NRG ENERGY, INC. - Quarter Report: 2020 June (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||||||||||
For the Quarterly Period Ended: | June 30, 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 August 6, 2020, there were 244,137,848 shares of common stock outstanding, par value $0.01 per share.
1
TABLE OF CONTENTS
Index
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of NRG Energy, Inc., or NRG or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words "believes," "projects," "anticipates," "plans," "expects," "intends," "estimates" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause NRG's actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Risk Factors, 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
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•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.
4
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 June 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 |
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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 | |||||||
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 |
6
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 | |||||||
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 June 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 June 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 |
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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 |
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PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
(In millions, except for per share amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Operating Revenues | |||||||||||||||||||||||
Total operating revenues | $ | 2,238 | $ | 2,465 | $ | 4,257 | $ | 4,630 | |||||||||||||||
Operating Costs and Expenses | |||||||||||||||||||||||
Cost of operations | 1,434 | 1,845 | 2,891 | 3,496 | |||||||||||||||||||
Depreciation and amortization | 110 | 85 | 219 | 170 | |||||||||||||||||||
Impairment losses | — | 1 | — | 1 | |||||||||||||||||||
Selling, general and administrative costs | 208 | 211 | 417 | 405 | |||||||||||||||||||
Reorganization costs | — | 2 | 3 | 15 | |||||||||||||||||||
Development costs | 2 | 2 | 5 | 4 | |||||||||||||||||||
Total operating costs and expenses | 1,754 | 2,146 | 3,535 | 4,091 | |||||||||||||||||||
Gain on sale of assets | — | 1 | 6 | 2 | |||||||||||||||||||
Operating Income | 484 | 320 | 728 | 541 | |||||||||||||||||||
Other Income/(Expense) | |||||||||||||||||||||||
Equity in earnings/(losses) of unconsolidated affiliates | 12 | — | 1 | (21) | |||||||||||||||||||
Impairment losses on investments | — | — | (18) | — | |||||||||||||||||||
Other income, net | 14 | 20 | 41 | 32 | |||||||||||||||||||
Loss on debt extinguishment, net | — | (47) | (1) | (47) | |||||||||||||||||||
Interest expense | (96) | (105) | (193) | (219) | |||||||||||||||||||
Total other expense | (70) | (132) | (170) | (255) | |||||||||||||||||||
Income from Continuing Operations Before Income Taxes | 414 | 188 | 558 | 286 | |||||||||||||||||||
Income tax expense/(benefit) | 101 | (1) | 124 | 3 | |||||||||||||||||||
Income from Continuing Operations | 313 | 189 | 434 | 283 | |||||||||||||||||||
Income from discontinued operations, net of income tax | — | 13 | — | 401 | |||||||||||||||||||
Net Income | 313 | 202 | 434 | 684 | |||||||||||||||||||
Less: Net income attributable to redeemable noncontrolling interests | — | 1 | — | 1 | |||||||||||||||||||
Net Income Attributable to NRG Energy, Inc. | $ | 313 | $ | 201 | $ | 434 | $ | 683 | |||||||||||||||
Earnings per Share | |||||||||||||||||||||||
Weighted average number of common shares outstanding — basic | 245 | 265 | 246 | 272 | |||||||||||||||||||
Income from continuing operations per weighted average common share — basic | $ | 1.28 | $ | 0.71 | $ | 1.76 | $ | 1.04 | |||||||||||||||
Income from discontinued operations per weighted average common share — basic | $ | — | $ | 0.05 | $ | — | $ | 1.47 | |||||||||||||||
Earnings per Weighted Average Common Share — Basic | $ | 1.28 | $ | 0.76 | $ | 1.76 | $ | 2.51 | |||||||||||||||
Weighted average number of common shares outstanding — diluted | 246 | 267 | 247 | 274 | |||||||||||||||||||
Income from continuing operations per weighted average common share — diluted | $ | 1.27 | $ | 0.70 | $ | 1.76 | $ | 1.03 | |||||||||||||||
Income from discontinued operations per weighted average common share — diluted | $ | — | $ | 0.05 | $ | — | $ | 1.46 | |||||||||||||||
Earnings per Weighted Average Common Share — Diluted | $ | 1.27 | $ | 0.75 | $ | 1.76 | $ | 2.49 |
See accompanying notes to condensed consolidated financial statements.
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NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
(In millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Net Income | $ | 313 | $ | 202 | $ | 434 | $ | 684 | |||||||||||||||
Other Comprehensive Income/(Loss) | |||||||||||||||||||||||
Foreign currency translation adjustments | 13 | (1) | (2) | — | |||||||||||||||||||
Available-for-sale securities | — | 1 | — | 1 | |||||||||||||||||||
Defined benefit plans | — | (3) | — | (6) | |||||||||||||||||||
Other comprehensive income/(loss) | 13 | (3) | (2) | (5) | |||||||||||||||||||
Comprehensive Income | 326 | 199 | 432 | 679 | |||||||||||||||||||
Less: Comprehensive income attributable to redeemable noncontrolling interest | — | 1 | — | 1 | |||||||||||||||||||
Comprehensive Income Attributable to NRG Energy, Inc. | $ | 326 | $ | 198 | $ | 432 | $ | 678 |
See accompanying notes to condensed consolidated financial statements.
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NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2020 | December 31, 2019 | ||||||||||
(In millions, except share data) | (Unaudited) | (Audited) | |||||||||
ASSETS | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | 418 | $ | 345 | |||||||
Funds deposited by counterparties | 36 | 32 | |||||||||
Restricted cash | 8 | 8 | |||||||||
Accounts receivable, net | 1,015 | 1,025 | |||||||||
Inventory | 388 | 383 | |||||||||
Derivative instruments | 791 | 860 | |||||||||
Cash collateral paid in support of energy risk management activities | 136 | 190 | |||||||||
Prepayments and other current assets | 284 | 245 | |||||||||
Total current assets | 3,076 | 3,088 | |||||||||
Property, plant and equipment, net | 2,533 | 2,593 | |||||||||
Other Assets | |||||||||||
Equity investments in affiliates | 372 | 388 | |||||||||
Operating lease right-of-use assets, net | 429 | 464 | |||||||||
Goodwill | 579 | 579 | |||||||||
Intangible assets, net | 733 | 789 | |||||||||
Nuclear decommissioning trust fund | 794 | 794 | |||||||||
Derivative instruments | 439 | 310 | |||||||||
Deferred income taxes | 3,170 | 3,286 | |||||||||
Other non-current assets | 212 | 240 | |||||||||
Total other assets | 6,728 | 6,850 | |||||||||
Total Assets | $ | 12,337 | $ | 12,531 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
Current Liabilities | |||||||||||
Current portion of long-term debt | $ | 7 | $ | 88 | |||||||
Current portion of operating lease liabilities | 69 | 73 | |||||||||
Accounts payable | 736 | 722 | |||||||||
Derivative instruments | 728 | 781 | |||||||||
Cash collateral received in support of energy risk management activities | 36 | 32 | |||||||||
Accrued expenses and other current liabilities | 581 | 663 | |||||||||
Total current liabilities | 2,157 | 2,359 | |||||||||
Other Liabilities | |||||||||||
Long-term debt | 5,810 | 5,803 | |||||||||
Non-current operating lease liabilities | 458 | 483 | |||||||||
Nuclear decommissioning reserve | 307 | 298 | |||||||||
Nuclear decommissioning trust liability | 478 | 487 | |||||||||
Derivative instruments | 299 | 322 | |||||||||
Deferred income taxes | 17 | 17 | |||||||||
Other non-current liabilities | 1,061 | 1,084 | |||||||||
Total other liabilities | 8,430 | 8,494 | |||||||||
Total Liabilities | 10,587 | 10,853 | |||||||||
Redeemable noncontrolling interest in subsidiaries | — | 20 | |||||||||
Commitments and Contingencies | |||||||||||
Stockholders' Equity | |||||||||||
Common stock; $0.01 par value; 500,000,000 shares authorized; 423,031,777 and 421,890,790 shares issued and 244,137,848 and 248,996,189 shares outstanding at June 30, 2020 and December 31, 2019, respectively | 4 | 4 | |||||||||
Additional paid-in-capital | 8,505 | 8,501 | |||||||||
Accumulated deficit | (1,331) | (1,616) | |||||||||
Treasury stock, at cost - 178,893,929 and 172,894,601 shares at June 30, 2020 and December 31, 2019, respectively | (5,234) | (5,039) | |||||||||
Accumulated other comprehensive loss | (194) | (192) | |||||||||
Total Stockholders' Equity | 1,750 | 1,658 | |||||||||
Total Liabilities and Stockholders' Equity | $ | 12,337 | $ | 12,531 |
See accompanying notes to condensed consolidated financial statements.
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NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, | |||||||||||
(In millions) | 2020 | 2019 | |||||||||
Cash Flows from Operating Activities | |||||||||||
Net Income | $ | 434 | $ | 684 | |||||||
Income from discontinued operations, net of income tax | — | 401 | |||||||||
Income from continuing operations | 434 | 283 | |||||||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
Distributions from and equity in (earnings)/losses of unconsolidated affiliates | 7 | 22 | |||||||||
Depreciation and amortization | 219 | 170 | |||||||||
Accretion of asset retirement obligations | 18 | 14 | |||||||||
Provision for credit losses | 48 | 52 | |||||||||
Amortization of nuclear fuel | 25 | 27 | |||||||||
Amortization of financing costs and debt discount/premiums | 12 | 13 | |||||||||
Loss on debt extinguishment, net | 1 | 47 | |||||||||
Amortization of emissions allowances and energy credits | 33 | 14 | |||||||||
Amortization of unearned equity compensation | 12 | 10 | |||||||||
(Gain)/loss on sale of assets and disposal of assets | (15) | 1 | |||||||||
Impairment losses | 18 | 1 | |||||||||
Changes in derivative instruments | (131) | (22) | |||||||||
Changes in deferred income taxes and liability for uncertain tax benefits | 116 | (5) | |||||||||
Changes in collateral deposits in support of energy risk management activities | 58 | 125 | |||||||||
Changes in nuclear decommissioning trust liability | 36 | 17 | |||||||||
Changes in other working capital | (199) | (352) | |||||||||
Cash provided by continuing operations | 692 | 417 | |||||||||
Cash provided by discontinued operations | — | 8 | |||||||||
Net Cash Provided by Operating Activities | 692 | 425 | |||||||||
Cash Flows from Investing Activities | |||||||||||
Payments for acquisitions of businesses | (5) | (21) | |||||||||
Capital expenditures | (116) | (107) | |||||||||
Net purchases of emission allowances | (4) | (1) | |||||||||
Investments in nuclear decommissioning trust fund securities | (257) | (209) | |||||||||
Proceeds from the sale of nuclear decommissioning trust fund securities | 220 | 191 | |||||||||
Proceeds from sale of assets, net of cash disposed and sale of discontinued operations, net of fees | 15 | 1,289 | |||||||||
Net distributions from investments in unconsolidated affiliates | 2 | 7 | |||||||||
Contributions to discontinued operations | — | (44) | |||||||||
Cash (used)/provided by continuing operations | (145) | 1,105 | |||||||||
Cash used by discontinued operations | — | (2) | |||||||||
Net Cash (Used)/Provided by Investing Activities | (145) | 1,103 | |||||||||
Cash Flows from Financing Activities | |||||||||||
Payments of dividends to common stockholders | (148) | (16) | |||||||||
Payments for share repurchase activity | (229) | (1,075) | |||||||||
Payments for debt extinguishment costs | — | (24) | |||||||||
Purchase of and distributions to noncontrolling interests from subsidiaries | (2) | (1) | |||||||||
Proceeds from issuance of common stock | 1 | 2 | |||||||||
Proceeds from issuance of long-term debt | 59 | 1,833 | |||||||||
Payment of debt issuance costs | (1) | (33) | |||||||||
Repayments of long-term debt | (61) | (2,485) | |||||||||
Net repayment of Revolving Credit Facility | (83) | — | |||||||||
Other | (5) | — | |||||||||
Cash used by continuing operations | (469) | (1,799) | |||||||||
Cash provided by discontinued operations | — | 43 | |||||||||
Net Cash Used by Financing Activities | (469) | (1,756) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (1) | — | |||||||||
Change in Cash from discontinued operations | — | 49 | |||||||||
Net Increase/(Decrease) in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash | 77 | (277) | |||||||||
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 | $ | 462 | $ | 336 |
See accompanying notes to condensed consolidated financial statements.
12
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 | |||||||||||||||||||||||
(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) | |||||||||||||||||||||||
(a) Dividends per common share were $0.30 for each of the quarters ended June 30, 2020 and March 31, 2020 and $0.03 for each of the quarters ended June 30, 2019 and March 31, 2019
See accompanying notes to condensed consolidated financial statements.
13
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 June 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 June 30, 2020, and the results of operations, comprehensive income, cash flows and statements of stockholders' equity for the three and six months ended June 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 13, 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. During the second quarter of 2020, the Company began to evaluate and implement protocols for return to normal work operations.
14
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) | June 30, 2020 | December 31, 2019 | |||||||||
Property, plant and equipment accumulated depreciation | $ | 1,868 | $ | 1,752 | |||||||
Intangible assets accumulated amortization | 1,279 | 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 six months ended June 30, 2020:
(In millions) | Three months ended June 30, 2020 | Six months ended June 30, 2020 | |||||||||
Beginning balance | $ | 39 | $ | 43 | |||||||
Provision for credit losses | 24 | 48 | |||||||||
Write-offs | (20) | (52) | |||||||||
Recoveries collected | 4 | 8 | |||||||||
Ending balance | $ | 47 | $ | 47 |
15
Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, restricted cash and funds deposited by counterparties reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows:
(In millions) | June 30, 2020 | December 31, 2019 | |||||||||
Cash and cash equivalents | $ | 418 | $ | 345 | |||||||
Funds deposited by counterparties | 36 | 32 | |||||||||
Restricted cash | 8 | 8 | |||||||||
Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows | $ | 462 | $ | 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
On March 27, 2020, the Senate passed the CARES Act to provide necessary emergency relief related to the COVID-19 pandemic. The CARES Act allows NRG and other pension plan sponsors to postpone 2020 contributions until January 1, 2021. As a result, NRG will consider deferring approximately $47 million in cash contributions previously planned to be made to the Company's pension plans in 2020. NRG’s pension and postretirement benefit plans are further described in Note 15, Benefit Plans and Other Postretirement Benefits, to the Company’s 2019 Form 10-K.
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.
16
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 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 June 30, 2020, estimated future fixed fee performance obligations are $314 million for the remaining six months of fiscal year 2020, and $620 million, $307 million, $42 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 six months ended June 30, 2020 and 2019:
Three months ended June 30, 2020 | |||||||||||||||||||||||||||||
(In millions) | Texas | East | West/Other | Corporate/Eliminations | Total | ||||||||||||||||||||||||
Retail revenue: | |||||||||||||||||||||||||||||
Mass Market | $ | 1,273 | $ | 291 | $ | — | $ | — | $ | 1,564 | |||||||||||||||||||
Business Solutions | 248 | 20 | — | — | 268 | ||||||||||||||||||||||||
Total retail revenue | 1,521 | 311 | — | — | 1,832 | ||||||||||||||||||||||||
Energy revenue(a) | 5 | 19 | 60 | (1) | 83 | ||||||||||||||||||||||||
Capacity revenue(a) | — | 179 | 16 | — | 195 | ||||||||||||||||||||||||
Mark-to-market for economic hedging activities(b) | — | 40 | 1 | 2 | 43 | ||||||||||||||||||||||||
Other revenue(a) | 52 | 17 | 17 | (1) | 85 | ||||||||||||||||||||||||
Total operating revenue | 1,578 | 566 | 94 | — | 2,238 | ||||||||||||||||||||||||
Less: Lease revenue | — | 1 | 4 | — | 5 | ||||||||||||||||||||||||
Less: Realized and unrealized ASC 815 revenue | 7 | 85 | 16 | 1 | 109 | ||||||||||||||||||||||||
Total revenue from contracts with customers | $ | 1,571 | $ | 480 | $ | 74 | $ | (1) | $ | 2,124 | |||||||||||||||||||
(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 | $ | — | $ | 2 | $ | 10 | $ | (1) | $ | 11 | |||||||||||||||||||
Capacity revenue | — | 41 | — | — | 41 | ||||||||||||||||||||||||
Other revenue | 7 | 2 | 5 | — | 14 | ||||||||||||||||||||||||
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 |
17
Three months ended June 30, 2019 | |||||||||||||||||||||||||||||
(In millions) | Texas | East | West/Other | Corporate/Eliminations | Total | ||||||||||||||||||||||||
Retail revenue: | |||||||||||||||||||||||||||||
Mass Market | $ | 1,161 | $ | 235 | $ | — | $ | (1) | $ | 1,395 | |||||||||||||||||||
Business Solutions | 272 | 18 | — | — | 290 | ||||||||||||||||||||||||
Total retail revenue | 1,433 | 253 | — | (1) | 1,685 | ||||||||||||||||||||||||
Energy revenue(a) | 136 | 48 | 52 | — | 236 | ||||||||||||||||||||||||
Capacity revenue(a) | — | 195 | 6 | — | 201 | ||||||||||||||||||||||||
Mark-to-market for economic hedging activities(b) | 210 | 16 | 16 | (1) | 241 | ||||||||||||||||||||||||
Other revenue(a) | 58 | 12 | 32 | — | 102 | ||||||||||||||||||||||||
Total operating revenue | 1,837 | 524 | 106 | (2) | 2,465 | ||||||||||||||||||||||||
Less: Lease revenue | — | 1 | 4 | — | 5 | ||||||||||||||||||||||||
Less: Realized and unrealized ASC 815 revenue | 579 | 64 | 34 | — | 677 | ||||||||||||||||||||||||
Total revenue from contracts with customers | $ | 1,258 | $ | 459 | $ | 68 | $ | (2) | $ | 1,783 | |||||||||||||||||||
(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 | $ | 355 | $ | 20 | $ | 5 | $ | — | $ | 380 | |||||||||||||||||||
Capacity revenue | — | 29 | — | 1 | 30 | ||||||||||||||||||||||||
Other revenue | 14 | (1) | 13 | — | 26 | ||||||||||||||||||||||||
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 |
Six months ended June 30, 2020 | |||||||||||||||||||||||||||||
(In millions) | Texas | East | West/Other | Corporate/Eliminations | Total | ||||||||||||||||||||||||
Retail revenue: | |||||||||||||||||||||||||||||
Mass Market | $ | 2,305 | $ | 638 | $ | — | $ | (1) | $ | 2,942 | |||||||||||||||||||
Business Solutions | 508 | 43 | — | — | 551 | ||||||||||||||||||||||||
Total retail revenue | 2,813 | 681 | — | (1) | 3,493 | ||||||||||||||||||||||||
Energy revenue(a) | 10 | 64 | 135 | (2) | 207 | ||||||||||||||||||||||||
Capacity revenue(a) | — | 313 | 31 | — | 344 | ||||||||||||||||||||||||
Mark-to-market for economic hedging activities(b) | — | 20 | 16 | 3 | 39 | ||||||||||||||||||||||||
Other revenue(a) | 113 | 27 | 37 | (3) | 174 | ||||||||||||||||||||||||
Total operating revenue | 2,936 | 1,105 | 219 | (3) | 4,257 | ||||||||||||||||||||||||
Less: Lease revenue | — | 1 | 9 | — | 10 | ||||||||||||||||||||||||
Less: Realized and unrealized ASC 815 revenue | 14 | 124 | 60 | — | 198 | ||||||||||||||||||||||||
Total revenue from contracts with customers | $ | 2,922 | $ | 980 | $ | 150 | $ | (3) | $ | 4,049 | |||||||||||||||||||
(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 | $ | — | $ | 37 | $ | 29 | $ | (2) | $ | 64 | |||||||||||||||||||
Capacity revenue | — | 65 | — | — | 65 | ||||||||||||||||||||||||
Other revenue | 14 | 2 | 15 | (1) | 30 | ||||||||||||||||||||||||
(b) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 |
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Six months ended June 30, 2019 | |||||||||||||||||||||||||||||
(In millions) | Texas | East | West/Other | Corporate/Eliminations | Total | ||||||||||||||||||||||||
Retail revenue: | |||||||||||||||||||||||||||||
Mass Market | $ | 2,156 | $ | 555 | $ | — | $ | (3) | $ | 2,708 | |||||||||||||||||||
Business Solutions | 530 | 36 | — | — | 566 | ||||||||||||||||||||||||
Total retail revenue | 2,686 | 591 | — | (3) | 3,274 | ||||||||||||||||||||||||
Energy revenue(a) | 241 | 174 | 110 | 1 | 526 | ||||||||||||||||||||||||
Capacity revenue(a) | — | 339 | 18 | — | 357 | ||||||||||||||||||||||||
Mark-to-market for economic hedging activities(b) | 241 | 1 | 20 | (1) | 261 | ||||||||||||||||||||||||
Other revenue(a) | 135 | 28 | 51 | (2) | 212 | ||||||||||||||||||||||||
Total operating revenue | 3,303 | 1,133 | 199 | (5) | 4,630 | ||||||||||||||||||||||||
Less: Lease revenue | — | 1 | 9 | — | 10 | ||||||||||||||||||||||||
Less: Realized and unrealized ASC 815 revenue | 894 | 118 | 46 | — | 1,058 | ||||||||||||||||||||||||
Total revenue from contracts with customers | $ | 2,409 | $ | 1,014 | $ | 144 | $ | (5) | $ | 3,562 | |||||||||||||||||||
(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 | $ | 626 | $ | 67 | $ | 7 | $ | — | $ | 700 | |||||||||||||||||||
Capacity revenue | — | 47 | — | 1 | 48 | ||||||||||||||||||||||||
Other revenue | 27 | 3 | 19 | — | 49 | ||||||||||||||||||||||||
(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 June 30, 2020 and December 31, 2019:
(In millions) | June 30, 2020 | December 31, 2019 | |||||||||
Deferred customer acquisition costs | $ | 133 | $ | 133 | |||||||
Accounts receivable, net - Contracts with customers | 981 | 1,002 | |||||||||
Accounts receivable, net - Derivative instruments | 30 | 18 | |||||||||
Accounts receivable, net - Affiliate | 4 | 5 | |||||||||
Total accounts receivable, net | $ | 1,015 | $ | 1,025 | |||||||
Unbilled revenues (included within Accounts receivable, net - Contracts with customers) | $ | 328 | $ | 402 | |||||||
Deferred revenues(a) | 84 | 82 |
(a) Deferred revenues from contracts with customers for the three months ended June 30, 2020 and the year ended December 31, 2019 were approximately $33 million and $24 million, respectively
The revenue recognized from contracts with customers during both the six months ended June 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 June 30, 2020 and 2019 relating to the deferred revenue balance at the beginning of each period was $25 million and $19 million, respectively. The change in deferred revenue balances during the three and six months ended June 30, 2020 and 2019 was primarily due to the timing difference of when consideration was received and when the performance obligation was transferred.
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Note 4 — Acquisitions, Discontinued Operations and Dispositions
Acquisitions
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 | Six months ended | |||||||||||||
(In millions) | June 30, 2019 | June 30, 2019 | ||||||||||||
Operating revenues | $ | — | $ | 31 | ||||||||||
Operating costs and expenses | — | (23) | ||||||||||||
Gain from operations of discontinued components | — | 8 | ||||||||||||
Gain on disposal of discontinued operations, net of tax | 1 | 28 | ||||||||||||
Gain from discontinued operations, including disposal, net of tax | $ | 1 | $ | 36 |
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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, -year extensions. As a result of the transaction, additional commitments related to the project totaled approximately $23 million as of June 30, 2020 and December 31, 2019.
Summarized results of Carlsbad discontinued operations were as follows:
Three months ended | Six months ended | |||||||||||||
(In millions) | June 30, 2019 | June 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 | (17) | 331 | ||||||||||||
Other Commitments, Indemnification and Fees | 27 | 27 | ||||||||||||
Gain on disposal of discontinued operations, net of tax | 10 | 358 | ||||||||||||
Gain from discontinued operations, including disposal, net of tax | $ | 10 | $ | 363 |
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:
Three months ended | Six months ended | ||||||||||
(In millions) | June 30, 2019 | June 30, 2019 | |||||||||
Gain from discontinued operations, net of tax | $ | 2 | $ | 2 |
Dispositions
The Company completed other asset sales for cash proceeds of $15 million and $18 million during the six months ended June 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:
June 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) | 5,878 | 6,208 | 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
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The fair value of the Company's publicly-traded long-term debt is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non-publicly traded long-term debt and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy. The following table presents the level within the fair value hierarchy for long-term debt, including current portion, as of June 30, 2020 and December 31, 2019:
June 30, 2020 | December 31, 2019 | ||||||||||||||||||||||
(In millions) | Level 2 | Level 3 | Level 2 | Level 3 | |||||||||||||||||||
Long-term debt, including current portion | $ | 6,176 | $ | 32 | $ | 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:
June 30, 2020 | |||||||||||||||||||||||
(In millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
Investments in securities (classified within other current and non-current assets) | $ | 13 | $ | — | $ | 13 | $ | — | |||||||||||||||
Nuclear trust fund investments: | |||||||||||||||||||||||
Cash and cash equivalents | 26 | 26 | — | — | |||||||||||||||||||
U.S. government and federal agency obligations | 48 | 47 | 1 | — | |||||||||||||||||||
Federal agency mortgage-backed securities | 87 | — | 87 | — | |||||||||||||||||||
Commercial mortgage-backed securities | 38 | — | 38 | — | |||||||||||||||||||
Corporate debt securities | 148 | — | 148 | — | |||||||||||||||||||
Equity securities | 371 | 371 | — | — | |||||||||||||||||||
Foreign government fixed income securities | 7 | — | 7 | — | |||||||||||||||||||
Other trust fund investments: | |||||||||||||||||||||||
U.S. government and federal agency obligations | 1 | 1 | — | — | |||||||||||||||||||
Derivative assets: | |||||||||||||||||||||||
Commodity contracts | 1,230 | 87 | 677 | 466 | |||||||||||||||||||
Measured using net asset value practical expedient: | |||||||||||||||||||||||
Equity securities — nuclear trust fund investments | 69 | ||||||||||||||||||||||
Equity securities | 7 | ||||||||||||||||||||||
Total assets | $ | 2,045 | $ | 532 | $ | 971 | $ | 466 | |||||||||||||||
Derivative liabilities: | |||||||||||||||||||||||
Commodity contracts | $ | 1,027 | $ | 151 | $ | 562 | $ | 314 | |||||||||||||||
Total liabilities | $ | 1,027 | $ | 151 | $ | 562 | $ | 314 |
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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 |