NRG ENERGY, INC. - Quarter Report: 2019 June (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||
For the Quarterly Period Ended: | June 30, 2019 | |||
☐ | 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)
(Address of principal executive offices)
Delaware | 41-1724239 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
804 Carnegie Center | , | Princeton | New Jersey | 08540 |
(Address of principal executive offices) | (Zip Code) |
(609) 524-4500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Exchange on Which Registered |
Common Stock, par value $0.01 | NRG | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☒ No ☐
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 | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of August 7, 2019, there were 252,987,889 shares of common stock outstanding, par value $0.01 per share.
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TABLE OF CONTENTS
Index
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of NRG Energy, Inc., or NRG or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the 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 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, 2018 and the following:
• | NRG's ability to achieve the expected benefits of its Transformation Plan; |
• | NRG's ability to obtain and maintain retail market share; |
• | NRG's ability to engage in successful sales and divestitures as well as mergers and acquisitions activity; |
• | General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel; |
• | Volatile power supply costs and demand for power; |
• | 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, 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 in the future; |
• | 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 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 as needed. |
3
Forward-looking statements speak only as of the date they were made and NRG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing 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.
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GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2018 Form 10-K | NRG’s Annual Report on Form 10-K for the year ended December 31, 2018 | |
2023 Term Loan Facility | The Company's $1.7 billion (as of December 31, 2018) term loan facility due 2023, a component of the Senior Credit Facility, which was repaid during the second quarter of 2019 | |
ACE | Affordable Clean Energy | |
Agua Caliente | Agua Caliente Solar Project, a 290 MW photovoltaic power station located in Yuma County, Arizona in which NRG owns 35% interest | |
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 | |
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 | |
BRA | Base Residual Auction | |
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 | |
CAISO | California Independent System Operator | |
Carlsbad | Carlsbad Energy Center, a 528 MW natural gas-fired project located in Carlsbad, CA | |
CDD | Cooling Degree Day | |
CDWR | California Department of Water Resources | |
CFTC | U.S. Commodity Futures Trading Commission | |
C&I | Commercial industrial and governmental/institutional | |
CES | Clean Energy Standard | |
Cleco | Cleco Corporate Holdings LLC | |
CO2 | Carbon Dioxide | |
ComEd | Commonwealth Edison | |
Company | NRG Energy, Inc. | |
Cottonwood | Cottonwood Generating Station, a 1,153 MW natural gas-fueled plant which NRG is leasing through May 2025 | |
CPP | Clean Power Plan | |
CWA | Clean Water Act | |
D.C. Circuit | U.S. Court of Appeals for the District of Columbia Circuit | |
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 | |
Economic gross margin | Sum of energy revenue, capacity revenue, retail revenue and other revenue, less cost of fuels and other cost of sales | |
EGU | Electric Generating Unit | |
EME | Edison Mission Energy | |
EPA | U.S. Environmental Protection Agency | |
ERCOT | Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas | |
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 |
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FASB | Financial Accounting Standards Board | |
FERC | Federal Energy Regulatory Commission | |
FGD | Flue gas desulfurization | |
FTRs | Financial Transmission Rights | |
GAAP | Generally accepted accounting principles in the U.S. | |
GenConn | GenConn Energy LLC | |
GenOn | GenOn Energy, Inc. | |
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 | |
GHG | Greenhouse Gas | |
GIP | Global Infrastructure Partners | |
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 upon whether the electricity output measured is gross or net generation. Heat rates are generally expressed as BTU per net kWh | |
HLW | High-level radioactive waste | |
ICE | Intercontinental Exchange | |
ISO | Independent System Operator, also referred to as RTOs | |
ISO-NE | ISO New England Inc. | |
Ivanpah | Ivanpah Solar Electric Generation Station, a 393 MW solar thermal power plant located in California's Mojave Desert in which NRG owns 54.5% interest | |
kWh | Kilowatt-hour | |
LaGen | Louisiana Generating, LLC | |
LIBOR | London Inter-Bank Offered Rate | |
LTIPs | Collectively, the NRG LTIP and the NRG GenOn LTIP | |
Mass Market | Residential and small commercial customers | |
MATS | Mercury and Air Toxics Standards promulgated by the EPA | |
MDth | Thousand Dekatherms | |
Midwest Generation | Midwest Generation, LLC | |
MISO | Midcontinent Independent System Operator, Inc. | |
MMBtu | Million British Thermal Units | |
MW | Megawatts | |
MWe | Megawatt equivalent | |
MWh | Saleable megawatt hour net of internal/parasitic load megawatt-hour | |
NAAQS | National Ambient Air Quality Standards | |
NEPOOL | New England Power Pool | |
NERC | North American Electric Reliability Corporation | |
NJBPU | New Jersey Board of Public Utilities | |
Net Exposure | Counterparty credit exposure to NRG, net of collateral | |
Nodal | Nodal Exchange is a derivatives exchange | |
NOL | Net Operating Loss | |
NOx | Nitrogen Oxides | |
NPDES | National Pollutant Discharge Elimination System | |
NPNS | Normal Purchase Normal Sale | |
NRC | U.S. Nuclear Regulatory Commission | |
NRG | NRG Energy, Inc. |
6
NRG Yield, Inc. | NRG Yield, Inc., which changed it's name to Clearway Energy, Inc. following the sale by NRG of NRG Yield and the Renewables Platform to GIP | |
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 | |
Nuclear Waste Policy Act | U.S. Nuclear Waste Policy Act of 1982 | |
NY DEC | New York Department of Environmental Conservation | |
NYISO | New York Independent System Operator | |
NYMEX | New York Mercantile Exchange | |
NYSPSC | New York State Public Service Commission | |
OCI/OCL | Other Comprehensive Income/(Loss) | |
ORDC | Operating Reserve Demand Curve | |
PA PUC | Pennsylvania Public Utility Commission | |
Peaking | Units expected to satisfy demand requirements during the periods of greatest or peak load on a system | |
Petra Nova | Petra Nova Parish Holdings, LLC which is 50% owned by NRG and which owns and operates a 240 MWe carbon capture system and a 78 MW cogeneration facility, and owns an equity interest in an oilfield | |
PG&E | PG&E Corporation (NYSE: PCG) and its primary operating subsidiary, Pacific Gas and Electric Company | |
PJM | PJM Interconnection, LLC | |
PM2.5 | Particulate Matter that has a diameter of less than 2.5 micrometers | |
PPA | Power Purchase Agreement | |
PUCT | Public Utility Commission of Texas | |
RCE | Residential Customer Equivalent is a unit of measure used by the energy industry to denote the typical annual commodity consumption by a single-family residential customer. 1 RCE represents 1,000 therms of natural gas or 10,000 kWh of electricity | |
RCRA | Resource Conservation and Recovery Act of 1976 | |
Reliant Energy | Reliant Energy Retail Services, LLC | |
REMA | NRG REMA LLC, which leases a 100% interest in the Shawville generating facility and 16.7% and 16.5% interest in the Keystone and Conemaugh generating facilities, respectively | |
Renewables | Consists of the following projects in which NRG has an ownership interest: Agua Caliente, Ivanpah, and solar generating stations located at various NFL Stadiums | |
Renewables Platform | The renewable operating and development platform sold by NRG to GIP with NRG's interest in NRG Yield, Inc. | |
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 | |
RGGI | Regional Greenhouse Gas Initiative | |
RTO | Regional Transmission Organization | |
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. The 2023 Term Loan Facility was repaid in the second quarter of 2019 | |
Senior Notes | As of June 30, 2019, NRG's $3.8 billion outstanding unsecured senior notes consisting of $1.0 billion of the 7.25% senior notes due 2026, $1.23 billion of the 6.625% senior notes due 2027, $821 million of 5.75% senior notes due 2028 and $733 million of the 5.250% senior notes due 2029 | |
SNF | Spent Nuclear Fuel | |
SO2 | Sulfur Dioxide | |
South Central Portfolio | NRG's South Central Portfolio, which owned and operated a portfolio of generation assets consisting of Bayou Cove, Big Cajun-I, Big Cajun-II, Cottonwood and Sterlington, was sold on February 4, 2019. NRG is leasing back the Cottonwood facility through May 2025 | |
STP | South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest | |
STPNOC | South Texas Project Nuclear Operating Company |
7
TSA | Transportation Services Agreement | |
TWCC | Texas Westmoreland Coal Co. | |
UPMC Thermal Project | University of Pittsburgh Medical Center thermal generating project that provides power, steam, chilled water and backup power located in Pittsburgh, PA. | |
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 |
8
PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
(In millions, except for per share amounts) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Operating Revenues | |||||||||||||||
Total operating revenues | $ | 2,465 | $ | 2,461 | $ | 4,630 | $ | 4,526 | |||||||
Operating Costs and Expenses | |||||||||||||||
Cost of operations | 1,845 | 1,889 | 3,496 | 3,274 | |||||||||||
Depreciation and amortization | 85 | 112 | 170 | 232 | |||||||||||
Impairment losses | 1 | 74 | 1 | 74 | |||||||||||
Selling, general and administrative | 211 | 200 | 405 | 376 | |||||||||||
Reorganization costs | 2 | 23 | 15 | 43 | |||||||||||
Development costs | 2 | 3 | 4 | 8 | |||||||||||
Total operating costs and expenses | 2,146 | 2,301 | 4,091 | 4,007 | |||||||||||
Gain on sale of assets | 1 | 14 | 2 | 16 | |||||||||||
Operating Income | 320 | 174 | 541 | 535 | |||||||||||
Other Income/(Expense) | |||||||||||||||
Equity in earnings/(losses) of unconsolidated affiliates | — | 5 | (21 | ) | 6 | ||||||||||
Other income/(expense), net | 20 | (23 | ) | 32 | (23 | ) | |||||||||
Loss on debt extinguishment, net | (47 | ) | (1 | ) | (47 | ) | (3 | ) | |||||||
Interest expense | (105 | ) | (123 | ) | (219 | ) | (239 | ) | |||||||
Total other expense | (132 | ) | (142 | ) | (255 | ) | (259 | ) | |||||||
Income from Continuing Operations Before Income Taxes | 188 | 32 | 286 | 276 | |||||||||||
Income tax (benefit)/expense | (1 | ) | 5 | 3 | 11 | ||||||||||
Income from Continuing Operations | 189 | 27 | 283 | 265 | |||||||||||
Income from discontinued operations, net of income tax | 13 | 69 | 401 | 64 | |||||||||||
Net Income | 202 | 96 | 684 | 329 | |||||||||||
Less: Net income/(loss) attributable to noncontrolling interest and redeemable interests | 1 | 24 | 1 | (22 | ) | ||||||||||
Net Income Attributable to NRG Energy, Inc. | $ | 201 | $ | 72 | $ | 683 | $ | 351 | |||||||
Earnings per Share Attributable to NRG Energy, Inc. | |||||||||||||||
Weighted average number of common shares outstanding — basic | 265 | 310 | 272 | 314 | |||||||||||
Income from continuing operations per weighted average common share — basic | $ | 0.71 | $ | 0.01 | $ | 1.04 | $ | 0.92 | |||||||
Income from discontinued operations per weighted average common share — basic | $ | 0.05 | $ | 0.22 | $ | 1.47 | $ | 0.20 | |||||||
Earnings per Weighted Average Common Share — Basic | $ | 0.76 | $ | 0.23 | $ | 2.51 | $ | 1.12 | |||||||
Weighted average number of common shares outstanding — diluted | 267 | 314 | 274 | 318 | |||||||||||
Income from continuing operations per weighted average common share — diluted | $ | 0.70 | $ | 0.01 | $ | 1.03 | $ | 0.90 | |||||||
Income from discontinued operations per weighted average common share — diluted | $ | 0.05 | $ | 0.22 | $ | 1.46 | $ | 0.20 | |||||||
Earnings per Weighted Average Common Share — Diluted | $ | 0.75 | $ | 0.23 | $ | 2.49 | $ | 1.10 | |||||||
Dividends Per Common Share | $ | 0.03 | $ | 0.03 | $ | 0.06 | $ | 0.06 |
See accompanying notes to condensed consolidated financial statements.
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NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In millions) | |||||||||||||||
Net Income | $ | 202 | $ | 96 | $ | 684 | $ | 329 | |||||||
Other Comprehensive (Loss)/Income | |||||||||||||||
Unrealized gain on derivatives | — | 5 | — | 19 | |||||||||||
Foreign currency translation adjustments | (1 | ) | (4 | ) | — | (6 | ) | ||||||||
Available-for-sale securities | 1 | 1 | 1 | 1 | |||||||||||
Defined benefit plans | (3 | ) | (1 | ) | (6 | ) | (2 | ) | |||||||
Other comprehensive (loss)/income | (3 | ) | 1 | (5 | ) | 12 | |||||||||
Comprehensive Income | 199 | 97 | 679 | 341 | |||||||||||
Less: Comprehensive income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interest | 1 | 26 | 1 | (12 | ) | ||||||||||
Comprehensive Income Attributable to NRG Energy, Inc. | $ | 198 | $ | 71 | $ | 678 | $ | 353 |
See accompanying notes to condensed consolidated financial statements.
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NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2019 | December 31, 2018 | ||||||
(In millions, except share data) | (Unaudited) | ||||||
ASSETS | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 294 | $ | 563 | |||
Funds deposited by counterparties | 31 | 33 | |||||
Restricted cash | 11 | 17 | |||||
Accounts receivable, net | 1,049 | 1,024 | |||||
Inventory | 370 | 412 | |||||
Derivative instruments | 850 | 764 | |||||
Cash collateral paid in support of energy risk management activities | 163 | 287 | |||||
Prepayments and other current assets | 277 | 302 | |||||
Current assets - held-for-sale | — | 1 | |||||
Current assets - discontinued operations | — | 197 | |||||
Total current assets | 3,045 | 3,600 | |||||
Property, plant and equipment, net | 2,610 | 3,048 | |||||
Other Assets | |||||||
Equity investments in affiliates | 383 | 412 | |||||
Operating lease right-of-use assets, net | 499 | — | |||||
Goodwill | 573 | 573 | |||||
Intangible assets, net | 561 | 591 | |||||
Nuclear decommissioning trust fund | 748 | 663 | |||||
Derivative instruments | 426 | 317 | |||||
Deferred income taxes | 55 | 46 | |||||
Other non-current assets | 271 | 289 | |||||
Non-current assets - held-for-sale | — | 77 | |||||
Non-current assets - discontinued operations | — | 1,012 | |||||
Total other assets | 3,516 | 3,980 | |||||
Total Assets | $ | 9,171 | $ | 10,628 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current Liabilities | |||||||
Current portion of long-term debt and capital leases | $ | 87 | $ | 72 | |||
Current portion of operating lease liabilities | 74 | — | |||||
Accounts payable | 723 | 863 | |||||
Derivative instruments | 778 | 673 | |||||
Cash collateral received in support of energy risk management activities | 31 | 33 | |||||
Accrued expenses and other current liabilities | 601 | 680 | |||||
Current liabilities - held-for-sale | — | 5 | |||||
Current liabilities - discontinued operations | — | 72 | |||||
Total current liabilities | 2,294 | 2,398 | |||||
Other Liabilities | |||||||
Long-term debt and capital leases | 5,794 | 6,449 | |||||
Non-current operating lease liabilities | 513 | — | |||||
Nuclear decommissioning reserve | 290 | 282 | |||||
Nuclear decommissioning trust liability | 448 | 371 | |||||
Derivative instruments | 374 | 304 | |||||
Deferred income taxes | 71 | 65 | |||||
Other non-current liabilities | 1,016 | 1,274 | |||||
Non-current liabilities - held-for-sale | — | 65 | |||||
Non-current liabilities - discontinued operations | — | 635 | |||||
Total other liabilities | 8,506 | 9,445 | |||||
Total Liabilities | 10,800 | 11,843 | |||||
Redeemable noncontrolling interest in subsidiaries | 19 | 19 | |||||
Commitments and Contingencies | |||||||
Stockholders' Equity | |||||||
Common stock; $0.01 par value; 500,000,000 shares authorized; 421,830,474 and 420,288,886 shares issued and 258,570,598 and 283,650,039 shares outstanding at June 30, 2019 and December 31, 2018, respectively | 4 | 4 | |||||
Additional paid-in-capital | 8,488 | 8,510 | |||||
Accumulated deficit | (5,355 | ) | (6,022 | ) | |||
Less treasury stock, at cost - 163,259,876 and 136,638,847 shares at June 30, 2019 and December 31, 2018, respectively | (4,686 | ) | (3,632 | ) | |||
Accumulated other comprehensive loss | (99 | ) | (94 | ) | |||
Total Stockholders' Equity | (1,648 | ) | (1,234 | ) | |||
Total Liabilities and Stockholders' Equity | $ | 9,171 | $ | 10,628 |
See accompanying notes to condensed consolidated financial statements.
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NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, | |||||||
(In millions) | 2019 | 2018 | |||||
Cash Flows from Operating Activities | |||||||
Net Income | $ | 684 | $ | 329 | |||
Income from discontinued operations, net of income tax | 401 | 64 | |||||
Income from continuing operations | 283 | 265 | |||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Distributions and equity earnings of unconsolidated affiliates | 22 | 12 | |||||
Depreciation, amortization and accretion | 184 | 252 | |||||
Provision for bad debts | 52 | 30 | |||||
Amortization of nuclear fuel | 27 | 24 | |||||
Amortization of financing costs and debt discount/premiums | 13 | 13 | |||||
Loss on debt extinguishment, net | 47 | 3 | |||||
Amortization of intangibles and out-of-market contracts | 14 | 20 | |||||
Amortization of unearned equity compensation | 10 | 15 | |||||
Loss/(gain) on sale and disposal of assets | 1 | (16 | ) | ||||
Impairment losses | 1 | 88 | |||||
Changes in derivative instruments | (22 | ) | (145 | ) | |||
Changes in deferred income taxes and liability for uncertain tax benefits | (5 | ) | (2 | ) | |||
Changes in collateral deposits in support of energy risk management activities | 125 | (9 | ) | ||||
Changes in nuclear decommissioning trust liability | 17 | 41 | |||||
Loss on deconsolidation of Ivanpah project | — | 22 | |||||
Changes in other working capital | (388 | ) | (349 | ) | |||
Cash provided by continuing operations | 381 | 264 | |||||
Cash provided by discontinued operations | 8 | 249 | |||||
Net Cash Provided by Operating Activities | 389 | 513 | |||||
Cash Flows from Investing Activities | |||||||
Payments for acquisitions of businesses | (21 | ) | (211 | ) | |||
Capital expenditures | (107 | ) | (282 | ) | |||
Net proceeds from sale of emission allowances | (1 | ) | 3 | ||||
Investments in nuclear decommissioning trust fund securities | (209 | ) | (346 | ) | |||
Proceeds from the sale of nuclear decommissioning trust fund securities | 191 | 303 | |||||
Proceeds from sale of assets, net of cash disposed and sale of discontinued operations, net of fees | 1,289 | 146 | |||||
Deconsolidation of Ivanpah project | — | (160 | ) | ||||
Net distributions from investments in unconsolidated affiliates | 7 | (15 | ) | ||||
Contributions to discontinued operations | (44 | ) | (16 | ) | |||
Cash provided/(used) by continuing operations | 1,105 | (578 | ) | ||||
Cash used by discontinued operations | (2 | ) | (584 | ) | |||
Net Cash Provided/(Used) by Investing Activities | 1,103 | (1,162 | ) | ||||
Cash Flows from Financing Activities | |||||||
Payments of dividends to common stockholders | (16 | ) | (19 | ) | |||
Payments for treasury stock | (1,039 | ) | (500 | ) | |||
Payments for debt extinguishment costs | (24 | ) | — | ||||
Distributions to noncontrolling interests from subsidiaries | (1 | ) | (14 | ) | |||
Proceeds from issuance of common stock | 2 | 11 | |||||
Proceeds from issuance of short and long-term debt | 1,833 | 994 | |||||
Payment of debt issuance costs | (33 | ) | (19 | ) | |||
Payments for short and long-term debt | (2,485 | ) | (348 | ) | |||
Cash (used)/provided by continuing operations | (1,763 | ) | 105 | ||||
Cash provided by discontinued operations | 43 | 345 | |||||
Net Cash (Used)/Provided by Financing Activities | (1,720 | ) | 450 | ||||
Change in Cash from discontinued operations | 49 | 10 | |||||
Net Decrease in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash | (277 | ) | (209 | ) | |||
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period | 613 | 1,086 | |||||
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period | $ | 336 | $ | 877 |
See accompanying notes to condensed consolidated financial statements.
12
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stock-holders' Equity | ||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Balance at December 31, 2018 | $ | 4 | $ | 8,510 | $ | (6,022 | ) | $ | (3,632 | ) | $ | (94 | ) | $ | (1,234 | ) | |||||||
Net income | 482 | 482 | |||||||||||||||||||||
Other comprehensive loss | (2 | ) | (2 | ) | |||||||||||||||||||
Share repurchases | (10 | ) | (739 | ) | (749 | ) | |||||||||||||||||
Equity-based compensation | (32 | ) | (32 | ) | |||||||||||||||||||
Issuance of common stock | 5 | 5 | |||||||||||||||||||||
Common stock dividends | (8 | ) | (8 | ) | |||||||||||||||||||
Balance at March 31, 2019 | $ | 4 | $ | 8,473 | $ | (5,548 | ) | $ | (4,371 | ) | $ | (96 | ) | $ | (1,538 | ) | |||||||
Net income | 201 | 201 | |||||||||||||||||||||
Other comprehensive loss | (3 | ) | (3 | ) | |||||||||||||||||||
Share repurchases | 10 | (315 | ) | (305 | ) | ||||||||||||||||||
Equity-based compensation | 5 | 5 | |||||||||||||||||||||
Common stock dividends | (8 | ) | (8 | ) | |||||||||||||||||||
Balance at June 30, 2019 | $ | 4 | $ | 8,488 | $ | (5,355 | ) | $ | (4,686 | ) | $ | (99 | ) | $ | (1,648 | ) |
13
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
(Unaudited)
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Noncon- trolling Interest | Total Stock-holders' Equity | |||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 4 | $ | 8,376 | $ | (6,268 | ) | $ | (2,386 | ) | $ | (72 | ) | $ | 2,314 | $ | 1,968 | ||||||||||
Net income/(loss) | 279 | (30 | ) | 249 | |||||||||||||||||||||||
Other comprehensive income | 11 | 11 | |||||||||||||||||||||||||
Sale of assets to NRG Yield, Inc. | 8 | 4 | 12 | ||||||||||||||||||||||||
ESPP share purchases | (2 | ) | 5 | 3 | |||||||||||||||||||||||
Share repurchases | (93 | ) | (93 | ) | |||||||||||||||||||||||
Equity-based compensation | (10 | ) | (10 | ) | |||||||||||||||||||||||
Issuance of common stock | 7 | 7 | |||||||||||||||||||||||||
Common stock dividends | (10 | ) | (10 | ) | |||||||||||||||||||||||
Distributions to noncontrolling interests | (19 | ) | (19 | ) | |||||||||||||||||||||||
Dividends paid to NRG Yield, Inc. | (30 | ) | (30 | ) | |||||||||||||||||||||||
Contributions from noncontrolling interests | 153 | 153 | |||||||||||||||||||||||||
Adoption of new accounting standards | 17 | 17 | |||||||||||||||||||||||||
Balance at March 31, 2018 | $ | 4 | $ | 8,379 | $ | (5,982 | ) | $ | (2,474 | ) | $ | (61 | ) | $ | 2,392 | $ | 2,258 | ||||||||||
Net income | 72 | 32 | 104 | ||||||||||||||||||||||||
Other comprehensive income | 1 | 1 | |||||||||||||||||||||||||
Sale of assets to NRG Yield, Inc. | (2 | ) | (2 | ) | |||||||||||||||||||||||
ESPP share purchases | (1 | ) | (1 | ) | |||||||||||||||||||||||
Share repurchases | (11 | ) | (396 | ) | (407 | ) | |||||||||||||||||||||
Equity-based compensation | 8 | 8 | |||||||||||||||||||||||||
Issuance of common stock | 4 | 4 | |||||||||||||||||||||||||
Common stock dividends | (9 | ) | (9 | ) | |||||||||||||||||||||||
Distributions to noncontrolling interests | (15 | ) | (15 | ) | |||||||||||||||||||||||
Dividends paid to NRG Yield, Inc. | (31 | ) | (31 | ) | |||||||||||||||||||||||
Contributions from noncontrolling interests | 150 | 150 | |||||||||||||||||||||||||
Adoption of new accounting standards | (1 | ) | (1 | ) | |||||||||||||||||||||||
Deconsolidation of Business | (89 | ) | (89 | ) | |||||||||||||||||||||||
Equity component of convertible senior notes | 101 | 101 | |||||||||||||||||||||||||
Balance at June 30, 2018 | $ | 4 | $ | 8,481 | $ | (5,920 | ) | $ | (2,871 | ) | $ | (60 | ) | $ | 2,437 | $ | 2,071 |
See accompanying notes to condensed consolidated financial statements.
14
NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Nature of Business and Basis of Presentation
General
NRG Energy, Inc., or NRG or the Company, is an energy company built on dynamic retail brands with diverse generation assets. NRG brings the power of energy to consumers by producing, selling and delivering electricity and related products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. NRG is perfecting the integrated model by balancing retail load with generation supply within its deregulated markets, while evolving to a customer-driven business. The Company sells energy, services, and innovative, sustainable products and services directly to retail customers under the names "NRG", "Reliant" and other brand names owned by NRG, supported by approximately 23,000 MW of generation as of June 30, 2019.
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 2018 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, 2019, and the results of operations, comprehensive income, cash flows and statements of stockholders' equity for the three and six months ended June 30, 2019 and 2018.
Discontinued Operations
During the fourth quarter of 2018, as described in Note 4, Acquisitions, Discontinued Operations and Dispositions, the Company concluded that the sale of its South Central Portfolio to Cleco, excluding the Cottonwood facility, met held-for-sale criteria and should be presented as discontinued operations, as the sale, which closed on February 4, 2019, represented a strategic shift in the business in which NRG operates. The financial information for all historical periods has been recast to reflect the presentation of these entities as discontinued operations.
On August 31, 2018, as described in Note 4, Acquisitions, Discontinued Operations and Dispositions, NRG deconsolidated NRG Yield, Inc. and its Renewables Platform for financial reporting purposes. The financial information for all historical periods has been recast to reflect the presentation of these entities, as well as the Carlsbad project, as discontinued operations. As a result of the sale of NRG Yield, the Company no longer controls the Agua Caliente project. Due to this change in control, the Company also deconsolidated the Agua Caliente project from its financial results and began accounting for the project as an equity method investment.
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.
15
Note 2 — Summary of Significant Accounting Policies
Net Income attributable to NRG Energy, Inc.
The following table reflects the net income attributable to NRG Energy, Inc. after removing the net income/(loss) attributable to the noncontrolling interest and redeemable noncontrolling interest:
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In millions) | |||||||||||||||
Income from continuing operations, net of income tax | $ | 188 | $ | 27 | $ | 282 | $ | 272 | |||||||
Income from discontinued operations, net of income tax | 13 | 45 | 401 | 79 | |||||||||||
Net income attributable to NRG Energy, Inc. | $ | 201 | $ | 72 | $ | 683 | $ | 351 |
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, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
Accounts receivable allowance for doubtful accounts | $ | 28 | $ | 32 | |||
Property, plant and equipment accumulated depreciation | 1,684 | 1,811 | |||||
Intangible assets accumulated amortization | 1,182 | 1,149 | |||||
Out-of-market contracts accumulated amortization | — | 37 |
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 sheets that sum to the total of the same such amounts shown in the statements of cash flows.
June 30, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
Cash and cash equivalents | $ | 294 | $ | 563 | |||
Funds deposited by counterparties | 31 | 33 | |||||
Restricted cash | 11 | 17 | |||||
Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows | $ | 336 | $ | 613 |
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.
16
Recent Accounting Developments - Guidance Adopted in 2019
ASU 2016-02 - In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or Topic 842, which was further amended through various updates issued by the FASB thereafter, 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 adopted the standard and its subsequent corresponding updates effective January 1, 2019 under the modified retrospective approach by applying the provisions of the new leases guidance at the effective date without adjusting the comparative periods presented. The Company assessed its leasing arrangements, evaluated the impact of applying practical expedients and accounting policy elections, and implemented lease accounting software to meet the reporting requirements of the standard. The Company established operating lease liabilities of $404 million and right-of-use assets of $321 million upon adoption, before considering deferred taxes. The adoption of Topic 842 did not have a material impact on the statements of operations or cash flows. See Note 8, Leases, for further discussion.
Recent Accounting Developments - Guidance Not Yet Adopted
ASU 2018-17 - In October 2018, the FASB issued ASU No. 2018-17, Consolidations (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, in response to stakeholders’ observations that Topic 810, Consolidations, could be improved thereby improving general purpose financial reporting. Specifically, ASC 2018-17 requires application of the variable interest entity (VIE) guidance to private companies under common control and consideration of indirect interest held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. All entities are required to apply the amendments retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company is evaluating the impact of adopting this guidance on the consolidated financial statements and disclosures.
ASU 2018-13 - In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirement for Fair value Measurement), or ASU No. 2018-13. The guidance in ASU No. 2018-13 eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The amendments in ASU No. 2018-13 add new disclosure requirements for Level 3 measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. Certain disclosures in ASU No. 2018-13 are required to be applied on a retrospective basis and others on a prospective basis. As the amendment contemplates changes in disclosures only, it will have no material impact on the Company's results of operations, cash flows, or statement of financial position.
Note 3 — Revenue Recognition
Performance Obligations
As of June 30, 2019, estimated future fixed fee performance obligations are $315 million for the remaining six months of fiscal year 2019, and $512 million, $542 million, $284 million and $29 million for the entirety of fiscal years 2020, 2021, 2022 and 2023, respectively. These performance obligations are for cleared auction MWs in the PJM, ISO-NE, NYISO and MISO capacity auctions and are subject to penalties for non performance.
17
Disaggregated Revenues
The following tables represent the Company’s disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2019 and 2018 along with the reportable segment for each category:
Three months ended June 30, 2019 | |||||||||||||||||||||||
Generation | |||||||||||||||||||||||
(In millions) | Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | |||||||||||||||||
Energy revenue(a)(c) | $ | — | $ | 497 | $ | 117 | $ | 614 | $ | (365 | ) | $ | 249 | ||||||||||
Capacity revenue(c) | — | — | 154 | 154 | 1 | 155 | |||||||||||||||||
Retail revenue | |||||||||||||||||||||||
Mass customers | 1,401 | — | — | — | (1 | ) | 1,400 | ||||||||||||||||
Business Solutions customers | 345 | — | — | — | — | 345 | |||||||||||||||||
Total retail revenue | 1,746 | — | — | — | (1 | ) | 1,745 | ||||||||||||||||
Mark-to-market for economic hedging activities(a)(b) | 2 | 460 | 64 | 524 | (285 | ) | 241 | ||||||||||||||||
Other revenues(c) | — | 16 | 59 | 75 | — | 75 | |||||||||||||||||
Total operating revenue | 1,748 | 973 | 394 | 1,367 | (650 | ) | 2,465 | ||||||||||||||||
Less: Lease revenue | 3 | — | 2 | 2 | — | 5 | |||||||||||||||||
Less: Realized and unrealized ASC 815 revenue(a) | 2 | 1,184 | 140 | 1,324 | (649 | ) | 677 | ||||||||||||||||
Total revenue from contracts with customers | $ | 1,743 | $ | (211 | ) | $ | 252 | $ | 41 | $ | (1 | ) | $ | 1,783 | |||||||||
(a) Generation includes higher revenues due to the Company's large internal transfer of power based on average annualized market prices, which are offset by higher | |||||||||||||||||||||||
cost of operations within Retail | |||||||||||||||||||||||
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 | |||||||||||||||||||||||
(c) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 which are included in the amounts above: | |||||||||||||||||||||||
Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | ||||||||||||||||||
Energy revenue | $ | — | $ | 717 | $ | 42 | $ | 759 | $ | (365 | ) | $ | 394 | ||||||||||
Capacity revenue | — | — | 29 | 29 | 1 | 30 | |||||||||||||||||
Other revenue | — | 7 | 5 | 12 | — | 12 |
18
Three months ended June 30, 2018 | |||||||||||||||||||||||
Generation | |||||||||||||||||||||||
(In millions) | Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | |||||||||||||||||
Energy revenue(a)(c) | $ | — | $ | 402 | $ | 259 | $ | 661 | $ | (251 | ) | $ | 410 | ||||||||||
Capacity revenue(c) | — | — | 165 | 165 | — | 165 | |||||||||||||||||
Retail revenue | |||||||||||||||||||||||
Mass customers | 1,377 | — | — | — | (1 | ) | 1,376 | ||||||||||||||||
Business Solutions customers | 437 | — | — | — | — | 437 | |||||||||||||||||
Total retail revenue | 1,814 | — | — | — | (1 | ) | 1,813 | ||||||||||||||||
Mark-to-market for economic hedging activities(a)(b) | — | 296 | (22 | ) | 274 | (264 | ) | 10 | |||||||||||||||
Other revenues(c) | — | 10 | 57 | 67 | (4 | ) | 63 | ||||||||||||||||
Total operating revenue | 1,814 | 708 | 459 | 1,167 | (520 | ) | 2,461 | ||||||||||||||||
Less: Lease revenue | 3 | — | 2 | 2 | — | 5 | |||||||||||||||||
Less: Realized and unrealized ASC 815 revenue(a) | — | 865 | 48 | 913 | (511 | ) | 402 | ||||||||||||||||
Total revenue from contracts with customers | $ | 1,811 | $ | (157 | ) | $ | 409 | $ | 252 | $ | (9 | ) | $ | 2,054 | |||||||||
(a) Generation includes higher revenues due to the Company's large internal transfer of power based on average annualized market prices, which are offset by higher | |||||||||||||||||||||||
cost of operations within Retail | |||||||||||||||||||||||
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 | |||||||||||||||||||||||
(c) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 which are included in the amounts above: | |||||||||||||||||||||||
Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | ||||||||||||||||||
Energy revenue | $ | — | $ | 569 | $ | 26 | $ | 595 | $ | (247 | ) | $ | 348 | ||||||||||
Capacity revenue | — | — | 39 | 39 | — | 39 | |||||||||||||||||
Other revenue | — | — | 5 | 5 | — | 5 |
Six months ended June 30, 2019 | |||||||||||||||||||||||
Generation | |||||||||||||||||||||||
(In millions) | Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | |||||||||||||||||
Energy revenue(a)(c) | $ | — | $ | 855 | $ | 341 | $ | 1,196 | $ | (641 | ) | $ | 555 | ||||||||||
Capacity revenue(c) | — | — | 309 | 309 | — | 309 | |||||||||||||||||
Retail revenue | |||||||||||||||||||||||
Mass customers | 2,722 | — | — | — | (2 | ) | 2,720 | ||||||||||||||||
Business Solutions customers | 631 | — | — | — | — | 631 | |||||||||||||||||
Total retail revenue | 3,353 | — | — | — | (2 | ) | 3,351 | ||||||||||||||||
Mark-to-market for economic hedging activities(a)(b) | 2 | 473 | 56 | 529 | (270 | ) | 261 | ||||||||||||||||
Other revenues(c) | — | 45 | 111 | 156 | (2 | ) | 154 | ||||||||||||||||
Total operating revenue | 3,355 | 1,373 | 817 | 2,190 | (915 | ) | 4,630 | ||||||||||||||||
Less: Lease revenue | 6 | — | 4 | 4 | — | 10 | |||||||||||||||||
Less: Realized and unrealized ASC 815 revenue(a) | 2 | 1,730 | 237 | 1,967 | (911 | ) | 1,058 | ||||||||||||||||
Total revenue from contracts with customers | $ | 3,347 | $ | (357 | ) | $ | 576 | $ | 219 | $ | (4 | ) | $ | 3,562 | |||||||||
(a) Generation includes higher revenues due to the Company's large internal transfer of power based on average annualized market prices, which are offset by higher | |||||||||||||||||||||||
cost of operations within Retail | |||||||||||||||||||||||
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 | |||||||||||||||||||||||
(c) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 which are included in the amounts above: | |||||||||||||||||||||||
Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | ||||||||||||||||||
Energy revenue | $ | — | $ | 1,242 | $ | 129 | $ | 1,371 | $ | (641 | ) | $ | 730 | ||||||||||
Capacity revenue | — | — | 48 | 48 | — | 48 | |||||||||||||||||
Other revenue | — | 15 | 4 | 19 | — | 19 |
19
Six months ended June 30, 2018 | |||||||||||||||||||||||
Generation | |||||||||||||||||||||||
(In millions) | Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | |||||||||||||||||
Energy revenue(a)(c) | $ | — | $ | 666 | $ | 598 | $ | 1,264 | $ | (411 | ) | $ | 853 | ||||||||||
Capacity revenue(c) | — | — | 308 | 308 | (1 | ) | 307 | ||||||||||||||||
Retail revenue | |||||||||||||||||||||||
Mass customers | 2,553 | — | — | — | (2 | ) | 2,551 | ||||||||||||||||
Business Solutions customers | 747 | — | — | — | — | 747 | |||||||||||||||||
Total retail revenue | 3,300 | — | — | — | (2 | ) | 3,298 | ||||||||||||||||
Mark-to-market for economic hedging activities(a)(b) | (6 | ) | (273 | ) | (27 | ) | (300 | ) | 220 | (86 | ) | ||||||||||||
Other revenues(c) | — | 64 | 102 | 166 | (12 | ) | 154 | ||||||||||||||||
Total operating revenue | 3,294 | 457 | 981 | 1,438 | (206 | ) | 4,526 | ||||||||||||||||
Less: Lease revenue | 7 | — | 4 | 4 | — | 11 | |||||||||||||||||
Less: Realized and unrealized ASC 815 revenue(a) | (6 | ) | 714 | 132 | 846 | (184 | ) | 656 | |||||||||||||||
Total revenue from contracts with customers | $ | 3,293 | $ | (257 | ) | $ | 845 | $ | 588 | $ | (22 | ) | $ | 3,859 | |||||||||
(a) Generation includes higher revenues due to the Company's large internal transfer of power based on average annualized market prices, which are offset by higher | |||||||||||||||||||||||
cost of operations within Retail | |||||||||||||||||||||||
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 | |||||||||||||||||||||||
(c) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 which are included in the amounts above: | |||||||||||||||||||||||
Retail | Texas | East/West/Other | Subtotal | Corporate/Eliminations | Total | ||||||||||||||||||
Energy revenue | $ | — | $ | 982 | $ | 86 | $ | 1,068 | $ | (404 | ) | $ | 664 | ||||||||||
Capacity revenue | — | — | 65 | 65 | — | 65 | |||||||||||||||||
Other revenue | — | 5 | 8 | 13 | — | 13 |
Contract Balances
The following table reflects the contract assets and liabilities included in the Company’s balance sheet as of June 30, 2019
and December 31, 2018:
(In millions) | June 30, 2019 | December 31, 2018 | |||||
Deferred customer acquisition costs | $ | 123 | $ | 111 | |||
Accounts receivable, net - Contracts with customers | 1,015 | 999 | |||||
Accounts receivable, net - Derivative instruments | 43 | 20 | |||||
Accounts receivable, net - Affiliate | 4 | 5 | |||||
Total accounts receivable, net | $ | 1,062 | $ | 1,024 | |||
Unbilled revenues (included within Accounts receivable, net - Contracts with customers) | $ | 403 | $ | 392 | |||
Deferred revenues(a) | 89 | 67 |
(a) Deferred revenues from contracts with customers for the six month period ended June 30, 2019 and the twelve month period ended December 31, 2018 were approximately $31 million and $19 million, respectively
The revenue recognized during the six months ended June 30, 2019 and 2018, relating to the deferred revenue balance at the beginning of each period was $13 million and $16 million, respectively. The revenue recognized during the three months ended June 30, 2019 and 2018, relating to the deferred revenue balance at the beginning of each period was $19 million and $16 million, respectively. The change in deferred revenue balances during the three and six months ended June 30, 2019 and 2018 was primarily due to the timing difference of when consideration was received and when the performance obligation was transferred.
20
Note 4 — Acquisitions, Discontinued Operations and Dispositions
Acquisitions
Stream Energy Acquisition - On May 15, 2019, the Company entered into an agreement to acquire Stream Energy's retail electricity and natural gas business operating in 9 states and Washington, D.C. for $300 million in cash and estimated transaction costs and working capital adjustments of approximately $25 million. The acquisition increased NRG's retail portfolio by approximately 600,000 RCEs or 450,000 customers. The acquisition closed on August 1, 2019.
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 $213 million in cash. The acquisition increased NRG's retail portfolio by approximately 395,000 RCEs or 300,000 customers. The purchase price was allocated as follows:
(In millions) | |||
Net current and non-current working capital | $ | 46 | |
Other intangible assets | 133 | ||
Goodwill | 34 | ||
XOOM Purchase Price | $ | 213 |
Discontinued Operations
Sale of South Central Portfolio
On February 4, 2019, the Company completed the sale of the South Central Portfolio to Cleco for cash consideration of $1 billion excluding working capital and other adjustments. The Company concluded that the divested business met the criteria for discontinued operations as of December 31, 2018, as the disposition represented a strategic shift in the business in which NRG operates and the criteria for held-for-sale were met. As such, all current and prior period results for the operations of the South Central Portfolio, except for the Cottonwood facility as discussed below, were reclassified as discontinued operations. In connection with the transaction, NRG also entered into a transition services agreement to provide certain corporate services to the divested business.
The South Central Portfolio includes the 1,153 MW Cottonwood natural gas generating facility. Upon the closing of the sale of the South Central Portfolio, NRG entered into an agreement with Cleco to leaseback the Cottonwood facility through May 2025. Due to its continuing involvement with the Cottonwood facility, NRG did not use discontinued operations treatment in accounting for historical and ongoing activity with Cottonwood.
Summarized results of the South Central Portfolio discontinued operations were as follows:
Three months ended | Six months ended | ||||||||||||||
(In millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||
Operating revenues | $ | — | $ | 107 | $ | 31 | $ | 209 | |||||||
Operating costs and expenses | — | (91 | ) | (23 | ) | (177 | ) | ||||||||
Gain from discontinued operations, net of tax | — | 16 | 8 | 32 | |||||||||||
Gain on disposal of discontinued operations, net of tax | 1 | — | 28 | — | |||||||||||
Gain from discontinued operations, including disposal, net of tax | $ | 1 | $ | 16 | $ | 36 | $ | 32 |
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The following table summarizes the major classes of assets and liabilities classified as discontinued operations of the South Central Portfolio:
(In millions) | December 31, 2018 | |||
Cash and cash equivalents | $ | 89 | ||
Accounts receivable - trade, net | 49 | |||
Inventory | 35 | |||
Other current assets | 5 | |||
Current assets - discontinued operations | 178 | |||
Property, plant and equipment, net | 408 | |||
Other non-current assets | 1 | |||
Non-current assets - discontinued operations | 409 | |||
Accounts payable | 19 | |||
Other current liabilities | 5 | |||
Current liabilities - discontinued operations | 24 | |||
Out-of-market contracts, net | 50 | |||
Other non-current liabilities | 11 | |||
Non-current liabilities - discontinued operations | $ | 61 |
Sale of Ownership in NRG Yield, Inc. and the Renewables Platform
On August 31, 2018, the Company completed the sale of its ownership interests in NRG Yield, Inc. and the Renewables Platform to GIP for total cash consideration of $1.348 billion. The Company concluded that the divested businesses met the criteria for discontinued operations, as the dispositions represent a strategic shift in the markets in which NRG operates. As such, all prior period results for NRG Yield, Inc. and the Renewables Platform were reclassified as discontinued operations. In connection with the transaction, NRG entered into a transition services agreement to provide certain corporate services to the divested businesses. During the six months ended June 30, 2019, the Company recorded an adjustment to reduce the purchase price by $17 million in connection with the completion of the Patriot Wind project. The Company expects to recover a portion of this adjustment in the future. During the six months ended June 30, 2019, the Company reduced the liability related to the indemnification of NRG Yield for any increase in property taxes for certain solar properties by $22 million due to updated estimates.
Carlsbad
On February 6, 2018, NRG entered into an agreement with NRG Yield and GIP to sell 100% of its membership interests in Carlsbad Energy Holdings LLC, which owns the Carlsbad project, for $385 million of cash consideration, excluding working capital adjustments. The primary condition to close the Carlsbad transaction was the completion of the sale of NRG Yield and the Renewables Platform. At the time of the sale of NRG Yield and the Renewables Platform in August 2018, the Company concluded that the Carlsbad project met the criteria for discontinued operations and accordingly, all current and prior period results for Carlsbad were reclassified as discontinued operations. The transaction closed on February 27, 2019. Carlsbad continues to have a ground lease and easement agreement with NRG with an initial term ending in 2039 and two ten year extensions. As a result of the transaction, additional commitments related to the project totaled approximately $23 million as of December 31, 2018 and June 30, 2019.
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Summarized results of NRG Yield, Inc. and the Renewables Platform and Carlsbad discontinued operations were as follows:
Three months ended | Six months ended | ||||||||||||||
(In millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||
Operating revenues | $ | — | $ | 368 | $ | 19 | $ | 628 | |||||||
Operating costs and expenses | — | (223 | ) | (9 | ) | (453 | ) | ||||||||
Other expenses | — | (65 | ) | (5 | ) | (123 | ) | ||||||||
Gain from operations of discontinued components, before tax | — | 80 | 5 | 52 | |||||||||||
Income tax expense/(benefit) | — | 2 | — | (5 | ) | ||||||||||
Gain from discontinued operations, net of tax | — | 78 | 5 | 57 | |||||||||||
Gain on disposal of discontinued operations, net of tax | (17 | ) | — | 331 | — | ||||||||||
Other Commitments, Indemnification and Fees | 27 | — | 27 | — | |||||||||||
Gain on disposal of discontinued operations, net of tax | 10 | — | 358 | — | |||||||||||
Gain from discontinued operations, including disposal, net of tax | $ | 10 | $ | 78 | $ | 363 | $ | 57 |
The following table summarizes the major classes of assets and liabilities classified as discontinued operations of Carlsbad:
(In millions) | December 31, 2018 | |||
Restricted cash | $ | 4 | ||
Accounts receivable - trade, net | 10 | |||
Other current assets | 5 | |||
Current assets - discontinued operations | 19 | |||
Property, plant and equipment, net | 590 | |||
Intangible assets, net | 9 | |||
Other non-current assets | 4 | |||
Non-current assets - discontinued operations | 603 | |||
Current portion of long-term debt and capital leases | 20 | |||
Accounts payable | 27 | |||
Other current liabilities | 1 | |||
Current liabilities - discontinued operations | 48 | |||
Long-term debt and capital leases | 572 | |||
Other non-current liabilities | 2 | |||
Non-current liabilities - discontinued operations | $ | 574 |
Sale of Assets to NRG Yield, Inc. Prior to Discontinued Operations
On June 19, 2018, the Company completed the UPMC Thermal Project and received cash consideration from NRG Yield of $84 million, plus an additional $3 million received at final completion in January 2019.
On March 30, 2018, 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 $42 million, excluding working capital adjustments, and assumed non-recourse debt of $183 million.
GenOn
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 concluded that it no longer controlled GenOn as it was subject to the control of the Bankruptcy Court; and, accordingly, NRG deconsolidated GenOn for financial reporting purposes as of June 14, 2017.
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By eliminating a large portion of its operations in the PJM market with the deconsolidation of GenOn, NRG concluded that GenOn met the criteria for discontinued operations, as this represented a strategic shift in the business in which NRG operates. As such, all prior period results for GenOn were reclassified as discontinued operations. GenOn's plan of reorganization was confirmed on December 14, 2018.
Summarized results of GenOn discontinued operations were as follows:
Three months ended | Six months ended | ||||||||||||||
(In millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||
Interest income - affiliate | $ | — | $ | 2 | $ | — | $ | 3 | |||||||
Pension and post-retirement liability assumption | — | 1 | — | 1 | |||||||||||
Advisory and consulting fees | — | (1 | ) | — | (2 | ) | |||||||||
Other | 2 | (27 | ) | 2 | (27 | ) | |||||||||
Gain/(loss) from discontinued operations, net of tax | $ | 2 | $ | (25 | ) | $ | 2 | $ | (25 | ) |
GenOn Settlement
Effective July 16, 2018, NRG and GenOn consummated the GenOn Settlement whereby 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, (iv) $4 million reduction of the settlement payment related to NRG assigning to GenOn approximately $8 million of historical claims against REMA and (v) certain other balances due to NRG totaling $2 million.
GenMA Settlement
The Bankruptcy Court approved 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 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 $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 $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 was non-recourse to NRG and was transferred to Stonepeak Kestrel in connection with the sale of Canal 3. The Company entered into a project management agreement in 2018 to manage construction of Canal 3, and substantial completion was reached in June 2019.
The Company completed other asset sales for cash proceeds of $18 million and $16 million during the six months ended June 30, 2019 and 2018, respectively.
Note 5 — Fair Value of Financial Instruments
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 amounts approximate fair values because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.
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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, 2019 | As of December 31, 2018 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
(In millions) | |||||||||||||||
Assets: | |||||||||||||||
Notes receivable | $ | 12 | $ | 8 | $ | 17 | $ | 14 | |||||||
Liabilities: | |||||||||||||||
Long-term debt, including current portion (a) | 5,951 | 6,422 | 6,591 | 6,697 |
(a) 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, 2019 and December 31, 2018:
As of June 30, 2019 | As of December 31, 2018 | ||||||||||||||
Level 2 | Level 3 | Level 2 | Level 3 | ||||||||||||
(In millions) | |||||||||||||||
Long-term debt, including current portion | $ | 6,305 | $ | 117 | $ | 6,528 | $ | 169 |
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, 2019 | |||||||||||||||
(In millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Investments in securities (classified within other current and non-current assets) | $ | 38 | $ | — | $ | 19 | $ | 19 | |||||||
Nuclear trust fund investments: | |||||||||||||||
Cash and cash equivalents | 25 | 25 | — | — | |||||||||||
U.S. government and federal agency obligations | 57 | 57 | — | — | |||||||||||
Federal agency mortgage-backed securities | 92 | — | 92 | — | |||||||||||
Commercial mortgage-backed securities | 29 | — | 29 | — | |||||||||||
Corporate debt securities | 102 | — | 102 | — | |||||||||||
Equity securities | 366 | 366 | — | — | |||||||||||
Foreign government fixed income securities | 4 | — | 4 | — | |||||||||||
Other trust fund investments: | |||||||||||||||
U.S. government and federal agency obligations | 1 | 1 | — | — | |||||||||||
Derivative assets: | |||||||||||||||
Commodity contracts | 1,276 | 131 | 770 | 375 | |||||||||||
Measured using net asset value practical expedient: | |||||||||||||||
Equity securities — nuclear trust fund investments | 73 | ||||||||||||||
Equity securities | 9 | ||||||||||||||
Total assets | $ | 2,072 | $ | 580 | $ | 1,016 | $ | 394 | |||||||
Derivative liabilities: | |||||||||||||||
Commodity contracts | $ | 1,152 | $ | 245 | $ | 629 | $ | 278 | |||||||
Total liabilities | $ | 1,152 | $ | 245 | $ | 629 | $ | 278 |
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As of December 31, 2018 | |||||||||||||||
(In millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Investments in securities (classified within other current and non-current assets) | $ | 39 | $ | 2 | $ | 18 | $ | 19 | |||||||
Nuclear trust fund investments: | |||||||||||||||
Cash and cash equivalents | 19 | 19 | — | — | |||||||||||
U.S. government and federal agency obligations | 46 | 46 | — | — | |||||||||||
Federal agency mortgage-backed securities | 100 | — | 100 | — | |||||||||||
Commercial mortgage-backed securities | 22 | — | 22 | — | |||||||||||
Corporate debt securities | 96 | — | 96 | — | |||||||||||
Equity securities | 312 | 312 | — | — | |||||||||||
Foreign government fixed income securities | 4 | — | 4 | — | |||||||||||
Other trust fund investments: | |||||||||||||||
U.S. government and federal agency obligations | 1 | 1 | — | — | |||||||||||
Derivative assets: | |||||||||||||||
Commodity contracts | 1,042 | 137 | 796 | 109 | |||||||||||
Interest rate contracts | 39 | — | 39 | — | |||||||||||
Measured using net asset value practical expedient: | |||||||||||||||
Equity securities — nuclear trust fund investments | 64 | ||||||||||||||
Equity securities | 8 | ||||||||||||||
Total assets | $ | 1,792 | $ | 517 | $ | 1,075 | $ | 128 | |||||||
Derivative liabilities: | |||||||||||||||
Commodity contracts | $ | 977 | $ | 224 | $ | 664 | $ | 89 | |||||||
Total liabilities | $ | 977 | $ | 224 | $ | 664 | $ | 89 |
There were no transfers during the three and six months ended June 30, 2019 and 2018 between Levels 1 and 2. The following tables reconcile, for the three and six months ended June 30, 2019 and 2018, 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, 2019 | Six months ended June 30, 2019 | ||||||||||||||||||||||
(In millions) | Debt Securities | Derivatives(a) | Total | Debt Securities | Derivatives(a) | Total | |||||||||||||||||
Beginning balance | $ | 18 | $ | (2 | ) | $ | 16 | $ | 19 | $ | 20 | $ | 39 | ||||||||||
Contracts added from acquisitions | — | (1 | ) | (1 | ) | — | (1 | ) | (1 | ) | |||||||||||||
Total gains/(losses) — realized/unrealized included in earnings | 1 | (17 | ) | (16 | ) | 1 | (27 | ) | (26 | ) | |||||||||||||
Cash received | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||
Purchases | — | (10 | ) | (10 | ) | — | (12 | ) | (12 | ) | |||||||||||||
Transfers into Level 3(b) | — | 113 | 113 | — | 130 | 130 | |||||||||||||||||
Transfers out of Level 3(b) | — | 14 | 14 | — | (13 | ) | (13 | ) | |||||||||||||||
Ending balance as of June 30, 2019 | $ | 19 | $ | 97 | $ | 116 | $ | 19 | $ | 97 | $ | 116 | |||||||||||
Gains/(losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of June 30, 2019 | $ | 1 | $ | (19 | ) | $ | (18 | ) | $ | 1 | $ | (31 | ) | $ | (30 | ) |
(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 |
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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 | $ | 5 | $ | 24 | $ | 19 | $ | (15 | ) | $ | 4 | ||||||||||
Contracts added in XOOM acquisition | — | 12 | 12 | — | 12 | 12 | |||||||||||||||||
Total (losses) — realized/unrealized included in earnings | — | (27 | ) | (27 | ) | — | (16 | ) | (16 | ) | |||||||||||||
Purchases | — | (4 | ) | (4 | ) | — | (3 | ) | (3 | ) | |||||||||||||
Transfers into Level 3(b) | — | 193 | 193 | — | 197 | 197 | |||||||||||||||||
Transfers out of Level 3(b) | — | (5 | ) | (5 | ) | — | (1 | ) | (1 | ) | |||||||||||||
Ending balance as of June 30, 2018 | $ | 19 | $ | 174 | $ | 193 | $ | 19 | $ | 174 | $ | 193 | |||||||||||
(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 | $ | — | $ | (27 | ) | $ | (27 | ) | $ | — | $ | (15 | ) | $ | (15 | ) |
(a) | Consists of derivative assets and liabilities, net |
(b) | Transfers into/out of Level 3 are related to the availability of external broker quotes and are valued as of the end of the reporting period. All transfers in/out are with Level 2 |
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. These contracts are valued based on various valuation techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of the observable market data with similar characteristics. As of June 30, 2019, contracts valued with prices provided by models and other valuation techniques make up 29% of derivative assets and 24% of 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.
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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, 2019 and December 31, 2018:
June 30, 2019 | |||||||||||||||||||||||
Fair Value | Input/Range | ||||||||||||||||||||||
Assets | Liabilities | Valuation Technique | Significant Unobservable Input | Low | High | Weighted Average | |||||||||||||||||
(In millions) | |||||||||||||||||||||||
Power Contracts | $ | 347 | $ | 261 | Discounted Cash Flow | Forward Market Price (per MWh) | $ | 4 | $ | 142 | $ | 25 | |||||||||||
FTRs | 28 | 17 | Discounted Cash Flow | Auction Prices (per MWh) | (134 | ) | 52 | 0 | |||||||||||||||
$ | 375 | $ | 278 |
December 31, 2018 | |||||||||||||||||||||||
Fair Value | Input/Range | ||||||||||||||||||||||
Assets | Liabilities | Valuation Technique | Significant Unobservable Input | Low | High | Weighted Average | |||||||||||||||||
(In millions) | |||||||||||||||||||||||
Power Contracts | $ | 89 | $ | 75 | Discounted Cash Flow | Forward Market Price (per MWh) | $ | 1 | $ | 214 | $ | 31 | |||||||||||
FTRs | 20 | 14 | Discounted Cash Flow | Auction Prices (per MWh) | (90 | ) | 34 | 0 | |||||||||||||||
$ | 109 | $ | 89 |
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of June 30, 2019 and December 31, 2018:
Significant Unobservable Input | Position | Change In Input | Impact on Fair Value Measurement | |||