filings.toolsItem 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
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Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions, except for per share amounts) | 2024 | 2023 | |||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Revenue | $ | 7,429 | $ | 7,722 | |||||||||||||||||||
| Operating Costs and Expenses | |||||||||||||||||||||||
| Cost of operations (excluding depreciation and amortization shown below) | 5,685 | 8,778 | |||||||||||||||||||||
| Depreciation and amortization | 268 | 190 | |||||||||||||||||||||
| Selling, general and administrative costs | 591 | 426 | |||||||||||||||||||||
| Acquisition-related transaction and integration costs | 9 | 71 | |||||||||||||||||||||
| Total operating costs and expenses | 6,553 | 9,465 | |||||||||||||||||||||
| (Loss)/gain on sale of assets | (4) | 199 | |||||||||||||||||||||
| Operating Income/(Loss) | 872 | (1,544) | |||||||||||||||||||||
| Other Income/(Expense) | |||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | 3 | 5 | |||||||||||||||||||||
| Other income, net | 30 | 16 | |||||||||||||||||||||
| Loss on debt extinguishment | (58) | — | |||||||||||||||||||||
| Interest expense | (152) | (148) | |||||||||||||||||||||
| Total other expense | (177) | (127) | |||||||||||||||||||||
| Income/(Loss) Before Income Taxes | 695 | (1,671) | |||||||||||||||||||||
| Income tax expense/(benefit) | 184 | (336) | |||||||||||||||||||||
| Net Income/(Loss) | $ | 511 | $ | (1,335) | |||||||||||||||||||
| Less: Cumulative dividends attributable to Series A Preferred Stock | 17 | 4 | |||||||||||||||||||||
| Net Income/(Loss) Available for Common Stockholders | $ | 494 | $ | (1,339) | |||||||||||||||||||
| Income/(Loss) per Share | |||||||||||||||||||||||
| Weighted average number of common shares outstanding — basic | 209 | 230 | |||||||||||||||||||||
| Income/(Loss) per Weighted Average Common Share — Basic | $ | 2.36 | $ | (5.82) | |||||||||||||||||||
| Weighted average number of common shares outstanding — diluted | 214 | 230 | |||||||||||||||||||||
| Income/(Loss) per Weighted Average Common Share —Diluted | $ | 2.31 | $ | (5.82) |
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Net Income/(Loss) | $ | 511 | $ | (1,335) | |||||||||||||||||||
| Other Comprehensive (Loss)/Income | |||||||||||||||||||||||
| Foreign currency translation adjustments | (8) | 1 | |||||||||||||||||||||
| Defined benefit plans | (1) | — | |||||||||||||||||||||
| Other comprehensive (loss)/income | (9) | 1 | |||||||||||||||||||||
| Comprehensive Income/(Loss) | $ | 502 | $ | (1,334) | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2024 | December 31, 2023 | ||||||||||
| (In millions, except share data) | (Unaudited) | (Audited) | |||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 278 | $ | 541 | |||||||
| Funds deposited by counterparties | 241 | 84 | |||||||||
| Restricted cash | 15 | 24 | |||||||||
| Accounts receivable, net | 3,325 | 3,542 | |||||||||
| Inventory | 581 | 607 | |||||||||
| Derivative instruments | 3,807 | 3,862 | |||||||||
| Cash collateral paid in support of energy risk management activities | 309 | 441 | |||||||||
| Prepayments and other current assets | 712 | 626 | |||||||||
| Total current assets | 9,268 | 9,727 | |||||||||
| Property, plant and equipment, net | 1,768 | 1,763 | |||||||||
| Other Assets | |||||||||||
| Equity investments in affiliates | 43 | 42 | |||||||||
| Operating lease right-of-use assets, net | 179 | 179 | |||||||||
| Goodwill | 5,076 | 5,079 | |||||||||
| Customer relationships, net | 2,064 | 2,164 | |||||||||
| Other intangible assets, net | 1,662 | 1,763 | |||||||||
| Derivative instruments | 2,399 | 2,293 | |||||||||
| Deferred income taxes | 2,100 | 2,251 | |||||||||
| Other non-current assets | 842 | 777 | |||||||||
| Total other assets | 14,365 | 14,548 | |||||||||
| Total Assets | $ | 25,401 | $ | 26,038 | |||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| (In millions, except share data) | (Unaudited) | (Audited) | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Current portion of long-term debt and finance leases | $ | 1,101 | $ | 620 | |||||||
| Current portion of operating lease liabilities | 94 | 90 | |||||||||
| Accounts payable | 2,027 | 2,325 | |||||||||
| Derivative instruments | 3,591 | 4,019 | |||||||||
| Cash collateral received in support of energy risk management activities | 241 | 84 | |||||||||
| Deferred revenue current | 710 | 720 | |||||||||
| Accrued expenses and other current liabilities | 1,412 | 1,642 | |||||||||
| Total current liabilities | 9,176 | 9,500 | |||||||||
| Other Liabilities | |||||||||||
| Long-term debt and finance leases | 9,559 | 10,133 | |||||||||
| Non-current operating lease liabilities | 124 | 128 | |||||||||
| Derivative instruments | 1,439 | 1,488 | |||||||||
| Deferred income taxes | 8 | 22 | |||||||||
| Deferred revenue non-current | 859 | 914 | |||||||||
| Other non-current liabilities | 939 | 947 | |||||||||
| Total other liabilities | 12,928 | 13,632 | |||||||||
| Total Liabilities | 22,104 | 23,132 | |||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders' Equity | |||||||||||
| Preferred stock; 10,000,000 shares authorized; 650,000 Series A shares issued and outstanding at March 31, 2024 and December 31, 2023, aggregate liquidation preference of $650 at March 31, 2024 and December 31, 2023 | 650 | 650 | |||||||||
| Common stock; $0.01 par value; 500,000,000 shares authorized; 267,365,782 and 267,330,470 shares issued and 208,166,262 and 208,130,950 shares outstanding at March 31, 2024 and December 31, 2023, respectively | 3 | 3 | |||||||||
| Additional paid-in-capital | 3,503 | 3,416 | |||||||||
| Retained earnings | 1,212 | 820 | |||||||||
| Treasury stock, at cost; 59,199,520 shares at March 31, 2024 and December 31, 2023 | (1,971) | (1,892) | |||||||||
| Accumulated other comprehensive loss | (100) | (91) | |||||||||
| Total Stockholders' Equity | 3,297 | 2,906 | |||||||||
| Total Liabilities and Stockholders' Equity | $ | 25,401 | $ | 26,038 |
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net Income/(Loss) | $ | 511 | $ | (1,335) | |||||||
| Adjustments to reconcile net income/(loss) to cash provided/(used) by operating activities: | |||||||||||
| Equity in and distributions from earnings of unconsolidated affiliates | (2) | (5) | |||||||||
| Depreciation and amortization | 268 | 190 | |||||||||
| Accretion of asset retirement obligations | 4 | 6 | |||||||||
| Provision for credit losses | 75 | 35 | |||||||||
| Amortization of nuclear fuel | — | 13 | |||||||||
| Amortization of financing costs and debt discounts | 11 | 20 | |||||||||
| Loss on debt extinguishment | 58 | — | |||||||||
| Amortization of in-the-money contracts and emissions allowances | 78 | 119 | |||||||||
| Amortization of unearned equity compensation | 30 | 30 | |||||||||
| Net loss/(gain) on sale of assets and disposal of assets | 9 | (187) | |||||||||
| Changes in derivative instruments | (535) | 1,599 | |||||||||
| Changes in current and deferred income taxes and liability for uncertain tax benefits | 139 | (338) | |||||||||
| Changes in collateral deposits in support of risk management activities | 289 | (1,412) | |||||||||
| Changes in nuclear decommissioning trust liability | — | (16) | |||||||||
| Changes in other working capital | (668) | (317) | |||||||||
| Cash provided/(used) by operating activities | $ | 267 | $ | (1,598) | |||||||
| Cash Flows from Investing Activities | |||||||||||
| Payments for acquisitions of businesses and assets, net of cash acquired | $ | (22) | $ | (2,492) | |||||||
| Capital expenditures | (69) | (142) | |||||||||
| Net purchases of emissions allowances | (7) | (18) | |||||||||
| Investments in nuclear decommissioning trust fund securities | — | (87) | |||||||||
| Proceeds from the sale of nuclear decommissioning trust fund securities | — | 99 | |||||||||
| Proceeds from sales of assets, net of cash disposed | 3 | 219 | |||||||||
| Proceeds from insurance recoveries for property, plant and equipment, net | 3 | 71 | |||||||||
| Cash used by investing activities | $ | (92) | $ | (2,350) | |||||||
| Cash Flows from Financing Activities | |||||||||||
| Proceeds from issuance of preferred stock, net of fees | $ | — | $ | 636 | |||||||
| Payments of dividends to preferred and common stockholders | (118) | (87) | |||||||||
| Equivalent shares purchased in lieu of tax withholdings | (23) | (8) | |||||||||
| Net receipts from settlement of acquired derivatives that include financing elements | 8 | 336 | |||||||||
| Net proceeds of Revolving Credit Facility and Receivable Securitization Facilities | — | 725 | |||||||||
| Proceeds from issuance of long-term debt | — | 731 | |||||||||
| Payments of debt issuance costs | — | (18) | |||||||||
| Repayments of long-term debt and finance leases | (97) | (4) | |||||||||
| Payments for debt extinguishment costs | (58) | — | |||||||||
| Proceeds from credit facilities | 525 | 1,050 | |||||||||
| Repayments to credit facilities | (525) | (825) | |||||||||
| Cash (used)/provided by financing activities | $ | (288) | $ | 2,536 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (2) | 3 | |||||||||
| Net Decrease in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash | (115) | (1,409) | |||||||||
| Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period | 649 | 2,178 | |||||||||
| Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period | $ | 534 | $ | 769 |
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| (In millions) | Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stock-holders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 650 | $ | 3 | $ | 3,416 | $ | 820 | $ | (1,892) | $ | (91) | $ | 2,906 | |||||||||||||||||||||||||||||||||||||||
| Net income | 511 | 511 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (9) | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases(a) | 117 | (117) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury stock(b) | (38) | 38 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based awards activity, net(c) | 8 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents declared(d) | (86) | (86) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dividends(e) | (33) | (33) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | 650 | $ | 3 | $ | 3,503 | $ | 1,212 | $ | (1,971) | $ | (100) | $ | 3,297 | |||||||||||||||||||||||||||||||||||||||
| (In millions) | Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings/(Accumulated Deficit) | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stock-holders' Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | — | $ | 4 | $ | 8,457 | $ | 1,408 | $ | (5,864) | $ | (177) | $ | 3,828 | |||||||||||||||||||||||||||||||||
| Net loss | (1,335) | (1,335) | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series A Preferred Stock | 650 | (14) | 636 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||
| Equity-based awards activity, net(c) | 38 | 38 | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents declared(d) | (88) | (88) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 650 | $ | 4 | $ | 8,481 | $ | (15) | $ | (5,864) | $ | (176) | $ | 3,080 | |||||||||||||||||||||||||||||||||
(a)Represents the final settlements of the November 6, 2023 ASR agreements. See Note 9, Changes in Capital Structure for additional information
(b)Treasury stock retired had an average price per share of $32.67
(c)Includes $(23) million and $(8) million of equivalent shares purchased in lieu of tax withholding on equity compensation issuances for the quarters ended March 31, 2024 and 2023, respectively
(d)Dividends per common share were $0.4075 and $0.3775 for the quarters ended March 31, 2024 and 2023, respectively
(e)Dividend per Series A Preferred Stock was $51.25
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Nature of Business and Basis of Presentation
General
NRG Energy, Inc., or NRG or the Company, sits at the intersection of energy and home services. NRG is a leading energy and home 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 8.0 million residential consumers in addition to commercial, industrial, and wholesale customers, supported by approximately 13 GW of generation as of March 31, 2024.
The Company's business is segmented as follows:
-
Texas, which includes all activity related to customer, plant and market operations in Texas, other than Cottonwood;
-
East, which includes all activity related to customer, plant and market operations in the East;
-
West/Services/Other, which includes the following assets and activities: (i) all activity related to customer, plant and market operations in the West and Canada, (ii) the Services businesses (iii) activity related to the Cottonwood facility and other investments;
-
Vivint Smart Home; and
-
Corporate activities.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the SEC's regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the consolidated financial statements in the Company's 2023 Form 10-K. Interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of March 31, 2024, and the results of operations, comprehensive income/(loss), cash flows and stockholders' equity for the three months ended March 31, 2024 and 2023.
The Company identified an error in the previously issued condensed consolidated financial statements for the period ended March 31, 2023 related to the presentation of cash flows associated with certain borrowings and repayments related to certain credit facilities. The statement of cash flows for the period ended March 31, 2023 has been adjusted to present on a gross basis the certain borrowings from credit facilities of $1.1 billion and the related repayments of $825 million. The change had no impact to the total cash used by financing activities for the period ended March 31, 2023. The Company evaluated the materiality of this error both qualitatively and quantitatively and has concluded it is immaterial to the impacted period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes. The reclassifications did not affect consolidated results of operations, net assets or consolidated cash flows.
Note 2 — Summary of Significant Accounting Policies
Other Balance Sheet Information
The following table presents the accumulated depreciation included in property, plant and equipment, net and accumulated amortization included in customer relationships, net and other intangible assets, net:
| (In millions) | March 31, 2024 | December 31, 2023 | |||||||||
| Property, plant and equipment accumulated depreciation | $ | 1,352 | $ | 1,295 | |||||||
| Customer relationships and other intangible assets accumulated amortization | 3,113 | 2,994 |
Credit Losses
Retail trade receivables are reported on the consolidated balance sheet net of the allowance for credit losses within accounts receivables, net. Long-term receivables are recorded net of allowance for credit losses in other non-current assets on the consolidated balance sheet. The Company accrues a provision for current expected credit losses based on (i) estimates of uncollectible revenues by analyzing accounts receivable aging and current and reasonable forecasts of expected economic factors including, but not limited to, unemployment rates and weather-related events, (ii) historical collections and delinquencies, and (iii) counterparty credit ratings for commercial and industrial customers.
The following table represents the activity in the allowance for credit losses for the three months ended March 31, 2024 and 2023:
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Beginning balance | $ | 145 | $ | 133 | |||||||||||||||||||
| Acquired balance from Vivint Smart Home | — | 22 | |||||||||||||||||||||
| Provision for credit losses | 75 | 35 | |||||||||||||||||||||
| Write-offs | (92) | (78) | |||||||||||||||||||||
| Recoveries collected | 10 | 9 | |||||||||||||||||||||
| Other | 2 | — | |||||||||||||||||||||
| Ending balance | $ | 140 | $ | 121 |
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, restricted cash and funds deposited by counterparties reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows:
| (In millions) | March 31, 2024 | December 31, 2023 | |||||||||
| Cash and cash equivalents | $ | 278 | $ | 541 | |||||||
| Funds deposited by counterparties | 241 | 84 | |||||||||
| Restricted cash | 15 | 24 | |||||||||
| Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows | $ | 534 | $ | 649 |
Funds deposited by counterparties consist of cash held by the Company as a result of collateral posting obligations from its counterparties related to NRG's hedging program. Though some amounts are segregated into separate accounts, not all funds are contractually restricted. Based on the Company's intention, these funds are not available for the payment of general corporate obligations; however, they are available for liquidity management. Depending on market fluctuations and the settlement of the underlying contracts, the Company will refund this collateral to the counterparties pursuant to the terms and conditions of the underlying trades. Since collateral requirements fluctuate daily and the Company cannot predict if any collateral will be held for more than twelve months, the funds deposited by counterparties are classified as a current asset on the Company's balance sheet, with an offsetting liability for this cash collateral received within current liabilities.
Restricted cash consists primarily of funds held to satisfy the requirements of certain financing agreements and funds held within the Company's projects that are restricted in their uses.
Recent Accounting Developments — Guidance Not Yet Adopted
ASU 2023-07 – In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, or ASU 2023-07. The guidance in ASU 2023-07 enhances reportable segment disclosure
requirements by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit and loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. The Company plans to adopt the amendments for the annual period ending December 31, 2024 and subsequent interim periods thereafter. The amendments will be applied retrospectively for all prior periods presented in the financial statements.
ASU 2023-09 – In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, or ASU 2023-09. The guidance in ASU 2023-09 enhances income tax disclosures by requiring disclosure of specific categories in the effective tax rate reconciliation and additional information for reconciling items that meet a quantitative threshold. Further the amendments of ASU 2023-09 require certain disclosures on income tax expense and income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments of ASU 2023-09 may be applied on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting ASU 2023-09 on its disclosures.
Note 3 — Revenue Recognition
Performance Obligations
As of March 31, 2024, estimated future fixed fee performance obligations are $1.0 billion for the remaining nine months of fiscal year 2024, and $1.1 billion, $766 million, $484 million, $210 million and $4 million for the fiscal years 2025, 2026, 2027, 2028 and 2029, respectively. These performance obligations include Vivint Smart Home products and services, as well as cleared auction MWs in the PJM, ISO-NE, NYISO and MISO capacity auctions. The cleared auction MWs are subject to penalties for non-performance.
Disaggregated Revenues
The following tables represent the Company’s disaggregation of revenue from contracts with customers for the three months ended March 31, 2024 and 2023:
| Three months ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue: | |||||||||||||||||||||||||||||||||||
| Home*(a)* | $ | 1,360 | $ | 702 | $ | 599 | $ | 468 | $ | — | $ | 3,129 | |||||||||||||||||||||||
| Business | 818 | 2,726 | 556 | — | — | 4,100 | |||||||||||||||||||||||||||||
| Total retail revenue*(b)* | 2,178 | 3,428 | 1,155 | 468 | — | 7,229 | |||||||||||||||||||||||||||||
| Energy revenue(b) | 7 | 81 | 67 | — | (3) | 152 | |||||||||||||||||||||||||||||
| Capacity revenue(b) | — | 41 | 2 | — | (1) | 42 | |||||||||||||||||||||||||||||
| Mark-to-market for economic hedging activities(c) | — | (51) | (9) | — | — | (60) | |||||||||||||||||||||||||||||
| Contract amortization | — | (10) | — | — | — | (10) | |||||||||||||||||||||||||||||
| Other revenue(b) | 48 | 26 | 4 | — | (2) | 76 | |||||||||||||||||||||||||||||
| Total revenue | 2,233 | 3,515 | 1,219 | 468 | (6) | 7,429 | |||||||||||||||||||||||||||||
| Less: Revenues accounted for under topics other than ASC 606 and ASC 815 | — | 10 | 6 | — | — | 16 | |||||||||||||||||||||||||||||
| Less: Realized and unrealized ASC 815 revenue | 2 | 24 | 10 | — | (3) | 33 | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | $ | 2,231 | $ | 3,481 | $ | 1,203 | $ | 468 | $ | (3) | $ | 7,380 | |||||||||||||||||||||||
| (a) Home includes Services | |||||||||||||||||||||||||||||||||||
| (b) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 and included in the amounts above: | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue | $ | — | $ | 10 | $ | — | $ | — | $ | — | $ | 10 | |||||||||||||||||||||||
| Energy revenue | — | 43 | 22 | — | (3) | 62 | |||||||||||||||||||||||||||||
| Capacity revenue | — | 22 | — | — | — | 22 | |||||||||||||||||||||||||||||
| Other revenue | 2 | — | (3) | — | — | (1) | |||||||||||||||||||||||||||||
| (c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 |
| Three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home**(a)** | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue: | |||||||||||||||||||||||||||||||||||
| Home*(b)* | $ | 1,236 | $ | 651 | $ | 625 | $ | 148 | $ | — | $ | 2,660 | |||||||||||||||||||||||
| Business | 722 | 3,365 | 616 | — | — | 4,703 | |||||||||||||||||||||||||||||
| Total retail revenue(c) | 1,958 | 4,016 | 1,241 | 148 | — | 7,363 | |||||||||||||||||||||||||||||
| Energy revenue(c) | 4 | 74 | 48 | — | 2 | 128 | |||||||||||||||||||||||||||||
| Capacity revenue(c) | — | 41 | 1 | — | — | 42 | |||||||||||||||||||||||||||||
| Mark-to-market for economic hedging activities(d) | — | 35 | 67 | — | (11) | 91 | |||||||||||||||||||||||||||||
| Contract amortization | — | (11) | — | — | — | (11) | |||||||||||||||||||||||||||||
| Other revenue(c) | 72 | 21 | 17 | — | (1) | 109 | |||||||||||||||||||||||||||||
| Total revenue | 2,034 | 4,176 | 1,374 | 148 | (10) | 7,722 | |||||||||||||||||||||||||||||
| Less: Revenues accounted for under topics other than ASC 606 and ASC 815 | — | (1) | 9 | — | — | 8 | |||||||||||||||||||||||||||||
| Less: Realized and unrealized ASC 815 revenue | (2) | 113 | 97 | — | (9) | 199 | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | $ | 2,036 | $ | 4,064 | $ | 1,268 | $ | 148 | $ | (1) | $ | 7,515 | |||||||||||||||||||||||
| (a) Includes results of operations following the acquisition date of March 10, 2023 | |||||||||||||||||||||||||||||||||||
| (b) Home includes Services | |||||||||||||||||||||||||||||||||||
| (c) The following table represents the realized revenues related to derivative instruments that are accounted for under ASC 815 and included in the amounts above: | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue | $ | — | $ | 27 | $ | — | $ | — | $ | — | $ | 27 | |||||||||||||||||||||||
| Energy revenue | — | 47 | 17 | — | 2 | 66 | |||||||||||||||||||||||||||||
| Capacity revenue | — | 6 | — | — | — | 6 | |||||||||||||||||||||||||||||
| Other revenue | (2) | (2) | 13 | — | — | 9 | |||||||||||||||||||||||||||||
| (d) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 |
Contract Balances
The following table reflects the contract assets and liabilities included in the Company’s balance sheet as of March 31, 2024 and December 31, 2023:
| (In millions) | March 31, 2024 | December 31, 2023 | |||||||||
| Capitalized contract costs (included in Prepayments and other current assets and Other non-current assets) | $ | 807 | $ | 706 | |||||||
| Accounts receivable, net - Contracts with customers | 3,207 | 3,395 | |||||||||
| Accounts receivable, net - Accounted for under topics other than ASC 606 | 104 | 136 | |||||||||
| Accounts receivable, net - Affiliate | 14 | 11 | |||||||||
| Total accounts receivable, net | $ | 3,325 | $ | 3,542 | |||||||
| Unbilled revenues (included within Accounts receivable, net - Contracts with customers) | $ | 1,293 | $ | 1,493 | |||||||
| Deferred revenues(a) | 1,569 | 1,634 |
(a)Deferred revenues from contracts with customers as of March 31, 2024 and December 31, 2023 were approximately $1.5 billion and $1.6 billion, respectively.
The revenue recognized from contracts with customers during the three months ended March 31, 2024 and 2023 relating to the deferred revenue balance at the beginning of each period was $276 million and $168 million, respectively. The increase in deferred revenue balances recognized during the three months ended March 31, 2024 when compared to the same period in 2023 was primarily due to the acquisition of Vivint Smart Home.
Note 4 — Acquisitions and Dispositions
Acquisitions
2023 Acquisition of Vivint Smart Home
On March 10, 2023, the Company completed the acquisition of Vivint Smart Home, Inc., pursuant to the Agreement and Plan of Merger, dated as of December 6, 2022, by and among the Company, Vivint Smart Home, Inc. and Jetson Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”) pursuant to which Merger Sub merged with and into Vivint Smart Home, Inc., with Vivint Smart Home, Inc. surviving the merger as a wholly-owned subsidiary of the Company. Dedicated to redefining the home experience with intelligent products and services, Vivint Smart Home brought approximately two million subscribers to NRG. Vivint Smart Home's single, expandable platform incorporates artificial intelligence and machine learning into its operating system and its vertically integrated business model includes hardware, software, sales, installation, customer service and technical support and professional monitoring, enabling superior subscriber experiences and a complete end-to-end smart home experience. The acquisition accelerated the realization of NRG's consumer-focused growth strategy and creates a leading essential home services platform fueled by market-leading brands, unparalleled insights, proprietary technologies and complementary sales channels.
NRG paid $12 per share, or approximately $2.6 billion in cash. The Company funded the acquisition using:
-
proceeds of $724 million from newly issued $740 million 7.000% Senior Secured First Lien Notes due 2033, net of issuance costs and discount;
-
proceeds of $635 million from newly issued $650 million 10.25% Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, net of issuance costs;
-
proceeds of approximately $900 million drawn from its Revolving Credit Facility and Receivables Securitization Facilities; and
-
cash on hand.
The acquisition has been recorded as a business combination under ASC 805, with identifiable assets and liabilities acquired recorded at their estimated Acquisition Closing Date fair value. The total consideration of $2.623 billion includes:
| (In millions) | ||||||||
| Vivint Smart Home, Inc. common shares outstanding as of March 10, 2023 of 216,901,639 at $12.00 per share | $ | 2,603 | ||||||
| Other Vivint Smart Home, Inc. equity instruments (Cash out RSUs and PSUs, Stock Appreciation Rights, Private Placement Warrants) | 6 | |||||||
| Total Cash Consideration | $ | 2,609 | ||||||
| Fair value of acquired Vivint Smart Home, Inc. equity awards attributable to pre-combination service | 14 | |||||||
| Total Consideration | $ | 2,623 |
Acquisition costs of $36 million for the three months ended March 31, 2023 are included in acquisition-related transaction and integration costs in the Company's consolidated statement of operations.
For additional information, refer to Note 4, Acquisitions and Dispositions, to the Company's 2023 Form 10-K.
Dispositions
On January 6, 2023, the Company closed on the sale of land and related generation assets from the Astoria site, within the East region of operations, for proceeds of $212 million, subject to transaction fees of $3 million and certain indemnifications, resulting in a $199 million gain.
Note 5 — Fair Value of Financial Instruments
For cash and cash equivalents, funds deposited by counterparties, restricted cash, accounts and other receivables, accounts payable and cash collateral paid and received in support of energy risk management activities, the carrying amounts approximate fair values because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.
The estimated carrying value and fair value of the Company's long-term debt, including current portion, is as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| (In millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||
| Convertible Senior Notes | $ | 483 | $ | 798 | $ | 575 | $ | 739 | |||||||||||||||
| Other long-term debt, including current portion | 10,222 | 9,894 | 10,219 | 9,835 | |||||||||||||||||||
| Total long-term debt, including current portion(a) | $ | 10,705 | $ | 10,692 | $ | 10,794 | $ | 10,574 |
(a)Excludes deferred financing costs, which are recorded as a reduction to long-term debt in the Company's consolidated balance sheets
The fair value of the Company's publicly-traded long-term debt and the Vivint Senior Secured Term Loan are based on quoted market prices and are classified as Level 2 within the fair value hierarchy.
Recurring Fair Value Measurements
Debt securities, equity securities and derivative assets and liabilities are carried at fair market value.
The following tables present assets and liabilities measured and recorded at fair value on the Company's condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:
| March 31, 2024 | |||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||
| (In millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Investments in securities (classified within other current and non-current assets) | $ | 22 | $ | — | $ | 22 | $ | — | |||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate contracts | 25 | — | 25 | — | |||||||||||||||||||
| Foreign exchange contracts | 8 | — | 8 | — | |||||||||||||||||||
| Commodity contracts | 6,173 | 1,186 | 4,708 | 279 | |||||||||||||||||||
| Equity securities measured using net asset value practical expedient (classified within other non-current assets) | 6 | ||||||||||||||||||||||
| Total assets | $ | 6,234 | $ | 1,186 | $ | 4,763 | $ | 279 | |||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Interest rate contracts | $ | 10 | $ | — | $ | 10 | $ | — | |||||||||||||||
| Foreign exchange contracts | 2 | — | 2 | — | |||||||||||||||||||
| Commodity contracts | 4,894 | 1,237 | 3,469 | 188 | |||||||||||||||||||
| Consumer Financing Program | 124 | — | — | 124 | |||||||||||||||||||
| Total liabilities | $ | 5,030 | $ | 1,237 | $ | 3,481 | $ | 312 |
| December 31, 2023 | |||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||
| (In millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Investments in securities (classified within other current and non-current assets) | $ | 21 | $ | — | $ | 21 | $ | — | |||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate contracts | 12 | — | 12 | — | |||||||||||||||||||
| Foreign exchange contracts | 5 | — | 5 | — | |||||||||||||||||||
| Commodity contracts | 6,138 | 1,334 | 4,470 | 334 | |||||||||||||||||||
| Equity securities measured using net asset value practical expedient (classified within other non-current assets) | 6 | ||||||||||||||||||||||
| Total assets | $ | 6,182 | $ | 1,334 | $ | 4,508 | $ | 334 | |||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Interest rate contracts | $ | 8 | $ | — | $ | 8 | $ | — | |||||||||||||||
| Foreign exchange contracts | 9 | — | 9 | — | |||||||||||||||||||
| Commodity contracts | 5,356 | 1,413 | 3,728 | 215 | |||||||||||||||||||
| Consumer Financing Program | 134 | — | — | 134 | |||||||||||||||||||
| Total liabilities | $ | 5,507 | $ | 1,413 | $ | 3,745 | $ | 349 |
The following table reconciles, for the three months ended March 31, 2024 and 2023, the beginning and ending balances for financial instruments that are recognized at fair value in the condensed consolidated financial statements, using significant unobservable inputs, for commodity derivatives:
| Fair Value Measurement Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||
| Commodity Derivatives**(a)** | |||||||||||||||||||||||
| (In millions) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||||||||||||||||
| Beginning balance | $ | 119 | $ | 505 | |||||||||||||||||||
| Total (losses) realized/unrealized included in earnings | (41) | (91) | |||||||||||||||||||||
| Purchases | — | 41 | |||||||||||||||||||||
| Transfers into Level 3(b) | 15 | 24 | |||||||||||||||||||||
| Transfers out of Level 3(b) | (2) | (8) | |||||||||||||||||||||
| Ending balance | $ | 91 | $ | 471 | |||||||||||||||||||
| (Losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of period end | $ | (37) | $ | (55) |
(a)Consists of derivative assets and liabilities, net, excluding derivatives liabilities from Consumer Financing Program, which are presented in a separate table below
(b)Transfers into/out of Level 3 are related to the availability of consensus pricing and external broker quotes and are valued as of the end of the reporting period. All transfers in/out of Level 3 are from/to Level 2
Realized and unrealized gains and losses included in earnings that are related to the commodity derivatives are recorded in revenues and cost of operations.
The following table reconciles, for the three months ended March 31, 2024 and 2023, the beginning and ending balances of the contractual obligations from the Consumer Financing Program that are recognized at fair value in the condensed consolidated financial statements, using significant unobservable inputs:
| Fair Value Measurement Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||
| Consumer Financing Program | |||||||||||||||||||||||
| (In millions) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||||||||||||||||
| Beginning balance | $ | (134) | $ | — | |||||||||||||||||||
| Contractual obligations added from the acquisition of Vivint Smart Home | — | (112) | |||||||||||||||||||||
| New contractual obligations | (15) | (2) | |||||||||||||||||||||
| Settlements | 21 | 3 | |||||||||||||||||||||
| Total gains included in earnings | 4 | — | |||||||||||||||||||||
| Ending balance | $ | (124) | $ | (111) |
Gains and losses that are related to the Consumer Financing Program derivative are recorded in other income, net.
Derivative Fair Value Measurements
The Company's contracts consist of non-exchange traded contracts valued using prices provided by external sources and exchange-traded contracts with readily available quoted market prices. Beginning in the fourth quarter of 2023 and as of March 31, 2024, the fair value of non-exchange traded contracts were primarily based on consensus pricing provided by independent pricing services. The pricing data was compiled from market makers with longer dated tenors as compared to broker quotes, enhancing reliability and increasing transparency. Prior to the fourth quarter of 2023, the Company valued derivatives based on price quotes from brokers in active markets who regularly facilitate those transactions. The remainder of the assets and liabilities represent contracts for which external sources or observable market quotes are not available. These contracts are valued based on various valuation techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of the observable market data with similar characteristics. As of March 31, 2024, contracts valued with prices provided by models and other valuation techniques made up 4% of derivative assets and 6% of derivative liabilities.
NRG's significant positions classified as Level 3 include physical and financial natural gas, power, capacity contracts and RECs executed in illiquid markets, FTRs and the CFP. The significant unobservable inputs used in developing fair value include illiquid natural gas and power location pricing, which is derived as a basis to liquid locations. The basis spread is based on observable market data when available or derived from historic prices and forward market prices from similar observable markets when not available. Forward capacity prices are based on market information, forecasted future electricity demand and
supply, past auctions and internally developed pricing models. REC prices are based on market information and internally developed pricing models. For FTRs, NRG uses the most recent auction prices to derive the fair value. The Consumer Financing Program derivatives are valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and credit loss rates.
The following tables quantify the significant, unobservable inputs used in developing the fair value of the Company's Level 3 positions as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Fair Value | Input/Range | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except as noted) | Assets | Liabilities | Valuation Technique | Significant Unobservable Input | Low | High | Weighted Average | ||||||||||||||||||||||||||||||||||
| Natural Gas Contracts | $ | 36 | $ | 20 | Discounted Cash Flow | Forward Market Price ($ per MMBtu) | $ | 0 | $ | 11 | $ | 3 | |||||||||||||||||||||||||||||
| Power Contracts | 157 | 91 | Discounted Cash Flow | Forward Market Price ($ per MWh) | 1 | 189 | 41 | ||||||||||||||||||||||||||||||||||
| Capacity Contracts | 14 | 28 | Discounted Cash Flow | Forward Market Price ($ per MW/Day) | 18 | 641 | 284 | ||||||||||||||||||||||||||||||||||
| RECs | 58 | 14 | Discounted Cash Flow | Forward Market Price ($ per Certificate) | 2 | 320 | 16 | ||||||||||||||||||||||||||||||||||
| FTRs | 14 | 35 | Discounted Cash Flow | Auction Prices ($ per MWh) | (58) | 252 | 0 | ||||||||||||||||||||||||||||||||||
| Consumer Financing Program | — | 124 | Discounted Cash Flow | Collateral Default Rates | 1.15 | % | 95.35 | % | 8.99 | % | |||||||||||||||||||||||||||||||
| Discounted Cash Flow | Collateral Prepayment Rates | 2.00 | % | 3.00 | % | 2.95 | % | ||||||||||||||||||||||||||||||||||
| Discounted Cash Flow | Credit Loss Rates | 5.50 | % | 60.00 | % | 12.84 | % | ||||||||||||||||||||||||||||||||||
| $ | 279 | $ | 312 |
| December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Fair Value | Input/Range | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except as noted) | Assets | Liabilities | Valuation Technique | Significant Unobservable Input | Low | High | Weighted Average | ||||||||||||||||||||||||||||||||||
| Natural Gas Contracts | $ | 39 | $ | 65 | Discounted Cash Flow | Forward Market Price ($ per MMBtu) | $ | 1 | $ | 15 | $ | 3 | |||||||||||||||||||||||||||||
| Power Contracts | 197 | 66 | Discounted Cash Flow | Forward Market Price ($ per MWh) | 1 | 210 | 47 | ||||||||||||||||||||||||||||||||||
| Capacity Contracts | 21 | 33 | Discounted Cash Flow | Forward Market Price ($ per MW/Day) | 49 | 658 | 285 | ||||||||||||||||||||||||||||||||||
| RECs | 58 | 14 | Discounted Cash Flow | Forward Market Price ($ per Certificate) | 2 | 320 | 15 | ||||||||||||||||||||||||||||||||||
| FTRs | 19 | 37 | Discounted Cash Flow | Auction Prices ($ per MWh) | (58) | 252 | 0 | ||||||||||||||||||||||||||||||||||
| Consumer Financing Program | — | 134 | Discounted Cash Flow | Collateral Default Rates | 0.43 | % | 93.30 | % | 8.12 | % | |||||||||||||||||||||||||||||||
| Discounted Cash Flow | Collateral Prepayment Rates | 2.00 | % | 3.00 | % | 2.95 | % | ||||||||||||||||||||||||||||||||||
| Discounted Cash Flow | Credit Loss Rates | 6.00 | % | 60.00 | % | 12.57 | % | ||||||||||||||||||||||||||||||||||
| $ | 334 | $ | 349 | ||||||||||||||||||||||||||||||||||||||
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant, unobservable inputs as of March 31, 2024 and December 31, 2023:
| Significant Unobservable Input | Position | Change In Input | Impact on Fair Value Measurement | |||||||||||||||||
| Forward Market Price Natural Gas/Power/Capacity/RECs | Buy | Increase/(Decrease) | Higher/(Lower) | |||||||||||||||||
| Forward Market Price Natural Gas/Power/Capacity/RECs | Sell | Increase/(Decrease) | Lower/(Higher) | |||||||||||||||||
| FTR Prices | Buy | Increase/(Decrease) | Higher/(Lower) | |||||||||||||||||
| FTR Prices | Sell | Increase/(Decrease) | Lower/(Higher) | |||||||||||||||||
| Collateral Default Rates | n/a | Increase/(Decrease) | Higher/(Lower) | |||||||||||||||||
| Collateral Prepayment Rates | n/a | Increase/(Decrease) | Lower/(Higher) | |||||||||||||||||
| Credit Loss Rates | n/a | Increase/(Decrease) | Higher/(Lower) |
The fair value of each contract is discounted using a risk-free interest rate. In addition, the Company applies a credit reserve to reflect credit risk, which is calculated based on published default probabilities. As of March 31, 2024 and December 31, 2023, the credit reserve resulted in a $18 million decrease primarily within cost of operations.
Concentration of Credit Risk
In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, to the Company's 2023 Form 10-K, the following is a discussion of the concentration of credit risk for the Company's contractual obligations. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. NRG is exposed to counterparty credit risk through various activities including wholesale sales, fuel purchases and retail supply arrangements, as well as retail customer credit risk through its retail load activities.
Counterparty Credit Risk
The Company's counterparty credit risk policies are disclosed in its 2023 Form 10-K. As of March 31, 2024, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, registered commodity exchanges and certain long-term agreements, was $1.8 billion and NRG held collateral (cash and letters of credit) against those positions of $440 million, resulting in a net exposure of $1.4 billion. NRG periodically receives collateral from counterparties in excess of their exposure. Collateral amounts shown include such excess while net exposure shown excludes excess collateral received. Approximately 62% of the Company's exposure before collateral is expected to roll off by the end of 2025. Counterparty credit exposure is valued through observable market quotes and discounted at a risk free interest rate. The following tables highlight net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market and NPNS, and non-derivative transactions. The exposure is shown net of collateral held and includes amounts net of receivables or payables.
| Net Exposure**(a)(b)** | |||||
| Category by Industry Sector | (% of Total) | ||||
| Utilities, energy merchants, marketers and other | 78 | % | |||
| Financial institutions | 22 | ||||
| Total as of March 31, 2024 | 100 | % |
| Net Exposure (a)(b) | |||||
| Category by Counterparty Credit Quality | (% of Total) | ||||
| Investment grade | 51 | % | |||
| Non-investment grade/Non-Rated | 49 | ||||
| Total as of March 31, 2024 | 100 | % |
(a)Counterparty credit exposure excludes coal transportation contracts because of the unavailability of market prices
(b)The figures in the tables above exclude potential counterparty credit exposure related to RTOs, ISOs, registered commodity exchanges and certain long-term contracts
The Company currently has exposure to two wholesale counterparties in excess of 10% of total net exposure as of March 31, 2024. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration.
RTOs and ISOs
The Company participates in the organized markets of CAISO, ERCOT, AESO, IESO, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in the majority of these markets is approved by FERC, whereas in the case of ERCOT, it is approved by the PUCT, and whereas in the case of AESO and IESO, both exist provincially with AESO primarily subject to Alberta Utilities Commission and the IESO to the Ontario Energy Board. These ISOs may include credit policies that, under certain circumstances, require that losses arising from the default of one member on spot market transactions be shared by the remaining participants. As a result, the counterparty credit risk to these markets is limited to NRG’s share of the overall market and are excluded from the above exposures.
Exchange Traded Transactions
The Company enters into commodity transactions on registered exchanges, notably ICE, NYMEX and Nodal. These clearinghouses act as the counterparty and transactions are subject to extensive collateral and margining requirements. As a result, these commodity transactions have limited counterparty credit risk.
Long-Term Contracts
Counterparty credit exposure described above excludes credit risk exposure under certain long-term contracts, primarily solar under Renewable PPAs. As external sources or observable market quotes are not always available to estimate such exposure, the Company values these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of March 31, 2024, aggregate credit risk exposure managed by NRG to these counterparties was approximately $896 million for the next five years.
Retail Customer Credit Risk
The Company is exposed to retail credit risk through the Company's retail electricity and gas providers as well as through Vivint Smart Home, which serve both Home and Business customers. Retail credit risk results in losses when a customer fails to pay for services rendered. The losses may result from both non-payment of customer accounts receivable and the loss of in-the-money forward value. The Company manages retail credit risk by using established credit policies, which include monitoring of the portfolio and the use of credit mitigation measures such as deposits or prepayment arrangements.
As of March 31, 2024, the Company's retail customer credit exposure to Home and Business customers was diversified across many customers and various industries, as well as government entities. Current economic conditions may affect the Company’s customers’ ability to pay their bills in a timely manner or at all, which could increase customer delinquencies and may lead to an increase in credit losses.
Note 6 — Accounting for Derivative Instruments and Hedging Activities
Energy-Related Commodities
As of March 31, 2024, NRG had energy-related derivative instruments extending through 2036. The Company marks these derivatives to market through the consolidated statement of operations. NRG has executed energy-related contracts extending through 2036 that qualified for the NPNS exception and were therefore exempt from fair value accounting treatment.
Interest Rate Swaps
NRG is exposed to changes in interest rate through the Company's issuance of variable rate debt. To manage the Company's interest rate risk, NRG enters into interest rate swap agreements. In the first quarter of 2024, the Company entered into interest rate swaps with a total nominal value of $700 million extending through 2029 to hedge the floating rate of the Term Loans (as defined below), which closed in April 2024. Additionally, as of March 31, 2024, the Company had $1.0 billion of interest rate swaps extending through 2027 to hedge the floating rate on the Vivint Term Loans.
Foreign Exchange Contracts
NRG is exposed to changes in foreign currency primarily associated with the purchase of U.S. dollar denominated natural gas for its Canadian business. To manage the Company's foreign exchange risk, NRG entered into foreign exchange contracts. As of March 31, 2024, NRG had foreign exchange contracts extending through 2027. The Company marks these derivatives to market through the consolidated statement of operations.
Consumer Financing Program
Under the Consumer Financing Program, Vivint Smart Home pays a monthly fee to Financing Providers based on either the average daily outstanding balance of the loans or the number of outstanding loans. For certain loans, Vivint Smart Home incurs fees at the time of the loan origination and receives proceeds that are net of these fees. Vivint Smart Home also shares the liability for credit losses, depending on the credit quality of the subscriber. Due to the nature of certain provisions under the Consumer Financing Program, the Company records a derivative liability that is not designated as a hedging instrument and is adjusted to fair value, measured using the present value of the estimated future payments. Changes to the fair value are recorded through other income, net in the consolidated statement of operations. The following represent the contractual future payment obligations with the Financing Providers under the Consumer Financing Program that are components of the derivative:
-
Vivint Smart Home pays either a monthly fee based on the average daily outstanding balance of the loans, or the number of outstanding loans, depending on the Financing Provider;
-
Vivint Smart Home shares the liability for credit losses depending on the credit quality of the subscriber; and
-
Vivint Smart Home pays transactional fees associated with subscriber payment processing.
The derivative is classified as a Level 3 instrument. The derivative positions are valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and credit loss rates. In summary, the fair value represents an estimate of the present value of the cash flows Vivint Smart Home will be obligated to pay to the Financing Providers for each component of the derivative.
Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by category, excluding those derivatives that qualified for the NPNS exception, as of March 31, 2024 and December 31, 2023. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date.
| Total Volume (In millions) | ||||||||||||||
| Category | Units | March 31, 2024 | December 31, 2023 | |||||||||||
| Renewable Energy Certificates | Certificates | 14 | 12 | |||||||||||
| Coal | Short Ton | 7 | 9 | |||||||||||
| Natural Gas | MMBtu | 819 | 838 | |||||||||||
| Power | MWh | 201 | 201 | |||||||||||
| Interest | Dollars | 1,700 | 1,000 | |||||||||||
| Foreign Exchange | Dollars | 499 | 548 | |||||||||||
| Consumer Financing Program | Dollars | 1,088 | 1,116 |
Fair Value of Derivative Instruments
The following table summarizes the fair value within the derivative instrument valuation on the balance sheets:
| Fair Value | |||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||
| (In millions) | March 31, 2024 | December 31, 2023 | March 31, 2024 | December 31, 2023 | |||||||||||||||||||
| Derivatives Not Designated as Cash Flow or Fair Value Hedges: | |||||||||||||||||||||||
| Interest rate contracts - current | $ | 21 | $ | 12 | $ | — | $ | — | |||||||||||||||
| Interest rate contracts - long-term | 4 | — | 10 | 8 | |||||||||||||||||||
| Foreign exchange contracts - current | 5 | 3 | 1 | 4 | |||||||||||||||||||
| Foreign exchange contracts - long-term | 3 | 2 | 1 | 5 | |||||||||||||||||||
| Commodity contracts - current | 3,781 | 3,847 | 3,505 | 3,922 | |||||||||||||||||||
| Commodity contracts - long-term | 2,392 | 2,291 | 1,389 | 1,434 | |||||||||||||||||||
| Consumer Financing Program - short-term | — | — | 85 | 93 | |||||||||||||||||||
| Consumer Financing Program - long-term | — | — | 39 | 41 | |||||||||||||||||||
| Total Derivatives Not Designated as Cash Flow or Fair Value Hedges | $ | 6,206 | $ | 6,155 | $ | 5,030 | $ | 5,507 | |||||||||||||||
The Company has elected to present derivative assets and liabilities on the consolidated balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. In addition, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the consolidated balance sheet. The following table summarizes the offsetting of derivatives by counterparty master agreement level and collateral received or paid:
| Gross Amounts Not Offset in the Statement of Financial Position | ||||||||||||||||||||||||||
| (In millions) | Gross Amounts of Recognized Assets / Liabilities | Derivative Instruments | Cash Collateral (Held) /Posted | Net Amount | ||||||||||||||||||||||
| As of March 31, 2024 | ||||||||||||||||||||||||||
| Interest rate contracts: | ||||||||||||||||||||||||||
| Derivative assets | $ | 25 | $ | (9) | $ | — | $ | 16 | ||||||||||||||||||
| Derivative liabilities | (10) | 9 | — | (1) | ||||||||||||||||||||||
| Total interest rate contracts | $ | 15 | $ | — | $ | — | $ | 15 | ||||||||||||||||||
| Foreign exchange contracts: | ||||||||||||||||||||||||||
| Derivative assets | $ | 8 | $ | (2) | $ | — | $ | 6 | ||||||||||||||||||
| Derivative liabilities | (2) | 2 | — | — | ||||||||||||||||||||||
| Total foreign exchange contracts | $ | 6 | $ | — | $ | — | $ | 6 | ||||||||||||||||||
| Commodity contracts: | ||||||||||||||||||||||||||
| Derivative assets | $ | 6,173 | $ | (4,609) | $ | (237) | $ | 1,327 | ||||||||||||||||||
| Derivative liabilities | (4,894) | 4,609 | 35 | (250) | ||||||||||||||||||||||
| Total commodity contracts | $ | 1,279 | $ | — | $ | (202) | $ | 1,077 | ||||||||||||||||||
| Consumer Financing Program: | ||||||||||||||||||||||||||
| Derivative liabilities | $ | (124) | $ | — | $ | — | $ | (124) | ||||||||||||||||||
| Total derivative instruments | $ | 1,176 | $ | — | $ | (202) | $ | 974 |
| Gross Amounts Not Offset in the Statement of Financial Position | ||||||||||||||||||||||||||||||||
| (In millions) | Gross Amounts of Recognized Assets / Liabilities | Derivative Instruments | Cash Collateral (Held) /Posted | Net Amount | ||||||||||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||
| Interest rate contracts: | ||||||||||||||||||||||||||||||||
| Derivative assets | $ | 12 | $ | (8) | $ | — | $ | 4 | ||||||||||||||||||||||||
| Derivative liabilities | (8) | 8 | — | — | ||||||||||||||||||||||||||||
| Total interest rate contracts | $ | 4 | $ | — | $ | — | $ | 4 | ||||||||||||||||||||||||
| Foreign exchange contracts: | ||||||||||||||||||||||||||||||||
| Derivative assets | $ | 5 | $ | (5) | $ | — | $ | — | ||||||||||||||||||||||||
| Derivative liabilities | (9) | 5 | — | (4) | ||||||||||||||||||||||||||||
| Total foreign exchange contracts | $ | (4) | $ | — | $ | — | $ | (4) | ||||||||||||||||||||||||
| Commodity contracts: | ||||||||||||||||||||||||||||||||
| Derivative assets | $ | 6,138 | $ | (4,926) | $ | (74) | $ | 1,138 | ||||||||||||||||||||||||
| Derivative liabilities | (5,356) | 4,926 | 145 | (285) | ||||||||||||||||||||||||||||
| Total commodity contracts | $ | 782 | $ | — | $ | 71 | $ | 853 | ||||||||||||||||||||||||
| Consumer Financing Program: | ||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | (134) | $ | — | $ | — | $ | (134) | ||||||||||||||||||||||||
| Total derivative instruments | $ | 648 | $ | — | $ | 71 | $ | 719 |
Impact of Derivative Instruments on the Statements of Operations
Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow and fair value hedges are reflected in current period results of operations.
The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges or fair value hedges and trading activity on the Company's consolidated statement of operations. The effect of foreign exchange and commodity hedges are included within revenues and cost of operations. The effect of the interest rate contracts are included within interest expense. The effect of the Consumer Financing Program is included in other income, net.
| (In millions) | Three months ended March 31, | ||||||||||||||||||||||
| Unrealized mark-to-market results | 2024 | 2023 | |||||||||||||||||||||
| Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges | $ | 244 | $ | (846) | |||||||||||||||||||
| Reversal of acquired (gain) positions related to economic hedges | (12) | (25) | |||||||||||||||||||||
| Net unrealized gains/(losses) on open positions related to economic hedges | 240 | (1,073) | |||||||||||||||||||||
| Total unrealized mark-to-market gains/(losses) for economic hedging activities | 472 | (1,944) | |||||||||||||||||||||
| Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity | (4) | 1 | |||||||||||||||||||||
| Net unrealized gains on open positions related to trading activity | — | 11 | |||||||||||||||||||||
| Total unrealized mark-to-market (losses)/gains for trading activity | (4) | 12 | |||||||||||||||||||||
| Total unrealized gains/(losses) - commodities and foreign exchange | $ | 468 | $ | (1,932) |
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Total impact to statement of operations - interest rate contracts | $ | 12 | $ | (5) | |||||||||||||||||||
| Unrealized (losses)/gains included in revenues - commodities | $ | (64) | $ | 103 | |||||||||||||||||||
| Unrealized gains/(losses) included in cost of operations - commodities | 523 | (2,037) | |||||||||||||||||||||
| Unrealized gains included in cost of operations - foreign exchange | 9 | 2 | |||||||||||||||||||||
| Total impact to statement of operations - commodities and foreign exchange | $ | 468 | $ | (1,932) | |||||||||||||||||||
| Total impact to statement of operations - Consumer Financing Program | $ | 4 | $ | — |
The reversals of acquired (gain) positions were valued based upon the forward prices on the acquisition date. The roll-off amounts were offset by realized gains or losses at the settled prices and are reflected in revenue or cost of operations during the same period.
For the three months ended March 31, 2024, the $240 million unrealized gain from open economic hedge positions was primarily the result of an increase in the value of forward positions as a result of increases in ERCOT and PJM power prices.
For the three months ended March 31, 2023, the $1.1 billion unrealized loss from open economic hedge positions was primarily the result of a decrease in the value of forward positions as a result of decreases in natural gas and power prices.
Credit Risk Related Contingent Features
Certain of the Company's trading agreements contain provisions that entitle the counterparty to demand that the Company post additional collateral if the counterparty determines that there has been deterioration in the Company's credit quality, generally termed “adequate assurance” under the agreements, or require the Company to post additional collateral if there were a downgrade in the Company's credit rating. The collateral potentially required for all contracts with adequate assurance clauses that are in a net liability position as of March 31, 2024 was $417 million. The Company is also party to certain marginable agreements under which it has net liability position, but the counterparty has not called for the collateral due, which was approximately $23 million as of March 31, 2024. In the event of a downgrade in the Company's credit rating and if called for by the counterparty, $8 million of additional collateral would be required for all contracts with credit rating contingent features as of March 31, 2024.
See Note 5, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk.
Note 7 — Long-term Debt and Finance Leases
Long-term debt and finance leases consisted of the following:
| (In millions, except rates) | March 31, 2024 | December 31, 2023 | Interest rate % | ||||||||||||||
| Recourse debt: | |||||||||||||||||
| Senior Notes, due 2027 | $ | 375 | $ | 375 | 6.625 | ||||||||||||
| Senior Notes, due 2028 | 821 | 821 | 5.750 | ||||||||||||||
| Senior Notes, due 2029 | 733 | 733 | 5.250 | ||||||||||||||
| Senior Notes, due 2029 | 500 | 500 | 3.375 | ||||||||||||||
| Senior Notes, due 2031 | 1,030 | 1,030 | 3.625 | ||||||||||||||
| Senior Notes, due 2032 | 480 | 480 | 3.875 | ||||||||||||||
| Convertible Senior Notes, due 2048(a) | 483 | 575 | 2.750 | ||||||||||||||
| Senior Secured First Lien Notes, due 2024 | 600 | 600 | 3.750 | ||||||||||||||
| Senior Secured First Lien Notes, due 2025 | 500 | 500 | 2.000 | ||||||||||||||
| Senior Secured First Lien Notes, due 2027 | 900 | 900 | 2.450 | ||||||||||||||
| Senior Secured First Lien Notes, due 2029 | 500 | 500 | 4.450 | ||||||||||||||
| Senior Secured First Lien Notes, due 2033 | 740 | 740 | 7.000 | ||||||||||||||
| Tax-exempt bonds | 466 | 466 | 1.250 - 4.750 | ||||||||||||||
| Subtotal recourse debt | 8,128 | 8,220 | |||||||||||||||
| Non-recourse debt: | |||||||||||||||||
| Vivint Senior Notes, due 2029 | 800 | 800 | 5.750 | ||||||||||||||
| Vivint Senior Secured Notes, due 2027 | 600 | 600 | 6.750 | ||||||||||||||
| Vivint Senior Secured Term Loan, due 2028 | 1,316 | 1,320 | SOFR + 3.36 | ||||||||||||||
| Subtotal all Vivint non-recourse debt | 2,716 | 2,720 | |||||||||||||||
| Subtotal long-term debt (including current maturities) | 10,844 | 10,940 | |||||||||||||||
| Finance leases | 20 | 19 | various | ||||||||||||||
| Subtotal long-term debt and finance leases (including current maturities) | 10,864 | 10,959 | |||||||||||||||
| Less current maturities | (1,101) | (620) | |||||||||||||||
| Less debt issuance costs | (65) | (60) | |||||||||||||||
| Discounts | (139) | (146) | |||||||||||||||
| Total long-term debt and finance leases | $ | 9,559 | $ | 10,133 |
(a)As of the ex-dividend date of April 30, 2024, the Convertible Senior Notes were convertible at a price of $41.32, which is equivalent to a conversion rate of approximately 24.1998 shares of common stock per $1,000 principal amount
Recourse Debt
Senior Credit Facility
Term Loan B Incurrence
On April 16, 2024, the Company, as borrower, and certain of its subsidiaries, as guarantors, entered into the Eighth Amendment to the Second Amended and Restated Credit Agreement (the “Eighth Amendment”) with, among others, Citicorp North America, Inc., as administrative agent and as collateral agent (the “Agent”), and certain financial institutions, as lenders, which amended the Company’s Second Amended and Restated Credit Agreement, dated as of June 30, 2016 (the “Credit Agreement”), in order to (i) establish a new term loan B facility with borrowings of $875 million in aggregate principal amount (the “Term Loan Facility” and the loans thereunder, the “Term Loans”) and (ii) make certain other modifications to the Credit Agreement as set forth therein. The proceeds from the Term Loans were used to repay a portion of the Company’s Convertible Senior Notes and will be used to repay the Company’s 3.750% senior secured first lien notes due 2024.
At the Company’s election, the Term Loans will bear interest at a rate per annum equal to either (1) a fluctuating rate equal to the highest of (A) the rate published by the Federal Reserve Bank of New York in effect on such day, plus 0.50%, (B) the rate of interest per annum publicly announced from time to time by The Wall Street Journal as the “Prime Rate” in the United States, and (C) a rate of one-month Term SOFR (as defined in the Term Loan Facility), plus 1.00%, or (2) Term SOFR
(as defined in the Term Loan Facility and which rate will not be less than 0%) for a one-, three- or six-month interest period or such other period as agreed to by the Agent and the lenders, as selected by the Company, plus 2.00%.
The Term Loan Facility is guaranteed by each of the Company’s subsidiaries that guarantee the Revolving Credit Facility and is secured on a first lien basis by substantially all of the Company’s and such subsidiaries’ assets, in each case, subject to certain customary exceptions and limitations set forth in the Credit Agreement.
The Term Loans have a final maturity date of April 16, 2031 and amortize at a rate of 1% per annum.
If an event of default occurs under the Term Loan Facility, the entire principal amount outstanding thereunder, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable, subject, in certain instances, to the expiration of applicable cure periods.
The Term Loan Facility also provides for customary asset sale mandatory prepayments, reporting covenants and negative covenants governing dividends, investments, indebtedness, and other matters that are customary for similar term loan B facilities.
Revolving Credit Facility
On April 22, 2024, the Company, as borrower, and certain of its subsidiaries, as guarantors, entered into the Ninth Amendment to the Second Amended and Restated Credit Agreement (the “Ninth Amendment”) to extend the maturity date of a portion of the revolving commitments thereunder to February 14, 2028.
2048 Convertible Senior Notes
As of April 1, 2024, the Company's Convertible Senior Notes are convertible during the quarterly period ending June 30, 2024 due to the satisfaction of the Common Stock Sale Price Condition (as defined below). The Convertible Senior Notes are convertible into cash or a combination of cash and the Company’s common stock at a price of $41.53 per common share, which is the equivalent to a conversion rate of approximately 24.0763 shares of common stock per $1,000 principal amount of Convertible Senior Notes. The net carrying amounts of the Convertible Senior Notes as of March 31, 2024 and December 31, 2023 were $480 million and $572 million, respectively. The Convertible Senior Notes mature on June 1, 2048, unless earlier repurchased, redeemed or converted in accordance with their terms. The Convertible Senior notes are convertible at the option of the holders under certain circumstances. Prior to the close of business on the business day immediately preceding December 1, 2024, the Convertible Senior Notes will be convertible only upon the occurrence of certain events and during certain periods, including, among others, during any calendar quarter (and only during such calendar quarter) if the last reported sales price per share of the Company's common stock exceeds 130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter (the "Common Stock Sale Price Condition"). Thereafter during specified periods as follows:
-
from December 1, 2024 until the close of business on the second scheduled trading day immediately before June 1, 2025; and
-
from December 1, 2047 until the close of business on the second scheduled trading day immediately before the maturity date.
All conversions with a conversion date that occurs within the specific periods above will be settled after such period pursuant to the terms of the Convertible Senior Notes indenture.
Repurchases
During the three months ended March 31, 2024 and through April 30, 2024, the Company completed repurchases of a portion of the Convertible Senior Notes using cash on hand and a portion of the proceeds from the Term Loans, as detailed in the table below. For the three months ended March 31, 2024, a $58 million loss on debt extinguishment was recorded.
| (In millions, except percentages) | ||||||||||||||||||||
| Settlement Period | Principal Repurchased | Cash Paid**(a)** | Average Repurchase Percentage | |||||||||||||||||
| March 2024 | $ | 92 | $ | 151 | 162.356% | |||||||||||||||
| April 2024 | 251 | 452 | 179.454% | |||||||||||||||||
| Total Repurchases | $ | 343 | $ | 603 |
(a)Includes accrued interest of $1 million and $2 million for the March and April repurchases, respectively
The following table details the interest expense recorded in connection with the Convertible Senior Notes:
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions, except percentages) | 2024 | 2023 | |||||||||||||||||||||
| Contractual interest expense | $ | 4 | $ | 4 | |||||||||||||||||||
| Amortization of deferred finance costs | — | 1 | |||||||||||||||||||||
| Total | $ | 4 | $ | 5 | |||||||||||||||||||
| Effective Interest Rate | 0.78 | % | 0.77 | % |
Non-recourse Debt
Vivint Term Loan Repricing
On April 10, 2024, the Company’s wholly-owned indirect subsidiary, APX Group, Inc. (“Vivint”), entered into Amendment No. 2 to the Second Amended and Restated Credit Agreement (the “Second Amendment”) with, among others, Bank of America, N.A. as administrative agent (the “Vivint Agent”), and certain financial institutions, as lenders, which amended Vivint’s Second Amended and Restated Credit Agreement, dated as of June 9, 2021 (the “Vivint Credit Agreement”), in order to (i) reprice its term loan B facility (the term loans thereunder, the “Vivint Term Loans”) and (ii) make certain other changes to the Vivint Credit Agreement.
From and after the closing of the Second Amendment, at Vivint’s election, the Vivint Term Loans will bear interest at a rate per annum equal to either (1) a fluctuating rate equal to the highest of (A) the rate published by the Federal Reserve Bank of New York in effect on such day, plus 0.50%, (B) the rate of interest per annum publicly announced from time to time by The Wall Street Journal as the “Prime Rate” in the United States, and (C) a rate of one-month Term SOFR (as defined in the Vivint Credit Agreement), plus 1.00%, or (2) Term SOFR (as defined in the Vivint Credit Agreement and which rate will not be less than 0.50%) for a one-, three- or six-month interest period or such other period as agreed to by the Vivint Agent and the lenders, as selected by Vivint, plus 2.75%.
Note 8 — Investments Accounted for Using the Equity Method and Variable Interest Entities, or VIEs
Entities that are not Consolidated
NRG accounts for the Company's significant investments using the equity method of accounting. NRG's carrying value of equity investments can be impacted by a number of elements including impairments and movements in foreign currency exchange rates.
Variable Interest Entities that are Consolidated
The Company has a controlling financial interest that has been identified as a VIE under ASC 810 in NRG Receivables LLC, which has entered into financing transactions related to the Receivables Facility as further described in Note 13, Long-term Debt and Finance Leases, to the Company’s 2023 Form 10-K.
The summarized financial information for the Company's consolidated VIE consisted of the following:
| (In millions) | March 31, 2024 | December 31, 2023 | |||||||||
| Accounts receivable and Other current assets | $ | 1,385 | $ | 1,541 | |||||||
| Current liabilities | 153 | 153 | |||||||||
| Net assets | $ | 1,232 | $ | 1,388 |
Note 9 — Changes in Capital Structure
As of March 31, 2024 and December 31, 2023, the Company had 10,000,000 shares of preferred stock authorized and 500,000,000 shares of common stock authorized. The following table reflects the changes in NRG's preferred and common stock issued and outstanding:
| Preferred | Common | ||||||||||||||||||||||
| Issued and Outstanding | Issued | Treasury | Outstanding | ||||||||||||||||||||
| Balance as of December 31, 2023 | 650,000 | 267,330,470 | (59,199,520) | 208,130,950 | |||||||||||||||||||
| Shares issued under LTIPs | — | 1,198,542 | — | 1,198,542 | |||||||||||||||||||
| Shares repurchased | — | — | (1,163,230) | (1,163,230) | |||||||||||||||||||
| Retirement of treasury stock | — | (1,163,230) | 1,163,230 | — | |||||||||||||||||||
| Balance as of March 31, 2024 | 650,000 | 267,365,782 | (59,199,520) | 208,166,262 | |||||||||||||||||||
| Shares issued under LTIPs | — | 163,823 | — | 163,823 | |||||||||||||||||||
| Shares issued under ESPP | — | — | 145,562 | 145,562 | |||||||||||||||||||
| Balance as of April 30, 2024 | 650,000 | 267,529,605 | (59,053,958) | 208,475,647 |
Common Stock
Share Repurchases
On June 22, 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.
On November 6, 2023, the Company executed Accelerated Share Repurchase agreements to repurchase a total of $950 million of NRG's outstanding common stock. Under the ASR agreements, the Company received shares of NRG's common stock on specified settlement dates. The total number of shares purchased pursuant to the ASR agreements were generally based on the volume-weighted average prices of NRG's common stock during the term of each ASR agreement, less a discount. In 2023, the Company recorded the shares received in treasury stock at fair value based on the volume-weighted average closing prices of $833 million, with the remaining $117 million recorded in additional paid-in-capital, representing the value of the forward contracts to purchase additional shares. The ASR program concluded on March 28, 2024. The Company transferred the $117 million from additional paid-in-capital to treasury stock upon receipt of the final share settlements in 2024. The following table summarizes the shares received under the ASR program:
| Average price paid per share**(a)** | Total number of shares received | |||||||
| November 2023 initial settlements | 4,494,224 | |||||||
| December 2023 interim settlements | 13,181,918 | |||||||
| January 2024 final settlements | 770,205 | |||||||
| March 2024 final settlements | 393,025 | |||||||
| November 6, 2023 $950 million ASR program | $50.43 | 18,839,372 |
(a)Excludes the impact of excise tax incurred
The Company completed $1.2 billion of share repurchases under the $2.7 billion authorization in 2023, which included $950 million through the ASR programs and $200 million through open market repurchases. As of March 31, 2024, $1.5 billion is remaining under the $2.7 billion authorization.
Employee Stock Purchase Plan
The Company offers participation in the ESPP which allows eligible employees to elect to withhold between 1% and 10% of their eligible compensation to purchase shares of NRG common stock at the lesser of 90% of its market value on the offering date or 90% of the fair market value on the exercise date. An offering date occurs each April 1 and October 1. An exercise date occurs each September 30 and March 31.
NRG Common Stock Dividends
During the first quarter of 2024, NRG increased the annual dividend to $1.63 from $1.51 per share and expects to target an annual dividend growth rate of 7%-9% per share in subsequent years. A quarterly dividend of $0.4075 per share was paid on the Company's common stock during the three months ended March 31, 2024. On April 17, 2024, NRG declared a quarterly dividend on the Company's common stock of $0.4075 per share, payable on May 15, 2024 to stockholders of record as of May 1, 2024.
The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations.
Retirement of Treasury Stock
In the first quarter of 2024, the Company retired 1,163,230 shares of treasury stock. These retired shares are now included in NRG's pool of authorized but unissued shares. The retired stock had an average price per share of $32.67 for a total carrying value of approximately $38 million. The Company's accounting policy upon the formal retirement of treasury stock is to deduct its par value from common stock and to reflect any excess of cost over par value as a deduction from additional paid-in-capital.
Preferred Stock
Series A Preferred Stock Dividends
During the quarter ended March 31, 2024, the Company declared and paid a semi-annual 10.25% dividend of $51.25 per share on its outstanding Series A Preferred Stock, totaling $33 million.
Note 10 — Income/(Loss) Per Share
Basic income/(loss) per common share is computed by dividing net income/(loss) less cumulative dividends attributable to preferred stock by the weighted average number of common shares outstanding. Shares issued and treasury shares repurchased during the period are weighted for the portion of the period that they were outstanding. Diluted income/(loss) per share is computed in a manner consistent with that of basic income/(loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period when there is net income. The performance stock units and non-vested restricted stock units are not considered outstanding for purposes of computing basic income/(loss) per share. However, these instruments are included in the denominator for purposes of computing diluted income per share under the treasury stock method for periods when there is net income. The Convertible Senior Notes are convertible, under certain circumstances, into cash or combination of cash and Company’s common stock. The Company is including the potential share settlements, if any, in the denominator for purposes of computing diluted income per share under the if converted method for periods when there is net income. The potential shares settlements are calculated as the excess of the Company's conversion obligation over the aggregate principal amount (which will be settled in cash), divided by the average share price for the period. For the three months ended March 31, 2023, there was no dilutive effect for the Convertible Senior Notes as the Company recorded a net loss.
NRG's basic and diluted income/(loss) per share is shown in the following table:
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions, except per share data) | 2024 | 2023 | |||||||||||||||||||||
| Basic income/(loss) per share: | |||||||||||||||||||||||
| Net income/(loss) | $ | 511 | $ | (1,335) | |||||||||||||||||||
| Less: Cumulative dividends attributable to Series A Preferred Stock | 17 | 4 | |||||||||||||||||||||
| Net income/(loss) available for common stockholders | $ | 494 | $ | (1,339) | |||||||||||||||||||
| Weighted average number of common shares outstanding - basic | 209 | 230 | |||||||||||||||||||||
| Income/(loss) per weighted average common share — basic | $ | 2.36 | $ | (5.82) | |||||||||||||||||||
| Diluted income/(loss) per share: | |||||||||||||||||||||||
| Net income/(loss) | $ | 511 | $ | (1,335) | |||||||||||||||||||
| Less: Cumulative dividends attributable to Series A Preferred Stock | 17 | 4 | |||||||||||||||||||||
| Net income/(loss) available for common stockholders | $ | 494 | $ | (1,339) | |||||||||||||||||||
| Weighted average number of common shares outstanding - basic | 209 | 230 | |||||||||||||||||||||
| Incremental shares attributable to the issuance of equity compensation (treasury stock method) | 2 | — | |||||||||||||||||||||
| Incremental shares attributable to the potential share settlements of the Convertible Senior Notes (if converted method) | 3 | — | |||||||||||||||||||||
| Weighted average number of common shares outstanding - dilutive | 214 | 230 | |||||||||||||||||||||
| Income/(loss) per weighted average common share — diluted | $ | 2.31 | $ | (5.82) |
As of March 31, 2024, the Company had an insignificant number of outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company's diluted income per share. As of March 31, 2023, the Company had 7 million outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company's diluted loss per share.
Note 11 — Segment Reporting
The Company’s segment structure reflects how management currently makes financial decisions and allocates resources. The Company manages its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus. Vivint Smart Home operations are reported within the Vivint Smart Home segment.
NRG’s chief operating decision maker, its interim chief executive officer, evaluates the performance of the Company's segments based on operational measures including adjusted earnings before interest, taxes, depreciation and amortization, or Adjusted EBITDA, free cash flow and allocation of capital, as well as net income/(loss). The accounting policies of the segments are the same as those applied in the consolidated financial statements as disclosed in Note 2, Summary of Significant Accounting Policies, to the Company’s 2023 Form 10-K.
| Three months ended March 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate | Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,233 | $ | 3,515 | $ | 1,219 | $ | 468 | $ | — | $ | (6) | $ | 7,429 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 67 | 23 | 24 | 144 | 10 | — | 268 | |||||||||||||||||||||||||||||||||||||
| Loss on sale of assets | (4) | — | — | — | — | — | (4) | |||||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | — | — | 3 | — | — | — | 3 | |||||||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | — | — | — | — | (58) | — | (58) | |||||||||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | 349 | 580 | (75) | 9 | (168) | — | 695 | |||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | 349 | $ | 581 | $ | (60) | $ | 7 | $ | (366) | $ | — | $ | 511 | ||||||||||||||||||||||||||||||
| Three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home**(a)** | Corporate | Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,034 | $ | 4,176 | $ | 1,374 | $ | 148 | $ | — | $ | (10) | $ | 7,722 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 75 | 30 | 24 | 52 | 9 | — | 190 | |||||||||||||||||||||||||||||||||||||
| Gain on sale of assets | — | 199 | — | — | — | — | 199 | |||||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | — | — | 5 | — | — | — | 5 | |||||||||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | 284 | (1,402) | (351) | (39) | (163) | — | (1,671) | |||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | 284 | $ | (1,402) | $ | (304) | $ | (39) | $ | 126 | $ | — | $ | (1,335) |
(a)Includes results of operations following the acquisition date of March 10, 2023
Note 12 — Income Taxes
Effective Income Tax Rate
The income tax provision consisted of the following:
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions, except rates) | 2024 | 2023 | |||||||||||||||||||||
| Income/(Loss) before income taxes | $ | 695 | $ | (1,671) | |||||||||||||||||||
| Income tax expense/(benefit) | 184 | (336) | |||||||||||||||||||||
| Effective income tax rate | 26.5 | % | 20.1 | % |
For the three months ended March 31, 2024, the effective tax rate was higher than the statutory rate of 21%, primarily due to the state tax expense. For the three months ended March 31, 2023, the effective tax rate was lower than the statutory rate of 21% primarily due to current state tax expense and permanent differences which when applied to year-to-date financial statement losses have an inverted effect and reduced the overall effective tax rate.
As of March 31, 2024, NRG as an applicable corporation is subject to the CAMT, and has reflected the impact in its current and deferred taxes. There is no CAMT impact to NRG's effective income tax rate. The Company's CAMT liability is significantly impacted by unrealized gains and losses on derivative instruments. NRG will continue to evaluate the impact of the CAMT if further guidance is provided by the U.S. Treasury or the IRS.
Uncertain Tax Benefits
As of March 31, 2024, NRG had a non-current tax liability of $76 million for uncertain tax benefits from positions taken on various federal, state, and foreign income tax returns inclusive of accrued interest. For the three months ended March 31, 2024, NRG accrued an immaterial amount of interest relating to the uncertain tax benefits. As of March 31, 2024, NRG had cumulative interest and penalties related to these uncertain tax benefits of $4 million. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense.
NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia and Canada. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2020. With few exceptions, state and Canadian income tax examinations are no longer open for years prior to 2015.
Note 13 — Related Party Transactions
NRG provides services to some of its related parties, which are accounted for as equity method investments, under operations and maintenance agreements. Fees for the services under these agreements include recovery of NRG's costs of operating the plants. Certain agreements also include fees for administrative services, a base monthly fee, profit margin and/or annual incentive bonus.
The following table summarizes NRG's material related party transactions with third-party affiliates:
| Three months ended March 31, | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Revenues from Related Parties Included in Revenue | |||||||||||||||||||||||
| Gladstone | $ | 1 | $ | 1 | |||||||||||||||||||
| Ivanpah(a) | 13 | 34 | |||||||||||||||||||||
| Midway-Sunset | 1 | 1 | |||||||||||||||||||||
| Total | $ | 15 | $ | 36 |
(a)Also includes fees under project management agreements with each project company
Note 14 — Commitments and Contingencies
Commitments
First Lien Structure
NRG has granted first liens to certain counterparties on a substantial portion of property and assets owned by NRG and the guarantors of its senior debt. NRG uses the first lien structure 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 hedges. To the extent that the underlying hedge positions for a counterparty are out-of-the-money to NRG, the counterparty would have a claim under the first lien program. As of March 31, 2024, all hedges under the first liens were in-the-money on a counterparty aggregate basis.
Contingencies
The Company's material legal proceedings are described below. The Company believes that it has valid defenses to these legal proceedings and intends to defend them vigorously. NRG records accruals for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. As applicable, the Company has established an adequate accrual for the applicable legal matters, including regulatory and environmental matters as further discussed in Note 15, Regulatory Matters, and Note 16, Environmental Matters. In addition, legal costs are expensed as incurred. Management has assessed each of the following matters based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought, and the probability of success. Unless specified below, the Company is unable to predict the outcome of these legal proceedings or reasonably estimate the scope or amount of any associated costs and potential liabilities. As additional information becomes available, management adjusts its assessment and estimates of such contingencies accordingly. Because litigation is subject to inherent uncertainties and unfavorable rulings or developments, it is possible that the ultimate resolution of the Company's liabilities and contingencies could be at amounts that are different from its currently recorded accruals and that such difference could be material.
In addition to the legal proceedings noted below, NRG and its subsidiaries are party to other litigation or legal proceedings arising in the ordinary course of business. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows.
Environmental Lawsuits
Sierra club et al. v. Midwest Generation LLC — In 2012, several environmental groups filed a complaint against Midwest Generation with the Illinois Pollution Control Board ("IPCB") alleging violations of environmental law resulting in groundwater contamination. In June 2019, the IPCB found in an interim order that Midwest Generation violated the law because it had improperly handled coal ash at four facilities in Illinois and caused or allowed coal ash constituents to impact groundwater. On September 9, 2019, Midwest Generation filed a Motion to Reconsider numerous issues, which the court granted in part and denied in part on February 6, 2020. In 2023, the IPCB held hearings regarding the appropriate relief. Midwest Generation has been working with the Illinois EPA to address the groundwater issues since 2010.
Consumer Lawsuits
Similar to other energy service companies (“ESCOs”) operating in the industry, from time-to-time, the Company and/or its subsidiaries may be subject to consumer lawsuits in various jurisdictions where they sell natural gas and electricity.
Variable Price Case
Mirkin v. XOOM Energy (E.D.N.Y. Aug. 2019) is a defendant in a putative class action lawsuit pending in New York, alleging that XOOM Energy promised that consumers would pay the same or less than they would have paid if they stayed with their default utility or previous energy supplier. The Court denied XOOM's motion for summary judgment and granted class
certification. The Second Circuit denied XOOM's request to appeal the class certification grants. XOOM plans to challenge Mirkin's expert testimony to further hamper Mirkin's ability to support its case. The parties held a court-ordered remediation on March 21, 2024 where the parties did not settle. The parties continue to prepare pre-trial materials for submission to the Court. A trial date is not yet set, nor expected before Fall 2024. The Company continues to deny the allegations and is vigorously defending this matter. This matter was known and accrued for at the time of the XOOM acquisition.
Telephone Consumer Protection Act ("TCPA") Cases — In the cases set forth below, referred to as the TCPA Cases, such actions involve consumers alleging violations of the Telephone Consumer Protection Act of 1991, as amended, by receiving calls, texts or voicemails without consent in violation of the federal Telemarketing Sales Rule, and/or state counterpart legislation. The underlying claims of each case are similar. The Company denies the allegations asserted by plaintiffs and intends to vigorously defend these matters. These matters were known and accrued for at the time of the acquisition.
There are two putative class actions pending against Direct Energy: (1) Holly Newman v. Direct Energy, LP (D. Md Sept 2021) - Direct Energy filed its Motion to Dismiss asserting the ruling in the Brittany Burk v. Direct Energy (S.D. Tex. Feb 2019) preempts the Plaintiff's ability to file suit based on the same facts. The Court denied Direct Energy's motion stating the Court does not have the benefit of all of the facts that were in front of the Burk court to issue a similar ruling. On October 19, 2022, Direct Energy filed a Motion to Transfer Venue asking the Court to transfer the case to the Southern District where the Burk case was filed. On April 12, 2023, the Court granted Direct Energy’s Motion to Transfer Venue, moving to the case to the Southern District of Texas; and (2) Matthew Dickson v. Direct Energy (N.D. Ohio Jan. 2018) - The case was stayed pending the outcome of an appeal to the Sixth Circuit based on the unconstitutionality of the TCPA during the period from 2015-2020. The Sixth Circuit found the TCPA was in effect during that period and remanded the case back to the trial court. Direct Energy refiled its motions along with supplements. On March 25, 2022, the Court granted summary judgment in favor of Direct Energy and dismissed the case. Dickson appealed. The Sixth Circuit found that Dickson has standing and reversed the trial court's dismissal of the case. The matter is back at the trial court. The parties will conduct further fact discovery and expert discovery and will submit its motion for summary judgment by Summer 2024.
Sales Practice Lawsuit
A Vivint Smart Home competitor has made a claim against Vivint Smart Home alleging, among other things, that Vivint Smart Home's sales representatives used deceptive sales practices. This matter was known and accrued for at the time of the acquisition. CPI Security Systems, Inc. ("CPI") v. Vivint Smart Home, Inc. (W.D.N.C. Sept. 2020) was filed in 2020 went to trial, and in February 2023, the jury issued a verdict against Vivint Smart Home, in favor of CPI for $50 million of compensatory damages and an additional $140 million of punitive damages. Vivint Smart Home has filed its notice of appeal and is awaiting a briefing schedule. While Vivint Smart Home believes the CPI jury verdict is not legally or factually supported and intends to pursue post judgment remedies and file an appeal, there can be no assurance that such defense efforts will be successful.
Patent Infringement Lawsuit
SB IP Holdings LLC (“Skybell”) v. Vivint Smart Home, Inc. — On October 23, 2023, a jury in the U.S. District Court, Eastern District of Texas, Sherman Division, issued a verdict against the Company in favor of Skybell for $45 million in damages for patent infringement. The patents that were the basis for the claims made by Skybell were ruled invalid by the U.S. International Trade Commission in November 2021. In accordance with advice by legal counsel, the Company does not believe the verdict is legally supported and will pursue post-judgment and appellate remedies along with any other legal options available. This matter was known and accrued for at the time of the Vivint acquisition.
Contract Dispute
STP — In July 2023, the partners in STP, CPS and Austin Energy, initiated a lawsuit and filed to intervene in the license transfer application with the NRC, claiming a right of first refusal exists in relation to the proposed sale of NRG South Texas' 44% interest in STP to Constellation. The parties entered into a settlement agreement in May 2024, and the litigation was dismissed. There was no incremental impact to NRG as a result of the settlement.
Winter Storm Uri Lawsuits
The Company has been named in certain property damage and wrongful death claims that have been filed in connection with Winter Storm Uri in its capacity as a generator and a REP. Most of the lawsuits related to Winter Storm Uri are consolidated into a single multi-district litigation matter in Harris County District Court. NRG's REPs have since been dismissed from the multi-district litigation. As a power generator, the Company is named in various cases with claims ranging from: wrongful death; personal injury only; property damage and personal injury; property damage only; and subrogation. The First Court of Appeals conditionally granted the generators' mandamus relief, ordering the trial court to grant the generator defendants' Motion to Dismiss. The Company expected the Plaintiffs to challenge this ruling. The Company intends to vigorously defend these matters.
Note 15 — Regulatory Matters
Environmental regulatory matters are discussed within Note 16, Environmental Matters.
NRG operates in a highly regulated industry and is subject to regulation by various federal, state and provincial agencies. As such, NRG is affected by regulatory developments at the federal, state and provincial levels and in the regions in which NRG operates. In addition, NRG is subject to the market rules, procedures, and protocols of the various ISO and RTO markets in which NRG participates. These power markets are subject to ongoing legislative and regulatory changes that may impact NRG's wholesale and retail operations.
In addition to the regulatory proceedings noted below, NRG and its subsidiaries are parties to other regulatory proceedings arising in the ordinary course of business or have other regulatory exposure. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows.
California Station Power — As the result of unfavorable final and non-appealable litigation, the Company accrued a liability associated with consumption of station power at the Company's Encina power plant facility in California after August 30, 2010. The Company has established an appropriate accrual pending potential regulatory action by San Diego Gas & Electric regarding the Company's Encina facility.
New York State Public Service Commission ("NYSPSC") - Notice of Apparent Violation — The NYSPSC issued an order referred to as the Retail Reset Order in December 2019 that limited ESCO's offers for electric and natural gas to three compliant products: guaranteed savings from the utility default rate, a fixed rate commodity product that is priced at no more than 5% greater than the trailing 12-month average utility supply rate or New York-sourced renewable energy that is at least 50% greater than the prevailing New York Renewable Energy Standard for load serving entities. The order effectively limited ESCO offers to natural gas customers to only the guaranteed savings and capped fixed term compliant products because no equivalent renewable energy product exists for natural gas. NRG took action to comply with the order when it became effective April 16, 2021. On January 8, 2024, the NYSPSC notified eight of NRG's retail energy suppliers (serving both electricity and natural gas) of alleged non-compliance with New York regulatory requirements. Among other items, the notices allege that the NRG suppliers did not transition existing residential customers to one of the three compliant products authorized by the NYSPSC following the effective date of the order. NRG responded to the notices in February 2024. The outcome of this process has the potential to negatively impact the retail business in New York.
Note 16 — Environmental Matters
NRG is subject to a wide range of 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. The electric generation industry has been facing increasingly stringent requirements regarding air quality, GHG emissions, combustion byproducts, water use and discharge, and threatened and endangered species including four new rules released on April 25, 2024. In general, future laws are expected to require the addition of emissions controls or other environmental controls or to impose additional restrictions on the operations of the Company's facilities, which could have a material effect on the Company's consolidated financial position, results of operations, or cash flows. The Company has elected to use a $1 million disclosure threshold, as permitted, for environmental proceedings to which the government is a party.
Air
CPP/ACE Rules — The attention in recent years on GHG emissions has resulted in federal and state regulations. In 2019, the EPA promulgated the ACE rule, which rescinded the CPP, which had sought to broadly regulate CO2 emissions from the power sector. The ACE rule required states that have coal-fired EGUs to develop plans to seek heat rate improvements from coal-fired EGUs. 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 April 25, 2024, the EPA released a prepublication version of a final rule that after publication in the Federal Register will repeal the ACE rule and significantly revise the manner in which new combustion-turbine and existing steam EGU's GHG emissions will be regulated including capturing and storing/sequestering CO2. The EPA has stated that it will address GHG emissions from existing combustion turbines in a future rule. The Company expects that the rule will be subject to legal challenges in the courts and may be uncertain for several years.
Cross-State Air Pollution Rule ("CSAPR") — On March 15, 2023, the EPA signed and released a prepublication version 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 in 2023 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 — In 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, it 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.
Mercury and Air Toxics Standards (“MATS”) — On May 7, 2024, the EPA promulgated a final rule that amends the MATS rule by, among other things, increasing the stringency of the filterable particulate matter standard at coal-burning units. The deadline for complying with this more stringent standard is 2027. The Company expects that the rule will be subject to legal challenges in the courts and may be uncertain for several years.
Water
Effluent Limitations Guidelines — In 2015, the EPA revised the Effluent Limitations Guidelines ("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, 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. On April 25, 2024, the EPA released a prepublication version of a final rule that after publication in the Federal Register will again revise the ELG by, among other things, further restricting the discharge of (i) FGD wastewater, (ii) bottom ash transport water, and (iii) combustion residual leachate. The Company expects that the rule will be subject to legal challenges in the courts and may be uncertain for several years.
Byproducts
In 2015, the EPA finalized the rule regulating byproducts of coal combustion (e.g., ash and gypsum) as solid wastes under the RCRA. 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 Close 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 April 25, 2024, the EPA released a prepublication version of a final rule that after publication in the Federal Register will establish requirements for: (i) inactive (or legacy) surface impoundments at inactive facilities and (ii) coal combustion residual ("CCR") management units (regardless of how or when the CCR was placed) at regulated facilities. The rule will also create an obligation to conduct site assessments (at all active and certain inactive facilities) to determine whether CCR management units are present. The Company expects that the rule will be subject to legal challenges in the courts and may be uncertain for several years.
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