XML 27 R13.htm IDEA: XBRL DOCUMENT v3.24.1.u1
Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2024
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 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 value and fair value of the Company's long-term debt, including current portion, is as follows:
March 31, 2024December 31, 2023
(In millions)Carrying AmountFair ValueCarrying AmountFair Value
Convertible Senior Notes$483 $798 $575 $739 
Other long-term debt, including current portion
10,222 9,894 10,219 9,835 
Total long-term debt, including current portion(a)
$10,705 $10,692 $10,794 $10,574 
(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 and the Vivint Senior Secured Term Loan are based on quoted market prices and are classified as Level 2 within the fair value hierarchy.
Recurring Fair Value Measurements
Debt securities, 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:
March 31, 2024
Fair Value
(In millions)TotalLevel 1Level 2Level 3
Investments in securities (classified within other current and non-current assets)
$22 $— $22 $— 
Derivative assets: 
Interest rate contracts25 — 25 — 
Foreign exchange contracts8 — 8 — 
Commodity contracts6,173 1,186 4,708 279 
Equity securities measured using net asset value practical expedient (classified within other non-current assets)
6 
Total assets$6,234 $1,186 $4,763 $279 
Derivative liabilities: 
Interest rate contracts$10 $— $10 $— 
Foreign exchange contracts2 — 2 — 
Commodity contracts4,894 1,237 3,469 188 
Consumer Financing Program124 — — 124 
Total liabilities$5,030 $1,237 $3,481 $312 
December 31, 2023
Fair Value
(In millions)TotalLevel 1Level 2Level 3
Investments in securities (classified within other current and non-current assets)
$21 $— $21 $— 
Derivative assets: 
Interest rate contracts12 — 12 — 
Foreign exchange contracts5 — 5 — 
Commodity contracts6,138 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 contracts9 — 9 — 
Commodity contracts5,356 1,413 3,728 215 
Consumer Financing Program134 — — 134 
Total liabilities$5,507 $1,413 $3,745 $349 
The following table reconciles, for the three months ended March 31, 2024 and 2023, the beginning and ending balances for financial instruments that are recognized at fair value in the condensed consolidated financial statements, using significant unobservable inputs, for commodity derivatives:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
Commodity Derivatives(a)
(In millions)Three months ended March 31, 2024Three months ended March 31, 2023
Beginning balance $119 $505 
    Total (losses) realized/unrealized included in earnings
(41)(91)
Purchases— 41 
Transfers into Level 3(b)
15 24 
Transfers out of Level 3(b)
(2)(8)
Ending balance$91 $471 
(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 period end
$(37)$(55)
(a)Consists of derivative assets and liabilities, net, excluding derivatives 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 in/out of Level 3 are from/to Level 2

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 three months ended March 31, 2024 and 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)Three months ended March 31, 2024Three months ended March 31, 2023
Beginning balance$(134)$— 
Contractual obligations added from the acquisition of Vivint Smart Home
— (112)
New contractual obligations(15)(2)
Settlements21 3 
Total gains included in earnings4 — 
Ending balance$(124)$(111)
Gains and losses that are related to the Consumer Financing Program derivative are recorded in other income, net.
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 the fourth quarter of 2023 and as of March 31, 2024, the fair value of non-exchange traded contracts were primarily 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. 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 March 31, 2024, contracts valued with prices provided by models and other valuation techniques made up 4% of derivative assets and 6% of derivative liabilities.
NRG's significant positions classified as Level 3 include physical and financial natural gas, power, capacity contracts and RECs executed in illiquid markets, FTRs and the CFP. 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. REC 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 March 31, 2024 and December 31, 2023:
March 31, 2024
Fair ValueInput/Range
(In millions, except as noted)AssetsLiabilitiesValuation TechniqueSignificant Unobservable InputLowHighWeighted Average
Natural Gas Contracts$36 $20 Discounted Cash FlowForward Market Price ($ per MMBtu)$0 $11 $3 
Power Contracts157 91 Discounted Cash FlowForward Market Price ($ per MWh)1 189 41 
Capacity Contracts14 28 Discounted Cash FlowForward Market Price ($ per MW/Day)18 641 284 
RECs58 14 Discounted Cash FlowForward Market Price ($ per Certificate)2 320 16 
FTRs14 35 Discounted Cash FlowAuction Prices ($ per MWh)(58)252 0 
Consumer Financing Program— 124 Discounted Cash FlowCollateral Default Rates1.15 %95.35 %8.99 %
Discounted Cash FlowCollateral Prepayment Rates2.00 %3.00 %2.95 %
Discounted Cash Flow
Credit Loss Rates
5.50 %60.00 %12.84 %
$279 $312 
December 31, 2023
Fair ValueInput/Range
(In millions, except as noted)AssetsLiabilitiesValuation TechniqueSignificant Unobservable InputLowHighWeighted Average
Natural Gas Contracts$39 $65 Discounted Cash FlowForward Market Price ($ per MMBtu)$1 $15 $3 
Power Contracts197 66 Discounted Cash FlowForward Market Price ($ per MWh)1 210 47 
Capacity Contracts21 33 Discounted Cash FlowForward Market Price ($ per MW/Day)49 658 285 
RECs58 14 Discounted Cash FlowForward Market Price ($ per Certificate)2 320 15 
FTRs19 37 Discounted Cash FlowAuction Prices ($ per MWh)(58)252 0 
Consumer Financing Program— 134 Discounted Cash FlowCollateral Default Rates0.43 %93.30 %8.12 %
Discounted Cash FlowCollateral Prepayment Rates2.00 %3.00 %2.95 %
Discounted Cash FlowCredit Loss Rates 6.00 %60.00 %12.57 %
$334 $349 
The following table provides sensitivity of fair value measurements to increases/(decreases) in significant, unobservable inputs as of March 31, 2024 and December 31, 2023:
Significant Unobservable InputPositionChange In InputImpact on Fair Value Measurement
Forward Market Price Natural Gas/Power/Capacity/RECsBuyIncrease/(Decrease)Higher/(Lower)
Forward Market Price Natural Gas/Power/Capacity/RECsSellIncrease/(Decrease)Lower/(Higher)
FTR PricesBuyIncrease/(Decrease)Higher/(Lower)
FTR PricesSellIncrease/(Decrease)Lower/(Higher)
Collateral Default Ratesn/aIncrease/(Decrease)Higher/(Lower)
Collateral Prepayment Ratesn/aIncrease/(Decrease)Lower/(Higher)
Credit Loss Ratesn/aIncrease/(Decrease)Higher/(Lower)
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 March 31, 2024 and December 31, 2023, the credit reserve resulted in a $18 million decrease primarily within 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 2023 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 2023 Form 10-K. As of March 31, 2024, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, registered commodity exchanges and certain long-term agreements, was $1.8 billion and NRG held collateral (cash and letters of credit) against those positions of $440 million, resulting in a net exposure of $1.4 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 62% 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.
 
Net Exposure(a)(b)
Category by Industry Sector(% of Total)
Utilities, energy merchants, marketers and other78 %
Financial institutions22 
Total as of March 31, 2024100 %
 
Net Exposure (a)(b)
Category by Counterparty Credit Quality(% of Total)
Investment grade51 %
Non-investment grade/Non-Rated49 
Total as of March 31, 2024100 %
(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 two wholesale counterparties in excess of 10% of total net exposure as of March 31, 2024. 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 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 March 31, 2024, aggregate credit risk exposure managed by NRG to these counterparties was approximately $896 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 as well as through Vivint Smart Home, which serve both 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 non-payment of customer accounts receivable and the loss of in-the-money forward value. The Company manages retail credit risk by using established credit policies, which include monitoring of the portfolio and the use of credit mitigation measures such as deposits or prepayment arrangements.
As of March 31, 2024, 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 their bills in a timely manner or at all, which could increase customer delinquencies and may lead to an increase in credit losses.