What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-23 compared with 2022-02-24 · 506 added, 788 removed, 2364 unchanged (35% of the section changed)

5 unchanged sentences

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.

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 2022 that materially affected, or are reasonably likely to materially affect, NRG’s internal control over financial reporting.

Inherent Limitations over Internal Controls

11 unchanged sentences

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, 2022.

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, 2022 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.

7 unchanged sentences

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, 2022 and 2021, 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, 2022, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated February 23, 2023 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

18 unchanged sentences

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.

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.

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.

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

30 unchanged sentences

2,865,336 (1) $ — 10,673,145 (2)

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.

3 unchanged sentences

As of December 31, 2022, there were 2,493,374 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

(2) Consists of 8,179,771 shares of common stock under NRG's LTIP and 2,493,374 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.

47 unchanged sentences

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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates 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 a critical audit matter 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 matter below, providing a separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the sufficiency of audit evidence over revenues

As discussed in Note 3 to the consolidated financial statements, the Company had $ 31.543 billion of revenues.

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 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.

It also included the involvement of IT professionals with specialized skills and knowledge to assist in the performance of certain procedures.

1 unchanged sentence

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.

For each revenue stream over which procedures were performed, we

evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue recognition processes;

involved IT professionals, who assisted in testing certain IT applications used by the Company in its revenue recognition processes;

and 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 revenues by assessing the results of procedures performed, including the appropriateness of such evidence.

We have served as the Company's auditor since 2004.

6 unchanged sentences

(In millions, except per share amounts) 2022 2021 2020

Operating Revenues

Total operating revenues $ 26,989 $ 9,093 $ 9,821

Total revenues $ 31,543 $ 26,989 $ 9,093

Operating Costs and Expenses

15 unchanged sentences

Total other expense ( 355 ) ( 482 ) ( 344 )

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

Income Before Income Taxes 1,663 2,859 761

Income tax expense 442 672 251

Net Income $ 1,221 $ 2,187 $ 510

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

Income Per Share

Weighted average number of common shares outstanding — basic 236 245 245

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

Income per Weighted Average Common Share — Basic $ 5.17 $ 8.93 $ 2.08

Weighted average number of common shares outstanding — diluted 236 245 246

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

Income per Weighted Average Common Share — Diluted $ 5.17 $ 8.93 $ 2.07

See notes to Consolidated Financial Statements

5 unchanged sentences

Net Income $ 1,221 $ 2,187 $ 510

Other Comprehensive Income/(Loss), net of tax

Foreign currency translation adjustments, net of income tax

Other Comprehensive (Loss)/Income, net of tax

Foreign currency translation adjustments

( 35 ) ( 5 ) 8

Available-for-sale securities, net of income tax

Defined benefit plans, net of income tax 85 ( 22 ) ( 78 )

Other comprehensive income/(loss) 80 ( 14 ) ( 98 )

Defined benefit plans ( 16 ) 85 ( 22 )

Other comprehensive (loss)/income ( 51 ) 80 ( 14 )

Comprehensive Income $ 1,170 $ 2,267 $ 496

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

15 unchanged sentences

Total current assets

16,231 10,841

Property, plant and equipment, net 1,692 1,688

8 unchanged sentences

Total other assets

11,223 10,653

Total Assets $ 29,146 $ 23,182

See notes to Consolidated Financial Statements

NRG ENERGY, INC.

31 unchanged sentences

Additional paid-in capital 8,457 8,531

Retained earnings/(accumulated deficit) 464 ( 1,403 )

Retained earnings 1,408 464

Treasury stock, at cost;

12 unchanged sentences

Net income $ 1,221 $ 2,187 $ 510

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:

15 unchanged sentences

Oil lower of cost or market adjustment — — 29

Uplift securitization proceeds receivable from ERCOT ( 689 ) — —

Uplift securitization proceeds received/(receivable) from ERCOT 689 ( 689 ) —

Cash (used)/provided by changes in other working capital, net of acquisition and disposition effects:

5 unchanged sentences

Other assets and liabilities ( 161 ) ( 89 ) ( 84 )

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 provided by operating activities $ 360 $ 493 $ 1,837

Cash Flows from Investing Activities

1 unchanged sentence

Capital expenditures ( 367 ) ( 269 ) ( 230 )

Net (purchases)/sales of emissions allowances — ( 10 ) 11

Net purchases of emissions allowances ( 6 ) — ( 10 )

Investments in nuclear decommissioning trust fund securities ( 454 ) ( 751 ) ( 492 )

Proceeds from sales of nuclear decommissioning trust fund securities 448 710 439

Proceeds from sale of assets, net of cash disposed and sale of discontinued operations, net of fees 830 81 1,294

Proceeds from sale of assets, net of cash disposed and fees 109 830 81

Changes in investments in unconsolidated affiliates — — 2

Net contributions to discontinued operations — — ( 44 )

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

Cash used by investing activities $ ( 332 ) $ ( 3,039 ) $ ( 494 )

For the Year Ended December 31,

1 unchanged sentence

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 $ 1,995 $ 938 $ ( 7 )

Payments for share repurchase activity ( 606 ) ( 48 ) ( 229 )

Payments of dividends to common stockholders ( 332 ) ( 319 ) ( 295 )

Proceeds from issuance of long-term debt — 1,100 3,234

Payments for short and long-term debt ( 5 ) ( 1,861 ) ( 335 )

Payments for debt extinguishment costs — ( 65 ) ( 5 )

Payments of debt issuance costs ( 9 ) ( 18 ) ( 75 )

Net (repayments)/proceeds of Revolving Credit Facility — ( 83 ) 83

Repayments of Revolving Credit Facility — — ( 83 )

Proceeds from issuance of common stock — 1 1

Purchase of and distributions to noncontrolling interests from subsidiaries — — ( 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 )

Cash provided/(used) by financing activities $ 1,043 $ ( 272 ) $ 2,204

Effect of exchange rate changes on cash and cash equivalents ( 3 ) ( 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 )

Net Increase/(Decrease) in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash 1,068 ( 2,820 ) 3,545

Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period 1,110 3,930 385

6 unchanged sentences

(In millions) Common

Retained Earnings/ (Accumulated Deficit) Treasury

Stock Additional

Capital Retained Earnings/ (Accumulated Deficit) Treasury

Stock Accumulated

Comprehensive

Stock-holders'

Balances at December 31, 2018 $ 4 $ 8,510 $ ( 6,022 ) $ ( 3,632 ) $ ( 94 ) $ ( 1,234 )

Net income attributable to NRG Energy, Inc.

Balance at December 31, 2019 $ 4 $ 8,501 $ ( 1,616 ) $ ( 5,039 ) $ ( 192 ) $ 1,658

Other comprehensive loss ( 14 ) ( 14 )

( 98 ) ( 98 )

Repurchase of partners' equity interest in VIE 18 18

Shares reissuance for ESPP 4 4

2 unchanged sentences

Equity-based awards activity, net (a)

( 16 ) ( 16 )

Issuance of common stock

2 unchanged sentences

Balance at December 31, 2020 $ 4 $ 8,517 $ ( 1,403 ) $ ( 5,232 ) $ ( 206 ) $ 1,680

Other comprehensive loss ( 14 ) ( 14 )

Repurchase of partners' equity interest in VIE

Other comprehensive income 80 80

Shares reissuance for ESPP 1 3 4

6 unchanged sentences

Balance at December 31, 2021 $ 4 $ 8,531 $ 464 $ ( 5,273 ) $ ( 126 ) $ 3,600

Other comprehensive income 80 80

Other comprehensive loss ( 51 ) ( 51 )

Shares reissuance for ESPP 2 4 6

2 unchanged sentences

Equity-based awards activity, net (a)

Issuance of common stock

Common stock dividends and dividend equivalents declared (b)

( 334 ) ( 334 )

Adoption of ASU 2020-06 ( 100 ) 57 ( 43 )

Balance at December 31, 2022 $ 4 $ 8,457 $ 1,408 $ ( 5,864 ) $ ( 177 ) $ 3,828

10 unchanged sentences

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 has a customer base that includes approximately 5.4 million Home customers as well as commercial, industrial, and wholesale customers, supported by approximately 16 GW of generation.

On December 6, 2022, NRG and Vivint Smart Home, Inc.

announced the entry into a definitive agreement under which the Company will acquire Vivint, a smart home platform company, in an all-cash transaction.

The acquisition will accelerate the realization of NRG’s consumer-focused growth strategy and create a leading essential home services platform fueled by market-leading brands, unparalleled insights, proprietary technologies and complementary sales channels.

Close of the acquisition is targeted for the first quarter of 2023 and is subject to customary closing conditions.

The Company manages its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus.

3 unchanged sentences

• 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;

(i) all activity related to customer, 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;

• Corporate activities.

9 unchanged sentences

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

However, a controlling financial interest may also exist through arrangements that do not involve controlling voting 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.

The Texas Legislature passed HB 4492 in May 2021 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.

The Company accounted for the proceeds 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 2021 annual period for which the proceeds were intended to compensate.

The Company received proceeds of $ 689 million from ERCOT in June 2022.

Credit Losses

On January 1, 2020, the Company adopted ASU No.

In accordance with 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.

2016-13, retail trade receivables are reported on the balance sheet net of the allowance for credit losses.

1 unchanged sentence

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:

The following table represents the activity in the allowance for credit losses for the years ended December 31, 2022, 2021, and 2020:

Year Ended December 31,

6 unchanged sentences

Ending balance (a)

(a) Includes bilateral finance hedging risk of $ 403 million accounted for under ASC 815

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.

$ 133 $ 683 $ 67

(a) Includes bilateral finance hedging risk of $( 70 ) million and $ 403 million accounted for under ASC 815 for the years ended December 31, 2022 and December 31, 2021, respectively

During the year ended December 31, 2022, the provision for credit losses included the Company's loss mitigation efforts recognized as income of $ 126 million related to Winter Storm Uri.

During the year ended December 31, 2021, the provision for credit losses included $ 596 million of expense due to the impacts of Winter Storm Uri.

The increase in write-offs for the periods ended December 31, 2022 and 2021 were primarily due to the resolution of credit losses that occurred during Winter Storm Uri.

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.

Restricted Cash

7 unchanged sentences

$ 2,178 $ 1,110 $ 3,930

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.

Restricted cash consists primarily of funds held to satisfy the requirements of certain financing agreements and funds held within the Company's projects that are restricted in their use.

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 natural gas inventory as goods are delivered 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.

12 unchanged sentences

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.

Business Interruption Insurance

The Company carries insurance policies to cover insurable risks including, but not limited to, business interruption.

As a result of damage at the Limestone 1 and W.A.

Parish 8 units, the Company recorded business interruption insurance settlements of $ 81 million during the year ended December 31, 2022.

Business interruption insurance is recorded to cost of operations in the consolidated statements of operations and cash provided by operating activities in the consolidated statement of cash flows.

Asset Impairments

7 unchanged sentences

For further discussion of these matters, refer to Note 11, Asset Impairments .

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 capitalized and amortized as interest expense on a basis that 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.

14 unchanged sentences

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.

For further discussion of goodwill impairment losses recognized refer to Note 11, Asset Impairments .

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.

11 unchanged sentences

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.

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 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 emit a specified amount of certain pollutants, 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

6 unchanged sentences

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).

Cost of fuel is primarily the costs associated with procurement, transportation and storage of natural gas, nuclear fuel, 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 PPAs with third-party developers, which are accounted for as NPNS (see further discussion in Derivative Instruments below).

Other cost of sales primarily consists of TDSP expenses.

10 unchanged sentences

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.

As of December 31, 2022 and 2021 the Company did not have derivative instruments that were designated as cash flow or fair value hedge.

Revenues and expenses on contracts that qualify for the NPNS exception are recognized when the underlying physical transaction is delivered.

5 unchanged sentences

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.

The mark-to-market for economic hedging activities are recognized to revenues or cost of operations during the reporting period.

Operations and Maintenance and Other Cost of Operations

6 unchanged sentences

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.

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, 2022, amounts recognized as foreign currency transaction losses were $( 7 ) million.

For the years ended December 31, 2021 and 2020, amounts recognized as foreign currency transaction gains/(losses) were immaterial.

1 unchanged sentence

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.

Financial instruments that 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.

38 unchanged sentences

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

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.

The amounts reported as redeemable 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.

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

25 unchanged sentences

Recent Accounting Developments - Guidance Adopted in 2022

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.

2 unchanged sentences

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.

As a result of the provisions of the amended guidance, the Company recorded 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 adoption of ASU 2020-06 did not have a material impact on the Company's statements of operations, statements of cash flows or earnings per share amounts.

Recent Accounting Developments - Guidance Not Yet Adopted

ASU 2021-08 — In October 2021, the FASB issued ASU No.

6 unchanged sentences

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.

The Company will evaluate the impacts of the amendments for business combinations occurring after the effective date.

Note 3 — Revenue Recognition

19 unchanged sentences

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.

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 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.

7 unchanged sentences

As of December 31, 2022, estimated future fixed fee performance obligations are $ 77 million, $ 23 million, and $ 2 million for fiscal years 2023, 2024, and 2025, 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.

These performance obligations are for cleared auction MWs in the PJM, NYISO and MISO capacity auctions and are subject to penalties for non-performance.

Disaggregated Revenue

6 unchanged sentences

Business 3,229 13,768 1,964 — 18,961

Total retail revenue 8,410 11,862 3,290 ( 1 ) 23,561

Energy revenue (c)

Total retail revenue (b)

9,617 15,856 4,250 ( 1 ) 29,722

Capacity revenue (c)

Energy revenue (b)

111 641 466 32 1,250

Mark-to-market for economic hedging activities (d)

Capacity revenue (b)

— 232 40 — 272

Mark-to-market for economic hedging activities (c)

2 ( 30 ) ( 56 ) 1 ( 83 )

Contract amortization — ( 40 ) 1 — ( 39 )

Other revenue (b)(c)

Other revenue (b)

327 104 5 ( 15 ) 421

Total operating revenue 10,293 13,033 3,653 10 26,989

Lease revenue — 1 7 — 8

Total revenue 10,057 16,763 4,706 17 31,543

Revenues accounted for under topics other than ASC 606 and ASC 815 — ( 7 ) 41 1 35

Realized and unrealized ASC 815 revenue ( 2 ) 84 ( 93 ) 31 20

Contract amortization — ( 26 ) ( 4 ) — ( 30 )

Total revenue from contracts with customers $ 10,059 $ 16,686 $ 4,758 $ ( 15 ) $ 31,488

(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:

(b) The following amounts of retail, 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

Retail revenue $ — $ 110 $ — $ — $ 110

Energy revenue — ( 31 ) ( 8 ) 31 ( 8 )

1 unchanged sentence

Other revenue ( 4 ) 2 ( 29 ) ( 1 ) ( 32 )

(d) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815

For the Year Ended December 31, 2021

5 unchanged sentences

Total retail revenue 8,404 11,862 3,296 ( 1 ) 23,561

Energy revenue (b)

Energy revenue (c)

329 508 371 7 1,215

Capacity revenue (b)

Capacity revenue (c)

— 718 57 — 775

Mark-to-market for economic hedging activities (c)

Mark-to-market for economic hedging activities (d)

( 3 ) ( 88 ) ( 86 ) 13 ( 164 )

Other revenue (b)

Contract amortization — ( 26 ) ( 4 ) — ( 30 )

Other revenue (b)(c)

1,565 51 25 ( 9 ) 1,632

Total operating revenue 6,309 2,258 530 ( 4 ) 9,093

Lease revenue — 1 17 — 18

Total revenue 10,295 13,025 3,659 10 26,989

Revenues accounted for under topics other than ASC 606 and ASC 815 — ( 25 ) 3 — ( 22 )

Realized and unrealized ASC 815 revenue 130 184 ( 96 ) 16 234

1 unchanged sentence

(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:

(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)

3 unchanged sentences

Other revenue 133 ( 8 ) ( 12 ) — 113

(d) Revenue relates entirely to unrealized gains and losses on derivative instruments accounted for under ASC 815

For the Year Ended December 31, 2020

11 unchanged sentences

2 88 ( 3 ) 8 95

Contract amortization — — — — —

Other revenue (b)

232 53 42 ( 8 ) 319

Total operating revenue 7,069 2,262 497 ( 7 ) 9,821

Lease revenue — 1 19 — 20

Total revenue 6,312 2,249 536 ( 4 ) 9,093

Revenues accounted for under topics other than ASC 606 and ASC 815 — 1 17 — 18

Realized and unrealized ASC 815 revenue 30 314 38 3 385

13 unchanged sentences

Accounts receivable, net - Contracts with customers 4,704 3,057

Accounts receivable, net - Derivative instruments 182 33

Accounts receivable, net - Accounted for under topics other than ASC 606 64 182

Accounts receivable, net - Affiliate 5 6

4 unchanged sentences

The revenue recognized from contracts with customers during the years ended December 31, 2022 and 2021 relating to the deferred revenue balance at the beginning of each period was $ 184 million and $ 23 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 change in deferred revenue balances during the years ended December 31, 2022 and 2021 was primarily due to the usage of customer bill credits by certain C&I customers, which were as a result of power pricing during Winter Storm Uri.

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.

3 unchanged sentences

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

Note 4 — Acquisitions and Dispositions

2023 Anticipated Acquisition

Vivint Smart Home Acquisition

On December 6, 2022, the NRG and Vivint Smart Home, Inc.

announced the entry into a definitive merger agreement under which the Company will acquire Vivint, a smart home platform company, in an all-cash transaction.

The acquisition will accelerate the realization of NRG's consumer-focused growth strategy and create a leading essential home services platform fueled by market-leading brands, unparalleled insights, proprietary technologies and complementary sales channels.

Close of the acquisition is targeted for the first quarter of 2023 and is subject to customary closing conditions.

The Company will pay $ 12 per share, or approximately $ 2.8 billion in cash, and expects to fund the acquisition using proceeds from newly issued debt and preferred equity, drawing on its Revolving Credit Facility and Receivables Securitization Facilities, and through cash on hand.

Additionally, in the first quarter of 2023, NRG increased its Revolving Credit Facility by $ 600 million to meet the additional liquidity requirements related to the acquisition.

For further discussion see Note 13, Long-term Debt and Finance Leases.

In connection with the merger agreement, NRG entered into a commitment letter for a senior secured 364-day bridge term loan facility in a principal amount not to exceed $ 2.1 billion for the purposes of financing the Vivint acquisition, paying fees and expenses in connection with the acquisition, and certain other third-party payments in respect of arrangements of Vivint.

Acquisition costs of $ 17 million for the year ended December 31, 2022 are included in acquisition-related transaction and integration costs in the Company's Consolidated Statement of operations.

2021 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.

On January 5, 2021, the Company acquired all of the issued and outstanding common shares of 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 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.

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 .

The acquisition increased NRG's retail portfolio by over 3 million customers and strengthened its integrated model.

It also broadened 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 and total purchase price adjustment of $ 99 million, resulting in an adjusted purchase price of $ 3.724 billion.

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:

The purchase price was allocated as follows as of December 31, 2021:

(In millions)

9 unchanged sentences

Total current assets 3,510

(In millions)

Property, plant and equipment, net 151

9 unchanged sentences

Total Assets $ 7,794

(In millions)

Current Liabilities

11 unchanged sentences

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.

(a) Goodwill arising from the acquisition was 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)

Prepayments and other current assets $ ( 10 )

Goodwill ( 7 )

Total decrease in assets $ ( 17 )

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.

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:

(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.

(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.

Goodwill deductible for tax purposes was $ 322 million

(b) As of January 5, 2021, the weighted average amortization period for total amortizable intangible assets was 12 years

2020 Acquisitions

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

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

2023 Dispositions

Sale of Astoria

On January 6, 2023, the Company closed on the sale of land and related assets from the Astoria site, within the East region of operations, for initial proceeds of $ 212 million, subject to transaction fees of $ 3 million and certain indemnifications.

As part of the transaction, NRG entered into an agreement to lease the land back for the purpose of operating the Astoria gas turbines through the planned April 30, 2023 retirement date.

The operating lease agreement is expected to end six months after the facility's actual retirement date.

2022 Dispositions

Sale of Watson

On June 1, 2022, the Company closed on the sale of its 49 % ownership in the Watson natural gas generating facility for $ 59 million.

The Company recorded a gain on the sale of $ 46 million.

2021 Dispositions

Sale of 4,850 MW of Fossil generating assets

10 unchanged sentences

NRG recognized a gain on the sale of $ 17 million, including cash disposed of $ 7 million.

2020 Dispositions

Sale of Home Solar

2 unchanged sentences

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.

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.

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

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

3 unchanged sentences

(In millions) Carrying Amount Fair Value Carrying Amount Fair Value

Long-term debt, including current portion (a)

Convertible Senior Notes $ 575 $ 576 $ 518 $ 677

Other long-term debt, including current portion 7,523 6,432 7,522 7,650

Total long-term debt, including current portion (a)

$ 8,098 $ 7,008 $ 8,040 $ 8,327

(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.

The fair value of the Company's 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

51 unchanged sentences

Derivative assets:

Foreign exchange contracts 1 — 1 —

Commodity contracts 7,139 981 5,701 457

4 unchanged sentences

Derivative liabilities:

Foreign exchange contracts $ 1 $ — $ 1 $ —

Commodity contracts 4,798 626 4,008 164

Total liabilities $ 4,799 $ 626 $ 4,009 $ 164

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

The following table reconciles, for the years ended December 31, 2022 and 2021, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements using significant unobservable inputs:

Fair Value Measurement Using Significant Unobservable Inputs (Level 3)

(In millions) Derivatives (a)

Beginning balance as of January 1, 2021 $ ( 16 )

Derivatives (a)

For the Year Ended December 31,

(In millions) 2022 2021

Beginning balance $ 293 $ ( 16 )

Contracts added from Direct Energy acquisition

Total gains realized/unrealized included in earnings

Transfers into Level 3 (b)

Transfers out of Level 3 (b)

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

(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

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

Purchases ( 110 ) 93

1 unchanged sentence

Transfers out of Level 3 (b)

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

Ending balance $ 505 $ 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 year-end $ 204 $ 120

(a) Consists of derivatives assets and liabilities, net

1 unchanged sentence

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.

Realized and unrealized gains and losses included in earnings that are related to the energy derivatives are recorded in 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.

6 unchanged sentences

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.

However, because the shares in the commingled funds are not publicly quoted and not traded in an active market, the commingled funds are measured using net asset value practical expedient.

See also Note 7, Nuclear Decommissioning Trust Fund.

12 unchanged sentences

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.

In addition, the Company applies a credit reserve to reflect credit risk, which for foreign exchange contracts is calculated utilizing the bilateral method based on published default probabilities.

For commodities, to the extent that NRG's net exposure under a specific master agreement is an asset, the Company uses the counterparty's default swap rate.

If the exposure under a specific master agreement is a liability, the Company uses NRG's default swap rate.

For foreign exchange contracts, interest rate swaps and commodities, the credit reserve is added to the

discounted fair value to reflect the exit price that a market participant would be willing to receive to assume NRG's liabilities or that a market participant would be willing to pay for NRG's assets.

For foreign exchange contracts and commodities, the credit reserve is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume NRG's liabilities or that a market participant would be willing to pay for NRG's assets.

As of December 31, 2022, the credit reserve resulted in a $ 9 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.

As of December 31, 2021, the credit reserve resulted in $ 11 million decrease primarily within cost of operations.

The fair values in each category reflect the level of forward prices and volatility factors as of December 31, 2022 and may change as a result of changes in these factors.

2 unchanged sentences

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.

NRG's significant positions classified as Level 3 include physical and financial natural gas and power contracts 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.

9 unchanged sentences

FTRs 68 82 Discounted Cash Flow Auction Prices (per MWh) ( 32 ) 610 0

$ 1,251 $ 746

Significant Unobservable Inputs

2 unchanged sentences

(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

8 unchanged sentences

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.

As of December 31, 2022, the Company recorded $ 260 million of cash collateral posted and $ 1.7 billion of cash collateral received on its balance sheet.

Concentration of Credit Risk

9 unchanged sentences

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.

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.

As of December 31, 2022, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, and registered commodity exchanges and certain long-term agreements, was $ 2.7 billion and NRG held collateral (cash and letters of credit) against those positions of $ 1.0 billion, resulting in a net exposure of $ 1.7 billion.

NRG periodically receives collateral from counterparties in excess of their exposure.

15 unchanged sentences

Changes in hedge positions and market prices will affect credit exposure and counterparty concentration.

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.

During Winter Storm Uri, in February 2021, the Company experienced nonperformance by a counterparty in one of its bilateral financial hedging transactions, resulting in exposure of $ 403 million.

During December 2022, the Company received $ 70 million as part of the Company's loss mitigation efforts related to this exposure.

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.

The Company participates in the organized markets of CAISO, ERCOT, AESO, IESO, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs.

Trading in the majority of these markets is approved by FERC, whereas in the case of ERCOT, it is approved by the PUCT, and whereas in the case of AESO and IESO, both exist provincially with AESO primarily subject to Alberta Utilities Commission and the IESO to the Ontario Energy Board.

These ISOs may include credit policies that, under certain circumstances, require that losses arising from the default of one member on spot market transactions be shared by the remaining participants.

As a result, the counterparty credit risk to these markets is limited to NRG’s share of the overall market and are excluded from the above exposures.

Exchange Traded Transactions

3 unchanged sentences

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.

Counterparty credit exposure described above excludes credit risk exposure under certain long term contracts, primarily solar under Renewable PPAs.

As external sources or observable market quotes are not always available to estimate such exposure, the Company values these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics.

Based on these valuation techniques, as of December 31, 2022, aggregate credit risk exposure managed by NRG to these counterparties was approximately $ 1.1 billion for the next five years.

5 unchanged sentences

As of December 31, 2022, 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.

Current economic conditions may affect the Company's customers' ability to pay bills in a timely manner, which could increase customer delinquencies and may lead to an increase in credit losses.

The Company's provision for credit losses was $ 11 million, $ 698 million, and $ 108 million for the years ending December 31, 2022, 2021, and 2020, 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.

During the year ended December 31, 2022, the provision for credit losses included the Company's loss mitigation efforts recognized as income of $ 126 million related to Winter Storm Uri.

During the year ended December 31, 2021, the provision for credit losses included $ 596 million of expenses due to the impacts of Winter Storm Uri.

Note 6 — Accounting for Derivative Instruments and Hedging Activities

3 unchanged sentences

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.

ASC 815 applies to NRG's energy related commodity contracts and foreign exchange contracts.

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.

7 unchanged sentences

• 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;

• Weather derivative products used to mitigate a portion of lost revenue due to weather.

10 unchanged sentences

• Load-following forward electric sale contracts extending through 2036;

• Load-following forward natural gas sale contracts extending through 2032;

• Load-following forward natural gas purchase and sale contracts extending through 2032;

• Power tolling contracts through 2038;

4 unchanged sentences

• 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

12 unchanged sentences

Power MWh 192 185

Capacity MW/Day — ( 1 )

Foreign Exchange Dollars 569 279

The increase in positions is primarily the result of Direct Energy acquisition.

Fair Value of Derivative Instruments

27 unchanged sentences

As of December 31, 2021

Foreign exchange contracts:

Derivative assets $ 1 $ ( 1 ) $ — $ —

Derivative liabilities ( 1 ) 1 — —

Total foreign exchange contracts $ — $ — $ — $ —

Commodity contracts:

2 unchanged sentences

Total commodity contracts $ 2,341 $ — $ ( 814 ) $ 1,527

Total derivative instruments $ 2,341 $ — $ ( 814 ) $ 1,527

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.

Unrealized gains and losses associated with changes in the fair value of derivative instruments that are not accounted for as cash flow hedges are reflected in current period results of operations.

The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges or fair value hedges and trading activity on the Company's statement of operations.

The effect of foreign exchange and commodity hedges is included within operating revenues and cost of operations and the effect of interest rate hedges is included in interest expense.

The effect of foreign exchange and commodity hedges is included within revenues and cost of operations.

Year Ended December 31,

8 unchanged sentences

1,248 2,716 ( 119 )

Reversal of previously recognized unrealized (gains) on settled positions related to trading activity

Reversal of previously recognized unrealized losses/(gains) on settled positions related to trading activity

13 ( 18 ) ( 20 )

1 unchanged sentence

Net unrealized (losses)/gains on open positions related to trading activity

Total unrealized mark-to-market (losses)/gains for trading activity ( 32 ) ( 5 ) 20

( 17 ) ( 13 ) 15

Total unrealized mark-to-market (losses) for trading activity ( 4 ) ( 32 ) ( 5 )

Total unrealized gains/(losses) $ 1,244 $ 2,684 $ ( 124 )

4 unchanged sentences

Unrealized gains/(losses) included in cost of operations - commodities 1,315 2,880 ( 214 )

Total impact to statement of operations- commodities

$ 2,684 $ ( 124 ) $ —

Total impact to statement of operations — interest rate contracts

Unrealized gains included in cost of operations - foreign exchange 16 — —

Total impact to statement of operations

$ 1,244 $ 2,684 $ ( 124 )

1 unchanged sentence

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 gains from open economic hedge positions of $ 2.5 billion for the years ended December 31, 2022 and 2021 were primarily the result of an increase in value of forward positions as a result of increases in natural gas and power prices.

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.

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, 2022 was $ 1.5 billion.

40 unchanged sentences

Total Inventory $ 751 $ 498

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

21 unchanged sentences

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

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.

The Company has the right to control the use of the identified asset when the Company 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.

Certain leases may provide for variable lease payments in the form of payments based on unit availability, 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.

For the Year Ended December 31,

29 unchanged sentences

2022 Impairment Losses

Astoria Redevelopment Impairment — During the third quarter of 2022, the Company entered into a purchase and sale agreement for the sale of the land and related assets at the Astoria generating site and the planned withdrawal and cancellation of its proposed Astoria redevelopment project.

As a result, the Company impaired $ 43 million of Astoria project spend in the East segment.

For further discussion of the transaction, see Note 4, Acquisitions and Dispositions .

PJM Asset Impairments — During the second quarter of 2022, the results of the PJM Base Residual Auction for the 2023/2024 delivery year were released leading the Company to revise its long-term view of certain facilities and announce the planned retirement of the Joliet generating facility.

The Company considered the near-term retirement date of Joliet and the decline in PJM capacity prices to be a trigger for impairment and performed impairment tests on the PJM generating assets and the goodwill associated with Midwest Generation.

The Company measured the impairment losses on the PJM generating assets and Midwest Generation goodwill as the difference between the carrying amount and the fair value of the PJM generating assets and Midwest Generation reporting unit, respectively.

Fair values were determined using an income approach in which the Company applied a discounted cash flow methodology to the long-term budgets for the plants and reporting unit.

Significant inputs impacting the income approach include the Company's long-term view of capacity and fuel prices, projected generation, the physical and economic characteristics of each plant and the reporting unit as a whole, and the discount rate applied to the after-tax cash flow projections.

Impairment losses of $ 20 million and $ 130 million were recorded in the East segment on the PJM generating assets and Midwest Generation goodwill, respectively.

Other Impairments — The Company additionally recorded impairment losses of $ 13 million in the East segment.

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.

17 unchanged sentences

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.

The Company recorded $ 18 million impairment losses on investments 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

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.

The table below presents the changes of goodwill for the years ended December 31, 2022 and 2021 based on the Company's reportable segments.

(in millions) Texas East West/Services/Other Total

4 unchanged sentences

Balance as of December 31, 2021 $ 716 $ 853 $ 226 $ 1,795

Impairment losses — ( 130 ) — ( 130 )

Asset sales ( 6 ) — — ( 6 )

Foreign currency translation — — ( 9 ) ( 9 )

Balance as of December 31, 2022 $ 710 $ 723 $ 217 $ 1,650

Intangible Assets

11 unchanged sentences

• Other — These intangibles primarily include renewable energy credits.

Renewable energy credits are retired, as required, for the applicable compliance period.

RECs 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.

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:

15 unchanged sentences

Net carrying amount $ 96 $ 400 $ 943 $ 138 $ 338 $ 217 $ 2,132

(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

(a) The weighted average life of acquired amortizable intangibles was six years for customer relationships

(b) RECs are not subject to amortization and had a carrying value of $ 186 million

11 unchanged sentences

( 51 ) — ( 158 ) — — ( 7 ) ( 216 )

Impairment ( 14 ) — — — — — ( 14 )

Other 4 — 2 ( 1 ) — ( 2 ) 3

3 unchanged sentences

Net carrying amount $ 98 $ 544 $ 1,161 $ 161 $ 389 $ 158 $ 2,511

(a) The weighted average life of acquired intangibles was 5 years for customer relationships

(a) The weighted average life of total acquired amortizable intangibles from the Direct Energy acquisition was 12 years

(b) RECs are not subject to amortization and had a carrying value of $ 123 million

24 unchanged sentences

Once transferred to held-for-sale, these emission allowances are prohibited from moving back to held-for-use.

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, 2022 and 2021, along with the additions, reductions and accretion related to the Company's ARO obligations for the year ended December 31, 2022:

(In millions) Nuclear Decommission Other (a)

Balance as of December 31, 2021 $ 321 $ 399 $ 720

Revisions in estimates for current obligations — 38 38

Additions — 1 1

Spending for current obligations — ( 33 ) ( 33 )

Accretion 19 19 38

Other — ( 6 ) ( 6 )

Balance as of December 31, 2022 $ 340 $ 418 $ 758

(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

Note 13 — Long-term Debt and Finance Leases

8 unchanged sentences

Senior Notes, due 2032 1,100 1,100 3.875

Senior Notes, due 2032 1,100 — 3.875

Convertible Senior Notes, due 2048 (a)

12 unchanged sentences

Total long-term debt and finance leases $ 7,976 $ 7,966

(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.

(a) As of the ex-dividend date of January 31, 2023, the Convertible Senior Notes were convertible at a price of $ 43.01 , which is equivalent to a conversion rate of approximately 23.2527 shares of common stock per $1,000 principal amount.

Debt includes the following discounts:

10 unchanged sentences

Total $ 8,111

Revolving Credit Facility

On February 14, 2023 (the “Revolving Credit Facility Amendment Effective Date”), the Company amended its Revolving Credit Facility to:

(i) increase the existing revolving commitments thereunder by $ 600 million (the “Incremental Commitment”), (ii) extend the maturity date of a portion of the revolving commitments thereunder to February 14, 2028, (iii) transition the benchmark rate applicable to revolving loans from LIBOR to SOFR and (iv) make certain other amendments to the terms of the Revolving Credit Facility for purposes of, among other things, providing additional flexibility.

After giving effect to the Incremental Commitment on the Revolving Credit Facility Amendment Effective Date, the Company will have a total of $ 4.275 billion of revolving commitments under the Revolving Credit Facility.

The full amount of the Incremental Commitment was made available from and after the Revolving Credit Facility Amendment Effective Date but will be reduced by $ 500 million if the Vivint acquisition is not consummated.

A portion of the non-extended revolving commitments will terminate on July 5, 2023, with the remaining portion terminating on May 28, 2024, in each case, unless otherwise extended.

The Revolving Credit Facility is guaranteed by NRG’s existing and future direct and indirect subsidiaries, with customary and agreed-upon exceptions, for, among other exceptions, unrestricted subsidiaries, foreign subsidiaries, project subsidiaries, immaterial subsidiaries, captive insurance subsidiaries and securitization vehicles.

The Revolving Credit Facility is also secured by a first priority perfected security interest in a substantial portion of the property and assets owned by NRG and its subsidiaries that are guarantors under the Revolving Credit Facility, subject to certain exceptions that include, among other things, the capital stock of certain specified subsidiaries, including unrestricted subsidiaries and certain excluded subsidiaries, equity interests in excess of 66 % of the total outstanding voting equity interests of certain foreign subsidiaries, equity interests the pledge of which is prohibited by applicable agreements binding on such subsidiaries and other assets that may be designated by NRG as excluded from the collateral that, when taken together with all other assets so designated since the Revolving Credit Facility Amendment Effective Date, have an aggregate fair market value not exceeding $ 750 million.

The Revolving Credit Facility is secured on a pari passu basis with certain interest rate, foreign currency and commodity hedging obligations of NRG, the Senior Secured Notes and certain other indebtedness.

The Revolving Credit Facility contains customary covenants, which, among other things, require NRG to maintain a minimum interest coverage ratio and a maximum first lien leverage ratio on a consolidated basis and limit NRG’s ability to:

• incur indebtedness and liens and enter into sale and lease-back transactions;

• make investments, loans and advances;

• return capital to shareholders;

• repay subordinated indebtedness;

• consummate mergers, consolidations and asset sales;

• enter into affiliate transactions;

• change its fiscal year-end.

As of December 31, 2022, there were no outstanding borrowings and there were $ 1.6 billion in letters of credit issued under the Revolving Credit Facility.

Issuance of 2032 Senior Notes

5 unchanged sentences

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

10 unchanged sentences

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

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.

Accounting for Convertible Senior Notes — Upon issuance in 2018, the Convertible Senior Notes were separated into liability and equity components for accounting purposes.

The carrying amount of the liability component was initially calculated by measuring the fair value of similar liabilities that do not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Convertible Senior Notes.

This difference represented the debt discount that was amortized to interest expense over seven years , which was determined to be the expected life of the Convertible Senior Notes, using the effective interest rate method.

The equity component was recorded in additional paid-in capital and was not remeasured as it continued to meet the conditions for equity classification.

Following the adoption of ASU 2020-06 as of January 1, 2022, the Company no longer records the conversion feature of its convertible senior notes in equity.

Instead, the Company combined the previously separated equity component with the liability component, which together is now classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense.

For more information on the adoption of ASU 2020-06, refer to Note 2, Summary of Significant Accounting Policies.

Modification to 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, the Company will pay cash per $1,000 principal amount and will settle in cash or a combination of cash and the Company's common stock for the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount.

Convertible Senior Notes Features — As of December 31, 2022, the Convertible Senior Notes were convertible, under certain circumstances, into cash or a combination of cash and the Company’s common stock at a price of $ 43.46 per common share, which is equivalent to a conversion rate of approximately 23.0116 shares of common stock per $1,000 principal amount of Convertible Senior Notes.

As of December 31, 2021, the Convertible Senior Notes were convertible at a price of $ 44.89 per common share, which is equivalent to a conversion rate of approximately 22.2761 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.

The net carrying amounts of the Convertible Senior Notes as of December 31, 2022 and December 31, 2021 were $ 570 million and $ 512 million, respectively.

The Convertible Senior Notes mature on June 1, 2048, unless earlier repurchased, redeemed or converted in accordance with their terms.

The Convertible Senior notes are convertible at the option of the holders under certain circumstances.

Prior to the close of business on the business day immediately preceding December 1, 2024, the Convertible Senior Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter during specified periods as follows:

• from December 1, 2024 until the close of business on the second scheduled trading day immediately before June 1, 2025;

• from December 1, 2047 until the close of business on the second scheduled trading day immediately before the maturity date

The following table details the interest expense recorded in connection with the Convertible Senior Notes, due 2048:

For the years ended December 31,

($ In millions) 2022 2021 2020

Contractual interest expense $ 16 $ 16 $ 16

Amortization of discount and deferred finance costs (a)

Total $ 17 $ 31 $ 30

Effective Interest Rate 3.01 % 5.34 % 5.19 %

(a) Upon adoption of ASU 2020-06 on January 1, 2022, which resulted in the removal of the debt discount, no further debt discount amortization is being recorded

Senior Notes Early Redemption

23 unchanged sentences

July 15, 2023 to July 14, 2024 101.104 %

July 15, 2024 and thereafter 100.000 %

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:

NRG may redeem some or all of the 2028 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

4 unchanged sentences

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.

40 unchanged sentences

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

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:

In addition, on 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

6 unchanged sentences

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.

In 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.

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.

2 unchanged sentences

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.

On July 26, 2022, NRG Receivables LLC, a wholly-owned indirect subsidiary of the Company, entered into an amendment to its Receivables Facility dated September 22, 2020 with a group of conduit lenders and banks and Royal Bank of Canada, as Administrative Agent to, among other things, (i) extend the scheduled termination date by one year , (ii) increase the aggregate commitments from $ 800 million to $ 1.0 billion, (iii) increase the letter of credit sublimit to equal the aggregate commitments, (iv) replace LIBOR with Term SOFR as the benchmark for borrowings and (v) add new originators.

Borrowings by NRG Receivables LLC under the Receivables Facility bear interest as defined under the Receivables Financing Agreement.

2 unchanged sentences

Repurchase Facility

On September 22, 2020, the Company entered into the Repurchase Facility related to the Receivables Facility.

In 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.

On July 26, 2022, the Company renewed its existing Repurchase Facility to, among other things, extend the maturity date to July 26, 2023.

The Repurchase Facility has no commitment fee and borrowings will be drawn at SOFR + 1.30 %.

As of December 31, 2022, 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

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.

On April 29, 2022, May 27, 2022 and October 13, 2022, the Company increased the size of the facilities by $ 100 million, $ 50 million and $ 50 million respectively, to provide additional liquidity, allowing for the issuance of up to $ 675 million of letters of credit.

These facilities are uncommitted.

As of December 31, 2022, $ 668 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

8 unchanged sentences

Total $ 466 $ 466

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

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.

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)

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

Note 15 — Benefit Plans and Other Postretirement Benefits

7 unchanged sentences

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 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 expects to contribute $ 83 million to the Company's pension plans in 2023, of which $ 45 million relates to the GenOn plan.

NRG Defined Benefit Plans

8 unchanged sentences

Settlement/curtailment expense 14 2 —

Net periodic benefit (credit)/cost $ ( 27 ) $ ( 8 ) $ —

Net periodic benefit cost/(credit) $ 18 $ ( 27 ) $ ( 8 )

Year Ended December 31,

1 unchanged sentence

(In millions) 2022 2021 2020

Service cost benefits earned $ — $ — $ 1

Interest cost on benefit obligation $ 2 $ 2 $ 3

11 unchanged sentences

Interest cost 41 27 2 2

Actuarial (gain)/loss ( 55 ) 126 — —

Actuarial gain ( 289 ) ( 55 ) ( 11 ) —

Employee and retiree contributions — — 3 3

13 unchanged sentences

$ ( 192 ) $ ( 116 ) $ ( 84 ) $ ( 105 )

During the year ended December 31, 2022, the actuarial gain of $ 289 million on pension benefits was primarily driven by increasing discount rates.

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:

8 unchanged sentences

(In millions) 2022 2021 2022 2021

Net loss $ 52 $ 127 $ 5 $ 6

Net loss/(gain) $ 110 $ 52 $ ( 7 ) $ 5

Prior service cost/(credit) 1 2 ( 12 ) ( 19 )

4 unchanged sentences

(In millions) 2022 2021 2022 2021

Net actuarial gain $ ( 72 ) $ ( 6 ) $ — $ —

Net actuarial loss/(gain) $ 74 $ ( 72 ) $ ( 11 ) $ —

Amortization of net actuarial loss ( 3 ) ( 1 ) ( 2 ) ( 1 )

Amortization of prior service cost — — 8 10

Effect of settlement ( 2 ) — — —

Effect of settlement/curtailment ( 14 ) ( 2 ) — —

Total recognized in OCI $ 57 $ ( 75 ) $ ( 5 ) $ 9

Net periodic benefit credit

Net periodic benefit cost/(credit)

18 ( 27 ) ( 4 ) ( 6 )

Net recognized in net periodic pension credit and OCI

Net recognized in net periodic pension cost/(credit) and OCI

$ 75 $ ( 102 ) $ ( 9 ) $ 3

80 unchanged sentences

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.

Under the AON Canada yield curve, expected plan cash flows were discounted using 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.

24 unchanged sentences

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:

What changed 10-K

Item 9A. Controls and Procedures