Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis below has been organized as follows:

• Executive summary, including introduction and overview, business strategy, and changes to the business environment during the period, including environmental and regulatory matters;

• Results of operations;

• Liquidity and capital resources including liquidity position, financial condition addressing credit ratings, material cash requirements and commitments, and other obligations; and

• Known trends that may affect NRG's results of operations and financial condition in the future.

As you read this discussion and analysis, refer to NRG's condensed consolidated statements of operations to this Form 10-Q, which present the results of operations for the three and nine months ended September 30, 2023 and 2022. Also refer to NRG's 2022 Form 10-K, which includes detailed discussions of various items impacting the Company's business, results of operations and financial condition, including: General section; Strategy section; Business Overview section, including how regulation, weather, and other factors affect NRG's business; and Critical Accounting Estimates section.

Executive Summary

Introduction and Overview

NRG Energy, Inc., or NRG or the Company, is a leading energy, smart home and services company fueled by market-leading brands, proprietary technologies, and complementary sales channels. Across the United States and Canada, NRG delivers innovative, sustainable solutions, predominately under brand names such as NRG, Reliant, Direct Energy, Green Mountain Energy and Vivint, while also advocating for competitive energy markets and customer choice. The Company has a customer base that includes approximately 7.5 million residential consumers in addition to commercial, industrial, and wholesale customers, supported by approximately 15 GW of generation as of September 30, 2023.

Strategy

NRG's strategy is to maximize stockholder value through the safe production and sale of reliable electricity and natural gas to its customers in the markets it serves, while also providing innovative home solutions to the end-use energy or service consumer. This strategy is intended to enable the Company to optimize the integrated model to generate stable and predictable cash flow, significantly strengthen earnings and cost competitiveness, and lower risk and volatility. Sustainability is a philosophy that underpins and facilitates value creation across NRG's business for its stakeholders. It is an integral piece of NRG's strategy and ties directly to the Company's business success, reduced risks and enhanced reputation.

To effectuate the Company’s strategy, NRG is focused on: (i) serving the energy needs of end-use residential, commercial and industrial, and wholesale counterparties in competitive markets and optimizing on cross selling opportunities through its multiple brands and channels; (ii) offering a variety of energy products and services, including renewable energy solutions and smart home products and services that are differentiated by innovative features, premium service, integrated platforms, sustainability, and loyalty/affinity programs; (iii) excellence in operating performance of its assets; (iv) optimal hedging of its portfolio; and (v) engaging in disciplined and transparent capital allocation.

Energy Regulatory Matters

The Company’s regulatory matters are described in the Company’s 2022 Form 10-K in Item 1, Business — Regulatory Matters. These matters have been updated below and in Note 17, Regulatory Matters.

As participants in wholesale and retail energy markets and owners and operators of power plants, certain NRG entities are subject to regulation by various federal and state government agencies. These include the CFTC, FERC, NRC and the PUCT, as well as other public utility commissions in certain states where NRG's generation or distributed generation assets are located. In addition, NRG is subject to the market rules, procedures and protocols of the various ISO and RTO markets in which it participates. Likewise, certain NRG entities participating in the retail markets are subject to rules and regulations established by the states and provinces in which NRG entities are licensed to sell at retail. NRG must also comply with the mandatory reliability requirements imposed by NERC and the regional reliability entities in the regions where NRG operates.

NRG's operations within the ERCOT footprint are not subject to rate regulation by FERC, as they are deemed to operate solely within the ERCOT market and not in interstate commerce. These operations are subject to regulation by the PUCT, as well as to regulation by the NRC with respect to NRG's ownership interest in STP.

Regional Regulatory Developments

NRG is affected by rule/tariff changes that occur in the ISO regions. For further discussion on regulatory developments, see Note 17, Regulatory Matters.

Texas

Public Utility Commission of Texas’ Actions with Respect to Wholesale Pricing and Market Design — The PUCT continues to analyze and implement multiple options for promoting increased reliability in the wholesale electric market, including the adoption of a reliability standard for resource adequacy and market-based mechanisms to achieve this standard. During the 88th Regular Session, the Texas Legislature authorized deployment of the Performance Credit Mechanism ("PCM"), which will measure real-time contribution to system reliability and provide compensation for resources to be available, subject to certain "guardrails" such as an annual net cost cap, as part of its adoption of the PUCT Sunset Bill (House Bill 1500). The Texas Legislature also directed the PUCT to implement additional market design changes such as the creation of a new ancillary service called Dispatchable Reliability Reserve Service ("DRRS") to further increase ERCOT's capability to manage net load variability and firming requirements for new generation resources which penalize poor performance during periods of low grid reserves. DRRS is expected to be implemented in the fourth quarter of 2024. Additionally, through Senate Bill 2627, the Texas Legislature created the Texas Energy Fund, subject to voter approval in November 2023, which will provide grants and low-interest loans to incentivize the development of more dispatchable generation and smaller backup generation in ERCOT.

Operating Reserve Demand Curve ("ORDC") — On August 3, 2023, the PUCT approved implementation of an enhancement to the ORDC as a bridge solution that was recommended by the ERCOT Technical Advisory Committee and the ERCOT board of directors. The ORDC enhancement will install price floors of $10 and $20 at reserve levels of 7,000 MW and 6,500 MW or below, respectively. ERCOT is expected to complete implementation in the fourth quarter of 2023.

Ruling on Pricing during Winter Storm Uri — On March 17, 2023, the Third Court of Appeals issued a ruling in Luminant Energy Co. v. PUCT, which is an appeal relating to the validity of two orders issued by the PUCT on February 15 and 16, 2021, respectively, governing scarcity pricing in the ERCOT wholesale electricity market during Winter Storm Uri. The Third Court found that the PUCT exceeded its statutory authority by ordering the market price of energy to be set at the high system wide offer cap due to scarcity conditions as a result of firm load shed occurring in ERCOT. The Third Court reversed the PUCT's orders and remanded the case. On March 23, 2023, the PUCT filed a petition for review to the Supreme Court of Texas seeking reversal of the Third Court's decision, which was granted on September 29, 2023. The Court has requested briefing on the merits and has set oral arguments for this case on January 30, 2024. The outcome of this appeal could potentially require a repricing of the market prices during the subject time period.

Voluntary Mitigation Plan ("VMP") Changes — On March 13, 2023, the PUCT Staff determined that a portion of NRG's VMP should be terminated due to the increase in procurement of ancillary services by ERCOT, specifically non-spin reserve services, following Winter Storm Uri. As such, PUCT Staff terminated part of the VMP for NRG which provides protection from wholesale market power abuse accusations related to offers for ancillary services. NRG agreed with these changes to the VMP. At the March 23, 2023 open meeting, the PUCT approved the amended VMP. Pursuant to amendments to Public Utility Regulation Act § 15.023 adopted during the 88th Legislative Session, NRG's VMP will be reviewed by the PUCT within two years or, in the event a wholesale market design change is made, not later than the 90th day after the implementation date of such change.

ERCOT Request for Proposals for Winter Capacity — On October 2, 2023, ERCOT issued a Request for Proposals for Capacity for Winter 2023-2024. Proposals are due in early November, and ERCOT will issue awards later in November. The contracts, if awarded, will start between December 1, 2023 and January 9, 2024 and will run until February 29, 2024. The costs of procurement of winter capacity, if any, will be charged to Qualified Scheduling Entities on an hourly load-ratio share basis. Increases in costs assessed to LSEs are expected to be included in customer pricing.

PJM

Revisions to PJM Local Deliverability Area Reliability Requirement — The Base Residual Auction for the 2024/2025 delivery year commenced on December 7, 2022 and closed on December 13, 2022. On December 19, 2022, PJM announced that it would delay the publication of the auction results. On December 23, 2022, PJM made a filing at FERC to revise the definition of Locational Deliverability Area Reliability Requirement in the Tariff. This would allow PJM to exclude certain resources from the calculation of the Local Deliverability Area Reliability Requirement. On February 21, 2023, FERC accepted PJM's filing. Multiple parties, including NRG, filed for rehearing. Rehearing was denied by operation of law, and multiple parties, including the Company, filed appeals to the Third Circuit Court of Appeals. The price of the auction cleared significantly lower as a result of the PJM Tariff change.

Capacity Performance Penalties and Bonuses from Winter Storm Elliott — PJM experienced approximately 23 hours of Capacity Performance events from December 23-24, 2022 across PJM's entire footprint. The Company is subject to penalty and

bonus payments related to the events. On April 3, 2023, FERC approved PJM's request to allow Winter Storm Elliott penalty payments to be spread over 9 months (with interest) and allow future penalties to have a 9 month window to be satisfied without interest. Multiple generators filed various complaints against PJM at FERC alleging that PJM violated its Tariff in, among other things, the manner in which it operated the system during Winter Storm Elliott and the resulting assessment of capacity performance penalties. On June 5, 2023, FERC issued an order setting the various complaints for settlement. A settlement in principle has been reached and was filed with FERC on September 29, 2023. FERC also granted a waiver allowing PJM to defer collection of the remaining unbilled non-performance charges and suspended remaining bonus payments associated with Winter Storm Elliott until FERC decides on the merits of the settlement. The settling parties requested that FERC approve the settlement without modification or condition no later than December 29, 2023.

FERC Delays PJM Base Residual Auctions — On April 11, 2023, PJM filed to delay the Base Residual Auctions for the 2025/2026 to 2028/2029 delivery years. On October 13, 2023, PJM made two filings proposing to develop market reforms to improve the operation of the capacity market through changes to the Market Seller Offer Cap rules, changes to PJM's resource adequacy risk modeling and capacity accreditation processes, and changes to capacity performance enhancements. PJM proposes to restart the auctions after FERC's ruling on these market changes. On June 9, 2023, FERC issued an order approving the delay in the Base Residual Auctions and required PJM to make a compliance filing that will specify future auction dates. On June 26, 2023, PJM made its compliance filing setting the auction for June 2024 for the 2025/2026 delivery year through the 2028/2029 delivery year.

PJM Files to Make Changes to the Performance Assessment Interval Trigger — On May 30, 2023, PJM filed proposed tariff revisions at FERC that narrow the definition of Emergency Actions used to determine Performance Assessment Intervals ("PAIs"). On July 28, 2023, FERC accepted the tariff revisions, and PJM made its compliance filing on August 28, 2023. The new definition would decrease the instances of when PAIs would occur and therefore decrease the instances of when capacity performance penalties are assessed.

Independent Market Monitor Market Seller Offer Cap Complaint — On March 18, 2021, finding that the calculation of the default Market Seller Offer Cap was unjust and unreasonable, FERC issued an Order, which permitted the PJM May 2021 capacity auction for the 2022/2023 delivery year to continue under the existing rules and set a procedural schedule for parties to file briefs with possible solutions. On September 2, 2021, FERC issued an order in response to a complaint filed by the PJM Independent Market Monitor's proposal, which eliminated the Cost of New Entry-based Market Seller Offer Cap, implemented a limited default cap for certain asset classes based on going-forward costs and provided for unit specific cost review by the Independent Market Monitor for all other non-zero offers into the auctions. On October 4, 2021, as required by the Order, PJM submitted its compliance tariff and certain parties filed a motion for rehearing, which was denied by operation of law. On February 18, 2022, FERC addressed the arguments raised on rehearing and rejected the rehearing requests. Multiple parties filed appeals at the Court of Appeals for the D.C. Circuit, and on August 15, 2023, the Court denied the petitions for review.

California

California Resource Adequacy Proceedings — As part of the Integrated Resource Procurement docket, the CPUC is requiring that all LSEs procure a pro rata share of 15.5 GW of new non-fossil resource adequacy from 2023 to 2026. A June 2023 decision in the resource adequacy ("RA") docket keeps the reserve margin at 17 percent in 2024 and 2025, but extends the CPUC orders for the state's major investor-owned utilities to procure additional summer reliability resources through 2025, creating an "effective" reserve margin of 21 to 23.5 percent. SB846 establishes a pathway for PG&E's Diablo Canyon Nuclear power plant, which units are scheduled to close in 2024 and 2025, to remain open for at least five additional years. A CPUC decision expected by the end of 2023 will determine how the RA from the extension will be treated. Finally, the CPUC jurisdictional retail providers will be required to procure RA that meets their hourly load shape beginning in 2025. The result of these changes will likely keep RA prices elevated through 2024, and if LSEs cannot meet their RA obligations, penalties and restrictions on serving new customers may be issued.

Environmental Regulatory Matters

NRG is subject to numerous environmental laws in the development, construction, ownership and operation of power plants. These laws generally require that governmental permits and approvals be obtained before construction and maintained during operation of power plants. Federal and state environmental laws historically have become more stringent over time. Future laws may require the addition of emissions controls or other environmental controls or impose restrictions on the Company's operations. Complying with environmental laws often involves specialized human resources and significant capital and operating expenses, as well as occasionally curtailing operations. NRG decides to invest capital for environmental controls based on the relative certainty of the requirements, an evaluation of compliance options, and the expected economic returns on capital.

A number of regulations that affect the Company have been revised recently and continue to be revised by the EPA, including ash storage and disposal requirements, NAAQS revisions and implementation and effluent limitation guidelines.

NRG will evaluate the impact of these regulations as they are revised but cannot fully predict the impact of each until anticipated revisions and legal challenges are resolved. The Company’s environmental matters are described in the Company’s 2022 Form 10-K in Item 1, Business - Environmental Matters and Item 1A, Risk Factors. These matters have been updated in Note 18, Environmental Matters, to the condensed consolidated financial statements of this Form 10-Q and as follows.

Air

The CAA and related regulations (as well as similar state and local requirements) have the potential to affect air emissions, operating practices and pollution control equipment required at power plants. Under the CAA, the EPA sets NAAQS for certain pollutants including SO2, ozone, and PM2.5. Many of the Company's facilities are located in or near areas that are classified by the EPA as not achieving certain NAAQS (non-attainment areas). The relevant NAAQS may become more stringent. In January 2023, the EPA proposed increasing the stringency of the PM2.5 NAAQS. The Company maintains a comprehensive compliance strategy to address continuing and new requirements. Complying with increasingly stringent air regulations could require the installation of additional emissions control equipment at some NRG facilities or retiring of units if installing such controls is not economic. Significant changes to air regulatory programs affecting the Company are described below.

CPP/ACE Rules — The attention in recent years on GHG emissions has resulted in federal and state regulations. In October 2015, the EPA promulgated the CPP, addressing GHG emissions from existing EGUs. On February 9, 2016, the U.S. Supreme Court stayed the CPP. In July 2019, EPA promulgated the ACE rule, which rescinded the CPP, which had sought to broadly regulate CO2 emissions from the power sector. On January 19, 2021, the D.C. Circuit vacated the ACE rule (but on February 22, 2021, at the EPA's request, stayed the issuance of the portion of the mandate that would vacate the repeal of the CPP). On June 30, 2022, the U.S. Supreme Court held that the "generation shifting" approach in the CPP exceeded the powers granted to the EPA by Congress. The Court did not address the related issues of whether the EPA may adopt only measures applied at each source. On May 23, 2023, the EPA proposed significantly revising the manner in which new and existing EGU's GHG emissions should be regulated including using hydrogen as a fuel, capturing and storing/sequestering CO2 and requiring new units to be more efficient. The EPA has stated that it intends to finalize these revisions in 2024. The Company expects that the final rule will be challenged in the courts and accordingly uncertain for several years.

Cross-State Air Pollution Rule ("CSAPR") — On March 15, 2023, the EPA signed and released a prepublication of a final rule that sought to significantly revise the CSAPR to address the good-neighbor obligations of the 2015 ozone NAAQS for 23 states after earlier having disapproved numerous state plans to address the issue. Several states, including Texas, challenged the EPA's disapproval of their state plans. On May 1, 2023, the United States Court of Appeals for the Fifth Circuit stayed the EPA's disapproval of Texas' and Louisiana's state plans, which disapprovals are a condition precedent to the EPA imposing its plan on Texas and Louisiana. Several other states are also similarly situated because of similar stays. Nonetheless, on June 5, 2023, the EPA published this rule in the Federal Register. On July 31, 2023, the EPA promulgated an interim final rule that addresses the various judicial orders that have stayed several State-Implementation-Plan disapprovals by limiting the effectiveness of certain requirements of the final rule promulgated on June 5, 2023 in Texas and five other states. The final rule decreases, over time, the ozone-season NOx allowances allocated to generators in the states not affected by the judicial stays beginning this summer by assuming that participants in this cap-and-trade program had or would optimize existing NOx controls and later install additional NOx controls. The Company cannot predict the outcome of the legal challenges to the: (i) various state disapprovals; (ii) the final rule promulgated on June 5, 2023; and (iii) the interim final rule promulgated on July 31, 2023 that seeks to address the judicial orders.

Regional Haze Proposal — On May 2023, the EPA proposed to withdraw the existing Texas Sulfur Dioxide Trading Program and replace it with unit-specific SO2 limits for 12 units in Texas to address requirements to improve visibility at National Parks and Wilderness areas. If finalized as proposed, the rule would result in more stringent SO2 limits for two of the Company's coal-fired units in Texas. The Company cannot predict the outcome of this proposal.

Byproducts, Wastes, Hazardous Materials and Contamination

In April 2015, the EPA finalized the rule regulating byproducts of coal combustion (e.g., ash and gypsum) as solid wastes under the RCRA. On July 30, 2018, the EPA promulgated a rule that amended the ash rule by extending some of the deadlines and providing more flexibility for compliance. On August 21, 2018, the D.C. Circuit found, among other things, that the EPA had not adequately regulated unlined ponds and legacy surface impoundments. On August 28, 2020, the EPA finalized "A Holistic Approach to Closure Part A: Deadline to Initiate Closure," which amended the April 2015 Rule to address the August 2018 D.C. Circuit decision and extend some of the deadlines. On November 12, 2020, the EPA finalized "A Holistic Approach to Closure Part B: Alternative Demonstration for Unlined Surface Impoundments," which further amended the April 2015 Rule to, among other things, provide procedures for requesting approval to operate existing ash impoundments with an alternate liner. On May 23, 2023, the EPA proposed establishing requirements for: (i) inactive (or legacy) surface impoundments at inactive facilities and (ii) all CCR management units (regardless of how or when the CCR was placed) at regulated facilities. NRG anticipates further rulemaking related to the Federal Permit Program and legacy surface impoundments.

Domestic Site Remediation Matters

Under certain federal, state and local environmental laws, a current or previous owner or operator of a facility, including an electric generating facility, may be required to investigate and remediate releases or threatened releases of hazardous or toxic substances or petroleum products. NRG may be responsible for property damage, personal injury and investigation and remediation costs incurred by a party in connection with hazardous material releases or threatened releases. These laws impose liability without regard to whether the owner knew of or caused the presence of the hazardous substances, and the courts have interpreted liability under such laws to be strict (without fault) and joint and several. Cleanup obligations can often be triggered during the closure or decommissioning of a facility, in addition to spills during its operations.

Nuclear Waste — The federal government's program to construct a nuclear waste repository at Yucca Mountain, Nevada was discontinued in 2010. Since 1998, the U.S. DOE has been in default of the federal government's obligations to begin accepting spent nuclear fuel, or SNF, and high-level radioactive waste, or HLW, under the Nuclear Waste Policy Act. Owners of nuclear plants, including the owners of STP, had been required to enter into contracts setting out the obligations of the owners and the U.S. DOE, including the fees to be paid by the owners for the U.S. DOE's services to license a spent fuel repository. Effective May 16, 2014, the U.S. DOE stopped collecting the fees.

On February 5, 2013, STPNOC entered into a settlement agreement with the U.S. DOE for payment of damages relating to the U.S. DOE's failure to accept SNF and HLW under the Nuclear Waste Policy Act through December 31, 2013, which has been extended four times through addendums to cover payments through December 31, 2025. There are no facilities for the reprocessing or permanent disposal of SNF currently in operation in the U.S., nor has the NRC licensed any such facilities. STPNOC currently stores all SNF generated by its nuclear generating facilities on-site. STPNOC plans to continue to assert claims against the U.S. DOE for damages relating to the U.S. DOE's failure to accept SNF and HLW.

Under the federal Low-Level Radioactive Waste Policy Act of 1980, as amended in 1985, the state of Texas is required to provide, either on its own or jointly with other states in a compact, for the disposal of all low-level radioactive waste generated within the state. Texas is currently in a compact with the state of Vermont, and the compact low-level waste facility located in Andrews County in Texas has been operational since 2012.

Water

The Company is required under the CWA to comply with intake and discharge requirements, requirements for technological controls and operating practices. As with air quality regulations, federal and state water regulations have become more stringent and imposed new requirements.

Effluent Limitations Guidelines — In November 2015, the EPA revised the ELG for Steam Electric Generating Facilities, which imposed more stringent requirements (as individual permits were renewed) for wastewater streams from FGD, fly ash, bottom ash and flue gas mercury control. On September 18, 2017, the EPA promulgated a final rule that, among other things, postponed the compliance dates to preserve the status quo for FGD wastewater and bottom ash transport water by two years to November 2020 until the EPA amended the rule. On October 13, 2020, the EPA amended the 2015 ELG rule by: (i) altering the stringency of certain limits for FGD wastewater; (ii) relaxing the zero-discharge requirement for bottom ash transport water; and (iii) changing several deadlines. In 2021, the EPA announced that it was initiating a new rulemaking to evaluate revising the ELG rule but keeping the existing rule (as amended in 2020) in place. On March 29, 2023, the EPA proposed revisions to the ELG and sought comments, which the EPA is currently analyzing. In October 2021, NRG informed its regulators that the Company intends to comply with the ELG by ceasing combustion of coal by the end of 2028 at its domestic coal units outside of Texas, and installing appropriate controls by the end of 2025 at its two plants that have coal-fired units in Texas.

Regional Environmental Developments

Ash Regulation in Illinois — On July 30, 2019, Illinois enacted legislation that required the state to promulgate regulations regarding coal ash at surface impoundments. On April 15, 2021, the state promulgated the implementing regulation, which became effective on April 21, 2021. NRG has applied for initial operating permits and has begun to apply for construction permits (for closure) as required by the regulation.

Houston Nonattainment for 2008 Ozone Standard — During the fourth quarter of 2022, the EPA changed the Houston area's classification from Serious to Severe nonattainment for the 2008 Ozone Standard. Accordingly, Texas is required to develop a new control strategy and submit it to the EPA.

Significant Events

The following significant events have occurred during 2023 as further described within this Management's Discussion and Analysis and the condensed consolidated financial statements:

Sale of the 44% equity interest in STP

On November 1, 2023, the Company closed on the previously announced sale of its 44% equity interest in STP to Constellation. Proceeds of $1.75 billion were reduced by preliminary working capital and other adjustments of $96 million, resulting in net proceeds of $1.654 billion. For further discussion, see Note 4, Acquisitions and Dispositions.

Vivint Smart Home Acquisition

On March 10, 2023, the Company completed the acquisition of Vivint Smart Home. The Company paid $12 per share, or $2.6 billion in cash. For further discussion, see Note 4, Acquisitions and Dispositions.

Retirement of Joliet

During the second quarter of 2022, the Company announced the planned retirement of the Joliet generating facility in 2023. On September 1, 2023, the Joliet generating facility fully retired.

Sale of Gregory

On October 2, 2023, the Company closed on the sale of its 100% ownership in the Gregory natural gas generating facility in Texas for $102 million.

Series A Preferred Stock

On March 9, 2023, the Company issued 650,000 shares of 10.25% Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock. The proceeds, net of issuance costs, of $635 million were used to partially fund the Vivint Smart Home acquisition. For further discussion, see Note 11, Changes in Capital Structure.

Issuance of 2033 Senior Secured First Lien Notes

On March 9, 2023, the Company issued $740 million of aggregate principal amount of 7.000% senior secured first lien notes due 2033. The net proceeds of $724 million, net of issuance costs, were used to partially fund the Vivint Smart Home acquisition. For further discussion, see Note 9, Long-term Debt and Finance Leases.

Sale of Astoria

On January 6, 2023, NRG closed on the sale of land and related assets from the Astoria site, within the East region of operations, for initial proceeds of $212 million, subject to transaction fees of $3 million and certain indemnifications. NRG recognized a gain on the sale of $199 million. As part of the transaction, NRG entered into an agreement to lease the land back for the purpose of operating the Astoria gas turbines. The lease agreement is expected to terminate by the end of the year after decommissioning is complete.

W.A. Parish Return to Service

In May 2022, W.A. Parish Unit 8 came offline as a result of damage to the steam turbine/generator. The extended forced outage ended in September 2023 and the unit has returned to service.

Share Repurchases

In June 2023, NRG revised its long-term capital allocation policy to target allocating approximately 80% of cash available for allocation after debt reduction to be returned to shareholders. As part of the revised capital allocation framework, the Company announced an increase to its share repurchase authorization to $2.7 billion, to be executed through 2025. During the three months ended September 30, 2023, the Company completed $50 million of share repurchases at an average price of $37.82 under the $2.7 billion authorization. Through October 31, 2023, an additional $150 million of share repurchases were executed at an average price of $40.17 per share. Following the closing of the STP sale on November 1, 2023, the Company intends to execute a $950 million accelerated share repurchase program.

Dividend Increase

In the first quarter of 2023, NRG increased the annual common stock dividend to $1.51 from $1.40 per share, representing an 8% increase from 2022. Beginning in the first quarter of 2024, NRG will increase the annual dividend by 8% to $1.63 per share. The Company expects to target an annual dividend growth rate of 7-9% per share in subsequent years.

Renewable Power Purchase Agreements

The Company's strategy is to procure mid to long-term generation through power purchase agreements. As of September 30, 2023, NRG has entered into Renewable PPAs totaling approximately 1.9 GW with third-party project developers and other counterparties, of which approximately 1.1 GW are operational. The average tenure of these agreements is eleven years. The Company expects to continue evaluating and executing similar agreements that support the needs of the business. The total GW procured through Renewable PPAs may be impacted by contract terminations when they occur.

Trends Affecting Results of Operations and Future Business Performance

The Company’s trends are described in the Company’s 2022 Form 10-K in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Business Environment.

Changes in Accounting Standards

See Note 2, Summary of Significant Accounting Policies, for a discussion of recent accounting developments.

Consolidated Results of Operations

The following table provides selected financial information for the Company:

			Three months ended September 30,																		Nine months ended September 30,
(In millions)			2023						2022						Change						2023						2022						Change
Revenue
Retail revenue			$	7,521					$	7,858					$	(337)					$	20,911					$	22,379					$	(1,468)
Energy revenue(a)			261						450						(189)						472						1,034						(562)
Capacity revenue(a)			59						38						21						150						244						(94)
Mark-to-market for economic hedging activities			(70)						33						(103)						96						(248)						344
Contract amortization			(5)						(6)						1						(24)						(28)						4
Other revenues(a)(b)			180						137						43						411						307						104
Total revenue			7,946						8,510						(564)						22,016						23,688						(1,672)
Operating Costs and Expenses
Cost of fuel			400						742						342						790						1,603						813
Purchased energy and other cost of sales(c)			5,599						6,494						895						15,883						18,757						2,874
Mark-to-market for economic hedging activities			(17)						122						139						2,029						(3,155)						(5,184)
Contract and emissions credit amortization(c)			(12)						(16)						(4)						78						87						9
Operations and maintenance			336						359						23						1,080						1,049						(31)
Other cost of operations			115						101						(14)						301						278						(23)
Cost of operations (excluding depreciation and amortization shown below)			6,421						7,802						1,381						20,161						18,619						(1,542)
Depreciation and amortization			308						145						(163)						813						485						(328)
Impairment losses			—						43						43						—						198						198
Selling, general and administrative costs			638						378						(260)						1,586						1,076						(510)
Acquisition-related transaction and integration costs			18						8						(10)						111						26						(85)
Total operating costs and expenses			7,385						8,376						991						22,671						20,404						(2,267)
Gain on sale of assets			—						22						(22)						202						51						151
Operating Income/(Loss)			561						156						405						(453)						3,335						(3,788)
Other Income/(Expense)
Equity in earnings of unconsolidated affiliates			6						11						(5)						16						—						16
Other income, net			14						21						(7)						43						33						10
Interest expense			(173)						(105)						(68)						(472)						(313)						(159)
Total other expense			(153)						(73)						(80)						(413)						(280)						(133)
Income/(Loss) Before Income Taxes			408						83						325						(866)						3,055						(3,921)
Income tax expense/(benefit)			65						16						(49)						(182)						739						921
Net Income/(Loss)			$	343					$	67					$	276					$	(684)					$	2,316					$	(3,000)

(a)Includes gains and losses from financially settled transactions

(b)Includes trading gains and losses and ancillary revenues

(c)Includes amortization of SO2 and NOx credits and excludes amortization of RGGI credits

Management’s discussion of the results of operations for the three months ended September 30, 2023 and 2022

Electricity Prices

The following table summarizes average on peak power prices for each of the major markets in which NRG operates for the three months ended September 30, 2023 and 2022. The average on-peak power prices increased in Texas due to record loads, which were impacted by weather. East and West average on-peak power prices decreased for the three months ended September 30, 2023 as compared to the same period in 2022 as a result of lower natural gas prices.

			Average on Peak Power Price ($/MWh)
			Three months ended September 30,
Region			2023						2022						Change %
Texas
ERCOT - Houston(a)			$	183.49					$	128.61					43		%
ERCOT - North(a)			181.72						131.62						38		%
East
NY J/NYC(b)			$	40.86					$	109.43					(63)		%
NEPOOL(b)			40.41						99.14						(59)		%
COMED (PJM)(b)			39.38						101.00						(61)		%
PJM West Hub(b)			43.27						110.99						(61)		%
West
MISO - Louisiana Hub(b)			$	38.53					$	90.32					(57)		%
CAISO - SP15(b)			67.59						110.03						(39)		%

(a)Average on peak power prices based on real time settlement prices as published by the respective ISOs

(b)Average on peak power prices based on day ahead settlement prices as published by the respective ISOs

Natural Gas Prices

The following table summarizes the average Henry Hub natural gas price for the three months ended September 30, 2023 and 2022:

			Three months ended September 30,
			2023						2022						Change %
($/MMBtu)			$	2.55					$	8.20					(69)		%

Gross Margin

The Company calculates gross margin in order to evaluate operating performance as revenues less cost of fuel, purchased energy and other costs of sales, mark-to-market for economic hedging activities, contract and emissions credit amortization and depreciation and amortization.

Economic Gross Margin

In addition to gross margin, the Company evaluates its operating performance using the measure of economic gross margin, which is not a GAAP measure and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report. Economic gross margin should be viewed as a supplement to and not a substitute for the Company's presentation of gross margin, which is the most directly comparable GAAP measure. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as the sum of retail revenue, energy revenue, capacity revenue and other revenue, less cost of fuel, purchased energy and other cost of sales. Economic gross margin does not include mark-to-market gains or losses on economic hedging activities, contract amortization, emissions credit amortization, depreciation and amortization, operations and maintenance, or other cost of operations.

The following tables present the composition and reconciliation of gross margin and economic gross margin for the three months ended September 30, 2023 and 2022:

			Three months ended September 30, 2023
($ In millions)			Texas						East						West/Services/Other						Vivint Smart Home									Corporate/Eliminations						Total
Retail revenue			$	3,489					$	2,633					$	922					$	478								$	(1)					$	7,521
Energy revenue			51						152						59						—									(1)						261
Capacity revenue			—						64						(4)						—									(1)						59
Mark-to-market for economic hedging activities			—						(60)						(10)						—									—						(70)
Contract amortization			—						(6)						1						—									—						(5)
Other revenue(a)			146						26						10						—									(2)						180
Total revenue			3,686						2,809						978						478									(5)						7,946
Cost of fuel			(300)						(64)						(36)						—									—						(400)
Purchased energy and other cost of sales(b)(c)(d)			(2,359)						(2,385)						(808)						(50)									3						(5,599)
Mark-to-market for economic hedging activities			(42)						244						(185)						—									—						17
Contract and emissions credit amortization			(5)						22						(5)						—									—						12
Depreciation and amortization			(71)						(27)						(23)						(178)									(9)						(308)
Gross margin			$	909					$	599					$	(79)					$	250								$	(11)					$	1,668
Less: Mark-to-market for economic hedging activities, net			(42)						184						(195)						—									—						(53)
Less: Contract and emissions credit amortization, net			(5)						16						(4)						—									—						7
Less: Depreciation and amortization			(71)						(27)						(23)						(178)									(9)						(308)
Economic gross margin			$	1,027					$	426					$	143					$	428								$	(2)					$	2,022
(a) Includes trading gains and losses and ancillary revenues
(b) Includes capacity and emissions credits
(c) Includes $1.0 billion, $69 million and $207 million of TDSP expense in Texas, East and West/Services/Other, respectively
(d) Excludes depreciation and amortization shown separately
Business Metrics			Texas						East						West/Services/Other						Vivint Smart Home									Corporate/Eliminations						Total
Retail sales
Home power sales volume (GWh)			15,034						3,799						531						—									—						19,364
Business power sales volume (GWh)			12,116						13,296						2,889						—									—						28,301
Home natural gas sales volume (MDth)			—						3,438						5,064						—									—						8,502
Business natural gas sales volume (MDth)			—						351,154						39,953						—									—						391,107
Average retail Home customer count (in thousands)(a)			2,879						1,880						769						—									—						5,528
Ending retail Home customer count (in thousands)(a)			2,871						1,889						765						—									—						5,525
Average Vivint Smart Home subscriber count (in thousands)(b)			—						—						—						2,035									—						2,035
Ending Vivint Smart Home subscriber count (in thousands) (b)			—						—						—						2,051									—						2,051
Power generation
GWh sold			11,918						2,837						1,726						—									—						16,481
GWh generated(c)
Coal			5,459						873						—						—									—						6,332
Gas			3,964						600						1,725						—									—						6,289
Nuclear			2,495						—						—						—									—						2,495
Oil			—						5						—						—									—						5
Renewables			—						—						1						—									—						1
Total			11,918						1,478						1,726						—									—						15,122
(a) Home customer count includes recurring residential customers, services customers and municipal aggregations
(b) Vivint Smart Home subscribers includes customers that also purchase other NRG products
(c) Includes owned and leased generation, excludes tolled generation and equity investments

			Three months ended September 30, 2022
($ In millions)			Texas						East						West/Services/Other												Corporate/Eliminations						Total
Retail revenue			$	2,999					$	3,863					$	996											$	—					$	7,858
Energy revenue			48						212						180												10						450
Capacity revenue			—						38						—												—						38
Mark-to-market for economic hedging activities			4						32						(7)												4						33
Contract amortization			—						(10)						4												—						(6)
Other revenue(a)			94						43						2												(2)						137
Total revenue			3,145						4,178						1,175												12						8,510
Cost of fuel			(489)						(140)						(113)												—						(742)
Purchased energy and other cost of sales(b)(c)(d)			(2,012)						(3,609)						(865)												(8)						(6,494)
Mark-to-market for economic hedging activities			(600)						423						59												(4)						(122)
Contract and emissions credit amortization			(4)						29						(9)												—						16
Depreciation and amortization			(79)						(37)						(22)												(7)						(145)
Gross margin			$	(39)					$	844					$	225											$	(7)					$	1,023
Less: Mark-to-market for economic hedging activities, net			(596)						455						52												—						(89)
Less: Contract and emissions credit amortization, net			(4)						19						(5)												—						10
Less: Depreciation and amortization			(79)						(37)						(22)												(7)						(145)
Economic gross margin			$	640					$	407					$	200											$	—					$	1,247
(a) Includes trading gains and losses and ancillary revenues
(b) Includes capacity and emissions credits
(c) Includes $846 million and $184 million of TDSP expense in Texas and West/Services/Other, respectively. TDSP expense in the East was immaterial due to the impact of certain provisions of the CEJA in Illinois, which took effect in June 2022
(d) Excludes depreciation and amortization shown separately
Business Metrics			Texas						East						West/Services/Other												Corporate/Eliminations						Total
Retail sales
Home power sales volume (GWh)			14,053						3,838						533												—						18,424
Business power sales volume (GWh)			11,006						12,753						3,194												—						26,953
Home natural gas sales volume (MDth)			—						4,212						5,345												—						9,557
Business natural gas sales volume (MDth)			—						315,952						30,602												—						346,554
Average retail Home customer count (in thousands)(a)			2,963						1,794						800												—						5,557
Ending retail Home customer count (in thousands)(a)			2,890						1,788						797												—						5,475
Power generation
GWh sold			11,921						3,291						1,858												—						17,070
GWh generated(b)
Coal			5,448						1,532						—												—						6,980
Gas			3,960						323						1,860												—						6,143
Nuclear			2,513						—						—												—						2,513
Oil			—						3						—												—						3
Renewables			—						—						2																		2
Total			11,921						1,858						1,862												—						15,641
(a) Home customer count includes recurring residential customers, services customers and municipal aggregations
(b) Includes owned and leased generation, excludes tolled generation and equity investments

The following table represents the weather metrics for the three months ended September 30, 2023 and 2022:

			Three months ended September 30,
Weather Metrics			Texas						East						West/Services/Other**(b)**
2023
CDDs(a)			2,039						817						1,291
HDDs(a)			—						48						4
2022
CDDs			1,789						874						1,268
HDDs			—						54						3
10-year average
CDDs			1,673						824						1,173
HDDs			5						52						9

(a) National Oceanic and Atmospheric Administration-Climate Prediction Center - A Cooling Degree Day, or CDD, represents the number of degrees that the mean temperature for a particular day is above 65 degrees Fahrenheit in each region. A Heating Degree Day, or HDD, represents the number of degrees that the mean temperature for a particular day is below 65 degrees Fahrenheit in each region. The CDDs/HDDs for a period of time are calculated by adding the CDDs/HDDs for each day during the period

(b) The West/Services/Other weather metrics are comprised of the average of the CDD and HDD regional results for the West - California and West - South Central regions

Gross Margin and Economic Gross Margin

Gross margin increased $645 million and economic gross margin increased $775 million during the three months ended September 30, 2023, compared to the same period in 2022.

The following tables describe the changes in gross margin and economic gross margin by segment:

Texas

			(In millions)
Higher gross margin due to the net effect of: •increased net revenue rates of $4.15 per MWh, or $118 million, primarily driven by changes in customer term, product and mix; and •a $225 million decrease in cost to serve the retail load, primarily driven by lower supply costs which were a result of lower realized power pricing, the diversified supply strategy and improved plant performance coupled with the 2022 impact of the W.A. Parish Unit 8 extended outage that began in May 2022			$	343
Higher gross margin due to an increase in load of 1.3 TWhs, or $42 million, from weather, and an increase in load of 750 GWhs, or $7 million, driven by changes in customer mix			49
Higher gross margin due to market optimization activities			5
Other			(10)
Increase in economic gross margin			$	387
Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges			554
Increase in contract and emissions credit amortization			(1)
Decrease in depreciation and amortization			8
Increase in gross margin			$	948

East

						(In millions)
Lower gross margin due to a decrease in generation and capacity as a result of asset retirements						$	(14)
Higher electric gross margin due to lower supply costs of $8.00 per MWh, or $134 million, driven primarily by decreases in power prices, partially offset by lower net revenue rates as a result of changes in customer term, product and mix of $6.75 per MWh, or $97 million						37
Lower electric gross margin from decreased volume due to changes in customer mix and weather						(7)
Lower natural gas gross margin, including the impact of transportation and storage contract optimization, resulting in lower net revenue rates from changes in customer term, product, and mix of $4.25 per Dth, or $1.50 billion, partially offset by lower supply costs of $4.00 per Dth, or $1.43 billion						(74)
Higher natural gas gross margin from increased volume due to an increase in customer count and change in customer mix						19
Higher gross margin due to a reduction in capacity performance penalties resulting from Winter Storm Elliot in December 2022 and a 200% increase in NYISO capacity pricing, partially offset by a 36% decrease in PJM capacity prices and a 7% decrease in PJM capacity volumes						21
Higher gross margin due to a decrease in supply costs at Midwest Generation, partially offset by a 43% decrease in generation volumes due to dark spread contractions						49
Lower gross margin from sales of NOx emissions credits						(13)
Other						1
Increase in economic gross margin						$	19
Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges						(271)
Increase in contract amortization						(3)
Decrease in depreciation and amortization						10
Decrease in gross margin						$	(245)

West/Services/Other

			(In millions)
Lower gross margin primarily due to lower Services sales			$	(21)
Lower electric gross margin due to higher supply costs of $13.50 per MWh, or $46 million, partially offset by higher revenue rates of $8.50 per MWh, or $30 million			(16)
Higher natural gas gross margin due to lower supply costs of $2.35 per Dth, or $106 million, and changes in customer mix of $5 million, partially offset by lower revenue rates of $2.25 per Dth, or $101 million			10
Lower gross margin at Cottonwood driven by lower average realized prices and a reduction in capacity performance bonus payments resulting from PJM Winter Storm Elliott in December 2022			(31)
Other			1
Decrease in economic gross margin			$	(57)
Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges			(247)
Decrease in contract amortization			1
Increase in depreciation and amortization			(1)
Decrease in gross margin			$	(304)

Vivint Smart Home

			(In millions)
Increase due to the acquisition of Vivint Smart Home			$	428
Increase in economic gross margin			$	428
Increase in depreciation and amortization			(178)
Increase in gross margin			$	250

Mark-to-Market for Economic Hedging Activities

Mark-to-market for economic hedging activities includes asset-backed hedges that have not been designated as cash flow hedges. Total net mark-to-market results increased by $36 million during the three months ended September 30, 2023, compared to the same period in 2022.

The breakdown of gains and losses included in revenues and operating costs and expenses by segment was as follows:

			Three months ended September 30, 2023
(In millions)			Texas						East						West/Services/Other						Eliminations						Total
Mark-to-market results in revenue
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges			$	—					$	(8)					$	20					$	(2)					$	10
Net unrealized (losses) on open positions related to economic hedges			—						(52)						(30)						2						(80)
Total mark-to-market (losses) in revenue			$	—					$	(60)					$	(10)					$	—					$	(70)
Mark-to-market results in operating costs and expenses
Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges			$	(298)					$	(142)					$	(94)					$	2					$	(532)
Reversal of acquired (gain)/loss positions related to economic hedges			(11)						11						(6)						—						(6)
Net unrealized gains/(losses) on open positions related to economic hedges			267						375						(85)						(2)						555
Total mark-to-market (losses)/gains in operating costs and expenses			$	(42)					$	244					$	(185)					$	—					$	17

			Three months ended September 30, 2022
(In millions)			Texas						East						West/Services/Other												Eliminations						Total
Mark-to-market results in revenue
Reversal of previously recognized unrealized losses on settled positions related to economic hedges			$	1					$	12					$	2											$	(2)					$	13
Reversal of acquired (gain) positions related to economic hedges			—						(2)						—												—						(2)
Net unrealized gains/(losses) on open positions related to economic hedges			3						22						(9)												6						22
Total mark-to-market gains/(losses) in revenue			$	4					$	32					$	(7)											$	4					$	33
Mark-to-market results in operating costs and expenses
Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges			$	(191)					$	(151)					$	(60)											$	2					$	(400)
Reversal of acquired (gain)/loss positions related to economic hedges			(16)						18						(15)												—						(13)
Net unrealized (losses)/gains on open positions related to economic hedges			(393)						556						134												(6)						291
Total mark-to-market (losses)/gains in operating costs and expenses			$	(600)					$	423					$	59											$	(4)					$	(122)

`

Mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled. The settlement of these transactions is reflected in the same revenue or cost caption as the items being hedged.

For the three months ended September 30, 2023, the $70 million loss in revenues from economic hedge positions was driven primarily by a decrease in the value of open positions as a result of increases in PJM power prices. The $17 million gain in operating costs and expenses from economic hedge positions was driven primarily by an increase in the value of Texas and East open positions as a result of increases in ERCOT and PJM power prices, partially offset by the reversal of previously recognized unrealized gains on contracts that settled during the period.

For the three months ended September 30, 2022, the $33 million gain in revenues from economic hedge positions was driven primarily by an increase in the value of open positions due to newly executed transactions during the quarter and the reversal of previously recognized unrealized losses on contracts that settled during the period. The $122 million loss in operating costs and expenses from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period, partially offset by an increase in the value of open positions as a result of increases in natural gas and power prices.

In accordance with ASC 815, the following table represents the results of the Company's financial and physical trading of energy commodities for the three months ended September 30, 2023 and 2022. The realized and unrealized financial and physical trading results are included in revenue. The Company's trading activities are subject to limits based on the Company's Risk Management Policy.

			Three months ended September 30,
(In millions)			2023						2022
Trading gains/(losses)
Realized			$	7					$	1
Unrealized			(1)						9
Total trading gains			$	6					$	10

Operations and Maintenance Expense

Operations and maintenance expense is comprised of the following:

(In millions)			Texas						East						West/Services/Other						Vivint Smart Home						Eliminations						Total
Three months ended September 30, 2023			$	132					$	93					$	55					$	57					$	(1)					$	336
Three months ended September 30, 2022			214						90						55						—						—						359

Operations and maintenance expense decreased by $23 million for the three months ended September 30, 2023, compared to the same period in 2022, due to the following:

			(In millions)
Increase due to the acquisition of Vivint Smart Home			$	57
Decrease due to partial property insurance claims in 2023 for the extended outage at W.A. Parish, as well as restoration expenses incurred in 2022			(76)
Decrease in major maintenance expenditures primarily associated with the timing of planned outages at STP			(11)
Increase in retail operation costs driven by higher personnel costs			7
Decrease in operations and maintenance expense			$	(23)

Other Cost of Operations

Other cost of operations is comprised of the following:

(In millions)			Texas						East						West/Services/Other						Vivint Smart Home						Total
Three months ended September 30, 2023			$	78					$	33					$	3					$	1					$	115
Three months ended September 30, 2022			59						38						4						—						101

Other cost of operations for the three months ended September 30, 2023 increased by $14 million, when compared to the same period in 2022, due to the following:

			(In millions)
Increase in retail gross receipt taxes due to higher revenues in Texas partially offset by lower revenues in the East			$	6
Increase primarily due to changes in ARO cost estimates at Midwest Generation			5
Increase in property insurance premiums and property taxes			2
Other			1
Increase in other cost of operations			$	14

Depreciation and Amortization

Depreciation and amortization are comprised of the following:

(In millions)			Texas						East						West/Services/Other						Vivint Smart Home						Corporate						Total
Three months ended September 30, 2023			$	71					$	27					$	23					$	178					$	9					$	308
Three months ended September 30, 2022			79						37						22						—						7						145

Depreciation and amortization increased by $163 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to higher amortization of intangible assets due to the acquisition of Vivint Smart Home in March 2023.

Impairment Losses

Impairment losses of $43 million were recorded during the three months ended September 30, 2022 primarily related to the purchase and sale agreement for the sale of the land and related assets at the Astoria generating site and planned withdrawal and cancellation of its proposed Astoria redevelopment project. For further discussion, see Note 8, Impairments.

Selling, General and Administrative Costs

Selling, general and administrative costs are comprised of the following:

(In millions)			Texas						East						West/Services/Other						Vivint Smart Home						Corporate/ Eliminations						Total
Three months ended September 30, 2023			$	237					$	156					$	66					$	172					$	7					$	638
Three months ended September 30, 2022			190						115						65						—						8						378

Selling, general and administrative costs increased by $260 million for the three months ended September 30, 2023, compared to the same period in 2022, due to the following:

			(In millions)
Increase due to the acquisition of Vivint Smart Home			$	172
Increase in personnel costs			33
Increase in provision for credit losses			24
Increase in marketing and media expenses			22
Increase in broker fee and commission expenses			18
Other			(9)
Increase in selling, general and administrative costs			$	260

Acquisition-Related Transaction and Integration Costs

Acquisition-related transaction and integration costs of $18 million were incurred during the three months ended September 30, 2023, which consisted of $16 million of integration costs primarily related to Direct Energy and $2 million of integration costs related to Vivint Smart Home .

Acquisition-related transaction and integration costs of $8 million were incurred during the three months ended September 30, 2022, which are comprised primarily of integration costs related to Direct Energy.

Gain on Sale of Assets

The gain on sale of assets of $22 million for the three months ended September 30, 2022 was due to the sale of the Company's 50% ownership interest in Petra Nova.

Interest Expense

Interest expense increased by $68 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to the Vivint Smart Home acquisition including the impact of newly issued Senior Secured First Lien Notes, acquired debt of Vivint Smart Home and borrowings on the Revolving Credit Facility.

Income Tax Expense

For the three months ended September 30, 2023, income tax expense of $65 million was recorded on pre-tax income of $408 million. For the same period in 2022, income tax expense of $16 million was recorded on pre-tax income of $83 million. The effective tax rates were 15.9% and 19.3% for the three months ended September 30, 2023 and 2022, respectively.

For the three months ended September 30, 2023, the effective tax rate was lower than the statutory rate of 21% primarily due to a decrease in state tax expense resulting from a decrease in year-to-date financial statement losses. For the same period in 2022, the effective tax rate was lower than the statutory rate of 21% primarily due to the benefit resulting from carbon capture tax credits and the reduction in statutory state tax rates.

Management’s discussion of the results of operations for the nine months ended September 30, 2023 and 2022

Electricity Prices

The following table summarizes average on peak power prices for each of the major markets in which NRG operates for the nine months ended September 30, 2023 and 2022. Texas - Houston, East and West average on-peak power prices decreased for the nine months ended September 30, 2023 as compared to the same period in 2022 as a result of lower natural gas prices.

			Average on Peak Power Price ($/MWh)
			Nine months ended September 30,
Region			2023						2022						Change %
Texas
ERCOT - Houston (a)			$	89.00					$	101.20					(12)		%
ERCOT - North(a)			87.49						85.68						2		%
East
NY J/NYC(b)			$	39.43					$	98.34					(60)		%
NEPOOL(b)			41.87						96.30						(57)		%
COMED (PJM)(b)			33.05						76.82						(57)		%
PJM West Hub(b)			38.39						87.44						(56)		%
West
MISO - Louisiana Hub(b)			$	34.54					$	75.26					(54)		%
CAISO - SP15(b)			63.38						71.86						(12)		%

(a) Average on peak power prices based on real time settlement prices as published by the respective ISOs

(b) Average on peak power prices based on day ahead settlement prices as published by the respective ISOs

Natural Gas Prices

The following table summarizes the average Henry Hub natural gas price for the nine months ended September 30, 2023 and 2022:

			Nine months ended September 30,
			2023						2022						Change %
($/MMBtu)			$	2.69					$	6.77					(60)		%

Gross Margin

The Company calculates gross margin in order to evaluate operating performance as revenues less cost of fuel, purchased energy and other costs of sales, mark-to-market for economic hedging activities, contract and emissions credit amortization and depreciation and amortization.

Economic Gross Margin

In addition to gross margin, the Company evaluates its operating performance using the measure of economic gross margin, which is not a GAAP measure and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report. Economic gross margin should be viewed as a supplement to and not a substitute for the Company's presentation of gross margin, which is the most directly comparable GAAP measure. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as the sum of energy revenue, capacity revenue, retail revenue and other revenue, less cost of fuel, purchased energy and other cost of sales. Economic gross margin does not include mark-to-market gains or losses on economic hedging activities, contract and emissions credit amortization, depreciation and amortization, operations and maintenance, or other cost of operations.

The following tables present the composition and reconciliation of gross margin and economic gross margin for the nine months ended September 30, 2023 and 2022:

			Nine months ended September 30, 2023
($ In millions)			Texas						East						West/Services/Other						Vivint Smart Home**(a)**												Corporate/Eliminations						Total
Retail revenue			$	7,842					$	9,007					$	2,993					$	1,070											$	(1)					$	20,911
Energy revenue			71						254						147						—												—						472
Capacity revenue			—						154						(3)						—												(1)						150
Mark-to-market for economic hedging activities			—						27						80						—												(11)						96
Contract amortization			—						(24)						—						—												—						(24)
Other revenue(b)			322						70						27						—												(8)						411
Total revenue			8,235						9,488						3,244						1,070												(21)						22,016
Cost of fuel			(596)						(102)						(92)						—												—						(790)
Purchased energy and other cost of sales(c)(d)(e)			(5,017)						(8,091)						(2,679)						(102)												6						(15,883)
Mark-to-market for economic hedging activities			421						(1,750)						(711)						—												11						(2,029)
Contract and emissions credit amortization			(9)						(59)						(10)						—												—						(78)
Depreciation and amortization			(219)						(87)						(70)						$	(410)											(27)						(813)
Gross margin			$	2,815					$	(601)					$	(318)					$	558											$	(31)					$	2,423
Less: Mark-to-market for economic hedging activities, net			421						(1,723)						(631)						—												—						(1,933)
Less: Contract and emissions credit amortization, net			(9)						(83)						(10)						—												—						(102)
Less: Depreciation and amortization			(219)						(87)						(70)						(410)												(27)						(813)
Economic gross margin			$	2,622					$	1,292					$	393					$	968											$	(4)					$	5,271
(a) Includes results of operations following the acquisition date of March 10, 2023
(b) Includes trading gains and losses and ancillary revenues
(c) Includes capacity and emissions credits
(d) Includes $2.4 billion, $174 million and $806 million of TDSP expense in Texas, East, and West/Services/Other, respectively
(e) Excludes depreciation and amortization shown separately
Business Metrics			Texas						East						West/Services/Other						Vivint Smart Home												Corporate/Eliminations						Total
Retail sales
Home electricity sales volume (GWh)			32,447						9,667						1,676						—												—						43,790
Business electricity sales volume (GWh)			30,712						35,138						7,564						—												—						73,414
Home natural gas sales volume (MDth)			—						33,549						53,379						—												—						86,928
Business natural gas sales volume (MDth)			—						1,174,282						133,011						—												—						1,307,293
Average retail Home customer count (in thousands)(a)			2,872						1,834						777						—												—						5,483
Ending retail Home customer count (in thousands)(a)			2,871						1,889						765						—												—						5,525
Average Vivint Smart Home subscriber count (in thousands)(b)			—						—						—						1,991												—						1,991
Ending Vivint Smart Home subscriber count (in thousands)(b)			—						—						—						2,051												—						2,051
Power generation
GWh sold			24,612						4,719						4,595						—												—						33,926
GWh generated(c)
Coal			11,230						1,239						—						—												—						12,469
Gas			6,374						685						4,592						—												—						11,651
Nuclear			7,008						—						—						—												—						7,008
Oil			—						4						—						—												—						4
Renewables			—						—						3						—												—						3
Total			24,612						1,928						4,595						—												—						31,135
(a) Home customer count includes recurring residential customers, services customers and municipal aggregations
(b) Vivint Smart Home subscribers includes customers that also purchase other NRG products
(c) Includes owned and leased generation, excludes tolled generation and equity investments

			Nine months ended September 30, 2022
($ In millions)			Texas						East						West/Services/Other												Corporate/Eliminations						Total
Retail revenue			$	7,510					$	11,784					$	3,086											$	(1)					$	22,379
Energy revenue			101						544						365												24						1,034
Capacity revenue			—						242						2												—						244
Mark-to-market for economic hedging activities			1						(204)						(63)												18						(248)
Contract amortization			—						(30)						2												—						(28)
Other revenue(a)			245						71						3												(12)						307
Total revenue			7,857						12,407						3,395												29						23,688
Cost of fuel			(1,018)						(315)						(270)												—						(1,603)
Purchased energy and other cost of sales(b)(c)(d)			(4,979)						(11,040)						(2,725)												(13)						(18,757)
Mark-to-market for economic hedging activities			662						2,241						270												(18)						3,155
Contract and emissions credit amortization			—						(73)						(14)												—						(87)
Depreciation and amortization			(233)						(164)						(65)												(23)						(485)
Gross margin			$	2,289					$	3,056					$	591											$	(25)					$	5,911
Less: Mark-to-market for economic hedging activities, net			663						2,037						207												—						2,907
Less: Contract and emissions credit amortization, net			—						(103)						(12)												—						(115)
Less: Depreciation and amortization			(233)						(164)						(65)												(23)						(485)
Economic gross margin			$	1,859					$	1,286					$	461											$	(2)					$	3,604
(a) Includes trading gains and losses and ancillary revenues
(b) Includes capacity and emissions credits
(c) Includes $2.3 billion, $106 million and $848 million of TDSP expense in Texas, East and West/Services/Other, respectively
(d) Excludes depreciation and amortization shown separately
Business Metrics			Texas						East						West/Services/Other												Corporate/Eliminations						Total
Retail sales
Home electricity sales volume (GWh)			34,879						10,298						1,629												—						46,806
Business electricity sales volume (GWh)			29,859						37,110						7,753												—						74,722
Home natural gas sales volume (MDth)			—						35,423						58,963												—						94,386
Business natural gas sales volume (MDth)			—						1,190,382						110,396												—						1,300,778
Average retail Home customer count (in thousands)(a)			2,992						1,785						802												—						5,579
Ending retail Home customer count (in thousands)(a)			2,890						1,788						797												—						5,475
Power generation
GWh sold			29,976						9,118						5,230												—						44,324
GWh generated(b)
Coal			14,765						5,361						—												—						20,126
Gas			7,628						475						5,236												—						13,339
Nuclear			7,583						—						—												—						7,583
Oil			—						2						—												—						2
Renewables			—						—						7												—						7
Total			29,976						5,838						5,243												—						41,057
(a) Home customer count includes recurring residential customers, services customers and municipal aggregations
(b) Includes owned and leased generation, excludes tolled generation and equity investments

The following table represents the weather metrics for the nine months ended September 30, 2023 and 2022:

			Nine months ended September 30,
Weather Metrics			Texas						East						West/Services/Other**(b)**
2023
CDDs(a)			3,183						1,144						1,866
HDDs(a)			856						2,619						1,417
2022
CDDs			3,141						1,267						1,974
HDDs			1,202						2,944						1,347
10-year average
CDDs			2,761						1,220						1,776
HDDs			1,050						3,124						1,290

(a) National Oceanic and Atmospheric Administration-Climate Prediction Center - A Cooling Degree Day, or CDD, represents the number of degrees that the mean temperature for a particular day is above 65 degrees Fahrenheit in each region. A Heating Degree Day, or HDD, represents the number of degrees that the mean temperature for a particular day is below 65 degrees Fahrenheit in each region. The CDDs/HDDs for a period of time are calculated by adding the CDDs/HDDs for each day during the period

(b) The West/Services/Other weather metrics are comprised of the average of the CDD and HDD regional results for the West-California and West-South Central regions

Gross Margin and Economic Gross Margin

Gross margin decreased $3.5 billion and economic gross margin increased $1.7 billion, both of which include intercompany sales, during the nine months ended September 30, 2023, compared to the same period in 2022.

The following tables describe the changes in gross margin and economic gross margin by segment:

Texas

						(In millions)
Higher gross margin due to the net effect of: •increased net revenue rates of $6.00 per MWh, or $435 million, primarily driven by changes in customer term, product and mix; and •a $418 million decrease in cost to serve the retail load, primarily driven by lower supply costs which were a result of lower realized power pricing, the diversified supply strategy and improved plant performance coupled with the 2022 impact of the W.A. Parish Unit 8 extended outage that began in May 2022						$	853
Lower gross margin due to a decrease in load of 675 GWhs, or $74 million, driven by attrition and changes in customer mix, and a decrease in load of 905 GWhs, or $36 million, from weather						(110)
Higher gross margin due to market optimization activities						34
Other						(14)
Increase in economic gross margin						$	763
Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges						(242)
Increase in contract and emissions credit amortization						(9)
Decrease in depreciation and amortization						14
Increase in gross margin						$	526

East

			(In millions)
Lower gross margin due to a decrease in generation and capacity as a result of asset retirements			$	(97)
Higher electric gross margin due to higher net revenue rates as a result of changes in customer term, product and mix of $3.25 per MWh, or $144 million, as well as lower supply costs of $1.25 per MWh, or $61 million, driven primarily by decreases in power prices			205
Lower electric gross margin due to attrition, changes in customer mix, and weather			(24)
Lower natural gas gross margin, including the impact of transportation and storage contract optimization, resulting in lower net revenue rates from changes in customer term, product and mix of $2.25 per Dth, or $2.69 billion, partially offset by lower supply costs of $2.20 per Dth, or $2.62 billion, driven primarily by decrease in gas costs			(74)
Lower natural gas gross margin from a decrease in volumes due to weather and changes in customer mix			(8)
Lower gross margin primarily due to a 56% decrease in PJM capacity prices and a 20% decrease in PJM capacity volumes, partially offset by a reduction in capacity performance penalties resulting from Winter Storm Elliot in December 2022, and a 94% increase in NYISO capacity pricing			(23)
Higher gross margin due to a decrease in supply costs at Midwest Generation, offset by lower gross margin as a result of a 68% decrease in generation volumes due to dark spread contractions			46
Lower gross margin from sales of NOx emissions credits			(17)
Lower gross margin from market optimization activities			(3)
Other			1
Increase in economic gross margin			$	6
Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges			(3,760)
Decrease in contract amortization			20
Decrease in depreciation and amortization			77
Decrease in gross margin			$	(3,657)

West/Services/Other

			(In millions)
Lower gross margin primarily due to lower Services sales			$	(40)
Lower electric gross margin due to an increase in supply costs of $17.75 per MWh, or $165 million, partially offset by higher revenue rates of $13.50 per MWh, or $126 million, and changes in customer mix of $9 million			(30)
Higher natural gas gross margin due to a decrease in supply costs, of $119 million, and changes in customer mix of $7 million, partially offset by lower revenue rates, of $121 million			5
Lower gross margin at Cottonwood driven by current year planned outage and a reduction in capacity performance bonus payment resulting from PJM Winter Storm Elliott in December 2022			(16)
Higher gross margin from market optimization activities			14
Other			(1)
Decrease in economic gross margin			$	(68)
Decrease in mark-to-market for economic hedges primarily due to net unrealized gains/losses on open positions related to economic hedges			(838)
Decrease in contract amortization			2
Increase in depreciation and amortization			(5)
Decrease in gross margin			$	(909)

Vivint Smart Home**(a)**

			(In millions)
Increase due to the acquisition of Vivint Smart Home			$	968
Increase in economic gross margin			$	968
Increase in depreciation and amortization			(410)
Increase in gross margin			$	558

(a) Includes results of operations following the acquisition date of March 10, 2023

Mark-to-Market for Economic Hedging Activities

Mark-to-market for economic hedging activities includes asset-backed hedges that have not been designated as cash flow hedges. Total net mark-to-market results decreased by $4.8 billion during the nine months ended September 30, 2023, compared to the same period in 2022.

The breakdown of gains and losses included in revenues and operating costs and expenses by segment was as follows:

			Nine months ended September 30, 2023
(In millions)			Texas						East						West/Services/Other												Eliminations						Total
Mark-to-market results in revenue
Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges			$	—					$	(23)					$	46											$	(8)					$	15
Reversal of acquired (gain) positions related to economic hedges			—						(1)						—												—						(1)
Net unrealized gains on open positions related to economic hedges			—						51						34												(3)						82
Total mark-to-market gains in revenue			$	—					$	27					$	80											$	(11)					$	96
Mark-to-market results in operating costs and expenses
Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges			$	(416)					$	(697)					$	(429)											$	8					$	(1,534)
Reversal of acquired loss/(gain) positions related to economic hedges			7						3						(5)												—						5
Net unrealized gains/(losses) on open positions related to economic hedges			830						(1,056)						(277)												3						(500)
Total mark-to-market gains/(losses) in operating costs and expenses			$	421					$	(1,750)					$	(711)											$	11					$	(2,029)

			Nine months ended September 30, 2022
(In millions)			Texas						East						West/Services/Other												Eliminations						Total
Mark-to-market results in revenue
Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges			$	2					$	(9)					$	38											$	(6)					$	25
Reversal of acquired (gain) positions related to economic hedges			—						(1)						—												—						(1)
Net unrealized (losses) on open positions related to economic hedges			(1)						(194)						(101)												24						(272)
Total mark-to-market gains/(losses) in revenue			$	1					$	(204)					$	(63)											$	18					$	(248)
Mark-to-market results in operating costs and expenses
Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges			$	(336)					$	(547)					$	(140)											$	6					$	(1,017)
Reversal of acquired loss/(gain) positions related to economic hedges			15						(25)						(16)												—						(26)
Net unrealized gains on open positions related to economic hedges			983						2,813						426												(24)						4,198
Total mark-to-market gains in operating costs and expenses			$	662					$	2,241					$	270											$	(18)					$	3,155

Mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled. The settlement of these transactions is reflected in the same revenue or cost caption as the items being hedged.

For the nine months ended September 30, 2023, the $96 million gain in revenues from economic hedge positions was driven by an increase in the value of open positions as a result of decreases in power prices. The $2.0 billion loss in operating costs and expenses from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period, as well as a decrease in the value of East and West/Other open positions as a result of decreases in natural gas and power prices. This was partially offset by an increase in the value of Texas open positions as a result of increases in ERCOT power prices.

For the nine months ended September 30, 2022, the $248 million loss in revenues from economic hedge positions was driven by a decrease in the value of open positions as a result of increases in power prices across all segments, partially offset by the reversal of previously recognized unrealized losses on contracts that settled during the period. The $3.2 billion gain in operating costs and expenses from economic hedge positions was driven primarily by an increase in the value of open positions as a result of increases in natural gas and power prices across all segments, partially offset by the reversal of previously recognized unrealized gains on contracts that settled during the period.

In accordance with ASC 815, the following table represents the results of the Company's financial and physical trading of energy commodities for the nine months ended September 30, 2023 and 2022. The realized and unrealized financial and physical trading results are included in revenue. The Company's trading activities are subject to limits based on the Company's Risk Management Policy.

			Nine months ended September 30,
(In millions)			2023						2022
Trading gains/(losses)
Realized			$	4					$	3
Unrealized			24						(7)
Total trading gains/(losses)			$	28					$	(4)

Operations and Maintenance Expense

Operations and maintenance expense are comprised of the following:

(In millions)			Texas						East						West/Services/Other						Vivint Smart Home**(a)**						Eliminations						Total
Nine months ended September 30, 2023			$	513					$	262					$	179					$	129					$	(3)					$	1,080
Nine months ended September 30, 2022			598						304						149						—						(2)						1,049

(a) Includes results of operations following the acquisition date of March 10, 2023

Operations and maintenance expense increased by $31 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to the following:

			(In millions)
Increase due to the acquisition of Vivint Smart Home			$	129
Increase in major maintenance expenditures primarily associated with the timing of planned outages at STP and the scope and duration of outages at Texas gas facilities, Midwest Generation and Cottonwood			56
Increase in retail operations costs driven by higher personnel costs			20
Decrease due to the current year partial property insurance claim for the extended outage at W.A. Parish, as well as restoration expenses incurred in 2022			(119)
Decrease due to changes in estimates of environmental remediation costs at deactivated sites in the East in 2022			(24)
Decrease in variable operation and maintenance expense due to a reduction in PJM generation volumes in 2023			(17)
Decrease driven primarily by East asset retirements partially offset by an increase in deactivation costs in the West			(15)
Other			1
Increase in operations and maintenance expense			$	31

Other Cost of Operations

Other Cost of operations are comprised of the following:

(In millions)			Texas						East						West/Services/Other															Vivint Smart Home**(a)**						Total
Nine months ended September 30, 2023			$	190					$	98					$	11														$	2					$	301
Nine months ended September 30, 2022			153						113						12															—						278

(a) Includes results of operations following the acquisition date of March 10, 2023

Other cost of operations increased by $23 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to the following:

			(In millions)
Increase in property insurance premiums and property taxes			$	22
Increase in retail gross receipt taxes due to higher revenues in Texas offset by lower revenues in the East			1
Decrease due to changes in timing of ARO estimates			(6)
Other			6
Increase in other cost of operations			$	23

Depreciation and Amortization

Depreciation and amortization expenses are comprised of the following:

(In millions)			Texas						East						West/Services/Other						Vivint Smart Home**(a)**						Corporate						Total
Nine months ended September 30, 2023			$	219					$	87					$	70					$	410					$	27					$	813
Nine months ended September 30, 2022			233						164						65						—						23						485

(a) Includes results of operations following the acquisition date of March 10, 2023

Depreciation and amortization increased by $328 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to higher amortization of intangible assets due to the acquisition of Vivint Smart Home in March 2023, partially offset by lower depreciation at Midwest Generation as a result of asset impairments and retirements in 2022.

Impairment Losses

Impairment losses of $198 million recorded during the nine months ended September 30, 2022 include $155 million primarily related to the decline in PJM capacity prices and the near-term retirement date of Joliet and $43 million primarily related to the 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. For further discussion, see Note 8, Impairments.

Selling, General and Administrative Costs

Selling, general and administrative costs comprised of the following:

(In millions)			Texas						East						West/Services/Other						Vivint Smart Home**(a)**						Corporate/Eliminations						Total
Nine months ended September 30, 2023			$	580					$	441					$	171					$	375					$	19					$	1,586
Nine months ended September 30, 2022			500						362						180						—						34						1,076

(a) Includes results of operations following the acquisition date of March 10, 2023

Total selling, general and administrative costs increased by $510 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to the following:

			(In millions)
Increase due to the Vivint Smart Home acquisition			$	375
Increase in personnel costs			66
Increase in higher provision for credit losses			42
Increase in broker fee and commissions expenses			36
Increase in marketing and media expenses			14
Decrease in consulting and legal expenses			(12)
Other			(11)
Increase in selling, general and administrative costs			$	510

Acquisition-Related Transaction and Integration Costs

Acquisition-related transaction and integration costs were $111 million for the nine months ended September 30, 2023, which consisted of $38 million of acquisition costs and $46 million of integration costs related to Vivint Smart Home, as well as $27 million of integration costs primarily related to Direct Energy. Acquisition-related transaction and integration costs were $26 million for the nine months ended September 30, 2022, which were primarily integration costs related to Direct Energy.

Gain on Sale of Assets

The gain on sale of assets of $202 million and $51 million for the nine months ended September 30, 2023 and 2022, respectively, included the following:

			Nine months ended September 30,
(In millions)			2023						2022
Sale of Astoria Turbines in January 2023			$	199					$	—
Sale of the Company's 49% ownership in the Watson natural gas generating facility			—						46
Sale of the Company's 50% ownership in Petra Nova			—						22
Other asset sales			3						(17)
Gain on sale of assets			$	202					$	51

Other Income, Net

Other income, net increased by $10 million in the nine months ended September 30, 2023, compared to the same period in 2022, primarily driven by higher interest income.

Interest Expense

Interest expense increased by $159 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to the Vivint Smart Home acquisition including the impact of newly issued Senior Secured First Lien Notes, acquired debt of Vivint Smart Home, borrowings on the Revolving Credit Facility and the Receivables Securitization Facilities, as well as the write-off of the deferred financing costs associated with the cancellation of the bridge facility for the Vivint Smart Home acquisition.

Income Tax (Benefit)/Expense

For the nine months ended September 30, 2023, an income tax benefit of $182 million was recorded on a pre-tax loss of $866 million. For the same period in 2022, income tax expense of $739 million was recorded on pre-tax income of $3.1 billion. The effective tax rates were 21.0% and 24.2% for the nine months ended September 30, 2023 and 2022, respectively.

For the nine months ended September 30, 2023, NRG's effective tax rate approximated the statutory rate of 21%, which includes the impact of state and foreign taxes. For the same period in 2022, NRG's overall effective tax rate was higher than the statutory rate of 21%, primarily due to state tax expense, partially offset by the tax benefit resulting from the release of the valuation allowance on state net operating losses and carbon capture tax credits.

Liquidity and Capital Resources

Liquidity Position

As of September 30, 2023 and December 31, 2022, NRG's total liquidity, excluding funds deposited by counterparties, of approximately $4.1 billion and $2.8 billion, respectively, was comprised of the following:

(In millions)			September 30, 2023						December 31, 2022
Cash and cash equivalents			$	401					$	430
Restricted cash - operating			3						5
Restricted cash - reserves			8						35
Total			412						470
Total availability under Revolving Credit Facility and collective collateral facilities(a)			3,723						2,324
Total liquidity, excluding funds deposited by counterparties			$	4,135					$	2,794

(a) Total capacity of Revolving Credit Facility and collective collateral facilities was $7.5 billion and $6.4 billion as of September 30, 2023 and December 31, 2022, respectively

For the nine months ended September 30, 2023, total liquidity, excluding funds deposited by counterparties, increased by $1.3 billion. Changes in cash and cash equivalent balances are further discussed hereinafter under the heading Cash Flow Discussion. Cash and cash equivalents at September 30, 2023 were predominantly held in bank deposits.

Management believes that the Company's liquidity position and cash flows from operations will be adequate to finance operating and maintenance capital expenditures, to fund dividends, and to fund other liquidity commitments in the short and long-term. Management continues to regularly monitor the Company's ability to finance the needs of its operating, financing and investing activity within the dictates of prudent balance sheet management.

The Company remains committed to maintaining a strong balance sheet and continues to work to achieve investment grade credit metrics over time primarily through debt reduction and the realization of growth initiatives.

Credit Ratings

On March 1, 2023, following the Vivint Smart Home acquisition financing launch, Standard and Poor's downgraded the Company's issuer credit to BB with a Stable outlook from BB+. There was no change to Moody's and Fitch ratings at the time.

Liquidity

The principal sources of liquidity for NRG's future operating and maintenance capital expenditures are expected to be derived from cash on hand, cash flows from operations, and financing arrangements. As described in Note 9, Long-term Debt and Finance Leases, to this Form 10-Q, the Company's financing arrangements consist mainly of the Senior Notes, Convertible Senior Notes, Senior Secured First Lien Notes, Revolving Credit Facility, the Receivables Securitization Facilities and tax-exempt bonds. The Company also issues letters of credit through bilateral letter of credit facilities and the P-Caps letter of credit facility. As part of the acquisition of Vivint Smart Home on March 10, 2023, NRG acquired Vivint Smart Home's existing debt, which includes senior secured notes, senior notes and a senior secured term-loan.

The Company's requirements for liquidity and capital resources, other than for operating its facilities, can generally be categorized by the following: (i) market operations activities; (ii) debt service obligations, as described in Note 9, Long-term Debt and Finance Leases; (iii) capital expenditures, including maintenance, repowering, development, and environmental; and (iv) allocations in connection with acquisition opportunities, debt repayments, share repurchases and dividend payments to stockholders, as described in Note 11, Changes in Capital Structure.

Sale of Gregory

On October 2, 2023, the Company closed on the sale of its 100% ownership in the Gregory natural gas generating facility in Texas for $102 million.

Sale of the 44% equity interest in STP

On November 1, 2023, the Company closed on the previously announced sale of its 44% equity interest in STP to Constellation. Proceeds of $1.75 billion were reduced by preliminary working capital and other adjustments of $96 million, resulting in net proceeds of $1.654 billion. For further discussion, see Note 4, Acquisitions and Dispositions.

Debt Reduction

The Company plans to reduce debt by $900 million during 2023 as part of its plan to achieve target investment-grade credit metrics, and intends to fund the reduction from cash from operations. NRG plans an additional $500 million of debt reduction in the fourth quarter of 2023 following the sale of STP as the transaction is intended to be leverage neutral. As of September 30, 2023, the Company executed $600 million in debt reduction.

Vivint Smart Home Acquisition

On March 10, 2023, the Company completed the acquisition of Vivint Smart Home. The Company paid $12 per share, or $2.6 billion in cash. The Company funded the acquisition using a combination of $740 million in newly-issued secured corporate debt, $650 million in newly-issued preferred stock, $900 million drawn from its Revolving Credit Facility and Receivables Facilities, and cash on hand.

Issuance of 2033 Senior Notes

On March 9, 2023, the Company issued $740 million of aggregate principal amount of 7.000% senior notes due 2033. The 2033 Senior Notes are senior secured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on September 15, 2023 until the maturity date of March 15, 2033. For further discussion, see Note 9, Long-term Debt and Finance Leases.

Series A Preferred Stock

On March 9, 2023, the Company issued 650,000 shares of 10.25% Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock. For further discussion, see Note 11, Changes in Capital Structure.

Revolving Credit Facility

On February 14, 2023, the Company amended its Revolving Credit Facility to: (i) increase the existing revolving commitments thereunder by $600 million, (ii) extend the maturity date of a portion of the revolving commitments thereunder to February 14, 2028, (iii) transition the benchmark rate applicable to revolving loans from LIBOR to SOFR and (iv) make certain other amendments to the terms of the Revolving Credit Facility for purposes of, among other things, providing additional flexibility.

On March 13, 2023, the Company further amended its Revolving Credit Facility to increase the existing revolving commitments by an additional $45 million. As of September 30, 2023, there were outstanding borrowings of $300 million and there were $1.4 billion in letters of credit issued under the Revolving Credit Facility. As of October 31, 2023, there were outstanding borrowings of $100 million and $712 million in letters of credit issued under the Revolving Credit Facility.

Receivables Securitization Facilities

On June 22, 2023, NRG Receivables amended its existing Receivables Facility to, among other things, (i) extend the scheduled termination date to June 21, 2024, (ii) increase the aggregate commitments from $1.0 billion to $1.4 billion (adjusted seasonally) and (iii) add a new originator. On October 6, 2023, the Receivables Facility was further amended to replace the benchmark interest rate of the Receivable Facility's subordinated note from LIBOR to SOFR. As of September 30, 2023, there were no outstanding borrowings and there were $1.2 billion in letters of credit issued.

In addition, in connection with the amendments to the Receivables Facility, on June 22, 2023, the Company and the originators thereunder renewed the existing uncommitted Repurchase Facility that provides short-term financing secured by a subordinated note issued by NRG Receivables LLC. Such renewal, among other things, extends the maturity date to June 21, 2024 and joins an additional originator to the Repurchase Facility. On October 6, 2023, the Repurchase Facility was further amended to reflect the concurrent amendment to the Receivables Facility's subordinated note. As of September 30, 2023, there were no outstanding borrowings.

Bilateral Letter of Credit Facilities

On May 19, 2023, May 30, 2023 and October 17, 2023 the Company increased the size of its bilateral letter of credit facilities by $25 million, $100 million and $50 million, respectively, to provide additional liquidity, allowing for the issuance of up to $850 million of letters of credit. These facilities are uncommitted. As of September 30, 2023, $620 million was issued under these facilities. As of October 31, 2023, $652 million was issued under these facilities.

Pre-Capitalized Trust Securities Facility

On August 29, 2023, the Company entered into a Facility Agreement with the Trust, in connection with the sale by the Trust of $500 million P-Caps. The P-Caps are to be redeemed by the Trust on July 31, 2028 or earlier upon an early redemption of the P-Caps Secured Notes. The P-Caps will replace the Company’s existing pre-capitalized trust securities redeemable 2023 issued by Alexander Funding Trust, which mature on November 15, 2023.

The Facility Agreements allows for the issuance of the P-Caps Secured Notes by the Company to the Trust. In addition, the Company entered into a LC Agreement for the issuance of letters of credit in an aggregate amount not to exceed $485 million. For further discussion, see Note 9*, Long-term Debt and Finance Leases*.

Sale of Astoria

On January 6, 2023, the Company closed on the sale of land and related assets from the Astoria site, within the East region of operations, for initial proceeds of $212 million, subject to transaction fees of $3 million and certain indemnifications. As part of the transaction, NRG entered into an agreement to lease the land back for the purpose of operating the Astoria gas turbines. The lease agreement is expected to terminate by the end of the year after decommissioning is complete.

Pension Plan Contribution

During 2023, the Pension Benefit Guaranty Corporation issued a one-time waiver which provided relief for certain pension sponsors resulting in a reduction of the Company’s planned 2023 cash contribution. The Company elected to defer the remaining 2023 cash contribution to future years.

Market Operations

The Company's market operations activities require a significant amount of liquidity and capital resources. These liquidity requirements are primarily driven by: (i) margin and collateral posted with counterparties; (ii) margin and collateral required to participate in physical markets and commodity exchanges; (iii) timing of disbursements and receipts (e.g., buying energy before receiving retail revenues); and (iv) initial collateral for large structured transactions. As of September 30, 2023, the Company had total cash collateral outstanding of $2 million and $3.8 billion outstanding in letters of credit to third parties primarily to support its market activities. As of September 30, 2023, total funds deposited by counterparties were $263 million in cash and $515 million of letters of credit.

Future liquidity requirements may change based on the Company's hedging activities and structures, fuel purchases, and future market conditions, including forward prices for energy and fuel and market volatility. In addition, liquidity requirements depend on the Company's credit ratings and general perception of its creditworthiness.

First Lien Structure

NRG has granted first liens to certain counterparties on a substantial portion of the Company's assets, subject to various exclusions including NRG's assets that have project-level financing and the assets of certain non-guarantor subsidiaries, to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedge agreements. The first lien program does not limit the volume that can be hedged, or the value of underlying out-of-the-money positions. The first lien program also does not require NRG to post collateral above any threshold amount of exposure. The first lien structure is not subject to unwind or termination upon a ratings downgrade of a counterparty and has no stated maturity date.

The Company's first lien counterparties may have a claim on its assets to the extent market prices differ from the hedged prices. As of September 30, 2023, all hedges under the first liens were out-of-the-money on a counterparty aggregate basis.

The following table summarizes the amount of MW hedged against the Company's coal and nuclear assets and as a percentage relative to the Company's coal and nuclear capacity under the first lien structure as of September 30, 2023:

Equivalent Net Sales Secured by First Lien Structure**(a)**			2023
In MW			142
As a percentage of total net coal and nuclear capacity(b)			3%

(a) Equivalent Net Sales include natural gas swaps converted using a weighted average heat rate by region

(b) Net coal and nuclear capacity represents 80% of the Company’s total coal and nuclear assets eligible under the first lien, which excludes coal assets acquired with Midwest Generation and NRG's assets that have project level financing

Capital Expenditures, Investments and Integration

The following table and descriptions summarize the Company's maintenance capital expenditures, environmental capital expenditures, and investments and integration spend for the nine months ended September 30, 2023, and the estimated forecast for the remainder of the year.

(In millions)			Maintenance						Environmental						Investments and Integration**(a)**						Total
Texas			$	386					$	1					$	33					$	420
East			3						—						1						4
West/Services/Other			17						—						5						22
Corporate			11						—						24						35
Vivint Smart Home(b)			12						—						—						12
Total cash capital expenditures for the nine months ended September 30, 2023			429						1						63						493
Integration operating expenses(c)			—						—						61						61
Investments			—						—						108						108
Total cash capital expenditures and investments for the nine months ended September 30, 2023			$	429					$	1					$	232					$	662
Estimated cash capital expenditures and investments for the remainder of 2023(d)			136						4						78						218
Estimated full year 2023 cash capital expenditures and investments			$	565					$	5					$	310					$	880

(a)Full year estimate reflects the cash expected to be available for allocation for investments and Vivint Smart Home integration in 2023

(b)Includes expenditures following the acquisition date of March 10, 2023

(c)Excludes equity compensation related to integration

(d)Estimated capital expenditures related to W.A. Parish do not reflect expected insurance recoveries

Investments and Integration for the nine months ended September 30, 2023 include growth expenditures, integration, small book acquisitions and other investments.

Environmental Capital Expenditures

NRG estimates that environmental capital expenditures from 2023 through 2027 required to comply with environmental laws will be approximately $47 million, primarily driven by the cost of complying with ELG at the Company's coal units in Texas.

Share Repurchases

In June 2023, NRG revised its long-term capital allocation policy to target allocating approximately 80% of cash available for allocation after debt reduction to be returned to shareholders. As part of the revised capital allocation framework, the Company announced an increase to its share repurchase authorization to $2.7 billion, to be executed through 2025. During the three months ended September 30, 2023, the Company completed $50 million of share repurchases at an average price of $37.82 under the $2.7 billion authorization. Through October 31, 2023, an additional $150 million of share repurchases were executed at an average price of $40.17 per share. Following the closing of the STP sale on November 1, 2023, the Company intends to execute a $950 million accelerated share repurchase program.

Common Stock Dividends

During the first quarter of 2023, NRG increased the annual dividend to $1.51 from $1.40 per share and expects to target an annual dividend growth rate of 7%-9% per share in subsequent years. A quarterly dividend of $0.3775 per share was paid on the Company's common stock during the three months ended September 30, 2023. On October 19, 2023, NRG declared a quarterly dividend on the Company's common stock of $0.3775 per share, payable on November 15, 2023 to stockholders of record as of November 1, 2023. Beginning in the first quarter of 2024, NRG will increase the annual dividend by 8% to $1.63 per share.

Series A Preferred Stock Dividends

In September 2023, the Company paid a semi-annual dividend of $52.96 per share on its outstanding Series A Preferred Stock, totaling $34 million.

Obligations under Certain Guarantees

NRG and its subsidiaries enter into various contracts that include indemnifications and guarantee provisions as a routine part of the Company’s business activities. For further discussion, see Note 27, Guarantees, to the Company's 2022 Form 10-K.

Obligations Arising Out of a Variable Interest in an Unconsolidated Entity

Variable interest in equity investments — NRG’s investment in Ivanpah is a variable interest entity for which NRG is not the primary beneficiary. NRG's pro-rata share of non-recourse debt was approximately $467 million as of September 30, 2023. This indebtedness may restrict the ability of Ivanpah to issue dividends or distributions to NRG.

Contractual Obligations and Market Commitments

NRG has a variety of contractual obligations and other market commitments that represent prospective cash requirements in addition to the Company's capital expenditure programs, as disclosed in the Company's 2022 Form 10-K. See also Note 9, Long-term Debt and Finance Leases, and Note 16, Commitments and Contingencies, to this Form 10-Q for a discussion of new commitments and contingencies that also include contractual obligations and market commitments that occurred during the three and nine months ended September 30, 2023.

Cash Flow Discussion

The following table reflects the changes in cash flows for the comparative nine month periods:

			Nine months ended September 30,
(In millions)			2023						2022						Change
Cash (used)/provided by operating activities			$	(462)					$	1,758					$	(2,220)
Cash used by investing activities			(2,631)						(205)						(2,426)
Cash provided by financing activities			1,590						855						735

Cash (used)/provided by operating activities

Changes to cash (used)/provided by operating activities were driven by:

			(In millions)
Changes in cash collateral in support of risk management activities due to change in commodity prices			$	(3,509)
Increase in operating loss/income adjusted for other non-cash items			2,252
Decrease due to receipt of uplift securitization proceeds from ERCOT in 2022			(689)
Decrease in working capital primarily driven by Vivint Smart Home capitalized contract costs partially offset by deferred revenues			(258)
Decrease in working capital primarily due to lower gas and power market pricing coupled with lower gas volumes			(16)
			$	(2,220)

Cash used by investing activities

Changes to cash (used)/provided by investing activities were driven by:

			(In millions)
Increase in cash paid for acquisitions primarily due to the acquisition of Vivint Smart Home in March 2023			$	(2,442)
Increase in capital expenditures			(243)
Increase from insurance proceeds for property, plant and equipment, net in 2023			173
Increase in proceeds from sale of assets primarily due to the sale of the land and related assets from the Astoria site in January 2023			122
Decrease in proceeds from sales of emissions allowances, net of purchases			(21)
Decrease in proceeds from sales of investments in nuclear decommissioning trust fund securities, net of purchases			(15)
			$	(2,426)

Cash provided by financing activities

Changes to cash (used)/provided by financing activities were driven by:

			(In millions)
Decrease in net receipts from settlement of acquired derivatives			$	(1,264)
Increase in proceeds from issuance of long-term debt in 2023			731
Increase in proceeds from issuance of preferred stock in 2023			635
Increase due to lower payments for share repurchase activity in 2023			415
Increase in proceeds from Revolving Credit Facility in 2023			300
Increase in payments of dividends primarily due to preferred stock issued in 2023			(43)
Increase in payments of deferred issuance costs			(28)
Decrease due to repayments of long-term debt and finance leases			(11)
			$	735

NOLs, Deferred Tax Assets and Uncertain Tax Position Implications, under ASC 740

For the nine months ended September 30, 2023, the Company had domestic pre-tax book loss of $553 million and foreign pre-tax book loss of $313 million. As of December 31, 2022, the Company had cumulative U.S. Federal NOL carryforwards of $8.2 billion, which do not have an expiration date, and cumulative state NOL carryforwards of $5.3 billion for financial statement purposes. NRG also has cumulative foreign NOL carryforwards of $382 million, most of which do not have an expiration date. In addition to the above NOLs, NRG has a $270 million indefinite carryforward for interest deductions, as well as $393 million of tax credits to be utilized in future years. In connection with the Vivint Smart Home acquisition, additional federal and state NOLs of $2.1 billion and $1.8 billion, respectively, were added, as well as a federal carryforward for interest deductions of $739 million. As a result of the Company's tax position, including the utilization of federal and state NOLs, and based on current forecasts, the Company anticipates net income tax payments due to federal, state and foreign jurisdictions of up to $70 million in 2023. The Company does not anticipate that the corporate minimum book tax will have a material impact on the current year consolidated financial statements.

As of September 30, 2023, the Company has $45 million of tax-effected uncertain federal, state, and foreign tax benefits, for which the Company has recorded a non-current tax liability of $48 million (inclusive of accrued interest) until final resolution is reached with the related taxing authority.

The Company is no longer subject to U.S. federal income tax examinations for years prior to 2019. With few exceptions, state and Canadian income tax examinations are no longer open for years prior to 2014.

Deferred tax assets and valuation allowance

Net deferred tax balance — As of September 30, 2023 and December 31, 2022, NRG recorded a net deferred tax asset, excluding valuation allowance, of $2.5 billion and $2.0 billion, respectively. The Company believes certain state net operating losses may not be realizable under the more-likely-than-not measurement and as such, a valuation allowance was recorded as of September 30, 2023 and December 31, 2022 as discussed below.

NOL Carryforwards — As of September 30, 2023, the Company had a tax-effected cumulative U.S. NOLs consisting of carryforwards for federal and state income tax purposes of $1.7 billion and $315 million, respectively. Additional federal and state NOLs of $446 million and $70 million, respectively, were added with the acquisition of Vivint Smart Home. The Company estimates it will need to generate future taxable income to fully realize the net federal deferred tax asset before the expiration of certain carryforwards commences in 2030. In addition, NRG has tax-effected cumulative foreign NOL carryforwards of $99 million.

Valuation Allowance — As of September 30, 2023 and December 31, 2022, the Company’s tax-effected valuation allowance was $228 million and $224 million, respectively, consisting of state NOL carryforwards and foreign NOL carryforwards. The valuation allowance was recorded based on the assessment of cumulative and forecasted pre-tax book earnings and the future reversal of existing taxable temporary differences.

Guarantor Financial Information

As of September 30, 2023, the Company's outstanding registered senior notes consisted of $375 million of the 2027 Senior Notes and $821 million of the 2028 Senior Notes as shown in Note 9, Long-term Debt and Finance Leases. These Senior Notes are guaranteed by certain of NRG's current and future 100% owned domestic subsidiaries, or guarantor subsidiaries (the “Guarantors”). See Exhibit 22.1 to this Form 10-Q for a listing of the Guarantors. These guarantees are both joint and several.

NRG conducts much of its business through and derives much of its income from its subsidiaries. Therefore, the Company's ability to make required payments with respect to its indebtedness and other obligations depends on the financial results and condition of its subsidiaries and NRG's ability to receive funds from its subsidiaries. There are no restrictions on the ability of any of the Guarantors to transfer funds to NRG. Other subsidiaries of the Company do not guarantee the registered debt securities of either NRG Energy, Inc or the Guarantors (such subsidiaries are referred to as the “Non-Guarantors”). The Non-Guarantors include all of NRG's foreign subsidiaries and certain domestic subsidiaries.

The following tables present summarized financial information of NRG Energy, Inc. and the Guarantors in accordance with Rule 3-10 under the SEC's Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position of NRG Energy, Inc. and the Guarantors in accordance with U.S. GAAP.

The following table presents the summarized statement of operations:

(In millions)			Nine months ended September 30, 2023
Revenue(a)			$	18,590
Operating loss(b)			(288)
Total other expense			(301)
Loss before income taxes			(589)
Net Loss			(511)

(a)Intercompany transactions with Non-Guarantors of $7 million during the nine months ended September 30, 2023

(b)Intercompany transactions with Non-Guarantors including cost of operations of $22 million and selling, general and administrative of $153 million during the nine months ended September 30, 2023

The following table presents the summarized balance sheet information:

(In millions)			September 30, 2023
Current assets(a)			$	6,780
Property, plant and equipment, net			1,207
Non-current assets			14,323
Current liabilities(b)			7,471
Non-current liabilities			11,385

(a)Includes intercompany receivables due from Non-Guarantors of $58 million as of September 30, 2023

(b)Includes intercompany payables due to Non-Guarantors of $39 million as of September 30, 2023

Fair Value of Derivative Instruments

NRG may enter into power purchase and sales contracts, fuel purchase contracts and other energy-related financial instruments to mitigate variability in earnings due to fluctuations in spot market prices and to hedge fuel requirements at power plants or retail load obligations. In order to mitigate interest rate risk associated with the issuance of the Company's variable rate debt, NRG enters into interest rate swap agreements. In addition, in order to mitigate foreign exchange rate risk primarily associated with the purchase of U.S. dollar denominated natural gas for the Company's Canadian business, NRG enters into foreign exchange contract agreements.

Under Flex Pay, offered by Vivint Smart Home, subscribers pay for smart home products by obtaining financing from a third-party financing provider under the Consumer Financing Program. Vivint Smart Home pays certain fees to the financing providers and shares in credit losses depending on the credit quality of the subscriber.

NRG's trading activities are subject to limits in accordance with the Company's Risk Management Policy. These contracts are recognized on the balance sheet at fair value and changes in the fair value of these derivative financial instruments are recognized in earnings.

The following tables disclose the activities that include both exchange and non-exchange traded contracts accounted for at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). Specifically, these tables disaggregate realized and unrealized changes in fair value; disaggregate estimated fair values as of September 30, 2023, based on their level within the fair value hierarchy defined in ASC 820; and indicate the maturities of contracts at September 30, 2023. For a full discussion of the Company's valuation methodology of its contracts, see Derivative Fair Value Measurements in Note 5, Fair Value of Financial Instruments.

Derivative Activity Gains/(Losses)			(In millions)
Fair Value of Contracts as of December 31, 2022			$	3,553
Contracts realized or otherwise settled during the period			(1,452)
Vivint Smart Home contracts acquired during the period			(112)
Other changes in fair value			(429)
Fair Value of Contracts as of September 30, 2023			$	1,560

			Fair Value of Contracts as of September 30, 2023
(In millions)			Maturity
Fair Value Hierarchy Gains			1 Year or Less						Greater than 1 Year to 3 Years						Greater than 3 Years to 5 Years						Greater than 5 Years						Total Fair Value
Level 1			$	26					$	183					$	3					$	1					$	213
Level 2			553						433						63						5						1,054
Level 3			3						70						72						148						293
Total			$	582					$	686					$	138					$	154					$	1,560

The Company has elected to disclose derivative assets and liabilities on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. Also, collateral received or posted on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. Consequently, the magnitude of the changes in individual current and non-current derivative assets or liabilities is higher than the underlying credit and market risk of the Company's portfolio. As discussed in Item 3, Quantitative and Qualitative Disclosures About Market Risk — Commodity Price Risk, to this Form 10-Q, NRG measures the sensitivity of the Company's portfolio to potential changes in market prices using VaR, a statistical model which attempts to predict risk of loss based on market price and volatility. NRG's risk management policy places a limit on one-day holding period VaR, which limits the Company's net open position. As the Company's trade-by-trade derivative accounting results in a gross-up of the Company's derivative assets and liabilities, the net derivative asset and liability position is a better indicator of NRG's hedging activity. As of September 30, 2023, NRG's net derivative asset was $1.6 billion, a decrease to total fair value of $2.0 billion as compared to December 31, 2022. This decrease was primarily driven by roll-off of trades that settled during the period, losses in fair value, and Vivint Smart Home contracts acquired during the period.

Based on a sensitivity analysis using simplified assumptions, the impact of a $0.50 per MMBtu increase or decrease in natural gas prices across the term of the derivative contracts would result in a change of approximately $1.8 billion in the net value of derivatives as of September 30, 2023.

Critical Accounting Estimates

NRG's discussion and analysis of the financial condition and results of operations are based upon the condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements and related disclosures in compliance with GAAP requires the application of appropriate technical accounting rules and guidance as well as the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. The application of appropriate technical accounting rules and guidance involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges, and the fair value of certain assets and liabilities. These judgments, in and of themselves, could materially affect the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment may also have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies has not changed.

NRG evaluates these estimates, on an ongoing basis, utilizing historic experience, consultation with experts and other methods the Company considers reasonable. In any event, actual results may differ substantially from the Company's estimates. Any effects on the Company's business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the information that gives rise to the revision becomes known.

The Company identifies its most critical accounting estimates as those that are the most pervasive and important to the portrayal of the Company's financial position and results of operations, and require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain.

The Company's critical accounting estimates are described in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Company's 2022 Form 10-K. There have been no material changes to the Company's critical accounting estimates since the 2022 Form 10-K.