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Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments
For cash and cash equivalents, funds deposited by counterparties, accounts and other receivables, accounts payable, restricted cash, 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 amounts and fair values of NRG's recorded financial instruments not carried at fair market value are as follows:
September 30, 2019December 31, 2018
Carrying AmountFair ValueCarrying AmountFair Value
 (In millions)
Assets:    
Notes receivable
$11  $8  $17  $14  
Liabilities:
Long-term debt, including current portion (a)
6,168  6,706  6,591  6,697  
(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 is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non-publicly traded long-term debt and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy. The following table presents the level within the fair value hierarchy for long-term debt, including current portion, as of September 30, 2019 and December 31, 2018:
September 30, 2019December 31, 2018
Level 2Level 3Level 2Level 3
 (In millions)
Long-term debt, including current portion$6,375  $331  $6,528  $169  

Recurring Fair Value Measurements
Debt securities, equity securities, and 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 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, 2019
(In millions)TotalLevel 1Level 2Level 3
Investments in securities (classified within other current and non-current assets)
$24  $—  $19  $5  
Nuclear trust fund investments: 
Cash and cash equivalents20  20  —  —  
U.S. government and federal agency obligations51  51  —  —  
Federal agency mortgage-backed securities97  —  97  —  
Commercial mortgage-backed securities27  —  27  —  
Corporate debt securities112  —  112  —  
Equity securities372  372  —  —  
Foreign government fixed income securities5  —  5  —  
Other trust fund investments:
U.S. government and federal agency obligations1  1  —  —  
Derivative assets: 
Commodity contracts1,093  92  878  123  
Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments72  
       Equity securities7  
Total assets$1,881  $536  $1,138  $128  
Derivative liabilities: 
Commodity contracts$1,032  $151  $771  $110  
Total liabilities$1,032  $151  $771  $110  
December 31, 2018
(In millions)TotalLevel 1Level 2Level 3
Investments in securities (classified within other current and non-current assets)$39  $2  $18  $19  
Nuclear trust fund investments:
Cash and cash equivalents19  19  —  —  
U.S. government and federal agency obligations46  46  —  —  
Federal agency mortgage-backed securities100  —  100  —  
Commercial mortgage-backed securities22  —  22  —  
Corporate debt securities96  —  96  —  
Equity securities312  312  —  —  
Foreign government fixed income securities4  —  4  —  
Other trust fund investments:
U.S. government and federal agency obligations1  1  —  —  
Derivative assets: 
Commodity contracts1,042  137  796  109  
Interest rate contracts39  —  39  —  
Measured using net asset value practical expedient:
Equity securities — nuclear trust fund investments64  
       Equity securities8  
Total assets$1,792  $517  $1,075  $128  
Derivative liabilities: 
Commodity contracts$977  $224  $664  $89  
Total liabilities$977  $224  $664  $89  

There were no transfers during the three and nine months ended September 30, 2019 and 2018 between Levels 1 and 2. The following tables reconcile, for the three and nine months ended September 30, 2019 and 2018, the beginning and ending balances for financial instruments that are recognized at fair value in the condensed consolidated financial statements, at least annually, using significant unobservable inputs:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
Three months ended September 30, 2019Nine months ended September 30, 2019
(In millions)Debt Securities
Derivatives(a)
TotalDebt Securities
Derivatives(a)
Total
Beginning balance $19  $97  $116  $19  $20  $39  
Contracts added from acquisitions
—  (2) (2) —  (3) (3) 
Total (losses)/gains — realized/unrealized:
Included in earnings—  (18) (18) 1  (45) (44) 
Included in OCI(14) —  (14) (14) —  (14) 
Cash received—  —  —  (1) —  (1) 
Purchases—  38  38  —  26  26  
Transfers into Level 3(b)
—  (126) (126) —  4  4  
Transfers out of Level 3(b)
—  24  24  —  11  11  
Ending balance as of September 30, 2019$5  $13  $18  $5  $13  $18  
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 September 30, 2019
$—  $44  $44  $1  $13  $14  
(a)Consists of derivative assets and liabilities, net
(b)Transfers into/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
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
Three months ended September 30, 2018Nine months ended September 30, 2018
(In millions)Debt Securities
Derivatives(a)
TotalDebt Securities
Derivatives(a)
Total
Beginning balance $19  $174  $193  $19  $(15) $4  
Contracts added in XOOM acquisition—  —  —  —  12  12  
Total (losses) — realized/unrealized
included in earnings		—  —  —  —  (15) (15) 
Purchases—  12  12  —  9  9  
Transfers into Level 3(b)
—  (201) (201) —  (4) (4) 
Transfers out of Level 3(b)
—  2  2  —  —  —  
Ending balance as of September 30, 2018$19  $(13) $6  $19  $(13) $6  
(Losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of September 30, 2018
$—  $(3) $(3) $—  $(18) $(18) 
(a)Consists of derivative assets and liabilities, net
(b)Transfers into/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

Derivative Fair Value Measurements
A portion of NRG's contracts are exchange-traded contracts with readily available quoted market prices. A majority 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. 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, 2019, contracts valued with prices provided by models and other valuation techniques make up 11% of derivative assets and 11% of derivative liabilities.
NRG's significant positions classified as Level 3 include physical and financial power executed in illiquid markets, as well as financial transmission rights, or FTRs. The significant unobservable inputs used in developing fair value include illiquid 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. For FTRs, NRG uses the most recent auction prices to derive the fair value.
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, 2019 and December 31, 2018:
September 30, 2019
Fair ValueInput/Range
AssetsLiabilitiesValuation TechniqueSignificant Unobservable InputLowHighWeighted Average
(In millions)
Power Contracts$89  $98  Discounted Cash FlowForward Market Price (per MWh)$6  $217  $22  
FTRs34  12  Discounted Cash FlowAuction Prices (per MWh)(134) 60  0
$123  $110  
December 31, 2018
Fair ValueInput/Range
AssetsLiabilitiesValuation TechniqueSignificant Unobservable InputLowHighWeighted Average
(In millions)
Power Contracts$89  $75  Discounted Cash FlowForward Market Price (per MWh)$1  $214  $31  
FTRs20  14  Discounted Cash FlowAuction Prices (per MWh)(90) 34  0
$109  $89  

The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of September 30, 2019 and December 31, 2018:
Significant Unobservable InputPositionChange In InputImpact on Fair Value Measurement
Forward Market Price PowerBuy  Increase/(Decrease)Higher/(Lower) 
Forward Market Price PowerSell  Increase/(Decrease) Lower/(Higher) 
FTR PricesBuy  Increase/(Decrease) Higher/(Lower) 
FTR PricesSell  Increase/(Decrease) Lower/(Higher) 
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, 2019, the credit reserve resulted in a $1 million decrease in cost of operations. As of December 31, 2018, the credit reserve did not result in a significant change in fair value 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 2018 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 2018 Form 10-K. As of September 30, 2019, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, registered commodity exchanges and certain long-term agreements, was $242 million and NRG held collateral (cash and letters of credit) against those positions of $55 million, resulting in a net exposure of $226 million. 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 42% of the Company's exposure before collateral is expected to roll off by the end of 2020. 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 other84 %
Financial institutions16  
Total as of September 30, 2019100 %
 
Net Exposure (a) (b)
Category by Counterparty Credit Quality(% of Total)
Investment grade54 %
Non-investment grade/non-rated46  
Total as of September 30, 2019100 %
(a)Counterparty credit exposure excludes uranium and 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 discussed above as of September 30, 2019. 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 its financial position or results of operations from nonperformance by any of NRG's counterparties.
RTOs and ISOs
The Company participates in the organized markets of CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in these markets is approved by FERC, or in the case of ERCOT, approved by the PUCT, and includes 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 PPAs. As external sources or observable market quotes are not 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, 2019, aggregate credit risk exposure managed by NRG to these counterparties was approximately $518 million for the next five years, including exposure to PG&E as described below.
NRG, through its unconsolidated affiliates Ivanpah and Agua Caliente, has exposure to PG&E of approximately $322 million for the next five years. For further discussion see Note 11, Investments Accounted for Using the Equity Method and Variable Interest Entities, or VIEs.
Retail Customer Credit Risk
The Company is exposed to retail credit risk through the Company's retail electricity providers, which serve C&I customers and the Mass market. 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 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 September 30, 2019, the Company's retail customer credit exposure to C&I and Mass customers was diversified across many customers and various industries, as well as government entities.