NRG ENERGY, INC. - Quarter Report: 2022 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, 2022

☐

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.)


910 Louisiana Street	Houston	Texas	77002
(Address of principal executive offices)			(Zip Code)

(713) 537-3000

(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 October 31, 2022, there were 230,384,205 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			8
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES			8
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			38
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			73
ITEM 4 — CONTROLS AND PROCEDURES			75
PART II — OTHER INFORMATION			76
ITEM 1 — LEGAL PROCEEDINGS			76
ITEM 1A — RISK FACTORS			76
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			76
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES			76
ITEM 4 — MINE SAFETY DISCLOSURES			76
ITEM 5 — OTHER INFORMATION			76
ITEM 6 — EXHIBITS			77
SIGNATURES			78

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," "targets" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond NRG's control, 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. Forward-looking statements are not guarantees of future results. 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, 2021 and the following:

•Business uncertainties related to the integration of the operations of Direct Energy with its own;

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

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

•Volatile power and gas supply costs and demand for power and gas;

•Changes in law, including judicial and regulatory decisions;

•Hazards customary to the power production industry and power generation operations, such as fuel and electricity price volatility, unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards;

•The effectiveness of NRG's risk management policies and procedures and the ability of NRG's counterparties to satisfy their financial commitments;

•NRG's ability to enter into contracts to sell power or gas and procure fuel on acceptable terms and prices;

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

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

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

•Cyber terrorism and cybersecurity risks, data breaches or the occurrence of a catastrophic loss and the possibility that NRG may not have sufficient insurance to cover losses resulting from such hazards or the inability of NRG's insurers to provide coverage;

•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;

•The liquidity and competitiveness of wholesale markets for energy commodities;

•Government regulation, including changes in market rules, rates, tariffs and environmental laws;

•NRG's ability to develop and innovate new products, as retail and wholesale markets continue to change and evolve;

•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;

•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 NRG's corporate credit agreements, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;

•The ability of NRG and its counterparties to develop and build new power generation facilities;

•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 develop and maintain successful partnering relationships as needed.

In addition, unlisted factors may present significant additional obstacles to the realization of forward-looking statements. 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 except as otherwise required by applicable laws. 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:


2021 Form 10-K						NRG’s Annual Report on Form 10-K for the year ended December 31, 2021
ACE						Affordable Clean Energy
AESO						Alberta Electric System Operator
Agua Caliente						Agua Caliente Solar Project, a 290 MW photovoltaic power station located in Yuma County, Arizona in which NRG owned a 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
BTU						British Thermal Unit
Business						NRG Business, which serves business customers
CAA						Clean Air Act
CAISO						California Independent System Operator
CARES Act						Coronavirus Aid, Relief, and Economic Security Act of 2020
CDD						Cooling Degree Day
CFTC						U.S. Commodity Futures Trading Commission

Centrica						Centrica plc
CO2						Carbon Dioxide
Company						NRG Energy, Inc.
Convertible Senior Notes						As of September 30, 2022, consists of NRG’s $575 million unsecured 2.75% Convertible Senior Notes due 2048
Cottonwood						Cottonwood Generating Station, a 1,177 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
Dth						Dekatherms
Economic gross margin						Sum of retail revenue, energy revenue, capacity revenue and other revenue, less cost of fuels and purchased energy 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
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.
GHG						Greenhouse Gas
Green Mountain Energy						Green Mountain Energy Company
GW						Gigawatts
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
Home						NRG Home, which serves residential customers
HLW						High-level radioactive waste
ICE						Intercontinental Exchange
IESO						Independent Electricity System Operator
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
LSEs						Load Serving Entities
LTIPs						Collectively, the NRG long-term incentive plan ("LTIP") and the NRG GenOn LTIP
MDth						Thousand Dekatherms
Midwest Generation						Midwest Generation, LLC
MISO						Midcontinent Independent System Operator, Inc.
MMBtu						Million British Thermal Units
MW						Megawatts
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

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.


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

OCI/OCL						Other Comprehensive Income/(Loss)
ORDC						Operating Reserve Demand Curve
ORDPA						Online Reliability Deployment Price Adder
Petra Nova						Petra Nova Parish Holdings, LLC
PG&E						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
RCRA						Resource Conservation and Recovery Act of 1976


Receivables Facility						NRG Receivables LLC, a bankruptcy remote, special purpose, wholly-owned indirect subsidiary of the Company's $1.0 billion accounts receivables securitization facility due 2023, which was amended on July 26, 2021 and July 26, 2022
Receivables Securitization Facilities						Collectively, the Receivables Facility and the Repurchase Facility
Repurchase Facility						NRG's $150 million uncommitted repurchase facility related to the Receivables Facility due 2023, which was amended on July 26, 2021, February 9, 2022 and July 26, 2022
Revolving Credit Facility						The Company's $3.7 billion revolving credit facility due 2024, was amended on May 28, 2019 and August 20, 2020
RGGI						Regional Greenhouse Gas Initiative
RMR						Reliability Must-Run
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 Notes						As of September 30, 2022, NRG's $4.6 billion outstanding unsecured senior notes consisting of $375 million of the 6.625% senior notes due 2027, $821 million of 5.75% senior notes due 2028, $733 million of the 5.25% senior notes due 2029, $500 million of the 3.375% senior notes due 2029, $1.0 billion of the 3.625% senior notes due 2031 and $1.1 billion of the 3.875% senior notes due 2032
Senior Secured First Lien Notes						As of September 30, 2022, NRG’s $2.5 billion outstanding Senior Secured First Lien Notes consists of $600 million of the 3.75% Senior Secured First Lien Notes due 2024, $500 million of the 2.0% Senior Secured First Lien Notes due 2025, $900 million of the 2.45% Senior Secured First Lien Notes due 2027 and $500 million of the 4.45% Senior Secured First Lien Notes due 2029
Services						NRG Services, which primarily includes the services businesses acquired in the Direct Energy Acquisition

SNF						Spent Nuclear Fuel
SO2						Sulfur Dioxide
SOFR						Secured overnight financing rate
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

U.S.						United States of America
U.S. DOE						U.S. Department of Energy
VaR						Value at Risk
VIE						Variable Interest Entity
Winter Storm Uri						A major winter and ice storm that had widespread impacts across North America occurring in February 2021

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)	2022		2021		2022		2021
Revenue
Revenue	$	8,510	$	6,609	$	23,688	$	19,943
Operating Costs and Expenses
Cost of operations (excluding depreciation and amortization shown below)	7,802		3,692		18,619		13,496
Depreciation and amortization	145		199		485		569
Impairment losses	43		—		198		306
Selling, general and administrative costs	326		318		973		973
Provision for credit losses	52		64		103		715
Acquisition-related transaction and integration costs	8		17		26		81
Total operating costs and expenses	8,376		4,290		20,404		16,140

Gain on sale of assets	22		—		51		17
Operating Income	156		2,319		3,335		3,820
Other Income/(Expense)
Equity in earnings of unconsolidated affiliates	11		15		—		23

Other income, net	21		8		33		42
Loss on debt extinguishment	—		(57)		—		(57)
Interest expense	(105)		(122)		(313)		(374)
Total other expense	(73)		(156)		(280)		(366)
Income Before Income Taxes	83		2,163		3,055		3,454
Income tax expense	16		545		739		840


Net Income	$	67	$	1,618	$	2,316	$	2,614


Income per Share




Weighted average number of common shares outstanding — basic and diluted	235		245		238		245


Income per Weighted Average Common Share —Basic and Diluted	$	0.29	$	6.60	$	9.73	$	10.67

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)	2022		2021		2022		2021
Net Income	$	67	$	1,618	$	2,316	$	2,614
Other Comprehensive (Loss)/Income

Foreign currency translation adjustments	(32)		(11)		(45)		(6)

Defined benefit plans	(2)		1		17		20
Other comprehensive (loss)/income	(34)		(10)		(28)		14
Comprehensive Income	$	33	$	1,608	$	2,288	$	2,628

See accompanying notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2022		December 31, 2021
(In millions, except share data)	(Unaudited)		(Audited)
ASSETS
Current Assets
Cash and cash equivalents	$	333	$	250
Funds deposited by counterparties	3,134		845
Restricted cash	46		15
Accounts receivable, net	4,061		3,245
Uplift securitization proceeds receivable from ERCOT	—		689
Inventory	772		498
Derivative instruments	9,938		4,613
Cash collateral paid in support of energy risk management activities	262		291

Prepayments and other current assets	417		395


Total current assets	18,963		10,841
Property, plant and equipment, net	1,598		1,688
Other Assets
Equity investments in affiliates	126		157

Operating lease right-of-use assets, net	236		271
Goodwill	1,650		1,795
Intangible assets, net	2,227		2,511
Nuclear decommissioning trust fund	789		1,008
Derivative instruments	4,914		2,527
Deferred income taxes	1,516		2,155
Other non-current assets	224		229


Total other assets	11,682		10,653
Total Assets	$	32,243	$	23,182

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities

Current portion of long-term debt and finance leases	$	62	$	4

Current portion of operating lease liabilities	82		81
Accounts payable	2,871		2,274

Derivative instruments	6,841		3,387
Cash collateral received in support of energy risk management activities	3,134		845
Accrued expenses and other current liabilities	1,376		1,324



Total current liabilities	14,366		7,915
Other Liabilities
Long-term debt and finance leases	7,974		7,966
Non-current operating lease liabilities	197		236
Nuclear decommissioning reserve	335		321
Nuclear decommissioning trust liability	433		666

Derivative instruments	2,802		1,412
Deferred income taxes	84		73
Other non-current liabilities	922		993


Total other liabilities	12,747		11,667
Total Liabilities	27,113		19,582

Commitments and Contingencies
Stockholders' Equity
Common stock; $0.01 par value; 500,000,000 shares authorized; 423,894,539 and 423,547,174 shares issued and 232,125,137 and 243,753,899 shares outstanding at September 30, 2022 and December 31, 2021, respectively	4		4
Additional paid-in-capital	8,450		8,531
Retained earnings	2,584		464
Treasury stock, at cost 191,769,402 and 179,793,275 shares at September 30, 2022 and December 31, 2021, respectively	(5,754)		(5,273)
Accumulated other comprehensive loss	(154)		(126)

Total Stockholders' Equity	5,130		3,600
Total Liabilities and Stockholders' Equity	$	32,243	$	23,182

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)	2022		2021
Cash Flows from Operating Activities
Net Income	$	2,316	$	2,614


Adjustments to reconcile net income to cash provided by operating activities:
Distributions from and equity in earnings of unconsolidated affiliates	7		8
Depreciation and amortization	485		569
Accretion of asset retirement obligations	20		21
Provision for credit losses	103		715
Amortization of nuclear fuel	42		39
Amortization of financing costs and debt discounts	17		30
Loss on debt extinguishment	—		57
Amortization of in-the-money contracts and emissions allowances	122		111
Amortization of unearned equity compensation	21		16
Net gain on sale and disposal of assets	(82)		(29)

Impairment losses	198		306
Changes in derivative instruments	(4,480)		(4,419)
Changes in deferred income taxes and liability for uncertain tax benefits	688		782
Changes in collateral deposits in support of energy risk management activities	2,321		1,970
Changes in nuclear decommissioning trust liability	2		38

Uplift securitization proceeds received from ERCOT	689		—
Changes in other working capital	(711)		(973)
Cash provided by operating activities	1,758		1,855


Cash Flows from Investing Activities
Payments for acquisitions of businesses and assets, net of cash acquired	(60)		(3,534)
Capital expenditures	(250)		(219)

Net (purchases)/sales of emission allowances	(4)		6
Investments in nuclear decommissioning trust fund securities	(361)		(460)
Proceeds from the sale of nuclear decommissioning trust fund securities	363		424
Proceeds from sales of assets, net of cash disposed	107		198




Cash used by investing activities	(205)		(3,585)


Cash Flows from Financing Activities
Payments of dividends to common stockholders	(252)		(239)
Payments for share repurchase activity	(484)		(9)
Net receipts from settlement of acquired derivatives that include financing elements	1,596		396

Repayments of long-term debt and finance leases	(4)		(1,360)
Proceeds from issuance of long-term debt	—		1,100
Payments for debt extinguishment costs	—		(48)

Payments of debt issuance costs	(1)		(18)
Proceeds from issuance of common stock	—		1



Cash provided/(used) by financing activities	855		(177)


Effect of exchange rate changes on cash and cash equivalents	(5)		(2)

Net Increase/(Decrease) in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash	2,403		(1,909)
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period	1,110		3,930
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period	$	3,513	$	2,021

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		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stock-holders' Equity
Balance at December 31, 2021	$	4	$	8,531	$	464	$	(5,273)	$	(126)	$	3,600
Net income					1,736						1,736
Other comprehensive income									8		8


Share repurchases							(187)				(187)
Equity-based awards activity, net(a)			2								2

Common stock dividends and dividend equivalents declared(b)					(86)						(86)
Adoption of ASU 2020-06			(100)		57						(43)





Balance at March 31, 2022	$	4	$	8,433	$	2,171	$	(5,460)	$	(118)	$	5,030
Net income					513						513
Other comprehensive loss									(2)		(2)
Shares reissuance for ESPP			1				2				3
Share repurchases							(168)				(168)
Equity-based awards activity, net			8								8

Common stock dividends and dividend equivalents declared(b)					(84)						(84)

Balance at June 30, 2022	$	4	$	8,442	$	2,600	$	(5,626)	$	(120)	$	5,300
Net income					67						67
Other comprehensive loss									(34)		(34)
Share repurchases							(128)				(128)
Equity-based awards activity, net			8								8

Common stock dividends and dividend equivalents declared(b)					(83)						(83)
Balance at September 30, 2022	$	4	$	8,450	$	2,584	$	(5,754)	$	(154)	$	5,130


(In millions)	Common Stock		Additional Paid-In Capital		Accumulated Deficit		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stock-holders' Equity
Balance at December 31, 2020	$	4	$	8,517	$	(1,403)	$	(5,232)	$	(206)	$	1,680
Net loss					(82)						(82)
Other comprehensive income									3		3


Equity-based awards activity, net(a)			(5)								(5)
Issuance of common stock			1								1
Common stock dividends and dividend equivalents declared(b)					(80)						(80)
Balance at March 31, 2021	$	4	$	8,513	$	(1,565)	$	(5,232)	$	(203)	$	1,517
Net income					1,078						1,078
Other comprehensive income									21		21

Shares reissuance for ESPP							2				2

Equity-based awards activity, net			6								6

Common stock dividends and dividend equivalents declared(b)					(80)						(80)






Balance at June 30, 2021	$	4	$	8,519	$	(567)	$	(5,230)	$	(182)	$	2,544
Net income					1,618						1,618
Other comprehensive loss									(10)		(10)


Equity-based awards activity, net			6								6

Common stock dividends and dividend equivalents declared(b)					(80)						(80)




Balance at September 30, 2021	$	4	$	8,525	$	971	$	(5,230)	$	(192)	$	4,078

(a)Includes $(6) million and $(9) million of equivalent shares purchased in lieu of tax withholding on equity compensation issuances for the quarters ended March 31, 2022 and 2021, respectively

(b)Dividends per common share were $0.35 for the quarters ended September 30, June 30 and March 31, 2022 and $0.325 for the quarters ended September 30, June 30 and March 31, 2021

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 a consumer services company built on dynamic retail brands. NRG brings the power of energy to customers by producing and selling energy and related products and services, nation-wide in the U.S. and Canada in a manner that delivers value to all of NRG's stakeholders. NRG sells power, natural gas, home and power services, and develops innovative, sustainable solutions, predominately under the brand names NRG, Reliant, Direct Energy, Green Mountain Energy, Stream, and XOOM Energy. The Company has a customer base that includes approximately 5.5 million Home customers as well as commercial, industrial, and wholesale customers, supported by approximately 16 GW of generation.

The Company manages its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus.

The Company's business is segmented as follows:

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

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

•West/Services/Other, which includes the following assets and activities: (i) all activity related to customer, plant and market operations in the West and Canada, (ii) the Services businesses (iii) activity related to the Cottonwood facility, (iv) the remaining renewables activity, including the Company’s equity method investment in Ivanpah Master Holdings, LLC, and (v) activity related to the Company’s equity method investment for the Gladstone power plant in Australia; and

•Corporate activities.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the SEC's regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the consolidated financial statements in the Company's 2021 Form 10-K. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of September 30, 2022, and the results of operations, comprehensive income, cash flows and statements of stockholders' equity for the three and nine months ended September 30, 2022 and 2021.

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 period amounts have been reclassified for comparative purposes. The reclassifications did not affect consolidated results from operations, net assets or consolidated cash flows.

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, 2022		December 31, 2021
Property, plant and equipment accumulated depreciation	$	1,456	$	1,308
Intangible assets accumulated amortization	1,989		1,636

Credit Losses

Retail trade receivables are reported on the balance sheet net of the allowance for credit losses. The Company accrues a provision 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, 2022 and 2021:


	Three months ended September 30,				Nine months ended September 30,
(In millions)	2022		2021		2022		2021
Beginning balance	$	627	$	761	$	683	$	67
Acquired balance from Direct Energy	—		—		—		112
Provision for credit losses	52		64		103		715
Write-offs	(50)		(41)		(171)		(124)
Recoveries collected	9		8		23		22
Ending balance	$	638	$	792	$	638	$	792

The decrease in the provision for credit losses during the nine months ended September 30, 2022, compared to the same period in 2021 was primarily due to the impacts of Winter Storm Uri during the prior year on bilateral finance hedging risk of $403 million, counterparty credit risk of $152 million and ERCOT default shortfall payments of $83 million.

Cash and Cash Equivalents, Funds Deposited by Counterparties and 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, 2022		December 31, 2021
Cash and cash equivalents	$	333	$	250
Funds deposited by counterparties	3,134		845
Restricted cash	46		15
Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows	$	3,513	$	1,110

Funds deposited by counterparties consist of cash held by the Company as a result of collateral posting obligations from its counterparties related to NRG's hedging program. The increase in funds deposited by counterparties is driven by the significant increase in forward positions as a result of increases in natural gas and power prices compared to December 31, 2021. Though some amounts are segregated into separate accounts, not all funds are contractually restricted. Based on the Company's intention, these funds are not available for the payment of general corporate obligations; however, they are available for liquidity management. Depending on market fluctuations and the settlement of the underlying contracts, the Company will refund this collateral to the counterparties pursuant to the terms and conditions of the underlying trades. Since collateral requirements fluctuate daily and the Company cannot predict if any collateral will be held for more than twelve months, the funds deposited by counterparties are classified as a current asset on the Company's balance sheet, with an offsetting liability for this cash collateral received within current liabilities.

Restricted cash consists primarily of funds held to satisfy the requirements of certain debt agreements and funds held within the Company's projects that are restricted in their uses.

Winter Storm Uri Uplift Securitization Proceeds

The Texas Legislature passed House Bill ("HB") 4492 in May of 2021 for ERCOT to mitigate exceptionally high price adders and ancillary service costs incurred by LSEs during Winter Storm Uri. HB 4492 authorized ERCOT to obtain $2.1 billion of financing to distribute to LSEs that were charged and paid to ERCOT those highly priced ancillary service and ORDPA during Winter Storm Uri.

In December 2021, ERCOT filed with the PUCT a calculation of each LSE’s share of proceeds based on the settlement methodology. The Company accounted for the proceeds by analogy to the contribution model within ASC 958-605, Not-for-Profit Entities- Revenue Recognition and the grant model within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, as a reduction to cost of operations within its consolidated statements of operations in the 2021 annual period for which the proceeds were intended to compensate. The Company received proceeds of $689 million from ERCOT in June 2022.

Goodwill

The following table represents the changes in goodwill during the nine months ended September 30, 2022:


(In millions)	Texas		East		West/Services/Other		Total
Balance as of December 31, 2021	$	751	$	853	$	191	$	1,795
Impairment	—		(130)		—		(130)
Asset sales	(6)		—		—		(6)
Foreign Currency Translation	—		—		(9)		(9)
Balance as of September 30, 2022	$	745	$	723	$	182	$	1,650

Recent Accounting Developments - Guidance Adopted in 2022

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 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. The Company adopted this standard on January 1, 2022 using the modified retrospective approach. As a result of the provisions of the amended guidance, the Company recorded a $100 million decrease to additional paid-in capital, a $57 million decrease to debt discount, a $57 million increase to retained earnings and a $14 million decrease to long-term deferred tax liabilities. The adoption of ASU 2020-06 did not have a material impact on the Company's statement of operations, statement of cash flow or earnings per share amounts.

Note 3 — Revenue Recognition

Performance Obligations

As of September 30, 2022, estimated future fixed fee performance obligations are $31 million for the remaining three months of fiscal year 2022, and $77 million, $23 million and $2 million for the fiscal years 2023, 2024 and 2025, 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, 2022 and 2021:


	Three months ended September 30, 2022
(In millions)	Texas		East		West/Services/Other		Corporate/Eliminations		Total
Retail revenue:
Home(a)	$	2,074	$	546	$	429	$	—	$	3,049
Business	931		3,317		561		—		4,809
Total retail revenue(b)	3,005		3,863		990		—		7,858
Energy revenue(b)	48		212		180		10		450
Capacity revenue(b)	—		38		—		—		38
Mark-to-market for economic hedging activities(c)	4		32		(7)		4		33
Contract amortization	—		(10)		4		—		(6)
Other revenue(b)	92		45		2		(2)		137
Total revenue	3,149		4,180		1,169		12		8,510
Less: Revenues accounted for under topics other than ASC 606 and ASC 815	—		3		14		(1)		16
Less: Realized and unrealized ASC 815 revenue	15		93		13		14		135
Total revenue from contracts with customers	$	3,134	$	4,084	$	1,142	$	(1)	$	8,359
(a) Home includes Services
(b) 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/Services/Other		Corporate/Eliminations		Total
Retail revenue	$	—	$	90	$	—	$	—	$	90
Energy revenue	—		(39)		27		11		(1)
Capacity revenue	—		7		—		—		7
Other revenue	11		3		(7)		(1)		6
(c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815


	Three months ended September 30, 2021
(In millions)	Texas		East		West/Services/Other		Corporate/Eliminations		Total
Retail revenue:
Home(a)	$	1,776	$	470	$	399	$	1	$	2,646
Business	727		2,228		350		—		3,305
Total retail revenue	2,503		2,698		749		1		5,951
Energy revenue(b)	18		201		113		4		336
Capacity revenue(b)	—		172		17		—		189
Mark-to-market for economic hedging activities(c)	(1)		(3)		(6)		13		3
Contract amortization	—		(7)		4		—		(3)
Other revenue(b)	115		16		6		(4)		133
Total revenue	2,635		3,077		883		14		6,609
Less: Revenues accounted for under topics other than ASC 606 and ASC 815	—		(7)		6		—		(1)
Less: Realized and unrealized ASC 815 revenue	38		76		(8)		14		120
Total revenue from contracts with customers	$	2,597	$	3,008	$	885	$	—	$	6,490
(a) Home includes Services
(b) 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/Services/Other		Corporate/Eliminations		Total
Energy revenue	$	—	$	38	$	2	$	1	$	41
Capacity revenue	—		42		—		—		42
Other revenue	39		(1)		(4)		—		34
(c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815


	Nine months ended September 30, 2022
(In millions)	Texas		East		West/Services/Other		Corporate/Eliminations		Total
Retail revenue:
Home(a)	$	5,024	$	1,674	$	1,663	$	(1)	$	8,360
Business	2,504		10,110		1,405		—		14,019
Total retail revenue(b)	7,528		11,784		3,068		(1)		22,379
Energy revenue(b)	101		544		365		24		1,034
Capacity revenue(b)	—		242		2		—		244
Mark-to-market for economic hedging activities(c)	1		(204)		(63)		18		(248)
Contract amortization	—		(30)		2		—		(28)
Other revenue(b)	238		78		3		(12)		307
Total revenue	7,868		12,414		3,377		29		23,688
Less: Revenues accounted for under topics other than ASC 606 and ASC 815	—		(10)		33		(1)		22
Less: Realized and unrealized ASC 815 revenue	(5)		(96)		(99)		41		(159)
Total revenue from contracts with customers	$	7,873	$	12,520	$	3,443	$	(11)	$	23,825
(a) Home includes Services
(b) 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/Services/Other		Corporate/Eliminations		Total
Retail revenue	$	—	$	90	$	—	$	—	$	90
Energy revenue	—		(13)		(13)		24		(2)
Capacity revenue	—		29		—		—		29
Other revenue	(6)		2		(23)		(1)		(28)
(c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815


	Nine months ended September 30, 2021
(In millions)	Texas		East		West/Services/Other		Corporate/Eliminations		Total
Retail revenue:
Home(a)	$	4,484	$	1,469	$	1,439	$	(1)	$	7,391
Business	2,091		6,560		887		—		9,538
Total retail revenue	6,575		8,029		2,326		(1)		16,929
Energy revenue(c)	317		428		238		6		989
Capacity revenue(c)	—		568		47		—		615
Mark-to-market for economic hedging activities(d)	(5)		(53)		(60)		19		(99)
Contract amortization	—		(15)		(4)		—		(19)
Other revenue(b)(c)	1,475		45		17		(9)		1,528
Total revenue	8,362		9,002		2,564		15		19,943
Less: Revenues accounted for under topics other than ASC 606 and ASC 815	—		(14)		1		—		(13)
Less: Realized and unrealized ASC 815 revenue	129		193		(73)		20		269
Total revenue from contracts with customers	$	8,233	$	8,823	$	2,636	$	(5)	$	19,687
(a) Home includes Services
(b) Other Revenue in Texas includes ancillary revenues of $1.2 billion driven by high pricing during Winter Storm Uri
(c) 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/Services/Other		Corporate/Eliminations		Total
Energy revenue	$	—	$	122	$	(4)	$	2	$	120
Capacity revenue	—		119		—		—		119
Other revenue	134		5		(9)		(1)		129
(d) 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, 2022 and December 31, 2021:


(In millions)	September 30, 2022		December 31, 2021
Deferred customer acquisition costs	$	117	$	133

Accounts receivable, net - Contracts with customers	3,768		3,057
Accounts receivable, net - Accounted for under topics other than ASC 606	290		182
Accounts receivable, net - Affiliate	3		6
Total accounts receivable, net	$	4,061	$	3,245

Unbilled revenues (included within Accounts receivable, net - Contracts with customers)	$	1,464	$	1,574

Deferred revenues(a)	213		227

(a) Deferred revenues from contracts with customers for the nine months ended September 30, 2022 and the year ended December 31, 2021 were approximately $207 million and $224 million, respectively

The revenue recognized from contracts with customers during the nine months ended September 30, 2022 and 2021 relating to the deferred revenue balance at the beginning of each period was $173 million and $23 million, respectively. The revenue recognized from contracts with customers during the three months ended September 30, 2022 and 2021 relating to the deferred revenue balance at the beginning of each period was $159 million and $162 million, respectively. The change in deferred revenue balances during the three and nine months ended September 30, 2022 and 2021 was primarily due to the usage of customer bill credits by certain C&I customers, which were as a result of power pricing during Winter Storm Uri.

Note 4 — Acquisitions and Dispositions

Acquisitions

2021 Acquisition of Direct Energy

On January 5, 2021, the Company acquired all of the issued and outstanding common shares of Direct Energy, which had been a North American subsidiary of Centrica. 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 8 Canadian provinces. The acquisition increased NRG's retail portfolio by over 3 million customers and strengthens its integrated model. It also broadens the Company's presence in the Northeast and into states and locales where it did not previously operate, supporting NRG's objective to diversify its business.

The Company paid an aggregate purchase price of $3.625 billion in cash and total purchase price adjustment of $99 million, resulting in an adjusted purchase price of $3.724 billion. For additional information refer to Note 4, Acquisitions, Discontinued Operations and Dispositions, to the Company's 2021 Form 10-K.

Dispositions

On September 9, 2022, the Company entered into a definitive purchase agreement to sell land and related assets from the Astoria site, within the East region of operations, for initial proceeds of $212 million subject to purchase price adjustments and certain other indemnifications. As part of the transaction, NRG will enter into an agreement to lease the land back for the purpose of operating the Astoria facility through the planned April 30, 2023 retirement date. The operating lease agreement is expected to end six months after the facility's actual retirement date. The transaction is expected to close in the fourth quarter of 2022 and is subject to various closing conditions.

On June 1, 2022, the Company closed on the sale of its 49% ownership in the Watson natural gas generating facility for $59 million. The Company recorded a gain on the sale of $46 million.

On February 3, 2021, the Company closed on the sale of its 35% ownership in the Agua Caliente solar project to Clearway Energy, Inc. for $202 million. NRG recognized a gain on the sale of $17 million, including cash disposed of $7 million.

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 value and fair value of the Company's financial instruments not carried at fair market value are as follows:


	September 30, 2022				December 31, 2021
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value




Convertible Senior Notes	$	575	$	611	$	518	$	677
Other long-term debt, including current portion	7,523		6,473		7,522		7,650
Total long-term debt, including current portion(a)	$	8,098	$	7,084	$	8,040	$	8,327

(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.

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, 2022

(In millions)	Total		Level 1		Level 2		Level 3
Investments in securities (classified within other current and non-current assets)	$	19	$	—	$	19	$	—

Nuclear trust fund investments:
Cash and cash equivalents	17		17		—		—
U.S. government and federal agency obligations	85		83		2		—
Federal agency mortgage-backed securities	101		—		101		—
Commercial mortgage-backed securities	37		—		37		—
Corporate debt securities	104		—		104		—
Equity securities	372		372		—		—
Foreign government fixed income securities	2		—		2		—
Other trust fund investments (classified within other non-current assets):
U.S. government and federal agency obligations	1		1		—		—
Derivative assets:
Foreign exchange contracts	30		—		30		—
Commodity contracts	14,822		2,873		10,936		1,013


Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments	71
Equity securities (classified within other non-current assets)	6
Total assets	$	15,667	$	3,346	$	11,231	$	1,013
Derivative liabilities:

Commodity contracts	9,643		1,228		8,084		331
Total liabilities	$	9,643	$	1,228	$	8,084	$	331


	December 31, 2021

(In millions)	Total		Level 1		Level 2		Level 3
Investments in securities (classified within other current and non-current assets)	$	32	$	15	$	17	$	—
Nuclear trust fund investments:
Cash and cash equivalents	33		33		—		—
U.S. government and federal agency obligations	112		111		1		—
Federal agency mortgage-backed securities	100		—		100		—
Commercial mortgage-backed securities	44		—		44		—
Corporate debt securities	122		—		122		—
Equity securities	494		494		—		—
Foreign government fixed income securities	4		—		4		—
Other trust fund investments (classified within other non-current assets):
U.S. government and federal agency obligations	1		1		—		—
Derivative assets:
Foreign exchange contracts	1		—		1		—
Commodity contracts	7,139		981		5,701		457


Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments	99
Equity securities (classified within other non-current assets)	7
Total assets	$	8,188	$	1,635	$	5,990	$	457
Derivative liabilities:
Foreign exchange contracts	$	1	$	—	$	1	$	—
Commodity contracts	4,798		626		4,008		164

Total liabilities	$	4,799	$	626	$	4,009	$	164

The following table reconciles, for the three and nine months ended September 30, 2022 and 2021, 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)
	Derivatives(a)
(In millions)	Three months ended September 30, 2022		Three months ended September 30, 2021		Nine months ended September 30, 2022		Nine months ended September 30, 2021

Beginning balance	$	1,403	$	574	$	293	$	(16)
Contracts added from Direct Energy acquisition	—		—		—		(15)

Total (losses)/gains realized/unrealized — included in earnings	(314)		(175)		145		187


Purchases	60		—		89		78
Transfers into Level 3(b)	(466)		(108)		155		64
Transfers out of Level 3(b)	(1)		20		—		13
Ending balance	$	682	$	311	$	682	$	311
(Losses)/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	$	(240)	$	(237)	$	294	$	184

(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

Realized and unrealized gains and losses included in earnings that are related to the energy derivatives are recorded in revenues and cost of operations.

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, 2022, contracts valued with prices provided by models and other valuation techniques make up 7% of derivative assets and 3% of derivative liabilities.

NRG's significant positions classified as Level 3 include physical and financial natural gas and power contracts executed in illiquid markets, as well as FTRs. The significant unobservable inputs used in developing fair value include illiquid natural gas and 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, 2022 and December 31, 2021:



	September 30, 2022
	Fair Value						Input/Range
(In millions)	Assets		Liabilities		Valuation Technique	Significant Unobservable Input	Low		High		Weighted Average
Natural Gas Contracts	$	90	$	46	Discounted Cash Flow	Forward Market Price (per MMBtu)	$	3	$	35	$	11
Power Contracts	842		221		Discounted Cash Flow	Forward Market Price (per MWh)	20		263		55
FTRs	81		64		Discounted Cash Flow	Auction Prices (per MWh)	(67)		46		1
	$	1,013	$	331



	December 31, 2021
	Fair Value						Input/Range
(In millions)	Assets		Liabilities		Valuation Technique	Significant Unobservable Input	Low		High		Weighted Average
Natural Gas Contracts	$	16	$	1	Discounted Cash Flow	Forward Market Price (per MMBtu)	$	3	$	40	$	15
Power Contracts	392		121		Discounted Cash Flow	Forward Market Price (per MWh)	3		212		35
FTRs	49		42		Discounted Cash Flow	Auction Prices (per MWh)	(122)		43		0
	$	457	$	164

The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of September 30, 2022 and December 31, 2021:

Significant Unobservable Input

Position

Change In Input

Impact on Fair Value Measurement

Forward Market Price Natural Gas/Power

Buy

Increase/(Decrease)

Higher/(Lower)

Forward Market Price Natural Gas/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, 2022, the credit reserve resulted in a $11 million decrease primarily within cost of operations. As of December 31, 2021, the credit reserve resulted in a $11 million decrease primarily within 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 2021 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 2021 Form 10-K. As of September 30, 2022, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, registered commodity exchanges and certain long-term agreements, was $3.2 billion and NRG held collateral (cash and letters of credit) against those positions of $1.8 billion, resulting in a net exposure of $1.4 billion. 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 75% of the Company's exposure before collateral is expected to roll off by the end of 2023. 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	61	%
Financial institutions	39

Total as of September 30, 2022	100	%


	Net Exposure (a)(b)
Category by Counterparty Credit Quality	(% of Total)
Investment grade	68	%
Non-investment grade/non-rated	32
Total as of September 30, 2022	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 exposure to one wholesale counterparty in excess of 10% of total net exposure discussed above as of September 30, 2022. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration.

During the first quarter of 2021, during Winter Storm Uri, the Company experienced a nonperformance by a counterparty in one of its bilateral financial hedging transactions, resulting in exposure of $403 million. The Company is pursuing all means available to enforce its obligations under this transaction but, given the size of the exposure and the counterparty filing for Chapter 11 bankruptcy protection, cannot determine with certainty what the amount of its ultimate recovery will be. The full exposure was provided for in the allowance for credit losses since March 31, 2021.

RTOs and ISOs

The Company participates in the organized markets of CAISO, ERCOT, AESO, IESO, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in the majority of these markets is approved by FERC, whereas in the case of ERCOT, it is approved by the PUCT, and whereas in the case of AESO and IESO, both exist provincially with AESO primarily subject to Alberta Utilities Commission and the IESO to the Ontario Energy Board. These ISOs may include 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 always 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, 2022, aggregate credit risk exposure managed by NRG to these counterparties was approximately $1.1 billion for the next five years.

Retail Customer Credit Risk

The Company is exposed to retail credit risk through the Company's retail electricity and gas providers, which serve Home and Business customers. 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, 2022, the Company's retail customer credit exposure to Home and Business customers was diversified across many customers and various industries, as well as government entities. 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, 2022							As of December 31, 2021
(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	$	17	$	—	$	—	—	$	33	$	—	$	—	—
U.S. government and federal agency obligations	85		—		10		11	112		5		1		10
Federal agency mortgage-backed securities	101		—		12		25	100		2		—		25
Commercial mortgage-backed securities	37		—		4		28	44		1		—		27
Corporate debt securities	104		—		15		13	122		7		1		14
Equity securities	443		301		—		—	593		456		—		—
Foreign government fixed income securities	2		—		—		18	4		—		—		13
Total	$	789	$	301	$	41		$	1,008	$	471	$	2

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)	2022		2021
Realized gains	$	12	$	10
Realized losses	(19)		(6)
Proceeds from sale of securities	363		424

Note 7 — Accounting for Derivative Instruments and Hedging Activities

Energy-Related Commodities

As of September 30, 2022, NRG had energy-related derivative instruments extending through 2036. The Company marks these derivatives to market through the statement of operations. NRG has executed energy-related contracts extending through 2038 that qualified for the NPNS exception and were therefore exempt from fair value accounting treatment.

Foreign Exchange Contracts

NRG is exposed to changes in foreign currency primarily associated with the purchase of USD denominated natural gas for its Canadian business. In order to manage the Company's foreign exchange risk, NRG entered into foreign exchange contracts. As of September 30, 2022, NRG had foreign exchange contracts extending through 2026. The Company marks these derivatives to market through the statement of operations.

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, 2022 and December 31, 2021. 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, 2022		December 31, 2021
Emissions	Short Ton	1		1
Renewable Energy Certificates	Certificates	11		13
Coal	Short Ton	13		19
Natural Gas	MMBtu	748		813
Oil	Barrels	—		1
Power	MWh	176		185

Foreign Exchange	Dollars	$	502	$	279

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, 2022		December 31, 2021		September 30, 2022		December 31, 2021




Derivatives Not Designated as Cash Flow or Fair Value Hedges:


Foreign exchange contracts - current	$	16	$	—	$	—	$	1
Foreign exchange contracts - long-term	14		1		—		—
Commodity contracts - current	9,922		4,613		6,841		3,386
Commodity contracts - long-term	4,900		2,526		2,802		1,412
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges	$	14,852	$	7,140	$	9,643	$	4,799

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, 2022
Foreign exchange contracts:

Derivative assets	$	30	$	—	$	—	$	30

Commodity contracts:
Derivative assets	$	14,822	$	(8,987)	$	(3,081)	$	2,754
Derivative liabilities	(9,643)		8,987		29		(627)
Total commodity contracts	$	5,179	$	—	$	(3,052)	$	2,127




Total derivative instruments	$	5,209	$	—	$	(3,052)	$	2,157


	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, 2021
Foreign exchange contracts:
Derivative assets	$	1	$	(1)	$	—	$	—
Derivative liabilities	(1)		1		—		—
Total foreign exchange contracts	$	—	$	—	$	—	$	—
Commodity contracts:
Derivative assets	$	7,139	$	(4,440)	$	(831)	$	1,868
Derivative liabilities	(4,798)		4,440		17		(341)
Total commodity contracts	$	2,341	$	—	$	(814)	$	1,527






Total derivative instruments	$	2,341	$	—	$	(814)	$	1,527

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 foreign exchange and commodity hedges are included within revenues and cost of operations.


(In millions)	Three months ended September 30,				Nine months ended September 30,
Unrealized mark-to-market results	2022		2021		2022		2021
Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges	$	(387)	$	(97)	$	(992)	$	(58)
Reversal of acquired (gain)/loss positions related to economic hedges	(15)		(42)		(27)		206
Net unrealized gains on open positions related to economic hedges	313		1,924		3,926		3,875
Total unrealized mark-to-market (losses)/gains for economic hedging activities	(89)		1,785		2,907		4,023
Reversal of previously recognized unrealized losses/(gains) on settled positions related to trading activity	2		(6)		11		(16)

Net unrealized gains/(losses) on open positions related to trading activity	7		14		(18)		18
Total unrealized mark-to-market gains/(losses) for trading activity	9		8		(7)		2
Total unrealized (losses)/gains	$	(80)	$	1,793	$	2,900	$	4,025


	Three months ended September 30,				Nine months ended September 30,
(In millions)	2022		2021		2022		2021
Unrealized gains/(losses) included in revenues - commodities	$	42	$	11	$	(255)	$	(97)
Unrealized (losses)/gains included in cost of operations - commodities	(148)		1,777		3,124		4,121
Unrealized gains included in cost of operations - foreign exchange	26		5		31		1
Total impact to statement of operations - commodities	$	(80)	$	1,793	$	2,900	$	4,025

The reversals of acquired 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 revenue or cost of operations during the same period.

For the nine months ended September 30, 2022 and 2021, the unrealized gains from open economic hedge positions of $3.9 billion and $3.9 billion, respectively, were primarily due to increases in the value of forward positions as a result of increases in natural gas and power prices.

Credit Risk Related Contingent Features

Certain of the Company's trading agreements contain provisions that entitle the counterparty to demand that the Company post additional collateral if the counterparty determines that there has been deterioration in the Company's 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 potentially required for all contracts with adequate assurance clauses that are in a net liability position as of September 30, 2022 was $1.3 billion. 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 approximately $131 million as of September 30, 2022. In the event of a downgrade in the Company's credit rating and if called for by the counterparty, $30 million of additional collateral would be required for all contracts with credit rating contingent features as of September 30, 2022.

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

Note 8 — Impairments

2022 Impairment Losses

Astoria Redevelopment Impairment — During the third quarter of 2022, the Company entered into a purchase and sale agreement for the sale of the land and related assets at the Astoria generating site and the planned withdrawal and cancellation of its proposed Astoria redevelopment project. As a result, the Company impaired $43 million of Astoria project spend in the East segment.

PJM Asset Impairments — During the second quarter of 2022, the results of the PJM Base Residual Auction for the 2023/2024 delivery year were released leading the Company to revise its long-term view of certain facilities and announce the planned retirement of the Joliet generating facility in May 2023. The Company considered the near-term retirement date of Joliet and the decline in PJM capacity prices to be a trigger for impairment and performed impairment tests on the PJM generating assets and the goodwill associated with Midwest Generation. The Company measured the impairment losses on the PJM generating assets and Midwest Generation goodwill as the difference between the carrying amount and the fair value of the PJM generating assets and Midwest Generation reporting unit, respectively. Fair values were determined using an income approach in which the Company applied a discounted cash flow methodology to the long-term budgets for the plants and reporting unit. Significant inputs impacting the income approach include the Company's long-term view of capacity and fuel prices, projected generation, the physical and economic characteristics of each plant and the reporting unit as a whole, and the discount rate applied to the after-tax cash flow projections. Impairment losses of $20 million and $130 million were recorded in the East segment on the PJM generating assets and Midwest Generation goodwill, respectively.

2021 Impairment Losses

PJM Asset Impairments — During the second quarter of 2021, the results of the PJM Base Residual Auction for the 2022/2023 delivery year were released leading the Company to announce the near-term retirement of a significant portion of its PJM coal generating assets in June 2022. The Company considered the decline in PJM capacity prices and the near-term retirement dates of certain assets to be a trigger for impairment and performed impairment tests on the PJM generating assets and the goodwill associated with Midwest Generation. The Company measured the impairment losses on the PJM generating assets and Midwest Generation goodwill as the difference between the carrying amount and the fair value of the PJM generating assets and Midwest Generation reporting unit, respectively. Fair values were determined using an income approach in which the Company applied a discounted cash flow methodology to the long-term budgets for the plants and reporting unit. Significant inputs impacting the income approach include the Company's long-term view of capacity and fuel prices, projected generation, the physical and economic characteristics of each plant, and the discount rate applied to the after-tax cash flow projections. Impairment losses of $271 million and $35 million were recorded in the East segment on the PJM generating assets and Midwest Generation goodwill, respectively.

Note 9 — Long-term Debt and Finance Leases

Long-term debt and finance leases consisted of the following:


(In millions, except rates)	September 30, 2022		December 31, 2021		Interest rate %
Recourse debt:
Senior Notes, due 2027	$	375	$	375	6.625
Senior Notes, due 2028	821		821		5.750
Senior Notes, due 2029	733		733		5.250
Senior Notes, due 2029	500		500		3.375
Senior Notes, due 2031	1,030		1,030		3.625
Senior Notes, due 2032	1,100		1,100		3.875
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 2025	500		500		2.000
Senior Secured First Lien Notes, due 2027	900		900		2.450
Senior Secured First Lien Notes, due 2029	500		500		4.450

Tax-exempt bonds	466		466		1.250 - 4.750

Subtotal recourse debt	8,100		8,100




Finance leases	12		13		various
Subtotal long-term debt and finance leases (including current maturities)	8,112		8,113
Less current maturities	(62)		(4)
Less debt issuance costs	(74)		(83)
Discounts	(2)		(60)
Total long-term debt and finance leases	$	7,974	$	7,966

(a)As of the ex-dividend date of October 31, 2022, the Convertible Senior Notes were convertible at a price of $43.46, which is equivalent to a conversion rate of approximately 23.0116 shares of common stock per $1,000 principal amount.

2048 Convertible Senior Notes

Accounting for Convertible Senior Notes — Upon issuance in 2018, the Convertible Senior Notes were separated into liability and equity components for accounting purposes. The carrying amounts of the liability component was initially calculated by measuring the fair value of similar liabilities that do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Convertible Senior Notes. This difference represented the debt discount that was amortized to interest expense over seven years, which was determined to be the expected life of the Convertible Senior Notes, using the effective interest rate method. The equity component was recorded in additional paid-in capital and was not remeasured as it continued to meet the conditions for equity classification.

Following the adoption of ASU 2020-06 as of January 1, 2022, the Company no longer records the conversion feature of its convertible senior notes in equity. Instead, the Company combined the previously separated equity component with the liability component, which together is now classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. As a result of the provisions of the amended guidance, the Company recorded a $100 million decrease to additional paid-in capital, a $57 million decrease to debt discount, a $57 million increase to retained earnings and a $14 million decrease to long-term deferred tax liabilities. For more information on the adoption of ASU 2020-06, refer to Note 2, Summary of Significant Accounting Policies.

Modification to Convertible Senior Notes — On February 22, 2022, the Company irrevocably elected to eliminate the right to settle conversions only in shares of the Company's common stock, such that any conversion after such date, the Company will pay cash per $1,000 principal amount and will settle in cash or a combination of cash and the Company's common stock for the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount.

Convertible Senior Notes Features — As of September 30, 2022, the Convertible Senior Notes were convertible, under certain circumstances, into cash or a combination of cash and the Company’s common stock at a price of $43.77 per common share, which is equivalent to a conversion rate of approximately 22.8467 shares of common stock per $1,000 principal amount of Convertible Senior Notes. The Convertible Senior Notes mature on June 1, 2048, unless earlier repurchased, redeemed or converted in accordance with their terms. The Convertible Senior notes are convertible at the option of the holders under certain circumstances. Prior to the close of business on the business day immediately preceding December 1, 2024, the Convertible

Senior Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter during specified periods as follows:

•from December 1, 2024 until the close of business on the second scheduled trading day immediately before June 1, 2025; and

•from December 1, 2047 until the close of business on the second scheduled trading day immediately before the maturity date

The following table details the interest expense recorded in connection with the Convertible Senior Notes, due 2048:


	Three months ended September 30,						Nine months ended September 30,
($ In millions)	2022			2021			2022			2021
Contractual interest expense	$	4		$	4		$	12		$	12
Amortization of discount and deferred finance costs	—			4			1			12
Total	$	4		$	8		$	13		$	24

Effective Interest Rate	0.76		%	1.34		%	2.28		%	3.99		%

Receivables Securitization Facilities

On February 9, 2022, the Company entered into amendments to its existing Repurchase Facility to, among other things, (i) increase the size of the facility from $75 million to $150 million and (ii) replace LIBOR with term SOFR as the benchmark for the pricing rate. The Repurchase Facility has no commitment fee and borrowings will be drawn at SOFR + 1.30%. On July 26, 2022, the Company renewed its existing Repurchase Facility to, among other things, extend the maturity date to July 26, 2023. As of September 30, 2022, there were no outstanding borrowings.

On July 26, 2022, NRG Receivables LLC, a wholly-owned indirect subsidiary of the Company, entered into an amendment to its Receivables Facility dated September 22, 2020 with a group of conduit lenders and banks and Royal Bank of Canada, as Administrative Agent to, among other things, (i) extend the scheduled termination date by one year, (ii) increase the aggregate commitments from $800 million to $1.0 billion, (iii) increase the letter of credit sublimit to equal the aggregate commitments, (iv) replace LIBOR with Term SOFR as the benchmark for borrowings and (v) add new originators. The weighted average interest rate related to usage under the Receivables Facility as of September 30, 2022 was 0.836%. As of September 30, 2022, there were no outstanding borrowings and there were $884 million in letters of credit issued under the Receivables Facility.

Bilateral Letter of Credit Facilities

On April 29, 2022, May 27, 2022 and October 13, 2022, the Company increased the size of the facilities by $100 million, $50 million and $50 million respectively, to provide additional liquidity, allowing for the issuance of up to $675 million of letters of credit. As of September 30, 2022, $592 million was issued under these facilities.

Note 10 — 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. On June 1, 2022, the Company sold its 49% ownership in the Watson natural gas generating facility for $59 million as further described in Note 4, Acquisitions and Dispositions.

Variable Interest Entities that are Consolidated

The Company has a controlling financial interest that has been identified as a VIE under ASC 810 in NRG Receivables LLC, which has entered into financing transactions related to the Receivables Facility as further described in Note 13, Long-term Debt and Finance Leases, to the Company’s 2021 Form 10-K.

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


(In millions)	September 30, 2022		December 31, 2021
Accounts receivable and Other current assets	$	1,269	$	939




Current liabilities	153		78







Net assets	$	1,116	$	861

Note 11 — Changes in Capital Structure

As of September 30, 2022 and December 31, 2021, 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, 2021	423,547,174	(179,793,275)	243,753,899
Shares issued under LTIPs	347,365	—	347,365
Shares issued under ESPP	—	68,941	68,941
Shares repurchased	—	(12,045,068)	(12,045,068)
Balance as of September 30, 2022	423,894,539	(191,769,402)	232,125,137
Shares issued under LTIPs	2,462	—	2,462
Shares issued under ESPP	—	73,884	73,884
Shares repurchased	—	(1,817,278)	(1,817,278)
Balance as of October 31, 2022	423,897,001	(193,512,796)	230,384,205

Share Repurchases

On December 6, 2021 the Company announced that the Board of Directors has authorized $1 billion for share repurchases, as part of NRG’s capital allocation program. During 2021, $44 million of share repurchases were completed under this authorization. During the nine months ended September 30, 2022, the Company completed additional $483 million of share repurchases at an average price of $40.04. Through October 31, 2022, an additional $76 million of share repurchases were executed at an average price of $41.71 per share. In October 2022, the Board of Directors approved an additional $600 million in share repurchases.

The following repurchases have been made during the nine months ended September 30, 2022, and through October 31, 2022:


	Total number of shares and share equivalents purchased	Average price paid per share and share equivalent	Amounts paid for shares and share equivalents purchased (in millions)
2022 repurchases
Repurchases(a)	12,045,068		$	483
Equivalent shares purchased in lieu of tax withholdings on equity compensation issuances(b)	150,448		6

Total Share Repurchases during the nine months ended September 30, 2022	12,195,516	$40.07	489
Repurchases made during October(a)	1,817,278		$	76
Equivalent shares purchased in October in lieu of tax withholdings on equity compensation issuances(b)	793		—
Total Share Repurchases January 1, 2022 through October 31, 2022	14,013,587	$40.28	$	565

(a)Includes $10 million and $6 million accrued as of September 30, 2022 and October 31, 2022, respectively

(b)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 $42.75 and $41.04 for the nine months ended September 30, 2022 and for October 2022, respectively

Employee Stock Purchase Plan

The Company offers 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 occurs each April 1 and October 1. An exercise date occurs each September 30 and March 31.

NRG Common Stock Dividends

During the first quarter of 2022, NRG increased the annual dividend to $1.40 from $1.30 per share and expects to target an annual dividend growth rate of 7%-9% per share in subsequent years. A quarterly dividend of $0.35 per share was paid on the Company's common stock during the three months ended September 30, 2022. On October 21, 2022, NRG declared a quarterly dividend on the Company's common stock of $0.35 per share, payable on November 15, 2022 to stockholders of record as of November 1, 2022. Beginning in the first quarter of 2023, NRG will increase the annual dividend by 8% to $1.51 per share.

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

Note 12 — Income 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 relative performance stock units, non-vested restricted stock units, market stock units, and non-qualified stock options 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 for periods when we have net income. The Convertible Senior Notes are convertible, under certain circumstances, into cash or combination of cash and Company’s common stock. Prior to adoption of ASU 2020-06, there was no dilutive effect for the Convertible Senior Notes due to the Company’s expectation to settle the liability in cash. Upon adoption of ASU 2020-06, on January 1, 2022, the Company is including the potential share settlements, if any, in the denominator for purposes of computing diluted income per share under the if converted method for periods when we have net income. The potential shares settlements are calculated as the excess of the Company's conversion obligation over the aggregate principal amount (which will be settled in cash), divided by the average share price for the period. For the periods ended September 30, 2022, there was no dilutive effect for the Convertible Senior Notes since there were no potential share settlements for these periods.

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)	2022		2021		2022		2021
Basic and diluted income per share:
Net income	$	67	$	1,618	$	2,316	$	2,614
Weighted average number of common shares outstanding - basic and diluted	235		245		238		245
Income per weighted average common share — basic and diluted	$	0.29	$	6.60	$	9.73	$	10.67

As of September 30, 2022, and 2021, 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 13 — Segment Reporting

The Company’s segment structure reflects how management currently makes financial decisions and allocates resources. The Company manages its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus.

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, 2022
(In millions)	Texas		East		West/Services/Other		Corporate		Eliminations		Total
Revenue	$	3,149	$	4,180	$	1,169	$	—	$	12	$	8,510
Depreciation and amortization	77		39		22		7		—		145
Impairment losses	—		43		—		—		—		43

Gain on sale of assets	22		—		—		—		—		22
Equity in (losses)/earnings of unconsolidated affiliates	(1)		—		12		—		—		11

(Loss)/Income before income taxes	(475)		555		106		(103)		—		83



Net (loss)/income	$	(475)	$	555	$	88	$	(101)	$	—	$	67


	Three months ended September 30, 2021
(In millions)	Texas		East		West/Services/Other		Corporate		Eliminations		Total
Revenue	$	2,635	$	3,077	$	883	$	—	$	14	$	6,609
Depreciation and amortization	84		87		21		7		—		199



Equity in (losses)/earnings of unconsolidated affiliates	(2)		—		17		—		—		15

Income/(loss) before income taxes	251		1,980		140		(208)		—		2,163



Net income/(loss)	$	251	$	1,980	$	126	$	(739)	$	—	$	1,618



	Nine months ended September 30, 2022
(In millions)	Texas		East		West/Services/Other		Corporate		Eliminations		Total
Revenue	$	7,868	$	12,414	$	3,377	$	—	$	29	$	23,688
Depreciation and amortization	230		167		65		23		—		485
Impairment losses	—		198		—		—		—		198

Gain/(loss) on sale of assets	10		—		43		(2)		—		51
Equity in (losses)/earnings of unconsolidated affiliates	(2)		—		2		—		—		—


Income/(loss) before income taxes	1,064		2,085		259		(353)		—		3,055




Net income/(loss)	$	1,064	$	2,086	$	231	$	(1,065)	$	—	$	2,316



	Nine months ended September 30, 2021
(In millions)	Texas		East		West/Services/Other		Corporate		Eliminations		Total
Revenue	$	8,362	$	9,002	$	2,564	$	—	$	15	$	19,943
Depreciation and amortization	245		237		66		21		—		569
Impairment losses	—		306		—		—		—		306

Gain on sale of assets	—		—		17		—		—		17
Equity in (losses)/earnings of unconsolidated affiliates	(3)		—		26		—		—		23

Income/(loss) before income taxes	600		3,119		271		(536)		—		3,454



Net income/(loss)	$	600	$	3,119	$	239	$	(1,344)	$	—	$	2,614

Note 14 — Income Taxes

Effective Income Tax Rate

The income tax provision consisted of the following:

Three months ended September 30,

Nine months ended September 30,