Accounting for Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Accounting for Derivative Instruments and Hedging Activities

Energy-Related Commodities

As of March 31, 2021, NRG had energy-related derivative instruments extending through 2036. The Company marks these derivatives to market through the statement of operations. NRG has executed power purchase agreements extending through 2037 that qualified for the NPNS exception and were therefore exempt from fair value accounting treatment.

Foreign Exchange Contracts

NRG is exposed to changes in foreign currency associated with the purchase of USD denominated natural gas for its Canadian business. In order to manage the Company's foreign exchange risk, NRG entered into foreign exchange contracts. As of March 31, 2021, NRG had foreign exchange contracts extending through 2023. The Company marks these derivatives to market through the statement of operations.

Volumetric Underlying Derivative Transactions

The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by category, excluding those derivatives that qualified for the NPNS exception, as of March 31, 2021 and December 31, 2020. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date.


		Total Volume (In millions)
Category	Units	March 31, 2021		December 31, 2020
Emissions	Short Ton	—		1
Renewable Energy Certificates	Certificates	13		5
Coal	Short Ton	2		2
Natural Gas	MMBtu	605		(286)

Power	MWh	201		57
Capacity	MW/Day	—		(1)
Foreign Exchange	Dollars	$	158	$	—

The increase in positions was primarily the result of the Direct Energy acquisition.

Fair Value of Derivative Instruments

The following table summarizes the fair value within the derivative instrument valuation on the balance sheets:


	Fair Value
	Derivative Assets				Derivative Liabilities
(In millions)	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020




Derivatives Not Designated as Cash Flow or Fair Value Hedges:


Foreign exchange contracts - current	$	—	$	—	$	1	$	—
Foreign exchange contracts -long-term	—		—		1		—
Commodity contracts - current	1,816		560		1,605		499
Commodity contracts - long-term	1,008		261		833		385
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges	$	2,824	$	821	$	2,440	$	884

The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. In addition, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. The following table summarizes the offsetting of derivatives by counterparty master agreement level and collateral received or paid:


	Gross Amounts Not Offset in the Statement of Financial Position
(In millions)	Gross Amounts of Recognized Assets / Liabilities		Derivative Instruments		Cash Collateral (Held) / Posted		Net Amount
As of March 31, 2021
Foreign exchange contracts:

Derivative liabilities	$	(2)	$	—	$	—	$	(2)
Total foreign exchange contracts	$	(2)	$	—	$	—	$	(2)
Commodity contracts:
Derivative assets	$	2,824	$	(2,253)	$	(10)	$	561
Derivative liabilities	(2,438)		2,253		—		(185)
Total commodity contracts	$	386	$	—	$	(10)	$	376




Total derivative instruments	$	384	$	—	$	(10)	$	374


	Gross Amounts Not Offset in the Statement of Financial Position
(In millions)	Gross Amounts of Recognized Assets / Liabilities		Derivative Instruments		Cash Collateral (Held) / Posted		Net Amount
As of December 31, 2020
Commodity contracts:
Derivative assets	$	821	$	(658)	$	(5)	$	158
Derivative liabilities	(884)		658		—		(226)
Total commodity contracts	$	(63)	$	—	$	(5)	$	(68)

Impact of Derivative Instruments on the Statements of Operations

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

The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges or fair value hedges and trading activity on the Company's statement of operations. The effect of foreign exchange and commodity hedges are included within operating revenues and cost of operations.


(In millions)	Three months ended March 31,
Unrealized mark-to-market results	2021		2020
Reversal of previously recognized unrealized losses on settled positions related to economic hedges	$	17	$	9
Reversal of acquired loss positions related to economic hedges	145		1
Net unrealized gains on open positions related to economic hedges	559		34
Total unrealized mark-to-market gains for economic hedging activities	721		44
Reversal of previously recognized unrealized (gains) on settled positions related to trading activity	(7)		(2)
Net unrealized gains on open positions related to trading activity	11		13
Total unrealized mark-to-market gains for trading activity	4		11
Total unrealized gains	$	725	$	55


	Three months ended March 31,
(In millions)	2021		2020
Unrealized (losses)/gains included in operating revenues - commodities	$	(28)	$	7
Unrealized gains included in cost of operations - commodities	755		48
Unrealized (losses) included in cost of operations - foreign exchange	(2)		—
Total impact to statement of operations	$	725	$	55

The reversals of acquired loss positions were valued based upon the forward prices on the acquisition date. The roll-off amounts were offset by realized gains or losses at the settled prices and are reflected in operating revenue or cost of operations during the same period.

For the three months ended March 31, 2021, the $559 unrealized gain from open economic hedge positions was primarily the result of an increase in value of forward positions due to increases in ERCOT power prices and ERCOT heat rate expansion.

For the three months ended March 31, 2020, the $34 million unrealized gain from open economic hedge positions was primarily the result of an increase in value of forward power positions due to decrease in West/Other power prices, as well as an increase in value of ERCOT heat rate positions due to ERCOT hear rate expansion.

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 require the Company to post additional collateral if there were a downgrade in the Company's credit rating. In addition, as a result of the acquisition of Direct Energy from Centrica, certain of the Company’s agreements as of March 31, 2021, were still supported by credit support posted by Centrica, and as a result, could require the Company to post additional collateral upon a deterioration or downgrade of Centrica. The collateral required for contracts with adequate assurance clauses that are in a net liability position as of March 31, 2021 was $642 million. The Company is also party to certain marginable agreements under which it has net liability position, but the counterparty has not called for the collateral due, which was $91 million as of March 31, 2021. If called for by the counterparty, $57 million of additional collateral would be required for all contracts with credit rating contingent features as of March 31, 2021.

See Note 5, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk.