Goodwill and Other Intangibles

Goodwill

NRG's goodwill balance was $573 million and $539 million as of December 31, 2018 and 2017, respectively. The increase in goodwill is due to the acquisition of XOOM. As of December 31, 2018 and 2017, NRG had approximately $366 million and $460 million, respectively, of goodwill that is deductible for U.S. income tax purposes in future periods. As of December 31, 2018, goodwill consisted of $165 million associated with the acquisition of Midwest Generation and $408 million for Retail business acquisitions, including Texas non-commodity and XOOM.

2017 Impairments of Goodwill

BETM — During the fourth quarter of 2017, the Company concluded that BETM was held for sale following board approval and advanced negotiations to sell the business. Accordingly, the Company recorded the assets and liabilities at fair market value as of December 31, 2017, which resulted in an impairment loss of $90 million to record BETM's goodwill at fair market value. The remaining goodwill balance for BETM of $21 million was included within non-current assets held-for-sale as of December 31, 2017.

2016 Impairments of Goodwill

During the year ended December 31, 2016, the Company recorded a goodwill impairment charge of $337 million related to its Texas Generation reporting unit, reducing the goodwill balance for Texas Generation to zero.

In connection with the annual impairment assessment, the Company performed step one of the two-step impairment test for the Texas Generation reporting unit, for which $1.7 billion of goodwill was recognized as part of the Texas Genco acquisition in 2006 and $1.4 billion was written off in 2015. The Company determined the fair value of the Texas Generation reporting unit primarily using an income approach through which the Company applied a discounted cash flow methodology to the long-term budgets for all plants in the regions. Significant inputs impacting the income approach include the Company's views of power and fuel prices for the first five-year period and the Company's view for the longer term, which were finalized in connection with the preparation of the annual budget, projected generation based on an hourly dispatch meant to simulate the dispatch of each unit into the power market which is impacted by power prices, fuel prices, and the physical and economic characteristics of each plant, intangible value to Texas Generation for synergies it provides to NRG's retail businesses, and the discount rate applied to cash flow projections. Under step one, the estimated fair value of the Texas Generation invested capital was 43% below its carrying value as of December 31, 2016, and the Company concluded step two was required. Based on the results of step two of the impairment test, the Company determined the carrying amount of the reporting unit was higher than the fair value, and accordingly, the Company recognized an impairment loss of $337 million as of December 31, 2016.

Intangible Assets

The Company's intangible assets as of December 31, 2018, primarily reflect intangible assets established with the acquisitions of various companies, including Texas Genco, Reliant Energy, Green Mountain Energy, Dominion, XOOM, Discount Power, Energy Alternatives, Energy Plus, Energy Systems, Energy Curtailment Specialists, Pioneer Energy, Stat Energy and Source Power & Gas. Intangible assets are comprised of the following:


•	Energy supply contracts — These represent the fair value at the acquisition date of in-market contracts for the purchase of energy to serve retail electric customers. The contracts are amortized to cost of operations based on the expected delivery under the respective contracts.


•	Customer contracts — These intangibles represent the fair value at the acquisition date of contracts that primarily provide electricity to Reliant Energy's and Green Mountain Energy's C&I customers. These contracts are amortized to revenues based on expected volumes to be delivered for the portfolio.


•	Customer relationships — These intangibles represent the fair value at the acquisition date of acquired businesses' customer base. The customer relationships are amortized to depreciation and amortization expense based on the expected discounted future net cash flows by year.


•	Marketing partnerships — These intangibles represent the fair value at the acquisition date of existing agreements with loyalty and affinity partners. The marketing partnerships are amortized to depreciation and amortization expense based on the expected discounted future net cash flows by year.


•	Trade names — These intangibles are amortized to depreciation and amortization expense on a straight-line basis.

•

Emission Allowances — These intangibles primarily consist of SO₂ and NO_x emission allowances established with the 2006 Texas Genco acquisition and also include RGGI emission credits which NRG began purchasing in 2009. These emission allowances are held-for-use and are amortized to cost of operations, with NO_x allowances amortized on a straight-line basis and SO₂ allowances and RGGI credits amortized based on units of production. During the year ended December 31, 2018, the Company recorded an impairment loss of $5 million to reduce the value of excess SO₂ allowances to zero.


•	In-market fuel (gas and nuclear) contracts — These intangibles were established with the Texas Genco acquisition in 2006 and are amortized to cost of operations over expected volumes over the life of each contract.


•	Other — Consists of renewable energy credits and costs to extend the operating license for STP Units 1 and 2.

The following tables summarize the components of NRG's intangible assets subject to amortization:



				Contracts
Year Ended December 31, 2018	Emission Allowances			Fuel			Customer Contracts			Customer Relationships			Marketing Partnerships			Trade Names			Other			Total

January 1, 2018	$	755		$	49		$	1		$	768		$	88		$	342		$	77		$	2,080
Purchases	33			—			—			—			—			—			28			61
Acquisition of businesses^(a)	—			—			—			122			43			13			—			178
Usage	(1		)	—			—			—			—			—			(26		)	(27		)
Write-off of fully amortized balances	(107		)	—			—			(411		)	—			(10		)	—			(528		)
Impairment	(5		)	—			—			(1		)	—			—			—			(6		)
Other	(16		)	—			—			—			—			—			—			(16		)
December 31, 2018	659			49			1			478			131			345			79			1,742
Less accumulated amortization	(515		)	(45		)	(1		)	(314		)	(61		)	(195		)	(20		)	(1,151		)
Net carrying amount	$	144		$	4		$	—		$	164		$	70		$	150		$	59		$	591

(a) The weighted average life of acquired intangibles is: customer relationships 6 years, trade names 7 years, and marketing partnerships 14 years



				Contracts
Year Ended December 31, 2017	Emission Allowances			Energy Supply			Fuel			Customer Contracts			Customer Relationships			Marketing Partnerships			Trade Names			Other			Total
	(In millions)
January 1, 2017	$	780		$	54		$	72		$	1		$	750		$	88		$	342		$	75		$	2,162
Purchases	27			—			—			—			—			—			—			32			59
Acquisition of businesses	—			—			—			—			18			—			—			—			18
Usage	(10		)	—			—			—			—			—			—			(28		)	(38		)
Write-off of fully amortized balances	—			(54		)	(23		)	—			—			—			—			—			(77		)
Impairment	(20		)	—			—			—			—			—			—			—			(20		)
Other	(22		)	—			—			—			—			—			—			(2		)	(24		)
December 31, 2017	755			—			49			1			768			88			342			77			2,080
Less accumulated amortization	(583		)	—			(45		)	(1		)	(693		)	(54		)	(182		)	(15		)	(1,573		)
Net carrying amount	$	172		$	—		$	4		$	—		$	75		$	34		$	160		$	62		$	507

The following table presents NRG's amortization of intangible assets for each of the past three years:



	Years Ended December 31,
Amortization	2018		2017		2016
	(In millions)
Emission allowances	$	39	$	71	$	62
Energy supply contracts	—		1		6
Fuel contracts	—		1		1
Customer relationships	32		34		48
Marketing partnerships	9		5		8
Trade names	23		23		23
Other	4		3		9
Total amortization	$	107	$	138	$	157

The following table presents estimated amortization of NRG's intangible assets for each of the next five years:



Year Ended December 31,	Emission Allowances		Fuel Contracts		Customer Relationships		Marketing Partnerships		Trade Names		Other		Total
	(In millions)
2019	$	48	$	—	$	38	$	11	$	24	$	3	$	124
2020	37		1		39		11		25		3		116
2021	43		—		33		10		24		3		113
2022	50		—		23		10		24		3		110
2023	49		1		26		10		24		3		113

Intangible assets held-for-sale — From time to time, management may authorize the transfer from the Company's emission bank of emission allowances held-for-use to intangible assets held-for-sale. Emission allowances held-for-sale are included in other non-current assets on the Company's consolidated balance sheet and are not amortized, but rather expensed as sold. As of December 31, 2018 and 2017, the value of emission allowances held-for-sale is $12 million and $9 million, respectively, and is managed within the Corporate segment. Once transferred to held-for-sale, these emission allowances are prohibited from moving back to held-for-use.

Out-of-market contracts — Due primarily to business acquisitions, NRG acquired certain out-of-market contracts, which are classified as non-current liabilities on NRG's consolidated balance sheet. These include out-of-market lease contracts of $121 million acquired in the acquisition of Midwest Generation. These out-of-market contracts are amortized to cost of operations. As of December 31, 2018 and 2017, the Company had accumulated amortization for out-of-market contracts of $37 million and $29 million, respectively. Upon adoption of ASC 842, Leases, on January 1, 2019, out-of-market lease contracts are included as a component of right-of-use assets.

The following table summarizes the estimated amortization related to NRG's out-of-market contracts:



Year Ended December 31,	Leases

2019	$	8
2020	8
2021	8
2022	8
2023	8