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Accounting for Derivative Instruments and Hedging Activities | 3 Months Ended
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Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Accounting for Derivative Instruments and Hedging Activities | Accounting for Derivative Instruments and Hedging Activities Energy-Related Commodities As of March 31, 2024, NRG had energy-related derivative instruments extending through 2036. The Company marks these derivatives to market through the consolidated statement of operations. NRG has executed energy-related contracts extending through 2036 that qualified for the NPNS exception and were therefore exempt from fair value accounting treatment. 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 2024, the Company entered into interest rate swaps with a total nominal value of $700 million extending through 2029 to hedge the floating rate of the Term Loans (as defined below), which closed in April 2024. Additionally, as of March 31, 2024, the Company had $1.0 billion of interest rate swaps extending through 2027 to hedge the floating rate on the Vivint Term Loans. Foreign Exchange Contracts NRG is exposed to changes in foreign currency primarily associated with the purchase of U.S. dollar denominated natural gas for its Canadian business. To manage the Company's foreign exchange risk, NRG entered into foreign exchange contracts. As of March 31, 2024, NRG had foreign exchange contracts extending through 2027. The Company marks these derivatives to market through the consolidated statement of operations. 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 Providers 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 category, excluding those derivatives that qualified for the NPNS exception, as of March 31, 2024 and December 31, 2023. 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, 2024 |  | December 31, 2023
Renewable Energy Certificates | Certificates | 14 |  |  | 12 |
Coal | Short Ton | 7 |  |  | 9 |
Natural Gas | MMBtu | 819 |  |  | 838 |
Power | MWh | 201 |  |  | 201 |
Interest | Dollars | 1,700 |  |  | 1,000 |
Foreign Exchange | Dollars | 499 |  |  | 548 |
Consumer Financing Program | Dollars | 1,088 |  |  | 1,116 |
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, 2024 |  | December 31, 2023 |  | March 31, 2024 |  | December 31, 2023
Derivatives Not Designated as Cash Flow or Fair Value Hedges: |  |  |  |  |  |  |
Interest rate contracts - current | $ | 21 |  |  | $ | 12 |  |  | $ | — |  |  | $ | — |
Interest rate contracts - long-term | 4 |  |  | — |  |  | 10 |  |  | 8 |
Foreign exchange contracts - current | 5 |  |  | 3 |  |  | 1 |  |  | 4 |
Foreign exchange contracts - long-term | 3 |  |  | 2 |  |  | 1 |  |  | 5 |
Commodity contracts - current | 3,781 |  |  | 3,847 |  |  | 3,505 |  |  | 3,922 |
Commodity contracts - long-term | 2,392 |  |  | 2,291 |  |  | 1,389 |  |  | 1,434 |
Consumer Financing Program - short-term | — |  |  | — |  |  | 85 |  |  | 93 |
Consumer Financing Program - long-term | — |  |  | — |  |  | 39 |  |  | 41 |
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges | $ | 6,206 |  |  | $ | 6,155 |  |  | $ | 5,030 |  |  | $ | 5,507 |
The Company has elected to present derivative assets and liabilities on the consolidated 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 consolidated 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, 2024 |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |
Derivative assets |  | $ | 25 |  |  | $ | (9) |  |  | $ | — |  |  | $ | 16 |
Derivative liabilities |  | (10) |  |  | 9 |  |  | — |  |  | (1) |
Total interest rate contracts |  | $ | 15 |  |  | $ | — |  |  | $ | — |  |  | $ | 15 |
Foreign exchange contracts: |  |  |  |  |  |  |  |
Derivative assets |  | $ | 8 |  |  | $ | (2) |  |  | $ | — |  |  | $ | 6 |
Derivative liabilities |  | (2) |  |  | 2 |  |  | — |  |  | — |
Total foreign exchange contracts |  | $ | 6 |  |  | $ | — |  |  | $ | — |  |  | $ | 6 |
Commodity contracts: |  |  |  |  |  |  |  |
Derivative assets |  | $ | 6,173 |  |  | $ | (4,609) |  |  | $ | (237) |  |  | $ | 1,327 |
Derivative liabilities |  | (4,894) |  |  | 4,609 |  |  | 35 |  |  | (250) |
Total commodity contracts |  | $ | 1,279 |  |  | $ | — |  |  | $ | (202) |  |  | $ | 1,077 |
Consumer Financing Program: |  |  |  |  |  |  |  |
Derivative liabilities |  | $ | (124) |  |  | $ | — |  |  | $ | — |  |  | $ | (124) |
Total derivative instruments |  | $ | 1,176 |  |  | $ | — |  |  | $ | (202) |  |  | $ | 974 |
|  | 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 |  |  |
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 consolidated statement of operations. The effect of foreign exchange and commodity hedges are 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.
(In millions) | Three months ended March 31, |  |
Unrealized mark-to-market results | 2024 |  | 2023 |  |  |  |
Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges | $ | 244 |  |  | $ | (846) |  |  |  |  |
Reversal of acquired (gain) positions related to economic hedges | (12) |  |  | (25) |  |  |  |  |
Net unrealized gains/(losses) on open positions related to economic hedges | 240 |  |  | (1,073) |  |  |  |  |
Total unrealized mark-to-market gains/(losses) for economic hedging activities | 472 |  |  | (1,944) |  |  |  |  |
Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity | (4) |  |  | 1 |  |  |  |  |
Net unrealized gains on open positions related to trading activity | — |  |  | 11 |  |  |  |  |
Total unrealized mark-to-market (losses)/gains for trading activity | (4) |  |  | 12 |  |  |  |  |
Total unrealized gains/(losses) - commodities and foreign exchange | $ | 468 |  |  | $ | (1,932) |  |  |  |  |
| Three months ended March 31, |  |
(In millions) | 2024 |  | 2023 |  |  |  |
Total impact to statement of operations - interest rate contracts | $ | 12 |  |  | $ | (5) |  |  |  |  |
Unrealized (losses)/gains included in revenues - commodities | $ | (64) |  |  | $ | 103 |  |  |  |  |
Unrealized gains/(losses) included in cost of operations - commodities | 523 |  |  | (2,037) |  |  |  |  |
Unrealized gains included in cost of operations - foreign exchange | 9 |  |  | 2 |  |  |  |  |
Total impact to statement of operations - commodities and foreign exchange | $ | 468 |  |  | $ | (1,932) |  |  |  |  |
Total impact to statement of operations - Consumer Financing Program | $ | 4 |  |  | $ | — |  |  |  |  |
The reversals of acquired (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. For the three months ended March 31, 2024, the $240 million unrealized gain from open economic hedge positions was primarily the result of an increase in the value of forward positions as a result of increases in ERCOT and PJM power prices. For the three months ended March 31, 2023, the $1.1 billion unrealized loss from open economic hedge positions was primarily the result of a decrease in the value of forward positions as a result of decreases in natural gas and power prices. Credit Risk Related Contingent Features Certain of the Company's 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 all contracts with adequate assurance clauses that are in a net liability position as of March 31, 2024 was $417 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 approximately $23 million as of March 31, 2024. 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 March 31, 2024. See Note 5, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk.

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