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NRG ENERGY, INC. - Quarter Report: 2017 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, 2017
 
 
 
o
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-15891
NRG Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
 
41-1724239
(I.R.S. Employer
Identification No.)
 
 
 
804 Carnegie Center, Princeton, New Jersey
(Address of principal executive offices)
 
08540
(Zip Code)
(609) 524-4500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x       No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o  
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, 2017, there were 316,641,799 shares of common stock outstanding, par value $0.01 per share.
 




TABLE OF CONTENTS
Index



2



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of NRG Energy, Inc., or NRG or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. The words "believes," "projects," "anticipates," "plans," "expects," "intends," "estimates" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause NRG's actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Item 1A — Risk Factors Related to NRG Energy, Inc., in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, and the following:
NRG's ability to achieve the expected benefits of its Transformation Plan;
The potential adverse effects of the GenOn Entities' filings under Chapter 11 of the Bankruptcy Code and restructuring transactions on NRG's operations, management and employees and the risks associated with operating NRG's business during the restructuring process;
Risks and uncertainties associated with the GenOn Entities' Chapter 11 Cases including the ability to achieve anticipated benefits therefrom;
NRG's ability to engage in successful mergers and acquisitions activity;
General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;
Volatile power supply costs and demand for power;
Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions (including wind and solar conditions), catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards;
The effectiveness of NRG's risk management policies and procedures, and the ability of NRG's counterparties to satisfy their financial commitments;
Counterparties' collateral demands and other factors affecting NRG's liquidity position and financial condition;
NRG's ability to operate its businesses efficiently and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
NRG's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices;
The liquidity and competitiveness of wholesale markets for energy commodities;
Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws;
Changes in law, including judicial decisions;
Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately and fairly compensate NRG's generation units;
NRG's ability to mitigate forced outage risk for units subject to capacity performance requirements in PJM, performance incentives in ISO-NE, and scarcity pricing in ERCOT;
NRG's ability to borrow funds and access capital markets, as well as NRG's substantial indebtedness and the possibility that NRG may incur additional indebtedness going forward;
Operating and financial restrictions placed on NRG and its subsidiaries that are contained in the indentures governing NRG's outstanding notes, in NRG's Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;
Cyber terrorism and inadequate cybersecurity, or the occurrence of a catastrophic loss and the possibility that NRG may not have adequate insurance to cover losses resulting from such hazards or the inability of NRG's insurers to provide coverage;
NRG's ability to develop and build new power generation facilities;
NRG's ability to develop and innovate new products as retail and wholesale markets continue to change and evolve;
NRG's ability to implement its strategy of finding ways to meet the challenges of climate change, clean air and protecting natural resources while taking advantage of business opportunities;
NRG's ability to increase cash from operations through operational and commercial initiatives, corporate efficiencies, asset strategy, and a range of other programs throughout NRG to reduce costs or generate revenues;

3



NRG's ability to sell assets to NRG Yield, Inc. and to close drop-down transactions;
NRG's ability to achieve its strategy of regularly returning capital to stockholders;
NRG's ability to obtain and maintain retail market share;
NRG's ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives;
NRG's ability to successfully integrate, realize cost savings and manage any acquired businesses; and
NRG's ability to develop and maintain successful partnering relationships.
Forward-looking statements speak only as of the date they were made, and NRG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in any forward-looking statements included in this Quarterly Report on Form 10-Q should not be construed as exhaustive.

4



GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2016 Form 10-K
 
NRG’s Annual Report on Form 10-K for the year ended December 31, 2016
2023 Term Loan Facility
 
The Company's $1.9 billion term loan facility due 2023, a component of the Senior Credit Facility
Adjusted EBITDA
 
Adjusted earnings before interest, taxes, depreciation and amortization
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
Bankruptcy Code
 
Chapter 11 of Title 11 of the U.S. Bankruptcy Code
Bankruptcy Court
 
United States Bankruptcy Court for the Southern District of Texas, Houston Division
BETM
 
Boston Energy Trading and Marketing LLC
BTU
 
British Thermal Unit
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAISO
 
California Independent System Operator
CDD
 
Cooling Degree Day
CDWR
 
California Department of Water Resources
CEC
 
California Energy Commission
CenterPoint
 
CenterPoint Energy, Inc. and its subsidiaries, on and after August 31, 2002, and Reliant Energy, Incorporated and its subsidiaries prior to August 31, 2002
CFTC
 
U.S. Commodity Futures Trading Commission
Chapter 11 Cases
 
Voluntary cases commenced by the GenOn Entities under the Bankruptcy Code in the Bankruptcy Court
COD
 
Commercial Operation Date
ComEd
 
Commonwealth Edison
Company
 
NRG Energy, Inc.
CPP
 
Clean Power Plan
CPUC
 
California Public Utilities Commission
CSAPR
 
Cross-State Air Pollution Rule
CVSR
 
California Valley Solar Ranch
D.C. Circuit
 
U.S. Court of Appeals for the District of Columbia Circuit
DGPV Holdco 1
 
NRG DGPV Holdco 1 LLC
DGPV Holdco 2
 
NRG DGPV Holdco 2 LLC
Distributed Solar
 
Solar power projects that primarily sell power to customers for usage on site, or are interconnected to sell power into a local distribution grid
DSI
 
Dry Sorbent Injection
Economic gross margin
 
Sum of energy revenue, capacity revenue, retail revenue and other revenue, less cost of fuels and other cost of sales
ELG
 
Effluent Limitations Guidelines
El Segundo Energy Center
 
NRG West Holdings LLC, the subsidiary of Natural Gas Repowering LLC, which owns the El Segundo Energy Center project
EME
 
Edison Mission Energy
Energy Plus Holdings
 
Energy Plus Holdings LLC
EPA
 
U.S. Environmental Protection Agency

5



EPC
 
Engineering, Procurement and Construction
ERCOT
 
Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
ESCO
 
Energy Service Company
ESP
 
Electrostatic Precipitator
ESPP
 
NRG Energy, Inc. Amended and Restated Employee Stock Purchase Plan
ESPS
 
Existing Source Performance Standards
Exchange Act
 
The Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
FGD
 
Flue gas desulfurization
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 Entities
 
GenOn and certain of its wholly owned subsidiaries, including GenOn Americas Generation. that filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court on June 14, 2017
GenOn Senior Notes
 
GenOn's $1.8 billion outstanding unsecured senior notes consisting of $691 million of 7.875% senior notes due 2017, $649 million of 9.5% senior notes due 2018, and $489 million of 9.875% senior notes due 2020
GHG
 
Greenhouse Gas
GW
 
Gigawatt
GWh
 
Gigawatt Hour
HAP
 
Hazardous Air Pollutant
HDD
 
Heating Degree Day
Heat Rate
 
A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWhs generated. Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output measured is gross or net generation and is generally expressed as BTU per net kWh
HLBV
 
Hypothetical Liquidation at Book Value
IASB
 
Independent Accounting Standards Board
IFRS
 
International Financial Reporting Standards
ILU
 
Illinois Union Insurance Company
ISO
 
Independent System Operator
ISO-NE
 
ISO New England Inc.
ITC
 
Investment Tax Credit
LaGen
 
Louisiana Generating, L.L.C.
LIBOR
 
London Inter-Bank Offered Rate
LTIPs
 
Collectively, the NRG Long-Term Incentive Plan, as amended, and the NRG GenOn Long-Term Incentive Plan
Marsh Landing
 
NRG Marsh Landing, LLC (formerly known as GenOn Marsh Landing, LLC)
Mass Market
 
Residential and small commercial customers
MATS
 
Mercury and Air Toxics Standards promulgated by the EPA
MDth
 
Thousand Dekatherms
Midwest Generation
 
Midwest Generation, LLC
MISO
 
Midcontinent Independent System Operator, Inc.

6



MMBtu
 
Million British Thermal Units
MW
 
Megawatts
MWh
 
Saleable megawatt hour net of internal/parasitic load megawatt-hour
MWt
 
Megawatts Thermal Equivalent
NAAQS
 
National Ambient Air Quality Standards
NEPOOL
 
New England Power Pool
NERC
 
North American Electric Reliability Corporation
Net Exposure
 
Counterparty credit exposure to NRG, net of collateral
Net Generation
 
The net amount of electricity produced, expressed in kWhs or MWhs, that is the total amount of electricity generated (gross) minus the amount of electricity used during generation
NOL
 
Net Operating Loss
NOx
 
Nitrogen Oxides
NPDES
 
National Pollutant Discharge Elimination System
NPNS
 
Normal Purchase Normal Sale
NRC
 
U.S. Nuclear Regulatory Commission
NRG
 
NRG Energy, Inc.
NRG Yield
 
Reporting segment including the projects owned by NRG Yield, Inc.
NRG Yield 2019 Convertible Notes
 
$345 million aggregate principal amount of 3.50% Convertible Senior Notes due 2019 issued by NRG Yield, Inc.
NRG Yield 2020 Convertible Notes
 
$287.5 million aggregate principal amount of 3.25% Convertible Notes due 2020 issued by NRG Yield, Inc.
NRG Yield, Inc.
 
NRG Yield, Inc., the owner of 53.7% of the economic interests of NRG Yield LLC with a controlling interest, and issuer of publicly held shares of Class A and Class C common stock
NSR
 
New Source Review
Nuclear Decommissioning Trust Fund
 
NRG's nuclear decommissioning trust fund assets, which are for the Company's portion of the decommissioning of the STP, units 1 & 2
NYAG
 
State of New York Office of Attorney General
NYISO
 
New York Independent System Operator
NYSPSC
 
New York State Public Service Commission
OCI/OCL
 
Other Comprehensive Income/(Loss)
Peaking
 
Units expected to satisfy demand requirements during the periods of greatest or peak load on the system
PER
 
Peak Energy Rent
Petition Date
 
June 14, 2017
PG&E
 
Pacific Gas and Electric Company
PJM
 
PJM Interconnection, LLC
PM
 
Particulate Matter
PPA
 
Power Purchase Agreement
PSD
 
Prevention of Significant Deterioration
PTC
 
Production Tax Credit
PUCT
 
Public Utility Commission of Texas
RAPA
 
Resource Adequacy Purchase Agreement
RCRA
 
Resource Conservation and Recovery Act of 1976
REMA
 
NRG REMA LLC, which leases a 100% interest in the Shawville generating facility and 16.7% and 16.5% interests in the Keystone and Conemaugh generating facilities, respectively
Repowering
 
Technologies utilized to replace, rebuild, or redevelop major portions of an existing electrical generating facility to achieve a substantial emissions reduction, increase facility capacity and improve system efficiency
Restructuring Support Agreement
 
Restructuring Support and Lock-Up Agreement, dated as of June 12, 2017 and as amended on October 2, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, the subsidiaries signatory thereto, NRG Energy, Inc. and the noteholders signatory thereto

7



Retail
 
Reporting segment that includes NRG's residential and small commercial businesses which go to market as Reliant, NRG and other brands owned by NRG, as well as Business Solutions
Revolving Credit Facility
 
The Company’s $2.5 billion revolving credit facility, a component of the Senior Credit Facility. The revolving credit facility consists of $289 million of Tranche A Revolving Credit Facility, due 2018, and $2.2 billion of Tranche B Revolving Credit Facility, due 2021

Prior to June 30, 2016, the Company's $2.5 billion revolving credit facility due 2018, a component of the Senior Credit Facility. On June 30, 2016, the Company replaced the Senior Credit Facility, including the Revolving Credit Facility
RGGI
 
Regional Greenhouse Gas Initiative
RMR
 
Reliability Must-Run
ROFO Agreement
 
Second Amended and Restated Right of First Offer Agreement between the Company and NRG Yield, Inc.
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
 
NRG's senior secured credit facility, compromised of the Revolving Credit Facility and the 2023 Term Loan Facility

Prior to June 30, 2016, the Company's senior secured facility, comprised of the Term Loan Facility and the Revolving Credit Facility. On June 30, 2016, the Company replaced the Senior Credit Facility
Senior Notes
 
As of September 30, 2017, the Company’s $5.4 billion outstanding unsecured senior notes, consisting of $398 million of 7.625% senior notes due 2018, $207 million of 7.875% senior notes due 2021, $992 million of 6.25% senior notes due 2022, $869 million of 6.625% senior notes due 2023, $733 million of 6.25% senior notes due 2024, $1.0 billion of 7.25% senior notes due 2026 and $1.25 billion of 6.625% senior notes due 2027
Services Agreement
 
NRG provides GenOn with various management, personnel and other services, which include human resources, regulatory and public affairs, accounting, tax, legal, information systems, treasury, risk management, commercial operations, and asset management, as set forth in the services agreement with GenOn
Settlement Agreement
 
A settlement agreement and any other documents necessary to effectuate the settlement among NRG, GenOn, and certain holders of senior unsecured notes of GenOn Americas Generation and GenOn, and certain of GenOn's direct and indirect subsidiaries
Seward
 
The Seward Power Generating Station, a 525 MW coal-fired facility in Pennsylvania
Shelby
 
The Shelby County Generating Station, a 352 MW natural gas-fired facility in Illinois
SO2
 
Sulfur Dioxide
SPP
 
Solar Power Partners
STP
 
South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest
S&P
 
Standard & Poor's
TCPA
 
Telephone Consumer Protection Act
Term Loan Facility
 
Prior to June 30, 2016, the Company's $2.0 billion term loan facility due 2018, a component of the Senior Credit Facility.
TSA
 
Transportation Services Agreement
TWCC
 
Texas Westmoreland Coal Co.
U.S.
 
United States of America
U.S. DOE
 
U.S. Department of Energy
Utility Scale Solar
 
Solar power projects, typically 20 MW or greater in size (on an alternating current basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level
VaR
 
Value at Risk
VIE
 
Variable Interest Entity

8



Walnut Creek
 
NRG Walnut Creek, LLC, the operating subsidiary of WCEP Holdings, LLC, which owns the Walnut Creek project
WST
 
Washington-St. Tammany Electric Cooperative, Inc.

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)
2017
 
2016
 
2017
 
2016
Operating Revenues

 

 
 
 
 
Total operating revenues
$
3,049


$
3,421


$
8,132


$
8,328

Operating Costs and Expenses







Cost of operations
2,156


2,440


5,852


5,711

Depreciation and amortization
272


298


789


826

Impairment losses
14


9


77


65

Selling, general and administrative
213


277


697


801

Reorganization
18




18



Development activity expenses
14


21


49


65

Total operating costs and expenses
2,687


3,045


7,482


7,468

   Other income - affiliate
14


48


104


144

   Gain/(loss) on sale of assets


4


4


(79
)
Operating Income
376


428


758


925

Other Income/(Expense)







Equity in earnings of unconsolidated affiliates
27


16


29


13

Impairment loss on investment


(8
)



(147
)
Other income, net
15


7


33


29

Loss on debt extinguishment, net
(1
)

(50
)

(3
)

(119
)
Interest expense
(221
)

(237
)

(692
)

(718
)
Total other expense
(180
)

(272
)

(633
)

(942
)
Income/(Loss) from Continuing Operations Before Income Taxes
196


156


125


(17
)
Income tax expense
6


28


5


75

Income/(Loss) from Continuing Operations
190


128


120


(92
)
(Loss)/Income from discontinued operations, net of income tax
(27
)

265


(802
)

256

Net Income/(Loss)
163


393


(682
)

164

Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interests
(8
)

(9
)

(63
)

(49
)
Net Income/(Loss) Attributable to NRG Energy, Inc.
171


402


(619
)

213

Dividends for preferred shares






5

Gain on redemption of preferred shares






(78
)
Net Income/(Loss) Available for Common Stockholders
$
171


$
402


$
(619
)

$
286

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







Weighted average number of common shares outstanding — basic
317


316


317


315

Income from continuing operations per weighted average common share — basic
$
0.63


$
0.43


$
0.58


$
0.10

(Loss)/Income from discontinued operations per weighted average common share — basic
$
(0.09
)

$
0.84


$
(2.53
)

$
0.81

Income/(Loss) per Weighted Average Common Share — Basic
$
0.54


$
1.27


$
(1.95
)

$
0.91

Weighted average number of common shares outstanding — diluted
322


317


317


316

Income from continuing operations per weighted average common share — diluted
$
0.61


$
0.43


$
0.58


$
0.10

(Loss)/Income from discontinued operations per weighted average common share — diluted
$
(0.08
)

$
0.84


$
(2.53
)

$
0.81

Income/(Loss) per Weighted Average Common Share — Diluted
$
0.53


$
1.27


$
(1.95
)

$
0.91

Dividends Per Common Share
$
0.03


$
0.03


$
0.09


$
0.21

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,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Net income/(loss)
$
163

 
$
393

 
$
(682
)

$
164

Other comprehensive income/(loss), net of tax

 

 



Unrealized gain/(loss) on derivatives, net of income tax (benefit)/expense of $0, $(1), $1, and $1
7


27


6


(8
)
Foreign currency translation adjustments, net of income tax expense of $0, $0, $0, and $0
2


3


10


6

Available-for-sale securities, net of income tax expense of $0, $0, $0, and $0
1




2


1

Defined benefit plans, net of income tax expense of $0, $0, $0, and $0
(1
)

31


26


32

Other comprehensive income
9


61


44


31

Comprehensive income/(loss)
172


454


(638
)

195

Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interests
(5
)

(2
)

(61
)

(70
)
Comprehensive income/(loss) attributable to NRG Energy, Inc.
177


456


(577
)

265

Dividends for preferred shares






5

Gain on redemption of preferred shares

 

 


(78
)
Comprehensive income/(loss) available for common stockholders
$
177


$
456


$
(577
)

$
338

See accompanying notes to condensed consolidated financial statements.

11





NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30, 2017
 
December 31, 2016
(In millions, except shares)
 
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,223


$
938

Funds deposited by counterparties
31


2

Restricted cash
537


446

Accounts receivable, net
1,274


1,058

Inventory
630


721

Derivative instruments
475


1,067

Cash collateral posted in support of energy risk management activities
203


150

Current assets - held for sale
33


9

Prepayments and other current assets
354


404

Current assets - discontinued operations


1,919

Total current assets
4,760


6,714

Property, plant and equipment, net
15,332


15,369

Other Assets
 

 
Equity investments in affiliates
1,138


1,120

Notes receivable, less current portion
5


16

Goodwill
662


662

 Intangible assets, net
1,838


1,973

Nuclear decommissioning trust fund
670


610

Derivative instruments
206


181

Deferred income taxes
205


225

Non-current assets held-for-sale
10


10

Other non-current assets
644


841

Non-current assets - discontinued operations


2,961

Total other assets
5,378


8,599

Total Assets
$
25,470


$
30,682

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
Current Liabilities
 

 
Current portion of long-term debt and capital leases
$
1,247


$
516

Accounts payable
911


813

Derivative instruments
522


1,092

Cash collateral received in support of energy risk management activities
31


81

Accrued expenses and other current liabilities
830


990

Accrued expenses and other current liabilities - affiliate
164



Current liabilities - discontinued operations


1,210

Total current liabilities
3,705


4,702

Other Liabilities
 

 
Long-term debt and capital leases
15,658


15,957

Nuclear decommissioning reserve
265


287

Nuclear decommissioning trust liability
397


339

Deferred income taxes
21


20

Derivative instruments
307


284

Out-of-market contracts, net
213


230

Non-current liabilities held-for-sale
13


11

Other non-current liabilities
1,116


1,176

Non-current liabilities - discontinued operations


3,184

Total non-current liabilities
17,990


21,488

Total Liabilities
21,695


26,190

Redeemable noncontrolling interest in subsidiaries
85


46

Commitments and Contingencies





Stockholders’ Equity



Common stock
4


4

Additional paid-in capital
8,369


8,358

Retained deficit
(4,713
)

(3,787
)
Less treasury stock, at cost — 101,580,045 and 102,140,814 shares, respectively
(2,386
)

(2,399
)
Accumulated other comprehensive loss
(91
)

(135
)
Noncontrolling interest
2,507


2,405

Total Stockholders’ Equity
3,690


4,446

Total Liabilities and Stockholders’ Equity
$
25,470


$
30,682

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,
(In millions)
2017
 
2016
Cash Flows from Operating Activities
 
 
 
Net (loss)/income
$
(682
)

$
164

(Loss)/Income from discontinued operations, net of income tax
(802
)

256

Income/(loss) from continuing operations
120


(92
)
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:



Distributions and equity in earnings of unconsolidated affiliates
24


44

Depreciation and amortization
789


826

Provision for bad debts
57


36

Amortization of nuclear fuel
37


39

Amortization of financing costs and debt discount/premiums
44


42

Adjustment for debt extinguishment
3


119

Amortization of intangibles and out-of-market contracts
79


131

Amortization of unearned equity compensation
27


23

Impairment losses
77


211

Changes in deferred income taxes and liability for uncertain tax benefits
26


29

Changes in nuclear decommissioning trust liability
20


24

Changes in derivative instruments
25


30

Changes in collateral posted in support of risk management activities
(103
)

261

Proceeds from sale of emission allowances
21


11

(Gain)/loss on sale of assets
(22
)

70

Changes in other working capital
(380
)

(130
)
Cash provided by continuing operations
844


1,674

Cash (used)/provided by discontinued operations
(38
)

67

Net Cash Provided by Operating Activities
806


1,741

Cash Flows from Investing Activities
 

 
Acquisitions of businesses, net of cash acquired
(36
)

(18
)
Capital expenditures
(760
)

(659
)
Decrease in notes receivable
11


2

Purchases of emission allowances
(47
)

(32
)
Proceeds from sale of emission allowances
105


47

Investments in nuclear decommissioning trust fund securities
(402
)

(378
)
Proceeds from the sale of nuclear decommissioning trust fund securities
382


354

Proceeds from renewable energy grants and state rebates
8


11

Proceeds from sale of assets, net of cash disposed of
36


84

Investments in unconsolidated affiliates
(31
)

(23
)
Other
22


31

Cash used by continuing operations
(712
)

(581
)
Cash (used)/provided by discontinued operations
(53
)

326

Net Cash Used by Investing Activities
(765
)

(255
)
Cash Flows from Financing Activities
 

 
Payment of dividends to common and preferred stockholders
(28
)

(66
)
Payment for preferred shares


(226
)
Net receipts from settlement of acquired derivatives that include financing elements
2


6

Proceeds from issuance of long-term debt
1,134


5,237

Payments for short and long-term debt
(712
)

(5,353
)
Receivable from affiliate
(125
)


Payments for debt extinguishment costs


(98
)
Contributions from, net of distributions to, noncontrolling interest in subsidiaries
65


(127
)
Proceeds from issuance of stock


1

Payment of debt issuance costs
(43
)

(70
)
Other - contingent consideration
(10
)

(10
)
Cash provided/(used) by continuing operations
283


(706
)
Cash (used)/provided by discontinued operations
(224
)

119

Net Cash provided/(used) by Financing Activities
59


(587
)
Effect of exchange rate changes on cash and cash equivalents
(10
)

(6
)
Change in Cash from discontinued operations
(315
)

512

Net Increase in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash
405


381

Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period
1,386


1,322

Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period
$
1,791


$
1,703

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 a leading integrated power company built on the strength of a diverse competitive electric generation portfolio and leading retail electricity platform. NRG is continuously focused on excellence in operating performance of its existing assets and optimal hedging of generation assets and retail load operations, as well as serving the energy needs of end-use residential, commercial and industrial customers in competitive markets through multiple brands and channels. The Company owns and operates approximately 30,000 MW of generation; engages in the trading of wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG”, "Reliant" and other retail brand names owned by NRG.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the SEC's regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the consolidated financial statements in the Company's 2016 Form 10-K. Interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of September 30, 2017, and the results of operations, comprehensive income/(loss) and cash flows for the three and nine months ended September 30, 2017 and 2016.
GenOn Chapter 11 Cases
On June 14, 2017, or the Petition Date, GenOn, along with GenOn Americas Generation and certain of their directly and indirectly-owned subsidiaries, or collectively the GenOn Entities, filed voluntary petitions for relief under Chapter 11, or the Chapter 11 Cases, of the U.S. Bankruptcy Code, or the Bankruptcy Code, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, or the Bankruptcy Court. GenOn Mid-Atlantic, as well as its consolidated subsidiaries, REMA and certain other subsidiaries, did not file for relief under Chapter 11.

As a result of the bankruptcy filings and beginning on June 14, 2017, GenOn and its subsidiaries were deconsolidated from NRG’s consolidated financial statements. NRG recorded its investment in GenOn under the cost method with an estimated fair value of zero. NRG determined that this disposal of GenOn and its subsidiaries is a discontinued operation; and, accordingly, the financial information for all historical periods have been recast to reflect GenOn as a discontinued operation. In connection with the disposal, NRG recorded a loss on deconsolidation of $208 million during the quarter ended June 30, 2017. See Note 3, Discontinued Operations, Dispositions and Acquisitions, for more information.

Prior to the GenOn Entities' filing the Chapter 11 Cases, on June 12, 2017, NRG entered into a restructuring support and lock-up agreement, or the Restructuring Support Agreement, with the GenOn Entities and certain holders of the GenOn and GenOn Americas Generation Senior Notes, that provides for a restructuring and recapitalization of the GenOn Entities through a prearranged plan of reorganization. The RSA was amended on October 2, 2017 to remove the requirement to conduct a rights offering in connection with the exit financing. There is no assurance that the GenOn Entities' plan will be approved by the requisite stakeholders, confirmed by the Bankruptcy Court, or successfully implemented thereafter. The principal terms of the Restructuring Support Agreement are described further in Note 3, Discontinued Operations, Dispositions and Acquisitions.

As announced on October 31, 2017, NRG and GenOn engaged in arms-length discussions to settle certain items related to the pre-petition Restructuring Support Agreement, including key topics such as: (i) timeline and transition; (ii) cooperation and co-development matters; (iii) post-employment and retiree health and welfare benefits and pension benefits; (iv) tax matters; and (v) intercompany balances. The agreements reached on these topics are expected to be incorporated into definitive documents for GenOn’s emergence from Chapter 11.


14



Forms of definitive documents were filed with the Bankruptcy Court by the GenOn Entities; however, such definitive documents are subject to ongoing review, revision, and further negotiation by the parties to the Restructuring Support Agreement, including NRG, who have various consent rights over the final form of the plan supplement documents, and may be amended, modified, supplemented, and revised in accordance with those ongoing negotiations.

Transformation Plan
On July 12, 2017, NRG announced its Transformation Plan designed to significantly strengthen earnings and cost competitiveness, lower risk and volatility, and create significant shareholder value. The three-part, three-year plan is comprised of the following targets:
Operations and cost excellence — Cost savings and margin enhancement of $1,065 million recurring, which consists of $590 million of annual cost savings, a $215 million net margin enhancement program, $50 million annual reduction in maintenance capital expenditures, and $210 million in permanent selling, general and administrative expense reduction associated with asset sales.
Portfolio optimization — Targeting up to $4.0 billion of asset sale net cash proceeds, including divestitures of 6 GWs of conventional generation and businesses (excluding GenOn) and the expected monetization of 100% of its interest in NRG Yield, Inc. and its renewables platform.

Capital structure and allocation enhancements — A prioritized capital allocation strategy that targets a reduction in consolidated debt from approximately $19.5 billion ($18 billion net debt) to approximately $6.5 billion ($6 billion net debt). Following the completion of the contemplated asset sales, the Company expects $4.8-$6.3 billion in excess cash to be available for allocation through 2020, after achieving its targeted 3.0x net debt / Adjusted EBITDA corporate credit ratio.

The Company expects to fully implement the Transformation Plan by the end of 2020 with significant completion by the end of 2018. The Company expects to realize (i) $370 million of non-recurring working capital improvements through 2020 and (ii) approximately $290 million, one-time costs to achieve.

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.
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, 2017
 
December 31, 2016
 
(In millions)
Accounts receivable allowance for doubtful accounts
$
61

 
$
29

Property, plant and equipment accumulated depreciation
6,437

 
5,711

Intangible assets accumulated amortization
1,750

 
1,687

Out-of-market contracts accumulated amortization
352

 
457


15



Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, restricted cash and funds deposited by counterparties reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.
 
September 30, 2017
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
           
(In millions)
Cash and cash equivalents
$
1,223

 
$
938

 
$
1,217

 
$
853

Funds deposited by counterparties
31

 
2

 
6

 
55

Restricted cash
537

 
446

 
480

 
414

Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows
$
1,791

 
$
1,386

 
$
1,703

 
$
1,322

Funds deposited by counterparties consist of cash held by the Company as a result of collateral posting obligations from its counterparties. Some amounts are segregated into separate accounts that are not contractually restricted but, based on the Company's intention, are not available for the payment of general corporate obligations. Depending on market fluctuations and the settlement of the underlying contracts, the Company will refund this collateral to the hedge counterparties pursuant to the terms and conditions of the underlying trades. Since collateral requirements fluctuate daily and the Company cannot predict if any collateral will be held for more than twelve months, the funds deposited by counterparties are classified as a current asset on the Company's balance sheet, with an offsetting liability for this cash collateral received within current liabilities. As of December 31, 2016, $79 million of the cash collateral received was from GenOn, previously a consolidated subsidiary, and is included in cash collateral received in current liabilities as a result of deconsolidating GenOn, with the offset included in cash and cash equivalents.
Restricted cash consists primarily of funds held to satisfy the requirements of certain debt agreements and funds held within the Company's projects that are restricted in their use.
Noncontrolling Interest
The following table reflects the changes in NRG's noncontrolling interest balance:
 
(In millions)
Balance as of December 31, 2016
$
2,405

Contributions from noncontrolling interest
116

Non-cash adjustments to noncontrolling interest
98

Sale of assets to NRG Yield, Inc.
24

Comprehensive loss attributable to noncontrolling interest
(8
)
Dividends paid to NRG Yield, Inc. public shareholders
(80
)
Distributions to noncontrolling interest
(48
)
Balance as of September 30, 2017
$
2,507


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

Contributions from redeemable noncontrolling interest
73

Non-cash adjustments to noncontrolling interest
21

Comprehensive loss attributable to redeemable noncontrolling interest
(53
)
Distributions to redeemable noncontrolling interest
(2
)
Balance as of September 30, 2017
$
85



16



Recent Accounting Developments - Guidance Adopted in 2017
ASU 2016-18 — In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, or ASU No. 2016-18. The amendments of ASU No. 2016-18 require an entity to include amounts generally described as restricted cash and restricted cash equivalents, including funds deposited by counterparties with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The amendments of ASU No. 2016-18 are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted and the adoption of ASU No. 2016-18 will be applied retrospectively. The Company adopted the guidance in ASU No. 2016-18 during the second quarter of 2017. In connection with the adoption of the standard, the Company has applied the guidance retrospectively which resulted in a decrease in cash flows from operations of $49 million and an increase in cash flows from investing of $66 million on the statement of cash flows for the nine months ended September 30, 2016.
ASU 2016-16 — In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory, or ASU No. 2016-16.  Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party which has resulted in diversity in practice and increased complexity within financial reporting.  The amendments of ASU No. 2016-16 would require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The Company adopted the guidance in ASU No. 2016-16 effective January 1, 2017. In connection with the adoption of the standard, the Company recorded a reduction to non-current assets of $267 million with a corresponding reduction to cumulative retained deficit. 
ASU 2016-15 — In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, or ASU No. 2016-15. The amendments of ASU No. 2016-15 were issued to address eight specific cash flow issues for which stakeholders have indicated to the FASB that a diversity in practice existed in how entities were presenting and classifying these items in the statement of cash flows. The issues addressed by ASU No. 2016-15 include but are not limited to the classification of debt prepayment and debt extinguishment costs, payments made for contingent consideration for a business combination, proceeds from the settlement of insurance proceeds, distributions received from equity method investees and separately identifiable cash flows and the application of the predominance principle. The Company adopted the guidance in ASU No. 2016-15 effective January 1, 2017. In connection with the adoption of the standard, the Company has applied the guidance retrospectively which resulted in an increase in cash flows from operations of $98 million and a decrease in cash flows from financing of $98 million on the statement of cash flows for the nine months ended September 30, 2016.
ASU 2016-09 — In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), or ASU No. 2016-09. The amendments focused on simplification specifically with regard to share-based payment transactions, including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. The Company adopted the guidance in ASU No. 2016-09 effective January 1, 2017 with no material adjustments recorded to the consolidated balance sheet.
Recent Accounting Developments - Guidance Not Yet Adopted
ASU 2017-12 — In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, or ASU No. 2017-12. The amendments of ASU No. 2017-12 were issued to simplify the application of hedge accounting guidance and more closely align financial reporting for hedging relationships with economic results of an entity's risk management activities. The issues addressed by ASU No. 2017-12 include but are not limited to alignment of risk management activities and financial reporting, risk component hedging, accounting for the hedged item in fair value hedges of interest rate risk, recognition and presentation of the effects of hedging instruments, amounts excluded from the assessment of hedge effectiveness, and other simplifications of hedge accounting guidance. The amendments of ASU No. 2017-12 are effective for fiscal years beginning after December 15, 2018, and interim periods therein.  Early adoption is permitted in any interim period and the effect of the adoption should be reflected as of the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2017-12 will have a material impact on its consolidated results of operations, cash flows, and statement of financial position.

17



ASU 2017-07 — In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU No. 2017-07.   Current GAAP does not indicate where the amount of net benefit cost should be presented in an entity’s income statement and does not require entities to disclose the amount of net benefit cost that is included in the income statement.  The amendments of ASU No. 2017-07 require an entity to report the service cost component of net benefit costs in the same line item as other compensation costs arising from services rendered by the related employees during the applicable service period.  The other components of net benefit cost are required to be presented separately from the service cost component and outside the subtotal of income from operations. Further, ASU No. 2017-07 prescribes that only the service cost component of net benefit costs is eligible for capitalization. The amendments of ASU No. 2017-07 are effective for fiscal years beginning after December 15, 2017, including interim periods therein.  Early adoption is permitted and must be applied on a retrospective basis, except for the amendments regarding the capitalization of the service cost component, which must be applied prospectively. The Company is currently assessing the impact that the adoption of ASU No. 2017-07 will have on its results of operations, cash flows, and statement of financial position.
ASU 2016-02 — In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or Topic 842, with the objective to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and to improve financial reporting by expanding the related disclosures. The guidance in Topic 842 provides that a lessee that may have previously accounted for a lease as an operating lease under current GAAP should recognize the assets and liabilities that arise from a lease on the balance sheet. In addition, Topic 842 expands the required quantitative and qualitative disclosures with regards to lease arrangements. The Company expects to adopt the standard effective January 1, 2019 utilizing the required modified retrospective approach for the earliest period presented. The Company expects to elect certain of the practical expedients permitted, including the expedient that permits the Company to retain its existing lease assessment and classification. The Company is currently working through an adoption plan which includes the evaluation of lease contracts compared to the new standard. While the Company is currently evaluating the impact the new guidance will have on its financial position and results of operations, the Company expects to recognize lease liabilities and right of use assets. The extent of the increase to assets and liabilities associated with these amounts remains to be determined pending the Company’s review of its existing lease contracts and service contracts which may contain embedded leases. While this review is still in process, NRG believes the adoption of Topic 842 will have a material impact on its financial statements.
ASU 2014-09 — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or Topic 606, which was further amended through various updates issued by the FASB thereafter. The amendments of Topic 606 completed the joint effort between the FASB and the IASB, to develop a common revenue standard for GAAP and IFRS, and to improve financial reporting. The guidance under Topic 606 provides that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services provided and establishes a five step model to be applied by an entity in evaluating its contracts with customers. The Company expects to adopt the standard effective January 1, 2018 and apply the guidance retrospectively to contracts at the date of adoption. The Company will recognize the cumulative effect of applying Topic 606 at the date of initial application, as prescribed under the modified retrospective transition method. The Company also expects to elect the practical expedient available under Topic 606 for measuring progress toward complete satisfaction of a performance obligation and for disclosure requirements of remaining performance obligations. The practical expedient allows an entity to recognize revenue in the amount to which the entity has the right to invoice such that the entity has a right to the consideration in an amount that corresponds directly with the value to the customer for performance completed to date by the entity. The Company continues to assess the new standard with a focus on identifying the performance obligations included within its revenue arrangements with customers and evaluating the Company’s methods of estimating the amount and timing of variable consideration. While the impact remains subject to continued review, the Company does not believe the adoption of Topic 606 will have a material impact on its financial statements.

18



Note 3Discontinued Operations, Dispositions and Acquisitions
Discontinued Operations
As described in Note 1, Basis of Presentation, on the Petition Date, the GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of the bankruptcy filings, NRG concluded that it no longer controls GenOn as it is subject to the control of the Bankruptcy Court; and, accordingly, NRG no longer consolidates GenOn for financial reporting purposes.
By eliminating a large portion of its operations in the PJM market with the deconsolidation of GenOn, NRG concluded that GenOn meets the criteria for discontinued operations, as this represents a strategic shift in the markets in which NRG operates. As such, all prior period results for GenOn have been reclassified as discontinued operations while NRG will record all ongoing results of GenOn as a cost method investment, which was valued at zero at the date of deconsolidation.
Summarized results of discontinued operations were as follows:
 
Three months ended September 30, 2017 (a)
 
Three months ended September 30, 2016
 
Nine months ended September 30, 2017 (a)
 
Nine months ended September 30, 2016
(In millions)
 
 
 
Operating revenues
$

 
$
532

 
$
646

 
$
1,509

Operating costs and expenses

 
(468
)
 
(700
)
 
(1,409
)
Gain on sale of assets

 
262

 

 
294

Other expenses

 
(43
)
 
(98
)
 
(127
)
(Loss)/Income from operations of discontinued components, before tax

 
283

 
(152
)
 
267

Income tax expense

 
21

 
9

 
20

(Loss)/Incomes from operations of discontinued components

 
262

 
(161
)
 
247

Interest income - affiliate

 
3

 
6

 
9

(Loss)/Income from operations of discontinued components, net of tax

 
265

 
(155
)
 
256

Pre-tax loss on deconsolidation

 

 
(208
)
 

Settlement consideration and services credit

 

 
(289
)
 

Pension and post-retirement liability assumption(b)
(25
)
 

 
(144
)
 

Other
(2
)
 

 
(6
)
 

Loss on disposal of discontinued components, net of tax
(27
)
 

 
(647
)
 

(Loss)/Income from discontinued operations, net of tax
$
(27
)
 
$
265

 
$
(802
)
 
$
256

(a) As of June 14, 2017, NRG no longer consolidates GenOn for financial reporting purposes.
(b) See Note 1, Basis of Presentation, for further discussion regarding the October 30, 2017 proposed changes to the Restructuring Support Agreement. As part of this, NRG recorded the liability for GenOn’s post-employment and retiree health and welfare benefits, in an amount up to $25 million with a corresponding loss on discontinued operations during the third quarter of 2017.

19



The following table summarizes the major classes of assets and liabilities classified as discontinued operations as of December 31, 2016. As of June 14, 2017, NRG no longer consolidates GenOn for financial reporting purposes.
(In millions)
 
December 31, 2016
Cash and cash equivalents
 
$
1,034

Other current assets
 
885

Current assets - discontinued operations
 
1,919

Property, plant and equipment, net
 
2,543

Other non-current assets
 
418

Non-current assets - discontinued operations
 
2,961

Current portion of long term debt and capital leases
 
704

Other current liabilities
 
506

Current liabilities - discontinued operations
 
1,210

Long-term debt and capital leases
 
2,050

Out-of-market contracts
 
811

Other non-current liabilities
 
323

Non-current liabilities - discontinued operations
 
$
3,184

Restructuring Support Agreement
As described in Note 1, Basis of Presentation, NRG, GenOn and certain holders representing greater than 93% in aggregate principal amount of GenOn’s Senior Notes and certain holders representing greater than 93% in aggregate principal amount of GenOn Americas Generation’s Senior Notes entered into a Restructuring Support Agreement that provides for a restructuring and recapitalization of the GenOn Entities through a prearranged plan of reorganization. Completion of the agreed upon terms is contingent upon certain milestones in the Restructuring Support Agreement. Certain principal terms of the Restructuring Support Agreement are detailed below:
1)
Full releases from GenOn and GenOn Americas Generation in favor of NRG, including either a full release or indemnification in favor of NRG for any claims relating to GenOn Mid-Atlantic or REMA and the dismissal of all litigation against NRG.
2)
NRG will provide settlement cash consideration to GenOn of $261.3 million, which will be paid in cash less any amounts owed to NRG under the intercompany secured revolving credit facility. As of September 30, 2017, GenOn owed NRG approximately $125 million under the intercompany secured revolving credit facility. See Note 14, Related Party Transactions, for further discussion of the intercompany secured revolving credit facility.
3)
NRG will consent to the cancellation of its interests in the equity of GenOn. The equity interests in the reorganized GenOn will be issued to the holders of the GenOn Senior Notes.
4)
NRG will retain the pension liability, including payment of approximately $13 million of 2017 pension contributions, for GenOn employees for service provided prior to the completion of the reorganization, which was paid in September 2017. GenOn’s pension liability as of September 30, 2017 was approximately $106 million.
5)
The shared services agreement between NRG and GenOn will be amended such that (i) NRG will provide shared services to GenOn at an annualized rate of $84 million during the pendency of the Chapter 11 Cases, (ii) if the settlement is approved by the bankruptcy court, NRG will provide shared services to GenOn at no charge for two months, and (iii) NRG will then provide an option for up to two, one-month extensions for shared services at an annualized rate of $84 million. See Note 14, Related Party Transactions, for further discussion of the shared services agreement.
6)
NRG will provide a credit of $28 million to GenOn to apply against amounts owed under the shared services agreement upon emergence from bankruptcy. Any unused amount can be paid in cash at GenOn’s request. The credit was intended to reimburse GenOn for its payment of financing costs.
7)
NRG agreed to provide GenOn with a letter of credit facility during the pendency of the Chapter 11 Cases, which could be utilized for required letters of credit in lieu of the intercompany secured revolving credit facility. GenOn can no longer utilize the intercompany secured revolving credit facility and, on July 27, 2017, the letter of credit facility was terminated, as GenOn had obtained a separate letter of credit facility with a third party financial institution. See Note 14, Related Party Transactions, for further discussion of the intercompany secured revolver credit facility and the letter of credit facility obtained in July 2017.
8)
NRG and GenOn have agreed to cooperate in good faith to maximize the value of certain development projects.

20



In addition to the Restructuring Support Agreement, additional support and other agreements are being negotiated, including a transition services agreement. See Note 1, Basis of Presentation, for further discussion regarding the October 30, 2017 proposed changes to the Restructuring Support Agreement.
Settlement Consideration    
NRG has determined that the payment of the settlement consideration is probable and has recorded a liability for the amount due of $261.3 million in accrued expenses and other current liabilities - affiliate with a corresponding loss from discontinued operations. NRG expects to pay this amount net of amounts due from GenOn under the intercompany secured revolving credit facility, which is further described in Note 14, Related Party Transactions.
Pension Liability
NRG will retain the pension liability, including payment of approximately $13 million of 2017 pension contributions, which was paid in September 2017, for the GenOn employees for service provided prior to emergence from bankruptcy. NRG determined that the retention of this liability is probable and has recorded the estimated accumulated pension benefit obligation as of September 30, 2017 of $106 million in other non-current liabilities with a corresponding loss from discontinued operations. NRG's obligation for this liability will be revalued through and at GenOn's emergence from bankruptcy.
Services Agreement
NRG will continue to provide shared services to GenOn under the Services Agreement at an annualized rate of $84 million during the pendency of the Chapter 11 Cases as well as for two months post-emergence at no charge. NRG then will provide an option for up to two, one-month extensions for shared services at an annualized rate of $84 million. Beginning on June 14, 2017, NRG records operating income for the amounts earned for shared services of approximately $5 million per month. NRG has also agreed to provide GenOn with a credit of $28 million against amounts owed under the Services Agreement. Any unused amount can be paid in cash at GenOn’s request. As a result, NRG has concluded that the liability for this credit is probable and has recorded a payable to GenOn for $28 million in accrued expenses and other current liabilities - affiliate with a corresponding loss from discontinued operations. See Note 1, Basis of Presentation, for further discussion regarding the October 30, 2017 proposed changes to the Restructuring Support Agreement and Services Agreement.
Commercial Operations
For pre-disposal periods, NRG provided GenOn with services as described in Note 14, Related Party Transactions. Under intercompany agreements, NRG Power Marketing LLC has entered into physical and financial intercompany commodity and hedging transactions with GenOn and certain of its subsidiaries. Subject to applicable collateral thresholds, these arrangements may provide for the bilateral exchange of credit support based upon market exposure and potential market movements. The terms and conditions of the agreements are generally consistent with industry practices and other third party arrangements. For current and pre-disposal periods, revenue and expense associated with these transactions is recorded in continuing operations.
GenOn Debt
As of June 14, 2017, the GenOn Senior Notes and GenOn Americas Generation Senior Notes, which totaled approximately $2.5 billion, were deconsolidated from NRG's consolidated financial statements. The filing of the Chapter 11 Cases constitutes an event of default under the following debt instruments of GenOn:
1)
The intercompany secured revolving credit facility with NRG;
2)
The indenture governing the GenOn 7.875% Senior Notes due 2017 (as amended or supplemented from time to time);
3)
The indenture governing the GenOn 9.500% Notes due 2018 (as amended or supplemented from time to time);
4)
The indenture governing the GenOn 9.875% Notes due 2020 (as amended or supplemented from time to time);
5)
The indenture governing the GenOn Americas Generation 8.50% Senior Notes due 2021 (as amended or supplemented from time to time); and
6)
The indenture governing the GenOn Americas Generation 9.125% Senior Notes due 2031 (as amended or supplemented from time to time).
Transfer of Assets Under Common Control
On November 1, 2017, NRG completed the sale of a 38 MW solar portfolio primarily comprised of assets from SPP funds, in addition to other projects developed by NRG, to NRG Yield, Inc. for cash consideration of $71 million, plus $3 million in working capital adjustments.
On August 1, 2017, NRG closed on the sale of its remaining 25% interest in NRG Wind TE Holdco, a portfolio of 12 wind projects, to NRG Yield, Inc. for total cash consideration of $44 million, including working capital adjustment of $3 million. The transaction also includes potential additional payments to NRG dependent upon actual energy prices for merchant periods beginning in 2027.

21



On March 27, 2017, the Company sold to NRG Yield, Inc.: (i) a 16% interest in the Agua Caliente solar project, representing ownership of approximately 46 net MW of capacity and (ii) NRG's interests in seven utility-scale solar projects located in Utah representing 265 net MW of capacity, which have reached commercial operations. NRG Yield, Inc. paid cash consideration of $130 million, plus $1 million in working capital adjustments, and assumed non-recourse debt of approximately $328 million.
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.
Acquisitions
SunEdison Utility-Scale Solar and Wind Acquisition
On November 2, 2016, the Company acquired equity interests in a tax equity portfolio from SunEdison, located in Utah, comprised of 530 MW of mechanically-complete solar assets, of which NRG’s net interest based on cash to be distributed is 265 MW, for upfront cash consideration of $111 million. In connection with the acquisition, the Company assumed non-recourse debt of $222 million. The Company also borrowed additional amounts of $65 million during the fourth quarter of 2016, which effectively reduced the Company's use of liquidity related to the acquisition. The Company does not have a controlling interest in the tax equity portfolio and, accordingly, its interest is recorded as an equity method investment. The purchase price was preliminarily allocated to the equity method investment balance of approximately $328 million, current assets of $5 million and the assumed non-recourse debt of $222 million. The assets reached commercial operations during the fourth quarter of 2016 and have 20-year PPAs with PacificCorp.
The Company acquired a 110 MW portfolio of construction-ready and 71 MW of development solar assets in Hawaii from SunEdison for upfront cash consideration of $2 million on October 3, 2016 and a 154 MW construction-ready solar project in Texas for upfront cash consideration of $11 million on November 9, 2016.
In addition to the total $124 million in upfront cash consideration paid for the above acquisitions, the Company expects to make an estimated $59 million in additional payments contingent upon future development milestones, of which $15 million was paid as of September 30, 2017.
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 $67 million excluding post-closing adjustments which reduced the purchase price by $5 million. Subsequent to the acquisition, the Company sold the majority of these assets into a tax-equity financed portfolio within the DGPV Holdco partnership between NRG and NRG Yield, Inc., and expects to sell the remaining assets into a similar portfolio in 2017. The purchase price was allocated to $47 million in construction in progress and $15 million in intangible assets.
Dispositions
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 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. As part of the sale, 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 will be directly reimbursed by NRG for the costs. As a result of the sale, the Company recorded a loss on sale of $83 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. On February 22, 2017, the Company and CPUC entered into a second amendment to the agreement which extended the operating period commitment for the Freedom Stations to December 5, 2020. At September 30, 2017, the Company's remaining 35% interest in EVgo of $2 million was accounted for as an equity-method investment.

22



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. At June 30, 2016, the Company had $2 million of current assets and $54 million of non-current assets classified as held for sale for Rockford on its balance sheet. 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, to this Form 10-Q.
Note 4Fair Value of Financial Instruments
This footnote should be read in conjunction with the complete description under Note 4, Fair Value of Financial Instruments, to the Company's 2016 Form 10-K.
For cash and cash equivalents, funds deposited by counterparties, accounts and other receivables, accounts payable, restricted cash, and cash collateral paid and received in support of energy risk management activities, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.
The estimated carrying amounts and fair values of NRG's recorded financial instruments not carried at fair market value are as follows:
 
As of September 30, 2017
 
As of December 31, 2016
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable (a)
$
22

 
$
21

 
$
34

 
$
34

Liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion (b)
17,097

 
17,423

 
16,655

 
16,620

(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, 2017 and December 31, 2016:
 
As of September 30, 2017
 
As of December 31, 2016
 
Level 2
 
Level 3
 
Level 2
 
Level 3
 
(In millions)
Long-term debt, including current portion
$
9,571

 
$
7,852

 
$
9,205

 
$
7,415



23



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, 2017
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
    non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
19

 
$
19

Available-for-sale securities
5

 

 

 
5

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
31

 

 

 
31

U.S. government and federal agency obligations
43

 
1

 

 
44

Federal agency mortgage-backed securities

 
74

 

 
74

Commercial mortgage-backed securities

 
11

 

 
11

Corporate debt securities

 
108

 

 
108

Equity securities
333

 

 
65

 
398

Foreign government fixed income securities

 
4

 

 
4

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
132

 
409

 
98

 
639

Interest rate contracts

 
42

 

 
42

Total assets
$
545

 
$
649

 
$
182

 
$
1,376

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
201

 
404

 
146

 
751

Interest rate contracts

 
78

 

 
78

Total liabilities
$
201

 
$
482

 
$
146

 
$
829

.

24



 
As of December 31, 2016
 
Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Investment in available-for-sale securities (classified within other
non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
17

 
$
17

Available-for-sale securities
10

 

 

 
10

Nuclear trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
25

 

 

 
25

U.S. government and federal agency obligations
72

 
1

 

 
73

Federal agency mortgage-backed securities

 
62

 

 
62

Commercial mortgage-backed securities

 
17

 

 
17

Corporate debt securities

 
84

 

 
84

Equity securities
292

 

 
54

 
346

Foreign government fixed income securities

 
3

 

 
3

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

 

 

 
1

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
560

 
549

 
90

 
1,199

Interest rate contracts

 
49

 

 
49

Total assets
$
960

 
$
765

 
$
161

 
$
1,886

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
494

 
636

 
158

 
1,288

Interest rate contracts

 
88

 

 
88

Total liabilities
$
494

 
$
724

 
$
158

 
$
1,376


There were no transfers during the three and nine months ended September 30, 2017 and 2016 between Levels 1 and 2. The following tables reconcile, for the three and nine months ended September 30, 2017 and 2016, the beginning and ending balances for financial instruments that are recognized at fair value in the condensed consolidated financial statements, at least annually, using significant unobservable inputs:
 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Three months ended September 30, 2017
 
Nine months ended September 30, 2017
(In millions)
Debt Securities
 
Trust Fund Investments
 
Derivatives(a)
 
Total
 
Debt Securities
 
Trust Fund Investments
 
Derivatives(a)
 
Total
Beginning balance
$
18

 
$
61

 
$
(11
)
 
$
68

 
$
17

 
$
54

 
$
(68
)
 
$
3

Total gains/(losses) — realized/unrealized:
 
 
 
 
 
 


 
 
 
 
 
 
 


Included in earnings
1

 

 
(28
)
 
(27
)
 
2

 

 
18

 
20

Included in nuclear decommissioning obligation

 
3

 

 
3

 

 
10

 

 
10

Purchases

 
1

 
(9
)
 
(8
)
 

 
1

 

 
1

Transfers into Level 3 (b)

 

 
(6
)
 
(6
)
 

 

 
(11
)
 
(11
)
Transfers out of Level 3 (b)

 

 
6

 
6

 

 

 
13

 
13

Ending balance as of September 30, 2017
$
19

 
$
65

 
$
(48
)
 
$
36

 
$
19

 
$
65

 
$
(48
)
 
$
36

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, 2017
$

 
$

 
$
(13
)
 
$
(13
)
 
$

 
$

 
$
(6
)
 
$
(6
)
(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.

25



 
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

 
$
18

 
$
85

 
$
17

 
$
54

 
$
(22
)
 
$
49

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

 

 
(5
)
 
(5
)
 

 

 
4

 
4

Included in OCI
1

 

 

 
1

 

 

 

 

Included in nuclear decommissioning obligations

 
3

 

 
3

 

 
(1
)
 

 
(1
)
Purchases

 

 
(25
)
 
(25
)
 

 
1

 
2

 
3

Transfers into Level 3 (b)

 

 
(13
)
 
(13
)
 

 

 
(6
)
 
(6
)
Transfers out of Level 3 (b)

 

 
3

 
3

 

 

 

 

Ending balance as of September 30, 2016
$
17

 
$
54

 
$
(22
)
 
$
49

 
$
17

 
$
54

 
$
(22
)
 
$
49

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
$

 
$

 
$
(4
)
 
$
(4
)
 
$

 
$

 
$
(11
)
 
$
(11
)
(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, 2017, contracts valued with prices provided by models and other valuation techniques make up 14% of the total derivative assets and 18% of the total derivative liabilities.
NRG's significant positions classified as Level 3 include physical and financial power executed in illiquid markets as well as financial transmission rights, or FTRs. The significant unobservable inputs used in developing fair value include illiquid power 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.











26



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, 2017 and December 31, 2016:
 
Significant Unobservable Inputs
 
September 30, 2017
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
 
 
 
 
 
 
 
 
 
 
Power Contracts
$
47

 
$
101

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

 
$
88

 
$
24

FTRs
51

 
45

 
Discounted Cash Flow
 
Auction Prices (per MWh)
 
(31
)
 
36

 

 
$
98

 
$
146

 
 
 
 
 
 
 
 
 
 
 
Significant Unobservable Inputs
 
December 31, 2016
 
Fair Value
 
 
 
Input/Range
 
Assets
 
Liabilities
 
Valuation Technique
 
Significant Unobservable Input
 
Low
 
High
 
Weighted Average
 
(In millions)
 
 
 
 
 
 
 
 
 
 
Power Contracts
$
39

 
$
108

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

 
$
104

 
$
31

FTRs
51

 
50

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

 

 
$
90

 
$
158

 
 
 
 
 
 
 
 
 
 
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of September 30, 2017 and December 31, 2016:
Significant Unobservable Input
 
Position
 
Change In Input
 
Impact on Fair Value Measurement
Forward Market Price Power
 
Buy
 
Increase/(Decrease)
 
Higher/(Lower)
Forward Market Price Power
 
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, 2017, the credit reserve resulted in a $1 million increase in fair value in operating revenue and cost of operations. As of December 31, 2016, the credit reserve resulted in a $10 million decrease in fair value in operating revenue and cost of operations.
Concentration of Credit Risk
In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, to the Company's 2016 Form 10-K, the following is a discussion of the concentration of credit risk for the Company's contractual obligations. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. NRG is exposed to counterparty credit risk through various activities including wholesale sales, fuel purchases and retail supply arrangements, and retail customer credit risk through its retail load activities.

27



Counterparty Credit Risk
The Company's counterparty credit risk policies are disclosed in its 2016 Form 10-K. As of September 30, 2017, the Company's counterparty credit exposure, excluding credit risk exposure under certain long term agreements, was $134 million with net exposure of $129 million. NRG held collateral (cash and letters of credit) against those positions of $14 million. Approximately 74% of the Company's exposure before collateral is expected to roll off by the end of 2018. Counterparty credit exposure is valued through observable market quotes and discounted at a risk free interest rate. The following tables highlight net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market and NPNS, and non-derivative transactions. The exposure is shown net of collateral held, and includes amounts net of receivables or payables.
 
Net Exposure (a) (b)
Category by Industry Sector
(% of Total)
Utilities, energy merchants, marketers and other
91
%
Financial institutions
9

Total as of September 30, 2017
100
%
 
Net Exposure (a) (b)
Category by Counterparty Credit Quality
(% of Total)
Investment grade
79
%
Non-Investment grade/Non-Rated
21

Total as of September 30, 2017
100
%
(a)
Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices.
(b)
The figures in the tables above exclude potential counterparty credit exposure related to RTOs, ISOs, registered commodity exchanges and certain long term contracts.
NRG has counterparty credit risk exposure to certain counterparties, each of which represent more than 10% of total net exposure discussed above. The aggregate of such counterparties' exposure was $50 million as of September 30, 2017. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. Given the credit quality, diversification and term of the exposure in the portfolio, NRG does not anticipate a material impact on the Company's financial position or results of operations from nonperformance by any of NRG's counterparties.
RTOs and ISOs
The Company participates in the organized markets of CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in these markets is approved by FERC, or in the case of ERCOT, approved by the PUCT and includes credit policies that, under certain circumstances, require that losses arising from the default of one member on spot market transactions be shared by the remaining participants. As a result, the counterparty credit risk to these markets is limited to NRG’s share of overall market and are excluded from the above exposures.
Exchange Traded Transactions
The Company enters into commodity transactions on registered exchanges, notably ICE and NYMEX. These clearinghouses act as the counterparty and transactions are subject to extensive collateral and margining requirements. As a result, these commodity transactions have limited counterparty credit risk.

Long Term Contracts
Counterparty credit exposure described above excludes credit risk exposure under certain long term agreements, including California tolling agreements, Gulf Coast load obligations, and wind and solar PPAs. As external sources or observable market quotes are not available to estimate such exposure, the Company estimates its credit exposure for these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of September 30, 2017, aggregate credit risk exposure managed by NRG to these counterparties was approximately $4.3 billion, including $2.8 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 or treatment by regulatory agencies which NRG is unable to predict.


28



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, 2017, the Company believes its retail customer credit exposure was diversified across many customers and various industries, as well as government entities.
Note 5Nuclear Decommissioning Trust Fund
This footnote should be read in conjunction with the complete description under Note 6, Nuclear Decommissioning Trust Fund, to the Company's 2016 Form 10-K.
NRG's Nuclear Decommissioning Trust Fund assets are comprised of securities classified as available-for-sale and recorded at fair value based on actively quoted market prices. NRG accounts for the Nuclear Decommissioning Trust Fund in accordance with ASC 980, Regulated Operations, because the Company's nuclear decommissioning activities are subject to approval by the PUCT with regulated rates that are designed to recover all decommissioning costs and that can be charged to and collected from the ratepayers per PUCT mandate. Since the Company is in compliance with PUCT rules and regulations regarding decommissioning trusts and the cost of decommissioning is the responsibility of the Texas ratepayers, not NRG, all realized and unrealized gains or losses (including other-than-temporary impairments) related to the Nuclear Decommissioning Trust Fund are recorded to nuclear decommissioning trust liability and are not included in net income or accumulated OCI, consistent with regulatory treatment.
The following table summarizes the aggregate fair values and unrealized gains and losses (including other-than-temporary impairments) for the securities held in the trust funds, as well as information about the contractual maturities of those securities.
 
As of September 30, 2017
 
As of December 31, 2016
(In millions, except otherwise noted)
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted-average Maturities (In years)
 
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted-average Maturities (In years)
Cash and cash equivalents
$
31

 
$

 
$

 

 
$
25

 
$

 
$

 

U.S. government and federal agency obligations
44

 
2

 

 
10

 
73

 
1

 

 
11

Federal agency mortgage-backed securities
74

 
1

 
1

 
24

 
62

 
1

 
1

 
25

Commercial mortgage-backed securities
11

 

 

 
23

 
17

 

 
1

 
26

Corporate debt securities
108

 
2

 
1

 
11

 
84

 
1

 
2

 
11

Equity securities
398

 
260

 

 

 
346

 
214

 

 

Foreign government fixed income securities
4

 

 

 
9

 
3

 

 

 
9

Total
$
670

 
$
265

 
$
2

 
 
 
$
610

 
$
217

 
$
4

 
 
The following table summarizes proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales. The cost of securities sold is determined on the specific identification method.
 
Nine months ended September 30,
 
2017
 
2016
 
(In millions)
Realized gains
$
8

 
$
7

Realized losses
6

 
3

Proceeds from sale of securities
382


354


29



Note 6Accounting for Derivative Instruments and Hedging Activities
This footnote should be read in conjunction with the complete description under Note 5, Accounting for Derivative Instruments and Hedging Activities, to the Company's 2016 Form 10-K.
Energy-Related Commodities
As of September 30, 2017, NRG had energy-related derivative instruments extending through 2031. The Company marks these derivatives to market through the statement of operations.
Interest Rate Swaps
NRG is exposed to changes in interest rates through the Company's issuance of variable rate debt. In order to manage the Company's interest rate risk, NRG enters into interest rate swap agreements. As of September 30, 2017, the Company had interest rate derivative instruments on recourse debt extending through 2021, which are not designated as cash flow hedges. The Company had interest rate swaps on non-recourse debt extending through 2041, 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, 2017 and December 31, 2016. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date.
 
 
Total Volume
 
 
September 30, 2017
 
December 31, 2016
Category
Units
(In millions)
Emissions
Short Ton
(1
)
 

Coal
Short Ton
15

 
35

Natural Gas
MMBtu
(62
)
 
(53
)
Oil
Barrel

 
1

Power
MWh
19

 
7

Capacity
MW/Day
(1
)
 
(1
)
Interest
Dollars
$
3,806

 
$
3,429

Equity
Shares
1

 
1

The decrease in the coal position was primarily the result of the settlement of hedge positions, and the increase in the power position was primarily the result of additional retail hedge positions.

Fair Value of Derivative Instruments
The following table summarizes the fair value within the derivative instrument valuation on the balance sheets:
 
Fair Value
 
Derivative Assets
 
Derivative Liabilities
 
September 30, 2017
 
December 31, 2016
 
September 30, 2017
 
December 31, 2016
 
(In millions)
Derivatives designated as cash flow hedges:

 
 
 


 
Interest rate contracts current
$

 
$

 
$
8


$
28

Interest rate contracts long-term
10

 
12

 
15


41

Total derivatives designated as cash flow hedges
10

 
12

 
23


69

Derivatives not designated as cash flow hedges:

 
 
 
 

 
Interest rate contracts current
5

 

 
19


7

Interest rate contracts long-term
27

 
37

 
36


12

Commodity contracts current
470

 
1,067

 
495


1,057

Commodity contracts long-term
169

 
132

 
256


231

Total derivatives not designated as cash flow hedges
671

 
1,236

 
806


1,307

Total derivatives
$
681


$
1,248

 
$
829


$
1,376




30



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, 2017
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
$
639

 
$
(546
)
 
$
(5
)
 
$
88

Derivative liabilities
 
(751
)
 
546

 
83

 
(122
)
Total commodity contracts
 
(112
)
 

 
78

 
(34
)
Interest rate contracts:
 
 
 
 
 
 
 
 
Derivative assets
 
42

 
(2
)
 

 
40

Derivative liabilities
 
(78
)
 
2

 

 
(76
)
Total interest rate contracts
 
(36
)
 

 

 
(36
)
Total derivative instruments
 
$
(148
)
 
$

 
$
78

 
$
(70
)
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
Gross Amounts of Recognized Assets / Liabilities
 
Derivative Instruments
 
Cash Collateral (Held) / Posted
 
Net Amount
As of December 31, 2016
 
(In millions)
Commodity contracts:
 
 
 
 
 
 
 

Derivative assets
 
$
1,199

 
$
(1,021
)
 
$
(13
)
 
$
165

Derivative liabilities
 
(1,288
)
 
1,021

 
13

 
(254
)
Total commodity contracts
 
(89
)
 

 

 
(89
)
Interest rate contracts:
 
 
 
 
 
 
 

Derivative assets
 
49

 
(4
)
 

 
45

Derivative liabilities
 
(88
)
 
4

 

 
(84
)
Total interest rate contracts
 
(39
)
 

 

 
(39
)
Total derivative instruments
 
$
(128
)
 
$

 
$


$
(128
)
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:
 
Interest Rate Contracts
 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Accumulated OCI beginning balance
$
(67
)
 
$
(165
)
 
$
(66
)
 
$
(101
)
Reclassified from accumulated OCI to income:
 
 
 
 
 
 
 
Due to realization of previously deferred amounts
4

 
2

 
10

 
12

Mark-to-market of cash flow hedge accounting contracts
4

 
32

 
(3
)
 
(42
)
Accumulated OCI ending balance, net of $15, and $28 tax
$
(59
)
 
$
(131
)

$
(59
)

$
(131
)
Losses expected to be realized from OCI during the next 12 months, net of $4 tax
$
14

 

 
$
14

 


Amounts reclassified from accumulated OCI into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to interest expense for interest rate contracts. There was no ineffectiveness for the three and nine months ended September 30, 2017 and 2016.

31



Accounting guidelines require a high degree of correlation between the derivative and the hedged item throughout the period in order to qualify as a cash flow hedge. As of December 31, 2016, the Company's regression analysis for Viento Funding II interest rate swaps, while positively correlated, did not meet the required threshold for cash flow hedge accounting. As a result, the Company de-designated the Viento Funding II cash flow hedges as of December 31, 2016, and will prospectively mark these derivatives to market through the income statement.
The Company's regression analysis for Marsh Landing, Walnut Creek, and Avra Valley interest rate swaps, while positively correlated, no longer contain match terms for cash flow hedge accounting. As a result, the Company voluntarily de-designated the Marsh Landing, Walnut Creek, and Avra Valley cash flow hedges as of April 28, 2017, and will prospectively mark these derivatives to market through the income statement.
Impact of Derivative Instruments on the Statements of Operations
Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedges and ineffectiveness of hedge derivatives are reflected in current period consolidated results of operations.
The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges, ineffectiveness on cash flow hedges and trading activity on the Company's statement of operations. The effect of energy commodity contracts is included within operating revenues and cost of operations and the effect of interest rate contracts is included in interest expense.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Unrealized mark-to-market results
(In millions)
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges
$
(6
)
 
$
(30
)
 
$
19

 
$
(75
)
Reversal of acquired gain positions related to economic hedges
(2
)
 
(7
)
 
(1
)
 
(11
)
Net unrealized (losses)/gains on open positions related to economic hedges
(16
)
 
(50
)
 
(1
)
 
27

Total unrealized mark-to-market (losses)/gains for economic hedging activities
(24
)
 
(87
)
 
17

 
(59
)
Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity
(5
)
 
3

 
(24
)
 
13

Net unrealized (losses)/gains on open positions related to trading activity

 
(8
)
 
17

 
14

Total unrealized mark-to-market (losses)/gains for trading activity
(5
)
 
(5
)
 
(7
)
 
27

Total unrealized (losses)/gains
$
(29
)
 
$
(92
)
 
$
10

 
$
(32
)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Unrealized gains/(losses) included in operating revenues
$
21

 
$
57

 
$
178

 
$
(333
)
Unrealized (losses)/gains included in cost of operations
(50
)
 
(149
)
 
(168
)
 
301

Total impact to statement of operations — energy commodities
$
(29
)
 
$
(92
)
 
$
10

 
$
(32
)
Total impact to statement of operations — interest rate contracts
$
11

 
$
9

 
$
(8
)
 
$
(9
)
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.
For the nine months ended September 30, 2017, the $1 million unrealized loss from open economic hedge positions was primarily the result of a decrease in value of forward purchases of coal, natural gas, and ERCOT power due to decreases in coal, natural gas, and ERCOT electricity prices, which was largely offset by an increase in value of forward sales of PJM power and New York capacity due to decreases in PJM electricity and New York capacity prices.
For the nine months ended September 30, 2016, the $27 million unrealized gain from open economic hedge positions was primarily the result of an increase in value of forward purchases of natural gas due to increases in natural gas prices.

32



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, 2017, was $27 million. The collateral required for contracts with credit rating contingent features as of September 30, 2017, was $34 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 $17 million as of September 30, 2017.
See Note 4, Fair Value of Financial Instruments, to this Form 10-Q for discussion regarding concentration of credit risk.
Note 7Impairments

2017 Impairment Losses
    
Bacliff Project — On June 16, 2017, NRG Texas Power LLC provided notice to BTEC New Albany, LLC that it was exercising its right to terminate the Amended and Restated Membership Interest Purchase Agreement, or MIPA, due to the Bacliff Project, a new peaking facility at the former P.H. Robinson Electric Generating Station, not achieving commercial completion by the contractual expiration date of May 31, 2017. As a result of the MIPA termination, the Company recorded an impairment loss of $41 million to reduce the carrying amount of the related construction in progress to $0 during the second quarter of 2017. On July 14, 2017, the Company gave notice to BTEC New Albany, LLC that it owes NRG Texas Power LLC approximately $48 million under the terminated MIPA, consisting of $38 million in purchaser incurred costs and $10 million in liquidated damages.
Other Impairments — During the second quarter of 2017, the Company recorded impairment losses of approximately $22 million in connection with the Company's Renewables business. During the third quarter of 2017, the Company recorded an additional $14 million in impairment losses, in connection with the Company's Renewable business.
2016 Impairment Losses
Rockford — 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.
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 $9 million in impairment 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.

  

33




Note 8Debt and Capital Leases
This footnote should be read in conjunction with the complete description under Note 12, Debt and Capital Leases, to the Company's 2016 Form 10-K. Long-term debt and capital leases consisted of the following:
(In millions, except rates)
September 30, 2017
 
December 31, 2016
 
September 30, 2017 interest rate % (a)
 
 
 
Recourse debt:
 
 
 
 
 
Senior notes, due 2018
$
398

 
$
398

 
7.625
Senior notes, due 2021
207

 
207

 
7.875
Senior notes, due 2022
992

 
992

 
6.250
Senior notes, due 2023
869

 
869

 
6.625
Senior notes, due 2024
733

 
733

 
6.250
Senior notes, due 2026
1,000

 
1,000

 
7.250
Senior notes, due 2027
1,250

 
1,250

 
6.625
Term loan facility, due 2023
1,876

 
1,891

 
L+2.25
Tax-exempt bonds
465

 
455

 
4.125 - 6.00
Subtotal NRG recourse debt
7,790

 
7,795

 

Non-recourse debt:
 
 
 
 
 
NRG Yield Operating LLC Senior Notes, due 2024
500

 
500

 
5.375
NRG Yield Operating LLC Senior Notes, due 2026
350

 
350

 
5.000
NRG Yield, Inc. Convertible Senior Notes, due 2019
345

 
345

 
3.500
NRG Yield, Inc. Convertible Senior Notes, due 2020
288

 
288

 
3.250
El Segundo Energy Center, due 2023
400

 
443

 
L+1.75 - L+2.375
Marsh Landing, due 2017 and 2023
334

 
370

 
L+1.750 - L+1.875
Alta Wind I - V lease financing arrangements, due 2034 and 2035
940

 
965

 
5.696 - 7.015
Walnut Creek, term loans due 2023
279

 
310

 
L+1.625
Utah Portfolio, due 2022
284

 
287

 
L+2.625
Tapestry, due 2021
165

 
172

 
L+1.625
CVSR, due 2037
746

 
771

 
2.339 - 3.775
CVSR HoldCo, due 2037
194

 
199

 
4.680
Alpine, due 2022
138

 
145

 
L+1.750
Energy Center Minneapolis, due 2017 and 2025
82

 
96

 
5.95 - 7.25
Energy Center Minneapolis, due 2031
125

 
125

 
3.55
Viento, due 2023
169

 
178

 
L+3.00
NRG Yield - other
562

 
540

 
various
Subtotal NRG Yield debt (non-recourse to NRG)
5,901

 
6,084

 
 
Ivanpah, due 2033 and 2038
1,097

 
1,113

 
2.285 - 4.256
Carlsbad Energy Project
407

 

 
4.120
Agua Caliente, due 2037
833

 
849

 
2.395 - 3.633
Agua Caliente Borrower 1, due 2038
89

 

 
5.430
Cedro Hill, due 2025
153

 
163

 
L+1.75
Midwest Generation, due 2019
173

 
231

 
4.390
NRG Other
689

 
468

 
various
Subtotal other NRG non-recourse debt
3,441

 
2,824

 
 
Subtotal all non-recourse debt
9,342

 
8,908

 
 
Subtotal long-term debt (including current maturities)
17,132


16,703

 
 
Capital leases
6

 
6

 
various
Subtotal long-term debt and capital leases (including current maturities)
17,138


16,709

 
 
Less current maturities
(1,247
)

(516
)
 
 
Less debt issuance costs
(198
)
 
(188
)
 
 
Discounts
(35
)
 
(48
)
 
 
Total long-term debt and capital leases
$
15,658


$
15,957

 
 
(a) As of September 30, 2017, L+ equals 3 month LIBOR plus x%, with the exception of the Utah Portfolio term loans.

34



Recourse Debt
2023 Term Loan Facility
On January 24, 2017, NRG repriced the 2023 Term Loan Facility, reducing the interest rate margin by 50 basis points to LIBOR plus 2.25%. The LIBOR floor remains 0.75%.
Revolving Credit Facility
On June 12, 2017, NRG repaid $125 million on the Revolving Credit Facility. As of September 30, 2017, no cash borrowings were outstanding on the revolver.
Senior Notes
2017 Senior Note Redemptions
On October 16, 2017, the Company redeemed $398 million of its 7.625% Senior Notes due 2018 and $206 million of its 7.875% Senior Notes due 2021 for $630 million, which included $14 million in accrued interest.
2016 Senior Note 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.
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.
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.
Non-recourse Debt
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, 2017, there was $68 million of letters of credit issued under the revolving credit facility and no borrowing outstanding on the revolver.
Project Financings
Agua Caliente Project Financing
On February 17, 2017, Agua Caliente Borrower 1 LLC and Agua Caliente Borrower 2 LLC, or Agua Caliente Holdco, the indirect owners of 51% of the Agua Caliente solar facility, issued $130 million of senior secured notes under the Agua Caliente Holdco Financing Agreement, or 2038 Agua Caliente Holdco Notes, that bear interest at 5.43% and mature on December 31, 2038. As described in Note 3, Discontinued Operations, Dispositions and Acquisitions, on March 27, 2017, NRG Yield, Inc. acquired Agua Caliente Borrower 2 LLC from NRG. The debt is joint and several with respect to Agua Caliente Borrower 1 LLC and Agua Caliente Borrower 2 LLC and is secured by the equity interests of each borrower in the Agua Caliente solar facility.

35



Carlsbad Project Financing
On May 26, 2017, Carlsbad Energy Holdings, LLC entered into a note payable agreement with financial institutions for the issuance of up to $407 million of senior secured notes that bear interest at a rate of 4.12%, and mature on October 31, 2038. As of September 30, 2017, all $407 million of these notes were outstanding.
Also on May 26, 2017, Carlsbad Energy Holdings, LLC entered into a credit agreement, or the Carlsbad Financing Agreement, with the issuing banks, for a $194 million construction loan, that will convert to a term loan upon completion of the project. The Carlsbad Financing Agreement also includes a letter of credit facility with an aggregate principle amount not to exceed $83 million, and a working capital loan facility with an aggregate principle amount not to exceed $4 million.
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 $102 million as of September 30, 2017.
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 2016 Form 10-K. For one of the tax equity arrangements, the Company has a deficit restoration obligation equal to $100 million as of September 30, 2017, 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, 2017
 
December 31, 2016
Current assets
$
74

 
$
87

Net property, plant and equipment
1,466

 
1,534

Other long-term assets
1,026

 
954

Total assets
2,566

 
2,575

Current liabilities
69

 
59

Long-term debt
420

 
442

Other long-term liabilities
187

 
183

Total liabilities
676

 
684

Noncontrolling interests
578

 
529

Net assets less noncontrolling interests
$
1,312

 
$
1,362


36




Note 10Changes in Capital Structure
As of September 30, 2017 and December 31, 2016, 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, 2016
417,583,825

 
(102,140,814
)
 
315,443,011

Shares issued under LTIPs
634,738

 

 
634,738

Shares issued under ESPP

 
560,769

 
560,769

Balance as of September 30, 2017
418,218,563

 
(101,580,045
)
 
316,638,518

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.
Amended and Restated Employee Stock Purchase Plan
On April 27, 2017, NRG stockholders approved an increase of 3,000,000 shares available for issuance under the ESPP. As of September 30, 2017, there were 3,107,050 shares of treasury stock available for issuance under the ESPP.
Amended and Restated Long-term Incentive Plan
On April 27, 2017, NRG stockholders approved an increase of 3,000,000 shares available for issuance under the NRG Energy, Inc. Amended and Restated Long-term Incentive Plan.
NRG Common Stock Dividends
The following table lists the dividends paid during the nine months ended September 30, 2017:
 
Third Quarter 2017
 
Second Quarter 2017

First Quarter 2017
Dividends per Common Share
$
0.03

 
$
0.03


$
0.03

On October 18, 2017, NRG declared a quarterly dividend on the Company's common stock of $0.03 per share, payable November 15, 2017, to stockholders of record as of November 1, 2017, 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.

37



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. During the second quarter of 2016, the Company repurchased 100% of the outstanding shares of its 2.822% preferred stock. 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)
2017
 
2016
 
2017
 
2016
Basic and diluted income/(loss) per share attributable to NRG Energy, Inc. common stockholders
Net income/(loss) attributable to NRG Energy, Inc.
$
171

 
$
402

 
$
(619
)
 
$
213

Dividends for preferred shares

 

 

 
5

Gain on redemption of 2.822% redeemable perpetual preferred stock

 

 

 
(78
)
Income/(loss) available for common stockholders
$
171