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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions, except for per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Revenue | $ | 7,223 | $ | 7,946 | $ | 21,311 | $ | 22,016 | |||||||||||||||
| Operating Costs and Expenses | |||||||||||||||||||||||
| Cost of operations (excluding depreciation and amortization shown below) | 7,239 | 6,406 | 17,229 | 20,137 | |||||||||||||||||||
| Depreciation and amortization | 352 | 359 | 1,045 | 921 | |||||||||||||||||||
| Impairment losses | — | — | 15 | — | |||||||||||||||||||
| Selling, general and administrative costs (excluding amortization of customer acquisition costs of $55, $36, $144 and $84, respectively, which are included in depreciation and amortization shown separately above) | 645 | 602 | 1,739 | 1,502 | |||||||||||||||||||
| Acquisition-related transaction and integration costs | 7 | 18 | 22 | 111 | |||||||||||||||||||
| Total operating costs and expenses | 8,243 | 7,385 | 20,050 | 22,671 | |||||||||||||||||||
| Gain on sale of assets | 208 | — | 209 | 202 | |||||||||||||||||||
| Operating (Loss)/Income | (812) | 561 | 1,470 | (453) | |||||||||||||||||||
| Other Income/(Expense) | |||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | 6 | 6 | 13 | 16 | |||||||||||||||||||
| Other income, net | 5 | 14 | 38 | 43 | |||||||||||||||||||
| Loss on debt extinguishment | — | — | (260) | — | |||||||||||||||||||
| Interest expense | (213) | (173) | (528) | (472) | |||||||||||||||||||
| Total other expense | (202) | (153) | (737) | (413) | |||||||||||||||||||
| (Loss)/Income Before Income Taxes | (1,014) | 408 | 733 | (866) | |||||||||||||||||||
| Income tax (benefit)/expense | (247) | 65 | 251 | (182) | |||||||||||||||||||
| Net (Loss)/Income | $ | (767) | $ | 343 | $ | 482 | $ | (684) | |||||||||||||||
| Less: Cumulative dividends attributable to Series A Preferred Stock | 17 | 17 | 51 | 38 | |||||||||||||||||||
| Net (Loss)/Income Available for Common Stockholders | $ | (784) | $ | 326 | $ | 431 | $ | (722) | |||||||||||||||
| (Loss)/Income per Share | |||||||||||||||||||||||
| Weighted average number of common shares outstanding — basic | 207 | 230 | 207 | 230 | |||||||||||||||||||
| (Loss)/Income per Weighted Average Common Share — Basic | $ | (3.79) | $ | 1.42 | $ | 2.08 | $ | (3.14) | |||||||||||||||
| Weighted average number of common shares outstanding — diluted | 207 | 232 | 213 | 230 | |||||||||||||||||||
| (Loss)/Income per Weighted Average Common Share —Diluted | $ | (3.79) | $ | 1.41 | $ | 2.02 | $ | (3.14) |
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net (Loss)/Income | $ | (767) | $ | 343 | $ | 482 | $ | (684) | |||||||||||||||
| Other Comprehensive (Loss)/Income | |||||||||||||||||||||||
| Foreign currency translation adjustments | 6 | (8) | (4) | — | |||||||||||||||||||
| Defined benefit plans | (8) | 1 | (10) | — | |||||||||||||||||||
| Other comprehensive (loss)/income | (2) | (7) | (14) | — | |||||||||||||||||||
| Comprehensive (Loss)/Income | $ | (769) | $ | 336 | $ | 468 | $ | (684) | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | December 31, 2023 | ||||||||||
| (In millions, except share data) | (Unaudited) | (Audited) | |||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 1,104 | $ | 541 | |||||||
| Funds deposited by counterparties | 12 | 84 | |||||||||
| Restricted cash | 10 | 24 | |||||||||
| Accounts receivable, net | 3,258 | 3,542 | |||||||||
| Inventory | 540 | 607 | |||||||||
| Derivative instruments | 2,456 | 3,862 | |||||||||
| Cash collateral paid in support of energy risk management activities | 449 | 441 | |||||||||
| Prepayments and other current assets | 782 | 626 | |||||||||
| Total current assets | 8,611 | 9,727 | |||||||||
| Property, plant and equipment, net | 1,818 | 1,763 | |||||||||
| Other Assets | |||||||||||
| Equity investments in affiliates | 49 | 42 | |||||||||
| Operating lease right-of-use assets, net | 172 | 179 | |||||||||
| Goodwill | 5,018 | 5,079 | |||||||||
| Customer relationships, net | 1,648 | 2,164 | |||||||||
| Other intangible assets, net | 1,439 | 1,763 | |||||||||
| Derivative instruments | 1,747 | 2,293 | |||||||||
| Deferred income taxes | 2,098 | 2,251 | |||||||||
| Other non-current assets | 1,124 | 777 | |||||||||
| Total other assets | 13,295 | 14,548 | |||||||||
| Total Assets | $ | 23,724 | $ | 26,038 | |||||||
| September 30, 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 | $ | 258 | $ | 620 | |||||||
| Current portion of operating lease liabilities | 77 | 90 | |||||||||
| Accounts payable | 1,994 | 2,325 | |||||||||
| Derivative instruments | 2,351 | 4,019 | |||||||||
| Cash collateral received in support of energy risk management activities | 12 | 84 | |||||||||
| Deferred revenue current | 761 | 720 | |||||||||
| Accrued expenses and other current liabilities | 1,895 | 1,642 | |||||||||
| Total current liabilities | 7,348 | 9,500 | |||||||||
| Other Liabilities | |||||||||||
| Long-term debt and finance leases | 10,422 | 10,133 | |||||||||
| Non-current operating lease liabilities | 125 | 128 | |||||||||
| Derivative instruments | 1,469 | 1,488 | |||||||||
| Deferred income taxes | 8 | 22 | |||||||||
| Deferred revenue non-current | 919 | 914 | |||||||||
| Other non-current liabilities | 913 | 947 | |||||||||
| Total other liabilities | 13,856 | 13,632 | |||||||||
| Total Liabilities | 21,204 | 23,132 | |||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders' Equity | |||||||||||
| Preferred stock; 10,000,000 shares authorized; 650,000 Series A shares issued and outstanding at September 30, 2024 and December 31, 2023, aggregate liquidation preference of $650 at September 30, 2024 and December 31, 2023 | 650 | 650 | |||||||||
| Common stock; $0.01 par value; 500,000,000 shares authorized; 264,056,285 and 267,330,470 shares issued and 204,929,327 and 208,130,950 shares outstanding at September 30, 2024 and December 31, 2023, respectively | 3 | 3 | |||||||||
| Additional paid-in-capital | 3,145 | 3,416 | |||||||||
| Retained earnings | 977 | 820 | |||||||||
| Treasury stock, at cost; 59,126,958 shares and 59,199,520 shares at September 30, 2024 and December 31, 2023, respectively | (2,150) | (1,892) | |||||||||
| Accumulated other comprehensive loss | (105) | (91) | |||||||||
| Total Stockholders' Equity | 2,520 | 2,906 | |||||||||
| Total Liabilities and Stockholders' Equity | $ | 23,724 | $ | 26,038 |
See accompanying notes to condensed consolidated financial statements.
NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net Income/(Loss) | $ | 482 | $ | (684) | |||||||
| Adjustments to reconcile net income/(loss) to cash provided/(used) by operating activities: | |||||||||||
| Equity in and distributions from earnings of unconsolidated affiliates | (6) | (16) | |||||||||
| Depreciation of property, plant and equipment and amortization of customer relationships and other intangible assets | 814 | 813 | |||||||||
| Amortization of capitalized contract costs | 231 | 108 | |||||||||
| Accretion of asset retirement obligations | 29 | 14 | |||||||||
| Provision for credit losses | 228 | 165 | |||||||||
| Amortization of nuclear fuel | — | 42 | |||||||||
| Amortization of financing costs and debt discounts | 32 | 42 | |||||||||
| Loss on debt extinguishment | 260 | — | |||||||||
| Amortization of in-the-money contracts and emissions allowances | 83 | 111 | |||||||||
| Amortization of unearned equity compensation | 82 | 87 | |||||||||
| Net gain on sale of assets and disposal of assets | (197) | (187) | |||||||||
| Impairment losses | 15 | — | |||||||||
| Changes in derivative instruments | 268 | 1,553 | |||||||||
| Changes in current and deferred income taxes and liability for uncertain tax benefits | 134 | (225) | |||||||||
| Changes in collateral deposits in support of risk management activities | (80) | (1,188) | |||||||||
| Changes in nuclear decommissioning trust liability | — | (4) | |||||||||
| Changes in other working capital | (1,021) | (1,093) | |||||||||
| Cash provided/(used) by operating activities | $ | 1,354 | $ | (462) | |||||||
| Cash Flows from Investing Activities | |||||||||||
| Payments for acquisitions of businesses and assets, net of cash acquired | $ | (33) | $ | (2,502) | |||||||
| Capital expenditures | (286) | (493) | |||||||||
| Net purchases of emissions allowances | (16) | (25) | |||||||||
| Investments in nuclear decommissioning trust fund securities | — | (293) | |||||||||
| Proceeds from the sale of nuclear decommissioning trust fund securities | — | 280 | |||||||||
| Proceeds from sales of assets, net of cash disposed | 495 | 229 | |||||||||
| Proceeds from insurance recoveries for property, plant and equipment, net | 3 | 173 | |||||||||
| Cash provided/(used) by investing activities | $ | 163 | $ | (2,631) | |||||||
| Nine months ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Proceeds from issuance of preferred stock, net of fees | $ | — | $ | 635 | |||||||
| Payments of dividends to preferred and common stockholders | (322) | (295) | |||||||||
| Equivalent shares purchased in lieu of tax withholdings | (45) | (19) | |||||||||
| Payments for share repurchase activity | (316) | (50) | |||||||||
| Net (payments)/receipts from settlement of acquired derivatives that include financing elements | (2) | 332 | |||||||||
| Net proceeds of Revolving Credit Facility and Receivable Securitization Facilities | — | 300 | |||||||||
| Proceeds from issuance of long-term debt | 875 | 731 | |||||||||
| Payments of debt issuance costs | (13) | (29) | |||||||||
| Repayments of long-term debt and finance leases | (960) | (15) | |||||||||
| Payments for debt extinguishment costs | (258) | — | |||||||||
| Proceeds from credit facilities | 1,050 | 3,020 | |||||||||
| Repayments to credit facilities | (1,050) | (3,020) | |||||||||
| Cash (used)/provided by financing activities | $ | (1,041) | $ | 1,590 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | 1 | — | |||||||||
| Net Increase/(Decrease) in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash | 477 | (1,503) | |||||||||
| 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 | $ | 1,126 | $ | 675 |
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 | |||||||||||||||||||||||||||||||||||||||
| Net income | 738 | 738 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (3) | (3) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares reissuance for ESPP | 1 | 5 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases(f) | (91) | (91) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury stock(b) | (38) | 38 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based awards activity, net(c) | 16 | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents declared(d) | (87) | (87) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Capped Call Options(g) | (253) | (253) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | 650 | $ | 3 | $ | 3,229 | $ | 1,863 | $ | (2,019) | $ | (103) | $ | 3,623 | |||||||||||||||||||||||||||||||||||||||
| Net loss | (767) | (767) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (2) | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases(f) | (231) | (231) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury stock(b) | (100) | 100 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based awards activity, net(c) | 16 | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents declared(d) | (86) | (86) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dividends(e) | (33) | (33) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | 650 | $ | 3 | $ | 3,145 | $ | 977 | $ | (2,150) | $ | (105) | $ | 2,520 |
(a)Represents the final settlements of the November 6, 2023 ASR agreements. See Note 9, Changes in Capital Structure for additional information
(b)For further discussion of the treasury stock retirements, see Note 9, Changes in Capital Structure
(c)Includes $(10) million, $(12) million and $(23) million of equivalent shares purchased in lieu of tax withholding on equity compensation issuances for the quarters ended September 30, June 30 and March 31, 2024, respectively
(d)Dividends per common share were $0.4075 for each of the quarters ended September 30, June 30 and March 31, 2024
(e)Dividends per share of Series A Preferred Stock were $51.25 for each of the periods ended September 15 and March 15, 2024
(f)Includes excise tax accrued of $2 million and $1 million for the quarters ended September 30 and June 30, 2024, respectively
(g)For further discussion of the Capped Call Options, see Note 9, Changes in Capital Structure
| (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(h) | 38 | 38 | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents declared(i) | (88) | (88) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 650 | $ | 4 | $ | 8,481 | $ | (15) | $ | (5,864) | $ | (176) | $ | 3,080 | |||||||||||||||||||||||||||||||||
| Net income | 308 | 308 | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series A Preferred Stock | (1) | (1) | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 6 | 6 | |||||||||||||||||||||||||||||||||||||||||||||
| Shares reissuance for ESPP | 1 | 3 | 4 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity-based awards activity, net(h) | 23 | 23 | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents declared(i) | (88) | (88) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | 650 | $ | 4 | $ | 8,504 | $ | 205 | $ | (5,861) | $ | (170) | $ | 3,332 | |||||||||||||||||||||||||||||||||
| Net income | 343 | 343 | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (7) | (7) | |||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | (50) | (50) | |||||||||||||||||||||||||||||||||||||||||||||
| Equity-based awards activity, net(h) | 23 | 23 | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents declared(i) | (89) | (89) | |||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dividends(j) | (34) | (34) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | 650 | $ | 4 | $ | 8,527 | $ | 425 | $ | (5,911) | $ | (177) | $ | 3,518 |
(h)Includes $(3) million, $(8) million and $(8) million of equivalent shares purchased in lieu of tax withholding on equity compensation issuances for the quarters ended September 30, June 30 and March 31, 2023, respectively
(i)Dividends per common share were $0.3775 for each of the quarters ended September 30, June 30, and March 31, 2023
(j)Dividend per share of Series A Preferred Stock was $52.96
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 million residential consumers in addition to commercial, industrial, and wholesale customers, supported by approximately 13 GW of generation as of September 30, 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 and (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 September 30, 2024, and the results of operations, comprehensive (loss)/income, cash flows and stockholders' equity for the three and nine months ended September 30, 2024 and 2023.
The Company identified an error in the previously issued condensed consolidated financial statements for the period ended September 30, 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 September 30, 2023 has been adjusted to present on a gross basis the certain borrowings from credit facilities of $3.0 billion and the related repayments of $3.0 billion. The change had no impact to the total cash used by financing activities for the period ended September 30, 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.
Presentation Adjustments
As of September 30, 2024, the Company is recording the amortization of capitalized contracts costs within depreciation and amortization. This change, along with additional financial statement disclosures, is meant to address investor inquiries by enhancing transparency to easier match expenses with revenues. NRG previously recorded amortization of capitalized contract costs related to fulfillment in cost of operations and amortization of capitalized contract costs related to customer acquisition primarily in selling, general and administrative costs in the consolidated statements of operations.
The following table presents adjustments within the condensed consolidated statement of operations for the three and nine months ended September 30, 2023 related to capitalized contract costs:
| (In millions) | As Previously Presented | Presentation Adjustments | As Adjusted | |||||||||||||||||
| Three months ended September 30, 2023 | ||||||||||||||||||||
| Cost of operations (excluding depreciation and amortization shown below) | $ | 6,421 | $ | (15) | $ | 6,406 | ||||||||||||||
| Depreciation and amortization | 308 | 51 | 359 | |||||||||||||||||
| Selling, general and administrative costs | 638 | (36) | 602 | |||||||||||||||||
| Nine months ended September 30, 2023 | ||||||||||||||||||||
| Cost of operations (excluding depreciation and amortization shown below) | $ | 20,161 | $ | (24) | $ | 20,137 | ||||||||||||||
| Depreciation and amortization | 813 | 108 | 921 | |||||||||||||||||
| Selling, general and administrative costs | 1,586 | (84) | 1,502 |
The following table presents adjustments within the condensed consolidated statement of cash flows for the nine months ended September 30, 2023 related to capitalized contract costs:
| (In millions) | As Previously Presented | Presentation Adjustments | As Adjusted | |||||||||||||||||
| Nine months ended September 30, 2023 | ||||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Amortization of capitalized contract costs | $ | — | $ | 108 | $ | 108 | ||||||||||||||
| Changes in other working capital | (985) | (108) | (1,093) |
Note 2 — Summary of Significant Accounting Policies
Capitalized Contract Costs
Capitalized contract costs represent the costs directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related subscriber contracts. These costs include installed products, commissions, other compensation and the cost of installation of new or upgraded customer contracts. The Company calculates amortization by accumulating all deferred contract costs into separate portfolios based on the initial month of service and amortizes those deferred contract costs on a straight-line basis over the expected period of benefit, consistent with the pattern in which the Company provides services to its customers. The expected period of benefit for customers is approximately five years. The Company updates its estimate of the expected period of benefit periodically and whenever events or circumstances indicate that the expected period of benefit could change significantly. Such changes, if any, are accounted for prospectively as a change in estimate. Amortization of capitalized contract costs are included in depreciation and amortization in the condensed consolidated statements of operations. Contract costs not directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related subscriber contracts are expensed as incurred.
Depreciation and Amortization
The Company's depreciation and amortization included in the condensed consolidated statement of operations consisted of the following:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Amortization of capitalized contract costs related to fulfillment | $ | 34 | $ | 14 | $ | 82 | $ | 20 | |||||||||||||||
| Amortization of capitalized contract costs related to customer acquisition | 57 | 37 | 149 | 88 | |||||||||||||||||||
| Amortization of customer relationships and other intangible assets | 192 | 244 | 610 | 623 | |||||||||||||||||||
| Depreciation of property, plant and equipment | 69 | 64 | 204 | 190 | |||||||||||||||||||
| Total depreciation and amortization | $ | 352 | $ | 359 | $ | 1,045 | $ | 921 |
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 and nine months ended September 30, 2024 and 2023:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Beginning balance | $ | 127 | $ | 120 | $ | 145 | $ | 133 | |||||||||||||||
| Acquired balance from Vivint Smart Home | — | — | — | 22 | |||||||||||||||||||
| Provision for credit losses | 95 | 85 | 228 | 165 | |||||||||||||||||||
| Write-offs | (74) | (59) | (252) | (203) | |||||||||||||||||||
| Recoveries collected | 9 | 9 | 28 | 30 | |||||||||||||||||||
| Other | 7 | 3 | 15 | 11 | |||||||||||||||||||
| Ending balance | $ | 164 | $ | 158 | $ | 164 | $ | 158 |
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) | September 30, 2024 | December 31, 2023 | |||||||||
| Property, plant and equipment accumulated depreciation | $ | 1,470 | $ | 1,295 | |||||||
| Customer relationships and other intangible assets accumulated amortization | 3,435 | 2,994 |
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, restricted cash and funds deposited by counterparties reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows:
| (In millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Cash and cash equivalents | $ | 1,104 | $ | 541 | |||||||
| Funds deposited by counterparties | 12 | 84 | |||||||||
| Restricted cash | 10 | 24 | |||||||||
| Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows | $ | 1,126 | $ | 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 agreements and funds held within the Company's projects that are restricted in their uses.
Goodwill
The following table represents the changes in goodwill during the nine months ended September 30, 2024:
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Total | ||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | 643 | $ | 721 | $ | 221 | $ | 3,494 | $ | 5,079 | |||||||||||||||||||
| Impairment | — | — | (15) | — | (15) | ||||||||||||||||||||||||
| Sale of Airtron | — | — | (44) | — | (44) | ||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | (2) | — | (2) | ||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | 643 | $ | 721 | $ | 160 | $ | 3,494 | $ | 5,018 |
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 new guidance for the annual period ending December 31, 2024 and subsequent interim periods thereafter. The guidance 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.
ASU 2024-03 – In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) – Disaggregation of Income Statement Expenses, or ASU 2024-03. The guidance in ASU 2024-03 requires more detailed information about specified categories of expenses included in certain captions presented on the face of the income statement. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting ASU 2024-03 on its disclosures.
Note 3 — Revenue Recognition
Performance Obligations
As of September 30, 2024, estimated future fixed fee performance obligations are $421 million for the remaining three months of fiscal year 2024, and $1.4 billion, $1.1 billion, $757 million, $459 million and $190 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 and nine months ended September 30, 2024 and 2023:
| Three months ended September 30, 2024 | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue: | |||||||||||||||||||||||||||||||||||
| Home*(a)* | $ | 2,235 | $ | 616 | $ | 349 | $ | 499 | $ | (4) | $ | 3,695 | |||||||||||||||||||||||
| Business | 996 | 1,852 | 411 | — | — | 3,259 | |||||||||||||||||||||||||||||
| Total retail revenue*(b)* | 3,231 | 2,468 | 760 | 499 | (4) | 6,954 | |||||||||||||||||||||||||||||
| Energy revenue(b) | 12 | 67 | 52 | — | (3) | 128 | |||||||||||||||||||||||||||||
| Capacity revenue(b) | — | 40 | 8 | — | (1) | 47 | |||||||||||||||||||||||||||||
| Mark-to-market for economic hedging activities(c) | — | 1 | 6 | — | 1 | 8 | |||||||||||||||||||||||||||||
| Contract amortization | — | (7) | (1) | — | — | (8) | |||||||||||||||||||||||||||||
| Other revenue(b) | 58 | 31 | 8 | — | (3) | 94 | |||||||||||||||||||||||||||||
| Total revenue | 3,301 | 2,600 | 833 | 499 | (10) | 7,223 | |||||||||||||||||||||||||||||
| Less: Revenues accounted for under topics other than ASC 606 and ASC 815 | — | 14 | 13 | — | — | 27 | |||||||||||||||||||||||||||||
| Less: Realized and unrealized ASC 815 revenue | 19 | 33 | 18 | — | (1) | 69 | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | $ | 3,282 | $ | 2,553 | $ | 802 | $ | 499 | $ | (9) | $ | 7,127 | |||||||||||||||||||||||
| (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 | $ | — | $ | 6 | $ | — | $ | — | $ | — | $ | 6 | |||||||||||||||||||||||
| Energy revenue | — | 9 | 12 | — | (3) | 18 | |||||||||||||||||||||||||||||
| Capacity revenue | — | 17 | — | — | — | 17 | |||||||||||||||||||||||||||||
| Other revenue | 19 | — | — | — | 1 | 20 | |||||||||||||||||||||||||||||
| (c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 |
| Three months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue: | |||||||||||||||||||||||||||||||||||
| Home*(a)* | $ | 2,397 | $ | 544 | $ | 390 | $ | 478 | $ | (1) | $ | 3,808 | |||||||||||||||||||||||
| Business | 1,092 | 2,089 | 532 | — | — | 3,713 | |||||||||||||||||||||||||||||
| Total retail revenue(b) | 3,489 | 2,633 | 922 | 478 | (1) | 7,521 | |||||||||||||||||||||||||||||
| Energy revenue(b) | 51 | 152 | 59 | — | (1) | 261 | |||||||||||||||||||||||||||||
| Capacity revenue(b) | — | 64 | (4) | — | (1) | 59 | |||||||||||||||||||||||||||||
| Mark-to-market for economic hedging activities(c) | — | (60) | (10) | — | — | (70) | |||||||||||||||||||||||||||||
| Contract amortization | — | (6) | 1 | — | — | (5) | |||||||||||||||||||||||||||||
| Other revenue(b) | 146 | 26 | 10 | — | (2) | 180 | |||||||||||||||||||||||||||||
| Total revenue | 3,686 | 2,809 | 978 | 478 | (5) | 7,946 | |||||||||||||||||||||||||||||
| Less: Revenues accounted for under topics other than ASC 606 and ASC 815 | — | 8 | 10 | — | — | 18 | |||||||||||||||||||||||||||||
| Less: Realized and unrealized ASC 815 revenue | 16 | 58 | (7) | — | — | 67 | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | $ | 3,670 | $ | 2,743 | $ | 975 | $ | 478 | $ | (5) | $ | 7,861 | |||||||||||||||||||||||
| (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 | $ | — | $ | 14 | $ | — | $ | — | $ | — | $ | 14 | |||||||||||||||||||||||
| Energy revenue | — | 77 | — | — | — | 77 | |||||||||||||||||||||||||||||
| Capacity revenue | — | 27 | — | — | — | 27 | |||||||||||||||||||||||||||||
| Other revenue | 16 | — | 3 | — | — | 19 | |||||||||||||||||||||||||||||
| (c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 |
| Nine months ended September 30, 2024 | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue: | |||||||||||||||||||||||||||||||||||
| Home*(a)* | $ | 5,361 | $ | 1,855 | $ | 1,362 | $ | 1,434 | $ | (12) | $ | 10,000 | |||||||||||||||||||||||
| Business | 2,740 | 6,402 | 1,385 | — | — | 10,527 | |||||||||||||||||||||||||||||
| Total retail revenue*(b)* | 8,101 | 8,257 | 2,747 | 1,434 | (12) | 20,527 | |||||||||||||||||||||||||||||
| Energy revenue(b) | 35 | 194 | 170 | — | (9) | 390 | |||||||||||||||||||||||||||||
| Capacity revenue(b) | — | 120 | 16 | — | (3) | 133 | |||||||||||||||||||||||||||||
| Mark-to-market for economic hedging activities(c) | — | 15 | 14 | — | 3 | 32 | |||||||||||||||||||||||||||||
| Contract amortization | — | (23) | (2) | — | — | (25) | |||||||||||||||||||||||||||||
| Other revenue(b) | 161 | 84 | 17 | — | (8) | 254 | |||||||||||||||||||||||||||||
| Total revenue | 8,297 | 8,647 | 2,962 | 1,434 | (29) | 21,311 | |||||||||||||||||||||||||||||
| Less: Revenues accounted for under topics other than ASC 606 and ASC 815 | — | 36 | 38 | — | — | 74 | |||||||||||||||||||||||||||||
| Less: Realized and unrealized ASC 815 revenue | 29 | 165 | 60 | — | (4) | 250 | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | $ | 8,268 | $ | 8,446 | $ | 2,864 | $ | 1,434 | $ | (25) | $ | 20,987 | |||||||||||||||||||||||
| (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 | $ | — | $ | 25 | $ | — | $ | — | $ | — | $ | 25 | |||||||||||||||||||||||
| Energy revenue | — | 67 | 50 | — | (8) | 109 | |||||||||||||||||||||||||||||
| Capacity revenue | — | 58 | — | — | — | 58 | |||||||||||||||||||||||||||||
| Other revenue | 29 | — | (4) | — | 1 | 26 | |||||||||||||||||||||||||||||
| (c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 | |||||||||||||||||||||||||||||||||||
| Nine months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home**(a)** | Corporate/Eliminations | Total | |||||||||||||||||||||||||||||
| Retail revenue: | |||||||||||||||||||||||||||||||||||
| Home*(b)* | $ | 5,196 | $ | 1,641 | $ | 1,421 | $ | 1,070 | $ | (1) | $ | 9,327 | |||||||||||||||||||||||
| Business | 2,646 | 7,366 | 1,572 | — | — | 11,584 | |||||||||||||||||||||||||||||
| Total retail revenue(c) | 7,842 | 9,007 | 2,993 | 1,070 | (1) | 20,911 | |||||||||||||||||||||||||||||
| Energy revenue(c) | 71 | 254 | 147 | — | — | 472 | |||||||||||||||||||||||||||||
| Capacity revenue(c) | — | 154 | (3) | — | (1) | 150 | |||||||||||||||||||||||||||||
| Mark-to-market for economic hedging activities(d) | — | 27 | 80 | — | (11) | 96 | |||||||||||||||||||||||||||||
| Contract amortization | — | (24) | — | — | — | (24) | |||||||||||||||||||||||||||||
| Other revenue(c) | 322 | 70 | 27 | — | (8) | 411 | |||||||||||||||||||||||||||||
| Total revenue | 8,235 | 9,488 | 3,244 | 1,070 | (21) | 22,016 | |||||||||||||||||||||||||||||
| Less: Revenues accounted for under topics other than ASC 606 and ASC 815 | — | 13 | 26 | — | — | 39 | |||||||||||||||||||||||||||||
| Less: Realized and unrealized ASC 815 revenue | 28 | 270 | 97 | — | (10) | 385 | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | $ | 8,207 | $ | 9,205 | $ | 3,121 | $ | 1,070 | $ | (11) | $ | 21,592 | |||||||||||||||||||||||
| (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 | $ | — | $ | 57 | $ | — | $ | — | $ | — | $ | 57 | |||||||||||||||||||||||
| Energy revenue | — | 137 | 10 | — | 1 | 148 | |||||||||||||||||||||||||||||
| Capacity revenue | — | 50 | — | — | — | 50 | |||||||||||||||||||||||||||||
| Other revenue | 28 | (1) | 7 | — | — | 34 | |||||||||||||||||||||||||||||
| (d) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 | |||||||||||||||||||||||||||||||||||
Contract Balances
The following table reflects the contract assets and liabilities included in the Company’s balance sheet as of September 30, 2024 and December 31, 2023:
| (In millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Capitalized contract costs (included in Prepayments and other current assets and Other non-current assets) | $ | 1,173 | $ | 706 | |||||||
| Accounts receivable, net - Contracts with customers | 3,181 | 3,395 | |||||||||
| Accounts receivable, net - Accounted for under topics other than ASC 606 | 74 | 136 | |||||||||
| Accounts receivable, net - Affiliate | 3 | 11 | |||||||||
| Total accounts receivable, net | $ | 3,258 | $ | 3,542 | |||||||
| Unbilled revenues (included within Accounts receivable, net - Contracts with customers) | $ | 1,318 | $ | 1,493 | |||||||
| Deferred revenues(a) | 1,680 | 1,634 |
(a)Deferred revenues from contracts with customers were approximately $1.6 billion as of both September 30, 2024 and December 31, 2023
The revenue recognized from contracts with customers during the three months ended September 30, 2024 and 2023 relating to the deferred revenue balance at the beginning of each period was $290 million and $310 million, respectively, which decreased primarily due to the timing difference of when consideration was received and when the performance obligation was transferred. The revenue recognized from contracts with customers during the nine months ended September 30, 2024 and 2023 relating to the deferred revenue balance at the beginning of each period was $511 million and $168 million, respectively, which increased primarily due to the acquisition of Vivint Smart Home.
Note 4 — Acquisitions and Dispositions
Acquisitions
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 created 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 $38 million for the nine months ended September 30, 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
Sale of Airtron
On September 16, 2024, the Company closed on the sale of its 100% ownership in the Airtron business unit. Proceeds of $500 million were reduced by working capital and other adjustments of $16 million, resulting in net proceeds of $484 million. The Company recorded a gain on the sale of $208 million within the West/Services/Other region of operations.
Sale of Gregory
On October 2, 2023, the Company closed on the sale of its 100% ownership in the Gregory natural gas generating facility in Texas for $102 million.
Sale of Astoria
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:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| (In millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||
| Convertible Senior Notes | $ | 232 | $ | 515 | $ | 575 | $ | 739 | |||||||||||||||
| Other long-term debt, including current portion | 10,497 | 10,412 | 10,219 | 9,835 | |||||||||||||||||||
| Total long-term debt, including current portion(a) | $ | 10,729 | $ | 10,927 | $ | 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, the Term Loans and Vivint Senior Secured Term Loan (as defined in Note 7, Long-term Debt and Finance Leases) 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:
| September 30, 2024 | |||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||
| (In millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Investments in securities (classified within other current and non-current assets) | $ | 26 | $ | — | $ | 26 | $ | — | |||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate contracts | 2 | — | 2 | — | |||||||||||||||||||
| Foreign exchange contracts | 5 | — | 5 | — | |||||||||||||||||||
| Commodity contracts | 4,196 | 626 | 3,384 | 186 | |||||||||||||||||||
| Equity securities measured using net asset value practical expedient (classified within other non-current assets) | 6 | ||||||||||||||||||||||
| Total assets | $ | 4,235 | $ | 626 | $ | 3,417 | $ | 186 | |||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Interest rate contracts | $ | 30 | $ | — | $ | 30 | $ | — | |||||||||||||||
| Foreign exchange contracts | 2 | — | 2 | — | |||||||||||||||||||
| Commodity contracts | 3,588 | 654 | 2,722 | 212 | |||||||||||||||||||
| Consumer Financing Program | 200 | — | — | 200 | |||||||||||||||||||
| Total liabilities | $ | 3,820 | $ | 654 | $ | 2,754 | $ | 412 |
| 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 and nine months ended September 30, 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 September 30, 2024 | Three months ended September 30, 2023 | Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | |||||||||||||||||||
| Beginning balance | $ | 121 | $ | 905 | $ | 119 | $ | 505 | |||||||||||||||
| Total (losses)/gains realized/unrealized included in earnings | (83) | 5 | (120) | (172) | |||||||||||||||||||
| Purchases | (38) | (115) | (7) | 25 | |||||||||||||||||||
| Transfers into Level 3(b) | (19) | (374) | (2) | 64 | |||||||||||||||||||
| Transfers out of Level 3(b) | (7) | — | (16) | (1) | |||||||||||||||||||
| Ending balance | $ | (26) | $ | 421 | $ | (26) | $ | 421 | |||||||||||||||
| (Losses)/gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of period end | $ | (41) | $ | 75 | $ | (70) | $ | (56) |
(a)Consists of derivative assets and liabilities, net, excluding derivatives liabilities from the Consumer Financing Program, which are presented in a separate table below
(b)Transfers into/out of Level 3 within the fair value hierarchy 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 and nine months ended September 30, 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 September 30, 2024 | Three months ended September 30, 2023 | Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | |||||||||||||||||||
| Beginning balance | $ | (151) | $ | (115) | $ | (134) | $ | — | |||||||||||||||
| Contractual obligations added from the acquisition of Vivint Smart Home | — | — | — | (112) | |||||||||||||||||||
| New contractual obligations | (63) | (33) | (121) | (55) | |||||||||||||||||||
| Settlements | 21 | 21 | 64 | 43 | |||||||||||||||||||
| Total losses included in earnings | (7) | (1) | (9) | (4) | |||||||||||||||||||
| Ending balance | $ | (200) | $ | (128) | $ | (200) | $ | (128) |
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 September 30, 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 September 30, 2024, contracts valued with prices provided by models and other valuation techniques made up 4% of derivative assets and 11% 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 Consumer Financing Program. 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 September 30, 2024 and December 31, 2023:
| September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Fair Value | Input/Range | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except as noted) | Assets | Liabilities | Valuation Technique | Significant Unobservable Input | Low | High | Weighted Average | ||||||||||||||||||||||||||||||||||
| Natural Gas Contracts | $ | 38 | $ | 27 | Discounted Cash Flow | Forward Market Price ($ per MMBtu) | $ | 1 | $ | 13 | $ | 4 | |||||||||||||||||||||||||||||
| Power Contracts | 75 | 138 | Discounted Cash Flow | Forward Market Price ($ per MWh) | 0 | 131 | 41 | ||||||||||||||||||||||||||||||||||
| Capacity Contracts | 27 | 12 | Discounted Cash Flow | Forward Market Price ($ per MW/Day) | 20 | 649 | 207 | ||||||||||||||||||||||||||||||||||
| RECs | 31 | 9 | Discounted Cash Flow | Forward Market Price ($ per Certificate) | 2 | 245 | 16 | ||||||||||||||||||||||||||||||||||
| FTRs | 15 | 26 | Discounted Cash Flow | Auction Prices ($ per MWh) | (38) | 8,434 | 0 | ||||||||||||||||||||||||||||||||||
| Consumer Financing Program | — | 200 | Discounted Cash Flow | Collateral Default Rates | 0.25 | % | 100.00 | % | 10.90 | % | |||||||||||||||||||||||||||||||
| Discounted Cash Flow | Collateral Prepayment Rates | 2.00 | % | 3.00 | % | 2.86 | % | ||||||||||||||||||||||||||||||||||
| Discounted Cash Flow | Credit Loss Rates | 4.70 | % | 60.00 | % | 13.88 | % | ||||||||||||||||||||||||||||||||||
| $ | 186 | $ | 412 |
| 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 September 30, 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 September 30, 2024, the credit reserve resulted in a $2 million decrease primarily within cost of operations. As of 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 September 30, 2024, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, registered commodity exchanges and certain long-term agreements, was $1.3 billion and NRG held collateral (cash and letters of credit) against those positions of $128 million, resulting in a net exposure of $1.2 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 30% 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 | 75 | % | |||
| Financial institutions | 25 | ||||
| Total as of September 30, 2024 | 100 | % |
| Net Exposure (a)(b) | |||||
| Category by Counterparty Credit Quality | (% of Total) | ||||
| Investment grade | 59 | % | |||
| Non-investment grade/Non-Rated | 41 | ||||
| Total as of September 30, 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 no exposure to wholesale counterparties in excess of 10% of total net exposure as of September 30, 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 September 30, 2024, aggregate credit risk exposure managed by NRG to these counterparties was approximately $890 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 September 30, 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 September 30, 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 2037 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. Additionally, as of September 30, 2024, the Company had $1.0 billion of interest rate swaps extending through 2027 to hedge the floating rate of the Vivint Term Loans (as defined in Note 7, Long-term Debt and Finance Leases). In November 2024, in connection with the repayment of the Vivint Term Loans and the increase of the Term Loans, the Company decreased its interest rate swap notional value from $1.7 billion to $700 million.
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 September 30, 2024, NRG had foreign exchange contracts extending through 2028. 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 September 30, 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 | September 30, 2024 | December 31, 2023 | |||||||||||
| Emissions | Short Ton | 1 | — | |||||||||||
| RECs | Certificates | 12 | 12 | |||||||||||
| Coal | Short Ton | 11 | 9 | |||||||||||
| Natural Gas | MMBtu | 759 | 838 | |||||||||||
| Oil | Barrels | 1 | — | |||||||||||
| Power | MWh | 206 | 201 | |||||||||||
| Interest | Dollars | 1,700 | 1,000 | |||||||||||
| Foreign Exchange | Dollars | 433 | 548 | |||||||||||
| Consumer Financing Program | Dollars | 1,275 | 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) | September 30, 2024 | December 31, 2023 | September 30, 2024 | December 31, 2023 | |||||||||||||||||||
| Derivatives Not Designated as Cash Flow or Fair Value Hedges: | |||||||||||||||||||||||
| Interest rate contracts - current | $ | 2 | $ | 12 | $ | 1 | $ | — | |||||||||||||||
| Interest rate contracts - long-term | — | — | 29 | 8 | |||||||||||||||||||
| Foreign exchange contracts - current | 4 | 3 | 1 | 4 | |||||||||||||||||||
| Foreign exchange contracts - long-term | 1 | 2 | 1 | 5 | |||||||||||||||||||
| Commodity contracts - current | 2,450 | 3,847 | 2,234 | 3,922 | |||||||||||||||||||
| Commodity contracts - long-term | 1,746 | 2,291 | 1,354 | 1,434 | |||||||||||||||||||
| Consumer Financing Program - short-term | — | — | 115 | 93 | |||||||||||||||||||
| Consumer Financing Program - long-term | — | — | 85 | 41 | |||||||||||||||||||
| Total Derivatives Not Designated as Cash Flow or Fair Value Hedges | $ | 4,203 | $ | 6,155 | $ | 3,820 | $ | 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 September 30, 2024 | ||||||||||||||||||||||||||
| Interest rate contracts: | ||||||||||||||||||||||||||
| Derivative assets | $ | 2 | $ | (2) | $ | — | $ | — | ||||||||||||||||||
| Derivative liabilities | (30) | 2 | — | (28) | ||||||||||||||||||||||
| Total interest rate contracts | $ | (28) | $ | — | $ | — | $ | (28) | ||||||||||||||||||
| Foreign exchange contracts: | ||||||||||||||||||||||||||
| Derivative assets | $ | 5 | $ | (1) | $ | — | $ | 4 | ||||||||||||||||||
| Derivative liabilities | (2) | 1 | — | (1) | ||||||||||||||||||||||
| Total foreign exchange contracts | $ | 3 | $ | — | $ | — | $ | 3 | ||||||||||||||||||
| Commodity contracts: | ||||||||||||||||||||||||||
| Derivative assets | $ | 4,196 | $ | (3,224) | $ | (6) | $ | 966 | ||||||||||||||||||
| Derivative liabilities | (3,588) | 3,224 | 166 | (198) | ||||||||||||||||||||||
| Total commodity contracts | $ | 608 | $ | — | $ | 160 | $ | 768 | ||||||||||||||||||
| Consumer Financing Program: | ||||||||||||||||||||||||||
| Derivative liabilities | $ | (200) | $ | — | $ | — | $ | (200) | ||||||||||||||||||
| Total derivative instruments | $ | 383 | $ | — | $ | 160 | $ | 543 |
| 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 September 30, | Nine months ended September 30, | |||||||||||||||||||||
| Unrealized mark-to-market results | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges | $ | (414) | $ | (522) | $ | 39 | $ | (1,519) | |||||||||||||||
| Reversal of acquired (gain)/loss positions related to economic hedges | (8) | (6) | (3) | 4 | |||||||||||||||||||
| Net unrealized (losses)/gains on open positions related to economic hedges | (1,208) | 475 | (319) | (418) | |||||||||||||||||||
| Total unrealized mark-to-market (losses) for economic hedging activities | (1,630) | (53) | (283) | (1,933) | |||||||||||||||||||
| Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity | (1) | — | (1) | 11 | |||||||||||||||||||
| Net unrealized (losses)/gains on open positions related to trading activity | (4) | (1) | 1 | 13 | |||||||||||||||||||
| Total unrealized mark-to-market (losses)/gains for trading activity | (5) | (1) | — | 24 | |||||||||||||||||||
| Total unrealized (losses) - commodities and foreign exchange | $ | (1,635) | $ | (54) | $ | (283) | $ | (1,909) |
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Total impact to statement of operations - interest rate contracts | $ | (49) | $ | 8 | $ | (31) | $ | 32 | |||||||||||||||
| Unrealized gains/(losses) included in revenues - commodities | $ | 3 | $ | (71) | $ | 32 | $ | 120 | |||||||||||||||
| Unrealized (losses)/gains included in cost of operations - commodities | (1,633) | 8 | (321) | (2,024) | |||||||||||||||||||
| Unrealized (losses)/gains included in cost of operations - foreign exchange | (5) | 9 | 6 | (5) | |||||||||||||||||||
| Total impact to statement of operations - commodities and foreign exchange | $ | (1,635) | $ | (54) | $ | (283) | $ | (1,909) | |||||||||||||||
| Total impact to statement of operations - Consumer Financing Program | $ | (7) | $ | (1) | $ | (9) | $ | (4) |
The reversals of acquired loss positions were valued based upon the forward prices on the acquisition date. The roll-off amounts were offset by realized gains or losses at the settled prices and are reflected in revenue or cost of operations during the same period.
For the nine months ended September 30, 2024, the $319 million 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 power prices.
For the nine months ended September 30, 2023, the $418 million 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 in the East and West.
Credit Risk Related Contingent Features
Certain of the Company's trading agreements contain provisions that entitle the counterparty to demand that the Company post additional collateral if the counterparty determines that there has been deterioration in the Company's credit quality, generally termed “adequate assurance” under the agreements, or require the Company to post additional collateral if there were a downgrade in the Company's credit rating. The collateral potentially required for all contracts with adequate assurance clauses that are in a net liability position as of September 30, 2024 was $444 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 $31 million as of September 30, 2024. In the event of a downgrade in the Company's credit rating and if called for by the counterparty, $27 million of additional collateral would be required for all contracts with credit rating contingent features as of September 30, 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) | September 30, 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) | 232 | 575 | 2.750 | ||||||||||||||
| Senior Secured First Lien Notes, due 2024 | — | 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 | ||||||||||||||
| Term Loan, due 2031 | 871 | — | SOFR + 2.000 | ||||||||||||||
| Tax-exempt bonds | 466 | 466 | 1.250 - 4.750 | ||||||||||||||
| Subtotal recourse debt | 8,148 | 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 | 1,310 | 1,320 | SOFR + 2.750 | ||||||||||||||
| Subtotal all Vivint non-recourse debt | 2,710 | 2,720 | |||||||||||||||
| Subtotal long-term debt (including current maturities) | 10,858 | 10,940 | |||||||||||||||
| Finance leases | 11 | 19 | various | ||||||||||||||
| Subtotal long-term debt and finance leases (including current maturities) | 10,869 | 10,959 | |||||||||||||||
| Less current maturities | (258) | (620) | |||||||||||||||
| Less debt issuance costs | (60) | (60) | |||||||||||||||
| Discounts | (129) | (146) | |||||||||||||||
| Total long-term debt and finance leases | $ | 10,422 | $ | 10,133 |
(a)As of the ex-dividend date of November 1, 2024, the Convertible Senior Notes were convertible at a price of $40.94, which is equivalent to a conversion rate of approximately 24.4241 shares of common stock per $1,000 principal amount
Recourse Debt
Issuance of 2029 Senior Notes, 2033 Senior Notes and 2034 Senior Notes
On October 30, 2024, the Company issued $1.9 billion in aggregate principal amount of senior unsecured notes, consisting of (i) $925 million aggregate principal amount of 6.000% senior unsecured notes due 2033 (the “2033 Notes”) and (ii) $950 million aggregate principal amount of 6.250% senior notes due 2034 (the “2034 Notes” and, together with the 2033 Notes, the “Notes”). In addition, on October 30, 2024, the Company issued $798 million aggregate principal amount of 5.750% senior unsecured notes due 2029 (the “New NRG 5.750% Senior Notes due 2029”) in connection with the Company’s previously announced offer to exchange. The Notes and the New NRG 5.750% Senior Notes due 2029 are senior unsecured obligations of the Company and are guaranteed by certain of its subsidiaries that guarantee indebtedness under the Senior Credit Facility. Interest on the New NRG 5.750% Senior Notes due 2029 is paid semi-annually beginning on January 15, 2025 until the maturity date of July 15, 2029. Interest on the 2033 Notes is paid semi-annually beginning on February 1, 2025 until the maturity date of February 1, 2033. Interest on the 2034 Notes is paid semi-annually beginning on May 1, 2025 until the maturity date of November 1, 2034.
On October 30, 2024, the Company used the net proceeds from the offering of the Notes, together with the net proceeds of its new incremental term loan B in an aggregate principal amount of $450 million, and cash on hand, to pay the cash tender price for any and all of APX Group, Inc.’s 6.750% Senior Secured Notes due 2027 and to repay the APX Group, Inc.'s secured
term loans in an outstanding aggregate principal amount of approximately $1.3 billion under its senior secured credit agreement. In addition, on October 31, 2024, the Company used the net proceeds from the offering of the Notes to redeem all of its outstanding 6.625% Senior Notes due 2027, of which $375 million aggregate principal amount was outstanding. Any remaining net proceeds from the offering will be used to pay the transaction fees, expenses and premiums, to refinance outstanding debt and for general corporate purposes.
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 (the “Agent”) and as collateral agent, and certain financial institutions, as lenders, which amended the Company’s Second Amended and Restated Credit Agreement, dated as of June 30, 2016 (as amended, restated, supplemented and/or otherwise modified from time to time, the “Credit Agreement”), in order to (i) establish a new term loan B facility with borrowings of $875 million in aggregate principal amount (the “Existing Term Loan B 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, all of the Company’s 3.750% senior secured first lien notes due 2024 and for general corporate purposes.
At the Company’s election, the Term Loans 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 Credit Agreement) (after giving effect to any floor applicable to Term SOFR) plus 1.00%, in each case, plus a margin of 1.00% or (2) Term SOFR (as defined in the Credit Agreement) (which shall not be less than 0.00%) 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 a margin of 2.00%.
On October 30, 2024, the Company, as borrower, and certain subsidiaries of the Company, as guarantors, entered into the Eleventh Amendment to the Second Amended and Restated Credit Agreement (the “Eleventh Amendment”) with, among others, the Agent and certain financial institutions, as lenders, which amended the Credit Agreement in order to include a new incremental term loan B in an aggregate principal amount of $450 million (the “Incremental Term Loan B Facility” and the loans thereunder, the “Incremental Term Loans”) which Incremental Term Loan B Facility is fungible for U.S. federal tax purposes with the Existing Term Loan B Facility. The proceeds from the Incremental Term Loans, together with the proceeds of the Notes, were used to repay all loans and other amounts outstanding under APX’s senior secured credit agreement and to fund the working capital needs and other general corporate purposes of the Company and its subsidiaries.
The terms of the Incremental Term Loan B Facility (including pricing) are identical to those applicable to, and the Incremental Term Loans constitute the same class of term loans as, the Company’s Existing Term Loan B Facility. At the Company’s election, the Incremental Term Loans 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 Credit Agreement), plus 1.00%, in each case, plus a margin of 1.00%, or (2) Term SOFR (as defined in the Credit Agreement) (which will not be less than 0.00%) 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 a margin of 2.00%.
The Existing Term Loan B Facility and the Incremental Term Loan B Facility are guaranteed by each of the Company’s subsidiaries that guarantee the Company’s Revolving Credit Facility and are 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 Existing Term Loan B Facility and Incremental Term Loan B Facility have a final maturity date of April 16, 2031 and amortize at a rate of 1% per annum in equal quarterly installments (subject to any adjustments to such amortization payments to ensure that such Incremental Term Loan B Facility is fungible for U.S. federal tax purposes with the Company’s Existing Term Loan B Facility). If an event of default occurs under the Existing Term Loan B Facility or the Incremental Term Loan B 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 and the Incremental Term Loan B Facility also provide 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.
On October 30, 2024, the Company, as borrower, and certain subsidiaries of the Company, as guarantors, entered into the Tenth Amendment to the Second Amended and Restated Credit Agreement (the "Tenth 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) extend the maturity date of its revolving credit facility to October 30, 2029 and (ii) make certain other amendments to the Credit Agreement.
2048 Convertible Senior Notes
As of October 1, 2024, the Company's Convertible Senior Notes are convertible during the quarterly period ending December 31, 2024 due to the satisfaction of the Common Stock Sale Price Condition (as defined below). As of September 30, 2024, the Convertible Senior Notes are convertible into cash or a combination of cash and the Company’s common stock at a price of $41.11 per common share, which is the equivalent to a conversion rate of approximately 24.3220 shares of common stock per $1,000 principal amount of Convertible Senior Notes. The settlement method is at the Company's election. The net carrying amounts of the Convertible Senior Notes as of September 30, 2024 and December 31, 2023 were $231 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.
The following table details the interest expense recorded in connection with the Convertible Senior Notes:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions, except percentages) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Contractual interest expense | $ | 1 | $ | 4 | $ | 7 | $ | 12 | |||||||||||||||
| Amortization of deferred finance costs | — | — | 1 | 1 | |||||||||||||||||||
| Total | $ | 1 | $ | 4 | $ | 8 | $ | 13 | |||||||||||||||
| Effective Interest Rate | 0.76 | % | 0.76 | % | 2.31 | % | 2.28 | % |
Repurchases
During the nine months ended September 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 nine months ended September 30, 2024, a $260 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
Capped Call Options
During the second quarter of 2024, the Company entered into privately negotiated capped call transactions with certain counterparties (the "Capped Calls") to effectively lock in a conversion premium of $257 million on the remaining $232 million of the Convertible Senior Notes. The option price of $257 million was incurred when the Company entered into the Capped Calls, which will be payable upon the earlier of settlement and expiration of the applicable Capped Calls. For further discussion see Note 9, Changes in Capital Structure.
Receivables Securitization Facilities
On June 21, 2024, NRG Receivables LLC (“NRG Receivables”), an indirect wholly-owned subsidiary of the Company, amended its existing Receivables Facility to, among other things, (i) extend the scheduled termination date to June 20, 2025, (ii) increase the aggregate commitments from $1.4 billion to $2.3 billion (adjusted seasonally) and (iii) add a new originator. As of September 30, 2024, there were no outstanding borrowings and there were $1.5 billion in letters of credit issued.
Also on June 21, 2024, Direct Energy Services, LLC (in its capacity as additional originator, the “Additional Originator”) entered into a Joinder Agreement (the “Joinder Agreement”) to join as Additional Originator to the Receivables Sale Agreement, dated as of September 22, 2020, among Direct Energy, LP, Direct Energy Business, LLC, Green Mountain Energy Company, NRG Business Marketing, LLC, Reliant Energy Northeast LLC, Reliant Energy Retail Services, LLC, Stream SPE, Ltd., US Retailers LLC and XOOM Energy Texas, LLC, as originators, NRG Retail, as the servicer, and NRG Receivables (the “Receivables Sale Agreement”). Pursuant to the Joinder Agreement, the Additional Originator agrees to be bound by the terms of the Receivables Sale Agreement, will sell to NRG Receivables substantially all of its receivables for the sale of electricity, natural gas and/or related services and certain related rights (collectively, the “Receivables”) and in connection therewith have transferred to NRG Receivables the deposit accounts into which the proceeds of such Receivables are paid.
Concurrently with the amendments to the Receivables Facility, the Company and the originators thereunder terminated the existing uncommitted Repurchase Facility.
3.750% Senior Secured First Lien Note due 2024 Repayment
On June 17, 2024, the Company repaid $600 million in aggregate principal amount of its 3.750% Senior Secured First Lien Notes due 2024.
6.625% Senior Notes due 2027 Repayment
On October 31, 2024, the Company used the net proceeds from the offering of the Notes to redeem all of its outstanding 6.625% Senior Notes due 2027, of which $375 million aggregate principal amount was outstanding.
Non-recourse Debt
Vivint Secured Notes Tender Offer
On October 30, 2024, in connection with APX Group, Inc.'s previously announced offer to purchase for cash (the "Tender Offer") any and all of APX Group, Inc.'s outstanding 6.750% senior secured notes due 2027 (the “Vivint 6.750% Senior Secured Notes due 2027”), APX Group, Inc. purchased $589 million of the Vivint 6.750% Senior Secured Notes due 2027 that had been validly tendered. On October 30, 2024, APX Group, Inc. notified the trustee for the Vivint 6.750% Senior Secured Notes due 2027 of its election to redeem the $11 million of the Vivint 6.750% Senior Secured Notes due 2027 that remained outstanding following the Tender Offer on November 8, 2024. The redemption price for such remaining Vivint 6.750% Senior Secured Notes due 2027 was equal to the total consideration paid in connection with the Tender Offer.
Vivint Unsecured Notes Exchange Offer
In connection with the Company’s previously announced offer to exchange (the "Exchange Offer") any and all outstanding 5.750% Senior Notes due 2029 (the “Vivint 5.750% Senior Notes due 2029”) issued by APX Group, Inc. for the New NRG 5.750% Senior Notes due 2029 and cash, NRG accepted tenders with respect to $798 million aggregate principal amount of the Vivint 5.750% Senior Notes due 2029 that were tendered on or prior to the early tender date.
On October 30, 2024, the Company issued the New NRG 5.750% Senior Notes due 2029 in an aggregate principal amount of $798 million. The New NRG 5.750% Senior Notes due 2029 are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries that guarantee indebtedness under the Senior Credit Facility.
Vivint Term Loan Repricing
On April 10, 2024, the Company’s wholly-owned indirect subsidiary, Vivint, entered into Amendment No. 2 (the "Second Amendment") to the Second Amended and Restated Credit Agreement dated as of June 9, 2021 (the “Vivint Credit Agreement”) with, among others, Bank of America, N.A. as administrative agent (the “Vivint Agent”), and certain financial institutions, as lenders, which amended 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 modifications to the Vivint Credit Agreement as set forth therein.
At Vivint’s election, the Vivint Term Loans 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), (after giving effect to any floor applicable to Term SOFR) plus 1.00%, in each case, plus a margin of 1.75%, or (2) Term SOFR (as defined in the Vivint Credit Agreement) (which Term SOFR shall 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 a margin of 2.75%.
On October 30, 2024, the Company repaid in full the outstanding Vivint Term Loans and terminated the revolving credit facility under the Vivint Credit Agreement.
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) | September 30, 2024 | December 31, 2023 | |||||||||
| Accounts receivable and Other current assets | $ | 2,457 | $ | 1,541 | |||||||
| Current liabilities | 154 | 153 | |||||||||
| Net assets | $ | 2,303 | $ | 1,388 |
Note 9 — Changes in Capital Structure
As of September 30, 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 | — | 1,836,827 | — | 1,836,827 | |||||||||||||||||||
| Shares issued under ESPP | — | — | 145,562 | 145,562 | |||||||||||||||||||
| Shares repurchased | — | — | (5,181,424) | (5,181,424) | |||||||||||||||||||
| Partial settlement of Capped Call Options | — | — | (2,588) | (2,588) | |||||||||||||||||||
| Retirement of treasury stock | — | (5,111,012) | 5,111,012 | — | |||||||||||||||||||
| Balance as of September 30, 2024 | 650,000 | 264,056,285 | (59,126,958) | 204,929,327 | |||||||||||||||||||
| Shares issued under LTIPs | — | 64,861 | — | 64,861 | |||||||||||||||||||
| Shares issued under ESPP | — | — | 96,508 | 96,508 | |||||||||||||||||||
| Shares repurchased | — | — | (2,524,323) | (2,524,323) | |||||||||||||||||||
| Retirement of treasury stock | — | (2,064,950) | 2,064,950 | — | |||||||||||||||||||
| Balance as of October 31, 2024 | 650,000 | 262,056,196 | (59,489,823) | 202,566,373 |
Common Stock
Share Repurchases
The Company's long-term capital allocation policy is to target allocating approximately 80% of cash available for allocation, after debt reduction, to be returned to shareholders. In June 2023, NRG announced an increase to its existing share repurchase authorization to $2.7 billion, to be executed through 2025. In October 2024, the Board of Directors authorized an additional $1.0 billion for share repurchases as part of the existing share repurchase authorization. As of October 31, 2024, $2.0 billion is remaining under the $3.7 billion authorization. The following table summarizes the share repurchases made under the $3.7 billion authorization through October 31, 2024:
| Total number of shares purchased | Average price paid per share | Amounts paid for shares purchased (in millions) | ||||||||||||
| 2023 Repurchases: | ||||||||||||||
| Open market repurchases | 5,054,798 | $ | 39.56 | $ | 200 | |||||||||
| Repurchases made under the accelerated share repurchase agreements | 17,676,142 | (b) | 950 | |||||||||||
| Total Share Repurchases during 2023 | 22,730,940 | 1,150 | (a) | |||||||||||
| 2024 Repurchases: | ||||||||||||||
| Repurchases made under the accelerated share repurchase agreements | 1,163,230 | (b) | — | |||||||||||
| Open market repurchases(c) | 4,018,194 | $ | 79.26 | 319 | ||||||||||
| Total Share Repurchases during the nine months ended September 30, 2024 | 5,181,424 | $ | 319 | (d) | ||||||||||
| Open market repurchases October 1, 2024 through October 31, 2024 | 2,524,323 | $ | 89.23 | 225 | ||||||||||
| Total Share Repurchases under the $3.7 billion authorization | 30,436,687 | $ | 55.65 | $ | 1,694 |
(a)Excludes $10 million accrued for excise tax owed as of December 31, 2023
(b)Under the November 6, 2023 ASR, the Company received a total of 18,839,372 shares for an average price per share of $50.43, excluding the impact of the excise tax incurred. See discussion below for further information of the ASR agreements
(c)Includes $3 million accrued as of September 30, 2024
(d)Excludes $3 million accrued for estimated excise tax owed as of September 30, 2024
On November 6, 2023, the Company executed Accelerated Share Repurchase agreements to repurchase a total of $950 million of NRG's outstanding common stock based on volume-weighted average prices. The Company received 17,676,142 shares in the fourth quarter of 2023, which were recorded in treasury stock at fair value based on the 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. During the first quarter of 2024, the Company received an additional 1,163,230 shares pursuant to the ASR agreements. Upon receipt of the final shares, the Company transferred the $117 million from additional paid-in-capital to treasury stock.
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. A quarterly dividend of $0.4075 per share was paid on the Company's common stock during the three months ended September 30, 2024. On October 11, 2024, NRG declared a quarterly dividend on the Company's common stock of $0.4075 per share, payable on November 15, 2024 to stockholders of record as of November 1, 2024. Beginning in the first quarter of 2025, NRG will increase the annual dividend by 8% to $1.76 per share. The Company expects to target an annual dividend growth rate of 7%-9% per share in subsequent years.
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
During the nine months ended September 30, 2024, the Company retired shares of treasury stock as detailed below. These retired shares are now included in NRG's pool of authorized but unissued shares. 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.
| Total number of treasury shares retired | Average price per share | Carrying value of treasury shares retired (in millions) | |||||||||||||||
| Shares retired during the first quarter of 2024 | 1,163,230 | $ | 32.67 | $ | 38 | ||||||||||||
| Shares retired during the second quarter of 2024 | 1,114,400 | 33.84 | 38 | ||||||||||||||
| Shares retired during the third quarter of 2024 | 2,833,382 | 35.40 | 100 | ||||||||||||||
| Total shares retired during the nine months ended September 30, 2024 | 5,111,012 | $ | 176 | ||||||||||||||
Capped Call Options
During the second quarter of 2024, the Company entered into privately negotiated capped call transactions with certain counterparties (the "Capped Calls"). The Capped Calls each have a strike price of $41.11 per share, subject to certain adjustments, which correspond to the conversion price of the Convertible Senior Notes as of September 30, 2024. The Capped Calls have a cap price of $249.00 per share, subject to certain adjustments, and effectively lock in a conversion premium of $257 million on the remaining $232 million balance of the Convertible Senior Notes. The options will expire on June 1, 2025 if not exercised. The Capped Calls are separate transactions and not part of the terms of the Convertible Senior Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity. The option price of $257 million incurred in connection with the Capped Calls, of which $253 million was recorded as a reduction to additional paid-in capital and a $4 million loss was recorded to other income, net to account for the change in the value of the Capped Calls during the calculation period which began on May 31, 2024 and concluded on June 28, 2024. The option price will be payable upon the earlier of settlement and expiration of the applicable Capped Calls.
Preferred Stock
Series A Preferred Stock Dividends
During the quarters ended March 31, 2024 and September 30, 2024, the Company declared and paid semi-annual 10.25% dividends of $51.25 per share on its outstanding Series A Preferred Stock, each totaling $33 million.
Note 10 — (Loss)/Income Per Share
Basic (loss)/income per common share is computed by dividing net (loss)/income 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 (loss)/income per share is computed in a manner consistent with that of basic (loss)/income 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 (loss)/income per share. However, these instruments are included in the denominator for purposes of computing diluted income per share under the treasury stock method for periods when there is net income. The Convertible Senior Notes are convertible, under certain circumstances, into cash or a combination of cash and the 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.
NRG's basic and diluted (loss)/income per share is shown in the following table:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Basic (loss)/income per share: | |||||||||||||||||||||||
| Net (loss)/income | $ | (767) | $ | 343 | $ | 482 | $ | (684) | |||||||||||||||
| Less: Cumulative dividends attributable to Series A Preferred Stock | 17 | 17 | 51 | 38 | |||||||||||||||||||
| Net (loss)/income available for common stockholders | $ | (784) | $ | 326 | $ | 431 | $ | (722) | |||||||||||||||
| Weighted average number of common shares outstanding - basic | 207 | 230 | 207 | 230 | |||||||||||||||||||
| (Loss)/income per weighted average common share — basic | $ | (3.79) | $ | 1.42 | $ | 2.08 | $ | (3.14) | |||||||||||||||
| Diluted (loss)/income per share: | |||||||||||||||||||||||
| Net (loss)/income | $ | (767) | $ | 343 | $ | 482 | $ | (684) | |||||||||||||||
| Less: Cumulative dividends attributable to Series A Preferred Stock | 17 | 17 | 51 | 38 | |||||||||||||||||||
| Net (loss)/income available for common stockholders | $ | (784) | $ | 326 | $ | 431 | $ | (722) | |||||||||||||||
| Weighted average number of common shares outstanding - basic | 207 | 230 | 207 | 230 | |||||||||||||||||||
| Incremental shares attributable to the issuance of equity compensation (treasury stock method) | — | 2 | 3 | — | |||||||||||||||||||
| 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 | 207 | 232 | 213 | 230 | |||||||||||||||||||
| (Loss)/income per weighted average common share — diluted | $ | (3.79) | $ | 1.41 | $ | 2.02 | $ | (3.14) |
The following table summarizes the Company's outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company's diluted (loss)/income per share:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions of shares) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Equity compensation plans | 5 | — | — | 6 | |||||||||||||||||||
| Potential share settlement of the Convertible Senior Notes | 3 | — | — | — |
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 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 (loss)/income. 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 September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate | Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| Revenue | $ | 3,301 | $ | 2,600 | $ | 833 | $ | 499 | $ | — | $ | (10) | $ | 7,223 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 81 | 39 | 23 | 198 | 11 | — | 352 | |||||||||||||||||||||||||||||||||||||
| Gain on sale of assets | — | — | 208 | — | — | — | 208 | |||||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | — | — | 6 | — | — | — | 6 | |||||||||||||||||||||||||||||||||||||
| (Loss)/income before income taxes | (1,056) | 89 | 148 | (37) | (158) | — | (1,014) | |||||||||||||||||||||||||||||||||||||
| Net (loss)/income | $ | (1,056) | $ | 88 | $ | 148 | $ | (29) | $ | 82 | $ | — | $ | (767) | ||||||||||||||||||||||||||||||
| Three months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate | Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| Revenue | $ | 3,686 | $ | 2,809 | $ | 978 | $ | 478 | $ | — | $ | (5) | $ | 7,946 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 84 | 39 | 24 | 203 | 9 | — | 359 | |||||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | — | — | 6 | — | — | — | 6 | |||||||||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | 463 | 314 | (205) | (24) | (140) | — | 408 | |||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | 463 | $ | 316 | $ | (168) | $ | (4) | $ | (264) | $ | — | $ | 343 |
| Nine months ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home | Corporate | Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| Revenue | $ | 8,297 | $ | 8,647 | $ | 2,962 | $ | 1,434 | $ | — | $ | (29) | $ | 21,311 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 240 | 117 | 96 | 561 | 31 | — | 1,045 | |||||||||||||||||||||||||||||||||||||
| Impairment losses | — | — | 15 | — | — | — | 15 | |||||||||||||||||||||||||||||||||||||
| (Loss)/gain on sale of assets | (4) | — | 213 | — | — | — | 209 | |||||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | — | — | 13 | — | — | — | 13 | |||||||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | — | — | — | — | 260 | — | 260 | |||||||||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | 259 | 1,116 | 69 | (59) | (652) | — | 733 | |||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | 259 | $ | 1,116 | $ | 90 | $ | (51) | $ | (932) | $ | — | $ | 482 |
| Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Texas | East | West/Services/Other | Vivint Smart Home**(a)** | Corporate | Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| Revenue | $ | 8,235 | $ | 9,488 | $ | 3,244 | $ | 1,070 | $ | — | $ | (21) | $ | 22,016 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 257 | 122 | 73 | 442 | 27 | — | 921 | |||||||||||||||||||||||||||||||||||||
| Gain on sale of assets | — | 202 | — | — | — | — | 202 | |||||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | — | — | 16 | — | — | — | 16 | |||||||||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | 1,532 | (1,188) | (684) | (86) | (440) | — | (866) | |||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | 1,532 | $ | (1,187) | $ | (601) | $ | (66) | $ | (362) | $ | — | $ | (684) |
(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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions, except rates) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| (Loss)/Income before income taxes | $ | (1,014) | $ | 408 | $ | 733 | $ | (866) | |||||||||||||||
| Income tax (benefit)/expense | (247) | 65 | 251 | (182) | |||||||||||||||||||
| Effective income tax rate | 24.4 | % | 15.9 | % | 34.2 | % | 21.0 | % |
For the three months ended September 30, 2024, the effective tax rate was higher than the statutory rate of 21%, primarily due to the state tax expense. For the nine months ended September 30, 2024, the effective tax rate was higher than the statutory rate of 21%, primarily due to the state tax expense and permanent differences.
For the three months ended September 30, 2023, the effective tax rate was lower than the statutory rate of 21%, primarily due to a decrease in state tax expense resulting from a decrease in year-to-date financial statement losses. For the nine months ended September 30, 2023, the effective tax rate approximated the statutory rate of 21%, which includes the impact of state and foreign taxes.
On September 12, 2024, Treasury and the IRS released proposed regulations that provide guidance on the application of the CAMT. The proposed regulations allow excluding of unrealized mark-to-market gains and losses, related to qualified hedge transactions, from adjusted financial statement income. The Company will continue to evaluate the applicable corporation status and the impact of the CAMT based on the proposed guidance. As of September 30, 2024, there is no impact on the Company’s provision for income taxes from the CAMT.
Uncertain Tax Benefits
As of September 30, 2024, NRG had a non-current tax liability of $70 million for uncertain tax benefits from positions taken on various federal and state income tax returns inclusive of accrued interest. For the nine months ended September 30, 2024, NRG accrued $1 million of interest relating to the uncertain tax benefits. As of September 30, 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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Revenues from Related Parties Included in Revenue | |||||||||||||||||||||||
| Gladstone | $ | 1 | $ | 1 | $ | 2 | $ | 2 | |||||||||||||||
| Ivanpah(a) | 12 | 15 | 37 | 70 | |||||||||||||||||||
| Midway-Sunset | 1 | — | 3 | 2 | |||||||||||||||||||
| Total | $ | 14 | $ | 16 | $ | 42 | $ | 74 |
(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 September 30, 2024, all hedges under the first liens were out-of-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) — XOOM Energy 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 prevailed in its challenge to Mirkin's expert reports. The Court granted XOOM's motion to exclude both reports on damages. As a result, Mirkin has no method to establish damages for its class. The Court asked for further briefing on whether class certification can stand in light of the recent ruling. 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 Direct Energy 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 April 12, 2023, the Court granted Direct Energy’s Motion to Transfer Venue, moving to the case to the Southern District of Texas. The parties are proceeding with written discovery; 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 conducted fact and expert discovery and Direct Energy submitted its motion for summary judgment in August 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 Vivint Smart Home 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 fully
briefed the appeal and oral argument is expected in early 2025. While Vivint Smart Home believes the CPI jury verdict is not legally or factually supported and is pursuing 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. The Company does not believe the verdict is legally supported and is pursuing appellate remedies along with any other legal options available. This matter was known and accrued for at the time of the Vivint Smart Home 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 plaintiffs challenged the ruling and the matters are stayed pending appeals by the various parties. 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 Company believes it has complied with the Retail Reset Order and does not agree with the NYSPSC's assertions made in the notice. 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 rules promulgated during the second quarter of 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 May 9, 2024, the EPA promulgated a rule that repealed the ACE rule and significantly revised the manner in which new combustion-turbine and existing steam EGU's GHG emissions will be regulated including capturing and storing/sequestering CO2 in some instances. This rule has been challenged by numerous parties in the D.C. Circuit including 27 states with 22 states intervening in support of the rule. The Company anticipates that the new U.S. presidential administration will revisit this rule.
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 promulgated this rule. 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 several other states. On June 27, 2024, the U.S. Supreme Court stayed the final rule in the 11 states where the rule had not already been stayed. 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. The Company anticipates that the new U.S. presidential administration will revisit this rule.
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. Twenty-three states have challenged this rule in the D.C. Circuit. Accordingly, the outcome of this rulemaking is uncertain. The Company anticipates that the new U.S. presidential administration will revisit this rule.
Water
ELG — In 2015, the EPA revised the ELG for Steam Electric Generating Facilities, which imposed more stringent requirements (as individual permits were renewed) for wastewater streams from FGD, fly ash, bottom ash and flue gas mercury control. On September 18, 2017, the EPA promulgated a final rule that, among other things, postponed the compliance dates to preserve the status quo for FGD wastewater and bottom ash transport water by two years to November 2020 until the EPA amended the rule. On October 13, 2020, the EPA amended the 2015 ELG rule by: (i) altering the stringency of certain limits for FGD wastewater; (ii) relaxing the zero-discharge requirement for bottom ash transport water; and (iii) changing several deadlines. In 2021, 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 May 9, 2024, the EPA promulgated a rule that revises 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 rule was challenged in numerous courts, but the cases have been consolidated in the Eighth Circuit of the United States Court of Appeals. The outcome of the legal challenges is uncertain. The Company anticipates that the new U.S. presidential administration will revisit this rule.
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 May 8, 2024, the EPA promulgated a rule that establishes 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 also creates an obligation to conduct site assessments (at all active and certain inactive facilities) to determine whether CCR management units are present. The rule has been challenged in the D.C. Circuit and the outcome of the legal challenges is uncertain. The Company anticipates that the new U.S. presidential administration will revisit this rule.
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