NRG ENERGY, INC. - Quarter Report: 2018 June (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the Quarterly Period Ended: June 30, 2018

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 June 30, 2018, there were 303,429,305 shares of common stock outstanding, par value $0.01 per share.

TABLE OF CONTENTS

Index



CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION	3
GLOSSARY OF TERMS	5
PART I — FINANCIAL INFORMATION	10
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES	10
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	67
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	105
ITEM 4 — CONTROLS AND PROCEDURES	107
PART II — OTHER INFORMATION	108
ITEM 1 — LEGAL PROCEEDINGS	108
ITEM 1A — RISK FACTORS	108
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	108
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES	108
ITEM 4 — MINE SAFETY DISCLOSURES	108
ITEM 5 — OTHER INFORMATION	108
ITEM 6 — EXHIBITS	109
SIGNATURES	110

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, 2017, and the following:


•	NRG's ability to achieve the expected benefits of its Transformation Plan;


•	NRG's ability to engage in successful sales and divestitures as well as mergers and acquisitions activity;


•	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;


•	General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;


•	Volatile power supply costs and demand for power;


•	Changes in law, including judicial decisions;

•

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 changes in market rules, rates, tariffs and environmental laws;


•	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;


•	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 Energy, Inc. 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.

GLOSSARY OF TERMS

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:



2017 Form 10-K		NRG’s Annual Report on Form 10-K for the year ended December 31, 2017
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
ARO		Asset Retirement Obligation
ASC		The FASB Accounting Standards Codification, which the FASB established as the source of authoritative GAAP
ASU		Accounting Standards Updates - 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 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
Business Solutions		NRG's business solutions group, which includes demand response, commodity sales, energy efficiency and energy management services
CAA		Clean Air Act
CAIR		Clean Air Interstate Rule
CAISO		California Independent System Operator
CASPR		Competitive Auctions with Sponsored Resources
CDD		Cooling Degree Day
CDWR		California Department of Water Resources
CEC		California Energy Commission
CenterPoint		CenterPoint Energy Houston Electric, LLC
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
C&I		Commercial industrial and governmental/institutional
Cleco		Cleco Energy LLC
COD		Commercial Operation Date
ComEd		Commonwealth Edison
Company		NRG Energy, Inc.
CPUC		California Public Utilities Commission
CSAPR		Cross-State Air Pollution Rule
CVSR		California Valley Solar Ranch
CWA		Clean Water Act
D.C. Circuit		U.S. Court of Appeals for the District of Columbia Circuit
DGPV Holdco 1		NRG DGPV Holdco 1 LLC
DGPV Holdco 2		NRG DGPV Holdco 2 LLC
DGPV Holdco 3		NRG DGPV Holdco 3 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



DNREC		Delaware Department of Natural Resources and Environmental Control
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
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
EPC		Engineering, Procurement and Construction
EPSA		The Electric Power Supply Association
ERCOT		Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
ESP		Electrostatic Precipitator
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
Fresh Start		Reporting requirements as defined by ASC-852, Reorganizations
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 $395 million outstanding unsecured senior notes consisting of $208 million of 8.5% senior notes due 2021 and $187 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 Mid-Atlantic		GenOn Mid-Atlantic, LLC and, except where the context indicates otherwise, its subsidiaries, which include the coal generation units at two generating facilities under operating leases
GenOn Senior Notes		GenOn's $1.8 billion outstanding unsecured senior notes consisting of $691 million of 7.875% senior notes due 2017, $649 million of 9.5% senior notes due 2018, and $489 million of 9.875% senior notes due 2020
GenOn Settlement		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
GHG		Greenhouse Gas
GIP		Global Infrastructure Partners
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		International Accounting Standards Board
IFRS		International Financial Reporting Standards
IPA		Illinois Power Agency
IPPNY		Independent Power Producers of New York
ISO		Independent System Operator, also referred to as RTOs
ISO-NE		ISO New England Inc.
ITC		Investment Tax Credit
kWh		Kilowatt-hour
LaGen		Louisiana Generating, LLC
LIBOR		London Inter-Bank Offered Rate
LTIPs		Collectively, the NRG LTIP and the NRG GenOn LTIP
Marsh Landing		NRG Marsh Landing, LLC (formerly known as GenOn Marsh Landing, LLC)
Mass Market		Residential and small commercial customers
MATS		Mercury and Air Toxics Standards promulgated by the EPA
MDth		Thousand Dekatherms
Midwest Generation		Midwest Generation, LLC
MISO		Midcontinent Independent System Operator, Inc.
MMBtu		Million British Thermal Units
MOPR		Minimum Offer Price Rule
MW		Megawatts
MWh		Saleable megawatt hour net of internal/parasitic load megawatt-hour
MWt		Megawatts Thermal Equivalent
NAAQS		National Ambient Air Quality Standards
NEPGA		New England Power Generators Association
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
NOV		Notice of Violation
NO_x		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 54.8% 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
NYMEX		New York Mercantile Exchange



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
Pipeline		Projects that range from identified lead to shortlisted with an offtake, and represents a lower level of execution certainty.
PJM		PJM Interconnection, LLC
PPA		Power Purchase Agreement
PSD		Prevention of Significant Deterioration
PTC		Production Tax Credit
PUCT		Public Utility Commission of Texas
PUHCA		Public Utility Holding Company Act of 2005
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
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, and subsidiaries signatory thereto, NRG Energy, Inc. and the noteholders signatory thereto
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
RFO		Request for Offer
RGGI		Regional Greenhouse Gas Initiative
RMR		Reliability Must-Run
ROFO		Right of First Offer
ROFO Agreement		Second Amended and Restated Right of First Offer Agreement by and between NRG Energy, Inc. and NRG Yield, Inc.
RPM		Reliability Pricing Model
RPV Holdco		NRG RPV Holdco 1 LLC
RTO		Regional Transmission Organization
RTR		Renewable Technology Resource
SCE		Southern California Edison
SDG&E		San Diego Gas & Electric
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, comprised of the Revolving Credit Facility and the 2023 Term Loan Facility
Senior Notes		As of December 31, 2017, NRG’s $4.8 billion outstanding unsecured senior notes consisting of $992 million of 6.25% senior notes due 2022, $733 million of 6.25% senior notes due 2024, $1.0 billion of 7.25% senior notes due 2026, $1.25 billion of 6.625% senior notes due 2027, and $870 million of 5.75% senior notes due 2028.
Services Agreement		NRG provided 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
SIFMA		Securities Industry and Financial Markets Association
SO₂		Sulfur Dioxide



South Central		NRG's South Central business, which owns and operates a 3,555-MW portfolio of generation assets consisting of 225-MW Bayou Cove, 430-MW Big Cajun-I, 1,461-MW Big Cajun-II, 1,263-MW Cottonwood and 176-MW Sterlington, and serves a customer base of cooperatives, municipalities and regional utilities under load contracts.
S&P		Standard & Poor's
TCPA		Telephone Consumer Protection Act
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
VCP		Voluntary Clean-Up Program
VIE		Variable Interest Entity
WECC		Western Electricity Coordinating Council
WST		Washington-St. Tammany Electric Cooperative, Inc.
Yield Operating		NRG Yield Operating LLC

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
(In millions, except for per share amounts)	2018			2017			2018			2017
Operating Revenues
Total operating revenues	$	2,922		$	2,701		$	5,343		$	5,083
Operating Costs and Expenses
Cost of operations	2,051			1,841			3,609			3,704
Depreciation and amortization	227			260			462			517
Impairment losses	74			63			74			63
Selling, general and administrative	211			221			402			481
Reorganization costs	23			—			43			—
Development costs	16			18			29			35
Total operating costs and expenses	2,602			2,403			4,619			4,800
Other income - affiliate	—			39			—			87
Gain on sale of assets	14			2			16			4
Operating Income	334			339			740			374
Other Income/(Expense)
Equity in earnings/(losses) of unconsolidated affiliates	18			(3		)	16			2
Other income/(expense), net	(20		)	14			(23		)	26
Loss on debt extinguishment, net	(1		)	—			(3		)	(2		)
Interest expense	(202		)	(247		)	(369		)	(471		)
Total other expense	(205		)	(236		)	(379		)	(445		)
Income/(Loss) from Continuing Operations Before Income Taxes	129			103			361			(71		)
Income tax expense/(benefit)	8			4			7			(1		)
Income/(Loss) from Continuing Operations	121			99			354			(70		)
Loss from discontinued operations, net of income tax	(25		)	(741		)	(25		)	(775		)
Net Income/(Loss)	96			(642		)	329			(845		)
Less: Net income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interests	24			(16		)	(22		)	(55		)
Net Income/(Loss) Attributable to NRG Energy, Inc.	$	72		$	(626	)	$	351		$	(790	)
Earnings/(Loss) per Share Attributable to NRG Energy, Inc. Common Stockholders
Weighted average number of common shares outstanding — basic	310			316			314			316
Income/(loss) from continuing operations per weighted average common share — basic	$	0.31		$	0.36		$	1.20		$	(0.05	)
Income/(loss) from discontinued operations per weighted average common share — basic	$	(0.08	)	$	(2.34	)	$	(0.08	)	$	(2.45	)
Earnings/(Loss) per Weighted Average Common Share — Basic	$	0.23		$	(1.98	)	$	1.12		$	(2.50	)
Weighted average number of common shares outstanding — diluted	314			316			318			316
Income/(loss) from continuing operations per weighted average common share — diluted	$	0.31		$	0.36		$	1.18		$	(0.05	)
Income/(loss) from discontinued operations per weighted average common share — diluted	$	(0.08	)	$	(2.34	)	$	(0.08	)	$	(2.45	)
Earnings/(Loss) per Weighted Average Common Share — Diluted	$	0.23		$	(1.98	)	$	1.10		$	(2.50	)
Dividends Per Common Share	$	0.03		$	0.03		$	0.06		$	0.06

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
	(In millions)
Net income/(loss)	$	96		$	(642	)	$	329		$	(845	)
Other comprehensive income/(loss), net of tax
Unrealized gain/(loss) on derivatives, net of income tax expense of $0, $0, $0, and $1	5			(5		)	19			(1		)
Foreign currency translation adjustments, net of income tax expense of $0, $0, $0, and $0	(4		)	1			(6		)	8
Available-for-sale securities, net of income tax expense of $0, $0, $0, and $0	1			1			1			1
Defined benefit plans, net of income tax expense of $0, $0, $0, and $0	(1		)	27			(2		)	27
Other comprehensive income	1			24			12			35
Comprehensive income/(loss)	97			(618		)	341			(810		)
Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interest	26			(17		)	(12		)	(56		)
Comprehensive income/(loss) attributable to NRG Energy, Inc.	71			(601		)	353			(754		)
Comprehensive income/(loss) available for common stockholders	$	71		$	(601	)	$	353		$	(754	)

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	June 30, 2018			December 31, 2017
(In millions, except shares)	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	980		$	991
Funds deposited by counterparties	71			37
Restricted cash	286			508
Accounts receivable, net	1,371			1,079
Inventory	485			532
Derivative instruments	851			626
Cash collateral paid in support of energy risk management activities	224			171
Accounts receivable - affiliate	57			95
Current assets - held for sale	100			115
Prepayments and other current assets	328			261
Total current assets	4,753			4,415
Property, plant and equipment, net	12,774			13,908
Other Assets
Equity investments in affiliates	1,055			1,038
Notes receivable, less current portion	15			2
Goodwill	539			539
Intangible assets, net	1,860			1,746
Nuclear decommissioning trust fund	694			692
Derivative instruments	426			172
Deferred income taxes	126			134
Non-current assets held-for-sale	50			43
Other non-current assets	655			629
Total other assets	5,420			4,995
Total Assets	$	22,947		$	23,318
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt and capital leases	$	952		$	688
Accounts payable	975			881
Accounts payable - affiliate	29			33
Derivative instruments	709			555
Cash collateral received in support of energy risk management activities	72			37
Current liabilities held-for-sale	74			72
Accrued expenses and other current liabilities	719			890
Accrued expenses and other current liabilities - affiliate	133			161
Total current liabilities	3,663			3,317
Other Liabilities
Long-term debt and capital leases	14,821			15,716
Nuclear decommissioning reserve	274			269
Nuclear decommissioning trust liability	410			415
Deferred income taxes	17			21
Derivative instruments	285			197
Out-of-market contracts, net	195			207
Non-current liabilities held-for-sale	12			8
Other non-current liabilities	1,130			1,122
Total non-current liabilities	17,144			17,955
Total Liabilities	20,807			21,272
Redeemable noncontrolling interest in subsidiaries	69			78
Commitments and Contingencies
Stockholders’ Equity
Common stock	4			4
Additional paid-in capital	8,481			8,376
Accumulated deficit	(5,920		)	(6,268		)
Less treasury stock, at cost — 116,267,484 and 101,580,045 shares, at June 30, 2018 and December 31, 2017, respectively	(2,871		)	(2,386		)
Accumulated other comprehensive loss	(60		)	(72		)
Noncontrolling interest	2,437			2,314
Total Stockholders’ Equity	2,071			1,968
Total Liabilities and Stockholders’ Equity	$	22,947		$	23,318

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six months ended June 30,
(In millions)	2018			2017
Cash Flows from Operating Activities
Net income/(loss)	$	329		$	(845	)
Loss from discontinued operations, net of income tax	(25		)	(775		)
Income/(loss) from continuing operations	354			(70		)
Adjustments to reconcile net income to net cash provided/(used) by operating activities:
Distributions and equity in earnings of unconsolidated affiliates	27			26
Depreciation, amortization and accretion	485			517
Provision for bad debts	31			18
Amortization of nuclear fuel	24			24
Amortization of financing costs and debt discount/premiums	27			29
Adjustment for debt extinguishment	3			—
Amortization of intangibles and out-of-market contracts	48			51
Amortization of unearned equity compensation	26			16
Impairment losses	89			63
Changes in deferred income taxes and liability for uncertain tax benefits	4			8
Changes in nuclear decommissioning trust liability	41			2
Changes in derivative instruments	(211		)	7
Changes in collateral deposits in support of energy risk management activities	(18		)	(189		)
Gain on sale of emission allowances	(11		)	11
Gain on sale of assets	(16		)	(22		)
Loss on deconsolidation of business	22			—
Changes in other working capital	(401		)	(379		)
Cash provided by continuing operations	524			112
Cash used by discontinued operations	—			(38		)
Net Cash Provided by Operating Activities	524			74
Cash Flows from Investing Activities
Acquisitions of businesses, net of cash acquired	(284		)	(16		)
Capital expenditures	(691		)	(542		)
Decrease in notes receivable	4			8
Purchases of emission allowances	(22		)	(30		)
Proceeds from sale of emission allowances	34			59
Investments in nuclear decommissioning trust fund securities	(346		)	(279		)
Proceeds from the sale of nuclear decommissioning trust fund securities	303			277
Proceeds from renewable energy grants and state rebates	—			8
Proceeds from sale of assets, net of cash disposed of	18			35
Deconsolidation of business	(160		)	—
Changes in investments in unconsolidated affiliates	(2		)	(30		)
Other	—			18
Cash used by continuing operations	(1,146		)	(492		)
Cash used by discontinued operations	—			(53		)
Net Cash Used by Investing Activities	(1,146		)	(545		)
Cash Flows from Financing Activities
Payment of dividends to common and preferred stockholders	(19		)	(19		)
Payment for treasury stock	(500		)	—
Net receipts from settlement of acquired derivatives that include financing elements	—			2
Proceeds from issuance of long-term debt	1,605			946
Payments for short and long-term debt	(848		)	(530		)
Increase in notes receivable from affiliate	—			(125		)
Net contributions from noncontrolling interests in subsidiaries	222			14
Payment of debt issuance costs	(37		)	(36		)
Other - contingent consideration	—			(10		)
Cash provided by continuing operations	423			242
Cash used by discontinued operations	—			(224		)
Net Cash Provided by Financing Activities	423			18
Effect of exchange rate changes on cash and cash equivalents	—			(8		)
Change in Cash from discontinued operations	—			(315		)
Net Decrease in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash	(199		)	(146		)
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period	1,536			1,386
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period	$	1,337		$	1,240

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

General

NRG Energy, Inc., or NRG or the Company, is a customer-driven integrated power company built on a portfolio of leading retail electricity brands and diverse generation assets. NRG is continuously focused on serving the energy needs of end-use residential, commercial and industrial customers in competitive markets through multiple brands and channels. The Company:


•	directly sells energy and innovative, sustainable products and services to retail customers under the names “NRG”, “Reliant” and other retail brand names owned by NRG;


•	owns and operates approximately 30,000 MW of generation;


•	engages in the trading of wholesale energy, capacity and related products; and


•	transacts in and trades fuel and transportation services.

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 2017 Form 10-K. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of June 30, 2018, and the results of operations, comprehensive income/(loss) and cash flows for the three and six months ended June 30, 2018 and 2017.

GenOn Chapter 11 Cases

On June 14, 2017, 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, 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 determined that this disposal of GenOn and its subsidiaries is a discontinued operation and, accordingly, the financial information for all historical periods has been recast to reflect GenOn as a discontinued operation.

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 2 — Summary 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:



	June 30, 2018		December 31, 2017
	(In millions)
Accounts receivable allowance for doubtful accounts	$	28	$	28
Property, plant and equipment accumulated depreciation	4,534		4,465
Intangible assets accumulated amortization	1,443		1,818
Out-of-market contracts accumulated amortization	370		358

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.



	June 30, 2018		December 31, 2017		June 30, 2017		December 31, 2016
	(In millions)
Cash and cash equivalents	$	980	$	991	$	752	$	938
Funds deposited by counterparties	71		37		19		2
Restricted cash	286		508		469		446
Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows	$	1,337	$	1,536	$	1,240	$	1,386

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.

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, 2017	$	2,314
Dividends paid to NRG Yield, Inc. public shareholders	(61		)
Distributions to noncontrolling interest	(34		)
Comprehensive income attributable to noncontrolling interest	12
Non-cash adjustments to noncontrolling interest	8
Contributions from noncontrolling interest	295
Sale of assets to NRG Yield, Inc.	(8		)
Deconsolidation of Ivanpah^(a)	(89		)
Balance as of June 30, 2018	$	2,437

(a) See Note 9, Variable Interest Entities, or VIEs for further information regarding the deconsolidation of Ivanpah effective April 2018.

Redeemable Noncontrolling Interest

The following table reflects the changes in the Company's redeemable noncontrolling interest balance:



	(In millions)
Balance as of December 31, 2017	$	78
Distributions to redeemable noncontrolling interest	(2		)
Contributions from redeemable noncontrolling interest	26
Non-cash adjustments to redeemable noncontrolling interest	(9		)
Comprehensive loss attributable to redeemable noncontrolling interest	(24		)
Balance as of June 30, 2018	$	69

Revenue Recognition

Revenue from Contracts with Customers

On January 1, 2018, the Company adopted the guidance in ASC 606 using the modified retrospective method applied to contracts which were not completed as of the adoption date. The Company recognized the cumulative effect of initially applying the new standard as a credit to the opening balance of accumulated deficit, resulting in a decrease of approximately $16 million. The adjustment primarily related to costs incurred to obtain a contract with customers and customer incentives. Following the adoption of the new standard, the Company’s revenue recognition of its contracts with customers remains materially consistent with its historical practice. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company's policies with respect to its various revenue streams are detailed below. In general, the Company applies the invoicing practical expedient to recognize revenue for the revenue streams detailed below, except in circumstances where the invoiced amount does not represent the value transferred to the customer.

Retail Revenues

Gross revenues for energy sales and services to retail customers are recognized as the Company transfers the promised goods and services to the customer. For the majority of its electricity contracts, the Company’s performance obligation with the customer is satisfied over time and performance obligations for its electricity products are recognized as the customer takes possession of the product. The Company also allocates the contract consideration to distinct performance obligation in a contract for which the timing of the revenue recognized is different. Additionally, customer discounts and incentives reduce the contract consideration and are recognized over the term of the contract.

Energy sales and services that have been delivered but not billed by period end are estimated. Accrued unbilled revenues are based on estimates of customer usage since the date of the last meter reading provided by the independent system operators or electric distribution companies. Volume estimates are based on daily forecasted volumes and estimated customer usage by class. Unbilled revenues are calculated by multiplying these volume estimates by the applicable rate by customer class. Estimated amounts are adjusted when actual usage is known and billed.

As contracts for retail electricity can be for multi-year periods, the Company has performance obligations under these contracts that have not yet been satisfied. These performance obligations have transaction prices that are both fixed and variable, and that vary based on the contract duration, customer type, inception date and other contract-specific factors. For the fixed price contracts, the amount of any unsatisfied performance obligations will vary based on customer usage, which will depend on factors such as weather and customer activity and therefore it is not practicable to estimate such amounts.

Energy Revenue

Both physical and financial transactions are entered into to optimize the financial performance of the Company's generating facilities. Electric energy revenue is recognized upon transmission to the customer over time, using the output method for measuring progress of satisfaction of performance obligations. Physical transactions, or the sale of generated electricity to meet supply and demand, are recorded on a gross basis in the Company's consolidated statements of operations. The Company applies the invoicing practical expedient, where applicable, in recognizing energy revenue. Under the practical expedient, revenue is recognized based on the invoiced amount which is equal to the value to the customer of NRG’s performance obligation completed to date. Financial transactions, or the buying and selling of energy for trading purposes, are recorded net within operating revenues in the consolidated statements of operations in accordance with ASC 815.

Capacity Revenue

Capacity revenues consist of revenues billed to a third party at either the market or a negotiated contract price for making installed generation capacity available in order to satisfy system integrity and reliability requirements. Capacity revenues are recognized over time, using the output method for measuring progress of satisfaction of performance obligations. The Company applies the invoicing practical expedient, where applicable, in recognizing capacity revenue. Under the practical expedient, revenue is recognized based on the invoiced amount which is equal to the value to the customer of NRG’s performance obligation completed to date.

Capacity revenue contracts mainly consist of:

Capacity auctions — The Company's largest sources of capacity revenues are capacity auctions in PJM, ISO-NE, and NYISO. Both ISO-NE and PJM operate a pay-for-performance model where capacity payments are modified based on real-time performance, where NRG's actual revenues will be the combination of revenues based on the cleared auction MWs plus the net of any over- and under-performance of NRG's fleet. In addition, MISO has an annual auction, known as the Planning Resource Auction, or PRA. The Gulf Coast assets situated in the MISO market may participate in this auction. Estimated revenues for cleared auction MWs in the various capacity auctions are $578 million, $519 million, $410 million, $388 million and $168 million for fiscal years 2018, 2019, 2020, 2021 and 2022, respectively.

Resource adequacy and bilateral contracts — In California, there is a resource adequacy requirement that is primarily satisfied through bilateral contracts. Such bilateral contracts are typically short-term resource adequacy contracts. When bilateral contracting does not satisfy the resource adequacy need, such shortfalls can be addressed through procurement tools administered by the CAISO, including the capacity procurement mechanism or reliability must-run contracts. Demand payments from the current long-term contracts are tied to summer peak demand and provide a mechanism for recovering a portion of the costs associated with new or changed environmental laws or regulations. In Texas, capacity and contracted revenues are through bilateral contracts with load serving entities.

Long-term PPAs — Energy, capacity and where applicable, renewable attributes, from the majority of renewable energy assets and certain conventional energy plants is sold through long-term PPAs and tolling agreements to a single counterparty, which is often a utility or commercial customer. Many of these PPAs are accounted for as leases.

Renewable Energy Credits

As stated above, renewable energy credits are usually sold through long-term PPAs. Revenue from the sale of self-generated RECs is recognized when related energy is generated and simultaneously delivered even in cases where there is a certification lag as it has been deemed to be perfunctory.

In a bundled contract to sell energy, capacity and/or self-generated RECs, all performance obligations are deemed to be delivered at the same time and hence, timing of recognition of revenue for all performance obligations is the same and occurs over time. In such cases, it is often unnecessary to allocate transaction price to multiple performance obligations.

Sale of Emission Allowances

The Company records its inventory of emission allowances as part of intangible assets. From time to time, management may authorize the transfer of emission allowances in excess of usage from the Company's emission bank to intangible assets held-for-sale for trading purposes. The Company records the sale of emission allowances on a net basis within operating revenue in the Company's consolidated statements of operations.

Disaggregated Revenues

The following table represents the Company’s disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2018, along with the reportable segment for each category:



	Three months ended June 30, 2018
			Generation
(In millions)	Retail		Gulf Coast			East/West			Subtotal		Renewables		NRG Yield			Eliminations			Total
Energy revenue^(a)(b)	$	—	$	508		$	144		$	652	$	79	$	192		$	(250	)	$	673
Capacity revenue^(a)(b)	—		68			160			228		—		87			(2		)	313
Retail revenue
Mass customers	1,380		—			—			—		—		—			(1		)	1,379
Business solutions customers	437		—			—			—		—		—			—			437
Total retail revenue	1,817		—			—			—		—		—			(1		)	1,816
Mark-to-market for economic hedging activities^(c)	—		289			(15		)	274		5		—			(264		)	15
Contract amortization	—		4			—			4		—		(18		)	—			(14		)
Other revenue^(a)(b)	—		42			18			60		29		46			(16		)	119
Total operating revenue	1,817		911			307			1,218		113		307			(533		)	2,922
Less: Lease revenue	6		—			1			1		96		267			—			370
Less: Derivative revenue	—		898			(1		)	897		5		—			(264		)	638
Less: Contract amortization	—		4			—			4		—		(18		)	—			(14		)
Total revenue from contracts with customers	$	1,811	$	9		$	307		$	316	$	12	$	58		$	(269	)	$	1,928
(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 840:
	Retail		Gulf Coast			East/West			Subtotal		Renewables		NRG Yield			Eliminations			Total
Energy revenue	$	—	$	—		$	—		$	—	$	90	$	182		$	—		$	272
Capacity revenue	—		—			—			—		—		85			—			85
Other revenue	6		—			1			1		6		—			—			13
(b) The following amounts of energy and capacity revenue relate to derivative instruments and are accounted for under ASC 815.
	Retail		Gulf Coast			East/West			Subtotal		Renewables		NRG Yield			Eliminations			Total
Energy revenue	$	—	$	610		$	(30	)	$	580	$	—	$	—		$	—		$	580
Capacity revenue	—		—			39			39		—		—			—			39
Other revenue	—		(1		)	5			4		—		—			—			4
(c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815.



	Six months ended June 30, 2018
				Generation
(In millions)	Retail			Gulf Coast			East/West			Subtotal			Renewables			NRG Yield			Eliminations			Total
Energy revenue^(a)(b)	$	—		$	879		$	362		$	1,241		$	156		$	306		$	(411	)	$	1,292
Capacity revenue^(a)(b)	—			135			300			435			—			169			(3		)	601
Retail revenue
Mass customers	2,551			—			—			—			—			—			(2		)	2,549
Business solutions customers	753			—			—			—			—			—			—			753
Total retail revenue	3,304			—			—			—			—			—			(2		)	3,302
Mark-to-market for economic hedging activities^(c)	(6		)	(275		)	(25		)	(300		)	(5		)	—			220			(91		)
Contract amortization	—			7			—			7			—			(35		)	—			(28		)
Other revenue^(a)(b)	—			128			34			162			48			92			(35		)	267
Total operating revenue	3,298			874			671			1,545			199			532			(231		)	5,343
Less: Lease revenue	12			—			2			2			160			448			—			622
Less: Derivative revenue	(6		)	710			79			789			(5		)	—			220			998
Less: Contract amortization	—			7			—			7			—			(35		)	—			(28		)
Total revenue from contracts with customers	$	3,292		$	157		$	590		$	747		$	44		$	119		$	(451	)	$	3,751
(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 840:
	Retail			Gulf Coast			East/West			Subtotal			Renewables			NRG Yield			Eliminations			Total
Energy revenue	$	—		$	—		$	—		$	—		$	151		$	284		$	—		$	435
Capacity revenue	—			—			—			—			—			164			—			164
Other revenue	12			—			2			2			9			—			—			23
(b) The following amounts of energy and capacity revenue relate to derivative instruments and are accounted for under ASC 815.
	Retail			Gulf Coast			East/West			Subtotal			Renewables			NRG Yield			Eliminations			Total
Energy revenue	$	—		$	981		$	31		$	1,012		$	—		$	—		$	—		$	1,012
Capacity revenue	—			—			65			65			—			—			—			65
Other revenue	—			4			8			12			—			—			—			12
(c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815.

Contract Amortization

Assets and liabilities recognized from power sales agreements assumed at Fresh Start and through acquisitions related to the sale of electric capacity and energy in future periods for which the fair value has been determined to be significantly less (more) than market are amortized to revenue over the term of each underlying contract based on actual generation and/or contracted volumes.

Lease Revenue

Certain of the Company’s revenues are obtained through PPAs or other contractual agreements. Many of these agreements are accounted for as operating leases under ASC 840 Leases. Certain of these leases have no minimum lease payments and all of the rent is recorded as contingent rent on an actual basis when the electricity is delivered. Judgment is required by management in determining the economic life of each generating facility, in evaluating whether certain lease provisions constitute minimum payments or represent contingent rent and other factors in determining whether a contract contains a lease and whether the lease is an operating lease or capital lease.

Contract Balances

The following table reflects the contract assets and liabilities included in the Company’s balance sheet as of June 30, 2018:




(In millions)	June 30, 2018
Deferred customer acquisition costs	$	102
Accounts receivable, net - Contracts with customers	1,187
Accounts receivable, net - Leases	152
Accounts receivable, net - Derivative instruments	32
Total accounts receivable, net	$	1,371
Unbilled revenues (included within Accounts receivable, net - Contracts with customers)	445
Deferred revenues	73

The Company’s customer acquisition costs consist of broker fees, commission payments and other costs that represent incremental costs of obtaining the contract with customers for which the Company expects to recover. The Company amortizes these amounts over the estimated life of the customer contract. As a practical expedient, the Company expenses the incremental costs of obtaining a contract if the amortization period of the asset would have been one year or less.

When the Company receives consideration from the customer that is in excess of the amount due, such consideration is reclassified to deferred revenue, which represents a contract liability. Generally, the Company will recognize revenue from contract liabilities in the next period as the Company satisfies its performance obligations.

Recent Accounting Developments - Guidance Adopted in 2018

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 Company adopted the amendments of ASU No. 2017-07 effective January 1, 2018. In connection with the adoption of the standard, the Company has applied the guidance retrospectively which resulted in an increase in cost of operations of $4 million and $8 million with a corresponding increase in other income, net on the statement of operations for the three and six months ended June 30, 2017, respectively.

ASU 2016-01 - In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU No. 2016-01. The amendments of ASU No. 2016-01 eliminate available-for-sale classification of equity investments and require that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) be generally measured at fair value with changes in fair value recognized in net income. Further, the amendments require that financial assets and financial liabilities be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. The guidance in ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. The Company adopted the amendments of ASU No. 2016-01 effective January 1, 2018. In connection with the adoption of the standard, the Company has applied the guidance on a modified retrospective basis, which resulted in no material adjustments recorded to the consolidated results of operations, cash flows, and statement of financial position.

Recent Accounting Developments - Guidance Not Yet Adopted

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 will adopt the standard effective January 1, 2019, and 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. The Company is also monitoring recent changes to Topic 842 and the related impact on the implementation process.

Note 3 — Acquisitions, Discontinued Operations and Dispositions

This footnote should be read in conjunction with the complete description under Note 3, Discontinued Operations, Acquisitions and Dispositions, to the Company's 2017 Form 10-K.

Acquisitions

XOOM Energy Acquisition — On June 1, 2018, the Company completed the acquisition of XOOM Energy, LLC, an electricity and natural gas retailer operating in 19 states, Washington, D.C. and Canada for approximately $219 million in cash, inclusive of approximately $54 million in payments for estimated working capital, which is subject to further adjustment. The acquisition increased NRG's retail portfolio by approximately 300,000 customers. The purchase price was provisionally allocated as follows: $2 million to cash, $8 million to restricted cash, $46 million to accounts receivable, $42 million to derivative assets, $169 million to customer relationships and contracts, $26 million to current and non-current assets, $25 million to accounts payable, $31 million to derivative liabilities, and $18 million to current and non-current liabilities.

Discontinued Operations

On June 14, 2017, 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 has 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 has 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.

Summarized results of discontinued operations were as follows:



	Three months ended June 30, 2018			Period from April 1, 2017 through June 14, 2017			Six months ended June 30, 2018			Period from January 1, 2017 through June 14, 2017
(In millions)	Three months ended June 30, 2018			Period from April 1, 2017 through June 14, 2017			Six months ended June 30, 2018			Period from January 1, 2017 through June 14, 2017
Operating revenues	$	—		$	265		$	—		$	646
Operating costs and expenses	—			(327		)	—			(700		)
Other expenses	—			(54		)	—			(98		)
Loss from operations of discontinued components, before tax	—			(116		)	—			(152		)
Income tax expense	—			8			—			9
Loss from operations of discontinued components	—			(124		)	—			(161		)
Interest income - affiliate	2			3			3			6
Loss from operations of discontinued components, net of tax	2			(121		)	3			(155		)
Pre-tax loss on deconsolidation	—			(208		)	—			(208		)
Settlement consideration and services credit	—			(289		)	—			(289		)
Pension and post-retirement liability assumption	1			(119		)	1			(119		)
Advisory and consulting fees	(1		)	(4		)	(2		)	(4		)
Other	(27		)	—			(27		)	—
Loss on disposal of discontinued components, net of tax	(27		)	(620		)	(28		)	(620		)
Loss from discontinued operations, net of tax	$	(25	)	$	(741	)	$	(25	)	$	(775	)

GenOn Settlement

Effective July 16, 2018, NRG and GenOn consummated the GenOn Settlement which accelerated certain terms contemplated by the plan of reorganization, as further described below. As a result, the Company paid GenOn approximately $125 million, which included (i) the settlement consideration of $261 million, (ii) the transition services credit of $28 million and (iii) the return of $15 million of collateral posted to NRG; offset by the (i) $151 million in borrowings under the intercompany secured revolving credit facility, (ii) related accrued interest and fees of $12 million, (iii) remaining payments due under the transition services agreement of $10 million and (iv) certain other balances due to NRG totaling $6 million. As of June 30, 2018, the Company had reserved for all amounts deemed to be uncollectible.

In order to facilitate the consummation of the GenOn Settlement, among other items, NRG assigned to GenOn approximately $8 million of historical claims against REMA in exchange for $4.2 million, which was credited as a reduction of the settlement payment. GenOn also indemnified NRG for any potential claims by REMA up to the amount of $10 million, and posted a letter of credit in that amount in favor of NRG as security for the indemnification. Other than those obligations which survive or are independent of the releases described herein, the GenOn Settlement provides NRG releases from GenOn and each of its debtor and non-debtor subsidiaries, excluding REMA.

Restructuring Support Agreement

Prior to the filing of GenOn's bankruptcy case, 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 provided for a restructuring and recapitalization of the GenOn Entities through a prearranged plan of reorganization. In December 2017, the Bankruptcy Court approved the plan of reorganization, pursuant to an order of confirmation. Consummation of the plan of reorganization has not yet occurred and remains subject to the satisfaction or waiver of certain conditions precedent. Certain principal terms of the plan of reorganization are detailed below:


1)	The dismissal of certain prepetition litigation and full releases from GenOn and each of its debtor and non-debtor subsidiaries in favor of NRG, excluding REMA.

NRG provided settlement cash consideration to GenOn of $261.3 million, paid in cash less amounts owed to NRG under the intercompany secured revolving credit facility. As of June 30, 2018, GenOn owed NRG approximately $151 million under the intercompany secured revolving credit facility, plus interest and fees accrued thereon. See Note 14, Related Party Transactions for further discussion of the intercompany secured revolving credit facility. The net liability for these amounts, along with the services credit described below, is recorded in accrued expenses and other current liabilities - affiliate as of June 30, 2018 and December 31, 2017.

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 June 30, 2018, was approximately $90 million. NRG will also retain the liability for GenOn’s post-employment and retiree health and welfare benefits, in an amount up to $25 million. These liabilities are recorded within other non-current liabilities as of June 30, 2018 and December 31, 2017.

The shared services agreement between NRG and GenOn was terminated and replaced as of the plan confirmation date with a transition services agreement. Under the transition services agreement, NRG provided the shared services and other separation services at an annualized rate of $84 million, subject to certain credits and adjustments. See Note 14, Related Party Transactions, for further discussion of the Services Agreement.


5)	NRG provided a credit of $28 million to GenOn to apply against amounts owed under the transition services agreement. The unused credit of approximately $18 million was paid in cash to GenOn. The credit was intended to reimburse GenOn for its payment of financing costs.

NRG and GenOn also agreed to cooperate in good faith to maximize the value of certain development projects. Pursuant to this, GenOn made a one-time payment in the amount of $15 million to NRG in December 2017 as compensation for a purchase option with respect to the Canal 3 project. During the second quarter of 2018, NRG sold Canal 3 to Stonepeak Kestrel Holdings II LLC, or Stonepeak Kestrel, in conjunction with GenOn's sale of Canal Units 1 and 2 to Stonepeak Kestrel Holdings LLC. NRG reimbursed GenOn for $13.5 million of the one-time payment upon the closing of the sale of Canal 3.

GenMA Settlement

The Bankruptcy Court order confirming the plan of reorganization also approved the settlement terms agreed to among the GenOn Entities, NRG, the Consenting Holders, GenOn Mid-Atlantic, and certain of GenOn Mid-Atlantic’s stakeholders, or the GenMA Settlement, and directed the settlement parties to cooperate in good faith to negotiate definitive documentation consistent with the GenMA Settlement term sheet in order to pursue consummation of the GenMA Settlement. The definitive documentation effectuating the GenMA Settlement was finalized and effective as of April 27, 2018. Certain terms of the compromise with respect to NRG and GenOn Mid-Atlantic are as follows:


•	Settlement of all pending litigation and objections to the Plan (including with respect to releases and feasibility);


•	NRG provided $37.5 million in letters of credit as new qualifying credit support to GenOn Mid-Atlantic; and


•	NRG paid approximately $6 million as reimbursement of professional fees incurred by certain of GenOn Mid-Atlantic's stakeholders in connection with the GenMA Settlement.

Dispositions

On June 29, 2018, the Company completed the sale of Canal 3 to Stonepeak Kestrel for cash proceeds of approximately $16 million and recorded a gain of $17 million. Prior to the sale, Canal 3 entered into a financing arrangement and received cash proceeds of $167 million, of which $151 million was distributed to the Company. The related debt is non-recourse to NRG and was transferred to Stonepeak Kestrel in connection with the sale of Canal 3.

In addition, the Company completed other asset sales for $7 million of cash proceeds in the first half of 2018.

Transfers of Assets Under Common Control

On June 19, 2018, the Company completed the sale of the substantially completed assets of the UPMC Thermal Project to NRG Yield, Inc. for cash consideration of $84 million, subject to working capital adjustments.

On March 30, 2018, as part of the Transformation Plan, the Company sold to NRG Yield, Inc. 100% of NRG's interests in Buckthorn Renewables, LLC, which owns a 154-MW construction-stage utility-scale solar generation project, located in Texas. NRG Yield, Inc. paid cash consideration of approximately $42 million, excluding working capital adjustments, and assumed non-recourse debt of approximately $183 million. Concurrently, an initial contribution of approximately $19 million was received from the third-party investor in the underlying tax equity partnership, which is included in noncontrolling interest.

On March 27, 2017, the Company sold to NRG Yield, Inc.: (i) a 16% interest in the Agua Caliente solar project, representing ownership of approximately 46 net MW of capacity and (ii) NRG's interests in seven utility-scale solar projects located in Utah representing 265 net MW of capacity, which have reached commercial operations. NRG Yield, Inc. paid cash consideration of $130 million, plus $1 million in working capital adjustments, and assumed non-recourse debt of approximately $328 million.

Note 4 — Fair 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 2017 Form 10-K.

For cash and cash equivalents, funds deposited by counterparties, accounts and other receivables, accounts payable, restricted cash, and cash collateral paid and received in support of energy risk management activities, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.

The estimated carrying amounts and fair values of NRG's recorded financial instruments not carried at fair market value are as follows:



	As of June 30, 2018				As of December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
Assets:
Notes receivable^(a)	$	21	$	18	$	16	$	15
Liabilities:
Long-term debt, including current portion^(b)	15,969		16,163		16,603		16,894

(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 June 30, 2018 and December 31, 2017:



	As of June 30, 2018				As of December 31, 2017
	Level 2		Level 3		Level 2		Level 3
	(In millions)
Long-term debt, including current portion	$	9,586	$	6,577	$	8,934	$	7,960

Recurring Fair Value Measurements

Debt securities, equity securities, and trust fund investments, which are comprised of various U.S. debt and equity securities, and derivative assets and liabilities, are carried at fair market value.

The following tables present assets and liabilities measured and recorded at fair value on the Company's condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:



	As of June 30, 2018
	Fair Value
(In millions)	Total		Level 1		Level 2		Level 3
Investments in securities (classified within other non-current assets)	$	22	$	3	$	—	$	19
Nuclear trust fund investments:
Cash and cash equivalents	25		25		—		—
U.S. government and federal agency obligations	42		42		—		—
Federal agency mortgage-backed securities	97		—		97		—
Commercial mortgage-backed securities	16		—		16		—
Corporate debt securities	101		—		101		—
Equity securities	342		342		—		—
Foreign government fixed income securities	6		—		6		—
Other trust fund investments:
U.S. government and federal agency obligations	1		1		—		—
Derivative assets:
Commodity contracts	1,169		188		481		500
Interest rate contracts	108		—		108		—
Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments	65
Total assets	$	1,994	$	601	$	809	$	519
Derivative liabilities:
Commodity contracts	971		236		388		347
Interest rate contracts	23		—		23		—
Total liabilities	$	994	$	236	$	411	$	347



	As of December 31, 2017
	Fair Value
(In millions)	Total		Level 1		Level 2		Level 3
Investments in securities (classified within other non-current assets)	$	22	$	3	$	—	$	19
Nuclear trust fund investments:
Cash and cash equivalents	47		45		2		—
U.S. government and federal agency obligations	43		42		1		—
Federal agency mortgage-backed securities	82		—		82		—
Commercial mortgage-backed securities	14		—		14		—
Corporate debt securities	99		—		99		—
Equity securities	334		334		—		—
Foreign government fixed income securities	5		—		5		—
Other trust fund investments:
U.S. government and federal agency obligations	1		1		—		—
Derivative assets:
Commodity contracts	745		191		509		45
Interest rate contracts	53		—		53		—
Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments	68
Total assets	$	1,513	$	616	$	765	$	64
Derivative liabilities:
Commodity contracts	693		257		359		77
Interest rate contracts	59		—		59		—
Total liabilities	$	752	$	257	$	418	$	77

There were no transfers during the three and six months ended June 30, 2018 and 2017 between Levels 1 and 2. The following tables reconcile, for the three and six months ended June 30, 2018 and 2017, 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 June 30, 2018								Six months ended June 30, 2018
(In millions)	Debt Securities		Derivatives^(a)			Total			Debt Securities		Derivatives^(a)			Total
Beginning balance	$	19	$	(22	)	$	(3	)	$	19	$	(32	)	$	(13	)
Contracts acquired in Xoom acquisition	—		12			12			—		12			12
Total losses — realized/unrealized:
Included in earnings	—		(21		)	(21		)	—		(19		)	(19		)
Purchases	—		(4		)	(4		)	—		(3		)	(3		)
Transfers into Level 3 ^(b)	—		193			193			—		197			197
Transfers out of Level 3 ^(b)	—		(5		)	(5		)	—		(2		)	(2		)
Ending balance as of June 30, 2018	$	19	$	153		$	172		$	19	$	153		$	172
Losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of June 30, 2018	—		20			20			—		17			17


(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.



	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Three months ended June 30, 2017								Six months ended June 30, 2017
(In millions)	Debt Securities		Derivatives^(a)			Total			Debt Securities		Derivatives^(a)			Total
Beginning balance	$	18	$	(56	)	$	(38	)	$	17	$	(68	)	$	(51	)
Total gains — realized/unrealized:
Included in earnings	—		40			40			1		46			47
Included in nuclear decommissioning obligation	—		—			—			—		—			—
Purchases	—		5			5			—		9			9
Transfers into Level 3 ^(b)	—		3			3			—		(5		)	(5		)
Transfers out of Level 3 ^(b)	—		(3		)	(3		)	—		7			7
Ending balance as of June 30, 2017	$	18	$	(11	)	$	7		$	18	$	(11	)	$	7
Gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of June 30, 2017	—		22			22			—		7			7


(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 June 30, 2018, contracts valued with prices provided by models and other valuation techniques make up 39% of the total derivative assets and 35% 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.

The following tables quantify the significant unobservable inputs used in developing the fair value of the Company's Level 3 positions as of June 30, 2018 and December 31, 2017:



	Significant Unobservable Inputs
	June 30, 2018
	Fair Value						Input/Range
	Assets		Liabilities		Valuation Technique	Significant Unobservable Input	Low			High		Weighted Average
	(In millions)
Power Contracts	$	481	$	330	Discounted Cash Flow	Forward Market Price (per MWh)	$	6		$	198	$	35
FTRs	19		17		Discounted Cash Flow	Auction Prices (per MWh)	(48		)	47		—
	$	500	$	347



	Significant Unobservable Inputs
	December 31, 2017
	Fair Value						Input/Range
	Assets		Liabilities		Valuation Technique	Significant Unobservable Input	Low			High		Weighted Average
	(In millions)
Power Contracts	$	34	$	65	Discounted Cash Flow	Forward Market Price (per MWh)	$	10		$	142	$	33
FTRs	11		12		Discounted Cash Flow	Auction Prices (per MWh)	(28		)	46		—
	$	45	$	77

The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of June 30, 2018 and December 31, 2017:



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 June 30, 2018, the credit reserve resulted in a $4 million decrease in fair value which is composed of a $1 million loss in OCI and a $3 million loss in interest expense. As of December 31, 2017, the credit reserve resulted in no change 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 2017 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.

Counterparty Credit Risk

The Company's counterparty credit risk policies are disclosed in its 2017 Form 10-K. As of June 30, 2018, the Company's counterparty credit exposure, excluding credit risk exposure under certain long term agreements, was $289 million with net exposure of $112 million. NRG held collateral (cash and letters of credit) against those positions of $246 million. Approximately 77% of the Company's exposure before collateral is expected to roll off by the end of 2019. 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	76	%
Financial institutions	24
Total as of June 30, 2018	100	%



	Net Exposure ^{(a) (b)}
Category by Counterparty Credit Quality	(% of Total)
Investment grade	76	%
Non-Investment grade/Non-Rated	24
Total as of June 30, 2018	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 $49 million as of June 30, 2018. 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 June 30, 2018, aggregate credit risk exposure managed by NRG to these counterparties was approximately $4.1 billion, including $2.5 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.

Retail Customer Credit Risk

The Company is exposed to retail credit risk through the Company's retail electricity providers, which serve C&I customers and the Mass market. Retail credit risk results in losses when a customer fails to pay for services rendered. The losses may result from both nonpayment of customer accounts receivable and the loss of in-the-money forward value. The Company manages retail credit risk through the use of established credit policies that include monitoring of the portfolio and the use of credit mitigation measures such as deposits or prepayment arrangements.

As of June 30, 2018, the Company's retail customer credit exposure to C&I and Mass customers was diversified across many customers and various industries, as well as government entities.

Note 5 — Nuclear 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 2017 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 the Nuclear Decommissioning Trust liability and are not included in net income or accumulated OCI, consistent with regulatory treatment.

The following table summarizes the aggregate fair values and unrealized gains and losses (including other-than-temporary impairments) for the securities held in the trust funds, as well as information about the contractual maturities of those securities.



	As of June 30, 2018							As of December 31, 2017
(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	$	25	$	—	$	—	—	$	47	$	—	$	—	—
U.S. government and federal agency obligations	42		1		—		14	43		1		—		11
Federal agency mortgage-backed securities	97		—		3		23	82		1		1		23
Commercial mortgage-backed securities	16		—		1		22	14		—		—		20
Corporate debt securities	101		1		2		10	99		2		1		11
Equity securities	407		272		—		—	402		272		—		—
Foreign government fixed income securities	6		—		—		8	5		—		—		9
Total	$	694	$	274	$	6		$	692	$	276	$	2

The following table summarizes proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales. The cost of securities sold is determined on the specific identification method.



	Six months ended June 30,
	2018		2017
	(In millions)
Realized gains	$	7	$	3
Realized losses	6		3
Proceeds from sale of securities	$	303	$	277

Note 6 — Accounting 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 2017 Form 10-K.

Energy-Related Commodities

As of June 30, 2018, 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 June 30, 2018, NRG 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, a portion of which are designated as cash flow hedges.

Volumetric Underlying Derivative Transactions

The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by category, excluding those derivatives that qualified for the NPNS exception, as of June 30, 2018 and December 31, 2017. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date.



		Total Volume
		June 30, 2018			December 31, 2017
Category	Units	(In millions)
Emissions	Short Ton	2			1
Coal	Short Ton	12			21
Natural Gas	MMBtu	(551		)	(17		)
Power	MWh	16			14
Capacity	MW/Day	(1		)	(1		)
Interest	Dollars	$	4,016		$	3,876
Equity	Shares	—			1

The increase in the natural gas position was primarily the result of additional generation 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
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
	(In millions)
Derivatives Designated as Cash Flow or Fair Value Hedges:
Interest rate contracts current	$	3	$	1	$	2	$	5
Interest rate contracts long-term	23		11		5		11
Total Derivatives Designated as Cash Flow or Fair Value Hedges	26		12		7		16
Derivatives Not Designated as Cash Flow or Fair Value Hedges:
Interest rate contracts current	16		9		5		15
Interest rate contracts long-term	66		32		11		28
Commodity contracts current	832		616		702		535
Commodity contracts long-term	337		129		269		158
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges	1,251		786		987		736
Total Derivatives	$	1,277	$	798	$	994	$	752

The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. In addition, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. The following table summarizes the offsetting of derivatives by counterparty master agreement level and collateral received or paid:



	Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets / Liabilities			Derivative Instruments			Cash Collateral (Held) / Posted			Net Amount
As of June 30, 2018	(In millions)
Commodity contracts:
Derivative assets	$	1,169		$	(817	)	$	(50	)	$	302
Derivative liabilities	(971		)	817			98			(56		)
Total commodity contracts	198			—			48			246
Interest rate contracts:
Derivative assets	108			(3		)	—			105
Derivative liabilities	(23		)	3			—			(20		)
Total interest rate contracts	85			—			—			85
Total derivative instruments	$	283		$	—		$	48		$	331



	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, 2017	(In millions)
Commodity contracts:
Derivative assets	$	745		$	(578	)	$	(11	)	$	156
Derivative liabilities	(693		)	578			73			(42		)
Total commodity contracts	52			—			62			114
Interest rate contracts:
Derivative assets	53			(3		)	—			50
Derivative liabilities	(59		)	3			—			(56		)
Total interest rate contracts	(6		)	—			—			(6		)
Total derivative instruments	$	46		$	—		$	62		$	108

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 June 30,						Six months ended June 30,
	2018			2017			2018			2017
	(In millions)
Accumulated OCI beginning balance	$	(31	)	$	(61	)	$	(54	)	$	(66	)
Reclassified from accumulated OCI to income:
Due to realization of previously deferred amounts	3			3			7			6
Mark-to-market of cash flow hedge accounting contracts	5			(9		)	24			(7		)
Accumulated OCI ending balance, net of $5, and $16 tax	$	(23	)	$	(67	)	$	(23	)	$	(67	)
Losses expected to be realized from OCI during the next 12 months, net of $1 tax	$	8					$	8

Amounts reclassified from accumulated OCI into income are recorded to interest expense for interest rate contracts.

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 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 and trading activity on the Company's statement of operations. The effect of energy commodity contracts is included within operating revenues and cost of operations and the effect of interest rate contracts is included in interest expense.



	Three months ended June 30,					Six months ended June 30,
	2018			2017		2018			2017
Unrealized mark-to-market results	(In millions)
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges	$	(3	)	$	22	$	(1	)	$	25