NRG ENERGY, INC. - Quarter Report: 2020 September (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:

September 30, 2020

☐

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

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 November 5, 2020, there were 244,220,834 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			9
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES			9
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			55
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			91
ITEM 4 — CONTROLS AND PROCEDURES			93
PART II — OTHER INFORMATION			94
ITEM 1 — LEGAL PROCEEDINGS			94
ITEM 1A — RISK FACTORS			94
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			95
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES			95
ITEM 4 — MINE SAFETY DISCLOSURES			95
ITEM 5 — OTHER INFORMATION			95
ITEM 6 — EXHIBITS			96
SIGNATURES			97

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, in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and the following:

•NRG's inability to estimate with any degree of certainty the future impact that COVID-19, any resurgence of COVID-19, or other pandemic may have on NRG's results of operations, financial position, risk exposure and liquidity;

•NRG's ability to obtain and maintain retail market share;

•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;

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

•NRG's ability to successfully integrate, realize cost savings and manage any acquired businesses;

•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 Senior Notes, Senior Secured Notes and 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 market 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 achieve the expected benefits of its Transformation Plan; and

•NRG's ability to develop and maintain successful partnering relationships as needed.

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.

GLOSSARY OF TERMS

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


2019 Form 10-K						NRG’s Annual Report on Form 10-K for the year ended December 31, 2019
2023 Term Loan Facility						The Company's 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 power 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
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
California Bankruptcy Court						United States Bankruptcy Court for the Northern District of California, San Francisco Division
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
Carlsbad						Carlsbad Energy Center, a 528 MW natural gas-fired project located in Carlsbad, CA
CCR						Coal Combustion Residuals
CDD						Cooling Degree Day
CFTC						U.S. Commodity Futures Trading Commission

C&I						Commercial industrial and governmental/institutional
Centrica						Centrica plc
CES						Clean Energy Standard
Cleco						Cleco Corporate Holdings LLC
CO2						Carbon Dioxide
ComEd						Commonwealth Edison
Company						NRG Energy, Inc.
Convertible Senior Notes						As of September 30, 2020, consists of NRG’s $575 million unsecured 2.75% Convertible Senior Notes due 2048
Cottonwood						Cottonwood Generating Station, a 1,153 MW natural gas-fueled plant
COVID-19						Coronavirus Disease 2019
CPP						Clean Power Plan
CPUC						California Public Utilities Commission
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
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
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
ESCO						Energy Service Companies
ESPP						NRG Energy, Inc. Amended and Restated Employee Stock Purchase Plan


Exchange Act						The Securities Exchange Act of 1934, as amended
FASB						Financial Accounting Standards Board
FERC						Federal Energy Regulatory Commission
FGD						Flue gas desulfurization
FTRs						Financial Transmission Rights
GAAP						Generally accepted accounting principles in the U.S.
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 Texas Bankruptcy Court on June 14, 2017
GHG						Greenhouse Gas
GIP						Global Infrastructure Partners
Green Mountain Energy						Green Mountain Energy Company
GWh						Gigawatt Hour
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
HSR Act						Hart-Scott-Rodino Act
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 long-term incentive plan ("LTIP") and the NRG GenOn LTIP
Mass Market						Residential and small commercial customers
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
Net Revenue Rate						Sum of retail revenues less TDSP transportation charges
Nodal						Nodal Exchange is a derivatives exchange
NOL						Net Operating Loss
NOx						Nitrogen Oxides
NPNS						Normal Purchase Normal Sale
NRC						U.S. Nuclear Regulatory Commission
NRG						NRG Energy, Inc.


NRG Yield, Inc.						NRG Yield, Inc., which changed its 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
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
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

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.
Revolving Credit Facility						The Company's $2.6 billion revolving credit facility, a component of the Senior Credit Facility, due 2024 was amended on May 28, 2019 and August 20, 2020
RGGI						Regional Greenhouse Gas Initiative
RTO						Regional Transmission Organization, also referred to as ISOs
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 September 30, 2020, 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
Senior Secured Notes						As of September 30, 2020, NRG’s $1.1 billion outstanding Senior Secured First Lien Notes consists of $600 million of the 3.75% Senior Secured First Lien Notes due 2024 and $500 million of the 4.45% Senior Secured First Lien 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

TDSP						Transmission/distribution service provider
Texas Bankruptcy Court						United States Bankruptcy Court for the Southern District of Texas, Houston Division
Transformation Plan						NRG's three-year plan announced in 2017, which includes targets related to operations and excellence, portfolio optimization, and capital structure and allocation enhancement


TWCC						Texas Westmoreland Coal Co.
U.S.						United States of America
U.S. DOE						U.S. Department of Energy
Utility Scale Solar						Solar power projects, typically 20 MW or greater in size (on an alternating current basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level
VaR						Value at Risk
VIE						Variable Interest Entity
ZECs						Zero Emissions Credits

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
(In millions, except for per share amounts)	2020		2019		2020		2019
Operating Revenues
Total operating revenues	$	2,809	$	2,996	$	7,066	$	7,626
Operating Costs and Expenses
Cost of operations	2,034		2,153		4,925		5,649
Depreciation and amortization	99		91		318		261
Impairment losses	29		—		29		1
Selling, general and administrative costs	253		210		670		615
Reorganization costs	—		1		3		16
Development costs	1		1		6		5
Total operating costs and expenses	2,416		2,456		5,951		6,547

Gain on sale of assets	—		—		6		2
Operating Income	393		540		1,121		1,081
Other Income/(Expense)
Equity in earnings of unconsolidated affiliates	36		29		37		8
Impairment losses on investments	—		(107)		(18)		(107)
Other income, net	11		17		52		49
Loss on debt extinguishment, net	—		—		(1)		(47)
Interest expense	(99)		(99)		(292)		(318)
Total other expense	(52)		(160)		(222)		(415)
Income from Continuing Operations Before Income Taxes	341		380		899		666
Income tax expense	92		6		216		9
Income from Continuing Operations	249		374		683		657
(Loss)/income from discontinued operations, net of income tax	—		(2)		—		399
Net Income	249		372		683		1,056
Less: Net income attributable to redeemable noncontrolling interests	—		—		—		1
Net Income Attributable to NRG Energy, Inc.	$	249	$	372	$	683	$	1,055
Earnings per Share
Weighted average number of common shares outstanding — basic	244		254		246		266
Income from continuing operations per weighted average common share — basic	$	1.02	$	1.47	$	2.78	$	2.47
(Loss)/income from discontinued operations per weighted average common share — basic	$	—	$	(0.01)	$	—	$	1.50
Earnings per Weighted Average Common Share — Basic	$	1.02	$	1.46	$	2.78	$	3.97
Weighted average number of common shares outstanding — diluted	245		256		247		268
Income from continuing operations per weighted average common share — diluted	$	1.02	$	1.46	$	2.77	$	2.45
(Loss)/income from discontinued operations per weighted average common share — diluted	$	—	$	(0.01)	$	—	$	1.49
Earnings per Weighted Average Common Share — Diluted	$	1.02	$	1.45	$	2.77	$	3.94

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
(In millions)	2020		2019		2020		2019
Net Income	$	249	$	372	$	683	$	1,056
Other Comprehensive Income/(Loss)

Foreign currency translation adjustments	4		(4)		2		(4)
Available-for-sale securities	—		(14)		—		(13)
Defined benefit plans	—		(41)		—		(47)
Other comprehensive income/(loss)	4		(59)		2		(64)
Comprehensive Income	253		313		685		992
Less: Comprehensive income attributable to redeemable noncontrolling interest	—		—		—		1
Comprehensive Income Attributable to NRG Energy, Inc.	$	253	$	313	$	685	$	991

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2020		December 31, 2019
(In millions, except share data)	(Unaudited)		(Audited)
ASSETS
Current Assets
Cash and cash equivalents	$	697	$	345
Funds deposited by counterparties	15		32
Restricted cash	6		8
Accounts receivable, net	1,126		1,025
Inventory	330		383
Derivative instruments	578		860
Cash collateral paid in support of energy risk management activities	77		190

Prepayments and other current assets	258		245


Total current assets	3,087		3,088
Property, plant and equipment, net	2,573		2,593
Other Assets
Equity investments in affiliates	376		388

Operating lease right-of-use assets, net	345		464
Goodwill	579		579
Intangible assets, net	721		789
Nuclear decommissioning trust fund	828		794
Derivative instruments	315		310
Deferred income taxes	3,087		3,286
Other non-current assets	314		240


Total other assets	6,565		6,850
Total Assets	$	12,225	$	12,531

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities

Current portion of long-term debt	3		88
Current portion of operating lease liabilities	69		73
Accounts payable	753		722

Derivative instruments	495		781
Cash collateral received in support of energy risk management activities	15		32
Accrued expenses and other current liabilities	651		663



Total current liabilities	1,986		2,359
Other Liabilities
Long-term debt	5,792		5,803
Non-current operating lease liabilities	297		483
Nuclear decommissioning reserve	311		298
Nuclear decommissioning trust liability	508		487

Derivative instruments	318		322
Deferred income taxes	17		17
Other non-current liabilities	1,062		1,084


Total other liabilities	8,305		8,494
Total Liabilities	10,291		10,853
Redeemable noncontrolling interest in subsidiaries	—		20
Commitments and Contingencies
Stockholders' Equity
Common stock; $0.01 par value; 500,000,000 shares authorized; 423,041,349 and 421,890,790 shares issued and 244,147,420 and 248,996,189 shares outstanding at September 30, 2020 and December 31, 2019, respectively	4		4
Additional paid-in-capital	8,511		8,501
Accumulated deficit	(1,157)		(1,616)
Treasury stock, at cost - 178,893,929 and 172,894,601 shares at September 30, 2020 and December 31, 2019, respectively	(5,234)		(5,039)
Accumulated other comprehensive loss	(190)		(192)

Total Stockholders' Equity	1,934		1,658
Total Liabilities and Stockholders' Equity	$	12,225	$	12,531

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,
(In millions)	2020		2019
Cash Flows from Operating Activities
Net Income	$	683	$	1,056
Income from discontinued operations, net of income tax	—		399
Income from continuing operations	683		657
Adjustments to reconcile net income to cash provided by operating activities:
Distributions from and equity in losses/(earnings) of unconsolidated affiliates	6		(5)
Depreciation and amortization	318		261
Accretion of asset retirement obligations	46		31
Provision for credit losses	74		87
Amortization of nuclear fuel	40		40
Amortization of financing costs and debt discount/premiums	23		20
Loss on debt extinguishment, net	1		47
Amortization of emissions allowances and energy credits	60		28
Amortization of unearned equity compensation	17		15
Gain on sale and disposal of assets	(22)		(20)

Impairment losses	47		108
Changes in derivative instruments	(7)		36
Changes in deferred income taxes and liability for uncertain tax benefits	202		(3)
Changes in collateral deposits in support of energy risk management activities	96		129
Changes in nuclear decommissioning trust liability	39		27


Changes in other working capital	(237)		(569)
Cash provided by continuing operations	1,386		889
Cash provided by discontinued operations	—		8
Net Cash Provided by Operating Activities	1,386		897
Cash Flows from Investing Activities
Payments for acquisitions of assets and businesses	(277)		(348)
Capital expenditures	(167)		(183)
Net proceeds from notes receivable	—		2
Net (purchases)/sales of emission allowances	(15)		14
Investments in nuclear decommissioning trust fund securities	(360)		(295)
Proceeds from the sale of nuclear decommissioning trust fund securities	318		271
Proceeds from sale of assets, net of cash disposed and sale of discontinued operations, net of fees	15		1,293

Changes in investments in unconsolidated affiliates	2		(94)
Contributions to discontinued operations	—		(44)

Cash (used)/provided by continuing operations	(484)		616
Cash used by discontinued operations	—		(2)
Net Cash (Used)/Provided by Investing Activities	(484)		614
Cash Flows from Financing Activities
Payments of dividends to common stockholders	(221)		(24)
Payments for share repurchase activity	(229)		(1,322)

Payments for debt extinguishment costs	—		(24)
Purchase of and distributions to noncontrolling interests from subsidiaries	(2)		(1)
Proceeds from issuance of common stock	1		3
Proceeds from issuance of long-term debt	59		1,833
Payments of debt issuance costs	(24)		(34)
Repayments of long-term debt	(62)		(2,487)
Net (repayments)/proceeds of Revolving Credit Facility	(83)		215

Other	(6)		—
Cash used by continuing operations	(567)		(1,841)
Cash provided by discontinued operations	—		43
Net Cash Used by Financing Activities	(567)		(1,798)
Effect of exchange rate changes on cash and cash equivalents	(2)		—
Change in Cash from discontinued operations	—		49
Net Increase/(Decrease) in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash	333		(336)
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period	385		613
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period	$	718	$	277

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


(In millions)	Common Stock		Additional Paid-In Capital		Accumulated Deficit		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stock-holders' Equity
Balance at December 31, 2019	$	4	$	8,501	$	(1,616)	$	(5,039)	$	(192)	$	1,658
Net income attributable to NRG Energy, Inc.					121						121
Other comprehensive loss									(15)		(15)
Repurchase of partners' equity interest in VIE			18								18

Share repurchases							(150)				(150)
Equity-based awards activity, net			(21)								(21)

Common stock dividends and dividend equivalents declared(a)					(75)						(75)





Balance at March 31, 2020	$	4	$	8,498	$	(1,570)	$	(5,189)	$	(207)	$	1,536
Net income attributable to NRG Energy, Inc.					313						313
Other comprehensive income									13		13
Shares reissuance for ESPP							2				2
Share repurchases							(47)				(47)
Equity-based awards activity, net			6								6
Issuance of common stock			1								1
Common stock dividends and dividend equivalents declared(a)					(74)						(74)

Balance at June 30, 2020	$	4	$	8,505	$	(1,331)	$	(5,234)	$	(194)	$	1,750
Net income attributable to NRG Energy, Inc.					249						249
Other comprehensive income									4		4

Equity-based awards activity, net			6								6

Common stock dividends and dividend equivalents declared(a)					(75)						(75)
Balance at September 30, 2020	$	4	$	8,511	$	(1,157)	$	(5,234)	$	(190)	$	1,934


(In millions)	Common Stock		Additional Paid-In Capital		Accumulated Deficit		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stock-holders' Equity
Balance at December 31, 2018	$	4	$	8,510	$	(6,022)	$	(3,632)	$	(94)	$	(1,234)
Net income attributable to NRG Energy, Inc.					482						482
Other comprehensive loss									(2)		(2)

Share repurchases			(10)				(739)				(749)
Equity-based awards activity, net			(32)								(32)
Issuance of common stock			5								5
Common stock dividends and dividend equivalents declared(a)					(8)						(8)



Balance at March 31, 2019	$	4	$	8,473	$	(5,548)	$	(4,371)	$	(96)	$	(1,538)
Net income attributable to NRG Energy, Inc.					201						201
Other comprehensive loss									(3)		(3)


Share repurchases			10				(315)				(305)
Equity-based awards activity, net			5								5

Common stock dividends and dividend equivalents declared(a)					(8)						(8)






Balance at June 30, 2019	$	4	$	8,488	$	(5,355)	$	(4,686)	$	(99)	$	(1,648)
Net income attributable to NRG Energy, Inc.					372						372
Other comprehensive loss									(59)		(59)

Share repurchases							(234)				(234)
Equity-based awards activity, net			5								5
Issuance of common stock			1								1
Common stock dividends and dividend equivalents declared(a)					(8)						(8)




Balance at September 30, 2019	$	4	$	8,494	$	(4,991)	$	(4,920)	$	(158)	$	(1,571)

(a) Dividends per common share were $0.30 for each of the quarters ended September 30, 2020, June 30, 2020 and March 31, 2020 and $0.03 for each of the quarters ended September 30, 2019, June 30, 2019 and March 31, 2019

See accompanying notes to condensed consolidated financial statements.

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 integrated power company built on dynamic retail brands with diverse generation assets. NRG brings the power of energy to consumers by producing and selling electricity and related products and services in major competitive power markets in the U.S. and Canada in a manner that delivers value to all of NRG's stakeholders. NRG is a customer-driven business focused on perfecting the integrated model by balancing retail load with generation supply within its deregulated markets. The Company sells energy, services, and innovative, sustainable products and services directly to retail customers under the brand names NRG, Reliant, Green Mountain Energy, Stream, and XOOM Energy, as well as other brand names owned by NRG, supported by approximately 23,000 MW of generation as of September 30, 2020.

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 condensed consolidated financial statements in the Company's 2019 Form 10-K and the Current Report on Form 8-K filed May 7, 2020, which provides retrospectively revised historical financial information to correspond with the Company's current segment structure. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of September 30, 2020, and the results of operations, comprehensive income, cash flows and statements of stockholders' equity for the three and nine months ended September 30, 2020 and 2019.

Segments

As part of perfecting the integrated model, in which the majority of the Company’s generation serves its retail customers, the Company began managing its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus in 2020. As a result, the Company changed its business segments from Retail and Generation to Texas, East and West/Other beginning in the first quarter of 2020. The Company's updated segment structure reflects how management currently makes financial decisions and allocates resources.

The Company's businesses are segregated as follows:

•Texas, which includes all activity related to customer, plant and market operations in Texas;

•East, which includes the remaining activity related to customer operations and all activity related to plant and market operations in the East;

•West/Other, which includes the following assets and activities: (i) all activity related to plant and market operations in the West, (ii) activity related to the Cottonwood power plant that was sold to Cleco on February 4, 2019 and is being leased back until 2025, (iii) the remaining renewables activity, including the Company’s equity method investments in Ivanpah Master Holdings, LLC and Agua Caliente, the remaining Home Solar assets and the NFL stadium solar generating assets, and (iv) activity related to the Company’s equity method investment for the Gladstone power plant in Australia; and

•Corporate activities.

All affected disclosures have been recast to reflect these changes for all periods presented. For further discussion of segment reporting, refer to Note 14, Segment Reporting.

COVID-19

In March 2020, the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Electricity was deemed a 'critical and essential business operation' under various state and federal governmental COVID-19 mandates. NRG had activated its Crisis Management Team ("CMT") in January 2020 to proactively manage the Company's response to the impacts of COVID-19.

NRG continues to remain focused on protecting the health and well-being of its employees, while supporting its customers and the communities in which it operates and assuring the continuity of its operations. In June 2020, summer-critical office employees returned to the offices and safety protocols were successfully implemented. The Company will continue to evaluate additional return to normal work operations on a location-by-location basis as COVID-19 conditions evolve.

The Company continues to maintain certain restrictions on business travel and face-to-face sales channels, remote work practices remain in place and there are enhanced cleaning and hygiene protocols in all of its facilities. In addition, select essential employees and contractors are continuing to report to plant and certain office locations. The Company also continues to require pre-entry screening, including temperature checks, separation of work crews, additional personal protective equipment for employees and contractors when social distancing cannot be maintained, and a ban on all non-essential visitors. The Company has not experienced any material disruptions in its ability to continue its business operations to date.

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.

Note 2 — Summary of Significant Accounting Policies

Other Balance Sheet Information

The following table presents the accumulated depreciation included in property, plant and equipment, net and accumulated amortization included in intangible assets, net:


(In millions)	September 30, 2020		December 31, 2019
Property, plant and equipment accumulated depreciation	$	1,901	$	1,752
Intangible assets accumulated amortization	1,314		1,262

Credit Losses

On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU No. 2016-13, using the modified retrospective approach. Following the adoption of the new standard, the Company’s process of estimating expected credit losses remains materially consistent with its historical practice. Information prior to January 1, 2020, which was previously referred to as the allowance and provision for bad debt, has not been restated and continues to be reported under the accounting standards in effect for that period.

Retail trade receivables are reported on the balance sheet net of the allowance for credit losses. The Company accrues an allowance for current expected credit losses based on (i) estimates of uncollectible revenues by analyzing accounts receivable aging and current and reasonable forecasts of expected economic factors including, but not limited to, unemployment rates and weather-related events, (ii) historical collections and delinquencies, and (iii) counterparty credit ratings for commercial and industrial customers.

The following table represents the activity in the allowance for credit losses for the three and nine months ended September 30, 2020:


(In millions)	Three months ended September 30, 2020		Nine months ended September 30, 2020
Beginning balance	$	47	$	43
Provision for credit losses	26		74
Write-offs	(19)		(71)
Recoveries collected	3		11
Ending balance	$	57	$	57

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:


(In millions)	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	697	$	345
Funds deposited by counterparties	15		32
Restricted cash	6		8
Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows	$	718	$	385

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 within the Company's projects that are restricted for specific uses.

Pension Plan Contributions

In the Company's 2019 Form 10-K, NRG had anticipated making contributions of $56 million to its pension plans in 2020. Cash contributions of $12 million were made during the nine months ended September 30, 2020 and the remaining planned contributions for 2020 were satisfied by available pre-funded pension balances (previous contributions in excess of required pension contributions). No additional contributions are planned in the fourth quarter of 2020.

Recent Accounting Developments - Guidance Adopted in 2020

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, or ASU No. 2018-17, in response to stakeholders’ observations that Topic 810, Consolidations, could be improved thereby improving general purpose financial reporting. Specifically, ASU No. 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. The adoption did not have a material impact on the Company's results of operations, cash flows, or statement of financial position.

ASU 2018-15 — In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in Cloud Computing Arrangement That Is a Service Contract, or ASU No. 2018-15. The amendments in ASU No. 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain internal-use software (and hosting arrangement that include an internal-use software license). The amendment also requires the customer to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The Company adopted the amendments effective January 1, 2020 using the prospective approach. The adoption did not have a material impact on the Company's results of operations, cash flows, or statement of financial position.

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 amendments in ASU No. 2018-13 eliminate such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and 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. Certain disclosures in ASU No. 2018-13 are required to be applied on a retrospective basis and others on a prospective basis. The Company adopted the amendments effective January 1, 2020. As the amendments contemplates changes in disclosures only, it did not have an impact on the Company's results of operations, cash flows, or statement of financial position.

ASU 2016-13 — In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, or ASU No. 2016-13, which was further amended through various updates issued by the FASB thereafter. The guidance in ASU No. 2016-13 provides a new model for recognizing credit losses on financial assets carried at amortized cost using an estimate of expected credit losses, instead of the "incurred loss" methodology previously required for recognizing credit losses that delayed recognition until it was probable that a loss was incurred. The estimate of expected credit losses is to be based on consideration of past events, current conditions and reasonable and supportable forecasts of future conditions. The Company adopted the standard and its subsequent corresponding updates effective January 1, 2020 using the modified retrospective approach. Results for the reporting periods after January 1, 2020 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company's adoption of Topic 326 did not have a material impact on the Company's results of operations, cash flows, or statement of financial position.

Recent Accounting Developments - Guidance Not Yet Adopted

ASU 2020-06 — In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU No. 2020-06. The guidance in ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. In addition, ASU 2020-06 improves and amends the related earnings per share guidance. This standard is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently in the process of assessing the impact of this guidance on the consolidated financial statements and disclosures related to earnings per share.

ASU 2019-12 — In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU No. 2019-12, to simplify various aspects related to accounting for income taxes. The guidance in ASU 2019-12 amends the general principles in Topic 740 to eliminate certain exceptions for recognizing deferred taxes for investment, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years,. Early adoption is permitted, including adoption in an interim period. The Company is currently in the process of assessing the impact of this guidance on the consolidated financial statements.

Note 3 — Revenue Recognition

Performance Obligations

As of September 30, 2020, estimated future fixed fee performance obligations are $188 million for the remaining three months of fiscal year 2020, and $648 million, $281 million, $43 million and $8 million for the fiscal years 2021, 2022, 2023 and 2024, 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.

Disaggregated Revenues

The following tables represent the Company’s disaggregation of revenue from contracts with customers for the three and nine months ended September 30, 2020 and 2019:


	Three months ended September 30, 2020
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Retail revenue:
Mass Market	$	1,633	$	354	$	—	$	—	$	1,987
Business Solutions	288		27		—		—		315
Total retail revenue	1,921		381		—		—		2,302
Energy revenue(a)	11		93		117		1		222
Capacity revenue(a)	—		158		16		—		174
Mark-to-market for economic hedging activities(b)	1		43		(10)		5		39

Other revenue(a)	59		18		(1)		(4)		72
Total operating revenue	1,992		693		122		2		2,809
Less: Lease revenue	—		—		5		—		5
Less: Realized and unrealized ASC 815 revenue	10		115		(10)		5		120

Total revenue from contracts with customers	$	1,982	$	578	$	127	$	(3)	$	2,684
(a) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 and included in the amounts above:
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Energy revenue	$	—	$	23	$	13	$	(1)	$	35
Capacity revenue	—		49		—		—		49
Other revenue	9		—		(13)		1		(3)
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815


	Three months ended September 30, 2019
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Retail revenue:
Mass Market	$	1,735	$	337	$	—	$	—	$	2,072
Business Solutions	397		19		—		—		416
Total retail revenue	2,132		356		—		—		2,488
Energy revenue(a)	211		109		107		(1)		426
Capacity revenue(a)	—		185		9		—		194
Mark-to-market for economic hedging activities(b)	(213)		12		(9)		—		(210)

Other revenue(a)	78		17		4		(1)		98
Total operating revenue	2,208		679		111		(2)		2,996
Less: Lease revenue	—		—		5		—		5
Less: Realized and unrealized ASC 815 revenue	420		69		—		(2)		487

Total revenue from contracts with customers	$	1,788	$	610	$	106	$	—	$	2,504
(a) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 and included in the amounts above:
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Energy revenue	$	613	$	20	$	21	$	(2)	$	652
Capacity revenue	—		34		—		—		34
Other revenue	20		3		(12)		—		11
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815


	Nine months ended September 30, 2020
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Retail revenue:
Mass Market	$	3,938	$	992	$	—	$	(1)	$	4,929
Business Solutions	796		70		—		—		866
Total retail revenue	4,734		1,062		—		(1)		5,795
Energy revenue(a)	21		157		252		(1)		429
Capacity revenue(a)	—		471		47		—		518
Mark-to-market for economic hedging activities(b)	1		63		6		8		78

Other revenue(a)	172		45		36		(7)		246
Total operating revenue	4,928		1,798		341		(1)		7,066
Less: Lease revenue	—		1		14		—		15
Less: Realized and unrealized ASC 815 revenue	24		239		50		5		318

Total revenue from contracts with customers	$	4,904	$	1,558	$	277	$	(6)	$	6,733
(a) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 and included in the amounts above:
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Energy revenue	$	—	$	60	$	42	$	(3)	$	99
Capacity revenue	—		114		—		—		114
Other revenue	23		2		2		—		27
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815


	Nine months ended September 30, 2019
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Retail revenue:
Mass Market	$	3,891	$	892	$	—	$	(3)	$	4,780
Business Solutions	927		55		—		—		982
Total retail revenue	4,818		947		—		(3)		5,762
Energy revenue(a)	452		283		217		—		952
Capacity revenue(a)	—		524		27		—		551
Mark-to-market for economic hedging activities(b)	28		13		11		(1)		51

Other revenue(a)	213		45		55		(3)		310
Total operating revenue	5,511		1,812		310		(7)		7,626
Less: Lease revenue	—		1		14		—		15
Less: Realized and unrealized ASC 815 revenue	1,314		187		46		(2)		1,545

Total revenue from contracts with customers	$	4,197	$	1,624	$	250	$	(5)	$	6,066
(a) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 and included in the amounts above:
(In millions)	Texas		East		West/Other		Corporate/Eliminations		Total
Energy revenue	$	1,239	$	87	$	28	$	(2)	$	1,352
Capacity revenue	—		81		—		1		82
Other revenue	47		6		7		—		60
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815

Contract Balances

The following table reflects the contract assets and liabilities included in the Company’s balance sheet as of September 30, 2020 and December 31, 2019:


(In millions)	September 30, 2020		December 31, 2019
Deferred customer acquisition costs	$	122	$	133

Accounts receivable, net - Contracts with customers	1,084		1,002

Accounts receivable, net - Derivative instruments	37		18
Accounts receivable, net - Affiliate	5		5
Total accounts receivable, net	$	1,126	$	1,025

Unbilled revenues (included within Accounts receivable, net - Contracts with customers)	$	411	$	402

Deferred revenues(a)	60		82

(a) Deferred revenues from contracts with customers for the three months ended September 30, 2020 and the year ended December 31, 2019 were approximately $31 million and $24 million, respectively

The revenue recognized from contracts with customers during both the nine months ended September 30, 2020 and 2019 relating to the deferred revenue balance at the beginning of each period was $13 million. The revenue recognized during the three months ended September 30, 2020 and 2019 relating to the deferred revenue balance at the beginning of each period was $31 million and $21 million, respectively. The change in deferred revenue balances during the three and nine months ended September 30, 2020 and 2019 was primarily due to the timing difference of when consideration was received and when the performance obligation was transferred.

Note 4 — Acquisitions, Discontinued Operations and Dispositions

Acquisitions

Direct Energy Acquisition

On July 24, 2020, the Company entered into a definitive purchase agreement with Centrica to acquire Direct Energy, a North American subsidiary of Centrica (the "Purchase Agreement"). Direct Energy is a leading retail provider of electricity, natural gas, and home and business energy related products and services in North America, with operations in all 50 U.S. states and 6 Canadian provinces. The acquisition will add over 3 million customers to NRG's business and build on and complement its integrated model, enabling better matching of power generation with customer demand. It will also broaden the Company's presence in the Northeast and into states and locales where it does not currently operate, supporting NRG's objective to diversify its business.

The Company will pay an aggregate purchase price of $3.625 billion in cash, subject to a purchase price adjustment, including a working capital adjustment. The Company expects to fund the purchase price using a combination of cash on hand and approximately $3 billion in newly-issued secured and unsecured corporate debt. The Company also expects to increase its collective collateral facilities by $3.5 billion through a combination of new letter of credit facilities and increases to its existing Revolving Credit Facility.

Through November 5, 2020, in preparation for the additional liquidity requirements related to the acquisition, the Company (i) amended its Revolving Credit Facility to, among other things, increase the existing revolving commitments in an aggregate amount of $802 million, and provide for a new tranche of revolving commitments in an aggregate amount of $273 million, as further discussed in Note 10, Long-term Debt, (ii) amended its credit default swap facility agreement to issue letters of credit to, among other things, increase the size of the facility to allow for the issuance of an additional $87 million of letters of credit, as further discussed in Note 10, Long-term Debt, (iii) entered into a revolving accounts receivable financing facility (the “ Receivables Facility”) for an amount up to $750 million, subject to adjustments on a seasonal basis, with issuers of asset-backed commercial paper and commercial banks, as further discussed in Note 9, Receivables Securitization and Repurchase Facility, (iv) entered into an uncommitted repurchase facility related to the Receivables Facility, under which the Company can borrow up to $75 million, as further discussed in Note 9, Receivables Securitization and Repurchase Facility, and (v) entered into $1.6 billion of interest rate hedges associated with anticipated financing needs, as further discussed in Note 20, Subsequent Events.

The shareholders of Centrica approved the acquisition on August 20, 2020. The transaction has received approvals under the Canadian Competition Act and early termination of the waiting period under the HSR Act has been granted. The transaction remains subject to customary closing conditions, including the receipt of approval under the Federal Power Act.

The acquisition is targeted to close by December 31, 2020. There are no assurances that the conditions to the consummation of the acquisition of Direct Energy will be satisfied or that the acquisition of Direct Energy will be consummated on the terms agreed to, or at all.

Midwest Generation Lease Purchase

On September 29, 2020, Midwest Generation acquired all of the ownership interests in the Powerton facility and Units 7 and 8 of the Joliet facility, which were being leased through 2034 and 2030, respectively, for approximately $260 million. The purchase was initially funded with cash-on-hand. The Company anticipates drawing on its Revolving Credit Facility in an amount equal to the previously existing operating lease liability of $148 million before December 31, 2020.

Stream Energy Acquisition

On August 1, 2019, the Company acquired Stream Energy's retail electricity and natural gas operating in 9 states and Washington, D.C. for $329 million, including working capital and other adjustments of approximately $29 million. The acquisition increased NRG's retail portfolio by approximately 600,000 RCEs or 450,000 customers. The purchase price was allocated as follows:


	(In millions)
Account receivable	$	98
Accounts payable	(73)
Other net current and non-current working capital	5
Marketing partnership	154
Customer relationships	85
Trade name	28
Other intangible assets	26
Goodwill (a)	6
Stream Purchase Price	$	329

(a) Goodwill arising from the acquisition is attributed to the value of the platform acquired and the synergies expected from combining the operations of Stream Energy with NRG's existing businesses. Goodwill of $5 million and $1 million was assigned to the Texas and East segments, respectively, and is not deductible for tax purposes

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 prior period results for the operations of the South Central Portfolio, except for the Cottonwood facility as discussed below, were reclassified as discontinued operations at December 31, 2018. 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 2025. Due to its continuing involvement with the Cottonwood facility, NRG did not use held-for-sale or discontinued operations treatment in accounting for the Cottonwood facility.

Summarized results of the South Central Portfolio discontinued operations were as follows:


	Three months ended			Nine months ended
(In millions)		September 30, 2019			September 30, 2019
Operating revenues		$	—		$	31
Operating costs and expenses		—			(23)




Gain from operations of discontinued components		—			8
(Loss)/Gain on disposal of discontinued operations, net of tax		(1)			27
(Loss)/Gain from discontinued operations, including disposal, net of tax		$	(1)		$	35

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 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 September 30, 2020 and December 31, 2019.

Summarized results of Carlsbad discontinued operations were as follows:


	Three months ended			Nine months ended
(In millions)		September 30, 2019		September 30, 2019
Operating revenues		$	—	$	19
Operating costs and expenses		—		(9)
Other expenses		—		(5)


Gain from discontinued operations, net of tax		—		5
(Loss)/gain on disposal of discontinued operations, net of tax		(1)		330

Other Commitments, Indemnification and Fees		—		27
(Loss)/gain on disposal of discontinued operations, net of tax		(1)		357
(Loss)/gain from discontinued operations, including disposal, net of tax		$	(1)	$	362

GenOn

On June 14, 2017, the GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Texas 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 Texas Bankruptcy Court; and accordingly, NRG deconsolidated GenOn and its subsidiaries for financial reporting purposes as of such date.

Summarized results of GenOn discontinued operations were as follows:


	Nine months ended
(In millions)	September 30, 2019


Gain from discontinued operations, net of tax	$	2

Dispositions

The Company completed other asset sales for cash proceeds of $15 million and $22 million during the nine months ended September 30, 2020 and 2019, respectively.

Note 5 — Fair Value of Financial Instruments

For cash and cash equivalents, funds deposited by counterparties, restricted cash, accounts and other receivables, accounts payable, 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.

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


	September 30, 2020				December 31, 2019
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Assets:
Notes receivable	$	10	$	7	$	11	$	8
Liabilities:
Long-term debt, including current portion (a)	5,854		6,309		5,956		6,504

(a) Excludes deferred financing costs, which are recorded as a reduction to long-term debt in the Company's consolidated balance sheets

The fair value of the Company's publicly-traded long-term debt is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non-publicly traded long-term debt and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy. The following table presents the level within the fair value hierarchy for long-term debt, including current portion, as of September 30, 2020 and December 31, 2019:


	September 30, 2020				December 31, 2019
(In millions)	Level 2		Level 3		Level 2		Level 3
Long-term debt, including current portion	$	6,305	$	4	$	6,388	$	116

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:


	September 30, 2020

(In millions)	Total		Level 1		Level 2		Level 3
Investments in securities (classified within other current and non-current assets)	$	15	$	—	$	15	$	—

Nuclear trust fund investments:
Cash and cash equivalents	25		25		—		—
U.S. government and federal agency obligations	49		48		1		—
Federal agency mortgage-backed securities	92		—		92		—
Commercial mortgage-backed securities	38		—		38		—
Corporate debt securities	144		—		144		—
Equity securities	402		402		—		—
Foreign government fixed income securities	6		—		6		—
Other trust fund investments:
U.S. government and federal agency obligations	1		1		—		—
Derivative assets:
Commodity contracts	893		74		592		227


Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments	72
Equity securities	7
Total assets	$	1,744	$	550	$	888	$	227
Derivative liabilities:
Commodity contracts	$	813	$	70	$	568	$	175

Total liabilities	$	813	$	70	$	568	$	175


	December 31, 2019

(In millions)	Total		Level 1		Level 2		Level 3
Investments in securities (classified within other current and non-current assets)	$	20	$	—	$	20	$	—
Nuclear trust fund investments:
Cash and cash equivalents	17		17		—		—
U.S. government and federal agency obligations	68		68		—		—
Federal agency mortgage-backed securities	100		—		100		—
Commercial mortgage-backed securities	29		—		29		—
Corporate debt securities	109		—		109		—
Equity securities	388		388		—		—
Foreign government fixed income securities	5		—		5		—
Other trust fund investments:
U.S. government and federal agency obligations	1		1		—		—
Derivative assets:
Commodity contracts	1,170		84		893		193


Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments	78
Equity securities	8
Total assets	$	1,993	$	558	$	1,156	$	193
Derivative liabilities:
Commodity contracts	$	1,103	$	143	$	805	$	155

Total liabilities	$	1,103	$	143	$	805	$	155

The following tables reconcile, for the three and nine months ended September 30, 2020 and 2019, the beginning and ending balances for financial instruments that are recognized at fair value in the condensed consolidated financial statements, using significant unobservable inputs:


	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Three months ended September 30, 2020		Nine months ended September 30, 2020
(In millions)	Derivatives(a)			Derivatives(a)
Beginning balance	$	152		$	38


Total (losses) realized/unrealized— included in earnings	(92)			(18)


Purchases	(10)			6
Transfers into Level 3(b)	(11)			22
Transfers out of Level 3(b)	13			4
Ending balance	$	52		$	52
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 period end	$	23		$	50

(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 September 30, 2019						Nine months ended September 30, 2019
(In millions)	Debt Securities		Derivatives(a)		Total			Debt Securities		Derivatives(a)		Total
Beginning balance	$	19	$	97	$	116		$	19	$	20	$	39
Contracts added from acquisitions	—		(2)		(2)			—		(3)		(3)

Total (losses)/gains realized/unrealized:
Included in earnings	—		(18)		(18)			1		(45)		(44)
Included in OCI	(14)		—		(14)			(14)		—		(14)
Cash received	—		—		—			(1)		—		(1)
Purchases	—		38		38			—		26		26
Transfers into Level 3(b)	—		(126)		(126)			—		4		4
Transfers out of Level 3(b)	—		24		24			—		11		11
Ending balance	$	5	$	13	$	18		$	5	$	13	$	18
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 period end	—		44		44			1		13		14

(a)Consists of derivative assets and liabilities, net

(b)Transfers into/out of Level 3 are related to the availability of external broker quotes and are valued as of the end of the reporting period. All transfers in/out are with Level 2

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 September 30, 2020, contracts valued with prices provided by models and other valuation techniques make up 25% of derivative assets and 22% of derivative liabilities.

NRG's significant positions classified as Level 3 include physical and financial power executed in illiquid markets, as well as 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 September 30, 2020 and December 31, 2019:



	September 30, 2020
	Fair Value						Input/Range
(In millions)	Assets		Liabilities		Valuation Technique	Significant Unobservable Input	Low		High		Weighted Average
Power Contracts	$	196	$	167	Discounted Cash Flow	Forward Market Price (per MWh)	$	10	$	116	$	24

FTRs	31		8		Discounted Cash Flow	Auction Prices (per MWh)	(50)		43		0
	$	227	$	175



	December 31, 2019
	Fair Value						Input/Range
(In millions)	Assets		Liabilities		Valuation Technique	Significant Unobservable Input	Low		High		Weighted Average
Power Contracts	$	151	$	139	Discounted Cash Flow	Forward Market Price (per MWh)	$	8	$	218	$	24

FTRs	42		16		Discounted Cash Flow	Auction Prices (per MWh)	(105)		213		0
	$	193	$	155

The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of September 30, 2020 and December 31, 2019:

Significant Unobservable Input

Position

Change In Input

Impact on Fair Value Measurement

Forward Market Price Power

Buy

Increase/(Decrease)

Higher/(Lower)

Forward Market Price Power

Sell

Increase/(Decrease)

Lower/(Higher)

FTR Prices

Buy

Increase/(Decrease)

Higher/(Lower)

FTR Prices

Sell

Increase/(Decrease)

Lower/(Higher)

The fair value of each contract is discounted using a risk-free interest rate. In addition, the Company applies a credit reserve to reflect credit risk, which is calculated based on published default probabilities. As of September 30, 2020, the credit reserve resulted in a $1 million increase primarily within operating revenue. As of December 31, 2019, the credit reserve did not result in a significant 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 2019 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, as well as retail customer credit risk through its retail load activities.

Counterparty Credit Risk

The Company's counterparty credit risk policies are disclosed in its 2019 Form 10-K. As of September 30, 2020, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, registered commodity exchanges and certain long-term agreements, was $232 million and NRG held collateral (cash and letters of credit) against those positions of $19 million, resulting in a net exposure of $214 million NRG periodically receives collateral from counterparties in excess of their exposure. Collateral amounts shown include such excess while net exposure shown excludes excess collateral received. Approximately 39% of the Company's exposure before collateral is expected to roll off by the end of 2021. 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	88	%
Financial institutions	12

Total as of September 30, 2020	100	%


	Net Exposure (a)(b)
Category by Counterparty Credit Quality	(% of Total)
Investment grade	59	%
Non-investment grade/non-rated	41
Total as of September 30, 2020	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

The Company currently has $45 million of exposure to two wholesale counterparties in excess of 10% of total net exposure discussed above as of September 30, 2020. 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 its 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 the overall market and are excluded from the above exposures.

Exchange Traded Transactions

The Company enters into commodity transactions on registered exchanges, notably ICE, NYMEX and Nodal. 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 contracts, primarily solar PPAs. As external sources or observable market quotes are not available to estimate such exposure, the Company values these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of September 30, 2020, aggregate credit risk exposure managed by NRG to these counterparties was approximately $621 million for the next five years.

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 non-payment 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 September 30, 2020, 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. The Company is also subject to risk with respect to its residential solar customers. Current economic conditions may affect the Company's customers' ability to pay bills in a timely manner, which could increase customer delinquencies and may lead to an increase in credit losses.

Note 6 — Nuclear Decommissioning Trust Fund

NRG's Nuclear Decommissioning Trust Fund assets, which are for the decommissioning of its 44% interest in STP, 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 for the securities held in the trust funds, as well as information about the contractual maturities of those securities.


	As of September 30, 2020							As of December 31, 2019
(In millions, except maturities)	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	$	—	$	—	—	$	17	$	—	$	—	—
U.S. government and federal agency obligations	49		7		—		12	68		4		—		11
Federal agency mortgage-backed securities	92		4		—		24	100		3		—		24
Commercial mortgage-backed securities	38		2		—		28	29		1		1		24
Corporate debt securities	144		12		—		12	109		6		—		11
Equity securities	474		321		1		—	466		324		—		—
Foreign government fixed income securities	6		1		—		10	5		—		—		10
Total	$	828	$	347	$	1		$	794	$	338	$	1

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


	Nine months ended September 30,
(In millions)	2020		2019
Realized gains	$	22	$	8
Realized losses	(11)		(7)
Proceeds from sale of securities	318		271

Note 7 — Accounting for Derivative Instruments and Hedging Activities

Energy-Related Commodities

As of September 30, 2020, NRG had energy-related derivative instruments extending through 2034. The Company marks these derivatives to market through the statement of operations. NRG has executed power purchase agreements extending through 2037 that qualified for the NPNS exception and were therefore exempt from fair value accounting treatment.

Interest Rate Swaps

NRG was 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 entered into interest rate swap agreements. As of September 30, 2020, NRG had no interest rate derivative instruments as a result of the early termination of such contracts in connection with the repayment of the 2023 Term Loan Facility during the second quarter of 2019. As of November 5, 2020, the Company entered into $1.6 billion of interest rate hedges associated with anticipated financing needs.

Volumetric Underlying Derivative Transactions

The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by category, excluding those derivatives that qualified for the NPNS exception, as of September 30, 2020 and December 31, 2019. 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 (In millions)
Category	Units	September 30, 2020	December 31, 2019
Emissions	Short Ton	1	3
Renewable Energy Certificates	Certificates	3	1
Coal	Short Ton	4	10
Natural Gas	MMBtu	(264)	(181)

Power	MWh	51	38
Capacity	MW/Day	(1)	(1)

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
(In millions)	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019




Derivatives Not Designated as Cash Flow or Fair Value Hedges:


Commodity contracts current	$	578	$	860	$	495	$	781
Commodity contracts long-term	315		310		318		322
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges	$	893	$	1,170	$	813	$	1,103

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
(In millions)	Gross Amounts of Recognized Assets / Liabilities		Derivative Instruments		Cash Collateral (Held) / Posted		Net Amount
As of September 30, 2020
Commodity contracts:
Derivative assets	$	893	$	(738)	$	(1)	$	154
Derivative liabilities	(813)		738		—		(75)
Total commodity contracts	$	80	$	—	$	(1)	$	79


	Gross Amounts Not Offset in the Statement of Financial Position
(In millions)	Gross Amounts of Recognized Assets / Liabilities		Derivative Instruments		Cash Collateral (Held) / Posted		Net Amount
As of December 31, 2019
Commodity contracts:
Derivative assets	$	1,170	$	(909)	$	(7)	$	254
Derivative liabilities	(1,103)		909		73		(121)
Total commodity contracts	$	67	$	—	$	66	$	133

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 and fair value hedges are reflected in current period results of operations.

The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges or fair value hedges and trading activity on the Company's statement of operations. The effect of commodity hedges is included within operating revenues and cost of operations and the effect of interest rate hedges is included in interest expense.


(In millions)	Three months ended September 30,				Nine months ended September 30,
Unrealized mark-to-market results	2020		2019		2020		2019
Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges	$	(101)	$	(118)	$	(62)	$	(88)
Reversal of acquired (gain)/loss positions related to economic hedges	(2)		(3)		2		(4)
Net unrealized (losses)/gains on open positions related to economic hedges	(15)		57		73		69
Total unrealized mark-to-market (losses)/gains for economic hedging activities	(118)		(64)		13		(23)
Reversal of previously recognized unrealized (gains) on settled positions related to trading activity	(7)		(1)		(14)		(8)
Net unrealized gains/(losses) on open positions related to trading activity	2		(3)		19		23
Total unrealized mark-to-market (losses)/gains for trading activity	(5)		(4)		5		15
Total unrealized (losses)/gains	$	(123)	$	(68)	$	18	$	(8)


	Three months ended September 30,				Nine months ended September 30,
(In millions)	2020		2019		2020		2019
Unrealized gains/(losses) included in operating revenues	$	34	$	(214)	$	83	$	66
Unrealized (losses)/gains included in cost of operations	(157)		146		(65)		(74)
Total impact to statement of operations — energy commodities	$	(123)	$	(68)	$	18	$	(8)
Total impact to statement of operations — interest rate contracts	$	—	$	—	$	—	$	(38)

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

For the nine months ended September 30, 2020, the $73 million unrealized gain from open economic hedge positions was primarily the result of an increase in value of forward positions as a result of decreases in New York capacity and power prices, as well as increases in ERCOT power prices.

For the nine months ended September 30, 2019, the $69 million unrealized gain from open economic hedge positions was primarily the result of an increase in value of forward purchases of ERCOT heat rate due to ERCOT heat rate expansion.

Credit Risk Related Contingent Features

Certain of the Company's hedging agreements contain provisions that require the Company to post additional collateral if the counterparty determines that there has been deterioration in credit quality, generally termed “adequate assurance” under the agreements, or require the Company to post additional collateral if there were a downgrade in the Company's credit rating. The collateral required for contracts with adequate assurance clauses that are in a net liability position as of September 30, 2020 was

$35 million. The Company is also party to certain marginable agreements under which it has net liability position, but the counterparty has not called for the collateral due, which was $8 million as of September 30, 2020. If called for by the counterparty, $3 million of additional collateral would be required for all contracts with credit rating contingent features as of September 30, 2020.

See Note 5, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk.

Note 8 — Impairments

2020 Impairment Losses

Home Solar — During the third quarter of 2020, the Company concluded its Home Solar business was held for sale as a result of advanced negotiations to sell the business. NRG recorded impairment losses of $29 million in the West/Other segment to adjust the carrying amount of the assets and liabilities to fair market value based on indicative sale prices. As of September 30, 2020, there were $88 million of other non-current assets and $44 million of other non-current liabilities classified as held for sale.

Petra Nova Parish Holdings — During the first quarter of 2020, due to the decline in oil prices, NRG determined that the carrying amount of the Company’s equity method investment exceeded the fair value of the investment and that the decline is considered to be other-than-temporary. In determining the fair value, the Company utilized an income approach to estimate future project cash flows. The Company recorded an impairment loss of $18 million in the Texas segment, which included the anticipated drawdown of the $12 million letter of credit posted in September 2019 to cover certain project debt reserve requirements.

2019 Impairment Losses

Petra Nova Parish Holdings — During the third quarter of 2019, NRG contributed $95 million in cash to Petra Nova and posted a $12 million letter of credit to cover certain project debt reserve requirements. The cash portion of the contribution was used by Petra Nova to prepay a significant portion of the project debt. As a result, the previously disclosed guarantee of up to $124 million related to the project level debt provided by NRG was canceled and the remaining project debt has now become non-recourse to NRG. In relation to this contribution, the Company evaluated the project for impairment and determined that the carrying amount of the Company's equity method investment exceeded the fair value of the investment and that the decline is considered to be other-than-temporary. In determining the fair value, the Company utilized an income approach and considered project specific assumptions for the estimated future project cash flows. The Company measured the impairments loss as the difference between the carrying amount and the fair value of the investment and recorded an impairment loss of $101 million.

Other Impairments — During the nine months ended September 30, 2019, the Company recorded $7 million of impairment losses of cost investments and intangible assets.

Note 9 — Receivables Securitization and Repurchase Facility

Receivables Securitization

On September 22, 2020, NRG Receivables LLC, a bankruptcy remote, special purpose, indirect wholly owned subsidiary, entered into the Receivables Facility for an amount up to $750 million, subject to adjustments on a seasonal basis, with issuers of asset-backed commercial paper and commercial banks (the "Lenders".) The assets of NRG Receivables LLC are first available to satisfy the claims of the Lenders before making payments on the subordinated note and equity issued by NRG Receivables LLC. The assets of NRG Receivables LLC are not available to the Company and its subsidiaries or creditors unless and until distributed by NRG Receivables LLC. Under the Receivables Facility, certain indirect subsidiaries of the Company sell their accounts receivables to NRG Receivables LLC, subject to certain terms and conditions. In turn, NRG Receivables LLC grants a security interest in the purchased receivables to the Lenders as collateral for cash borrowings and issuances of letters of credit. The accounts receivables remain on the Company's consolidated balance sheet and any amounts funded by the Lenders to NRG Receivables LLC will be reflected as short-term borrowings. Cash flows from the Receivables Facility are reflected as financing activities in the Company's consolidated statements of cash flows. The Company will continue to service the accounts receivables sold in exchange for a servicing fee. The Receivables Facility is scheduled to expire on September 21, 2021, unless renewed by the mutual consent of the parties in accordance with its terms. Borrowings by NRG Receivables LLC under the Receivables Facility bear interest as defined under the Receivables Financing Agreement. The weighted average interest rate related to usage under the Securitization Facility as of September 30, 2020 was 0.489%. As of September 30, 2020, there were no outstanding borrowings and there were $179 million in letters of credit issued under the Receivables Facility.

Repurchase Facility

On September 22, 2020, the Company entered into an uncommitted repurchase facility (“Repurchase Facility”) related to the Receivables Facility. Under the Repurchase Facility, the Company can borrow up to $75 million, collateralized by a subordinated note issued by NRG Receivables LLC to NRG Retail LLC in favor of the originating entities representing a portion of the balance of receivables sold to NRG Receivables LLC under the Receivables Facility. The Repurchase Facility is scheduled to expire on September 22, 2021, unless renewed by the mutual consent of the parties in accordance with its terms. The Repurchase Facility has no commitment fee and borrowings will be drawn at LIBOR + 1.25%. As of September 30, 2020, there were no outstanding borrowings under the Repurchase Facility.

Note 10 — Long-term Debt

Long-term debt consisted of the following:


(In millions, except rates)	September 30, 2020		December 31, 2019		Interest rate %
Recourse debt:
Senior Notes, due 2026	$	1,000	$	1,000	7.250
Senior Notes, due 2027	1,230		1,230		6.625
Senior Notes, due 2028	821		821		5.750
Senior Notes, due 2029	733		733		5.250
Convertible Senior Notes, due 2048(a)	575		575		2.750
Senior Secured First Lien Notes, due 2024	600		600		3.750
Senior Secured First Lien Notes, due 2029	500		500		4.450
Revolving Credit Facility	—		83		L + 1.750
Tax-exempt bonds	466		466		1.30 - 6.00
Subtotal recourse debt	5,925		6,008
Non-recourse debt:


Other	4		34		various
Subtotal all non-recourse debt	4		34
Subtotal long-term debt (including current maturities)	5,929		6,042




Less current maturities	(3)		(88)
Less debt issuance costs	(59)		(65)
Discounts	(75)		(86)
Total long-term debt	$	5,792	$	5,803

(a)As of the ex-dividend date of October 30, 2020, the Convertible Notes were convertible at a price of $46.24, which is equivalent to a conversion rate of approximately 21.62 shares of common stock per $1,000 principal amount

Recourse Debt

Revolving Credit Facility

The Company had $83 million outstanding under its Revolving Credit Facility as of December 31, 2019, which was used to repay the outstanding indebtedness on the Agua Caliente Borrower 1 notes on a leverage-neutral basis during the fourth quarter of 2019. Due to market conditions, primarily as a result of COVID-19, the Company drew upon the facility in the first quarter of 2020 as a precaution and to proportionally increase cash on hand, and fully repaid the outstanding borrowings during the second quarter of 2020.

During the third quarter of 2020, the Company amended its existing credit agreement to, among other things, (i) increase the existing revolving commitments in an aggregate amount of $802 million, and (ii) provide for a new tranche of revolving commitments in an aggregate amount of $273 million with a maturity date that is 30 months after the date of closing of the Direct Energy acquisition (the "Acquisition Closing Date"). The maturity date of the new revolving tranche of commitments may, upon request by the Company, and at the option of each applicable lender under the new tranche be extended by 12 months, but not beyond May 28, 2024, which is the maturity date of the existing and increased commitments. Other than with respect to the maturity date, the terms of all revolving commitments and loan made pursuant thereto are identical. The increase in the existing commitments, and the commitments with respect to the new tranche were effective on August 20, 2020 but will only become available upon the Acquisition Closing Date. For further discussion of the acquisition of Direct Energy see Note 4, Acquisitions, Discontinued Operations and Dispositions. Upon the Acquisition Closing Date, total revolving commitments available, subject to usage, under the amended credit agreement will be $3.7 billion.

In addition, the amendment includes changes to, among other things, (i) permit the borrowing of up to the full amount of the revolving commitments in Canadian dollars, (ii) increase the swingline facility from $50 million to $100 million and provide a $10 million swingline facility in Canadian dollars, (iii) increase the credit facilities lien basket from the greater of $6 billion and 30% of total assets to the greater of $10 billion and 30% of total assets, (iv) increase the credit facilities debt basket from $6 billion to $10 billion, (v) increase the basket for securitization indebtedness from $750 million to $1.7 billion, (vi) provide an additional indebtedness basket equal to $600 million for certain liquidity facilities, and (vii) make certain other changes to the existing covenants and other provisions.

Tax-Exempt Bonds

On March 11, 2020, NRG issued $59 million in aggregate principal amount of NRG Dunkirk 2020 1.30% tax-exempt refinancing bonds due 2042 ("the Bonds"). The Bonds are guaranteed on a first-priority basis by each of NRG’s current and future subsidiaries that guarantee indebtedness under its credit agreement. The Bonds are secured by a first priority security interest in the same collateral that is pledged for the benefit of the lenders under NRG’s credit agreement, which consists of a substantial portion of the property and assets owned by NRG and the guarantors. The collateral securing the Bonds will, at the request of NRG, be released if NRG satisfies certain conditions, including receipt of an investment grade rating on its senior, unsecured debt securities from two out of the three rating agencies, subject to reversion if those rating agencies withdraw their investment grade rating of the Bonds or any of NRG’s senior, unsecured debt securities or downgrade such rating below investment grade. The Bonds are subject to mandatory tender and purchase on April 3, 2023 and have a final maturity date of April 1, 2042.

NRG used the net proceeds from the offering to redeem the existing principal amount of outstanding Dunkirk Power LLC 5.875% tax exempt bonds due 2042.

Non-Recourse Debt

Credit Default Swap Facility

On January 4, 2019, the Company entered into an $80 million credit agreement to issue letters of credit, which is currently supporting the Cottonwood facility lease. Annual fees of 1.33% on the facility were paid quarterly in advance. On August 13, 2020, the agreement was amended permitting the Company to increase the size of the facility and fees on the facility were adjusted to reflect the cost of the credit default swaps that serve as collateral for the facility. In order to increase the Company's collective collateral facilities in connection with the Direct Energy acquisition, NRG expanded the facility allowing for the issuance of an additional $50 million of letters of credit as of September 30, 2020. The Company has further expanded the facility to a total capacity of $167 million as of November 5, 2020. As of September 30, 2020, $80 million was issued under this facility.

Note 11 — Investments Accounted for Using the Equity Method and Variable Interest Entities, or VIEs

Entities that are not Consolidated

NRG accounts for the Company's significant investments using the equity method of accounting. NRG's carrying value of equity investments can be impacted by a number of elements including impairments, unrealized gains and losses on derivatives and movements in foreign currency exchange rates.

PG&E Bankruptcy — Agua Caliente and two of the three Ivanpah units are party to PPAs with PG&E. Both projects have project financing with the U.S. DOE. On January 29, 2019, PG&E Corp. and primary operating subsidiary utility PG&E filed for Chapter 11 relief in the California Bankruptcy Court. As a result of the bankruptcy filing, Agua Caliente and the two Ivanpah units were issued notices of events of default under their respective loan agreements. On September 9, 2019, PG&E filed a plan of reorganization that would assume all power purchase agreements, including those held by Agua Caliente and the two Ivanpah units. The California Bankruptcy Court approved the PG&E plan and the Confirmation Order was entered on June 19, 2020. The plan went effective, and PG&E emerged from bankruptcy on July 1, 2020. In July 2020, the U.S. DOE agreed to waivers of the bankruptcy-related events of default with respect to the Agua Caliente and Ivanpah projects. Subsequent to PG&E's emergence from bankruptcy, the Agua Caliente and the Ivanpah projects were allowed to resume distributions, and as of November 5, 2020, NRG received $50 million. NRG renewed its efforts to sell its 35% interest in Agua Caliente in July 2020, following PG&E's emergence from bankruptcy.

NRG's maximum exposure to loss is limited to its equity investment, which was $197 million for Agua Caliente and $26 million for Ivanpah as of September 30, 2020.

Variable Interest Entities that are Consolidated

The Company has a controlling financial interest in certain entities that have been identified as VIEs under ASC 810. These arrangements are related to the Receivables Facility as further described in Note 9, Receivables Securitization and Repurchase Facility, and tax equity arrangements entered into with third-parties in order to finance the cost of solar energy systems under operating leases eligible for certain tax credits as further described in Note 2, Summary of Significant Accounting Policies, to the Company's 2019 Form 10-K. During the first quarter of 2020, the Company repurchased its partners' equity interest in one of the partnerships. As the Company retains control of its interest, the repurchase was recorded to equity. During the third quarter of 2020, the remaining Home Solar VIE was reclassified to held for sale as further discussed in Note 8, Impairments.

The summarized financial information for the Company's consolidated VIEs consisted of the following:


(In millions)	September 30, 2020		December 31, 2019
Accounts receivable	$	887	$	—
Other current assets	4		3
Net property, plant and equipment	—		71
Other long-term assets	25		27
Total assets	916		101
Current liabilities	5		4
Long-term debt	—		24


Other long-term liabilities	27		8
Total liabilities	32		36
Redeemable noncontrolling interest	—		20

Net assets less noncontrolling interest	$	884	$	45

Note 12 — Changes in Capital Structure

As of September 30, 2020 and December 31, 2019, the Company had 500,000,000 shares of common stock authorized. The following table reflects the changes in NRG's common stock issued and outstanding:


	Issued	Treasury	Outstanding
Balance as of December 31, 2019	421,890,790	(172,894,601)	248,996,189
Shares issued under LTIPs	1,150,559	—	1,150,559
Shares issued under ESPP	—	63,455	63,455
Shares repurchased	—	(6,062,783)	(6,062,783)
Balance as of September 30, 2020	423,041,349	(178,893,929)	244,147,420
Shares issued under LTIPs	5,400	—	5,400
Shares issued under ESPP	—	68,014	68,014

Balance as of November 5, 2020	423,046,749	(178,825,915)	244,220,834

Share Repurchases

The Company adopted, in the fourth quarter of 2019, a long-term capital allocation policy that targets allocating 50% of cash available for allocation generated each year to growth investments and 50% to be returned to shareholders. The return of capital to shareholders is expected to be completed through the increased dividend discussed below, supplemented by share repurchases. The following repurchases have been made during the nine months ended September 30, 2020:


	Total number of shares purchased	Average price paid per share	Amounts paid for shares purchased (in millions)
2020 repurchases:
Repurchases	6,062,783		$	197
Equivalent shares purchased in lieu of tax withholdings on equity compensation issuances(a)	711,248		27

Total Share Repurchases during the nine months ended September 30, 2020	6,774,031	$33.05	$	224

(a) NRG elected to pay cash for tax withholding on equity awards instead of issuing actual shares to management. The average price per equivalent shares withheld was $38.23

Employee Stock Purchase Plan

In March 2019, the Company reopened participation in the ESPP, which allows eligible employees to elect to withhold between 1% and 10% of their eligible compensation to purchase shares of NRG common stock at the lesser of 95% of its market value on the offering date or 95% of the fair market value on the exercise date. An offering date will occur each April 1 and October 1. An exercise date will occur each September 30 and March 31.

NRG Common Stock Dividends

Beginning in the first quarter of 2020, NRG increased the annual dividend to $1.20 from $0.12 per share and expects to target an annual dividend growth rate of 7-9% per share in subsequent years. A quarterly dividend of $0.30 per share was paid on the Company's common stock during the three months ended September 30, 2020. On October 23, 2020, NRG declared a quarterly dividend on the Company's common stock of $0.30 per share, payable on November 16, 2020 to stockholders of record as of November 2, 2020.

The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations.

Note 13 — Earnings Per Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding. Shares issued and treasury shares repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted income per share is computed in a manner consistent with that of basic income per share while giving effect to all potentially dilutive common shares that were outstanding during the period. The outstanding non-qualified stock options, non-vested restricted stock units, market stock units, and relative performance stock units are not considered outstanding for purposes of computing basic income per share. However, these instruments are included in the denominator for purposes of computing diluted income per share under the treasury stock method. The Convertible Senior Notes are convertible, under certain circumstances, into the Company’s common stock, cash or combination thereof (at NRG's option). There is no dilutive effect for the Convertible Senior Notes due to the Company’s expectation to settle the liability in cash.

The reconciliation of NRG's basic and diluted income per share is shown in the following table:


	Three months ended September 30,				Nine months ended September 30,
(In millions, except per share data)	2020		2019		2020		2019
Basic income per share:
Net income available to common shareholders	$	249	$	372	$	683	$	1,055
Weighted average number of common shares outstanding - basic	244		254		246		266
Income per weighted average common share — basic	$	1.02	$	1.46	$	2.78	$	3.97

Diluted income per share:


Net income available to common shareholders	$	249	$	372	$	683	$	1,055
Weighted average number of common shares outstanding - basic	244		254		246		266
Incremental shares attributable to the issuance of equity compensation (treasury stock method)	1		2		1		2
Weighted average number of common shares outstanding - dilutive	245		256		247		268
Income per weighted average common share — diluted	$	1.02	$	1.45	$	2.77	$	3.94

As of September 30, 2020 and 2019, the Company had an insignificant number of outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company’s diluted income per share.

Note 14 — Segment Reporting

As part of perfecting the integrated model, in which the majority of the Company’s generation serves its retail customers, the Company began managing its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus in 2020. As a result, the Company changed its business segments from Retail and Generation to Texas, East and West/Other beginning in the first quarter of 2020, as further described in Note 1, Nature of Business. The Company's updated segment structure reflects how management currently makes financial decisions and allocates resources The financial information for the three and nine months ended September 30, 2019 was recast to reflect the current segment structure.

In February 2019, as described in Note 4, Acquisitions, Discontinued Operations and Dispositions, the Company completed the sales of the South Central Portfolio and Carlsbad. The financial information for the three and nine months ended September 30, 2019 presented below reflects the presentation of these entities as discontinued operations within the corporate segment.

NRG’s chief operating decision maker, its chief executive officer, evaluates the performance of its segments based on operational measures including adjusted earnings before interest, taxes, depreciation and amortization, or Adjusted EBITDA, free cash flow and allocation of capital, as well as net income/(loss).


	Three months ended September 30, 2020
(In millions)	Texas		East		West/Other		Corporate		Eliminations		Total
Operating revenues	$	1,992	$	693	$	122	$	—	$	2	$	2,809
Depreciation and amortization	49		34		9		7		—		99
Impairment losses	—		—		29		—		—		29


Equity in earnings of unconsolidated affiliates	—		—		36		—		—		36

Income/(loss) from continuing operations before income taxes	288		149		17		(113)		—		341
Income/(loss) from continuing operations	288		149		17		(205)		—		249


Net income/(loss) attributable to NRG Energy, Inc	$	288	$	149	$	17	$	(205)	$	—	$	249