What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-23 · 367 added, 348 removed, 646 unchanged (53% of the section changed)

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• Critical accounting estimates that are most important to both the portrayal of the Company's financial condition and results of operations, and require management's most difficult, subjective, or complex judgments.

As you read this discussion and analysis, refer to NRG's Consolidated Statements of Operations in this Form 10-K, which present the results of the Company's operations for the years ended December 31, 2022 and 2021, and also refer to Item 1 to this Form 10-K for more detail discussion about the Company's business.

As you read this discussion and analysis, refer to NRG's Consolidated Statements of Operations in this Form 10-K, which present the results of the Company's operations for the years ended December 31, 2023 and 2022, and also refer to Item 1 — Business to this Form 10-K for more detail discussion about the Company's business.

A discussion and analysis of fiscal year 2021 may be found in Part II, Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations of the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Executive Summary

NRG Energy, Inc., or NRG or the Company, is a consumer services company built on dynamic retail brands.

NRG brings the power of energy to customers by producing and selling energy and related products and services, nation-wide in the U.S.

and Canada in a manner that delivers value to all of NRG's stakeholders.

NRG sells power, natural gas, home and power services, and develops innovative, sustainable solutions, predominately under the brand names NRG, Reliant, Direct Energy, Green Mountain Energy, Stream, and XOOM Energy.

The Company has a customer base that includes approximately 5.4 million Home customers as well as commercial, industrial, and wholesale customers, supported by approximately 16 GW of generation as of December 31, 2022.

NRG Energy, Inc., or NRG or the Company, sits at the intersection of energy and home services.

NRG is a leading energy and home services company fueled by market-leading brands, proprietary technologies and complementary sales channels.

Across the U.S.

and Canada, NRG delivers innovative, sustainable solutions, predominately under the brand names such as NRG, Reliant, Direct Energy, Green Mountain Energy, and Vivint, while also advocating for competitive energy markets and customer choice.

The Company has a customer base that includes approximately 8 million residential consumers in addition to commercial, industrial, and wholesale customers, supported by approximately 13 GW of generation as of December 31, 2023.

Business Environment

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Natural gas prices are driven by variables including demand from the industrial, residential, and electric sectors, productivity across natural gas supply basins, costs of natural gas production, changes in pipeline infrastructure, global LNG demand, exports of natural gas, and the financial and hedging profile of natural gas customers and producers.

In 2022, the average natural gas price at Henry Hub was 73% higher than in 2021.

NRG may experience impacts to gross margins due to significant, rapid changes in current natural gas prices and the lag in its ability to make a corresponding adjustment to the retail rates it charges customers on term and month to month contracts.

In 2023, the average natural gas price at Henry Hub was $2.74 per MMBtu compared to $6.64 per MMBtu in 2022, representing a decrease of 59%.

NRG may experience impacts to gross margins due to significant, rapid changes in current natural gas prices, the impact those prices have on power prices, and the lag in its ability to make a corresponding adjustment to the retail rates it charges customers on term and month to month contracts.

The Company hedges its load commitments in order to mitigate the impact of changes in commodity prices, and as a result, these gross margin impacts would be realized in future periods until it is able to make the corresponding adjustments to the retail customer rates.

The relative price of natural gas as compared to coal is the primary driver of coal demand.

Coal commodity prices decreased in 2022 although supply chain disruptions are still affecting coal deliveries, as further discussed below in Global Supply Chain Disruptions.

The relative price of natural gas as compared to coal and prevailing power prices are the primary driver of coal demand.

Coal commodity prices decreased slightly in 2023.

Electricity Prices — The price of electricity is a key determinant of the profitability of the Company.

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An increase in supply cost volatility in the competitive retail markets may result in smaller companies choosing to exit the market, which may result in further consolidation in the competitive retail space.

The following table summarizes average on-peak power prices for each of the major markets in which NRG operates for the years ended December 31, 2022 and 2021.

The average on-peak power prices decreased significantly in Texas due to Winter Storm Uri's impact on 2021 pricing.

East and West average on-peak prices increased as a result of higher natural gas prices.

The following table summarizes average on-peak power prices for each of the major markets in which NRG operates.

For the year ended December 31, 2023, as compared to the same period in 2022, Texas, East and West average on-peak power prices decreased as a result of lower natural gas prices.

Average On-Peak Power Price ($/MWh)

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Inflation Reduction Act, signed into law in August 2022, is intended to further support the deployment of lower carbon energy technologies.

As costs associated with the development of lower carbon infrastructure, such as wind and solar generating facilities, continue to evolve and impact development of lower carbon infrastructure in the markets where the Company participates, it may impact the ability of the Company's generating facilities to participate in those markets.

As costs associated with the development of lower carbon infrastructure, such as wind and solar generating facilities, continue to evolve and impact the development of lower carbon infrastructure in the markets where the Company participates, it may impact the ability of the Company's generating facilities to participate in those markets.

According to ERCOT, 41% of 2023 energy consumption in the ERCOT market was generated from carbon emission-free resources, with wind power contributing 24%.

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Increased demand for sustainable energy products from both residential and commercial customers creates opportunities for diversified product offerings in competitive retail markets.

Digitization and Customization — The electric industry is experiencing major technology changes in the way power is distributed and consumed by end-use customers.

Digitization and Customization — The electric industry is experiencing major technological changes in the way power is distributed and consumed by end-use customers.

The electric grid is shifting from a centralized analog system, where power is generated from limited sources and flows in one direction, to a decentralized multidirectional system, where power can be generated from a number of distributed resources and stored or dispatched on an as-needed basis.

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Technologies like smart thermostats, smart appliances and electric vehicles are giving individuals more choice and control over their electricity usage.

Power providers are starting to engage with customers who have transitioned to smart homes with new offerings, including but not limited to behind-the-meter demand

response, or virtual power plant products.

Companies with large customer bases in competitive market places are poised to create further engagement with their customer bases and help their customers further integrate their smart home into their daily lives.

Weather — Weather conditions in the regions of the U.S.

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Changes in energy supply and demand may impact the price of these energy commodities in both the spot and forward markets, which may affect the Company's results in any given period.

Typically, demand for and the price of electricity is higher in the summer and the winter seasons, when temperatures are more extreme.

Typically, demand for and the price of electricity is higher in the summer and the winter seasons, when temperatures and resultant demand are more extreme.

The demand for and price of natural gas is also generally higher in the winter.

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typically do not experience extreme weather conditions at the same time, thus NRG's operations are typically not exposed to the effects of extreme weather in all parts of its business at once.

Global Supply Chain Disruptions — There are currently global supply chain disruptions impacting natural gas, coal, solar and other fuels and materials necessary for the production and sale of electricity to the Company's retail customers.

These supply chain disruptions are due in part to a number of factors outside the Company's control including geopolitical conflicts, public policy of the federal government, the COVID-19 pandemic, labor shortages and extreme weather events in the U.S.

These factors are impacting the dispatch of generation facilities, as well as the costs to serve retail customers.

The Company expects that supply chain disruptions will continue throughout the remainder of 2023.

NRG is working closely with its suppliers and customers to minimize any potential adverse impacts of these events.

The Company will continue to actively monitor all direct and indirect potential impacts of the supply chain disruptions, and will seek to mitigate and minimize their impact on business.

Other Factors — A number of other factors significantly influence the level and volatility of prices for energy commodities and related derivative products for NRG's business.

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The following significant events occurred during 2023 and through the filing date, as further described within this Management's Discussion and Analysis and the Consolidated Financial Statements:

Vivint Acquisition

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

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

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.

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

See Item 15 — Note 4, Acquisitions and Dispositions , to the Consolidated Financial Statements for further discussion.

On January 6, 2023, NRG 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.

Vivint Smart Home Acquisition and related financings

On March 10, 2023, the Company completed the acquisition of Vivint Smart Home.

The Company paid $12 per share, or $2.6 billion in cash.

See Item 15 — Note 4, Acquisitions and Dispositions , to the Consolidated Financial Statements for further discussion.

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.

On March 9, 2023, the Company issued 650,000 shares of 10.25% Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock.

The proceeds, net of issuance costs, of $635 million were used to partially fund the Vivint Smart Home acquisition.

On March 9, 2023, the Company issued $740 million of aggregate principal amount of 7.000% senior secured first lien notes due 2033.

The net proceeds of $724 million, net of issuance costs, were used to partially fund the Vivint Smart Home acquisition.

On November 1, 2023, the Company closed on the previously announced sale of its 44% equity interest in STP to Constellation.

Proceeds of $1.75 billion were reduced by working capital and other adjustments of $96 million, resulting in net proceeds of $1.654 billion.

On October 2, 2023, the Company closed on the sale of its 100% ownership in the Gregory natural gas generating facility in Texas for $102 million.

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

NRG recognized a gain on the sale of $199 million.

Retirement of Joliet

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 on June 1, 2023.

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

Parish Extended Outage

As part of the transaction, NRG entered into an agreement to lease the land back for the purpose of operating the Astoria gas turbines.

Decommissioning was completed in December 2023 and the lease agreement has been terminated.

In May 2022, W.A.

Parish Unit 8 came offline as a result of damage to the steam turbine/generator.

Based on work completed to date, NRG is targeting to return the unit to service by the end of the second quarter of 2023.

The Company is working with its insurers related to claims surrounding the outage and has received partial settlements in the fourth quarter of 2022.

Limestone Unit 1 Return to Service

In early July 2021, Limestone Unit 1 came offline as a result of damage to the duct work associated with the FGD system.

The extended forced outage ended in April of 2022 and the unit has returned to service.

ERCOT Securitization Proceeds

During February 2021, Texas experienced unprecedented cold temperatures for a prolonged duration as a result of Winter Storm Uri, resulting in a power emergency, blackouts, and an estimated all-time peak demand of 77 GW (without load shed).

In 2021, the Texas Legislature passed HB 4492 for ERCOT to mitigate exceptionally high price adders and ancillary service costs incurred by LSEs during Winter Storm Uri.

HB 4492 authorized ERCOT to obtain $2.1 billion of financing to distribute to LSEs that were charged and paid to ERCOT those highly priced ancillary service and ORDPA during Winter Storm Uri.

The Company accounted for the proceeds as a reduction to cost of operations within its Consolidated Statements of Operations in the 2021 annual period for which the proceeds were intended to compensate.

During the year ended December 31, 2021, Winter Storm Uri's pre-tax financial impact to the Company was a loss of $380 million, which reflects the recovery of $689 million of cost of operations as a result of the proceeds.

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

Share Repurchases

In December 2021, the Company's board of directors authorized the Company to repurchase $1.0 billion of its common stock, of which $44 million was repurchased in 2021.

During the year ended December 31, 2022, the Company repurchased $601 million of shares at an average price of $40.50 per share, including $6 million of equivalent shares purchased in lieu of tax withholdings on equity compensation issuances.

The remaining $355 million repurchases under the $1.0 billion authorization are expected to be repurchased in 2023, subject to the availability of excess cash and full visibility of the achievement of the Company's 2023 targeted credit metrics.

See Item 15 - Note 16, Capital Structure , to the Consolidated Financial Statements for additional discussion.

Renewable Power Purchase Agreements

The extended forced outage ended in September 2023 and the unit has returned to service.

During the second quarter of 2022, the Company announced the planned retirement of the Joliet generating facility in 2023.

On September 1, 2023, the Joliet generating facility fully retired.

The Company's strategy is to procure mid to long-term renewable generation through power purchase agreements.

As of December 31, 2022, NRG has entered into Renewable PPAs totaling approximately 2.4 GW, of which approximately 45% are operational.

The average tenor of these agreements is twelve years.

As of December 31, 2023, NRG has entered into Renewable PPAs totaling approximately 1.9 GW with third-party project developers and other counterparties, of which approximately 1.1 GW are operational.

The average tenor of these agreements is eleven years.

The Company expects to continue evaluating and executing similar agreements that support the needs of the business.

The total GW entered into through Renewable PPAs may be impacted by contract terminations when they occur.

Dividend Increase

In the first quarter of 2022, NRG increased the annual dividend to $1.40 from $1.30 per share.

In 2023, NRG further increased the annual dividend to $1.51 per share, representing an 8% increase from 2022.

Capital Allocation

In June 2023, NRG revised its long-term capital allocation policy to target allocating approximately 80% of cash available for allocation after debt reduction to be returned to shareholders.

As part of the revised capital allocation framework, the Company announced an increase to its share repurchase authorization to $2.7 billion, to be executed through 2025.

On November 6, 2023, the Company executed Accelerated Share Repurchase agreements to repurchase a total of $950 million of NRG's outstanding common stock.

Under the ASR, the Company paid a total of $950 million and will receive shares of NRG's common stock on specified settlement dates.

During the year ended December 31, 2023, the Company completed $1.2 billion of share repurchases, including the $950 million ASR and $200 million of open market repurchases, under the $2.7 billion authorization.

See Item 15 - Note 16, Capital Structure , to the Consolidated Financial Statements for additional discussion.

In the first quarter of 2023, NRG increased the annual dividend on its common stock to $1.51 from $1.40 per share, representing an 8% increase from 2022.

Beginning in the first quarter of 2024, NRG increased the annual dividend by 8% to $1.63 per share.

The Company expects to target an annual dividend growth rate of 7-9% per share in subsequent years.

While the pandemic presented risks, as further described in Part II, Item 1A — Risk Factors of this Form 10-K, to the Company’s business, there was not a material adverse impact on the Company’s results of operations for the years ended December 31, 2022, 2021 and 2020.

During 2023, the Company reduced its debt by $900 million using funds from cash from operations.

Additionally, the Company redeemed $620 million in aggregate principal amount of its 3.875% Senior Notes, due 2032, for $502 million using a portion of the proceeds from the sale of STP.

The Company intends to spend approximately $500 million reducing debt during 2024 to maintain its targeted credit metrics.

The Company intends to fund the debt reduction from cash from operations.

Consolidated Results of Operations for the years ended December 31, 2023 and 2022

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Year Ended December 31,

(In millions, except otherwise noted) 2022 2021 (a)

(In millions) 2023 2022 Change

Retail revenue $ 27,467 $ 29,722 $ (2,255)

Energy revenue (b)

1,250 1,215 35

Capacity revenue (b)

Energy revenue (a)

553 1,250 (697)

Capacity revenue (a)

Mark-to-market for economic hedging activities 144 (83) 227

Contract amortization (32) (39) 7

Other revenues (b)(c)

421 1,632 (1,211)

Total revenues 31,543 26,989 4,554

Other revenues (a)(b)

Total revenue 28,823 31,543 (2,720)

Operating Costs and Expenses

Cost of fuel 992 1,919 927

Purchased energy and other cost of sales (d)

Purchased energy and other cost of sales (c)

20,647 24,984 4,337

Mark-to-market for economic hedging activities 3,007 (1,331) (4,338)

Contract and emissions credit amortization (d)

Contract and emissions credit amortization (c)

Operations and maintenance 1,397 1,352 (45)

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Equity in earnings of unconsolidated affiliates 16 6 10

Impairment losses on investments (102) — (102)

Other income, net 47 56 (9)

Loss on debt extinguishment, net — (77) 77

Gain on debt extinguishment 109 — 109

Interest expense (667) (417) (250)

Total other expenses (597) (355) (242)

Income Before Income Taxes 1,663 2,859 (1,196)

Income tax expense 442 672 (230)

Net Income $ 1,221 $ 2,187 $ (966)

Business Metrics

Average natural gas price — Henry Hub ($/MMBtu) $ 6.64 $ 3.84 73 %

(a) Includes the impact of Winter Storm Uri

(b) Includes realized gains and losses from financially settled transactions

(d) Includes amortization of SO 2 and NO x credits and excludes amortization of RGGI credits

(Loss)/Income Before Income Taxes (213) 1,663 (1,876)

Income tax (benefit)/expense (11) 442 (453)

Net (Loss)/Income $ (202) $ 1,221 $ (1,423)

(a) Includes realized gains and losses from financially settled transactions

(b) Includes trading gains and losses and ancillary revenues

The Company calculates gross margin in order to evaluate operating performance as revenues less cost of fuel, purchased energy and other costs of sales, mark-to-market for economic hedging activities, contract and emission credit amortization and depreciation and amortization.

Economic Gross Margin

In addition to gross margin, the Company evaluates its operating performance using the measure of economic gross margin, which is not a GAAP measure and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

than the GAAP information provided elsewhere in this report.

Economic gross margin should be viewed as a supplement to and not a substitute for the Company's presentation of gross margin, which is the most directly comparable GAAP measure.

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Economic gross margin does not include mark-to-market gains or losses on economic hedging activities, contract amortization, emission credit amortization, depreciation and amortization, operations and maintenance, or other costs of operations.

The tables below present the composition and reconciliation of gross margin and economic gross margin for the years ended December 31, 2022 and 2021:

The following tables present the composition and reconciliation of gross margin and economic gross margin for the years ended December 31, 2023 and 2022:

Year Ended December 31, 2023

($ in millions, except otherwise noted) Texas East West/Services/Other Corporate/Eliminations Total

($ in millions, except otherwise noted) Texas East West/Services/Other Vivint Smart Home Corporate/Eliminations Total

Retail revenue $ 10,030 $ 11,946 $ 3,943 $ 1,549 $ (1) $ 27,467

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Mark-to-market for economic hedging activities 315 (2,471) (867) — 16 (3,007)

Contract and emission credit amortization — (91) (20) — (111)

Contract and emissions credit amortization (11) (68) (14) — — (93)

Depreciation and amortization (294) (116) (95) (586) (36) (1,127)

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Mark-to-market for economic hedging activities, net 315 (2,414) (764) — — (2,863)

Contract and emission credit amortization, net — (131) (19) — (150)

Contract and emissions credit amortization, net (11) (100) (14) — — (125)

Depreciation and amortization (294) (116) (95) (586) (36) (1,127)

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(b) Includes capacity and emissions credits

(c) Includes $3,043 million, $120 million and $1,134 million of TDSP expense in Texas, East, and West/Services/Other respectively

(c) Includes $3.1 billion, $244 million and $1.1 billion of TDSP expense in Texas, East, and West/Services/Other respectively

(d) Excludes depreciation and amortization shown separately

Business Metrics Texas East West/Services/Other Corporate/Eliminations Total

Year Ended December 31, 2023

Business Metrics Texas East West/Services/Other Vivint Smart Home Corporate/Eliminations Total

Home electricity sales volume (GWh) 40,032 12,838 2,243 — — 55,113

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2,928 2,137 762 — — 5,827

Average Vivint Smart Home subscriber count (in thousands) (b)

— — — 2,008 — 2,008

Ending Vivint Smart Home subscriber count (in thousands) (b)

— — — 2,043 — 2,043

GWh sold 30,776 5,396 5,903 — — 42,075

GWh generated (b)

GWh generated (c)

30,776 2,016 5,903 — — 38,695

(a) Home customer count includes recurring residential customers, services customers and municipal aggregations.

The whole home warranty business was sold in January 2022

(b) Includes owned and leased generation, excludes tolled generation and equity investments

(a) Home customer count includes recurring residential customers, services customers and community choice.

(b) Vivint Smart Home subscribers includes customers that also purchase other NRG products

Year Ended December 31, 2022

($ in millions, except otherwise noted) Texas East West/Services/Other (a)

Corporate/Eliminations Total

($ in millions, except otherwise noted) Texas East West/Services/Other Corporate/Eliminations Total

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

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Mark-to-market for economic hedging activities 611 218 503 (1) 1,331

Contract and emission credit amortization 2 (28) (17) — (43)

Contract and emissions credit amortization — (91) (20) — (111)

Depreciation and amortization (310) (208) (85) (31) (634)

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Mark-to-market for economic hedging activities, net 613 188 447 — 1,248

Contract and emission credit amortization 2 (54) (21) — (73)

Contract and emissions credit amortization, net — (131) (19) — (150)

Depreciation and amortization (310) (208) (85) (31) (634)

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(b) Includes capacity and emissions credits

(c) Includes $2,648 million, $183 million and $1,033 million of TDSP expense in Texas, East, and West/Services/Other respectively

(c) Includes $3.0 billion, $120 million and $1.1 billion of TDSP expense in Texas, East, and West/Services/Other respectively

(d) Excludes depreciation and amortization shown separately

Year Ended December 31, 2022

Business Metrics Texas East West/Services/Other Corporate/Eliminations Total

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Business natural gas retail sales volumes (MDth) — 1,618,946 154,074 — 1,773,020

Average retail Home customer count (in thousands) (a)(b)

Average retail Home customer count (in thousands) (a)

2,961 1,783 799 — 5,543

Ending retail Home customer count (in thousands) (a)(b)

Ending retail Home customer count (in thousands) (a)

2,859 1,761 786 — 5,406

GWh sold 37,275 10,832 6,676 — 54,783

GWh generated (c)(d)

GWh generated (b)

37,275 7,282 6,676 — 51,233

(a) Home customer count includes recurring residential customers and municipal aggregations

(b) Includes 135 thousand whole home warranty customers in West/Services/Other.

The whole home warranty business was sold in January 2022

(d) Includes 1,054 GWh and 2,445 GWh in East and West/Services/Other, respectively, that was sold to Generation Bridge in December 2021

The table below represents the weather metrics for 2022 and 2021:

(a) Home customer count includes recurring residential customers, services customers and community choice

(b) Includes owned and leased generation, excludes tolled generation and equity investments

The following table represents the weather metrics for 2023 and 2022:

December 31, Quarter ended

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Gross margin and economic gross margin

Gross margin decreased $2.2 billion and economic gross margin decreased $811 million, both of which include intercompany sales, during the year ended December 31, 2022, compared to the same period in 2021.

Gross margin decreased $2.3 billion and economic gross margin increased $2.3 billion, both of which include intercompany sales, during the year ended December 31, 2023, compared to the same period in 2022.

The detail by segment is as follows:

(In millions)

Lower gross margin due to the impact of Winter Storm Uri in 2021, primarily driven by hedging optimization, partially offset by the negative impact of an increase in unhedgeable ancillary and operating reserve demand curve (a) , net of securitization proceeds of $689 million

The following explanations exclude the impact of Winter Storm Uri:

Lower gross margin due to the net effect of:

• a 40%, or $1 billion increase in overall average costs to serve the retail load, driven by increases in power, ancillary, and fuel costs, an extended outage at W.A.

Parish Unit 8 and the more conservative winter hedge profile in the first quarter of 2022, partially offset by the favorable impact of the early settlement of a solar PPA and partial settlements of business interruption insurance claims related to W.A.

Parish and Limestone extended outages;

• increased net revenue rates of $9.50 per MWh, or $611 million primarily driven by changes in customer term, product and mix

Higher gross margin due to an increase in load due to weather of 5.3 million MWhs, or $185 million and an increase in load of 220k MWhs, or $58 million, primarily driven by changes in customer mix 243

Lower gross margin from market optimization activities (40)

Decrease in economic gross margin $ (304)

Higher gross margin due to the net effect of:

• a 15%, or $548 million, decrease in cost to serve the retail load, primarily driven by lower supply costs which were a result of lower realized power pricing, the diversified supply strategy and improved plant performance coupled with the 2022 impact of the W.A.

Parish Unit 8 extended outage that began in May 2022, net of business interruption insurance proceeds;

• increased net revenue rates of $5.45 per MWh, or $523 million, partially offset by changes in customer term, product and mix of $61 million

Lower gross margin due to a decrease in load of 1.5 TWhs from weather (58)

Higher gross margin from market optimization activities 33

Increase in economic gross margin

Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges (298)

Increase in contract and emission credit amortization (2)

Increase in contract and emissions credit amortization (11)

Decrease in depreciation and amortization 16

Decrease in gross margin $ (652)

(a) For further discussion of ERCOT's securitization activity see Regional Regulatory Development s section under Regulatory Matters in Item 1 - Business

Increase in gross margin

(In millions)

Lower gross margin due to the impact of Winter Storm Uri in 2021, primarily driven by natural gas optimization during volatile pricing that occurred during the weather event $ (146)

The following explanations exclude the impact of Winter Storm Uri:

Lower gross margin due to the sale of fossil generating assets to Generation Bridge in December 2021 (211)

Lower gross margin due to a decrease in generation and capacity as a result of Midwest Generation asset retirements in the second quarter of 2022 (91)

Lower gross margin due to a 32% decrease in PJM capacity prices and a 45% decrease in New York capacity prices coupled with net Capacity Performance penalties resulting from Winter Storm Elliott in December 2022 (109)

Lower demand response gross margin primarily due to a decrease in early settlements of capacity obligations in 2022 compared to 2021 (94)

Lower electric gross margin from decreased load of 6.7 TWh due to attrition and change in customer mix (71)

Lower electric gross margin due to higher supply costs of $15.25 per MWh.

driven primarily by increases in power prices, totaling $931 million, partially offset by higher net revenue rates as a result of changes in customer term, product and mix of $14.50 per MWh, or $888 million (43)

Higher gross margin primarily at Midwest Generation due to a 31% increase in average realized pricing and an increase in generation volumes due to dark spread expansion, partially offset by increased supply costs 33

Higher gross margin from the sales of NO x emission credits

Higher natural gas gross margin including the impact of transportation and storage contract optimization, resulting in higher net revenue rates from changes in customer term, product and mix of $2.25 per Dth, or $3.8 billion, partially offset by higher supply costs of $2.15 per Dth, or $3.6 billion 219

Decrease in economic gross margin $ (494)

Lower gross margin due to a decrease in generation and capacity as a result of asset retirements $ (116)

Lower natural gas gross margin including the impact of transportation and storage contract optimization, reflects lower net revenue rates from changes in customer term, product and mix of $2.35 per Dth, or $3.86 billion, partially offset by lower supply costs of $2.30 per Dth, or $3.78 billion (82)

Lower gross margin from the sales of NO x emissions credits

Lower natural gas gross margin from a decrease in load of 6.9 MMDth due to weather and changes in customer mix (16)

Lower electric gross margin from a decrease in load of 686 GWhs primarily due to weather (16)

Higher electric gross margin due to higher net revenue rates as a result of changes in customer term, product and mix of $2.50 per MWh, or $155 million, as well as lower supply costs of $1.50 per MWh, or $86 million driven primarily by decreases in power prices 241

Higher gross margin due to an increase in average realized pricing and a decrease in supply costs at Midwest Generation, offset by lower gross margin as a result of a 74% decrease in generation volumes due to dark spread contractions 56

Higher gross margin primarily due to net capacity performance penalties resulting from Winter Storm Elliott in 2022 and an increase in NYISO capacity pricing, partially offset by a decrease in PJM capacity prices 16

Increase in economic gross margin

Decrease in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges

Increase in contract amortization (77)

Decrease in contract amortization 31

Decrease in depreciation and amortization 92

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(In millions)

Lower gross margin due to the impact of Winter Storm Uri in 2021, primarily driven by natural gas optimization during volatile pricing that occurred during the weather event $ (13)

The following explanations exclude the impact of Winter Storm Uri:

Lower gross margin due to the sale of fossil generating assets to Generation Bridge in December 2021 (86)

Lower gross margin due to the sale of the whole home warranty business in the first quarter of 2022 (21)

Higher gross margin at Cottonwood due to a 84% increase in average realized power prices as well as an anticipated Capacity Performance bonus payment from PJM as a result of Winter Storm Elliott, partially offset by increased commodity costs 95

Higher gross margin primarily due to increased revenue at Airtron 25

Higher electric gross margin due to higher revenue rates of $26.50 per MWh, totaling $331 million, partially offset by higher supply costs of $26.00 per MWh, or $322 million from changes in customer term, product and mix 8

Lower natural gas gross margin due to higher supply costs of $1.65 per Dth, totaling $403 million, partially offset by higher net revenue rates of $1.40 per Dth, or $346 million and an increase in load due to changes in customer mix of $33 million (24)

Lower gross margin at Cottonwood driven by lower average realized power prices, planned outages in 2023 and capacity performance bonus resulting from PJM Winter Storm Elliott in 2022 $ (76)

Lower gross margin primarily due to lower Services sales (51)

Lower electric gross margin due to an increase in supply costs of $6.50 per MWh, or $82 million, partially offset by higher revenue rates of $5.25 per MWh, or $64 million, and changes in customer mix of $2 million (16)

Higher gross margin from market optimization activities 28

Higher natural gas gross margin due to a decrease in supply costs of $0.90 per Dth, or $228 million, and changes in customer mix of $4 million, partially offset by lower revenue rates of $0.85 per Dth, or $218 million 14

Decrease in economic gross margin

Increase in mark-to-market for economic hedges primarily due to net unrealized gains/losses on open positions related to economic hedges

Decrease in mark-to-market for economic hedges primarily due to net unrealized gains/losses on open positions related to economic hedges

Decrease in contract amortization 5

Decrease in depreciation and amortization 3

Increase in depreciation and amortization (10)

Decrease in gross margin

Vivint Smart Home (a)

(In millions)

Increase due to the acquisition of Vivint Smart Home $ 1,396

Increase in economic gross margin

Increase in depreciation and amortization (586)

Increase in gross margin

(a) Includes results of operations following the acquisition date of March 10, 2023

Mark-to-market for Economic Hedging Activities

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Total net mark-to-market results decreased by $4.1 billion during the year ended December 31, 2023, compared to the same period in 2022.

The breakdown of gains and losses included in revenues and operating costs and expenses by segment was as follows:

The breakdown of gains and losses included in revenues and operating costs and expenses by segment is as follows:

Year Ended December 31, 2023

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Mark-to-market results in revenues

Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges

Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges

$ — $ (25) $ 56 $ (12) $ 19

Reversal of acquired (gain) positions related to economic hedges — (2) — — (2)

Net unrealized (losses) on open positions related to economic hedges

Net unrealized gains on open positions related to economic hedges

— 84 47 (4) 127

Total mark-to-market gains/(losses) in revenues

Total mark-to-market gains in revenues

$ — $ 57 $ 103 $ (16) $ 144

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17 11 (6) — 22

Net unrealized gains on open positions related to economic hedges

Net unrealized gains/(losses) on open positions related to economic hedges

771 (1,670) (381) 4 (1,276)

Total mark-to-market gains in operating costs and expenses

Total mark-to-market gains/(losses) in operating costs and expenses

$ 315 $ (2,471) $ (867) $ 16 $ (3,007)

2 unchanged sentences

Mark-to-market results in revenues

Reversal of previously recognized unrealized (gains) on settled positions related to economic hedges

Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges

$ 2 $ (5) $ 40 $ (8) $ 29

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— (22) (96) 9 (109)

Total mark-to-market (losses) in revenues

Total mark-to-market gains/(losses) in revenues

$ 2 $ (30) $ (56) $ 1 $ (83)

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The reversals of acquired gain or loss positions were valued based upon the forward prices on the acquisition date.

For the year ended December 31, 2023, the $144 million gain in revenues from economic hedge positions was driven by an increase in the value of open positions as a result of decreases in power prices.

The $3.0 billion loss in operating costs and expenses from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period, as well as a decrease in the value of East and West/Other open positions as a result of decreases in natural gas and power prices.

This was partially offset by an increase in the value of Texas open positions as a result of increases in ERCOT power prices.

For the year ended December 31, 2022, the $83 million loss in revenues from economic hedge positions was driven by a decrease in the value of open positions as a result of increases in power prices across all segments, partially offset by the reversal of previously recognized unrealized losses on contracts that settled during the period.

The $1.3 billion gain in operating costs and expenses from economic hedge positions was driven primarily by an increase in the value of open positions as a result of increases in natural gas and power prices across all segments partially offset by the reversal of previously recognized unrealized gains on contracts that settled during the period.

For the year ended December 31, 2021, the $164 million loss in revenues from economic hedge positions was driven primarily by a decrease in the value of open positions as a result of increases in East and West/Services/Other power prices, as well as the reversal of previously recognized unrealized gains on contracts that settled during the period.

The $2.9 billion gain in operating costs and expenses from economic hedge positions was driven primarily by an increase in the value of open positions as a result of increases in natural gas and power prices across all segments as well as the reversal of acquired contracts that settled during the year.

In accordance with ASC 815, the following table represents the results of the Company's financial and physical trading of energy commodities for the years ended December 31, 2023 and 2022.

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Operations and maintenance expenses are comprised of the following:

(In millions) Texas East West/Services/Other Corporate Eliminations Total

(In millions) Texas East West/Services/Other Vivint Smart Home (a)

Corporate Eliminations Total

Year Ended December 31, 2023 $ 624 $ 345 $ 245 $ 187 $ — $ (4) $ 1,397

Year Ended December 31, 2022 749 391 214 — 1 (3) 1,352

Operations and maintenance expenses decreased by $18 million for the year ended December 31, 2022, compared to the same period in 2021, due to the following:

(a) Includes results of operations following the acquisition date of March 10, 2023

Operations and maintenance expenses increased by $45 million for the year ended December 31, 2023, compared to the same period in 2022, due to the following:

(In millions)

Decrease due to the sale of fossil generating assets to Generation Bridge in December 2021 $ (90)

Decrease due to current year settled property insurance claims for extended outages at W.A.

Parish and Limestone, primarily offset by the cost of restoration efforts at W.A.

Parish in 2022 (35)

Decrease due to Midwest Generation asset retirements in the second quarter of 2022 as well as spare parts inventory reserves in 2021 (20)

Decrease driven by current year scrap proceeds associated with the demolition of the Encina site (4)

Decrease driven by higher maintenance in 2021 resulting from the impacts of Winter Storm Uri (2)

Increase due to scope of outages at the Texas coal and gas facilities (excluding W.A.

Parish included above) in 2022, partially offset by a prior year planned outage at STP 69

Increase in variable operation and maintenance expense at the PJM coal facilities associated with increased generation during 2022 39

Increase in estimates of environmental remediation costs at deactivated sites in the East and West/Services/Other 25

Increase driven by higher retail operations costs primarily to support growth at Airtron 6

Decrease in operations and maintenance expense $ (18)

Increase due to the acquisition of Vivint Smart Home $ 187

Increase in retail operation personnel costs primarily driven by an increase in accruals as part of the Company's annual incentive plan reflecting financial outperformance for the year 48

Increase in major maintenance expenditures associated with the scope and duration of outages at the Texas gas facilities and Cottonwood, partially offset by the Texas coal facilities (excluding W.A.

Parish Unit 8 included below) 21

Decrease due to the current year partial property insurance claim for the extended outage at W.A.

Parish Unit 8, as well as restoration expenses incurred in 2022, partially offset by the prior year Limestone property insurance claim (124)

Decrease driven by the disposition of STP and Gregory in 2023 (28)

Decrease in variable operation and maintenance expense due to a reduction in PJM generation volumes in 2023 (26)

Decrease due to change in estimates of environmental remediation costs at deactivated sites in the East in 2022 (23)

Decrease driven primarily by East asset retirements, partially offset by an increase in deactivation costs in the West (8)

Increase in operations and maintenance expense

Other Cost of Operations

Other Cost of operations are comprised of the following:

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

(In millions) Texas East West/Services/Other Vivint Smart Home (a)

Year Ended December 31, 2023 $ 243 $ 131 $ 13 $ 3 $ 390

Year Ended December 31, 2022 246 149 16 — 411

Other cost of operations increased by $72 million for the year ended December 31, 2022, compared to the same period in 2021, due to the following:

(a) Includes results of operations following the acquisition date of March 10, 2023

Other cost of operations decreased by $21 million for the year ended December 31, 2023, compared to the same period in 2022, due to the following:

(In millions)

Decrease due to the sale of fossil generating assets to Generation Bridge in December 2021 $ (30)

Increase in retail gross receipt taxes due to higher revenues 51

Increase due to changes in current year ARO cost estimates, primarily at Jewett Mine 28

Decrease due to changes in current year ARO cost estimates, primarily at Jewett Mine $ (28)

Decrease in retail gross receipt taxes due to lower revenue in the East offset by higher revenues in Texas (10)

Decrease driven by the disposition of STP and Gregory in 2023 (5)

Increase due to higher property insurance premiums 18

Increase in other cost of operations $ 72

Decrease in other cost of operations

Depreciation and Amortization

Depreciation and amortization expenses are comprised of the following:

(In millions) Texas East West/Services/Other Corporate Total

(In millions) Texas East West/Services/Other Vivint Smart Home (a)

Corporate Total

Year Ended December 31, 2023 $ 294 $ 116 $ 95 $ 586 $ 36 $ 1,127

Year Ended December 31, 2022 310 208 85 — 31 634

Depreciation and amortization expense decreased by $151 million for the year ended December 31, 2022 compared to the same period in 2021, primarily due to lower depreciation as a result of asset impairments, sales, and retirements, as well as lower amortization as a result of the expected roll off of acquired intangibles.

(a) Includes results of operations following the acquisition date of March 10, 2023

Depreciation and amortization expense increased by $493 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to higher amortization of intangible assets due to the acquisition of Vivint Smart Home in March 2023, partially offset by lower depreciation at Midwest Generation as a result of asset impairments and retirements in 2022.

Impairment Losses

During the year ended December 31, 2023, the Company recorded impairment losses related to property plant and equipment and leases of $2 million, $4 million and $20 million in the Texas, East and West/Services/Other segments, respectively.

During the year ended December 31, 2022, the Company recorded impairment losses of $206 million, of which $150 million were related to the decline in PJM capacity prices and the near-term retirement date of the Joliet facility, $43 million related to the 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, and an additional $13 million in the East segment.

During the year ended December 31, 2021, the Company recorded impairment losses of $544 million, of which $306 million was recorded in the second quarter related to the decline in capacity prices and the planned retirement of a significant portion of the PJM coal fleet, $213 million in the fourth quarter as a result of changes in the long-term outlook of the Joliet facility prompted by market conditions and an assessment of various alternatives for the long-term operational landscape of the facility including the impact of the CEJA in Illinois, and $25 million related to various other power plants.

Refer to Item 15 — Note 11, Asset Impairments , to the Consolidated Financial Statements for further discussion .

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Selling, general and administrative costs are comprised of the following:

(In millions) Texas East West/Services/Other Corporate Total

(In millions) Texas East West/Services/Other Vivint Smart Home (a)

Corporate/ Eliminations Total

Year Ended December 31, 2023 $ 637 $ 573 $ 202 $ 499 $ 57 $ 1,968

Year Ended December 31, 2022 559 428 202 — 39 1,228

Selling, general and administrative costs decreased by $65 million for the year ended December 31, 2022 compared to the same period in 2021, due to the following:

(a) Includes results of operations following the acquisition date of March 10, 2023

Selling, general and administrative costs increased by $740 million for the year ended December 31, 2023 compared to the same period in 2022, due to the following:

(In millions)

Decrease due to Winter Storm Uri, including charitable giving, legal and other costs of $20 million in 2021, ERCOT default charges of $9 million in 2021, and the reversal of the ERCOT default charges of $9 million in 2022 $ (38)

Decrease in personnel costs (30)

Decrease in transition service agreement costs related to the Direct Energy acquisition (21)

Decrease in marketing and media expenses (17)

Increase in broker fee expenses, partially offset by lower commissions expenses 22

Increase due to higher consulting expenses including spending related to Company's growth initiatives 13

Decrease in selling, general and administrative costs $ (65)

Increase due to the acquisition of Vivint Smart Home $ 499

Increase in personnel costs primarily driven by an increase in accruals as part of the Company's annual incentive plan reflecting financial outperformance for the year 140

Increase in broker fee and commissions expenses 49

Increase in marketing and media expenses 28

Increase in consulting and legal expenses 17

Increase in selling, general and administrative costs

Provision for Credit Losses

Provision for credit losses are comprised of the following:

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

(In millions) Texas East West/Services/Other Vivint Smart Home (a)

Year Ended December 31, 2023 $ 159 $ 28 $ 30 $ 34 $ 251

Year Ended December 31, 2022 (40) 28 23 — 11

Provision for credit losses decreased by $687 million for the year ended December 31, 2022, compared to the same period in 2021, due to the following:

(a) Includes results of operations following the acquisition date of March 10, 2023

Provision for credit losses increased by $240 million for the year ended December 31, 2023, compared to the same period in 2022, due to the following:

(In millions)

Decrease due to Winter Storm Uri, including :

Decrease of $403 million related to bilateral financial hedging risk in 2021 as well as $70 million of loss mitigation in 2022

Decrease of $126 million related to counterparty credit risk in 2021 as well as $12 million of loss mitigation in 2022

Decrease of $67 million related to ERCOT default shortfall payments in 2021 as well as $44 million of loss mitigation in 2022

Increase due to higher revenues and deteriorated customer payment behavior 35

Decrease in provision for credit losses $ (687)

Increase due to Winter Storm Uri loss mitigation recognized as income in 2022 $ 126

Increase due to higher Home retail revenues, deteriorated customer payment behavior and the longer duration of the Texas disconnect moratorium in 2023 as compared to 2022 80

Increase due to the acquisition of Vivint Smart Home 34

Increase in provision for credit losses

Acquisition-Related Transaction and Integration Costs

Acquisition-related transaction and integration costs were $52 million for the year ended December 31, 2022, which included $34 million of integration costs, primarily related to Direct Energy, and $18 million of acquisitions costs, primarily related to the planned acquisition of Vivint.

Acquisition-related transaction and integration costs of $93 million were incurred during the year ended December 31, 2021, related to Direct Energy, of which $25 million were acquisition-related transaction costs and $68 million were integration costs, primarily related to employee costs, software costs and consulting services.

Acquisition-related transaction and integration costs were $119 million and $52 million for the years ended December 31, 2023 and 2022, respectively, include:

As of December 31,

(In millions) 2023 2022

Vivint Smart Home acquisition costs $ 38 $ 17

Vivint Smart Home integration costs 52 —

Other integration costs, primarily related to Direct Energy 29 35

Acquisition-related transaction and integration costs

Gain on Sale of Assets

The gain on sale of assets of $52 million and $247 million recorded for the years ended December 31, 2022 and 2021, respectively, include:

The gain on sale of assets of $1.6 billion and $52 million recorded for the years ended December 31, 2023 and 2022, respectively, include:

As of December 31,

(In millions) 2023 2022

Sale of 4,850 MW of fossil generating assets to Generation Bridge in December of 2021 $ (3) $ 210

Sale of the Company's 44% equity interest in STP

Sale of Astoria land and related assets 199 —

Sale of the Company's 100% ownership in the Gregory natural gas generating facility

Sale of the Company's 49% ownership in the Watson natural gas generating facility — 46

Sale of land and structures at the Company's deactivated Norwalk Harbor, LLC site 38 —

Sale of the Company's 50% ownership in Petra Nova — 22

Sale of a deactivated site in November 2021 — 20

Sale of Agua Caliente in February 2021 — 17

Sale of land at the Company's Indian River Power, LLC site 19 —

Other asset sales 4 (16)

Gain on sale of assets $ 1,578 $ 52

Loss on Debt Extinguishment

A loss on debt extinguishment of $77 million was recorded for the year ended December 31, 2021, driven by the redemption of senior notes as further discussed in Item 15 — Note 13, Long-term Debt and Finance Leases, to the Consolidated Financial Statements .

Impairment Losses on Investments

During the year ended December 31, 2023, the Company recorded other-than-temporary impairment losses of $102 million on the Company's equity method investment in Gladstone generation facility in Queensland, Australia, as further described in Item 15 — Note 11, Asset Impairments, to the Consolidated Financial Statements.

Gain on Debt Extinguishment

A gain on debt extinguishment of $109 million was recorded for the year ended December 31, 2023, driven by a partial redemption of the 3.875% Senior Notes, due 2032, as further discussed in Item 15 — Note 13, Long-term Debt and Finance Leases , to the Consolidated Financial Statements.

Interest Expense

Interest expense decreased by $68 million for the year ended December 31, 2022, compared to the same period in 2021, primarily due to debt reduction and the refinancing of debt to lower interest rates in the second half of 2021.

Interest expense increased by $250 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to the Vivint Smart Home acquisition including the impact of newly issued Senior Secured First Lien Notes, the acquired debt of Vivint Smart Home, the borrowings on the Revolving Credit Facility and the Receivables Securitization Facilities, as well as the write-off of the deferred financing costs associated with the cancellation of the bridge facility.

Income Tax Expense

For the year ended December 31, 2022, NRG recorded income tax expense of $442 million on pre-tax income of $1.7 billion.

For the year ended December 31, 2023, NRG recorded an income tax benefit of $11 million on a pre-tax loss of $213 million.

For the same period in 2022, NRG recorded income tax expense of $442 million on pre-tax income of $1.7 billion.

The effective tax rate was 5.2% and 26.6% for the years ended December 31, 2023 and 2022, respectively.

For the year ended December 31, 2022, NRG's overall effective tax rate was higher than the federal statutory tax rate of 21% primarily due to state tax expense, partially offset by the recognition of carbon capture tax credits.

For the year ended December 31, 2023, NRG's overall effective tax rate was lower than the federal statutory tax rate of 21%, primarily due to permanent differences and changes in state valuation allowances.

Year Ended December 31,

(In millions, except effective income tax rate) 2023 2022

Income before income taxes $ 1,663 $ 2,859

(Loss)/Income before income taxes $ (213) $ 1,663

Tax at federal statutory tax rate (45) 349

Foreign rate differential 7 (3)

State taxes (22) 69

Deferred impact of state tax rate changes 14 (10)

Changes in valuation allowance (3) (29)

Foreign rate differential (10) 7

Changes in state valuation allowances 42 (3)

Permanent differences 31 17

Recognition of uncertain tax benefits 12 8

Deferred impact of state tax rate changes 3 14

Foreign tax refunds (17) —

Return to provision adjustments (5) —

Carbon capture tax credits — (19)

Recognition of uncertain tax benefits 8 (10)

Income tax expense $ 442 $ 672

Income tax (benefit)/expense $ (11) $ 442

Effective income tax rate 5.2 % 26.6 %

14 unchanged sentences

(b) Total capacity of Revolving Credit Facility and collective collateral facilities was $7.4 billion and $6.4 billion as of December 31, 2023 and December 31, 2022, respectively

As of December 31, 2022, total liquidity, excluding collateral funds deposited by counterparties, increased by $108 million.

As of December 31, 2023, total liquidity, excluding collateral funds deposited by counterparties, increased by $2.0 billion.

Changes in cash and cash equivalent balances are further discussed under the heading Cash Flow Discussion .

Cash and cash equivalents at December 31, 2022, were predominantly held in money market funds invested in treasury securities, treasury repurchase agreements or government agency debt.

Management believes that the Company's liquidity position and cash flows from operations will be adequate to finance operating and maintenance capital expenditures, to fund dividends to NRG's common stockholders, and to fund other liquidity commitments.

Cash and cash equivalents at December 31, 2023, were predominantly held in bank deposits.

Management believes that the Company's liquidity position and cash flows from operations will be adequate to finance operating and maintenance capital expenditures, to fund dividends, and to fund other liquidity commitments in the short and long-term.

Management continues to regularly monitor the Company's ability to finance the needs of its operating, financing and investing activity within the dictates of prudent balance sheet management.

The consolidated statement of cash flows includes certain draws from, and payments to, the revolving credit facility and other credit facilities which are not eligible for net reporting.

These transactions are for short term liquidity purposes.

Credit Ratings

On December 6, 2022, following the Vivint acquisition announcement, Standard & Poor's placed NRG's issuer credit of BB+ on CreditWatch with negative implications.

Concurrently, Fitch assigned NRG a first-time issuer Default Rating of BB+ with a stable outlook.

There was no change to Moody's rating during the year ended December 31, 2022.

On March 1, 2023, following the Vivint Smart Home acquisition financing launch, Standard and Poor's downgraded the Company's issuer credit to BB with a Stable outlook from BB+.

There was no change to Moody's and Fitch ratings at the time.

The following table summarizes the Company's current credit ratings:

1 unchanged sentence

NRG Energy, Inc.

BB+ Negative Ba1 Stable BB+ Stable

BB Stable Ba1 Stable BB+ Stable

3.75% Senior Secured Notes, due 2024 BBB- Baa3 BBB-

2 unchanged sentences

6.625% Senior Notes, due 2027 BB Ba2 BB+

6.75% Vivint Smart Home Senior Secured Notes, due 2027 BB Ba2 n/a

5.75% Senior Notes, due 2028 BB Ba2 BB+

2 unchanged sentences

5.25% Senior Notes, due 2029 BB Ba2 BB+

5.75% Vivint Smart Home Senior Notes, due 2029 B Ba3 n/a

3.625% Senior Notes, due 2031 BB Ba2 BB+

3.875% Senior Notes, due 2032 BB Ba2 BB+

7.00% Senior Secured Notes, due 2033 BBB- Baa3 BBB-

Revolving Credit Facility, due 2028 BBB- Baa3 BBB-

Vivint Smart Home Senior Secured Term Loan, due 2028 BB Ba2 n/a

The principal sources of liquidity for NRG's operating and capital expenditures are expected to be derived from cash on hand, cash flows from operations and financing arrangements.

As described in Item 15 — Note 13, Long-term Debt and Finance Leases, to the Consolidated Financial Statements, the Company's financing arrangements consist mainly of the Senior Notes, Convertible Senior Notes, Senior Secured First Lien Notes, Revolving Credit Facility, and tax-exempt bonds.

The Company also issues letters of credit through bilateral letter of credit facilities and the P-Caps letter of credit facility.

As part of the acquisition of Vivint Smart Home on March 10, 2023, NRG acquired Vivint Smart Home's existing debt, which includes senior secured notes, senior notes and a senior secured term-loan.

The Company's requirements for liquidity and capital resources, other than for operating its facilities, can generally be categorized by the following:

1 unchanged sentence

(ii) debt service obligations, as described more fully in Item 15 — Note 13, Long-term Debt and Finance Leases , to the Consolidated Financial Statements;

(iii) capital expenditures, including maintenance, repowering, development, and environmental;

(iii) capital expenditures, including maintenance, environmental, and investments and integration;

and (iv) allocations in connection with acquisition opportunities, debt repayments, share repurchases and dividend payments to stockholders, as described in Item 15 — Note 16, Capital Structure , to the Consolidated Financial Statements.

The Company remains committed to maintaining a strong balance sheet and continues to work to achieve investment grade credit metrics over time primarily through debt reduction and the realization of growth initiatives.

ERCOT Securitization Proceeds

In 2021, the Texas Legislature passed HB 4492 for ERCOT to mitigate exceptionally high price adders and ancillary service costs incurred by LSEs during Winter Storm Uri.

HB 4492 authorized ERCOT to obtain $2.1 billion of financing to distribute to LSEs that were charged and paid to ERCOT those highly priced ancillary service and ORDPA during Winter Storm Uri.

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

Winter Storm Uri Credit Loss Recoveries

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 in settlement of this exposure.

Brazos Electric Cooperative Bankruptcy

As further discussed in Item 1 — Business, Regulatory Matters , the Company received $29 million as a result of Brazos' chapter 11 plan and the related ERCOT settlement.

Sale of the 44% equity interest in STP

On November 1, 2023, the Company closed on the sale of its 44% equity interest in STP to Constellation.

Proceeds of $1.75 billion were reduced by working capital and other adjustments of $96 million, resulting in net proceeds of $1.654 billion.

Sale of Gregory

On October 2, 2023, the Company closed on the sale of its 100% ownership in the Gregory natural gas generating facility in Texas for $102 million.

Debt Reduction

During 2023, the Company reduced its debt by $900 million using funds from cash from operations.

Additionally, the Company redeemed $620 million in aggregate principal amount of its 3.875% Senior Notes, due 2032, for $502 million using a portion of the proceeds from the sale of STP.

The Company intends to spend approximately $500 million reducing debt during 2024 to maintain its targeted credit metrics.

The Company intends to fund the debt reduction from cash from operations.

Vivint Smart Home Acquisition

On March 10, 2023, the Company completed the acquisition of Vivint Smart Home.

The Company paid $12 per share, or $2.6 billion in cash.

The Company funded the acquisition using a combination of $740 million in newly-issued secured corporate debt, $650 million in newly-issued preferred stock, $900 million drawn from its Revolving Credit Facility and Receivables Facilities, and cash on hand.

Issuance of 2033 Senior Notes

On March 9, 2023, the Company issued $740 million of aggregate principal amount of 7.000% senior notes due 2033.

The 2033 Senior Notes are senior secured obligations of NRG and are guaranteed by certain of its subsidiaries.

Interest is paid semi-annually beginning on September 15, 2023 until the maturity date of March 15, 2033.

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

Series A Preferred Stock

On March 9, 2023, the Company issued 650,000 shares of 10.25% Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock.

For further discussion, see Note 16, Capital Structure .

Revolving Credit Facility

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(i) increase the existing revolving commitments thereunder by $600 million, (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.

See Note 13, Long-term Debt and Finance Leases for further discussion.

On March 13, 2023, the Company further amended its Revolving Credit Facility to increase the existing revolving commitments by an additional $45 million.

As of December 31, 2023, there were no outstanding borrowings and there were $883 million in letters of credit issued under the Revolving Credit Facility.

Receivables Securitization Facilities

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 extend the maturity date to July 26, 2023.

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

On June 22, 2023, NRG Receivables amended its existing Receivables Facility to, among other things, (i) extend the scheduled termination date to June 21, 2024, (ii) increase the aggregate commitments from $1.0 billion to $1.4 billion (adjusted seasonally) and (iii) add a new originator.

On October 6, 2023, the Receivables Facility was further amended to replace the benchmark interest rate of the Receivable Facility's subordinated note from LIBOR to SOFR.

As of December 31, 2023, there were no outstanding borrowings and there were $1.0 billion in letters of credit issued.

In addition, in connection with the amendments to the Receivables Facility, on June 22, 2023, the Company and the originators thereunder renewed the existing uncommitted Repurchase Facility that provides short-term financing secured by a subordinated note issued by NRG Receivables LLC.

Such renewal, among other things, extends the maturity date to June 21, 2024 and joins an additional originator to the Repurchase Facility.

On October 6, 2023, the Repurchase Facility was further amended to reflect the concurrent amendment to the Receivables Facility's subordinated note.

As of December 31, 2023, there were no outstanding borrowings.

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.

The weighted average interest rate related to usage under the Receivables Facility as of December 31, 2022 was 0.844%.

As of December 31, 2022, there were no outstanding borrowings and there were $721 million in letters of credit issued under the Receivables Facility.

Bilateral Letter of Credit Facilities

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.

On May 19, 2023, May 30, 2023 and October 17, 2023 the Company increased the size of its bilateral letter of credit facilities by $25 million, $100 million and $50 million, respectively, to provide additional liquidity, allowing for the issuance of up to $850 million of letters of credit.

These facilities are uncommitted.

As of December 31, 2023, $671 million was issued under these facilities.

Vivint Acquisition

On December 6, 2022, NRG and Vivint announced the entry into a definitive agreement under which the Company will acquire Vivint in an all-cash transaction.

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.

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

See Item 15 — Note 4, Acquisitions and Dispositions , to the Consolidated Financial Statements for further discussion.

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 transactions 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.

See Item 15 — Note 4, Acquisitions and Dispositions , to the Consolidated Financial Statements for further discussion.

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.

NRG recognized a gain on the sale of $46 million.

Parish Extended Outage

In May 2022, W.A.

Parish Unit 8 came offline as a result of damage to certain components of the steam turbine/generator.

Based on work completed to date, the Company is targeting to return the unit to service by the end of the second quarter of 2023.

The Company is working with its insurers related to claims surrounding the outage and has received partial settlements in the fourth quarter of 2022.

On March 27, 2020, the U.S.

government enacted the CARES Act, which provides, among other things:

(i) the option to defer payments of certain 2019 employer payroll taxes incurred after the date of enactment;

and (ii) allows NOLs from tax years 2018, 2019, and 2020 to be carried back five years.

The total benefit to the Company due to the CARES Act was $35 million.

Of this amount, $13 million related to certain 2019 employer payroll taxes was paid in 2022.

All deferred employer payroll taxes have been repaid as of December 31, 2022.

Pre-Capitalized Trust Securities Facility

On August 29, 2023, the Company entered into a Facility Agreement with the Trust, in connection with the sale by the Trust of $500 million P-Caps.

The P-Caps are to be redeemed by the Trust on July 31, 2028 or earlier upon an early redemption of the P-Caps Secured Notes.

The P-Caps replaced the Company’s existing pre-capitalized trust securities redeemable 2023 issued by Alexander Funding Trust, which matured on November 15, 2023.

The Facility Agreements allows for the issuance of the P-Caps Secured Notes by the Company to the Trust.

In addition, the Company entered into a LC Agreement for the issuance of letters of credit in an aggregate amount not to exceed $485 million.

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 proceeds of $212 million, subject to transactions 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.

Decommissioning was completed in December 2023 and the lease agreement has been terminated.

Pension and Other postretirement benefit contributions

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Senior Secured First Lien Notes, due 2029 — — — — — 500 500

Senior Secured First Lien Notes, due 2033 — 740 740

Tax-exempt bonds

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600 747 — 1,275 880 4,718 8,220

Non-Recourse Debt:

Vivint Smart Home Senior Secured Notes, due 2027 — — — 600 — — 600

Vivint Smart Home Senior Notes, due 2029 — — — — — 800 800

Vivint Smart Home Senior Secured Term Loan, due 2028 14 14 14 14 1,264 — 1,320

Subtotal Vivint Smart Home Non-Recourse Debt

14 14 14 614 1,264 800 2,720

Subtotal Debt 614 761 14 1,889 2,144 5,518 10,940

Finance Leases:

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(iii) timing of disbursements and receipts (e.g.

buying fuel before receiving energy revenues);

buying power before receiving retail revenues);

and (iv) initial collateral for large structured transactions.

As of December 31, 2023, market operations had total cash collateral outstanding of $441 million and $3.1 billion outstanding in letters of credit to third parties primarily to support its market activities.

As of December 31, 2022, total funds deposited by counterparties were $1.7 billion in cash and $888 million of letters of credit.

The Company has entered into long-term contractual arrangements to procure certain fuel and transportation services for the Company's generation assets.

As of December 31, 2022, the Company had minimum payment obligations under such outstanding agreements of $452 million, with $110 million payable within the next 12 months.

Additionally, the Company has long-term contractual commitments related to electricity and natural gas products, including power purchases, gas

transportation and storage of various quantities and durations.

As of December 31, 2022, the Company had minimum purchased energy commitments under long-term contracts of $4.3 billion, with $908 million payable within the next 12 months, and an additional $1.5 billion of short-term purchase energy commitments.

As of December 31, 2023, total funds deposited by counterparties were $84 million in cash and $478 million of letters of credit.

The Company has entered into long-term contractual arrangements related to energy purchases, gas transportation and storage, and fuel and transportation services.

As of December 31, 2023, the Company had minimum payment obligations under such outstanding agreements of $3.4 billion, with $573 million payable within the next 12 months and an additional $978 million of short-term purchase energy commitments.

For further discussion, see Item 15 — Note 23, Commitments and Contingencies .

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First Lien Structure

NRG has granted first liens to certain counterparties on a substantial portion of the Company's assets, subject to various exclusions including NRG's assets that have project-level financing and the assets of certain non-guarantor subsidiaries, to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedge agreements for forward sales of power or MWh equivalents.

NRG has the capacity to grant first liens to certain counterparties on a substantial portion of the Company's assets, subject to various exclusions including NRG's assets that have project-level financing and the assets of certain non-guarantor subsidiaries, to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedge agreements.

The first lien program does not limit the volume that can be hedged or the value of underlying out-of-the-money positions.

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The Company's first lien counterparties may have a claim on its assets to the extent market prices exceed the hedged prices.

As of December 31, 2022, all hedges under the first liens were out-of-the-money on a counterparty aggregate basis.

The following table summarizes the amount of MW hedged against the Company's coal and nuclear assets and as a percentage relative to the Company's coal and nuclear capacity under the first lien structure as of December 31, 2022:

Equivalent Net Sales Secured by First Lien Structure (a)

As a percentage of total net coal and nuclear capacity (b)

(a) Equivalent Net Sales include natural gas swaps converted using a weighted average heat rate by region

(b) Net coal and nuclear capacity, inclusive of expected outages, represents 80% of the Company's total coal and nuclear assets eligible under the first lien, which excludes coal assets acquired in the Midwest Generation acquisition

As of December 31, 2023, all hedges under the first liens were in-the-money on a counterparty aggregate basis.

Capital Expenditures

The following table summarizes the Company's capital expenditures for maintenance, environmental and growth investments for the year ended December 31, 2023:

(In millions) Maintenance Environmental Growth Investments (a)

(In millions) Maintenance Environmental Investments and Integration Total

Texas $ 455 $ 3 $ 37 $ 495

East (3) — (4) (7)

West/Services/Other 21 — 6 27

Vivint Smart Home (a)

Corporate 19 — 34 53

Total cash capital expenditures for 2023

(235) (1) (131) (367)

Integration operating expenses and cost to achieve — — 81 81

Investments — — 164 164

Total capital expenditures and investments $ (235) $ (1) $ (249) $ (485)

(a) Includes other investments, acquisitions and integration projects

Growth investments for the year ended December 31, 2022, include expenditures for small book acquisitions, service acquisitions, integration operating expenses, as well as the Encina site improvements classified as ARO payments.

NRG has completed its demolition activities at the site and has begun marketing the site.

Total cash capital expenditures and investments for the year ended December 31, 2023

$ 516 $ 3 $ 324 $ 843

(a) Includes expenditures following the acquisition date of March 10, 2023

Investments and Integration for the year ended December 31, 2023, include growth expenditures, integration, small book acquisitions and other investments.

Environmental Capital Expenditures Estimate

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(In millions) Total

Asset Sales Target

NRG is targeting additional asset sales with projected proceeds, net of any required deleveraging, of $500 million during 2023.

Thereafter 12

Share Repurchases

In December 2021, the Company's board of directors authorized the Company to repurchase $1.0 billion of its common stock, of which $44 million was repurchased in 2021.

In June 2023, NRG revised its long-term capital allocation policy to target allocating approximately 80% of cash available for allocation after debt reduction to be returned to shareholders.

As part of the revised capital allocation framework, the Company announced an increase to its share repurchase authorization to $2.7 billion, to be executed through 2025.

On November 6, 2023, the Company executed Accelerated Share Repurchase agreements to repurchase a total of $950 million of NRG's outstanding common stock.

Under the ASR, the Company paid a total of $950 million and will receive shares of NRG's common stock on specified settlement dates.

See Item 15 - Note 16, Capital Structure , to the Consolidated Financial Statements for additional discussion.

Dividend Increase

In the first quarter of 2022, NRG increased the annual dividend to $1.40 from $1.30 per share.

Dividend Increase on Common Stock

In the first quarter of 2023, NRG increased the annual dividend on its common stock to $1.51 from $1.40 per share.

The Company returned $352 million of capital to shareholders in the year ended 2023 through a $1.51 dividend per common share.

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The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws and regulations.

Series A Preferred Stock Dividends

In September 2023, the Company declared and paid a semi-annual dividend of $52.96 per share on its outstanding Series A Preferred Stock, totaling $34 million.

Cumulative cash dividends on the Series A Preferred Stock are payable semiannually, in arrears, on each March 15 and September 15, when, as and if declared by the Board of Directors.

Additional Material Cash Requirements Not Discussed Above

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Other liabilities — Other liabilities includes water right agreements, service and maintenance agreements, stadium naming rights, stadium sponsorships, long-term service agreements and other contractual obligations.

As of December 31,

2022, the Company had total of $266 million under such commitments, of which $66 million are payable within the next 12 months.

As of December 31, 2023, the Company had total of $213 million under such commitments, of which $40 million are payable within the next 12 months.

Contingent obligations for guarantees — NRG and its subsidiaries enter into various contracts that include indemnifications and guarantee provisions as a routine part of the Company’s business activities.

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NRG's pro-rata share of non-recourse debt was approximately $461 million as of December 31, 2023.

This indebtedness may restrict the ability of these subsidiaries to issue dividends or distributions to NRG.

This indebtedness may restrict the ability of Ivanpah to issue dividends or distributions to NRG.

Cash Flow Discussion

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(In millions) 2023 2022 Change

Cash provided by operating activities $ 360 $ 493 $ (133)

Cash (used)/provided by operating activities $ (221) $ 360 $ (581)

Cash used by investing activities (910) (332) (578)

Cash provided/(used) by financing activities 1,043 (272) 1,315

Cash provided by operating activities

Cash (used)/provided by financing activities (400) 1,043 (1,443)

Cash (used)/provided by operating activities

Changes to cash (used)/provided by operating activities were driven by:

(In millions)

Decrease in operating income adjusted for other non-cash items $ (1,161)

Increase due to receipt of uplift securitization proceeds from ERCOT in 2022 689

Increase in working capital primarily attributable to the impact of higher market prices on accounts payable, partially offset by a decrease working capital related to higher priced natural gas inventory and accounts receivable 300

Increase in operating income adjusted for other non-cash items $ 2,892

Changes in cash collateral in support of risk management activities due to change in commodity prices (2,702)

Other changes in working capital primarily driven by lower personnel costs (60)

Decrease due to receipt of uplift securitization proceeds from ERCOT in 2022 (689)

Decrease in working capital primarily driven by Vivint Smart Home capitalized contract costs partially offset by deferred revenues (361)

Increase in working capital related to accrued personnel costs primarily due to the Company's annual incentive plan reflecting financial outperformance for 2023 188

Increase in working capital related to accounts receivable and inventory primarily due to lower gas and power market pricing coupled with lower gas volumes, partially offset by a decrease in accounts payable 91

Cash used by investing activities

Changes to cash provided/(used) by investing activities were driven by:

Changes to cash (used)/provided by investing activities were driven by:

(In millions)

Increase as a result of less cash paid for acquisitions of assets primarily for Direct Energy in 2021 $ 3,497

Decrease in proceeds from sale of assets primarily due to the prior year's sales of the fossil generating assets and Agua Caliente (721)

Increase in cash paid for acquisitions primarily due to the acquisition of Vivint Smart Home in March 2023 $ (2,461)

Increase in proceeds from the sale of assets primarily due to the sale of the Company's 44% equity interest in STP in November 2023 1,898

Increase from insurance proceeds for property, plant and equipment, net, in 2023 240

Increase in capital expenditures (231)

Decrease in proceeds from sales of emissions allowances, net of purchases (18)

Increase due to fewer purchases of investments in nuclear decommissioning trust fund securities, net of sales (6)

Decrease in sales of emissions allowances (6)

Cash provided/(used) by financing activities

Changes in cash provided/(used) by financing activities were driven by:

Cash (used)/provided by financing activities

Changes in cash (used)/provided by financing activities were driven by:

(In millions)

Increase primarily due to prior year repayments of long-term debt $ 1,856

Decrease in proceeds from issuance of long-term debt (1,100)

Increase in net receipts from settlement of acquired derivatives 1,057

Increase in payments for share repurchase activity (558)

Increase due to payments of debt extinguishment costs and deferred issuance costs in 2021 74

Increase in payments of dividends to common stockholders (13)

Decrease in net receipts from settlement of acquired derivatives $ (1,653)

Increase in proceeds from issuance of long-term debt in 2023 731

Increase in proceeds from issuance of preferred stock in 2023 635

Increase in share repurchase activity (566)

Increase of repayments of long-term debt and finance leases (518)

Increase in payments of dividends primarily due to preferred stock issued in 2023 (49)

Increase in payments of deferred issuance costs (23)

NOLs, Deferred Tax Assets and Uncertain Tax Position Implications

For the year ended December 31, 2022, the Company had domestic pre-tax book income of $1.4 billion and foreign pre-tax book income of $227 million.

For the year ended December 31, 2023, the Company had domestic pre-tax book income of $261 million and foreign pre-tax book loss of $474 million.

For the year ended December 31, 2023, the Company utilized U.S.

federal NOLs of $206 million due to current year taxable income, and tax credits of $8 million.

federal NOLs of $1.9 billion, and tax credits of $73 million.

As of December 31, 2023, the Company has cumulative U.S.

federal NOL carryforwards of $8.2 billion, which do not have an expiration date, and cumulative state NOL carryforwards of $5.3 billion for financial statement purposes.

federal NOL carryforwards of $8.4 billion, of which $6.4 billion do not have an expiration date, and cumulative state NOL carryforwards of $6.4 billion for financial statement purposes.

NRG also has cumulative foreign NOL carryforwards of $411 million, most of which have no expiration date.

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As a result of the Company's tax position, including the utilization of federal and state NOLs, and based on current forecasts, the Company anticipates income tax payments, due to federal, state and foreign jurisdictions, of up to $160 million in 2024.

The Company has $22 million of tax effected uncertain federal and state tax benefits for which the Company has recorded a non-current tax liability of $24 million (including accrued interest) until such final resolution with the related taxing authority.

There is no impact on the Company's provision for income taxes from the CAMT for the year ended December 31, 2023.

The Company has $73 million of tax effected uncertain federal, state and foreign tax benefits for which the Company has recorded a non-current tax liability of $76 million (inclusive of accrued interest) until such final resolution with the related taxing authority.

The Company is no longer subject to U.S.

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There are no restrictions on the ability of any of the Guarantors to transfer funds to NRG.

Other subsidiaries of the Company do not guarantee the registered debt securities of either NRG Energy, Inc.

Other subsidiaries of the Company do not guarantee the registered

debt securities of either NRG Energy, Inc.

or the Guarantors (such subsidiaries are referred to as the “Non-Guarantors”).

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Total other expense (286)

Income from continuing operations before income taxes 1,632

Income before income taxes 314

Net Income 182

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Fair Value of Derivative Instruments

NRG may enter into power purchase and sales contracts, fuel purchase contracts and other energy-related financial instruments to mitigate variability in earnings due to fluctuations in spot market prices and to hedge fuel requirements at power plants or retail load obligations.

NRG may enter into energy purchase and sales contracts, fuel purchase contracts and other energy-related financial instruments to mitigate variability in earnings due to fluctuations in spot market prices and to hedge fuel requirements at power plants or retail load obligations.

In order to mitigate interest risk associated with the issuance of the Company's variable rate debt, NRG enters into interest rate swap agreements.

In addition, in order to mitigate foreign exchange rate risk primarily associated with the purchase of USD denominated natural gas for the Company's Canadian business, NRG enters into foreign exchange contract agreements.

Under Flex Pay, offered by Vivint Smart Home, subscribers pay for smart home products by obtaining financing from a third-party financing provider under the Consumer Financing Program.

Vivint Smart Home pays certain fees to the financing providers and shares in credit losses depending on the credit quality of the subscriber.

NRG's trading activities are subject to limits in accordance with the Company's Risk Management Policy.

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Contracts realized or otherwise settled during the period (1,629)

Changes in fair value 2,437

Vivint Smart Home contracts acquired during the period (112)

Other changes in fair value (1,164)

Fair value of contracts as of December 31, 2023 $ 648

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(In millions) Maturity

Fair value hierarchy Gains 1 Year or Less Greater Than 1 Year to 3 Years Greater Than 3 Years to 5 Years Greater Than

Fair Value Hierarchy (Losses)/Gains 1 Year or Less Greater Than 1 Year to 3 Years Greater Than 3 Years to 5 Years Greater Than

Level 1 $ (120) $ 45 $ (5) $ 1 $ (79)

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As the Company's trade-by-trade derivative accounting results in a gross-up of the Company's derivative assets and liabilities, the net derivative assets and liability position is a better indicator of NRG's hedging activity.

As of December 31, 2022, NRG's net derivative asset was $3.6 billion, an increase to total fair value of $1.2 billion as compared to December 31, 2021.

This increase was primarily driven by gains in fair value, partially offset by roll-off of trades that settled during the period.

Based on a sensitivity analysis using simplified assumptions, the impact of a $0.50 per MMBtu increase in natural gas prices across the term of the derivative contracts would result in an increase of approximately $1.4 billion in the net value of derivatives as of December 31, 2022.

The impact of a $0.50 per MMBtu decrease in natural gas prices across the term of the derivative contracts would result in a decrease of approximately $1.4 billion in the net value of derivatives as of December 31, 2022.

As of December 31, 2023, NRG's net derivative asset was $648 million, a decrease to total fair value of $2.9 billion as compared to December 31, 2022.

This decrease was primarily driven by roll-off of trades that settled during the period, losses in fair value, and Vivint Smart Home contracts acquired during the period.

Based on a sensitivity analysis using simplified assumptions, the impact of a $0.50 per MMBtu increase or decrease in natural gas prices across the term of the derivative contracts would result in a change of approximately $2.0 billion in the net value of derivatives as of December 31, 2023.

Critical Accounting Estimates

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ASC 815 requires the Company to mark-to-market all derivative instruments on the balance sheet and recognize fair value change in earnings, unless they qualify for the NPNS exception.

ASC 815 applies to NRG's energy related commodity contracts, interest rate swaps and foreign exchange contracts.

For purposes of measuring the fair value of derivative instruments, the Company uses quoted exchange prices and broker quotes.

ASC 815 applies to NRG's energy related commodity contracts, interest rate swaps, foreign exchange contracts and Consumer Financing Program.

Energy-Related Commodities

As of December 31, 2023, for purposes of measuring the fair value of derivative instruments, the Company primarily uses quoted exchange prices and consensus pricing.

Consensus pricing is provided by independent pricing services which are compiled from market makers with longer dated tenors as compared to broker quotes.

Prior to the fourth quarter of 2023, the Company valued derivatives based on price quotes from brokers in active markets who regularly facilitate those transactions.

The Company started using consensus pricing as it offers data from more market makers and for longer dated tenors as compared to broker quotes, enhances data integrity, and increases transparency.

When external prices are not available, NRG uses internal models to determine the fair value.

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These estimations are considered to be critical accounting estimates.

Interest Rate Swaps

NRG is exposed to changes in interest rate through the Company's issuance of variable rate debt.

To manage the Company's interest rate risk, NRG enters into interest rate swap agreements.

In order to qualify the derivative instruments for hedged transactions, NRG estimates the forecasted borrowings for interest rate swaps occurring within a specified time period.

Foreign Exchange Contracts

In order to mitigate foreign exchange risk primarily associated with the purchase of USD denominated natural gas for the Company's Canadian business, the Company enters into foreign exchange contract agreements.

Consumer Financing Program

The derivative positions for the Company's Consumer Financing Program are valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and credit loss rates.

In summary, the fair value represents an estimate of the present value of the cash flows Vivint Smart Home will be obligated to pay to the third-party financing provider for each component of the derivative.

Certain derivative instruments that meet the criteria for derivative accounting treatment also qualify for a scope exception to derivative accounting, as they are considered to be NPNS.

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As of December 31, 2023, NRG’s deferred tax assets were primarily the result of U.S.

federal and state NOLs, the difference between book and tax basis in property, plant, and equipment, and tax credit carryforwards.

federal and state NOLs, the difference between book and tax basis in property, plant, and equipment, deferred revenues and tax credit carryforwards.

The realization of deferred tax assets is dependent upon the Company's ability to generate sufficient future taxable income during the periods in which those temporary differences become deductible, prior to the expiration of the tax attributes.

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federal NOL carryforwards and the majority of its state NOL carryforwards prior to their expiration.

The Company continues to maintain a valuation allowance of $224 million as of December 31, 2022 against deferred tax assets consisting of state net operating losses and foreign NOL carryforwards in jurisdictions where the Company does not currently believe that the realization of deferred tax assets is more likely than not.

The Company continues to maintain a valuation allowance of $275 million as of December 31, 2023 against deferred tax assets consisting of state NOL carryforwards and foreign NOL carryforwards in jurisdictions where the Company does not currently believe that the realization of deferred tax assets is more likely than not.

As of December 31, 2022, the Company's valuation allowance balance was $224 million.

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Assets held-for-sale are reported at the lower of the carrying amount or fair value less the cost to sell.

The estimation of fair value, whether in conjunction with an asset to be held and used or with an asset held-for-sale, and the evaluation of asset impairment are, by

their nature, subjective.

The estimation of fair value, whether in conjunction with an asset to be held and used or with an asset held-for-sale, and the evaluation of asset impairment are, by their nature, subjective.

The Company considers quoted market prices in active markets to the extent they are available.

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Goodwill and Other Intangible Assets

At December 31, 2022, the Company reported goodwill of $1.7 billion, consisting of $1.2 billion from the acquisition of Direct Energy in 2021 and $408 million for retail operations acquisitions, including Stream Energy, which was acquired in 2019.

At December 31, 2023, the Company reported goodwill of $5.1 billion, consisting of $3.5 billion from the acquisition of Vivint in 2023, $1.3 billion from the acquisition of Direct Energy in 2021 and $0.3 billion from other retail acquisitions.

The Company applies ASC 805, Business Combinations ("ASC 805"), and ASC 350, Intangibles-Goodwill and Other (" ASC 350") to account for its goodwill and intangible assets.

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The Company performs the annual goodwill impairment assessment as of December 31 or when events or changes in circumstances indicate that the fair value of the reporting unit may be below the carrying amount.

The Company first assesses qualitative factors to determine whether it is more likely than not that an impairment has occurred.

The Company may first assess qualitative factors to determine whether it is more likely than not that an impairment has occurred.

In the absence of sufficient qualitative factors, the Company performs a quantitative assessment by determining the fair value of the reporting unit and comparing to its book value.

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Fair value is determined based on the estimated price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The acquired assets and assumed liabilities that involved the most subjectivity in determining fair value consisted of the trade names, customer relationships and derivative contracts.

The fair value of trade names and customer relationships are measured using income-based valuation methodologies, which include certain assumptions such as forecasted future cash flows, customer attrition rates, royalty rates and discount rates.

The trade names are amortized to depreciation and amortization, on a straight line basis.

The customer relationships are amortized to depreciation and amortization, ratably based on discounted future cash flows.

In measuring the fair value of derivative contracts for Direct Energy, a significant portion of the fair value of the derivative portfolio was based on price quotes from brokers in active markets who regularly facilitate those transactions and the Company believes such price quotes are executable.

The Company does not use third-party sources that derive price based on proprietary models or market surveys.

The remainder of the assets and liabilities represents contracts for which external sources or observable market quotes are not available.

These contracts were valued based on various valuation techniques including but not limited to internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics.

The fair value of each contract was discounted using a risk free interest rate.

In addition, the Company

applied a credit reserve to reflect credit risk.

The acquired assets and assumed liabilities from the Vivint Smart Home acquisition that involved the most subjectivity in determining fair value consisted of customer relationships, developed technology, trade names, acquired debt and derivative instruments.

NRG describes in detail its acquisitions in Item 15 — Note 4, Acquisitions and Dispositions , to the Consolidated Financial Statements.

The fair value of the customer relationships, technology and trade names are measured using income-based valuation methodologies, which include certain assumptions such as forecasted future cash flows, customer attrition rates, royalty rates and discount rates.

Customer relationships and technology are amortized to depreciation and amortization, ratably based on discounted future cash flows.

Trade names are amortized to depreciation and amortization, on a straight line basis.

The acquired Vivint Smart Home debt was measured at fair value using observable market inputs based on interest rates at the acquisition closing date.

The difference between the fair value at the acquisition closing date and the principal outstanding is being amortized through interest expense over the remaining term of the debt.

The derivative liabilities in connection with the contractual future payment obligations with the financing providers under Vivint Smart Home’s Consumer Financing Program were measured at fair value at the acquisition closing date using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and credit loss rates.

Changes to the fair value are recorded each period through other income, net in the consolidated statement of operations.

Contingencies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis