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Accounting for Derivative Instruments and Hedging Activities | 12 Months Ended
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Dec. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Accounting for Derivative Instruments and Hedging Activities | Accounting for Derivative Instruments and Hedging Activities ASC 815 requires the Company to recognize all derivative instruments on the balance sheet as either assets or liabilities and to measure them at fair value each reporting period unless they qualify for a NPNS exception. The Company may elect to designate certain derivatives as cash flow hedges, if certain conditions are met, and defer the change in fair value of the derivatives to accumulated OCI, until the hedged transactions occur and are recognized in earnings. For derivatives that are not designated as cash flow hedges or do not qualify for hedge accounting treatment, the changes in the fair value will be immediately recognized in earnings. Certain derivative instruments may qualify for the NPNS exception and are therefore exempt from fair value accounting treatment. ASC 815 applies to NRG's energy related commodity contracts, foreign exchange contracts, interest rate swaps and Consumer Financing Program. As the Company engages principally in the trading and marketing of its generation assets and retail operations, some of NRG's commercial activities qualify for NPNS accounting. Most of the retail load contracts either qualify for the NPNS exception or fail to meet the criteria for a derivative and the majority of the retail supply and fuels supply contracts are recorded under mark-to-market accounting. All of NRG's hedging and trading activities are subject to limits within the Company's Risk Management Policy. Energy-Related Commodities To manage the commodity price risk associated with the Company's competitive supply activities and the price risk associated with wholesale power sales from the Company's electric generation facilities and retail power and gas sales from NRG's retail operations, NRG enters into a variety of derivative and non-derivative hedging instruments, utilizing the following: •Forward contracts, which commit NRG to purchase or sell energy commodities or fuels in the future; •Futures contracts, which are exchange-traded standardized commitments to purchase or sell a commodity or financial instrument; •Swap agreements, which require payments to or from counterparties based upon the differential between two prices for a predetermined contractual, or notional, quantity; •Option contracts, which convey to the option holder the right but not the obligation to purchase or sell a commodity; and •Weather derivative products used to mitigate a portion of lost revenue due to weather. The objectives for entering into derivative contracts designated as hedges include: •Fixing the price of a portion of anticipated power and gas purchases for the Company's retail sales; •Fixing the price for a portion of anticipated future electricity sales that provides an acceptable return on the Company's electric generation operations; and •Fixing the price of a portion of anticipated fuel purchases for the operation of the Company's power plants. These contracts are recognized on the balance sheet at fair value and changes in the fair value of these derivative financial instruments are recognized in earnings. As of December 31, 2023, NRG's derivative assets and liabilities consisted primarily of the following: •Forward and financial contracts for the purchase/sale of electricity and related products economically hedging NRG's generation assets' forecasted output or NRG's retail load obligations through 2036; •Forward and financial contracts for the purchase of fuel commodities relating to the forecasted usage of NRG's generation assets through 2025; •Other energy derivatives instruments extending through 2029. Also, as of December 31, 2023, NRG had other energy-related contracts that did not meet the definition of a derivative instrument or qualified for the NPNS exception and were therefore exempt from fair value accounting treatment as follows: •Load-following forward electric sale contracts extending through 2036; •Load-following forward natural gas purchase and sale contracts extending through 2032; •Power tolling contracts through 2036; •Coal purchase contracts through 2024; •Power transmission contracts through 2029; •Natural gas transportation contracts through 2034; •Natural gas storage agreements through 2030; and •Coal transportation contracts through 2029. Foreign Exchange Contracts In order to mitigate foreign exchange risk primarily associated with the purchase of USD denominated natural gas for the Company's Canadian business, NRG enters into foreign exchange contract agreements through 2027. Interest Rate Swaps NRG is exposed to changes in interest rate through the Company's issuance of variable rate debt. To manage the Company's interest rate risk, NRG enters into interest rate swap agreements. In the first quarter of 2023, the Company entered into $1.0 billion of interest rate swaps through 2027 to hedge the floating rate on the Term Loan acquired with the Vivint Smart Home acquisition. Additionally, in the first quarter of 2023, the Company had entered into interest rate swaps to hedge the floating rate on the Revolving Credit Facility extending through 2024, which was fully terminated in conjunction with the pay down of the Revolving Credit Facility. Consumer Financing Program Under the Consumer Financing Program, Vivint Smart Home pays a monthly fee to Financing Providers based on either the average daily outstanding balance of the loans or the number of outstanding loans. For certain loans, Vivint Smart Home incurs fees at the time of the loan origination and receives proceeds that are net of these fees. Vivint Smart Home also shares the liability for credit losses, depending on the credit quality of the subscriber. Due to the nature of certain provisions under the Consumer Financing Program, the Company records a derivative liability that is not designated as a hedging instrument and is adjusted to fair value, measured using the present value of the estimated future payments. Changes to the fair value are recorded through other income, net in the consolidated statement of operations. The following represent the contractual future payment obligations with the Financing Providers under the Consumer Financing Program that are components of the derivative: • Vivint Smart Home pays either a monthly fee based on the average daily outstanding balance of the loans, or the number of outstanding loans, depending on the Financing Provider; • Vivint Smart Home shares the liability for credit losses depending on the credit quality of the subscriber; and • Vivint Smart Home pays transactional fees associated with subscriber payment processing. The derivative is classified as a Level 3 instrument. The derivative positions 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. In summary, the fair value represents an estimate of the present value of the cash flows Vivint Smart Home will be obligated to pay to the Financing Provider for each component of the derivative. 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 December 31, 2023 and 2022. 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 | December 31, 2023 |  | December 31, 2022
Emissions | Short Ton | — |  |  | 1 |
Renewables Energy Certificates | Certificates | 12 |  |  | 15 |
Coal | Short Ton | 9 |  |  | 11 |
Natural Gas | MMBtu | 838 |  |  | 422 |
Oil | Barrels | — |  |  | 1 |
Power | MWh | 201 |  |  | 192 |
Interest | Dollars | 1,000 |  |  | — |
Foreign Exchange | Dollars | 548 |  |  | 569 |
Consumer Financing Program | Dollars | 1,116 |  |  | — |
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) | December 31, 2023 |  | December 31, 2022 |  | December 31, 2023 |  | December 31, 2022
Derivatives Not Designated as Cash Flow or Fair Value Hedges: |  |  |  |  |  |  |
Interest rate contracts - current | $ | 12 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Interest rate contracts - long-term | — |  |  | — |  |  | 8 |  |  | — |
Foreign exchange contracts - current | 3 |  |  | 11 |  |  | 4 |  |  | 1 |
Foreign exchange contracts - long-term | 2 |  |  | 7 |  |  | 5 |  |  | 1 |
Commodity contracts- current | 3,847 |  |  | 7,875 |  |  | 3,922 |  |  | 6,194 |
Commodity contracts- long-term | 2,291 |  |  | 4,101 |  |  | 1,434 |  |  | 2,245 |
Consumer Financing Program - current | — |  |  | — |  |  | 93 |  |  | — |
Consumer Financing Program - long-term | — |  |  | — |  |  | 41 |  |  | — |
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges | $ | 6,155 |  |  | $ | 11,994 |  |  | $ | 5,507 |  |  | $ | 8,441 |
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 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 December 31, 2023 |
Interest rate contracts: |  |  |  |  |  |  |
Derivative assets | $ | 12 |  |  | $ | (8) |  |  | $ | — |  |  | $ | 4 |
Derivative liabilities | (8) |  |  | 8 |  |  | — |  |  | — |
Total interest rate contracts | 4 |  |  | — |  |  | — |  |  | 4 |
Foreign exchange contracts: |  |  |  |  |  |  |
Derivative assets | $ | 5 |  |  | $ | (5) |  |  | $ | — |  |  | $ | — |
Derivative liabilities | (9) |  |  | 5 |  |  | — |  |  | (4) |
Total foreign exchange contracts | $ | (4) |  |  | $ | — |  |  | $ | — |  |  | $ | (4) |
Commodity contracts: |  |  |  |  |  |  |
Derivative assets | $ | 6,138 |  |  | $ | (4,926) |  |  | $ | (74) |  |  | $ | 1,138 |
Derivative liabilities | (5,356) |  |  | 4,926 |  |  | 145 |  |  | (285) |
Total commodity contracts | $ | 782 |  |  | $ | — |  |  | $ | 71 |  |  | $ | 853 |
Consumer Financing Program: |  |  |  |  |  |  |
Derivative liabilities | $ | (134) |  |  | $ | — |  |  | $ | — |  |  | $ | (134) |
Total derivative instruments | $ | 648 |  |  | $ | — |  |  | $ | 71 |  |  | $ | 719 |
| 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, 2022 |
Foreign exchange contracts: |  |  |  |  |  |  |
Derivative assets | $ | 18 |  |  | $ | (2) |  |  | $ | — |  |  | $ | 16 |
Derivative liabilities | (2) |  |  | 2 |  |  | — |  |  | — |
Total foreign exchange contracts | $ | 16 |  |  | $ | — |  |  | $ | — |  |  | $ | 16 |
Commodity contracts: |  |  |  |  |  |  |
Derivative assets | $ | 11,976 |  |  | $ | (7,897) |  |  | $ | (1,659) |  |  | $ | 2,420 |
Derivative liabilities | (8,439) |  |  | 7,897 |  |  | 20 |  |  | (522) |
Total commodity contracts | $ | 3,537 |  |  | $ | — |  |  | $ | (1,639) |  |  | $ | 1,898 |
Total derivative instruments | $ | 3,553 |  |  | $ | — |  |  | $ | (1,639) |  |  | $ | 1,914 |
Impact of Derivative Instruments on the Statement of Operations Unrealized gains and losses associated with changes in the fair value of derivative instruments that are not accounted for as cash flow 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 is included within revenues and cost of operations. The effect of the interest rate contracts are included within interest expense. The effect of the Consumer Financing Program is included in other income, net.
| Year Ended December 31,
(In millions) | 2023 |  | 2022 |  | 2021
Unrealized mark-to-market results |  |  |  |  |
Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges | $ | (1,734) |  |  | $ | (1,232) |  |  | $ | (41) |
Reversal of acquired loss positions related to economic hedges | 20 |  |  | 2 |  |  | 256 |
Net unrealized (losses)/gains on open positions related to economic hedges | (1,149) |  |  | 2,478 |  |  | 2,501 |
Total unrealized mark-to-market (losses)/gains for economic hedging activities | (2,863) |  |  | 1,248 |  |  | 2,716 |
Reversal of previously recognized unrealized losses/(gains) on settled positions related to trading activity | 13 |  |  | 13 |  |  | (18) |
Reversal of acquired (gain) positions related to trading activity | — |  |  | — |  |  | (1) |
Net unrealized gains/(losses) on open positions related to trading activity | 25 |  |  | (17) |  |  | (13) |
Total unrealized mark-to-market gains/(losses) for trading activity | 38 |  |  | (4) |  |  | (32) |
Total unrealized (losses)/gains - commodities and foreign exchange | $ | (2,825) |  |  | $ | 1,244 |  |  | $ | 2,684 |
| Year Ended December 31,
(In millions) | 2023 |  | 2022 |  | 2021
Total impact to statement of operations - interest rate contracts | $ | 4 |  |  | $ | — |  |  | $ | — |
Unrealized gains/(losses) included in revenues - commodities | $ | 182 |  |  | $ | (87) |  |  | $ | (196) |
Unrealized (losses)/gains included in cost of operations - commodities | (2,988) |  |  | 1,315 |  |  | 2,880 |
Unrealized (losses)/gains included in cost of operations - foreign exchange | (19) |  |  | 16 |  |  | — |
Total impact to statement of operations - commodities and foreign exchange | $ | (2,825) |  |  | $ | 1,244 |  |  | $ | 2,684 |
Total impact to statement of operations - Consumer Financing Program | $ | (16) |  |  | $ | — |  |  | $ | — |
The reversals of acquired loss/(gain) 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 revenue or cost of operations during the same period. The loss from open economic hedge positions of $1.1 billion for the year ended December 31, 2023 was primarily the result of a decrease in the value of forward positions as a result of decreases in natural gas and power prices in the East and West. The gains from open economic hedge positions of $2.5 billion for the years ended December 31, 2022 and 2021 were primarily the result of an increase in value of forward positions as a result of increases in natural gas and power prices. Credit Risk Related Contingent Features Certain of the Company's hedging and trading agreements contain provisions that entitle the counterparty to demand that the Company post additional collateral if the counterparty determines that there has been deterioration in the Company's 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. The collateral potentially required for contracts with adequate assurance clauses that are in net liability positions as of December 31, 2023 was $600 million. The Company is also a party to certain marginable agreements under which it has a net liability position, but the counterparty has not called for the collateral due, which was approximately $80 million as of December 31, 2023. In the event of a downgrade in the Company's credit rating and if called for by the counterparty, $8 million of additional collateral would be required for all contracts with credit rating contingent features as of December 31, 2023. See Note 5, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk.

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