NRG ENERGY, INC. 10-K

Item 9A — Controls and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures and Internal Control Over Financial Reporting Under the supervision and with the participation of NRG's management, including its principal executive officer, principal financial officer and principal accounting officer, NRG conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act. Based on this evaluation, the Company's principal executive officer, principal financial officer and principal accounting officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. Management's report on the Company's internal control over financial reporting and the report of the Company's independent registered public accounting firm are incorporated under the caption "Management's Report on Internal Control over Financial Reporting" and under the caption "Report of Independent Registered Public Accounting Firm" in this Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Changes in Internal Control over Financial Reporting During the year ended December 31, 2021, the Company completed its acquisition of Direct Energy. In the first quarter of 2022, the Company integrated a significant component of Direct Energy's accounting systems into NRG's legacy ERP system. As part of this integration, the Company has completed the evaluation of our internal controls related to Direct Energy, and designed and implemented a control structure over Direct Energy's operations. Other than the Direct Energy acquisition, there were no changes in NRG’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred in the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, NRG’s internal control over financial reporting. 76 Inherent Limitations over Internal Controls NRG's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that: 1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; 2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that the Company's receipts and expenditures are being made only in accordance with authorizations of its management and directors; and 3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the consolidated financial statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management's Report on Internal Control over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company's management, including its principal executive officer, principal financial officer and principal accounting officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company's evaluation under the framework in Internal Control — Integrated Framework (2013) , the Company's management concluded that its internal control over financial reporting was effective as of December 31, 2021. On January 5, 2021, NRG acquired Direct Energy, as further described in Note 4, Acquisitions, Discontinued Operations and Dispositions. Direct Energy comprised of approximately 35% of the Company's total assets as of December 31, 2021 and approximately 58% of the Company's total revenues for the year ended December 31, 2021. As of December 31, 2021, we are in the process of evaluating the internal controls of the acquired business and integrated it into our existing operations. The acquired business has, therefore, been excluded from management's assessment of internal control over financial reporting for the year ended December 31, 2021. The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, the Company's independent registered public accounting firm, as stated in its report which is included in this Annual Report on Form 10-K. 77 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders NRG Energy, Inc.: Opinion on Internal Control Over Financial Reporting We have audited NRG Energy, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission . In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those consolidated financial statements. The Company acquired Direct Energy during 2021 and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2021. Direct Energy's internal control over financial reporting are associated with 35% of total assets and 58% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Direct Energy. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Philadelphia, Pennsylvania February 24, 2022 78 Item 9B — Other Information Entry into a Material Definitive Agreement. On February 22, 2022, the Company entered into a Supplemental Indenture (the “Supplemental Indenture”), by and among the Company, the guarantors named therein (the “Guarantors") and Delaware Trust Company, as trustee and conversion agent (the “Trustee”), to supplement the Indenture, dated as of May 24, 2018 (the “Indenture”), among the Company, the Guarantors and the Trustee, governing the Convertible Senior Notes. Pursuant to the Supplemental Indenture, the Company has irrevocably (i) eliminated the right of the Company to elect Physical Settlement (as defined in the Indenture) as the Settlement Method (as defined in the Indenture) on any conversion of Convertible Senior Notes that occurs on or after the date of the Supplemental Indenture and (ii) elected that, with respect to any Combination Settlement (as defined in the Indenture), the Specified Dollar Amount (as defined in the Indenture) per $1,000 principal amount of the Convertible Senior Notes shall be no lower than $1,000. The foregoing description of the Supplemental Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the Supplemental Indenture, a copy of which is filed as Exhibit 4.52 to this report and is incorporated herein by reference. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Effective February 24, 2022, Emily C. Picarello, CPA, was named as Principal Accounting Officer of NRG Energy, Inc. Ms. Picarello, age 41, joined the Company in December 2018 and served as Assistant Controller for the Company through November 2021, when she was promoted to Vice President and Corporate Controller. Ms. Picarello will continue in this role reporting to Alberto Fornaro, NRG's Executive Vice President and Chief Financial Officer. Prior to her employment with the Company, Ms. Picarello spent over seven years with PVH Corp., one of the largest global apparel companies in the world, first as the Director of Financial Reporting and then as the Vice President, Financial Reporting. Prior to Ms. Picarello's time with PVH Corp., she was an auditor with KPMG LLP for over eight years, holding various positions including Audit Senior Manager. Item 9C— Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 79 PART III Item 10 — Directors, Executive Officers and Corporate Governance Directors and Executive Officers Information required by this Item is incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders. Code of Ethics NRG has adopted a code of ethics entitled "NRG Code of Conduct" that applies to directors, officers and employees, including the chief executive officer and senior financial officers of NRG. It may be accessed through the "Governance" section of the Company's website at www.nrg.com. NRG also elects to disclose the information required by Form 8-K, Item 5.05, "Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics," through the Company's website, and such information will remain available on this website for at least a 12-month period. A copy of the "NRG Code of Conduct" is available in print to any stockholder who requests it. Other information required by this Item is incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders. Item 11 — Executive Compensation Information required by this Item is incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders. Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Securities Authorized for Issuance under Equity Compensation Plans Plan Category (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a) Equity compensation plans approved by security holders 2,514,828 (1) $ — 11,508,073 Equity compensation plans not approved by security holders 20,131 (2) 20.07 — (4) Total 2,534,959 $ 20.07 11,508,073 (3) (1) Consists of shares issuable under the NRG LTIP and the ESPP. The NRG LTIP became effective upon the Company's emergence from bankruptcy. On April 27, 2017, the NRG LTIP was amended and restated to increase the number of shares available for issuance to 25,000,000. The ESPP, as amended and restated, was approved by the Company's stockholders on April 27, 2017, and became effective April 28, 2017. As of December 31, 2021, there were 2,636,199 shares reserved from the Company's treasury shares for the ESPP (2) Consists of shares issuable under the NRG GenOn LTIP. The plans is listed as “not approved” because it was not subject to separate line item approval by NRG's stockholders when the Merger was approved. See Item 15 — Note 21, Stock-Based Compensation , to Consolidated Financial Statements for a discussion of the NRG GenOn LTIP (3) Consists of 8,871,874 shares of common stock under NRG's LTIP and 2,636,199 shares of treasury stock reserved for issuance under the ESPP. (4) Upon adoption of the NRG Amended and Restated LTIP effective April 27, 2017, no securities remain available for future issuance under the NRG GenOn LTIP. For further discussion, see Note 21, Stock-Based Compensation NRG LTIP currently provides for grants of restricted stock units, relative performance stock units, deferred stock units and dividend equivalent rights. NRG's directors, officers and employees, as well as other individuals performing services for, or to whom an offer of employment has been extended by the Company, are eligible to receive grants under the NRG LTIP. The purpose of the NRG LTIP is to promote the Company's long-term growth and profitability by providing these individuals with incentives to maximize stockholder value and otherwise contribute to the Company's success and to enable the Company to attract, retain and reward the best available persons for positions of responsibility. The Compensation Committee of the Board of Directors administers the NRG LTIP. Other information required by this Item is incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders. 80 Item 13 — Certain Relationships and Related Transactions, and Director Independence Information required by this Item is incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders. Item 14 — Principal Accounting Fees and Services Information required by this Item is incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders. 81 PART IV Item 15 — Exhibits, Financial Statement Schedules (a)(1) Financial Statements The following consolidated financial statements of NRG Energy, Inc. and related notes thereto, together with the reports thereon of KPMG LLP , Philadelphia, PA , Auditor Firm ID: 185 , are included herein: Consolidated Statements of Operations — Years ended December 31, 2021, 2020, and 2019 Consolidated Statements of Comprehensive Income — Years ended December 31, 2021, 2020, and 2019 Consolidated Balance Sheets — As of December 31, 2021 and 2020 Consolidated Statements of Cash Flows — Years ended December 31, 2021, 2020, and 2019 Consolidated Statements of Stockholders' Equity — Years ended December 31, 2021, 2020, and 2019 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedule The following Consolidated Financial Statement Schedule of NRG Energy, Inc. is filed as part of Item 15 of this report and should be read in conjunction with the Consolidated Financial Statements. Schedule II — Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted. (a)(3) Exhibits: See Exhibit Index submitted as a separate section of this report. (b) Exhibits See Exhibit Index submitted as a separate section of this report. (c) Not applicable 82 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders NRG Energy, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of NRG Energy, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2022 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of the sufficiency of audit evidence over operating revenues As discussed in Note 3 to the consolidated financial statements, the Company had $26.989 billion of operating revenues. Operating revenue is derived from various revenue streams in different geographic markets and the Company’s processes and related information technology (IT) systems used to record revenue differ for each of these revenue streams. We identified the evaluation of the sufficiency of audit evidence over operating revenues as a critical audit matter which required a high degree of auditor judgment due to the number of revenue streams and IT systems involved in the revenue recognition process. This included determining the revenue streams over which procedures were to be performed and evaluating the nature and extent of evidence obtained over the individual revenue streams as well as operating revenue in the aggregate. It also included the involvement of IT professionals with specialized skills and knowledge to assist in the performance of certain procedures. 83 The following are the primary procedures we performed to address this critical audit matter. We, with the assistance of IT professionals, applied auditor judgment to determine the revenue streams over which procedures were performed as well as the nature and extent of such procedures. For certain revenue streams, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue recognition processes. For certain revenue streams, we involved IT professionals, who assisted in testing certain IT applications used by the Company in its revenue recognition processes. In addition, we assessed recorded revenue for a selection of transactions by comparing the amounts recognized to underlying documentation, including contracts with customers. In addition, we evaluated the sufficiency of audit evidence obtained over operating revenues by assessing the results of procedures performed, including the appropriateness of such evidence. Fair value of customer relationship intangible assets As discussed in Note 4 to the consolidated financial statements, the Company acquired Direct Energy on January 5, 2021 for consideration of $3.724 billion. The Company recorded the identifiable assets acquired and liabilities assumed at fair value at the acquisition date, including $1.277 billion of customer relationship intangible assets which represent the generation of future income reflective of Direct Energy's customer base. Customer relationship intangible assets were valued using the excess earnings method of the income approach. We identified the evaluation of the fair value of customer relationship intangible assets acquired in the Direct Energy transaction as a critical audit matter. A higher degree of auditor judgment was required to evaluate the customer attrition used in the excess earnings method. Changes in the customer attrition could have a significant impact on the forecasted future cash flows used in the excess earnings method and the resulting fair value of the customer relationship intangible assets. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's acquisition-date valuation process, including controls over the development of the customer attrition. We performed sensitivity analyses over the Company's customer attrition used to determine the estimated fair value of the customer relationship intangible assets to assess the effect of changes in that assumption on the Company's determination of fair value. We evaluated the customer attrition by comparing it to the Company's actual customer attrition. /s/ KPMG LLP We have served as the Company's auditor since 2004. Philadelphia, Pennsylvania February 24, 2022 84 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, (In millions, except per share amounts) 2021 2020 2019 Operating Revenues Total operating revenues $ 26,989 $ 9,093 $ 9,821 Operating Costs and Expenses Cost of operations (excluding depreciation and amortization shown below) 20,482 6,540 7,303 Depreciation and amortization 785 435 373 Impairment losses 544 75 5 Selling, general and administrative costs 1,293 810 760 Provision for credit losses 698 108 95 Acquisition-related transaction and integration costs 93 23 2 Total operating costs and expenses 23,895 7,991 8,538 Gain on sale of assets 247 3 7 Operating Income 3,341 1,105 1,290 Other Income/(Expense) Equity in earnings of unconsolidated affiliates 17 17 2 Impairment losses on investments — ( 18 ) ( 108 ) Other income, net 63 67 66 Loss on debt extinguishment ( 77 ) ( 9 ) ( 51 ) Interest expense ( 485 ) ( 401 ) ( 413 ) Total other expense ( 482 ) ( 344 ) ( 504 ) Income from Continuing Operations Before Income Taxes 2,859 761 786 Income tax expense/(benefit) 672 251 ( 3,334 ) Income from Continuing Operations 2,187 510 4,120 Income from discontinued operations, net of income tax — — 321 Net Income 2,187 510 4,441 Less: Net income attributable to redeemable noncontrolling interest — — 3 Net Income Attributable to NRG Energy, Inc. $ 2,187 $ 510 $ 4,438 Income Per Share Attributable to NRG Energy, Inc. Common Stockholders Weighted average number of common shares outstanding — basic 245 245 262 Income from continuing operations per weighted average common share — basic $ 8.93 $ 2.08 $ 15.71 Income from discontinued operations per weighted average common share — basic $ — $ — $ 1.23 Net Income per Weighted Average Common Share — Basic $ 8.93 $ 2.08 $ 16.94 Weighted average number of common shares outstanding — diluted 245 246 264 Income from continuing operations per weighted average common share — diluted $ 8.93 $ 2.07 $ 15.59 Income from discontinued operations per weighted average common share — diluted $ — $ — $ 1.22 Net Income per Weighted Average Common Share — Diluted $ 8.93 $ 2.07 $ 16.81 See notes to Consolidated Financial Statements 85 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Year Ended December 31, (In millions) 2021 2020 2019 Net Income $ 2,187 $ 510 $ 4,441 Other Comprehensive Income/(Loss), net of tax Foreign currency translation adjustments, net of income tax ( 5 ) 8 ( 1 ) Available-for-sale securities, net of income tax — — ( 19 ) Defined benefit plans, net of income tax 85 ( 22 ) ( 78 ) Other comprehensive income/(loss) 80 ( 14 ) ( 98 ) Comprehensive Income 2,267 496 4,343 Less: Net income attributable to redeemable noncontrolling interest — — 3 Comprehensive Income Attributable to NRG Energy, Inc. $ 2,267 $ 496 $ 4,340 See notes to Consolidated Financial Statements 86 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, (In millions) 2021 2020 ASSETS Current Assets Cash and cash equivalents $ 250 $ 3,905 Funds deposited by counterparties 845 19 Restricted cash 15 6 Accounts receivable, net 3,245 904 Uplift securitization proceeds receivable from ERCOT 689 — Inventory 498 327 Derivative instruments 4,613 560 Cash collateral paid in support of energy risk management activities 291 50 Prepayments and other current assets 395 257 Total current assets 10,841 6,028 Property, plant and equipment, net 1,688 2,547 Other Assets Equity investments in affiliates 157 346 Operating lease right-of-use assets, net 271 301 Goodwill 1,795 579 Intangible assets, net 2,511 668 Nuclear decommissioning trust fund 1,008 890 Derivative instruments 2,527 261 Deferred income taxes 2,155 3,066 Other non-current assets 229 216 Total other assets 10,653 6,327 Total Assets $ 23,182 $ 14,902 See notes to Consolidated Financial Statements 87 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) As of December 31, (In millions, except share data) 2021 2020 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and finance leases $ 4 $ 1 Current portion of operating lease liabilities 81 69 Accounts payable 2,274 649 Derivative instruments 3,387 499 Cash collateral received in support of energy risk management activities 845 19 Accrued expenses and other current liabilities 1,324 678 Total current liabilities 7,915 1,915 Other Liabilities Long-term debt and finance leases 7,966 8,691 Non-current operating lease liabilities 236 278 Nuclear decommissioning reserve 321 303 Nuclear decommissioning trust liability 666 565 Derivative instruments 1,412 385 Deferred income taxes 73 19 Other non-current liabilities 993 1,066 Total other liabilities 11,667 11,307 Total Liabilities 19,582 13,222 Commitments and Contingencies Stockholders' Equity Common stock; $ 0.01 par value; 500,000,000 shares authorized; 423,547,174 and 423,057,848 shares issued; and 243,753,899 and 244,231,933 shares outstanding at December 31, 2021 and 2020, respectively 4 4 Additional paid-in capital 8,531 8,517 Retained earnings/(accumulated deficit) 464 ( 1,403 ) Treasury stock, at cost; 179,793,275 and 178,825,915 shares at December 31, 2021 and 2020, respectively ( 5,273 ) ( 5,232 ) Accumulated other comprehensive loss ( 126 ) ( 206 ) Total Stockholders' Equity 3,600 1,680 Total Liabilities and Stockholders' Equity $ 23,182 $ 14,902 See notes to Consolidated Financial Statements 88 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, (In millions) 2021 2020 2019 Cash Flows from Operating Activities Net income $ 2,187 $ 510 $ 4,441 Income from discontinued operations, net of income tax — — 321 Income from continuing operations 2,187 510 4,120 Adjustments to reconcile net income to net cash provided by operating activities: Distributions from and equity in earnings of unconsolidated affiliates 20 45 14 Depreciation and amortization 785 435 373 Accretion of asset retirement obligations 30 45 51 Provision for credit losses 698 108 95 Amortization of nuclear fuel 51 54 52 Amortization of financing costs and debt discounts 39 48 26 Loss on debt extinguishment 77 9 51 Amortization of in-the-money contracts and emission allowances 106 70 72 Amortization of unearned equity compensation 21 22 20 Net gain on sale of assets and disposal of assets ( 261 ) ( 23 ) ( 23 ) Impairment losses 544 93 113 Changes in derivative instruments ( 3,626 ) 137 34 Changes in deferred income taxes and liability for uncertain tax benefits 604 228 ( 3,353 ) Changes in collateral deposits in support of risk management activities 797 127 105 Changes in nuclear decommissioning trust liability 40 51 37 Oil lower of cost or market adjustment — 29 — Uplift securitization proceeds receivable from ERCOT ( 689 ) — — Cash (used)/provided by changes in other working capital, net of acquisition and disposition effects: Accounts receivable - trade ( 1,232 ) — 5 Inventory ( 61 ) 27 22 Prepayments and other current assets 31 4 29 Accounts payable 476 ( 56 ) ( 177 ) Accrued expenses and other current liabilities ( 55 ) ( 42 ) ( 75 ) Other assets and liabilities ( 89 ) ( 84 ) ( 186 ) Cash provided by continuing operations 493 1,837 1,405 Cash provided by discontinued operations — — 8 Net Cash Provided by Operating Activities $ 493 $ 1,837 $ 1,413 Cash Flows from Investing Activities Payments for acquisitions of assets, businesses and leases $ ( 3,559 ) $ ( 284 ) $ ( 355 ) Capital expenditures ( 269 ) ( 230 ) ( 228 ) Net (purchases)/sales of emissions allowances — ( 10 ) 11 Investments in nuclear decommissioning trust fund securities ( 751 ) ( 492 ) ( 416 ) Proceeds from sales of nuclear decommissioning trust fund securities 710 439 381 Proceeds from sale of assets, net of cash disposed and sale of discontinued operations, net of fees 830 81 1,294 Changes in investments in unconsolidated affiliates — 2 ( 91 ) Net contributions to discontinued operations — — ( 44 ) Other — — 6 Cash (used)/provided by continuing operations ( 3,039 ) ( 494 ) 558 Cash used by discontinued operations — — ( 2 ) Net Cash (Used)/Provided by Investing Activities $ ( 3,039 ) $ ( 494 ) $ 556 89 For the Year Ended December 31, (In millions) 2021 2020 2019 Cash Flows from Financing Activities Proceeds from issuance of long-term debt $ 1,100 $ 3,234 $ 1,833 Payments for short and long-term debt ( 1,861 ) ( 335 ) ( 2,571 ) Payments of dividends to common stockholders ( 319 ) ( 295 ) ( 32 ) Net receipts/(payments) from settlement of acquired derivatives that include financing elements 938 ( 7 ) ( 4 ) Payments for share repurchase activity ( 48 ) ( 229 ) ( 1,440 ) Payments for debt extinguishment costs ( 65 ) ( 5 ) ( 26 ) Payments of debt issuance costs ( 18 ) ( 75 ) ( 35 ) Net (repayments)/proceeds of Revolving Credit Facility — ( 83 ) 83 Proceeds from issuance of common stock 1 1 3 Purchase of and distributions to noncontrolling interests from subsidiaries — ( 2 ) ( 2 ) Cash (used)/provided by continuing operations ( 272 ) 2,204 ( 2,191 ) Cash provided by discontinued operations — — 43 Net Cash (Used)/Provided by Financing Activities $ ( 272 ) $ 2,204 $ ( 2,148 ) Effect of exchange rate changes on cash and cash equivalents ( 2 ) ( 2 ) — Change in Cash from discontinued operations — — 49 Net (Decrease)/Increase in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash ( 2,820 ) 3,545 ( 228 ) Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period 3,930 385 613 Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period $ 1,110 $ 3,930 $ 385 For further discussion of supplemental cash flow information see Note 26, Cash Flow Information See notes to Consolidated Financial Statements 90 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In millions) Common Stock Additional Paid-In Capital Retained Earnings/ (Accumulated Deficit) Treasury Stock Accumulated Other Comprehensive Loss Total Stock-holders' Equity Balances at December 31, 2018 $ 4 $ 8,510 $ ( 6,022 ) $ ( 3,632 ) $ ( 94 ) $ ( 1,234 ) Net income attributable to NRG Energy, Inc. 4,438 4,438 Other comprehensive loss ( 98 ) ( 98 ) Shares reissuance for ESPP 1 2 3 Share repurchases ( 1,409 ) ( 1,409 ) Equity-based awards activity, net (a) ( 16 ) ( 16 ) Issuance of common stock 6 6 Common stock dividends and dividend equivalents declared (b) ( 32 ) ( 32 ) Balance at December 31, 2019 $ 4 $ 8,501 $ ( 1,616 ) $ ( 5,039 ) $ ( 192 ) $ 1,658 Net income 510 510 Other comprehensive loss ( 14 ) ( 14 ) Repurchase of partners' equity interest in VIE 18 18 Shares reissuance for ESPP 4 4 Share repurchases ( 197 ) ( 197 ) Equity-based awards activity, net (a) ( 3 ) ( 3 ) Issuance of common stock 1 1 Common stock dividends and dividend equivalents declared (b) ( 297 ) ( 297 ) Balance at December 31, 2020 $ 4 $ 8,517 $ ( 1,403 ) $ ( 5,232 ) $ ( 206 ) $ 1,680 Net income 2,187 2,187 Other comprehensive income 80 80 Shares reissuance for ESPP 1 3 4 Share repurchases ( 44 ) ( 44 ) Equity-based awards activity, net (a) 12 12 Issuance of common stock 1 1 Common stock dividends and dividend equivalents declared (b) ( 320 ) ( 320 ) Balance at December 31, 2021 $ 4 $ 8,531 $ 464 $ ( 5,273 ) $ ( 126 ) $ 3,600 (a) Includes $( 9 ) million, $( 27 ) million and $( 36 ) million of equivalent shares purchased in lieu of tax withholding on equity compensation issuances for the years ended December 31, 2021, 2020 and 2019, respectively (b) Dividends per common share were $ 1.30 , $ 1.20 and $ 0.12 for each of the years ended December 31,2021, 2020 and 2019, respectively See notes to Consolidated Financial Statements 91 NRG ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Nature of Business General NRG Energy, Inc., or NRG or the Company, is a consumer services company built on dynamic retail brands. NRG brings the power of energy to customers by producing and selling energy and related products and services, nation-wide in the U.S. and Canada in a manner that delivers value to all of NRG's stakeholders. NRG sells power, natural gas, home and power services, and develops innovative, sustainable solutions, predominately under the brand names NRG, Reliant, Direct Energy, Green Mountain Energy, Stream, and XOOM Energy. The Company has a customer base that includes approximately 6 million Home customers as well as commercial, industrial, and wholesale customers, supported by approximately 18,000 MW of generation. On January 5, 2021, the Company acquired Direct Energy, which had been a North American subsidiary of Centrica. Direct Energy is a leading retail provider of electricity, natural gas, and home and business energy related products and services in North America, with operations in all 50 U.S. states and 8 Canadian provinces. The acquisition increases NRG's retail portfolio by over 3 million customers and complements its integrated model. It also broadens the Company's presence in the Northeast and into states and locales where it does not currently operate, supporting NRG's objective to diversify its business. See Note 4, Acquisitions, Discontinued Operations and Dispositions , to the Consolidated Financial Statements for further discussion of the acquisition of Direct Energy. On December 1, 2021, the Company sold approximately 4,850 MWs of fossil generating assets from its East and West regions to Generation Bridge, an affiliate of ArcLight Capital Partners. NRG received $ 623 million of net proceeds, after purchase price adjustments pursuant to the terms of the Purchase and Sale Agreement entered into on February 28, 2021. As part of the transaction, NRG entered into a tolling agreement for the 866 MW Arthur Kill plant in New York City through April 2025. During the second quarter of 2021, the results of the PJM Base Residual Auction for the 2022/2023 delivery year were released, leading the Company to announce the near-term retirement of approximately 1,600 MW of its PJM coal generating assets in June 2022. On July 30, 2021, PJM identified reliability impacts resulting from the proposed deactivation of one of those assets, Indian River Unit 4. On August 27, 2021 the Company notified PJM that it would continue operations at Indian River Unit 4 until the reliability upgrades identified by PJM were completed, provided that the unit receives a satisfactory and compensatory reliability must run arrangement. See Item 15 — Note 11, Asset Impairments, to the Consolidated Financial Statements for further discussion. The Company is continuing to evaluate the viability of the remaining PJM generating assets. The Company manages its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus. The Company's business is segmented as follows: • Texas, which includes all activity related to customer, plant and market operations in Texas; • East, which includes all activity related to customer, plant and market operations in the East; • West/Services/Other, which includes the following assets and activities: (i) all activity related to plant and market operations in the West and Canada, (ii) the Services businesses (iii) activity related to the Cottonwood facility, (iv) the remaining renewables activity, including the Company’s equity method investment in Ivanpah Master Holdings, LLC, and (v) activity related to the Company’s equity method investment for the Gladstone power plant in Australia; and • Corporate activities. Note 2 — Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The Company's consolidated financial statements have been prepared in accordance with U.S. GAAP. The ASC, established by the FASB, is the source of authoritative U.S. GAAP to be applied by nongovernmental entities. In addition, the rules and interpretative releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The consolidated financial statements include NRG's accounts and operations and those of its subsidiaries in which the Company has a controlling interest. All significant intercompany transactions and balances have been eliminated in consolidation. The usual condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. However, a controlling financial interest may also exist through arrangements that do not involve controlling voting 92 interests. As such, NRG applies the guidance of ASC 810, Consolidations, or ASC 810, to determine when an entity that is insufficiently capitalized or not controlled through its voting interests, referred to as a VIE, should be consolidated. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with an original maturity of three months or less at the time of purchase. Funds Deposited by Counterparties Funds deposited by counterparties consist of cash held by the Company as a result of collateral posting obligations from its counterparties. Though some amounts are segregated into separate accounts, not all funds are contractually restricted. Based on the Company's intention, these funds are not available for the payment of general corporate obligations; however, they are available for liquidity management. Depending on market fluctuations and the settlement of the underlying contracts, the Company will refund this collateral to the hedge counterparties pursuant to the terms and conditions of the underlying trades. Since collateral requirements fluctuate daily and the Company cannot predict if any collateral will be held for more than twelve months, the funds deposited by counterparties are classified as a current asset on the Company's balance sheet, with an offsetting liability for this cash collateral received within current liabilities. Winter Storm Uri Uplift Securitization Proceeds The Texas Legislature passed HB 4492 for ERCOT to mitigate exceptionally high price adders and ancillary service costs incurred by LSEs during Winter Storm Uri. HB 4492 authorized ERCOT to obtain $2.1 billion of financing to distribute to LSEs that were charged and paid to ERCOT those highly priced ancillary service and ORDPA during Winter Storm Uri. In December 2021, ERCOT filed with the PUCT a calculation of each LSE’s share of proceeds based on the settlement methodology. The Company accounted for the proceeds we will receive by analogy to the contribution model within ASC 958-605, Not-for-Profit Entities- Revenue Recognition and the grant model within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance , as a reduction to expenses in the consolidated statements of operations in the annual period for which the proceeds are intended to compensate. The Company expects to receive proceeds of $ 689 million from ERCOT in the second quarter of 2022 and we concluded that the threshold for recognizing a receivable was met in December 2021 as the amounts to be received are determinable and ERCOT was directed by its governing body, the PUCT, to take all actions required to effectuate the $2.1 billion funding approved in the DOO. The associated expense reduction is reflected in Cost of operations within our consolidated statements of operations as that is where the initial costs which are being compensated for were recorded. Credit Losses On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , or ASU No. 2016-13, using the modified retrospective approach. Following the adoption of the new standard, the Company’s process of estimating expected credit losses remains materially consistent with its historical practice. Information prior to January 1, 2020, which was previously referred to as the allowance and provision for bad debt, has not been restated and continues to be reported under the accounting standards in effect for that period. Retail trade receivables are reported on the balance sheet net of the allowance for credit losses. The Company accrues an allowance for current expected credit losses based on (i) estimates of uncollectible revenues by analyzing accounts receivable aging and current and reasonable forecasts of expected economic factors including, but not limited to, unemployment rates and weather-related events, (ii) historical collections and delinquencies, and (iii) counterparty credit ratings for commercial and industrial customers. The Company writes off customer contract receivable balances against the allowance for credit losses when it is determined a receivable is uncollectible. The following table represents the activity in the allowance for credit losses for the year ended December 31, 2021: Year Ended December 31, (In millions) 2021 2020 Beginning balance $ 67 $ 43 Acquired balance from Direct Energy 112 — Provision for credit losses (a) 698 108 Write-offs ( 224 ) ( 101 ) Recoveries collected 30 17 Ending balance (a) $ 683 $ 67 (a) Includes bilateral finance hedging risk of $ 403 million accounted for under ASC 815 93 The increase in the provision for credit losses during the year ended December 31, 2021, compared to 2020 was primarily due to the impacts of Winter Storm Uri on bilateral finance hedging risk of $ 403 million, counterparty credit risk of $ 126 million and ERCOT default shortfall payments of $ 67 million. Restricted Cash The following table provides a reconciliation of cash and cash equivalents, restricted cash and funds deposited by counterparties reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows. Year Ended December 31, (In millions) 2021 2020 2019 Cash and cash equivalents $ 250 $ 3,905 $ 345 Funds deposited by counterparties 845 19 32 Restricted cash 15 6 8 Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statements of cash flows $ 1,110 $ 3,930 $ 385 Restricted cash consists primarily of funds held to satisfy the requirements of certain debt agreements and funds held within the Company's projects that are restricted in their use. Inventory Inventory is valued at the lower of weighted average cost or market, and consists principally of natural gas, fuel oil, coal, spare parts and finished goods. The Company removes natural gas inventory in the delivery of goods to customers and as they are used in the production of electricity or steam. The Company removes fuel oil and coal inventories as they are used in the production of electricity. Spare parts inventory is valued at weighted average cost. The Company removes these inventories when they are used for repairs, maintenance or capital projects. The Company expects to recover the natural gas, fuel oil, coal and spare parts costs in the ordinary course of business. Inventory is valued at the lower of cost or net realizable value with cost being determined on a first in first out basis for finished goods and weighted average cost method for all other inventories. The Company removes these inventories as they are sold to customers. Sales of inventory are classified as an operating activity in the consolidated statements of cash flows. Property, Plant and Equipment Property, plant and equipment are stated at cost or, in the case of business acquisitions, fair value; however, impairment adjustments are recorded whenever events or changes in circumstances indicate that their carrying values may not be recoverable. NRG also classifies nuclear fuel related to the Company's 44 % ownership interest in STP as part of the Company's property, plant, and equipment. Significant additions or improvements extending asset lives are capitalized as incurred, while repairs and maintenance that do not improve or extend the life of the respective asset are charged to expense as incurred. Depreciation, other than nuclear fuel, is computed using the straight-line method, while nuclear fuel is amortized based on units of production over the estimated useful lives. Certain assets and their related accumulated depreciation amounts are adjusted for asset retirements and disposals with the resulting gain or loss included in cost of operations in the consolidated statements of operations. Asset Impairments Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with ASC 360. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded in operating costs and expenses in the consolidated statements of operations. Fair values are determined by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques. Investments accounted for by the equity method are reviewed for impairment in accordance with ASC 323, Investments-Equity Method and Joint Ventures , or ASC 323, which requires that a loss in value of an investment that is an other-than-temporary decline should be recognized. The Company identifies and measures losses in the value of equity method investments based upon a comparison of fair value to carrying value. For further discussion of these matters, refer to Note 11, Asset Impairments . 94 Development Costs and Capitalized Interest Development costs include project development costs, which are expensed in the preliminary stages of a project and capitalized when the project is deemed to be commercially viable. Commercial viability is determined by one or a series of actions including, among others, Board of Director approval pursuant to a formal project plan that subjects the Company to significant future obligations that can only be discharged by the use of a Company asset. When a project is available for operations, capitalized interest and capitalized project development costs are reclassified to property, plant and equipment and depreciated on a straight-line basis over the estimated useful life of the project's related assets. Capitalized costs are charged to expense if a project is abandoned or management otherwise determines the costs to be unrecoverable. Interest incurred on funds borrowed to finance capital projects is capitalized until the project under construction is ready for its intended use. The amount of interest capitalized for the years ended December 31, 2021, 2020 and 2019, was $ 2 million, $ 2 million and $ 3 million, respectively. Debt Issuance Costs Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt, or as an asset if the issuance costs relate to revolving debt agreements or certain other financing arrangements. Intangible Assets Intangible assets represent contractual rights held by the Company. The Company recognizes specifically identifiable intangible assets including emission allowances, customer and supply contracts, customer relationships, marketing partnerships, trade names and fuel contracts when specific rights and contracts are acquired. These intangible assets are amortized based on expected volumes, expected delivery, expected discounted future net cash flows, straight line or units of production basis. As of December 31, 2021 and 2020, the Company had accumulated amortization related to its intangible assets of $ 1.6 billion and $ 1.4 billion, respectively. Emission allowances held-for-sale, which are included in other non-current assets on the Company's consolidated balance sheet, are not amortized; they are carried at the lower of cost or fair value and reviewed for impairment in accordance with ASC 360. Goodwill In accordance with ASC 350, Intangibles-Goodwill and Other , or ASC 350, the Company recognizes goodwill for the excess cost of an acquired entity over the net value assigned to assets acquired and liabilities assumed. NRG performs goodwill impairment tests annually, during the fourth quarter, and when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, there is no goodwill impairment. In the absence of sufficient qualitative factors indicating that it is more-likely-than-not that no impairment occurred, the Company performs a quantitative assessment by determining the fair value of the reporting unit and comparing the fair value to its book value. If the fair value of the reporting unit exceeds its book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, the Company recognizes an impairment loss equal to the difference between book value and fair value. For further discussion of goodwill and goodwill impairment losses recognized refer to Note 12, Goodwill and Other Intangibles. Income Taxes The Company accounts for income taxes using the liability method in accordance with ASC 740, Income Taxes, or ASC 740, which requires that the Company use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. The Company has two categories of income tax expense or benefit — current and deferred, as follows: • Current income tax expense or benefit consists solely of current taxes payable less applicable tax credits, and • Deferred income tax expense or benefit is the change in the net deferred income tax asset or liability, excluding amounts charged or credited to accumulated other comprehensive income 95 The Company reports some of its revenues and expenses differently for financial statement purposes than for income tax return purposes, resulting in temporary and permanent differences between the Company's financial statements and income tax returns. The tax effects of such temporary differences are recorded as either deferred income tax assets or deferred income tax liabilities in the Company's consolidated balance sheets. The Company measures its deferred income tax assets and deferred income tax liabilities using income tax rates that are expected to be in effect when the deferred tax is realized. The Company accounts for uncertain tax positions in accordance with ASC 740, which applies to all tax positions related to income taxes. Under ASC 740, tax benefits are recognized when it is more-likely-than-not that a tax position will be sustained upon examination by the authorities. The benefit recognized from a position is the amount of benefit that has surpassed the more-likely-than-not threshold, as it is more than 50% likely to be realized upon settlement. The Company recognizes interest and penalties accrued related to uncertain tax benefits as a component of income tax expense. In accordance with ASC 740 and as discussed further in Note 20, Income Taxes , changes to existing net deferred tax assets or valuation allowances or changes to uncertain tax benefits, are recorded to income tax (benefit)/expense. Contract and Emission Credit Amortization Assets and liabilities recognized through acquisitions related to the purchase and sale of energy and energy-related products in future periods for which the fair value has been determined to be significantly less or more than market are amortized to operating revenues or cost of operations over the term of each underlying contract based on actual generation and/or contracted volumes. Emission credits represent the right to generate a specified amount of emissions, including sulfur dioxide, nitrogen oxides and carbon dioxide, over a compliance period. Emission credits held for use are amortized to cost of operations based on the weighted average cost of the allowances held. Lease Revenue Certain of the Company’s revenues are obtained through leases of rooftop residential solar systems, which are accounted for as operating leases in accordance with ASC 842, Leases. Pursuant to the lease agreements, the customers’ monthly payments are pre-determined fixed monthly amounts and may include an annual fixed percentage escalation to reflect the impact of utility rate increases over the lease term, which is 20 years. The Company records operating lease revenue on a straight-line basis over the life of the lease term. Certain customers made initial down payments that are being amortized over the life of the lease. The difference between the payments received and the revenue recognized is recorded as deferred revenue. Lessor Accounting Certain of the Company's revenues are obtained through PPAs or other contractual agreements. Many of these agreements are accounted for as operating leases under ASC 842 . Gross Receipts and Sales Taxes In connection with its retail sales, the Company records gross receipts taxes on a gross basis in revenues and cost of operations in its consolidated statements of operations. During the years ended December 31, 2021, 2020 and 2019, the Company's revenues and cost of operations included gross receipts taxes of $ 184 million, $ 107 million and $ 109 million, respectively. Additionally, the Company records sales taxes collected from its taxable retail customers and remitted to the various governmental entities on a net basis; thus, there is no impact on the Company's consolidated statement of operations. Cost of Operations Cost of operations includes cost of fuel, purchased energy and other costs of sales, mark-to-market for economic hedging activities, contract and emission credit amortization, operations and maintenance, and other cost of operations. Cost of Fuel, Purchased Energy and Other Cost of Sales Cost of fuel is primarily the costs associated with procurement, transportation and storage of natural gas, oil and coal to operate the generation portfolio, which is expensed as the fuel is consumed. Purchased energy primarily relates to purchases to supply the Company's customer base, which includes spot market purchases, as well as contracts of various quantities and durations, including renewable purchased power agreements under PPAs with third-party developers, which are accounted for as NPNS (see further discussion in Derivative Financial Instruments below). Other cost of sales primarily consists of TDSP expenses. The cost of fuel is based on actual and estimated fuel usage for the applicable reporting period. The cost to deliver energy and related services to customers is based on actual and estimated supply volumes for the applicable reporting period. A portion of the cost of energy, $ 189 million, $ 98 million and $ 103 million as of December 31, 2021, 2020 and 2019, respectively, was accrued and consisted of estimated transmission and distribution charges not yet billed by the transmission and distribution utilities. 96 In estimating supply volumes, the Company considers the effects of historical customer volumes, weather factors and usage by customer class. Transmission and distribution delivery fees are estimated using the same method used for electricity sales and services to retail customers. In addition, ISO fees are estimated based on historical trends, estimated supply volumes and initial ERCOT ISO settlements. Volume estimates are then multiplied by the supply rate and recorded as cost of operations in the applicable reporting period. Derivative Instruments The Company accounts for derivative instruments under ASC 815, which requires the Company to record all derivatives on the balance sheet at fair value and changes in fair value in earnings, unless they qualify for the NPNS exception. The Company's primary derivative instruments are power and natural gas purchase or sales contracts, fuels purchase contracts and other energy related commodities used to mitigate variability in earnings due to fluctuation in market prices. In addition, in order to mitigate foreign exchange risk associated with the purchase of USD denominated natural gas for the Company's Canadian business, NRG enters into foreign exchange contract agreements. As of December 31, 2021 and 2020 the Company did not have derivative instruments that were designated as cash flow or fair value or hedge. Revenues and expenses on contracts that qualify for the NPNS exception are recognized when the underlying physical transaction is delivered. While these contracts are considered derivative instruments under ASC 815, they are not recorded at fair value, but on an accrual basis of accounting. If it is determined that a transaction designated as NPNS no longer meets the scope exception, the fair value of the related contract is recorded on the balance sheet and immediately recognized through earnings. NRG's trading activities are subject to limits in accordance with the Company's Risk Management Policy. These contracts are recognized on the balance sheet at fair value and changes in the fair value of these derivative instruments are recognized in earnings. Mark-to-Market for Economic Hedging Activities NRG enters into derivative instruments to manage price and delivery risk, optimize physical and contractual assets in the portfolio and manage working capital requirements. The mark-to-market for economic hedging activities are recognized to cost of operations during the reporting period. Operations and Maintenance and Other Cost of Operations Operations and maintenance costs include major and other routine preventative (planned outage) and corrective (forced outage) maintenance activities to ensure the safe and reliable operation of the Company's generation portfolio in compliance with all local, state and federal requirements. Operations and maintenance costs are also costs associated with retaining and maintaining the Company's customer base, such as call center support, portfolio maintenance and data analytics. Other cost of operations primarily includes gross receipts taxes, insurance, property taxes and asset retirement obligation expense. Foreign Currency Translation and Transaction Gains and Losses The local currencies are generally the functional currency of NRG's foreign operations. Foreign currency denominated assets and liabilities are translated at end-of-period rates of exchange. Revenues, expenses, and cash flows are translated at the weighted-average rates of exchange for the period. The resulting currency translation adjustments are not included in the Company's consolidated statements of operations for the period, but are accumulated and reported as a separate component of stockholders' equity until sale or complete or substantially complete liquidation of the net investment in the foreign entity takes place. Foreign currency transaction gains or losses are reported within other income/(expense) in the Company's consolidated statements of operations. For the years ended December 31, 2021, 2020 and 2019, amounts recognized as foreign currency transaction gains/(losses) were immaterial. The Company's cumulative translation adjustment balances as of December 31, 2021, 2020 and 2019 were $( 8 ) million, $( 2 ) million and $( 13 ) million, respectively. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trust funds, accounts receivable, notes receivable, derivatives, and investments in debt securities. Trust funds are held in accounts managed by experienced investment advisors. Certain accounts receivable, notes receivable, and derivative instruments are concentrated within entities engaged in the energy industry. These industry concentrations may impact the Company's overall exposure to credit risk, either positively or negatively, in that the customers may be similarly affected by changes in economic, industry or other conditions. Receivables and other contractual arrangements are subject to collateral requirements under the terms of enabling agreements. However, the Company believes that the credit risk posed by industry concentration is offset by the diversification and creditworthiness of its customer base. See Note 5, Fair Value of Financial Instruments, for a further discussion of derivative concentrations. 97 Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, funds deposited by counterparties, receivables, accounts payable, and accrued liabilities approximate fair value because of the short-term maturity of these instruments. See Note 5, Fair Value of Financial Instruments, for a further discussion of fair value of financial instruments. Asset Retirement Obligations The Company accounts for AROs in accordance with ASC 410-20, Asset Retirement Obligations, or ASC 410-20. Retirement obligations associated with long-lived assets included within the scope of ASC 410-20 are those for which a legal obligation exists under enacted laws, statutes, and written or oral contracts, including obligations arising under the doctrine of promissory estoppel, and for which the timing and/or method of settlement may be conditional on a future event. ASC 410-20 requires an entity to recognize the fair value of a liability for an ARO in the period in which it is incurred and a reasonable estimate of fair value can be made. Upon initial recognition of a liability for an ARO, the Company capitalizes the asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount. Over time, the liability is accreted to its future value, while the capitalized cost is depreciated over the useful life of the related asset. See Note 14, Asset Retirement Obligations, for a further discussion of AROs. Pensions and Other Postretirement Benefits The Company offers pension benefits through a defined benefit pension plan. In addition, the Company provides postretirement health and welfare benefits for certain groups of employees. The Company accounts for pension and other postretirement benefits in accordance with ASC 715, Compensation — Retirement Benefits , or ASC 715 . The Company recognizes the funded status of the Company's defined benefit plans in the statement of financial position and records an offset for gains and losses as well as all prior service costs that have not been included as part of the Company's net periodic benefit cost to other comprehensive income. The determination of the Company's obligation and expenses for pension benefits is dependent on the selection of certain assumptions. These assumptions determined by management include the discount rate, the expected rate of return on plan assets and the rate of future compensation increases. The Company's actuarial consultants assist in determining assumptions for such items as retirement age. The assumptions used may differ materially from actual results, which may result in a significant impact to the amount of pension obligation or expense recorded by the Company. The Company measures the fair value of its pension assets in accordance with ASC 820, Fair Value Measurements and Disclosures, or ASC 820. Stock-Based Compensation The Company accounts for its stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation, or ASC 718 . The fair value of the Company's performance stock units is estimated on the date of grant using a Monte Carlo valuation model. NRG uses the Company's common stock price on the date of grant as the fair value of the Company's deferred stock units. The fair value of the Company's restricted stock units is derived from the closing price of NRG's common stock at the grant date. Forfeiture rates are estimated based on an analysis of the Company's historical forfeitures, employment turnover, and expected future behavior. The Company recognizes compensation expense for both graded and cliff vesting awards on a straight-line basis over the requisite service period for the entire award. Investments Accounted for by the Equity Method The Company has investments in various domestic energy projects, as well as one Australian project. The equity method of accounting is applied to such investments in affiliates, which include joint ventures and partnerships, because the ownership structure prevents the Company from exercising a controlling influence over the operating and financial policies of the projects. Under this method, equity in pre-tax income or losses of domestic partnerships and, generally, in the net income or losses of its Australian project, are reflected as equity in earnings of unconsolidated affiliates. Distributions from equity method investments that represent earnings on the Company's investment are included within cash flows from operating activities and distributions from equity method investments that represent a return of the Company's investment are included within cash flows from investing activities. Tax Equity Arrangements The Company’s redeemable noncontrolling interest in subsidiaries represented third-party interests in the net assets under certain tax equity arrangements, which were consolidated by the Company, that had been entered into to finance the cost of solar energy systems under operating leases. The Company determined that the provisions in the contractual agreements of these structures represented substantive profit sharing arrangements. Further, the Company had determined that the appropriate methodology for calculating the redeemable noncontrolling interest that reflected the substantive profit sharing arrangements was a balance sheet approach that utilized the HLBV method. Under the HLBV method, the amounts reported as redeemable 98 noncontrolling interests represented the amounts the investors that were party to the tax equity arrangements would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements, assuming the net assets of the funding structures were liquidated at their recorded amounts. The investors’ interests in the results of operations of the funding structures were determined as redeemable noncontrolling interests at the start and end of each reporting period, after taking into account any capital transactions between the structures and the funds’ investors. The calculations utilized to apply the HLBV method included estimated calculations of taxable income or losses for each reporting period. During the first quarter of 2020, the Company repurchased its partners' equity interest, which was the Company's last remaining tax equity arrangement. Redeemable Noncontrolling Interest The following table reflects the changes in the Company's redeemable noncontrolling interest balance for the years ended December 31, 2020 and 2019. (In millions) Balance as of December 31, 2018 $ 19 Distributions to redeemable noncontrolling interest ( 2 ) Net income attributable to redeemable noncontrolling interest - continuing operations 3 Balance as of December 31, 2019 20 Repurchase of redeemable noncontrolling interest ( 20 ) Balance as of December 31, 2020 $ — Sale-Leaseback Arrangements NRG is party to sale-leaseback arrangements that provide for the sale of certain assets to a third party and simultaneously leases back the same asset to the Company. If the seller-lessee transfers control of the underlying assets to the buyer-lessor, the arrangement is accounted for under ASC 842-40, Sale-Leaseback Transactions. These arrangements are classified as operating leases on the Company's consolidated balance sheets. See Note 10, Leases, for further discussion. Marketing and Advertising Costs The Company expenses its marketing and advertising costs as incurred and includes them within selling, general and administrative expenses. The costs of tangible assets used in advertising campaigns are recorded as fixed assets or deferred advertising costs and amortized as advertising costs over the shorter of the useful life of the asset or the advertising campaign. The Company has several long-term sponsorship arrangements. Payments related to these arrangements are deferred and expensed over the term of the arrangement. Advertising expenses for the years ended December 31, 2021, 2020 and 2019 were $ 109 million, $ 74 million and $ 66 million, respectively. Business Combinations The Company accounts for its business combinations in accordance with ASC 805, Business Combinations, or ASC 805, which requires an acquirer to recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at fair value at the acquisition date. The Company also recognizes and measures the goodwill acquired or a gain from a bargain purchase in the business combination. In addition, transaction costs are expensed as incurred. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available. Estimates are used for such items as plant depreciable lives, tax provisions, uncollectible accounts, actuarially determined benefit costs, the valuation of energy commodity contracts, environmental liabilities, legal costs incurred in connection with recorded loss contingencies, and assets acquired and liabilities assumed in business combinations, among others. In addition, estimates are used to test long-lived assets and goodwill for impairment and to determine the fair value of impaired assets. As better information becomes available or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. 99 Reclassifications Certain prior period amounts have been reclassified for comparative purposes. The reclassifications did not affect results from operations, net assets or cash flows. Recent Accounting Developments - Guidance Adopted in 2021 ASU 2019-12 — In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12, to simplify various aspects related to accounting for income taxes. The guidance in ASU 2019-12 amends the general principles in Topic 740 to eliminate certain exceptions for recognizing deferred taxes for investment, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted the amendments effective January 1, 2021 using the prospective approach. The adoption did not have a material impact on the Company's results of operations, statements of cash flows, or statement of financial position. ASU 2021-10 — In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance , which requires additional disclosures for transactions with a government accounted for by applying a grant or contribution model by analogy, including: (i) the nature of the transactions and the related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The amendments were applied prospectively to all transactions within the scope of the amendments. Early application of the new standard is permitted and the effect of the new standard only impacted the Company’s financial statement disclosures. Recent Accounting Developments - Guidance Not Yet Adopted ASU 2020-06 — In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) , or ASU 2020-06. The guidance in ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. In addition, ASU 2020-06 improves and amends the related earnings per share guidance. This standard is effective for fiscal years beginning after December 15, 2021. The Company adopted this standard on January 1, 2022 using the modified retrospective approach. As a result of the provisions of the amended guidance, the Company estimates a $ 100 million decrease to additional paid-in capital, a $ 57 million decrease to debt discount, a $ 57 million increase to retained earnings, and a $ 14 million decrease to long-term deferred tax liabilities. The Company does not expect the adoptions of ASU 2020-06 to have a material impact on its statement of operations, statements of cash flows or earnings per share amounts. ASU 2021-08 — In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , or ASU 2021-08. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with ASC 606, Revenue from Contracts with Customers , or ASC 606, at fair value on the acquisition date. ASU 2021-08 requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts, which should generally result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. This update also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. Adoption during an interim period requires retrospective application to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and prospectively to all business combinations that occur on or after the date of initial application. The Company does not expect the adoption of ASU 2021-08 to have a material impact on the consolidated financial statements and disclosures. 100 Note 3 — Revenue Recognition The Company's policies with respect to its various revenue streams are detailed below. The Company generally applies the invoicing practical expedient to recognize revenue for the revenue streams detailed below, except in circumstances where the invoiced amount does not represent the value transferred to the customer. Retail Revenue Gross revenues for energy sales and services to retail customers are recognized as the Company transfers the promised goods and services to the customer. For the majority of its electricity and natural gas contracts, the Company’s performance obligation with the customer is satisfied over time and performance obligations for its electricity and natural gas products are recognized as the customer takes possession of the product. The Company also allocates the contract consideration to distinct performance obligations in a contract for which the timing of the revenue recognized is different. Additionally, customer discounts and incentives reduce the contract consideration and are recognized over the term of the contract. Energy sales and services that have been delivered but not billed by period end are estimated. Accrued unbilled revenues are based on estimates of customer usage since the date of the last meter reading provided by the independent system operators, utilities, or electric distribution companies. Volume estimates are based on daily forecasted volumes and estimated customer usage by class. Unbilled revenues are calculated by multiplying these volume estimates by the applicable rate by customer class. Estimated amounts are adjusted when actual usage is known and billed. As contracts for retail electricity and natural gas can be for multi-year periods, the Company has performance obligations under these contracts that have not yet been satisfied. These performance obligations have transaction prices that are both fixed and variable, and that vary based on the contract duration, customer type, inception date and other contract-specific factors. For the fixed price contracts, the amount of any unsatisfied performance obligations will vary based on customer usage, which will depend on factors such as weather and customer activity and therefore it is not practicable to estimate such amounts. Energy Revenue Both physical and financial transactions consist of revenues billed to a third party at either market or negotiated contract terms to optimize the financial performance of the Company's generating facilities. Electric energy revenue is recognized upon transmission to the customer over time, using the output method for measuring progress of satisfaction of performance obligations. Physical transactions, or the sale of generated electricity to meet supply and demand, are recorded on a gross basis in the Company's consolidated statements of operations. The Company applies the invoicing practical expedient in recognizing energy revenue. Under the practical expedient, revenue is recognized based on the invoiced amount which is equal to the value to the customer of NRG’s performance obligation completed to date. Financial transactions used to hedge the sale of electricity are recorded net within operating revenues in the consolidated statements of operations in accordance with ASC 815. Ancillary revenues, included in Other revenue, are recognized over time as the obligation is fulfilled, using the output method for measuring progress of satisfaction of performance obligations. Capacity Revenue The Company's largest sources of capacity revenues are capacity auctions in PJM, ISO-NE and NYISO. Capacity revenues also include revenues billed to a third party at either market or negotiated contract terms for making installed generation and demand response capacity available in order to satisfy system integrity and reliability requirements. Capacity revenues are recognized over time, using the output method for measuring progress of satisfaction of performance obligations. The Company applies the invoicing practical expedient in recognizing capacity revenue. Under the practical expedient, revenue is recognized based on the invoiced amount which is equal to the value to the customer of NRG’s performance obligation completed to date. Performance Obligations As of December 31, 2021, estimated future fixed fee performance obligations are $ 258 million, $ 48 million and $ 1 million for fiscal years 2022, 2023 and 2024, respectively. These performance obligations are for cleared auction MWs in the PJM, ISO-NE, NYISO and MISO capacity auctions and are subject to penalties for non-performance. 101 Disaggregated Revenue The following tables represent the Company’s disaggregation of revenue from contracts with customers for the years ended December 31, 2021, 2020 and 2019: For the Year Ended December 31, 2021 (In millions) Texas East West/Services/Other Corporate/Eliminations Total Retail revenue Home (a) $ 5,665 $ 1,959 $ 2,053 $ ( 1 ) $ 9,676 Business 2,745 9,903 1,237 — 13,885 Total retail revenue 8,410 11,862 3,290 ( 1 ) 23,561 Energy revenue (c) 329 508 371 7 1,215 Capacity revenue (c) — 718 57 — 775 Mark-to-market for economic hedging activities (d) ( 3 ) ( 88 ) ( 86 ) 13 ( 164 ) Contract amortization — ( 26 ) ( 4 ) — ( 30 ) Other revenue (b)(c) 1,557 59 25 ( 9 ) 1,632 Total operating revenue 10,293 13,033 3,653 10 26,989 Less: Lease revenue — 1 7 — 8 Less: Realized and unrealized ASC 815 revenue 130 184 ( 96 ) 16 234 Less: Contract amortization — ( 26 ) ( 4 ) — ( 30 ) Total revenue from contracts with customers $ 10,163 $ 12,874 $ 3,746 $ ( 6 ) $ 26,777 (a) Home includes Services (b) Other Revenue in Texas includes ancillary revenues of $ 1.3 billion driven by high pricing during Winter Storm Uri (c) The following amounts of energy, capacity and other revenue relate to derivative instruments and are accounted for under ASC 815: (In millions) Texas East West/Services/Other Corporate/Eliminations Total Energy revenue $ — $ 131 $ 2 $ 3 $ 136 Capacity revenue — 149 — — 149 Other revenue 133 ( 8 ) ( 12 ) — 113 (d) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 102 For the Year Ended December 31, 2020 (In millions) Texas East West/Services/Other Corporate/Eliminations Total Retail revenue Home (a) $ 5,027 $ 1,210 $ 96 $ ( 2 ) $ 6,331 Business 1,034 95 — — 1,129 Total retail revenue 6,061 1,305 96 ( 2 ) 7,460 Energy revenue (b) 24 183 333 ( 1 ) 539 Capacity revenue (b) — 620 61 ( 1 ) 680 Mark-to-market for economic hedging activities (c) 2 88 ( 3 ) 8 95 Other revenue (b) 222 62 43 ( 8 ) 319 Total operating revenue 6,309 2,258 530 ( 4 ) 9,093 Less: Lease revenue — 1 17 — 18 Less: Realized and unrealized ASC 815 revenue 30 314 38 3 385 Total revenue from contracts with customers $ 6,279 $ 1,943 $ 475 $ ( 7 ) $ 8,690 (a) Home includes Services (b) The following amounts of energy, capacity and other revenue relate to derivative instruments and are accounted for under ASC 815: (In millions) Texas East West/Services/Other Corporate/Eliminations Total Energy revenue $ — $ 67 $ 43 $ ( 5 ) $ 105 Capacity revenue — 156 — — 156 Other revenue 28 3 ( 2 ) — 29 (c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 For the Year Ended December 31, 2019 (In millions) Texas East West/Services/Other Corporate/Eliminations Total Retail revenue Home (a) $ 5,027 $ 1,173 $ 57 $ ( 3 ) $ 6,254 Business 1,205 74 — — 1,279 Total retail revenue 6,232 1,247 57 ( 3 ) 7,533 Energy revenue (b) 529 322 318 — 1,169 Capacity revenue (b) — 664 36 — 700 Mark-to-market for economic hedging activities (c) 47 ( 29 ) 16 ( 1 ) 33 Other revenue (b) 261 58 70 ( 3 ) 386 Total operating revenue 7,069 2,262 497 ( 7 ) 9,821 Less: Lease revenue — 1 19 — 20 Less: Realized and unrealized ASC 815 revenue 1,562 183 67 ( 2 ) 1,810 Total revenue from contracts with customers $ 5,507 $ 2,078 $ 411 $ ( 5 ) $ 7,991 (a) Home includes Services (b) The following amounts of energy, capacity and other revenue relate to derivative instruments and are accounted for under ASC 815: (In millions) Texas East West/Services/Other Corporate/Eliminations Total Energy revenue $ 1,459 $ 98 $ 39 $ ( 1 ) $ 1,595 Capacity revenue — 109 — — 109 Other revenue 56 5 12 — 73 (c) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815 103 Contract Balances The following table reflects the contract assets and liabilities included in the Company's balance sheet as of December 31, 2021 and 2020: (In millions) December 31, 2021 December 31, 2020 Deferred customer acquisition costs $ 133 $ 113 Accounts receivable, net - Contracts with customers 3,057 866 Accounts receivable, net - Derivative instruments 182 33 Accounts receivable, net - Affiliate 6 5 Total accounts receivable, net $ 3,245 $ 904 Unbilled revenues (included within Accounts receivable, net - Contracts with customers) $ 1,574 $ 393 Deferred revenues (a) $ 227 $ 60 (a) Deferred revenues from contracts with customers for the years ended December 31, 2021 and 2020 were approximately $ 224 million and $ 31 million, respectively The revenue recognized from contracts with customers during the years ended December 31, 2021 and 2020 relating to the deferred revenue balance at the beginning of each period was $ 23 million and $ 13 million, respectively. The change in deferred revenue balances during the years ended December 31, 2021 and 2020 was primarily due to the timing difference of when consideration was received and when the performance obligation was transferred. The Company's customer acquisition costs consist of broker fees, commission payments and other costs that represent incremental costs of obtaining the contract with customers for which the Company expects to recover. The Company amortizes these amounts over the estimated life of the customer contract. As a practical expedient, the Company expenses the incremental costs of obtaining a contract if the amortization period of the asset would have been one year or less. When the Company receives consideration from the customer that is in excess of the amount due, such consideration is reclassified to deferred revenue, which represents a contract liability. Generally, the Company will recognize revenue from contract liabilities in the next period as the Company satisfies its performance obligations. Note 4 — Acquisitions, Discontinued Operations and Dispositions Acquisitions Direct Energy Acquisition On January 5, 2021 (the "Acquisition Closing Date"), the Company acquired all of the issued and outstanding common shares of Direct Energy, which had been a North American subsidiary of Centrica plc. Direct Energy is a leading retail provider of electricity, natural gas, and home and business energy related products and services in North America, with operations in all 50 U.S. states and 8 Canadian provinces. The acquisition increased NRG's retail portfolio by over 3 million customers and strengthens its integrated model. It also broadens the Company's presence in the Northeast and into states and locales where it did not previously operate, supporting NRG's objective to diversify its business. The Company paid an aggregate purchase price of $ 3.625 billion in cash, subject to a purchase price adjustment of $ 77 million. The Company funded the purchase price using a combination of $ 715 million of cash on hand, $ 166 million from a draw on its Revolving Credit Facility (of which $ 107 million was used to fund acquisition costs and financing fees that are not included in the aggregate purchase price above) as well as approximately $ 2.9 billion in secured and unsecured corporate debt issued in December 2020. The final purchase price adjustment resulted in additional payment of $ 22 million, which was paid in December 2021. 104 The Company also increased its collective collateral facilities by $ 3.4 billion as of the Acquisition Closing Date to meet the additional liquidity requirements related to the acquisition, as detailed in the following table: (In millions) Available on Acquisition Closing Date Revolving Credit Facility commitment increase $ 802 Revolving Credit Facility new tranche 273 Facility agreement in connection with the sale of pre-capitalized trust securities 874 Available as of December 31, 2020 Credit default swap facility 150 Revolving accounts receivable financing facility 750 Repurchase facility 75 Bilateral letter of credit facilities 475 Total Increases to Liquidity and Collateral Facilities $ 3,399 For further discussion see Note 13, Long-term Debt and Finance Leases . Acquisition costs of $ 25 million and $ 17 million for the years ended December 31, 2021 and 2020, respectively, are included in acquisition-related transaction and integration costs in the Company's consolidated statement of operations. The acquisition has been recorded as a business combination under ASC 805 with identifiable assets acquired and liabilities assumed recorded at their estimated fair values on the acquisition date. The purchase price is allocated as follows: (In millions) Current Assets Cash and cash equivalents $ 152 Funds deposited by counterparties 21 Restricted cash 9 Accounts receivable, net 1,802 Inventory 106 Derivative instruments 1,014 Cash collateral paid in support of energy risk management activities 233 Prepayments and other current assets 173 Total current assets 3,510 Property, plant and equipment, net 151 Other Assets Goodwill (a) 1,250 Intangible assets, net: Customer relationships (b) 1,277 Customer and supply contracts (b) 610 Trade names (b) 310 Renewable energy credits 124 Total intangible assets, net 2,321 Derivative instruments 531 Other non-current assets 31 Total other assets 4,133 Total Assets $ 7,794 105 (In millions) Current Liabilities Accounts payable $ 1,116 Derivative instruments 1,266 Cash collateral received in support of energy risk management activities 21 Accrued expenses and other current liabilities 670 Total current liabilities 3,073 Other Liabilities Derivative instruments 562 Deferred income taxes 320 Other non-current liabilities 115 Total other liabilities 997 Total Liabilities $ 4,070 Direct Energy Purchase Price $ 3,724 (a) Goodwill arising from the acquisition is attributed to the value of the platform acquired and the synergies expected from combining the operations of Direct Energy with NRG's existing businesses. Goodwill was allocated to the Texas, East, and West/Services/Other segments of $ 427 million, $ 648 million , and $ 175 million, respectively. Goodwill expected to be deductible for tax purposes is $ 322 million (b) The weighted average amortization period for total amortizable intangible assets is 12 years Measurement Period Adjustments The following measurement period adjustments were recognized during the quarter ended December 31, 2021: (In millions) Assets Prepayments and other current assets $ ( 10 ) Goodwill ( 7 ) Total decrease in assets $ ( 17 ) Liabilities Accounts payable $ ( 4 ) Accrued expenses and other current liabilities ( 20 ) Deferred income taxes ( 18 ) Total decrease in liabilities $ ( 42 ) Net measurement period adjustments $ 25 The measurement period adjustments are attributable primarily to refinement of the underlying assumptions used to estimate the fair value of assets acquired and liabilities assumed as more information was obtained about facts and circumstances that existed as of the Acquisition Closing Date. Fair Value Measurement of Intangible Assets The fair values of intangible assets as of the Acquisition Closing Date were measured primarily based on significant inputs that are observable and unobservable in the market and thus represent Level 2 and Level 3 measurements, respectively. Significant inputs were as follows: Customer relationships — Customer relationships, reflective of Direct Energy’s customer base, were valued using an excess earning method of the income approach. Under this approach, the Company estimated the present value of expected future cash flows resulting from existing customer relationships, considering attrition and charges for contributory assets (such as net working capital, fixed assets, workforce and trade names) utilized in the business, discounted at an independent power producer peer group’s weighted average cost of capital. The customer relationships are amortized to depreciation and amortization, ratably based on discounted future cash flows. The weighted average amortization period is 12 years. 106 Customer and supply contracts — The fair value of in-market and out-of-market customer and supply contracts were estimated based on contractual terms compared to market prices as of the Acquisition Closing Date. The majority of the contracts were valued using prices provided by external sources, primarily price quotations available through broker or over-the-counter and online exchanges. For contracts for which external sources or observable market quotes were not available, these values were based on valuation techniques including, but not limited to, internal models based on fundamental analysis of the market and extrapolation of the observable market data with similar characteristics. In addition, the Company applied a credit reserve to reflect credit risk, which is calculated based on published default probabilities. The customer and supply contracts are amortized to revenue and cost of operations, respectively, based upon the fair market value, as of the acquisition date, for each delivery month. The weighted average amortization period is 14 years. Trade names — Trade names were valued using a "relief from royalty" method of the income approach. Under this approach, the fair value is estimated to be the present value of royalties saved because NRG owns the intangible asset and therefore does not have to pay a royalty for its use. The trade names are amortized to depreciation and amortization, on a straight line basis, over a weighted average amortization period of 15 years. Renewable energy credits — Renewable energy credits were valued based on the market prices as of the Acquisition Closing Date. Renewable energy credits are retired, as required, for the applicable compliance period. They are expensed to cost of operations based on customer usage. Fair Value Measurement of Derivative Assets and Liabilities The fair values of derivatives assets and liabilities as of the Acquisition Closing Date were as follows: Fair Value (In millions) Total Level 1 Level 2 Level 3 Derivatives assets $ 1,545 $ 155 $ 1,272 $ 118 Derivatives liabilities 1,828 207 1,489 132 Refer to Note 5 , Fair Value of Financial Instruments for discussion on derivative fair value measurements. Supplemental Information For the Year Ended December 31, 2021 Direct Energy contributed revenue and income before income taxes of $ 15.6 billion and $ 2.4 billion, respectively. Supplemental Unaudited Pro Forma Financial Information The following table provides unaudited pro forma combined financial information of NRG and Direct Energy, after giving effect to the Direct Energy acquisition and related financing transactions as if they had occurred on January 1, 2019. The pro forma financial information has been prepared for illustrative and informational purposes only, and is not intended to project future operating results or indicative of what our financial performance would have been had the transactions occurred on the date assumed. No effect has been given to operating synergies. For the Year Ended December 31, (In millions) 2021 2020 2019 Total operating revenues $ 26,987 $ 21,326 $ 23,673 Income from continuing operations 2,225 471 3,623 Amounts above reflect certain pro forma adjustments that were directly attributable to the Direct Energy acquisition. These adjustments include the following: (i) Income statement effects of fair value adjustments based on the purchase price allocation including amortization of intangible assets, depreciation of property, plant and equipment and lease expense. (ii) Interest expense assumes the financing transactions directly attributable to the Direct Energy acquisition occurred on January 1, 2019. (iii) Removal of Direct Energy historical interest expense associated with related party notes receivable/payable between Direct Energy and Centrica and its subsidiaries, as those notes are assumed to be repaid as of January 1, 2019. (iv) Elimination of transactions between NRG and Direct Energy. (v) Adjustments to reflect all acquisition costs occurring during the year ended December 31, 2019. 107 (vi) Tax effects of pro forma adjustments on all periods presented and shifting the recognition of one time tax benefits resulting from the acquisition from the year ended December 31, 2021 to the year ended December 31, 2019. Midwest Generation Lease Purchase — On September 29, 2020, Midwest Generation acquired all of the ownership interests in the Powerton facility and Units 7 and 8 of the Joliet facility, which were being leased through 2034 and 2030, respectively, for approximately $ 260 million. The purchase was funded with cash-on-hand. Upon closing, lease expense related to these facilities, which totaled approximately $ 14 million in 2019, and the operating lease liability of $ 148 million were eliminated. Stream Energy Acquisition — On August 1, 2019, the Company completed the acquisition of Stream Energy's retail electricity and natural gas business operating in 9 states and Washington, D.C. for $ 329 million, including working capital and other adjustments of approximately $ 29 million. The acquisition increased NRG's retail portfolio by approximately 600,000 RCEs or 450,000 customers. The purchase price was allocated as follows: (In millions) Account receivable $ 98 Accounts payable ( 73 ) Other net current and non-current working capital 5 Marketing partnership 154 Customer relationships 85 Trade name 28 Other intangible assets 26 Goodwill (a) 6 Stream Purchase Price $ 329 (a) Goodwill arising from the acquisition is attributed to the value of the platform acquired and the synergies expected from combining the operations of Stream Energy with NRG's existing businesses. Goodwill of $ 5 million and $ 1 million was assigned to the Texas and East segments, respectively, and is not deductible for tax purposes Dispositions Sale of 4,850 MW of Fossil generating assets On December 1, 2021, the Company closed the previously announced sale of approximately 4,850 MWs of fossil generating assets from its East and West regions to Generation Bridge, an affiliate of ArcLight Capital Partners. Proceeds of $ 760 million were reduced by working capital and other adjustments of $ 137 million, resulting in net proceeds of $ 623 million. The Company recorded a gain of $ 210 million from the sale, which includes the $ 39 million indemnification liability recorded as discussed below. As part of the transaction, NRG entered into a tolling agreement for the 866 MW Arthur Kill plant in New York City through April 2025. As part of the agreement to sell the fossil generating assets, NRG has agreed to indemnify Generation Bridge for certain future environmental compliance costs up to $ 39 million. The indemnity term will expire on December 1, 2028. The Company has recorded the liability within accrued expenses and other current liabilities and other non-current liabilities. Sale of Agua Caliente On February 3, 2021, the Company closed on the sale of its 35 % ownership in the Agua Caliente solar project to Clearway Energy, Inc. for $ 202 million. NRG recognized a gain on the sale of $ 17 million, including cash disposed of $ 7 million. Sale of Home Solar In the third quarter of 2020, the Company concluded its Home Solar business was held for sale and recorded an impairment loss of $ 29 million, as further discussed in Note 11, Asset Impairments . On November 13, 2020, the Company completed the sale of the Home Solar business for cash proceeds of $ 66 million, resulting in a $ 2 million loss on the sale. In connection with the sale, the Company extinguished debt of $ 27 million and recognized a $ 5 million loss on the extinguishment. Company completed other asset sales for cash proceeds of $ 12 million and $ 15 million during the years ended December 31, 2021 and 2020, respectively. 108 Discontinued Operations Sale of South Central Portfolio On February 4, 2019, the Company completed the sale of its South Central Portfolio to Cleco for cash consideration of $ 1 billion excluding working capital and other adjustments. The Company concluded that the divested business met the criteria for discontinued operations, as the disposition represented a strategic shift in the business in which NRG operates. In connection with the transaction, NRG also entered into a transition services agreement to provide certain corporate services to the divested business, which have been substantially completed in 2020. The South Central Portfolio includes the 1,177 MW Cottonwood natural gas generating facility. Upon the closing of the sale of the South Central Portfolio, NRG entered into a lease agreement with Cleco to leaseback the Cottonwood facility through 2025. Due to its continuing involvement with the Cottonwood facility, NRG did not use held-for-sale or discontinued operations treatment in accounting for the Cottonwood facility. Summarized results of South Central discontinued operations for the year ended December 31, 2019 were as follows: (In millions) Operating revenues $ 31 Operating costs and expenses ( 23 ) Gain from operations of discontinued components 8 Gain on disposal of discontinued operations, net of tax 20 Gain from discontinued operations, including disposal, net of tax $ 28 Sale of Ownership in NRG Yield, Inc. and its Renewables Platform On August 31, 2018, the Company completed the sale of its ownership interests in NRG Yield, Inc. and its Renewables Platform to GIP for total cash consideration of $ 1.348 billion. The Company concluded that the divested businesses met the criteria for discontinued operations, as the dispositions represented a strategic shift in the business in which NRG operates. In connection with the transaction, NRG entered into a transition services agreement to provide certain corporate services to the divested businesses in 2018, which concluded in 2020. During the year ended December 31, 2019, the Company recorded an adjustment to reduce the purchase price by $ 15 million in connection with the completion of the Patriot Wind project. During the year ended December 31, 2019, the Company reduced the liability related to the indemnification of NRG Yield for any increase in property taxes for certain solar properties by $ 22 million due to updated estimates. Carlsbad On February 6, 2018, NRG entered into an agreement with NRG Yield and GIP to sell 100 % of its membership interests in Carlsbad Energy Holdings LLC, which owns the Carlsbad project, for $ 385 million of cash consideration, excluding working capital adjustments. The primary condition to close the Carlsbad transaction was the completion of the sale of NRG Yield and the Renewables Platform. At the time of the sale of NRG Yield and the Renewables Platform in August 2018, the Company concluded that the Carlsbad project met the criteria for discontinued operations and accordingly, all current and prior period results for Carlsbad were reclassified as discontinued operations. The transaction closed on February 27, 2019. Carlsbad will continue to have a ground lease and easement agreement with NRG with an initial term ending in 2039 and two ten -year extensions. As a result of the transaction, additional commitments related to the project totaled $ 23 million as of December 31, 2021 and December 31, 2020. Summarized results of NRG Yield, Inc. and Renewables Platform and Carlsbad discontinued operations for the year ended December 31, 2019 were as follows: (In millions) Operating revenues $ 19 Operating costs and expenses ( 9 ) Other expenses ( 5 ) Gain/(loss) from discontinued operations, net of tax 5 Gain/(loss) on disposal of discontinued operations, net of tax 265 Income/(expense) from California property tax indemnification 22 Income/(expense) from other commitments, indemnification and fees 4 Income/(loss) on disposal of discontinued operations, net of tax 291 Income/(loss) from discontinued operations, net of tax $ 296 109 GenOn On June 14, 2017, the GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Texas Bankruptcy Court. As a result of the bankruptcy filings, NRG concluded that it no longer controlled GenOn as it was subject to the control of the Texas Bankruptcy Court; and accordingly, NRG deconsolidated GenOn and its subsidiaries for financial reporting purposes as of such date. For the Year Ended December 31, 2019 NRG recorded $ 3 million loss from discontinued operations, net of tax for GenOn results of operations. Note 5 — Fair Value of Financial Instruments For cash and cash equivalents, funds deposited by counterparties, restricted cash, accounts and other receivables, accounts payable, restricted cash, 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, 2021 2020 (In millions) Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt, including current portion (a) $ 8,040 $ 8,327 $ 8,781 $ 9,446 (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 is based on quoted market prices and is 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. 110 Recurring Fair Value Measurements Debt securities, equity securities, and trust fund investments, which are comprised of various U.S. debt and 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 consolidated balance sheets on a recurring basis and their level within the fair value hierarchy: As of December 31, 2021 Fair Value (In millions) Total Level 1 Level 2 Level 3 Investments in securities (classified within other current and non-current assets) $ 32 $ 15 $ 17 $ — Nuclear trust fund investments: Cash and cash equivalents 33 33 — — U.S. government and federal agency obligations 112 111 1 — Federal agency mortgage-backed securities 100 — 100 — Commercial mortgage-backed securities 44 — 44 — Corporate debt securities 122 — 122 — Equity securities 494 494 — — Foreign government fixed income securities 4 — 4 — Other trust fund investments (classified within other non-current assets): U.S. government and federal agency obligations 1 1 — — Derivative assets: Foreign exchange contracts 1 — 1 — Commodity contracts 7,139 981 5,701 457 Measured using net asset value practical expedient: Equity securities-nuclear trust fund investments 99 Equity securities (classified within other non-current assets) 7 Total assets $ 8,188 $ 1,635 $ 5,990 $ 457 Derivative liabilities: Foreign exchange contracts $ 1 $ — $ 1 $ — Commodity contracts $ 4,798 $ 626 $ 4,008 $ 164 Total liabilities $ 4,799 $ 626 $ 4,009 $ 164 111 As of December 31, 2020 Fair Value (In millions) Total Level 1 Level 2 Level 3 Investments in securities (classified within other current or non-current assets) $ 25 $ 10 $ 15 $ — Nuclear trust fund investments: Cash and cash equivalents 23 23 — — U.S. government and federal agency obligations 70 69 1 — Federal agency mortgage-backed securities 89 — 89 — Commercial mortgage-backed securities 36 — 36 — Corporate debt securities 144 — 144 — Equity securities 434 434 — — Foreign government fixed income securities 7 1 6 — Other trust fund investments (classified within other non-current assets): U.S. government and federal agency obligations 1 1 — — Derivative assets: Commodity contracts 821 59 623 139 Measured using net asset value practical expedient: Equity securities-nuclear trust fund investments 87 Equity securities (classified within other non-current assets) 8 Total assets $ 1,745 $ 597 $ 914 $ 139 Derivative liabilities: Commodity contracts $ 884 $ 86 $ 643 $ 155 Total liabilities $ 884 $ 86 $ 643 $ 155 The following tables reconcile, for the years ended December 31, 2021 and 2020, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements at least annually using significant unobservable inputs: For the Year Ended December 31, 2021 Fair Value Measurement Using Significant Unobservable Inputs (Level 3) (In millions) Derivatives (a) Beginning balance as of January 1, 2021 $ ( 16 ) Contracts added from Direct Energy acquisition ( 15 ) Total gains realized/unrealized included in earnings 145 Purchases 93 Transfers into Level 3 (b) 71 Transfers out of Level 3 (b) 15 Ending balance as of December 31, 2021 $ 293 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 December 31, 2021 $ 120 (a) Consists of derivatives assets and liabilities, net (b) Transfers into/out of Level 3 are related to the availability of 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 2 112 For the Year Ended December 31, 2020 Fair Value Measurement Using Significant Unobservable Inputs (Level 3) (In millions) Derivatives (a) Beginning balance as of January 1, 2020 $ 38 Total (losses) realized/unrealized included in earnings ( 44 ) Purchases ( 13 ) Transfers into Level 3 (b) 1 Transfers out of Level 3 (b) 2 Ending balance as of December 31, 2020 $ ( 16 ) 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 December 31, 2020 $ 9 (a) Consists of derivatives assets and liabilities, net (b) Transfers into/out of Level 3 are related to the availability of 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 Realized and unrealized gains and losses included in earnings that are related to the energy derivatives are recorded in operating revenues and cost of operations. Non-derivative fair value measurements NRG's investments in debt securities are classified as Level 3 and consist of non-traded debt instruments that were valued based on third-party market value assessments. The trust fund investments are held primarily to satisfy NRG's nuclear decommissioning obligations. These trust fund investments hold debt and equity securities directly and equity securities indirectly through commingled funds. The fair values of equity securities held directly by the trust funds are based on quoted prices in active markets and are categorized in Level 1. In addition, U.S. government and federal agency obligations are categorized as Level 1 because they trade in a highly liquid and transparent market. The fair values of corporate debt securities are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized in Level 2. Certain equity securities, classified as commingled funds, are analogous to mutual funds, are maintained by investment companies, and hold certain investments in accordance with a stated set of fund objectives. The fair value of the equity securities classified as commingled funds are 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 are not publicly quoted, not traded in an active market and are subject to certain restrictions regarding their purchase and sale, the commingled funds are measured using net asset value practical expedient. See also Note 7, Nuclear Decommissioning Trust Fund. Derivative fair value measurements A portion of the Company's contracts are exchange-traded contracts with readily available quoted market prices. A majority of NRG's contracts are non-exchange-traded contracts valued using prices provided by external sources, primarily price quotations available through brokers or over-the-counter and on-line exchanges. For the majority of NRG markets, the Company receives quotes from multiple sources. To the extent that NRG receives multiple quotes, the Company's prices reflect the average of the bid-ask mid-point prices obtained from all sources that NRG believes provide the most liquid market for the commodity. If the Company receives one quote, then the mid-point of the bid-ask spread for that quote is used. The terms for which such price information is available vary by commodity, region and product. A significant portion of the fair value of the Company's derivative portfolio is based on price quotes from brokers in active markets who regularly facilitate those transactions and the Company believes such price quotes are executable. The Company does not use third party sources that derive price based on proprietary models or market surveys. 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. Contracts valued with prices provided by models and other valuation techniques make up 6 % of derivative assets and 3 % of derivative liabilities. 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 113 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, 2021 the credit reserve resulted in a $ 11 million decrease primarily within cost of operations. As of December 31, 2020 the credit reserve resulted in $ 2 million increase primarily within cost of operations. The fair values in each category reflect the level of forward prices and volatility factors as of December 31, 2021, 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 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 and power executed in illiquid markets as well as financial transmission rights, or 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. For FTRs, NRG uses the most recent auction prices to derive the fair value. 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, 2021 and 2020: Significant Unobservable Inputs December 31, 2021 Fair Value Input/Range (In millions) Assets Liabilities Valuation Technique Significant Unobservable Input Low High Weighted Average Natural Gas Contracts $ 16 $ 1 Discounted Cash Flow Forward Market Price (per MMBtu) $ 3 $ 40 $ 15 Power Contracts 392 121 Discounted Cash Flow Forward Market Price (per MWh) 3 212 35 FTRs 49 42 Discounted Cash Flow Auction Prices (per MWh) ( 122 ) 43 0 $ 457 $ 164 Significant Unobservable Inputs December 31, 2020 Fair Value Input/Range (In millions) Assets Liabilities Valuation Technique Significant Unobservable Input Low High Weighted Average Power Contracts $ 111 $ 143 Discounted Cash Flow Forward Market Price (per MWh) $ 10 $ 105 $ 21 FTRs 28 12 Discounted Cash Flow Auction Prices (per MWh) ( 28 ) 43 0 $ 139 $ 155 114 The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of December 31, 2021 and 2020: Significant Unobservable Input Position Change In Input Impact on Fair Value Measurement Forward Market Price Natural Gas/ Power Buy Increase/(Decrease) Higher/(Lower) Forward Market Price Natural Gas/Power Sell Increase/(Decrease) Lower/(Higher) FTR Prices Buy Increase/(Decrease) Higher/(Lower) FTR Prices Sell Increase/(Decrease) Lower/(Higher) 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, 2021, the Company recorded $ 291 million of cash collateral posted and $ 845 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, 2021, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, and registered commodity exchanges and certain long-term agreements, was $ 2.2 billion and NRG held collateral (cash and letters of credit) against those positions of $ 598 million, resulting in a net exposure of $ 1.6 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 87 % of the Company's exposure before collateral is expected to roll off by the end of 2023. 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 67 % Financial institutions 33 Total 100 % Category Net Exposure (a) (b) (% of Total) Investment grade 55 % Non-Investment grade/Non-Rated 45 Total 100 % (a) Counterparty credit exposure excludes uranium and 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 no exposure to wholesale counterparties in excess of 10 % of the total net exposure discussed above as of December 31, 2021. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. 115 During Winter Storm Uri, the Company experienced nonperformance by a counterparty in one of its bilateral financial hedging transactions, resulting in exposure of $ 403 million. The Company is pursuing all means available to enforce its rights under this transaction but, given the size of the exposure, cannot determine with certainty what the amount of its ultimate recovery will be. The full exposure was recorded as a provision for credit losses during the year ended December 31, 2021. RTOs and ISOs The Company participates in the organized markets of CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in these markets is approved by FERC, or in the case of ERCOT, approved by the PUCT and includes 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 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 PPAs. As external sources or observable market quotes are not 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, 2021, aggregate credit risk exposure managed by NRG to these counterparties was approximately $ 1.1 billion 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, 2021, 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. The Company is also subject to risk with respect to its residential solar customers. The Company's provision for credit losses was $ 698 million, $ 108 million, and $ 95 million for the years ending December 31, 2021, 2020, and 2019, respectively. As a result of Winter Storm Uri, the Company incurred additional credit losses from Business customers primarily due to a segment of customers whose contracts included a pass through of wholesale power prices which were significantly escalated during the storm and from customers who failed to meet their obligations in ERCOT load curtailment programs. Note 6 — 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, and interest rate swaps. 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. 116 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; • Extendable swaps, which include a combination of swaps and options executed simultaneously for different periods. This combination of instruments allows NRG to sell out-year volatility through call options in exchange for natural gas swaps with fixed prices in excess of the market price for natural gas at that time. The above-market swap combined with its later-year call option are priced in aggregate at market at the trade's inception; 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, 2021, 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 2024; • Other energy derivatives instruments extending through 2029. Also, as of December 31, 2021, 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 sale contracts extending through 2032; • Power tolling contracts through 2038; • Coal purchase contracts through 2023; • Power transmission contracts through 2025; • Natural gas transportation contracts through 2034; • Natural gas storage agreements through 2025; and • Coal transportation contracts through 2029. Interest Rate Swaps During the fourth quarter of 2020, NRG entered into $ 1.6 billion of interest rate hedges associated with anticipated certain financing needs. As of December 31, 2020, the interest rate hedges were settled in connection with the issuance of fixed rate debt, resulting in a gain of $ 11 million that was recorded as a reduction to interest expense. 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 2025. 117 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, 2021 and 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. (In millions) Total Volume Commodity Units December 31, 2021 December 31, 2020 Emissions Short Ton 1 1 Renewables Energy Certificates Certificates 13 5 Coal Short Ton 19 2 Natural Gas MMBtu 813 ( 286 ) Oil Barrels 1 — Power MWh 185 57 Capacity MW/Day — ( 1 ) Foreign Exchange Dollars 279 — The increase in positions is primarily the result of Direct Energy acquisition. 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, 2021 December 31, 2020 December 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 4,613 560 3,386 499 Commodity contracts- long-term 2,526 261 1,412 385 Total Derivatives Not Designated as Cash Flow or Fair Value Hedges $ 7,140 $ 821 $ 4,799 $ 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 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, 2021 Foreign exchange contracts: Derivative assets $ 1 $ ( 1 ) $ — $ — Derivative liabilities ( 1 ) 1 — — Total foreign exchange contracts $ — $ — $ — $ — Commodity contracts: Derivative assets $ 7,139 $ ( 4,440 ) $ ( 831 ) $ 1,868 Derivative liabilities ( 4,798 ) 4,440 17 ( 341 ) Total commodity contracts $ 2,341 $ — $ ( 814 ) $ 1,527 Total derivative instruments $ 2,341 $ — $ ( 814 ) $ 1,527 118 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 Statement of Operations Unrealized gains and losses associated with changes in the fair value of derivative instruments 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 operating revenues and cost of operations and the effect of interest rate hedges is included in interest expense. Year Ended December 31, (In millions) 2021 2020 2019 Unrealized mark-to-market results Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges $ ( 41 ) $ ( 55 ) $ ( 68 ) Reversal of acquired loss positions related to economic hedges 256 4 6 Net unrealized gains/(losses) on open positions related to economic hedges 2,501 ( 68 ) 42 Total unrealized mark-to-market gains/(losses) for economic hedging activities 2,716 ( 119 ) ( 20 ) Reversal of previously recognized unrealized (gains) on settled positions related to trading activity ( 18 ) ( 20 ) ( 11 ) Reversal of acquired (gain) positions related to trading activity ( 1 ) — — Net unrealized (losses)/gains on open positions related to trading activity ( 13 ) 15 31 Total unrealized mark-to-market (losses)/gains for trading activity ( 32 ) ( 5 ) 20 Total unrealized gains/(losses) $ 2,684 $ ( 124 ) $ — Year Ended December 31, (In millions) 2021 2020 2019 Unrealized (losses)/gains included in operating - commodities $ ( 196 ) $ 90 $ 53 Unrealized gains/(losses) included in cost of operations- commodities 2,880 ( 214 ) ( 53 ) Total impact to statement of operations- commodities $ 2,684 $ ( 124 ) $ — Total impact to statement of operations — interest rate contracts $ — $ — $ ( 38 ) 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 gain from open economic hedge positions of $ 2.5 billion for the year ended December 31, 2021 was primarily the result of an increase in value of forward positions as a result of increases in natural gas and power prices. The loss from open economic hedge positions of $ 68 million for the year ended December 31, 2020 was primarily the result of a decrease in the value of forward positions as a result of decreases in ERCOT power prices and heat rate contraction, partially offset by an increase in value of forward positions as a result of decreases in New York capacity prices. The gain from open economic hedge positions of $ 42 million for the year ended December 31, 2019 was primarily the result of an increase in the value of forward purchases of ERCOT heat rate contracts due to ERCOT heat rate expansion. 119 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. In addition, as a result of the acquisition of Direct Energy from Centrica, certain of the Company’s agreements as of December 31, 2021, were still supported by credit support posted by Centrica, and as a result could require the Company to post collateral upon a deterioration or downgrade of Centrica. The collateral potentially required for contracts with adequate assurance clauses that are in net liability positions as of December 31, 2021 was $ 1.0 billion. 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 $ 70 million as of December 31, 2021. In the event of a downgrade in the Company's credit rating and if called for by the counterparty, $ 1 million of additional collateral would be required for all contracts with credit rating contingent features as of December 31, 2021. See Note 5, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk. Note 7 — Nuclear Decommissioning Trust Fund NRG's Nuclear Decommissioning Trust Fund assets, which are for the decommissioning of STP, are comprised of securities classified as available-for-sale and recorded at fair value based on actively quoted market prices. Although NRG is responsible for managing the decommissioning of its 44 % interest in STP, the predecessor utilities that owned STP are authorized by the PUCT to collect decommissioning funds from their ratepayers to cover decommissioning costs on behalf of NRG. NRC requirements determine the decommissioning cost estimate which is the minimum required level of funding. In the event that funds from the ratepayers that accumulate in the nuclear decommissioning trust are ultimately determined to be inadequate to decommission the STP facilities, the utilities will be required to collect through rates charged to rate payers all additional amounts, with no obligation from NRG, provided that NRG has complied with PUCT rules and regulations regarding decommissioning trusts. Following completion of the decommissioning, if surplus funds remain in the decommissioning trusts, any excess will be refunded to the respective ratepayers of the utilities. NRG accounts for the Nuclear Decommissioning Trust Fund in accordance with ASC 980, Regulated Operations , or ASC 980, because the Company's nuclear decommissioning activities are subject to approval by the PUCT, with regulated rates that are designed to recover all decommissioning costs and that can be charged to and collected from the ratepayers per PUCT mandate. Since the Company is in compliance with PUCT rules and regulations regarding decommissioning trusts and the cost of decommissioning is the responsibility of the Texas ratepayers, not NRG, all realized and unrealized gains or losses (including other-than-temporary impairments) related to the Nuclear Decommissioning Trust Fund are recorded to the Nuclear Decommissioning Trust liability and are not included in net income or accumulated other comprehensive income, consistent with regulatory treatment. The following table summarizes the aggregate fair values and unrealized gains and losses for the securities held in the trust funds, as well as information about the contractual maturities of those securities. As of December 31, 2021 As of December 31, 2020 (In millions, except otherwise noted) Fair Value Unrealized Gains Unrealized Losses Weighted- average maturities (in years) Fair Value Unrealized Gains Unrealized Losses Weighted- average maturities (in years) Cash and cash equivalents $ 33 $ — $ — — $ 23 $ — $ — — U.S. government and federal agency obligations 112 5 1 10 70 6 — 10 Federal agency mortgage-backed securities 100 2 — 25 89 4 — 24 Commercial mortgage-backed securities 44 1 — 27 36 2 — 27 Corporate debt securities 122 7 1 14 144 13 — 12 Equity securities 593 456 — — 521 372 — — Foreign government fixed income securities 4 — — 13 7 1 — 10 Total $ 1,008 $ 471 $ 2 $ 890 $ 398 $ — 120 The following table summarizes proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales. The cost of securities sold is determined using the specific identification method. Year Ended December 31, (In millions) 2021 2020 2019 Realized gains $ 47 $ 34 $ 18 Realized (losses) ( 9 ) ( 13 ) ( 9 ) Proceeds from sale of securities 710 439 381 Note 8 — Inventory Inventory consisted of: As of December 31, (In millions) 2021 2020 Fuel oil $ 8 $ 37 Coal 83 73 Natural gas 206 22 Spare parts and finished goods 201 195 Total Inventory $ 498 $ 327 The Company recorded a $ 29 million lower of weighted average cost or market adjustment related to fuel oil during the year ended December 31, 2020. Note 9 — Property, Plant and Equipment The Company's major classes of property, plant, and equipment were as follows: As of December 31, Depreciable (In millions) 2021 2020 Lives Facilities and equipment $ 1,742 $ 3,365 1 - 40 years Land and improvements 271 329 Nuclear fuel 222 239 5 years Hardware and office equipment and furnishings 637 453 2 - 10 years Construction in progress 124 97 Total property, plant, and equipment 2,996 4,483 Accumulated depreciation ( 1,308 ) ( 1,936 ) Net property, plant, and equipment $ 1,688 $ 2,547 The Company recorded long-lived asset impairments during the years ended December 31, 2021 and 2020, as further described in Note 11, Asset Impairments. Depreciation expense of property, plant and equipment recorded during the years ended December 31, 2021, 2020 and 2019 was $ 384 million, $ 295 million and $ 271 million, respectively. Note 10 — Leases The Company leases generating facilities, land, office and equipment, railcars, fleet vehicles and storefront space at retail stores. Operating leases with an initial term greater than twelve months are recognized as right-of-use assets and lease liabilities in the consolidated balance sheets. The Company made an accounting policy election, as permitted by ASC 842, for all asset classes not to recognize right-of-use assets and lease liabilities in the consolidated balance sheets for its short-term leases, which are leases that have a lease term of twelve months or less. For the initial measurement of lease liabilities, the discount rate that the Company uses is either the rate implicit in the lease, if known, or its incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, over a similar term an amount equal to the payments for the lease. The Company recognizes lease expense for all operating leases on a straight-line basis over the lease term. In the future, should another systematic basis become more representative of the pattern in which the lessee expects to consume the remaining economic benefit of the right-of-use asset, the Company will use that basis for lease expense. The Company considers a contract to be or to contain a lease when both of the following conditions apply: 1) an asset is either explicitly or implicitly identified in the contract and 2) the contract conveys to the Company the right to control the use of the identified asset for a period of time. The Company has the right to control the use of the identified asset when the Company 121 has both the right to obtain substantially all the economic benefits from the use of the identified asset and the right to direct how and for what purpose the identified asset is used throughout the period of use. Lease payments are typically fixed and payable on a monthly, quarterly, semi-annual or annual basis. Lease payments under certain agreements may escalate over the lease term either by a fixed percentage or a fixed dollar amount. Certain leases may provide for variable lease payments in the form of payments based on usage, a percentage of sales from the location under lease, or index-based (e.g., the U.S. Consumer Price Index) adjustments to lease payments. The Company has no leases which contain residual value guarantees provided by the Company as a lessee. As described in Note 4, Acquisitions, Discontinued Operations and Dispositions , upon the close of the South Central Portfolio sale in 2019, the Company entered into an agreement to leaseback the Cottonwood facility through May 2025. The lease was accounted for in accordance with ASC 842-40, Sale and Leaseback Transactions , as an operating lease and accordingly, a right-of-use asset and lease liability were established on the lease commencement date and will be amortized through the end of the lease. Lease Cost: For the Year Ended December 31, (In millions) 2021 2020 2019 Finance lease cost $ 4 $ 3 $ — Operating lease cost 91 100 109 Short-term lease cost 3 3 3 Variable lease cost 9 6 6 Sublease income ( 2 ) ( 17 ) ( 17 ) Total lease cost $ 105 $ 95 $ 101 Other information: For the Year Ended December 31, (In millions) 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 102 $ 101 $ 104 Financing cash flows from finance leases 6 1 — Right-of-use assets obtained in exchange for new finance lease liabilities 16 5 — Right-of-use assets obtained in exchange for new operating lease liabilities 47 4 215 Lease Term and Discount Rate for leases: December 31, 2021 December 31, 2020 Finance leases: Weighted average remaining lease term (in years) 3.6 1.1 Weighted average discount rate 2.46 % 4.79 % Operating leases: Weighted average remaining lease term (in years) 4.7 5.3 Weighted average discount rate 5.44 % 5.63 % 122 As of December 31, 2021, annual payments based on the maturities of NRG's operating leases are expected to be as follows: In millions 2022 $ 96 2023 89 2024 76 2025 52 2026 11 Thereafter 48 Total undiscounted lease payments $ 372 Less: present value adjustment ( 55 ) Total discounted lease payments $ 317 Note 11 — Asset Impairments 2021 Impairment Losses During the fourth quarter of 2021, the Company completed its annual budget and analyzed the corresponding impact on estimated cash flows associated with its long-lived assets. The fair value of the assets was determined using an income approach by applying a discounted cash flow methodology to the long-term budget for the facility. The income approach utilized estimates of after-tax cash flows, which were Level 3 fair value measurements, and included key inputs such as forecasted power prices, fuel costs, operating and maintenance costs, plant investment capital expenditures and discount rates. Joliet —The Company recognized an impairment loss of $ 213 million in the East segment as a result of changes in the long-term outlook of the Joliet facility prompted by market conditions and an assessment of various alternatives for the long-term operational landscape of the facility including the impact of the CEJA in Illinois, which concluded with the annual budget process. Other Impairments — The Company additionally recorded impairment losses of $ 16 million and $ 9 million related to various power plants in the East and West/Service/Other segments, respectively. The Company also recorded the following impairment in 2021 based on a specific triggering event that occurred using the same methodology previously discussed: PJM Asset Impairments — During the second quarter of 2021, the results of the PJM Base Residual Auction for the 2022/2023 delivery year were released leading the Company to announce the near-term retirement of a significant portion of its PJM coal generating assets in June 2022. The Company considered the decline in PJM capacity prices and the near-term retirement dates of certain assets to be a trigger for impairment and performed impairment tests on the PJM generating assets and the goodwill associated with Midwest Generation. Impairment losses of $ 271 million and $ 35 million were recorded in the East segment on the PJM generating assets and Midwest Generation goodwill, respectively. 2020 Impairment Losses During the fourth quarter of 2020, the Company completed its annual budget and revised its view of long-term power and fuel prices and the corresponding impact on estimated cash flows associated with its long-lives assets. The Cottonwood facility had estimated cash flows that were lower than its carrying amount and the assets were considered impaired. The fair value of the assets was determined using an income approach by applying a discounted cash flow methodology to the long-term budget for the facility. The income approach utilized estimates of after-tax cash flows, which were Level 3 fair value measurements, and included key inputs such as forecasted power prices, fuel costs, operating and maintenance costs, plant investment capital expenditures and discount rates. The Cottonwood facility is being leased through 2025 and the Company recognized an impairment loss of $ 32 million in 2020 in the West/Services/Other segment associated with the Company's long-term services agreement and related lease payments, as the carrying amounts of the assets from the contract were higher than the estimated operating cash flow though the remaining lease period. The Company also recorded the following impairments in 2020 based on specific triggering events that occurred: Home Solar — In the third quarter of 2020, the Company concluded its Home Solar business was held for sale and recorded an impairment loss of $ 29 million in the West/Services/Other segment to adjust the carrying amount of the assets and liabilities to fair market value based on indicative sale prices. 123 Petra Nova Parish Holdings — During the first quarter of 2020, due to the decline in oil prices, NRG determined that the carrying amount of the Company’s equity method investment exceeded the fair value of the investment and that the decline is considered to be other-than-temporary. In determining the fair value, the Company utilized an income approach to estimate future project cash flows. The Company recorded an impairment loss of $ 18 million in the Texas segment, which included the anticipated drawdown of the $ 12 million letter of credit posted in September 2019 to cover certain project debt reserve requirements. Other Impairments — For the year ended December 31, 2020, the Company recorded $ 14 million of impairment losses related to intangible assets in the Texas segment. 2019 Impairment Losses Petra Nova Parish Holdings — During the third quarter of 2019, NRG contributed $ 95 million in cash to Petra Nova and posted a $ 12 million letter of credit to cover certain project debt reserve requirements. The cash portion of the contribution was used by Petra Nova to prepay a significant portion of the project debt. As a result, the previously disclosed guarantee of up to $ 124 million related to the project level debt provided by NRG was canceled and the remaining project debt became non-recourse to NRG. In relation to this contribution, the Company evaluated the project for impairment and determined that the carrying amount of the Company’s equity method investment exceeded the fair value of the investment and that the decline is considered to be other-than-temporary. In determining the fair value, the Company utilized an income approach and considered project specific assumptions for the estimated future project cash flows. The Company measured the impairment loss as the difference between the carrying amount and the fair value of the investment and recorded an impairment loss of $ 101 million. Other Impairments — For the year ended December 31, 2019, the Company recorded $ 12 million of impairment losses primarily related to investments and intangibles. Note 12 — Goodwill and Other Intangibles Goodwill The table below presents the changes of goodwill for the year ended December 31, 2021 based on the Company's reportable segments. Goodwill did not change during the year ended December 31, 2020. (in millions) Texas East West/Services/Other Total Balance as of January 1, 2021 $ 324 $ 240 $ 15 $ 579 Goodwill resulted from the acquisition of Direct Energy 427 648 175 1,250 Impairment losses — ( 35 ) — ( 35 ) Foreign currency translation — — 1 1 Balance as of December 31, 2021 $ 751 $ 853 $ 191 $ 1,795 Intangible Assets The Company's intangible assets as of December 31, 2021, primarily reflect intangible assets established with the acquisitions of various companies, including Direct Energy, Stream Energy, other retail acquisitions, and Texas Genco. Intangible assets are comprised of the following: • Emission Allowances — These intangibles primarily consist of SO2 emission allowances, including those established with the 2006 acquisition of Texas Genco, RGGI emission credits and California carbon allowances. These emission allowances are held-for-use and are amortized to cost of operations based on units of production. • Customer and supply contracts — These intangibles include the fair value at the acquisition date of in-market and out-of-market customer and supply contracts from the acquisition of Direct Energy and are amortized to revenue and cost of operations, respectively, based upon the fair market value, as of the acquisition date, for each delivery month. It also included energy supply contracts acquired with Stream Energy that represent the fair value at the acquisition date of in-market contracts for the purchase of energy to serve retail electric customers and are amortized based on the expected delivery under the respective contracts. • Customer relationships — These intangibles represent the fair value at the acquisition date of acquired businesses' customer base from the acquisition of Direct Energy and other acquisitions. The customer relationships are amortized to depreciation and amortization expense based on the expected discounted future net cash flows by year. • Marketing partnerships — These intangibles represent the fair value at the acquisition date of existing agreements with marketing vendors and loyalty and affinity partners for customer acquisition. The marketing partnerships are amortized to depreciation and amortization expense based on the expected discounted future net cash flows by year. • Trade names — These intangibles are amortized to depreciation and amortization expense on a straight-line basis. 124 • Other — These intangibles primarily include renewable energy credits. Renewable energy credits are retired, as required, for the applicable compliance period. They are expensed to cost of operations based on NRG’s customer usage. It also includes in-market nuclear fuel contracts established from the Texas Genco acquisition in 2006 which are amortized to cost of operations over expected volumes over the life of each contract, costs to extend the operating license for STP Units 1 and 2 and intellectual property related to Goal Zero which are amortized to depreciation and amortization expense. The following tables summarize the components of NRG's intangible assets: (In millions) Year Ended December 31, 2021 Emission Allowances Customer and Supply Contracts Customer Relationships Marketing Partnerships Trade Names Other (b) Total January 1, 2021 $ 672 $ 28 $ 527 $ 285 $ 373 $ 140 $ 2,025 Purchases 10 — — — — 338 348 Acquisition of businesses (a) — 610 1,308 — 310 124 2,352 Usage/Sales/Retirements ( 1 ) — — — — ( 364 ) ( 365 ) Write-off of fully amortized balances ( 51 ) — ( 158 ) — — ( 7 ) ( 216 ) Other 4 — 2 ( 1 ) — ( 2 ) 3 December 31, 2021 634 638 1,679 284 683 229 4,147 Less accumulated amortization ( 536 ) ( 94 ) ( 518 ) ( 123 ) ( 294 ) ( 71 ) ( 1,636 ) Net carrying amount $ 98 $ 544 $ 1,161 $ 161 $ 389 $ 158 $ 2,511 (a) The weighted average life of total acquired amortizable intangibles from the Direct Energy acquisition was 12 years, see Note 4 — Acquisitions, Discontinued Operations and Dispositions for weighted average life of acquired amortizable intangibles for each intangible asset type (b) RECs are not subject to amortization and had a carrying value of $ 123 million (In millions) Year Ended December 31, 2020 Emission Allowances Customer and Supply Contracts Customer Relationships Marketing Partnerships Trade Names Other (b) Total January 1, 2020 $ 662 $ 28 $ 573 $ 285 $ 373 $ 130 $ 2,051 Purchases 25 — — — — 45 70 Acquisition of businesses (a) — — 22 — — — 22 Usage/Retirements — — — — — ( 35 ) ( 35 ) Write-off of fully amortized balances ( 4 ) — ( 70 ) — — — ( 74 ) Impairment ( 14 ) — — — — — ( 14 ) Other 3 — 2 — — — 5 December 31, 2020 672 28 527 285 373 140 2,025 Less accumulated amortization ( 563 ) ( 28 ) ( 349 ) ( 99 ) ( 247 ) ( 71 ) ( 1,357 ) Net carrying amount $ 109 $ — $ 178 $ 186 $ 126 $ 69 $ 668 (a) The weighted average life of acquired intangibles was 5 years for customer relationships (b) RECs are not subject to amortization and had a carrying value of $ 28 million 125 The following table presents NRG's amortization of intangible assets for each of the past three years: Years Ended December 31, (In millions) 2021 2020 2019 Emission allowances $ 24 $ 28 $ 32 Customer and supply contracts 66 12 14 Customer relationships 327 74 44 Marketing partnerships 24 24 15 Trade names 47 27 25 Other (a) 7 3 4 Total amortization $ 495 $ 168 $ 134 (a) For the years ended December 31, 2021, 2020 and 2019, other intangibles were amortized to depreciation and amortization expense for $ 3 million, $ 3 million and $ 4 million, respectively The following table presents estimated amortization of NRG's intangible assets as of December 31, 2021 for each of the next five years: (In millions) Year Ended December 31, Emission Allowances Customer and Supply Contracts Customer Relationships Marketing Partnerships Trade Names Other Total 2022 $ 14 $ 143 $ 265 $ 23 $ 47 $ 3 $ 495 2023 12 120 216 23 46 4 421 2024 12 73 148 23 38 3 297 2025 11 50 110 22 32 4 229 2026 9 52 95 22 24 4 206 Intangible assets held-for-sale — From time to time, management may authorize the transfer from the Company's emission bank of emission allowances held-for-use to intangible assets held-for-sale. Emission allowances held-for-sale are included in other non-current assets on the Company's consolidated balance sheet and are not amortized, but rather expensed as sold. As of December 31, 2021 and 2020, the value of emission allowances held-for-sale was $ 15 million and $ 14 million, respectively, within the Corporate segment. Once transferred to held-for-sale, these emission allowances are prohibited from moving back to held-for-use. 126 Note 13 — Long-term Debt and Finance Leases Long-term debt and finance leases consisted of the following: (In millions, except rates) December 31, 2021 December 31, 2020 Interest rate % Recourse debt: Senior Notes, due 2026 $ — $ 1,000 7.250 Senior Notes, due 2027 375 1,230 6.625 Senior Notes, due 2028 821 821 5.750 Senior Notes, due 2029 733 733 5.250 Senior Notes, due 2029 500 500 3.375 Senior Notes, due 2031 1,030 1,030 3.625 Senior Notes, due 2032 1,100 — 3.875 Convertible Senior Notes, due 2048 (a) 575 575 2.750 Senior Secured First Lien Notes, due 2024 600 600 3.750 Senior Secured First Lien Notes, due 2025 500 500 2.000 Senior Secured First Lien Notes, due 2027 900 900 2.450 Senior Secured First Lien Notes, due 2029 500 500 4.450 Tax-exempt bonds 466 466 1.250 - 4.750 Subtotal long-term debt (including current maturities) 8,100 8,855 Finance leases 13 4 various Subtotal long-term debt and finance leases (including current maturities) 8,113 8,859 Less current maturities ( 4 ) ( 1 ) Less debt issuance costs ( 83 ) ( 93 ) Discounts ( 60 ) ( 74 ) Total long-term debt and finance leases $ 7,966 $ 8,691 (a) The effective interest rate was 5.34 % and 5.19 % for the years ended December 31, 2021 and 2020, respectively. As of the ex-dividend date of January 31, 2022, the Convertible Senior Notes were convertible at a price of $ 44.53 , which is equivalent to a conversion rate of approximately 22.4563 shares of common stock per $1,000 principal amount. The remaining period over which the discount on the liability component would have been amortized is 3.7 years. However, the adoption of ASU 2020-06 on January 1, 2022 resulted in the elimination of the debt discount. Debt includes the following discounts: As of December 31, (In millions) 2021 2020 Senior Secured First Lien Notes, due 2024, 2025, 2027 and 2029 $ ( 2 ) $ ( 2 ) Convertible Senior Notes, due 2048 ( 58 ) ( 72 ) Total discounts $ ( 60 ) $ ( 74 ) Consolidated Annual Maturities As of December 31, 2021, annual payments based on the maturities of NRG's debt and finance leases are expected to be as follows: (In millions) 2022 $ 4 2023 3 2024 603 2025 502 2026 — Thereafter 7,001 Total $ 8,113 127 Senior Notes Issuance of 2032 Senior Notes On August 23, 2021, the Company issued $ 1.1 billion of aggregate principal amount of 3.875 % senior notes due 2032. The 2032 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on February 15, 2022 until the maturity date of February 15, 2032. The 2032 Senior Notes were issued under NRG's Sustainability-Linked Bond Framework, which sets out certain sustainability targets, including reducing greenhouse gas emissions. Failure to meet such sustainability targets will result in a 25 basis point increase to the interest rate payable on the 2032 Senior Notes from and including August 15, 2026. The proceeds of the 2032 Senior Notes, along with cash on hand, were used to fund the redemption of $ 1.0 billion aggregate principal amount of the 7.250 % Senior Notes due 2026 and $ 355 million aggregate principal amounts of the 6.625 % Senior Notes due 2027. Issuance of 2029 Senior Unsecured Notes and 2031 Senior Unsecured Notes On December 2, 2020, NRG issued $ 500 million aggregate principal amount of 3.375 % senior notes due 2029 (the “2029 Unsecured Notes”) and $ 1.0 billion aggregate principal amount of 3.625 % senior notes due 2031 (the “2031 Unsecured Notes” and, together with the 2029 Unsecured Notes, the “Unsecured Notes”). Interest is payable on the Unsecured Notes on February 15 and August 15 of each year beginning on August 15, 2021 until the maturity date of February 15, 2029 for the 2029 Unsecured Notes and February 15, 2031 for the 2031 Unsecured Notes. Issuance of 2025 and 2027 Senior Secured First Lien Notes On December 2, 2020, NRG issued $ 1.4 billion of aggregate principal amount of senior secured first lien notes, consisting of $ 500 million 2.000 % senior secured first lien notes due 2025 (the “2025 Secured Notes”) and $ 900 million 2.450 % senior secured first lien notes due 2027 (the “2027 Secured Notes” and, together with the 2025 Secured Notes, the “2025 and 2027 Senior Secured First Lien Notes”), at a discount. The 2027 Secured Notes were issued under NRG’s Sustainability-Linked Bond Framework, which sets out certain sustainability targets, including reducing greenhouse gas emissions. Failure to meet such sustainability targets will result in a 25 basis point increase to the interest rate payable on the 2027 Secured Notes from and including the interest period ending on June 2, 2026. The 2025 and 2027 Senior Secured First Lien Notes are guaranteed on a first-priority basis by each of NRG’s current and future subsidiaries that guarantee indebtedness under its credit agreement. The 2025 and 2027 Senior Secured First Lien Notes are secured by a first priority security interest in the same collateral that is pledged for the benefit of the lenders under NRG’s credit agreement, which consists of a substantial portion of the property and assets owned by NRG and the guarantors. The collateral securing the 2025 and 2027 Senior Secured First Lien Notes will be released if the Company obtains an investment grade rating from two out of the three rating agencies, subject to an obligation to reinstate the collateral if such rating agencies withdraw the Company's investment grade rating or downgrade its rating below investment grade. Interest is payable on the 2025 and 2027 Senior Secured First Lien Notes on June 2 and December 2 of each year beginning on June 2, 2021 until the maturity date of December 2, 2025 for the 2025 Secured Notes and December 2, 2027 for the 2027 Secured Notes. Senior Note Redemptions During the year ended December 31, 2021, the Company redeemed approximately $ 1.9 billion in aggregate principal amount of its Senior Notes for $ 1.9 billion using the proceeds of the 2032 Senior Notes and cash on hand, as detailed in the table below. In connection with the redemptions, a $ 77 million loss on debt extinguishment was recorded, which included the write-off of previously deferred financing costs of $ 12 million. (In millions, except percentages) Principal Repurchased Cash Paid (a) Average Early Redemption Percentage 7.250 % Senior Notes, due 2026 $ 1,000 $ 1,056 103.625 % 6.625 % Senior Notes, due 2027 855 893 103.313 % Total $ 1,855 $ 1,949 (a) Includes accrued interest of $ 29 million for redemptions for the year ended December 31, 2021 2048 Convertible Senior Notes The Convertible Senior Notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options . Under ASC 470-20, issuers of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components. Prior to February 22, 2022, the Convertible Senior Notes were convertible, under certain circumstances, into the Company's common stock, cash or a combination thereof (at NRG's option) at a price of $ 44.89 per common share as of December 31, 2021, which is equivalent to a conversion rate of approximately 22.2761 shares of common stock per $1,000 principal amount 128 of Convertible Senior Notes. On February 22, 2022, the Company irrevocably elected to eliminate the right to settle conversions only in shares of the Company's common stock, such that any conversion after such date will be settled in cash or a combination of cash and the Company's common stock. As of December 31, 2020, the Convertible Senior Notes were convertible at a price of $ 46.24 per common share, which is equivalent to a conversion rate of approximately 21.6242 shares of common stock per $1,000 principal amount of Convertible Senior Notes. The carrying amounts of the liability components as of December 31, 2021 and 2020 of $ 518 million and $ 503 million, respectively, were calculated by estimating the fair value of similar liabilities without a conversion feature at inception and amortizing the debt discount using the effective interest rate over the life of the note. Senior Notes Early Redemption As of December 31, 2021, NRG had the following outstanding issuances of senior notes with an early redemption feature, or Senior Notes: i. 6.625 % senior notes, issued August 2, 2016 and due January 15, 2027, or the 2027 Senior Notes; ii. 5.750 % senior notes, issued December 7, 2017 and due January 15, 2028, or the 2028 Senior Notes; iii. 5.250 % senior notes, issued May 24, 2019 and due June 15, 2029, or the 2029 Senior Notes; iv. 3.375 % senior notes, issued December 2, 2020 and due February 15, 2029, or the 3.375 % 2029 Senior Notes; v. 3.625 % senior notes, issued December 2, 2020 and due February 15, 2031, or the 2031 Senior Notes; and vi. 3.875 % senior notes, issued August 23, 2021 and due February 15, 2032, or the 2032 Senior Notes. The Company periodically enters into supplemental indentures for the purpose of adding entities under the Senior Notes as guarantors. The indentures and the forms of notes provide, among other things, that the Senior Notes will be senior unsecured obligations of NRG. The indentures also provide for customary events of default, which include, among others: nonpayment of principal or interest; breach of other agreements in the indentures; defaults in failure to pay certain other indebtedness; the rendering of judgments to pay certain amounts of money against NRG and its subsidiaries; the failure of certain guarantees to be enforceable; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs, the Trustee or the Holders of at least 25 % or 30 % (depending on the series of Senior Notes) in principal amount of the then outstanding series of Senior Notes may declare all of the Senior Notes of such series to be due and payable immediately. The terms of the indentures, among other things, limit NRG's ability and certain of its subsidiaries' ability to return capital to stockholders, grant liens on assets to lenders and incur additional debt. Interest is payable semi-annually on the Senior Notes until their maturity dates. 2027 Senior Notes NRG may redeem some or all of the 2027 Senior Notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period Redemption Percentage July 15, 2021 to July 14, 2022 103.313 % July 15, 2022 to July 14, 2023 102.208 % July 15, 2023 to July 14, 2024 101.104 % July 15, 2024 and thereafter 100.000 % 129 2028 Senior Notes At any time prior to January 15, 2023, NRG may redeem all or a part of the 2028 Senior Notes, at a redemption price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1 % of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 102.875 % of the note, plus interest payments due on the note from the date of redemption through January 15, 2023 computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 %. In addition, on or after January 15, 2023, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period Redemption Percentage January 15, 2023 to January 14, 2024 102.875 % January 15, 2024 to January 14, 2025 101.917 % January 15, 2025 to January 14, 2026 100.958 % January 15, 2026 and thereafter 100.000 % 5.250 % 2029 Senior Notes At any time prior to June 15, 2022, NRG may redeem up to 40 % of the aggregate principal amount of the 2029 Senior Notes, at a redemption price equal to 105.250 % of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings, provided that at least 50 % of the aggregate principal amount remains outstanding immediately after the occurrence of such redemption. At any time prior to June 15, 2024, NRG may redeem all or a part of the 2029 Senior Notes, at a redemption price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1 % of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 102.625 % of the note, plus interest payments due on the note through June 15, 2024 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50 %. In addition, on or after June 15, 2024, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period Redemption Percentage June 15, 2024 to June 14, 2025 102.625 % June 15, 2025 to June 14, 2026 101.750 % June 15, 2026 to June 14, 2027 100.875 % June 15, 2027 and thereafter 100.000 % 130 3.375 % 2029 Senior Notes At any time prior to February 15, 2024, NRG may redeem up to 40 % of the aggregate principal amount of the 2029 Senior Notes, at a redemption price equal to 103.375 % of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings, provided that at least 50 % of the aggregate principal amount remains outstanding immediately after the occurrence of such redemption. At any time prior to February 15, 2024, NRG may redeem all or a part of the 2029 Senior Notes, at a redemption price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1 % of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 101.688 % of the note, plus interest payments due on the note through February 15, 2024 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50 %. In addition, on or after February 15, 2024, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period Redemption Percentage February 15, 2024 to February 14, 2025 101.688 % February 15, 2025 to February 14, 2026 100.844 % February 15, 2026 and thereafter 100.000 % 2031 Senior Notes At any time prior to February 15, 2026, NRG may redeem up to 40 % of the aggregate principal amount of the 2031 Senior Notes, at a redemption price equal to 103.625 % of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings, provided that at least 50 % of the aggregate principal amount remains outstanding immediately after the occurrence of such redemption. At any time prior to February 15, 2026, NRG may redeem all or a part of the 2031 Senior Notes, at a redemption price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1 % of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 101.813 % of the note, plus interest payments due on the note through February 15, 2026 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50 %. In addition, on or after February 15, 2026, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period Redemption Percentage February 15, 2026 to February 14, 2027 101.813 % February 15, 2027 to February 14, 2028 101.208 % February 15, 2028 to February 14, 2029 100.604 % February 15, 2029 and thereafter 100.000 % 2032 Senior Notes At any time prior to August 15, 2024, NRG may redeem up to 40 % of the aggregate principal amount of the 2032 Senior Notes, at a redemption price equal to 103.875 % of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings, provided that at least 50 % of the aggregate principal amount remains outstanding immediately after the occurrence of such redemption. At any time prior to February 15, 2027, NRG may redeem all or a part of the 2032 Senior Notes, at a redemption price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1 % of the principal amount of the notes; or (ii) the excess of (A) the present value of (1) the redemption price of the note at February 15, 2027 (such redemption price being set forth in the table appearing below in the column “Redemption Percentage (If Sustainability Performance Target has not been satisfied and/or confirmed by External Verifier)” unless the Sustainability Performance Target has been satisfied in respect of the year ended December 31, 2025 and the Company has provided confirmation thereof to the Trustee together with a related confirmation by the External Verifier by the date that is at least 15 days prior to August 15, 2026 in which case the redemption price shall be as set forth in the column “Redemption Percentage (If Sustainability Performance Target has been satisfied and confirmed by External Verifier)”) plus (2) interest payments due on the note through February 15, 2027 (excluding accrued but unpaid interest to the redemption date) computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50 %, over (B) the principal amount of the note. In addition, on 131 or after February 15, 2027, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table during the twelve-month period beginning on February 15 of the years indicated below, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Year Redemption Percentage (If Sustainability Performance Target has been satisfied and confirmed by External Verifier) Redemption Percentage (If Sustainability Performance Target has not been satisfied and/or confirmed by External Verifier) 2027 101.938 % 102.188 % 2028 101.292 % 101.458 % 2029 100.646 % 100.729 % 2030 and thereafter 100.000 % 100.000 % Receivables Facility On September 22, 2020, NRG Receivables LLC, a bankruptcy remote, special purpose, indirect wholly owned subsidiary, entered into the Receivables Facility for an amount up to $ 750 million, subject to adjustments on a seasonal basis, with issuers of asset-backed commercial paper and commercial banks (the "Lenders".) The assets of NRG Receivables LLC are first available to satisfy the claims of the Lenders before making payments on the subordinated note and equity issued by NRG Receivables LLC. The assets of NRG Receivables LLC are not available to the Company and its subsidiaries or creditors unless and until distributed by NRG Receivables LLC. Under the Receivables Facility, certain indirect subsidiaries of the Company sell their accounts receivables to NRG Receivables LLC, subject to certain terms and conditions. In turn, NRG Receivables LLC grants a security interest in the purchased receivables to the Lenders as collateral for cash borrowings and issuances of letters of credit. Pursuant to the Performance Guaranty, the Company has guaranteed, for the benefit of NRG Receivables and the Lenders, the payment and performance by each indirect subsidiary of its respective obligations under the Receivables Facility. The accounts receivables remain on the Company's consolidated balance sheet and any amounts funded by the Lenders to NRG Receivables LLC will be reflected as short-term borrowings. Cash flows from the Receivables Facility are reflected as financing activities in the Company's consolidated statements of cash flows. The Company will continue to service the accounts receivables sold in exchange for a servicing fee. On July 26, 2021, NRG Receivables LLC entered into the First Amendment to the Receivables Facility with a group of conduit lenders and banks and Royal Bank of Canada, as Administrative Agent to, among other things, (i) increase the existing revolving commitments by $ 50 million to an aggregate amount of $ 800 million, (ii) extend the maturity date until July 26, 2022, (iii) make certain adjustments to the pool of receivables through the Receivables Facility and certain related covenants and (iv) provide for revised language relating to interest determination based on SOFR in case of a LIBOR cessation or the occurrence of certain other trigger events. Borrowings by NRG Receivables LLC under the Receivables Facility bear interest as defined under the Receivables Financing Agreement. The weighted average interest rate related to usage under the Receivables Facility as of December 31, 2021 was 0.646 %. As of December 31, 2021, there were no outstanding borrowings and there were $ 400 million in letters of credit issued under the Receivables Facility. Repurchase Facility On September 22, 2020, the Company entered into the Repurchase Facility related to the Receivables Facility. Under the Repurchase Facility, the Company can borrow up to $ 75 million, collateralized by a subordinated note issued by NRG Receivables LLC to NRG Retail LLC in favor of the originating entities representing a portion of the balance of receivables sold to NRG Receivables LLC under the Receivables Facility. On July 26, 2021, the Company renewed its existing Repurchase Facility to, among other things, (i) extend the maturity date to July 26, 2022 and (ii) provide for revised language relating to interest determination based on SOFR in case of a LIBOR cessation or the occurrence of certain other trigger events. On February 9, 2022, the Company entered into amendments to its existing Repurchase Facility to, among other things, (i) increase the size of the facility from $ 75 million to $ 150 million and (ii) replace LIBOR with term SOFR as the benchmark for the pricing rate. The Repurchase Facility has no commitment fee and borrowings will be drawn at SOFR + 1.30 %. As of December 31, 2021, there were no outstanding borrowings under the Repurchase Facility. Senior Credit Facility Revolving Credit Facility Modification During the third quarter of 2020, the Company amended its existing credit agreement to, among other things, (i) increase the existing revolving commitments in an aggregate amount of $ 802 million, and (ii) provide for a new tranche of revolving commitments in an aggregate amount of $ 273 million with a maturity date of July 5, 2023. The maturity date of the new revolving tranche of commitments may, upon request by the Company, and at the option of each applicable lender under the 132 new tranche be extended to May 28, 2024, which is the maturity date of the existing and increased commitments. Other than with respect to the maturity date, the terms of all revolving commitments and loans made pursuant thereto are identical. The increase in the existing commitments, and the commitments with respect to the new tranche were effective on August 20, 2020 and became available on January 5, 2021 upon the closing of the Direct Energy Acquisition. As of December 31, 2021, total revolving commitments available, subject to usage, under the amended credit agreement was $ 3.7 billion. Credit Default Swap Facility On January 4, 2019, the Company entered into an $ 80 million credit agreement to issue letters of credit, which is currently supporting the Cottonwood facility lease. Annual fees of 1.33 % on the facility were paid quarterly in advance. On August 13, 2020, the agreement was amended permitting the Company to increase the size of the facility and fees on the facility were adjusted to reflect the costs of the credit default swaps that serve as collateral for the facility. In order to increase the Company’s collective collateral facilities in connection with the Direct Energy acquisition, NRG expanded the facility allowing for the issuance of an additional $ 150 million of letters of credit as of December 31, 2020. As of December 31, 2021, $ 222 million was issued under this facility. Bilateral Letter of Credit Facilities In December 2020 the Company entered into a series of Bilateral Letter of Credit Facilities to allow for the issuance of up to $ 475 million of letters of credit. These facilities are uncommitted. As of December 31, 2021, $ 469 million was issued under these facilities. Put Option Agreement for Senior Debt Issuance During the fourth quarter of 2020, the Company entered into a 3 -year put option agreement with a Delaware trust formed by the Company upon completion of the sale of $ 900 million pre-capitalized trust securities redeemable November 15, 2023 (the “P-Caps”). The Trust invested the proceeds from the sale of the P-Caps in a portfolio of principal and interest strips of U.S. Treasury securities (the “Eligible Treasury Assets”). Under the put option agreement, NRG has the right, from time to time, to issue to the Trust and to require the Trust to purchase from NRG, on one or more occasions (the “Issuance Right”), up to $ 900 million aggregate principal amount of NRG’s 1.841 % Senior Secured First Lien Notes due 2023 (the “P-Caps Secured Notes”) in exchange for all or a portion of the Eligible Treasury Assets corresponding to the portion of the Issuance Right. NRG will pay a semi-annual premium to the Trust at a rate of 1.65 %. In connection with the issuance of the P-Caps, on December 11, 2020, NRG entered into an amended and restated facility agreement for the issuance of letters of credit (the “LC Agreement”) with Deutsche Bank Trust Company Americas as collateral agent (the “Collateral Agent”) and administrative agent pursuant to which certain financial institutions (the “LC Issuers”) have agreed to provide letters of credit in an aggregate amount not to exceed $ 874 million to support the operations of NRG and its subsidiaries and minority investments, including to replace certain letters of credit and other credit support issued for the account of entities acquired pursuant to the Direct Energy Acquisition. In addition, on December 11, 2020, the Trust entered into an amended and restated pledge and control agreement (the “Pledge Agreement”), among NRG, the Trust and the Collateral Agent for the LC Issuers, under which the Trust agreed to grant a pledge over the Eligible Treasury Assets in favor of the Collateral Agent for the benefit of the LC Issuers. Pursuant to the LC Agreement and the Pledge Agreement, the Collateral Agent is entitled to withdraw Eligible Treasury Assets from the Trust’s pledged account, following notice to NRG, in the event NRG has failed to reimburse amounts drawn under any letter of credit issued pursuant to the LC Agreement, and the LC Issuers have the right to instruct the Collateral Agent to enforce the pledge over the Eligible Treasury Assets upon the occurrence of any event of default under the LC Agreement. The LC Agreement and the Pledge Agreement were available on January 5, 2021. As of December 31, 2021, $ 873 million of letters of credit were issued under the LC Agreement . Tax Exempt Bonds As of December 31, (In millions, except rates) 2021 2020 Interest Rate % NRG Indian River Power 2020, tax exempt bonds, due 2040 $ 57 $ 57 1.250 NRG Indian River Power 2020, tax exempt bonds, due 2045 190 190 1.250 NRG Dunkirk 2020, tax exempt bonds, due 2042 59 59 1.300 City of Texas City, tax exempt bonds, due 2045 33 33 4.125 Fort Bend County, tax exempt bonds, due 2038 54 54 4.750 Fort Bend County, tax exempt bonds, due 2042 73 73 4.750 Total $ 466 $ 466 133 Dunkirk Bonds On March 11, 2020, NRG issued $ 59 million in aggregate principal amount of NRG Dunkirk 2020 1.30 % tax-exempt refinancing bonds due 2042 (the "Dunkirk Bonds"). The Dunkirk Bonds are guaranteed on a first-priority basis by each of NRG’s current and future subsidiaries that guarantee indebtedness under its credit agreement. The Dunkirk Bonds are secured by a first priority security interest in the same collateral that is pledged for the benefit of the lenders under NRG’s credit agreement, which consists of a substantial portion of the property and assets owned by NRG and the guarantors. The collateral securing the Dunkirk Bonds will, at the request of NRG, be released if NRG satisfies certain conditions, including receipt of an investment grade rating on its senior, unsecured debt securities from two out of the three rating agencies, subject to reversion if those rating agencies withdraw their investment grade rating of the Dunkirk Bonds or any of NRG’s senior, unsecured debt securities or downgrade such rating below investment grade. The Dunkirk Bonds are subject to mandatory tender and purchase on April 3, 2023 and have a final maturity date of April 1, 2042. NRG used the net proceeds from the offering to redeem during 2020 the existing principal amount of outstanding Dunkirk Power LLC 5.875 % tax exempt bonds due 2042. Indian River Bonds On December 17, 2020, NRG issued $ 57 million in aggregate principal amount of NRG Indian River 2020 1.25 % tax-exempt refinancing bonds due 2040 (the "IR 2040 Bonds") and $ 190 million aggregate principal amount of NRG Indian River Power 2020 1.25 % tax-exempt refinancing bonds due 2045 (the "IR 2045 Bonds") (together the "IR Bonds"). The IR Bonds are guaranteed on a first-priority basis by each of NRG’s current and future subsidiaries that guarantee indebtedness under its credit agreement. The IR Bonds are secured by a first priority security interest in the same collateral that is pledged for the benefit of the lenders under NRG’s credit agreement, which consists of a substantial portion of the property and assets owned by NRG and the guarantors. The collateral securing the IR Bonds will, at the request of NRG, be released if NRG satisfies certain conditions, including receipt of an investment grade rating on its senior, unsecured debt securities from two out of the three rating agencies, subject to reversion if those rating agencies withdraw their investment grade rating of the IR Bonds or any of NRG’s senior, unsecured debt securities or downgrade such rating below investment grade. The IR Bonds are subject to mandatory tender and purchase on October 1, 2025 and have final maturity dates of October 1, 2040 for the IR 2040 Bonds and October 1, 2045 for the IR 2045 Bonds. NRG used the net proceeds from the offering to redeem during 2020 the existing principal amounts of outstanding Indian River Power 6.000 % tax exempt bonds due 2040 and Indian River Power LLC 5.375 % tax exempt bonds due 2045. Note 14 — Asset Retirement Obligations The Company's AROs are primarily related to the environmental obligations for nuclear decommissioning, mine reclamation, ash disposal, site closures, fuel storage facilities and future dismantlement of equipment on leased property. In addition, the Company has also identified conditional AROs for asbestos removal and disposal, which are specific to certain power generation operations. See Note 7, Nuclear Decommissioning Trust Fund, for a further discussion of the Company's nuclear decommissioning obligations. Accretion for the nuclear decommissioning ARO and amortization of the related ARO asset are recorded to the Nuclear Decommissioning Trust Liability to the ratepayers and are not included in net income, consistent with treatment per ASC 980, Regulated Operations . The following table represents the balance of ARO obligations as of December 31, 2021 and 2020, along with the additions, reductions and accretion related to the Company's ARO obligations for the year ended December 31, 2021: (In millions) Nuclear Decommission Other (a) Total Balance as of December 31, 2020 $ 303 $ 457 $ 760 Revisions in estimates for current obligations — ( 36 ) ( 36 ) Additions — 5 5 Spending for current obligations — ( 51 ) ( 51 ) Accretion 18 24 42 Balance as of December 31, 2021 $ 321 $ 399 $ 720 (a) Total accretion expense related to asset retirement obligations included in the consolidated statement of cash flows includes accretion and revisions in estimates for asset retirement liabilities on non-operating plants 134 Note 15 — Benefit Plans and Other Postretirement Benefits NRG sponsors and operates defined benefit pension and other postretirement plans. NRG pension benefits are available to eligible non-union and union employees through various defined benefit pension plans. These benefits are based on pay, service history and age at retirement. Most pension benefits are provided through tax-qualified plans. NRG also provides postretirement health and welfare benefits for certain groups of employees. Cost sharing provisions vary by the terms of any applicable collective bargaining agreements. NRG maintains three separate qualified pension plans, the NRG Pension Plan for Bargained Employees, the NRG Pension Plan and the Pension Plan for Employees of Direct Energy Marketing Limited ("DEML"). Participation in the NRG Pension Plan for Bargained Employees depends upon whether an employee is covered by a bargaining agreement. The NRG Pension plan was frozen for non-union employees on December 31, 2018. The Pension Plan for Employees of DEML is closed to new participants. Due to updated assumptions as a result of ARPA, NRG does no t expect to contribute to the Company's pension plans in 2022. NRG Defined Benefit Plans The annual net periodic benefit cost/(credit) related to NRG's pension and other postretirement benefit plans include the following components: Year Ended December 31, Pension Benefits (In millions) 2021 2020 2019 Service cost benefits earned $ 9 $ 10 $ 10 Interest cost on benefit obligation 27 38 46 Expected return on plan assets ( 66 ) ( 61 ) ( 59 ) Amortization of unrecognized net loss 1 5 3 Settlement/curtailment expense 2 — — Net periodic benefit (credit)/cost $ ( 27 ) $ ( 8 ) $ — Year Ended December 31, Other Postretirement Benefits (In millions) 2021 2020 2019 Service cost benefits earned $ — $ — $ 1 Interest cost on benefit obligation 2 3 3 Amortization of unrecognized prior service cost ( 10 ) ( 14 ) ( 13 ) Amortization of unrecognized net loss 1 1 — Curtailment loss 1 — — Net periodic benefit credit $ ( 6 ) $ ( 10 ) $ ( 9 ) 135 A comparison of the pension benefit obligation, other postretirement benefit obligations and related plan assets for NRG's plans on a combined basis is as follows: As of December 31, Pension Benefits Other Postretirement Benefits (In millions) 2021 2020 2021 2020 Benefit obligation at January 1 $ 1,489 $ 1,397 $ 90 $ 93 Acquired benefit obligation from Direct Energy 74 — 19 — Service cost 9 10 — — Interest cost 27 38 2 3 Actuarial (gain)/loss ( 55 ) 126 — — Employee and retiree contributions — — 3 3 Curtailment loss — — 1 — Benefit payments ( 93 ) ( 82 ) ( 10 ) ( 9 ) Foreign exchange translation 1 — — — Benefit obligation at December 31 1,452 1,489 105 90 Fair value of plan assets at January 1 1,272 1,150 — — Acquired fair value of plan assets from Direct Energy 64 — — Actual return on plan assets 85 193 — — Employee and retiree contributions — — 3 3 Employer contributions 7 11 7 6 Benefit payments ( 93 ) ( 82 ) ( 10 ) ( 9 ) Foreign exchange translation 1 — — — Fair value of plan assets at December 31 1,336 1,272 — — Funded status at December 31 — excess of obligation over assets $ ( 116 ) $ ( 217 ) $ ( 105 ) $ ( 90 ) During the year ended December 31, 2021, the actuarial gain of $ 55 million on pension benefits was primarily driven by increasing discount rates and changes in demographic assumptions. During the year ended December 31, 2020, the actuarial loss of $ 126 million on pension benefits was driven by decreasing discount rates and changes in demographic assumptions, partially offset by gains from life expectancy projection updates. Amounts recognized in NRG's balance sheets were as follows: As of December 31, Pension Benefits Other Postretirement Benefits (In millions) 2021 2020 2021 2020 Other current liabilities $ — $ — $ 7 $ 5 Other non-current liabilities 116 217 98 85 Amounts recognized in NRG's accumulated OCI that have not yet been recognized as components of net periodic benefit cost were as follows: As of December 31, Pension Benefits Other Postretirement Benefits (In millions) 2021 2020 2021 2020 Net loss $ 52 $ 127 $ 5 $ 6 Prior service cost/(credit) 2 2 ( 19 ) ( 29 ) Total accumulated OCI $ 54 $ 129 $ ( 14 ) $ ( 23 ) 136 Other changes in plan assets and benefit obligations recognized in OCI were as follows: Year Ended December 31, Pension Benefits Other Postretirement Benefits (In millions) 2021 2020 2021 2020 Net actuarial gain $ ( 72 ) $ ( 6 ) $ — $ — Amortization of net actuarial loss ( 1 ) ( 5 ) ( 1 ) ( 1 ) Amortization of prior service cost — — 10 14 Effect of settlement ( 2 ) — — — Total recognized in OCI $ ( 75 ) $ ( 11 ) $ 9 $ 13 Net periodic benefit credit ( 27 ) ( 8 ) ( 6 ) ( 10 ) Net recognized in net periodic pension credit and OCI $ ( 102 ) $ ( 19 ) $ 3 $ 3 The following table presents the balances of significant components of NRG's pension plan: As of December 31, Pension Benefits (In millions) 2021 2020 Projected benefit obligation $ 1,452 $ 1,489 Accumulated benefit obligation 1,423 1,455 Fair value of plan assets 1,336 1,272 NRG's market-related value of its plan assets is the fair value of the assets. The fair values of the Company's pension plan assets by asset category and their level within the fair value hierarchy are as follows: Fair Value Measurements as of December 31, 2021 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Total Common/collective trust investment — U.S. equity $ — $ 221 $ 221 Common/collective trust investment — non-U.S. equity — 69 69 Common/collective trust investment — non-core assets — 110 110 Common/collective trust investment — fixed income — 340 340 Short-term investment fund 13 — 13 Subtotal fair value $ 13 $ 740 $ 753 Measured at net asset value practical expedient: Common/collective trust investment — non-U.S. equity 78 Common/collective trust investment — fixed income 405 Common/collective trust investment — non-core assets 65 Partnerships/joint ventures 35 Total fair value $ 1,336 137 Fair Value Measurements as of December 31, 2020 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Total Common/collective trust investment — U.S. equity $ — $ 284 $ 284 Common/collective trust investment — non-U.S. equity — 113 113 Common/collective trust investment — non-core assets — 151 151 Common/collective trust investment — fixed income — 258 258 Short-term investment fund 13 — 13 Subtotal fair value $ 13 $ 806 $ 819 Measured at net asset value practical expedient: Common/collective trust investment — non-U.S. equity 45 Common/collective trust investment — fixed income 289 Common/collective trust investment — non-core assets 84 Partnerships/joint ventures 35 Total fair value $ 1,272 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. The fair value of the common/collective trust investments is valued at fair value which is equal to the sum of the market value of all of the fund's underlying investments. Certain common/collective trust investments have readily determinable fair value as they publish daily net asset value, or NAV, per share and are categorized as Level 2. Certain other common/collective trust investments and partnerships/joint ventures use NAV per share, or its equivalent, as a practical expedient for valuation, and thus have been removed from the fair value hierarchy table. The following table presents the significant assumptions used to calculate NRG's benefit obligations: As of December 31, Pension Benefits Other Postretirement Benefits Weighted-Average Assumptions 2021 2020 2021 2020 Discount rate 2.89 % 2.56 % 2.89 % 2.54 % Interest crediting rate 3.07 % 3.12 % 1.94 % 1.62 % Rate of compensation increase 3.06 % 3.00 % — % — % Health care trend rate — — 6.8 % grading to 4.4 % in 2028 7.2 % grading to 4.5 % in 2028 The following table presents the significant assumptions used to calculate NRG's benefit expense: As of December 31, Pension Benefits Other Postretirement Benefits Weighted-Average Assumptions 2021 2020 2019 2021 2020 2019 Discount rate 2.55 % 3.26 % 4.38 %/ 4.20 % 2.81 % 3.26 % 4.37 % Interest crediting rate 3.13 % 3.66 % — 1.62 % 2.28 % — Expected return on plan assets 5.62 % 5.93 % 6.35 % — — — Rate of compensation increase 3.06 % 3.00 % 3.00 % — — — Health care trend rate — — — 7.0 % grading to 4.4 % in 2028 7.5 % grading to 4.5 % in 2028 7.8 % grading to 4.5 % in 2025 138 NRG uses December 31 of each respective year as the measurement date for the Company's pension and other postretirement benefit plans. The Company sets the discount rate assumptions on an annual basis for each of NRG's defined benefit retirement plans as of December 31. The discount rate assumptions represent the current rate at which the associated liabilities could be effectively settled at December 31. The Company utilizes the Aon AA Above Median, or AA-AM, yield curve and the AON Canada yield curve to select the appropriate discount rate assumption for its retirement plans. The AA-AM yield curve is a hypothetical AA yield curve represented by a series of annualized individual spot discount rates from 6 months to 99 years. Under the AA-AM yield curve, each bond issue used to build this yield curve must be non-callable, and have an average rating of AA when averaging available Moody's Investor Services, Standard & Poor's and Fitch ratings. The AON Canada yield curve is based on high quality corporate bonds. Under the AON Canada yield curve, expected plan cash flows were discounted using the the yield curve, and then a single rate is determined which produces an equivalent present value. NRG employs a total return investment approach, whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The Investment Committee reviews the asset mix periodically and as the plan assets increase in future years, the Investment Committee may examine other asset classes such as real estate or private equity. NRG employs a building block approach to determining the long-term rate of return assumption for plan assets, with proper consideration given to diversification and rebalancing. Historical markets are studied and long-term historical relationships between equities and fixed income are preserved, consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonableness and appropriateness. The target allocations of NRG's pension plan assets were as follows for the year ended December 31, 2021: U.S. equity 17 % Non-U.S. equity 13 % Non-core assets 15 % Fixed Income 55 % Plan assets are currently invested in a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S., non-U.S., global, and emerging market equities, as well as among growth, value, small and large capitalization stocks. Investment risk and performance are monitored on an ongoing basis through quarterly portfolio reviews of each asset fund class to a related performance benchmark, if applicable, and annual pension liability measurements. Performance benchmarks are composed of the following indices: Asset Class Index U.S. equities Dow Jones U.S. Total Stock Market Index Non-U.S. equities MSCI All Country World Index Non-core assets (a) Various (per underlying asset class) Fixed income securities Barclays Short, Intermediate and Long Credits/Barclays Strips 20+ Index and FTSE Canada Universe Bond Index (a) Non-Core Assets are defined as diversifying asset classes approved by the Investment Committee that are intended to enhance returns and/or reduce volatility of the U.S. and non-U.S. equities. Asset classes considered Non-Core include, but may not be limited to: Emerging Market Equity, Emerging Market Debt, Non-US Developed Market Small Cap, High Yield Fixed Income, Real Estate, Bank Loans, Global Infrastructure and other Alternatives. NRG's expected future benefit payments for each of the next five years, and in the aggregate for the five years thereafter, are as follows: Other Postretirement Benefit (In millions) Pension Benefit Payments Benefit Payments Medicare Prescription Drug Reimbursements 2022 $ 96 $ 7 $ — 2023 94 7 — 2024 91 7 — 2025 87 6 — 2026 86 6 — 2027-2031 396 26 2 139 STP Defined Benefit Plans NRG has a 44 % undivided ownership interest in STP, as discussed further in Note 28, Jointly Owned Plants . STPNOC, which operates and maintains STP, provides its employees a defined benefit pension plan, as well as postretirement health and welfare benefits. Although NRG does not sponsor the STP plan, it reimburses STPNOC for 44 % of the contributions made towards its retirement plan obligations. During 2019, STPNOC announced that the defined benefit pension plan would be frozen. As a result, during 2019, NRG recognized a gain of $ 8 million related to the curtailment of benefits and an increase of $ 32 million to the pension liability was recorded to other comprehensive income. The Company measures the fair value of its pension assets in accordance with ASC 820, Fair Value Measurements and Disclosures, or ASC 820. As of December 31, 2021, the STPNOC defined benefit pension plan was frozen to all employees. For the years ended December 31, 2021 and December 31, 2020, NRG reimbursed STPNOC $ 17 million and $ 8 million, respectively, for its contribution to the plans. In 2022, NRG expects to reimburse STPNOC $ 13 million for its contribution to the plan. The Company has recognized the following in its statement of financial position, statement of operations and accumulated OCI related to its 44 % interest in STP: As of December 31, Pension Benefits Other Postretirement Benefits (In millions) 2021 2020 2021 2020 Funded status — STPNOC benefit plans $ ( 50 ) $ ( 99 ) $ ( 18 ) $ ( 20 ) Net periodic benefit cost/(credit) 17 7 ( 4 ) ( 4 ) Other changes in plan assets and benefit obligations recognized in other comprehensive income ( 51 ) 22 4 5 Defined Contribution Plans NRG's employees are also eligible to participate in defined contribution 401(k) plans. The Company's contributions to these plans were as follows: Year Ended December 31, (In millions) 2021 2020 2019 Company contributions to defined contribution plans $ 25 $ 22 $ 22 140 Note 16 — Capital Structure For the period from December 31, 2018 to December 31, 2021, the Company had 10,000,000 shares of preferred stock authorized and 500,000,000 shares of common stock authorized. The following table reflects the changes in NRG's common shares issued and outstanding for each period presented: Common Shares Issued Treasury Outstanding Balance as of December 31, 2018 420,288,886 ( 136,638,847 ) 283,650,039 Shares issued under ESPP — 46,128 46,128 Shares issued under LTIPs 1,601,904 — 1,601,904 Share repurchases — ( 36,301,882 ) ( 36,301,882 ) Balance as of December 31, 2019 421,890,790 ( 172,894,601 ) 248,996,189 Shares issued under ESPP — 131,469 131,469 Shares issued under LTIPs 1,167,058 — 1,167,058 Share repurchases — ( 6,062,783 ) ( 6,062,783 ) Balance as of December 31, 2020 423,057,848 ( 178,825,915 ) 244,231,933 Shares issued under ESPP — 117,392 117,392 Shares issued under LTIPs 489,326 — 489,326 Share repurchases — ( 1,084,752 ) ( 1,084,752 ) Balance as of December 31, 2021 423,547,174 ( 179,793,275 ) 243,753,899 Shares issued under LTIPs 288,491 — 288,491 Share repurchases — ( 1,889,151 ) ( 1,889,151 ) Balance as of February 24, 2022 423,835,665 ( 181,682,426 ) 242,153,239 Common Stock As of December 31, 2021, NRG had 14,372,743 shares of common stock reserved for the maximum number of shares potentially issuable based on the conversion and redemption features of the long-term incentive plans. Common stock dividends — The Company declared and paid $ 0.325 , $ 0.30 and $ 0.03 quarterly dividend per common share, or $ 1.30 , $ 1.20 and $ 0.12 per share on an annualized basis for 2021, 2020 and 2019 respectively. In the first quarter of 2020, NRG increased the annual dividend to $ 1.20 from $ 0.12 per share, as part of a long-term capital allocation policy adopted in the fourth quarter of 2019, that targets allocating 50 % of cash available for allocation generated each year to growth investments and 50 % to be returned to shareholders. The return of capital to shareholders is expected to be completed through the increased dividend supplemented by share repurchases. The long-term capital allocation policy targets an annual dividend growth rate of 7 - 9 % per share in years subsequent to 2020. In 2021 and 2022, NRG increased the annual dividend to $ 1.30 and $ 1.40 per share, representing an 8 % increase each year. The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations. On January 21, 2022, NRG declared a quarterly dividend on the Company's common stock of $ 0.35 per share, or $ 1.40 per share on an annualized basis, payable on February 15, 2022, to stockholders of record as of February 1, 2022. Employee Stock Purchase Plan — In March 2019, the Company reopened participation in the ESPP, which allows eligible employees to elect to withhold between 1 % and 10 % of their eligible compensation to purchase shares of NRG common stock at the lesser of 95 % of its market value on the offering date or 95 % of the fair market value on the exercise date. An offering date will occur each April 1 and October 1. An exercise date will occur each September 30 and March 31. As of December 31, 2021, there remained 2,636,199 shares of treasury stock reserved for issuance under the ESPP. Share Repurchases — In 2018, the Company's board of directors authorized the Company to repurchase $ 1.5 billion of its common stock. The Company executed $ 1.25 billion of these share repurchases in 2018, with the remaining $ 0.25 billion completed in the first quarter of 2019. In 2019, the Company's board of directors authorized the Company to repurchase an additional $ 1.25 billion of its common stock. The Company executed $ 1.194 billion of these share repurchases in 2019 and completed the remaining $ 56 million under the 2019 authorization by February 27, 2020. The remaining repurchases in 2020 and were made under the long-term capital allocation policy discussed above. On December 6, 2021 the Company announced that the Board of Directors has authorized $ 1 billion for share repurchases, as part of NRG’s Capital Allocation Program. The program began in 2021 and will continue throughout 2022. 141 The following table summarizes the shares repurchases made during the years ended December 31, 2019, 2020 and 2021 as well as through February 24, 2022: Total number of shares and share equivalents purchased Average price paid per share and share equivalent Amounts paid for shares and share equivalents purchased (in millions) 2019 repurchases: Repurchases under February 28, 2019 Accelerated Share Repurchase Agreement 9,438,671 400 Other repurchases (a) 26,863,211 1,008 Equivalent shares purchased in lieu of tax withholdings on equity compensation issuances (b) 936,928 36 Total Share Repurchases during 2019 37,238,810 $ 38.79 $ 1,444 2020 repurchases: Repurchases 6,062,783 197 Equivalent shares purchased in lieu of tax withholdings on equity compensation issuances (b) 711,248 27 Total Share Repurchases during 2020 6,774,031 $ 33.05 $ 224 2021 repurchases: Repurchases (a) 1,084,752 44 Equivalent shares purchased in lieu of tax withholdings on equity compensation issuances (b) 249,013 9 Total Share Repurchases during 2021 1,333,765 $ 40.22 $ 53 2022 repurchases: Repurchases made subsequent to December 31, 2021 1,889,151 76 Equivalent shares purchased in lieu of tax withholdings on equity compensation issuances (b) 130,674 6 Total share repurchases January 1, 2021 through February 24, 2022 2,019,825 $ 40.26 $ 82 (a) Includes $ 5 million and $ 4 million accrued as of December 31, 2021 and December 31,2019, respectively (b) NRG elected to pay cash for tax withholding on equity awards instead of issuing actual shares to management. The average price per equivalent shares withheld was $ 43.08 , $ 37.50 , $ 38.23 and $ 38.78 in 2022, 2021, 2020 and 2019, respectively. See Note 21, Stock-Based Compensation, for further discussion of the equity awards 142 Note 17 — Investments Accounted for by the Equity Method and Variable Interest Entities Entities that are not Consolidated NRG accounts for the Company's significant investments using the equity method of accounting. NRG's carrying value of equity investments can be impacted by a number of elements including impairments, unrealized gains and losses on derivatives and movements in foreign currency exchange rates. The following table summarizes NRG's equity method investments as of December 31, 2021: (In millions, except percentages) Name: Economic Interest Investment Balance (a) Gladstone 37.5 % $ 127 Ivanpah Master Holdings, LLC 54.5 % 4 Watson Cogeneration Company 49.0 % 14 Midway-Sunset Cogeneration Company 50.0 % 12 Total equity investments in affiliates $ 157 Petra Nova Parish Holdings, LLC (b) 50.0 % $ ( 16 ) (a) As of December 31, 2021, the carrying value of NRG's equity method investment was $ 116 million lower than the underlying net assets of the investees. The basis difference is being amortized into net income over the remaining estimated useful lives of the underlying net assets. The basis difference is primarily due to impairments booked on Petra Nova, but not booked at the project level, as well as differences related to the deconsolidations of Ivanpah and the treatment of certain deferred tax assets (b) The Company continues to account for Petra Nova under the equity method due to the fact that NRG still has a financial guaranty. As a result, the Company continues to record losses for a negative equity method investment. As of December 31, 2021, NRG recorded $ 16 million to other non-current liabilities. Refer to Note 11, Asset Impairments , for discussion of NRG's investment in Petra Nova Parish Holdings, LLC As of December 31, (In millions) 2021 2020 Undistributed earnings from equity investments $ 33 $ 30 Variable Interest Entities NRG accounts for its interests in certain entities that are considered VIEs under ASC 810, Consolidation , for which NRG is not the primary beneficiary, under the equity method. Through its consolidated subsidiary, NRG Solar Ivanpah LLC, NRG owns a 54.5 % interest in Ivanpah Master Holdings, LLC, or Ivanpah, the owner of three solar electric generating projects located in the Mojave Desert with a total capacity of 393 MW. NRG considers this investment a VIE under ASC 810 and NRG is not considered the primary beneficiary. The Company accounts for its interest under the equity method of accounting. Other Equity Investments Gladstone — Through a joint venture, NRG owns a 37.5 % interest in Gladstone, a 1,613 MW coal-fueled power generation facility in Queensland, Australia. The power generation facility is managed by the joint venture participants and the facility is operated by NRG. Operating expenses incurred in connection with the operation of the facility are funded by each of the participants in proportion to their ownership interests. Coal is sourced from local mines in Queensland. NRG and the joint venture participants receive their respective share of revenues directly from the off takers in proportion to the ownership interests in the joint venture. Power generated by the facility is primarily sold to an adjacent aluminum smelter, with excess power sold to the Queensland Government-owned utility under long-term supply contracts. NRG's investment in Gladstone was $ 127 million as of December 31, 2021. Entities that are Consolidated The Company has a controlling financial interest that has been identified as a VIE under ASC 810 in NRG Receivables LLC, which has entered into financing transactions related to the Receivables Facility as further described in Note 13, Long-term Debt and Finance Leases. 143 The summarized financial information for the Company's consolidated VIEs consisted of the following: (In millions) December 31, 2021 December 31, 2020 Accounts receivable $ 939 $ 647 Other current assets — 2 Total assets 939 649 Current liabilities 78 78 Net assets $ 861 $ 571 Note 18 — Income Per Share Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding. Shares issued and treasury shares repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted income per share is computed in a manner consistent with that of basic income per share, while giving effect to all potentially dilutive common shares that were outstanding during the period. Dilutive effect for equity compensation and other equity instruments — The outstanding relative performance stock units, non-vested restricted stock units, market stock units and non-qualified stock options are not considered outstanding for purposes of computing basic income per share. However, these instruments are included in the denominator for purposes of computing diluted income per share under the treasury stock method. As of December 31, 2021, 2020 and 2019, the Convertible Senior Notes were convertible, under certain circumstances, into the Company’s common stock, cash or combination thereof (at NRG's option). There was no dilutive effect for the Convertible Senior Notes due to the Company’s expectation, as of such dates, to settle the liability in cash. On February 22, 2022, the Company irrevocably elected to eliminate the right to settle conversions only in shares of the Company's common stock, such that any conversion after such date will be settled in cash or a combination of cash and the Company's common stock. The reconciliation of NRG's basic income per share to diluted income per share is shown in the following table: Year Ended December 31, (In millions, except per share amounts) 2021 2020 2019 Basic income per share attributable to NRG Energy, Inc; Net income attributable to NRG Energy, Inc. common stockholders $ 2,187 $ 510 $ 4,438 Weighted average number of common shares outstanding-basic 245 245 262 Income per weighted average common share — basic $ 8.93 $ 2.08 $ 16.94 Diluted income per share attributable to NRG Energy, Inc; Net income attributable to NRG Energy, Inc. common stockholders $ 2,187 $ 510 $ 4,438 Weighted average number of common shares outstanding-basic 245 245 262 Incremental shares attributable to the issuance of equity compensation (treasury stock method) — 1 2 Weighted average number of common shares outstanding-diluted 245 246 264 Income per weighted average common share — diluted $ 8.93 $ 2.07 $ 16.81 As of December 31, 2021, 2020 and 2019 the Company had an insignificant number of outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company’s diluted income per share. Note 19 — Segment Reporting The Company’s segment structure reflects how management makes financial decisions and allocates resources. The Company manages its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus. NRG's chief operating decision maker, its chief executive officer, evaluates the performance of its segments based on operational measures including adjusted earnings before interest, taxes, depreciation and amortization, or Adjusted EBITDA, free cash flow and capital for allocation, as well as net income/(loss) and net income/(loss) attributable to NRG Energy, Inc. The acquired operations of Direct Energy are integrated into the existing NRG segment structure. Domestic customer and market operations are combined into the corresponding geographical segments of Texas, East and West/Services/Other. The West/Services/Other segment includes activity related to the Canadian operations as well as the services businesses. 144 In February 2019, the Company completed the sale and deconsolidation of the South Central Portfolio and Carlsbad. Refer to Note 4, Acquisitions, Discontinued Operations and Dispositions , for further discussion. The Company had no customer that comprised more than 10% of the Company's consolidated revenues during the years ended December 31, 2021, 2020 and 2019. Intersegment sales are accounted for at market. For the Year Ended December 31, 2021 (In millions) Texas East West/Services/Other Corporate (a) Eliminations Total Operating revenues (a) $ 10,293 $ 13,033 $ 3,653 $ — $ 10 $ 26,989 Operating expenses 8,692 10,257 3,466 141 10 22,566 Depreciation and amortization 331 338 88 28 — 785 Impairment losses — 535 9 — — 544 Total operating cost and expenses 9,023 11,130 3,563 169 10 23,895 Gain on sale of assets 19 — 17 211 — 247 Operating income 1,289 1,903 107 42 — 3,341 Equity in (losses)/earnings of unconsolidated affiliates ( 3 ) — 20 — — 17 Other income, net 8 7 3 59 ( 14 ) 63 Loss on debt extinguishment — — — ( 77 ) — ( 77 ) Interest expense ( 1 ) ( 1 ) ( 28 ) ( 469 ) 14 ( 485 ) Income/(loss) from continuing operations before income taxes 1,293 1,909 102 ( 445 ) — 2,859 Income tax expense — — 19 653 — 672 Net income/(loss) attributable to NRG Energy, Inc. $ 1,293 $ 1,909 $ 83 $ ( 1,098 ) $ — $ 2,187 Balance sheet Equity investments in affiliates $ — $ — $ 157 $ — $ — $ 157 Capital expenditures 153 50 21 45 — 269 Goodwill 751 853 191 — — 1,795 Total assets $ 12,265 $ 13,673 $ 4,816 $ 19,081 $ ( 26,653 ) $ 23,182 (a) Inter-segment sales and inter-segment net derivative gains and losses included in operating revenues $ 5 $ ( 18 ) $ 3 $ — $ — $ ( 10 ) For the Year Ended December 31, 2020 (In millions) Texas East West/Services/Other Corporate (a) Eliminations Total Operating revenues (a) $ 6,309 $ 2,258 $ 530 $ — $ ( 4 ) $ 9,093 Operating expenses 5,249 1,758 421 57 ( 4 ) 7,481 Depreciation and amortization 227 138 36 34 — 435 Impairment losses 14 — 61 — — 75 Total operating cost and expenses 5,490 1,896 518 91 ( 4 ) 7,991 (Loss)/gain on sale of assets — — ( 2 ) 5 — 3 Operating income/(loss) 819 362 10 ( 86 ) — 1,105 Equity in (losses)/earnings of unconsolidated affiliates ( 12 ) — 29 — — 17 Impairment losses on investments ( 18 ) — — — — ( 18 ) Other income, net 11 7 8 41 — 67 Loss on debt extinguishment — ( 4 ) ( 5 ) — — ( 9 ) Interest expense — ( 14 ) ( 3 ) ( 384 ) — ( 401 ) Income/(loss) from continuing operations before income taxes 800 351 39 ( 429 ) — 761 Income tax (benefit)/expense — ( 1 ) 2 250 — 251 Net income attributable to NRG Energy, Inc. $ 800 $ 352 $ 37 $ ( 679 ) $ — $ 510 Balance sheet Equity investments in affiliates $ ( 13 ) $ — $ 359 $ — $ — $ 346 Capital expenditures 130 45 30 25 — 230 Goodwill (b) 324 240 15 — — 579 Total assets $ 7,641 $ 1,790 $ 1,679 $ 11,152 $ ( 7,360 ) $ 14,902 (a) Inter-segment sales and inter-segment net derivative gains and losses included in operating revenues $ 6 $ ( 6 ) $ 4 $ — $ — $ 4 (b) Goodwill was allocated based on the regions in which the business operates and are expected to benefit using a relative fair value approach For the Year Ended December 31, 2019 (In millions) Texas East West/Services/Other Corporate (a) Eliminations Total Operating revenues (a) $ 7,069 $ 2,262 $ 497 $ — $ ( 7 ) $ 9,821 Operating expenses 5,821 1,843 453 50 ( 7 ) 8,160 Depreciation and amortization 188 117 37 31 — 373 Impairment losses 1 — 4 — — 5 Total operating cost and expenses 6,010 1,960 494 81 ( 7 ) 8,538 Gain on sale of assets — 1 — 6 — 7 Operating income/(loss) 1,059 303 3 ( 75 ) — 1,290 Equity in (losses)/earnings of unconsolidated affiliates ( 4 ) — 6 — — 2 Impairment losses on investments ( 103 ) — — ( 5 ) — ( 108 ) Other income, net 20 6 10 30 — 66 Loss on debt extinguishment — — ( 3 ) ( 48 ) — ( 51 ) Interest expense — ( 18 ) ( 10 ) ( 385 ) — ( 413 ) Income/(loss) from continuing operations before income taxes 972 291 6 ( 483 ) — 786 Income tax expense/(benefit) — 2 1 ( 3,337 ) — ( 3,334 ) Net income from continuing operations 972 289 5 2,854 — 4,120 Gain from discontinued operations, net of income tax — — — 321 — 321 Net Income 972 289 5 3,175 — 4,441 Less: Net income attributable to noncontrolling interests and redeemable noncontrolling interests — — 3 — — 3 Net income attributable to NRG Energy, Inc. $ 972 $ 289 $ 2 $ 3,175 $ — $ 4,438 (a) Inter-segment sales and inter-segment net derivative gains and losses included in operating revenues $ 1 $ 8 $ ( 2 ) $ — $ — $ 7 145 Note 20 — Income Taxes The income tax provision from continuing operations consisted of the following amounts: Year Ended December 31, (In millions, except effective income tax rate) 2021 2020 2019 Current State $ 48 $ 22 $ 2 Foreign 3 4 4 Total — current 51 26 6 Deferred U.S. Federal 569 168 ( 3,000 ) State 36 60 ( 340 ) Foreign 16 ( 3 ) — Total — deferred 621 225 ( 3,340 ) Total income tax expense/(benefit) $ 672 $ 251 $ ( 3,334 ) Effective income tax rate 23.5 % 33.0 % ( 424.2 ) % During the year ended December 31, 2019, NRG released the majority of its valuation allowance against its U.S. federal and state deferred tax assets, resulting in a non-cash benefit to income tax expense of approximately $ 3.5 billion. In making the determination to release the majority of the valuation allowance as of December 31, 2019, the Company evaluated a number of factors, including its recent history of pre-tax earnings, utilization of $ 593 million of NOLs in 2019, as well as its forecasted future pre-tax earnings. Based on this evaluation, the Company determined that the majority of its future tax benefits are more-likely-than-not to be realized. Given the Company’s current level of pre-tax earnings and forecasted future pre-tax earnings, the Company expects to generate income before taxes in the U.S. in future periods at a level that would fully utilize its U.S. federal NOL carryforwards and the majority of its state NOL carryforwards prior to their expiration. On March 27, 2020, the Senate passed the CARES Act to provide emergency relief related to the COVID-19 pandemic. The CARES Act contains federal income tax provisions which, among other things: (i) increases the amount of interest expense that businesses are allowed to deduct by increasing the adjusted taxable income limitation from 30% to 50% for tax years that begin in 2019 and 2020; (ii) permits businesses to carry back to each of the five tax years NOLs arising from tax years beginning after December 31, 2017 and before January 1, 2020; and (iii) temporarily removes the 80% limitation on NOLs until tax years beginning after 2020. The CARES Act provisions did not have a material impact on the tax positions of the Company. The following represented the domestic and foreign components of income from continuing operations before income taxes: Year Ended December 31, (In millions) 2021 2020 2019 U.S. $ 2,759 $ 749 $ 771 Foreign 100 12 15 Total $ 2,859 $ 761 $ 786 146 Reconciliations of the U.S. federal statutory tax rate to NRG's effective tax rate were as follows: Year Ended December 31, (In millions, except effective income tax rate) 2021 2020 2019 Income from continuing operations before income taxes $ 2,859 $ 761 $ 786 Tax at federal statutory tax rate 600 160 165 Foreign rate differential ( 3 ) — — State taxes 111 18 13 Permanent differences 8 8 ( 9 ) Changes in valuation allowance ( 29 ) 24 ( 3,492 ) Deferred impact of state tax rate changes ( 10 ) 2 12 Recognition of uncertain tax benefits ( 10 ) 3 ( 10 ) Return to provision adjustments 5 36 — Other — — ( 13 ) Income tax expense/(benefit) $ 672 $ 251 $ ( 3,334 ) Effective income tax rate 23.5 % 33.0 % ( 424.2 ) % For the year ended December 31, 2021, NRG's effective income tax rate was higher than the federal statutory tax rate of 21% primarily due to state tax expense partially offset by tax benefits from the revaluation of state deferred tax assets, valuation allowance, and settlements of uncertain tax positions. For the year ended December 31, 2020, NRG's effective income tax rate was higher than the federal statutory tax rate of 21% primarily due to state tax expense, the recognition of state valuation allowance on NOLs, and return to provision adjustments. For the year ended December 31, 2019, NRG's effective income tax rate was lower than the federal statutory tax rate of 21% primarily due to the tax benefit from the release of the valuation allowance. 147 The temporary differences, which gave rise to the Company's deferred tax assets and liabilities consisted of the following: As of December 31, (In millions) 2021 2020 Deferred tax assets: Deferred compensation, accrued vacation and other reserves $ 114 $ 79 Difference between book and tax basis of property 436 357 Pension and other postretirement benefits 65 86 Equity compensation 7 10 Bad debt reserve 168 16 Derivatives, net — 11 U.S. Federal net operating loss carryforwards 1,773 2,117 Foreign net operating loss carryforwards 112 102 State net operating loss carryforwards 328 351 Federal and state tax credit carryforwards 384 384 Federal benefit on state uncertain tax positions 3 4 Interest disallowance carryforward per §163(j) of the Tax Act 6 4 Inventory obsolescence 9 6 Other 15 10 Total deferred tax assets 3,420 3,537 Deferred tax liabilities: Emissions allowances 20 21 Derivatives 591 — Goodwill 40 29 Intangibles amortization (excluding goodwill) 363 2 Equity method investments 62 156 Convertible Debt 14 16 Total deferred tax liabilities 1,090 224 Total deferred tax assets less deferred tax liabilities 2,330 3,313 Valuation allowance ( 248 ) ( 266 ) Total net deferred tax assets, net of valuation allowance $ 2,082 $ 3,047 The following table summarizes NRG's net deferred tax position as presented in the consolidated balance sheets: As of December 31, (In millions) 2021 2020 Deferred tax asset $ 2,155 $ 3,066 Deferred tax liability ( 73 ) ( 19 ) Net deferred tax asset $ 2,082 $ 3,047 The primary drivers for the decrease in the net deferred tax asset from $ 3.0 billion as of December 31, 2020 to $ 2.1 billion as of December 31, 2021 are an increase in mark-to-market book gains and step-up in basis of book intangibles associated with the acquisition of Direct Energy. Deferred tax assets and valuation allowance Net deferred tax balance — As of December 31, 2021 and 2020, NRG recorded a net deferred tax asset, excluding valuation allowance, of $ 2.3 billion and $ 3.3 billion, respectively. The Company believes certain state net operating losses may not be realizable under the more-likely-than-not measurement and as such, a valuation allowance was recorded as of December 31, 2021 as discussed below. NOL carryforwards — As of December 31, 2021, the Company had tax-effected cumulative U.S. NOLs consisting of carryforwards for federal and state income tax purposes of $ 1.8 billion and $ 328 million, respectively. The Company estimates it will need to generate future taxable income to fully realize the net federal deferred tax asset before the expiration of certain carryforwards commences in 2031. In addition, NRG has tax-effected cumulative foreign NOL carryforwards of $ 112 million with no expiration date. 148 Valuation allowance — As of December 31, 2021, the Company's tax-effected valuation allowance was $ 248 million, consisting of state NOL carryforwards and foreign NOL carryforwards. The valuation allowance was recorded based on the assessment of cumulative and forecasted pre-tax book earnings and the future reversal of existing taxable temporary differences. Taxes Receivable and Payable As of December 31, 2021, NRG recorded a current net federal receivable of $ 16 million, comprised of refunds due from the IRS, a current net state tax payable of $ 13 million that is primarily comprised of Texas margin tax, and a current net foreign receivable of $ 11 million due to filings of Canadian amended returns as well as prepayments of estimated taxes. Uncertain tax benefits NRG has identified uncertain tax benefits with after-tax value of $ 13 million and $ 15 million as of December 31, 2021 and 2020, for which NRG has recorded a non-current tax liability of $ 14 million and $ 18 million, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. The Company recognized an immaterial amount of interest expense for the year ended December 31, 2021, and $ 1 million for the years ended 2020 and 2019. As of December 31, 2021 and 2020, NRG had cumulative interest and penalties related to these uncertain tax benefits of $ 1 million and $ 3 million, respectively. Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia and Canada. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2018. With few exceptions, state and Canadian income tax examinations are no longer open for years before 2013. The following table summarizes uncertain tax benefits activity: As of December 31, (In millions) 2021 2020 Balance as of January 1 $ 15 $ 15 Increase due to current year positions 4 3 Increase due to acquired balance from Direct Energy 9 — Settlements, payments and statute closure ( 15 ) ( 3 ) Uncertain tax benefits as of December 31 $ 13 $ 15 Note 21 — Stock-Based Compensation NRG Energy, Inc. Long-Term Incentive Plan On April 27, 2017, the NRG LTIP was amended to increase the number of shares available for issuance by 3,000,000 . As of December 31, 2021 and 2020, a total of 25,000,000 shares of NRG common stock were authorized for issuance under the NRG LTIP. There were 8,871,874 and 9,385,730 shares of common stock remaining available for grants under the NRG LTIP as of December 31, 2021 and 2020, respectively. The NRG LTIP is subject to adjustments in the event of reorganization, recapitalization, stock split, reverse stock split, stock dividend, and a combination of shares, merger or similar change in NRG's structure or outstanding shares of common stock. Upon adoption of the amended NRG LTIP effective April 27, 2017, no shares of NRG common stock remain available for future issuance under the NRG GenOn LTIP. As of December 31, 2021 and 2020, there were 20,131 and 78,903 shares of common stock remaining available for grants under the NRG GenOn LTIP, respectively. 149 Restricted Stock Units As of December 31, 2021, RSUs granted under the Company's LTIPs typically have three -year graded vesting schedules beginning on the grant date. Fair value of the RSUs granted during 2021 and 2020 is derived from the closing price of NRG common stock on the grant date. The following table summarizes the Company's non-vested RSU awards and changes during the year: Units Weighted Average Grant Date Fair Value per Unit Non-vested at December 31, 2020 519,514 $ 35.87 Granted 479,415 39.00 Forfeited ( 49,816 ) 37.41 Vested ( 279,161 ) 34.18 Non-vested at December 31, 2021 669,952 38.69 The total fair value of RSUs vested during the years ended December 31, 2021, 2020 and 2019 was $ 12 million, $ 17 million and $ 36 million, respectively. The weighted average grant date fair value of RSUs granted during the years ended December 31, 2021, 2020 and 2019 was $ 39.00 , $ 38.05 and $ 37.37 , respectively. Deferred Stock Units DSUs represent the right of a participant to be paid one share of NRG common stock at the end of a deferral period established under the terms of the award. DSUs granted under the Company's LTIPs are fully vested at the date of issuance. Fair value of the DSUs, which is based on the closing price of NRG common stock on the date of grant, is recorded as compensation expense in the period of grant. The following table summarizes the Company's outstanding DSU awards and changes during the year: Units Weighted Average Grant Date Fair Value per Unit Outstanding at December 31, 2020 342,706 $ 25.37 Granted 64,512 32.27 Converted to Common Stock ( 23,090 ) 30.92 Outstanding at December 31, 2021 384,128 26.11 The aggregate intrinsic values for DSUs outstanding as of December 31, 2021, 2020 and 2019 were approximately $ 17 million, $ 13 million and $ 13 million, respectively. The aggregate intrinsic values for DSUs converted to common stock for the years ended December 31, 2021, 2020 and 2019 were $ 1 million, $ 2 million and $ 2 million, respectively. The weighted average grant date fair value of DSUs granted during the years ended December 31, 2021, 2020 and 2019 was $ 32.27 , $ 35.59 and $ 34.84 , respectively. Performance Stock Units PSUs entitle the recipient to stock upon vesting. The amount of the award is subject to the Company's achievement of certain performance measures over the vesting period. PSUs include RPSUs and MSUs. As of December 31, 2021, non-vested PSUs consist of RPSUs. Relative Performance Stock Units — RPSUs are restricted grants where the quantity of shares increases and decreases alongside the Company's Total Shareholder Return, or TSR, relative to the TSR of the Company's current proxy peer group and the total returns of select indexes, or Peer Group (a) . Each RPSU represents the potential to receive NRG common stock after the completion of the performance period, typically three years of service from the date of grant. The number of shares of NRG common stock to be paid (if any) as of the vesting date for each RPSU will depend on the Company’s percentile rank within the Peer Group. The number of shares of common stock to be paid as of the vesting date for each RPSU is linearly interpolated for TSR performance between the following points: (i) 0 % if ranked below the 25th percentile; (ii) 25 % if ranked at the 25th percentile; (iii) 100 % if ranked at the 55th percentile (or the 65th percentile if the Company's absolute TSR is less than negative 15 %); and (iv) 200 % if ranked at the 75th percentile or above. The value of the common stock on the date of grant is based on the closing price of NRG common stock on the date of grant. (a) For RPSU's granted in 2022 and forward the peer group will consist of the companies that comprise the Standard & Poor’s 500 Index on the first day of the performance period. 150 The following table summarizes the Company's non-vested PSU awards and changes during the year: Units Weighted Average Grant-Date Fair Value per Unit Non-vested at December 31, 2020 793,561 $ 41.69 Granted 426,768 46.78 Forfeited ( 93,031 ) 47.21 Vested ( 396,793 ) 35.32 Non-vested at December 31, 2021 730,505 47.40 The weighted average grant date fair value of PSUs granted during the years ended December 31, 2021, 2020 and 2019, was $ 46.78 , $ 23.75 and $ 22.50 , respectively. The fair value of PSUs is estimated on the date of grant using a Monte Carlo simulation model and expensed over the service period, which equals the vesting period. Significant assumptions used in the fair value model with respect to the Company's PSUs are summarized below: 2021 (a) 2020 2019 RPSUs RPSUs RPSUs Expected volatility 34.05 % 30.15 % 40.72 % Expected term (in years) 3 3 3 Risk free rate 0.17 % 1.58 % 2.45 % (a) Assumptions pertain to the main award granted in January 2021. Additional 60,815 RPSUs were granted in September 2021 with a risk free rate of 0.42 % and expected volatility of 37.38 % For the years ended December 31, 2021 and 2020, expected volatility is calculated based on NRG's historical stock price volatility data over the period commensurate with the expected term of the PSU, which equals the vesting period. Non-Qualified Stock Options All NQSOs granted under the Company's LTIP were fully vested as of December 31, 2021, 2020 and 2019. No NQSOs were granted in 2021, 2020 or 2019. NRG recognized compensation costs for NQSOs over the requisite service period for the entire award. No compensation expense was recognized during 2021, 2020 or 2019 as it was fully recognized in prior years. The maximum contractual term is 10 years for NRG's outstanding NQSOs. The following table summarizes the Company's NQSO activity and changes during the year: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in millions) Outstanding at December 31, 2020 77,047 $ 25.13 0.5 $ 1 Expired ( 4,800 ) 29.08 Exercised ( 54,377 ) 26.44 Outstanding at December 31, 2021 17,870 20.07 0.2 — Exercisable at December 31, 2021 17,870 20.07 0.2 — The following table summarizes the total intrinsic value of options exercised and the cash received from the exercises of options: Year Ended December 31, (In millions) 2021 2020 2019 Total intrinsic value of options exercised $ 1 $ 1 $ 2 Cash received from options exercised 1 1 3 151 Supplemental Information The following table summarizes NRG's total compensation expense recognized for the years presented, as well as total non-vested compensation costs not yet recognized and the period over which this expense is expected to be recognized as of December 31, 2021, for each of the types of awards issued under the LTIPs. Minimum tax withholdings of $ 9 million, $ 27 million, and $ 36 million for the years ended December 31, 2021, 2020, and 2019, respectively, are reflected as a reduction to additional paid-in capital on the Company's consolidated balance sheets. Non-vested Compensation Cost (In millions, except weighted average data) Compensation Expense Unrecognized Total Cost Weighted Average Recognition Period Remaining (In years) Year Ended December 31, As of December 31, Award 2021 2020 2019 2021 2021 RSUs $ 9 $ 9 $ 9 $ 16 1.80 DSUs 2 2 2 — 0.00 RPSUs 9 10 10 15 1.19 PRSUs (a) 7 6 11 10 1.52 Total $ 27 $ 27 $ 32 $ 41 Tax detriment/(benefit) recognized $ 2 $ ( 9 ) $ ( 12 ) (a) Phantom Restricted Stock Units, PRSUs, are liability-classified time-based awards that typically vest ratably over a three -year period. The amount to be paid upon vesting is based on NRG's closing stock price for the period Note 22 — Related Party Transactions NRG provides services to some of its related parties, who are accounted for as equity method investments, under operations and maintenance agreements. Fees for the services under these agreements include recovery of NRG's costs of operating the plants. Certain agreements also include fees for administrative service, a base monthly fee, profit margin and/or annual incentive bonus. The following table summarizes NRG's material related party transactions with third party affiliates: Year Ended December 31, (In millions) 2021 2020 2019 Revenues from Related Parties Included in Operating Revenues Gladstone $ 4 $ 4 $ 4 Ivanpah (a) 39 43 35 Midway-Sunset 6 5 5 Total $ 49 $ 52 $ 44 (a) Includes fees under project management agreements with each project company Note 23 — Commitments and Contingencies Certain Fuel and Transportation Commitments NRG has entered into long-term contractual arrangements to procure certain fuel and transportation services for the Company's generation assets. As of December 31, 2021, the Company's minimum commitments under such outstanding agreements are estimated as follows: Period (In millions) 2022 $ 122 2023 54 2024 63 2025 62 2026 51 Thereafter 26 Total (a) $ 378 (a) Actual fuel and transportation purchases are significantly higher than these estimated minimum unconditional long-term firm commitments with remaining term in excess of one year 152 For the years ended December 31, 2021, 2020 and 2019, the costs of certain fuel and transportation were $ 0.6 billion, $ 0.5 billion and $ 0.6 billion, respectively. Purchased Energy Commitments NRG has long-term contractual commitments related to electricity and natural gas products, including power purchases, gas transportation and storage of various quantities and durations, and renewable purchased power agreements under PPAs with third-party project developers, which are accounted for as NPNS. These contracts are not included in the consolidated balance sheet as of December 31, 2021. Minimum purchase commitment obligations are as follows as of December 31, 2021: Period (In millions) 2022 $ 1,566 2023 1,036 2024 617 2025 382 2026 289 Thereafter 1,071 Total (a) $ 4,961 (a) Actual energy purchases are significantly higher than these estimated minimum unconditional long-term firm commitments with remaining term in excess of one year For the years ended December 31, 2021, 2020 and 2019, the costs of purchased energy were $ 12.8 billion, $ 1.8 billion and $ 2.6 billion, respectively. First Lien Structure NRG has granted first liens to certain counterparties on a substantial portion of property and assets owned by NRG and the guarantors of its senior debt. NRG uses the first lien structure to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedges. To the extent that the underlying hedge positions for a counterparty are out-of-the-money to NRG, the counterparty would have a claim under the first lien program. As of December 31, 2021, hedges under the first lien were out-of-the-money for NRG on a counterparty aggregate basis. Nuclear Insurance STP maintains required insurance coverage for liability claims arising from nuclear incidents pursuant to the Price-Anderson Act. The current liability limit per incident is $ 13.8 billion, subject to change to account for the effects of inflation and the number of licensed reactors. An inflation adjustment must be made at least once every five years with the next adjustment expected to be effective no later than November 1, 2023. Under the Price-Anderson Act, owners of nuclear power plants in the U.S. are required to purchase primary insurance limits of $ 450 million for each operating site. In addition, the Price-Anderson Act requires an additional layer of protection through mandatory participation in a retrospective rating plan for power reactors resulting in an additional $ 13.3 billion in funds available for public liability claims. The current maximum assessment per incident, per reactor, is approximately $ 138 million, taking into account a 5 % adjustment for administrative fees, payable at approximately $ 21 million per year, per reactor. NRG would be responsible for 44 % of the maximum assessment, or $ 9 million per year, per reactor, and a maximum of $ 61 million per incident, per reactor. In addition, the U.S. Congress retains the ability to impose additional financial requirements on the nuclear industry to pay liability claims that exceed $ 13.8 billion for a single incident. The liabilities of the co-owners of STP with respect to the retrospective premium assessments for nuclear liability insurance are joint and several. STP purchases insurance for property damage and site decontamination cleanup costs from Nuclear Electric Insurance Limited, or NEIL, and European Mutual Association for Nuclear Insurance, or EMANI, both of which are industry mutual insurance companies, of which STP is a member. STP has purchased $ 2.8 billion in limits for nuclear events and $ 1.0 billion in limits for non-nuclear events. The nuclear event limit remains the maximum available from NEIL. The upper $ 1.3 billion in nuclear events limits (excess of the first $ 1.5 billion in nuclear events limits) is a single limit blanket policy shared with two Diablo Canyon nuclear reactors, which have no affiliation with the Company. This shared limit is not subject to automatic reinstatement in the event of a loss. The NEIL primary policy covers both nuclear and non-nuclear property damage events, and a NEIL companion policy provides Accidental Outage coverage for the co-owners of STP's lost revenue following a property damage event, at a weekly indemnity limit of $ 3 million per unit up to a maximum of $ 274 million nuclear per unit and $ 184 million non-nuclear per unit, and is subject to an eight-week waiting period. NRG also purchases an Accidental Outage policy from NEIL, which provides protection for lost revenue due to an insurable event. This coverage allows for reimbursement up to $ 2 million per week per unit up to a maximum of $ 216 million nuclear and $ 144 million non-nuclear, and is subject to an eight- 153 week waiting period. Accidental Outage coverage amounts decrease in the event more than one unit at a station is out of service due to a common accident. Under the terms of the NEIL and EMANI policies, member companies may be assessed up to ten and six times their annual premiums respectively if the NEIL or EMANI Board of Directors determines their surplus has been depleted due to the payment of property losses at any of the licensed reactors in a single policy year. NEIL and EMANI require that their members maintain an investment grade credit rating or ensure their annual retrospective obligation by providing a financial guarantee, letter of credit, deposit premium, or an insurance policy. NRG has purchased an insurance policy from NEIL and EMANI to guarantee the Company's obligation; however note the NEIL aspect of this insurance will only respond to retrospective premium adjustments assessed within twenty-four months after the policy term, whereas NEIL's Board of Directors can make such an adjustment up to 6 years after the policy expires. All insurance coverage is subject to various sub limits and significant deductibles. Contingencies The Company's material legal proceedings are described below. The Company believes that it has valid defenses to these legal proceedings and intends to defend them vigorously. NRG records accruals for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. As applicable, the Company has established an adequate accrual for the applicable legal matters, including regulatory and environmental matters as further discussed in Note 24, Regulatory Matters , and Note 25, Environmental Matters . In addition, legal costs are expensed as incurred. Management has assessed each of the following matters based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought, and the probability of success. Unless specified below, the Company is unable to predict the outcome of these legal proceedings or reasonably estimate the scope or amount of any associated costs and potential liabilities. As additional information becomes available, management adjusts its assessment and estimates of such contingencies accordingly. Because litigation is subject to inherent uncertainties and unfavorable rulings or developments, it is possible that the ultimate resolution of the Company's liabilities and contingencies could be at amounts that are different from its currently recorded accruals and that such difference could be material. In addition to the legal proceedings noted below, NRG and its subsidiaries are party to other litigation or legal proceedings arising in the ordinary course of business. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows. Environmental Lawsuits Sierra club et al. v. Midwest Generation LLC — In 2012, several environmental groups filed a complaint against Midwest Generation with the Illinois Pollution Control Board ("IPCB") alleging violations of environmental law resulting in groundwater contamination. In June 2019, the IPCB found that Midwest Generation violated the law because it had improperly handled coal ash at four facilities in Illinois and caused or allowed coal ash constituents to impact groundwater. On September 9, 2019, Midwest Generation filed a Motion to Reconsider numerous issues, which the court granted in part and denied in part on February 6, 2020. The IPCB will hold hearings to determine the appropriate relief. Midwest Generation has been working with the Illinois EPA to address the groundwater issues since 2010. Consumer Lawsuits Similar to other energy service companies (“ESCOs”) operating in the industry, from time-to-time, the Company and/or its subsidiaries may be subject to consumer lawsuits in various jurisdictions where they sell natural gas and electricity. Variable Price Cases — In the cases set forth below, referred to as the Variable Price Cases, such actions involve consumers alleging that one of the Company’s ESCOs promised that consumers would pay the same or less than they would have paid if they stayed with their default utility or previous energy supplier. The underlying claims of each case are similar and the Company continues to deny the allegations and is vigorously defending these matters. These matters were known and accrued for at the time of each acquisition. XOOM Energy XOOM Energy is a defendant in a putative class action lawsuit pending in New York. This case is in the discovery phase. Direct Energy There are three putative class actions pending against Direct Energy: (1) Linda Stanley v. Direct Energy (S.D.N.Y Apr. 2019) - The parties mediated in June and agreed on a settlement. On November 16, 2021, the Court granted preliminary approval of the settlement. The final approval hearing will be held on April 5, 2022. It may take several months to determine the final payout amount; (2) Martin Forte v. Direct Energy (N.D.N.Y. Mar. 2017) - The Court recently granted Direct Energy’s Motion for Summary Judgment effectively ending the matter at the district court level. It is likely that the plaintiff will appeal; 154 however, it is unlikely plaintiff will prevail; (3) Richard Schafer v. Direct Energy (W.D.N.Y. Dec. 2019; on appeal 2nd Cir. N.Y.) - The Court granted limited discovery that will end April 29, 2022. Summary judgement briefing is due on May 20, 2022. Telephone Consumer Protection Act ("TCPA") Cases — In the cases set forth below, referred to as the TCPA Cases, such actions involve consumers alleging violations of the Telephone Consumer Protection Act of 1991, as amended, by receiving calls, texts or voicemails without consent in violation of the federal Telemarketing Sales Rule, and/or state counterpart legislation. The underlying claims of each case are similar. The Company denies the allegations asserted by plaintiffs and intends to vigorously defend these matters. These matters were known and accrued for at the time of the acquisition. There are two putative class actions pending against Direct Energy: (1) Brittany Burk v. Direct Energy (S.D. Tex. Feb. 2019) - The Court denied Plaintiff's Motion for Class Certification and Motion for Substitution of a New Plaintiff on September 20, 2021. The parties reached a settlement of the plaintiff's individual claims and the Court has conditionally dismissed the matter; and (2) Matthew Dickson v. Direct Energy (N.D. Ohio Jan. 2018) - Direct Energy has filed a Third-Party Petition against its vendor, Total Marketing Concepts, LLC, who placed voicemails without consent from Direct Energy and in violation of the parties’ agreement. The case was stayed pending the outcome of an appeal to the Sixth Circuit based on the unconstitutionality of the TCPA during the period from 2015-2020. The Sixth Circuit found the TCPA was in effect during that period and remanded the case back to the trial court. Direct Energy refiled its motions along with supplements. Winter Storm Uri Lawsuits The Company has been named in certain property damage and wrongful death claims that have been filed in connection with Winter Storm Uri. At this time, the Company is unable to determine the extent or impact of these various litigation matters due to their preliminary nature. The Company intends to vigorously defend these matters. Indemnifications and Other Contractual Arrangements Washington-St. Tammany and Claiborne Electric Cooperative v. LaGen — On June 28, 2017, plaintiffs Washington-St. Tammany Electric Cooperative, Inc. and Claiborne Electric Cooperative, Inc. filed a lawsuit against LaGen in the United States District Court for the Middle District of Louisiana. The plaintiffs claimed breach of contract against LaGen for allegedly improperly charging the plaintiffs for costs related to the installation and maintenance of certain pollution control technology. Plaintiffs sought damages for the alleged improper charges and a declaration as to which charges were proper under the contract. In February 2020, the court dismissed this lawsuit without prejudice for lack of subject matter jurisdiction. On March 17, 2020, plaintiffs filed a lawsuit in the Nineteenth Judicial District Court for the Parish of East Baton Rouge in Louisiana alleging substantially the same matters. The Company anticipates a trial, in state court, to begin in 2023. On February 4, 2019, NRG sold the South Central Portfolio, including the entities subject to this litigation. However, NRG has agreed to indemnify the purchaser for certain losses suffered in connection therewith. Note 24 — Regulatory Matters NRG operates in a highly regulated industry and is subject to regulation by various federal and state agencies. As such, NRG is affected by regulatory developments at both the federal and state levels and in the regions in which NRG operates. In addition, NRG is subject to the market rules, procedures, and protocols of the various ISO and RTO markets in which NRG participates. These power markets are subject to ongoing legislative and regulatory changes that may impact NRG's wholesale and retail operations. In addition to the regulatory proceedings noted below, NRG and its subsidiaries are parties to other regulatory proceedings arising in the ordinary course of business or have other regulatory exposure. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows. California Station Power — As the result of unfavorable final and non-appealable litigation, the Company accrued a liability associated with consumption of station power at the Company's Encina power plant facility in California after August 30, 2010. The Company has established an appropriate accrual pending potential regulatory action by San Diego Gas & Electric regarding the Company's Encina facility. South Central — On August 4, 2016, NRG received a document hold notice from FERC regarding conduct in the MISO and PJM markets. FERC Office of Enforcement Staff investigated potential violations of MISO rules involving bidding for the Big Cajun 2 facility, as well as other aspects of NRG’s operations in MISO. On August 18, 2020, FERC Office of Enforcement presented NRG with its preliminary findings. NRG responded to the preliminary findings on January 15, 2021. On September 16, 2021, FERC Office of Enforcement Staff informed NRG that the investigation is closed with no further action. 155 Note 25 — Environmental Matters NRG is subject to a wide range of environmental laws in the development, construction, ownership and operation of power plants. These laws generally require that governmental permits and approvals be obtained before construction and maintained during operation of power plants. The electric generation industry has been facing increasingly stringent requirements regarding air quality, GHG emissions, combustion byproducts, water discharge and use, and threatened and endangered species. In general, future laws are expected to require the addition of emissions controls or other environmental controls or to impose additional restrictions on the operations of the Company's facilities, which could have a material effect on the Company's consolidated financial position, results of operations, or cash flows. The Company has elected to use a $ 1 million disclosure threshold, as permitted, for environmental proceedings to which the government is a party. Air On July 8, 2019, the EPA promulgated the ACE rule, which rescinded the CPP, which had sought to broadly regulate CO 2 emissions from the power sector. The ACE rule required states that have coal-fired EGUs to develop plans to seek heat rate improvements from coal-fired EGUs. On January 19, 2021, the D.C. Circuit vacated the ACE rule (but on February 22, 2021, at the EPA's request, stayed the issuance of the portion of the mandate that would vacate the repeal of the CPP). On October 29, 2021, the U.S. Supreme Court agreed to review the D.C. Circuit's decision, which should provide some clarity regarding the scope of the EPA's authority to regulate CO 2 under the Clean Air Act. The Company expects the EPA to promulgate a new rule to regulate GHG emissions from power plants after a decision from the U.S. Supreme Court. Water Effluent Limitations Guidelines — In November 2015, the EPA revised the ELG for Steam Electric Generating Facilities, which imposed more stringent requirements (as individual permits were renewed) for wastewater streams from FGD, fly ash, bottom ash, and flue gas mercury control. On September 18, 2017, the EPA promulgated a final rule that, among other things, postponed the compliance dates to preserve the status quo for FGD wastewater and bottom ash transport water by two years to November 2020 until the EPA amended the rule. On October 13, 2020, the EPA amended the 2015 ELG rule by: (i) altering the stringency of certain limits for FGD wastewater; (ii) relaxing the zero-discharge requirement for bottom ash transport water; and (iii) changing several deadlines. On July 26, 2021, the EPA announced that it is initiating a new rulemaking to evaluate revising the ELG rule. While the EPA is developing the new rule, the existing rule (as amended in 2020) will stay in place, and the EPA expects permitting authorities to continue to implement the current regulation. The EPA anticipates releasing a proposed rule in fall 2022. In October 2021, NRG informed its regulators that the Company intends to comply with the ELG by ceasing combustion of coal by the end of 2028 at its domestic coal units outside of Texas, and installing appropriate controls by the end of 2025 at its two plants in Texas. Byproducts, Wastes, Hazardous Materials and Contamination In April 2015, the EPA finalized the rule regulating byproducts of coal combustion (e.g., ash and gypsum) as solid wastes under the RCRA. In September 2017, the EPA agreed to reconsider the rule. On July 30, 2018, the EPA promulgated a rule that amended the existing ash rule by extending some of the deadlines and providing more flexibility for compliance. On August 21, 2018, the D.C. Circuit found, among other things, that the EPA had not adequately regulated unlined ponds and legacy ponds. In 2019 and 2020, the EPA proposed several changes to this rule. On August 28, 2020, the EPA finalized "A Holistic Approach to Close Part A: Deadline to Initiate Closure," which amended the April 2015 Rule to address the August 2018 D.C. Circuit decision and extend some of the deadlines. On November 12, 2020, the EPA finalized "A Holistic Approach to Closure Part B," which further amended the April 2015 Rule to, among other things, provide procedures for requesting approval to operate existing impoundments with an alternative liner. Note 26 — Cash Flow Information Detail of supplemental disclosures of cash flow and non-cash investing and financing information was: Year Ended December 31, (In millions) 2021 2020 2019 Interest paid, net of amount capitalized $ 433 $ 340 $ 372 Income taxes paid, net of refunds 32 24 8 Non-cash investing activities: (Decreases)/additions to fixed assets for accrued capital expenditures ( 16 ) ( 6 ) 1 156 Note 27 — Guarantees NRG and its subsidiaries enter into various contracts that include indemnification and guarantee provisions as a routine part of the Company's business activities. Examples of these contracts include asset purchases and sale agreements, commodity sale and purchase agreements, retail contracts, joint venture agreements, EPC agreements, operation and maintenance agreements, service agreements, settlement agreements, and other types of contractual agreements with vendors and other third parties, as well as affiliates. These contracts generally indemnify the counterparty for tax, environmental liability, litigation and other matters, as well as breaches of representations, warranties and covenants set forth in these agreements. The Company is obligated with respect to customer deposits associated with the Company's retail operations. In some cases, NRG's maximum potential liability cannot be estimated, since the underlying agreements contain no limits on potential liability. The following table summarizes the maximum potential exposures that can be estimated for NRG's guarantees, indemnities, and other contingent liabilities by maturity: By Remaining Maturity at December 31, (In millions) 2021 Guarantees Under 1 Year 1-3 Years 3-5 Years Over 5 Years Total 2020 Total Letters of credit and surety bonds $ 4,064 $ 31 $ — $ — $ 4,095 $ 1,153 Asset sales guarantee obligations 269 25 24 96 414 506 Other guarantees — — — 93 93 87 Total guarantees $ 4,333 $ 56 $ 24 $ 189 $ 4,602 $ 1,746 Letters of credit and surety bonds — As of December 31, 2021, NRG and its consolidated subsidiaries were contingently obligated for a total of $ 4.1 billion under letters of credit and surety bonds. The significant increase in 2021 is primarily due to the acquisition of Direct Energy. Most of these letters of credit and surety bonds are issued in support of the Company's obligations to perform under commodity agreements and obligations associated with future closure and maintenance of ash sites, as well as for financing or other arrangements. A majority of these letters of credit and surety bonds expire within one year of issuance, and it is typical for the Company to renew them on similar terms. The material indemnities, within the scope of ASC 460, are as follows: Asset sales — The purchase and sale agreements which govern NRG's asset or share investments and divestitures customarily contain guarantees and indemnifications of the transaction to third parties. The contracts indemnify the parties for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party, or as a result of a change in tax laws. These obligations generally have a discrete term and are intended to protect the parties against risks that are difficult to predict or estimate at the time of the transaction. In several cases, the contract limits the liability of the indemnifier. NRG has no reason to believe that the Company currently has any material liability relating to such routine indemnification obligations included in the table above, except for the California property tax indemnity for estimated increases in California property taxes of certain solar properties that the Company agreed to indemnify NRG Yield for, as part of the agreement to sell NRG Yield and the Renewables Platform. The California property tax indemnity is estimated to be $ 158 million as of December 31, 2021 and is included in the above table under asset sales guarantee obligations. Other guarantees — NRG has issued other guarantees of obligations including payments under certain agreements with respect to certain of its unconsolidated subsidiaries, payment or performance by fuel providers and payment or reimbursement of credit support and deposits. The Company does not believe that it will be required to perform under these guarantees. Other indemnities — Other indemnifications NRG has provided cover operational, tax, litigation and breaches of representations, warranties and covenants. NRG has also indemnified, on a routine basis in the ordinary course of business, consultants or other vendors who have provided services to the Company. NRG's maximum potential exposure under these indemnifications can range from a specified dollar amount to an indeterminate amount, depending on the nature of the transaction. Total maximum potential exposure under these indemnifications is not estimable due to uncertainty as to whether claims will be made or how they will be resolved. NRG does not have any reason to believe that the Company will be required to make any material payments under these indemnity provisions. Because many of the guarantees and indemnities NRG issues to third parties and affiliates do not limit the amount or duration of its obligations to perform under them, there exists a risk that the Company may have obligations in excess of the amounts described above. For those guarantees and indemnities that do not limit the Company's liability exposure, it may not be able to estimate what the Company's liability would be, until a claim is made for payment or performance, due to the contingent nature of these contracts. 157 Note 28 — Jointly Owned Plants Certain NRG subsidiaries own undivided interests in jointly-owned plants, as described below. These plants are maintained and operated pursuant to their joint ownership participation and operating agreements. NRG is responsible for its subsidiaries' share of operating costs and direct expenses and includes its proportionate share of the facilities and related revenues and direct expenses in these jointly-owned plants in the corresponding balance sheet and income statement captions of the Company's consolidated financial statements. The following table summarizes NRG's proportionate ownership interest in the Company's jointly-owned facilities: (In millions unless otherwise stated) As of December 31, 2021 Ownership Interest Property, Plant & Equipment Accumulated Depreciation Construction in Progress South Texas Project Units 1 and 2, Bay City, TX 44.00 % $ 421 $ ( 208 ) $ 4 Cedar Bayou Unit 4, Baytown, TX 50.00 % 220 ( 109 ) 12 SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2021, 2020 and 2019 (In millions) Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts Deductions Balance at End of Period Allowance for credit losses, deducted from accounts receivable Year Ended December 31, 2021 $ 67 $ 698 $ 112 $ ( 194 ) (a) $ 683 Year Ended December 31, 2020 43 108 — ( 84 ) (a) 67 Year Ended December 31, 2019 32 95 — ( 84 ) (a) 43 Income tax valuation allowance, deducted from deferred tax assets Year Ended December 31, 2021 $ 266 $ ( 29 ) $ 11 $ — $ 248 Year Ended December 31, 2020 242 24 — — 266 Year Ended December 31, 2019 3,794 ( 3,543 ) ( 9 ) — 242 (a) Represents principally net amounts charged as uncollectible 158 EXHIBIT INDEX Number Description Method of Filing 2.1 Third Amended Joint Plan of Reorganization of NRG Energy, Inc., NRG Power Marketing, Inc., NRG Capital LLC, NRG Finance Company I LLC, and NRGenerating Holdings (No. 23) B.V. Incorporated herein by reference to Exhibit 99.1 to the Registrant's current report on Form 8-K filed on November 19, 2003. 2.2 First Amended Joint Plan of Reorganization of NRG Northeast Generating LLC (and certain of its subsidiaries), NRG South Central Generating (and certain of its subsidiaries) and Berrians I Gas Turbine Power LLC. Incorporated herein by reference to Exhibit 99.2 to the Registrant's current report on Form 8-K filed on November 19, 2003. 2.3 Acquisition Agreement, dated as of September 30, 2005, by and among NRG Energy, Inc., Texas Genco LLC and the Direct and Indirect Owners of Texas Genco LLC. Incorporated herein by reference to Exhibit 2.1 to the Registrant's current report on Form 8-K filed on October 3, 2005. 2.4 Asset Purchase Agreement, dated October 18, 2013, by and among NRG Energy, Inc., Edison Mission Energy and NRG Energy Holdings Inc. Incorporated herein by reference to Exhibit 2.2 to Amendment No. 1 to the Registrant’s current report on Form 8-K filed on October 21, 2013. 2.5 Third Amended Joint Plan of Reorganization of GenOn Energy, Inc. and its Debtor Affiliates. Incorporated herein by reference to Exhibit 2.1 to the Registrant's current report on Form 8-K filed on December 18, 2017. 2.6†^ Purchase and Sale Agreement, dated as of February 6, 2018, by and among NRG Energy, Inc. and NRG Repowering Holdings LLC, and GIP III Zephyr Acquisition Partners, L.P. Incorporated herein by reference to Exhibit 2.9 to the Registrant's annual report on Form 10-K filed on March 1, 2018. 2.7^ Purchase and Sale Agreement, dated as of February 6, 2018, by and between NRG Energy, Inc., NRG South Central Generating LLC, and Cleco Energy LLC. Incorporated herein by reference to Exhibit 2.10 to the Registrant's annual report on Form 10-K filed on March 1, 2018. 2.8‡ Purchase and Sale Agreement dated as of February 28, 2021 by and between NRG Energy, Inc., and Generation Bridge Acquisition, LLC, as a Purchaser Incorporated herein by reference to Exhibit 2.1 to the Registrant's quarterly report on Form 10-Q filed on May 6, 2021. 3.1 Amended and Restated Certificate of Incorporation. Incorporated herein by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q filed on May 3, 2012. 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation. Incorporated herein by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on December 14, 2012. 3.3 Fifth Amended and Restated By-Laws. Filed herewith. 4.1 Specimen of Certificate representing common stock of NRG Energy, Inc. Incorporated herein by reference to Exhibit 4.3 to the Registrant's quarterly report on Form 10-Q filed on August 4, 2006. 4.2 Second Supplemental Indenture, dated as of July 19, 2016, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on July 25, 2016. 4.3 Third Supplemental Indenture, dated August 2, 2016, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on August 3, 2016. 4.4 Form of 6.625% Senior Note due 2027. Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on August 3, 2016. 4.5 Registration Rights Agreement, dated August 2, 2016, among NRG Energy, Inc., the guarantors named therein and Morgan Stanley & Co. LLC, as representative to the initial purchasers listed in Schedule I thereto. Incorporated herein by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K, filed on August 3, 2016. 4.6 Fourth Supplemental Indenture, dated December 7, 2017, among NRG Energy, Inc., the guarantors named therein and Delaware Trust Company, as trustee. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on December 8, 2017. 4.7 Form of 5.75% Senior Notes due 2028 Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on December 8, 2017. 4.8 Registration Rights Agreement, dated December 7, 2017, among NRG Energy, Inc., the guarantors named therein and Citigroup Global Markets, Inc., as representative to the initial purchasers listed in Schedule I thereto. Incorporated herein by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K, filed on December 8, 2017. 4.9 Indenture, dated May 24, 2018, among NRG Energy, Inc., the guarantors named therein and Delaware Trust Company, as trustee. Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on May 25, 2018. 159 4.10 Form of 2.75% Convertible Senior Notes due 2048. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on May 25, 2018. 4.11 Description of NRG Energy, Inc. securities registered pursuant to section 12 of the Securities Exchange Act of 1934 Incorporated herein by reference to Exhibit 4.15 to the Registrant's Annual Report on Form 10-K, filed on February 27, 2020. 4.12 Indenture, dated December 2, 2020, between NRG Energy, Inc. and Deutsche Bank Trust Company Americas, as trustee, pertaining to the Secured Notes. Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.13 Supplemental Indenture, dated December 2, 2020, among NRG Energy, Inc., the guarantors named therein and Deutsche Bank Trust Company Americas, as trustee, pertaining to the Secured Notes Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.14 Form of 2.000% Senior Secured First Lien Notes due 2025 Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.15 Form of 2.450% Senior Secured First Lien Notes due 2027 Incorporated herein by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.16 Indenture, dated December 2, 2020, between NRG Energy, Inc. and Deutsche Bank Trust Company Americas, as trustee, pertaining to the Unsecured Notes Incorporated herein by reference to Exhibit 4.5 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.17 Supplemental Indenture, dated December 2, 2020, among NRG Energy, Inc., the guarantors named therein and Deutsche Bank Trust Company Americas, as trustee, pertaining to the Unsecured Notes Incorporated herein by reference to Exhibit 4.6 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.18 Form of 3.375% Senior Notes due 2029 (incorporated by reference to Exhibit 4.6 filed herewith) Incorporated herein by reference to Exhibit 4.7 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.19 Form of 3.625% Senior Notes due 2031 (incorporated by reference to Exhibit 4.6 filed herewith) Incorporated herein by reference to Exhibit 4.8 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.20 Facility Agreement, dated December 2, 2020, among NRG Energy, Inc., the guarantors party thereto, Alexander Funding Trust and Deutsche Bank Trust Company Americas, as the notes trustee Incorporated herein by reference to Exhibit 4.9 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.21 Letter of Credit Facility Agreement, dated December 2, 2020, among NRG Energy, Inc., the financial institutions from time to time party thereto as letter of credit issuers, and Deutsche Bank Trust Company Americas, as administrative agent and as collateral agent Incorporated herein by reference to Exhibit 4.10 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.22 Amended and Restated Declaration of Trust of Alexander Funding Trust, dated December 2, 2020, among NRG Energy, Inc. as depositor and in its own capacity, Deutsche Bank Trust Company Americas, as trustee, and Deutsche Bank Trust Company Delaware, as Delaware trustee Incorporated herein by reference to Exhibit 4.11 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.23 Indenture, dated December 2, 2020, between NRG Energy, Inc. and Deutsche Bank Trust Company Americas, as trustee, pertaining to the P-Caps Secured Notes Incorporated herein by reference to Exhibit 4.12 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.24 Supplemental Indenture, dated December 2, 2020, among NRG Energy, Inc., the guarantors named therein and Deutsche Bank Trust Company Americas, as trustee, pertaining to the P-Caps Secured Notes Incorporated herein by reference to Exhibit 4.13 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.25 Form of 1.841% Senior Secured First Lien Notes due 2023(incorporated by reference to Exhibit 4.31 filed herewith) Incorporated herein by reference to Exhibit 4.14 to the Registrant's Current Report on Form 8-K, filed on December 4, 2020. 4.26 Amendment and Restatement Agreement, dated as of June 30, 2016, to the Amended and Restated Credit Agreement, the Second Amended and Restated Collateral Trust Agreement and the Amended and Restated Guarantee and Collateral Agreement. Incorporated herein by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-Q filed on August 9, 2016. 4.27 Second Amended and Restated Credit Agreement, dated as of June 30, 2016, by and among NRG Energy, Inc., the lenders party thereto, the joint lead arrangers and joint lead bookrunners party thereto, Citicorp North America, Inc., Commerzbank AG, New York Branch, Keybank Capital Markets Inc. and CIT Bank, N.A. Incorporated herein by reference to Exhibit 10.2 to the Registrant's quarterly report on Form 10-Q filed on August 9, 2016. 4.28 First Amendment Agreement, dated as of January 24, 2017, dated as of January 24, 2017, by and among NRG Energy, Inc., the lenders from time to time parties thereto and Citicorp North America, Inc., as administrative agent and collateral agent. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 24, 2017. 160 4.29 Second Amendment Agreement, dated as of March 21, 2018, by and among NRG Energy, Inc., the lenders from time to time parties thereto and Citicorp North America, Inc., as administrative agent and collateral agent. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 22, 2018. 4.30 Third Amendment Agreement, dated as of May 7, 2018, by and among NRG Energy, Inc., its subsidiaries parties thereto, the lenders from time to time parties thereto and Citicorp North America, Inc., as administrative agent and collateral agent. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May 7, 2018. 4.31 Indenture, dated May 23, 2016, between NRG Energy, Inc. and Delaware Trust Company (as successor in interest to Law Debenture Trust Company of New York), as trustee. Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on May 23, 2016. 4.32 Fifth Supplemental Indenture, dated May 14, 2019, among NRG Energy, Inc., the guarantors named therein and Delaware Trust Company, as trustee. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on May 16, 2019. 4.33 Form of 5.250% Senior Notes due 2029 . Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on May 14, 2019. 4.34 Indenture, dated May 28, 2019, between NRG Energy, Inc. and Delaware Trust Company, as trustee Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on May 30, 2019. 4.35 Supplemental Indenture, dated May 28, 2019, among NRG Energy, Inc., the guarantors named therein and Delaware Trust Company, as trustee. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on May 30, 2019. 4.36 Form of 3.750% Senior Secured First Lien Notes due 2024 Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on May 30, 2019. 4.37 Form of 4.450% Senior Secured First Lien Notes due 2029 Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on May 30, 2019. 4.38 Fourth Amendment dated as of May 28, 2019 to the Second Amended and Restated Credit Agreement dated as of June 30, 2016, included as Annex A thereto a clean, conformed copy of the Second Amended and Restated Credit Agreement Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 7, 2019. 4.39 Fifth Amendment to Credit Agreement and Third Amendment to Collateral Trust Agreement, dated as of August 20, 2020, by and among NRG Energy, Inc., its subsidiaries parties thereto, the lenders party thereto, Citicorp North America, Inc., as administrative agent and collateral agent, and Deutsche Bank Trust Company Americas, as collateral trustee. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on August 21, 2020. 4.40 Receivables Sale Agreement, dated as of September 22, 2020, among the Originators from time to time parties thereto, NRG Retail LLC, as Servicer, and NRG Receivables LLC. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 22, 2020. 4.41 Receivables Loan and Servicing Agreement, dated as of September 22, 2020, among NRG Receivables LLC, as Borrower, NRG Retail LLC, as Servicer, the persons from time to time party thereto as Conduit Lenders, the persons from time to time party thereto as Committed Lenders, the persons from time to time party thereto as Facility Agents, the financial institutions from time to time party thereto as LC Issuers, and Royal Bank of Canada as Administrative Agent Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 22, 2020. 4.42 Supplemental Indenture (Additional Subsidiary Guarantees-2.750% Convertible Senior Notes due 2048) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee . Incorporated herein by reference to Exhibit 4.1 to the Registrant's quarterly report on Form 10-Q filed on May 6, 2021. 4.43 Supplemental Indenture (Additional Subsidiary Guarantees 1.841% Senior Secured First Lien Notes due 2023) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries, and Deutsche Bank Trust Company Americas as trustee. Incorporated herein by reference to Exhibit 4.2 to the Registrant's quarterly report on Form 10-Q filed on May 6, 2021. 161 4.44 Supplemental Indenture (additional Subsidiary Guarantees-6.625% Senior Notes due 2027) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries , and Delaware Trust Company as trustee. Incorporated herein by reference to Exhibit 4.4 to the Registrant's quarterly report on Form 10-Q filed on May 6, 2021. 4.45 Supplemental Indenture (additional Subsidiary Guarantees-5.750% Senior Notes due 2028) dated January 5, 2021, Supplemental Indenture (additional Subsidiary Guarantees-5.750% Senior Notes due 2028) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee. Incorporated herein by reference to Exhibit 4.5 to the Registrant's quarterly report on Form 10-Q filed on May 6, 2021. 4.46 Supplemental Indenture (additional Subsidiary Guarantees-5.250% Senior Notes due 2029) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee. Incorporated herein by reference to Exhibit 4.6 to the Registrant's quarterly report on Form 10-Q filed on May 6, 2021. 4.47 Supplemental Indenture (Additional Subsidiary Guarantees 3.375% Senior Notes due 2029 and 3.625% Senior Notes due 2031) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries , and Deutsche Bank Trust Company Americas as trustee. Incorporated herein by reference to Exhibit 4.7 to the Registrant's quarterly report on Form 10-Q filed on May 6, 2021. 4.48 Supplemental Indenture (additional Subsidiary Guarantees-3.750% Senior Secured First Lien Notes due 2024 and 4.450% Senior Secured First Lien Notes due 2029) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries , and Delaware Trust Company as trustee. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on August 23, 2021. 4.49 Supplemental Indenture (Additional Subsidiary Guarantees 2.000% Senior Secured First Lien Notes due 2025 and 2.450% Senior Secured First Lien Notes due 2027) dated January 5, 2021, among NRG Energy, Inc., each of its guarantor subsidiaries , and Deutsche Bank Trust Company Americas as trustee. Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on August 23, 2021. 4.50 Second Supplemental Indenture, dated August 23, 2021, among NRG Energy, Inc., the guarantors named therein and Deutsche Bank Trust Company Americas, as trustee. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on August 23, 2021. 4.51 Form of 3.875% Senior Notes due 2032 . Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on August 23, 2021. 4.52 Supplemental Indenture (Settlement Elections - 2.750% Convertible Senior Notes due 2048) dated February 22 , 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee. Filed herewith. 4.53 Supplemental Indenture (Additional Subsidiary Guarantees-2.750% Convertible Senior Notes due 2048) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee. Filed herewith. 4.54 Supplemental Indenture (Additional Subsidiary Guarantees-1.841% Senior Secured First Lien Notes due 2023) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Deutsche Bank Trust Company Americas as trustee . Filed herewith. 4.55 Supplemental Indenture (Additional Subsidiary Guarantees-6.625% Senior Notes due 2027) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee . Filed herewith. 4.56 Supplemental Indenture (Additional Subsidiary Guarantees-5.750% Senior Notes due 2028) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee . Filed herewith. 4.57 Supplemental Indenture (Additional Subsidiary Guarantees-5.250% Senior Notes due 2029) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee . Filed herewith. 162 4.58 Supplemental Indenture (Additional Subsidiary Guarantees-3.375% Senior Notes due 2029 and 3.625% Senior Notes due 2031) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Deutsche Bank Trust Company Americas as trustee . Filed herewith. 4.59 Supplemental Indenture (Additional Subsidiary Guarantees-3.750% Senior Secured First Lien Notes due 2024 and 4.450% Senior Secured First Lien Notes due 2029) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Delaware Trust Company as trustee . Filed herewith. 4.60 Supplemental Indenture (Additional Subsidiary Guarantees-2.000% Senior Secured First Lien Notes due 2025 and 2.450% Senior Secured First Lien Notes due 2027) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Deutsche Bank Trust Company Americas as trustee . Filed herewith. 4.61 Supplemental Indenture (Additional Subsidiary Guarantees-3.875% Senior Notes due 2032) dated February 17, 2022, among NRG Energy, Inc., each of its guarantor subsidiaries, and Deutsche Bank Trust Company Americas as trustee . Filed herewith. 10.1* Form of NRG Energy, Inc. Long-Term Incentive Plan Deferred Stock Unit Agreement for Directors. Incorporated herein by reference to Exhibit 10.15 to the Registrant's annual report on Form 10-K filed on March 30, 2005. 10.2* Form of NRG Energy, Inc. Long-Term Incentive Plan Restricted Stock Unit Agreement for Officers. Incorporated herein by reference to Exhibit 10.6 to the Registrant's annual report on Form 10-K filed on March 1, 2018. 10.3* Form of NRG Energy, Inc. Long-Term Incentive Plan Restricted Stock Unit Agreement for Non-Officers. Incorporated herein by reference to Exhibit 10.7 to the Registrant's annual report on Form 10-K filed on March 1, 2018. 10.4* Form of NRG Energy, Inc. Long-Term Incentive Plan Performance Stock Unit Agreement. Incorporated herein by reference to Exhibit 10.7 to the Registrant's annual report on Form 10-K filed on February 23, 2010. 10.5* Second Amended and Restated Annual Incentive Plan for Designated Corporate Officers. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on May 7, 2015. 10.6† LLC Membership Interest Purchase Agreement between Reliant Energy, Inc. and NRG Retail LLC, dated as of February 28, 2009. Incorporated herein by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-Q filed on April 30, 2009. 10.7* The NRG Energy, Inc. Amended and Restated Long-Term Incentive Plan. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on April 28, 2017. 10.8* NRG 2010 Stock Plan for GenOn Employees. Incorporated herein by reference to Exhibit 10.49 to the Registrant’s annual report on Form 10-K filed on February 27, 2013. 10.9* NRG Energy, Inc. Long-Term Incentive Plan Market Stock Unit Agreement. Incorporated herein by reference to Exhibit 10.53 to the Registrant's annual report on Form 10-K filed on February 28, 2014. 10.10* NRG Energy, Inc. 2010 Stock Plan For GenOn Employees Market Stock Unit Agreement Incorporated herein by reference to Exhibit 10.54 to the Registrant's annual report on Form 10-K filed on February 28, 2014. 10.11 Employment Agreement, dated December 21, 2015, by and between NRG Energy, Inc. and Mauricio Gutierrez. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on December 24, 2015. 10.12 Settlement Agreement, dated as of December 14, 2017, by and between NRG Energy, Inc. on behalf of itself and the NRG Parties, GenOn Energy, Inc. on behalf of itself and the Debtors. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. 10.13 Pension Indemnity Agreement, dated as of December 14, 2017, by and between NRG Energy, Inc. and GenOn Energy, Inc. Incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. 163 10.14 Tax Matters Agreement, initially dated as of December 14, 2017, by and between NRG Energy, Inc. and GenOn Energy, Inc. and by Reorganized GenOn upon the Effective Date. Incorporated herein by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. 10.15* Form of NRG Energy, Inc. Long-Term Incentive Plan Relative Performance Stock Unit Agreement for Officers. Incorporated herein by reference to Exhibit 10.73 to the Registrant's annual report on Form 10-K filed on March 1, 2018. 10.16* Form of NRG Energy, Inc. Long-Term Incentive Plan Relative Performance Stock Unit Agreement for Senior Vice Presidents. Incorporated herein by reference to Exhibit 10.74 to the Registrant's annual report on Form 10-K filed on March 1, 2018. 10.17† Consent and Indemnity Agreement, dated as of February 6, 2018, by and among NRG Energy, Inc., NRG Repowering Holdings LLC, NRG Yield, Inc., and GIP III Zephyr Acquisition Partners, L.P., and NRG Yield Operating LLC (solely with respect to Sections E.5, E.6 and G.12). Incorporated herein by reference to Exhibit 10.34 to NRG Yield, Inc.'s Annual Report on Form 10-K filed on March 1, 2018. 10.18* Amended and Restated Employee Stock Purchase Plan Incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on May 2, 2019. 10.19* NRG Energy, Inc. Amended and Restated Executive Change-in-Control and General Severance Plan for Tier IA and Tier IIA Executives (Amended and Restated Effective April 1, 2018). Incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on August 2, 2018. 10.20 A copy of Amendment No. 1 to Receivables Loan and Servicing Agreement, dated as of July 26, 2021, among NRG Retail LLC, as Servicer, NRG Receivables LLC, as Borrower, NRG Energy, Inc., as Performance Guarantor, the Conduit Lenders, Committed Lenders, Facility Agents and LC Issuers party, and Royal Bank of Canada, as administrative Agent, and included as Exhibit A-2 thereto a clean, conformed copy of the Receivables Loan and Servicing Agreement. Incorporated herein by reference to Exhibit 4.9 to the Registrant's quarterly report on Form 10-Q filed on August 5, 2021. 10.21* Form of NRG Energy, Inc. Long-Term Incentive Plan Relative Performance Stock Unit Agreement for Chief Executive Officer Filed herewith. 10.22* Form of NRG Energy, Inc. Long-Term Incentive Plan Relative Performance Stock Unit Agreement for Executive Vice Presidents Filed herewith. 10.23* Form of NRG Energy, Inc. Long-Term Incentive Plan Relative Performance Stock Unit Agreement for Senior Vice Presidents. Filed herewith. 21.1 Subsidiaries of NRG Energy, Inc. Filed herewith. 22.1 List of Guarantor Subsidiaries Filed herewith. 23.1 Consent of KPMG LLP. Filed herewith. 31.1 Rule 13a-14(a)/15d-14(a) certification of Mauricio Gutierrez. Filed herewith. 31.2 Rule 13a-14(a)/15d-14(a) certification of Alberto Fornaro. Filed herewith. 31.3 Rule 13a-14(a)/15d-14(a) certification of Emily Picarello. Filed herewith. 32 Section 1350 Certification. Furnished herewith. 101 INS Inline XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. 101 SCH Inline XBRL Taxonomy Extension Schema. Filed herewith. 101 CAL Inline XBRL Taxonomy Extension Calculation Linkbase. Filed herewith. 101 DEF Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith. 101 LAB Inline XBRL Taxonomy Extension Label Linkbase. Filed herewith. 101 PRE Inline XBRL Taxonomy Extension Presentation Linkbase. Filed herewith. 104 Cover Page Interactive Data File (the cover page interactive data file does not appear in Exhibit 104 because it's Inline XBRL tags are embedded within the Inline XBRL document). Filed herewith. 164 * Exhibit relates to compensation arrangements. † Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. ^ This filing excludes schedules pursuant to Item 601(b)(2) of Regulation S-K, which the registrant agrees to furnish supplementary to the Securities and Exchange Commission upon request by the Commission. ‡ Portions of this exhibit have been excluded because they are both not material and would likely cause competitive harm to the registrant if publicly disclosed. Information that has been omitted has been noted in this document with a placeholder identified by the mark “[***]”. Item 16. Form 10-K Summary None. 165 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NRG ENERGY, INC. (Registrant) By: /s/ MAURICIO GUTIERREZ Mauricio Gutierrez Chief Executive Officer Date: February 24, 2022 166 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Brian E. Curci and Christine A. Zoino, each or any of them, such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in such person's name, place and stead, in any and all capacities, to sign any and all amendments to this report on Form 10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as such person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant in the capacities indicated on February 24, 2022. Signature Title Date /s/ MAURICIO GUTIERREZ President, Chief Executive Officer and February 24, 2022 Mauricio Gutierrez Director (Principal Executive Officer) /s/ ALBERTO FORNARO Chief Financial Officer February 24, 2022 Alberto Fornaro (Principal Financial Officer) /s/ EMILY PICARELLO Corporate Controller February 24, 2022 Emily Picarello (Principal Accounting Officer) /s/ LAWRENCE S. COBEN Chair of the Board February 24, 2022 Lawrence S. Coben /s/ E. SPENCER ABRAHAM Director February 24, 2022 E. Spencer Abraham /s/ ANTONIO CARRILLO Director February 24, 2022 Antonio Carrillo /s/ MATTHEW CARTER, JR. Director February 24, 2022 Matthew Carter, Jr. /s/ HEATHER COX Director February 24, 2022 Heather Cox /s/ ELISABETH B. DONOHUE Director February 24, 2022 Elisabeth B. Donohue /s/ PAUL W. HOBBY Director February 24, 2022 Paul W. Hobby /s/ ALEXANDRA PRUNER Director February 24, 2022 Alexandra Pruner /s/ ANNE C. SCHAUMBURG Director February 24, 2022 Anne C. Schaumburg /s/ THOMAS H. WEIDEMEYER Director February 24, 2022 Thomas H. Weidemeyer 167