energy, Inc., or NRG or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. The words "believes," "projects," "anticipates," "plans," "expects," "intends," "estimates" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause NRG's actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Item 1A — Risk Factors Related to NRG Energy, Inc., in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and the following:
General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;
Volatile power supply costs and demand for power;
Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards;
The effectiveness of NRG's risk management policies and procedures, and the ability of NRG's counterparties to satisfy their financial commitments;
Counterparties' collateral demands and other factors affecting NRG's liquidity position and financial condition;
NRG's ability to operate its businesses efficiently, manage capital expenditures and costs tightly, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
NRG's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices;
The liquidity and competitiveness of wholesale markets for energy commodities;
Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws and increased regulation of carbon dioxide and other GHG emissions;
Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately and fairly compensate NRG's generation units;
NRG's ability to mitigate forced outage risk for units subject to capacity performance requirements in PJM, performance incentives in ISO-NE, and scarcity pricing in ERCOT;
NRG's ability to borrow funds and access capital markets, as well as NRG's substantial indebtedness and the possibility that NRG may incur additional indebtedness going forward;
NRG's ability to receive loan guarantees or cash grants to support development projects;
Operating and financial restrictions placed on NRG and its subsidiaries that are contained in the indentures governing NRG's outstanding notes, in NRG's 2016 Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;
GenOn's ability to continue as a going concern;
Cyber terrorism and inadequate cybersecurity, or the occurrence of a catastrophic loss and the possibility that NRG may not have adequate insurance to cover losses resulting from such hazards or the inability of NRG's insurers to provide agreed upon coverage;
NRG's ability to develop and build new power generation facilities, including new renewable projects;
NRG's ability to develop and innovate new products as retail and wholesale markets continue to change and evolve;
NRG's ability to implement its strategy of finding ways to meet the challenges of climate change, clean air and protecting natural resources while taking advantage of business opportunities;
NRG's ability to sell assets to NRG Yield, Inc. and to close drop-down transactions;
NRG's ability to achieve its strategy of regularly returning capital to stockholders;
NRG's ability to obtain and maintain retail market share;
NRG's ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives;
NRG's ability to engage in successful mergers and acquisitions activity;
NRG's ability to successfully integrate, realize cost savings and manage any acquired businesses; and
NRG's ability to develop and maintain successful partnering relationships.

3



Forward-looking statements speak only as of the date they were made, and NRG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in any forward-looking statements included in this Quarterly Report on Form 10-Q should not be construed as exhaustive.

4



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

5



DSI
 
Dry Sorbent Injection with Trona
Economic gross margin
 
Sum of energy revenue, capacity revenue and other revenue, less cost of fuels and other cost of sales
EGU
 
Electric Generating Unit
El Segundo Energy Center
 
NRG West Holdings LLC, the subsidiary of Natural Gas Repowering LLC, which owns the El Segundo Energy Center project
EMAAC
 
Eastern Mid-Atlantic Area Council
EME
 
Edison Mission Energy
Energy Plus Holdings
 
Energy Plus Holdings LLC and Energy Plus Natural Gas LLC
EPA
 
U.S. Environmental Protection Agency
EPC
 
Engineering, Procurement and Construction
ERCOT
 
Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
ESCO
 
Energy Service Company
ESP
 
Electrostatic Precipitator
ESPP
 
NRG Energy, Inc. Amended and Restated Employee Stock Purchase Plan
ESPS
 
Existing Source Performance Standards
Exchange Act
 
The Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
FirstEnergy
 
FirstEnergy Corp.
FPA
 
Federal Power Act
FTRs
 
Financial Transmission Rights
GAAP
 
Accounting principles generally accepted in the U.S.
GenConn
 
GenConn Energy LLC
GenOn
 
GenOn Energy, Inc.
GenOn Americas Generation
 
GenOn Americas Generation, LLC
GenOn Americas Generation Senior Notes
 
GenOn Americas Generation's $695 million outstanding unsecured senior notes consisting of $366 million of 8.5% senior notes due 2021 and $329 million of 9.125% senior notes due 2031
GenOn Mid-Atlantic
 
GenOn Mid-Atlantic, LLC and, except where the context indicates otherwise, its subsidiaries, which include the coal generation units at two generating facilities under operating leases
GenOn Senior Notes
 
GenOn's $1.8 billion outstanding unsecured senior notes consisting of $691 million of 7.875% senior notes due 2017, $650 million of 9.5% senior notes due 2018, and $489 million of 9.875% senior notes due 2020
GHG
 
Greenhouse Gases
GWh
 
Gigawatt Hour
HAPs
 
Hazardous Air Pollutants
HDD
 
Heating Degree Day
Heat Rate
 
A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWhs generated. Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output measured is gross or net generation and is generally expressed as BTU per net kWh
HLBV
 
Hypothetical Liquidation at Book Value
HLM
 
High Lonesome Mesa, LLC
IASB
 
Independent Accounting Standards Board
IFRS
 
International Financial Reporting Standards
IL CPS
 
Illinois Combined Pollutant Standard
ILU
 
Illinois Union Insurance Company
ISO
 
Independent System Operator

6



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

NRG Yield Operating 2026 Senior Notes
 
NRG Yield Operating LLC's $350 million of 5.00% unsecured senior notes due 2026
NSR
 
New Source Review
NSPS
 
New Source Performance Standards
Nuclear Decommissioning Trust Fund
 
NRG's nuclear decommissioning trust fund assets, which are for the Company's portion of the decommissioning of the STP, units 1 & 2

7



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

8



SO2
 
Sulfur Dioxide
STP
 
South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest
S&P
 
Standard & Poor's
Taloga
 
Taloga Wind, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Taloga project
TCPA
 
Telephone Consumer Protection Act
Term Loan Facility
 
Prior to June 30, 2016, the Company's $2.0 billion term loan facility due 2018, a component of the Senior Credit Facility. On June 30, 2016, the Company replaced its Senior Credit Facility, including the Term Loan Facility, with the 2016 Senior Credit Facility.
TSA
 
Transportation Services Agreement
TWCC
 
Texas Westmoreland Coal Co.
UPMC
 
University of Pittsburgh Medical Center
U.S.
 
United States of America
U.S. DOE
 
U.S. Department of Energy
Utility Scale Solar
 
Solar power projects, typically 20 MW or greater in size (on an alternating current basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level
VaR
 
Value at Risk
VIE
 
Variable Interest Entity
Walnut Creek
 
NRG Walnut Creek, LLC, the operating subsidiary of WCEP Holdings, LLC, which owns the Walnut Creek project

9



PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions, except for per share amounts)
2016
 
2015
 
2016
 
2015
Operating Revenues
 
 
 
 
 
 
 
Total operating revenues
$
3,952


$
4,434


$
9,819


$
11,663

Operating Costs and Expenses
 
 
 
 
 
 
 
Cost of operations
2,793


3,042


6,738


8,551

Depreciation and amortization
357


382


979


1,173

Impairment losses
8


263

 
123


263

Selling, general and administrative
282


327


802


878

Acquisition-related transaction and integration costs


3


7


16

Development activity expenses
23


38


67


109

Total operating costs and expenses
3,463

 
4,055

 
8,716

 
10,990

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




215


14

Operating Income
755

 
379

 
1,318

 
687

Other Income/(Expense)

 

 

 

Equity in earnings of unconsolidated affiliates
16


24


13


29

Impairment loss on investment
(8
)



(147
)


Other income, net
9


4


35


27

Loss on debt extinguishment, net
(50
)

(2
)

(119
)

(9
)
Interest expense
(280
)

(291
)

(841
)

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


114


259


(121
)
Income tax expense/(benefit)
49


47


95


(43
)
Net Income/(Loss)
393


67


164


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

1


(49
)

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


66


213


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


5


(73
)

15

Income/(Loss) Available for Common Stockholders
$
402

 
$
61

 
$
286

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


331


315


334

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


$
0.18


$
0.91


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


332


316


334

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


$
0.18


$
0.91


$
(0.25
)
Dividends Per Common Share
$
0.03


$
0.15


$
0.21


$
0.44

See accompanying notes to condensed consolidated financial statements.

10




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


$
67


$
164


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

 

 

 

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


(6
)

(8
)

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


(8
)

6


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


(7
)

1


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


3


32


9

Other comprehensive income/(loss)
61

 
(18
)
 
31

 
(14
)
Comprehensive Income/(Loss)
454

 
49

 
195

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

(17
)

(70
)

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

 
66

 
265

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


5


(73
)

15

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

 
$
61

 
$
338

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

11



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

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


$
1,518

Funds deposited by counterparties
16


106

Restricted cash
480


414

Accounts receivable, net
1,362


1,157

Inventory
1,017


1,252

Derivative instruments
964


1,915

Cash collateral paid in support of energy risk management activities
337


568

Renewable energy grant receivable, net
34


13

Current assets held-for-sale


6

Prepayments and other current assets
369


442

Total current assets
7,014


7,391

Property, plant and equipment, net
18,203


18,732

Other Assets
 
 
 
Equity investments in affiliates
900


1,045

Notes receivable, less current portion
21


53

Goodwill
999


999

 Intangible assets, net
2,106


2,310

Nuclear decommissioning trust fund
605


561

Derivative instruments
256


305

Deferred income taxes
189


167

Non-current assets held-for-sale


105

Other non-current assets
1,198


1,214

Total other assets
6,274


6,759

Total Assets
$
31,491


$
32,882

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


$
481

Accounts payable
945


869

Derivative instruments
969


1,721

Cash collateral received in support of energy risk management activities
16


106

Current liabilities held-for-sale


2

Accrued expenses and other current liabilities
1,150


1,196

Total current liabilities
4,301


4,375

Other Liabilities
 

 
Long-term debt and capital leases
18,018


18,983

Nuclear decommissioning reserve
284


326

Nuclear decommissioning trust liability
309


283

Deferred income taxes
47


19

Derivative instruments
475


493

Out-of-market contracts, net
1,065


1,146

Non-current liabilities held-for-sale


4

Other non-current liabilities
1,480


1,488

Total non-current liabilities
21,678


22,742

Total Liabilities
25,979


27,117

2.822% convertible perpetual preferred stock


302

Redeemable noncontrolling interest in subsidiaries
19


29

Commitments and Contingencies





Stockholders’ Equity



Common stock
4


4

Additional paid-in capital
8,370


8,296

Retained deficit
(2,791
)

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

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

(173
)
Noncontrolling interest
2,451


2,727

Total Stockholders’ Equity
5,493


5,434

Total Liabilities and Stockholders’ Equity
$
31,491


$
32,882


See accompanying notes to condensed consolidated financial statements.

12



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


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



Distributions and equity in earnings of unconsolidated affiliates
44


28

Depreciation and amortization
979


1,173

Provision for bad debts
36


49

Amortization of nuclear fuel
39


36

Amortization of financing costs and debt discount/premiums
3


(9
)
Adjustment to loss on debt extinguishment
21


9

Amortization of intangibles and out-of-market contracts
73


68

Amortization of unearned equity compensation
23


37

Impairment losses
270


263

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


(72
)
Changes in nuclear decommissioning trust liability
24


1

Changes in derivative instruments
82


180

Changes in collateral deposits supporting energy risk management activities
231


(180
)
Proceeds from sale of emission allowances
47


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

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

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


1,392

Cash Flows from Investing Activities
 

 
Acquisitions of businesses, net of cash acquired
(18
)

(31
)
Capital expenditures
(898
)

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

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

1

Decrease in notes receivable
2


10

Purchases of emission allowances
(32
)

(40
)
Proceeds from sale of emission allowances
47


45

Investments in nuclear decommissioning trust fund securities
(378
)

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


499

Proceeds from renewable energy grants and state rebates
11


62

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


1

Investments in unconsolidated affiliates
(23
)

(357
)
Other
44


8

Net Cash Used by Investing Activities
(321
)

(1,232
)
Cash Flows from Financing Activities
 

 
Payment of dividends to common and preferred stockholders
(66
)

(152
)
Payment for treasury stock


(353
)
Payment for preferred shares
(226
)


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


138

Proceeds from issuance of long-term debt
5,237


679

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

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

651

Proceeds from issuance of common stock
1


1

Payment of debt issuance costs
(70
)

(14
)
Other - contingent consideration
(10
)

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

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

15

Net Increase in Cash and Cash Equivalents
917


149

Cash and Cash Equivalents at Beginning of Period
1,518


2,116

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


$
2,265

See accompanying notes to condensed consolidated financial statements.

13



NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Basis of Presentation
NRG Energy, Inc., or NRG or the Company, is an integrated competitive power company that aims to create a sustainable energy future by producing, selling and delivering energy and energy products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. NRG has one of the nation's largest and most diverse competitive generation portfolios balanced with a leading retail electricity platform. The Company owns and operates approximately 46,000 MW of generation; engages in the trading of wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG,” "Reliant" and other retail brand names owned by NRG.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the SEC's regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the consolidated financial statements in the Company's 2015 Form 10-K. Interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of September 30, 2016, and the results of operations, comprehensive income/(loss) and cash flows for the three and nine months ended September 30, 2016 and 2015.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes. The reclassifications did not affect results from operations, net assets or cash flows.
The Company decreased accumulated depreciation and facilities and equipment within total property, plant and equipment by approximately $1 billion respectively, to adjust amounts previously presented as of December 31, 2015. This adjustment had no impact on net assets at December 31, 2015. Accordingly, the Company does not consider the adjustment to be material to the consolidated balance sheet. Consolidated operating income and net income for the three months and nine months ended September 30, 2016 were not impacted by the adjustment.


14



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

$
26

Property plant and equipment accumulated depreciation
6,424

5,761

Intangible assets accumulated amortization
1,729

1,590

Out-of-market contracts accumulated amortization
740

639

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

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

Balance as of September 30, 2016
$
2,451


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

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

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

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

15



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

16



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


17



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

18



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



19




Note 4Fair Value of Financial Instruments
This footnote should be read in conjunction with the complete description under Note 4, Fair Value of Financial Instruments, to the Company's 2015 Form 10-K.
For cash and cash equivalents, funds deposited by counterparties, accounts and other receivables, accounts payable, restricted cash, and cash collateral paid and received in support of energy risk management activities, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.
The estimated carrying amounts and fair values of NRG's recorded financial instruments not carried at fair market value are as follows:
 
As of September 30, 2016
 
As of December 31, 2015
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable (a)
$
50

 
$
50

 
$
73

 
$
73

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

 
18,888

 
19,620

 
18,263

(a) Includes the current portion of notes receivable which is recorded in prepayments and other current assets on the Company's consolidated balance sheets.
(b) Excludes deferred financing costs, which are recorded as a reduction to long-term debt on the Company's consolidated balance sheets.
The fair value of the Company's publicly-traded long-term debt is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non-publicly traded long-term debt and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates, or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy. The following table presents the level within the fair value hierarchy for long-term debt, including current portion as of September 30, 2016 and December 31, 2015:
 
As of September 30, 2016
 
As of December 31, 2015
 
Level 2
 
Level 3
 
Level 2
 
Level 3
 
(In millions)
Long-term debt, including current portion
$
11,767

 
$
7,121

 
$
11,028

 
$
7,235



20



Recurring Fair Value Measurements
Debt securities, equity securities, and trust fund investments, which are comprised of various U.S. debt and equity securities, and derivative assets and liabilities, are carried at fair market value.
The following tables present assets and liabilities measured and recorded at fair value on the Company's condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:
 
As of September 30, 2016
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
    non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
17

 
$
17

Available-for-sale securities
10

 

 

 
10

Other (a)
10

 

 

 
10

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
24

 

 

 
24

U.S. government and federal agency obligations
51

 
1

 

 
52

Federal agency mortgage-backed securities

 
68

 

 
68

Commercial mortgage-backed securities

 
17

 

 
17

Corporate debt securities

 
87

 

 
87

Equity securities
301

 

 
54

 
355

Foreign government fixed income securities

 
2

 

 
2

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
308

 
798

 
107

 
1,213

Interest rate contracts

 
7

 

 
7

Total assets
$
705

 
$
980

 
$
178

 
$
1,863

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
375

 
773

 
133

 
1,281

Interest rate contracts

 
163

 

 
163

Total liabilities
$
375

 
$
936

 
$
133

 
$
1,444

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

21



 
As of December 31, 2015
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
17

 
$
17

Available-for-sale securities
9

 

 

 
9

Other (a)
14

 

 

 
14

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
6

 

 

 
6

U.S. government and federal agency obligations
54

 
1

 

 
55

Federal agency mortgage-backed securities

 
59

 

 
59

Commercial mortgage-backed securities

 
25

 

 
25

Corporate debt securities

 
81

 

 
81

Equity securities
280

 

 
54

 
334

Foreign government fixed income securities

 
1

 

 
1

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
622

 
1,449

 
149

 
2,220

Total assets
$
986

 
$
1,616

 
$
220

 
$
2,822

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
868

 
1,036

 
182

 
2,086

Interest rate contracts

 
128

 

 
128

Total liabilities
$
868

 
$
1,164

 
$
182

 
$
2,214

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

 
$
51

 
$
7

 
$
74

 
$
17

 
$
54

 
$
(33
)
 
$
38

Total gains/(losses) — realized/unrealized:
 
 
 
 
 
 


 
 
 
 
 
 
 


Included in earnings

 

 
2

 
2

 

 

 
9

 
9

Included in OCI
1

 

 

 
1

 

 

 

 

Included in nuclear decommissioning obligation

 
3

 

 
3

 

 
(1
)
 

 
(1
)
Purchases

 

 
(26
)
 
(26
)
 

 
1

 
3

 
4

Transfers into Level 3 (b)

 

 
(12
)
 
(12
)
 

 

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

 

 
3

 
3

 

 

 

 

Ending balance as of September 30, 2016
$
17

 
$
54

 
$
(26
)
 
$
45

 
$
17

 
$
54

 
$
(26
)
 
$
45

Gains/(losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of September 30, 2016
$

 
$

 
$
1

 
$
1

 
$

 
$

 
$
(14
)
 
$
(14
)
(a)
Consists of derivative assets and liabilities, net.
(b)
Transfers into/out of Level 3 are related to the availability of external broker quotes and are valued as of the end of the reporting period. All transfers in/out are with Level 2.

22



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

 
$

 
$
55

 
$
49

 
$
122

 
$
18

 
$
11

 
$
52

 
$
80

 
$
161

Total losses — realized/unrealized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in earnings

 

 

 
(17
)
 
(17
)
 

 
(11
)
 

 
(95
)
 
(106
)
Included in nuclear decommissioning obligations

 

 
(6
)
 

 
(6
)
 

 

 
(4
)
 

 
(4
)
Purchases

 

 

 
9

 
9

 

 

 
1

 
44

 
45

Transfers into Level 3 (b)

 

 

 
(10
)
 
(10
)
 

 

 

 
1

 
1

Transfers out of Level 3 (b)

 

 

 
2

 
2

 

 

 

 
3

 
3

Ending balance as of September 30, 2015
$
18

 
$

 
$
49

 
$
33

 
$
100

 
$
18

 
$

 
$
49

 
$
33

 
$
100

Losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of September 30, 2015
$

 
$

 
$

 
$
(9
)
 
$
(9
)
 
$

 
$

 
$

 
$
(37
)
 
$
(37
)
(a)
Consists of derivative assets and liabilities, net.
(b)
Transfers into/out of Level 3 are related to the availability of external broker quotes and are valued as of the end of the reporting period. All transfers in/out are with Level 2.

Derivative Fair Value Measurements
A portion of NRG's contracts are exchange-traded contracts with readily available quoted market prices. A majority of NRG's contracts are non-exchange-traded contracts valued using prices provided by external sources, primarily price quotations available through brokers or over-the-counter and on-line exchanges. The remainder of the assets and liabilities represent contracts for which external sources or observable market quotes are not available for the whole term or for certain delivery months or the contracts are retail and load following power contracts. These contracts are valued using various valuation techniques including but not limited to internal models that apply fundamental analysis of the market and corroboration with similar markets. As of September 30, 2016, contracts valued with prices provided by models and other valuation techniques make up 9% of the total derivative assets and 9% of the total derivative liabilities.
NRG's significant positions classified as Level 3 include physical and financial power and physical coal executed in illiquid markets as well as financial transmission rights, or FTRs. The significant unobservable inputs used in developing fair value include illiquid power and coal location pricing which is derived as a basis to liquid locations. The basis spread is based on observable market data when available or derived from historic prices and forward market prices from similar observable markets when not available. For FTRs, NRG uses the most recent auction prices to derive the fair value.











23



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

 
$
78

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

 
$
81

 
$
27

Coal Contracts

 
5

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
44

 
44

 
44

FTRs
54

 
50

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

 

 
$
107

 
$
133

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

 
$
100

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

 
$
92

 
$
27

Coal Contracts

 
12

 
Discounted Cash Flow
 
Forward Market Price (per ton)
 
28

 
45

 
35

FTRs
63

 
70

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

 

 
$
149

 
$
182

 
 
 
 
 
 
 
 
 
 
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of September 30, 2016 and December 31, 2015:
Significant Unobservable Input
 
Position
 
Change In Input
 
Impact on Fair Value Measurement
Forward Market Price Power/Coal
 
Buy
 
Increase/(Decrease)
 
Higher/(Lower)
Forward Market Price Power/Coal
 
Sell
 
Increase/(Decrease)
 
Lower/(Higher)
FTR Prices
 
Buy
 
Increase/(Decrease)
 
Higher/(Lower)
FTR Prices
 
Sell
 
Increase/(Decrease)
 
Lower/(Higher)
The fair value of each contract is discounted using a risk-free interest rate. In addition, the Company applies a credit reserve to reflect credit risk, which is calculated based on published default probabilities. As of September 30, 2016, the credit reserve resulted in a $2 million decrease in fair value, which is composed of a $3 million gain in OCI and a $5 million loss in operating revenue and cost of operations. As of September 30, 2015, the credit reserve resulted in a $7 million increase in fair value, which was composed of a $4 million gain in OCI and a $3 million gain in operating revenues and cost of operations.
Concentration of Credit Risk
In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, to the Company's 2015 Form 10-K, the following is a discussion of the concentration of credit risk for the Company's contractual obligations. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. NRG is exposed to counterparty credit risk through various activities including wholesale sales, fuel purchases and retail supply arrangements, and retail customer credit risk through its retail load activities.

24



Counterparty Credit Risk
The Company's counterparty credit risk policies are disclosed in its 2015 Form 10-K. As of September 30, 2016, the Company's counterparty credit exposure, excluding credit risk exposure under certain long term agreements, was $635 million with net exposure of $607 million. NRG held collateral (cash and letters of credit) against those positions of $45 million. Approximately 79% of the Company's exposure before collateral is expected to roll off by the end of 2017. Counterparty credit exposure is valued through observable market quotes and discounted at a risk free interest rate. The following tables highlight net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market and NPNS, and non-derivative transactions. The exposure is shown net of collateral held, and includes amounts net of receivables or payables.
 
Net Exposure (a)
Category by Industry Sector
(% of Total)
Financial institutions
33
%
Utilities, energy merchants, marketers and other
42

ISOs
25

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

Non-investment grade
7

Total as of September 30, 2016
100
%
(a)
Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices.
(b)
For non-rated counterparties, a significant portion are related to ISO and municipal public power entities, which are considered investment grade equivalent ratings based on NRG's internal credit ratings.
NRG has counterparty credit risk exposure to certain counterparties, each of which represent more than 10% of total net exposure discussed above. The aggregate of such counterparties' exposure was $295 million as of September 30, 2016. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. Given the credit quality, diversification and term of the exposure in the portfolio, NRG does not anticipate a material impact on the Company's financial position or results of operations from nonperformance by any of NRG's counterparties.
Counterparty credit exposure described above excludes credit risk exposure under certain long term agreements, including California tolling agreements, Gulf Coast load obligations, wind and solar PPAs, and a coal supply agreement. As external sources or observable market quotes are not available to estimate such exposure, the Company estimates its credit exposure for these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of September 30, 2016, aggregate credit risk exposure managed by NRG to these counterparties was approximately $4.1 billion, including $2.6 billion related to assets of NRG Yield, Inc., for the next five years. This amount excludes potential credit exposures for projects with long-term PPAs that have not reached commercial operations. The majority of these power contracts are with utilities or public power entities with strong credit quality and public utility commission or other regulatory support. However, such regulated utility counterparties can be impacted by changes in government regulations and other technology and market factors, which NRG is unable to predict. In the case of the coal supply agreement, NRG holds a lien against the underlying asset, which significantly reduces the risk of loss.
Retail Customer Credit Risk
NRG is exposed to retail credit risk through the Company's retail electricity providers, which serve commercial, industrial and governmental/institutional customers and the Mass market. Retail credit risk results when a customer fails to pay for products or services rendered. The losses may result from both nonpayment of customer accounts receivable and the loss of in-the-money forward value. NRG manages retail credit risk through the use of established credit policies that include monitoring of the portfolio, and the use of credit mitigation measures such as deposits or prepayment arrangements.
As of September 30, 2016, the Company believes its retail customer credit exposure was diversified across many customers and various industries, as well as government entities.


25



Note 5Nuclear Decommissioning Trust Fund
This footnote should be read in conjunction with the complete description under Note 6, Nuclear Decommissioning Trust Fund, to the Company's 2015 Form 10-K.
NRG's Nuclear Decommissioning Trust Fund assets are comprised of securities classified as available-for-sale and recorded at fair value based on actively quoted market prices. NRG accounts for the Nuclear Decommissioning Trust Fund in accordance with ASC 980, Regulated Operations, because the Company's nuclear decommissioning activities are subject to approval by the PUCT with regulated rates that are designed to recover all decommissioning costs and that can be charged to and collected from the ratepayers per PUCT mandate. Since the Company is in compliance with PUCT rules and regulations regarding decommissioning trusts and the cost of decommissioning is the responsibility of the Texas ratepayers, not NRG, all realized and unrealized gains or losses (including other-than-temporary impairments) related to the Nuclear Decommissioning Trust Fund are recorded to nuclear decommissioning trust liability and are not included in net income or accumulated OCI, consistent with regulatory treatment.
The following table summarizes the aggregate fair values and unrealized gains and losses (including other-than-temporary impairments) for the securities held in the trust funds, as well as information about the contractual maturities of those securities.
 
As of September 30, 2016
 
As of December 31, 2015
(In millions, except otherwise noted)
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted-average Maturities (In years)
 
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted-average Maturities (In years)
Cash and cash equivalents
$
24

 
$

 
$

 

 
$
6

 
$

 
$

 

U.S. government and federal agency obligations
52

 
4

 

 
11

 
55

 
1

 

 
11

Federal agency mortgage-backed securities
68

 
2

 

 
25

 
59

 
1

 

 
25

Commercial mortgage-backed securities
17

 

 
1

 
26

 
25

 

 
2

 
28

Corporate debt securities
87

 
3

 
1

 
11

 
81

 
1

 
1

 
10

Equity securities
355

 
213

 

 

 
334

 
199

 

 

Foreign government fixed income securities
2

 

 

 
9

 
1

 

 

 
9

Total
$
605

 
$
222

 
$
2

 
 
 
$
561

 
$
202

 
$
3

 
 
The following table summarizes proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales. The cost of securities sold is determined on the specific identification method.
 
Nine months ended September 30,
 
2016
 
2015
 
(In millions)
Realized gains
$
7

 
$
14

Realized losses
3

 
10

Proceeds from sale of securities
354


499


26



Note 6Accounting for Derivative Instruments and Hedging Activities
This footnote should be read in conjunction with the complete description under Note 5, Accounting for Derivative Instruments and Hedging Activities, to the Company's 2015 Form 10-K.
Energy-Related Commodities
As of September 30, 2016, NRG had energy-related derivative instruments extending through 2027. The Company marks these derivatives to market through the statement of operations.
Interest Rate Swaps
NRG is exposed to changes in interest rates through the Company's issuance of variable rate debt. In order to manage the Company's interest rate risk, NRG enters into interest rate swap agreements. As of September 30, 2016, the Company had interest rate derivative instruments on recourse debt extending through 2021, which are not designated as cash flow hedges. The Company had interest rate swaps on non-recourse debt extending through 2032, most of which are designated as cash flow hedges.
Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by category, excluding those derivatives that qualified for the NPNS exception, as of September 30, 2016 and December 31, 2015. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date.
 
 
Total Volume
 
 
September 30, 2016
 
December 31, 2015
Category
Units
(In millions)
Emissions
Short Ton
1

 
1

Coal
Short Ton
29

 
35

Natural Gas
MMBtu
73

 
293

Oil
Barrel

 
1

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

 
$
2,326

Equity
Shares
1

 
1

The decrease in the natural gas position was primarily the result of settlement of generation and retail hedge positions. The increase in the interest rate position was primarily the result of entering into new interest rate swaps to hedge the Term Loan Facility, as described in Note 8, Debt and Capital Leases.
Fair Value of Derivative Instruments
The following table summarizes the fair value within the derivative instrument valuation on the balance sheets:
 
Fair Value
 
Derivative Assets
 
Derivative Liabilities
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
 
(In millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 

 
Interest rate contracts current
$

 
$

 
$
31


$
42

Interest rate contracts long-term
1

 

 
99


68

Total derivatives designated as cash flow hedges
1

 

 
130


110

Derivatives not designated as cash flow hedges:

 
 
 
 

 
Interest rate contracts current

 

 
8


5

Interest rate contracts long-term
6

 

 
25


13

Commodity contracts current
964

 
1,915

 
930


1,674

Commodity contracts long-term
249

 
305

 
351


412

Total derivatives not designated as cash flow hedges
1,219

 
2,220

 
1,314


2,104

Total derivatives
$
1,220


$
2,220

 
$
1,444


$
2,214



27




The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. In addition, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. The following table summarizes the offsetting of derivatives by counterparty master agreement level and collateral received or paid:
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
Gross Amounts of Recognized Assets / Liabilities
 
Derivative Instruments
 
Cash Collateral (Held) / Posted
 
Net Amount
As of September 30, 2016
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
$
1,213

 
$
(1,027
)
 
$
(23
)
 
$
163

Derivative liabilities
 
(1,281
)
 
1,027

 
121

 
(133
)
Total commodity contracts
 
(68
)
 

 
98

 
30

Interest rate contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
7

 
(4
)
 

 
3

Derivative liabilities
 
(163
)
 
4

 

 
(159
)
Total interest rate contracts
 
(156
)
 

 

 
(156
)
Total derivative instruments
 
$
(224
)
 
$

 
$
98

 
$
(126
)
 
 
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, 2015
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 

Derivative assets
 
$
2,220

 
$
(1,616
)
 
$
(113
)
 
$
491

Derivative liabilities
 
(2,086
)
 
1,616

 
271

 
(199
)
Total commodity contracts
 
134

 

 
158

 
292

Interest rate contracts:
 
 
 
 
 
 
 

Derivative liabilities
 
(128
)
 

 

 
(128
)
Total derivative instruments
 
$
6

 
$

 
$
158


$
164

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 September 30, 2016
 
Nine months ended September 30, 2016
 
Energy Commodities
 
Interest Rate
 
Total
 
Energy Commodities
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$

 
$
(165
)
 
$
(165
)
 
$

 
$
(101
)
 
$
(101
)
Reclassified from accumulated OCI to income:
 
 
 
 
 
 
 
 
 
 
 
Due to realization of previously deferred amounts

 
2

 
2

 

 
12

 
12

Mark-to-market of cash flow hedge accounting contracts

 
32

 
32

 

 
(42
)
 
(42
)
Accumulated OCI ending balance, net of $28 tax
$

 
$
(131
)
 
$
(131
)

$


$
(131
)
 
$
(131
)
Losses expected to be realized from OCI during the next 12 months, net of $4 tax
$

 
$
17

 
$
17

 
$

 
$
17

 
$
17


28



 
Three months ended September 30, 2015
 
Nine months ended September 30, 2015
 
Energy Commodities
 
Interest Rate
 
Total
 
Energy Commodities
 
Interest Rate
 
Total
 
(In millions)
Accumulated OCI beginning balance
$
(1
)
 
$
(62
)
 
$
(63
)
 
$
(1
)
 
$
(67
)
 
$
(68
)
Reclassified from accumulated OCI to income:
 
 
 
 
 
 
 
 
 
 
 
Due to realization of previously deferred amounts
1

 
3

 
4

 
1

 
7

 
8

Mark-to-market of cash flow hedge accounting contracts

 
(33
)
 
(33
)
 

 
(32
)
 
(32
)
Accumulated OCI ending balance, net of $54 tax
$

 
$
(92
)
 
$
(92
)

$


$
(92
)
 
$
(92
)
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 nine months ended September 30, 2016, and 2015.
Impact of Derivative Instruments on the Statements of Operations
Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedges and ineffectiveness of hedge derivatives are reflected in current period consolidated results of operations.
The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges, ineffectiveness on cash flow hedges and trading activity on the Company's statement of operations. The effect of energy commodity contracts is included within operating revenues and cost of operations and the effect of interest rate contracts is included in interest expense.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Unrealized mark-to-market results
(In millions)
Reversal of previously recognized unrealized gains on settled positions related to economic hedges
$
(44
)
 
$
(29
)
 
$
(182
)
 
$
(179
)
Reversal of acquired gain positions related to economic hedges
(19
)
 
(33
)
 
(47
)
 
(83
)
Net unrealized (losses)/gains on open positions related to economic hedges
(121
)
 
55

 
(19
)
 
(26
)
Total unrealized mark-to-market losses for economic hedging activities
(184
)
 
(7
)
 
(248
)
 
(288
)
Reversal of previously recognized unrealized losses/(gains) on settled positions related to trading activity
3

 
2

 
13

 
(34
)
Reversal of acquired gain positions related to trading activity

 
(1
)
 

 
(13
)
Net unrealized (losses)/gains on open positions related to trading activity
(8
)
 
(2
)
 
14

 

Total unrealized mark-to-market (losses)/gains for trading activity
(5
)
 
(1
)
 
27

 
(47
)
Total unrealized losses
$
(189
)
 
$
(8
)
 
$
(221
)
 
$
(335
)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In millions)
Unrealized (losses)/gains included in operating revenues
$
(84
)
 
$
34

 
$
(565
)
 
$
(212
)
Unrealized (losses)/gains included in cost of operations
(105
)
 
(42
)
 
344

 
(123
)
Total impact to statement of operations — energy commodities
$
(189
)
 
$
(8
)
 
$
(221
)
 
$
(335
)
Total impact to statement of operations — interest rate contracts
$
9

 
$
(9
)
 
$
(9
)
 
$
12

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

29



For the nine months ended September 30, 2016, the $19 million unrealized loss from open economic hedge positions was primarily the result of a decrease in value of forward purchases of ERCOT heat rate due to ERCOT heat rate contraction, partially offset by an increase in value of forward sales of PJM electricity due to decreases in PJM power prices.
For the nine months ended September 30, 2015, the $26 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.
During 2016, the Company has been undergoing the process of closing out and financially settling certain open positions with counterparties. The closure and financial settlements with these counterparties were necessary to manage the increase in collateral posting requirements following rating agency downgrades for GenOn and to reduce expected collateral costs associated with exchange cleared hedge transactions. GenOn realized approximately $38 million due to the closure and financial settlement of all open positions with one of GenOn's counterparties during the second quarter of 2016, for which $18 million, $19 million and $1 million would have been realized during the remainder of 2016, 2017 and 2018, respectively. During the third quarter of 2016, GenOn realized $98 million due to the closure and financial settlement of certain positions with an additional counterparty for which $82 million, $13 million and $3 million would have otherwise been realized in 2017, 2018, and 2019, respectively. GenOn has entered into additional transactions with NRG Power Marketing LLC and an external counterparty in order to re-hedge the positions settled with certain counterparties.
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 September 30, 2016, was $73 million. The collateral required for contracts with credit rating contingent features as of September 30, 2016, was $42 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 $10 million as of September 30, 2016.
See Note 4, Fair Value of Financial Instruments, to this Form 10-Q for discussion regarding concentration of credit risk.
Note 7Impairments

Rockford — As described in Note 3, Business Acquisitions and Dispositions, on May 12, 2016, the Company entered into an agreement with RA Generation, LLC to sell 100% of its interests in the Rockford generating stations for cash consideration of $55 million. The transaction triggered an indicator of impairment as the sale price was less than the carrying amount of the assets, and, as a result, the assets were considered to be impaired. The Company measured the impairment loss as the difference between the carrying amount of the assets and the agreed-upon sale price. The Company recorded an impairment loss of $17 million during the quarter ended June 30, 2016, to reduce the carrying amount of the assets held for sale to the fair market value.

Mandalay and Ormond Beach — On May 26, 2016, the CPUC rejected a multi-year resource adequacy contract between Mandalay and SCE. Also during the second quarter of 2016, the Statewide Advisory Committee on Cooling Water Intake Structures, or SACCWIS, issued a draft April 2016 Report noting that CAISO plans to continue to assume in its transmission studies that Ormond Beach will not operate after December 31, 2020, the deadline for Ormond Beach compliance with California regulations to mitigate once-through cooling (OTC) impacts. The Company does not anticipate that contracts of sufficient value can be secured to support the significant investment required to design, permit, construct and operate measures required for OTC compliance. As a result, on May 6, 2016, the Company notified SACCWIS that it does not expect to continue to operate Ormond Beach beyond 2020. Additionally, during the second quarter of 2016, CAISO issued its Local Capacity Requirements report for 2017 indicating unfavorable changes within the local reliability areas in which both Mandalay and Ormond Beach are located. The culmination of these events were considered to be indicators of impairment and as a result, the Company performed impairment tests for the Mandalay and Ormond Beach assets under ASC 360, Property, Plant and Equipment. Based on the results of the impairment tests, the Company determined that the carrying amount of these assets was higher than the estimated future net cash flows expected to be generated by the respective assets and that the Mandalay and Ormond Beach assets were impaired. The fair value of the Mandalay and Ormond Beach operating units was determined using the income approach which utilizes estimates of discounted future cash flows, which were Level 3 fair value measurements and include key inputs such as forecasted contract prices, forecasted operating expenses and discount rates. The Company measured the impairment losses as the difference between the carrying amount of the Mandalay and Ormond Beach operating units and the present value of the estimated future net cash flows for each respective operating unit. The Company recorded an impairment loss of $16 million and $43 million for Mandalay and Ormond Beach, respectively, during the quarter ended June 30, 2016.

30



Other Impairments — During the second quarter of 2016, the Company recorded impairment losses for intangible assets of $8 million in connection with the Company's strategic change in its residential solar business as well as $10 million of deferred marketing expenses. In addition, the Company also recorded an impairment loss of $17 million to record certain previously purchased solar panels at fair market value. During the third quarter of 2016, the Company recorded an additional $8 million in impairments losses related to investments and $8 million in other impairments.

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


  

31




Note 8Debt and Capital Leases
This footnote should be read in conjunction with the complete description under Note 12, Debt and Capital Leases, to the Company's 2015 Form 10-K. Long-term debt and capital leases consisted of the following:
(In millions, except rates)
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016 interest rate % (a)
 
 
 
Recourse debt:
 
 
 
 
 
 
Senior notes, due 2018
 
$
584

 
$
1,039

 
7.625
Senior notes, due 2020
 

 
1,058

 
8.250
Senior notes, due 2021
 
399

 
1,128

 
7.875
Senior notes, due 2022
 
992

 
1,100

 
6.250
Senior notes, due 2023
 
869

 
936

 
6.625
Senior notes, due 2024
 
733

 
904

 
6.250
Senior notes, due 2026
 
1,000

 

 
7.250
Senior notes, due 2027
 
1,250

 

 
6.625
Term loan facility, due 2018
 

 
1,964

 
L+2.00
Term loan facility, due 2023
 
1,886

 

 
L+2.75
Tax-exempt bonds
 
455

 
455

 
4.125 - 6.00
Subtotal NRG recourse debt
 
8,168

 
8,584

 

Non-recourse debt:
 
 
 
 
 
 
GenOn senior notes
 
1,922

 
1,956

 
7.875 - 9.875
GenOn Americas Generation senior notes
 
747

 
752

 
8.500 - 9.125
GenOn other
 
52

 
56

 
 
Subtotal GenOn debt (non-recourse to NRG)
 
2,721

 
2,764

 
 
NRG Yield Operating LLC Senior Notes, due 2024
 
500

 
500

 
5.375
NRG Yield Operating LLC Senior Notes, due 2026
 
350

 

 
5.000
NRG Yield LLC and Yield Operating LLC Revolving Credit Facility, due 2019
 

 
306

 
L+2.75
NRG Yield Inc. Convertible Senior Notes, due 2019
 
334

 
330

 
3.500
NRG Yield Inc. Convertible Senior Notes, due 2020
 
270

 
266

 
3.250
El Segundo Energy Center, due 2023
 
443

 
485

 
L+1.625 - L+2.25
Marsh Landing, due 2017 and 2023
 
385

 
418

 
L+1.175 - L+1.875
Alta Wind I - V lease financing arrangements, due 2034 and 2035
 
978

 
1,002

 
5.696 - 7.015
Walnut Creek, term loans due 2023
 
322

 
351

 
L+1.625
Tapestry, due 2021
 
175

 
181

 
L+1.625
CVSR, due 2037
 
771

 
793

 
2.339 - 3.775
CVSR HoldCo, due 2037
 
199

 

 
4.680
Alpine, due 2022
 
147

 
154

 
L+1.750
Energy Center Minneapolis, due 2017 and 2025
 
98

 
108

 
5.95 - 7.25
Viento, due 2023
 
183

 
189

 
L+2.75
NRG Yield - other
 
549

 
573

 
various
Subtotal NRG Yield debt (non-recourse to NRG)
 
5,704

 
5,656

 
 
Ivanpah, due 2033 and 2038
 
1,135

 
1,149

 
2.285 - 4.256
Agua Caliente, due 2037
 
864

 
879

 
2.395 - 3.633
Dandan, due 2033
 
100

 
98

 
L+2.25
Peaker bonds, due 2019
 

 
72

 
L+1.07
Cedro Hill, due 2025
 
165

 
103

 
L+1.75
Midwest Generation, due 2019
 
234

 

 
4.390
NRG Other
 
320

 
315

 
various
Subtotal other NRG non-recourse debt
 
2,818

 
2,616

 
 
Subtotal all non-recourse debt
 
11,243

 
11,036

 
 
Subtotal long-term debt (including current maturities)
 
19,411


19,620

 
 
Capital leases
 
11

 
16

 
various
Subtotal long-term debt and capital leases (including current maturities)
 
19,422


19,636

 
 
Less current maturities
 
1,221


481

 
 
Less debt issuance costs
 
183

 
172

 
 
Total long-term debt and capital leases
 
$
18,018


$
18,983

 
 
(a) As of September 30, 2016, L+ equals 3 month LIBOR plus x%, with the exception of the Viento Funding II term loan, which is 6 month LIBOR plus x%, and the Alpine Term Loan, the NRG Marsh Landing term loan, the Walnut Creek term loan, and 2016 Term Loan Facility, which are 1 month LIBOR plus x%.

32



NRG Recourse Debt
Senior Notes
Issuance of 2026 Senior Notes
On May 23, 2016, NRG issued $1.0 billion in aggregate principal amount at par of 7.25% senior notes due 2026, or the 2026 Senior Notes. The 2026 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on November 15, 2016, until the maturity date of May 15, 2026. The proceeds from the issuance of the 2026 Senior Notes were utilized to redeem a portion of the Senior Notes discussed below.
Issuance of 2027 Senior Notes
On August 2, 2016, NRG issued $1.25 billion in aggregate principal amount at par of 6.625% senior notes due 2027, or the 2027 Senior Notes. The 2027 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on January 15, 2017, until the maturity date of January 15, 2027. The proceeds from the issuance of the 2027 Senior Notes were utilized to retire the Company's 8.250% senior notes due 2020 and reduce the balance of the Company's 7.875% senior notes due 2021.
Senior Notes Repurchases
During the nine months ended September 30, 2016, the Company repurchased $2.6 billion in aggregate principal of its Senior Notes in the open market for $2.7 billion, which included accrued interest of $67 million. In connection with the repurchases, a $94 million loss on debt extinguishment was recorded, which included the write-off of previously deferred financing costs of $15 million.
 
Principal Repurchased
 
Cash Paid (a)                         
 
Average Early Redemption Percentage
Amount in millions, except rates
 
 
 
 
 
7.625% senior notes due 2018
$
455

 
$
502

 
107.95
%
8.250% senior notes due 2020
1,058

 
1,129

 
103.12
%
7.875% senior notes due 2021
729

 
771

 
104.02
%
6.250% senior notes due 2022
108

 
105

 
94.73
%
6.625% senior notes due 2023
67

 
64

 
94.13
%
6.250% senior notes due 2024
171

 
163

 
94.52
%
Total at September 30, 2016
$
2,588

 
$
2,734

 
 
7.625% senior notes due 2018 (b)
186

 
204

 
107.75
%
7.875% senior notes due 2021 (b)
193

 
207

 
103.94
%
Total at November 4, 2016
$
2,967

 
$
3,145

 
 
(a) Includes payment for accrued interest
(b) Redemptions financed by cash on hand
Senior Credit Facility
On June 30, 2016, NRG replaced its Senior Credit Facility, consisting of its Term Loan Facility and Revolving Credit Facility with a new senior secured facility, or the 2016 Senior Credit Facility, which includes the following:

A $1.9 billion term loan facility, or the 2016 Term Loan Facility, with a maturity date of June 30, 2023, which will pay interest at a rate of LIBOR plus 2.75%, with a LIBOR floor of 0.75%. The debt was issued at 99.50% of face value; the discount will be amortized to interest expense over the life of the loan. Repayments under the 2016 Term Loan Facility will consist of 0.25% of principal per quarter, with the remainder due at maturity. The proceeds of the new term loan facility as well as cash on hand were used to repay the existing 2018 Term Loan Facility balance outstanding. A $21 million loss on extinguishment of the Term Loan Facility was recorded during the second quarter of 2016, which consisted of the write-off of previously deferred financing costs.

The 2016 Revolving Credit Facility, which includes a $289 million revolving senior credit facility, or the Tranche A Revolving Facility, with a maturity date of July 1, 2018 and a $2.2 billion revolving senior credit facility, or the Tranche B Revolving Facility, with a maturity date of June 30, 2021 will pay interest at a rate of LIBOR plus 2.25%.


33



The 2016 Senior Credit Facility is guaranteed by substantially all of NRG's existing and future direct and indirect subsidiaries, with certain customary or agreed-upon exceptions for unrestricted foreign subsidiaries, and certain other subsidiaries, including GenOn, NRG Yield, Inc. and their respective subsidiaries. The capital stock of these guarantor subsidiaries has been pledged for the benefit of the 2016 Senior Credit Facility's lenders.

The 2016 Senior Credit Facility is also secured by first-priority perfected security interests in substantially all of the property and assets owned or acquired by NRG and its subsidiaries, other than certain limited exceptions. These exceptions include assets of certain unrestricted subsidiaries, equity interests in certain of NRG's affiliates that have non-recourse debt financing, including GenOn, NRG Yield, Inc. and their respective subsidiaries, and voting equity interests in excess of 66% of the total outstanding voting equity interest of certain of NRG's foreign subsidiaries.
Non-recourse Debt
GenOn Senior Notes
As of September 30, 2016, $703 million of GenOn's Senior Notes outstanding are classified as current within the consolidated balance sheet as they mature on June 15, 2017. Based on current projections, GenOn is not expected to have sufficient liquidity, exclusive of cash subject to the restrictions under the GenOn Mid-Atlantic and REMA operating leases, to make this principal payment as it becomes due. As a result of these factors, there is no assurance GenOn will continue as a going concern.
GenOn is currently considering all options available to it, including negotiations with creditors and lessors, refinancing the Senior Notes, potential sales of certain generating assets as well as the possibility of a need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. During the second quarter of 2016, GenOn appointed two independent directors as part of this process. Any resolution may have a material impact on the Company's statement of operations, cash flows and financial position.
NRG Yield LLC and NRG Yield Operating LLC Revolving Credit Facility
NRG Yield LLC and its direct wholly owned subsidiary, NRG Yield Operating LLC, entered into a senior secured revolving credit facility, which can be used for cash and for the issuance of letters of credit. At September 30, 2016, there was $64 million of letters of credit issued under the revolving credit facility and no borrowing outstanding on the revolver.
Thermal Financing
On October 31, 2016, NRG Energy Center Minneapolis LLC, a subsidiary of NRG Yield, Inc. received proceeds of $125 million from the issuance of 3.55% Series D notes due October 31, 2031, or the Series D Notes, and entered into a shelf facility for an additional $70 million of notes. The Series D Notes are, and the additional notes, if issued, will be secured by substantially all of the assets of NRG Energy Center Minneapolis LLC. NRG Thermal LLC has guaranteed the indebtedness and its guarantee is secured by a pledge of the equity interests in all of NRG Thermal LLC’s subsidiaries. NRG Energy Center Minneapolis LLC distributed the proceeds of the Series D Notes to NRG Thermal LLC, who in turn distributed the proceeds to NRG Yield Operating LLC to be utilized for general corporate purposes, including potential acquisitions.
Project Financings
Peakers
In June 2002, NRG Peaker Finance Company LLC, or Peakers, an indirect wholly-owned subsidiary of NRG, issued bonds due June 2019. These notes were also secured by, among other things, substantially all of the assets of and membership interests in Big Cajun I Peaking Power LLC, NRG Sterlington Power LLC, NRG Rockford LLC, NRG Rockford II LLC, and NRG Rockford Equipment LLC.
On June 30, 2016, in contemplation of the sale of Rockford as further discussed in Note 3, Business Acquisitions and Dispositions, NRG Peaker Finance Company LLC elected to redeem all 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 $85 million in connection with the removal of NRG Rockford LLC, and NRG Rockford II, LLC from the peaker financing collateral package. The Company recognized a $3 million loss on extinguishment of the debt related to the write-off of unamortized discount during the second quarter of 2016. On July 12, 2016, NRG completed the sale of the Rockford generating stations.
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. The Company received additional default notices for various items. The facility is secured by the assets of High Lonesome Mesa and is non-recourse to NRG.

34



On November 3, 2015, the lender sent a notice of acceleration and indicated that it would accept the Company's interest in the assets in lieu of repayment. On January 27, 2016, High Lonesome Mesa, LLC, or HLM, filed at FERC for approval to transfer 100% of the ownership interests in HLM to subsidiaries of the lien holders, Macquarie Bank Limited and Hannon Armstrong Capital, LLC. On March 2, 2016 HLM received FERC approval and on March 31, 2016 the Company transferred 100% of its interest in HLM to the lien holders and deconsolidated HLM.
Dandan Financing
In December 2013, NRG, through its wholly-owned subsidiary, NRG Solar Dandan LLC, or Dandan, entered into a credit agreement with a bank, or the Dandan Financing Agreement, for an $81 million construction loan and a $23 million cash grant loan. On January 29, 2016, the construction loan converted to a $79 million term loan with $23 million outstanding under the cash grant loan. In addition, a $4 million debt service letter of credit was issued replacing the $5 million construction letter of credit that was outstanding at year end. As of September 30, 2016, $77 million was outstanding under the term loan, $23 million was outstanding under the cash grant loan and $4 million in letters of credit in support of the project were issued.
Midwest Generation
On April 7, 2016, Midwest Generation, LLC, or MWG, entered into an agreement to sell certain quantities of unforced capacity that has cleared various PJM Reliability Pricing Model auctions to a trading counterparty for net proceeds of $253 million. MWG will continue to operate the applicable generation facilities and remains responsible for performance penalties and eligible for performance bonus payments, if any. Accordingly, MWG will continue to account for all revenues and costs as before; however, the proceeds will be recorded as a financing obligation while capacity payments by PJM to the counterparty will be reflected as debt amortization and interest expense through the end of the 2018/19 delivery year.  MWG will amortize the upfront discount to interest expense, at an effective interest rate of 4.39%, over the term of the arrangement, through June 2019. As of September 30, 2016, $234 million was outstanding.
CVSR
On July 15, 2016, CVSR Holdco LLC, the indirect owner of the CVSR project, issued $200 million of senior secured notes.  The $199 million of net proceeds from the notes were distributed to a subsidiary of NRG and NRG Yield Operating LLC, the owners of CVSR Holdco LLC, based on their pro-rata ownership. The notes were issued at par and bear an interest rate at 4.68%. Interest is payable semi-annually beginning on September 30, 2016, until the maturity date of March 31, 2037.
Capistrano Refinancing
On July 13 2016, Cedro Hill, Broken Bow and Crofton Bluffs, subsidiaries of Capistrano Wind Partners, each amended their respective credit facilities to increase borrowings to a total of $312 million and to lower their respective interest rates. The net proceeds of $87 million, were distributed to Capistrano Wind Partners and subsequently distributed to the holders of the Class B preferred equity interests of tax Capistrano Wind Partners.
NRG Yield Operating 2026 Senior Notes
On August 18, 2016, NRG Yield Operating LLC issued $350 million of senior unsecured notes, or the NRG Yield Operating 2026 Senior Notes. The NRG Yield Operating 2026 Senior Notes bear interest of 5.00% and mature on September 15, 2026. Interest on the notes is payable semi-annually on March 15 and September 15 of each year, and will commence on March 15, 2017. The Yield Operating 2026 Senior Notes are senior unsecured obligations of NRG Yield Operating LLC and are guaranteed by NRG Yield LLC, and by certain of NRG Yield Operating LLC’s wholly owned current and future subsidiaries. A portion of the proceeds from the 2026 Senior Notes was used to repay NRG Yield Operating LLC's revolving credit facility.


35



Note 9Variable 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, NRG Yield Operating LLC, the Company owns a 50% interest in GCE Holding LLC, the owner of 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 $106 million as of September 30, 2016.
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 $72 million as of September 30, 2016.
Entities that are Consolidated
The Company has a controlling financial interest in certain entities which have been identified as VIEs under ASC 810. These arrangements are primarily related to tax equity arrangements entered into with third-parties in order to finance the cost of solar energy systems under operating leases and wind facilities eligible for certain tax credits as further described in Note 2, Summary of Significant Accounting Policies to the Company's 2015 Form 10-K. For one of the tax equity arrangements, the Company has a deficit restoration obligation equal to $44 million as of September 30, 2016, which would be required to be funded if the arrangement were to be dissolved.
The summarized financial information for the Company's consolidated VIEs consisted of the following:
(In millions)
September 30, 2016
 
December 31, 2015
Current assets
$
76

 
$
84

Net property, plant and equipment
1,742

 
1,807

Other long-term assets
945

 
863

Total assets
2,763

 
2,754

Current liabilities
59

 
56

Long-term debt
450

 
366

Other long-term liabilities
194

 
179

Total liabilities
703

 
601

Noncontrolling interests
562

 
493

Net assets less noncontrolling interests
$
1,498

 
$
1,660


Note 10Changes in Capital Structure
As of September 30, 2016, and December 31, 2015, 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, 2015
416,939,950

 
(102,749,908
)
 
314,190,042

Shares issued under LTIPs
643,642

 

 
643,642

Shares issued under ESPP

 
609,094

 
609,094

Balance as of September 30, 2016
417,583,592

 
(102,140,814
)
 
315,442,778

Preferred Stock
On May 24, 2016, NRG entered an agreement with Credit Suisse Group to     repurchase 100% of the outstanding shares of its $344.5 million 2.822% preferred stock. On June 13, 2016, the Company completed the repurchase from Credit Suisse of 100% of the outstanding shares at a price of $226 million. The transaction resulted in a gain on redemption of $78 million, measured as the difference between the fair value of the cash consideration paid upon redemption of $226 million and the carrying value of the preferred stock at the time of the redemption of $304 million. This amount is reflected in net income/(loss) available to NRG common stockholders in the calculation of earnings per share.

36



Employee Stock Purchase Plan
As of September 30, 2016, there were 667,819 shares of treasury stock available for issuance under the ESPP.
NRG Common Stock Dividends
The following table lists the dividends paid during the nine months ended September 30, 2016:
 
Third Quarter 2016
 
Second Quarter 2016

First Quarter 2016
Dividends per Common Share
$
0.030

 
$
0.030


$
0.145

On October 19, 2016, NRG declared a quarterly dividend on the Company's common stock of $0.03 per share, payable November 15, 2016, to stockholders of record as of November 1, 2016, representing $0.12 per share 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.

Note 11Earnings/(Loss) Per Share
Basic earnings/(loss) per common share is computed by dividing net income/(loss) less accumulated preferred stock dividends by the weighted average number of common shares outstanding. Shares issued and treasury shares repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted earnings/(loss) per share is computed in a manner consistent with that of basic income/(loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period. The reconciliation of NRG's basic and diluted earnings/(loss) per share is shown in the following table:
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions, except per share data)
2016
 
2015
 
2016
 
2015
Basic earnings/(loss) per share attributable to NRG Energy, Inc. common stockholders
Net income/(loss) attributable to NRG Energy, Inc.
$
402

 
$
66

 
$
213

 
$
(68
)
Dividends for preferred shares

 
5

 
5

 
15

Gain on redemption of 2.822% redeemable perpetual preferred stock

 

 
(78
)
 

Income/(loss) available for common stockholders
$
402


$
61


$
286


$
(83
)
Weighted average number of common shares outstanding - basic
316

 
331


315

 
334

Earnings/(Loss) per weighted average common share — basic
$
1.27

 
$
0.18

 
$
0.91

 
$
(0.25
)
Diluted earnings/(loss) per share attributable to NRG Energy, Inc. common stockholders
 
 
 
 
Weighted average number of common shares outstanding
316

 
331

 
315

 
334

Incremental shares attributable to the issuance of equity compensation (treasury stock method)
1

 
1

 
1

 

Total dilutive shares
317

 
332

 
316

 
334

Earnings/(loss) per weighted average common share — diluted
$
1.27

 
$
0.18

 
$
0.91

 
$
(0.25
)
The following table summarizes NRG’s outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company’s diluted loss per share:
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions of shares)
2016
 
2015
 
2016
 
2015
Equity compensation plans
2

 
3

 
3

 
6

Embedded derivative of 2.822% redeemable perpetual preferred stock

 
16

 

 
16

Total
2

 
19

 
3

 
22


37



Note 12Segment Reporting
The Company's segment structure reflects how management currently makes financial decisions and allocates resources. The Company's businesses are segregated as follows: Generation (previously Generation/Business), which includes generation, international and business solutions; Retail Mass (previously NRG Home Retail); Renewables (previously NRG Renew), which includes solar and wind assets; NRG Yield; and corporate activities. The Company's corporate segment includes BETM, residential solar and electric vehicle services. Effective January 1, 2016, the Company began reporting the results of its residential solar business in its corporate segment. Effective April 1, 2016, the Company began reporting the results of its international business in its Generation segment. The financial information for the three months and nine months ended September 30, 2015 has been recast to reflect the change.
On September 1, 2016, NRG Yield acquired the remaining 51.05% interest in CVSR Holdco LLC, which indirectly owns the CVSR solar facility, from the Company. On November 3, 2015, NRG Yield acquired 75% of the class B interests in NRG Wind TE Holdco, which owns a portfolio of 12 wind facilities, from the Company. Both acquisitions were treated as a transfer of entities under common control and accordingly, all historical periods have been recast to reflect the acquisition as if they had occurred at the beginning of the financial statement period.
NRG’s chief operating decision maker, its chief executive officer, evaluates the performance of its segments based on operational measures including adjusted earnings before interest, taxes, depreciation and amortization, or Adjusted EBITDA, free cash flow and capital for allocation, as well as net income/(loss).

(In millions)
Generation(a)
 
Retail Mass(a)
 
Renewables(a)
 
NRG Yield(a)
 
Corporate(a)(b)
 
Eliminations
 
Total
Three months ended September 30, 2016
 
Operating revenues(a)
$
2,494

 
$
1,619

 
$
140

 
$
272

 
$
40

 
$
(613
)
 
$
3,952

Depreciation and amortization
193

 
25

 
48

 
75

 
16

 

 
357

Impairment losses
8

 

 

 

 

 

 
8

Equity in earnings/(losses) of unconsolidated affiliates
6

 

 
(4
)
 
13

 
1

 

 
16

Gain on sale of assets
262

 

 

 

 
4

 

 
266

(Impairment loss)/gain on investment
(5
)
 

 
1

 

 
(4
)
 

 
(8
)
Income/(loss) before income taxes
628

 
2

 
8

 
60

 
(252
)
 
(4
)
 
442

Net Income/(Loss)
630

 
2

 
11

 
47


(293
)
 
(4
)
 
393

Net Income/(Loss) attributable to NRG Energy, Inc.
$
630

 
$
2

 
$

 
$
52

 
$
(317
)
 
$
35

 
$
402

Total assets as of September 30, 2016
$
14,153

 
$
1,601

 
$
4,920

 
$
8,482

 
$
16,970

 
$
(14,635
)
 
31,491

(a) Operating revenues include inter-segment sales and net derivative gains and losses of:
$
555

 
$

 
$
9

 
$
2

 
$
47

 
$

 
$
613

(b) Includes loss on debt extinguishment
$

 
$

 
$

 
$

 
$
(50
)
 
$

 
$
(50
)
(In millions)
Generation(a)
 
Retail Mass(a)
 
Renewables(a)
 
NRG Yield(a)(b)
 
Corporate(a)
 
Eliminations
 
Total
Three months ended September 30, 2015
 
Operating revenues(a)
$
2,726

 
$
1,699

 
$
124

 
$
256

 
$
1

 
$
(372
)
 
$
4,434

Depreciation and amortization
220

 
30

 
46

 
69

 
17

 

 
382

Impairment losses
222

 
36

 
5

 

 

 

 
263

Equity in earnings/(loss) of unconsolidated affiliates
7

 

 
(2
)
 
12

 
1

 
6

 
24

Income/(Loss) before income taxes
166

 
197

 
(20
)
 
40

 
(276
)
 
7

 
114

Net Income/(Loss)
164

 
197

 
(16
)
 
32

 
(317
)
 
7

 
67

Net Income/(Loss) attributable to NRG Energy, Inc.
$
164

 
$
197

 
$
(33
)
 
$
20

 
$
(315
)
 
$
33

 
$
66

(a) Operating revenues include inter-segment sales and net derivative gains and losses of:
$
309

 
$
2

 
$
(6
)
 
$
18

 
$
49

 
$

 
$
372

(b) Includes loss on debt extinguishment
$

 
$

 
$

 
$
2

 
$

 
$

 
$
2




38



(In millions)
Generation(a)
 
Retail Mass(a)
 
Renewables(a)
 
NRG Yield(a)
 
Corporate(a)(b)
 
Eliminations
 
Total
Nine months ended September 30, 2016
 
Operating revenues(a)
$
5,920

 
$
3,868

 
$
335

 
$
789

 
$
128

 
$
(1,221
)
 
$
9,819

Depreciation and amortization
483

 
80

 
143

 
224

 
49

 

 
979

Impairment losses
84

 

 
26

 

 
13

 

 
123

Equity in earnings/(losses) of unconsolidated affiliates
1

 

 
(13
)
 
29

 
3

 
(7
)
 
13

Gain/(loss) on sale of assets
293

 

 

 

 
(78
)
 

 
215

(Impairment loss)/gain on investment
(142
)
 

 
1

 

 
(6
)
 

 
(147
)
Income/(loss) before income taxes
417

 
644

 
(116
)
 
136

 
(815
)
 
(7
)
 
259

Net Income/(Loss)
418

 
644

 
(102
)
 
111

 
(900
)
 
(7
)
 
164

Net Income/(Loss) attributable to NRG Energy, Inc.
$
418

 
$
644

 
$
(98
)
 
$
108

 
$
(931
)
 
$
72

 
$
213


(a) Operating revenues include inter-segment sales and net derivative gains and losses of:
$
1,025

 
$
2

 
$
19

 
$
6

 
$
169

 
$

 
$
1,221

(b) Includes loss on debt extinguishment
$

 
$

 
$

 
$

 
$
(119
)
 
$

 
$
(119
)

(In millions)
Generation(a)
 
Retail Mass(a)
 
Renewables(a)
 
NRG Yield(a)(b)
 
Corporate(a)
 
Eliminations
 
Total
Nine months ended September 30, 2015
 
Operating revenues(a)
$
7,345

 
$
4,308

 
$
305

 
$
729

 
$
9

 
$
(1,033
)
 
$
11,663

Depreciation and amortization
681

 
93

 
135

 
222

 
42

 

 
1,173

Impairment losses
222

 
36

 
5

 

 

 

 
263

Gain on postretirement benefits curtailment
14

 

 

 

 

 

 
14

Equity in earnings/(losses) of unconsolidated affiliates
9

 

 
(2
)
 
19

 

 
3

 
29

Income/(loss) before income taxes
216

 
523

 
(87
)
 
61

 
(834
)
 

 
(121
)
Net Income/(Loss)
213

 
523

 
(74
)
 
53

 
(793
)
 

 
(78
)
Net Income/(Loss) attributable to NRG Energy, Inc.
$
213

 
$
523

 
$
(100
)
 
$
29

 
$
(765
)
 
$
32

 
$
(68
)
(a) Operating revenues include inter-segment sales and net derivative gains and losses of:
$
853

 
$
4

 
$
18

 
$
27

 
$
131

 
$

 
$
1,033

(b) Includes loss on debt extinguishment
$

 
$

 
$

 
$
9

 
$

 
$

 
$
9



Note 13Income Taxes
Effective Tax Rate
The income tax provision consisted of the following:
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions except otherwise noted)
2016
 
2015
 
2016
 
2015
Income/(loss) before income taxes
$
442

 
$
114

 
$
259

 
$
(121
)
Income tax (benefit)/expense
49

 
47

 
95

 
(43
)
Effective tax rate
11.1
%
 
41.2
%
 
36.7
%
 
35.5
%
For the three months ended September 30, 2016, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the change in valuation allowance, partially offset by state tax expense and tax expense attributable to consolidated partnerships.
For the three months ended September 30, 2015, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to non-deductible impairment of goodwill, partially offset by production tax credits generated from the Company's wind assets.

39



For the nine months ended September 30, 2016, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to state tax expense and amortization of indefinite lived assets, partially offset by the change in valuation allowance.
For the nine months ended September 30, 2015, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the impact of production tax credits generated from the Company's wind assets, partially offset by tax expense attributable to consolidated partnerships.
Uncertain Tax Benefits
As of September 30, 2016, NRG has recorded a non-current tax liability of $44 million for uncertain tax benefits from positions taken on various state income tax returns, including accrued interest. For the nine months ended September 30, 2016, NRG accrued $1 million of interest relating to the uncertain tax benefits. As of September 30, 2016, NRG had cumulative interest and penalties related to these uncertain tax benefits of $4 million. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense.
NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia. The Company is not subject to U.S. federal income tax examinations for years prior to 2015. With few exceptions, state and local income tax examinations are no longer open for years before 2009. The Company's primary foreign operations are also no longer subject to examination by local jurisdictions for years prior to 2010.
Note 14Commitments and Contingencies
This footnote should be read in conjunction with the complete description under Note 22, Commitments and Contingencies, to the Company's 2015 Form 10-K.
Commitments
First Lien Structure — NRG has granted first liens to certain counterparties on a substantial portion of the Company's assets, excluding assets acquired in the GenOn and EME (including Midwest Generation) acquisitions, assets held by NRG Yield, Inc. and NRG's assets that have project-level financing, to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedge agreements for forward sales of power or MWh equivalents. The Company's lien counterparties may have a claim on NRG's assets to the extent market prices exceed the hedged price. As of September 30, 2016, hedges under the first liens were in-the-money for NRG on a counterparty aggregate basis.
Ivanpah Energy Production Guarantee — The Company's PPAs with PG&E with respect to the Ivanpah project contain provisions for contract quantity and guaranteed energy production, which require that Ivanpah units 1 and 3 deliver to PG&E no less than the guaranteed energy production amount specified in the PPAs in any period of twenty-four consecutive months, or performance measurement period, during the term of the PPAs.  If either of Ivanpah units 1 and 3 deliver less than the guaranteed energy production amount in any performance measurement period, PG&E may, at its option, declare an event of default.  The two units did not meet their guaranteed energy production amount for the initial performance measurement period.  On December 18, 2015, PG&E filed a request with the CPUC that it approve forbearance agreements relating to Ivanpah units 1 and 3.  On March 17, 2016, the CPUC adopted a resolution approving the forbearance agreements, which are final and non-appealable and in full effect. Under the forbearance agreements, PG&E agrees to refrain from taking certain actions (including declaring an event of default and invoking associated remedies) for an initial six-month period of time.  If the units meet certain production requirements during such period, then the forbearance agreements provide for a six-month extension of such period. In the third quarter of 2016, each of Ivanpah's unit 1 and unit 3 satisfied its respective production requirement for the initial six-month measurement period under the forbearance agreements.

Lignite Contract with Texas Westmoreland Coal Co. — The Company's Limestone facility utilizes a blend of coal including lignite obtained from the Jewett mine, a surface mine adjacent to the Limestone facility, under a long-term contract with Texas Westmoreland Coal Co., or TWCC. The contract is a cost-plus arrangement with certain performance incentives and penalties. On August 18, 2016, NRG gave notice to TWCC terminating the active mining of lignite under the contract, effective on December 31, 2016.
Under the contract, TWCC continues to be responsible for reclamation activities. NRG is responsible for reclamation costs and has recorded an adequate ARO liability. The Railroad Commission of Texas has imposed a bond obligation of $95.5 million on TWCC for the reclamation of the mine. Pursuant to the contract with TWCC, NRG supports this obligation through surety bonds. Additionally, NRG is obligated to provide additional performance assurance if required by the Railroad Commission of Texas.

40



Contingencies
The Company's material legal proceedings are described below. The Company believes that it has valid defenses to these legal proceedings and intends to defend them vigorously. NRG records reserves for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. As applicable, the Company has established an adequate reserve for the matters discussed below. In addition, legal costs are expensed as incurred. Management has assessed each of the following matters based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought, and the probability of success. Unless specified below, the Company is unable to predict the outcome of these legal proceedings or reasonably estimate the scope or amount of any associated costs and potential liabilities. As additional information becomes available, management adjusts its assessment and estimates of such contingencies accordingly. Because litigation is subject to inherent uncertainties and unfavorable rulings or developments, it is possible that the ultimate resolution of the Company's liabilities and contingencies could be at amounts that are different from its currently recorded reserves and that such difference could be material.
In addition to the legal proceedings noted below, NRG and its subsidiaries are party to other litigation or legal proceedings arising in the ordinary course of business. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows.
Midwest Generation Asbestos Liabilities — The Company, through its subsidiary, Midwest Generation, may be subject to potential asbestos liabilities as a result of its acquisition of EME. The Company is currently analyzing the scope of potential liability as it may relate to Midwest Generation.
Actions Pursued by MC Asset Recovery — With Mirant Corporation's emergence from bankruptcy protection in 2006, certain actions filed by GenOn Energy Holdings and some of its subsidiaries against third parties were transferred to MC Asset Recovery, a wholly owned subsidiary of GenOn Energy Holdings.  MC Asset Recovery is governed by a manager who is independent of NRG and GenOn.  MC Asset Recovery is a disregarded entity for income tax purposes. Under the remaining action transferred to MC Asset Recovery, MC Asset Recovery seeks to recover damages from Commerzbank AG and various other banks, or the Commerzbank Defendants, for alleged fraudulent transfers that occurred prior to Mirant's bankruptcy proceedings.  In December 2010, the U.S. District Court for the Northern District of Texas dismissed MC Asset Recovery's complaint against the Commerzbank Defendants.  In January 2011, MC Asset Recovery appealed the District Court's dismissal of its complaint against the Commerzbank Defendants to the U.S. Court of Appeals for the Fifth Circuit, or the Fifth Circuit.  In March 2012, the Fifth Circuit reversed the District Court's dismissal and reinstated MC Asset Recovery's amended complaint against the Commerzbank Defendants.  On December 10, 2015, the District Court granted summary judgment in favor of the Commerzbank Defendants. On December 29, 2015, MC Asset Recovery filed a notice to appeal this judgment with the Fifth Circuit. The appeal has been fully briefed by the parties. Oral argument is scheduled for December 5, 2016.
Natural Gas Litigation GenOn is party to several lawsuits, certain of which are class action lawsuits, in state and federal courts in Kansas, Missouri, Nevada and Wisconsin. These lawsuits were filed in the aftermath of the California energy crisis in 2000 and 2001 and the resulting FERC investigations and relate to alleged conduct to increase natural gas prices in violation of state antitrust law and similar laws. The lawsuits seek treble or punitive damages, restitution and/or expenses. The lawsuits also name as parties a number of energy companies unaffiliated with NRG. In July 2011, the U.S. District Court for the District of Nevada, which was handling four of the five cases, granted the defendants' motion for summary judgment and dismissed all claims against GenOn in those cases. The plaintiffs appealed to the U.S. Court of Appeals for the Ninth Circuit which reversed the decision of the District Court. GenOn along with the other defendants in the lawsuit filed a petition for a writ of certiorari to the U.S. Supreme Court challenging the Court of Appeals' decision and the Supreme Court granted the petition. On April 21, 2015, the Supreme Court affirmed the Ninth Circuit’s holding that plaintiffs’ state antitrust law claims are not field-preempted by the federal Natural Gas Act and the Supremacy Clause of the U.S. Constitution.  The Supreme Court left open whether the claims were preempted on the basis of conflict preemption. The Supreme Court directed that the case be remanded to the U.S. District Court for the District of Nevada for further proceedings. On March 7, 2016, class plaintiffs filed their motions for class certification. Defendants filed their briefs in opposition to class plaintiffs' motions for class certification on June 24, 2016. On December 8, 2016, the court will hear oral argument on several motions, including plaintiffs' motion on class certification. On May 20, 2016, the U.S. District Court for the District of Nevada heard argument on the defendants' motion for summary judgment in one of the Kansas cases. On May 24, 2016, the court granted the motion for summary judgment as to the GenOn entity in one of the Kansas cases. GenOn has agreed to indemnify CenterPoint against certain losses relating to these lawsuits.
In September 2012, the State of Nevada Supreme Court, which was handling the remaining case, affirmed dismissal by the Eighth Judicial District Court for Clark County, Nevada of all plaintiffs' claims against GenOn. In February 2013, the plaintiffs in the Nevada case filed a petition for a writ of certiorari to the U.S. Supreme Court. In June 2013, the Supreme Court denied the petition for a writ of certiorari, thereby ending one of the five lawsuits.

41



Energy Plus Holdings On August 7, 2012, Energy Plus Holdings received a subpoena from the NYAG which generally sought information and business records related to Energy Plus Holdings' sales, marketing and business practices. Energy Plus Holdings provided documents and information to the NYAG. On June 22, 2015, the NYAG issued another subpoena seeking additional information. Energy Plus Holdings provided responsive documents to this second subpoena.
Maryland Department of the Environment v. GenOn Chalk Point and GenOn Mid-Atlantic — On January 25, 2013, Food & Water Watch, the Patuxent Riverkeeper and the Potomac Riverkeeper (together, the Citizens Group) sent GenOn Mid-Atlantic a letter alleging that the Chalk Point, Dickerson and Morgantown generating facilities were violating the terms of the three National Pollution Discharge Elimination System permits by discharging nitrogen and phosphorous in excess of the limits in each permit. On March 21, 2013, the MDE sent GenOn Mid-Atlantic a similar letter with respect to the Chalk Point and Dickerson generating facilities, threatening to sue within 60 days if the generating facilities were not brought into compliance. On June 11, 2013, the Maryland Attorney General on behalf of the MDE filed a complaint in the U.S. District Court for the District of Maryland alleging violations of the CWA and Maryland environmental laws related to water.
In August 2016, the court approved a consent decree to settle the matter. The consent decree requires: (1) improving the wastewater treatment systems at the Chalk Point and Dickerson facilities which was completed in October 2016; (2) completing supplemental environmental projects worth $1 million; and (3) paying a civil penalty of $1 million. The Company has improved the wastewater treatment systems at the Chalk Point and Dickerson facilities and paid the civil penalty of $1 million.
Midwest Generation New Source Review Litigation — In August 2009, the EPA and the Illinois Attorney General, or the Government Plaintiffs, filed a complaint, or the Governments’ Complaint, in the U.S. District Court for the Northern District of Illinois alleging violations of CAA PSD requirements by Midwest Generation arising from maintenance, repair or replacement projects at six Illinois coal-fired electric generating stations performed by Midwest Generation or ComEd, a prior owner of the stations, including alleged failures to obtain PSD construction permits and to comply with BACT requirements. The Government Plaintiffs also alleged violations of opacity and PM standards at the Midwest Generation plants. Finally, the Government Plaintiffs alleged that Midwest Generation violated certain operating permit requirements under Title V of the CAA allegedly arising from such claimed PSD, opacity and PM emission violations. In addition to seeking penalties of up to $37,500 per violation, per day, the complaint seeks an injunction ordering Midwest Generation to install controls sufficient to meet BACT emission rates at the units subject to the complaint and other remedies, which could go well beyond the requirements of the CPS. Several environmental groups intervened as plaintiffs in this litigation and filed a complaint, or the Intervenors’ Complaint, which alleged opacity, PM and related Title V violations. Midwest Generation filed a motion to dismiss nine of the ten PSD counts in the Governments’ Complaint, and to dismiss the tenth PSD count to the extent the Governments’ Complaint sought civil penalties for that count. The trial court granted the motion in March 2010.
In June 2010, the Government Plaintiffs and Intervenors each filed an amended complaint. The Governments’ Amended Complaint again alleged that Midwest Generation violated PSD (based upon the same projects as alleged in their original complaint, but adding allegations that the Company was liable as the “successor” to ComEd), Title V and opacity and PM standards. It named EME and ComEd as additional defendants and alleged PSD violations (again, premised on the same projects) against them. The Intervenors’ Amended Complaint named only Midwest Generation as a defendant and alleged Title V and opacity/PM violations, as well as one of the ten PSD violations alleged in the Governments’ Amended Complaint. Midwest Generation again moved to dismiss all but one of the Government Plaintiffs’ PSD claims and the related Title V claims. Midwest Generation also filed a motion to dismiss the PSD claim in the Intervenors’ Amended Complaint and the related Title V claims. In March 2011, the trial court granted Midwest Generation’s partial motion to dismiss the Government Plaintiffs’ PSD claims. The trial court denied Midwest Generation’s motion to dismiss the PSD claim asserted in the Intervenors’ Amended Complaint, but noted that the plaintiffs would be required to convince the court that the statute of limitations should be equitably tolled. The trial court did not address other counts in the amended complaints that allege violations of opacity and PM emission limitations under the Illinois State Implementation Plan and related Title V claims. The trial court also granted the motions to dismiss the PSD claims asserted against EME and ComEd.
Following the trial court ruling, the Government Plaintiffs appealed the trial court’s dismissals of their PSD claims, including the dismissal of nine of the ten PSD claims against Midwest Generation and of the PSD claims against the other defendants. Those PSD claim dismissals were affirmed by the U.S. Court of Appeals for the Seventh Circuit in July 2013. In addition, in 2012, all but one of the environmental groups that had intervened in the case dismissed their claims without prejudice. As a result, only one environmental group remains a plaintiff intervenor in the case. The Company does not expect the resolution of this matter to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

42



Potomac River Environmental Investigation — In March 2013, NRG Potomac River LLC received notice that the District of Columbia Department of Environment (now renamed the Department of Energy and Environment, or DOEE) was investigating potential discharges to the Potomac River originating from the Potomac River Generating facility site, a site where the generation facility is no longer in operation. In connection with that investigation, DOEE served a civil subpoena on NRG Potomac River LLC requesting information related to the site and potential discharges occurring from the site.  NRG Potomac River LLC provided various responsive materials.  In January 2016, DOEE advised NRG Potomac River LLC that DOEE believed various environmental violations had occurred as a result of discharges DOEE believes occurred to the Potomac River from the Potomac River Generating facility site and as a result of associated failures to accurately or sufficiently report such discharges.  DOEE has indicated it believes that penalties are appropriate in light of the violations.  NRG is currently reviewing the information provided by DOEE.
Telephone Consumer Protection Act Purported Class Actions Three purported class action lawsuits have been filed against NRG Residential Solar Solutions, LLC — one in California and two in New Jersey.  The plaintiffs generally allege misrepresentation by the call agents and violations of the TCPA, claiming that the defendants engaged in a telemarketing campaign placing unsolicited calls to individuals on the “Do Not Call List.” The plaintiffs seek statutory damages of up to $1,500 per plaintiff, actual damages and equitable relief. On July 8, 2016, NRG filed a Rule 11 Motion seeking dismissal of NRG from the California case. The Rule 11 Motion was denied on August 16, 2016.
California Department of Water Resources and San Diego Gas & Electric Company v. Sunrise Power Company LLC — On January 29, 2016, CDWR and SDG&E filed a lawsuit against Sunrise Power Company, along with NRG and Chevron Power Corporation.  In June 2001, CDWR and Sunrise entered into a 10-year PPA under which Sunrise would construct and operate a generating facility and provide power to CDWR.  At the time the PPA was entered into, Sunrise had a transportation services agreement, or TSA, to purchase natural gas from Kern River through April 30, 2018.  In August 2003, CDWR entered into an agreement with Sunrise and Kern River in which CDWR accepted assignment of the TSA through the term of the PPA.  After the PPA expired, Kern River demanded that any reassignment be to a party which met certain creditworthiness standards which Sunrise did not.  As such, the plaintiffs have brought this lawsuit against the defendants alleging breach of contract, breach of covenant of good faith and fair dealing and improper distributions.  Plaintiffs generally claim damages of $1.2 million per month for the remaining 70 months of the TSA. On April 20, 2016, the defendants filed demurrers in response to the plaintiffs' complaint. The demurrers were granted on June 14, 2016; however, the plaintiffs were allowed to file amended complaints on July 1, 2016. On July 27, 2016, defendants filed demurrers to the amended complaints. The hearing on the demurrers is scheduled for November 9, 2016.

Braun v. NRG Yield, Inc. — On April 19, 2016, plaintiffs filed a putative class action lawsuit against NRG Yield, Inc., the current and former members of its board of directors individually, and other parties in California Superior Court in Kern County, CA.  Plaintiffs allege various violations of the Securities Act due to the defendants’ alleged failure to disclose material facts related to low wind production prior to the NRG Yield, Inc.'s June 22, 2015 Class C common stock offering.  Plaintiffs seek compensatory damages, rescission, attorney’s fees and costs. On August 3, 2016, the court approved a stipulation entered into by the parties. The stipulation provided that the plaintiffs would file an amended complaint by August 19, 2016, which they did on August 18, 2016. The Defendants filed demurrers and a motion challenging jurisdiction on October 18, 2016.

Ahmed v. NRG Energy, Inc. and the NRG Yield Board of Directors — On September 15, 2016, plaintiffs filed a putative class action lawsuit against NRG Energy, Inc., the directors of NRG Yield, Inc., and other parties in the Delaware Chancery Court. The complaint alleges that the defendants breached their respective fiduciary duties with regard to the recapitalization of NRG Yield, Inc. common stock in 2015. The plaintiffs generally seek economic damages, attorney’s fees and injunctive relief. The defendants filed responsive pleadings on November 4, 2016.


43



Note 15Regulatory Matters
This footnote should be read in conjunction with the complete description under Note 23, Regulatory Matters, to the Company's 2015 Form 10-K.
NRG operates in a highly regulated industry and is subject to regulation by various federal and state agencies. As such, NRG is affected by regulatory developments at both the federal and state levels and in the regions in which NRG operates. In addition, NRG is subject to the market rules, procedures, and protocols of the various ISO and RTO markets in which NRG participates. These power markets are subject to ongoing legislative and regulatory changes that may impact NRG's wholesale and retail businesses.
In addition to the regulatory proceedings noted below, NRG and its subsidiaries are parties to other regulatory proceedings arising in the ordinary course of business or have other regulatory exposure. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows.
PJM Capacity Performance Appeals — On or about July 8, 2016, four petitions were filed at the U.S. Court of Appeals for the D.C. Circuit seeking review of the FERC orders approving PJM’s Capacity Performance revisions to its forward capacity market after motions for rehearing at FERC were denied on May 10, 2016. The Company intervened in these matters on July 29, 2016. Briefing is underway. This case concerns capacity revenues already received by the Company, as well as revenues that would be received in the future.

Midwest Generation, LLC Reactive Power Compensation — On June 21, 2016, FERC issued an order directing MWG to make a compliance filing setting forth refunds for payments received in violation of its 2004 reactive power settlement or to show cause why it has not violated the settlement and ordered MWG to revise its tariff to reflect the costs of units continuing to provide reactive power or show cause why it should not be required to do so. The Commission also referred this matter to the Commission's Office of Enforcement. On June 30, 2016, MWG filed a revised tariff, and on July 22, 2016, MWG made a compliance filing as ordered by FERC. On October 13, 2016, FERC found that MWG should only be liable for refunds that accrued after bankruptcy on April 1, 2014 through June 30, 2016. The matter is still pending at the Commission's Office of Enforcement.


44



Note 16Environmental Matters
This footnote should be read in conjunction with the complete description under Note 24, Environmental Matters, to the Company's 2015 Form 10-K.
NRG is subject to a wide range of environmental laws in the development, construction, ownership and operation of projects. These laws generally require that governmental permits and approvals be obtained before construction and during operation of power plants. NRG is also subject to laws regarding the protection of wildlife, including migratory birds, eagles and threatened and endangered species. Environmental laws have become increasingly stringent and NRG expects this trend to continue. The electric generation industry is facing new requirements regarding GHGs, combustion byproducts, water discharge and use, and threatened and endangered species. In general, future laws are expected to require the addition of emissions controls or other environmental controls or to impose certain restrictions on the operations of the Company's facilities, which could have a material effect on the Company's consolidated financial position, results of operations, or cash flows.
The EPA finalized CSAPR in 2011, which was intended to replace CAIR in January 2012, to address certain states' obligations to reduce emissions so that downwind states can achieve federal air quality standards. In December 2011, the D.C. Circuit stayed the implementation of CSAPR and then vacated CSAPR in August 2012 but kept CAIR in place until the EPA could replace it. In April 2014, the U.S. Supreme Court reversed and remanded the D.C. Circuit's decision. In October 2014, the D.C. Circuit lifted the stay of CSAPR. In response, the EPA in November 2014 amended the CSAPR compliance dates. Accordingly, CSAPR replaced CAIR on January 1, 2015. On July 28, 2015, the D.C. Circuit held that the EPA had exceeded its authority by requiring certain reductions that were not necessary for downwind states to achieve federal standards. Although the D.C. Circuit kept the rule in place, the court ordered the EPA to revise the Phase 2 (or 2017) (i) SO2 budgets for four states including Texas and (ii) ozone-season NOx budgets for 11 states including Maryland, New Jersey, New York, Ohio, Pennsylvania and Texas. On October 26, 2016, the EPA finalized the CSAPR Update Rule, which reduces future NOx allocations and discounts the current banked allowances to account for the more stringent 2008 Ozone NAAQS and to address the D.C. Circuit's July 2015 decision. The Company believes its investment in pollution controls and cleaner technologies leave the fleet well-positioned for compliance.
In February 2012, the EPA promulgated standards (the MATS rule) to control emissions of HAPs from coal and oil-fired electric generating units. The rule established limits for mercury, non-mercury metals, certain organics and acid gases, which limits had to be met beginning in April 2015 (with some units getting a 1-year extension). In June 2015, the U.S. Supreme Court issued a decision in the case of Michigan v. EPA, and held that the EPA unreasonably refused to consider costs when it determined that it was "appropriate and necessary" to regulate HAPs emitted by electric generating units. The U.S. Supreme Court did not vacate the MATS rule but rather remanded it to the D.C. Circuit for further proceedings. In December 2015, the D.C. Circuit remanded the MATS rule to the EPA without vacatur. On April 25, 2016, the EPA released a supplemental finding that the benefits of this regulation outweigh the costs to address the U.S. Supreme Court's ruling that the EPA had not properly considered costs. This finding has been challenged in the D.C. Circuit. While NRG cannot predict the final outcome of this rulemaking, NRG believes that because it has already invested in pollution controls and cleaner technologies, the fleet is well-positioned to comply with the MATS rule.
Water
In August 2014, the EPA finalized the regulation regarding the use of water for once through cooling at existing facilities to address impingement and entrainment concerns. NRG anticipates that more stringent requirements will be incorporated into some of its water discharge permits over the next several years as NPDES permits are renewed.
Byproducts, Wastes, Hazardous Materials and Contamination
In April 2015, the EPA finalized the rule regulating byproducts of coal combustion (e.g., ash and gypsum) as solid wastes under the RCRA. The Company has evaluated the impact of the new rule on the Company's consolidated financial position, results of operations, or cash flows and has accrued its environmental and asset retirement obligations under the rule based on current estimates as of September 30, 2016.
Environmental Capital Expenditures
NRG estimates that environmental capital expenditures from 2016 through 2020 required to comply with environmental laws will be approximately $328 million, which includes $76 million for GenOn and $234 million for Midwest Generation. These costs, the majority of which will be expended by the end of 2016, are primarily associated with (i) DSI/ESP upgrades at the Powerton facility and the Joliet gas conversion to satisfy the IL CPS and (ii) MATS compliance at the Avon Lake facility.

45



Note 17Condensed Consolidating Financial Information
As of September 30, 2016, the Company had outstanding $5.8 billion of Senior Notes due from 2018 - 2027, as shown in Note 8, Debt and Capital Leases. These Senior Notes are guaranteed by certain of NRG's current and future 100% owned domestic subsidiaries, or guarantor subsidiaries. These guarantees are both joint and several. The non-guarantor subsidiaries include all of NRG's foreign subsidiaries and certain domestic subsidiaries, including GenOn and its subsidiaries and NRG Yield, Inc. and its subsidiaries.
Unless otherwise noted below, each of the following guarantor subsidiaries fully and unconditionally guaranteed the Senior Notes as of September 30, 2016:
Ace Energy, Inc.
New Genco GP, LLC
NRG Norwalk Harbor Operations Inc.
Allied Home Warranty GP LLC
Norwalk Power LLC
NRG Operating Services, Inc.
Allied Warranty LLC
NRG Advisory Services LLC
NRG Oswego Harbor Power Operations Inc.
Arthur Kill Power LLC
NRG Affiliate Services Inc.
NRG PacGen Inc.
Astoria Gas Turbine Power LLC
NRG Artesian Energy LLC
NRG Portable Power LLC
Bayou Cove Peaking Power, LLC
NRG Arthur Kill Operations Inc.
NRG Power Marketing LLC
BidURenergy, Inc.
NRG Astoria Gas Turbine Operations Inc.
NRG Reliability Solutions LLC
Cabrillo Power I LLC
NRG Bayou Cove LLC
NRG Renter's Protection LLC
Cabrillo Power II LLC
NRG Business Services LLC
NRG Retail LLC
Carbon Management Solutions LLC
NRG Business Solutions LLC
NRG Retail Northeast LLC
Cirro Group, Inc.
NRG Cabrillo Power Operations Inc.
NRG Rockford Acquisition LLC
Cirro Energy Services, Inc.
NRG California Peaker Operations LLC
NRG Saguaro Operations Inc.
Clean Edge Energy LLC
NRG Cedar Bayou Development Company, LLC
NRG Security LLC
Conemaugh Power LLC
NRG Connected Home LLC
NRG Services Corporation
Connecticut Jet Power LLC
NRG Connecticut Affiliate Services Inc.
NRG SimplySmart Solutions LLC
Cottonwood Development LLC
NRG Construction LLC
NRG South Central Affiliate Services Inc.
Cottonwood Energy Company LP
NRG Curtailment Solutions Holdings LLC
NRG South Central Generating LLC
Cottonwood Generating Partners I LLC
NRG Curtailment Solutions, Inc
NRG South Central Operations Inc.
Cottonwood Generating Partners II LLC
NRG Development Company Inc.
NRG South Texas LP
Cottonwood Generating Partners III LLC
NRG Devon Operations Inc.
NRG SPV #1 LLC
Cottonwood Technology Partners LP
NRG Dispatch Services LLC
NRG Texas C&I Supply LLC
Devon Power LLC
NRG Distributed Generation PR LLC
NRG Texas Gregory LLC
Dunkirk Power LLC
NRG Dunkirk Operations Inc.
NRG Texas Holding Inc.
Eastern Sierra Energy Company LLC
NRG El Segundo Operations Inc.
NRG Texas LLC
El Segundo Power, LLC
NRG Energy Efficiency-L LLC
NRG Texas Power LLC
El Segundo Power II LLC
NRG Energy Efficiency-P LLC
NRG Warranty Services LLC
Energy Alternatives Wholesale, LLC
NRG Energy Labor Services LLC
NRG West Coast LLC
Energy Choice Solutions LLC
NRG ECOKAP Holdings LLC
NRG Western Affiliate Services Inc.
Energy Plus Holdings LLC
NRG Energy Services Group LLC
O'Brien Cogeneration, Inc. II
Energy Plus Natural Gas LLC
NRG Energy Services International Inc.
ONSITE Energy, Inc.
Energy Protection Insurance Company
NRG Energy Services LLC
Oswego Harbor Power LLC
Everything Energy LLC
NRG Generation Holdings, Inc.
RE Retail Receivables, LLC
Forward Home Security, LLC
NRG Greenco
Reliant Energy Northeast LLC
GCP Funding Company, LLC
NRG Home & Business Solutions LLC
Reliant Energy Power Supply, LLC
Green Mountain Energy Company
NRG Home Services LLC
Reliant Energy Retail Holdings, LLC
Gregory Partners, LLC
NRG Home Solutions LLC
Reliant Energy Retail Services, LLC
Gregory Power Partners LLC
NRG Home Solutions Product LLC
RERH Holdings, LLC
Huntley Power LLC
NRG Homer City Services LLC
Saguaro Power LLC
Independence Energy Alliance LLC
NRG Huntley Operations Inc.
Somerset Operations Inc.
Independence Energy Group LLC
NRG HQ DG LLC
Somerset Power LLC
Independence Energy Natural Gas LLC
NRG Identity Protect LLC
Texas Genco Financing Corp.
Indian River Operations Inc.
NRG Ilion Limited Partnership
Texas Genco GP, LLC
Indian River Power LLC
NRG Ilion LP LLC
Texas Genco Holdings, Inc.
Keystone Power LLC
NRG International LLC
Texas Genco LP, LLC
Langford Wind Power, LLC
NRG Maintenance Services LLC
Texas Genco Operating Services, LLC
Louisiana Generating LLC
NRG Mextrans Inc.
Texas Genco Services, LP
Meriden Gas Turbines LLC
NRG MidAtlantic Affiliate Services Inc.
US Retailers LLC
Middletown Power LLC
NRG Middletown Operations Inc.
Vienna Operations Inc.
Montville Power LLC
NRG Montville Operations Inc.
Vienna Power LLC
NEO Corporation
NRG New Roads Holdings LLC
WCP (Generation) Holdings LLC
NEO Freehold-Gen LLC
NRG North Central Operations Inc.
West Coast Power LLC
NEO Power Services Inc.
NRG Northeast Affiliate Services Inc.
 

46



NRG conducts much of its business through and derives much of its income from its subsidiaries. Therefore, the Company's ability to make required payments with respect to its indebtedness and other obligations depends on the financial results and condition of its subsidiaries and NRG's ability to receive funds from its subsidiaries. There are no restrictions on the ability of any of the guarantor subsidiaries to transfer funds to NRG. However, there may be restrictions for certain non-guarantor subsidiaries.
The following condensed consolidating financial information presents the financial information of NRG Energy, Inc., the guarantor subsidiaries and the non-guarantor subsidiaries in accordance with Rule 3-10 under the SEC Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor subsidiaries or non-guarantor subsidiaries operated as independent entities.
In this presentation, NRG Energy, Inc. consists of parent company operations. Guarantor subsidiaries and non-guarantor subsidiaries of NRG are reported on an equity basis. For companies acquired, the fair values of the assets and liabilities acquired have been presented on a push-down accounting basis.

47



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2016
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Operating Revenues
 
 
 
 
 
 
 
 
 
Total operating revenues
$
2,424

 
$
1,622

 
$

 
$
(94
)
 
$
3,952

Operating Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of operations
1,718

 
1,158

 
11

 
(94
)
 
2,793

Depreciation and amortization
147

 
203

 
7

 

 
357

Impairment losses
8

 

 

 

 
8

Selling, general and administrative
114

 
105

 
63

 

 
282

Acquisition-related transaction and integration costs

 
1

 
(1
)
 

 

Development activity expenses

 
12

 
11

 

 
23

Total operating costs and expenses
1,987

 
1,479

 
91

 
(94
)
 
3,463

Loss on sale of assets

 
262

 
4

 

 
266

Operating Income/(Loss)
437

 
405

 
(87
)
 

 
755

Other Income/(Expense)
 
 
 
 
 
 
 
 
 
Equity in (losses)/earnings of consolidated subsidiaries
(110
)
 
(13
)
 
485

 
(362
)
 

Equity in earnings/(losses) of unconsolidated affiliates
2

 
22

 
(2
)
 
(6
)
 
16

Impairment loss on investment

 
(8
)
 

 

 
(8
)
Other income
1

 
8

 

 

 
9

Loss on debt extinguishment

 

 
(50
)
 

 
(50
)
Interest expense
(4
)
 
(148
)
 
(128
)
 

 
(280
)
Total other (expense)/income
(111
)
 
(139
)
 
305

 
(368
)
 
(313
)
Income Before Income Taxes
326

 
266

 
218

 
(368
)
 
442

Income tax expense/(benefit)
134

 
90

 
(218
)
 
43

 
49

Net Income
192

 
176

 
436

 
(411
)
 
393

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

 
6

 
34

 
(49
)
 
(9
)
Net Income Attributable to
NRG Energy, Inc.
$
192

 
$
170

 
$
402

 
$
(362
)
 
$
402

(a)
All significant intercompany transactions have been eliminated in consolidation.










48





NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2016
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Operating Revenues
 
 
 
 
 
 
 
 
 
Total operating revenues
$
6,079

 
$
3,907

 
$

 
$
(167
)
 
$
9,819

Operating Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of operations
4,278

 
2,602

 
29

 
(171
)
 
6,738

Depreciation and amortization
372

 
588

 
19

 

 
979

Impairment losses
8

 
115

 

 

 
123

Selling, general and administrative
306

 
296

 
200

 

 
802

Acquisition-related transaction and integration costs

 
1

 
6

 

 
7

Development activity expenses

 
44

 
23

 

 
67

Total operating costs and expenses
4,964

 
3,646

 
277

 
(171
)
 
8,716

Gain/(loss) on sale of assets

 
294

 
(79
)
 

 
215

Operating Income/(Loss)
1,115

 
555

 
(356
)
 
4

 
1,318

Other Income/(Expense)
 
 
 
 
 
 
 
 
 
Equity in (losses)/earnings of consolidated subsidiaries
(178
)
 
(36
)
 
796

 
(582
)
 

Equity in earnings/(losses) of unconsolidated affiliates
5

 
20

 
(2
)
 
(10
)
 
13

Impairment loss on investment

 
(147
)
 

 

 
(147
)
Other income
3

 
31

 
2

 
(1
)
 
35

Loss on debt extinguishment

 
(4
)
 
(115
)
 

 
(119
)
Interest expense
(11
)
 
(443
)
 
(387
)
 

 
(841
)
Total other (expense)/income
(181
)
 
(579
)
 
294

 
(593
)
 
(1,059
)
Income/(Loss) Before Income Taxes
934

 
(24
)
 
(62
)
 
(589
)
 
259

Income tax expense/(benefit)
367

 
(22
)
 
(345
)
 
95

 
95

Net Income
567

 
(2
)
 
283

 
(684
)
 
164

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

 
(17
)
 
70

 
(102
)
 
(49
)
Net Income Attributable to
NRG Energy, Inc.
$
567

 
$
15

 
$
213

 
$
(582
)
 
$
213

(a)
All significant intercompany transactions have been eliminated in consolidation.


49



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2016
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Net Income
$
192

 
$
176

 
$
436

 
$
(411
)
 
$
393

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

 
40

 
26

 
(39
)
 
27

Foreign currency translation adjustments, net
2

 
2

 
4

 
(5
)
 
3

Available-for-sale securities, net

 

 

 

 

Defined benefit plans, net
54

 

 
(23
)
 

 
31

Other comprehensive income
56

 
42

 
7

 
(44
)
 
61

Comprehensive Income
248

 
218

 
443

 
(455
)
 
454

Less: Comprehensive income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interest

 
13

 
34

 
(49
)
 
(2
)
Comprehensive Income Attributable to NRG Energy, Inc.
248

 
205

 
409

 
(406
)
 
456

Comprehensive Income Available for Common Stockholders
$
248

 
$
205

 
$
409

 
$
(406
)
 
$
456

(a)
All significant intercompany transactions have been eliminated in consolidation.






















50




NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2016
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Net Income/(Loss)
$
567

 
$
(2
)
 
$
283

 
$
(684
)
 
$
164

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

 
(15
)
 
46

 
(39
)
 
(8
)
Foreign currency translation adjustments, net
4

 
4

 
6

 
(8
)
 
6

Available-for-sale securities, net

 

 
1

 

 
1

Defined benefit plans, net
55

 

 
(23
)
 

 
32

Other comprehensive income/(loss)
59

 
(11
)
 
30

 
(47
)
 
31

Comprehensive Income/(Loss)
626

 
(13
)
 
313

 
(731
)
 
195

Less: Comprehensive (loss)/income attributable to noncontrolling interest and redeemable noncontrolling interest

 
(38
)
 
70

 
(102
)
 
(70
)
Comprehensive Income/(Loss) Attributable to NRG Energy, Inc.
626

 
25

 
243

 
(629
)
 
265

Gain on redemption, net of dividends for preferred shares

 

 
(73
)
 

 
(73
)
Comprehensive Income/(Loss) Available for Common Stockholders
$
626

 
$
25

 
$
316

 
$
(629
)
 
$
338

(a)
All significant intercompany transactions have been eliminated in consolidation.





















51





52



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2016
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
ASSETS
(In millions)
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
1,744

 
$
691

 
$

 
$
2,435

Funds deposited by counterparties
6

 
10

 

 

 
16

Restricted cash
10

 
470

 

 

 
480

Accounts receivable - trade, net
880

 
482

 

 

 
1,362

Accounts receivable - affiliate
308

 
(133
)
 
173

 
(343
)
 
5

Inventory
425

 
592

 

 

 
1,017

Derivative instruments
700

 
384

 

 
(120
)
 
964

Cash collateral paid in support of energy risk management activities
206

 
131

 

 

 
337

Renewable energy grant receivable, net

 
34

 

 

 
34

Prepayments and other current assets
70

 
237

 
57

 

 
364

Total current assets
2,605

 
3,951

 
921


(463
)
 
7,014

Net property, plant and equipment
4,310

 
13,667

 
253

 
(27
)
 
18,203

Other Assets
 
 
 
 
 
 
 
 
 
Investment in subsidiaries
875

 
2,054

 
10,781

 
(13,710
)
 

Equity investments in affiliates
(14
)
 
906

 
8

 

 
900

Notes receivable, less current portion

 
21

 

 

 
21

Goodwill
697

 
302

 

 

 
999

Intangible assets, net
651

 
1,457

 
1

 
(3
)
 
2,106

Nuclear decommissioning trust fund
605

 

 

 

 
605

Derivative instruments
231

 
80

 
6

 
(61
)
 
256

Deferred income tax

 
182

 
7

 

 
189

Other non-current assets
43

 
814

 
341

 

 
1,198

Total other assets
3,088

 
5,816

 
11,144

 
(13,774
)
 
6,274

Total Assets
$
10,003

 
$
23,434

 
$
12,318

 
$
(14,264
)
 
$
31,491

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

 
$
1,475

 
$
(254
)
 
$

 
$
1,221

Accounts payable
577

 
330

 
38

 

 
945

Accounts payable — affiliate
128

 
158

 
57

 
(343
)
 

Derivative instruments
601

 
485

 
3

 
(120
)
 
969

Cash collateral received in support of energy risk management activities
6

 
10

 

 

 
16

Accrued expenses and other current liabilities
301

 
489

 
360

 

 
1,150

Total current liabilities
1,613

 
2,947

 
204

 
(463
)
 
4,301

Other Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt and capital leases
244

 
10,011

 
7,763

 

 
18,018

Nuclear decommissioning reserve
284

 

 

 

 
284

Nuclear decommissioning trust liability
309

 

 

 

 
309

Deferred income taxes
1,068

 
(112
)
 
(909
)
 

 
47

Derivative instruments
233

 
303

 

 
(61
)
 
475

Out-of-market contracts, net
84

 
981

 

 

 
1,065

Other non-current liabilities
361

 
787

 
332

 

 
1,480

Total non-current liabilities
2,583

 
11,970

 
7,186

 
(61
)
 
21,678

Total liabilities
4,196

 
14,917

 
7,390

 
(524
)
 
25,979

Redeemable noncontrolling interest in subsidiaries

 
19

 

 

 
19

Stockholders’ Equity
5,807

 
8,498

 
4,928

 
(13,740
)
 
5,493

Total Liabilities and Stockholders’ Equity
$
10,003

 
$
23,434

 
$
12,318

 
$
(14,264
)
 
$
31,491

(a)
All significant intercompany transactions have been eliminated in consolidation.

53



NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016 (Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Cash Flows from Operating Activities
 
 
 
 
 
 
 
 
 
Net Income
$
567

 
$
(2
)
 
$
283

 
$
(684
)
 
$
164

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

Distributions from unconsolidated affiliates

 
65

 

 
(8
)
 
57

Equity in (earnings)/losses of unconsolidated affiliates
(5
)
 
(20
)
 
2

 
10

 
(13
)
Depreciation and amortization
372

 
588

 
19

 

 
979

Provision for bad debts
31

 
5

 

 

 
36

Amortization of nuclear fuel
39

 

 

 

 
39

Amortization of financing costs and debt discount/premiums

 
(14
)
 
17

 

 
3

Adjustment for debt extinguishment

 
4

 
17

 

 
21

Amortization of intangibles and out-of-market contracts
32

 
41

 

 

 
73

Amortization of unearned equity compensation

 

 
23

 

 
23

Impairment losses
8

 
262

 

 

 
270

Changes in deferred income taxes and liability for uncertain tax benefits
(134
)
 
(90
)
 
253

 

 
29

Changes in nuclear decommissioning trust liability
24

 

 

 

 
24

Changes in derivative instruments
(173
)
 
258

 
(3
)
 

 
82

Changes in collateral deposits supporting energy risk management activities
268

 
(37
)
 

 

 
231

Proceeds from sale of emission allowances
47

 

 

 

 
47

(Gain)/loss on sale of assets

 
(294
)
 
70

 

 
(224
)
Cash (used)/provided by changes in other working capital
(887
)
 
305

 
(208
)
 
682

 
(108
)
Net Cash Provided by Operating Activities
189

 
1,071

 
473

 

 
1,733

Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 

Dividends from NRG Yield, Inc.

 

 
59

 
(59
)
 

Acquisition of September 2016 Drop Down Assets, net of cash acquired

 
(77
)
 

 
77

 

Intercompany dividends

 

 
12

 
(12
)
 

Acquisition of businesses, net of cash acquired

 
(18
)
 

 

 
(18
)
Capital expenditures
(145
)
 
(713
)
 
(40
)
 

 
(898
)
Increase in restricted cash, net
(5
)
 
(25
)
 

 

 
(30
)
Increase in restricted cash — U.S. DOE funded projects

 
(36
)
 

 

 
(36
)
Decrease in notes receivable

 
2

 

 

 
2

Purchases of emission allowances
(32
)
 

 

 

 
(32
)
Proceeds from sale of emission allowances
47

 

 

 

 
47

Investments in nuclear decommissioning trust fund securities
(378
)
 

 

 

 
(378
)
Proceeds from sales of nuclear decommissioning trust fund securities
354

 

 

 

 
354

Proceeds from renewable energy grants and state rebates

 
11

 

 

 
11

Proceeds from sale of assets, net of cash disposed of

 
619

 
17

 

 
636

Proceeds from (investments in) unconsolidated affiliates
2

 
(25
)
 

 

 
(23
)
Other
27

 
9

 
8

 

 
44

Net Cash (Used)/Provided by Investing Activities
(130
)
 
(253
)
 
56

 
6

 
(321
)
Cash Flows from Financing Activities


 
 

 
 

 
 
 
 
Dividends from NRG Yield, Inc.

 
(59
)
 

 
59

 

Payments (for)/from intercompany loans
(2
)
 
(134
)
 
136

 

 

Acquisition of September 2016 Drop Down Assets, net of cash acquired

 

 
77

 
(77
)
 

Intercompany dividends
(52
)
 
40

 

 
12

 

Payment of dividends to common and preferred stockholders

 

 
(66
)
 

 
(66
)
Payment for preferred shares

 

 
(226
)
 

 
(226
)
Net receipts from settlement of acquired derivatives that include financing elements

 
129

 

 

 
129

Proceeds from issuance of long-term debt

 
1,097

 
4,140

 

 
5,237

Payments for short and long-term debt
(2
)
 
(815
)
 
(4,540
)
 

 
(5,357
)
Distributions from, net of contributions to, noncontrolling interest in subsidiaries

 
(127
)
 

 

 
(127
)
Proceeds from issuance of common stock

 

 
1

 

 
1

Payment of debt issuance costs

 
(17
)
 
(53
)
 

 
(70
)
Other - contingent consideration
(3
)
 
(7
)
 

 

 
(10
)
Net Cash (Used)/Provided by Financing Activities
(59
)
 
107

 
(531
)
 
(6
)
 
(489
)
Effect of exchange rate changes on cash and cash equivalents

 
(6
)
 

 

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

 
919

 
(2
)
 

 
917

Cash and Cash Equivalents at Beginning of Period

 
825

 
693

 

 
1,518

Cash and Cash Equivalents at End of Period
$


$
1,744


$
691


$

 
$
2,435

(a)
All significant intercompany transactions have been eliminated in consolidation.

54



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2015
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Operating Revenues
 
 
 
 
 
 
 
 
 
Total operating revenues
$
3,132

 
$
1,331

 
$

 
$
(29
)
 
$
4,434

Operating Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of operations
2,276

 
792

 
14

 
(40
)
 
3,042

Depreciation and amortization
190

 
187

 
5

 

 
382

Selling, general and administrative
136

 
91

 
100

 

 
327

Impairment losses
222

 
41

 

 

 
263

Acquisition-related transaction and integration costs

 
2

 
1

 

 
3

Development activity expenses

 
17

 
21

 

 
38

Total operating costs and expenses
2,824

 
1,130

 
141

 
(40
)
 
4,055

Operating Income/(Loss)
308

 
201

 
(141
)
 
11

 
379

Other Income/(Expense)
 
 
 
 
 

 
 
 
 
Equity in earnings of consolidated subsidiaries

 
42

 
228

 
(270
)
 

Equity in earnings of unconsolidated affiliates
3

 
27

 
1

 
(7
)
 
24

Other income, net
2

 
3

 
1

 
(2
)
 
4

Loss on debt extinguishment

 
(2
)
 

 

 
(2
)
Interest expense
(4
)
 
(151
)
 
(136
)
 

 
(291
)
Total other income/(expense)
1

 
(81
)
 
94

 
(279
)
 
(265
)
Income/(Loss) Before Income Taxes
309

 
120

 
(47
)
 
(268
)
 
114

Income tax expense/(benefit)
88

 
56

 
(130
)
 
33

 
47

Net Income
221

 
64

 
83

 
(301
)
 
67

Less: Net income attributable to noncontrolling interest and redeemable noncontrolling interest

 
15

 
17

 
(31
)
 
1

Net Income Attributable to NRG Energy, Inc.
$
221

 
$
49

 
$
66

 
$
(270
)
 
$
66

(a)
All significant intercompany transactions have been eliminated in consolidation.














55



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2015
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Operating Revenues
 
 
 
 
 
 
 
 
 
Total operating revenues
$
7,959

 
$
3,801

 
$

 
$
(97
)
 
$
11,663

Operating Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of operations
6,083

 
2,554

 
10

 
(96
)
 
8,551

Depreciation and amortization
590

 
568

 
15

 

 
1,173

Selling, general and administrative
351

 
280

 
247

 

 
878

Impairment losses
222

 
41

 

 

 
263

Acquisition-related transaction and integration costs

 
3

 
13

 

 
16

Development activity expenses

 
43

 
66

 

 
109

Total operating costs and expenses
7,246

 
3,489

 
351

 
(96
)
 
10,990

Gain on postretirement benefits curtailment

 
14

 

 

 
14

Operating Income/(Loss)
713

 
326

 
(351
)
 
(1
)
 
687

Other Income/(Expense)
 
 
 
 
 

 
 
 
 
Equity in (losses)/earnings of consolidated subsidiaries
(35
)
 
(15
)
 
432

 
(382
)
 

Equity in earnings of unconsolidated affiliates
6

 
33

 

 
(10
)
 
29

Other income, net
3

 
23

 
3

 
(2
)
 
27

Loss on debt extinguishment

 
(9
)
 

 

 
(9
)
Interest expense
(13
)
 
(430
)
 
(412
)
 

 
(855
)
Total other (expense)/income
(39
)
 
(398
)
 
23

 
(394
)
 
(808
)
Income/(Loss) Before Income Taxes
674

 
(72
)
 
(328
)
 
(395
)
 
(121
)
Income tax expense/(benefit)
225

 
(20
)
 
(281
)
 
33

 
(43
)
Net Income/(Loss)
449

 
(52
)
 
(47
)
 
(428
)
 
(78
)
Less: Net income attributable to noncontrolling interest and redeemable noncontrolling interest

 
15

 
21

 
(46
)
 
(10
)
Net Income/(Loss) Attributable to NRG Energy, Inc.
$
449

 
$
(67
)
 
$
(68
)
 
$
(382
)
 
$
(68
)
(a)
All significant intercompany transactions have been eliminated in consolidation.

56



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the Three Months Ended September 30, 2015
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Net Income
$
221

 
$
64

 
$
83

 
$
(301
)
 
$
67

Other Comprehensive Income/(Loss), net of tax
 
 
 
 
 
 
 
 
 
Unrealized (loss)/gain on derivatives, net
(5
)
 
(24
)
 
20

 
3

 
(6
)
Foreign currency translation adjustments, net

 
(6
)
 
(2
)
 

 
(8
)
Available-for-sale securities, net

 
12

 
(19
)
 

 
(7
)
Defined benefit plans, net
4

 
(1
)
 

 

 
3

Other comprehensive loss
(1
)
 
(19
)
 
(1
)
 
3

 
(18
)
Comprehensive Income
220

 
45

 
82

 
(298
)
 
49

Less: Comprehensive income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interest

 
(3
)
 
17

 
(31
)
 
(17
)
Comprehensive Income Attributable to NRG Energy, Inc.
220

 
48

 
65

 
(267
)
 
66

Dividends for preferred shares

 

 
5

 

 
5

Comprehensive Income Available for Common Stockholders
$
220

 
$
48

 
$
60

 
$
(267
)
 
$
61

(a)
All significant intercompany transactions have been eliminated in consolidation.





















57



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the Nine Months Ended September 30, 2015
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Net Income/(Loss)
$
449

 
$
(52
)
 
$
(47
)
 
$
(428
)
 
$
(78
)
Other Comprehensive Income/(Loss), net of tax
 
 
 
 
 
 
 
 
 
Unrealized (loss)/gain on derivatives, net
(10
)
 
(9
)
 
29

 
(12
)
 
(2
)
Foreign currency translation adjustments, net

 
(6
)
 
(4
)
 

 
(10
)
Available-for-sale securities, net

 
11

 
(22
)
 

 
(11
)
Defined benefit plans, net
1

 
(2
)
 
10

 

 
9

Other comprehensive (loss)/income
(9
)
 
(6
)
 
13

 
(12
)
 
(14
)
Comprehensive Income/(Loss)
440

 
(58
)
 
(34
)
 
(440
)
 
(92
)
Less: Comprehensive income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interest

 
(9
)
 
21

 
(46
)
 
(34
)
Comprehensive Income/(Loss) Attributable to NRG Energy, Inc.
440

 
(49
)
 
(55
)
 
(394
)
 
(58
)
Dividends for preferred shares

 

 
15

 

 
15

Comprehensive Income/(Loss) Available for Common Stockholders
$
440

 
$
(49
)
 
$
(70
)
 
$
(394
)
 
$
(73
)
(a)
All significant intercompany transactions have been eliminated in consolidation.






















58



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2015
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations (a)
 
Consolidated
ASSETS
(In millions)
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
825

 
$
693

 
$

 
$
1,518

Funds deposited by counterparties
55

 
51

 

 

 
106

Restricted cash
5

 
409

 

 

 
414

Accounts receivable - trade, net
851

 
304

 
2

 

 
1,157

Accounts receivable - affiliate
395

 
260

 
571

 
(1,222
)
 
4

Inventory
570

 
682

 

 

 
1,252

Derivative instruments
1,202

 
871

 

 
(158
)
 
1,915

Cash collateral paid in support of energy risk management activities
474

 
94

 

 

 
568

Renewable energy grant receivable, net

 
13

 

 

 
13

Current assets held-for-sale

 
6

 

 

 
6

Prepayments and other current assets
93

 
274

 
71

 

 
438

Total current assets
3,645

 
3,789

 
1,337

 
(1,380
)
 
7,391

Net Property, Plant and Equipment
4,767

 
13,773

 
219

 
(27
)
 
18,732

Other Assets
 
 
 
 
 
 
 
 
 
Investment in subsidiaries
842

 
2,244

 
11,039

 
(14,125
)
 

Equity investments in affiliates
(14
)
 
1,160

 
1

 
(102
)
 
1,045

Notes receivable, less current portion

 
46

 
7

 

 
53

Goodwill
697

 
302

 

 

 
999

Intangible assets, net
763

 
1,551

 
2

 
(6
)
 
2,310

Nuclear decommissioning trust fund
561

 

 

 

 
561

Derivative instruments
153

 
184

 

 
(32
)
 
305

Deferred income taxes
(6
)
 
815

 
(642
)
 

 
167

Non-current assets held for sale

 
105

 

 

 
105

Other non-current assets
80

 
749

 
385

 

 
1,214

Total other assets
3,076

 
7,156

 
10,792

 
(14,265
)
 
6,759

Total Assets
$
11,488

 
$
24,718

 
$
12,348

 
$
(15,672
)
 
$
32,882

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Current portion of long-term debt and capital leases
$
2

 
$
460

 
$
19

 
$

 
$
481

Accounts payable
553

 
277

 
39

 

 
869

Accounts payable — affiliate
151

 
2,000

 
(929
)
 
(1,222
)
 

Derivative instruments
1,130

 
749

 

 
(158
)
 
1,721

Cash collateral received in support of energy risk management activities
55

 
51

 

 

 
106

Current liabilities held-for-sale

 
2

 

 

 
2

Accrued expenses and other current liabilities
319

 
429

 
449

 
(1
)
 
1,196

Total current liabilities
2,210

 
3,968

 
(422
)
 
(1,381
)
 
4,375

Other Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt and capital leases
302

 
10,496

 
8,185

 

 
18,983

Nuclear decommissioning reserve
326

 

 

 

 
326

Nuclear decommissioning trust liability
283

 

 

 

 
283

Deferred income taxes
179

 
(1,088
)
 
928

 

 
19

Derivative instruments
301

 
224

 

 
(32
)
 
493

Out-of-market contracts, net
95

 
1,051

 

 

 
1,146

Non-current liabilities held-for-sale

 
4

 

 

 
4

Other non-current liabilities
554

 
735

 
199

 

 
1,488

Total non-current liabilities
2,040

 
11,422

 
9,312

 
(32
)
 
22,742

Total Liabilities
4,250

 
15,390

 
8,890

 
(1,413
)
 
27,117

2.822% Preferred Stock

 

 
302

 

 
302

Redeemable noncontrolling interest in subsidiaries

 
29

 

 

 
29

Stockholders’ Equity
7,238

 
9,299

 
3,156

 
(14,259
)
 
5,434

Total Liabilities and Stockholders’ Equity
$
11,488

 
$
24,718

 
$
12,348

 
$
(15,672
)
 
$
32,882

(a)
All significant intercompany transactions have been eliminated in consolidation.

59



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2015
(Unaudited)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
NRG Energy, Inc.
(Note Issuer)
 
Eliminations(a)
 
Consolidated
 
(In millions)
Cash Flows from Operating Activities
 
 
 
 
 
 
 
 
 
Net Income/(Loss)
$
449

 
$
(52
)
 
$
(47
)
 
$
(428
)
 
$
(78
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Distributions from unconsolidated affiliates

 
77

 

 
(20
)
 
57

Equity in earnings of unconsolidated affiliates
(6
)
 
(33
)
 

 
10

 
(29
)
Depreciation and amortization
590

 
568

 
15

 

 
1,173

Provision for bad debts
46

 

 
3

 

 
49

Amortization of nuclear fuel
36

 

 

 

 
36

Amortization of financing costs and debt discount/premiums

 
(29
)
 
20

 

 
(9
)
Adjustment for debt extinguishment

 
9

 

 

 
9

Amortization of intangibles and out-of-market contracts
43

 
25

 

 

 
68

Amortization of unearned equity compensation

 

 
37

 

 
37

Changes in deferred income taxes and liability for uncertain tax benefits
218

 
(77
)
 
(213
)
 

 
(72
)
Changes in nuclear decommissioning trust liability
1

 

 

 

 
1

Changes in derivative instruments
135

 
89

 
(44
)
 

 
180

Changes in collateral deposits supporting energy risk management activities
(141
)
 
(39
)
 

 

 
(180
)
Gain on sale of emission allowances
(6
)
 

 

 

 
(6
)
Gain on postretirement benefits curtailment

 
(14
)
 

 

 
(14
)
Impairment losses
222

 
41

 

 

 
263

Cash provided/(used) by changes in other working capital
1,048

 
(879
)
 
(702
)
 
440

 
(93
)
Net Cash Provided/(Used) by Operating Activities
2,635

 
(314
)

(931
)

2

 
1,392

Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
Acquisition of January 2015 Drop Down Assets, net of cash acquired

 
(489
)
 

 
489

 

Dividends from NRG Yield, Inc.

 

 
52

 
(52
)
 

Intercompany dividends

 

 
33

 
(33
)
 

Acquisition of businesses, net of cash acquired

 
(31
)
 

 

 
(31
)
Capital expenditures
(264
)
 
(595
)
 
(30
)
 

 
(889
)
Increase in restricted cash, net
(3
)
 
(38
)
 

 

 
(41
)
Decrease in restricted cash — U.S. DOE projects

 
1

 

 

 
1

Decrease in notes receivable

 
10

 

 

 
10

Purchases of emission allowances
(40
)
 

 

 

 
(40
)
Proceeds from sale of emission allowances
45

 

 

 

 
45

Investments in nuclear decommissioning trust fund securities
(500
)
 

 

 

 
(500
)
Proceeds from sales of nuclear decommissioning trust fund securities
499

 

 

 

 
499

Proceeds from renewable energy grants and state rebates

 
62

 

 

 
62

Proceeds from sale of assets, net of cash disposed of

 

 
1

 

 
1

Investments in unconsolidated affiliates
1

 
(317
)
 
(39
)
 
(2
)
 
(357
)
Other

 
8

 

 

 
8

Net Cash Used by Investing Activities
(262
)
 
(1,389
)
 
17

 
402

 
(1,232
)
Cash Flows from Financing Activities
 
 
 
 
 
 
 
 
 
Proceeds from intercompany loans to subsidiaries
(2,391
)
 
1,178

 
1,213

 

 

Acquisition of January 2015 Drop Down Assets, net of cash acquired

 

 
489

 
(489
)
 

Intercompany dividends

 
(33
)
 

 
33

 

Payments of dividends from NRG Yield, Inc.

 
(52
)
 

 
52

 

Payment of dividends to common and preferred stockholders

 

 
(152
)
 

 
(152
)
Payment for treasury stock

 

 
(353
)
 

 
(353
)
Net receipts for settlement of acquired derivatives that include financing elements

 
138

 

 

 
138

Proceeds from issuance of long-term debt

 
635

 
44

 

 
679

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

 
651

 

 

 
651

Proceeds from issuance of common stock

 

 
1

 

 
1

Payment of debt issuance costs

 
(14
)
 

 

 
(14
)
Payments for short and long-term debt

 
(938
)
 
(16
)
 

 
(954
)
Other

 
(22
)
 

 

 
(22
)
Net Cash Provided by Financing Activities
(2,391
)
 
1,543

 
1,226

 
(404
)
 
(26
)
Effect of exchange rate changes on cash and cash equivalents

 
15

 

 

 
15

Net (Decrease)/Increase in Cash and Cash Equivalents
(18
)
 
(145
)
 
312

 

 
149

Cash and Cash Equivalents at Beginning of Period
18

 
1,455

 
643

 

 
2,116

Cash and Cash Equivalents at End of Period
$

 
$
1,310

 
$
955

 
$

 
$
2,265

(a)
All significant intercompany transactions have been eliminated in consolidation.

60



ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As you read this discussion and analysis, refer to NRG's Condensed Consolidated Statements of Operations to this Form 10-Q, which present the results of operations for the three and nine months ended September 30, 2016 and 2015. Also refer to NRG's 2015 Form 10-K, which includes detailed discussions of various items impacting the Company's business, results of operations and financial condition, including: Introduction and Overview section; NRG's Business Strategy section; Business section, including how regulation, weather, and other factors affect NRG's business; and Critical Accounting Policies and Estimates section.
The discussion and analysis below has been organized as follows:
Executive summary, including introduction and overview, business strategy, and changes to the business environment during the period, including environmental and regulatory matters;
Results of operations;
Financial condition, addressing liquidity position, sources and uses of liquidity, capital resources and requirements, commitments, and off-balance sheet arrangements; and
Known trends that may affect NRG's results of operations and financial condition in the future.

61



Executive Summary
Introduction and Overview
NRG Energy, Inc., or NRG or the Company, is an integrated competitive power company that aims to create a sustainable energy future by producing, selling and delivering energy and energy products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. NRG has one of the nation's largest and most diverse competitive generation portfolios balanced with a leading retail electricity platform. The Company owns and operates approximately 46,000 MW of generation; engages in the trading of wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG”, "Reliant" and other retail brand names owned by NRG. NRG was incorporated as a Delaware corporation on May 29, 1992.
The following table summarizes NRG's global generation portfolio as of September 30, 2016, by operating segment:

 
 
Global Generation Portfolio(a) 
 
 
 
(In MW)
 
 
 
Generation
 
 
 
 
 
 
 
 
Generation Type
 
Gulf Coast
 
East
 
West
 
International
 
Renewables(b)
 
NRG Yield (c)
 
Other (d)
 
Total Global
Natural gas(e)
 
8,651

 
7,847

 
6,085

 
144

 

 
1,878

 

 
24,605

Coal(f)
 
5,114

 
7,465

 

 
605

 

 

 

 
13,184

Oil(g)
 

 
5,477

 

 

 

 
190

 

 
5,667

Nuclear
 
1,176

 

 

 

 

 

 

 
1,176

Wind
 

 

 

 

 
961

 
2,005

 

 
2,966

Utility Scale Solar
 

 

 

 

 
722

 
610

 

 
1,332

Distributed Solar
 

 

 

 

 
85

 
9

 
114

 
208

Total generation capacity
 
14,941

 
20,789

 
6,085

 
749

 
1,768

 
4,692

 
114

 
49,138

Capacity attributable to noncontrolling interest
 

 

 

 

 
(638
)
 
(2,110
)
 

 
(2,748
)
Total net generation capacity
 
14,941

 
20,789

 
6,085

 
749

 
1,130

 
2,582

 
114

 
46,390

(a) All Utility Scale Solar and Distributed Solar facilities are described in MW on an alternating current basis. MW figures provided represent nominal summer net MW capacity of power generated as adjusted for the Company's owned or leased interest excluding capacity from inactive/mothballed units.
(b) Includes Distributed Solar capacity from assets held by DGPV Holdco 1 and DGPV Holdco 2. Excludes 100 MW related to the High Lonesome Mesa facility, which was transferred to lien holders on March 31, 2016.
(c) Does not include NRG Yield, Inc.'s thermal converted (MWt) capacity, which is part of the NRG Yield operating segment.
(d) The Distributed Solar figure within "Other" includes the aggregate production capacity of installed and activated residential solar energy systems. Also includes capacity from operating portfolios of residential solar assets held by RPV Holdco.
(e) New Castle Units 3, 4, and 5 and Joliet Units 6, 7, and 8, totaling 1,651 MW, were moved to natural gas from coal following completion of natural gas conversion projects in the second quarter of 2016. The balance of plant work is being completed for full load operation of Joliet Unit 6. Natural gas generation portfolio does not include 878 MW related to Aurora and 450 MW related to Rockford, which were both sold on July 12, 2016. Natural gas generation includes 275 MW related to Choctaw Unit 1 which is in forced outage.
(f) Coal generation portfolio does not include 94 MW related to Avon Lake 7, which retired in April 2016. New Castle Units 3, 4, and 5 and Joliet Units 6, 7, and 8, totaling 1,651 MW were moved from coal to natural gas following completion of natural gas conversion projects in the second quarter of 2016.
(g) Oil generation portfolio does not include 104 MW related to the Astoria Oil Turbines which were deactivated in the first quarter of 2016.

Strategy
NRG's strategy is to maximize stockholder value through the safe production and sale of reliable and affordable power to its customers in the markets served by the Company, while positioning the Company to meet the market's increasing demand for sustainable, low carbon and customized energy solutions for the benefit of the end-use energy consumer. This strategy is intended to enable the Company to achieve sustainable growth at reasonable margins while de-risking the Company in terms of reduced and mitigated exposure both to environmental risk and cyclical commodity price risk. At the same time, the Company's relentless commitment to safety for its employees, customers and partners continues unabated.

62



To effectuate the Company’s strategy, NRG is focused on: (i) excellence in operating performance of its existing assets including repowering its power generation assets at premium sites and optimal hedging of generation assets and retail load operations; (ii) serving the energy needs of end-use residential, commercial and industrial customers in competitive markets through multiple brands and channels with a variety of retail energy products and services differentiated by innovative features, premium service, sustainability, and loyalty/affinity programs; (iii) investing in, and deploying, alternative energy technologies both in its wholesale portfolio through its wind and solar portfolio and, particularly, in and around its retail businesses; and (iv) engaging in a proactive capital allocation plan focused on achieving the regular return of and on stockholder capital within the dictates of prudent balance sheet management; including pursuing selective acquisitions, joint ventures, divestitures and investments. The Company is currently executing several key initiatives in connection with its capital allocation plan as further described within this Management's Discussion and Analysis.
Regulatory Matters
The Company’s regulatory matters are described in the Company’s 2015 Form 10-K in Item 1, Business — Regulatory Matters. These matters have been updated below and in Note 15, Regulatory Matters, to the Condensed Consolidated Financial Statements of this Form 10-Q as found in Item 1.
As owners of power plants and participants in wholesale and retail energy markets, certain NRG entities are subject to regulation by various federal and state government agencies. These include the CFTC, FERC, NRC, and the PUCT, as well as other public utility commissions in certain states where NRG's generating, thermal, or distributed generation assets are located. In addition, NRG is subject to the market rules, procedures and protocols of the various ISO and RTO markets in which it participates. Likewise, certain NRG entities participating in the retail markets are subject to rules and regulations established by the states in which NRG entities are licensed to sell at retail. NRG must also comply with the mandatory reliability requirements imposed by NERC and the regional reliability entities in the regions where the Company operates.
NRG's operations within the ERCOT footprint are not subject to rate regulation by FERC, as they are deemed to operate solely within the ERCOT market and not in interstate commerce. These operations are subject to regulation by the PUCT, as well as to regulation by the NRC with respect to the Company's ownership interest in STP.
STP License Amendment — STP Unit 1 is operating with a single-cycle license amendment issued on December 11, 2015 after a control rod was determined to be inoperable following a scheduled refueling and maintenance outage. The approved license amendment supports STP Unit 1 operation with the inoperable control rod and the associated control rod drive shaft removed. Subsequently, STPNOC submitted a permanent license amendment on May 25, 2016 to authorize continued operation of Unit 1 for the remainder of the operating license. The NRC formally accepted this submittal on June 6, 2016 and has committed to reaching a conclusion in time to support the next Unit 1 refueling outage in the spring of 2017.
East Region
PJM
2019/2020 PJM Auction Results — On May 24, 2016, PJM announced the results of its 2019/2020 base residual auction. NRG cleared approximately 11,155 MW of Capacity Performance product and 371 MW of Base Capacity product in the 2019/2020 base residual auction. NRG’s expected capacity revenues from the base residual auction for the 2019/2020 delivery year are approximately $569 million. For results of the 2018/2019 PJM base residual auction, refer to Item 1 - Business of the 2015 Form 10-K.
The table below provides a detailed description of NRG’s 2019/2020 base residual auction results from May 24, 2016:
 
 
Base Capacity Product
 
Capacity Performance Product
Zone
 
Cleared Capacity (MW)(1)(2)
 
Price
($/MW-day)
 
Cleared Capacity (MW)(1)(2)
 
Price
($/MW-day)
COMED
 
65
 
$182.77
 
3,738
 
$202.77
EMAAC
 
103
 
$99.77
 
895
 
$119.77
MAAC
 
10
 
$80.00
 
5,972
 
$100.00
RTO
 
193
 
$80.00
 
550
 
$100.00
Total
 
371
 
 
 
11,155
 
 
(1) Includes imports. Does not include capacity sold by NRG Curtailment Specialists. Excludes cleared capacity related to Aurora and Rockford, the sales of which were completed on July 12, 2016.
(2) Includes GenOn.

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PJM Capacity Performance Appeals — On or about July 8, 2016, four petitions were filed at the U.S. Court of Appeals for the D.C. Circuit seeking review of the FERC orders approving PJM’s Capacity Performance revisions to its forward capacity market after motions for rehearing at FERC were denied on May 10, 2016. The Company intervened in these matters on July 29, 2016. Briefing is underway. This case governs capacity revenues already received by the Company, as well as the revenues for forward periods.
AEP and FirstEnergy Ohio Contracts — On March 31, 2016, the Public Utility Commission of Ohio, or PUCO, approved  two settlements allowing AEP and FirstEnergy to recover costs associated with contracts between their regulated and un-regulated affiliates via a non-bypassable “retail rate rider” that would apply to all retail customers in Ohio.  In anticipation of the approval of the contracts, NRG, along with other companies, participated in three separate complaints at FERC, two questioning whether AEP and FirstEnergy have the regulatory approvals necessary to enter into above-market contracts with their generation affiliates without further FERC review, and one alleging that PJM’s tariff is unjust and unreasonable because it does not include provisions to prevent the artificial suppression of prices caused by state-approved out-of-market payments.  On April 27, 2016, FERC granted the complaints against AEP and FirstEnergy, and required AEP and FirstEnergy to file the Ohio PPAs with FERC for further review.  The second complaint against PJM regarding bidding rules remains pending.
In response to the FERC order granting the Company’s complaint, FirstEnergy filed both an administrative appeal at PUCO and, among other things, proposed an alternative “virtual power purchase agreement”, both of which the Company also opposed. On October 12, 2016, PUCO approved an alternative PUCO staff proposal that establishes a grid modernization fund to be paid to the FirstEnergy utilities in Ohio.  While the proposed out of market contracts would have directly impacted the PJM wholesale market, the grid modernization proposal approved by PUCO does not create an explicit subsidy for FirstEnergy’s wholesale affiliates. 

New England
Winter Reliability Program — On August 8, 2016, FERC issued an order on remand establishing a new proceeding into whether rates charged in the 2013/2014 Winter Reliability Program were just and reasonable. The Winter Reliability Program paid generators for certain costs associated with ensuring reliability during the winter period. The order on remand follows a D.C. Circuit opinion questioning whether FERC had adequately justified its acceptance of ISO-NE's proposed rates. The order directs ISO-NE to (i) collect information from each market participant on its costs of participating in the program, and (ii) directs ISO-NE to analyze whether the market results were competitive. On September 19, 2016, the Company submitted information as requested by the Internal Market Monitor and as instructed by FERC. Depending on the outcome of the proceeding, FERC could potentially direct refunds of some or all of the revenues earned by the Company.
FCM Rules for 2014 Forward Capacity Auction — On February 28, 2014, ISO-NE filed with FERC the results of Forward Capacity Auction 8. On September 16, 2014, FERC issued a notice stating that the Forward Capacity Auction 8 results would go into effect by operation of law. Several parties requested rehearing of FERC’s notice. FERC rejected those requests on legal and procedural grounds. A petition for review of FERC's decision was filed with the D.C. Circuit. The Company, along with other parties, filed a brief in support of FERC. On October 25, 2016, the D.C. Circuit rejected all challenges to the validity of the Forward Capacity Auction 8 results, finding that it had no jurisdiction to review rates allowed to go into effect by operation of law.

New York
Dunkirk Power Reliability Service and Natural Gas Addition On February 13, 2014, Dunkirk Power LLC and National Grid agreed to a term sheet for a 10-year agreement to govern the addition of natural gas-burning capabilities to the Dunkirk facility.  This term sheet, known as the DNG Agreement Term Sheet, was approved by the NYSPSC on June 13, 2014.  On February 27, 2015, Entergy filed a complaint in the U.S. District Court for the Northern District of New York alleging that the NYSPSC’s approval of the DNG Agreement Term Sheet impermissibly interfered with FERC’s exclusive jurisdiction over the wholesale markets.  On March 7, 2016, the U.S. District Court denied a motion to dismiss filed by the NYSPSC, and litigation is ongoing.  

On May 20, 2016, the NYSPSC issued a notice soliciting comments as to whether National Grid should still be authorized to recover costs under the DNG Agreement Term Sheet given various intervening events subsequent to the Commission’s approval in 2014. The Company submitted comments on July 15, 2016 in response to the notice.


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FERC Investigation of NYISO RMR Practices — On February 19, 2015, pursuant to Section 206 of the FPA, FERC found NYISO’s tariff to be unjust and unreasonable because it did not contain provisions governing the retention of and compensation to generating units for reliability. FERC ordered NYISO to adopt tariff provisions containing a proposed RMR rate schedule and pro forma RMR agreement. On October 19, 2015, NYISO filed its tariff revisions at FERC. NRG protested the filing. On April 21, 2016, FERC rejected in part and accepted in part NYISO’s proposed tariff provisions. Multiple parties filed for rehearing. NYISO made a compliance filing on September 19, 2016, which was protested by a generator trade association. Resolution of this matter will affect how long uneconomic resources must stay in the market before they are allowed to retire, as well as the impact units retained for reliability will have on market prices.

New York Public Service Commission Retail Energy Market Reset Order — On February 23, 2016, the NYSPSC issued what it refers to as its “Retail Reset” order, or Reset Order.  Among other things, the Reset Order instituted a price cap on many residential and small commercial electricity and natural gas offerings.  It also required many retail providers to seek affirmative consent from select classes of retail customers over a very short period of time in order to retain those customers.  Retail suppliers who cannot meet these conditions will be required to return their customers to energy supply service provided by the local utility.  A number of interested parties both sought rehearing of the Reset Order with the NYSPSC and requested emergency judicial review.  On July 25, 2016, the New York Supreme Court vacated part of the Reset Order on procedural grounds and remanded the matter back to the NYSPSC for further consideration.  Additionally, the court order affirmed NYSPSC’s authority to regulate ESCO rates.  The matter is now on appeal before the Supreme Court of New York, Appellate Division. The outcome of this case will affect the viability of the New York retail energy market. 

New York Clean Energy Standard and Zero-Emissions Credit Nuclear Bailout — On August 1, 2016, the NYSPSC issued its Clean Energy Standard, or CES.  The CES order included three main components: (i) a commitment to move New York to 50% renewables by 2030; (ii) new renewable energy credit pricing for both new and existing renewable facilities; and (iii) a Zero-Emissions Credit, or ZEC, that would provide more than $7.6 billion over 12 years in out-of-market subsidy payments to certain selected nuclear generating units in the state. The stated purpose of the ZECs is to keep nuclear units running even though they would be uneconomic and likely retire if they received compensation only from the FERC-jurisdictional wholesale power market. The ZECs would have the effect of suppressing wholesale market prices and interfere with the wholesale market.  On October 19, 2016, the Company, along with other entities, filed a complaint in the U.S. District Court for the Southern District of New York, challenging the validity of the NYSPSC action and the ZEC program. 

Gulf Coast Region
ERCOT
Greens Bayou Unit 5 RMR Status — On March 29, 2016, the Company filed notice with ERCOT of its intent to mothball Greens Bayou Unit 5.  On May 27, 2016, ERCOT made a final determination that the unit is needed for reliability must-run, or RMR, service to address potential operational contingencies. On June 14, 2016, the ERCOT Board confirmed ERCOT’s determination and approved a two-year RMR agreement, effective June 1, 2016 through June 30, 2018; provided, however, ERCOT may terminate the RMR agreement at any time upon 90 days' notice.  ERCOT has a standard form contract that provides for recovery of the operating costs of the unit, together with additional performance metrics and incentives.  The estimated budget for the unit is $58 million for the contract period, which amount does not include any incentives.  Under the RMR agreement, the unit is only available to ERCOT during the months of June through September.  On July 13, 2016, ERCOT issued a request for proposals for alternatives to the RMR agreement. No alternatives were selected by ERCOT. As a result of rule changes, ERCOT determined that the RMR agreement is only needed until a new 1,100 MW combined cycle plant at Colorado Bend Generating Station comes on line, expected in mid-2017.

MISO
MISO Forward Capacity Market Design for Retail Choice — MISO staff has proposed revisions to its market design by implementing a three-year Forward Resource Auction for Illinois and the portion of Michigan with Retail Choice Load with a Sloped Demand Curve. The Company is actively participating in discussions at MISO. On November 1, 2016, MISO filed its proposal with FERC. The ultimate outcome could have an effect on overall market prices in MISO.


65



Environmental Matters
NRG is subject to a wide range of environmental laws in the development, construction, ownership and operation of projects. These laws generally require that governmental permits and approvals be obtained before construction and during operation of power plants. NRG is also subject to laws regarding the protection of wildlife, including migratory birds, eagles and threatened and endangered species. Environmental laws have become increasingly stringent and NRG expects this trend to continue. The electric generation industry is facing new requirements regarding GHGs, combustion byproducts, water discharge and use, and threatened and endangered species. Future laws may require the addition of emissions controls or other environmental controls or impose restrictions on the operations of the Company's facilities, which could have a material effect on the Company's operations. Complying with environmental laws involves significant capital and operating expenses. NRG decides to invest capital for environmental controls based on the relative certainty of the requirements, an evaluation of compliance options, and the expected economic returns on capital.  
A number of regulations with the potential to affect the Company and its facilities are in development, under review or have been recently promulgated by the EPA, including ESPS/NSPS for GHGs, ash disposal requirements, NAAQS revisions and implementation and effluent guidelines. NRG is currently reviewing the outcome and any resulting impact of recently promulgated regulations and cannot fully predict such impact until legal challenges are resolved. The Company’s environmental matters are described in the Company’s 2015 Form 10-K in Item 1, Business - Environmental Matters and Item 1A, Risk Factors. These matters have been updated in Item 1 — Note 16, Environmental Matters, to the Condensed Consolidated Financial Statements of this Form 10-Q and as follows.
National
Clean Power Plan — The national and international attention (including the Paris Agreement) in recent years on GHG emissions has resulted in federal and state legislative and regulatory action. In October 2015, the EPA finalized the Clean Power Plan, or CPP, addressing GHG emissions from existing EGUs. The CPP rule faces numerous legal challenges that likely will take several years to resolve. On February 9, 2016, the U.S. Supreme Court stayed the CPP. The U.S. Court of Appeals for the D.C. Circuit, sitting en banc, heard oral argument on the challenges to the CPP in September 2016. A decision is expected in the next few months.
Gulf Coast Region
Texas Regional Haze — In January 2016, the EPA promulgated a final rule that requires 15 coal-fired units (at eight plants in Texas) to reduce their SO2 rates at various times over the next five years if the rule survives legal challenges.  This Regional Haze rule was promulgated under the portion of the CAA that seeks to improve visibility at national parks.  Eight of these 15 units already have scrubbers and seven do not.  NRG owns two of the affected units, Limestone units 1 and 2, which already have scrubbers.  The rule requires that the Limestone units reduce their SO2 emission rates by 2019.  In July 2016, the U.S. Court of Appeals for the Fifth Circuit stayed the rule pending resolution of the legal challenges.
Illinois Union Insurance Company Litigation — On October 2, 2015, the U.S. District Court for the Middle District of Louisiana issued an order granting LaGen’s motion for summary judgment on its claims for declaratory judgment and breach of contract against ILU for its failure to indemnify LaGen for the costs LaGen paid pursuant to the consent decree that resolved the NSR lawsuit which was brought by the U.S. EPA and LA DEQ against LaGen related to Big Cajun II.  The court entered judgment in favor of LaGen for approximately $27 million.  In addition, the court ruled that LaGen is entitled to approximately $7 million for future consent decree costs as they are incurred.  On October 14, 2015, ILU filed a motion to stay execution of the judgment, which was granted on October 19, 2015.  Also, on October 14, 2015, ILU filed a notice to appeal the judgment. On January 14, 2016, the U.S. District Court granted LaGen's motion for attorney's fees of approximately $2 million for the indemnity phase of the litigation. On January 29, 2016, ILU filed an appeal brief with the U.S. Court of Appeals for the Fifth Circuit.  The Court of Appeals issued a decision on August 4, 2016 which vacated the summary judgment ruling and remanded the case to the U.S. District Court. The remanded case has been set for trial on May 8, 2017.

66




Trends Affecting Results of Operations and Future Business Performance
Wind and Solar Resource Availability

The availability of the wind and solar resources affects the financial performance of the wind and solar facilities, which may impact the Company’s overall financial performance.  Due to the variable nature of the wind and solar resources, the Company cannot predict the availability of the wind and solar resources and the potential variances from expected performance levels from quarter to quarter.  To the extent the wind and solar resources are not available at expected levels, it could have a negative impact on the Company’s financial performance for such periods.
Changes in Accounting Standards
See Note 2, Summary of Significant Accounting Policies, to this Form 10-Q as found in Item 1 for a discussion of recent accounting developments.





67



Significant Events
The following significant events occurred during 2016, as further described within this Management's Discussion and Analysis and the Condensed Consolidated Financial Statements:
Acquisitions
SunEdison Utility-Scale Solar and Wind Acquisition — On September 15, 2016, the Company entered into an agreement with SunEdison to acquire (i) an equity interest in a tax-equity portfolio of 530 MW mechanically-complete solar assets of which NRG’s net interest based on cash to be distributed will be 265 MW, and an additional 937 MW of solar and wind assets in development, (ii) a 154 MW construction-ready solar facility in Texas and (iii) a 182 MW portfolio of construction-ready and development solar assets in Hawaii.  The acquisition of the portfolio of solar assets in Hawaii was completed on October 7, 2016 for upfront cash consideration of $2 million and the acquisition of the 530 MW tax equity portfolio and the 937 MW development assets was completed on November 2, 2016 for upfront cash consideration of $111 million. The Company expects to pay total upfront cash consideration for the three acquisitions of $129 million, with an estimated $59 million in additional payments contingent upon future development milestones.
SunEdison Solar Distributed Generation Acquisition — On October 3, 2016, the Company acquired a 29 MW portfolio of mechanically-complete and construction-ready distributed generation solar assets from SunEdison for cash consideration of approximately $68 million, subject to post closing adjustments.  The Company expects to sell these assets into a tax-equity financed portfolio within the DGPV Holdco partnership between NRG and NRG Yield, Inc.
Dispositions
In the first quarter of 2016, the Company completed the sales of the Seward and Shelby generating stations. On July 12, 2016, the Company sold 100% of its interests in the Rockford generating stations. Also, on July 12, 2016, GenOn completed the sale of the Aurora generating station. The completion of these dispositions resulted in a decrease of 2,205 MW from the Company's generation portfolio.
EVgo — On June 17, 2016, the Company completed the sale of a majority interest in the EVgo business to Vision Ridge Partners, which resulted in a loss of $78 million, for total consideration of approximately $39 million, consisting of $17 million in cash received, which is net of $2.5 million in working capital adjustments, $15 million contributed as capital to the EVgo business by Vision Ridge Partners and $7 million of future contributions by Vision Ridge Partners.
CVSR — On September 1, 2016, the Company sold its remaining 51.05% interest in CVSR Holdco LLC, which indirectly owns the CVSR solar facility, to NRG Yield, Inc. for total cash consideration of $78.5 million, plus an immaterial working capital adjustment. NRG Yield, Inc. also assumed $496 million of non-recourse project debt as of the closing date.
Potrero Real Property — On September 26, 2016, the Company completed its sale of real property at the Potrero site for net cash proceeds of $74 million.
Financing Activities
Senior Notes Issuances and Repurchases — On May 23, 2016, NRG issued $1.0 billion in aggregate principal amount at par of 7.25% senior notes due 2026, or the 2026 Senior Notes. On August 2, 2016, NRG issued $1.25 billion in aggregate principal amount at par of 6.625% senior notes due 2027, or the 2027 Senior Notes. The proceeds from the issuance of the 2026 Senior Notes and the 2027 Senior Notes were utilized to redeem a portion of the Senior Notes.
Preferred Stock Repurchase — On June 13, 2016, the Company completed the repurchase from Credit Suisse of 100% of the outstanding shares of its $344.5 million 2.822% preferred stock at a price of $226 million.
Credit Facility Refinancing — On June 30, 2016, the Company completed a refinancing of its Senior Credit Facility, replacing it with the 2016 Senior Credit Facility, as more fully described in Note 8, Debt and Capital Leases, to this Form 10-Q.
NRG Yield Operating Senior Note Offering — On August 18, 2016, NRG Yield Operating LLC issued $350 million of senior unsecured notes, or the NRG Yield Operating 2026 Senior Notes. The senior notes bear interest at 5.00% and mature in 2026.
Thermal Financing On October 31, 2016, NRG Energy Center Minneapolis LLC, a subsidiary of NRG Yield, Inc. received proceeds of $125 million from the issuance of 3.55% Series D notes due October 31, 2031, or the Series D Notes, and entered into a shelf facility for an additional $70 million of notes.

68




Impairments
During the first quarter of 2016, the Company recorded an impairment loss of $140 million on its investment in Petra Nova Parish Holdings.
During the second quarter of 2016, the Company recorded impairment losses on its Rockford generating stations and Mandalay and Ormond Beach operating units, as well as impairments relating to its residential solar business and previously purchased solar panels, totaling $115 million.
During the third quarter of 2016, the Company recorded an additional $8 million in impairments losses related to investments and $8 million in other impairments.
Operational Matters
Sherwin Bankruptcy

The Company's Gregory cogeneration plant provided steam, processed water and a small percentage of its electrical generation to the Corpus Christi Sherwin Alumina plant pursuant to an Energy Service Agreement, or ESA. On January 11, 2016, Sherwin Alumina Company, or Sherwin, filed a voluntary petition with the United States Bankruptcy Court for the Southern District of Texas for relief under Title 11 of the United States Code. Sherwin agreed to pay all owed pre-petition amounts and, post-petition, Sherwin performed its obligations under the ESA through September 2016 when it shut down its operations. On September 28, 2016, Sherwin filed a motion with the Bankruptcy Court to reject the ESA, which includes Gregory's lease, effective September 29, 2016. Gregory objected to the rejection and is asserting its right to remain on its leasehold. The Company is currently evaluating potential options for the Gregory cogeneration plant.
Cottonwood Flooding
During March 2016, NRG's Cottonwood generating station was damaged by record flooding of the nearby Sabine River.  The generating station was returned to service in the third quarter of 2016.  The Company expects the restoration costs to be reimbursed through insurance recoveries, except for the $5 million deductible. Through September 30, 2016, NRG has expensed $5 million and collected $27.5 million of insurance proceeds from property damage and is continuing to work with insurers on further property and business interruption insurance recovery. The Company does not anticipate recognizing additional expenses related to restoration costs.

69




Consolidated Results of Operations
The following table provides selected financial information for the Company:
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions except otherwise noted)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Operating Revenues
 
 
 
 
 
 
 
 
 
 
 
Energy revenue (a)
$
1,443

 
$
1,543

 
$
(100
)
 
$
3,625

 
$
4,450

 
$
(825
)
Capacity revenue (a)
503

 
683

 
(180
)
 
1,535

 
1,729

 
(194
)
Retail revenue
1,974


2,062

 
(88
)
 
4,858

 
5,369

 
(511
)
Mark-to-market for economic hedging activities
(79
)

35

 
(114
)
 
(592
)
 
(165
)
 
(427
)
Contract amortization
(12
)
 
(8
)
 
(4
)
 
(41
)
 
(28
)
 
(13
)
Other revenues (b)
123

 
119

 
4

 
434

 
308

 
126

Total operating revenues
3,952

 
4,434

 
(482
)
 
9,819

 
11,663

 
(1,844
)
Operating Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales (c)
2,110

 
2,360

 
(250
)
 
5,132

 
6,282

 
(1,150
)
Mark-to-market for economic hedging activities
105

 
42

 
63

 
(344
)
 
123

 
(467
)
Contract and emissions credit amortization (c)
3

 
7

 
(4
)
 
6

 
11

 
(5
)
Operations and maintenance
485

 
510

 
(25
)
 
1,642

 
1,782

 
(140
)
Other cost of operations
90

 
123

 
(33
)
 
302

 
353

 
(51
)
Total cost of operations
2,793

 
3,042

 
(249
)
 
6,738

 
8,551

 
(1,813
)
Depreciation and amortization
357

 
382

 
(25
)
 
979

 
1,173

 
(194
)
Impairment losses
8

 
263

 
(255
)
 
123

 
263

 
(140
)
Selling and marketing
107

 
138

 
(31
)
 
291

 
364

 
(73
)
General and administrative
175

 
189

 
(14
)
 
511

 
514

 
(3
)
Acquisition-related transaction and integration costs

 
3

 
(3
)
 
7

 
16

 
(9
)
Development activity expenses
23

 
38

 
(15
)
 
67

 
109

 
(42
)
Total operating costs and expenses
3,463

 
4,055

 
(592
)
 
8,716


10,990

 
(2,274
)
Gain on sale of assets and postretirement benefits curtailment
266

 

 
266

 
215

 
14

 
201

Operating Income
755

 
379

 
376

 
1,318

 
687

 
631

Other Income/(Expense)
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
16

 
24

 
(8
)
 
13

 
29

 
(16
)
Impairment loss on investment
(8
)
 

 
(8
)
 
(147
)
 

 
(147
)
Other income, net
9

 
4

 
5

 
35

 
27

 
8

Loss on debt extinguishment
(50
)
 
(2
)
 
(48
)
 
(119
)
 
(9
)
 
(110
)
Interest expense
(280
)
 
(291
)
 
11

 
(841
)
 
(855
)
 
14

Total other expense
(313
)
 
(265
)
 
(48
)
 
(1,059
)
 
(808
)
 
(251
)
Income/(Loss) before Income Taxes
442

 
114

 
328

 
259

 
(121
)
 
380

Income tax expense/(benefit)
49

 
47

 
2

 
95

 
(43
)
 
138

Net Income/(Loss)
393

 
67

 
326

 
164

 
(78
)
 
242

Less: Net (loss)/income attributable to noncontrolling interest and redeemable noncontrolling interest
(9
)
 
1

 
(10
)
 
(49
)
 
(10
)
 
(39
)
Net Income/(Loss) Attributable to NRG Energy, Inc.
$
402

 
$
66

 
$
336

 
$
213

 
$
(68
)
 
$
281

Business Metrics
 
 
 
 


 
 
 
 
 
 
Average natural gas price — Henry Hub ($/MMBtu)
$
2.81

 
$
2.77

 
1
%
 
$
2.29

 
$
2.80

 
(18
)%
(a) Includes realized gains and losses from financially settled transactions.
(b) Includes unrealized trading gains and losses.
(c) Includes amortization of SO2 and NOx credits and excludes amortization of RGGI credits.
    

70



Management’s discussion of the results of operations for the three months ended September 30, 2016, and 2015
Income before income taxes — The pre-tax income of $442 million for the three months ended September 30, 2016, compared to pre-tax income of $114 million for the three months ended September 30, 2015, primarily reflects:
a decrease of $440 million in other operating costs comprised of operations and maintenance expense, other costs of operations, depreciation and amortization, selling and marketing expense, general and administrative expense, acquisition-related transaction and integration costs, development activity expense, and gain on sale of assets;
a decrease of $247 million in impairment losses;
partially offset by:
an increase of $40 million in other expenses, primarily relating to loss on debt extinguishment; and
a decrease in gross margin of $319 million comprised of a decrease in Retail Mass gross margin of $245 million and a decrease in Generation gross margin of $107 million, partially offset by an increase in NRG Yield gross margin of $18 million and an increase in Renewables gross margin of $15 million.
Net Income — The increase in net income of $326 million primarily reflects the drivers discussed above, including an income tax expense of $49 million for the three months ended September 30, 2016, compared to an income tax expense of $47 million in the comparable period in 2015.
Electricity Prices
The following table summarizes average on-peak power prices for each of the major markets in which NRG operates for the three months ended September 30, 2016 and 2015. The average on-peak power price decreases in certain markets are primarily due to the decrease in natural gas prices for the three months ended September 30, 2016 as compared to the same period in 2015.  The average on-peak power price increases in certain markets are primarily due to the increase in market heat rates for the three months ended September 30, 2016 as compared to the same period in 2015.

 
Average on Peak Power Price ($/MWh) (a)
 
Three months ended September 30,
Region
2016
 
2015
 
Change %
Gulf Coast (b)
 
 
 
 
 
ERCOT - Houston
$
33.12

 
$
34.87

 
(5
)%
ERCOT - North
30.47

 
35.22

 
(13
)%
MISO - Louisiana Hub
39.92

 
35.03

 
14
 %
East
 
 
 
 

    NY J/NYC
42.60

 
41.32

 
3
 %
    NY A/West NY
46.22

 
40.68

 
14
 %
    NEPOOL
42.40

 
42.68

 
(1
)%
    PEPCO (PJM)
42.60

 
42.62

 
 %
    PJM West Hub
38.89

 
39.35

 
(1
)%
West
 
 
 
 

CAISO - NP15
38.23

 
37.20

 
3
 %
CAISO - SP15
40.43

 
38.20

 
6
 %
(a) Average on peak power prices based on real time settlement prices as published by the respective ISOs.
(b) Gulf Coast region also transacts in PJM - West Hub.

The following table summarizes average realized power prices for each region in which NRG operates for the three months ended September 30, 2016, and 2015, which reflects the impact of settled hedges.
 
Average Realized Power Price ($/MWh)
 
Three months ended September 30,
Region
2016
 
2015
 
Change %
Gulf Coast
$
38.96

 
$
42.65

 
(9
)%
East
54.36

 
44.62

 
22
 %
West
43.30

 
45.34

 
(4
)%

71



Though the average on peak power prices have increased on average by 2%, average realized prices by region for the Company have either increased or decreased at a slower rate year-over-year due to the Company's multi-year hedging program and the success of the Company's commercial operations team that optimizes the value of the assets on a daily basis.

Gross Margin
The Company calculates gross margin in order to evaluate operating performance as operating revenues less cost of sales, which includes cost of fuel, other costs of sales, contract and emission credit amortization and mark-to-market for economic hedging activities.
Economic Gross Margin
In addition to gross margin, the Company evaluates its operating performance using the measure of economic gross margin, which is not a GAAP measure and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report. Economic gross margin should be viewed as a supplement to and not a substitute for the Company's presentation of gross margin, which is the most directly comparable GAAP measure. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as the sum of energy revenue, capacity revenue and other revenue, less cost of fuels and other cost of sales.
The economic gross margin does not include mark-to-market gains or losses on economic hedging activities, contract amortization, emission credit amortization, or other operating costs.
The below tables present the composition and reconciliation of gross margin and economic gross margin for the three months ended September 30, 2016 and 2015:

72



 
Three months ended September 30, 2016
 
Generation
 
 
 
 
 
 
 
 
 
 
(In millions)
Gulf Coast
 
East
 
West
 
International
 
Business Solutions
 
Eliminations
 
Subtotal
 
Retail Mass
 
Renewables
 
NRG Yield
 
Eliminations/Corporate
 
Total
Energy revenue
$
679

 
$
741

 
$
86

 
$

 
$
1

 
$
(21
)
 
$
1,486

 
$

 
$
126

 
$
158

 
$
(327
)
 
$
1,443

Capacity revenue
72

 
243

 
59

 

 
45

 

 
419

 

 

 
86

 
(2
)
 
503

Retail revenue

 

 

 

 
343

 

 
343

 
1,618

 

 

 
13

 
1,974

Mark-to-market for economic hedging activities
179

 
(94
)
 
9

 

 
2

 
(32
)
 
64

 

 
1

 

 
(144
)
 
(79
)
Contract amortization
4

 

 

 

 

 

 
4

 
1

 

 
(17
)
 

 
(12
)
Other revenue
53

 
18

 
2

 
1

 
4

 
(4
)
 
74

 

 
13

 
45

 
(9
)
 
123

Operating revenue
987

 
908

 
156

 
1

 
395

 
(57
)
 
2,390

 
1,619

 
140

 
272

 
(469
)
 
3,952

Cost of fuel
(339
)
 
(358
)
 
(50
)
 

 

 

 
(747
)
 
(1
)
 
(1
)
 
(7
)
 

 
(756
)
Other cost of sales(a)
(115
)
 
(94
)
 
(10
)
 

 
(331
)
 
21

 
(529
)
 
(1,155
)
 

 
(11
)
 
341

 
(1,354
)
Mark-to-market for economic hedging activities
28

 
56

 
(6
)
 

 
(119
)
 
32

 
(9
)
 
(240
)
 

 

 
144

 
(105
)
Contract and emission credit amortization
(6
)
 
6

 

 

 
(2
)
 

 
(2
)
 

 

 

 
(1
)
 
(3
)
Gross margin
$
555

 
$
518


$
90

 
$
1

 
$
(57
)
 
$
(4
)
 
$
1,103

 
$
223

 
$
139

 
$
254

 
$
15

 
$
1,734

Less: Mark-to-market for economic hedging activities, net
207

 
(38
)
 
3

 

 
(117
)
 

 
55

 
(240
)
 
1

 

 

 
(184
)
Less: Contract and emission credit amortization, net
(2
)
 
6

 

 

 
(2
)
 

 
2

 
1

 

 
(17
)
 
(1
)
 
(15
)
Economic gross margin
$
350

 
$
550


$
87


$
1

 
$
62


$
(4
)

$
1,046


$
462


$
138


$
271


$
16


$
1,933

Business Metrics
MWh sold (thousands)(b)(c)
17,430

 
15,544

 
1,986

 
 
 
 
 
 
 
 
 
 
 
978

 
1,744

 
 
 
 
MWh generated (thousands)(d)
15,980

 
13,438

 
1,464

 
 
 
 
 
 
 
 
 
 
 
978

 
2,372

 
 
 
 
Electricity sales volume — GWh
 
 
 
 
 
 
 
 
5,146

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Includes purchased energy, capacity and emissions credits
(b) MWh sold excludes generation at facilities in the East,West and NRG Yield that generate revenue under capacity agreements.
(c) Does not include thermal MWh of 12 thousand or MWt of 496 thousand for thermal sold by NRG Yield.
(d) Does not include thermal MWh of 122 thousand or MWt of 496 thousand for thermal generated by NRG Yield.

73



 
Three months ended September 30, 2015
 
Generation
 
 
 
 
 
 
 
 
 
 
(In millions)
Gulf Coast
 
East
 
West
 
International
 
Business Solutions
 
Eliminations
 
Subtotal
 
Retail Mass
 
Renewables
 
NRG Yield
 
Eliminations/Corporate
 
Total
Energy revenue
$
765

 
$
760

 
$
126

 
$

 
$

 
$

 
$
1,651

 
$

 
$
114

 
$
138

 
$
(360
)
 
$
1,543

Capacity revenue
88

 
364

 
73

 

 
72

 

 
597

 

 

 
89

 
(3
)
 
683

Retail revenue

 

 

 

 
367

 

 
367

 
1,698

 

 

 
(3
)
 
2,062

Mark-to-market for economic hedging activities
18

 
(35
)
 
15

 

 
1

 

 
(1
)
 

 

 
(2
)
 
38

 
35

Contract amortization
4

 

 

 

 

 

 
4

 
1

 
1

 
(14
)
 

 
(8
)
Other revenue
52

 
19

 
2

 
1

 
6

 
(3
)
 
77

 

 
9

 
45

 
(12
)
 
119

Operating revenue
927

 
1,108

 
216

 
1

 
446

 
(3
)
 
2,695

 
1,699

 
124

 
256

 
(340
)
 
4,434

Cost of fuel
(378
)
 
(370
)
 
(75
)
 

 

 

 
(823
)
 
(1
)
 
(1
)
 
(8
)
 

 
(833
)
Other cost of sales(a)
(87
)
 
(145
)
 
(15
)
 

 
(379
)
 

 
(626
)
 
(1,254
)
 
1

 
(12
)
 
364

 
(1,527
)
Mark-to-market for economic hedging activities
13

 
4

 
(7
)
 

 
(38
)
 

 
(28
)
 
24

 

 

 
(38
)
 
(42
)
Contract and emission credit amortization
(7
)
 
5

 
(3
)
 

 
(2
)
 

 
(7
)
 

 

 

 

 
(7
)
Gross margin
$
468

 
$
602

 
$
116

 
$
1

 
$
27

 
$
(3
)
 
$
1,211

 
$
468

 
$
124

 
$
236

 
$
(14
)
 
$
2,025

Less: Mark-to-market for economic hedging activities, net
31

 
(31
)
 
8

 

 
(37
)
 

 
(29
)
 
24

 

 
(2
)
 

 
(7
)
Less: Contract and emission credit amortization, net
(3
)
 
5

 
(3
)
 

 
(2
)
 

 
(3
)
 
1

 
1

 
(14
)
 

 
(15
)
Economic gross margin
$
440

 
$
628

 
$
111

 
$
1

 
$
66

 
$
(3
)
 
$
1,243

 
$
443

 
$
123

 
$
252

 
$
(14
)
 
$
2,047

Business Metrics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MWh sold (thousands)(b)(c)
17,936

 
17,727

 
2,779

 
 
 
 
 
 
 
 
 
 
 
930

 
1,596

 
 
 
 
MWh generated (thousands) (d)
17,283

 
14,118

 
1,964

 
 
 
 
 
 
 
 
 
 
 
930

 
2,553

 
 
 
 
Electricity sales volume — GWh
 
 
 
 
 
 
 
 
5,289

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Includes purchased energy, capacity and emissions credits
(b) MWh sold excludes generation at facilities in the East,West and NRG Yield that generate revenue under capacity agreements.
(c) Does not include thermal MWh of 92 thousand or MWt of 468 thousand for thermal sold by NRG Yield.
(d) Does not include thermal MWh of 92 thousand or MWt of 468 thousand for thermal generated by NRG Yield.
The table below represents the weather metrics for the three months ended September 30, 2016 and 2015:
 
Three months ended September 30,
 
 
 
 
 
 
 
 
Weather Metrics
Gulf Coast
 
East
 
West
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
CDDs (a)
1,655

 
947

 
666

 
 
 
 
 
 
 
 
HDDs (a)

 
32

 
14

 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
CDDs
1,652

 
824

 
772

 
 
 
 
 
 
 
 
HDDs

 
26

 
7

 
 
 
 
 
 
 
 
10 year average
 
 
 
 
 
 
 
 
 
 
 
 
 
CDDs
1,597

 
746

 
631

 
 
 
 
 
 
 
 
HDDs
4

 
76

 
22

 
 
 
 
 
 
 
 
(a)
National Oceanic and Atmospheric Administration-Climate Prediction Center - A Cooling Degree Day, or CDD, represents the number of degrees that the mean temperature for a particular day is above 65 degrees Fahrenheit in each region. A Heating Degree Day, or HDD, represents the number of degrees that the mean temperature for a particular day is below 65 degrees Fahrenheit in each region. The CDDs/HDDs for a period of time are calculated by adding the CDDs/HDDs for each day during the period.


74



Generation gross margin and economic gross margin
The below tables present the changes in Generation gross margin and economic gross margin which include intercompany sales, during the three months ended September 30, 2016, compared to the same period in 2015:
(In millions)
Gross Margin (increase/(decrease))
 
Economic Gross Margin (increase/(decrease))
Gulf Coast region
$
87

 
$
(90
)
East region
(84
)
 
(78
)
West region
(26
)
 
(24
)
Business Solutions
(84
)
 
(4
)
 
$
(107
)
 
$
(196
)

The decrease in Generation gross margin and economic gross margin was driven by:

Gulf Coast Region
 
(In millions)
Lower gross margin due to lower average realized energy prices due to a decline in natural gas prices
$
(41
)
Lower gross margin due to 4% lower coal generation mainly in Texas, which was driven by an increase in unplanned outages and the timing of planned outages
(29
)
Lower gross margin, primarily in South Central due to a 63% decrease in PJM cleared auction capacity prices and a 19% decrease in PJM capacity volumes
(17
)
Other
(3
)
Decrease in economic gross margin
$
(90
)
Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges
176

Increase in contract and emission credit amortization
1

Increase in gross margin
$
87

East Region    
 
(In millions)
Lower gross margin due to a 31% decrease in PJM cleared auction capacity prices, as well as a 9% decrease in PJM capacity volumes due to asset sales partially offset by reduced capacity purchases due to plant deactivations
$
(68
)
Lower gross margin as a result of a 7% decrease in average realized energy prices due to a decline in natural gas prices in 2016 coupled with a 5% decrease in generation volume primarily due to the sale of the Seward generating station
(66
)
Lower gross margin driven primarily by a 12% decrease in New York and New England capacity prices as well as the expiration of the Dunkirk RSS contract, and a 3% decrease in capacity volume related to the retirement of Huntley
(31
)
Lower gross margin due to lower load contracted volumes and expiration of contracts
(13
)
Higher gross margin due to the closure and financial settlement of hedge positions with a counterparty that would have otherwise been realized in 2017, 2018, and 2019
98

Higher gross margin due to commercial optimization activities and other
2

Decrease in economic gross margin
$
(78
)
Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges
(7
)
Increase in contract and emission credit amortization
1

Decrease in gross margin
$
(84
)

75




West Region
 
(In millions)
Lower gross margin resulting from a 15% decrease in capacity volumes, and a 5% decrease in capacity prices due to higher reserve margins driven by more competition in certain areas
$
(14
)
Lower gross margin resulting from a 29% decrease in generation due to plant retirements, forced outages
 and a 5% decrease in average realized energy prices
(11
)
Other
1

Decrease in economic gross margin
$
(24
)
Decrease in mark-to-market for economic hedging activities driven by a decrease in the value of open positions
(5
)
Increase in contract and emission credit amortization
3

Decrease in gross margin
$
(26
)

Business Solutions
 
(In millions)
Lower gross margin from the demand response business in 2016 due to lower commitments and pricing in PJM and New York capacity markets
$
(6
)
Higher gross margin driven by lower supply costs
2

Decrease in economic gross margin
$
(4
)
Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges
(80
)
Decrease in gross margin
$
(84
)


76



Retail Mass gross margin and economic gross margin
The following is a discussion of gross margin and economic gross margin for Retail Mass.
 
Three months ended September 30,
(In millions except otherwise noted)
2016
 
2015
Retail Mass revenue
$
1,571

 
$
1,649

Supply management revenue
47

 
49

Contract amortization
1

 
1

Operating revenue (a)
1,619

 
1,699

Cost of sales (b)
(1,156
)
 
(1,255
)
Mark-to-market for economic hedging activities
(240
)
 
24

Gross Margin
$
223

 
$
468

Less: Mark-to-market for economic hedging activities, net
(240
)
 
24

Less: Contract and emission credit amortization, net
1

 
1

Economic Gross Margin
$
462

 
$
443

 
 
 
 
Business Metrics
 
 
 
Electricity sales volume — GWh - Gulf Coast
11,996

 
11,585

Electricity sales volume — GWh - All other regions
1,986

 
2,099

Average Retail Mass customer count (in thousands) (c)
2,786

 
2,767

Ending Retail Mass customer count (in thousands) (c)
2,797

 
2,762

(a)
Includes intercompany sales of $0 million and $2 million in 2016 and 2015, respectively, representing sales from Retail Mass to the Gulf Coast region.
(b)
Includes intercompany purchases of $333 million and $348 million in 2016 and 2015.
(c)
Includes Retail Mass Recurring Customers and excludes Discrete Customers.

Retail Mass gross margin decreased $245 million and economic gross margin increased $19 million for the three months ended September 30, 2016, compared to the same period in 2015, due to:
 
(In millions)
Higher gross margin from an increase in load served of 482,000 MWhs due to warmer summer weather in 2016 as compared to 2015
$
14

Higher gross margin due to lower supply costs of $120 million or approximately $9 per MWh driven by a decrease in natural gas prices, partially offset by lower rates to customers of $115 million or $9 per MWh
5

Increase in economic gross margin
$
19

Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges
(264
)
Decrease in gross margin
$
(245
)

Renewables gross margin and economic gross margin
Renewables gross margin increased $15 million and economic gross margin increased $15 million for the three months ended September 30, 2016, compared to the same period in 2015, primarily driven by a 23% increase in generation at the Ivanpah solar plant and generation from the Guam solar plant that reached COD in the third quarter of 2015.
NRG Yield gross margin and economic gross margin
NRG Yield gross margin increased $18 million and economic gross margin increased $19 million for the three months ended September 30, 2016, compared to the same period in 2015, primarily related to a 24% increase in volume generated at Alta I-V wind projects, as well as 5% increase in solar generation, primarily at CVSR.



77



Mark-to-market for Economic Hedging Activities
Mark-to-market for economic hedging activities includes asset-backed hedges that have not been designated as cash flow hedges and ineffectiveness on cash flow hedges. Total net mark-to-market results decreased by $177 million during the three months ended September 30, 2016, compared to the same period in 2015.
The breakdown of gains and losses included in operating revenues and operating costs and expenses by region was as follows:
 
Three months ended September 30, 2016
 
 
 
Generation
 
 
 
 
 
 
 
Retail Mass
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
Renewables
 
Elimination(a)
 
Total
 
(In millions)
Mark-to-market results in operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges
$

 
$
8

 
$
(30
)
 
$
(3
)
 
$

 
$

 
$
(78
)
 
$
(103
)
Reversal of acquired gain positions related to economic hedges

 

 
(13
)
 

 

 

 

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

 
171

 
(51
)
 
12

 
2

 
1

 
(98
)
 
37

Total mark-to-market gains/(losses) in operating revenues
$

 
$
179

 
$
(94
)
 
$
9

 
$
2

 
$
1

 
$
(176
)
 
$
(79
)
Mark-to-market results in operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges
$
(39
)
 
$
7

 
$
20

 
$

 
$
(7
)
 
$

 
$
78

 
$
59

Reversal of acquired gain positions related to economic hedges

 

 

 
(5
)
 
(1
)
 

 

 
(6
)
Net unrealized (losses)/gains on open positions related to economic hedges
(201
)
 
21

 
36

 
(1
)
 
(111
)
 

 
98

 
(158
)
Total mark-to-market (losses)/gains in operating costs and expenses
$
(240
)
 
$
28

 
$
56

 
$
(6
)
 
$
(119
)
 
$

 
$
176

 
$
(105
)
(a)
Represents the elimination of the intercompany activity between Retail Mass and Generation.

78



 
Three months ended September 30, 2015
 
 
 
Generation
 
 
 
 
 
 
 
 
 
Retail Mass
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
Renewables
 
NRG Yield
 
Elimination(a)
 
Total
 
(In millions)
Mark-to-market results in operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges
$

 
$
(1
)
 
$
(24
)
 
$
3

 
$

 
$
(1
)
 
$

 
$
74

 
$
51

Reversal of acquired gain positions related to economic hedges

 

 
(19
)
 

 

 

 

 

 
(19
)
Net unrealized gains/(losses) on open positions related to economic hedges

 
19

 
8

 
12

 
1

 

 
(1
)
 
(36
)
 
3

Total mark-to-market gains/(losses) in operating revenues
$

 
$
18

 
$
(35
)
 
$
15

 
$
1

 
$
(1
)
 
$
(1
)
 
$
38

 
$
35

Mark-to-market results in operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges
$
(15
)
 
$
9

 
$
4

 
$

 
$
(4
)
 
$

 
$

 
$
(74
)
 
$
(80
)
Reversal of acquired gain positions related to economic hedges
(4
)
 

 

 
(8
)
 
(2
)
 

 

 

 
(14
)
Net unrealized gains/(losses) on open positions related to economic hedges
43

 
4

 

 
1

 
(32
)
 

 

 
36

 
52

Total mark-to-market gains/(losses) in operating costs and expenses
$
24

 
$
13

 
$
4

 
$
(7
)
 
$
(38
)
 
$

 
$

 
$
(38
)
 
$
(42
)
(a)
Represents the elimination of the intercompany activity between Retail Mass, Generation, and NRG Yield.
Mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled. The settlement of these transactions is reflected in the same revenue or cost caption as the items being hedged.
The reversals of acquired gain or loss positions were valued based upon the forward prices on the acquisition date.
For the three months ended September 30, 2016, the $79 million loss in operating revenues from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period and the reversal of acquired contracts, partially offset by an increase in value of open positions as a result of decreases in gas and electricity prices. The $105 million loss in operating costs and expenses from economic hedge positions was driven primarily by a decrease in value of open positions as a result of decreases in natural gas and ERCOT electricity prices, partially offset by the reversal of previously recognized unrealized losses on contracts that settled during the period.
For the three months ended September 30, 2015, the $35 million gain in operating revenues from economic hedge positions was driven primarily by the reversal of previously recognized unrealized losses on contracts that settled during the period, partially offset by the reversal of acquired contracts. The $42 million loss in operating costs and expenses from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period and the reversal of acquired contracts, partially offset by an increase in value of open positions as a result of increases in ERCOT heat rate.
In accordance with ASC 815, the following table represents the results of the Company's financial and physical trading of energy commodities for the three months ended September 30, 2016, and 2015. The realized and unrealized financial and physical trading results are included in operating revenue. The Company's trading activities are subject to limits within the Company's Risk Management Policy and are primarily transacted through BETM.
 
Three months ended September 30,
(In millions)
2016
 
2015
Trading gains/(losses)
 
 
 
Realized
$
20

 
$
(1
)
Unrealized
(5
)
 
(1
)
Total trading gains/(losses)
$
15

 
$
(2
)
In addition, trading activities reflect an increase in gross margin of $18 million, reflected in the Corporate segment, for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015.

79



Operations and Maintenance Expense
 
Generation
 
Retail Mass
 
Renewables
 
NRG Yield
 
Corporate
 
 
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
 
 
 
 
Total
 
(In millions)
Three months ended September 30, 2016
$
143

 
$
190

 
$
34

 
$
5

 
$
54

 
$
19

 
$
36

 
$
4

 
$
485

Three months ended September 30, 2015
128

 
223

 
29

 
6

 
50

 
39

 
38

 
(3
)
 
510

Operations and maintenance expense decreased by $25 million for the three months ended September 30, 2016, compared to the same period in 2015, due to the following:
 
(In millions)
Decrease in East operating costs due to the sale of the Seward and Shelby generating stations in 2016
$
(17
)
Decrease in East operations and maintenance expense due to deactivations of the Huntley and Dunkirk facilities
(17
)
Increase in Gulf Coast operations and maintenance expense primarily related to the timing of outages at Cottonwood
14

Other
(5
)
 
$
(25
)
Other Cost of Operations
Other cost of operations, comprised of asset retirement expense, insurance expense and property and other tax expense, decreased by $33 million for the three months ended September 30, 2016, compared to the same period in 2015, primarily due to a reduction in property tax expense for Chalk Point and Dickerson.
Depreciation and Amortization
 
Generation
 
Retail Mass
 
Renewables
 
NRG Yield
 
Corporate
 
 
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
 
 
 
 
Total
 
(In millions)
Three months ended September 30, 2016
$
125

 
$
50

 
$
16

 
$
2

 
$
25

 
$
48

 
$
75

 
$
16

 
$
357

Three months ended September 30, 2015
143

 
63

 
11

 
3

 
30

 
46

 
69

 
17

 
382

Depreciation and amortization expense decreased by $25 million for the three months ended September 30, 2016, compared to the same period in 2015, due to a decrease in depreciation expense for facilities impaired at the end of 2015 and asset sales during 2016.
Selling, Marketing, General and Administrative Expenses
Selling, marketing, general and administrative expenses are comprised of the following:
 
Generation
 
Retail Mass(b)
 
Renewables(c)
 
NRG Yield
 
Corporate(d)
 
 
 
Gulf Coast
 
East
 
West
 
Business Solutions(a)
 
 
 
 
 
Total
 
(In millions)
Three months ended September 30, 2016
$
31

 
$
43

 
$
7

 
$
20

 
$
118

 
$
12

 
$
4

 
$
47

 
$
282

Three months ended September 30, 2015
41

 
53

 
11

 
22

 
116

 
16

 
3

 
65

 
327

(a) Includes selling and marketing expense of $11 million for three months ended September 30, 2016 and 2015.
(b) Includes selling and marketing expense of $77 million and $75 million for the three months ended September 30, 2016 and 2015.
(c) Includes selling and marketing expense of $1 million and $2 million for the three months ended September 30, 2016 and 2015.
(d) Includes selling and marketing expense of $17 million and $49 million for the three months ended September 30, 2016 and 2015.

Selling, marketing, general and administrative expenses decreased by $45 million for the three months ended September 30, 2016, compared to the same period in 2015, due primarily to the Company's continued focus on cost management in 2016.


80



Development Activity Expenses
Development activity expenses decreased by $15 million for the three months ended September 30, 2016, compared to the same period in 2015, due to the strategic move for a more focused development program primarily related to Renewables and other corporate initiatives and the sale of EVgo in June 2016.
Gain on Sale of Assets
During the three months ended September 30, 2016, the Company recognized a $266 million gain on sale of assets related to the sale of the Aurora generating station and real property at our Potrero location, as described in Note 3, Business Acquisitions and Dispositions.
Loss on Debt Extinguishment
A loss on debt extinguishment of $50 million was recorded for the three months ended September 30, 2016, primarily driven by the repurchase of NRG Senior Notes at a price above par value, combined with the write-off of unamortized debt issuance costs.
Interest Expense
NRG's interest expense decreased by $11 million for the three months ended September 30, 2016, compared to the same period in 2015 due to the following:
 
(In millions)
Decrease due to the redemption of outstanding bonds related to NRG Peakers Finance Company
$
(8
)
Decrease due to the repurchases of Senior Notes at the end of 2015 and first three quarters of 2016
(3
)
Increase in derivative interest expense from changes in fair value of interest rate swaps
3

Increase due to $200 million of debt issued by CVSR Holdco in August 2016
2

Other
(5
)
 
$
(11
)
Income Tax Expense
For the three months ended September 30, 2016, NRG recorded an income tax expense of $49 million on pre-tax income of $442 million. For the same period in 2015, NRG recorded an income tax expense of $47 million on pre-tax income of $114 million. The effective tax rate was 11.1% and 41.2% for the three months ended September 30, 2016, and 2015, respectively.
For the three months ended September 30, 2016, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the change in valuation allowance, partially offset by state tax expense and tax expense attributable to consolidated partnerships.
For the three months ended September 30, 2015, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to non-deductible impairment of goodwill, partially offset by production tax credits generated from our wind assets.
Net (loss)/ income attributable to noncontrolling interests and redeemable noncontrolling interests
For the three months ended September 30, 2016, and 2015, net (loss)/income attributable to noncontrolling interests and redeemable noncontrolling interests primarily reflects net losses allocated to tax equity investors in tax equity arrangements using the hypothetical liquidation at book value, or HLBV, method, offset by NRG Yield, Inc.'s share of net income.

81



Management’s discussion of the results of operations for the nine months ended September 30, 2016, and 2015
Income before income taxes — The pre-tax income of $259 million for the nine months ended September 30, 2016, compared to pre-tax loss of $121 million for the nine months ended September 30, 2015, primarily reflects:
a decrease of $815 million in other operating costs comprised of operations and maintenance expense, other costs of operations, depreciation and amortization, selling and marketing expense, general and administrative expense, acquisition-related transaction and integration costs, development activity expense, and gain on sale of assets;
partially offset by:
an increase of $104 million in other expenses, primarily relating to loss on debt extinguishment; and
a decrease in gross margin of $324 million comprised of a decrease in Generation gross margin of $472 million, partially offset by an increase in NRG Yield gross margin of $64 million, an increase in Retail Mass gross margin of $51 million, and an increase in Renewables gross margin of $33 million.
Net Income — The increase in net income of $242 million primarily reflects the drivers discussed above, including an income tax expense of $95 million for the nine months ended September 30, 2016, compared to an income tax benefit of $43 million in the comparable period in 2015.
Electricity Prices
The following table summarizes average on-peak power prices for each of the major markets in which NRG operates for the nine months ended September 30, 2016, and 2015. Average on-peak power prices decreased primarily due to the decrease in natural gas prices for the nine months ended September 30, 2016 as compared to the same period in 2015.
 
Average on Peak Power Price ($/MWh) (a)
 
Nine months ended September 30,
Region
2016
 
2015
 
Change %
Gulf Coast (b)
 
 
 
 
 
ERCOT - Houston
$
25.97

 
$
29.77

 
(13
)%
ERCOT - North
24.14

 
29.85

 
(19
)%
MISO - Louisiana Hub
33.50

 
37.14

 
(10
)%
East
 
 
 
 

    NY J/NYC
35.07

 
52.51

 
(33
)%
    NY A/West NY
37.37

 
44.46

 
(16
)%
    NEPOOL
33.82

 
53.31

 
(37
)%
    PEPCO (PJM)
38.16

 
49.52

 
(23
)%
    PJM West Hub
33.97

 
45.33

 
(25
)%
West
 
 
 
 

CAISO - NP15
29.42

 
37.01

 
(21
)%
CAISO - SP15
30.29

 
32.86

 
(8
)%
(a) Average on peak power prices based on real time settlement prices as published by the respective ISOs.
(b) Gulf Coast region also transacts in PJM - West Hub.

The following table summarizes average realized power prices for each region in which NRG operates for the nine months ended September 30, 2016, and 2015, which reflects the impact of settled hedges.
 
Average Realized Power Price ($/MWh)
 
Nine months ended September 30,
Region
2016
 
2015
 
Change %
Gulf Coast
$
38.54

 
$
41.57

 
(7
)%
East
57.85

 
51.93

 
11
 %
West
39.17

 
44.29

 
(12
)%
Though the average on peak power prices have decreased on average by 22%, average realized prices by region for the Company have either increased or decreased at a slower rate year-over-year due to the Company's multi-year hedging program and the success of the Company's commercial operations team that optimizes the value of the assets on a daily basis.


82




Gross Margin
The Company calculates gross margin in order to evaluate operating performance as operating revenues less cost of sales, which includes cost of fuel, other costs of sales, contract and emission credit amortization and mark-to-market for economic hedging activities.
Economic Gross Margin
In addition to gross margin, the Company evaluates its operating performance using the measure of economic gross margin, which is not a GAAP measure and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report. Economic gross margin should be viewed as a supplement to and not a substitute for the Company's presentation of gross margin, which is the most directly comparable GAAP measure. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as the sum of energy revenue, capacity revenue and other revenue, less cost of fuels and other cost of sales.
The economic gross margin does not include mark-to-market gains or losses on economic hedging activities, contract amortization, emission credit amortization, or other operating costs.
The below tables present the composition and reconciliation of gross margin and economic gross margin for the nine months ended September 30, 2016 and 2015:

83



 
Nine months ended September 30, 2016
 
Generation
 
 
 
 
 
 
 
 
 
 
(In millions)
Gulf Coast
 
East
 
West
 
International
 
Business Solutions
 
Eliminations
 
Subtotal
 
Retail Mass
 
Renewables
 
NRG Yield
 
Eliminations/Corporate
 
Total
Energy revenue
$
1,676

 
$
1,743

 
$
160

 
$

 
$
1

 
$
(21
)
 
$
3,559

 
$

 
$
303

 
$
459

 
$
(696
)
 
$
3,625

Capacity revenue
222

 
861

 
140

 

 
74

 

 
1,297

 

 

 
256

 
(18
)
 
1,535

Retail revenue

 

 

 

 
966

 

 
966

 
3,868

 

 

 
24

 
4,858

Mark-to-market for economic hedging activities
(270
)
 
(239
)
 
(2
)
 

 

 
(32
)
 
(543
)
 

 

 

 
(49
)
 
(592
)
Contract amortization
11

 

 

 

 

 

 
11

 

 
(1
)
 
(51
)
 

 
(41
)
Other revenue
191

 
58

 
58

 
2

 
12

 
(12
)
 
309

 

 
33

 
125

 
(33
)
 
434

Operating revenue
1,830

 
2,423

 
356

 
2

 
1,053

 
(65
)
 
5,599

 
3,868

 
335

 
789

 
(772
)
 
9,819

Cost of fuel
(770
)
 
(774
)
 
(90
)
 

 

 

 
(1,634
)
 
(5
)
 
(3
)
 
(25
)
 

 
(1,667
)
Other cost of sales(a)
(312
)
 
(296
)
 
(21
)
 

 
(924
)
 
21

 
(1,532
)
 
(2,706
)
 

 
(23
)
 
796

 
(3,465
)
Mark-to-market for economic hedging activities
62

 
64

 
(13
)
 

 
50

 
32

 
195

 
100

 

 

 
49

 
344

Contract and emission credit amortization
(16
)
 
16

 
3

 

 
(5
)
 

 
(2
)
 

 

 
(6
)
 
2

 
(6
)
Gross margin
$
794

 
$
1,433

 
$
235

 
$
2

 
$
174

 
$
(12
)
 
$
2,626

 
$
1,257

 
$
332

 
$
735

 
$
75

 
$
5,025

Less: Mark-to-market for economic hedging activities, net
(208
)
 
(175
)
 
(15
)
 

 
50

 

 
(348
)
 
100

 

 

 

 
(248
)
Less: Contract and emission credit amortization, net
(5
)
 
16

 
3

 

 
(5
)
 

 
9

 

 
(1
)
 
(57
)
 
2

 
(47
)
Economic gross margin
$
1,007

 
$
1,592

 
$
247

 
$
2

 
$
129

 
$
(12
)
 
$
2,965

 
$
1,157

 
$
333

 
$
792

 
$
73

 
$
5,320

Business Metrics
MWh sold (thousands)(b)(c)
43,491

 
35,681

 
4,085

 
 
 
 
 
 
 
 
 
 
 
2,968

 
5,563

 
 
 
 
MWh generated (thousands) (d)
39,516

 
29,060

 
3,265

 
 
 
 
 
 
 
 
 
 
 
2,968

 
6,828

 
 
 
 
Electricity sales volume — GWh
 
 
 
 
 
 
 
 
14,357

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Includes purchased energy, capacity and emissions credits
(b) MWh sold excludes generation at facilities in the East,West and NRG Yield that generate revenue under capacity agreements.
(c) Does not include thermal MWh of 61 thousand or MWt of 1,497 thousand for thermal sold by NRG Yield.
(d) Does not include thermal MWh of 245 thousand or MWt of 1,497 thousand for thermal generated by NRG Yield.

84



 
Nine months ended September 30, 2015
 
Generation
 
 
 
 
 
 
 
 
 
 
(In millions)
Gulf Coast
 
East
 
West
 
International
 
Business Solutions
 
Eliminations
 
Subtotal
 
Retail Mass
 
Renewables
 
NRG Yield
 
Eliminations/Corporate
 
Total
Energy revenue
$
2,015

 
$
2,448

 
$
196

 
$

 
$

 
$

 
$
4,659

 
$

 
$
281

 
$
381

 
$
(871
)
 
$
4,450

Capacity revenue
209

 
1,009

 
162

 

 
107

 

 
1,487

 

 

 
252

 
(10
)
 
1,729

Retail revenue

 

 

 

 
1,059

 

 
1,059

 
4,308

 

 

 
2

 
5,369

Mark-to-market for economic hedging activities
31

 
(174
)
 
10

 

 
4

 

 
(129
)
 

 
(2
)
 
1

 
(35
)
 
(165
)
Contract amortization
12

 

 

 

 

 

 
12

 

 

 
(40
)
 

 
(28
)
Other revenue
162

 
61

 
8

 
3

 
13

 
(10
)
 
237

 

 
26

 
135

 
(90
)
 
308

Operating revenue
2,429

 
3,344

 
376

 
3

 
1,183

 
(10
)
 
7,325

 
4,308

 
305

 
729

 
(1,004
)
 
11,663

Cost of fuel
(987
)
 
(1,217
)
 
(118
)
 

 

 

 
(2,322
)
 
(6
)
 
(3
)
 
(34
)
 
7

 
(2,358
)
Other cost of sales(a)
(249
)
 
(384
)
 
(24
)
 

 
(1,044
)
 

 
(1,701
)
 
(3,130
)
 
(3
)
 
(24
)
 
934

 
(3,924
)
Mark-to-market for economic hedging activities
(11
)
 
(79
)
 
(15
)
 

 
(87
)
 

 
(192
)
 
34

 

 

 
35

 
(123
)
Contract and emission credit amortization
(18
)
 
13

 

 

 
(5
)
 

 
(10
)
 

 

 

 
(1
)
 
(11
)
Gross margin
$
1,164

 
$
1,677

 
$
219

 
$
3

 
$
47

 
$
(10
)
 
$
3,100

 
$
1,206

 
$
299

 
$
671

 
$
(29
)
 
$
5,247

Less: Mark-to-market for economic hedging activities, net
20

 
(253
)
 
(5
)
 

 
(83
)
 

 
(321
)
 
34

 
(2
)
 
1

 

 
(288
)
Less: Contract and emission credit amortization, net
(6
)
 
13

 

 

 
(5
)
 

 
2

 

 

 
(40
)
 
(1
)
 
(39
)
Economic gross margin
$
1,150

 
$
1,917

 
$
224

 
$
3

 
$
135

 
$
(10
)
 
$
3,419

 
$
1,172

 
$
301

 
$
710

 
$
(28
)
 
$
5,574

Business Metrics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MWh sold (thousands)(b)(c)
48,473

 
47,525

 
4,425

 
 
 
 
 
 
 
 
 
 
 
2,790

 
4,813

 
 
 
 
MWh generated (thousands) (d)
46,214

 
39,760

 
3,194

 
 
 
 
 
 
 
 
 
 
 
2,790

 
6,631

 
 
 
 
Electricity sales volume — GWh
 
 
 
 
 
 
 
 
14,771

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Includes purchased energy, capacity and emissions credits
(b) MWh sold excludes generation at facilities in the East,West and NRG Yield that generate revenue under capacity agreements.
(c) Does not include thermal MWh of 219 thousand or MWt of 1,519 thousand for thermal sold by NRG Yield.
(d) Does not include thermal MWh of 219 thousand or MWt of 1,519 thousand for thermal generated by NRG Yield.
The table below represents the weather metrics for the nine months ended September 30, 2016 and 2015:
 
Nine months ended September 30,
 
 
 
 
 
 
 
 
Weather Metrics
Gulf Coast
 
East
 
West
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
CDDs (a)
2,605

 
1,327

 
869

 
 
 
 
 
 
 
 
HDDs (a)
984

 
2,861

 
1,231

 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
CDDs
2,585

 
1,248

 
984

 
 
 
 
 
 
 
 
HDDs
1,332

 
3,451

 
1,135

 
 
 
 
 
 
 
 
10 year average
 
 
 
 
 
 
 
 
 
 
 
 
 
CDDs
2,656

 
1,122

 
804

 
 
 
 
 
 
 
 
HDDs
1,174

 
3,101

 
1,547

 
 
 
 
 
 
 
 
(a)
National Oceanic and Atmospheric Administration-Climate Prediction Center - A Cooling Degree Day, or CDD, represents the number of degrees that the mean temperature for a particular day is above 65 degrees Fahrenheit in each region. A Heating Degree Day, or HDD, represents the number of degrees that the mean temperature for a particular day is below 65 degrees Fahrenheit in each region. The CDDs/HDDs for a period of time are calculated by adding the CDDs/HDDs for each day during the period.


85



Generation gross margin and economic gross margin
The below tables present the changes in Generation gross margin and economic gross margin which include intercompany sales, during the nine months ended September 30, 2016, compared to the same period in 2015:
(In millions)
Gross Margin (increase/(decrease))
 
Economic Gross Margin (increase/(decrease))
Gulf Coast region
$
(370
)
 
$
(143
)
East region
(244
)
 
(325
)
West region
16

 
23

International
(1
)
 
(1
)
Business Solutions
127

 
(6
)
 
$
(472
)
 
$
(452
)

The decrease in Generation gross margin and economic gross margin was driven by:

Gulf Coast Region
 
(In millions)
Lower gross margin primarily due to 20% lower coal generation in Texas, which was driven by lower prices, an increase in unplanned outages and timing of planned outages
$
(106
)
Lower gross margin resulting from lower average realized energy prices due to a decline in natural gas prices
(60
)
Higher gross margin from a 7% increase in nuclear generation driven by reduced planned outages
17

Higher gross margin, primarily in South Central, due to a 56% increase in PJM capacity volumes as more units cleared the 2015/2016 auction
12

Other
(6
)
Decrease in economic gross margin
$
(143
)
Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges
(228
)
Increase in contract and credit amortization
1

Decrease in gross margin
$
(370
)


86



East Region
 
(In millions)
Lower gross margin due to a 21% decrease in generation primarily driven by the environmental control work at Avon Lake and Powerton, fuel conversion projects at Joliet and Shawville facilities and the sale of the Seward, Aurora, Rockford and Shelby generating stations in 2016. In addition, there was a 6% decrease in generation as a result of prior year winter weather conditions and current year planned outages
$
(246
)
Lower gross margin driven by a 14% decrease in capacity volumes due to plant deactivations and asset sales, partially offset by a 1% increase in PJM cleared auction capacity prices
(84
)
Lower gross margin as a result of a 35% decrease in average realized energy prices due to a decline in natural gas prices in 2016
(82
)
Lower gross margin driven primarily by a 4% decrease in New York and New England hedged capacity prices as well as the expiration of the Dunkirk RSS contract, and an 8% decrease in capacity volume related to the retirement of Huntley and certain units at the Astoria facility
(77
)
Lower gross margin as a result of a decrease in ancillary services driven by lower generation in the current year
(22
)
Higher gross margin due to the closure and financial settlement of hedge positions with a counterparty that would have otherwise been realized in the fourth quarter of 2016 and in the years 2017, 2018, and 2019
136

Changes in commercial optimization activities
29

Higher gross margin in 2016 due to a prior year lower cost of market adjustment for oil at Chalk Point and Bowline
11

Higher gross margin due to lower supply cost for servicing the load contracts
10

Decrease in economic gross margin
$
(325
)
Increase in mark-to-market for economic hedging primarily due to reversals of previously recognized unrealized gains/losses on settled positions and unrealized gains/losses on open positions related to economic hedges
78

Increase in contract and credit amortization
3

Decrease in gross margin
$
(244
)
West Region
 
(In millions)
Gain on sale of excess emission credits
$
47

Lower gross margin due to an 11% decrease in capacity volumes, and a 5% decrease in capacity prices due to higher reserve margins driven by more competition in certain areas
(22
)
Lower gross margin resulting from an 8% decrease in generation due to plant retirements and unfavorable market conditions, partially offset by higher availability at the Sunrise power plant, as well as Pittsburg generating station's merchant status due to toll expiration. There was also a 12% decrease in average realized energy prices
(5
)
Other
3

Increase in economic gross margin
$
23

Decrease in mark-to-market for economic hedging activities driven by a decrease in the value of open positions
(10
)
Increase in contract and credit amortization
3

Increase in gross margin
$
16


87



Business Solutions
 
(In millions)
Lower gross margin from the demand response business in 2016 due to lower commitments and pricing in PJM and New York markets
$
(4
)
Lower gross margin in 2016 driven by a 10% decrease in customers
(2
)
Decrease in economic gross margin
$
(6
)
Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges
133

Increase in gross margin
$
127


Retail Mass gross margin and economic gross margin
The following is a discussion of gross margin and economic gross margin for Retail Mass.
 
Nine months ended September 30,
(In millions except otherwise noted)
2016
 
2015
Retail Mass revenue
$
3,769

 
$
4,198

Supply management revenue
99

 
110

Operating revenue (a)
3,868

 
4,308

Cost of sales (b)
(2,711
)
 
(3,136
)
Mark-to-market for economic hedging activities
100

 
34

Gross Margin
$
1,257

 
$
1,206

Less: Mark-to-market for economic hedging activities, net
100

 
34

Economic Gross Margin
$
1,157

 
$
1,172

 
 
 
 
Business Metrics
 
 
 
Electricity sales volume — GWh - Gulf Coast
27,382

 
27,534

Electricity sales volume — GWh - All other regions
5,264

 
6,492

Average Retail Mass customer count (in thousands) (c)
2,770

 
2,785

Ending Retail Mass customer count (in thousands) (c)
2,797

 
2,762

(a)
Includes intercompany sales of $2 million and $4 million in 2016 and 2015, respectively, representing sales from Retail Mass to the Gulf Coast region.
(b)
Includes intercompany purchases of $747 million and $877 million in 2016 and 2015.
(c)
Includes Retail Mass Recurring Customers and excludes Discrete Customers.

Retail Mass gross margin increased $51 million and economic gross margin decreased $15 million for the nine months ended September 30, 2016, compared to the same period in 2015, due to:
 
(In millions)
Lower gross margin from a reduction in load of 604,000 MWhs and unfavorable impacts from selling back excess supply due to milder weather conditions in 2016 as compared to 2015
$
(45
)
Higher gross margin due to lower supply costs of $316 million or approximately $9 per MWh driven by a decrease in natural gas prices, partially offset by lower rates to customer of $281 million or approximately $8 per MWh
35

Lower gross margin due to lower volumes driven by lower average customer counts
(5
)
Decrease in economic gross margin
$
(15
)
Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges
66

Increase in gross margin
$
51



88



Renewables gross margin and economic gross margin
Renewables gross margin increased $33 million and economic gross margin increased $32 million for the nine months ended September 30, 2016, compared to the same period in 2015, primarily driven by an 8% increase in generation at the Ivanpah solar plant and generation from the Guam solar plant that reached COD in the third quarter of 2015.
NRG Yield gross margin and economic gross margin
NRG Yield gross margin increased $64 million and economic gross margin increased $82 million for the nine months ended September 30, 2016, compared the same period in 2015, primarily driven by a 34% increase in volume generated at the Alta I-V wind projects, as well as due to an increase in price per MWh at the Alta X and XI wind projects as the PPAs began in January 2016, compared to merchant prices in 2015.

Mark-to-market for Economic Hedging Activities
Mark-to-market for economic hedging activities includes asset-backed hedges that have not been designated as cash flow hedges and ineffectiveness on cash flow hedges. Total net mark-to-market results increased by $40 million during the nine months ended September 30, 2016, compared to the same period in 2015.
The breakdown of gains and losses included in operating revenues and operating costs and expenses by region was as follows:
 
Nine months ended September 30, 2016
 
 
 
Generation
 
 
 
 
 
 
 
Retail Mass
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
Renewables
 
Elimination(a)
 
Total
 
(In millions)
Mark-to-market results in operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized gains on settled positions related to economic hedges
$

 
$
(260
)
 
$
(239
)
 
$
(4
)
 
$
(1
)
 
$

 
$
(3
)
 
$
(507
)
Reversal of acquired gain positions related to economic hedges

 

 
(37
)
 

 

 

 

 
(37
)
Net unrealized (losses)/gains on open positions related to economic hedges

 
(10
)
 
37

 
2

 
1

 

 
(78
)
 
(48
)
Total mark-to-market (losses)/gains in operating revenues
$

 
$
(270
)
 
$
(239
)
 
$
(2
)
 
$

 
$

 
$
(81
)
 
$
(592
)
Mark-to-market results in operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges
$
128

 
$
26

 
$
80

 
$
(1
)
 
$
89

 
$

 
$
3

 
$
325

Reversal of acquired gain positions related to economic hedges

 

 

 
(10
)
 

 

 

 
(10
)
Net unrealized (losses)/gains on open positions related to economic hedges
(28
)
 
36

 
(16
)
 
(2
)
 
(39
)
 

 
78

 
29

Total mark-to-market gains/(losses) in operating costs and expenses
$
100

 
$
62

 
$
64

 
$
(13
)
 
$
50

 
$

 
$
81

 
$
344

(a)
Represents the elimination of the intercompany activity between Retail Mass and Generation.

89



 
Nine months ended September 30, 2015
 
 
 
Generation
 
 
 
 
 
 
 
 
 
Retail Mass
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
Renewables
 
NRG Yield
 
Elimination(a)
 
Total
 
(In millions)
Mark-to-market results in operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges
$

 
$
(276
)
 
$
(225
)
 
$
5

 
$
(1
)
 
$
(5
)
 
$

 
$
(11
)
 
$
(513
)
Reversal of acquired gain positions related to economic hedges

 

 
(62
)
 

 

 

 

 

 
(62
)
Net unrealized gains/(losses) on open positions related to economic hedges

 
307

 
113

 
5

 
5

 
2

 
2

 
(24
)
 
410

Total mark-to-market gains/(losses) in operating revenues
$

 
$
31

 
$
(174
)
 
$
10

 
$
4

 
$
(3
)
 
$
2

 
$
(35
)
 
$
(165
)
Mark-to-market results in operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges
$
200

 
$
30

 
$
14

 
$
(1
)
 
$
80

 
$

 
$

 
$
11

 
$
334

Reversal of acquired gain positions related to economic hedges
(4
)
 

 

 
(15
)
 
(2
)
 

 

 

 
(21
)
Net unrealized (losses)/gains on open positions related to economic hedges
(162
)
 
(41
)
 
(93
)
 
1

 
(165
)
 

 

 
24

 
(436
)
Total mark-to-market gains/(losses) in operating costs and expenses
$
34

 
$
(11
)
 
$
(79
)
 
$
(15
)
 
$
(87
)
 
$

 
$

 
$
35

 
$
(123
)
(a)
Represents the elimination of the intercompany activity between Retail Mass, Generation, and NRG Yield.
Mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled. The settlement of these transactions is reflected in the same revenue or cost caption as the items being hedged.
The reversals of acquired gain or loss positions were valued based upon the forward prices on the acquisition date.
For the nine months ended September 30, 2016, the $592 million loss in operating revenues from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period and the reversal of acquired contracts. The $344 million gain in operating costs and expenses from economic hedge positions was driven primarily by the reversal of previously recognized unrealized losses on contracts that settled during the period.
For the nine months ended September 30, 2015, the $165 million loss in operating revenues from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period and the reversal of acquired contracts, largely offset by an increase in value of open positions as a result of decreases in ERCOT and PJM electricity and natural gas prices. The $123 million loss in operating costs and expenses from economic hedge positions was driven primarily by a decrease in value of open positions as a result of decreases in ERCOT electricity and coal prices and the reversal of acquired contracts, largely offset by the reversal of previously recognized unrealized losses on contracts that settled during the period.
In accordance with ASC 815, the following table represents the results of the Company's financial and physical trading of energy commodities for the nine months ended September 30, 2016, and 2015. The realized and unrealized financial and physical trading results are included in operating revenue. The Company's trading activities are subject to limits within the Company's Risk Management Policy and are primarily transacted through BETM.
 
Nine months ended September 30,
(In millions)
2016
 
2015
Trading gains/(losses)
 
 
 
Realized
$
67

 
$
49

Unrealized
27

 
(47
)
Total trading gains
$
94

 
$
2

In addition, trading activities reflect an increase in gross margin of $85 million, reflected in the Corporate segment, for the nine months ended September 30, 2016, as compared to the nine months ended September 30, 2015.


90



Operations and Maintenance Expense
 
Generation
 
Retail Mass
 
Renewables
 
NRG Yield
 
Corporate
 
 
 
Gulf Coast
 
East
 
West
 
International
 
Business Solutions
 
 
 
 
 
Total
 
(In millions)
Nine months ended September 30, 2016
$
429

 
$
713

 
$
95

 
$
1

 
$
16

 
$
164

 
$
96

 
$
118

 
$
10

 
$
1,642

Nine months ended September 30, 2015
488


781

 
105

 
1

 
17

 
165

 
96

 
120

 
9

 
1,782

Operations and maintenance expense decreased by $140 million for the nine months ended September 30, 2016, compared to the same period in 2015, due to the following:
 
(In millions)
Decrease in Gulf Coast operations and maintenance expense primarily related to the timing of outages at the Limestone and STP facilities located in Texas
$
(63
)
Decrease in operating costs due to the sale of the Seward and Shelby generating stations in 2016
(48
)
Decrease in East operations and maintenance expense due primarily to deactivations of the Huntley, Dunkirk, and Astoria facilities coupled with a decrease in maintenance costs related to Canal, Waukegan, and Bowline
(46
)
Decrease in West operations and maintenance expense primarily due to the retirement of El Segundo and lower maintenance costs across the region
(10
)
Increase in East operating costs due to environmental work at Maryland ash sites
17

Increase in East variable operating costs driven by environmental control work at Avon Lake and Powerton and fuel conversion projects at the Joliet and Shawville facilities
14

Other
(4
)
 
$
(140
)
Other Cost of Operations
 
 
 
Retail Mass
 
Renewables
 
NRG Yield
 
Corporate
 
 
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
 
 
 
 
Total
 
 
Nine months ended September 30, 2016
$
78

 
$
71

 
$
19

 
$
4

 
$
66

 
$
14

 
$
50

 
$

 
$
302

Nine months ended September 30, 2015
76

 
99

 
20

 
14

 
75

 
16

 
53

 

 
353

Other cost of operations, comprised of asset retirement expense, insurance expense and property and other tax expense, decreased by $51 million for the nine months ended September 30, 2016, compared to the same period in 2015, primarily due to a reduction in property tax for Chalk Point and Dickerson.
Depreciation and Amortization
 
 
 
Retail Mass
 
Renewables
 
NRG Yield
 
Corporate
 
 
 
Gulf Coast
 
East
 
West
 
Business Solutions
 
 
 
 
 
Total
 
 
Nine months ended September 30, 2016
$
274

 
$
156

 
$
46

 
$
7

 
$
80

 
$
142

 
$
224

 
$
50

 
$
979

Nine months ended September 30, 2015
427

 
208

 
38

 
8

 
93

 
135

 
222

 
42

 
1,173

Depreciation and amortization expense decreased by $194 million for the nine months ended September 30, 2016, compared to the same period in 2015, primarily due to decreases in depreciation expense for facilities impaired in 2015, and the sale of the Seward and Shelby generating stations in 2016.

91



Impairment Losses
For the nine months ended September 30, 2016, the Company recorded impairment losses of $123 million, primarily due to the impairment of the Rockford stations and Mandalay and Ormond Beach operating units, as further described in Note 7, Impairments, of this Form 10-Q.
Selling, Marketing, General and Administrative Expenses
Selling, marketing, general and administrative expenses are comprised of the following:
 
Generation
 
Retail Mass(b)
 
Renewables(c)
 
NRG Yield
 
Corporate(d)
 
 
 
Gulf Coast
 
East
 
West
 
Business Solutions(a)
 
 
 
 
 
Total
 
(In millions)
Nine months ended September 30, 2016
$
98

 
$
133

 
$
24

 
$
57

 
$
304

 
$
43

 
$
10

 
$
133

 
$
802

Nine months ended September 30, 2015
114

 
141

 
30

 
58

 
306

 
37

 
9

 
183

 
878

(a) Includes selling and marketing expense of $31 million and $33 million for nine months ended September 30, 2016 and 2015.
(b) Includes selling and marketing expense of $199 million and $197 million for the nine months ended September 30, 2016 and 2015.
(c) Includes selling and marketing expense of $3 million and $5 million for the nine months ended September 30, 2016 and 2015.
(d) Includes selling and marketing expense of $56 million and $128 million for the nine months ended September 30, 2016 and 2015.

Selling, marketing, general and administrative expenses decreased by $76 million for the nine months ended September 30, 2016, compared to the same period in 2015, due primarily to a decrease in advertising and the continued focus on cost management in 2016, partially offset by an increase in cost to achieve expenses in 2016, which primarily reflects severance and employee costs based on the Company's recent strategy changes.
Development Activity Expenses
Development activity expenses decreased by $42 million for the nine months ended September 30, 2016, compared to the same period in 2015, due to the strategic move for a more focused development program primarily related to Renewables and the sale of EVgo in 2016.
Gain on Sale of Assets
During the nine months ended September 30, 2016, the Company recognized a $215 million gain on sale of assets primarily related to the sale of the Aurora generating station, the sale of real property at the Potrero location, and the sale of the 100% interest in the Shelby generating station. The Company also sold a majority interest in its EVgo business to Vision Ridge Partners, which resulted in a loss on sale, as described in Note 3, Business Acquisitions and Dispositions,
Impairment Losses on Investments
For the nine months ended September 30, 2016, the Company recorded other-than-temporary impairment losses of $147 million, which is primarily due to its 50% interest in Petra Nova Parish Holdings, as further described in Note 7, Impairments, of this Form 10-Q.
Loss on Debt Extinguishment
A loss on debt extinguishment of $119 million was recorded for the nine months ended September 30, 2016, primarily driven by the repurchase of NRG Senior Notes at a price above par value, combined with the write-off of unamortized debt issuance costs.

92



Interest Expense
NRG's interest expense decreased by $14 million for the nine months ended September 30, 2016, compared to the same period in 2015 due to the following:
 
(In millions)
Decrease due to the repurchases of Senior Notes at the end of 2015 and first three quarters of 2016
$
(38
)
Decrease due to the redemption of outstanding bonds related to NRG Peakers Finance Company
(8
)
Decrease due to the termination of Alta X and XI term loans and the related interest rate swaps in 2015
(6
)
Increase in derivative interest expense from changes in fair value of interest rate swaps
28

Increase due to the issuance of NRG Yield Inc. 3.25% Convertible Senior Notes due 2020 and NRG Yield Operating LLC Revolving Credit Facility issued in 2015
7

Increase due to $200 million of debt issued by CVSR Holdco in August 2016
2

Other
1

 
$
(14
)
Income Tax Expense/(Benefit)
For the nine months ended September 30, 2016, NRG recorded an income tax expense of $95 million on pre-tax income of $259 million. For the same period in 2015, NRG recorded an income tax benefit of $43 million on a pre-tax loss of $121 million. The effective tax rate was 36.7% and 35.5% for the nine months ended September 30, 2016, and 2015, respectively.
For the nine months ended September 30, 2016, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to state tax expense and amortization of indefinite lived assets, partially offset by the change in valuation allowance.
For the nine months ended September 30, 2015, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the impact of production tax credits generated from our wind assets, partially offset by tax expense attributable to consolidated partnerships.
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
For the nine months ended September 30, 2016, and 2015, net loss attributable to noncontrolling interests and redeemable noncontrolling interests primarily reflects net losses allocated to tax equity investors in tax equity arrangements using the hypothetical liquidation at book value, or HLBV, method, partially offset by NRG Yield, Inc.'s share of net income.

Liquidity and Capital Resources
Liquidity Position
As of September 30, 2016, and December 31, 2015, NRG's liquidity, excluding collateral received, was approximately $4.3 billion and $3.3 billion, respectively, comprised of the following:
(In millions)
September 30, 2016
 
December 31, 2015
Cash and cash equivalents:
 
 
 
NRG excluding NRG Yield and GenOn
$
1,017

 
$
742

NRG Yield and subsidiaries
200

 
111

GenOn and subsidiaries
1,218

 
665

Restricted cash - operating
145

 
127

Restricted cash - reserves (a)
335

 
287

Total
2,915

 
1,932

Total credit facility availability
1,374

 
1,373

Total liquidity, excluding collateral received
$
4,289

 
$
3,305

(a) Includes reserves primarily for debt service, performance obligations, and capital expenditures
For the nine months ended September 30, 2016, total liquidity, excluding collateral funds deposited by counterparties, increased by $1 billion. Changes in cash and cash equivalents balances are further discussed hereinafter under the heading Cash Flow Discussion. Cash and cash equivalents at September 30, 2016, were predominantly held in money market mutual funds invested in treasury securities, treasury repurchase agreements or government agency debt.

93



Management believes that the Company's liquidity position and cash flows from operations will be adequate to finance operating and maintenance capital expenditures, to fund dividends to NRG's common stockholders, and to fund other liquidity commitments with the exception of commitments related to GenOn as further described below. Management continues to regularly monitor the Company's ability to finance the needs of its operating, financing and investing activity within the dictates of prudent balance sheet management.
Restricted Payments Tests
Of the $2.4 billion of cash and cash equivalents of the Company as of September 30, 2016, $483 million and $110 million were held by GenOn Mid-Atlantic and REMA, respectively. The ability of certain of GenOn’s and GenOn Americas Generation’s subsidiaries to pay dividends and make distributions is restricted under the terms of certain agreements, including the GenOn Mid-Atlantic and REMA operating leases.  Under their respective operating leases, GenOn Mid-Atlantic and REMA are not permitted to make any distributions and other restricted payments unless:  (a) they satisfy the fixed charge coverage ratio for the most recently ended period of four fiscal quarters; (b) they are projected to satisfy the fixed charge coverage ratio for each of the two following periods of four fiscal quarters, commencing with the fiscal quarter in which such payment is proposed to be made; and (c) no significant lease default or event of default has occurred and is continuing.  In addition, prior to making a dividend or other restricted payment, REMA must be in compliance with the requirement to provide credit support to the owner lessors securing its obligation to pay scheduled rent under its leases. Based on GenOn Mid-Atlantic’s and REMA’s most recent calculations of these tests, GenOn Mid-Atlantic and REMA did not satisfy the restricted payments tests. As a result, as of September 30, 2016, GenOn Mid-Atlantic and REMA could not make distributions of cash and certain other restricted payments. Each of GenOn Mid-Atlantic and REMA may recalculate its fixed charge coverage ratios from time to time and, subject to compliance with the restricted payments test described above, make dividends or other restricted payments.
To the extent GenOn Mid-Atlantic or REMA are able to pay dividends to GenOn, the GenOn Senior Notes due 2018 and 2020 and the related indentures also restrict the ability of GenOn to incur additional liens and make certain restricted payments, including dividends. In the event of a default or if restricted payment tests are not satisfied, GenOn would not be able to distribute cash to its parent, NRG. At September 30, 2016, GenOn did not meet the consolidated debt ratio component of the restricted payments test.
GenOn Liquidity
As disclosed in Note 8, Debt and Capital Leases, $703 million of GenOn's Senior Notes outstanding are current within the GenOn consolidated balance sheet and are due on June 15, 2017. GenOn's future profitability continues to be adversely affected by (i) a sustained decline in natural gas prices and its resulting effect on wholesale power prices and capacity prices, and (ii) the inability of GenOn Mid-Atlantic and REMA to make distributions of cash and certain other restricted payments to GenOn. Based on current projections, GenOn is not expected to have sufficient liquidity to repay the senior notes due in June 2017. As a result of these factors, there is no assurance GenOn will continue as a going concern.
GenOn is currently considering all options available to it, including negotiations with creditors and lessors, refinancing the senior notes, potential sales of certain generating assets as well as the possibility for a need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. During the second quarter of 2016, GenOn appointed two independent directors as part of this process. Any resolution may have a material impact on the Company's statement of operations, cash flows and financial position.
Credit Ratings
On March 3, 2016 and March 21, 2016, respectively, S&P and Moody's reaffirmed the corporate credit ratings on NRG Energy, Inc.
On October 7, 2016, GenOn's corporate credit rating was lowered by Moody's from Caa2 to Caa3 and its probability of default rating was lowered from Caa2-PD to Caa3-PD. In addition, Moody's also lowered the ratings of REMA and GenOn Mid-Atlantic's pass through certificates to Caa1 from B2.
This is an update from March 21, 2016, at which time GenOn's corporate credit rating was lowered from B3 to Caa2. At that time, Moody's also lowered the issue level ratings on the GenOn senior notes from B3 to Caa2 and the GenOn America's Generation senior notes from Caa1 to Caa2.
On May 24, 2016, S&P lowered its corporate credit ratings on GenOn to CCC from CCC+. The ratings outlook for GenOn, GenOn Americas Generation, GenOn Mid-Atlantic and REMA is negative. S&P also lowered the issue ratings on the GenOn senior notes to CCC+ from B-, the GenOn Americas Generation senior notes to CCC from CCC+, and the pass-through certificates at REMA to B- from B. S&P upgraded the rating on the pass-through certificates at GenOn Mid-Atlantic to B- from CCC+.

94



On August 15, 2016, S&P lowered its corporate credit ratings on NRG Yield, Inc. and the NRG Yield Operating 2024 Senior Notes to BB from BB+. The ratings outlook is stable.
The following table summarizes the Company's credit ratings as of September 30, 2016:
 
S&P
 
Moody's
NRG Energy, Inc. 
BB- Stable
 
Ba3 Stable
7.625% Senior Notes, due 2018
BB-
 
B1
8.25% Senior Notes, due 2020
BB-
 
B1
7.875% Senior Notes, due 2021
BB-
 
B1
6.25% Senior Notes, due 2022
BB-
 
B1
6.625% Senior Notes, due 2023
BB-
 
B1
6.25% Senior Notes, due 2024
BB-
 
B1
7.25% Senior Notes, due 2026
BB-
 
B1
6.625% Senior Notes, due 2027
BB-
 
B1
Term Loan Facility, due 2023
BB+
 
Baa3
GenOn 7.875% Senior Notes, due 2017
CCC+
 
Caa2
GenOn 9.500% Senior Notes, due 2018
CCC+
 
Caa2
GenOn 9.875% Senior Notes, due 2020
CCC+
 
Caa2
GenOn Americas Generation 8.500% Senior Notes, due 2021
CCC
 
Caa2
GenOn Americas Generation 9.125% Senior Notes, due 2031
CCC
 
Caa2
NRG Yield, Inc.
BB
 
Ba2
5.375% NRG Yield Operating LLC Senior Notes, due 2024
BB
 
Ba2
5.00% NRG Yield Operating LLC Senior Notes, due 2026
BB
 
Ba2

95



Sources of Liquidity
The principal sources of liquidity for NRG's future operating and capital expenditures are expected to be derived from new and existing financing arrangements, existing cash on hand, cash flows from operations and cash proceeds from future sales of assets, including sales to NRG Yield, Inc. As described in Note 8, Debt and Capital Leases, to this Form 10-Q and Note 12, Debt and Capital Leases, to the Company's 2015 Form 10-K, the Company's financing arrangements consist mainly of the 2016 Senior Credit Facility, the Senior Notes, the GenOn Senior Notes, the GenOn Americas Generation Senior Notes, the NRG Yield 2019 Convertible Notes, the NRG Yield 2020 Convertible Notes, the NRG Yield Operating LLC senior unsecured notes, the NRG Yield, Inc. revolving credit facility, and project-related financings.
Sale of CVSR to NRG Yield, Inc. and CVSR Financing Arrangement
On July 15, 2016, CVSR Holdco LLC issued $200 million of senior secured notes that bear interest at 4.68% and mature on March 31, 2037.  The $199 million of net proceeds from the notes were distributed to a subsidiary of NRG and to NRG Yield Operating LLC, the owners of CVSR Holdco LLC, based on their pro-rata ownership. NRG Yield Operating LLC utilized its net proceeds of $97.5 million to reduce the outstanding balance of its revolving credit facility. NRG expects to utilize its net proceeds in connection with the 2016 Capital Allocation Program. On September 1, 2016, the Company sold its remaining 51.05% interest in CVSR Holdco LLC, which indirectly owns the CVSR solar facility, to NRG Yield, Inc. for total cash consideration of $78.5 million plus an immaterial working capital adjustment. NRG Yield, Inc. also assumed $496 million of non-recourse debt as of the closing date.
Thermal Financing
On October 31, 2016, NRG Energy Center Minneapolis LLC, a subsidiary of NRG Yield, Inc. received proceeds of $125 million from the issuance of 3.55% Series D notes due October 31, 2031, or the Series D Notes, and entered into a shelf facility for the anticipated issuance of an additional $70 million of notes. The Series D Notes are, and the additional notes, if issued, will be secured by substantially all of the assets of NRG Energy Center Minneapolis LLC. NRG Thermal LLC has guaranteed the indebtedness and its guarantee is secured by a pledge of the equity interests in all of NRG Thermal LLC’s subsidiaries. NRG Energy Center Minneapolis LLC distributed the proceeds of the Series D Notes to NRG Thermal LLC, who in turn distributed the proceeds to NRG Yield Operating LLC to be utilized for general corporate purposes, including potential acquisitions.
Issuance of 2027 Senior Notes
On August 2, 2016, NRG issued $1.25 billion in aggregate principal amount at par of 6.625% senior notes due 2027, or the 2027 Senior Notes. The 2027 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on January 15, 2017, until the maturity date of January 15, 2027. The proceeds from the issuance of the 2027 Senior Notes were utilized to retire the Company's 8.250% senior notes due 2020 and to reduce the balance of the Company's 7.875% senior notes due 2021.
Capistrano Refinancing
In July 2016, Cedro Hill, Broken Bow and Crofton Bluffs, subsidiaries of Capistrano Wind Partners, each amended their respective credit facilities to increase borrowings to a total of $312 million and to lower their respective interest rates.  The net proceeds of $87 million were distributed to Capistrano Wind Partners and subsequently distributed to the holders of the Class B preferred equity interests of Capistrano Wind Partners.
EVgo
On June 17, 2016, the Company completed the sale of a majority interest in its EVgo business to Vision Ridge Partners for total consideration of approximately $39 million, including $17 million in cash received net of $2.5 million in working capital adjustments, $15 million contributed as capital to the EVgo business and $7 million of future contributions by Vision Ridge Partners, all of which were determined based on forecasted cash requirements to operate the business in future periods. In addition, the Company has future earnout potential of up to $70 million based on future profitability targets. NRG will retain its original financial obligation of $102.5 million under its agreement with the CPUC whereby EVgo will build at least 200 public fast charging Freedom Station sites and perform the associated work to prepare 10,000 commercial and multi-family parking spaces for electric vehicle charging in California.




96



Issuance of 2026 Senior Notes
On May 23, 2016, NRG issued $1.0 billion in aggregate principal amount at par of 7.25% senior notes due 2026, or the 2026 Senior Notes. The 2026 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on November 15, 2016, until the maturity date of May 15, 2026. The proceeds from the issuance of the 2026 Senior Notes were utilized to redeem a portion of the Senior Notes as discussed in Uses of Liquidity.
Midwest Generation
On April 7, 2016, Midwest Generation, LLC, or MWG, entered into an agreement to sell certain quantities of unforced capacity that has cleared various PJM Reliability Pricing Model auctions to a trading counterparty for net proceeds of $253 million.  MWG will continue to operate the applicable generation facilities and remains responsible for performance penalties and is eligible for performance bonus payments, if any. Accordingly, MWG will continue to account for all revenues and costs as before; however, the proceeds will be recorded as a financing obligation while capacity payments by PJM to the counterparty will be reflected as debt amortization and interest expense through the end of the 2018/19 delivery year.  MWG will amortize the upfront discount to interest expense, at an effective interest rate of 4.39%, over the term of the arrangement, through June 2019.
Asset Dispositions
During the nine months ended September 30, 2016, the Company received proceeds of $118 million related to the sale of its Seward and Shelby generating stations, proceeds of $56 million related to the sale of its Rockford generating stations, proceeds of $369 million related to the sale of GenOn's Aurora generating station and proceeds of $74 million related to the sale of the Potrero site.
Cash Grants
As of September 30, 2016, the Company had a net renewable energy grant receivable of $33 million, net of sequestration.
First Lien Structure
NRG has granted first liens to certain counterparties on a substantial portion of the Company's assets, excluding assets acquired through GenOn and EME (including Midwest Generation), assets held by NRG Yield, Inc., and NRG's assets that have project-level financing. NRG uses the first lien structure to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedge agreements for forward sales of power or gas used as a proxy for power. To the extent that the underlying hedge positions for a counterparty are out-of-the-money to NRG, the counterparty would have claim under the first lien program. The first lien program limits the volume that can be hedged, not the value of underlying out-of-the-money positions. The first lien program does not require NRG to post collateral above any threshold amount of exposure. Within the first lien structure, the Company can hedge up to 80% of its coal and nuclear capacity, excluding GenOn and Midwest Generation's coal capacity, and 10% of its other assets, excluding GenOn's other assets with these counterparties for the first 60 months and then declining thereafter. Net exposure to a counterparty on all trades must be positively correlated to the price of the relevant commodity for the first lien to be available to that counterparty. The first lien structure is not subject to unwind or termination upon a ratings downgrade of a counterparty and has no stated maturity date.
The Company's first lien counterparties may have a claim on its assets to the extent market prices exceed the hedged prices. As of September 30, 2016, all hedges under the first liens were in-the-money on a counterparty aggregate basis.
The following table summarizes the amount of MW hedged against the Company's coal and nuclear assets and as a percentage relative to the Company's coal and nuclear capacity under the first lien structure as of September 30, 2016:
Equivalent Net Sales Secured by First Lien Structure (a)
2016
 
2017
 
2018
 
2019
 
2020
In MW
2,276

 
2,303

 
478

 

 

As a percentage of total net coal and nuclear capacity (b)
39
%
 
40
%
 
8
%
 
%
 
%
(a)
Equivalent net sales include natural gas swaps converted using a weighted average heat rate by region.
(b)
Net coal and nuclear capacity represents 80% of the Company’s total coal and nuclear assets eligible under the first lien which excludes coal assets acquired in the GenOn and EME (Midwest Generation) acquisitions, assets in NRG Yield, Inc. and NRG's assets that have project level financing.

97




Uses of Liquidity
The Company's requirements for liquidity and capital resources, other than for operating its facilities, can generally be categorized by the following: (i) commercial operations activities; (ii) debt service obligations; (iii) capital expenditures, including repowering and renewable development, and environmental; and (iv) allocations in connection with the Capital Allocation Program including acquisition opportunities, debt repayments, return of capital and dividend payments to stockholders.
Commercial Operations
NRG's commercial operations activities require a significant amount of liquidity and capital resources. These liquidity requirements are primarily driven by: (i) margin and collateral posted with counterparties; (ii) margin and collateral required to participate in physical markets and commodity exchanges; (iii) timing of disbursements and receipts (i.e. buying fuel before receiving energy revenues); (iv) initial collateral for large structured transactions; and (v) collateral for project development. As of September 30, 2016, commercial operations had total cash collateral outstanding of $337 million, and $824 million outstanding in letters of credit to third parties primarily to support its commercial activities for both wholesale and retail transactions. As of September 30, 2016, total collateral held from counterparties was $16 million in cash and $44 million in letters of credit.
Future liquidity requirements may change based on the Company's hedging activities and structures, fuel purchases, and future market conditions, including forward prices for energy and fuel and market volatility. In addition, liquidity requirements are dependent on NRG's credit ratings and general perception of its creditworthiness.

98



Capital Expenditures
The following tables and descriptions summarize the Company's capital expenditures for maintenance, environmental, and growth investments for the nine months ended September 30, 2016, and the currently estimated capital expenditure and growth investments forecast for the remainder of 2016
 
Maintenance
 
Environmental
 
Growth Investments
 
Total
 
(In millions)
Generation
 
 
 
 
 
 
 
Gulf Coast
$
130

 
$
7

 
$
5

 
$
142

East
107

 
230

 
99

 
436

West
2

 

 
25

 
27

Business Solutions
6

 

 
1

 
7

Retail Mass
11

 

 

 
11

Renewables
12

 

 
159

 
171

NRG Yield
12

 

 
4

 
16

Corporate (b)
25

 

 
63

 
88

Total cash capital expenditures for the nine months ended September 30, 2016
305

 
237

 
356

 
898

     Funding from debt financing, net of fees

 

 
(26
)
 
(26
)
     Funding from third party equity partners and cash grants

 

 
(111
)
 
(111
)
     Other investments (a)

 

 
75

 
75

Total capital expenditures and investments, net of financings
305

 
237

 
294

 
836

 
 
 
 
 
 
 
 
Estimated capital expenditures for the remainder of 2016
139

 
46

 
1,210

 
1,395

     Funding from debt financing, net of fees

 

 
(711
)
 
(711
)
     Funding from third party equity partners and cash grants

 

 
(187
)
 
(187
)
     Other investments (a)

 

 
21

 
21

NRG estimated capital expenditures for the remainder of 2016, net of financings
$
139

 
$
46

 
$
333

 
$
518

(a)
Other investments include restricted cash activity.
(b)
Includes residential solar.
Environmental capital expenditures — For the nine months ended September 30, 2016, the Company's environmental capital expenditures included DSI/ESP upgrades at the Powerton facility and the Joliet gas conversion to satisfy the IL CPS as well as controls to satisfy MATS at the Avon Lake facility.
Growth Investments capital expenditures — For the nine months ended September 30, 2016, the Company's growth investment capital expenditures included $197 million for solar projects, $99 million for fuel conversions, $30 million for repowering projects, $4 million for thermal projects and $26 million for the Company's other growth projects.
Environmental Capital Expenditures
NRG estimates that environmental capital expenditures from 2016 through 2020 required to comply with environmental laws will be approximately $328 million which includes $76 million for GenOn and $234 million for Midwest Generation. These costs, the majority of which will be expended by the end of 2016, are primarily associated with (i) DSI/ESP upgrades at the Powerton facility and the Joliet gas conversion to satisfy the IL CPS and (ii) MATS compliance at the Avon Lake facility.
In connection with the acquisition of EME, on April 1, 2014, NRG committed to fund up to $350 million in capital expenditures for plant modifications at Powerton and Joliet to comply with environmental regulations, of which $23 million was remaining as of September 30, 2016. The expected costs of these projects are included in the environmental capital expenditures detailed above.

99



2016 Capital Allocation Program
The Company's plan to allocate capital during 2016 is as follows:

Debt Reduction. The Company allocated a majority of NRG's capital available for allocation during 2016 to additional debt repurchases in order to meet the Company's goal of prudent balance sheet management in a low commodity price environment. Since the third quarter of 2015, the Company has retired $1 billion of corporate debt, generating savings of $78 million in annualized interest.

Growth Investments.  The Company intends to use a portion of capital available for allocation during 2016 primarily to complete its fuel repowerings, conversions and renewable investments.

Common Stock Dividends.  On February 29, 2016, the Company announced a reduction in its common stock dividend to $0.12 per share on an annualized basis.  The decision to reduce the common stock dividend is a proactive measure taken by the Company in order to reallocate capital in accordance with the priorities set forth in this section.

The Company will continue to monitor market conditions in light of the Company’s 2016 Capital Allocation Program to determine if adjustments are necessary in the future. 
Debt Reduction
The following table lists the repurchases of senior notes in 2016.
 
Principal Repurchased
 
Cash Paid (a)                         
 
Average Early Redemption Percentage
Amount in millions, except rates
 
 
 
 
 
7.625% senior notes due 2018
$
455

 
$
502

 
107.95
%
8.250% senior notes due 2020
1,058

 
1,129

 
103.12
%
7.875% senior notes due 2021
729

 
771

 
104.02
%
6.250% senior notes due 2022
108

 
105

 
94.73
%
6.625% senior notes due 2023
67

 
64

 
94.13
%
6.250% senior notes due 2024
171

 
163

 
94.52
%
Total at September 30, 2016
$
2,588

 
$
2,734

 
 
7.625% senior notes due 2018 (b)
186

 
204

 
107.75
%
7.875% senior notes due 2021 (b)
193

 
207

 
103.94
%
Total at November 4, 2016
$
2,967

 
$
3,145

 
 
(a) Includes payment for accrued interest
(b) Redemptions financed by cash on hand

Preferred Stock
On May 24, 2016, the Company entered an agreement with Credit Suisse Group to    repurchase 100% of the outstanding shares of its $344.5 million 2.822% preferred stock. On June 13, 2016, the Company completed the repurchase from Credit Suisse of 100% of the outstanding shares at a price of $226 million. The Company anticipates the transaction to generate approximately $10 million in annual dividend savings.
Dividends
The following table lists the dividends paid during the nine months ended September 30, 2016:
 
Third Quarter 2016
 
Second Quarter 2016
 
First Quarter 2016
Dividends per Common Share
$
0.030

 
$
0.030

 
$
0.145

On October 19, 2016, NRG declared a quarterly dividend on the Company's common stock of $0.03 per share, payable November 15, 2016, to stockholders of record as of November 1, 2016 representing $0.12 on an annualized basis.

100



The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations. The Company expects that, based on current circumstances, comparable cash dividends will continue to be paid in the foreseeable future.
UPMC Thermal Project
On October 31, 2016, NRG Business Services LLC, a subsidiary of the Company, and NRG Energy Center Pittsburgh LLC, or NECP, a subsidiary of NRG Yield, Inc., entered into a EPC agreement for the construction of a 73 MWt district energy system for NECP to provide 150 kpph of steam, 6,750 tons of chilled water and 7.5 MW of emergency backup power service to UPMC. The initial term of the energy services agreement (under fixed capacity payments) with UPMC Mercy will be for a period of twenty years from the service commencement date.  Pursuant to the terms of the EPC agreement, NECP shall pay NRG Business Services LLC $79 million, subject to adjustment based upon certain conditions in the EPC agreement, upon substantial completion of the project. The project is expected to reach COD in the first quarter of 2018.
SunEdison Utility-Scale Solar and Wind Acquisition
On September 15, 2016, the Company entered into an agreement with SunEdison to acquire (i) an equity interest in a tax-equity portfolio of 530 MW mechanically-complete solar assets of which NRG’s net interest based on cash to be distributed will be 265 MW, and an additional 937 MW of solar and wind assets in development, (ii) a 154 MW construction-ready solar facility in Texas and (iii) a 182 MW portfolio of construction-ready and development solar assets in Hawaii.  The acquisition of the portfolio of solar assets in Hawaii was completed on October 7, 2016 for upfront cash consideration of $2 million and the acquisition of the 530 MW tax equity portfolio and the 937 MW development assets was completed on November 2, 2016 for upfront cash consideration of $111 million. The Company expects to pay total upfront cash consideration for the three acquisitions of $129 million, with an estimated $59 million in additional payments contingent upon future development milestones.
SunEdison Solar Distributed Generation Acquisition
On October 3, 2016, the Company acquired a 29 MW portfolio of mechanically-complete and construction-ready distributed generation solar assets from SunEdison for cash consideration of approximately $68 million, subject to post closing adjustments.  The Company expects to sell these assets into a tax-equity financed portfolio within the DGPV Holdco partnership between NRG and NRG Yield, Inc.
Fuel Repowerings and Conversions
The table below lists the Company's currently projected repowering and conversion projects. With respect to facilities that are currently operating, the timing of the projects listed below could adversely impact the Company's operating revenues, gross margin and other operating costs during the period prior to the targeted COD.
Facility
 
Net Generation Capacity (MW)
 
Project Type
 
Fuel Type
 
Targeted COD
Fuel Conversions(a)
 
 
 
 
 
 
 
 
Joliet Units 6, 7 and 8(b)
 
1,326

 
Environmental
 
Natural Gas
 
Q4 2016
Shawville Units 1, 2, 3 and 4
 
597

 
Growth
 
Natural Gas
 
Q4 2016
Total
 
1,923

 
 
 
 
 
 
Repowerings
 
 
 
 
 
 
 
 
Carlsbad Peakers (formerly Encina) Units 1, 2, 3, 4, 5 and GT(c)
 
527

 
Growth
 
Natural Gas
 
Q4 2018
Puente (formerly Mandalay) Units 1 and 2(c)
 
262

 
Growth
 
Natural Gas
 
Q2 2020
Bacliff (formerly Cielo Lindo/PH Robinson) Peakers 1-6
 
360

 
Growth
 
Natural Gas
 
Q1 2017
Total
 
1,149

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Fuel Repowerings and Conversions
 
3,072

 
 
 
 
 
 
(a) Does not include the natural gas conversions of (i) Dunkirk Units 2, 3 and 4, which are on hold pending the outcome of outstanding litigation; and (ii) New Castle Units 3, 4 and 5, which were completed in the second quarter of 2016.    
(b) The Company has incurred and will incur environmental capital expenditures to switch to gas to satisfy MATS. Joliet Units 6, 7 & 8 are in commercial service using natural gas; the balance of plant work is being completed for full load operation of Unit 6.
(c) Projects are subject to applicable regulatory approvals and permits.


101



Cash Flow Discussion
The following table reflects the changes in cash flows for the comparative nine month periods:
 
Nine months ended September 30,
 
 
 
2016
 
2015
 
Change
 
(In millions)
Net cash provided by operating activities
$
1,733

 
$
1,392

 
$
341

Net cash used in investing activities
(321
)
 
(1,232
)
 
911

Net cash used by financing activities
(489
)
 
(26
)
 
(463
)
Net Cash Provided By Operating Activities
Changes to net cash provided by operating activities were driven by:
 
(In millions)
Change in cash collateral in support of risk management activities
$
411

Decrease in inventory primarily related to plant fuel conversions at Shawville, Joliet, New Castle and Unit 2 at the Big Cajun II facility and deactivations of Huntley and Dunkirk
137

Other changes in working capital driven by various timing differences
34

Increase in prepaid expense primarily related to timing of property tax and insurance payments that occurred in the first half of the year
(58
)
Decrease in operating income adjusted for non-cash items
(55
)
Decrease in accounts payable primarily related to lower operations and maintenance expense in 2016
(50
)
Increase in accounts receivable due to timing of receipts
(48
)
Decrease in accrued interest primarily driven by redemption of Senior Notes in late 2015 and 2016
(30
)
 
$
341

Net Cash Provided In Investing Activities
Changes to net cash used in investing activities were driven by:
 
(In millions)
Proceeds from the sale of assets related to the majority interest sale of EVgo, the sale of real property at the Potrero generating station and the sale of the Aurora, Seward and Shelby generating stations in 2016
$
635

Decrease in investments in unconsolidated affiliates in 2016 compared to 2015, primarily related to the 25% investment in Desert Sunlight of $285 million, as well as, Petra Nova and Altenex in 2015
334

Insurance proceeds primarily related to the Cottonwood generation station outage in 2016
27

Decrease in cash paid for acquisitions in 2016 compared to 2015, primarily related to the Spring Canyon acquisition in 2015
13

Increase in notes receivable and other
11

Decrease in cash grants received as the final Ivanpah cash grant amount was received in 2015 after resolution of all open inquiries
(51
)
Decrease in restricted cash primarily related to the Agua Caliente and CVSR projects
(26
)
Net decrease in nuclear decommissioning trust fund activity
(23
)
Increase in capital expenditures, primarily related to environmental projects at Powerton and Joliet
(9
)
 
$
911


102



Net Cash Used By Financing Activities
Changes to net cash used by financing activities were driven by:
 
(In millions)
Decrease in cash contributions from noncontrolling interest in 2016, primarily related to the NRG Yield, Inc public offering in 2015 which had proceeds of $600 million
$
(778
)
Repurchase of preferred stock in 2016
(226
)
Increase in debt issuance costs primarily due to the refinancing of the senior credit facility and the issuance of the 2026 and 2027 Senior Notes
(56
)
Repurchases of treasury stock in 2015
353

Net decrease in borrowings, offset by debt payments, which includes debt repurchases in 2016
155

Decrease in payment of dividends which reflects the reduction to the annualized dividend rate in 2016 from $0.58/share to $0.12/share
86

Other
3

 
$
(463
)

103



NOLs, Deferred Tax Assets and Uncertain Tax Position Implications, under ASC 740
For the nine months ended September 30, 2016, the Company had a total domestic pre-tax book income of $248 million and foreign pre-tax book income of $11 million. As of December 31, 2015, the Company has cumulative domestic Federal NOL carryforwards of $4.0 billion which will begin expiring in 2026 and cumulative state NOL carryforwards of $4.2 billion for financial statement purposes. In addition, NRG has cumulative foreign NOL carryforwards of $202 million, which do not have an expiration date.
In addition to these amounts, the Company has $40 million of tax effected uncertain tax benefits. As a result of the Company's tax position, and based on current forecasts, NRG anticipates income tax payments, primarily to state and local jurisdictions, of up to $40 million in 2016.
The Company has recorded a non-current tax liability of $44 million until final resolution with the related taxing authority. The $44 million non-current tax liability for uncertain tax benefits is from positions taken on various state income tax returns, including accrued interest.
NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia. The Company is not subject to U.S. federal income tax examinations for years prior to 2015. With few exceptions, state and local income tax examinations are no longer open for years before 2009. The Company's primary foreign operations are also no longer subject to examination by local jurisdictions for years prior to 2010.

Off-Balance Sheet Arrangements
Obligations under Certain Guarantee Contracts
NRG and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include financial and performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications.
Retained or Contingent Interests
NRG does not have any material retained or contingent interests in assets transferred to an unconsolidated entity.
Obligations Arising Out of a Variable Interest in an Unconsolidated Entity
Variable interest in equity investments — As of September 30, 2016, NRG has several investments with an ownership interest percentage of 50% or less in energy and energy-related entities that are accounted for under the equity method of accounting. Several of these investments are variable interest entities for which NRG is not the primary beneficiary. See also Note 9, Variable Interest Entities, or VIEs, to this Form 10-Q.
NRG's pro-rata share of non-recourse debt held by unconsolidated affiliates was approximately $638 million as of September 30, 2016. This indebtedness may restrict the ability of these subsidiaries to issue dividends or distributions to NRG. See also Note 16, Investments Accounted for by the Equity Method and Variable Interest Entities, to the Company's 2015 Form 10-K.
Contractual Obligations and Commercial Commitments
NRG has a variety of contractual obligations and other commercial commitments that represent prospective cash requirements in addition to the Company's capital expenditure programs, as disclosed in the Company's 2015 Form 10-K. See also Note 8, Debt and Capital Leases, and Note 14, Commitments and Contingencies, to this Form 10-Q for a discussion of new commitments and contingencies that also include contractual obligations and commercial commitments that occurred during the nine months ended September 30, 2016.

104



Fair Value of Derivative Instruments
NRG may enter into power purchase and sales contracts, fuel purchase contracts and other energy-related financial instruments to mitigate variability in earnings due to fluctuations in spot market prices and to hedge fuel requirements at generation facilities or retail load obligations. In addition, in order to mitigate interest rate risk associated with the issuance of the Company's variable rate and fixed rate debt, NRG enters into interest rate swap agreements. The following disclosures about fair value of derivative instruments provide an update to, and should be read in conjunction with, Fair Value of Derivative Instruments in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Company's 2015 Form 10‑K.
The tables below disclose the activities that include both exchange and non-exchange traded contracts accounted for at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures, or ASC 820. Specifically, these tables disaggregate realized and unrealized changes in fair value; disaggregate estimated fair values at September 30, 2016, based on their level within the fair value hierarchy defined in ASC 820; and indicate the maturities of contracts at September 30, 2016.
Derivative Activity Gains/(Losses)
(In millions)
Fair value of contracts as of December 31, 2015
$
6

Contracts realized or otherwise settled during the period
(180
)
Changes in fair value
(50
)
Fair Value of Contracts as of September 30, 2016
$
(224
)
 
Fair Value of Contracts as of September 30, 2016
 
Maturity
Fair value hierarchy Gains/(Losses)
1 Year or Less
 
Greater than 1 Year to 3 Years
 
Greater than 3 Years to 5 Years
 
Greater than 5 Years
 
Total Fair
Value
 
(In millions)
Level 1
$
15

 
$
(67
)
 
$
(15
)
 
$

 
$
(67
)
Level 2
(15
)
 
(47
)
 
(38
)
 
(31
)
 
(131
)
Level 3
(5
)
 
(10
)
 
(7
)
 
(4
)
 
(26
)
Total
$
(5
)
 
$
(124
)
 
$
(60
)
 
$
(35
)
 
$
(224
)
The Company has elected to present derivative assets and liabilities on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. Also, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. Consequently, the magnitude of the changes in individual current and non-current derivative assets or liabilities is higher than the underlying credit and market risk of the Company's portfolio. As discussed in Item 3  Quantitative and Qualitative Disclosures About Market Risk, Commodity Price Risk, to this Form 10-Q, NRG measures the sensitivity of the Company's portfolio to potential changes in market prices using VaR, a statistical model which attempts to predict risk of loss based on market price and volatility. NRG's risk management policy places a limit on one-day holding period VaR, which limits the Company's net open position. As the Company's trade-by-trade derivative accounting results in a gross-up of the Company's derivative assets and liabilities, the net derivative asset and liability position is a better indicator of NRG's hedging activity. As of September 30, 2016, NRG's net derivative liability was $224 million, a decrease to total fair value of $230 million as compared to December 31, 2015. This decrease was driven by the roll-off of trades that settled during the period and losses in fair value.
Based on a sensitivity analysis using simplified assumptions, the impact of a $0.50 per MMBtu increase in natural gas prices across the term of the derivative contracts would result in a decrease of approximately $121 million in the net value of derivatives as of September 30, 2016. The impact of a $0.50 per MMBtu decrease in natural gas prices across the term of derivative contracts would result in an increase of approximately $88 million in the net value of derivatives as of September 30, 2016.

105



Critical Accounting Policies and Estimates
NRG's discussion and analysis of the financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements and related disclosures in compliance with U.S. GAAP requires the application of appropriate technical accounting rules and guidance as well as the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. The application of these policies necessarily involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges, and the fair value of certain assets and liabilities. These judgments, in and of themselves, could materially affect the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment may also have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies has not changed.
On an ongoing basis, NRG evaluates these estimates, utilizing historic experience, consultation with experts and other methods the Company considers reasonable. In any event, actual results may differ substantially from the Company's estimates. Any effects on the Company's business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the information that gives rise to the revision becomes known.
The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company's financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. NRG's critical accounting policies include derivative instruments, income taxes and valuation allowance for deferred tax assets, impairment of long lived assets, goodwill and other intangible assets, and contingencies.
The Company performs its annual test of goodwill impairment during the fourth quarter. The Company tests its long-lived assets for impairment whenever indicators of impairment exist. The Company notes that if natural gas prices continue to decrease, this could have a negative impact on the fair value of the reporting units that have goodwill balances and recovery of long-lived assets. Additionally, continued decreases in natural gas prices could result in an adverse change in the manner that long-lived assets are used, or result in the Company selling an asset before the end of its previously estimated useful life, at a price that is lower than its carrying amount. Accordingly, if these decreases continue, it is possible that the Company's goodwill or long-lived assets will be impaired.


106



ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NRG is exposed to several market risks in the Company's normal business activities. Market risk is the potential loss that may result from market changes associated with the Company's merchant power generation or with an existing or forecasted financial or commodity transaction. The types of market risks the Company is exposed to are commodity price risk, interest rate risk, liquidity risk, credit risk and currency exchange risk. The following disclosures about market risk provide an update to, and should be read in conjunction with, Item 7A — Quantitative and Qualitative Disclosures About Market Risk, of the Company's 2015 Form 10-K.
Commodity Price Risk
Commodity price risks result from exposures to changes in spot prices, forward prices, volatilities and correlations between various commodities, such as natural gas, electricity, coal, oil and emissions credits. NRG manages the commodity price risk of the Company's merchant generation operations and load serving obligations by entering into various derivative or non-derivative instruments to hedge the variability in future cash flows from forecasted sales and purchases of electricity and fuel. NRG measures the risk of the Company's portfolio using several analytical methods, including sensitivity tests, scenario tests, stress tests, position reports and VaR. NRG uses a Monte Carlo simulation based VaR model to estimate the potential loss in the fair value of its energy assets and liabilities, which includes generation assets, load obligations and bilateral physical and financial transactions.
The following table summarizes average, maximum and minimum VaR for NRG's commodity portfolio, including generation assets, load obligations and bilateral physical and financial transactions, calculated using the VaR model for the nine months ending September 30, 2016, and 2015:
(In millions)
2016
 
2015
VaR as of September 30,
$
40

 
$
36

Three months ended September 30,
 
 
 
Average
$
59

 
$
39

Maximum
72

 
44

Minimum
40

 
34

Nine months ended September 30,
 
 
 
Average
$
58

 
$
42

Maximum
72

 
54

Minimum
40

 
34

In order to provide additional information for comparative purposes to NRG's peers, the Company also uses VaR to estimate the potential loss of derivative financial instruments that are subject to mark-to-market accounting. These derivative instruments include transactions that were entered into for both asset management and trading purposes. The VaR for the derivative financial instruments calculated using the diversified VaR model as of September 30, 2016, for the entire term of these instruments entered into for both asset management and trading was $43 million, primarily driven by asset-backed transactions.
Interest Rate Risk
NRG is exposed to fluctuations in interest rates through its issuance of variable rate debt. Exposures to interest rate fluctuations may be mitigated by entering into derivative instruments known as interest rate swaps, caps, collars and put or call options. These contracts reduce exposure to interest rate volatility and result in primarily fixed rate debt obligations when taking into account the combination of the variable rate debt and the interest rate derivative instrument. NRG's risk management policies allow the Company to reduce interest rate exposure from variable rate debt obligations.
The Company's project subsidiaries enter into interest rate swaps, intended to hedge the risks associated with interest rates on non-recourse project level debt. See Note 12, Debt and Capital Leases, of the Company's 2015 Form 10-K for more information on the Company's interest rate swaps.
If all of the above swaps had been discontinued on September 30, 2016, the Company would have owed the counterparties $163 million. Based on the credit ratings of the counterparties, NRG believes its exposure to credit risk due to nonperformance by counterparties to its hedge contracts to be insignificant.
NRG has both long and short-term debt instruments that subject the Company to the risk of loss associated with movements in market interest rates. As of September 30, 2016, a 1% change in variable interest rates would result in a $13 million change in interest expense on a rolling twelve month basis.

107



As of September 30, 2016, the fair value and related carrying value of the Company's debt was $18.9 billion and $19.4 billion, respectively. NRG estimates that a 1% decrease in market interest rates would have increased the fair value of the Company's long-term debt by $1.6 billion.
Liquidity Risk
Liquidity risk arises from the general funding needs of NRG's activities and in the management of the Company's assets and liabilities. The Company is currently exposed to additional collateral posting if natural gas prices decline primarily due to the long natural gas equivalent position at various exchanges used to hedge NRG's retail supply load obligations.
Based on a sensitivity analysis for power and gas positions under marginable contracts, a $0.50 per MMBtu change in natural gas prices across the term of the marginable contracts would cause a change in margin collateral posted of approximately $179 million as of September 30, 2016, and a 1 MMBtu/MWh change in heat rates for heat rate positions would result in a change in margin collateral posted of approximately $216 million as of September 30, 2016. This analysis uses simplified assumptions and is calculated based on portfolio composition and margin-related contract provisions as of September 30, 2016.
Credit Risk
Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. 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. See Note 4, Fair Value of Financial Instruments, to this Form 10-Q for discussions regarding counterparty credit risk and retail customer credit risk, and Note 6, Accounting for Derivative Instruments and Hedging Activities, to this Form 10-Q for discussion regarding credit risk contingent features.
Currency Exchange Risk
NRG's foreign earnings and investments may be subject to foreign currency exchange risk, which NRG generally does not hedge. As these earnings and investments are not material to NRG's consolidated results, the Company's foreign currency exposure is limited.

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ITEM 4 — CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of NRG's management, including its principal executive officer, principal financial officer and principal accounting officer, NRG conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act. Based on this evaluation, the Company's principal executive officer, principal financial officer and principal accounting officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There were no changes in NRG’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred in the third quarter of 2016 that materially affected, or are reasonably likely to materially affect, NRG’s internal control over financial reporting.



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PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
For a discussion of material legal proceedings in which NRG was involved through September 30, 2016, see Note 14, Commitments and Contingencies, to this Form 10-Q.
ITEM 1A — RISK FACTORS
Information regarding risk factors appears in Part I, Item 1A, Risk Factors Related to NRG Energy, Inc., in the Company's 2015 Form 10-K. Except as presented below, there have been no material changes in the Company's risk factors since those reported in its 2015 Form 10‑K.
There is no assurance GenOn will continue as a going concern.  GenOn’s inability to continue as a going concern could have a material impact on the Company.

As disclosed in Note 8, Debt and Capital Leases, to this Form 10-Q, as of September 30, 2016, $703 million of GenOn's Senior Notes outstanding are current within the GenOn consolidated balance sheet and are due on June 15, 2017. GenOn's future profitability continues to be adversely affected by (i) a sustained decline in natural gas prices and its resulting effect on wholesale power prices and capacity prices, and (ii) the inability of GenOn Mid-Atlantic and REMA to make distributions of cash and certain other restricted payments to GenOn. Based on current projections, GenOn is not expected to have sufficient liquidity exclusive of cash subject to the restrictions under the GenOn Mid-Atlantic and REMA operating leases to repay the senior notes due in June 2017. As a result of these factors, there is no assurance GenOn will continue as a going concern.
As of September 30, 2016, GenOn has cash and cash equivalents of $1.2 billion, of which $483 million and $110 million is held by GenOn Mid-Atlantic and REMA, respectively. Under their respective operating leases, GenOn Mid-Atlantic and REMA are not permitted to make any distributions and other restricted payments unless: (a) they satisfy the fixed charge coverage ratio for the most recently ended period for four fiscal quarters; (b) they are projected to satisfy the fixed charge coverage ratio for each of the two following periods of four fiscal quarters, commencing with the fiscal quarter in which such payment is proposed to be made; and (c) no significant lease default or event of default has occurred and is continuing. Additionally, REMA must be in compliance with the requirement to provide credit support to the owner lessors securing its obligation to pay scheduled rent under its lease. As a result, GenOn Mid-Atlantic has not been able to make distributions of cash and certain other restricted payments since the quarter ended March 31, 2014 which was the last quarterly period for which GenOn Mid-Atlantic satisfied the conditions under its operating agreement. REMA has not satisfied the conditions under its operating agreement to make distributions of cash and certain other restricted payments since GenOn was acquired by NRG in December 2012.
The Company, GenOn's parent company, has no obligation to provide any financial support to GenOn other than under the secured intercompany revolving credit agreement between the Company and GenOn and NRG Americas.

GenOn is currently considering all options available to it, including negotiations with creditors and lessors, refinancing the senior notes, potential sales of certain generating assets as well as the possibility for a need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. During the second quarter of 2016, GenOn appointed two independent directors as part of this process.

The Company cannot assure you that GenOn’s inability to continue as a going concern will not have a material impact on the Company's statement of operations, cash flows and financial position including, among other things, if GenOn were to file for bankruptcy protection.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.

110



ITEM 5 — OTHER INFORMATION
None.

111



ITEM 6 — EXHIBITS
Number
 
Description
 
Method of Filing
31.1
 
Rule 13a-14(a)/15d-14(a) certification of Mauricio Gutierrez.
 
Filed herewith.
31.2
 
Rule 13a-14(a)/15d-14(a) certification of Kirkland B. Andrews.
 
Filed herewith.
31.3
 
Rule 13a-14(a)/15d-14(a) certification of David Callen.
 
Filed herewith.
32
 
Section 1350 Certification.
 
Furnished herewith.
101 INS
 
XBRL Instance Document.
 
Filed herewith.
101 SCH
 
XBRL Taxonomy Extension Schema.
 
Filed herewith.
101 CAL
 
XBRL Taxonomy Extension Calculation Linkbase.
 
Filed herewith.
101 DEF
 
XBRL Taxonomy Extension Definition Linkbase.
 
Filed herewith.
101 LAB
 
XBRL Taxonomy Extension Label Linkbase.
 
Filed herewith.
101 PRE
 
XBRL Taxonomy Extension Presentation Linkbase.
 
Filed herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
NRG ENERGY, INC.
(Registrant) 
 
 
 
 
 
/s/ MAURICIO GUTIERREZ 
 
 
Mauricio Gutierrez
 
 
Chief Executive Officer
(Principal Executive Officer) 
 
 
 
 
 
 
/s/ KIRKLAND B. ANDREWS  
 
 
Kirkland B. Andrews 
 
 
Chief Financial Officer
(Principal Financial Officer) 
 
 
 
 
 
 
/s/ DAVID CALLEN
 
 
David Callen
 
Date: November 4, 2016
Chief Accounting Officer
(Principal Accounting Officer) 
 
 




113