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Fair Value of Financial Instruments | 12 Months Ended
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Dec. 31, 2023
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial Instruments For cash and cash equivalents, funds deposited by counterparties, restricted cash, accounts and other receivables, accounts payable and cash collateral paid and received in support of energy risk management activities, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy. The estimated carrying value and fair value of the Company's long-term debt, including current portion, is as follows:
| As of December 31,
| 2023 |  | 2022
(In millions) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Convertible Senior Notes | $ | 575 |  |  | $ | 739 |  |  | $ | 575 |  |  | $ | 576 |
Other long-term debt, including current portion | 10,219 |  |  | 9,835 |  |  | 7,523 |  |  | 6,432 |
Total long-term debt, including current portion(a) | $ | 10,794 |  |  | $ | 10,574 |  |  | $ | 8,098 |  |  | $ | 7,008 |
(a)Excludes deferred financing costs, which are recorded as a reduction to long-term debt on the Company's consolidated balance sheets The fair value of the Company's publicly-traded long-term debt and the Vivint Smart Home Senior Secured Term Loan are based on quoted market prices and are classified as Level 2 within the fair value hierarchy. Fair Value Accounting under ASC 820 ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows: •Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. NRG's financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities, energy derivatives, and trust fund investments. •Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. NRG's financial assets and liabilities utilizing Level 2 inputs include fixed income securities, exchange-based derivatives, and over the counter derivatives such as swaps, options and forward contracts. •Level 3 — unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. NRG's financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models. In accordance with ASC 820, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety. Recurring Fair Value Measurements Derivative assets and liabilities, debt securities, equity securities and trust fund investments, which were comprised of various U.S. debt and equity securities, are carried at fair market value. The following tables present assets and liabilities measured and recorded at fair value on the Company's consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:
| As of December 31, 2023
| Fair Value
(In millions) | Total |  | Level 1 |  | Level 2 |  | Level 3
Investments in securities (classified within other current and non-current assets) | $ | 21 |  |  | $ | — |  |  | $ | 21 |  |  | $ | — |
Derivative assets: |  |  |  |  |  |  |
Interest rate contracts | 12 |  |  | — |  |  | 12 |  |  | — |
Foreign exchange contracts | 5 |  |  | — |  |  | 5 |  |  | — |
Commodity contracts | 6,138 |  |  | 1,334 |  |  | 4,470 |  |  | 334 |
Equity securities measured using net asset value practical expedient (classified within other non-current assets) | 6 |  |  |  |  |  |  |
Total assets | $ | 6,182 |  |  | $ | 1,334 |  |  | $ | 4,508 |  |  | $ | 334 |
Derivative liabilities: |  |  |  |  |  |  |
Interest rate contracts | $ | 8 |  |  | $ | — |  |  | $ | 8 |  |  | $ | — |
Foreign exchange contracts | 9 |  |  | — |  |  | 9 |  |  | — |
Commodity contracts | 5,356 |  |  | 1,413 |  |  | 3,728 |  |  | 215 |
Consumer Financing Program | 134 |  |  | — |  |  | — |  |  | 134 |
Total liabilities | $ | 5,507 |  |  | $ | 1,413 |  |  | $ | 3,745 |  |  | $ | 349 |
| As of December 31, 2022
| Fair Value
(In millions) | Total |  | Level 1 |  | Level 2 |  | Level 3
Investments in securities (classified within other current and non-current assets) | $ | 19 |  |  | $ | — |  |  | $ | 19 |  |  | $ | — |
Nuclear trust fund investments: |  |  |  |  |  |  |
Cash and cash equivalents | 15 |  |  | 15 |  |  | — |  |  | — |
U.S. government and federal agency obligations | 86 |  |  | 84 |  |  | 2 |  |  | — |
Federal agency mortgage-backed securities | 101 |  |  | — |  |  | 101 |  |  | — |
Commercial mortgage-backed securities | 35 |  |  | — |  |  | 35 |  |  | — |
Corporate debt securities | 114 |  |  | — |  |  | 114 |  |  | — |
Equity securities | 403 |  |  | 403 |  |  | — |  |  | — |
Foreign government fixed income securities | 1 |  |  | — |  |  | 1 |  |  | — |
Other trust fund investments (classified within other non-current assets): |  |  |  |  |  |  |
U.S. government and federal agency obligations | 1 |  |  | 1 |  |  | — |  |  | — |
Derivative assets: |  |  |  |  |  |  |
Foreign exchange contracts | 18 |  |  | — |  |  | 18 |  |  | — |
Commodity contracts | 11,976 |  |  | 1,929 |  |  | 8,796 |  |  | 1,251 |
Measured using net asset value practical expedient: |  |  |  |  |  |  |
Equity securities - nuclear trust fund investments | 83 |  |  |  |  |  |  |
Equity securities (classified within other non-current assets) | 6 |  |  |  |  |  |  |
Total assets | $ | 12,858 |  |  | $ | 2,432 |  |  | $ | 9,086 |  |  | $ | 1,251 |
Derivative liabilities: |  |  |  |  |  |  |
Foreign exchange contracts | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
Commodity contracts | 8,439 |  |  | 1,244 |  |  | 6,449 |  |  | 746 |
Total liabilities | $ | 8,441 |  |  | $ | 1,244 |  |  | $ | 6,451 |  |  | $ | 746 |
The following table reconciles, for the years ended December 31, 2023 and 2022, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements using significant unobservable inputs, for commodity derivatives:
|  | Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
|  | Commodity Derivatives (a)
|  | For the Year Ended December 31,
(In millions) |  | 2023 |  | 2022
Beginning balance |  | $ | 505 |  |  | $ | 293 |
Total (losses)/gains realized/unrealized included in earnings |  | (164) |  |  | 53 |
Purchases |  | 42 |  |  | (110) |
Transfers into Level 3(b) |  | 78 |  |  | 264 |
Transfers out of Level 3(b)(c) |  | (342) |  |  | 5 |
Ending balance |  | $ | 119 |  |  | $ | 505 |
(Losses)/gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of year-end |  | $ | (46) |  |  | $ | 204 |
(a)Consists of derivatives assets and liabilities, net, excluding derivative liabilities from Consumer Financing Program, which are presented in a separate table below (b)Transfers into/out of Level 3 are related to the availability of consensus pricing and external broker quotes, and are valued as of the end of the reporting period. All transfers into/out of Level 3 are from/to Level 2 (c)For the year ended December 31, 2023, due to the change to use consensus pricing, there was a decrease in the number of contracts valued with prices provided by models and other valuation techniques, which resulted in a large transfer out of Level 3 Realized and unrealized gains and losses included in earnings that are related to the commodity derivatives are recorded in revenues and cost of operations. The following table reconciles, for the year ended December 31, 2023, the beginning and ending balances of the contractual obligations from the Consumer Financing Program that are recognized at fair value in the condensed consolidated financial statements, using significant unobservable inputs:
|  |  | Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
|  |  | Consumer Financing Program
(In millions) |  |  | For the Year Ended December 31, 2023
Beginning balance |  |  | $ | — |
Contractual obligations added from the acquisition of Vivint Smart Home |  |  | (112) |
New contractual obligations |  |  | (68) |
Settlements |  |  | 62 |
Total losses included in earnings |  |  | (16) |
Ending balance |  |  | $ | (134) |
Gains and losses that are related to the Consumer Financing Program derivative are recorded in other income, net. Non-derivative fair value measurements For the year ended December 31, 2022 and through the sale of STP on November 1, 2023, the trust fund investments were held primarily to satisfy NRG's nuclear decommissioning obligations. These trust fund investments held debt and equity securities directly and equity securities indirectly through commingled funds. The fair values of equity securities held directly by the trust funds were based on quoted prices in active markets and were categorized in Level 1. In addition, U.S. government and federal agency obligations were categorized as Level 1 because they traded in a highly liquid and transparent market. The fair values of corporate debt securities were based on evaluated prices that reflected observable market information, such as actual trade information of similar securities, adjusted for observable differences and were categorized in Level 2. Certain equity securities, classified as commingled funds, were analogous to mutual funds, were maintained by investment companies, and held certain investments in accordance with a stated set of fund objectives. The fair value of the equity securities classified as commingled funds were based on net asset values per fund share (the unit of account), derived from the quoted prices in active markets of the underlying equity securities. However, because the shares in the commingled funds were not publicly quoted and not traded in an active market, the commingled funds were measured using net asset value practical expedient. See also Note 7, Nuclear Decommissioning Trust Fund. Derivative fair value measurements The Company's contracts consist of non-exchange-traded contracts valued using prices provided by external sources and exchange-traded contracts with readily available quoted market prices. Beginning in of the fourth quarter of 2023 and as of December 31, 2023, the fair value of non-exchange traded contracts were based on consensus pricing provided by independent pricing services. The pricing data was compiled from market makers with longer dated tenors as compared to broker quotes, enhancing reliability and increasing transparency. Prior to the fourth quarter of 2023, the Company valued derivatives based on price quotes from brokers in active markets who regularly facilitate those transactions. For the majority of markets that NRG participates in, the Company would receive broker quotes from multiple sources and reflected the average of the bid-ask mid-point prices. The terms for which such price information is available vary by commodity, region and product. The Company believes both sources of price quotes are executable. The remainder of the assets and liabilities represents 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 observable market data with similar characteristics. As of December 31, 2023, contracts valued with prices provided by models and other valuation techniques make up 5% of derivative assets and 6% of derivative liabilities. As a result of NRG switching to consensus pricing as of December 31, 2023, there was a significant decrease in the number of contracts valued with prices provided by models and other valuation techniques. 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 for foreign exchange contracts and interest rate swaps is calculated utilizing the bilateral method based on published default probabilities. For commodities, 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. For foreign exchange contracts, interest rate swaps, and commodities, 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 December 31, 2023, the credit reserve resulted in a $18 million decrease primarily within cost of operations. As of December 31, 2022, the credit reserve resulted in $9 million decrease primarily within cost of operations. The fair values in each category reflect the level of forward prices and volatility factors as of December 31, 2023 and may change as a result of changes in these factors. Management uses its best estimates to determine the fair value of commodity and derivative contracts NRG holds and sells. These estimates consider various factors including closing exchange, consensus and over-the-counter price quotations, time value, volatility factors and credit exposure. It is possible, however, that future market prices could vary from those used in recording assets and liabilities from energy marketing and trading activities and such variations could be material. NRG's significant positions classified as Level 3 include physical and financial natural gas, power, capacity contracts and renewable energy certificates executed in illiquid markets as well as financial transmission rights ("FTRs"). The significant unobservable inputs used in developing fair value include illiquid natural gas and power location pricing, which is derived as a basis to liquid locations. The basis spread is based on observable market data when available or derived from historic prices and forward market prices from similar observable markets when not available. Forward capacity prices are based on market information, forecasted future electricity demand and supply, past auctions and internally developed pricing models. Renewable energy certificate prices are based on market information and internally developed pricing models. For FTRs, NRG uses the most recent auction prices to derive the fair value. The Consumer Financing Program derivatives are valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and credit loss rates. The following tables quantify the significant unobservable inputs used in developing the fair value of the Company's Level 3 positions as of December 31, 2023 and 2022:
| Significant Unobservable Inputs
| December 31, 2023
| Fair Value |  |  |  | Input/Range
(in millions, except as noted) | Assets |  | Liabilities |  | Valuation Technique |  | Significant Unobservable Input |  | Low |  | High |  | Weighted Average
Natural Gas Contracts | $ | 39 |  |  | $ | 65 |  |  | Discounted Cash Flow |  | Forward Market Price ($ per MMBtu) |  | $ | 1 |  |  | $ | 15 |  |  | $ | 3 |
Power Contracts | 197 |  |  | 66 |  |  | Discounted Cash Flow |  | Forward Market Price ($ per MWh) |  | 1 |  |  | 210 |  |  | 47 |
Capacity Contracts | 21 |  |  | 33 |  |  | Discounted Cash Flow |  | Forward Market Price ($ per MW/Day) |  | 49 |  |  | 658 |  |  | 285 |
Renewable Energy Certificates | 58 |  |  | 14 |  |  | Discounted Cash Flow |  | Forward Market Price ($ per Certificate) |  | 2 |  |  | 320 |  |  | 15 |
FTRs | 19 |  |  | 37 |  |  | Discounted Cash Flow |  | Auction Prices ($ per MWh) |  | (58) |  |  | 252 |  |  | 0 |
Consumer Financing Program | — |  |  | 134 |  |  | Discounted Cash Flow |  | Collateral Default Rates |  | 0.43 | % |  | 93.30 | % |  | 8.12 | %
|  |  |  |  | Discounted Cash Flow |  | Collateral Prepayment Rates |  | 2.00 | % |  | 3.00 | % |  | 2.95 | %
|  |  |  |  | Discounted Cash Flow |  | Credit Loss Rates |  | 6.00 | % |  | 60.00 | % |  | 12.57 | %
| $ | 334 |  |  | $ | 349 |  |  |  |  |  |  |  |  |  |  |
| Significant Unobservable Inputs
| December 31, 2022
| Fair Value |  |  |  | Input/Range
(in millions, except as noted) | Assets |  | Liabilities |  | Valuation Technique |  | Significant Unobservable Input |  | Low |  | High |  | Weighted Average
Natural Gas Contracts | $ | 340 |  |  | $ | 448 |  |  | Discounted Cash Flow |  | Forward Market Price ($ per MMBtu) |  | $ | 2 |  |  | $ | 48 |  |  | $ | 6 |
Power Contracts | 843 |  |  | 216 |  |  | Discounted Cash Flow |  | Forward Market Price ($ per MWh) |  | 3 |  |  | 431 |  |  | 48 |
FTRs | 68 |  |  | 82 |  |  | Discounted Cash Flow |  | Auction Prices ($ per MWh) |  | (32) |  |  | 610 |  |  | 0 |
| $ | 1,251 |  |  | $ | 746 |  |  |  |  |  |  |  |  |  |  |
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of December 31, 2023 and 2022:
Significant Unobservable Input |  | Position |  | Change In Input |  | Impact on Fair Value Measurement
Forward Market Price Natural Gas/Power/Capacity/Renewable Energy Certificates |  | Buy |  | Increase/(Decrease) |  | Higher/(Lower)
Forward Market Price Natural Gas/Power/Capacity/Renewable Energy Certificates |  | Sell |  | Increase/(Decrease) |  | Lower/(Higher)
FTR Prices |  | Buy |  | Increase/(Decrease) |  | Higher/(Lower)
FTR Prices |  | Sell |  | Increase/(Decrease) |  | Lower/(Higher)
Collateral Default Rates |  | n/a |  | Increase/(Decrease) |  | Higher/(Lower)
Collateral Prepayment Rates |  | n/a |  | Increase/(Decrease) |  | Lower/(Higher)
Credit Loss Rates |  | n/a |  | Increase/(Decrease) |  | Higher/(Lower)
Under the guidance of ASC 815, entities may choose to offset cash collateral posted or received against the fair value of derivative positions executed with the same counterparties under the same master netting agreements. The Company has chosen not to offset positions as defined in ASC 815. As of December 31, 2023, the Company recorded $441 million of cash collateral posted and $84 million of cash collateral received on its balance sheet. Concentration of Credit Risk In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, the following item is a discussion of the concentration of credit risk for the Company's financial instruments. 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. The Company monitors and manages credit risk through credit policies that include: (i) an established credit approval process; (ii) a 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 agreements; 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. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty risk by having 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 the Company to cover the credit risk of the counterparty until positions settle. Counterparty Credit Risk As of December 31, 2023, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, and registered commodity exchanges and certain long-term agreements, was $1.6 billion and NRG held collateral (cash and letters of credit) against those positions of $426 million, resulting in a net exposure of $1.2 billion. NRG periodically receives collateral from counterparties in excess of their exposure. Collateral amounts shown include such excess while net exposure shown excludes excess collateral received. Approximately 63% of the Company's exposure before collateral is expected to roll off by the end of 2025. Counterparty credit exposure is valued through observable market quotes and discounted at a risk free interest rate. The following tables highlight net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market and NPNS, and non-derivative transactions. The exposure is shown net of collateral held and includes amounts net of receivables or payables.
Category | Net Exposure (a) (b) (% of Total)
Utilities, energy merchants, marketers and other | 80 | %
Financial institutions | 20 |
Total | 100 | %
Category | Net Exposure (a) (b) (% of Total)
Investment grade | 44 | %
Non-Investment grade/Non-Rated | 56 |
Total | 100 | %
(a)Counterparty credit exposure excludes coal transportation contracts because of the unavailability of market prices (b)The figures in the tables above exclude potential counterparty credit exposure related to RTOs, ISOs, registered commodity exchanges and certain long term contracts The Company currently has exposure to one wholesale counterparty in excess of 10% of the total net exposure discussed above as of December 31, 2023. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. RTOs and ISOs The Company participates in the organized markets of CAISO, ERCOT, AESO, IESO, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in the majority of these markets is approved by FERC, whereas in the case of ERCOT, it is approved by the PUCT, and whereas in the case of AESO and IESO, both exist provincially with AESO primarily subject to Alberta Utilities Commission and the IESO subject to the Ontario Energy Board. These ISOs may include credit policies that, under certain circumstances, require that losses arising from the default of one member on spot market transactions be shared by the remaining participants. As a result, the counterparty credit risk to these markets is limited to NRG’s share of the overall market and are excluded from the above exposures. Exchange Traded Transactions The Company enters into commodity transactions on registered exchanges, notably ICE, NYMEX and Nodal. These clearinghouses act as the counterparty and transactions are subject to extensive collateral and margining requirements. As a result, these commodity transactions have limited counterparty credit risk. Long-Term Contracts Counterparty credit exposure described above excludes credit risk exposure under certain long term contracts, primarily solar under Renewable PPAs. As external sources or observable market quotes are not always available to estimate such exposure, the Company values these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of December 31, 2023, aggregate credit risk exposure managed by NRG to these counterparties was approximately $882 million for the next five years. Retail Customer Credit Risk The Company is exposed to retail credit risk through the Company's retail electricity and gas providers, which serve Home and Business customers. Retail credit risk results in losses when a customer fails to pay for services rendered. The losses may result from both nonpayment 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 December 31, 2023, the Company's retail customer credit exposure to Home and Business customers was diversified across many customers and various industries, as well as government entities. Current economic conditions may affect the Company's customers' ability to pay bills in a timely manner, which could increase customer delinquencies and may lead to an increase in credit losses. The Company's provision for credit losses was $251 million, $11 million, and $698 million for the years ended December 31, 2023, 2022, and 2021, respectively. During the year ended December 31, 2022, the provision for credit losses included the Company's loss mitigation efforts recognized as income of $126 million related to Winter Storm Uri. During the year ended December 31, 2021, the provision for credit losses included $596 million of expenses due to the impacts of Winter Storm Uri.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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