XNYS:NRG NRG Energy Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
 
For the Quarterly Period Ended: March 31, 2012
 
 
 
o
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-15891
NRG Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
 
41-1724239
(I.R.S. Employer
Identification No.)
 
 
 
211 Carnegie Center, Princeton, New Jersey
(Address of principal executive offices)
 
08540
(Zip Code)
(609) 524-4500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x       No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No x
As of April 30, 2012, there were 227,719,443 shares of common stock outstanding, par value $0.01 per share.
 




TABLE OF CONTENTS
Index
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
GLOSSARY OF TERMS
PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4 — CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
ITEM 1A — RISK FACTORS
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
ITEM 4 — MINE SAFETY DISCLOSURES
ITEM 5 — OTHER INFORMATION
ITEM 6 — EXHIBITS
SIGNATURES



2




CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Exchange Act. The words "believes", "projects", "anticipates", "plans", "expects", "intends", "estimates" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause NRG Energy, Inc.'s actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Item 1A — Risk Factors Related to NRG Energy, Inc., in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2011, including the following:

General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;
Volatile power supply costs and demand for power;
Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards;
The effectiveness of NRG's risk management policies and procedures, and the ability of NRG's counterparties to satisfy their financial commitments;
Counterparties' collateral demands and other factors affecting NRG's liquidity position and financial condition;
NRG's ability to operate its businesses efficiently, manage capital expenditures and costs tightly, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
NRG's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices;
The liquidity and competitiveness of wholesale markets for energy commodities;
Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws and increased regulation of carbon dioxide and other greenhouse gas emissions;
Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately compensate NRG's generation units for all of its costs;
NRG's ability to borrow additional funds and access capital markets, as well as NRG's substantial indebtedness and the possibility that NRG may incur additional indebtedness going forward;
NRG's ability to receive Federal loan guarantees or cash grants to support development projects;
Operating and financial restrictions placed on NRG and its subsidiaries that are contained in the indentures governing NRG's outstanding notes, in NRG's Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;
NRG's ability to implement its strategy of developing and building new power generation facilities, including new solar projects;
NRG's ability to implement its econrg strategy of finding ways to meet the challenges of climate change, clean air and protecting natural resources while taking advantage of business opportunities;
NRG's ability to implement its FORNRG strategy of increasing the return on invested capital through operational performance improvements and a range of initiatives at plants and corporate offices to reduce costs or generate revenues;
NRG's ability to achieve its strategy of regularly returning capital to stockholders;
NRG's ability to maintain retail market share;
NRG's ability to successfully evaluate investments in new business and growth initiatives;
NRG's ability to successfully integrate and manage any acquired businesses; and
NRG's ability to develop and maintain successful partnering relationships.

Forward-looking statements speak only as of the date they were made, and NRG Energy, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in any forward-looking statements included in this Quarterly Report on Form 10-Q should not be construed as exhaustive.


3



GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2011 Form 10-K
 
NRG’s Annual Report on Form 10-K for the year ended December 31, 2011
 
 
 
2011 Revolving Credit Facility
 
The Company's $2.3 billion revolving credit facility due 2016, a component of the 2011 Senior Credit Facility
 
 
 
2011 Senior Credit Facility
 
As of July 1, 2011, NRG's senior secured facility, comprised of a $1.6 billion term loan facility and a $2.3 billion revolving credit facility
 
 
 
2011 Term Loan Facility
 
The Company's $1.6 billion term loan facility due 2018, a component of the 2011 Senior Credit Facility
 
 
 
316(b) Rule
 
A section of the Clean Water Act regulating cooling water intake structures
 
 
 
Baseload capacity
 
Coal and nuclear electric power generation capacity normally expected to serve loads on an around-the-clock basis throughout the calendar year
 
 
 
CAA
 
Clean Air Act
 
 
 
CAIR
 
Clean Air Interstate Rule
 
 
 
CAISO
 
California Independent System Operator
 
 
 
Capital Allocation Plan
 
Share repurchase and shareholder dividend program
 
 
 
Capital Allocation Program
 
NRG's plan of allocating capital between debt reduction, reinvestment in the business, share repurchases and shareholder dividends through the Capital Allocation Plan

 
 
 
CDWR
 
California Department of Water Resources
 
 
 
C&I
 
Commercial, industrial and governmental/institutional
 
 
 
CFTC
 
U.S. Commodity Futures Trading Commission
 
 
 
CO2
 
Carbon dioxide
 
 
 
CSAPR
 
Cross-State Air Pollution Rule
 
 
 
Distributed Solar
 
Solar power projects, typically less than 20 MW in size (on an alternating current, or AC, basis), that primarily sell power produced to customers for usage on site, or are interconnected to sell power into the local distribution grid
 
 
 
DNREC
 
Delaware Department of Natural Resources and Environmental Control
 
 
 
Energy Plus
 
Energy Plus Holdings LLC
 
 
 
ERCOT
 
Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
 
 
 
Exchange Act
 
The Securities Exchange Act of 1934, as amended
 
 
 
FERC
 
Federal Energy Regulatory Commission
 
 
 
FFB
 
Federal Financing Bank
 
 
 
GHG
 
Greenhouse Gases
 
 
 
Green Mountain Energy
 
Green Mountain Energy Company
 
 
 

4



GWh
 
Gigawatt hour
 
 
 
Heat Rate
 
A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWhs generated. Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output measured is gross or net generation and is generally expressed as BTU per net kWh
 
 
 
ISO
 
Independent System Operator, also referred to as Regional Transmission Organizations, or RTO
 
 
 
ISO-NE
 
ISO New England Inc.
 
 
 
LIBOR
 
London Inter-Bank Offered Rate
 
 
 
LTIP
 
Long-Term Incentive Plan
 
 
 
Mass
 
Residential and small business
 
 
 
MMBtu
 
Million British Thermal Units
 
 
 
MW
 
Megawatts
 
 
 
MWh
 
Saleable megawatt hours net of internal/parasitic load megawatt-hours
 
 
 
NAAQS
 
National Ambient Air Quality Standards
 
 
 
NERC
 
North American Electric Reliability Corporation
 
 
 
NINA
 
Nuclear Innovation North America LLC
 
 
 
NOx
 
Nitrogen oxide
 
 
 
NPNS
 
Normal Purchase Normal Sale
 
 
 
NRC
 
U.S. Nuclear Regulatory Commission
 
 
 
NYPSC
 
New York Public Service Commission
 
 
 
OCI
 
Other comprehensive income
 
 
 
PJM
 
PJM Interconnection, LLC
 
 
 
PJM market
 
The wholesale and retail electric market operated by PJM primarily in all or parts of Delaware, the District of Columbia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia
 
 
 
PM 2.5
 
Particulate matter particles with a diameter of 2.5 micrometers or less
 
 
 
PPA
 
Power Purchase Agreement
 
 
 
PUCT
 
Public Utility Commission of Texas
 
 
 
Repowering
 
Technologies utilized to replace, rebuild, or redevelop major portions of an existing electrical generating facility, not only to achieve a substantial emissions reduction, but also to increase facility capacity, and improve system efficiency
 
 
 
SEC
 
United States Securities and Exchange Commission
 
 
 
Securities Act
 
The Securities Act of 1933, as amended
 
 
 
Senior Notes
 
The Company’s $6.1 billion outstanding unsecured senior notes, consisting of $1.1 billion of 7.375% senior notes due 2017, $1.2 billion of 7.625% senior notes due 2018, $700 million of 8.5% senior notes due 2019, $800 million of 7.625% senior notes due 2019, $1.1 billion of 8.25% senior notes due 2020 and $1.2 billion of 7.875% senior notes due 2021

5



 
 
 
SO2
 
Sulfur dioxide
 
 
 
STP
 
South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest
 
 
 
Term Loan Facility
 
Prior to July 1, 2011, a senior first priority secured term loan, of which approximately $608 million would have matured on February 1, 2013, and $990 million would have matured on August 31, 2015, and was a component of NRG’s Senior Credit Facility. On July 1, 2011, NRG replaced its Senior Credit Facility, including the Term Loan Facility, with the 2011 Senior Credit Facility.
 
 
 
U.S.
 
United States of America
 
 
 
U.S. DOE
 
United States Department of Energy
 
 
 
U.S. EPA
 
United States Environmental Protection Agency
 
 
 
U.S. GAAP
 
Accounting principles generally accepted in the United States
 
 
 
Utility Scale Solar
 
Solar power projects, typically 20 MW or greater in size (on an alternating current, or AC, basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level
 
 
 
VaR
 
Value at Risk
 
 
 
VIE
 
Variable Interest Entity


6



PART I — FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three months ended March 31,
(In millions, except for per share amounts)
2012
 
2011
Operating Revenues
 
 
 
Total operating revenues
$
1,862

 
$
1,995

Operating Costs and Expenses
 
 
 
Cost of operations
1,573

 
1,324

Depreciation and amortization
230

 
205

Selling, general and administrative
221

 
143

Development costs
8

 
9

Total operating costs and expenses
2,032

 
1,681

Operating (Loss)/Income
(170
)
 
314

Other Income/(Expense)
 
 
 
Equity in earnings/(losses) of unconsolidated affiliates
8

 
(2
)
Impairment charge on investment
(1
)
 
(481
)
Other income, net
2

 
5

Loss on debt extinguishment

 
(28
)
Interest expense
(165
)
 
(173
)
Total other expense
(156
)
 
(679
)
Loss Before Income Taxes
(326
)
 
(365
)
Income tax benefit
(120
)
 
(105
)
Net Loss
(206
)
 
(260
)
Less: Net income attributable to noncontrolling interest
1

 

Net Loss Attributable to NRG Energy, Inc.
(207
)
 
(260
)
Dividends for preferred shares
2

 
2

Loss Available for Common Stockholders
$
(209
)
 
$
(262
)
Loss Per Share Attributable to NRG Energy, Inc. Common Stockholders
 
 
 
Weighted average number of common shares outstanding — basic and diluted
228

 
247

Net loss per weighted average common share — basic and diluted
$
(0.92
)
 
$
(1.06
)

See accompanying notes to condensed consolidated financial statements.



7



NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)


 
Three months ended March 31,
 
2012
 
2011
 
(In millions)
Net Loss
$
(206
)
 
$
(260
)
Other comprehensive income/(loss), net of tax
 
 
 
Unrealized loss on derivatives, net of income tax benefit of $5 and $48
(9
)
 
(82
)
Foreign currency translation adjustments, net of income tax expense of $3 and $6
6

 
12

Defined benefit plans

 
1

Other comprehensive loss
(3
)
 
(69
)
Comprehensive loss
(209
)
 
(329
)
Less: Comprehensive income attributable to noncontrolling interest
1

 

Comprehensive loss attributable to NRG Energy, Inc.
(210
)
 
(329
)
Dividends for preferred shares
2

 
2

Comprehensive loss available for common stockholders
$
(212
)
 
$
(331
)

See accompanying notes to condensed consolidated financial statements.

8




NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31, 2012
 
December 31, 2011
(In millions, except shares)
(unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,014

 
$
1,105

Funds deposited by counterparties
199

 
258

Restricted cash
217

 
292

Accounts receivable — trade, less allowance for doubtful accounts of $19 and $23
716

 
834

Inventory
392

 
308

Derivative instruments
5,150

 
4,216

Cash collateral paid in support of energy risk management activities
498

 
311

Prepayments and other current assets
272

 
273

Total current assets
8,458

 
7,597

Property, plant and equipment, net of accumulated depreciation of $4,768 and $4,570
14,376

 
13,621

Other Assets
 
 
 
Equity investments in affiliates
643

 
640

Note receivable — affiliate and capital leases, less current portion
370

 
342

Goodwill
1,886

 
1,886

 Intangible assets, net of accumulated amortization of $1,476 and $1,452
1,340

 
1,419

Nuclear decommissioning trust fund
456

 
424

Derivative instruments
649

 
450

Other non-current assets
352

 
336

Total other assets
5,696

 
5,497

Total Assets
$
28,530

 
$
26,715

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Current portion of long-term debt and capital leases
$
71

 
$
87

Accounts payable
1,080

 
808

Derivative instruments
4,824

 
3,751

Deferred income taxes
92

 
127

Cash collateral received in support of energy risk management activities
199

 
258

Accrued expenses and other current liabilities
619

 
640

Total current liabilities
6,885

 
5,671

Other Liabilities
 
 
 
Long-term debt and capital leases
10,150

 
9,745

Nuclear decommissioning reserve
340

 
335

Nuclear decommissioning trust liability
279

 
254

Deferred income taxes
1,300

 
1,389

Derivative instruments
708

 
464

Out-of-market commodity contracts
176

 
183

Other non-current liabilities
810

 
756

Total non-current liabilities
13,763

 
13,126

Total Liabilities
20,648

 
18,797

3.625% convertible perpetual preferred stock (at liquidation value, net of issuance costs)
249

 
249

Commitments and Contingencies


 


Stockholders’ Equity
 
 
 
Common stock
3

 
3

Additional paid-in capital
5,374

 
5,346

Retained earnings
3,777

 
3,987

Less treasury stock, at cost — 76,587,776 and 76,664,199 shares, respectively
(1,922
)
 
(1,924
)
Accumulated other comprehensive income
71

 
74

Noncontrolling interest
330

 
183

Total Stockholders’ Equity
7,633

 
7,669

Total Liabilities and Stockholders’ Equity
$
28,530

 
$
26,715


See accompanying notes to condensed consolidated financial statements.


9




NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three months ended March 31,
 
2012
 
2011
 
(In millions)
Cash Flows from Operating Activities
 
 
 
Net loss
$
(206
)
 
$
(260
)
Adjustments to reconcile net loss to net cash (used)/provided by operating activities:
 
 
 
Distributions and equity in earnings of unconsolidated affiliates

 
9

Depreciation and amortization
230

 
205

Provision for bad debts
7

 
8

Amortization of nuclear fuel
6

 
11

Amortization of financing costs and debt discount/premiums
8

 
8

Amortization of intangibles and out-of-market commodity contracts
42

 
48

Changes in deferred income taxes and liability for uncertain tax benefits
(129
)
 
(109
)
Changes in nuclear decommissioning trust liability
8

 
10

Changes in derivative instruments
187

 
(130
)
Changes in collateral deposits supporting energy risk management activities
(187
)
 
176

Impairment charge on investment

 
481

Cash used by changes in other working capital
(42
)
 
(241
)
Net Cash (Used)/Provided by Operating Activities
(76
)
 
216

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(639
)
 
(219
)
Increase in restricted cash, net
(20
)
 
(5
)
Decrease in restricted cash to support equity requirements for U.S. DOE funded projects
95

 

(Increase)/decrease in notes receivable
(7
)
 
12

Investments in nuclear decommissioning trust fund securities
(126
)
 
(105
)
Proceeds from sales of nuclear decommissioning trust fund securities
119

 
95

Proceeds from renewable energy grants
28

 

Other
7

 
(6
)
Net Cash Used by Investing Activities
(543
)
 
(228
)
Cash Flows from Financing Activities
 
 
 
Payment of dividends to preferred stockholders
(2
)
 
(2
)
Payment for treasury stock

 
(130
)
Net payments for settlement of acquired derivatives that include financing elements
(20
)
 
(17
)
Sale proceeds and other contributions from noncontrolling interests in subsidiaries
178

 

Proceeds from issuance of long-term debt
415

 
1,286

Payment of debt issuance and hedging costs
(10
)
 
(8
)
Payments for short and long-term debt
(34
)
 
(1,361
)
Net Cash Provided/(Used) by Financing Activities
527

 
(232
)
Effect of exchange rate changes on cash and cash equivalents
1

 
4

Net Decrease in Cash and Cash Equivalents
(91
)
 
(240
)
Cash and Cash Equivalents at Beginning of Period
1,105

 
2,951

Cash and Cash Equivalents at End of Period
$
1,014

 
$
2,711


See accompanying notes to condensed consolidated financial statements.

10



NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1Basis of Presentation

NRG Energy, Inc., or NRG or the Company, is an integrated wholesale power generation and retail electricity company that aspires to be a leader in the way the industry and consumers think about, use, produce and deliver energy and energy services in major competitive power markets in the United States. First, NRG is a wholesale power generator engaged in the ownership and operation of power generation facilities; the trading of energy, capacity and related products; and the transacting in and trading of fuel and transportation services. Second, NRG is a retail electricity company engaged in the supply of electricity, energy services, and cleaner energy products to retail electricity customers in deregulated markets through its Retail businesses, which include Reliant Energy, Green Mountain Energy and Energy Plus. Finally, NRG is focused on the deployment and commercialization of potential disruptive technologies, like electric vehicles, Distributed Solar and smart meter technology, which have the potential to change the nature of the power supply industry.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission's, or SEC's, regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the Company's financial statements in its Annual Report on Form 10-K for the year ended December 31, 2011, or 2011 Form 10-K. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's consolidated financial position as of March 31, 2012, and the results of operations, comprehensive loss and cash flows for the three months ended March 31, 2012, and 2011.

Use of Estimates

The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during the reporting period. Actual results could be different from these estimates.


Note 2Summary of Significant Accounting Policies

Other Cash Flow Information

NRG’s investing activities exclude capital expenditures of $327 million which were accrued and unpaid at March 31, 2012, primarily for solar projects under construction.

Tax Credits

NRG accounts for income taxes in accordance with Accounting Standards Codification, or ASC, 740, Income Taxes, or ASC 740, which requires that the Company use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences, as further described in Note 2, Summary of Significant Accounting Policies, to the Company's 2011 Form 10-K. NRG reduces its current income tax expense in the consolidated statement of operations for any investment tax credits, or ITCs, that are not convertible into cash grants, as well as other tax credits, in the period the tax credit is generated. ITCs that are convertible into cash grants, as well as the deferred income tax benefit generated by the difference in the financial statement and tax bases of the related assets, are recorded as a reduction to the carrying value of the underlying property and subsequently amortized to earnings on a straight-line basis over the useful life of each underlying property.

11




Recent Accounting Developments

Effective January 1, 2012, the Company adopted the provisions of Accounting Standards Update, or ASU, No. 2011-05, Comprehensive Income (Topic 220) Presentation of Comprehensive Income, or ASU No. 2011-05, and began presenting the total of comprehensive income, the components of net income and the components of other comprehensive income in two separate but consecutive statements.  The provisions of ASU No. 2011-05 are required to be adopted retroactively.  As this guidance provides only presentation requirements, the adoption of this standard did not impact the Company's results of operations, cash flows or financial position.


Note 3Business Acquisitions and Dispositions

2012 Disposition

Agua Caliente On January 18, 2012, the Company completed the sale of a 49% interest in NRG Solar AC Holdings LLC, the indirect owner of the Agua Caliente project, to MidAmerican Energy Holdings Company, or MidAmerican. A majority of the $122 million of cash consideration received at closing represented 49% of construction costs funded by NRG's equity contributions. The excess of the consideration over the carrying value of the divested interest was recorded to additional paid-in capital. MidAmerican will fund its proportionate share of future equity contributions and other credit support for the project. NRG continues to hold a majority interest in and consolidate the project. MidAmerican's non-controlling interest on the Company's balance sheet as of March 31, 2012 represents its capital contributions.

2011 Acquisitions

The Company's acquisitions that are considered business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations, or ASC 805, with identifiable assets acquired and liabilities assumed provisionally recorded at their estimated fair values on the acquisition date. The provisional amounts recognized are subject to revision until the evaluations are completed and to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date, are required to be finalized within a measurement period not to exceed one year. The Company made several acquisitions in 2011, which were recorded as business combinations under ASC 805, for which the accounting was not finalized as of December 31, 2011. See Note 3, Business Acquisitions and Dispositions and Note 12, Debt and Capital Leases, in the Company's 2011 Form 10-K, for additional information related to these acquisitions.

The accounting for the acquisitions of Energy Plus, California Valley Solar Ranch, or CVSR, Agua Caliente and Ivanpah were completed as of March 31, 2012, at which point the provisional fair values became final with no material changes recorded in the first quarter 2012.


Note 4Nuclear Innovation North America LLC, or NINA, Impairment Charge

As discussed in detail in Note 4, Nuclear Innovation North America LLC Developments, including Impairment Charge, to the Company's 2011 Form 10-K, NRG deconsolidated NINA as of March 31, 2011, and recorded an impairment charge of $481 million in the quarter ended March 31, 2011 for the full amount of its investment.

12





Note 5Fair Value of Financial Instruments

This footnote should be read in conjunction with the complete description under Note 5, Fair Value of Financial Instruments, to the Company's 2011 Form 10-K.

For cash and cash equivalents, funds deposited by counterparties, restricted cash, cash collateral paid and received in support of energy risk management activities, and restricted cash supporting the funded letter of credit facility, the carrying amount approximates fair value because of the short-term maturity of those instruments. Debt securities, equity securities, trust fund investments, which are comprised of various U.S. debt and equity securities, and derivative assets and liabilities are carried at fair market value.
The estimated carrying values and fair values of NRG's recorded financial instruments not carried at fair market value are as follows:
 
As of March 31, 2012
 
As of December 31, 2011
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Assets:
 
 
 
 
 
 
 
Notes receivable
$
182

 
$
187

 
$
156

 
$
161

Liabilities:
 
 
 
 
 
 
 
Long-term debt, including current portion
10,118

 
10,073

 
9,729

 
9,716


The fair value of the Company's Level 1 publicly-traded long-term debt is based on quoted market prices. The fair value of the Company's Level 3 notes receivable, debt securities and non publicly-traded long-term debt are based on expected future cash flows discounted at market interest rates, or current interest rates for similar instruments with equivalent credit quality.

Recurring Fair Value Measurements

For cash and cash equivalents, funds deposited by counterparties, restricted cash, and cash collateral paid and received in support of energy risk management activities, the carrying amount approximates fair value because of the nature and short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.


13



The following tables present assets and liabilities measured and recorded at fair value on the Company's condensed consolidated balance sheet on a recurring basis and their level within the fair value hierarchy:

 
As of March 31, 2012
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Investment in available-for-sale securities (classified within other
    non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
8

 
$
8

Marketable equity securities
1

 

 

 
1

Trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
2

 

 

 
2

U.S. government and federal agency obligations
36

 

 

 
36

Federal agency mortgage-backed securities

 
60

 

 
60

Commercial mortgage-backed securities

 
7

 

 
7

Corporate debt securities

 
65

 

 
65

Equity securities
236

 

 
46

 
282

Foreign government fixed income securities

 
5

 

 
5

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
3,365

 
2,258

 
176

 
5,799

Total assets
$
3,640

 
$
2,395

 
$
230

 
$
6,265

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
$
3,457

 
$
1,847

 
$
133

 
$
5,437

Interest rate contracts

 
95

 

 
95

Total liabilities
$
3,457

 
$
1,942

 
$
133

 
$
5,532



 
As of December 31, 2011
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Investment in available-for-sale securities (classified within other
non-current assets):
 
 
 
 
 
 
 
Debt securities
$

 
$

 
$
7

 
$
7

Marketable equity securities
1

 

 

 
1

Trust fund investments:
 
 
 
 
 
 
 
Cash and cash equivalents
2

 

 

 
2

U.S. government and federal agency obligations
44

 

 

 
44

Federal agency mortgage-backed securities

 
63

 

 
63

Commercial mortgage-backed securities

 
7

 

 
7

Corporate debt securities

 
54

 

 
54

Equity securities
209

 

 
42

 
251

Foreign government fixed income securities

 
4

 

 
4

Derivative assets:
 
 
 
 
 
 
 
Commodity contracts
2,661

 
1,930

 
75

 
4,666

Total assets
$
2,917

 
$
2,058

 
$
124

 
$
5,099

Derivative liabilities:
 
 
 
 
 
 
 
Commodity contracts
$
2,757

 
$
1,283

 
$
67

 
$
4,107

Interest rate contracts

 
108

 

 
108

Total liabilities
$
2,757

 
$
1,391

 
$
67

 
$
4,215




14



There were no transfers during the three months ended March 31, 2012, and 2011, between Levels 1 and 2. The following tables reconcile, for the three months ended March 31, 2012, and 2011, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements at least annually using significant unobservable inputs:
 
Three months ended March 31, 2012
 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Debt Securities
 
Trust Fund Investments
 
 
 
 
 
Derivatives(a)
 
Total
 
(In millions)
Beginning balance as of January 1, 2012
$
7

 
$
42

 
$
8

 
$
57

Total gains - realized/unrealized:
 
 
 
 
 
 
 
Included in earnings

 

 
17

 
17

Included in OCI
1

 

 

 
1

Included in nuclear decommissioning obligations

 
4

 

 
4

Purchases

 

 
(4
)
 
(4
)
Transfers into Level 3 (b)

 

 
10

 
10

Transfers out of Level 3 (b)

 

 
12

 
12

Ending balance as of March 31, 2012
$
8

 
$
46

 
$
43

 
$
97

The amount of the total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held as of March 31, 2012
$

 
$

 
$
18

 
$
18


 
Three months ended March 31, 2011
 
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
 
Debt Securities
 
Trust Fund Investments
 
 
 
 
 
Derivatives(a)
 
Total
 
(In millions)
Beginning balance as of January 1, 2011
$
8

 
$
39

 
$
(27
)
 
$
20

Total gains/(losses) - realized/unrealized:
 
 
 
 
 
 
 
Included in earnings

 

 
9

 
9

Included in OCI
1

 

 

 
1

Included in nuclear decommissioning obligations

 
1

 

 
1

Purchases

 

 
3

 
3

Transfers into Level 3 (b)

 

 
(18
)
 
(18
)
Transfers out of Level 3 (b)

 

 
22

 
22

Ending balance as of March 31, 2011
$
9

 
$
40

 
$
(11
)
 
$
38

The amount of the total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held as of March 31, 2011
$

 
$

 
$
2

 
$
2

(a)
Consists of derivatives assets and liabilities, net.
(b)
Transfers in/out of Level 3 are related to the availability of external broker quotes, and are valued as of the end of the reporting period. All transfers in/out are with Level 2.

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


15



Derivative fair value measurements
 
The majority of NRG's contracts are exchange-traded contracts with readily available quoted market prices. A portion of NRG's contracts are non-exchange-traded contracts valued using prices provided by external sources, primarily price quotations available through brokers or over-the-counter and on-line exchanges. For the majority of NRG markets, the Company receives quotes from multiple sources. To the extent that NRG receives multiple quotes, the Company's prices reflect the average of the bid-ask mid-point prices obtained from all sources that NRG believes provide the most liquid market for the commodity. If the Company receives one quote, then the mid-point of the bid-ask spread for that quote is used. The terms for which such price information is available vary by commodity, region and product. A significant portion of the fair value of the Company's derivative portfolio is based on price quotes from brokers in active markets who regularly facilitate those transactions and the Company believes such price quotes are executable. The Company does not use third party sources that derive price based on proprietary models or market surveys. The remainder of the assets and liabilities represent contracts for which external sources or observable market quotes are not available for the whole term or for certain delivery months or the contracts are retail and load following power contracts. These contracts are valued using various valuation techniques including but not limited to internal models that apply fundamental analysis of the market and corroboration with similar markets. Contracts valued with prices provided by models and other valuation techniques make up 3% of the total derivative assets and 2% of the total derivative liabilities.

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. To the extent that NRG's net exposure under a specific master agreement is an asset, the Company uses the counterparty's default swap rate. If the exposure under a specific master agreement is a liability, the Company uses NRG's default swap rate. The credit reserve is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume NRG's liabilities or that a market participant would be willing to pay for NRG's assets. As of March 31, 2012, the credit reserve resulted in an $8 million increase in fair value which is composed of a $1 million gain in Other Comprehensive Income, or OCI, and a $7 million gain in operating revenue and cost of operations. As of March 31, 2011, the credit reserve resulted in a $1 million decrease in fair value which is composed of a $1 million gain in OCI and a $2 million loss in operating revenue and 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 2011 Form 10-K, the following item 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, and retail customer credit risk through its retail load activities.

Counterparty Credit Risk

The Company monitors and manages counterparty credit risk through credit policies that include: (i) an established credit approval process; (ii) daily monitoring of counterparties' credit limits; (iii) the use of credit mitigation measures such as margin, collateral, prepayment arrangements, or volumetric limits; (iv) the use of payment netting arrangements; and (v) the use of master netting agreements that allow for the netting of positive and negative exposures of various contracts associated with a single counterparty. Risk surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty credit risk with a diversified portfolio of counterparties. The Company also has credit protection within various agreements to call on additional collateral support if and when necessary. Cash margin is collected and held at NRG to cover the credit risk of the counterparty until positions settle.

As of March 31, 2012, counterparty credit exposure to a significant portion of the Company's counterparties was $1.1 billion and NRG held collateral (cash and letters of credit) against those positions of $204 million, resulting in a net exposure of $917 million. Counterparty credit exposure is discounted at the risk free rate. The following table highlights the counterparty credit quality and the net counterparty credit exposure by industry sector. 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 Normal Purchase Normal Sale, or NPNS, and non-derivative transactions. The exposure is shown net of collateral held, and includes amounts net of receivables or payables.


16



 
Net Exposure (a)
Category
(% of Total)
Financial institutions
54
%
Utilities, energy merchants, marketers and other
43

Coal and emissions
1

Independent System Operators, or ISOs
2

Total as of March 31, 2012
100
%

 
Net Exposure (a)
Category
(% of Total)
Investment grade
78
%
Non-Investment grade
1

Non-rated (b)
21

Total as of March 31, 2012
100
%
(a)
Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices.
(b)
For non-rated counterparties, the majority are related to ISO and municipal public power entities, which are considered investment grade equivalent ratings based on NRG's internal credit ratings.

NRG has counterparty credit risk exposure to certain counterparties representing more than 10% of total net exposure discussed above and the aggregate of such counterparties was $269 million. Approximately 92% of NRG's positions relating to this credit risk roll-off by the end of 2013. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. Given the credit quality, diversification and term of the exposure in the portfolio, NRG does not anticipate a material impact on the Company's financial position or results of operations from nonperformance by any of NRG's counterparties.

Counterparty credit exposure described above excludes credit risk exposure under certain long term agreements, including California tolling agreements, South Central load obligations, solar Power Purchase Agreements, or PPAs, and a coal supply agreement. As external sources or observable market quotes are not available to estimate such exposure, the Company valued these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of March 31, 2012, credit risk exposure to these counterparties allocable to NRG's ownership interests was approximately $939 million for the next five years. This amount excludes potential credit exposures for projects with long term PPAs that have not reached commercial operations. Many of these power contracts are with utilities or public power entities that have strong credit quality and specific public utility commission or other regulatory support. In the case of the coal supply agreement, NRG holds a lien against the underlying asset. These factors significantly reduce the risk of loss.

Retail Customer Credit Risk

NRG is exposed to retail credit risk through the Company's retail electricity providers, which serve Commercial, industrial and governmental/institutional, or C&I, customers and the Residential and small business, or Mass, market. Retail credit risk results when a customer fails to pay for services rendered. The losses may result from both nonpayment of customer accounts receivable and the loss of in-the-money forward value. NRG manages retail credit risk through the use of established credit policies that include monitoring of the portfolio, and the use of credit mitigation measures such as deposits or prepayment arrangements.

As of March 31, 2012, the Company's retail customer credit exposure was diversified across many customers and various industries, with a significant portion of the exposure with government entities.



17





Note 6Nuclear Decommissioning Trust Fund

NRG's nuclear decommissioning trust fund assets, which are for its portion of the decommissioning of the South Texas Project, or STP Units 1 & 2, are comprised of securities classified as available-for-sale and recorded at fair value based on actively quoted market prices. NRG accounts for the nuclear decommissioning trust fund in accordance with ASC 980, Regulated Operations, or ASC 980, because the Company's nuclear decommissioning activities are subject to approval by the Public Utility Commission of Texas, or PUCT, with regulated rates that are designed to recover all decommissioning costs and that can be charged to and collected from the ratepayers per PUCT mandate. Since the Company is in compliance with PUCT rules and regulations regarding decommissioning trusts and the cost of decommissioning is the responsibility of the Texas ratepayers, not NRG, all realized and unrealized gains or losses (including other-than-temporary impairments) related to the Nuclear Decommissioning Trust Fund are recorded to the Nuclear Decommissioning Trust Liability and are not included in net income or accumulated other comprehensive income, consistent with regulatory treatment.

The following table summarizes the aggregate fair values and unrealized gains and losses (including other-than-temporary impairments) for the securities held in the trust funds, as well as information about the contractual maturities of those securities.
 
As of March 31, 2012
 
As of December 31, 2011
(In millions, except otherwise noted)
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted- average maturities (in years)
 
Fair Value
 
Unrealized Gains
 
Unrealized Losses
 
Weighted- average maturities (in years)
Cash and cash equivalents
$
2

 
$

 
$

 

 
$
2

 
$

 
$

 

U.S. government and federal agency obligations
35

 
2

 

 
11

 
43

 
3

 

 
10

Federal agency mortgage-backed securities
60

 
2

 

 
23

 
63

 
3

 

 
23

Commercial mortgage-backed securities
7

 

 

 
30

 
7

 

 

 
28

Corporate debt securities
65

 
3

 
1

 
10

 
54

 
3

 
1

 
10

Equity securities
282

 
141

 

 

 
251

 
113

 
1

 

Foreign government fixed income securities
5

 

 

 
7

 
4

 

 

 
8

Total
$
456

 
$
148

 
$
1

 
 
 
$
424

 
$
122

 
$
2

 
 

The following tables summarize proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales. The cost of securities sold is determined on the specific identification method.
 
Three months ended March 31,
 
2012
 
2011
 
(In millions)
Realized gains
$
3

 
$
2

Realized losses
2

 
2

Proceeds from sale of securities
119

 
95




18




Note 7Accounting for Derivative Instruments and Hedging Activities

This footnote should be read in conjunction with the complete description under Note 6, Accounting for Derivative Instruments and Hedging Activities, to the Company's 2011 Form 10-K.

Energy-Related Commodities

As of March 31, 2012, NRG had energy-related derivative financial instruments extending through 2015, which are designated as cash flow hedges.

Interest Rate Swaps

NRG is exposed to changes in interest rates through the Company's issuance of variable and fixed rate debt. In order to manage the Company's interest rate risk, NRG enters into interest rate swap agreements. As of March 31, 2012, NRG had interest rate derivative instruments on recourse debt extending through 2013 and on non-recourse debt extending through 2029, the majority of which are designated as cash flow hedges.

Volumetric Underlying Derivative Transactions

The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by commodity, excluding those derivatives that qualified for the NPNS exception as of March 31, 2012, and December 31, 2011. 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
Commodity
Units
March 31, 2012
 
December 31, 2011
 
 
(In millions)
Emissions
Short Ton
(2
)
 
(2
)
Coal
Short Ton
30

 
37

Natural Gas
MMBtu
(232
)
 
13

Oil
Barrel
1

 
1

Power
MWh
6

 
4

Interest
Dollars
$
2,175

 
$
2,121


19




Fair Value of Derivative Instruments

The following table summarizes the fair value within the derivative instrument valuation on the balance sheet:
 
Fair Value
 
Derivative Assets
 
Derivative Liabilities
(In millions)
March 31, 2012
 
December 31, 2011
 
March 31, 2012
 
December 31,
2011
Derivatives Designated as Cash Flow or Fair Value Hedges:
 
 
 
 
 
 
 
Interest rate contracts current
$

 
$

 
$
17

 
$
39

Interest rate contracts long-term

 

 
52

 
68

Commodity contracts current
269

 
318

 
2

 

Commodity contracts long-term

 

 
3

 
1

Total Derivatives Designated as Cash Flow or Fair Value Hedges
269

 
318

 
74

 
108

Derivatives Not Designated as Cash Flow or Fair Value Hedges:
 
 
 
 
 
 
 
Interest rate contracts current

 

 
22

 

Interest rate contracts long-term

 

 
4

 
1

Commodity contracts current
4,881

 
3,898

 
4,783

 
3,712

Commodity contracts long-term
649

 
450

 
649

 
394

Total Derivatives Not Designated as Cash Flow or
Fair Value Hedges
5,530

 
4,348

 
5,458

 
4,107

Total Derivatives
$
5,799

 
$
4,666

 
$
5,532

 
$
4,215


Accumulated Other Comprehensive Income

The following table summarizes the effects of ASC 815, Derivatives and Hedging, or ASC 815, on NRG’s accumulated OCI balance attributable to cash flow hedge derivatives, net of tax:
 
Three months ended March 31, 2012
 
Three months ended March 31, 2011
(In millions)
Energy Commodities
 
Interest Rate
 
Total
 
Energy Commodities
 
Interest Rate
 
Total
Accumulated OCI beginning balance
$
188

 
$
(56
)
 
$
132

 
$
488

 
$
(47
)
 
$
441

Reclassified from accumulated OCI to income:

 

 
 
 

 

 
 
Due to realization of previously deferred amounts
(31
)
 
3

 
(28
)
 
(98
)
 
11

 
(87
)
Mark-to-market of cash flow hedge accounting contracts
13

 
6

 
19

 
2

 
3

 
5

Accumulated OCI ending balance, net of $82 and $220 tax, respectively
$
170

 
$
(47
)
 
$
123

 
$
392

 
$
(33
)
 
$
359

Gains/(losses) expected to be realized from OCI during the next 12 months, net of $66 and $154 tax respectively
$
137

 
$
(23
)
 
$
114

 
$
265

 
$
(2
)
 
$
263

(Losses)/gains recognized in income from the ineffective portion of cash flow hedges
$
(1
)
 
$
(2
)
 
$
(3
)
 
$
3

 
$
(1
)
 
$
2


Amounts reclassified from accumulated OCI into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to operating revenue for commodity contracts and interest expense for interest rate contracts.






20



Impact of Derivative Instruments on the Statement of Operations

Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedges and ineffectiveness of hedge derivatives are reflected in current period earnings.

The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges, ineffectiveness on cash flow hedges, and trading activity on NRG's statement of operations. These amounts are included within operating revenues and cost of operations.
 
Three months ended March 31,
 
2012
 
2011
 
(In millions)
Unrealized mark-to-market results
 
 
 
Reversal of previously recognized unrealized gains on settled positions related to economic hedges
$
(41
)
 
$
(2
)
Reversal of loss positions acquired as part of the Reliant Energy and Green Mountain Energy acquisitions
14

 
41

Net unrealized (losses)/gains on open positions related to economic hedges
(137
)
 
91

(Losses)/gains on ineffectiveness associated with open positions treated as
    cash flow hedges
(1
)
 
3

Total unrealized mark-to-market (losses)/gains for economic hedging activities
(165
)
 
133

Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity
(30
)
 
14

Net unrealized gains on open positions related to trading activity
28

 

Total unrealized mark-to-market (losses)/gains for trading activity
(2
)
 
14

Total unrealized (losses)/gains
$
(167
)
 
$
147


 
Three months ended March 31,
 
2012
 
2011
 
(In millions)
Revenue from operations — energy commodities
$
38

 
$
13

Cost of operations
(205
)
 
134

Total impact to statement of operations
$
(167
)
 
$
147


The reversal of loss positions acquired as part of the Reliant Energy and Green Mountain Energy acquisitions were valued based upon the forward prices on the acquisition dates. The roll off amounts were offset by realized losses at the settled prices and are reflected in the cost of operations during the same period.

For the three months ended March 31, 2012, the unrealized loss from open economic hedge positions was the result of a decrease in value of forward purchases of coal, due to decreases in forward coal prices along with a decrease in value of forward purchases and sales of natural gas and electricity, due to a decrease in forward power and gas prices and increases in Electric Reliability Council of Texas, or ERCOT, heat rates.

For the three months ended March 31, 2011, the unrealized gain from open economic hedge positions was the result of an increase in value of forward purchases and sales of natural gas, electricity and fuel due to an increase in forward power and gas prices.

Credit Risk Related Contingent Features

Certain of the Company's hedging agreements contain provisions that require the Company to post additional collateral if the counterparty determines that there has been deterioration in credit quality, generally termed “adequate assurance” under the agreements, or requires the Company to post additional collateral if there were a one notch downgrade in the Company's credit rating. The collateral required for contracts with adequate assurance clauses that are in a net liability position as of March 31, 2012, was $119 million. The collateral required for contracts with credit rating contingent features was $42 million. The Company is also a party to certain marginable agreements where NRG has a net liability position, but the counterparty has not called for the collateral due, which was approximately $45 million as of March 31, 2012.

See Note 5, Fair Value of Financial Instruments, to this Form 10-Q for discussion regarding concentration of credit risk.

21




Note 8Debt and Capital Leases

This footnote should be read in conjunction with the complete description under Note 12, Debt and Capital Leases, to the Company's 2011 Form 10-K.

Long-term debt and capital leases consisted of the following:
 
 
March 31, 2012
 
December 31, 2011
 
Interest rate % (a)
 
 
(In millions, except rates)
NRG Recourse Debt:
 
 
 
 
 
 
Senior notes, due 2021
 
$
1,200

 
$
1,200

 
7.875
Senior notes, due 2020
 
1,100

 
1,100

 
8.250
Senior notes, due 2019
 
800

 
800

 
7.625
Senior notes, due 2019
 
692

 
691

 
8.500
Senior notes, due 2018
 
1,200

 
1,200

 
7.625
Senior notes, due 2017
 
1,090

 
1,090

 
7.375
Term loan facility, due 2018
 
1,584

 
1,588

 
L+3.00
Indian River Power LLC, tax-exempt bonds, due 2040
 
57

 
57

 
6.000
Indian River Power LLC, tax-exempt bonds, due 2045
 
157

 
148

 
5.375
Dunkirk Power LLC, tax-exempt bonds, due 2042
 
59

 
59

 
5.875
Subtotal NRG Recourse Debt
 
7,939

 
7,933

 
 
NRG Non-Recourse Debt:
 
 
 
 
 
 
Ivanpah Financing:
 
 
 
 
 
 
Solar Partners I, due 2014 and 2033
 
351

 
290

 
1.126 - 3.991
Solar Partners II, due 2014 and 2038
 
377

 
314

 
1.116 - 4.195
Solar Partners VIII, due 2014 and 2038
 
321

 
270

 
1.381 - 4.256
NRG Peaker Finance Co. LLC, bonds, due 2019
 
191

 
190

 
L+1.07
Agua Caliente Solar, LLC, due 2037
 
233

 
181

 
2.730 - 3.256
NRG West Holdings LLC, term loan, due 2023
 
198

 
159

 
L+2.25 - 2.75
NRG Energy Center Minneapolis LLC, senior secured notes,
   due 2013, 2017 and 2025
 
147

 
151

 
5.95 - 7.31
CVSR - High Plains Ranch II LLC, due 2037
 
138

 

 
0.61 - 0.68
South Trent Wind LLC, financing agreement, due 2020
 
75

 
75

 
L+2.50
Solar Power Partners - SPP Fund II/IIB LLC term loans, due 2017
 
17

 
17

 
L+3.50
Solar Power Partners - SPP Fund III LLC term loan, due 2024
 
42

 
42

 
L+3.50
NRG Solar Roadrunner LLC, due 2031
 
47

 
61

 
L+2.01
NRG Solar Blythe LLC, credit agreement, due 2028
 
27

 
27

 
L+2.50
Other
 
15

 
19

 
various
Subtotal NRG Non-Recourse Debt
 
2,179

 
1,796

 
 
 
 
 
 
 
 
 
Subtotal long-term debt
 
10,118

 
9,729

 
 
Capital leases:
 
 
 
 
 
 
Saale Energie GmbH, Schkopau capital lease, due 2021
 
103

 
103

 
 
Subtotal
 
10,221

 
9,832

 
 
Less current maturities
 
71

 
87

 
 
Total long-term debt and capital leases
 
$
10,150

 
$
9,745

 
 
(a) L+ equals LIBOR plus x%.





22



NRG Repowering Holdings LLC

On January 25, 2012, NRG Repowering Holdings LLC, or NRG Repowering, terminated its revolving credit facility, repaid the $5 million then outstanding, and a supporting letter of credit issued by NRG was returned.

On January 25, 2012, NRG Repowering entered into a Credit and Reimbursement Agreement which provides for a $10 million working capital facility that can be used for general corporate purposes or to issue letters of credit, and an $80 million letter of credit facility. Interest on the letters of credit accrues at 3.5% and on loans under the working capital facility at the London Inter-Bank Offered Rate, or LIBOR, plus 3.50%. The facility is secured by NRG Repowering's investments in GenConn Energy, LLC and South Trent Wind LLC, and matures January 25, 2015. As of March 31, 2012, NRG Repowering had issued $10 million letter of credit under the working capital facility and $80 million in letters of credit under the letter of credit facility.

Alpine Financing
 
On March 16, 2012, NRG, through its wholly-owned subsidiary, NRG Solar Alpine LLC, or Alpine, entered into a credit agreement with a group of lenders, or the Alpine Financing Agreement, for a $166 million construction loan that will convert to a term loan upon completion of the project and a $68 million cash grant loan. The construction loan has an interest rate of LIBOR plus an applicable margin of 2.50% and the cash grant loan has an interest rate of LIBOR plus an applicable margin of 2.25%. The term loan has an interest rate of LIBOR plus an applicable margin of 2.50%, which escalates 0.25% on the fifth anniversary of the term conversion. The term loan, which is secured by all the assets of Alpine, matures on the 10th anniversary of the term conversion and amortizes based upon a predetermined schedule. The cash grant loan matures upon the earlier of the receipt of the cash grant or February 2013. The Alpine Financing Agreement also includes a letter of credit facility on behalf of Alpine of up to $37 million. Alpine pays an availability fee of 100% of the applicable margin on issued letters of credit. As of March 31, 2012, $2 million was outstanding under the construction loan, nothing was outstanding under the cash grant loans, and $18 million in letters of credit in support of the project were issued.
 
Also related to the Alpine Financing Agreement, on March 16, 2012, Alpine entered into a series of fixed for floating interest rate swaps for at least 85% of the outstanding term loan amount, intended to hedge the risks associated with floating interest rates. Alpine will pay its counterparty the equivalent of a 2.74% fixed interest payment on a predetermined notional value, and Alpine will receive quarterly the equivalent of a floating interest payment based on a one month LIBOR calculated on the same notional value through December 31, 2012 and based on a three month LIBOR from December 31, 2012 through the term loan maturity date. All interest rate swap payments by Alpine and its counterparty are made monthly through December 31, 2012, and quarterly thereafter and the LIBOR rate is determined in advance of each interest period. The original notional amount of the swap, which became effective March 31, 2012, and matures on December 31, 2029, was $3 million and will increase and amortize in proportion to the loan.

Roadrunner Financing

On March 20, 2012, NRG, through its wholly-owned subsidiary, NRG Roadrunner LLC, or Roadrunner, received proceeds of $21 million under its cash grant application. These proceeds were used to repay Roadrunner's cash grant loan of $17 million plus accrued interest. The remaining cash was returned to NRG under the terms of the accounts agreement.

CVSR Financing
On March 9, 2012, NRG, through its wholly-owned subsidiary, High Plains Ranch II LLC, completed its first borrowing of $138 million under the CVSR Financing Agreement with the Federal Financing Bank. As of March 31, 2012, $138 million was outstanding under the loan.

23





Note 9Variable Interest Entities, or VIEs

NRG has interests in entities that are considered Variable Interest Entities, or VIEs, under ASC 810, Consolidation, but NRG is not considered the primary beneficiary.  NRG accounts for its interests in these entities under the equity method of accounting.

GenConn Energy LLC Through its subsidiary, NRG Connecticut Peaking Development LLC, NRG owns a 50% interest in GenConn, a limited liability company which owns and operates two 200 MW peaking generation facilities in Connecticut at NRG's Devon and Middletown sites. NRG's maximum exposure to loss is limited to its equity investment, which was $131 million as of March 31, 2012.

Sherbino I Wind Farm LLC NRG owns a 50% interest in Sherbino, a joint venture with BP Wind Energy North America Inc. NRG's maximum exposure to loss is limited to its equity investment, which was $98 million as of March 31, 2012.

Texas Coastal Ventures, LLC NRG owns a 50% interest in Texas Coastal Ventures, a joint venture with Hilcorp Energy I, L.P., through its subsidiary Petra Nova LLC. NRG's maximum exposure to loss is limited to its equity investment, which was $49 million as of March 31, 2012.



Note 10Changes in Capital Structure
As of March 31, 2012, and December 31, 2011, the Company had 500,000,000 shares of common stock authorized. The following table reflects the changes in NRG's common shares issued and outstanding:
 
Issued
 
Treasury
 
Outstanding
Balance as of December 31, 2011
304,183,720

 
(76,664,199
)
 
227,519,521

Shares issued under LTIP
89,563

 

 
89,563

Shares issued under ESPP

 
76,423

 
76,423

Balance as of March 31, 2012
304,273,283

 
(76,587,776
)
 
227,685,507



Employee Stock Purchase Plan On April 25, 2012, NRG shareholders approved an increase of 1,000,000 shares available for issuance under the NRG Energy, Inc. Employee Stock Purchase Plan, or ESPP. Subsequent to this approval, 1,100,928 shares of treasury stock are available for issuance under the ESPP.




24





Note 11Loss Per Share

Basic and diluted loss per common share is computed by dividing the net loss less accumulated preferred stock dividends 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.

The reconciliation of NRG's basic and diluted loss per share is shown in the following table:

 
Three months ended March 31,
(In millions, except per share data)
2012
 
2011
Basic and diluted loss per share attributable to NRG common stockholders
 
 
 
Numerator:
 
 
 
Net loss attributable to NRG Energy, Inc.
$
(207
)
 
$
(260
)
Preferred stock dividends
(2
)
 
(2
)
Net loss attributable to NRG Energy, Inc. available to common stockholders
$
(209
)
 
$
(262
)
Denominator:
 
 
 
Weighted average number of common shares outstanding
228

 
247

Basic and diluted loss per share:
 
 
 
Net loss attributable to NRG Energy, Inc.
$
(0.92
)
 
$
(1.06
)

The following table summarizes NRG’s outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company’s diluted loss per share:
 
Three months ended March 31,
(In millions of shares)
2012
 
2011
Equity compensation plans
9

 
7

Embedded derivative of 3.625% redeemable perpetual preferred stock
16

 
16

Total
25

 
23





25




Note 12Segment Reporting

Effective in fiscal year 2012, NRG's segment structure and its allocation of corporate expenses were updated to reflect how management currently makes financial decisions and allocates resources. The Company has recast the data from prior periods to reflect this change in reportable segments to conform to the current year presentation. The Company's businesses are primarily segregated based on the Retail businesses, conventional power generation, alternative energy businesses and corporate activities.  Within NRG's conventional power generation operations, there are distinct components with separate operating results and management structures for the following geographical regions: Texas, Northeast, South Central, West and Other, which includes its international businesses, thermal and chilled water business and maintenance services.  The Company's alternative energy businesses include solar and wind assets, electric vehicle services and carbon capture business.  Intersegment sales are accounted for at market.

(In millions)
 
 
Conventional Power Generation
 
 
 
 
 
 
 
 
Three months ended March 31, 2012
Retail
 
Texas(a)
 
Northeast(b)
 
South
Central
 
West
 
Other (c)
 
Alternative Energy(d)
 
Corporate
 
Elimination
 
Total
Operating revenues
$
1,166

 
$
458

 
$
148

 
$
173

 
$
42

 
$
94

 
$
22

 
$
3

 
$
(244
)
 
$
1,862

Depreciation and amortization
41

 
114

 
32

 
23

 
2

 
4

 
11

 
3

 

 
230

Equity in earnings/(losses) of unconsolidated affiliates

 

 
5

 

 
(2
)
 
3

 
2

 

 

 
8

Income/(loss) before income taxes
7

 
(74
)
 
(43
)
 
(30
)
 
(14
)
 
10

 
(11
)
 
(171
)
 

 
(326
)
Net income/(loss) attributable to NRG Energy, Inc.
$
7

 
$
(74
)
 
$
(43
)
 
$
(30
)
 
$
(14
)
 
$
8

 
$
(12
)
 
$
(49
)
 
$

 
$
(207
)
Total assets
$
2,280

 
$
13,681

 
$
1,923

 
$
1,270

 
$
661

 
$
1,073

 
$
4,095

 
$
20,541

 
$
(16,994
)
 
$
28,530

(a)
Includes inter-segment revenues of $182 million.
(b)
Includes inter-segment revenues of $35 million.
(c)
Includes inter-segment revenues of $20 million.
(d)
Includes inter-segment revenues of $4 million.

(In millions)
 
 
Conventional Power Generation
 
 
 
 
 
 
 
 
Three months ended March 31, 2011
Retail
 
Texas(e)
 
Northeast
 
South
Central
 
West
 
Other(f)
 
Alternative Energy
 
Corporate(g)
 
Elimination
 
Total
Operating revenues
$
1,126

 
$
523

 
$
226

 
$
189

 
$
40

 
$
84

 
$
9

 
$
1

 
$
(203
)
 
$
1,995

Depreciation and amortization
26

 
115

 
29

 
20

 
2

 
3

 
6

 
4

 

 
205

Equity in earnings/(losses) of unconsolidated affiliates

 

 
2

 

 

 
4

 
(8
)
 

 

 
(2
)
Income/(loss) before income taxes
294

 
27

 
(34
)
 
12

 
13

 
10

 
(18
)
 
(669
)
 

 
(365
)
Net income/(loss) attributable to
NRG Energy, Inc.
$
297

 
$
27

 
$
(34
)