NRG Energy
Annual Report 2017

Plain-text annual report

2017 Form 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 2017. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to . Commission file No. 001-15891 NRG Energy, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 41-1724239 (I.R.S. Employer Identification No.) 804 Carnegie Center, Princeton, New Jersey (Address of principal executive offices) 08540 (Zip Code) (609) 524-4500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered Common Stock, par value $0.01 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a smaller reporting company) Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No As of the last business day of the most recently completed second fiscal quarter, the aggregate market value of the common stock of the registrant held by non-affiliates was approximately $4,880,501,096 based on the closing sale price of $17.22 as reported on the New York Stock Exchange. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Common Stock, par value $0.01 per share Outstanding at January 31, 2018 317,637,917 Documents Incorporated by Reference: Portions of the Registrant's definitive Proxy Statement relating to its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K 1 Stockholder information STOCK TRANSFER AGENT AND REGISTRAR Shareholder correspondence should be mailed to: Computershare P.O. BOX 505000 Louisville, KY 40233-5000 STOCKHOLDER INQUIRIES Overnight correspondence should be sent to: Computershare 462 South 4th Street, Suite 1600 Louisville, KY 40202 1.866.214.2213 Email: shareholder@computershare.com Online inquires: https://www-us.computershare.com/investor/Contact Website: www.computershare.com/investor Send certificates for transfer and address changes to: Computershare P.O. BOX 505000 Louisville, KY 40233-5000 STOCK LISTING NRG’s common stock is listed on the New York Stock Exchange under the ticker symbol NRG. FINANCIAL INFORMATION NRG’s Annual Report on Form 10-K, Proxy Statement and other SEC Filings are available at www.nrg.com under the Investors section. TABLE OF CONTENTS Glossary of Terms GLOSSARY OF TERMS PART I Item 1 — Business Item 1A — Risk Factors Related to NRG Energy, Inc. Item 1B — Unresolved Staff Comments Item 2 — Properties Item 3 — Legal Proceedings Item 4 — Mine Safety Disclosures PART II Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6 — Selected Financial Data Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A — Quantitative and Qualitative Disclosures About Market Risk Item 8 — Financial Statements and Supplementary Data Item 9 — Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A — Controls and Procedures Item 9B — Other Information PART III Item 10 — Directors, Executive Officers and Corporate Governance Item 11 — Executive Compensation Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13 — Certain Relationships and Related Transactions, and Director Independence Item 14 — Principal Accounting Fees and Services PART IV Item 15 — Exhibits, Financial Statement Schedules Item 16 — Form 10-K Summary EXHIBIT INDEX 3 10 10 34 53 54 58 58 59 59 61 62 112 116 116 116 118 119 119 122 122 122 123 124 124 239 228 2 When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below: 2023 Term Loan Facility The Company's $1.9 billion term loan facility due 2023, a component of the Senior Credit Facility AEP American Electric Power Adjusted EBITDA Adjusted earnings before interest, taxes, depreciation and amortization ARO ASC ASU Asset Retirement Obligation The FASB Accounting Standards Codification, which the FASB established as the source of authoritative GAAP Accounting Standards Updates – updates to the ASC August 2017 Drop Down Assets Average realized prices The remaining 25% interest in NRG Wind TE Holdco, which was sold to NRG Yield, Inc. on August 1, 2017 Volume-weighted average power prices, net of average fuel costs and reflecting the impact of settled hedges AZNMSNV Backlog BACT Bankruptcy Code Bankruptcy Court Baseload BETM BTU Business Solutions CAA CAIR CAISO Carlsbad CASPR CCF CDD CDWR CEC CenterPoint CFTC Chapter 11 Cases C&I CES Cleco CO2 CO2e COD ComEd Company CPP CPS Arizona, New Mexico and Southern Nevada Projects that are under construction, contracted, or awarded and represents a higher level of execution certainty Best Available Control Technology Chapter 11 of Title 11 of the U.S. Bankruptcy Code United States Bankruptcy Court for the Southern District of Texas, Houston Division Units expected to satisfy minimum baseload requirements of the system and produce electricity at an essentially constant rate and run continuously Boston Energy Trading and Marketing LLC British Thermal Unit NRG's business solutions group, which includes demand response, commodity sales, energy efficiency and energy management services Clean Air Act Clean Air Interstate Rule California Independent System Operator Carlsbad Energy Center, a 527 MW natural gas fired project located in Carlsbad, CA Competitive Auctions with Sponsored Resources Carbon Capture Facility Cooling Degree Day California Department of Water Resources California Energy Commission CenterPoint Energy Houston Electric, LLC U.S. Commodity Futures Trading Commission Voluntary cases commenced by the GenOn Entities under the Bankruptcy Code in the Bankruptcy Court Commercial, industrial and governmental/institutional Clean Energy Standard Cleco Energy LLC Carbon Dioxide Carbon Dioxide Equivalents Commercial Operation Date Commonwealth Edison NRG Energy, Inc. Clean Power Plan Combined Pollutant Standard 3 CPUC CSAPR CVSR CWA D.C. Circuit DGPV Holdco 1 DGPV Holdco 2 DGPV Holdco 3 Distributed Solar DNREC Dominion Drop Down Assets California Public Utilities Commission Cross-State Air Pollution Rule California Valley Solar Ranch Clean Water Act U.S. Court of Appeals for the District of Columbia Circuit NRG DGPV Holdco 1 LLC NRG DGPV Holdco 2 LLC NRG DGPV Holdco 3 LLC Solar power projects that primarily sell power to customers for usage on site, or are interconnected to sell power into a local distribution grid Delaware Department of Natural Resources and Environmental Control Dominion Resources, Inc. Collectively, the June 2014 Drop Down Assets, the January 2015 Drop Down Assets, the November 2015 Drop Down Assets, the September 2016 Drop Down Assets, the March 2017 Drop Down Assets, the August 2017 Drop Down Assets, and the November 2017 Drop Down Assets DSI DSU Dry Sorbent Injection Deferred Stock Unit Economic gross margin Sum of energy revenue, capacity revenue, retail revenue and other revenue, less cost of fuels and other cost of sales El Segundo Energy Center NRG West Holdings LLC, the subsidiary of Natural Gas Repowering LLC, which owns the El Segundo Energy Center project EME EMAAC Edison Mission Energy Eastern Mid-Atlantic Area Council Energy Plus Holdings Energy Plus Holdings LLC EPA EPC EPSA ERCOT ERISA ESP ESPP ESPS EWG U.S. Environmental Protection Agency Engineering, Procurement and Construction The Electric Power Supply Association The Employee Retirement Income Security Act of 1974 Electrostatic Precipitator NRG Energy, Inc. Amended and Restated Employee Stock Purchase Plan Existing Source Performance Standards Exempt Wholesale Generator Exchange Act The Securities Exchange Act of 1934, as amended FASB FERC FGD FPA Fresh Start FTRs GAAP GenConn GenOn Financial Accounting Standards Board Federal Energy Regulatory Commission Flue gas desulfurization Federal Power Act Reporting requirements as defined by ASC-852, Reorganizations Financial Transmission Rights Accounting principles generally accepted in the U.S. GenConn Energy LLC GenOn Energy, Inc. GenOn Americas Generation GenOn Americas Generation, LLC GenOn Americas Generation Senior Notes GenOn Americas Generation's $695 million outstanding unsecured senior notes consisting of $366 million of 8.5% senior notes due 2021 and $329 million of 9.125% senior notes due 2031 GenOn Entities GenOn Mid-Atlantic GenOn Senior Notes GenOn and certain of its wholly owned subsidiaries, including GenOn Americas Generation, that filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court on June 14, 2017 GenOn Mid-Atlantic, LLC and, except where the context indicates otherwise, its subsidiaries, which include the coal generation units at two generating facilities under operating leases GenOn's $1.8 billion outstanding unsecured senior notes consisting of $691 million of 7.875% senior notes due 2017, $649 million of 9.5% senior notes due 2018, and $489 million of 9.875% senior notes due 2020 GHG GIP Greenhouse Gas Global Infrastructure Partners Green Mountain Energy Green Mountain Energy Company GW GWh HAP HDD Heat Rate HLBV IASB IFRS IPA IPPNY ISO ISO-NE ITC Gigawatt Gigawatt Hour Hazardous Air Pollutant Heating Degree Day A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWhs generated. Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output measured is gross or net generation and is generally expressed as BTU per net kWh Hypothetical Liquidation at Book Value International Accounting Standards Board International Financial Reporting Standards Illinois Power Agency Independent Power Producers of New York Independent System Operator, also referred to as RTOs ISO New England Inc. Investment Tax Credit January 2015 Drop Down Assets The Laredo Ridge, Tapestry and Walnut Creek projects, which were sold to NRG Yield, Inc. on January 2, 2015 kWh LaGen LIBOR LSE LTIPs LTSA MAAC Kilowatt-hour Louisiana Generating LLC London Inter-Bank Offered Rate Load Serving Entities Collectively, the NRG LTIP and the NRG GenOn LTIP Long-Term Service Agreement Mid-Atlantic Area Council March 2017 Drop Down Assets (i) 16% interest in the Agua Caliente solar project and (ii) NRG's interests in seven utility- scale solar projects located in Utah, which were sold to NRG Yield, Inc. on March 27, 2017 Marsh Landing Mass Market MATS MDE MDth Merger Merger Agreement NRG Marsh Landing, LLC (formerly known as GenOn Marsh Landing, LLC) Residential and small commercial customers Mercury and Air Toxics Standards promulgated by the EPA Maryland Department of the Environment Thousand Dekatherms The merger completed on December 14, 2012 by NRG and GenOn pursuant to the Merger Agreement The agreement by and among NRG, GenOn and Plus Merger Corporation, dated as of July 20, 2012 Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas June 2014 Drop Down Assets The High Desert, Kansas South and El Segundo Energy Center projects, which were sold to NRG Yield, Inc. on June 30, 2014 4 5 Midwest Generation Midwest Generation, LLC MISO MMBtu MOPR MSU MW MWh MWt NAAQS NEPGA NEPOOL NERC Net Capacity Factor Net Exposure Net Generation NJDEP NOL NOV November 2015 Drop Down Assets November 2017 Drop Down Assets NOx NPDES NPNS NQSO NRC NRG Midcontinent Independent System Operator, Inc. Million British Thermal Units Minimum Offer Price Rule Market Stock Unit Megawatts Saleable megawatt hour net of internal/parasitic load megawatt-hour Megawatts Thermal Equivalent National Ambient Air Quality Standards New England Power Generators Association New England Power Pool North American Electric Reliability Corporation The net amount of electricity that a generating unit produces over a period of time divided by the net amount of electricity it could have produced if it had run at full power over that time period. The net amount of electricity produced is the total amount of electricity generated minus the amount of electricity used during generation Counterparty credit exposure to NRG, net of collateral The net amount of electricity produced, expressed in kWhs or MWhs, that is the total amount of electricity generated (gross) minus the amount of electricity used during generation New Jersey Department of Environmental Protection Net Operating Loss Notice of Violation 75% of the Class B interests of NRG Wind TE Holdco, which owns a portfolio of 12 wind facilities totaling 814 net MW A 38 MW solar portfolio primarily comprised of assets from SPP funds, in addition to other projects developed by NRG, which were sold to NRG Yield, Inc. on November 1, 2017 Nitrogen Oxides National Pollutant Discharge Elimination System Normal Purchase Normal Sale Non-Qualified Stock Option U.S. Nuclear Regulatory Commission NRG Energy, Inc. NRG GenOn LTIP NRG 2010 Stock Plan for GenOn Employees (formerly the GenOn Energy, Inc. 2010 Omnibus Incentive Plan, which was assumed by NRG in connection with the Merger) NRG LTIP NRG Energy, Inc. Amended and Restated Long-Term Incentive Plan NRG Wind TE Holdco NRG Wind TE Holdco LLC NRG Yield Reporting segment including the projects owned by NRG Yield, Inc. NRG Yield 2019 Convertible Notes $345 million aggregate principal amount of 3.50% Convertible Senior Notes due 2019 issued by NRG Yield, Inc. NRG Yield 2020 Convertible Notes $287.5 million aggregate principal amount of 3.25% Convertible Notes due 2020 issued by NRG Yield, Inc. NRG Yield, Inc. NRG Yield Operating 2024 Senior Notes NRG Yield Operating 2026 Senior Notes NRG Yield LLC NRG Yield, Inc., the owner of 53.7% of the economic interests of NRG Yield LLC with a controlling interest, and issuer of publicly held shares of Class A and Class C common stock NRG Yield Operating LLC's $500 million of 5.375% unsecured senior notes due 2024 NRGY Yield Operating LLC's $350 million of 5.00% unsecured senior notes due 2026 NRG Yield LLC, which owns, through its wholly owned subsidiary, NRG Yield Operating LLC, all of the assets set forth in the NRG Yield segment NSPS NSR New Source Performance Standards New Source Review 6 Nuclear Decommissioning Trust Fund Nuclear Waste Policy Act NYAG NYISO NYMEX NYSPSC OCI/OCL Peaking PER Petition Date Pipeline PJM PPA PSD PSU PTC PUCT PUHCA PURPA QF RCRA Reliant Energy REMA Restructuring Support Agreement Retail Revolving Credit Facility RFP RGGI RMR ROFO ROFO Agreement RPM RPS RPSU RPV Holdco RSU RTO NRG's nuclear decommissioning trust fund assets, which are for the Company's portion of the decommissioning of the STP, units 1 & 2 U.S. Nuclear Waste Policy Act of 1982 State of New York Office of Attorney General New York Independent System Operator New York Mercantile Exchange New York State Public Service Commission Other Comprehensive Income/(Loss) Units expected to satisfy demand requirements during the periods of greatest or peak load on the system Peak Energy Rent June 14, 2017 Projects that range from identified lead to shortlisted with an offtake, and represents a lower level of execution certainty PJM Interconnection, LLC Power Purchase Agreement Prevention of Significant Deterioration Performance Stock Unit Production Tax Credit Public Utility Commission of Texas Public Utility Holding Company Act of 2005 Public Utility Regulatory Policies Act of 1978 Qualifying Facility under PURPA Resource Conservation and Recovery Act of 1976 Reliant Energy Retail Services, LLC NRG REMA LLC, which leases a 100% interest in the Shawville generating facility and 16.7% and 16.5% interests in the Keystone and Conemaugh generating facilities, respectively Restructuring Support and Lock-Up Agreement, dated as of June 12, 2017 and as amended on October 2, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, and subsidiaries signatory thereto, NRG Energy, Inc. and the noteholders signatory thereto Reporting segment that includes NRG's residential and small commercial businesses which go to market as Reliant, NRG and other brands owned by NRG, as well as Business Solutions The Company's $2.5 billion revolving credit facility, a component of the Senior Credit Facility. The revolving credit facility consists of $289 million of Tranche A Revolving Credit Facility, due 2018, and $2.2 billion of Tranche B Revolving Credit Facility, due 2021 Prior to June 30, 2016, the Company's $2.5 billion revolving credit facility due 2018, a component of the Senior Credit Facility. On June 30, 2016, the Company replaced the Senior Credit Facility, including the Revolving Credit Facility Request For Proposal Regional Greenhouse Gas Initiative Reliability Must-Run Right of First Offer Second Amended and Restated Right of First Offer Agreement by and between NRG Energy, Inc. and NRG Yield, Inc. Reliability Pricing Model Renewable Portfolio Standards Relative Performance Stock Unit NRG RPV Holdco 1 LLC Restricted Stock Unit Regional Transmission Organization 7 RTR SCE SCR SDG&E SEC Securities Act Senior Credit Facility Senior Notes Services Agreement Settlement Agreement September 2016 Drop Down Assets SIFMA SNF SO2 South Central SPP S&P STP STPNOC Tax Act TCPA Term Loan Facility Texas Genco Thermal Business TSA TSR TVA TWCC TWh UNFCCC UPMC U.S. U.S. DOE Renewable Technology Resource Southern California Edison Company Selective Catalytic Reduction Control System San Diego Gas & Electric U.S. Securities and Exchange Commission The Securities Act of 1933, as amended NRG's senior secured credit facility, comprised of the Revolving Credit Facility and the 2023 Term Loan Facility Prior to June 30, 2016, the Company's senior secured facility, comprised of the Term Loan Facility and the Revolving Credit Facility. On June 30, 2016, the Company replaced the Senior Credit Facility with the 2016 Senior Credit Facility As of December 31, 2017, NRG's $4.8 billion outstanding unsecured senior notes consisting of $992 million of 6.25% senior notes due 2022, $733 million of 6.25% senior notes due 2024, $1.0 billion of the 7.25% senior notes due 2026, $1.25 billion of the 6.625% senior notes due 2027, and $870 million of 5.75% senior notes due 2028 NRG provided GenOn with various management, personnel and other services, which include human resources, regulatory and public affairs, accounting, tax, legal, information systems, treasury, risk management, commercial operations, and asset management, as set forth in the services agreement with GenOn A settlement agreement and any other documents necessary to effectuate the settlement among NRG, GenOn, and certain holders of senior unsecured notes of GenOn Americas Generations and GenOn, and certain of GenOn's direct and indirect subsidiaries The CVSR Holdco interest, which was sold to NRG Yield, Inc. on September 1, 2016 Securities Industry and Financial Markets Association Spent Nuclear Fuel Sulfur Dioxide NRG's South Central business, which owns and operates a 3,555 MW portfolio of generation assets consisting of 225 MW Bayou Cove, 430 MW Big Cajun-I, 1,461 MW Big Cajun-II, 1,263 MW Cottonwood and 176 MW Sterlington, and serves a customer base of cooperatives, municipalities and regional utilities under load contracts. Solar Power Partners Standard & Poor's South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest South Texas Project Nuclear Operating Company The Tax Cuts and Jobs Act of 2017 Telephone Consumer Protection Act Prior to June 30, 2016, the Company's $2.0 billion term loan facility due 2018. Texas Genco LLC NRG Yield, Inc.’s thermal business, which consists of thermal infrastructure assets that provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units Transportation Services Agreement Total Shareholder Return Tennessee Valley Authority Texas Westmoreland Coal Co. Terawatt Hour United Nations Framework Convention on Climate Change University of Pittsburgh Medical Center United States of America U.S. Department of Energy 8 Utility-Scale Solar Solar power projects, typically 20 MW or greater in size (on an alternating current basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level VaR VCP VIE WECC WST Value at Risk Voluntary Clean-Up Program Variable Interest Entity Western Electricity Coordinating Council Washington-St. Tammany Electric Cooperative, Inc. Yield Operating NRG Yield Operating LLC 9  PART I Transformation Plan Item 1 — Business General NRG Energy, Inc., or NRG or the Company, is a leading integrated power company built on the strength of a diverse competitive electric generation portfolio and leading retail electricity platform. NRG aims to create a sustainable energy future by producing, selling and delivering electricity and related products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. The Company owns and operates approximately 30,000 MW of generation; engages in the trading of wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG”, "Reliant" and other retail brand names owned by NRG. NRG was incorporated as a Delaware corporation on May 29, 1992. Strategy NRG's strategy is to maximize stockholder value through the safe production and sale of reliable power to its customers in the markets served by the Company, while positioning the Company to provide fully integrated solutions to the end-use energy consumer. This strategy is intended to enable the Company to create and maintain growth at reasonable margins while de-risking the Company in terms of reduced and mitigated exposure to cyclical commodity price risk. At the same time, the Company's relentless commitment to safety for its employees, customers and partners continues unabated. To effectuate the Company’s strategy, NRG is focused on: (i) excellence in operating performance of its existing assets including repowering its power generation assets at premium sites and optimal hedging of generation assets and retail load operations; (ii) serving the energy needs of end-use residential, commercial and industrial customers in competitive markets through multiple brands and channels with a variety of retail energy products and services differentiated by innovative features, premium service, sustainability, and loyalty/affinity programs; (iii) deploying innovative and renewable energy solutions for consumers within its retail businesses; and (iv) engaging in a proactive capital allocation plan focused on achieving the regular return of and on stockholder capital within the dictates of prudent balance sheet management, including reducing consolidated debt and pursuing selective acquisitions, joint ventures, divestitures and investments. NRG is in the process of executing its Transformation Plan, which is designed to significantly strengthen earnings and cost competitiveness, lower risk and volatility, and create significant shareholder value. The Company expects to fully implement the Transformation Plan by the end of 2020 with significant completion by the end of 2018. The three-part, three-year plan is comprised of the following targets and the Company's progress toward achieving such targets are as follows: Operations and cost excellence Cost savings and margin enhancement of $1,065 million recurring, which consists of $590 million of annual cost savings, a $215 million net margin enhancement program, $50 million annual reduction in maintenance capital expenditures, and $210 million in permanent selling, general and administrative expense reduction associated with asset sales. • During the year ended December 31, 2017, the Company realized annual cost savings of $150 million. Portfolio optimization Targeting up to $3.2 billion of asset sale cash proceeds, including divestitures of 6 GWs of conventional generation and businesses (excluding GenOn) and the expected monetization of 100% of its interest in NRG Yield, Inc. and its renewables platform. • On February 6, 2018, NRG announced agreements to sell (i) NRG's full ownership interest in NRG Yield, Inc. and NRG's renewables platform, a 3,440 MW portfolio, for cash of $1.375 billion, subject to certain adjustments; and (ii) NRG's South Central business, a 3,555 MW portfolio of generation assets, for cash of $1.0 billion, subject to certain adjustments. The transactions are subject to customary closing conditions and are expected to close in the second half of 2018. • Also on February 6, 2018, NRG entered into agreements with NRG Yield, Inc. to sell Carlsbad Energy Center, a 527 MW natural gas fired project, for cash of $365 million, subject to certain adjustments, and Buckthorn Solar, a 154 MW solar facility, for cash of $42 million, subject to certain adjustments. • On February 23, 2018, NRG entered into an agreement to sell BETM for $70 million. The transaction is subject to customary closing conditions and is expected to close in the second half of 2018. • In 2017, NRG executed asset sales of 322 MW for aggregate cash of $150 million, which includes sales to NRG Yield, Inc. and sale of Minnesota wind projects to third parties. Capital structure and allocation enhancement A prioritized capital allocation strategy that targets a reduction in consolidated debt from approximately $19.5 billion ($18 billion net debt) to approximately $6.5 billion ($6 billion net debt). Following the completion of the contemplated asset sales, the Company expects approximately $5.3 billion in excess cash to be available for allocation through 2020, after achieving its targeted 3.0x net debt / Adjusted EBITDA corporate credit ratio. • During 2017, NRG reduced its net corporate debt by $604 million. • Expected reduction in non-recourse debt related to the sale of NRG's ownership in NRG Yield, Inc. and the NRG renewables platform and the sales of Carlsbad Energy Center and Buckthorn Solar, which represented $7.1 billion as of December 31, 2017. Working Capital and Costs to Achieve The Company expects to realize (i) $370 million of non-recurring working capital improvements through 2020, and (ii) approximately $290 million one-time costs to achieve. • During 2017, NRG realized $221 million of working capital improvements and $44 million of one-time costs to achieve. 10 11 Business Overview As of December 31, 2017, the Company’s core businesses include (i) wholesale conventional generation, (ii) retail electricity for residential and commercial, including personal power solutions and Business Solutions, which includes C&I customers and other distributed and reliability products (included in the Retail segment, effective in January 2017), (iii) contracted generation owned by NRG Yield, Inc. (included in the NRG Yield segment) and (iv) renewable utility scale and distributed generation assets that are constructed or in development and that are not otherwise owned by NRG Yield, Inc. (included in the Renewables segment). On June 14, 2017, NRG deconsolidated GenOn for financial reporting purposes as a result of the GenOn bankruptcy filings. Generation The Company’s wholesale power generation business includes plant operations, commercial operations, EPC, energy services and other critical related functions. In addition to the traditional functions, the wholesale power generation business also includes NRG’s conventional distributed generation business, consisting of reliability, combined heat and power and large- scale distributed generation. The wholesale generation business is capital-intensive and commodity-driven with numerous industry participants that compete on the basis of the location of their plants, fuel mix, plant efficiency and the reliability of the services offered. The Company has a diversified power generation portfolio, with approximately 28,000 MW of fossil fuel and nuclear generation capacity at 51 plants as of December 31, 2017. The Company's power generation assets are diversified by fuel-type, dispatch level and region, which helps mitigate the risks associated with fuel price volatility and market demand cycles. NRG's U.S. baseload and intermediate facilities provide the Company with a significant source of cash flow, while its peaking facilities provide NRG with opportunities to capture significant upside potential that can arise during periods of high demand, which typically drive higher energy prices. As of December 31, 2017, less than 25% of the Company's consolidated operating revenues were derived from coal-fired operating assets. As noted above, the Company expects to sell its 3,555 MW South Central business in the second half of 2018. Wholesale power generation is a regional business that is currently highly fragmented and diverse in terms of industry structure. As such, there is a wide variation in terms of the capabilities, resources, nature and identities of the companies the Company competes with depending on the market. Competitors include regulated utilities, municipalities, cooperatives, other independent power producers, and power marketers or trading companies, including those owned by financial institutions. Many of the Company's generation assets, however, are located within densely populated areas that tend to have higher wholesale pricing as a result of relatively favorable local supply-demand balance. The Company has generation assets located in or near major metropolitan areas. The Company believes that its extensive generation portfolio provides asset optimization opportunities. The Company currently has over 500 MW targeted for repowering initiatives, all of which are under development or construction. In addition, the Company evaluates opportunities for new generation, on both a merchant and contracted basis. Retail Retail provides energy and related services to residential, industrial and commercial consumers through various brands and sales channels across the U.S. In 2017, Retail delivered approximately 63 TWhs and served approximately 2.9 million customers. Retail's results make it one of the largest competitive energy retailers in the U.S. The majority of Retail's sales come in the competitive retail energy markets of Texas, Pennsylvania, Connecticut, Delaware, Illinois, Maryland, Massachusetts, New Jersey, New York and Ohio, as well as the District of Columbia. Retail's brands collectively are the largest providers of electricity in Texas. Residential and small commercial (Mass Market) consumers make purchase decisions based on a variety of factors, including price, customer service, brand, product choices and value-added features. These consumers purchase products through a variety of sales channels, including direct sales, call centers, websites, brokers and brick-and-mortar stores. Through its broad range of service offerings and value propositions, Retail is able to attract, retain, and increase the value of its customer relationships. Retail's brands are recognized for exemplary customer service, innovative smart energy and technology product offerings and environmentally friendly solutions. Included in Retail is the Company's Business Solutions group, which includes demand response, commodity sales, energy efficiency and energy management solutions. An integrated provider of supply and distributed energy resources, Business Solutions focuses on distributed products and services as businesses seek greater reliability, cleaner power or other benefits that they cannot obtain from the grid. These solutions include system power, distributed generation, solar and wind products, carbon management and specialty services, backup generation, storage and distributed solar, demand response and energy efficiency and advisory services. In providing on-site energy solutions, the Company often benefits from its ability to supply energy products from its wholesale generation portfolio to commercial and industrial retail customers. In 2017, Business Solutions delivered approximately 21 TWhs of electricity and managed approximately 1,500 MWs of demand response positions across its portfolio. Renewables and NRG Yield As described above, NRG expects to sell its Renewables operating and development platform and its full ownership interest in NRG Yield, Inc. in the second half of 2018. The following description reflects the historical view of these businesses as a part of NRG’s business strategy through its announcement of the Transformation Plan in 2017. Renewables The Company’s renewables business focuses on the acquisition, development and operation and maintenance of utility scale wind and solar, community solar and distributed solar generation assets as well as the management and operations of the renewable generation assets owned by NRG Yield, Inc. In 2017, the Company acquired 209 MW of utility scale solar and wind projects and 82 MW of distributed generation and community solar projects that are currently under development or in operation across three states. The renewables business has in-house expertise that covers the full spectrum of development capabilities to execute on utility, distributed generation, and community solar projects. The asset management and operations and maintenance groups within the renewables business manage a portfolio of wind and solar assets across 27 states, serving as the primary commercial asset manager on the vast majority of assets owned by NRG and NRG Yield, Inc. In addition, the operations and maintenance group self-performs plant operations on 2,689 MW of the consolidated fleet of assets owned by NRG and NRG Yield, Inc. and 224 MW of assets owned by third parties. The utility wind and solar generation business targets strategic partnerships with utilities, municipalities and large national corporations for offsite wind and solar solutions. The distributed solar business targets partnerships with companies, municipalities, schools and communities to provide on-site and virtual net metering off-site renewable generation. The community solar business targets relationships with companies and municipalities as well as residential homeowners to provide off-site solar generation under community solar regulations and tariffs. In addition to assets in operation, as of December 31, 2017, the Company held a backlog of in-construction, contracted and awarded projects of 1,500 MW, and a pipeline of 5,742 MW across the utility, community solar and distributed solar renewables markets. The renewables business also competes for new generation opportunities through both RFPs and bilateral solicitations. The renewables business selects markets and projects based on resource relative to the value of the power, while seeking to make use of NRG capabilities in a competitive landscape. The number and type of competitors vary based on location, generation type, project size and counterparty. The renewables business competes with traditional utilities as well as companies that provide products and services in the downstream solar and wind energy value chains. NRG Yield NRG Yield, Inc. is a publicly-traded, dividend growth-oriented company that has historically served as the primary vehicle through which NRG owns, operates and acquires diversified contracted renewable and conventional generation and thermal infrastructure assets. As of December 31, 2017, NRG owns a 55.1% voting interest in the outstanding common stock of NRG Yield, Inc. and receives distributions from NRG Yield LLC through its 46.3% ownership of Class B and Class D units. NRG Yield, Inc.’s contracted generation portfolio collectively represents 5,118 net MW as of December 31, 2017. Each of the assets sells most of its output pursuant to long-term, fixed-price offtake agreements with creditworthy counterparties. NRG Yield, Inc. also owns thermal infrastructure assets with an aggregate steam and chilled water capacity of 1,319 net MWt and electric generation capacity of 123 net MW. These thermal infrastructure assets provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units in multiple locations, principally through long-term contracts or pursuant to rates regulated by state utility commissions. 12 13 GenOn Chapter 11 Cases NRG Operations The NRG businesses described above are supported through the NRG operational infrastructure, which begins with the Company’s asset fleet and the associated commercial and retail operations. The images below illustrate NRG's U.S. power generation, net capacity and retail capabilities as of December 31, 2017: As disclosed in Item 15 - Note 1, Nature of Business, to the Consolidated Financial Statements, on June 14, 2017, or the Petition Date, GenOn, along with GenOn Americas Generation and certain of their directly and indirectly-owned subsidiaries, or collectively the GenOn Entities, filed voluntary petitions for relief under Chapter 11, or the Chapter 11 Cases, of the U.S. Bankruptcy Code, or the Bankruptcy Code, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, or the Bankruptcy Court. GenOn Mid-Atlantic, as well as its consolidated subsidiaries, REMA and certain other subsidiaries, did not file for relief under Chapter 11. As a result of the bankruptcy filings and beginning on June 14, 2017, GenOn and its subsidiaries were deconsolidated from NRG’s consolidated financial statements. NRG recorded its investment in GenOn under the cost method with an estimated fair value of zero. NRG determined that this disposal of GenOn and its subsidiaries is a discontinued operation; and, accordingly, the financial information for all historical periods has been recast to reflect GenOn as a discontinued operation. In connection with the disposal, NRG recorded a loss on deconsolidation of $208 million during the quarter ended June 30, 2017, which is included within the total loss from discontinued operations of $789 million for the year ended December 31, 2017. See Note 3, Discontinued Operations, Acquisitions and Dispositions, for more information. In addition, upon GenOn's emergence from bankruptcy, the Company will recognize an estimated $9.5 billion worthless stock deduction for tax purposes. On June 29, 2017, the GenOn Entities filed the initial plan of reorganization and the disclosure statement with the Bankruptcy Court consistent with the Restructuring Support Agreement. On September 18, 2017 and October 2, 2017, the GenOn Entities filed amendments to the plan of reorganization and the disclosure statement which primarily provided the GenOn Entities with the flexibility to complete sales of certain assets pursuant to the amended plan of reorganization and removed the GenOn Entities' requirement to conduct a rights offering in connection with the GenOn Entities' exit financing. On October 31, 2017, the GenOn Entities announced that they entered into a Consent Agreement with certain holders of GenOn’s Senior Notes and GenOn Americas Generation's Senior Notes, collectively, the Consenting Holders, whereby the GenOn Entities and the Consenting Holders agreed to extend the milestones in the Restructuring Support Agreement, by which the plan of reorganization must become effective, or the Effective Date. Specifically, the Consent Agreement extended the Effective Date milestone to June 30, 2018 or September 30, 2018, if regulatory approvals are still pending, or the Extended Effective Dates. On December 12, 2017, the Bankruptcy Court entered an order confirming the plan of reorganization, and effective December 12, 2017, GenOn and NRG entered into agreements concerning (i) timeline and transition, (ii) cooperation and co- development matters, (iii) post-employment and retiree health and welfare benefits and pension benefits, (iv) tax matters, and (v) intercompany balances, consistent with the Restructuring Support Agreement, which among other things, provide for the transition of GenOn to a standalone enterprise, resolution of substantial intercompany claims between GenOn and NRG, and the allocation of certain costs and liabilities between GenOn and NRG. The principal terms of these agreements are described further in Note 3, Discontinued Operations, Acquisitions and Dispositions. On December 12, 2017, the Bankruptcy Court also entered an order giving effect to the Consent Agreement. 14 15 The following table summarizes NRG's global generation portfolio as of December 31, 2017: Commercial Operations Overview Generation Type Natural gas(g) Coal Oil Nuclear Wind(h) Utility Scale Solar Distributed Solar Total generation capacity(i) Capacity attributable to noncontrolling interest(i) Total net generation capacity Global Generation Portfolio(a)(b) (In MW) Generation Gulf Coast(j) East/West (c) 4,939 7,464 Renewables (d)(k) — NRG Yield (e)(k) Other(f)(k) — 1,878 5,114 — 1,136 — — — 3,870 3,642 — — — — 13,714 12,451 — 13,714 — 12,451 — — — 648 738 179 1,565 (685) 880 — 190 — 2,206 921 52 5,247 (2,359) 2,888 — — — — — 114 114 — 114 Total Global 14,281 8,984 3,832 1,136 2,854 1,659 345 33,091 (3,044) 30,047 (a) All Utility Scale Solar and Distributed Solar facilities are described in MW on an alternating current basis. MW figures provided represent nominal summer net MW capacity of power generated as adjusted for the Company's owned or leased interest excluding capacity from inactive/mothballed units. (b) GenOn, which represented 16,423 MW of global generation at December 31, 2016, was deconsolidated from NRG for financial reporting purposes on June 14, 2017. (c) Includes International. (d) Includes Distributed Solar capacity from assets held by DGPV Holdco 1, DGPV Holdco 2 and DGPV Holdco 3. (e) Does not include NRG Yield, Inc.'s thermal converted (MWt) capacity, which is part of the NRG Yield operating segment. (f) The Distributed Solar figure within "Other" includes the aggregate production capacity of installed and activated residential solar energy systems. Also includes capacity from operating portfolios of residential solar assets held by RPV Holdco. (g) Natural gas generation does not include 51 MW related to the Miramar and El Cajon sites which were part of the San Diego Combustion Turbines and retired on January 1, 2017, 106 MW related to Encina Unit 1 which was deactivated on March 31, 2017 and 371 MWs related to Greens Bayou 5 which was mothballed on May 29, 2017 following ERCOT's termination of the RMR agreement. Greens Bayou 5 was retired in January 2018. (h) In 2017 and 2018, NRG sold 111 and 10 MWs, respectively, to third parties related to certain Minnesota wind assets. (i) NRG Yield's total generation capacity includes 6 MWs for noncontrolling interest for Spring Canyon II and III. NRG Yield's total generation capacity net of this noncontrolling interest was 5,241 MWs. (j) On February 6, 2018, NRG announced the sale of its South Central business, which owns and operates a 3,555 MW portfolio of generation assets in Gulf Coast. NRG will lease back the 1,263 MW Cottonwood facility. (k) On February 6, 2018, NRG announced the sale of its full ownership in NRG Yield, Inc. and its Renewables operating and development platform, which represents 3,440 MW. NRG's portfolio diversification and commercial operations hedging strategy provides the Company with reliable future cash flows. NRG has hedged a portion of its coal and nuclear capacity with decreasing hedge levels through 2021. In addition, NRG's capacity revenues not only enhance the reliability of future cash flows but are not correlated to natural gas prices. As of December 31, 2017, the Company had purchased fuel forward under fixed price contracts, with contractually-specified price escalators, for approximately 41% of its expected coal requirement from 2018 to 2021. The Company enters into additional hedges when it believes market conditions are favorable. The Company also has the advantage of being able to supply its retail businesses with its own generation, which can reduce the need to sell and buy power from other institutions and intermediaries, resulting in lower transaction costs and credit exposures. This combination of generation and retail allows for a reduction in actual and contingent collateral, through offsetting transactions and by reducing the need to hedge the retail power supply through third parties. The generation and retail combination also provides stability in cash flows, as changes in commodity prices generally have offsetting impacts between the two businesses. The offsetting nature of generation and retail, in relation to changes in market prices, is an integral part of NRG's goal of providing a reliable source of future cash flow for the Company. When developing new renewable and conventional power generation facilities, NRG typically secures long-term PPAs, which insulate the Company from commodity market volatility and provide future cash flow stability. These PPAs are typically contracted with high credit quality local utilities and typically have durations from 10 years to as much as 25 years. NRG seeks to maximize profitability and manage cash flow volatility through the marketing, trading and sale of energy, capacity and ancillary services into spot, intermediate and long-term markets and through the active management and trading of emissions allowances, fuel supplies and transportation-related services. The Company's principal objectives are the realization of the full market value of its asset base, including the capture of its extrinsic value, the management and mitigation of commodity market risk and the reduction of cash flow volatility over time. NRG enters into power sales and hedging arrangements via a wide range of products and contracts, including PPAs, fuel supply contracts, capacity auctions, natural gas derivative instruments and other financial instruments. In addition, because changes in power prices in the markets where NRG operates are generally correlated to changes in natural gas prices, NRG uses hedging strategies that may include power and natural gas forward sales contracts to manage the commodity price risk primarily associated with the Company's coal and nuclear generation assets. The objective of these hedging strategies is to stabilize the cash flow generated by NRG's portfolio of assets. In addition to power sales and hedging arrangements, NRG trades electric power, natural gas and related commodity and financial products, including forwards, futures, options and swaps. The Company seeks to generate profits from volatility in the price of electricity, capacity, fuels and transmission congestion by buying and selling contracts in wholesale markets under guidelines approved by the Company's risk management committee. Coal and Nuclear Operations The following table summarizes NRG's U.S. coal and nuclear capacity and the corresponding revenues and average natural gas prices and positions resulting from coal and nuclear hedge agreements extending beyond December 31, 2017, and through 2021 for the Company's Gulf Coast region: Gulf Coast 2018 2019 2020 2021 Annual Average for 2018-2021 Net Coal and Nuclear Capacity (MW) (a) Forecasted Coal and Nuclear Capacity (MW) (b) Total Coal and Nuclear Sales (GWh) (c) Percentage Coal and Nuclear Capacity Sold Forward (d) Total Forward Hedged Revenues (e) Weighted Average Hedged Price ($ per MWh) (e) Average Equivalent Natural Gas Price ($ per MMBtu) (e) Gross Margin Sensitivities (Dollars in millions unless otherwise stated) 6,250 4,558 33,394 6,250 4,402 8,203 6,250 4,303 7,348 6,250 4,114 7,977 6,250 4,344 14,231 84% 21% 19% 22% 37% $ 1,399 $ 41.90 $ 3.17 $ $ $ $ 422 $ 399 $ 429 51.47 $54.36 $53.74 4.47 $ 4.79 $ 5.01 134 $ 136 $ 138 $ $ $ $ $ $ $ — — — — — — — Gas Price Sensitivity Up $0.50/MMBtu on Coal and Nuclear Units $ 5 Gas Price Sensitivity Down $0.50/MMBtu on Coal and Nuclear Units $ — $ (150) $ (148) $ (126) Heat Rate Sensitivity Up 1 MMBtu/MWh on Coal and Nuclear Units Heat Rate Sensitivity Down 1 MMBtu/MWh on Coal and Nuclear Units $ $ 57 (38) $ $ 90 (74) $ $ 94 (78) $ $ 96 (79) (a) Net coal and nuclear capacity represents nominal summer net MW capacity of power generated as adjusted for the Company's current ownership position excluding capacity from inactive/mothballed units, see Item 2 - Properties for units scheduled to be deactivated. (b) Forecasted generation dispatch output (MWh) based on forward price curves as of December 31, 2017, which is then divided by number of hours in a (c) given year to arrive at MW capacity. The dispatch takes into account planned and unplanned outage assumptions. Includes amounts under power sales contracts and natural gas hedges. The forward natural gas quantities are reflected in equivalent GWh based on forward market implied heat rate as of December 31, 2017, and then combined with power sales to arrive at equivalent GWh hedged. The coal and nuclear sales include swaps and delta of options sold which is subject to change. For detailed information on the Company's hedging methodology through use of derivative instruments, see discussion in Item 15 - Note 5, Accounting for Derivative Instruments and Hedging Activities, to the Consolidated Financial Statements. Includes inter-segment sales from the Company's wholesale power generation business to the retail business. (d) Percentage hedged is based on total coal and nuclear sales as described in (c) above divided by the forecasted coal and nuclear capacity. (e) Represents U.S. coal and nuclear sales, including energy revenue and demand charges. 16 17 The following table summarizes NRG's U.S. coal capacity and the corresponding revenues and average natural gas prices and positions resulting from coal hedge agreements extending beyond December 31, 2017 and through 2021 for the East/West region: East/West 2018 2019 2020 2021 Annual Average for 2018-2021 Net Coal Capacity (MW) (a) Forecasted Coal Capacity (MW) (b) Total Coal Sales (GWh) (c) Percentage Coal Capacity Sold Forward (d) Total Forward Hedged Revenues (e) Weighted Average Hedged Price ($ per MWh) (e) Average Equivalent Natural Gas Price ($ per MMBtu) (e) Gross Margin Sensitivities Gas Price Sensitivity Up $0.50/MMBtu on Coal Units Gas Price Sensitivity Down $0.50/MMBtu on Coal Units Heat Rate Sensitivity Up 1 MMBtu/MWh on Coal Units Heat Rate Sensitivity Down 1 MMBtu/MWh on Coal Units (Dollars in millions unless otherwise stated) 3,267 1,579 12,520 3,267 1,456 1,521 3,267 1,258 644 3,267 881 46 3,267 1,294 3,683 91% 12% 6% 1% 27% $ 408 $ 46 $ 20 $ 1 $ $ 32.60 $ 30.57 $ 30.68 $ — $ $ 2.76 $ 2.84 $ 2.73 $ — $ $ $ $ $ 47 (36) 31 (23) $ $ $ $ 113 (96) 66 (59) $ $ $ $ 114 (91) 64 (56) $ $ $ $ 118 (71) 66 (49) $ $ $ $ — — — — — — — (a) Net coal capacity represents nominal summer net MW capacity of power generated as adjusted for the Company's current ownership position excluding capacity from inactive/mothballed units, see Item 2 - Properties for units scheduled to be deactivated. (b) Forecasted generation dispatch output (MWh) based on forward price curves as of December 31, 2017, which is then divided by number of hours in a given year to arrive at MW capacity. The dispatch takes into account planned and unplanned outage assumptions. (c) Includes amounts under power sales contracts and natural gas hedges. The forward natural gas quantities are reflected in equivalent GWh based on forward market implied heat rate as of December 31, 2017, and then combined with power sales to arrive at equivalent GWh hedged. The coal sales include swaps and delta of options sold which is subject to change. For detailed information on the Company's hedging methodology through use of derivative instruments, see discussion in Item 15 - Note 5, Accounting for Derivative Instruments and Hedging Activities, to the Consolidated Financial Statements. Includes inter-segment sales from the Company's wholesale power generation business to the retail business. (d) Percentage hedged is based on total coal sales as described in (c) above divided by the forecasted coal capacity. (e) Represents U.S. coal sales, including energy revenue and demand charges, excluding revenues derived from capacity auctions. Capacity and Other Contracted Revenue Sources NRG's revenues and cash flows benefit from capacity/demand payments and other contracted revenue sources, originating from market clearing capacity prices, Resource Adequacy contracts, tolling arrangements, PPAs and other long-term contractual arrangements: • Capacity auctions — The Company's largest sources of capacity revenues are capacity auctions in PJM, ISO-NE, and NYISO. Both ISO-NE and PJM operate a pay-for-performance model where capacity payments are modified based on real-time performance, where NRG's actual revenues will be the combination of revenues based on the cleared auction MWs plus the net of any over- and under-performance of NRG's fleet. In addition, MISO has an annual auction, known as the Planning Resource Auction, or PRA. The Gulf Coast assets situated in the MISO market may participate in this auction. • Resource adequacy and bilateral contracts — In California, there is a resource adequacy requirement that is primarily satisfied through bilateral contracts. Such bilateral contracts are typically short-term resource adequacy contracts. When bilateral contracting does not satisfy the resource adequacy need, such shortfalls can be addressed through procurement tools administered by the CAISO, including the capacity procurement mechanism or reliability must-run contracts. In addition, NRG earns demand payments from its long-term full-requirements load contracts with nine Louisiana distribution cooperatives, which expire in 2025. Demand payments from the current long-term contracts are tied to summer peak demand and provide a mechanism for recovering a portion of the costs associated with new or changed environmental laws or regulations. In Texas, capacity and contracted revenues are through bilateral contracts with load serving entities. • Long-term PPAs — Output from the majority of renewable energy assets and certain conventional energy plants is sold through long-term PPAs and tolling agreements to a single counterparty, which is often a utility or commercial customer. Fuel Supply and Transportation NRG's fuel requirements consist of various forms of fossil fuel (including coal, natural gas and oil) and nuclear fuel. The prices of fossil fuels are highly volatile. The Company obtains its fossil fuels from multiple suppliers and through multiple transporters. Although availability is generally not an issue, localized shortages, transportation availability, delays arising from extreme weather conditions and supplier financial stability issues can and do occur. The preceding factors related to the sources and availability of raw materials are fairly uniform across the Company's businesses and fuel products used. Coal — The Company believes it is adequately hedged, using forward coal supply agreements, for its domestic coal consumption for 2018. NRG actively manages its coal requirements based on forecasted generation, market volatility and its inventory on site. As of December 31, 2017, NRG had purchased forward contracts to provide fuel for approximately 41% of the Company's expected requirements from 2018 through 2021, including expected coal inventory draw down. NRG purchased approximately 21 million tons of coal in 2017, almost all of which was Powder River Basin coal. For fuel transport, NRG has entered into various rail and barge transportation and rail car lease agreements with varying tenures that provide for most of the Company's transportation requirements of Powder River Basin coal for the next 4 years. The following table shows the percentage of the Company's coal requirements from 2018 through 2021 that have been purchased forward as of December 31, 2017: 2018 2019 2020 2021 (a) Includes expected coal inventory draw down. Percentage of Company's Requirement (a) 97% 40% 26% —% Natural Gas — NRG operates a fleet of mid-merit and peaking natural gas plants across all its U.S. wholesale regions. Fuel needs are managed on a spot basis, especially for peaking assets, as the Company does not believe it is prudent to forward purchase natural gas for these types of units, the dispatch of which is highly unpredictable. The Company contracts for natural gas storage services as well as natural gas transportation services to deliver natural gas when needed. Nuclear Fuel — STP's owners satisfy their fuel supply requirements by: (i) acquiring uranium concentrates and contracting for conversion of the uranium concentrates into uranium hexafluoride; (ii) contracting for enrichment of uranium hexafluoride; and (iii) contracting for fabrication of nuclear fuel assemblies. Through its proportionate participation in STPNOC, which is the NRC-licensed operator of STP and responsible for all aspects of fuel procurement, NRG is party to a number of long-term forward purchase contracts with many of the world's largest suppliers covering STP's requirements for uranium concentrates with only approximately 25% of STP's requirements outstanding for the duration of the original operating license. Similarly, NRG is party to long-term contracts to procure STP's requirements for conversion and enrichment services and fuel fabrication for the life of the operating license. Since the operating license was renewed for another 20 years in September 2017, STPNOC has begun to review a second phase of fuel purchasing. Retail Operations In 2017, NRG's retail businesses sold electricity to residential, commercial and industrial consumers at either fixed, indexed or variable prices. Residential and smaller commercial consumers typically contract for terms ranging from one month to five years while industrial contracts are often between one year and five years in length. In 2017, NRG's retail businesses sold approximately 63 TWhs of electricity. In any given year, the quantity of TWhs sold can be affected by weather, economic conditions and competition. The wholesale supply is typically purchased as the load is contracted from a combination of NRG's wholesale portfolio and other third parties. The ability to choose supply from the market or the Company's portfolio allows for an optimal combination to support and stabilize retail margins. 18 19 Operational Statistics The generation performance by region for the three years ended December 31, 2017, 2016 and 2015, is shown below: The following are industry statistics for the Company's fossil and nuclear plants, as defined by the NERC, and are more fully described below: Annual Equivalent Availability Factor, or EAF — Measures the percentage of maximum generation available over time as the fraction of net maximum generation that could be provided over a defined period of time after all types of outages and deratings, including seasonal deratings, are taken into account. Net Heat Rate — The net heat rate represents the total amount of fuel in BTU required to generate one net kWh provided. Net Capacity Factor — The net amount of electricity that a generating unit produces over a period of time divided by the net amount of electricity it could have produced if it had run at full power over that time period. The net amount of electricity produced is the total amount of electricity generated minus the amount of electricity used during generation. The tables below present these performance metrics for the Company's global power generation portfolio, including leased facilities and those accounted for through equity method investments, for the years ended December 31, 2017 and 2016: Year Ended December 31, 2017 Fossil and Nuclear Plants Net Generation Net Owned Capacity (MW) (MWh) (In thousands) (b) Annual Equivalent Availability Factor Average Net Heat Rate BTU/kWh Net Capacity Factor Generation Gulf Coast East/West Renewables NRG Yield (a) Generation Gulf Coast East/West Renewables NRG Yield (a) 13,714 12,451 1,565 5,247 49,573 13,373 3,836 10,686 89.5% 85.4 94.7 95.5 10,106 10,757 — 8,938 38.9% 12.2 38.2 21.4 Year Ended December 31, 2016 Fossil and Nuclear Plants Net Generation Net Owned Capacity (MW) (MWh) (In thousands) (b) Annual Equivalent Availability Factor Average Net Heat Rate BTU/kWh Net Capacity Factor 14,085 12,519 1,788 3,310 47,827 17,114 3,827 11,230 88.2% 78.3 96.9 96.6 10,028 10,258 — 8,848 38.6% 15.7 35.3 22.6 Generation Gulf Coast Coal Gas Nuclear (a) Total Gulf Coast East/West Coal Oil Gas Total East/West Renewables Solar Wind Total Renewables NRG Yield Solar Wind Gas and Dual-Fuel (b) Total NRG Yield 2017 Net Generation 2016 (In thousands of MWh) 2015 28,622 11,442 9,509 49,573 8,407 319 4,647 13,373 1,740 2,096 3,836 1,248 5,597 3,841 10,686 25,197 13,071 9,559 47,827 11,096 318 5,700 17,114 1,634 2,193 3,827 1,281 6,010 3,939 11,230 29,301 16,288 8,573 54,162 19,155 567 4,909 24,631 1,027 2,281 3,308 1,332 4,479 4,731 10,542 (a) MWh information reflects the Company's undivided interest in total MWh generated by STP. (b) Gas and Dual-Fuel includes thermal heating and chilled water generation as well as assets contracted under tolling agreements. (a) NRG Yield includes thermal generation. (b) Net generation excludes equity method investments. 20 21 Segment Review The Company's segment structure reflects how management currently makes financial decisions and allocates resources. Effective January 2017, the Company's businesses are segregated as follows: Generation , which includes generation, international and BETM; Retail which includes Mass customers and Business Solutions, which includes C&I customers and other distributed and reliability products; Renewables, which includes solar and wind assets, excluding those in NRG Yield; NRG Yield; and corporate activities. Intersegment sales are accounted for at market. The Company has recast data from prior periods to reflect changes in reportable segments to conform to the current year presentation. During 2017, NRG Yield acquired several projects totaling 555 MW for cash consideration of approximately $245 million from NRG. These acquisitions were accounted for as transfers of entities under common control and accordingly, all historical periods have been recast to reflect this change. On June 14, 2017, NRG deconsolidated GenOn for financial reporting purposes. The financial information for all historical periods have been recast to present GenOn as discontinued operations within the corporate segment. Revenues The following table contains a summary of NRG's operating revenues by segment for the years ended December 31, 2017, 2016 and 2015, as discussed in Item 15 — Note 18, Segment Reporting, to the consolidated financial statements. Refer to that footnote for additional financial information about NRG's business segments including a profit measure and total assets. In addition, refer to Item 2 — Properties, to the consolidated financial statements for information about facilities in each of NRG's business segments. Generation Retail Renewables NRG Yield Corporate and Eliminations (b) Total Year Ended December 31, 2017 Energy Revenues Capacity Revenues Retail Revenues Mark-to- Market Activities Contract Amortization Other Revenues(a) Total Operating Revenues(b) $ $ 2,636 — 359 554 (1,088) 851 — — 346 (11) $ — $ 6,385 — — 3 (In millions) 37 $ (4) (12) — 218 $ 2,461 $ 1,186 $ 6,388 $ 239 $ $ 14 (1) — (69) — (56) $ 235 — 77 178 (79) 411 $ 3,773 6,380 424 1,009 (957) $ 10,629 (a) Primarily consists of revenues generated by the Thermal business (NRG Yield segment), operation and maintenance revenues and unrealized trading activities, primarily at BETM (Generation segment). (b) Energy revenues include inter-segment sales primarily between Generation and Retail. Year Ended December 31, 2016 Energy Revenues Capacity Revenues Retail Revenues Mark-to- Market Activities Contract Amortization Other Revenues(c) Total Operating Revenues(d) 3,833 Generation 6,335 Retail 406 Renewables 1,035 NRG Yield Corporate and Eliminations (d) (1,097) $ 10,512 Total (c) Primarily consists of revenues generated by the Thermal business (NRG Yield segment), operation and maintenance revenues and unrealized trading $ 3,171 — 369 582 (991) $ 3,131 891 — — 345 (11) $ 1,225 15 (1) (1) (69) — (56) $ 6,336 — — 21 6,357 322 — 44 177 (46) 497 — $ $ $ $ $ $ $ (In millions) (566) $ — (6) — (70) (642) $ activities, primarily at BETM (Generation segment). (d) Energy revenues include inter-segment sales primarily between Generation and Retail. Year Ended December 31, 2015 Energy Revenues Capacity Revenues Retail Revenues(f) Mark-to- Market Activities Contract Amortization Other Revenues(e) Total Operating Revenues(f) 5,179 Generation 6,913 Retail 383 Renewables 968 NRG Yield Corporate and Eliminations(f) (1,115) $ 12,328 Total (e) Primarily consists of revenues generated by the Thermal business (NRG Yield segment), operation and maintenance revenues and unrealized trading $ 4,072 — 356 495 (1,056) $ 3,867 $ 1,027 — — 341 (7) $ 1,361 15 (1) — (54) — (40) $ 6,910 — — (43) 6,867 207 — 30 188 (18) 407 — $ $ $ $ $ $ (In millions) (142) $ 4 (3) (2) 9 (134) $ activities, primarily at BETM (Generation segment). (f) Energy revenues include inter-segment sales primarily between Generation and Retail. Seasonality and Price Volatility Annual and quarterly operating results of the Company's wholesale power generation segments can be significantly affected by weather, including wind resource availability, and energy commodity price volatility. Significant other events, such as the demand for natural gas, interruptions in fuel supply infrastructure and relative levels of hydroelectric capacity can increase seasonal fuel and power price volatility. The preceding factors related to seasonality and price volatility are fairly uniform across the Company's wholesale generation business segments. The sale of electric power to retail customers is also a seasonal business with the demand for power generally peaking during the summer months. As a result, net working capital requirements for the Company's retail operations generally increase during summer months along with the higher revenues, and then decline during off-peak months. Weather may impact operating results and extreme weather conditions could materially affect results of operations. The rates charged to retail customers may be impacted by fluctuations in total power prices and market dynamics like the price of natural gas, transmission constraints, competitor actions, and changes in market heat rates. Market Framework Organized Energy Markets in CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM The majority of NRG's fleet operates in one of the organized energy markets, known as RTOs or ISOs. Each organized market administers day-ahead and real-time centralized bid-based energy and ancillary services markets pursuant to tariffs approved by FERC, or in the case of ERCOT, market rules approved by the PUCT. These tariffs and rules dictate how the energy markets operate, how market participants make bilateral sales with one another, and how entities with market-based rates are compensated. Established prices reflect the value of energy at the specific location and time it is delivered, which is known as the Locational Marginal Price, or LMP. Each market is subject to market mitigation measures designed to limit the exercise of locational market power. These market structures facilitate NRG's sale of power and capacity products at market-based rates. Other than ERCOT, each of the ISO regions also operates a capacity or resource adequacy market that provides an opportunity for generating and demand response resources to earn revenues to offset their fixed costs that are not recovered in the energy and ancillary services markets. The ISOs are also responsible for transmission planning and operations. Gulf Coast NRG's Gulf Coast wholesale power generation business is located in the ERCOT and MISO markets. The ERCOT market is one of the nation's largest and historically fastest growing power markets. ERCOT is an energy only market, and has implemented market rule changes to provide pricing more reflective of higher energy value when operating reserves are scarce or constrained. NRG also operates generation assets that are located within MISO, participating in the MISO day-ahead and real-time energy and ancillary services markets. Additionally, MISO employs a one-year forward resource adequacy construct, in which capacity resources can compete for fixed cost recovery in the capacity auction. NRG continues to provide full requirements service to LSEs, including cooperatives and municipalities in the MISO region. 22 23 East/West Regulatory Matters NRG's generation and demand response assets located in the East region of the U.S. are within the control areas of ISO- NE, NYISO and PJM. Each of the market regions in the East region provides for robust competition in the day-ahead and real- time energy and ancillary services markets. Additionally, the East region receives a significant portion of its revenues from capacity markets in ISO-NE, NYISO and PJM. PJM and ISO-NE use a three-year forward capacity auction, while NYISO uses a month-ahead capacity auction. Capacity market prices are sensitive to design parameters, as well as additions of new capacity. Both ISO-NE and PJM operate a pay-for-performance model where capacity payments are modified based on real-time generator performance. In such markets, NRG’s actual revenues will be the combination of cleared auction prices times the quantity of MWs cleared, plus the net of any over-performance “bonus payments” and any under-performance charges. In both markets, bidding rules allow for the incorporation of a risk premium into generator bids. In the West region, NRG operates a fleet of natural gas fired facilities located entirely within the CAISO footprint. The CAISO operates day-ahead and real-time locational markets for energy and ancillary services, while managing congestion primarily through nodal prices. The CAISO system facilitates NRG's sale of power, ancillary services and capacity products at market-based rates, either within the CAISO's centralized energy and ancillary service markets or bilaterally pursuant to tolling arrangements or other capacity sales with California's LSEs. The CPUC also determines capacity requirements for LSEs and for specified local areas utilizing inputs from the CAISO. Both the CAISO and CPUC rules require LSEs to contract with sufficient generation resources in order to maintain minimum levels of generation within defined local areas. Additionally, the CAISO has independent authority to contract with needed resources under certain circumstances, typically either when LSEs have failed to procure sufficient resources, or system conditions change unexpectedly. Renewables NRG operates a fleet of utility scale and distributed renewable generating assets across the U.S. Many states have implemented their own renewable portfolio standards requiring LSEs to provide a given percentage of their energy sales from renewable resources. As a result, a number of LSEs have entered into long-term PPAs with NRG's utility scale renewable generating facilities. There are examples of states increasing their RPS from initially stated levels, such as California’s 50% RPS by 2030 and Hawaii’s goal of achieving 100% renewables by 2045. In addition, given the cost competitiveness of renewables, LSEs are procuring renewables in excess of their RPS obligations. In December 2015, the U.S. Congress extended the 30% solar ITC so that projects which begin construction in 2016 through 2019 will continue to qualify for the 30% ITC. Projects beginning construction in 2020 and 2021 will be eligible for the ITC at the rates of 26% and 22%, respectively. The same legislation also extended the 10-year wind PTC for wind projects which begin construction in years 2016 through 2019. Wind projects which begin construction in the years 2017, 2018 and 2019 are eligible for PTC at 80%, 60% and 40% of the statutory rate per kWh, respectively. Retail NRG's retail businesses sell energy and related services as well as portable power and battery solutions to customers across the country. In most of the states that have introduced retail competition, NRG's retail businesses competitively offer retail power, natural gas, portable power or other value-enhancing services to end-use customers. Each retail choice state establishes its own retail competition laws and regulations, and the specific operational, licensing, and compliance requirements vary on a state- by-state basis. In the East markets, incumbent utilities currently provide default service and as a result typically serve a majority of residential customers. In Texas, NRG’s retail business activities are subject to standards and regulations adopted by the PUCT and ERCOT, including the requirement for retailers to be certified by the PUCT in order to contract with end-users to sell electricity. A majority of the retail load is in the ERCOT market region and is served by competitive retail suppliers, except certain areas that are served by municipal utilities and electric cooperatives that have not opted into competitive choice. Regulated terms and conditions of default service, as well as any movement to replace default service with competitive services, as is done in ERCOT, can affect customer participation in retail competition. The attractiveness of NRG's retail offerings in each state may be impacted by the rules, regulations, market structure and communication requirements from public utility commissions across the country. As owners of power plants and participants in wholesale and retail energy markets, certain NRG entities are subject to regulation by various federal and state government agencies. These include the CFTC, FERC, NRC and the PUCT, as well as other public utility commissions in certain states where NRG's generating, thermal, or distributed generation assets are located. In addition, NRG is subject to the market rules, procedures and protocols of the various ISO and RTO markets in which it participates. Likewise, certain NRG entities participating in the retail markets are subject to rules and regulations established by the states in which NRG entities are licensed to sell at retail. NRG must also comply with the mandatory reliability requirements imposed by NERC and the regional reliability entities in the regions where NRG operates. NRG's operations within the ERCOT footprint are not subject to rate regulation by FERC, as they are deemed to operate solely within the ERCOT market and not in interstate commerce. These operations are subject to regulation by the PUCT, as well as to regulation by the NRC with respect to NRG's ownership interest in STP. Federal Energy Regulation FERC FERC regulates the transmission and the wholesale sale by public utilities of electricity in interstate commerce under the authority of the FPA. Under existing regulations, FERC determines whether an entity owning a generation facility is an EWG as defined in the PUHCA. FERC also determines whether a generation facility meets the ownership and technical criteria of a QF under PURPA. The transmission of electric energy occurring wholly within ERCOT is not subject to FERC's rate jurisdiction under Sections 203 or 205 of the FPA. Each of NRG's non-ERCOT U.S. generating facilities either qualifies as a QF, or the subsidiary owning the facility qualifies as an EWG. Public utilities are required to obtain FERC's acceptance, pursuant to Section 205 of the FPA, of their rate schedules for the wholesale sale of electricity. Generally all of NRG's non-QF generating and power marketing entities located outside of ERCOT make sales of electricity pursuant to market-based rates, as opposed to traditional cost-of-service regulated rates. Derivatives Regulatory Reforms In the U.S., the CFTC regulates the trading of swaps, futures and many commodities under the Commodity Exchange Act, or CEA. In recent years, there have been a number of reforms to the regulation of the derivatives markets, both in the U.S. and internationally. These regulations, and any further changes thereto, or adoption of additional regulations, including any regulations relating to position limits on futures and other derivatives or margin for derivatives, could negatively impact NRG’s ability to hedge its portfolio in an efficient, cost-effective manner by, among other things, potentially decreasing liquidity in the forward commodity and derivatives markets or limiting NRG’s ability to utilize non-cash collateral for derivatives transactions. Department of Energy's Proposed Grid Resiliency Pricing Rule — On September 29, 2017, the Department of Energy issued a proposed rulemaking titled the "Grid Resiliency Pricing Rule." The rulemaking proposed that FERC take action to reform the ISO/RTO markets to value certain reliability and resiliency attributes of electric generation resources. On October 23, 2017, NRG filed comments encouraging FERC to act expeditiously to modernize energy and capacity markets in a manner compatible with robust competitive markets. On January 8, 2018, FERC terminated the proposed rulemaking and opened a new rulemaking asking each ISO/RTO to address specific questions focused on grid resilience. State Energy Regulation In Texas, NRG's operations within the ERCOT footprint are not subject to rate regulation by FERC, because they operate solely within the ERCOT market. These operations are subject to regulation by the PUCT, as well as to regulation by the NRC with respect to NRG's ownership interest in STP. In New York, NRG's generation subsidiaries are electric corporations subject to "lightened" regulation by the NYSPSC. As such, the NYSPSC exercises its jurisdictional authority over certain non-rate aspects of the facilities, including safety, retirements, and the issuance of debt secured by recourse to NRG's generation assets located in New York. In California, NRG's generation subsidiaries are subject to regulation by the CPUC with regard to certain non-rate aspects of the facilities, including health and safety, outage reporting and other aspects of the facilities' operations. Additionally, the competitiveness of many of NRG's businesses depends on state competition and other policies. 24 25 State Out-Of-Market Subsidy Proposals — Certain states in the areas of the country in which NRG operates, including New Jersey, Ohio and Pennsylvania have considered but have not enacted proposals to provide out-of-market subsidy payments to potentially uneconomic nuclear and fossil generating units. NRG has opposed efforts to provide out-of-market subsidies, and intends to continue opposing them in the future. Nuclear Operations NRG South Texas LP owns 44% of a joint undivided interest in STP. The other owners of STP are the City of Austin, Texas (16%) and the City Public Service Board of San Antonio (40%). STP Nuclear Operating Company, or STPNOC, was founded by the then-owners in 1997 to operate the plant and it is the operator, licensee and holder of the Facility Operating Licenses NPF-76 and NPF-80. STPNOC is a nonstock, nonprofit, nonmember corporation. Each owner of STP appoints a board member (and the three directors then choose a fourth director who also serves as the chief executive officer of STPNOC). A participation agreement establishes an owners' committee with voting interests consistent with ownership interests. As a holder of an ownership interest in STP, NRG South Texas LP is an NRC licensee and is subject to NRC regulation. The NRC license gives the Company the right only to possess an interest in STP but not to operate it. As a possession-only licensee, i.e., non-operating co-owner, the NRC's regulation of NRG South Texas LP is primarily focused on the Company's ability to meet its financial and decommissioning funding assurance obligations. In connection with the NRC license, the Company and its subsidiaries have a support agreement to provide up to $120 million to support operations at STP. Decommissioning Trusts — Upon expiration of the operating licenses for the two generating units at STP, recently extended until 2047 and 2048, respectively, the co-owners of STP are required under federal law to decontaminate and decommission the STP facility. Under NRC regulations, a power reactor licensee generally must pre-fund the full amount of its estimated NRC decommissioning obligations unless it is a rate-regulated utility, or a state or municipal entity that sets its own rates, or has the benefit of a state-mandated non-bypassable charge available to periodically fund the decommissioning trust such that the trust, plus allowable earnings, will equal the estimated decommissioning obligations by the time the decommissioning is expected to begin. NRG South Texas LP, through its 44% ownership interest, is the beneficiary of decommissioning trusts that have been established to provide funding for decontamination and decommissioning of STP. CenterPoint and AEP collect, through rates or other authorized charges to their electric utility customers, amounts designated for funding NRG South Texas LP's portion of the decommissioning of the facility. See also Item 15 — Note 6, Nuclear Decommissioning Trust Fund, to the Consolidated Financial Statements for additional discussion. If the funds from the trusts are ultimately determined to be inadequate to decommission the STP facilities, the original owners of the Company's STP interests, CenterPoint and AEP, each will be required to collect, through their PUCT-authorized non-bypassable rates or other charges to customers, additional amounts required to fund NRG South Texas LP's obligations relating to the decommissioning of the facility. Following the completion of the decommissioning, if surplus funds remain in the decommissioning trusts, those excesses will be refunded to the respective rate payers of CenterPoint or AEP, or their successors. Regional Regulatory Developments NRG is affected by rule/tariff changes that occur in the ISO regions. For further discussion on regulatory developments see Item 15 — Note 23, Regulatory Matters, to the Consolidated Financial Statements. Gulf Coast MISO Revisions to MISO Capacity Construct — On February 28, 2018, FERC issued two orders on MISO’s capacity market design, which together, re-affirm MISO’s existing capacity market structure. FERC also held that, even though there was a period of time between where MISO’s capacity market structure may not have just and reasonable, that FERC exercised its remedial authority not to rerun past auctions. The Company has 30 days to seek an administrative rehearing with FERC. The eventual outcome of this proceeding will affect capacity prices in MISO and the incentive for generators in MISO to sell capacity into neighboring markets. East/West FERC’s Fast-Start Pricing Dockets — On December 28, 2017, notices were published regarding FERC’s initiation of FPA section 206 proceedings for the NYISO, PJM, and SPP to investigate these ISO pricing practices for fast-start generating resources. FERC found that the practices of each ISO regarding the pricing of fast-start resources may be unjust and unreasonable because the practices do not allow prices to reflect the marginal cost of serving load. FERC also terminated its generic rulemaking into these issues. The proceeding is ongoing. The outcome of this proceeding could affect price formation in the respective energy markets. PJM Minimum Offer Price Rule Exemption Appeal — On July 7, 2017, the D.C. Circuit vacated a FERC order from 2013 related to an exemption to the Minimum Offer Price Rule, or MOPR, and remanded the issue back to FERC. On October 23, 2017, PJM re-filed its initial 2012 MOPR. On December 8, 2017, FERC rejected PJM's filing and directed PJM to submit a compliance filing reinstating the MOPR in effect prior to PJM's December 2012 filing. PJM submitted a compliance filing modifying certain PJM tariff sections, retaining the unit-specific exception, which FERC has accepted. Generators’ Complaint on Existing Generation MOPR — On January 9, 2017, NRG, its trade association and other generators filed a joint amendment to the pending complaint seeking to apply the MOPR in the capacity market to existing resources that receive out-of-market subsidies. This filing amends the March 21, 2016 complaint filed by NRG and other companies related to ratepayer-funded subsidies approved by the PUCO. The national trade association sought expedited treatment to implement countermeasures to protect consumers and wholesale power markets from the negative effects of out- of-market subsidies, like the Zero Emission Credit. The complaint is pending at FERC. 2020/2021 PJM Auction Results — On May 23, 2017, PJM announced the results of its 2020/2021 Base Residual Auction. NRG cleared approximately 3,992 MW of Capacity Performance product. NRG’s expected capacity revenues from the Base Residual Auction for the 2020/2021 delivery year are approximately $268 million. The table below provides a detailed description of NRG’s 2020/2021 base residual auction results from May 23, 2017: Zone Cleared Capacity (MW)(a) Price ($/MW-day) Capacity Performance Product COMED EMAAC MAAC Total 3,315 519 158 3,992 $ $ $ 188.12 187.87 86.04 (a) Includes imports. Does not include capacity sold by NRG Curtailment Solutions. PJM Seasonal Capacity Proceeding — On November 17, 2016, PJM proposed to allow winter- and summer-peaking capacity resources to “aggregate” their seasonal capacity into an annual capacity product eligible to participate as Capacity Performance resources. NRG filed comments specifically supporting PJM’s proposal to modify the aggregation rules to allow seasonal capacity resources to aggregate across LDAs and to allow aggregations through RPM auctions. On January 23, 2017, PJM amended its proposal to address questions from FERC. On March 21, 2017, FERC issued a decision accepting PJM's seasonal capacity aggregation filing pursuant to FERC staff's delegated authority, since FERC did not have a quorum at the time. On February 23, 2018, FERC re-affirmed its prior order. Rehearings are pending at FERC. The outcome of this proceeding could have a material impact on future PJM capacity prices. Complaints Related to Extension of Base Capacity — In 2015, FERC approved changes to PJM’s capacity market, which included moving from the Base Capacity product to the higher performance Capacity Performance product over the course of a five year transition. Under this transition, as of the May 2017 BRA, the Base Capacity product will no longer be available. Several parties have filed complaints at FERC seeking to maintain the RPM Base Capacity product for at least one more delivery year or until such time as PJM develops a model for seasonal resources to participate. If the transition is delayed, capacity prices could be materially impacted. The matters are pending at FERC. 26 27 Complaints Regarding Pseudo-Ties for Capacity — On April 6, 2017, Potomac Economics, the market monitor for MISO and NYISO, filed a complaint against PJM regarding the participation of external capacity resources in PJM’s auction. Currently, external resources must enter into a pseudo-tie agreement in order to sell capacity into PJM. The complaint alleges that the pseudo-tie requirement is causing market inefficiencies in PJM, New York and MISO and suggests a new protocol for incorporating external resources into PJM’s markets. In addition, other market participants have filed separate complaints at FERC against MISO or PJM, respectively, for issues resulting from pseudo-tied generators. The complainants argue that the generation owners with pseudo-ties from MISO to PJM are receiving double-charges for congestion. The outcome could impact the PJM, NYISO and MISO capacity markets. Midwest Generation Reactive Power Compensation — On June 21, 2016, FERC issued an order directing Midwest Generation to make a compliance filing setting forth refunds for payments received in violation of its 2004 reactive power settlement or to show cause why it has not violated the settlement. FERC also ordered Midwest Generation to revise its tariff to reflect the costs of units continuing to provide reactive power or show cause why it should not be required to do so. FERC also referred this matter to FERC's Office of Enforcement. On June 30, 2016, Midwest Generation filed a revised tariff, and on July 22, 2016, Midwest Generation made a compliance filing as ordered by FERC. On October 13, 2016, FERC found that Midwest Generation should only be liable for refunds that accrued after bankruptcy on April 1, 2014 through June 30, 2016. On November 16, 2017, Midwest Generation filed its Offer of Settlement, which was approved by FERC on February 22, 2018. In addition, FERC's Office of Enforcement has closed the investigation into Midwest Generation without further action. New England Competitive Auctions with Sponsored Resources Proposal (CASPR) — On January 8, 2018, ISO-NE filed the CASPR proposal which attempts to accommodate state sponsored resources while maintaining competitive market pricing. On January 29, 2018, NRG protested certain aspects of the proposal and also supported ISO-NE’s beginning attempts to address state sponsored resources entering the capacity market. The outcome of this proceeding will potentially affect future capacity market prices. Renewable Technology Resource (RTR) Exemption — In 2014, FERC approved a package of revisions that included a renewables exemption called the RTR Exemption. After FERC denied rehearing, the case was appealed to the D.C. Circuit. After a voluntary remand motion, the Court remanded the case back to FERC. In 2016, FERC issued an order reaffirming its decision. In 2017, a group of generators, including NRG, filed a petition for review with the D.C. Circuit. Briefing is complete. Oral argument is scheduled for April 13, 2018. Challenge to ISO-NE’s Capacity Carry Forward Rule — On February 2, 2018, the D.C. Circuit remanded a FERC order regarding how generators that previously received a seven-year “price lock” should be priced in future auctions, known as the Capacity Carry Forward Rule. The price-lock mechanism permits qualified new resources that clear the auction to receive their first-year clearing price for seven years. Because the underlying orders focused on the implementation of the Capacity Carry Forward Rule, this remand does not implicate the validity of the underlying price-lock. Because several auctions have been held under the existing rules, any subsequent order from FERC could affect future capacity prices in New England, as well as affect the price that non-price locked resources could receive from prior capacity auction. 2021/2022 ISO-NE Auction Results — On February 6, 2018, ISO-NE announced the results of its 2021/2022 forward capacity auction. NRG cleared 1,529 MW at $4.631 kW-month providing expected annualized capacity revenues of $85 million. The 333 MWs at Canal Unit 3, which previously cleared the tenth forward capacity auction with a seven year price lock at a price of $7.03 kW-month for the 2021/2022 deliverability year, are excluded from these results. Massachusetts GHG Regulations — On September 11, 2017, multiple generators, including GenOn Energy, Inc. and the New England Power Generators Association, or NEPGA, filed complaints regarding the Massachusetts GHG regulations with the Superior Court in Massachusetts. The complaint alleges that the final regulation does not demonstrate a lowering of emissions and that the regulation violates the state’s Global Warming Solutions Act law. On January 30, 2018, the Massachusetts Supreme Judicial Court transferred the superior court cases to the Supreme Judicial Court for Suffolk County. At the same time, the Court stayed two pending appeals of siting certificates, one of which is the certificate of NRG’s Canal 3 development. The outcome of the matter may affect generators’ abilities to run their plants without violating environmental regulations. Northern Pass Siting Application — On February 1, 2018, the New Hampshire Site Evaluation Committee denied the application for Northern Pass to cross the state with a 160-mile transmission line from Quebec into southern New Hampshire. The Northern Pass transmission line project had previously been awarded a contract by the State of Massachusetts, which is now in doubt. The addition of 1,000 MW of additional Canadian hydropower associated with Northern Pass would have affected energy and capacity prices. Peak Energy Rent Adjustment Complaint — On September 30, 2016, the New England Power Generators Association, or NEPGA, filed a complaint against ISO-NE asking FERC to find the Peak Energy Rent, or PER, unjust and unreasonable. The PER adjustment reduces capacity payments on days where energy prices exceed a pre-defined level, known as the "PER strike price." On January 9, 2017, FERC granted NEPGA’s complaint requiring a change to the methodology used to calculate the PER strike price. FERC also directed the parties to determine any refunds for PER paid between September 30, 2016 and May 31, 2018. On July 26, 2017, NEPGA filed settlement documents at FERC, which NRG supported. On February 20, 2018, FERC accepted the settlement and directed ISO-NE to submit a compliance filing setting out the PER calculation. New York Independent Power Producers of New York (IPPNY) Complaint — On January 9, 2017, EPSA requested FERC to promptly direct the NYISO to file tariff provisions to address pending market concerns related to out-of-market payments to existing generation in the NYISO. This request was prompted by the ZEC program initiated by the NYSPSC. This request follows IPPNY’s complaint at FERC against the NYISO on May 10, 2013, as amended on March 25, 2014. The generators asked FERC to direct the NYISO to require that capacity from existing generation resources that would have exited the market but for out- of-market payments be mitigated. Failure to implement buyer-side mitigation measures could result in uneconomic entry, which artificially decreases capacity prices below competitive market levels. New York Public Service Commission Retail Energy Market Proceedings — On February 23, 2016, the NYSPSC issued what it refers to as its “Retail Reset” order, or Reset Order, in docket 12-M-0476 et al. Among other things, the Reset Order placed a price cap on energy supply offers and required many retail providers to seek affirmative consent from certain retail customers. Various parties have challenged the NYPSC’s ability to regulate rates charged by competitive suppliers in New York state court. In conjunction with the court challenges, the NYPSC noticed both an evidentiary and a collaborative track to address the functioning of the competitive retail markets. An administrative hearing commenced on November 29, 2017 as part of the evidentiary track, which is ongoing. The outcome of the evidentiary and collaborative processes, combined with the outcome of the appeal of the Reset Order, could affect the viability of the New York retail energy market. CAISO Puente Power Project — On October 5, 2017, the California Energy Commission, or CEC, the agency responsible for permitting the Puente Power Project, issued a statement on behalf of the committee of two Commissioners overseeing the permitting process stating their intention to issue a proposed decision that would deny a permit for the Puente Power Project. On October 16, 2017, NRG filed a motion to suspend the permitting proceeding for at least six months, which was granted on November 3, 2017. During the six month suspension period, which could be extended, NRG will evaluate the progress of a procurement process initiated by SCE to replace the Puente Power Project. Environmental Matters NRG is subject to numerous environmental laws in the development, construction, ownership and operation of projects. These laws generally require that governmental permits and approvals be obtained before construction and during operation of power plants. Federal and state environmental laws historically have become more stringent over time. Future laws may require the addition of emissions controls or other environmental controls or impose restrictions on our operations, which could affect the Company's operations. Complying with environmental laws often involves significant capital and operating expenses, as well as occasionally curtailing operations. NRG decides to invest capital for environmental controls based on the relative certainty of the requirements, an evaluation of compliance options, and the expected economic returns on capital. A number of regulations that may affect the Company are under review by the EPA, including ESPS for GHGs, ash disposal requirements, NAAQS revisions and implementation and effluent limitation guidelines. NRG will evaluate the impact of these regulations as they are revised but cannot fully predict the impact of each until anticipated legal challenges are resolved. Air The CAA and the resulting regulations (as well as similar state and local requirements) have the potential to affect air emissions, operating practices and pollution control equipment required at power plants. Under the CAA, the EPA sets NAAQS for certain pollutants including SO2, ozone, and PM2.5. Many of the Company's facilities are located in or near areas that are classified by the EPA as not achieving certain NAAQS (non-attainment areas). The relevant NAAQS have become more stringent. The Company maintains a comprehensive compliance strategy to address continuing and new requirements. Complying with increasingly stringent air regulations could require the installation of additional emissions control equipment at some NRG facilities or retiring of units if installing such controls is not economic. Significant changes to air regulatory programs affecting the Company are described below. 28 29 Ozone NAAQS — On October 26, 2015, the EPA promulgated a rule that reduces the ozone NAAQS to 0.070 ppm. Challenges to this rule have been stayed at the request of the EPA so that it can evaluate the rule. If the rule is not altered by the EPA and survives legal challenges, this more stringent NAAQS will obligate the states to develop plans to reduce NOx (an ozone precursor), which could affect some of the Company's units. Cross-State Air Pollution Rule — The EPA finalized CSAPR in 2011, which was intended to replace CAIR in January 2012, to address certain states' obligations to reduce emissions so that downwind states can achieve federal air quality standards. In December 2011, the D.C. Circuit stayed the implementation of CSAPR and then vacated CSAPR in August 2012 but kept CAIR in place until the EPA could replace it. In April 2014, the U.S. Supreme Court reversed and remanded the D.C. Circuit's decision. In October 2014, the D.C. Circuit lifted the stay of CSAPR. In response, the EPA in November 2014 amended the CSAPR compliance dates. Accordingly, CSAPR replaced CAIR on January 1, 2015. On July 28, 2015, the D.C. Circuit held that the EPA had exceeded its authority by requiring certain reductions that were not necessary for downwind states to achieve federal standards. Although the D.C. Circuit kept the rule in place, the court ordered the EPA to revise the Phase 2 (or 2017) (i) SO2 budgets for four states including Texas and (ii) ozone-season NOx budgets for 11 states including Maryland, New Jersey, New York, Ohio, Pennsylvania and Texas. On October 26, 2016, the EPA finalized the CSAPR Update Rule, which reduces future NOx allocations and discounts the current banked allowances to account for the more stringent 2008 Ozone NAAQS and to address the D.C. Circuit's July 2015 decision. This rule has been challenged in the D.C. Circuit. The Company believes its investment in pollution controls and cleaner technologies leave the fleet well-positioned for compliance. MATS — In 2012, the EPA promulgated standards (the MATS rule) to control emissions of HAPs from coal and oil-fired electric generating units. The rule established limits for mercury, non-mercury metals, certain organics and acid gases, which had to be met beginning in April 2015 (with some units getting a 1-year extension). In June 2015, the U.S. Supreme Court issued a decision in the case of Michigan v. EPA, and held that the EPA unreasonably refused to consider costs when it determined that it was "appropriate and necessary" to regulate HAPs emitted by electric generating units. The U.S. Supreme Court did not vacate the MATS rule but rather remanded it to the D.C. Circuit for further proceedings. In December 2015, the D.C. Circuit remanded the MATS rule to the EPA without vacatur. On April 25, 2016, the EPA released a supplemental finding that the benefits of this regulation outweigh the costs to address the U.S. Supreme Court's ruling that the EPA had not properly considered costs. This finding has been challenged in the D.C. Circuit. On April 18, 2017, the EPA asked the D.C. Circuit to postpone oral argument that had been scheduled for May 18, 2017 because the EPA is closely reviewing the supplemental finding to determine whether it should reconsider all or part of the rule. On April 27, 2017, the D.C. Circuit granted the EPA's request to postpone the oral argument and hold the case in abeyance. While NRG cannot predict the final outcome of this rulemaking, NRG believes that because it has already invested in pollution controls and cleaner technologies, the fleet is well-positioned to comply with the MATS rule. Clean Power Plan — The attention in recent years on GHG emissions has resulted in federal regulations and state legislative and regulatory action. In October 2015, the EPA finalized the Clean Power Plan, or CPP, addressing GHG emissions from existing EGUs. On February 9, 2016, the U.S. Supreme Court stayed the CPP. The D.C. Circuit heard oral argument on the legal challenges to the CPP in September 2016. At the EPA's request, the D.C. Circuit agreed on April 28, 2017 to hold the case in abeyance. On October 16, 2017, the EPA proposed a rule to repeal the CPP. The Company believes the CPP is not likely to survive. Greenhouse Gas Emissions — NRG emits CO2 and small quantities of other greenhouse gases, or GHGs, when generating electricity at most of its facilities. The graphs presented below illustrate NRG's domestic emissions of CO2e for 2015, 2016 and 2017. A significant majority (>99%) of NRG's emission sources are subject to federal (U.S. EPA) GHG reporting requirements programs. NRG anticipates further reductions in CO2e emissions as the Company modernizes the fleet. From 2016 to 2017, the Company's CO2e emissions decreased from 48 million metric tons to approximately 46 million metric tons, representing a 4% reduction year over year. The primary factor leading to the decreased emissions include reductions in fleet wide annual net generation due to a continued market-driven shift towards increased generation from natural gas over coal. The Company's goal is to reduce CO2e emissions by 50% by 2030, and 90% by 2050, using 2014 as a baseline. The effects from federal, regional or state regulation of GHGs on the Company's financial performance will depend on a number of factors, including the outcome of the legal challenges and actions of the current U.S. presidential administration. Byproducts, Wastes, Hazardous Materials and Contamination In April 2015, the EPA finalized the rule regulating byproducts of coal combustion (e.g., ash and gypsum) as solid wastes under the RCRA. On September 13, 2017, the EPA granted the petition for reconsideration that the Utility Solid Waste Activities Group filed in May 2017. The Company has evaluated the impact of the new rule on the Company's consolidated financial position, results of operations, or cash flows and has accrued its environmental and asset retirement obligations under the rule based on current estimates as of December 31, 2017. Domestic Site Remediation Matters Under certain federal, state and local environmental laws, a current or previous owner or operator of any facility, including an electric generating facility, may be required to investigate and remediate releases or threatened releases of hazardous or toxic substances or petroleum products. NRG may be responsible for property damage, personal injury and investigation and remediation costs incurred by a party in connection with hazardous material releases or threatened releases. These laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended by the Superfund Amendments and Reauthorization Act of 1986, or SARA, impose liability without regard to whether the owner knew of or caused the presence of the hazardous substances, and the courts have interpreted liability under such laws to be strict (without fault) and joint and several. Cleanup obligations can often be triggered during the closure or decommissioning of a facility, in addition to spills during its operations. Further discussions of affected NRG sites can be found in Item 15 — Note 24, Environmental Matters, to the Consolidated Financial Statements. 30 31 Nuclear Waste — The federal government's program to construct a nuclear waste repository at Yucca Mountain, Nevada was discontinued in 2010. Since 1998, the U.S. DOE has been in default of the federal government's obligations to begin accepting spent nuclear fuel, or SNF, and high-level radioactive waste, or HLW, under the U.S. Nuclear Waste Policy Act of 1982, or the Nuclear Waste Policy Act. Owners of nuclear plants, including the owners of STP, had been required to enter into contracts setting out the obligations of the owners and the U.S. DOE, including the fees to be paid by the owners for the U.S. DOE's services to license a spent fuel repository. Effective May 16, 2014, the U.S. DOE stopped collecting the fees. On February 5, 2013, STPNOC entered into a settlement agreement with the U.S. DOE for payment of damages relating to the U.S. DOE's failure to accept SNF and HLW under the Nuclear Waste Policy Act through December 31, 2013, which was extended through an addendum dated January 24, 2014, to December 31, 2016. On December 12, 2016, STPNOC received the federal government's offer of another three-year extension of payment for continued failure to accept SNF and HLW. The proposal was reviewed and accepted. There are no facilities for the reprocessing or permanent disposal of SNF currently in operation in the U.S., nor has the NRC licensed any such facilities. STPNOC currently stores all SNF generated by its nuclear generating facilities in on-site storage pools. Since STPNOC's SNF storage pools do not have sufficient storage capacity for the life of the units, STPNOC is proceeding to construct dry cask storage capability on-site. STPNOC plans to continue to assert claims against the U.S. DOE for damages relating to the U.S. DOE's failure to accept SNF and HLW. Under the federal Low-Level Radioactive Waste Policy Act of 1980, as amended, the state of Texas is required to provide, either on its own or jointly with other states in a compact, for the disposal of all low-level radioactive waste generated within the state. STP's warehouse capacity is adequate for on-site storage until a site in Andrews County, Texas becomes fully operational. Water Clean Water Act — The Company is required under the CWA to comply with intake and discharge requirements, requirements for technological controls and operating practices. As with air quality regulations, federal and state water regulations have become more stringent and imposed new requirements. Once Through Cooling Regulation — In August 2014, EPA finalized the regulation regarding the use of water for once through cooling at existing facilities to address impingement and entrainment concerns. NRG anticipates that more stringent requirements will be incorporated into some of its water discharge permits over the next several years as NPDES permits are renewed. Effluent Limitations Guidelines — In November 2015, the EPA revised the Effluent Limitations Guidelines for Steam Electric Generating Facilities, which would have imposed more stringent requirements (as individual permits were renewed) for wastewater streams from flue gas desulfurization, or FGD, fly ash, bottom ash, and flue gas mercury control. In April 2017, the EPA granted two petitions to reconsider the rule and also administratively stayed some of the deadlines. On September 18, 2017, the EPA promulgated a final rule that (i) postpones the compliance dates to preserve the status quo for FGD wastewater and bottom ash transport water by two years to November 2020 until the EPA completes its next rulemaking and (ii) withdrew the April 2017 administrative stay. The legal challenges have been suspended while the EPA reconsiders and likely modifies the rule. Accordingly, the Company has largely eliminated its estimate of the environmental capital expenditures that would have been required to comply with permits incorporating the revised guidelines. The Company will revisit these estimates after the rule is revised. Regional Environmental Developments New Source Review — In 2007, Midwest Generation received an NOV from the EPA alleging that past work at Crawford, Fisk, Joliet, Powerton, Waukegan and Will County generating stations violated NSR and other regulations. These alleged violations are the subject of litigation described in Item 15 — Note 22, Commitments and Contingencies. Additionally, in April 2013, the Connecticut Department of Energy and Environmental Protection issued four NOVs alleging that past work at oil- fired combustion turbines at the Torrington Terminal, Franklin, Branford and Middletown generating stations violated regulations regarding NSR. Burton Island Old Ash Landfill — In January 2006, NRG's Indian River Power LLC was notified that it may be a potentially responsible party with respect to Burton Island Old Ash Landfill, a historic captive landfill located at the Indian River facility. On October 1, 2007, NRG signed an agreement with DNREC to investigate the site through the Voluntary Clean-up Program, or the VCP. On February 4, 2008, DNREC issued findings that no further action was required in relation to surface water and that a previously planned shoreline stabilization project would satisfactorily address shoreline erosion. The landfill itself required a Remedial Investigation and Feasibility Study to determine the type and scope of any additional required work. DNREC approved the Feasibility Study in December 2012. In January 2013, DNREC proposed a remediation plan based on the Feasibility Study. The remediation plan was approved in October 2013. In December 2015, DNREC approved the Company's remediation design, the Company's Closure Report and the Company's Long Term Stewardship Plan. The cost of completing the work required by the approved remediation plan is consistent with amounts budgeted in early 2016 and remediation was completed in 2017. The estimated cost to comply with the Long-Term Stewardship Plan was added to the liability in December 2016. In addition to the VCP, on May 29, 2008, DNREC requested that NRG's Indian River Power LLC participate in the development and performance of a Natural Resource Damage Assessment at the Burton Island Old Ash Landfill. NRG is currently working with DNREC and other trustees to close out the assessment process. RGGI — The Company operates generating units in Connecticut, Delaware, Maryland, and New York that are subject to RGGI, which is a regional cap and trade system. In 2013, each of these states finalized a rule that reduced and will continue to reduce the number of allowances through 2020. The nine RGGI states re-evaluated the program and published a model rule to further reduce the number of allowances. The revisions being currently contemplated could adversely impact NRG's results of operations, financial condition and cash flows. Texas Regional Haze — On October 17, 2017, the EPA promulgated a final rule creating a Texas-only SO2 cap-and-trade program to address regional haze. The program is scheduled to begin on January 1, 2019. Several of the Company's units in Texas will be affected by this rule. The rule has been challenged by several environmental groups in the Fifth Circuit of the U.S. Court of Appeals. Customers NRG sells to a wide variety of customers. No individual customer accounted for 10% or more of NRG's total revenue in 2017. The Company owns and operates power plants to generate and sell power to wholesale customers such as utilities and other intermediaries. The Company also directly sells to end-use customers in the residential, commercial and industrial sectors. NRG also receives significant revenues from PJM in its capacity as the regional transmission organization for the PJM footprint. Employees As of December 31, 2017, NRG and its consolidated subsidiaries, including NRG Yield, Inc., had 5,940 employees, approximately 24% of whom were covered by U.S. bargaining agreements. During 2017, the Company did not experience any labor stoppages or labor disputes at any of its facilities. Available Information NRG's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through the Company's website, www.nrg.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The Company also routinely posts press releases, presentations, webcasts, sustainability reports and other information regarding the Company on the Company's website. The information posted on the Company's website is not a part of this report. 32 33 Item 1A — Risk Factors Related to NRG Energy, Inc. Risks Related to the Operation of NRG's Business The GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, and NRG is subject to the risks and uncertainties associated with bankruptcy proceedings. On the Petition Date, the GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. GenOn Mid-Atlantic, as well as its consolidated subsidiaries, and REMA, did not file for relief under Chapter 11. NRG is subject to a number of risks and uncertainties associated with the Chapter 11 Cases, which may lead to potential adverse effects on NRG’s business, results of operations, or financial condition. NRG cannot assure you of the outcome of the Chapter 11 Cases. Potential risks to NRG associated with the Chapter 11 Cases include the following: • • • the length of time the GenOn Entities will operate under the Chapter 11 proceedings and their ability to successfully emerge, including with respect to obtaining any necessary regulatory approvals; the ability of the GenOn Entities to consummate their plan of reorganization; risks associated with third party motions, proceedings and litigation in the Chapter 11 proceedings, which may interfere with the GenOn Entities’ plan of reorganization; • NRG’s and the GenOn Entities’ ability to manage contracts that are critical to NRG’s operations, and to obtain and maintain appropriate credit and other terms with customers, suppliers and service providers; • NRG’s ability to attract, retain and motivate key employees; • NRG’s ability to fund and execute its business plan; • the disposition or resolution of all pre-petition claims against NRG and the GenOn Entities; and • NRG’s ability to maintain existing customers and vendor relationships and expand sales to new customers. The Settlement Agreement may not be consummated if certain conditions are not met. If the Settlement Agreement is not consummated, NRG may not be entitled to receive certain benefits contemplated by the Restructuring Support Agreement and plan of reorganization. Under the Restructuring Support Agreement to which GenOn, NRG and certain of GenOn's and GenOn Americas Generation's senior unsecured noteholders are parties, each of them agreed to support Bankruptcy Court approval of the Settlement Agreement, subject to conditions. While the Bankruptcy Court approved the Settlement Agreement and confirmed the proposed plan of reorganization on December 12, 2017, there can be no assurance that the conditions to the effectiveness of either the Settlement Agreement or plan of reorganization will be satisfied. In addition, GenOn is entitled to terminate the Restructuring Support Agreement and consider alternative transactions in accordance with its fiduciary duties. If the Settlement Agreement or plan of reorganization is not consummated, NRG may not receive certain of the benefits contemplated by the Restructuring Support Agreement. The Chapter 11 Cases may disrupt NRG's business and may materially and adversely affect NRG's operations. NRG has attempted to minimize the adverse effect of the GenOn Entities’ Chapter 11 Cases on NRG's relationships with its employees, suppliers, customers and other parties. Nonetheless, NRG's relationships with its employees, suppliers, customers and other parties may be adversely impacted by negative publicity or otherwise and NRG's operations could be materially and adversely affected. In addition, the Chapter 11 Cases could negatively affect NRG's ability to attract new employees and retain existing high performing employees or executives, which could materially and adversely affect NRG's operations. As a result of the Chapter 11 Cases, NRG's historical financial information will not be indicative of NRG's future financial performance. NRG's corporate structure will be significantly altered under any plan of reorganization. As of June 14, 2017, GenOn and its consolidated subsidiaries were deconsolidated from NRG's financial statements. Consequently, NRG's results of operations following the deconsolidation will not be comparable to the financial condition and results of operations reflected in NRG's historical financial statements for periods prior to the deconsolidation. NRG adopted and initiated the Transformation Plan. If the Transformation Plan does not achieve its expected benefits, there could be negative impacts to NRG’s business, results of operations and financial condition. NRG adopted and initiated the Transformation Plan, designed to significantly strengthen earnings and cost competitiveness, lower risk and volatility, and create significant shareholder value. The three-part, three-year plan is comprised of the following components: (i) operations and cost excellence; (ii) portfolio optimization; and (iii) capital structure and allocation enhancements. As part of the Transformation, Plan, on February 6, 2018, NRG and GIP entered into a purchase and sale agreement for NRG to sell its ownership in NRG Yield, Inc. and its renewables platform to GIP for cash of $1.375 billion, subject to certain adjustments. Also on February 6, 2018, NRG and Cleco entered into a purchase and sale agreement for NRG to sell its South Central business to Cleco for cash of $1.0 billion, subject to certain adjustments. Both of these transactions are subject to various closing conditions and approvals. NRG may be unable to fully implement the components of the Transformation Plan, in which case, NRG would not realize the anticipated benefits. Alternatively, such components of the Transformation Plan, even if implemented, may not result in the anticipated benefits to NRG’s business, results of operations and financial condition in a timely manner if at all. Further, NRG could experience unexpected delays, business disruptions resulting from supporting these initiatives during and following completion of these activities, decreased productivity, adverse effects on employee morale and employee turnover as a result of such initiatives, any of which may impair NRG’s ability to achieve anticipated results or otherwise harm NRG’s business, results of operations and financial condition. The proposed sales of assets to GIP and Cleco could be delayed or fail to close, or otherwise cause unanticipated issues, which could adversely affect NRG's business, results of operations and financial condition. As described above, on February 6, 2018, NRG entered into a purchase and sale agreement with GIP pursuant to which NRG agreed to sell its ownership interest in NRG Yield, Inc. and NRG’s Renewables platform. Also on February 6, 2018, NRG and Cleco entered into a purchase and sale agreement for Cleco to purchase NRG's South Central business. The proposed sales are subject to numerous closing conditions, including, among others, the receipt of certain consents and regulatory approvals. A number of the closing conditions are outside of NRG’s control and it cannot be predicted with certainty whether all of the required closing conditions will be satisfied or waived or if other uncertainties may arise. In addition, regulators could impose additional requirements or obligations as conditions for their approval, which may be burdensome. If such closing conditions are not met or additional obligations are imposed, the proposed sales may not be consummated at all or may encounter delays or other roadblocks that are not currently anticipated. Planning and executing the proposed separation and sale of NRG’s renewables platform will require significant time, effort, and expense, and may divert management’s attention from other aspects of NRG’s business operations, and any delays in completion of the proposed sale may increase the amount of time, effort, and expense that NRG devotes to the transactions, which could adversely affect NRG’s other operations. The current price of NRG’s stock may reflect an assumption that the pending sales will occur and failure to complete the proposed sales could result in a decline in NRG’s stock price. In addition, even if NRG completes the proposed sales, the actual impacts on NRG's business and financial results may differ from the anticipated results. 34 35 NRG's financial performance may be impacted by price fluctuations in the wholesale power and natural gas, coal and oil markets and other market factors that are beyond the Company's control. Market prices for power, capacity, ancillary services, natural gas, coal and oil are unpredictable and tend to fluctuate substantially. Unlike most other commodities, electric power can only be stored on a very limited basis and generally must be produced concurrently with its use. As a result, power prices are subject to significant volatility due to supply and demand imbalances, especially in the day-ahead and spot markets. Long- and short-term power prices may also fluctuate substantially due to other factors outside of the Company's control, including: • • • • • • changes in generation capacity in the Company’s markets, including the addition of new supplies of power as a result of the development of new plants, expansion of existing plants, the continued operation of uneconomic power plants due to state subsidies, or additional transmission capacity; environmental regulations and legislation; electric supply disruptions, including plant outages and transmission disruptions; changes in power transmission infrastructure; fuel transportation capacity constraints or inefficiencies; changes in law, including judicial decisions; • weather conditions, including extreme weather conditions and seasonal fluctuations, including the effects of climate change; • • • • • • • • • changes in commodity prices and the supply of commodities, including but not limited to natural gas, coal and oil; changes in the demand for power or in patterns of power usage, including the potential development of demand-side management tools and practices, distributed generation, and more efficient end-use technologies; development of new fuels, new technologies and new forms of competition for the production of power; fuel price volatility; economic and political conditions; regulations and actions of the ISOs and RTOs; federal and state power regulations and legislation; changes in prices related to RECs; and changes in capacity prices and capacity markets. Such factors and the associated fluctuations in power prices have affected the Company's wholesale power operating results in the past and will continue to do so in the future. Many of NRG's power generation facilities operate, wholly or partially, without long-term power sale agreements. Many of NRG's facilities operate as "merchant" facilities without long-term power sales agreements for some or all of their generating capacity and output and therefore are exposed to market fluctuations. Without the benefit of long-term power sales agreements for these assets, NRG cannot be sure that it will be able to sell any or all of the power generated by these facilities at commercially attractive rates or that these facilities will be able to operate profitably. This could lead to future impairments of the Company's property, plant and equipment or to the closing of certain of its facilities, resulting in economic losses and liabilities, which could have a material adverse effect on the Company's results of operations, financial condition or cash flows. NRG's costs, results of operations, financial condition and cash flows could be adversely impacted by disruption of its fuel supplies. NRG relies on natural gas, coal and oil to fuel a majority of its power generation facilities. Delivery of these fuels to the facilities is dependent upon the continuing financial viability of contractual counterparties as well as upon the infrastructure (including rail lines, rail cars, barge facilities, roadways, riverways and natural gas pipelines) available to serve each generation facility. As a result, the Company is subject to the risks of disruptions or curtailments in the production of power at its generation facilities if no fuel is available at any price or if a counterparty fails to perform or if there is a disruption in the fuel delivery infrastructure. NRG has sold forward a substantial portion of its coal and nuclear power in order to lock in long-term prices that it deemed to be favorable at the time it entered into the forward power sales contracts. In order to hedge its obligations under these forward power sales contracts, the Company has entered into long-term and short-term contracts for the purchase and delivery of fuel. Many of the forward power sales contracts do not allow the Company to pass through changes in fuel costs or discharge the power sale obligations in the case of a disruption in fuel supply due to force majeure events or the default of a fuel supplier or transporter. Disruptions in the Company's fuel supplies may therefore require it to find alternative fuel sources at higher costs, to find other sources of power to deliver to counterparties at a higher cost, or to pay damages to counterparties for failure to deliver power as contracted. Any such event could have a material adverse effect on the Company's financial performance. NRG also buys significant quantities of fuel on a short-term or spot market basis. Prices for all of the Company's fuels fluctuate, sometimes rising or falling significantly over a relatively short period of time. The price NRG can obtain for the sale of energy may not rise at the same rate, or may not rise at all, to match a rise in fuel or delivery costs. This may have a material adverse effect on the Company's financial performance. Changes in market prices for natural gas, coal and oil may result from the following: • weather conditions; • • • • • • • • • seasonality; demand for energy commodities and general economic conditions; disruption or other constraints or inefficiencies of electricity, gas or coal transmission or transportation; additional generating capacity; availability and levels of storage and inventory for fuel stocks; natural gas, crude oil, refined products and coal production levels; changes in market liquidity; federal, state and foreign governmental regulation and legislation; and the creditworthiness and liquidity and willingness of fuel suppliers/transporters to do business with the Company. NRG's plant operating characteristics and equipment, particularly at its coal-fired plants, often dictate the specific fuel quality to be combusted. The availability and price of specific fuel qualities may vary due to supplier financial or operational disruptions, transportation disruptions and force majeure. At times, coal of specific quality may not be available at any price, or the Company may not be able to transport such coal to its facilities on a timely basis. In this case, the Company may not be able to run the coal facility even if it would be profitable. Operating a coal facility with different quality coal can lead to emission or operating problems. If the Company had sold forward the power from such a coal facility, it could be required to supply or purchase power from alternate sources, perhaps at a loss. This could have a material adverse impact on the financial results of specific plants and on the Company's results of operations. Changes in the price of coal and natural gas could cause the Company to hold excess coal inventories and incur contract termination costs. Low natural gas prices can cause natural gas to be the more cost-competitive fuel compared to coal for generating electricity. Because the Company enters into guaranteed supply contracts to provide for the amount of coal needed to operate its base load coal-fired generating facilities, the Company may experience periods where it holds excess amounts of coal if fuel pricing results in the Company reducing or idling coal-fired generating facilities. In addition, the Company may incur costs to terminate supply contracts for coal in excess of its generating requirements. 36 37 Volatile power supply costs and demand for power could adversely affect the financial performance of NRG's retail businesses. Although NRG is the primary provider of its retail businesses' wholesale electricity supply requirements, the retail businesses purchase a significant portion of their supply requirements from third parties. As a result, financial performance depends on the ability to obtain adequate supplies of electric generation from third parties at prices below the prices it charges its customers. Consequently, the Company's earnings and cash flows could be adversely affected in any period in which the retail businesses' wholesale electricity supply costs rise at a greater rate than the rates it charges to customers. The price of wholesale electricity supply purchases associated with the retail businesses' energy commitments can be different than that reflected in the rates charged to customers due to, among other factors: • • • • • varying supply procurement contracts used and the timing of entering into related contracts; subsequent changes in the overall price of natural gas; daily, monthly or seasonal fluctuations in the price of natural gas relative to the 12-month forward prices; transmission constraints and the Company's ability to move power to its customers; and changes in market heat rate (i.e., the relationship between power and natural gas prices). The retail businesses' earnings and cash flows could also be adversely affected in any period in which its customers' actual usage of electricity significantly varies from the forecasted usage, which could occur due to, among other factors, weather events, competition and economic conditions. There may be periods when NRG will not be able to meet its commitments under forward sale obligations at a reasonable cost or at all. A substantial portion of the output from NRG's coal and nuclear facilities has been sold forward under fixed price power sales contracts through 2018 and the Company also sells forward the output from its intermediate and peaking facilities when it is commercially advantageous to do so. The Company also sells fixed price gas as a proxy for power. Because the obligations under most of these agreements are not contingent on a unit being available to generate power, NRG is generally required to deliver power to the buyer, even in the event of a plant outage, fuel supply disruption or a reduction in the available capacity of the unit. To the extent that the Company does not have sufficient lower-cost capacity to meet its commitments under its forward sale obligations, the Company would be required to supply replacement power either by running its other, higher cost power plants or by obtaining power from third-party sources at market prices that could substantially exceed the contract price. If NRG fails to deliver the contracted power, it would be required to pay the difference between the market price at the delivery point and the contract price, and the amount of such payments could be substantial. In the Gulf Coast region, NRG has long-term contracts with rural cooperatives that require it to serve all of the cooperatives' requirements at prices for energy that generally reflect the cost of coal-fired generation. On December 19, 2013, the Entergy region joined the MISO RTO, which employs a two settlement market in which NRG submits bids for energy to cover its load obligations and submits offers to sell energy from its resources. Given the “full requirements” obligation contained in the cooperative contracts, and the possibility of unplanned forced outages of its generation, NRG may be exposed to locational market prices as a net buyer of energy for certain periods, which could have a negative impact on NRG's financial returns from its Gulf Coast region. NRG's trading operations and use of hedging agreements could result in financial losses that negatively impact its results of operations. The Company typically enters into hedging agreements, including contracts to purchase or sell commodities at future dates and at fixed prices, to manage the commodity price risks inherent in its power generation operations. These activities, although intended to mitigate price volatility, expose the Company to other risks. When the Company sells power forward, it gives up the opportunity to sell power at higher prices in the future, which not only may result in lost opportunity costs but also may require the Company to post significant amounts of cash collateral or other credit support to its counterparties. The Company also relies on counterparty performance under its hedging agreements and is exposed to the credit quality of its counterparties under those agreements. Further, if the values of the financial contracts change in a manner that the Company does not anticipate, or if a counterparty fails to perform under a contract, it could harm the Company's business, operating results or financial position. NRG does not typically hedge the entire exposure of its operations against commodity price volatility. To the extent it does not hedge against commodity price volatility, the Company's results of operations and financial position may be improved or diminished based upon movement in commodity prices. NRG may engage in trading activities, including the trading of power, fuel and emissions allowances that are not directly related to the operation of the Company's generation facilities or the management of related risks. These trading activities take place in volatile markets and some of these trades could be characterized as speculative. The Company would expect to settle these trades financially rather than through the production of power or the delivery of fuel. This trading activity may expose the Company to the risk of significant financial losses which could have a material adverse effect on its business and financial condition. NRG may not have sufficient liquidity to hedge market risks effectively. The Company is exposed to market risks through its power marketing business, which involves the sale of energy, capacity and related products and the purchase and sale of fuel, transmission services and emission allowances. These market risks include, among other risks, volatility arising from location and timing differences that may be associated with buying and transporting fuel, converting fuel into energy and delivering energy to a buyer. NRG undertakes these marketing activities through agreements with various counterparties. Many of the Company's agreements with counterparties include provisions that require the Company to provide guarantees, offset of netting arrangements, letters of credit, a first lien on assets and/or cash collateral to protect the counterparties against the risk of the Company's default or insolvency. The amount of such credit support that must be provided typically is based on the difference between the price of the commodity in a given contract and the market price of the commodity. Significant movements in market prices can result in the Company being required to provide cash collateral and letters of credit in very large amounts. The effectiveness of the Company's strategy may depend on the amount of collateral available to enter into or maintain these contracts, and liquidity requirements may be greater than the Company anticipates or will be able to meet. Without a sufficient amount of working capital to post as collateral in support of performance guarantees or as a cash margin, the Company may not be able to manage price volatility effectively or to implement its strategy. An increase in the amount of letters of credit or cash collateral required to be provided to the Company's counterparties may negatively affect the Company's liquidity and financial condition. Further, if any of NRG's facilities experience unplanned outages, the Company may be required to procure replacement power at spot market prices to fulfill contractual commitments. Without adequate liquidity to meet margin and collateral requirements, the Company may be exposed to significant losses, may miss significant opportunities, and may have increased exposure to the volatility of spot markets. The accounting for NRG's hedging activities may increase the volatility in the Company's quarterly and annual financial results. NRG engages in commodity-related marketing and price-risk management activities in order to financially hedge its exposure to market risk with respect to electricity sales from its generation assets, fuel utilized by those assets and emission allowances. NRG generally attempts to balance its fixed-price physical and financial purchases and sales commitments in terms of contract volumes and the timing of performance and delivery obligations through the use of financial and physical derivative contracts. These derivatives are accounted for in accordance with the FASB ASC 815, Derivatives and Hedging, or ASC 815, which requires the Company to record all derivatives on the balance sheet at fair value with changes in the fair value resulting from fluctuations in the underlying commodity prices immediately recognized in earnings, unless the derivative qualifies for cash flow hedge accounting treatment. Whether a derivative qualifies for cash flow hedge accounting treatment depends upon it meeting specific criteria used to determine if the cash flow hedge is and will remain appropriate for the term of the derivative. All economic hedges may not necessarily qualify for cash flow hedge accounting treatment. As a result, the Company's quarterly and annual results are subject to significant fluctuations caused by changes in market prices. Competition in wholesale power markets may have a material adverse effect on NRG's results of operations, cash flows and the market value of its assets. NRG has numerous competitors in all aspects of its business, and additional competitors may enter the industry. Because many of the Company's facilities are old, newer plants owned by the Company's competitors are often more efficient than NRG's aging plants, which may put some of the Company's plants at a competitive disadvantage to the extent the Company's competitors are able to consume the same or less fuel as the Company's plants consume. Over time, the Company's plants may be squeezed out of their markets or may be unable to compete with these more efficient plants. In NRG's power marketing and commercial operations, NRG competes on the basis of its relative skills, financial position and access to capital with other providers of electric energy in the procurement of fuel and transportation services, and the sale of capacity, energy and related products. In order to compete successfully, the Company seeks to aggregate fuel supplies at competitive prices from different sources and locations and to efficiently utilize transportation services from third-party pipelines, railways and other fuel transporters and transmission services from electric utilities. 38 39 Other companies with which NRG competes may have greater liquidity, greater access to credit and other financial resources, lower cost structures, more effective risk management policies and procedures, greater ability to incur losses, longer-standing relationships with customers, greater potential for profitability from ancillary services or greater flexibility in the timing of their sale of generation capacity and ancillary services than NRG does. NRG's competitors may be able to respond more quickly to new laws or regulations or emerging technologies, or to devote greater resources to the construction, expansion or refurbishment of their power generation facilities than NRG can. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share. There can be no assurance that NRG will be able to compete successfully against current and future competitors, and any failure to do so would have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Operation of power generation facilities involves significant risks and hazards customary to the power industry that could have a material adverse effect on NRG's revenues and results of operations, and NRG may not have adequate insurance to cover these risks and hazards. The ongoing operation of NRG's facilities involves risks that include the breakdown or failure of equipment or processes, performance below expected levels of output or efficiency and the inability to transport the Company's product to its customers in an efficient manner due to a lack of transmission capacity. Unplanned outages of generating units, including extensions of scheduled outages due to mechanical failures or other problems occur from time to time and are an inherent risk of the Company's business. Unplanned outages typically increase the Company's operation and maintenance expenses and may reduce the Company's revenues as a result of selling fewer MWh or non-performance penalties or require NRG to incur significant costs as a result of running one of its higher cost units or obtaining replacement power from third parties in the open market to satisfy the Company's forward power sales obligations. NRG's inability to operate the Company's plants efficiently, manage capital expenditures and costs, and generate earnings and cash flow from the Company's asset-based businesses could have a material adverse effect on the Company's results of operations, financial condition or cash flows. While NRG maintains insurance, obtains warranties from vendors and obligates contractors to meet certain performance levels, the proceeds of such insurance, warranties or performance guarantees may not be adequate to cover the Company's lost revenues, increased expenses or liquidated damages payments should the Company experience equipment breakdown or non-performance by contractors or vendors. Power generation involves hazardous activities, including acquiring, transporting and unloading fuel, operating large pieces of rotating equipment and delivering electricity to transmission and distribution systems. In addition to natural risks such as earthquake, flood, lightning, hurricane and wind, other hazards, such as fire, explosion, structural collapse and machinery failure are inherent risks in the Company's operations. These and other hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment, contamination of, or damage to, the environment and suspension of operations. The occurrence of any one of these events may result in NRG being named as a defendant in lawsuits asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties. NRG maintains an amount of insurance protection that it considers adequate, but the Company cannot provide any assurance that its insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which it may be subject. A successful claim for which the Company is not fully insured could hurt its financial results and materially harm NRG's financial condition. NRG cannot provide any assurance that its insurance coverage will continue to be available at all or at rates or on terms similar to those presently available. Any losses not covered by insurance could have a material adverse effect on the Company's financial condition, results of operations or cash flows. Maintenance, expansion and refurbishment of power generation facilities involve significant risks that could result in unplanned power outages or reduced output and could have a material adverse effect on NRG's results of operations, cash flows and financial condition. Many of NRG's facilities are old and require periodic maintenance and repair. Any unexpected failure, including failure associated with breakdowns, forced outages or any unanticipated capital expenditures could result in reduced profitability. NRG cannot be certain of the level of capital expenditures that will be required due to changing environmental and safety laws (including changes in the interpretation or enforcement thereof), needed facility repairs and unexpected events (such as natural disasters or terrorist attacks). The unexpected requirement of large capital expenditures could have a material adverse effect on the Company's liquidity and financial condition. If NRG significantly modifies a unit, the Company may be required to install the best available control technology or to achieve the lowest achievable emission rates as such terms are defined under the new source review provisions of the CAA, which would likely result in substantial additional capital expenditures. The Company may incur additional costs or delays in the development, construction and operation of new plants, improvements to existing plants, or the implementation of environmental control equipment at existing plants and may not be able to recover their investment or complete the project. The Company is developing or constructing new generation facilities, improving its existing facilities and adding environmental controls to its existing facilities. The development, construction, expansion, modification and refurbishment of power generation facilities involve many risks, including: • • • • • • inability to obtain sufficient funding on reasonable terms and/or necessary government financial incentives; delays in obtaining necessary permits and licenses; inability to sell down interests in a project or develop successful partnering relationships; environmental remediation of soil or groundwater at contaminated sites; interruptions to dispatch at the Company's facilities; supply interruptions; • work stoppages; • labor disputes; • weather interferences; • • • • unforeseen engineering, environmental and geological problems, including those related to climate change; unanticipated cost overruns; exchange rate risks; and failure of contracting parties to perform under contracts, including EPC contractors. Any of these risks could cause NRG's financial returns on new investments to be lower than expected or could cause the Company to operate below expected capacity or availability levels, which could result in lost revenues, increased expenses, higher maintenance costs and penalties. Insurance is maintained to protect against these risks, warranties are generally obtained for limited periods relating to the construction of each project and its equipment in varying degrees, and contractors and equipment suppliers are obligated to meet certain performance levels. The insurance, warranties or performance guarantees, however, may not be adequate to cover increased expenses. As a result, a project may cost more than projected and may be unable to fund principal and interest payments under its construction financing obligations, if any. A default under such a financing obligation could result in the Company losing its interest in a power generation facility. Furthermore, where the Company has partnering relationships with a third party, the Company is subject to the viability and performance of the third party. The Company's inability to find a replacement contracting party, particularly an EPC contractor, where the original contracting party has failed to perform, could result in the abandonment of the development and/or construction of such project, while the Company could remain obligated on other agreements associated with the project, including PPAs. If the Company is unable to complete the development or construction of a facility or environmental control, or decides to delay, downsize, or cancel such project, it may not be able to recover its investment in that facility or environmental control. Furthermore, if construction projects are not completed according to specification, the Company may incur liabilities and suffer reduced plant efficiency, higher operating costs and reduced net income. NRG and its subsidiaries have guaranteed the performance of third parties, which may result in substantial costs in the event of non-performance. NRG and its subsidiaries have issued certain guarantees of the performance of others, which obligate NRG and its subsidiaries to perform in the event that the third parties do not perform. In the event of non-performance by the third parties, NRG could incur substantial cost to fulfill their obligations under these guarantees. Such performance guarantees could have a material impact on the operating results, financial condition, or cash flows of the Company. 40 41 The Company's development programs are subject to financing and public policy risks that could adversely impact NRG's financial performance or result in the abandonment of such development projects. While NRG currently intends to develop and finance its more capital intensive projects on a non-recourse or limited recourse basis through separate project financed entities and intends to seek additional investments in most of these projects from third parties, NRG anticipates that it will need to make significant equity investments in these projects. NRG may also decide to develop and finance some of the projects using corporate financial resources rather than non-recourse debt, which could subject NRG to significant capital expenditure requirements and to risks inherent in the development and construction of new generation facilities. In addition to providing some or all of the equity required to develop and build the proposed projects, NRG's ability to finance these projects on a non-recourse basis is contingent upon a number of factors, including the terms of the EPC contracts, construction costs, PPAs and fuel procurement contracts, capital markets conditions, the availability of tax credits and other government incentives for certain new technologies. To the extent NRG is not able to obtain non-recourse financing for any project or should credit rating agencies attribute a material amount of the project finance debt to NRG's credit, the financing of the development projects could have a negative impact on the credit ratings of NRG. NRG may also choose to undertake the repowering, refurbishment or upgrade of current facilities based on the Company's assessment that such activity will provide adequate financial returns. Such projects often require several years of development and capital expenditures before commencement of commercial operations, and key assumptions underpinning a decision to make such an investment may prove incorrect, including assumptions regarding construction costs, timing, available financing and future fuel and power prices. Furthermore, the viability of the Company's renewable development projects are contingent on public policy mechanisms including production and investment tax credits, cash grants, loan guarantees, accelerated depreciation tax benefits, renewable portfolio standards, or RPS, and carbon-related mandates or controls. These mechanisms have been implemented at the state and federal levels to support the development of renewable generation, demand-side and smart grid, and other clean infrastructure technologies. The availability and continuation of public policy support mechanisms will drive a significant part of the economics and viability of the Company's development program and expansion into clean energy investments. The Company’s renewables business has a pipeline of projects across the utility scale and distributed generation markets, including both organically developed projects and projects acquired from third-parties. If a number of the projects fail to proceed to construction or are not completed, the Company’s business, financial condition or operating results could be materially adversely affected. The development process is long and includes many steps such as project siting, financing, construction, permitting, government approvals and the negotiation of project development agreements. There can be no assurance that the projects in the Company’s renewables project pipeline will be completed on schedule or within budget, generate revenues, or receive the necessary financing for construction, among other risks. As the Company develops its renewables project pipeline, some of the projects in the pipeline may not be completed or proceed to construction as a result of various factors. These factors may include changes in applicable laws and regulations, including government incentives, environmental concerns regarding a project or changes in the economics related to a project, including the ability to finance a particular project. If a number of projects are not completed, the Company’s business, financial condition or operating results could be materially adversely affected. Supplier and/or customer concentration at certain of NRG's facilities may expose the Company to significant financial credit or performance risks. NRG often relies on a single contracted supplier or a small number of suppliers for the provision of fuel, transportation of fuel and other services required for the operation of certain of its facilities. If these suppliers cannot perform, the Company utilizes the marketplace to provide these services. There can be no assurance that the marketplace can provide these services as, when and where required or at comparable prices. At times, NRG relies on a single customer or a few customers to purchase all or a significant portion of a facility's output, in some cases under long-term agreements that account for a substantial percentage of the anticipated revenue from a given facility. The Company has also hedged a portion of its exposure to power price fluctuations through forward fixed price power sales and natural gas price swap agreements. Counterparties to these agreements may breach or may be unable to perform their obligations. NRG may not be able to enter into replacement agreements on terms as favorable as its existing agreements, or at all. If the Company was unable to enter into replacement PPAs, the Company would sell its plants' power at market prices. If the Company is unable to enter into replacement fuel or fuel transportation purchase agreements, NRG would seek to purchase the Company's fuel requirements at market prices, exposing the Company to market price volatility and the risk that fuel and transportation may not be available during certain periods at any price. The failure of any supplier or customer to fulfill its contractual obligations to NRG could have a material adverse effect on the Company's financial results. Consequently, the financial performance of the Company's facilities is dependent on the credit quality of, and continued performance by, suppliers and customers. The Company's retail businesses may lose a significant number of retail customers due to competitive marketing activity by other retail electricity providers which could adversely affect the financial performance of the Company's retail businesses. The Company's retail businesses face competition for customers. Competitors may offer different products, lower prices, and other incentives, which may attract customers away from NRG's retail businesses. In some retail electricity markets, the principal competitor may be the incumbent utility. The incumbent utility has the advantage of long-standing relationships with its customers and strong brand recognition. Furthermore, NRG's retail businesses may face competition from a number of other energy service providers, other energy industry participants, or nationally branded providers of consumer products and services, who may develop businesses that will compete with NRG and its retail businesses. NRG relies on power transmission facilities that it does not own or control and that are subject to transmission constraints within a number of the Company's core regions. If these facilities fail to provide NRG with adequate transmission capacity, the Company may be restricted in its ability to deliver wholesale electric power to its customers and the Company may either incur additional costs or forego revenues. Conversely, improvements to certain transmission systems could also reduce revenues. NRG depends on transmission facilities owned and operated by others to deliver the wholesale power it sells from the Company's power generation plants to its customers. If transmission is disrupted, or if the transmission capacity infrastructure is inadequate, NRG's ability to sell and deliver wholesale power may be adversely impacted. If a region's power transmission infrastructure is inadequate, the Company's recovery of wholesale costs and profits may be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have sufficient incentive to invest in expansion of transmission infrastructure. The Company also cannot predict whether transmission facilities will be expanded in specific markets to accommodate competitive access to those markets. In addition, in certain of the markets in which NRG operates, energy transmission congestion may occur and the Company may be deemed responsible for congestion costs if it schedules delivery of power between congestion zones during times when congestion occurs between the zones. If NRG were liable for such congestion costs, the Company's financial results could be adversely affected. The Company has a significant amount of generation located in load pockets, making that generation valuable, particularly with respect to maintaining the reliability of the transmission grid. Expansion of transmission systems to reduce or eliminate these load pockets could negatively impact the value or profitability of the Company's existing facilities in these areas. The Company’s use and enjoyment of real property rights for its projects may be adversely affected by the rights of lienholders and leaseholders that are superior to those of the grantors of those real property rights to the Company. Solar and wind projects generally are, and are likely to be, located on land occupied by the project pursuant to long-term easements and leases. The ownership interests in the land subject to these easements and leases may be subject to mortgages securing loans or other liens (such as tax liens) and other easement and lease rights of third parties (such as leases of oil or mineral rights) that were created prior to the project’s easements and leases. As a result, the project’s rights under these easements or leases may be subject, and subordinate, to the rights of those third parties. The Company performs title searches and obtains title insurance to protect itself against these risks. Such measures may, however, be inadequate to protect the Company against all risk of loss of its rights to use the land on which the renewable projects are located, which could have a material adverse effect on the Company’s business, financial condition and results of operations. One of the Company's subsidiaries, NRG Yield, Inc., is a publicly traded corporation, which may involve a greater exposure to legal liability than the Company's historic business operations. One of the Company's subsidiaries is NRG Yield, Inc., a publicly traded corporation. NRG's controlling voting interest in NRG Yield, Inc. and the position of certain of its executive officers that are serving on the Board of Directors of NRG Yield, Inc. or as executive officers may increase the possibility of claims of breach of fiduciary duties including claims of conflicts of interest related to NRG Yield, Inc. Any liability resulting from such claims could have a material adverse effect on NRG's future business, financial condition, results of operations and cash flows. 42 43 Because NRG owns less than a majority of the ownership interests of some of its project investments, the Company cannot exercise complete control over their operations. The Company may potentially be affected by emerging technologies that may over time affect change in capacity markets and the energy industry overall with the inclusion of distributed generation and clean technology. NRG has limited control over the operation of some project investments and joint ventures because the Company's investments are in projects where it beneficially owns less than a majority of the ownership interests. NRG seeks to exert a degree of influence with respect to the management and operation of projects in which it owns less than a majority of the ownership interests by negotiating to obtain positions on management committees or to receive certain limited governance rights, such as rights to veto significant actions. However, the Company may not always succeed in such negotiations. NRG may be dependent on its co- venturers to operate such projects. The Company's co-venturers may not have the level of experience, technical expertise, human resources management and other attributes necessary to operate these projects optimally. The approval of co-venturers also may be required for NRG to receive distributions of funds from projects or to transfer the Company's interest in projects. NRG may be unable to integrate the operations of acquired entities in the manner expected. NRG enters into acquisitions that result in various benefits, including, among other things, cost savings and operating efficiencies. Achieving the anticipated benefits of these acquisitions depends on whether the businesses can be integrated into NRG in an efficient and effective manner. The integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of NRG's businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect the Company's ability to achieve the anticipated benefits of the acquisitions. NRG may have difficulty addressing possible differences in corporate cultures and management philosophies. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and could adversely affect NRG's future business, financial condition, operating results and prospects. Future acquisition or disposition activities could involve unknown risks and may have materially adverse effects. NRG may in the future make acquisitions or dispositions of businesses or assets or pursue other business activities, directly or indirectly through subsidiaries, that involve a number of risks. The acquisition of companies and assets is subject to substantial risks, including the failure to identify material problems during due diligence, the risk of over-paying for assets, the ability to retain customers and the inability to arrange financing for an acquisition as may be required or desired. Further, the integration and consolidation of acquisitions requires substantial human, financial and other resources and, ultimately, the Company's acquisitions may not be successfully integrated. In the case of dispositions, such risks may relate to employment matters, counterparties, regulators and other stakeholders in the disposed business, risks relating to separating the disposed assets from NRG’s business, risks related to the management of NRG’s ongoing business, risks unknown to NRG at the time, and other financial, legal and operational risks related to such disposition. Any such risk may result in one or more costly disputes or litigation. There can be no assurances that any future acquisitions will perform as expected or that the returns from such acquisitions will support the indebtedness incurred to acquire them or the capital expenditures needed to develop them. There can also be no assurances that NRG will realize the anticipated benefits from any such dispositions. The failure to realize the anticipated returns or benefits from an acquisition or disposition could adversely affect NRG's results of operations, cash flows and financial condition. NRG's business, financial condition and results of operations could be adversely impacted by strikes or work stoppages by its unionized employees or inability to replace employees as they retire. As of December 31, 2017, approximately 24% of NRG's employees at its U.S. generation plants were covered by collective bargaining agreements. In the event that the Company's union employees strike, participate in a work stoppage or slowdown or engage in other forms of labor strife or disruption, NRG would be responsible for procuring replacement labor or the Company could experience reduced power generation or outages. Although NRG's ability to procure such labor is uncertain, contingency staffing planning is completed as part of each respective contract negotiations. Strikes, work stoppages or the inability to negotiate future collective bargaining agreements on favorable terms could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. In addition, a number of the Company's employees at NRG's plants are close to retirement. The Company's inability to replace retiring workers could create potential knowledge and expertise gaps as such workers retire. Changes in technology may impair the value of NRG's power plants. Research and development activities are ongoing to provide alternative and more efficient technologies to produce power, including wind, photovoltaic (solar) cells, energy storage, and improvements in traditional technologies and equipment, such as more efficient gas turbines. Advances in these or other technologies could reduce the costs of power production to a level below what the Company has currently forecasted, which could adversely affect its cash flows, results of operations or competitive position. Some emerging technologies like distributed renewable energy technologies, broad consumer adoption of electric vehicles and energy storage devices could affect the price of energy. These emerging technologies may affect the financial viability of utility counterparties and could have significant impacts on wholesale market prices, which could ultimately have a material adverse effect on NRG's financial condition, results of operations and cash flows. Risks that are beyond NRG's control, including but not limited to acts of terrorism or related acts of war, natural disaster, hostile cyber intrusions or other catastrophic events could have a material adverse effect on NRG's financial condition, results of operations and cash flows. NRG's generation facilities and the facilities of third parties on which they rely may be targets of terrorist activities, as well as events occurring in response to or in connection with them, that could cause environmental repercussions and/or result in full or partial disruption of the facilities ability to generate, transmit, transport or distribute electricity or natural gas. Strategic targets, such as energy-related facilities, may be at greater risk of future terrorist activities than other domestic targets. Hostile cyber intrusions, including those targeting information systems as well as electronic control systems used at the generating plants and for the distribution systems, could severely disrupt business operations and result in loss of service to customers, as well as significant expense to repair security breaches or system damage. Any such environmental repercussions or disruption could result in a significant decrease in revenues or significant reconstruction or remediation costs, beyond what could be recovered through insurance policies which could have a material adverse effect on the Company's financial condition, results of operations and cash flows. In addition, significant weather events or terrorist actions could damage or shut down the power transmission and distribution facilities upon which the Company's retail businesses are dependent. Power supply may be sold at a loss if these events cause a significant loss of retail customer load. The operation of NRG’s businesses is subject to cyber-based security and integrity risk. Numerous functions affecting the efficient operation of NRG’s businesses depend on the secure and reliable storage, processing and communication of electronic data and the use of sophisticated computer hardware and software systems. The operation of NRG’s generation plants, including STP, and of NRG's energy and fuel trading businesses rely on cyber-based technologies and, therefore, subject to the risk that such systems could be the target of disruptive actions, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, or otherwise be compromised by unintentional events. As a result, operations could be interrupted, property could be damaged and sensitive customer information could be lost or stolen, causing NRG to incur significant losses of revenues, other substantial liabilities and damages, costs to replace or repair damaged equipment and damage to NRG's reputation. In addition, NRG may experience increased capital and operating costs to implement increased security for its cyber systems and plants. The Company's retail businesses are subject to the risk that sensitive customer data may be compromised, which could result in an adverse impact to its reputation and/or the results of operations of the Company's retail businesses. The Company's retail businesses require access to sensitive customer data in the ordinary course of business. Examples of sensitive customer data are names, addresses, account information, historical electricity usage, expected patterns of use, payment history, credit bureau data, credit and debit card account numbers, driver's license numbers, social security numbers and bank account information. NRG's retail businesses may need to provide sensitive customer data to vendors and service providers, who require access to this information in order to provide services, such as call center operations, to NRG's retail businesses. If a significant breach occurred, the reputation of NRG and its retail businesses may be adversely affected, customer confidence may be diminished, or NRG and its retail businesses may be subject to legal claims, any of which may contribute to the loss of customers and have a negative impact on the business and/or results of operations. Risks Related to Governmental Regulation and Laws NRG's business is subject to substantial energy regulation and may be adversely affected by legislative or regulatory changes, as well as liability under, or any future inability to comply with, existing or future energy regulations or requirements. NRG's business is subject to extensive U.S. federal, state and local laws and foreign laws. Compliance with the requirements under these legal and regulatory regimes may cause the Company to incur significant additional costs, and failure to comply with such requirements could result in the shutdown of a non-complying facility, the imposition of liens, fines, and/or civil or criminal liability. 44 45 Public utilities under the FPA are required to obtain FERC acceptance of their rate schedules for wholesale sales of electricity. Except for ERCOT generating facilities and power marketers, all of NRG's non-qualifying facility generating companies and power marketing affiliates in the U.S. make sales of electricity in interstate commerce and are public utilities for purposes of the FPA. FERC has granted each of NRG's generating and power marketing companies that make sales of electricity outside of ERCOT the authority to sell electricity at market-based rates. FERC's orders that grant NRG's generating and power marketing companies market-based rate authority reserve the right to revoke or revise that authority if FERC subsequently determines that NRG can exercise market power in transmission or generation, create barriers to entry, or engage in abusive affiliate transactions. In addition, NRG's market-based sales are subject to certain market behavior rules, and if any of NRG's generating and power marketing companies were deemed to have violated those rules, they are subject to potential disgorgement of profits associated with the violation and/or suspension or revocation of their market-based rate authority. If NRG's generating and power marketing companies were to lose their market-based rate authority, such companies would be required to obtain FERC's acceptance of a cost-of-service rate schedule and could become subject to the accounting, record-keeping, and reporting requirements that are imposed on utilities with cost-based rate schedules. This could have a material adverse effect on the rates NRG charges for power from its facilities. Substantially all of the Company's generation assets are also subject to the reliability standards promulgated by the designated Electric Reliability Organization (currently NERC) and approved by FERC. If NRG fails to comply with the mandatory reliability standards, NRG could be subject to sanctions, including substantial monetary penalties and increased compliance obligations. NRG is also affected by legislative and regulatory changes, as well as changes to market design, market rules, tariffs, cost allocations, and bidding rules that occur in the existing ISOs. The ISOs that oversee most of the wholesale power markets impose, and in the future may continue to impose, mitigation, including price limitations, offer caps, non-performance penalties and other mechanisms to address some of the volatility and the potential exercise of market power in these markets. These types of price limitations and other regulatory mechanisms may have a material adverse effect on the profitability of NRG's generation facilities that sell energy and capacity into the wholesale power markets. The regulatory environment has undergone significant changes in the last several years due to state and federal policies affecting wholesale and retail competition and the creation of incentives for the addition of large amounts of new renewable generation and, in some cases, transmission. These changes are ongoing, and the Company cannot predict the future design of the wholesale power markets or the ultimate effect that the changing regulatory environment will have on NRG's business. In addition, in some of these markets, interested parties have proposed material market design changes, including the elimination of a single clearing price mechanism, as well as proposals to reinstate the vertical monopoly utility of the markets or require divestiture by generating companies to reduce their market share. If competitive restructuring of the electric power markets is reversed, discontinued, or delayed, the Company's business prospects and financial results could be negatively impacted. In addition, since 2010, there have been a number of reforms to the regulation of the derivatives markets, both in the United States and internationally. These regulations, and any further changes thereto, or adoption of additional regulations, including any regulations relating to position limits on futures and other derivatives or margin for derivatives, could negatively impact NRG’s ability to hedge its portfolio in an efficient, cost-effective manner by, among other things, potentially decreasing liquidity in the forward commodity and derivatives markets or limiting NRG’s ability to utilize non-cash collateral for derivatives transactions. NRG’s business may be affected by state interference in the competitive wholesale marketplace. NRG’s legacy generation and competitive retail businesses rely on a competitive wholesale marketplace. The competitive wholesale marketplace may be undermined by out-of-market subsidies provided by states or state entities, including bailouts of uneconomic nuclear plants, imports of power from Canada, renewable mandates or subsidies, as well as out-of-market payments to new generators. These out-of-market subsidies to existing or new generation undermine the competitive wholesale marketplace, which can lead to premature retirement of existing facilities, including those owned by the Company. If these measures continue, capacity and energy prices may be suppressed, and the Company may not be successful in its efforts to insulate the competitive market from this interference. Government regulations providing incentives for renewable generation could change at any time and such changes may adversely impact NRG's business, revenues, margins, results of operations and cash flows. The Company's growth strategy depends in part on government policies that support renewable generation and enhance the economic viability of owning renewable electric generation assets. Renewable generation assets currently benefit from various federal, state and local governmental incentives such as ITCs, PTCs, cash grants in lieu of ITCs, loan guarantees, RPS programs, modified accelerated cost-recovery system of depreciation and bonus depreciation. For example, in December 2015, the U.S. Congress enacted an extension of the 30% solar ITC so that projects which began construction in 2016 through 2019 will continue to qualify for the 30% ITC. Projects beginning construction in 2020 and 2021 will be eligible for the ITC at the rates of 26% and 22%, respectively. The same legislation also extended the 10-year wind PTC for wind projects which began construction in 2016 through 2019. Wind projects which begin construction in the years 2017, 2018 and 2019 are eligible for PTCs at 80%, 60% and 40% of the statutory rate per kWh, respectively. Many states have adopted RPS programs mandating that a specified percentage of electricity sales come from eligible sources of renewable energy. However, the regulations that govern the RPS programs, including pricing incentives for renewable energy, or reasonableness guidelines for pricing that increase valuation compared to conventional power (such as a projected value for carbon reduction or consideration of avoided integration costs), may change. If the RPS requirements are reduced or eliminated, it could lead to fewer future power contracts or lead to lower prices for the sale of power in future power contracts, which could have a material adverse effect on the Company's future growth prospects. Such material adverse effects may result from decreased revenues, reduced economic returns on certain project company investments, increased financing costs, and/or difficulty obtaining financing. Furthermore, the ARRA included incentives to encourage investment in the renewable energy sector, such as cash grants in lieu of ITCs, bonus depreciation and expansion of the U.S. DOE loan guarantee program. It is uncertain what loan guarantees may be made by the U.S. DOE loan guarantee program in the future. In addition, the cash grant in lieu of ITCs program only applies to facilities that commenced construction prior to December 31, 2011, which commencement date may be determined in accordance with the safe harbor if more than 5% of the total cost of the eligible property was paid or incurred by December 31, 2011. If the Company is unable to utilize various federal, state and local government incentives to acquire additional renewable assets in the future, or the terms of such incentives are revised in a manner that is less favorable to the Company, it may suffer a material adverse effect on the business, financial condition, results of operations and cash flows. The integration of the Capacity Performance product into the PJM market and the Pay-for-Performance mechanism in ISO- NE could lead to substantial changes in capacity income and non-performance penalties, which could have a material adverse effect on NRG’s results of operations, financial condition and cash flows. Both ISO-NE and PJM operate a pay-for-performance model where capacity payments are modified based on real-time generator performance. Capacity market prices are sensitive to design parameters, as well as additions of new capacity. NRG may experience substantial changes in capacity income and non-performance penalties, which could have a material adverse effect on NRG’s results of operations, financial condition and cash flows. Certain of NRG's long-term bilateral contracts result from state-mandated procurements and could be declared invalid by a court of competent jurisdiction. A significant portion of NRG’s revenues are derived from long-term bilateral contracts with utilities that are regulated by their respective states, and have been entered into pursuant to certain state programs. Certain long-term contracts that other companies have with state-regulated utilities have been challenged in federal court and have been declared unconstitutional on the grounds that the rate for energy and capacity established by the contracts impermissibly conflicts with the rate for energy and capacity established by FERC pursuant to the FPA. If certain of the Company's state-mandated agreements with utilities are ever held to be invalid, NRG may be unable to replace such contracts, which could have a material adverse effect on NRG's business, financial condition, results of operations and cash flows. NRG's ownership interest in a nuclear power facility subjects the Company to regulations, costs and liabilities uniquely associated with these types of facilities. Under the Atomic Energy Act of 1954, as amended, or AEA, ownership and operation of STP, of which NRG indirectly owns a 44% interest, is subject to regulation by the NRC. Such regulation includes licensing, inspection, enforcement, testing, evaluation and modification of all aspects of nuclear reactor power plant design and operation, environmental and safety performance, technical and financial qualifications, decommissioning funding assurance and transfer and foreign ownership restrictions. The current facility operating licenses for STP expire on August 20, 2047 (Unit 1) and December 15, 2048 (Unit 2). 46 47 There are unique risks to owning and operating a nuclear power facility. These include liabilities related to the handling, treatment, storage, disposal, transport, release and use of radioactive materials, particularly with respect to spent nuclear fuel, and uncertainties regarding the ultimate, and potential exposure to, technical and financial risks associated with modifying or decommissioning a nuclear facility. The NRC could require the shutdown of the plant for safety reasons or refuse to permit restart of the unit after unplanned or planned outages. New or amended NRC safety and regulatory requirements may give rise to additional operation and maintenance costs and capital expenditures. Additionally, aging equipment may require more capital expenditures to keep each of these nuclear power plants operating efficiently. This equipment is also likely to require periodic upgrading and improvement. Any unexpected failure, including failure associated with breakdowns, forced outages, or any unanticipated capital expenditures, could result in reduced profitability. STP will be obligated to continue storing spent nuclear fuel if the U.S. DOE continues to fail to meet its contractual obligations to STP made pursuant to the U.S. Nuclear Waste Policy Act of 1982 to accept and dispose of STP's spent nuclear fuel. See also Item 1 — Regulatory Matters — Nuclear Operations - Decommissioning Trusts and Item 1 — Environmental Matters — Federal Environmental Initiatives — Nuclear Waste for further discussion. Costs associated with these risks could be substantial and could have a material adverse effect on NRG's results of operations, financial condition or cash flow to the extent not covered by the Decommissioning Trusts or recovered from ratepayers. In addition, to the extent that all or a part of STP is required by the NRC to permanently or temporarily shut down or modify its operations, or is otherwise subject to a forced outage, NRG may incur additional costs to the extent it is obligated to provide power from more expensive alternative sources — either NRG's own plants, third party generators or the ERCOT — to cover the Company's then existing forward sale obligations. Such shutdown or modification could also lead to substantial costs related to the storage and disposal of radioactive materials and spent nuclear fuel. While STP maintains property and liability insurance for losses related to nuclear operations, there may be limitations on the amounts and types of insurance commercially available. See also Item 15 — Note 22, Commitments and Contingencies, Nuclear Insurance. An accident at STP or another nuclear facility could have a material adverse effect on NRG's financial condition, its operational results, or liquidity as losses may exceed the insurance coverage available and/or may result in the obligation to pay retrospective premium obligations. NRG is subject to environmental laws that impose extensive and increasingly stringent requirements on the Company's ongoing operations, as well as potentially substantial liabilities arising out of environmental contamination. These environmental requirements and liabilities could adversely impact NRG's results of operations, financial condition and cash flows. NRG is subject to the environmental laws of foreign and U.S., federal, state and local authorities. The Company must comply with numerous environmental laws and obtain numerous governmental permits and approvals to build and operate the Company's plants. Federal and state environmental laws generally have become more stringent over time, although this trend could slow or pause. Should NRG fail to comply with any environmental requirements that apply to its operations, the Company could be subject to administrative, civil and/or criminal liability and fines, and regulatory agencies could take other actions seeking to curtail the Company's operations. In addition, when new requirements take effect or when existing environmental requirements are revised, reinterpreted or subject to changing enforcement policies, NRG's business, results of operations, financial condition and cash flows could be adversely affected. NRG's businesses are subject to physical, market and economic risks relating to potential effects of climate change. Climate change is producing changes in weather and other environmental conditions, including temperature and precipitation levels, and thus may affect consumer demand for electricity. In addition, the potential physical effects of climate change, such as increased frequency and severity of storms, floods and other climatic events, could disrupt NRG's operations and supply chain, and cause them to incur significant costs in preparing for or responding to these effects. These or other meteorological changes could lead to increased operating costs, capital expenses or power purchase costs. NRG's commercial and residential customers may also experience the potential physical impacts of climate change and may incur significant costs in preparing for or responding to these efforts, including increasing the mix and resiliency of their energy solutions and supply. Climate change could also affect the availability of a secure and economical supply of water in some locations, which is essential for the continued operation of NRG's generation plants. Water risk is monitored by the risk owners (individual plant operators) and reported to Company management upon changes with a significance threshold of 20% in water consumption and withdrawal levels. If it is determined that a water supply risk exists that could impact projected generation levels at any plant within the subsequent two year time frame, risk mitigation efforts are identified and economically evaluated for implementation. Water risk regarding the impact for barge delivery is evaluated on a daily basis, with contingency plans developed as needed. GHG regulation could increase the cost of electricity generated by fossil fuels, and such increases could reduce demand for the power NRG generates and markets. Also, demand for NRG's energy-related services could be similarly impacted by consumers’ preferences or market factors favoring energy efficiency, low-carbon power sources or reduced electricity usage. Policies at the national, regional and state levels to regulate GHG emissions, as well as mitigate climate change, could adversely impact NRG's results of operations, financial condition and cash flows. NRG's GHG emissions for 2017 can be found in Item 1, Business — Environmental Matters. In 2015, the EPA promulgated the final GHG emissions rules for new and existing fossil-fuel-fired electric generating units, which have been stayed by the U.S. Supreme Court and the EPA has proposed repealing. The Company operates generating units in Connecticut, Delaware, Maryland, and New York that are subject to RGGI, which is a regional cap and trade system. In 2013, each of these states finalized a rule that reduced and will continue to reduce the number of allowances through 2020. The nine RGGI states re-evaluated the program and published a model rule to further reduce the number of allowances. The revisions being currently contemplated could adversely impact NRG's results of operations, financial condition and cash flows. California has a CO2 cap and trade program for electric generating units greater than 25 MW. The impact on the Company depends on the cost of the allowances and the ability to pass these costs through to customers. Hazards customary to the power production industry include the potential for unusual weather conditions, which could affect fuel pricing and availability, the Company's route to market or access to customers, i.e., transmission and distribution lines, or critical plant assets. The contribution of climate change to the frequency or intensity of weather-related events could affect NRG's operations and planning process. NRG's retail businesses are subject to changing state rules and regulations that could have a material impact on the profitability of its business lines. The competitiveness of NRG's retail businesses partially depends on state regulatory policies that establish the structure, rules, terms and conditions on which services are offered to retail customers. These state policies, which can include controls on the retail rates NRG's retail businesses can charge, the imposition of additional costs on sales, restrictions on the Company's ability to obtain new customers through various marketing channels and disclosure requirements, which can affect the competitiveness of NRG's retail businesses. Additionally, state or federal imposition of net metering or RPS programs can make it more or less expensive for retail customers to supplement or replace their reliance on grid power. NRG's retail businesses have limited ability to influence development of these policies, and its business model may be more or less effective, depending on changes to the regulatory environment. The Company's international operations are exposed to political and economic risks, commercial instability and events beyond the Company's control in the countries in which it operates, which risks may negatively impact the Company's business. The Company's international operations depend on products manufactured, purchased and sold in the U.S. and internationally, including in countries with political and economic instability. In some cases, these countries have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than in NRG's other markets. The Company's business could be negatively impacted by adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for the Company's products. Operating and seeking to expand business in a number of different regions and countries exposes the Company to a number of risks, including: • multiple and potentially conflicting laws, regulations and policies that are subject to change; • • • • imposition of currency restrictions on repatriation of earnings or other restraints; imposition of burdensome tariffs or quotas; national and international conflict, including terrorist acts; and political and economic instability or civil unrest that may severely disrupt economic activity in affected countries. The occurrence of one or more of these events may negatively impact the Company's business, results of operations and financial condition. 48 49 Risks Related to Economic and Financial Market Conditions NRG's level of indebtedness could adversely affect its ability to raise additional capital to fund its operations or return capital to stockholders. It could also expose it to the risk of increased interest rates and limit its ability to react to changes in the economy or its industry. NRG's substantial debt could have negative consequences, including: increasing NRG's vulnerability to general economic and industry conditions; requiring a substantial portion of NRG's cash flow from operations to be dedicated to the payment of principal and interest on its indebtedness, therefore reducing NRG's ability to pay dividends to holders of its preferred or common stock or to use its cash flow to fund its operations, capital expenditures and future business opportunities; limiting NRG's ability to enter into long-term power sales or fuel purchases which require credit support; exposing NRG to the risk of increased interest rates because certain of its borrowings, including borrowings under its senior secured credit facility are at variable rates of interest; limiting NRG's ability to obtain additional financing for working capital including collateral postings, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and limiting NRG's ability to adjust to changing market conditions and placing it at a competitive disadvantage compared to its competitors who have less debt. • • • • • • The indentures for NRG's notes and senior secured credit facility contain financial and other restrictive covenants that may limit the Company's ability to return capital to stockholders or otherwise engage in activities that may be in its long-term best interests. Furthermore, financial and other restrictive covenants contained in any project level subsidiary debt may limit the ability of NRG to receive distributions from such subsidiary. NRG's failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of the Company's indebtedness. In addition, NRG's ability to arrange financing, either at the corporate level, a non-recourse project-level subsidiary or otherwise, and the costs of such capital, are dependent on numerous factors, including: • • • general economic and capital market conditions; credit availability from banks and other financial institutions; investor confidence in NRG, its partners and the regional wholesale power markets; • NRG's financial performance and the financial performance of its subsidiaries; • NRG's level of indebtedness and compliance with covenants in debt agreements; • maintenance of acceptable credit ratings; • • cash flow; and provisions of tax and securities laws that may impact raising capital. NRG may not be successful in obtaining additional capital for these or other reasons. The failure to obtain additional capital from time to time may have a material adverse effect on its business and operations. Adverse economic conditions could adversely affect NRG’s business, financial condition, results of operations and cash flows. Adverse economic conditions and declines in wholesale energy prices, partially resulting from adverse economic conditions, may impact NRG’s earnings. The breadth and depth of negative economic conditions may have a wide-ranging impact on the U.S. business environment, including NRG’s businesses. In addition, adverse economic conditions also reduce the demand for energy commodities. Reduced demand from negative economic conditions continues to impact the key domestic wholesale energy markets NRG serves. The combination of lower demand for power and increased supply of natural gas has put downward price pressure on wholesale energy markets in general, further impacting NRG’s energy marketing results. In general, economic and commodity market conditions will continue to impact NRG’s unhedged future energy margins, liquidity, earnings growth and overall financial condition. In addition, adverse economic conditions, declines in wholesale energy prices, reduced demand for power and other factors may negatively impact the trading price of NRG’s common stock and impact forecasted cash flows, which may require NRG to evaluate its goodwill and other long-lived assets for impairment. Any such impairment could have a material impact on NRG’s financial statements. Goodwill and/or other intangible assets not subject to amortization that NRG has recorded in connection with its acquisitions are subject to mandatory annual impairment evaluations and as a result, the Company could be required to write off some or all of this goodwill and other intangible assets, which may adversely affect the Company's financial condition and results of operations. In accordance with ASC 350, Intangibles — Goodwill and Other, or ASC 350, goodwill is not amortized but is reviewed annually or more frequently for impairment and other intangibles are also reviewed at least annually or more frequently, if certain conditions exist, and may be amortized. Any reduction in or impairment of the value of goodwill or other intangible assets will result in a charge against earnings which could materially adversely affect NRG's reported results of operations and financial position in future periods. A valuation allowance may be required for NRG's deferred tax assets. A valuation allowance may need to be recorded against the Company's remaining net deferred tax assets, which are predominantly related to NRG Yield, Inc., that the Company estimates as more likely than not to be unrealizable, based on available evidence including cumulative and forecasted pretax book earnings at the time the estimate is made. Currently, the Company has recorded a valuation allowance of approximately $1.8 billion against NRG's net deferred tax assets that are not related to NRG Yield, Inc. A valuation allowance related to deferred tax assets can be affected by changes to tax laws, statutory tax rates and future taxable income levels. In the event that the Company determines that it would not be able to realize all or a portion of its net deferred tax assets in the future, the Company would reduce such amounts accordingly through a charge to income tax expense in the period in which that determination was made, which could have a material adverse impact on the Company's financial condition and results of operations. The Company has made investments, and may continue to make investments, in new business initiatives predominantly focused on consumer products and in markets that may not be successful, may not achieve the intended financial results or may result in product liability and reputational risk that could adversely affect the Company. NRG continues to pursue growth in its existing businesses and markets and further diversification across the competitive energy value chain. NRG is continuing to pursue investment opportunities in renewables, consumer products and distributed generation. Such initiatives may involve significant risks and uncertainties, including distraction of management from current operations, inadequate return on capital, and unidentified issues not discovered in the diligence performed prior to launching an initiative or entering a market. As part of these initiatives, the Company may be liable to customers for any damage caused to customers’ homes, facilities, belongings or property during the installation of Company products and systems, such as residential solar systems and mass market back-up generators. In addition, shortages of skilled labor for Company projects could significantly delay a project or otherwise increase its costs. The products that the Company sells or manufactures may expose the Company to product liability claims relating to personal injury, death, or environmental or property damage, and may require product recalls or other actions. Although the Company maintains liability insurance, the Company cannot be certain that its coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to the Company on economically reasonable terms, or at all. Further, any product liability claim or damage caused by the Company could significantly impair the Company’s brand and reputation, which may result in a failure to maintain customers and achieve the Company’s desired growth initiatives in these new businesses. 50 51 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION • NRG's ability to achieve its strategy of regularly returning capital to stockholders; • NRG's ability to obtain and maintain retail market share; • NRG's ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives; • NRG's ability to successfully integrate, realize cost savings and manage any acquired businesses; and • NRG's ability to develop and maintain successful partnering relationships. Forward-looking statements speak only as of the date they were made, and NRG Energy, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in any forward- looking statements included in this Annual Report on Form 10-K should not be construed as exhaustive. Item 1B — Unresolved Staff Comments None. This Annual Report on Form 10-K of NRG Energy, Inc., or NRG or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. The words "believes," "projects," "anticipates," "plans," "expects," "intends," "estimates" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause NRG's actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Item 1A — Risk Factors Related to NRG Energy, Inc. and the following: • NRG's ability to achieve the expected benefits of its Transformation Plan; • NRG's ability to engage in successful sales and divestitures as well as mergers and acquisitions activity; • The potential adverse effects of the GenOn Entities' filings under Chapter 11 of the Bankruptcy Code and restructuring transactions on NRG's operations, management and employees and the risks associated with operating NRG's business during the restructuring process; • Risks and uncertainties associated with the GenOn Entities' Chapter 11 Cases including the ability to achieve anticipated benefits therefrom; • General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel; • Volatile power supply costs and demand for power; • Changes in law, including judicial decisions; • Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions (including wind and solar conditions), catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards; • The effectiveness of NRG's risk management policies and procedures, and the ability of NRG's counterparties to satisfy their financial commitments; • Counterparties' collateral demands and other factors affecting NRG's liquidity position and financial condition; • NRG's ability to operate its businesses efficiently and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations; • NRG's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices; • The liquidity and competitiveness of wholesale markets for energy commodities; • Government regulation, including changes in market rules, rates, tariffs and environmental laws; • Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately and fairly compensate NRG's generation units; • NRG's ability to mitigate forced outage risk for units subject to capacity performance requirements in PJM, performance incentives in ISO-NE, and scarcity pricing in ERCOT; • NRG's ability to borrow funds and access capital markets, as well as NRG's substantial indebtedness and the possibility that NRG may incur additional indebtedness going forward; • Operating and financial restrictions placed on NRG and its subsidiaries that are contained in the indentures governing NRG's outstanding notes, in NRG's Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally; • Cyber terrorism and inadequate cybersecurity, or the occurrence of a catastrophic loss and the possibility that NRG may not have adequate insurance to cover losses resulting from such hazards or the inability of NRG's insurers to provide coverage; • NRG's ability to develop and build new power generation facilities; • NRG's ability to develop and innovate new products as retail and wholesale markets continue to change and evolve; • NRG's ability to implement its strategy of finding ways to meet the challenges of climate change, clean air and protecting natural resources while taking advantage of business opportunities; • NRG's ability to increase cash from operations through operational and commercial initiatives, corporate efficiencies, asset strategy, and a range of other programs throughout NRG to reduce costs or generate revenues; • NRG's ability to sell assets to NRG Yield, Inc. and to close drop-down transactions; 52 53 Item 2 — Properties Listed below are descriptions of NRG's interests in facilities, operations and/or projects owned or leased as of December 31, 2017. The MW figures provided represent nominal summer net MW capacity of power generated as adjusted for the Company's owned or leased interest excluding capacity from inactive/mothballed units as of December 31, 2017. The following table summarizes NRG's power production and cogeneration facilities by region: Power Market Plant Type Primary Fuel Location Rated MW Capacity Net MW Capacity(a) % Owned Name of Facility Gulf Coast Bayou Cove(i) Big Cajun I(i) Big Cajun II(i) Big Cajun II(i) Big Cajun II(i) Cedar Bayou Cedar Bayou 4 Cottonwood(i) Greens Bayou Gregory Limestone Petra Nova Cogen San Jacinto South Texas Project(b) Sterlington(i) T.H. Wharton W.A. Parish W.A. Parish East/West Arthur Kill Astoria Turbines Conemaugh & Keystone Conemaugh & Keystone Connecticut Jet Power Devon Doga Encina(f) Fisk Gladstone Indian River Indian River Joliet(c) Long Beach Middletown Midway-Sunset Montville Oswego Powerton(c) Saguaro MISO MISO MISO MISO MISO ERCOT ERCOT MISO ERCOT ERCOT ERCOT ERCOT ERCOT ERCOT MISO ERCOT ERCOT ERCOT NYISO NYISO PJM PJM ISO-NE ISO-NE CAISO PJM PJM PJM PJM CAISO ISO-NE CAISO ISO-NE NYISO PJM WECC Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Natural Gas Natural Gas Coal Natural Gas Coal Natural Gas Natural Gas Natural Gas Natural Gas Natural Gas Coal Natural Gas Natural Gas Nuclear Uranium Natural Gas Natural Gas Coal Natural Gas LA LA LA LA LA TX TX TX TX TX TX TX TX TX LA TX TX TX 225 430 580 540 588 1,495 498 1,263 344 388 1,689 44 162 2,582 176 1,025 2,504 1,145 225 430 580 540 341 1,495 249 1,263 344 388 1,689 22 162 1,136 176 1,025 2,504 1,145 Total Gulf Coast 15,678 13,714 NY NY PA PA CT CT Turkey CA IL AUS DE DE IL CA CT CA CT NY IL NV Natural Gas Natural Gas Coal Oil Oil Oil Natural Gas Natural Gas Oil Coal Coal Oil Natural Gas Natural Gas Oil Natural Gas Oil Oil Coal Natural Gas 54 858 404 3,343 20 142 133 180 859 172 1,613 410 16 1,326 260 770 226 494 1,639 1,538 92 858 404 125 1 142 133 144 859 172 605 410 16 1,326 260 770 113 494 1,639 1,538 46 Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil 100.0 100.0 100.0 100.0 58.0 100.0 50.0 100.0 100.0 100.0 100.0 50.0 100.0 44.0 100.0 100.0 100.0 100.0 100.0 100.0 3.7 3.7 100.0 100.0 80.0 100.0 100.0 37.5 100.0 100.0 100.0 100.0 100.0 50.0 100.0 100.0 100.0 50.0 Name of Facility Power Market Plant Type Primary Fuel Location Rated MW Capacity Net MW Capacity(a) % Owned East/West (continued) San Diego Turbines(d) SMECO Sunrise Vienna Watson Waukegan Waukegan Will County CAISO PJM CAISO PJM CAISO PJM PJM PJM Fossil Fossil Fossil Fossil Fossil Fossil Fossil Fossil Natural Gas Natural Gas Natural Gas Oil Natural Gas Coal Oil Coal CA MD CA MD CA IL IL IL 61 78 586 167 416 682 108 510 61 78 586 167 204 682 108 510 Total East/West 17,103 12,451 Renewables Agua Caliente(g)(j) Blythe II Broken Bow(g) Cedro Hill(g) Crofton Bluffs(g) Distributed Solar Eastridge(h) Guam(j) Ivanpah(g)(j) Langford Wind Farm Mountain Wind I(g) Mountain Wind II(g) Sherbino Wind Farm(j) Spanish Town(j) Stadiums(j) NRG Yield Agua Caliente(g) Alpine Alta Wind Avenal Avra Valley Blythe Borrego Buffalo Bear CAISO/WECC Renewable Solar CAISO MISO ERCOT MISO Renewable Solar Renewable Wind Renewable Wind Renewable Wind AZNMSNV/WECC Renewable Solar MISO CAISO ERCOT WECC WECC ERCOT Renewable Wind Renewable Solar Renewable Solar Renewable Wind Renewable Wind Renewable Wind Renewable Wind Renewable Solar Renewable Solar CAISO/WECC Renewable Solar CAISO CAISO CAISO CAISO CAISO CAISO SPP Renewable Solar Renewable Wind Renewable Solar Renewable Solar Renewable Solar Renewable Solar Renewable Wind California Valley Solar Ranch CAISO/WECC Renewable Solar Crosswinds Desert Sunlight Distributed Solar Dover Cogeneration El Segundo Elbow Creek Elkhorn Ridge Forward Four Brothers Solar MISO CAISO Various PJM CAISO ERCOT MISO PJM WECC Renewable Wind Renewable Solar Renewable Solar Fossil Fossil Natural Gas Natural Gas Renewable Wind Renewable Wind Renewable Wind Renewable Solar 55 AZ CA NE TX NE various MN Guam CA TX WY WY TX USVI various 290 20 80 150 42 179 10 26 392 150 61 80 150 4 6 102 20 13 47 8 179 10 26 196 150 19 25 75 4 6 Total Renewables 1,640 880 AZ CA CA CA AZ CA CA OK OK CA IA various DE CA TX NE PA UT 290 66 947 45 26 21 26 19 250 21 550 27 103 550 122 81 29 320 46 66 947 23 26 21 26 19 250 21 138 27 103 550 122 54 29 160 100.0 100.0 100.0 100.0 49.0 100.0 100.0 100.0 35.0 100.0 16.0 31.0 20.0 100.0 99.0 100.0 50.1 100.0 31.0 31.0 50.0 100.0 100.0 16.0 100.0 100.0 50.0 100.0 100.0 100.0 100.0 100.0 99.0 25.0 100.0 100.0 100.0 100.0 66.7 100.0 50.0 Name of Facility Power Market Plant Type Primary Fuel Location Rated MW Capacity Net MW Capacity(a) % Owned Thermal Facilities ISO-NE ISO-NE ERCOT WECC MISO WECC WECC WECC MISO PJM CAISO MISO PJM PJM PJM WECC MISO SPP Various ERCOT WECC WECC SPP WECC ISO-NE ERCOT CAISO NRG Yield (continued) GenConn Devon GenConn Middletown Goat Mountain Wind Granite Mountain Hardin High Desert Iron Springs Kansas South Laredo Ridge Lookout Marsh Landing Odin Paxton Creek Cogeneration Pinnacle Princeton Hospital(e) Roadrunner San Juan Mesa Sleeping Bear SPP projects South Trent Wind Farm Spanish Fork, UT Spring Canyon II and III Taloga Tucson Convention Center University of Bridgeport Wildorado Walnut Creek Other Residential solar Fossil Fossil Dual-fuel Dual-fuel Renewable Wind Renewable Solar Renewable Wind Renewable Solar Renewable Solar Renewable Solar Renewable Wind Renewable Wind Fossil Natural Gas Renewable Wind Fossil Natural Gas Renewable Wind Fossil Natural Gas Renewable Solar Renewable Wind Renewable Wind Renewable Solar Renewable Wind Renewable Wind Renewable Wind Renewable Wind Fossil Fossil Natural Gas Natural Gas Renewable Wind Fossil Natural Gas CT CT TX UT IA CA UT CA NE PA CA MN PA WV NJ NM NM OK various TX UT CO OK AZ CT TX CA Total NRG Yield NRG's Noncontrolling Interest Net NRG Yield 50.0 50.0 100.0 50.0 99.0 100.0 50.0 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0 100.0 75.0 100.0 100.0 100.0 100.0 90.1 100.0 100.0 100.0 100.0 100.0 190 190 150 130 15 20 80 20 80 38 95 95 150 65 15 20 40 20 80 38 720 720 20 12 55 5 20 120 95 25 101 19 60 130 2 1 161 485 6,437 20 12 55 5 20 90 95 25 101 19 54 130 2 1 161 485 5,241 (2,353) 2,888 Renewable Solar various Total Other 114 114 114 114 100.0 Total 40,972 30,047 (a) Actual capacity can vary depending on factors including weather conditions, operational conditions, and other factors. Additionally, ERCOT requires periodic demonstration of capability, and the capacity may vary individually and in the aggregate from time to time. (b) Generation capacity figure consists of the Company's 44% interest in the two units at STP. (c) NRG leases 100% interests in the Powerton facility and Units 7 and 8 of the Joliet facility through facility lease agreements expiring in 2034 and 2030, respectively. NRG owns 100% interest in Joliet Unit 6. NRG operates the Powerton and Joliet facilities. (d) These units are located on property owned by SDG&E under an annual license agreement. The Miramar and El Cajon sites (51 MW) retired on January, 1, 2017. (e) The output of Princeton Hospital is primarily dedicated to serving the hospital. Excess power is sold to the local utility under its state-jurisdictional tariff. (f) Encina Unit 1 was deactivated on March 31, 2017. (g) Capacity attributable to noncontrolling interest for these Renewables facilities was 685 MWs as of December 31, 2017. (h) (i) Assets that are part of NRG's South Central business. (j) Assets that are not included in the announced sale of NRG's ownership in NRG Yield, Inc. Agua Caliente remains as a ROFO asset under the ROFO In January 2018, NRG sold the Eastridge assets to a third party. Agreement between NRG and NRG Yield, Inc. The Company's thermal businesses in Pittsburgh, Harrisburg and San Francisco are regulated by their respective state's Public Utility Commission. The other thermal businesses are subject to contract terms with their customers. The Company's thermal businesses are owned by NRG Yield LLC. The following table summarizes NRG's thermal steam and chilled water facilities as of December 31, 2017: Name and Location of Facility NRG Energy Center Minneapolis, MN NRG Energy Center San Francisco, CA NRG Energy Center Omaha, NE NRG Energy Center Harrisburg, PA NRG Energy Center Phoenix, AZ Thermal Energy Purchaser Approx 100 steam and 55 chilled water customers Approx 180 steam customers Approx 60 steam and 65 chilled water customers Approx 125 steam and 5 chilled water customers Approx 35 chilled water customers NRG Energy Center Pittsburgh, PA Approx 25 steam and NRG Energy Center San Diego, CA NRG Energy Center Dover, DE NRG Energy Center Princeton, NJ 25 chilled water customers Approx 20 chilled water customers Kraft Foods Inc. and Procter & Gamble Company Princeton HealthCare System Total Generating Capacity (MWt) % Owned 100 100 Rated Megawatt Thermal Equivalent Capacity (MWt) Net Megawatt Thermal Equivalent Capacity (MWt) Generating Capacity 322 136 133 322 136 133 Steam: 1,100 MMBtu/hr. Chilled water: 38,700 tons Steam: 454 MMBtu/hr. 100 12(a) 100 0(a) 100 Steam: 485 MMBtu/hr Steam: 250 MMBtu/hr Chilled water: 22,000 tons Chilled water: 7,250 tons 142 9 77 0 142 73 77 26 108 13 108 13 Steam: 370 MMBtu/hr. Chilled water: 3,600 tons 24(a) 100 12(a) 0(a) 100 100 100 100 5 104 14 28 88 49 31 66 21 17 1 104 2 0 88 49 Steam: 17 MMBtu/hr Chilled water: 29,600 tons Chilled water: 3,920 tons Chilled water: 8,000 tons Steam: 302 MMBtu/hr. Chilled water: 13,874 tons 31 Chilled water: 8,825 tons 66 Steam: 225 MMBtu/hr. 21 17 Steam: 72 MMBtu/hr. Chilled water: 4,700 tons 1,453 1,319 (a) Net MWt capacity excludes 134 MWt available under the right-to-use provisions contained in agreements between two of NRG Yield Inc.'s thermal facilities and certain of its customers. Other Properties NRG owns several real properties and facilities related to its generation assets, other vacant real property unrelated to the Company's generation assets, interests in construction projects, and properties not used for operational purposes. NRG believes it has satisfactory title to its plants and facilities in accordance with standards generally accepted in the electric power industry, subject to exceptions that, in the Company's opinion, would not have a material adverse effect on the use or value of its portfolio. NRG leases its financial and commercial corporate headquarters at 804 Carnegie Center, Princeton, New Jersey, its operational headquarters in Houston, Texas, its retail business offices and call centers, and various other office space. 56 57 Item 3 — Legal Proceedings PART II See Item 15 — Note 22, Commitments and Contingencies, to the Consolidated Financial Statements for discussion of the Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities material legal proceedings to which NRG is a party. Item 4 — Mine Safety Disclosures Not applicable. Market Information and Holders and Dividends NRG's authorized capital stock consists of 500,000,000 shares of NRG common stock and 10,000,000 shares of preferred stock. A total of 25,000,000 shares of the Company's common stock are authorized for issuance under the NRG LTIP. No shares of NRG common stock were available for future issuance under the NRG GenOn LTIP. For more information about the NRG LTIP and the NRG GenOn LTIP, refer to Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and Item 15 — Note 20, Stock-Based Compensation, to the Consolidated Financial Statements. NRG's common stock is listed on the New York Stock Exchange and has been assigned the symbol: NRG. The high and low sales prices, as well as the closing price for the Company's common stock on a per share basis for 2017 and 2016 are set forth below: Common Stock Price High Low Closing Dividends Per Common Share Fourth Quarter 2017 Third Quarter 2017 Second Quarter 2017 First Quarter 2017 Fourth Quarter 2016 Third Quarter 2016 Second Quarter 2016 First Quarter 2016 $ $ 29.78 24.55 28.48 $ 26.25 15.95 25.59 $ 19.07 14.52 17.22 $ 18.95 12.19 18.70 $ 13.06 9.84 12.26 $ 16.02 10.70 11.21 $ 18.32 11.69 14.99 14.47 8.92 13.01 $ 0.030 $ 0.030 $ 0.030 $ 0.030 $ 0.030 $ 0.030 $ 0.030 $ 0.145 NRG had 316,743,089 shares outstanding as of December 31, 2017. As of January 31, 2018, there were 317,637,917 shares outstanding, and there were 21,150 common stockholders of record. On January 19, 2018, NRG declared a quarterly dividend on the Company's common stock of $0.030 per share, or $0.12 per share on an annualized basis, payable on February 15, 2018, to stockholders of record as of February 1, 2018. The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws and regulations. 58 59 Stock Performance Graph The performance graph below compares NRG's cumulative total stockholder return on the Company's common stock for the period December 31, 2012 through December 31, 2017 with the cumulative total return of the Standard & Poor's 500 Composite Stock Price Index, or S&P 500, and the Philadelphia Utility Sector Index, or UTY. NRG's common stock trades on the New York Stock Exchange under the symbol "NRG." The performance graph shown below is being furnished and compares each period assuming that $100 was invested on December 31, 2012, in each of the common stock of NRG, the stocks included in the S&P 500 and the stocks included in the UTY, and that all dividends were reinvested. Comparison of Cumulative Total Return NRG Energy, Inc. S&P 500 UTY Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 $ $ 100.00 100.00 100.00 $ 127.02 132.39 110.98 $ 121.33 150.51 143.09 54.56 152.59 134.14 $ 58.06 170.84 157.47 $ 135.68 208.14 177.66 Item 6 — Selected Financial Data The following table presents NRG's historical selected financial data. This historical data should be read in conjunction with the Consolidated Financial Statements and the related notes thereto in Item 15 and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company has completed several acquisitions and dispositions, as described in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions. Year Ended December 31, 2017 2016 2015 2014 2013 (In millions except ratios and per share data) $ 8,820 (8,944) $ 12,810 (13,033) (15) 895 (459) 198 (99) (308) (43) (386) 323 323 324 $ — (72) 204 134 334 339 337 0.23 0.54 $ (1.22) 0.45 34.68 $ 32.33 1,559 2,757 0.98 0.89 $ 1,149 2,767 0.36 0.36 $ $ $ $ Statement of income data: Total operating revenues Total operating costs and other expenses (a) Impairment losses (b) Operating (loss)/income Impairment losses on investments Loss from continuing operations, net (Loss)/income from discontinued operations, net Net (loss)/income attributable to NRG Energy, Inc. Common share data: Basic shares outstanding — average Diluted shares outstanding — average Shares outstanding — end of year Per share data: $ 10,629 $ 10,512 $ 12,328 (10,484) (10,633) (12,612) (1,709) (587) (79) (1,548) (789) $ (2,153) 317 317 317 (702) 266 (268) (983) 92 (774) 316 316 315 (4,860) (4,051) (56) (6,331) (105) $ (6,382) 329 329 314 $ Net (loss)/income attributable to NRG — basic and diluted $ (6.79) $ (2.22) $ (19.46) Dividends declared per common share Book value Business metrics: Cash flow from operations Liquidity position (c) Ratio of earnings to fixed charges Ratio of earnings to fixed charges and preferred dividends Return on equity Ratio of debt to total capitalization Balance sheet data: Current assets Current liabilities Property, plant and equipment, net Total assets Long-term debt, including current maturities, and capital leases Total stockholders' equity (a) Excludes impairment losses and impairment losses on investments. 0.12 6.20 $ 0.24 0.58 $ 14.09 $ 17.29 $ 1,387 $ 2,088 $ 1,349 3,210 (0.52) (0.52) 2,373 0.29 0.29 2,418 (4.01) (3.88) (109.40)% (17.41)% (117.45)% 1.15% (3.69)% 88.70 % 77.75 % 72.58 % 56.98% 52.81 % $ 4,415 $ 6,714 $ 7,619 $ 8,784 $ 7,776 3,317 13,908 23,318 4,702 15,369 30,682 4,602 15,901 33,125 5,236 19,321 40,856 4,381 16,676 34,081 16,404 16,473 16,698 17,047 13,485 $ 1,968 $ 4,446 $ 5,434 $ 11,676 $ 10,467 (b) Includes goodwill impairment as described in Item 15 - Note 11, Goodwill and Other Intangibles, to the Consolidated Financial Statements. (c) Liquidity position is determined as disclosed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources, Liquidity Position. It excludes collateral funds deposited by counterparties of $37 million, $2 million, and $91 million as of December 31, 2017, 2016 and 2015, respectively, which represents cash held as collateral from hedge counterparties in support of energy risk management activities. It is the Company's intention to limit the use of these funds for repayment of the related current liability for collateral received in support of energy risk management activities. 60 61 The following table provides the details of NRG's operating revenues: Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations Energy revenue Capacity revenue Retail revenue Mark-to-market for economic hedging activities Contract amortization Other revenues Corporate/Eliminations Total operating revenues(a) 2017 3,549 1,197 6,385 21 (56) 490 (957) 10,629 $ $ $ $ (a) Inter-segment sales and net derivative gains and losses included in operating revenues. 2014 2016 $ Year Ended December 31, 2015 (In millions) 4,923 $ 1,368 6,910 (143) (40) 425 (1,115) 12,328 4,122 1,236 6,336 (572) (56) 543 (1,097) 10,512 $ $ 4,960 1,201 7,372 690 (12) 536 (1,937) 12,810 $ $ 2013 3,638 936 6,315 (185) (32) 287 (2,139) 8,820 Energy revenue consists of revenues received from third parties as well as from the Company's retail businesses, for sales of electricity in the day-ahead and real-time markets, as well as bilateral sales. It also includes energy sold through long-term PPAs for renewable facilities. In addition, energy revenue includes revenues from the settlement of financial instruments and net realized trading revenues. Capacity revenue consists of revenues received from a third party at either the market or negotiated contract rates for making installed generation capacity available in order to satisfy system integrity and reliability requirements. Capacity revenue also includes revenues from the settlement of financial instruments. In addition, capacity revenue includes revenues received under tolling arrangements, which entitle third parties to dispatch NRG's facilities and assume title to the electrical generation produced from that facility. Retail revenue, representing operating revenues of NRG's retail businesses, consists of revenues from retail sales to residential, small business, commercial, industrial and governmental/institutional customers, revenues from the sale of excess supply into various markets, primarily in Texas, as well as product sales. Mark-to-market for economic hedging activities includes asset-backed hedges that have not been designated as cash flow hedges and ineffectiveness on cash flow hedges. Contract amortization revenue consists of the amortization of the intangible assets for net in-market C&I contracts established in connection with the acquisitions of Reliant Energy and Green Mountain Energy, as well as acquired power contracts, gas derivative instruments, and certain power sales agreements assumed at Fresh Start and Texas Genco purchase accounting dates related to the sale of electric capacity and energy in future periods. These amounts are amortized into revenue over the term of the underlying contracts based on actual generation or contracted volumes. Other revenues include revenues generated by the Thermal Business consisting of revenues received from the sale of steam, hot and chilled water generally produced at a central district energy plant and sold to commercial, governmental and residential buildings for space heating, domestic hot water heating and air conditioning. It also includes the sale of high-pressure steam produced and delivered to industrial customers that is used as part of an industrial process. Other revenues also consists of operations and maintenance fees, or O&M fees, construction management services, or CMA fees, sale of natural gas and emission allowances, and revenues from ancillary services. O&M fees consist of revenues received from providing certain unconsolidated affiliates with services under long-term operating agreements. CMA fees are earned where NRG provides certain management and oversight of construction projects pursuant to negotiated agreements such as for the GenConn, Cedar Bayou 4 and certain solar construction projects. Ancillary services are comprised of the sale of energy-related products associated with the generation of electrical energy such as spinning reserves, reactive power and other similar products. Other revenues also include unrealized trading activities. The discussion and analysis below has been organized as follows: • Executive Summary, including the business environment in which NRG operates, a discussion of regulation, weather, competition and other factors that affect the business, and significant events that are important to understanding the results of operations and financial condition; • Results of operations, including an explanation of significant differences between the periods in the specific line items of NRG's Consolidated Statements of Operations; • Financial condition addressing credit ratings, liquidity position, sources and uses of cash, capital resources and requirements, commitments, and off-balance sheet arrangements; and • Critical accounting policies which are most important to both the portrayal of the Company's financial condition and results of operations, and which require management's most difficult, subjective or complex judgment. As you read this discussion and analysis, refer to NRG's Consolidated Statements of Operations to this Form 10-K, which presents the results of the Company's operations for the years ended December 31, 2017, 2016, and 2015, and also refer to Item 1 to this Form 10-K for more detailed discussion about the Company's business. Executive Summary NRG Energy, Inc., or NRG or the Company, is a leading integrated power company built on the strength of a diverse competitive electric generation portfolio and leading retail electricity platform. NRG aims to create a sustainable energy future by producing, selling and delivering electricity and related products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. The Company owns and operates approximately 30,000 MW of generation; trades wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG”, "Reliant" and other retail brand names owned by NRG. Business Environment The industry dynamics and external influences affecting the Company and its businesses, and the power generation and retail energy industry in general in 2017 and for the future medium term include: Capacity Markets — Capacity markets are a major source of revenue for the Company. Centralized capacity markets exist in ISO-NE, MISO, NYISO and PJM. Bilateral markets exist in CAISO and MISO. These auctions are either an annual market held three years ahead of the delivery period as in the case of PJM and ISO-NE, or six months to one month ahead as in the case of NYISO. Many variables affect the prices derived in these auctions. These variables include the load forecast, the target reserve margin, rules surrounding demand response, capacity performance penalties, capacity imports and exports from the region, new generation entrants, slope of the demand curve, generation retirements, the cost of retrofitting old generation to meet new environmental rules, expected profitability of the units themselves in the energy market and various other auction rules. In theory, a high capacity price indicates that the ISO doesn't have sufficient generation capacity against its needed reserve margin and new construction should enter the market. Similarly, a low capacity price suggests the market is over-built and units should retire. The Company has seen many swings in the pricing for capacity markets and the rules in many of the markets are undergoing significant changes, as discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Commodities Markets — The price of natural gas plays an important role in setting the price of electricity in many of the regions where NRG operates power plants. 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, and the financial and hedging profile of natural gas consumers and producers. In 2017, average natural gas prices at Henry Hub were 26.3% higher than in 2016. If long-term gas prices decrease, the Company is likely to encounter lower realized energy prices, leading to lower energy revenues as higher priced hedge contracts mature and are replaced by contracts with lower gas and power prices. NRG's retail gross margins have historically improved as natural gas prices decline and are likely to partially offset the impact of declining gas prices on conventional wholesale power generation. To further mitigate this impact, NRG may increase its percentage of coal and nuclear capacity sold forward using a variety of hedging instruments, as described under the heading "Energy-Related Commodities" in Item 15 — Note 5, Accounting for Derivative Instruments and Hedging Activities, to the Consolidated Financial Statements. 62 63 Natural gas prices are a primary driver of coal demand. The low priced commodity environment has stressed coal equities, leading coal suppliers to file for bankruptcy protection, launch debt exchanges, rationalize assets, and cut production. If multiple parties withdraw from the market, liquidity could be challenged in the short term. Inventory overhang will be utilized to offset production losses. Coal prices are typically affected by the price of natural gas. Electricity Prices — The price of electricity is a key determinant of the profitability of the Company. Many variables such as the price of different fuels, weather, load growth and unit availability all coalesce to impact the final price for electricity and the Company's profitability. 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, 2017, 2016, and 2015. For the year ended December 31, 2017 as compared to the same period in 2016, the average on-peak power prices increased primarily due to the increase in natural gas prices. For the year ended December 31, 2016 as compared to the same period in 2015 the average on-peak power prices decreased primarily due to the decrease in natural gas prices. Region Gulf Coast (a) ERCOT - Houston(b) ERCOT - North(b) MISO - Louisiana Hub(c) East/West NY J/NYC(c) NEPOOL(c) COMED (PJM)(c) PJM West Hub(c) CAISO - NP15(c) CAISO - SP15(c) Average on Peak Power Price ($/MWh) Year Ended December 31 2016 2015 2017 2017 vs 2016 Change % 2016 vs 2015 Change % $ 33.95 $ 26.91 $ 25.86 40.02 38.34 37.18 32.46 34.14 35.68 36.48 24.53 34.30 35.29 35.05 32.11 33.79 31.73 31.17 28.15 27.61 34.55 46.42 48.25 34.13 41.97 35.50 32.45 26% 5% 17% 9% 6% 1% 1% 12% 17% (4)% (11)% (1)% (24)% (27)% (6)% (19)% (11)% (4)% (a) Gulf Coast region also transacts in PJM - West Hub. (b) Average on-peak power prices based on real time settlement prices as published by the respective ISOs. (c) Average on-peak power prices based on day ahead settlement prices as published by the respective ISOs. The following table summarizes average realized power prices for each region in which NRG operates for the years ended December 31, 2017, 2016, and 2015, which reflects the impact of settled hedges. Region Gulf Coast East/West Average Realized Power Price ($/MWh) Year Ended December 31 2016 2015 2017 2017 vs 2016 Change % 2016 vs 2015 Change % $ $ 36.43 62.07 $ 43.34 64.16 42.89 68.79 (16)% (3)% 1 % (7)% Though the average on peak power prices have increased on average by 9% for the year ended December 31, 2017 as compared to the same period in 2016, and decreased on average by 15% for the year ended December 31, 2016 as compared to the same period in 2015, average realized prices by region for the Company were driven by the Company's multi-year hedging program and the success of the Company's commercial operations team in optimizing the value of the Company's assets on a daily basis. Environmental Regulatory Landscape — The MATS rule, finalized in 2012, had been the primary regulatory force behind the decision to retrofit, repower or retire uncontrolled coal fired power plants. In June 2015, the U.S. Supreme Court held that the EPA unreasonably refused to consider costs when it determined to regulate HAPs emitted by electric generating units. The U.S. Supreme Court did not vacate the MATS rule but rather remanded it to the D.C. Circuit for further proceedings. In December 2015, the D.C. Circuit remanded the MATS rule to the EPA without vacatur. On April 25, 2016, the EPA released a supplemental finding that the benefits of this regulation outweigh the costs to address the U.S. Supreme Court's ruling that the EPA had not properly considered costs. This finding has been challenged in the D.C. Circuit. On April 18, 2017, the EPA asked the D.C. Circuit to postpone oral argument that had been scheduled for May 18, 2017 because the EPA is closely reviewing the supplemental finding to determine whether it should reconsider all or part of the rule. On April 27, 2017, the D.C. Circuit granted the EPA's request to postpone the oral argument and hold the case in abeyance. A number of regulations on GHGs, ambient air quality, coal combustion byproducts and water use with the potential for increased capital costs or operational impacts have been finalized and are under review by the courts and being re-evaluated by the current Administration. The design, timing and stringency of these regulations and the legal outcomes will affect the decision to retrofit or retire existing fossil plants. See Item 1— Business, Environmental Matters, for further discussion. Public Policy Support and Government Financial Incentives for Clean Infrastructure Development — Policy mechanisms including production and investment tax credits, cash grants, loan guarantees, accelerated depreciation tax benefits, RPS, and carbon trading plans have been implemented at the state and federal levels to support the development of renewable generation, demand-side and smart grid, and other clean infrastructure technologies. The availability and continuation of public policy support mechanisms will drive a significant part of the economics of the Company's development program. In December 2015, the U.S. Congress enacted an extension of the 30% solar ITC so that projects that began construction in 2016 through 2019 will continue to qualify for the 30% ITC. Projects beginning construction in 2020 and 2021 will be eligible for the ITC at the rates of 26% and 22% respectively. The same legislation also extended the 10 year wind PTC for wind projects that began construction in years 2016 through 2019. Wind projects that begin construction in the years 2017, 2018 and 2019 are eligible for PTC at 80%, 60% and 40% of the statutory rate per kilowatt hour respectively. Weather — Weather conditions in the regions of the U.S. in which NRG does business influence the Company's financial results. Weather conditions can affect the supply and demand for electricity and fuels. Weather may also impact the availability of the Company's generating assets. 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. The demand for and price of natural gas is also generally higher in the winter. However, all regions of the U.S. typically do not experience extreme weather conditions at the same time, thus NRG is typically not exposed to the effects of extreme weather in all parts of its business at once. Wind and Solar Resource Availability — The availability of the wind and solar resources affects the financial performance of the wind and solar facilities, which may impact the Company’s overall financial performance. Due to the variable nature of the wind and solar resources, the Company cannot predict the availability of the wind and solar resources and the potential variances from expected performance levels from quarter to quarter. To the extent the wind and solar resources are not available at expected levels, it could have a negative impact on the Company’s financial performance for such periods. ERCOT Retirements — A number of announced retirement notices of coal generating facilities owned by others in Texas could lower reserve margins in ERCOT. This trend of retirement notices could have an effect on the Company’s results of operations and future business performance, particularly in the ERCOT market. Net Impact of Tax Reform — The Tax Cuts and Jobs Act of 2017, or the Tax Act, which was signed into law on December 22, 2017, makes significant changes to the taxation of U.S. businesses. These changes include a permanent reduction to the federal corporate income tax rate, changes in the deductibility of interest on certain debt obligations and limiting the amount of NOL available to offset taxable income, among other things. The Tax Act requires the Company to revalue its deferred tax assets, which reduced the Company’s deferred tax assets by $733 million offset by valuation allowance of $660 million. In addition, the Company established a non-current receivable for its refundable AMT credits of $64 million, net of sequestration. The net impact of the Tax Act on net income is a decrease of $9 million due to the expense of $73 million resulting from the Company's revaluation of its net deferred tax asset, partially offset by a $64 million benefit from establishing the AMT credit receivable. 64 65 Other Factors — A number of other factors significantly influence the level and volatility of prices for energy commodities Significant Events and related derivative products for NRG's business. These factors include: NRG Transformation Plan • • • • • • • seasonal, daily and hourly changes in demand; extreme peak demands; available supply resources; transportation and transmission availability and reliability within and between regions; location of NRG's generating facilities relative to the location of its load-serving opportunities; procedures used to maintain the integrity of the physical electricity system during extreme conditions; and changes in the nature and extent of federal and state regulations. • NRG is in process of executing its Transformation Plan. The three-part, three-year plan is comprised of targets in the areas of operational and cost excellence, portfolio optimization, and capital structure and allocation enhancement. For further discussion, refer to Item 1 - Business. • During 2017, NRG received cash proceeds from asset sales in the amount of $150 million, which includes the sales to NRG Yield, Inc. (also included below in Transfers of Assets Under Common Control) and sale of Minnesota wind projects to third parties. • On February 6, 2018, NRG entered into a purchase and sale agreement with GIP to sell NRG's ownership in NRG Yield, These factors can affect energy commodity and derivative prices in different ways and to different degrees. These effects Inc. and NRG's renewables platform for a total purchase price of $1.375 billion, subject to certain conditions. may vary throughout the country as a result of regional differences in: • weather conditions; • market liquidity; • • • capability and reliability of the physical electricity and gas systems; local transportation systems; and the nature and extent of electricity deregulation. Environmental Matters, Regulatory Matters and Legal Proceedings — Details of environmental matters are presented in Item 15 — Note 24, Environmental Matters, to the Consolidated Financial Statements and Item 1— Business, Environmental Matters, section. Details of regulatory matters are presented in Item 15 — Note 23, Regulatory Matters, to the Consolidated Financial Statements and Item 1— Business, Regulatory Matters, section. Details of legal proceedings are presented in Item 15 — Note 22, Commitments and Contingencies, to the Consolidated Financial Statements. Some of this information relates to costs that may be material to the Company's financial results. • On February 6, 2018, NRG entered into a purchase and sale agreement with Cleco to sell NRG's South Central business for a total purchase price of $1.0 billion, subject to certain adjustments. • On January 24, 2018, the Company entered into an agreement with NRG Yield, Inc. to sell 100% of its ownership interest in Buckthorn Solar for cash consideration of $42 million, subject to other adjustments. • On February 6, 2018, the Company entered into an agreement with NRG Yield, Inc. to sell 100% of the membership interests in Carlsbad Energy Holdings LLC, which owns the Carlsbad project, a 527 MW natural gas fired project in Carlsbad, CA, pursuant to the ROFO Agreement. The purchase price for the transaction is $365 million in cash consideration, subject to customary working capital and other adjustments. • On February 23, 2018, the Company entered into an agreement to sell BETM to a third party for $70 million. The transaction is expected to close in the second half of 2018 and is subject to various customary closing conditions, approvals and consents. GenOn Chapter 11 Bankruptcy Filing • On June 14, 2017, the GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On December 12, 2017, the Bankruptcy Court entered an order confirming the plan of reorganization. For further discussion, refer to Item 15 — Note 1, Nature of Business, Note 3, Discontinued Operations, Acquisitions and Dispositions, and Note 21, Related Party Transactions, to the Consolidated Financial Statements. Tax Act • As of December 31, 2017, as a result of the Tax Act, the Company reduced its deferred tax assets by $733 million offset by valuation allowance of $660 million. In addition, the Company established a non-current receivable for its refundable AMT credits of $64 million, net of sequestration. The net impact of the Tax Act on net income is a decrease of $9 million primarily due to the expense of $73 million resulting from the Company's revaluation of its net deferred tax asset, partially offset by a $64 million benefit from establishing the AMT credit receivable. Transfers of Assets Under Common Control • During 2017, the Company completed the sale of several projects totaling 555 MW to NRG Yield, Inc. for aggregate cash consideration of approximately $245 million, as discussed in more detail in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions, to the Consolidated Financial Statements. Financing Activities • Debt Issuances — During 2017, the Company issued approximately $0.9 billion in recourse debt, approximately $0.8 billion in non-recourse debt and repriced the 2023 Term Loan Facility as discussed in more detail in Item 15 - Note 12, Debt and Capital Leases, to the Consolidated Financial Statements. • Debt Repurchases — During 2017, the Company repurchased $1.5 billion in aggregate principal of outstanding Senior Notes for approximately $1.5 billion, including accrued interest, as discussed in more detail in Item 15 - Note 12, Debt and Capital Leases, to the Consolidated Financial Statements. 66 67 Extreme Weather Events • • In late August 2017, Hurricane Harvey made landfall on the Texas coast. During the third quarter of 2017, the Company’s Retail business was impacted by Hurricane Harvey by approximately $20 million. In addition, during August 2017, NRG's Cottonwood generating station was damaged when the Sabine River Authority opened the floodgates of the Toledo Bend reservoir, which resulted in downstream flooding of the Sabine River. The generating station was returned to service during the fourth quarter of 2017. The Company estimates the impact of the Cottonwood damage and Hurricane Harvey on Gulf Coast Generation to be approximately $20 million. Impairments • • Impairment losses — During 2017, the Company recorded impairment losses of $1.7 billion as discussed in more detail in Item 15 — Note 10, Asset Impairments and Note 11, Goodwill and Other Intangibles, to the Consolidated Financial Statements. Impairment losses on Investments — During 2017, the Company recorded impairment losses of $79 million related primarily to Petra Nova, as discussed in more detail in Item 15 — Note 10, Asset Impairments, to the Consolidated Financial Statements. Operational Matters Bacliff Project On June 16, 2017, the Company provided notice to BTEC New Albany, LLC that NRG Texas Power LLC was exercising its right to terminate the Amended and Restated Membership Interest Purchase Agreement, or MIPA, due to the Bacliff Project, a new peaking facility at the former P.H. Robinson Electric Generating Station, not achieving commercial completion by the contractual expiration date of May 31, 2017. On July 14, 2017, the Company gave notice to BTEC New Albany, LLC that it owes NRG Texas Power LLC approximately $48 million under the terminated MIPA, consisting of $38 million in purchaser incurred costs and $10 million in liquidated damages. On July 18, 2017, BTEC filed a lawsuit alleging that NRG Texas Power LLC breached the MIPA by improperly terminating it, and seeks a declaratory judgment as to the rights and obligations of the parties. On August 14, 2017, NRG filed its answer. On September 7, 2017, NRG filed a counterclaim for breach of contract seeking damages in excess of $48 million. Consolidated Results of Operations for the years ended 2017 and 2016 The following table provides selected financial information for the Company: (in millions except otherwise noted) Operating Revenues Energy revenue (a) Capacity revenue (a) Retail revenue Mark-to-market for economic hedging activities Contract amortization Other revenues (b) Total operating revenues Operating Costs and Expenses Cost of sales (b) Mark-to-market for economic hedging activities Contract and emissions credit amortization (c) Operations and maintenance Other cost of operations Total cost of operations Depreciation and amortization Impairment losses Selling, general and administrative Reorganization costs Development costs Total operating costs and expenses Other income - affiliate Gain/(loss) on sale of assets Operating (Loss)/ Income Other Income/(Expense) Equity in earnings of unconsolidated affiliates Impairment losses on investments Other income, net Net loss on debt extinguishment Interest expense Total other (expense)/income Loss from Continuing Operations Before Income Taxes Income tax expense Loss from Continuing Operations (Loss)/income from discontinued operations, net of income tax Net Loss Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net Loss Attributable to NRG Energy, Inc. Business Metrics Average natural gas price — Henry Hub ($/MMBtu) Includes realized gains and losses from financially settled transactions. Includes unrealized trading gains and losses. (a) (b) (c) Includes amortization of SO2 and NOx credits and excludes amortization of RGGI credits. Year Ended December 31, 2017 2016 Change $ 2,461 1,186 6,388 239 (56) 411 10,629 5,698 46 34 1,393 365 7,536 1,056 1,709 907 44 67 11,319 87 16 (587) 31 (79) 38 (53) (890) (953) (1,540) 8 (1,548) (789) (2,337) $ 3,131 1,225 6,357 (642) (56) 497 10,512 5,827 (508) 43 1,599 340 7,301 1,172 702 1,095 — 89 10,359 193 (80) 266 27 (268) 34 (142) (895) (1,244) (978) 5 (983) 92 (891) (670) (39) 31 881 — (86) 117 129 (554) 9 206 (25) (235) 116 (1,007) 188 (44) 22 (960) (106) 96 (853) 4 189 4 89 5 291 (562) 3 (565) (881) (1,446) (184) (2,153) $ (117) (774) $ (67) (1,379) 3.11 $ 2.46 26% $ $ $ 68 69 Gross Margin The Company calculates gross margin in order to evaluate operating performance as operating revenues less cost of sales, which includes cost of fuel, other costs of sales, contract and emission credit amortization and mark-to-market for economic hedging activities. 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. 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. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as the sum of energy revenue, capacity revenue and other revenue, less cost of fuels and other cost of sales. Economic gross margin does not include mark-to-market gains or losses on economic hedging activities, contract amortization, emission credit amortization, or other operating costs. The tables below present the composition and reconciliation of gross margin and economic gross margin which reflects the Company's current view of reporting segments for the years ended December 31, 2017 and 2016: Year Ended December 31, 2017 (In millions except otherwise noted) Energy revenue Capacity revenue Retail revenue Mark-to-market for economic hedging activities Contract amortization Other revenue(b) Operating revenue Cost of fuel Other costs of sales(c) Mark-to-market for economic hedging activities Contract and emission credit amortization Generation Gulf Coast East/ West(a) $ 1,806 $ 266 — 72 14 186 2,344 (994) (344) (20) (30) 830 585 — (35) — 49 1,429 (401) (238) 11 (4) Subtotal Retail Renewables $ 2,636 $ — $ 359 $ 851 — 37 14 235 3,773 (1,395) — 6,385 (4) (1) — 6,380 (12) (582) (4,756) (9) (34) 181 — — — (12) — 77 424 (4) (11) — — NRG Yield Corporate/ Eliminations Total 554 346 — — (69) 178 1,009 (35) (28) — — $ (1,088) $ (11) 3 218 — (79) (957) 45 1,080 (218) — 2,461 1,186 6,388 239 (56) 411 10,629 (1,401) (4,297) (46) (34) Gross margin $ 956 $ 797 $ 1,753 $ 1,793 $ 409 $ 946 $ (50) $ 4,851 Less: Mark-to-market for economic hedging activities, net Less: Contract and emission credit amortization, net 52 (16) (24) 28 177 (4) (20) (1) (12) — — (69) — — 193 (90) Economic gross margin $ 920 $ 825 $ 1,745 $ 1,617 $ 421 $ 1,015 $ (50) $ 4,748 Business Metrics MWh sold (thousands)(d)(e) MWh generated (thousands)(f) 53,802 49,574 19,954 13,373 3,836 3,836 6,880 8,761 (a) Includes International, BETM and Generation eliminations. (b) Renewables Other revenue includes $29 million of intercompany revenue to NRG Yield. (c) Includes purchased energy, capacity and emissions credits. (d) MWh sold excludes generation at facilities in the West and NRG Yield that generate revenue under tolling agreements. (e) Does not include MWh of 35 thousand or MWt of 1,926 thousand for thermal sold by NRG Yield. (f) Does not include MWh of 108 thousand or MWt of 1,926 thousand for thermal generated by NRG Yield. Year Ended December 31, 2016 Generation Gulf Coast East/ West(a) Subtotal Retail Renewables NRG Yield Corporate/ Eliminations Total $ 2,073 $ 1,098 $ 3,171 $ — $ 369 $ Mark-to-market for economic hedging activities (518) (In millions except otherwise noted) Energy revenue Capacity revenue Retail revenue Contract amortization Other revenue (b) Operating revenue Cost of fuel Other costs of sales(c) Mark-to-market for economic hedging activities Contract and emission credit amortization 293 — 15 237 598 — (48) — 85 2,100 1,733 (938) (387) 71 (29) (469) (299) 2 (5) 891 — (566) 15 322 — 6,336 — (1) — 3,833 (1,407) 6,335 (8) (686) (4,679) 73 (34) 365 (6) — — (6) (1) 44 406 (3) (11) — — Gross margin $ 817 $ 962 $ 1,779 $ 2,007 $ 392 $ 968 $ Less: Mark-to-market for economic hedging activities, net Less: Contract and emission credit amortization, net (447) (46) (493) 365 (14) (5) (19) (7) (6) (1) — (75) Economic gross margin $ 1,278 $ 1,013 $ 2,291 $ 1,649 $ 399 $ 1,043 $ Business Metrics MWh sold (thousands)(d)(e) MWh generated (thousands)(f) 52,929 47,828 25,995 17,114 3,827 3,827 7,363 9,264 (a) Includes International, BETM and Generation eliminations. (b) Renewables Other revenue includes $19 million of intercompany revenue to NRG Yield. (c) Includes purchased energy, capacity and emissions credits. (d) MWh sold excludes generation at facilities in the West and NRG Yield that generate revenue under tolling agreements. (e) Does not include MWh of 71 thousand or MWt of 1,966 thousand for thermal sold by NRG Yield. (f) Does not include MWh of 275 thousand or MWt of 1,966 thousand for thermal generated by NRG Yield. The table below represents the weather metrics for 2017 and 2016: 582 345 — — (69) 177 $ (991) $ (11) 21 (70) — (46) 1,035 (1,097) (33) (28) — (6) 3,131 1,225 6,357 (642) (56) 497 10,512 (1,321) (4,506) 508 (43) $ 5,150 (134) (99) $ 5,383 130 898 70 3 4 — 3 1 Years ended December 31, Quarters ended December 31, Quarters ended September 30, Quarters ended June 30, Quarters ended March 31, Weather Metrics Gulf Coast(b) East/West Gulf Coast(b) East/West Gulf Coast(b) East/West Gulf Coast(b) East/West Gulf Coast(b) East/West 2017 CDDs(a) HDDs(a) 2016 CDDs HDDs 10 year average CDDs HDDs 2,949 1,383 2,966 1,529 2,904 1,903 1,155 3,199 1,169 3,191 1,043 3,504 296 710 362 545 249 736 84 1,157 71 1,145 67 1,227 1,528 1 1,655 — 1,617 6 770 34 806 23 705 40 921 41 873 53 957 75 281 380 273 410 254 438 204 631 76 931 81 1,086 20 1,628 19 1,613 17 1,799 (a) National Oceanic and Atmospheric Administration-Climate Prediction Center - A Cooling Degree Day, or CDD, represents the number of degrees that the mean temperature for a particular day is above 65 degrees Fahrenheit in each region. A Heating Degree Day, or HDD, represents the number of degrees that the mean temperature for a particular day is below 65 degrees Fahrenheit in each region. The CDDs/HDDs for a period of time are calculated by adding the CDDs/HDDs for each day during the period. (b) CDDs/HDDs for the Gulf Coast region represent an average of cumulative population-weighted CDDs/HDDs for Texas and the West South-Central Climate region. 70 71 Generation gross margin and economic gross margin Generation gross margin decreased $26 million and economic gross margin decreased $546 million, both of which include intercompany sales, during the year ended December 31, 2017 compared to the same period in 2016. The tables below describe the changes in Generation gross margin and in economic gross margin: Gulf Coast Region Lower gross margin due to a 14% decrease in average realized prices primarily in Texas due to lower hedged power prices Lower energy margins due to increased supply cost on load contracts Lower capacity margins on contract expirations and lower demand in South Central business Lower gross margin due to lower gas generation driven by the current mothball status of Gregory in Texas Lower gross margin due to a 24% decrease in ISO capacity prices and a 76% decrease in volume Higher gross margin due to a 17% increase in coal generation mainly in Texas driven by the timing of planned and unplanned outages Other Decrease in economic gross margin Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges Decrease in contract and emission credit amortization Increase in gross margin East/West Region Lower gross margin from commercial optimization activities Lower gross margin due to a decrease in generation driven by lower economic generation due to milder weather conditions and the Will County outage Lower gross margin due to lower load contracted prices coupled with slightly lower volumes Lower gross margin due to a lower cost of market adjustment for fuel oil inventory Lower gross margin by BETM due to higher gains in 2016 on over the counter strategies, offset in small part by higher gains in 2017 congestion strategies Other Decrease in economic gross margin Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges Increase in contract and emission credit amortization Decrease in gross margin (In millions) $ $ (315) (48) (27) (17) (14) 68 (5) (358) 499 (2) 139 (In millions) $ $ $ (59) (54) (28) (33) (20) 6 (188) 22 1 (165) Retail gross margin and economic gross margin The following is a discussion of gross margin and economic gross margin for Retail. (In millions except otherwise noted) Retail revenue Supply management revenue Capacity revenues Customer mark-to-market Contract amortization Other Operating revenue (a) Cost of sales (b) Mark-to-market for economic hedging activities Contract amortization Gross margin Less: Mark-to-market for economic hedging activities, net Less: Contract and emission credit amortization Economic gross margin Business Metrics Mass electricity sales volume (GWh) - Gulf Coast Mass electricity sales volume (GWh) - All other regions C&I electricity sales volume (GWh) All regions (c) Natural gas sales volumes (MDth) Average Retail Mass customer count (in thousands) Ending Retail Mass customer count (in thousands) $ $ $ Years ended December 31, 2017 2016 $ $ $ 6,115 187 83 (4) (1) — 6,380 (4,768) 181 — 1,793 177 (1) 1,617 36,169 6,221 20,400 3,212 2,863 2,876 6,100 154 82 — (1) — 6,335 (4,687) 365 (6) 2,007 365 (7) 1,649 35,102 6,764 18,906 2,199 2,778 2,818 (a) (b) (c) Includes intercompany sales of $5 million and $4 million in 2017 and 2016, respectively, representing sales from Retail to the Gulf Coast region. Includes intercompany purchases of $1,035 million and $850 million in 2017 and 2016, respectively. Includes volumes for 2017 for one customer that self-supplied their volumes for all of 2016 versus only two months in 2017. Retail gross margin decreased $214 million and economic gross margin decreased $32 million for the year ended December 31, 2017, compared to the same period in 2016, due to: Lower gross margin due to lower rates to customers driven by customer product, term, and mix of $103 million or approximately $1.60 per MWh, partially offset by lower supply costs of $28 million or approximately $0.50 per MWh driven primarily by a decrease in power prices at the time of procurement Lower gross margin due to milder weather conditions in 2017 as compared to 2016 resulting in a reduction in load of 350,000 MWh Lower gross margin related to the impact of Hurricane Harvey in 2017, driven by $9 million due to a reduction in load of 200,000 MWh, and the unfavorable impact of selling back excess supply along with $7 million of customer relief Higher gross margin driven by higher average customer counts of 85,000 along with higher average usage due to customer mix Decrease 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 and emission credit amortization Decrease in gross margin Renewables gross margin and economic gross margin (In millions) $ $ $ (75) (11) (16) 70 (32) (188) 6 (214) Renewables gross margin increased $17 million and economic gross margin increased $22 million for the year ended December 31, 2017, compared to the same period in 2016, primarily driven by new distributed generation solar projects placed in service, increased margin in operations and maintenance agreements which focus on servicing NRG Yield assets and receipt of insurance proceeds offsetting lower volume at the Ivanpah solar plant. 72 73 NRG Yield gross margin and economic gross margin NRG Yield gross margin decreased $22 million and economic gross margin decreased $28 million for the year ended December 31, 2017, compared to the same period in 2016, primarily due to a 5% decrease in volume generated at our Alta Wind and NRG Wind TE Holdco projects, due to lower wind resources. Mark-to-market for Economic Hedging Activities Mark-to-market for economic hedging activities includes asset-backed hedges that have not been designated as cash flow hedges. Total net mark-to-market results increased by $327 million during the year ended December 31, 2017, compared to the same period in 2016. The breakdown of gains and losses included in operating revenues and operating costs and expenses by region was as follows: Generation Gulf Coast East/ West Year Ended December 31, 2017 Retail Renewables Elimination (a) Total (In millions) Mark-to-market results in operating revenues Reversal of previously recognized unrealized losses/ (gains) on settled positions related to economic hedges $ 107 $ (40) $ (2) $ 1 $ 64 $ (35) 5 (2) (13) 154 $ 72 $ (35) $ (4) $ (12) $ 218 $ 130 109 239 Net unrealized (losses)/gains on open positions related to economic hedges Total mark-to-market gains/(losses) in operating revenues Mark-to-market results in operating costs and expenses Reversal of previously recognized unrealized gains on settled positions related to economic hedges Net unrealized (losses)/gains on open positions related to economic hedges Total mark-to-market (losses)/gains in operating costs and expenses (a) Represents the elimination of the intercompany activity between Retail and Generation. $ (17) $ (1) $ (1) $ — $ (64) $ (83) (3) 12 182 — (154) 37 $ (20) $ 11 $ 181 $ — $ (218) $ (46) Year Ended December 31, 2016 Generation Gulf Coast East/ West Retail Renewables (In millions) NRG Yield Elimination(a) Total Mark-to-market results in operating revenues Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges Net unrealized (losses)/gains on open positions related to economic hedges Total mark-to-market losses in operating revenues Mark-to-market results in operating costs and expenses Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges Reversal of acquired gain positions related to economic hedges Net unrealized gains/(losses) on open positions related to economic hedges Total mark-to-market gains in operating costs and expenses $ (389) $ (89) $ (2) $ — $ — $ 33 $ (447) (129) 41 2 (6) — (103) (195) $ (518) $ (48) $ — $ (6) $ — $ (70) $ (642) $ 31 $ 16 $ 305 $ — $ — $ (33) $ 319 — 40 (12) (2) — 60 — — — — — 103 $ 71 $ 2 $ 365 $ — $ — $ 70 $ (12) 201 508 (a) Represents the elimination of the intercompany activity between Retail and Generation. Mark-to-market results consist of unrealized gains and losses on contacts that are yet to be settled. The settlement of these transactions is reflected in the same revenue or cost caption as the items being hedged. 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, 2017, the $239 million gain in operating revenues from economic hedge positions was driven primarily by the reversal of previously recognized unrealized losses on contracts that settled during the period and an increase in value of open positions as a result of decreases in gas prices. The $46 million 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 partially offset by an increase in the value of open positions as a result of increases in ERCOT heat rate. 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, 2017 and 2016. The realized and unrealized financial and physical trading results are included in operating revenue. The Company's trading activities are subject to limits within the Company's Risk Management Policy and are primarily transacted through BETM. (In millions) Trading gains/(losses) Realized Unrealized Total trading gains Year ended December 31, 2017 2016 $ $ 43 (11) 32 $ $ 71 28 99 74 75 Operations and Maintenance Expense Depreciation and Amortization Generation Gulf Coast East/West Retail Renewables NRG Yield Corporate Eliminations Total (In millions) Generation Retail Renewables NRG Yield Corporate Total (In millions) Year Ended December 31, 2017 Year Ended December 31, 2016 $ $ 515 577 $ $ 371 488 $ $ 222 245 $ $ 118 122 $ $ 196 176 $ $ 15 27 $ $ (44) $ (36) $ 1,393 1,599 Year Ended December 31, 2017 Year Ended December 31, 2016 $ $ 377 516 $ $ 117 111 $ $ 196 185 $ $ 334 303 $ $ 32 57 $ $ 1,056 1,172 Operations and maintenance expenses decreased by $206 million for the year ended December 31, 2017, compared to the same period in 2016, due to the following: Depreciation and amortization expense decreased by $116 million for the year ended December 31, 2017, compared to the same period in 2016, due to the Jewett Mine being fully depreciated in December 2016 as well as impairments in 2016. (In millions) Impairment Losses Decrease in operation and maintenance expenses due to major maintenance activities and environmental control work at Midwest Generation offset by higher variable operating costs Decrease in operations and maintenance expenses due to timing of planned outages in Texas Decrease in operations and maintenance expenses due to lower expenses at Big Cajun II in 2017 Decrease in operations and maintenance expenses due to the deactivation of the Huntley and Dunkirk facilities in 2016 Decrease in Retail operation and maintenance expenses due to reduced headcount Decrease in operations and maintenance expense due to a reduction in headcount related to the sale of the engine services business Operations and maintenance expense increased due to forced outages at Walnut Creek and El Segundo in 2017 Other Other Cost of Operations $ $ (96) (32) (24) (18) (22) (10) 20 (24) (206) Generation Gulf Coast East/West Retail Renewables NRG Yield Corporate Total For the year ended December 31, 2017, the Company recorded impairment losses of $1,709 million related to various facilities as further described in Item 15 — Note 10, Asset Impairments and Note 11, Goodwill and Other Intangibles, to the Consolidated Financial Statements. In 2016, the Company recorded impairment losses of $702 million related to various facilities, as well as goodwill for its Texas reporting units, as further described in Item 15 — Note 10, Asset Impairments and Note 11, Goodwill and Other Intangibles, to the Consolidated Financial Statements. Selling, General and Administrative Expenses Year Ended December 31, 2017 Year Ended December 31, 2016 $ $ 207 265 $ $ 452 498 $ $ (In millions) 56 61 $ $ 22 17 $ $ 170 254 $ $ 907 1,095 Generation Retail Renewables NRG Yield Corporate Total Selling, general and administrative expenses decreased by $188 million for the year ended December 31, 2017 compared to the same period in 2016. The decrease in year over year expenses is due primarily to a reduction in personnel costs and selling and marketing activities as the Company continues to focus on cost management. (In millions) Reorganization Costs Year Ended December 31, 2017 Year Ended December 31, 2016 $ $ 101 95 $ $ 76 66 $ $ 100 93 $ $ 21 20 $ $ 67 65 $ $ — $ 1 $ 365 340 Other cost of operations, increased by $25 million for the year ended December 31, 2017, compared to the same period in 2016. Increase in asset retirement expenses of $18 million in the East, offset by a reduction in property taxes at Huntley and Dunkirk Increase in expense due to a $10 million sales tax audit settlement received in 2016, offset slightly by a decrease in gross receipt taxes in 2017 Increase of $14 million in reclamation expenses at the Jewett Mine, offset by favorable tax assessments related to coal plants in Texas Other (In millions) $ $ 10 7 4 4 25 Reorganization costs of $44 million, primarily related to employee costs were incurred as part of the Transformation Plan announced in 2017. Other Income - Affiliate Other income - affiliate represents the services fees charged to GenOn for shared services under the Services Agreement through the June 14, 2017, the date of deconsolidation. Gain/(Loss) on Sale of Assets During the year ended December 31, 2017, the Company sold land and certain wind assets which resulted in gains of $16 million. During the year ended December 31, 2016, the Company sold a majority interest in its EVgo business to Vision Ridge Partners, which resulted in a loss on sale as described in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions, to the Consolidated Financial Statements. Impairment Losses on Investments For the year ended December 31, 2017, the Company recorded other-than-temporary impairment losses of $79 million, which is primarily due to an other-than-temporary impairment of the Company's investment in Petra Nova Parish Holdings, as further described in Item 15 — Note 10, Asset Impairments, to the Consolidated Financial Statements. For the year ended December 31, 2016, the Company recorded other-than-temporary impairment losses of $268 million, which is primarily due to other-than-temporary impairments on the Company's interests in Petra Nova Parish Holdings, Sherbino and Community Wind North, as further described in Item 15 — Note 10, Asset Impairments, to the Consolidated Financial Statements. 76 77 Loss on Debt Extinguishment Income from Discontinued Operations, Net of Income Tax For the year ended December 31, 2017, NRG recorded loss from discontinued operations, net of income tax (benefit)/expense of $789 million, related to GenOn, as further described in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions. For the year ended December 31, 2016, NRG recorded income from discontinued operations, net of income tax (benefit)/ expense of $92 million, related to GenOn, as further described in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions. Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was $184 million for the year ended December 31, 2017, compared to $117 million for the year ended December 31, 2016. For the years ended December 31, 2017, and 2016, the net losses attributable to noncontrolling interests primarily reflect losses allocated to tax equity investors using the hypothetical liquidation at book value, or HLBV, method, offset in part by NRG Yield, Inc.'s share of income for the period. A loss on debt extinguishment of $53 million was recorded for the year ended December 31, 2017, primarily driven by the redemption of NRG Senior Notes at a price above par value. A loss on debt extinguishment of $142 million was recorded for the year ended December 31, 2016, primarily driven by the repurchase of NRG Senior Notes at a price above par value and the write-off of the unamortized debt issuance costs related to the replacement of the 2018 Term Loan Facility with the new 2023 Term Loan Facility. Income Tax Expense For the year ended December 31, 2017, NRG recorded income tax expense of $8 million on a pre-tax loss of $1,540 million. For the same period in 2016, NRG recorded income tax expense of $5 million on a pre-tax loss of $978 million. The effective tax rate was (0.5)% and (0.5)% for the years ended December 31, 2017 and 2016, respectively. For the year ended December 31, 2017, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to tax expense recorded from the revaluation of the existing net deferred tax asset and state taxes, partially offset by the change in valuation allowance, establishing the AMT credit receivable and the generation of PTC's from various wind facilities. The tax expense recorded for revaluation of the net deferred tax asset is required to reflect the reduction in the corporate income tax rate from 35% to 21% in accordance with the Tax Act. Year Ended December 31, 2017 2016 (In millions except as otherwise stated) Loss before income taxes $ (1,540) $ Tax at 35% State taxes Foreign operations Tax Act - corporate income tax rate change Valuation allowance due to corporate income tax rate change Valuation allowance - current period activities Impact of non-taxable entity earnings Book goodwill impairment Net interest accrued on uncertain tax positions Production tax credits Recognition of uncertain tax benefits Tax expense attributable to consolidated partnerships State rate change including true-up to current period activity AMT refundable credit Other Income tax expense Effective income tax rate (539) 19 2 733 (660) 482 (5) 30 — (20) (5) 4 18 (64) 13 8 (0.5)% $ $ (978) (342) — 10 — — 398 22 — 1 (26) 2 (1) (59) — — 5 (0.5)% The effective income tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses and changes in valuation allowances in accordance with ASC 740, Income Taxes, or ASC 740. These factors and others, including the Company's history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets. 78 79 Consolidated Results of Operations for the years ended 2016 and 2015 Gross Margin The following table provides selected financial information for the Company: (In millions except otherwise noted) Operating Revenues Energy revenue (a) Capacity revenue (a) Retail revenue Mark-to-market for economic hedging activities Contract amortization Other revenues (b) Total operating revenues Operating Costs and Expenses Cost of sales (a) Mark-to-market for economic hedging activities Contract and emissions credit amortization (c) Operations and maintenance Other cost of operations Total cost of operations Depreciation and amortization Impairment losses Selling, general and administrative Development costs Total operating costs and expenses Other income - affiliate Loss on sale of assets Gain on postretirement benefits curtailment Operating Income/(Loss) Other Income/(Expense) Equity in earnings of unconsolidated affiliates Impairment losses on investments Other income, net Loss on sale of equity method investment Net (loss)/gain on debt extinguishment Interest expense Total other expense Loss from Continuing Operations Before Income Taxes Income tax expense Net Loss from Continuing Operations Income/(loss) from discontinued operations, net of tax Net Loss Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net Loss Attributable to NRG Energy, Inc. Business Metrics Average natural gas price — Henry Hub ($/MMBtu) Includes realized gains and losses from financially settled transactions. (a) (b) Includes unrealized trading gains and losses. (c) Includes amortization of SO2 and NOx credits and excludes amortization of RGGI. $ $ $ Year Ended December 31, 2016 2015 Change $ 3,131 1,225 6,357 (642) (56) 497 10,512 5,827 (508) 43 1,599 340 7,301 1,172 702 1,095 89 10,359 193 (80) — 266 27 (268) 34 — (142) (895) (1,244) (978) 5 (983) 92 (891) 3,867 1,361 6,867 (134) (40) 407 12,328 6,870 59 41 1,657 373 9,000 1,351 4,860 1,228 154 16,593 193 — 21 (4,051) 36 (56) 26 (14) 10 (937) (935) (4,986) 1,345 (6,331) (105) (6,436) $ (736) (136) (510) (508) (16) 90 (1,816) 1,043 567 (2) 58 33 1,699 179 4,158 133 65 6,234 — (80) (21) 4,317 (9) (212) 8 14 (152) 42 (309) 4,008 1,340 5,348 197 5,545 (63) 5,608 (117) (774) $ (54) (6,382) $ 2.46 $ 2.66 (8)% The Company calculates gross margin in order to evaluate operating performance as operating revenues less cost of sales, which includes cost of fuel, other costs of sales, contract and emission credit amortization and mark-to-market for economic hedging activities. 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. 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. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as the sum of energy revenue, capacity revenue and other revenue, less cost of fuels and other cost of sales. Economic gross margin does not include mark-to-market gains or losses on economic hedging activities, contract amortization, emission credit amortization, or other operating costs. The tables below present the composition and reconciliation of gross margin and economic gross margin which reflects the Company's current view of reporting segments for the years ended December 31, 2016 and 2015: Year Ended December 31, 2016 Generation Gulf Coast East/ West Subtotal Retail Renewables NRG Yield Corporate/ Eliminations Total $ 2,073 $ 1,098 $ 3,171 $ — $ 369 $ Mark-to-market for economic hedging activities (518) (In millions except otherwise noted) Energy revenue Capacity revenue Retail revenue Contract amortization Other revenue (a) Operating revenue Cost of fuel Other costs of sales(b) Mark-to-market for economic hedging activities Contract and emission credit amortization 293 — 15 237 598 — (48) — 85 2,100 1,733 (938) (387) 71 (29) (469) (299) 2 (5) 891 — (566) 15 322 — 6,336 — (1) — 3,833 (1,407) 6,335 (8) (686) (4,679) 73 (34) 365 (6) — — (6) (1) 44 406 (3) (11) — — Gross margin $ 817 $ 962 $ 1,779 $ 2,007 $ 392 $ 968 $ Less: Mark-to-market for economic hedging activities, net Less: Contract and emission credit amortization, net (447) (46) (493) 365 (14) (5) (19) (7) (6) (1) — (75) Economic gross margin $ 1,278 $ 1,013 $ 2,291 $ 1,649 $ 399 $ 1,043 $ Business Metrics MWh sold (thousands)(c)(d) MWh generated (thousands)(e) 52,929 47,828 25,995 17,114 3,827 3,827 7,363 9,264 (a) Renewables Other revenue includes $19 million of intercompany revenue to NRG Yield. (b) Includes purchased energy, capacity and emissions credits. (c) MWh sold excludes generation at facilities in the West and NRG Yield that generate revenue under tolling agreements. (d) Does not include MWh of 71 thousand or MWt of 1,966 thousand for thermal sold by NRG Yield. (e) Does not include MWh of 275 thousand or MWt of 1,966 thousand for thermal generated by NRG Yield. 582 345 — — (69) 177 $ (991) $ (11) 21 (70) — (46) 1,035 (1,097) (33) (28) — (6) 3,131 1,225 6,357 (642) (56) 497 10,512 (1,321) (4,506) 508 (43) $ 5,150 (134) (99) $ 5,383 130 898 70 3 4 — 3 1 80 81 (In millions except otherwise noted) Energy revenue Capacity revenue Retail revenue Mark-to-market for economic hedging activities Contract amortization Other revenue (a) Operating revenue Cost of fuel Other costs of sales(b) Mark-to-market for economic hedging activities Contract and emission credit amortization Year Ended December 31, 2015 Generation Gulf Coast East/ West Subtotal Retail Renewables NRG Yield Corporate/ Eliminations Total $ 2,443 $ 1,629 $ 4,072 $ — $ 356 $ 290 — (66) 15 207 2,889 (1,137) (355) (17) (28) 737 — (76) — — 2,290 (715) (442) (29) (7) 1,027 — (142) 15 207 5,179 (1,852) — 6,910 4 (1) — 6,913 (9) (797) (5,236) (46) (35) (4) (6) — — (3) — 30 383 (4) (12) — — 495 341 — (2) (54) 188 968 (43) (28) — — $ (1,056) $ (7) (43) 9 — (18) (1,115) 152 959 (9) — 3,867 1,361 6,867 (134) (40) 407 12,328 (1,756) (5,114) (59) (41) Gross margin $ 1,352 $ 1,097 $ 2,449 $ 1,658 $ 367 $ 897 $ (13) $ 5,358 Less: Mark-to-market for economic hedging activities, net Less: Contract and emission credit amortization, net (83) (105) (188) (13) (7) (20) — (7) (3) — (2) (54) — — (193) (81) Economic gross margin $ 1,448 $ 1,209 $ 2,657 $ 1,665 $ 370 $ 953 $ (13) $ 5,632 Business Metrics MWh sold (thousands)(c)(d) MWh generated (thousands)(e) 58,127 54,162 37,403 24,623 3,685 3,739 6,760 9,247 (a) Renewables Other revenue includes $11 million of intercompany revenue to NRG Yield. (b) Includes purchased energy, capacity and emissions credits. (c) MWh sold excludes generation at facilities in the West and NRG Yield that generate revenue under tolling agreements. (d) Does not include MWh of 297 thousand or MWt of 1,946 thousand for thermal sold by NRG Yield. (e) Does not include MWh of 297 thousand or MWt of 1,946 thousand for thermal generated by NRG Yield. The table below represents the weather metrics for 2016 and 2015: Years ended December 31, Quarter ended December 31, Quarter ended September 30, Quarter ended June 30, Quarter ended March 31, Weather Metrics Gulf Coast(b) East/West Gulf Coast(b) East/West Gulf Coast(b) East/West Gulf Coast(b) East/West Gulf Coast(b) East/West 2016 CDDs(a) HDDs(a) 2015 CDDs HDDs 10 year average CDDs HDDs 2,967 1,529 2,870 1,887 2,897 1,928 1,169 3,190 1,223 3,322 1,028 3,556 362 545 286 556 240 754 71 1,145 107 1,029 65 1,233 1,655 — 1,652 — 1,597 4 806 23 798 16 688 49 873 53 892 47 969 77 273 410 293 390 259 448 76 931 41 1,285 90 1,092 19 1,613 25 1,887 16 1,827 (a) National Oceanic and Atmospheric Administration-Climate Prediction Center - A Cooling Degree Day, or CDD, represents the number of degrees that the mean temperature for a particular day is above 65 degrees Fahrenheit in each region. A Heating Degree Day, or HDD, represents the number of degrees that the mean temperature for a particular day is below 65 degrees Fahrenheit in each region. The CDDs/HDDs for a period of time are calculated by adding the CDDs/HDDs for each day during the period. (b) CDDs/HDDs for the Gulf Coast region represent an average of cumulative population-weighted CDDs/HDDs for Texas and the West South-Central Climate region. Generation gross margin and economic gross margin Generation gross margin decreased $670 million and economic gross margin decreased $366 million, both of which include intercompany sales, during the year ended December 31, 2016, compared to the same period in 2015. The tables below describe the decrease in Generation gross margin and economic gross margin: Gulf Coast Region Lower gross margin resulting from lower average realized energy prices due to a decline in natural gas prices and increased wind generation in Texas Lower gross margin primarily due to 11% lower coal generation and 21% lower gas generation in Texas, which was driven by lower gas prices, increased wind generation in Texas, an increase in unplanned outages and timing of planned outages Higher gross margin resulting from a 12% increase in nuclear generation driven by reduced unplanned outages and the timing of planned outages Other Decrease 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 Decrease in contract and emission credit amortization Decrease in gross margin East/West Region Lower gross margin due to a 24% decrease in generation primarily driven by the environmental control work at Powerton and fuel conversion projects at Joliet Lower gross margin due to decreased realized capacity prices in New York due to a change in the mix of capacity resources and a 15% decrease in PJM cleared auction prices Lower gross margin due to the deactivation of the Huntley and Dunkirk facilities as well as the sale of the Rockford Lower gross margin due to lower contracted volumes Lower gross margin due to a decrease in realized energy prices due to the decline in natural gas prices Lower gross margin due to a 7% decrease in resource adequacy capacity volumes sold in California due to unit retirements and a 4% decrease in price Higher gross margin by BETM due to higher gains in 2016 on over the counter strategies Changes in commercial optimization activities Other Decrease in economic gross margin Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges Increase in contract and emission credit amortization Decrease in gross margin (In millions) $ (148) (82) 55 5 (170) (364) (1) (535) $ $ (In millions) $ (141) (79) (66) (12) (12) (10) 88 50 (14) (196) 59 2 (135) $ $ 82 83  Retail gross margin and economic gross margin Renewables gross margin and economic gross margin Years ended December 31, 2016 2015 Renewables gross margin increased $25 million and economic gross margin increased $29 million for the year ended December 31, 2016, compared to the same period in 2015, primarily driven by a 15% increase in generation at both the Mountain Wind I and II facilities, a 4% increase in generation at the Ivanpah solar plant and generation from the Guam solar plant that reached COD in the third quarter of 2015. The following is a discussion of gross margin and economic gross margin for Retail. (In millions except otherwise noted) Retail revenue Supply management revenue Capacity revenues Customer mark-to-market Contract amortization Other Operating revenue (a) Cost of sales (b) Mark-to-market for economic hedging activities Contract amortization Gross margin Less: Mark-to-market for economic hedging activities, net Less: Contract and emission credit amortization Economic gross margin Business Metrics Mass electricity sales volume (GWh) - Gulf Coast Mass electricity sales volume (GWh) - All other regions C&I electricity sales volume (GWh) All regions Natural gas sales volumes (MDth) Average Retail Mass customer count (in thousands) Ending Retail Mass customer count (in thousands) $ $ $ $ $ $ 6,100 154 82 — (1) — 6,335 (4,687) 365 (6) 2,007 365 (7) 1,649 25,102 6,674 18,906 2,199 2,778 2,818 6,629 165 116 4 (1) — 6,913 (5,245) (4) (6) 1,658 — (7) 1,665 34,600 8,090 19,342 1,901 2,775 2,755 (a) (b) Includes intercompany sales of $4 million and $3 million in 2016 and 2015, respectively, representing sales from Retail to the Gulf Coast region. Includes intercompany purchases of $850 million and $895 million in 2016 and 2015, respectively. Retail gross margin increased $350 million and economic gross margin decreased $15 million for the year ended December 31, 2016, compared to the same period in 2015, due to: Higher gross margin due to lower supply costs of $452 million or approximately $7.00 per MWh driven by a decrease in natural gas prices, partially offset by lower rates to customers of $431 million or approximately $6.50 per MWh Lower gross margin of $19 million due to the unfavorable impact of selling back excess supply and $3 million in lower margin from a reduction in load of 86,000 MWhs due to milder weather conditions in 2016 as compared to 2015 Lower gross margin due to lower volumes driven by lower average customer usage and mix Decrease in economic gross margin Increase in mark-to-market for economic hedging primarily due to net unrealized gains/losses on open positions related to economic hedges Increase in gross margin $ $ $ 21 (22) (14) (15) 365 350 NRG Yield gross margin and economic gross margin NRG Yield gross margin increased $71 million and economic gross margin increased $90 million for the year ended December 31, 2016, compared to the same period in 2015, primarily related to a 26% increase in volume generated at Alta wind projects as well as an increase in price per MWh at Alta X and XI wind projects as the PPAs began in January 2016 compared to merchant prices in 2015. Mark-to-market for Economic Hedging Activities Mark-to-market for economic hedging activities includes asset-backed hedges that have not been designated as cash flow hedges. Total net mark-to-market results increased by $59 million in the year ended December 31, 2016, compared to the same period in 2015. The breakdown of gains and losses included in operating revenues and operating costs and expenses by region are as follows: Generation Year Ended December 31, 2016 Gulf Coast East/West Retail Renewables NRG Yield Elimination(a) Total (In millions) Mark-to-market results in operating revenues Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges Net unrealized (losses)/gains on open positions related to economic hedges Total mark-to-market losses in operating revenues and expenses Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges Reversal of acquired gain positions related to economic hedges Net unrealized gains/(losses) on open positions related to economic hedges Total mark-to-market gains in operating costs and expenses $ $ $ (389) $ (89) $ (2) $ — $ — $ 33 $ (447) (129) 41 2 (6) — (103) (195) (518) $ (48) $ — $ (6) $ — $ (70) $ (642) 31 $ 16 $ 305 $ — $ — $ (33) $ 319 — 40 (12) (2) — 60 — — — — — 103 (12) 201 $ 71 $ 2 $ 365 $ — $ — $ 70 $ 508 (a) Represents the elimination of the intercompany activity between Retail and Generation. (In millions) Mark-to-market results in operating costs 84 85 Generation Year Ended December 31, 2015 Gulf Coast East/West Retail Renewables NRG Yield Elimination(a) Total (In millions) Operations and Maintenance Expense Generation Gulf Coast East/West Retail Renewables NRG Yield Corporate Eliminations Total (In millions) Year Ended December 31, 2016 Year Ended December 31, 2015 $ $ 577 654 $ $ 488 487 $ $ 245 225 $ $ 122 96 $ $ 176 180 $ $ 27 25 $ $ (36) $ (10) $ 1,599 1,657 (408) $ (158) $ (1) $ (3) $ (2) $ 45 $ (527) Operations and maintenance expenses decreased by $58 million for the year ended December 31, 2016, compared to the same period in 2015, due to the following: 342 82 (66) $ (76) $ 5 4 — — (36) 393 $ (3) $ (2) $ 9 $ (134) Decrease in Gulf Coast operations and maintenance expense primarily related to the timing of planned outages at the Texas coal plants and STP Decrease in East operations and maintenance expense due to unit deactivations at Huntley, Dunkirk, and Will County 34 $ 3 $ 373 $ — $ — $ (45) $ 365 Decrease in West operations and maintenance expense primarily due to the retirement of the El Segundo — (51) (18) (14) (4) (373) — — — — — 36 (22) (402) $ (17) $ (29) $ (4) $ — $ — $ (9) $ (59) facility and lower operation and maintenance costs at Encina Increase in East operations and maintenance expense due to the Joliet conversion project and environmental control work at Midwest Generation, offset by lower variable operating costs due to the decreased generation volumes. Increase in Renewables operating costs due primarily to increased production at the Ivanpah solar plant, Mountain Wind I and II facilities and the Guam solar plant which reached COD in the fourth quarter of 2015 Mark-to-market results in operating revenues Reversal of previously recognized unrealized (gains)/losses on settled positions related to economic hedges Net unrealized gains/(losses) on open positions related to economic hedges Total mark-to-market (losses)/gains in operating revenues Mark-to-market results in operating costs and expenses Reversal of previously recognized unrealized losses/(gains) on settled positions related to economic hedges Reversal of acquired gain positions related to economic hedges Net unrealized (losses)/gains on open positions related to economic hedges Total mark-to-market losses in operating costs and expenses $ $ $ (In millions) $ $ (66) (19) (8) 20 9 6 (58) Other Other cost of operations Generation Gulf Coast East/West Retail Renewables (In millions) NRG Yield Corporate Total Year Ended December 31, 2016 Year Ended December 31, 2015 $ $ 95 94 $ $ 66 74 $ $ 93 112 $ $ 20 21 $ $ 65 72 $ $ 1 $ — $ 340 373 Other cost of operations, comprised of asset retirement expense, insurance expense and property tax expense, decreased by $33 million for the year ended December 31, 2016, compared to the same period in 2015, primarily due to a decrease in gross tax receipts taxes of $10 million related to lower retail revenue and $10 million favorable settlement of Texas sales tax audit. (a) Represents the elimination of the intercompany activity between Retail and Generation. Mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled. The settlement of these transactions is reflected in the same revenue or cost caption as the items being hedged. 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, 2016, the $642 million loss in operating revenues from economic hedge positions was driven primarily by the reversal of previously recognized unrealized gains on contracts that settled during the period and a decrease in value of open positions as a result of increases in gas prices. The $508 million gain in operating costs and expenses from economic hedge positions was driven primarily by the reversal of previously recognized unrealized losses on contracts that settled during the period and an increase in the value of open positions as a result of increases in coal and gas prices partially offset by the reversal of acquired contracts. 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, 2016 and 2015. The realized and unrealized financial and physical trading results are included in operating revenues. The Company's trading activities are subject to limits within the Company's Risk Management Policy. Trading gains/(losses) Realized Unrealized Total trading gains/(losses) Year Ended December 31, 2016 2015 (In millions) $ $ 71 28 99 $ $ 57 (76) (19) 86 87 Depreciation and Amortization Interest Expense Generation Retail Renewables NRG Yield Corporate Total (In millions) NRG's interest expense decreased by $42 million for the year ended December 31, 2016, compared to the same period in 2015, due to the following: Year Ended December 31, 2016 Year Ended December 31, 2015 $ $ 516 693 $ $ 111 132 $ $ 185 176 $ $ 303 303 $ $ 57 47 $ $ 1,172 1,351 Depreciation and amortization expense decreased by $179 million for the year ended December 31, 2016, compared to the same period in 2015, primarily due to a $116 million decrease related to the impairment of the Limestone and W.A. Parish facilities located in the Gulf Coast region in 2015 and a $68 million decrease related to the impairment of the Dunkirk and Huntley facilities located in the East region in 2015. Impairment Losses In 2016, the Company recorded impairment losses of $702 million related to various facilities, as well as goodwill for its Texas reporting unit, as further described in Item 15 — Note 10, Asset Impairments and Note 11, Goodwill and Other Intangibles, to the Consolidated Financial Statements. In 2015, the Company recorded impairment losses of $4,860 million related to various facilities, as well as goodwill for its Texas and Home Solar reporting units, as further described in Item 15 - Note 10, Asset Impairments and Note 11, Goodwill and Other Intangibles, to the Consolidated Financial Statements. Selling, General and Administrative Expenses Year Ended December 31, 2016 Year Ended December 31, 2015 $ $ 265 159 $ $ 498 546 $ $ (In millions) 61 54 $ $ 17 15 $ $ 254 454 $ $ 1,095 1,228 Generation Retail Renewables NRG Yield Corporate Total Selling, general and administrative expenses decreased by $133 million for the year ended December 31, 2016 compared to the same period in 2015, primarily due to a decrease in advertising and the continued focus on cost management. Development Costs Development costs decreased by $65 million for the year ended December 31, 2016, compared to the same period in 2015, due to the strategic decision for a more focused development program primarily related to Renewables and the sale of EVgo in 2016. Loss on Sale of Assets During the year ended December 31, 2016, the Company sold a majority interest in its EVgo business to Vision Ridge Partners, which resulted in a loss on sale as described in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions, to the Consolidated Financial Statements. Impairment Losses on Investments For the year ended December 31, 2016, the Company recorded other-than-temporary impairment losses of $268 million, which is primarily due to other-than-temporary impairments on the Company's interests in Petra Nova Parish Holdings, Sherbino and Community Wind North, as further described in Item 15 — Note 10, Asset Impairments, to the Consolidated Financial Statements. For the year ended December 31, 2015, the Company recorded other-than-temporary impairment losses on certain of its cost and equity method investments of $56 million, as further described in Item 15 — Note 10, Asset Impairments, to the Consolidated Financial Statements. Loss on Debt Extinguishment A loss on debt extinguishment of $142 million was recorded for the year ended December 31, 2016, primarily driven by the repurchase of NRG senior notes at a price above par value and the write-off of the unamortized debt issuance costs related to the replacement of the 2018 Term Loan Facility with the new 2023 Term Loan Facility. Decrease due to the repurchases of Senior Notes at the end of 2015 and 2016 Decrease in derivative interest expense from changes in fair value of interest rate swaps Decrease due to the redemption of outstanding bonds related to NRG Peakers Finance Company Decrease due to the termination of Alta X and XI term loans and the related interest rate swaps in 2015 Increase due to the replacement of the 2018 Term Loan Facility with the 2023 Term Loan Facility Increase due to the issuance of NRG Yield Inc. 3.25% Convertible Senior Notes due 2020 and NRG Yield Operating LLC Revolving Credit Facility issued in 2015 Increase due to the issuance of NRG Yield Operating LLC 5.00% Senior Notes due 2026 Increase due to $200 million of debt issued by CVSR Holdco in August 2016 Other Income Tax Expense (In millions) (40) (19) (8) (6) 9 8 7 4 3 (42) $ $ For the year ended December 31, 2016, NRG recorded an income tax expense of $5 million on a pre-tax loss of $978 million. For the same period in 2015, NRG recorded an income tax expense of $1,345 million on pre-tax loss of $4,986 million. The effective tax rate was (0.5)% and (27.0)% for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2016, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to recording of a valuation allowance on the federal and certain state net deferred tax assets that may not be realizable under a “more likely than not” measurement. In addition, a portion of the book goodwill impairment is classified as a permanent reversal impacting the effective tax rate. (Loss) before income taxes Tax at 35% State taxes Foreign operations Federal and state tax credits, excluding PTCs Valuation allowance - current period activities Impact of non-taxable entity earnings Book goodwill impairment Net interest accrued on uncertain tax positions Production tax credits Recognition of uncertain tax benefits Tax expense attributable to consolidated partnerships State rate change including true-up to current period activity Other Income tax expense Effective income tax rate Year Ended December 31, 2016 2015 (In millions except as otherwise stated) $ $ (978) (342) — 10 — 398 22 — 1 (26) 2 (1) (59) — 5 (0.5)% (4,986) (1,745) (215) 1 (5) 3,023 (10) 340 (3) (33) (15) 12 (7) 2 1,345 (27.0)% $ $ The effective income tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses and changes in valuation allowances in accordance with ASC 740. These factors and others, including the Company's history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets. 88 89 Income/(Loss) from Discontinued Operations, Net of Income Tax For the year ended December 31, 2016, NRG recorded income from discontinued operations, net of income tax (benefit)/ expense of $92 million related to GenOn, as further described in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions. For the year ended December 31, 2015, NRG recorded loss from discontinued operations, net of income tax (benefit)/expense of $105 million related to GenOn, as further described in Item 15 — Note 3, Discontinued Operations, Acquisitions and Dispositions. Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was $117 million for the year ended December 31, 2016, compared to $54 million for the year ended December 31, 2015. For the years ended December 31, 2016 and 2015, the net losses attributable to noncontrolling interests primarily reflect losses allocated to tax equity investors using the hypothetical liquidation at book value, or HLBV, method, as well as NRG Yield, Inc.'s share of losses for the period. Liquidity and Capital Resources Liquidity Position As of December 31, 2017 and 2016, NRG's liquidity, excluding collateral funds deposited by counterparties, was approximately $3.2 billion and $2.4 billion, respectively, comprised of the following: Cash and cash equivalents: NRG excluding NRG Yield NRG Yield and subsidiaries Restricted cash - operating Restricted cash - reserves (a) Total Total credit facility availability Total liquidity, excluding collateral funds deposited by counterparties (a) Includes reserves primarily for debt service, performance obligations, and capital expenditures. As of December 31, 2017 2016 (In millions) $ $ 843 148 71 437 1,499 1,711 3,210 $ $ 621 317 56 390 1,384 989 2,373 For the year ended December 31, 2017, total liquidity, excluding collateral funds deposited by counterparties, increased by $837 million. Changes in cash and cash equivalent balances are further discussed hereinafter under the heading Cash Flow Discussion. Cash and cash equivalents at December 31, 2017, 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. 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. On July 12, 2017, NRG announced its Transformation Plan, which is described further in Item 1 — Business. Credit Ratings On October 6, 2017, Moody's upgraded the NRG rating outlook to positive from stable and affirmed NRG's Ba3 Corporate Family Rating. The following table summarizes the Company's current credit ratings: NRG Energy, Inc. 6.25% Senior Notes, due 2022 6.25% Senior Notes, due 2024 7.25% Senior Notes, due 2026 6.625% Senior Notes, due 2027 5.75% Senior Notes, due 2028 Term Loan Facility, due 2023 NRG Yield, Inc. 5.375% NRG Yield Operating LLC Senior Notes, due 2024 5.00% NRG Yield Operating LLC Senior Notes, due 2026 S&P BB- Stable BB- BB- BB- BB- BB- BB+ BB BB BB Moody's Ba3 Positive B1 B1 B1 B1 B1 Baa3 Ba2 Ba2 Ba2 90 91 Sources of Liquidity 2023 Term Loan Facility The principal sources of liquidity for NRG's future operating and capital expenditures are expected to be derived from cash on hand, cash flows from operations, cash proceeds from future sales of assets, including sales to NRG Yield, Inc. and financing arrangements. As described in Item 15 — Note 12, Debt and Capital Leases, to the Consolidated Financial Statements, the Company's financing arrangements consist mainly of the Senior Credit Facility, the Senior Notes, the NRG Yield 2019 Convertible Notes, the NRG Yield 2020 Convertible Notes, the Yield Operating 2020 senior unsecured notes, the NRG Yield, Inc. revolving credit facility, and project-related financings. Sale of Ownership in NRG Yield, Inc. and Renewables Platform On February 6, 2018, NRG and Global Infrastructure Partners, or GIP, entered into a purchase and sale agreement for GIP to purchase NRG's ownership in NRG Yield, Inc. and NRG's renewables platform for cash of $1.375 billion, subject to certain adjustments. The purchase and sale agreement includes the sale of all of NRG's ownership in NRG Yield, Inc., NRG's renewable energy development and operations platforms and NRG's renewable energy non-ROFO backlog and pipeline. In connection with the transaction, the Company entered into a Consent and Indemnity Agreement with NRG Yield, Inc. and GIP setting forth key terms and conditions of NRG Yield, Inc.'s consent to the transaction. As part of the Consent and Indemnity Agreement, NRG has agreed to indemnify GIP and NRG Yield, Inc. and its project companies for any increase in property taxes at the California-based solar projects resulting from the transaction. The transaction is expected to close in the second half of 2018 and is subject to various customary closing conditions, approvals and consents. Upon the closing of the transaction, NRG’s Ivanpah asset will no longer be part of the NRG Yield ROFO assets. On January 24, 2017, NRG repriced the 2023 Term Loan Facility, reducing the interest rate margin by 50 basis points to LIBOR plus 2.25%, the LIBOR floor remains 0.75%. As a result of the repricing, the Company realized interest savings of approximately $9 million in 2017 and expects approximately $60 million in interest savings over the life of the loan. Issuance of 2028 Senior Notes On December 7, 2017, NRG issued $870 million of aggregate principal amount at par of 5.75% senior unsecured notes due 2028. The 2028 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on July 15, 2018, until the maturity date of January 15, 2028. The proceeds from the issuance of the 2028 Senior Notes were utilized to redeem the Company's 6.625% Senior Notes due 2023. Carlsbad Project Financing On May 26, 2017, Carlsbad Energy Holdings LLC entered into a note payable agreement with financial institutions for the issuance of up to $407 million of senior secured notes, that bear interest at a rate of 4.12%, and mature on October 31, 2038. As of December 31, 2017, $407 million of these notes were outstanding. Also on May 26, 2017, Carlsbad Energy Holdings, LLC entered into a credit agreement, or the Carlsbad Financing Agreement, with the issuing banks, for a $194 million construction loan, that will convert to a term loan upon completion of the project. The Carlsbad Financing Agreement also includes a letter of credit facility not to exceed an aggregate amount of $83 million, and a working capital loan facility with an aggregate principal amount not to exceed $4 million. As of December 31, 2017, $20 million was outstanding under the construction loan and $29 million in letters of credit in support of the project were issued. Sale of South Central Business Asset Dispositions On February 6, 2018, NRG and Cleco Energy LLC, or Cleco, entered into a purchase and sale agreement for Cleco to purchase NRG's South Central business for cash of $1.0 billion, subject to certain adjustments. The transaction is expected to close in the second half of 2018 and is subject to various customary closing conditions, approvals and consents. The South Central business owns and operates a 3,555 MW portfolio of generation assets in the Gulf Coast region. Upon the closing of the transaction, NRG will enter into a sale leaseback agreement for the Cottonwood plant through May 2025. Sale of BETM On February 23, 2018, the Company entered into an agreement to sell BETM to a third party for $70 million. The transaction is expected to close in the second half of 2018 and is subject to various customary closing conditions, approvals and consents. Sale of Assets to NRG Yield, Inc. On February 6, 2018, the Company entered into an agreement with NRG Yield, Inc. to sell 100% of the membership interests in Carlsbad Energy Holdings LLC, which owns the Carlsbad project, a 527 MW natural gas fired project in Carlsbad, CA, pursuant to the ROFO Agreement. The purchase price for the transaction is $365 million in cash consideration, subject to customary working capital and other adjustments. The transaction is expected to close during the fourth quarter of 2018. On January 24, 2018, the Company entered into an agreement with NRG Yield, Inc. to sell 100% of its ownership interest in Buckthorn Solar for cash consideration of $42 million, subject to other adjustments. The transaction is expected to close during the first quarter of 2018. On November 1, 2017, NRG completed the sale of a 38 MW solar portfolio primarily comprised of assets from SPP funds, in addition to other projects developed by NRG, to NRG Yield, Inc. for cash consideration of $71 million, plus $3 million in working capital adjustments. On August 1, 2017, NRG closed on its sale of the remaining 25% interest in NRG Wind TE Holdco, a portfolio of 12 wind projects, to NRG Yield, Inc. for total cash consideration of $44 million. The transaction also includes potential additional payments to NRG dependent on actual energy prices for merchant periods beginning in 2027. On March 27, 2017, the Company sold (i) a 16% interest in the Agua Caliente solar project, representing ownership of approximately 46 net MW of capacity and (ii) NRG's interests in seven utility-scale solar projects located in Utah representing 265 net MW of capacity which have reached commercial operations to NRG Yield, Inc. NRG Yield, Inc. paid cash consideration of $130 million, plus $1 million in working capital adjustments, and assumed non-recourse project debt of approximately $328 million. During the year ended December 31, 2017, the Company received proceeds of $87 million, primarily related to the sale of certain equipment, sale of certain Minnesota wind assets and the sale of the Crawford site. First Lien Structure NRG has granted first liens to certain counterparties on a substantial portion of the Company's assets, excluding assets acquired in the GenOn and EME (including Midwest Generation) acquisitions, assets held by NRG Yield, Inc. and NRG's assets that have project-level financing. NRG uses the first lien structure to reduce the amount of cash collateral and letters of credit that it would otherwise be required to post from time to time to support its obligations under out-of-the-money hedge agreements for forward sales of power or gas used as a proxy for power. To the extent that the underlying hedge positions for a counterparty are out-of-the-money to NRG, the counterparty would have claim under the first lien program. The first lien program limits the volume that can be hedged, not the value of underlying out-of-the-money positions. The first lien program does not require NRG to post collateral above any threshold amount of exposure. Within the first lien structure, the Company can hedge up to 80% of its coal and nuclear capacity and 10% of its other assets with these counterparties for the first 60 months and then declining thereafter. Net exposure to a counterparty on all trades must be positively correlated to the price of the relevant commodity for the first lien to be available to that counterparty. The first lien structure is not subject to unwind or termination upon a ratings downgrade of a counterparty and has no stated maturity date. 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, 2017, all hedges under the first liens were in-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, 2017: Equivalent Net Sales Secured by First Lien Structure (a) In MW 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 represents 80% of the Company's total coal and nuclear assets eligible under the first lien, which excludes coal assets acquired in the GenOn and EME (including Midwest Generation) acquisitions, assets in NRG Yield, Inc. and NRG's assets that have project-level financing. 719 13% — —% — —% 2018 2019 2020 2021 — —% 92 93 Uses of Liquidity Debt Service Obligations The Company's requirements for liquidity and capital resources, other than for operating its facilities, can generally be categorized by the following: (i) commercial operations activities; (ii) debt service obligations, as described more fully in Item 15 — Note 12, Debt and Capital Leases, to the Consolidated Financial Statements; (iii) capital expenditures, including repowering and renewable development, and environmental; and (iv) allocations in connection with acquisition opportunities, debt repayments, return of capital and dividend payments to stockholders, as described in Item 15 — Note 15, Capital Structure, to the Consolidated Financial Statements. Restructuring Support Agreement As described in Note 3, Discontinued Operations, Acquisitions and Dispositions, NRG, the GenOn Entities and certain holders of the GenOn and GenOn Americas Generation Senior Notes entered into a Restructuring Support Agreement that provides for a restructuring and recapitalization of GenOn through a prearranged plan of reorganization. Certain principal terms of the Restructuring Support Agreement include that NRG will provide settlement consideration to GenOn of $261.3 million, which will be paid in cash less any amounts owed to NRG under the intercompany secured revolving credit facility. As of June 30, 2017, GenOn owed NRG approximately $125 million under the intercompany secured revolving credit facility. NRG agreed to provide GenOn with a letter of credit facility during the pendency of the Chapter 11 Cases, to be utilized for required letters of credit in lieu of the intercompany secured revolving credit facility. GenOn can no longer utilize the intercompany secured revolving credit facility and, on July 27, 2017, the letter of credit facility was terminated, as GenOn has obtained a separate letter of credit facility with a third party financial institution. In addition, NRG will retain the pension liability for GenOn employees for service provided prior to the completion of the reorganization. GenOn’s net pension liability as of December 31, 2017, was approximately $92 million. NRG will also retain the liability for GenOn’s post-employment and retiree health and welfare benefits, in an amount up to $25 million, which was recorded as a liability as of December 31, 2017. Commercial Operations The Company's commercial operations activities require a significant amount of liquidity and capital resources. These liquidity requirements are primarily driven by: (i) margin and collateral posted with counterparties; (ii) margin and collateral required to participate in physical markets and commodity exchanges; (iii) timing of disbursements and receipts (i.e. buying fuel before receiving energy revenues); (iv) initial collateral for large structured transactions; and (v) collateral for project development. As of December 31, 2017, commercial operations had total cash collateral outstanding of $187 million and $515 million outstanding in letters of credit to third parties primarily to support its commercial activities for both wholesale and retail transactions. As of December 31, 2017, total collateral held from counterparties was $38 million in cash and $17 million of letters of credit. Future liquidity requirements may change based on the Company's hedging activities and structures, fuel purchases, and future market conditions, including forward prices for energy and fuel and market volatility. In addition, liquidity requirements are dependent on the Company's credit ratings and general perception of its creditworthiness. 2017 Senior Note Redemptions During the year ended December 31, 2017, the Company redeemed $1.5 billion in aggregate principal of its Senior Notes for $1.5 billion, which included accrued interest of $29 million. In connection with the redemptions, a $49 million loss on debt extinguishment was recorded, which included the write-off of previously deferred financing costs of $7 million. In addition, the Company expects to save approximately $55 million in annualized interest, after consideration of the issuance of the 2028 Senior Note. Amount in millions, except rates 7.625% senior notes due 2018 7.875% senior notes due 2021 6.625% senior notes due 2023 Total (a) Includes payment for accrued interest. Principal Repurchased Cash Paid (a) Average Early Redemption Percentage $ $ 398 206 869 1,473 $ $ 411 218 915 1,544 101.42% 102.63% 103.57% Principal payments on debt and capital leases as of December 31, 2017 are due in the following periods: Description Recourse Debt: Senior notes, due 2022 Senior notes, due 2024 Senior notes, due 2026 Senior notes, due 2027 Senior notes, due 2028 Term loan facility, due 2023 Tax-exempt bonds Subtotal Recourse Debt Non-Recourse Debt: NRG Yield Operating LLC Senior Notes, due 2024 NRG Yield Operating LLC Senior Notes, due 2026 NRG Yield Inc. Convertible Senior Notes, due 2019 NRG Yield Inc. Convertible Senior Notes, due 2020 Yield LLC and Yield Operating LLC Revolving Credit Facility, due 2019 El Segundo Energy Center, due 2023 Marsh Landing, due 2023 Alta Wind I-V lease financing arrangements, due 2034 and 2035 Walnut Creek, term loans due 2023 Utah Portfolio, due 2022 Tapestry, due 2021 CVSR, due 2037 CVSR Holdco, due 2037 Alpine, due 2022 Energy Center Minneapolis, due 2025 and 2031 Viento, due 2023 NRG Yield Other Subtotal NRG Yield debt (non-recourse to NRG) (a) Ivanpah, due 2033 and 2038 Carlsbad Energy Project (a) Agua Caliente, due 2037 Agua Caliente Borrower 1, due 2038 Cedro Hill, due 2029 (a) Midwest Generation, due 2019 NRG Other Renewables (a) NRG Other Subtotal other non-recourse debt Subtotal all non-recourse debt Subtotal long-term debt Capital Leases: Capital leases Subtotal Capital Leases Total Debt and Capital Leases 2018 2019 2020 2021 (In millions) 2022 Thereafter Total $ — $ — $ — $ — $ 992 $ — $ — — — — 19 — 19 — — — — — 48 55 40 45 12 11 26 6 8 7 16 32 306 41 — 32 3 12 103 166 9 366 672 691 4 4 695 $ $ — — — — 19 — 19 — — 345 — 55 49 57 42 47 13 11 24 6 8 11 18 36 — — — — 19 — 19 — — — 288 — 53 60 43 49 14 11 21 6 8 11 15 77 — — — — 19 — 19 — — — — — 57 62 45 52 13 129 23 7 8 11 16 32 722 656 455 42 19 33 3 12 49 24 9 191 913 932 1 1 933 $ 44 1 34 3 12 — 27 9 130 786 805 — — 805 $ 45 — 35 3 12 — 27 10 132 587 606 — — 606 — — — — 19 — 1,011 — — — — — 63 65 47 55 226 — 25 9 103 11 17 33 654 47 — 35 3 13 — 83 8 733 1,000 1,250 870 1,777 465 6,095 500 350 — — — 130 19 709 19 — — 627 160 — 157 81 369 3,121 854 407 649 74 90 — 320 135 992 733 1,000 1,250 870 1,872 465 7,182 500 350 345 288 55 400 318 926 267 278 162 746 194 135 208 163 579 5,914 1,073 427 818 89 151 152 647 180 189 843 1,854 2,529 5,650 3,537 9,451 11,745 16,633 — — 5 — $ 1,854 $ — 11,745 5 $16,638 (a) Debt associated with the asset sales announced in February 2018. In addition to the debt and capital leases shown in the above table, NRG had issued $733 million of letters of credit under the Company's $2.5 billion Revolving Credit Facility as of December 31, 2017. 94 95 Capital Expenditures The following table and descriptions summarize the Company's capital expenditures for maintenance, environmental, and growth investments, for the year ended December 31, 2017, and the estimated capital expenditure and growth investments forecast for 2018. Generation Gulf Coast East/West (a) Retail Renewables NRG Yield Corporate Total cash capital expenditures for the year ended December 31, 2017 Funding from debt financing, net of fees Other investments(b) Total capital expenditures and investments, net of financings Estimated capital expenditures for 2018 (c) Funding from debt financing, net of fees Other investments(b) Estimated capital expenditures for 2018, net of financings Maintenance Environmental Growth Investments Total (In millions) $ $ $ $ 95 22 29 5 27 15 193 — — 193 221 — — 221 $ $ $ $ 1 24 — — — — 25 — — 25 3 — — 3 $ $ $ $ 4 321 52 506 4 6 893 (1,076) 267 84 500 (391) 86 195 $ $ $ $ 100 367 81 511 31 21 1,111 (1,076) 267 302 724 (391) 86 419 (a) Includes International (b) Other investments include restricted cash activity and acquisitions (c) Maintenance capital expenditures includes approximately $66 million related to announced asset sales • Environmental capital expenditures — For the year ended December 31, 2017, the Company's environmental capital expenditures included the final payments for DSI/ESP upgrades at the Powerton facility and the Joliet gas conversion to satisfy CPS. • Growth Investments capital expenditures — For the year ended December 31, 2017, the Company's growth investment capital expenditures included $414 million for solar projects, $324 million for repowering projects, $93 million for wind projects, and $62 million for the Company's other growth projects. Environmental Capital Expenditures Estimate NRG estimates that environmental capital expenditures from 2018 through 2022 required to comply with environmental laws will be approximately $82 million, which includes $14 million for Midwest Generation. These costs are primarily associated with the cost of complying with anticipated CCR requirements and NOx Controls. The table below summarizes the status of NRG's coal fleet with respect to air quality controls. Planned investments are either in construction or budgeted in the existing capital expenditures budget. Changes to regulations could result in changes to planned installation dates. NRG uses an integrated approach to fuels, controls and emissions markets to meet environmental standards. Units State Control Equipment Install Date Control Equipment Install Date Control Equipment Install Date Control Equipment Install Date SO2 NOx Mercury Particulate Big Cajun II 1 Big Cajun II 2 Big Cajun II 3 Conemaugh 1-2 Indian River 4 Keystone 1-2 Limestone 1-2 Powerton 5 Powerton 6 W.A. Parish 5, 6, 7 W.A. Parish 8(a) Waukegan 7 Waukegan 8 Will County 4 LA LA LA PA DE PA TX IL IL TX TX IL IL IL DSI Gas Conversion PAL FGD CDS FGD FGD DSI DSI FF co- benefit FGD DSI DSI DSI 2015 2015 2013 LNBOFA/ SNCR LNBOFA/ SNCR LNBOFA/ SNCR 2005/2014 ACI 2004/2014 Gas Conversion 2002/2014 ACI 2015 2015 2015 ESP/upgrade 1981/2015 Gas Conversion 2015 ESP/upgrade 1983/2015 1994, 95 SCR 2014 FGD/ESP/ SCR 1994,95/ 2014 ESP 1970, 1971 LNBOFA/ SCR 1999/2011 ACI/CDS/FF 2008/2011 ESP/FF 1980/2011 SCR 2003 FGD/ESP/ SCR 2011 2009 2016 2014 1988 1982 1985-86 LNBOFA 2002/2022 OFA/SNCR 2003/2012 OFA/SNCR 2002/2012 SCR SCR 2004 2004 2002 2014 LNBOFA 2015 LNBOFA 1999 2017 LNBOFA/ SNCR 1999,2001/ 2012 ACI ACI ACI ACI ACI ACI ACI ACI 2003 2015 2009 2009 2015 2015 ESP ESP 1967, 1968 1985-1986 ESP/upgrade 1973/2016 ESP/upgrade 1976/2014 FF FF 2008 ESP/upgrade 2008 ESP/upgrade 2009 ESP/upgrade 1988 1988 1958/2002, 2014 1962/1999, 2015 1963,72/ 2000 (a) Unit expected to be converted into a cogeneration facility to provide power and steam to the Petra Nova CCF. ACI - Activated Carbon Injection CDS - Circulating Dry Scrubber DSI - Dry Sorbent Injection with Trona ESP - Electrostatic Precipitator FGD - Flue Gas Desulfurization (wet) FF- Fabric Filter LNBOFA - Low NOx Burner with Overfire Air OFA - Overfire Air PAL - Plantwide Applicability Limit SCR - Selective Catalytic Reduction SNCR - Selective Non-Catalytic Reduction The following table summarizes the estimated environmental capital expenditures for the referenced periods by region: 2018 2019 2020 2021 2022 Total Gulf Coast East (excluding MWG) MWG Total $ $ — $ 7 4 3 7 21 $ (In millions) 3 2 — 23 19 47 $ $ — $ 1 7 6 — 14 $ 3 10 11 32 26 82 NRG's current contracts with the Company's rural electrical customers in the Gulf Coast region allow for recovery of a portion of the region's capital costs once in operation, along with a capital return incurred by complying with any change in law, including interest over the asset life of the required expenditures. The actual recoveries will depend, among other things, on the timing of the completion of the capital projects and the remaining duration of the contracts. 96 97 Common Stock Dividends The following table lists the dividends paid during 2017: Cash Flow Discussion 2017 compared to 2016 Fourth Quarter 2017 Third Quarter 2017 Second Quarter 2017 First Quarter 2017 The following table reflects the changes in cash flows for the comparative years: Dividends per Common Share $ 0.030 $ 0.030 $ 0.030 $ 0.030 On January 19, 2018, NRG declared a quarterly dividend on the Company's common stock of $0.03 per share, or $0.12 per share on an annualized basis, payable on February 15, 2018, to stockholders of record as of February 1, 2018. The Company's common stock dividends are subject to available capital, market conditions, and compliance with associated laws and regulations. The Company expects that, based on current circumstances, comparable cash dividends will continue to be paid in the foreseeable future. Share Repurchases The Company’s board of directors has authorized the repurchase of up to $1 billion of the Company's common stock, with the first $500 million program to begin in the first quarter of 2018. Following completion of the initial program, and as NRG progresses towards the closing of the announced asset sales, the Company expects to execute the remaining $500 million of the $1 billion share repurchase program. Fuel Repowerings Carlsbad —The Company is currently overseeing construction of the Carlsbad project, which when completed will consist of approximately 527 MWs of net generation capacity. On February 6, 2018, the Company entered into an agreement with NRG Yield, Inc. to sell the Carlsbad project pursuant to the ROFO Agreement. The transaction is expected to close during the fourth quarter of 2018. Canal 3 — The Company is currently overseeing construction of the Canal 3 project, a dual-fueled peaking facility, which when completed will consist of approximately 333 MWs of net generating capacity. In January 2018, Final Notice To Proceed was issued, and construction commenced with an anticipated COD by summer 2019. Under a cooperation agreement with GenOn, GenOn has the right to purchase the project from NRG until March 31, 2018. Puente Power Project — On October 5, 2017, the California Energy Commission, or CEC, the agency responsible for permitting the Puente Power Project, issued a statement on behalf of the committee of two Commissioners overseeing the permitting process stating their intention to issue a proposed decision that would deny a permit for the Puente Power Project. On October 16, 2017, NRG filed a motion to suspend the permitting proceeding for at least six months, which was granted on November 3, 2017. During the six month suspension period, which could be extended, NRG will evaluate the progress of a procurement process initiated by SCE to replace the Puente Power Project. (In millions) Net cash provided by operating activities Net cash used by investing activities Net cash used by financing activities Net Cash Provided By Operating Activities Year ended December 31, 2017 2016 Change $ $ 1,387 (1,066) (485) $ 2,088 (792) (915) (701) (274) 430 Changes to net cash provided by operating activities were driven by: (In millions) Changes in cash collateral in support of risk management activities due to changes in commodity prices $ Other changes in working capital Decrease in operating income adjusted for non-cash items Increase in accounts receivable due to the timing of cash receipts Decrease in prepaid expenses and total current assets due to reduced spending Decrease in inventory as a result of initiatives related to the Transformation Plan Cash provided by discontinued operations Increase in accounts payable as a result of initiatives related to the Transformation Plan Net Cash Used By Investing Activities Changes to net cash used by investing activities were driven by: $ (478) (284) (172) (92) 56 72 81 116 (701) Change in discontinued operations cash primarily related to the sale of the Aurora, Shelby and Seward in 2016 Decrease in capital expenditures related to environmental projects at Powerton and Joliet, as well as a decrease in maintenance capital expense in our generation businesses, offset by an increase in growth capital expenditures related to our solar and repowering projects Decrease in cash grants received in 2017 Increase in other investments Increase in investments in unconsolidated affiliates related primarily to investments in the utility-scale solar portfolio Other Proceeds from sale of assets Net increase in nuclear decommissioning trust fund activity due to a decrease in purchases of securities Proceeds from sale of emissions allowances Decrease in cash paid for acquisitions in 2017 compared to 2016 primarily due to acquisition of assets from SunEdison in 2016 (In millions) $ (350) (135) (28) (17) (17) (6) 14 30 67 168 $ (274) 98 99 Net Cash Used By Financing Activities 2016 compared to 2015 Changes in net cash used by financing activities were driven by: The following table reflects the changes in cash flows for the comparative years: (In millions) Net decrease in borrowings, Increase in borrowings, primarily related to Agua Caliente Borrower 1 & 2, 2038 Senior Notes and the Carlsbad project financing as well as reduced payments due to repurchases of Senior Notes in 2016 as compared to 2017 $ Increase in cash contributions, net of distributions from noncontrolling interest primarily due to tax equity financing Change due to repurchase of preferred stock in 2016 Decrease in debt extinguishment costs due to fewer debt repurchases in 2017 as compared to 2016 Decrease in payment of dividends, due to the annualized dividend rate being reduced from $0.58/share to $0.12/share in the first quarter of 2016 Change in debt issuance costs is primarily due to the refinancing of the senior credit facility and the issuance of the 2026 and 2027 Senior Notes in 2016 Payment for affiliate receivable - GenOn Change in discontinued operations cash related to an increase in long term deposits and financing fees in 2017 Other $ 303 251 226 79 38 26 (125) (364) (4) 430 (In millions) Net cash provided by operating activities Net cash used by investing activities Net cash used by financing activities Net Cash Provided By Operating Activities Changes to net cash provided by operating activities were driven by: Year ended December 31, 2016 2015 Change $ $ 2,088 (792) (915) $ 1,349 (1,528) (432) 739 736 (483) Change in cash collateral in support of risk management activities Decrease in accounts payable primarily related to lower operations and maintenance expense in 2016 Decrease in inventory primarily related to plant fuel conversions at Joliet and Unit 2 at the Big Cajun II facility and deactivations of the Huntley and Dunkirk facilities Other changes in working capital driven by various timing differences Cash used by discontinued operations Increase in accounts receivable due to timing of receipts Decrease in accrued interest primarily driven by redemption of Senior Notes in late 2015 and 2016 Increase in prepaid expense primarily related to timing of property tax and insurance payments that occurred in the first half of the year, and state tax receivables Decrease in operating income adjusted for non-cash items Net Cash Used By Investing Activities Changes to net cash used by investing activities were driven by: (In millions) $ $ 766 141 130 54 (181) (120) (27) (23) (1) 739 (In millions) Cash provided by discontinued operations Decrease in investments in unconsolidated affiliates in 2016 compared to 2015, primarily related to the 25% investment in Desert Sunlight of $285 million, as well as, Petra Nova and Altenex in 2015 $ Proceeds from the sale of assets related to the majority interest sale of EVgo and the sale of real property at the Potrero generating station in 2016 Decrease in capital expenditures, primarily related to environmental projects at the Powerton and Joliet facilities Insurance proceeds primarily related to the Cottonwood generation station outage in 2016 Increase in cash paid for acquisitions in 2016 compared to 2015 Decrease in cash grants received as the final Ivanpah cash grant amount was received in 2015 after resolution of all open inquiries Net decrease in nuclear decommissioning trust fund activity due to increase in purchases of securities in Q4 2016 Net decrease in emission allowances activity Other $ 556 361 72 53 27 (178) (46) (43) (42) (24) 736 100 101 Net Cash Used By Financing Activities Changes in net cash used by financing activities were driven by: Repurchases of treasury stock in 2015 Cash provided by discontinued operations Decrease in payment of dividends which reflects the reduction to the annualized dividend rate in 2016 from $0.58/share to $0.12/share Decrease in cash contributions from noncontrolling interest in 2016, primarily related to the NRG Yield, Inc. public offering in 2015 which had proceeds of $599 million Repurchase of preferred stock in 2016 Increase in debt extinguishment costs Increase in debt issuance costs primarily due to the refinancing of the senior credit facility and the issuance of the 2026 and 2027 Senior Notes Net decrease in borrowings, offset by debt payments, which includes debt repurchases in 2016 Decrease in settlement of financing element related to acquired derivatives Other (In millions) $ $ 437 195 125 (803) (226) (121) (68) (23) (8) 9 (483) NOLs, Deferred Tax Assets and Uncertain Tax Position Implications, under ASC 740 As of December 31, 2017, the Company had domestic pre-tax book loss of $1,557 million and foreign pre-tax book income of $17 million. For the year ended December 31, 2017, the Company generated an NOL of $630 million due to a current year taxable loss. As of December 31, 2017, the Company has cumulative domestic federal NOL carryforwards of $2.8 billion, which will begin expiring in 2026 and cumulative state NOL carryforwards of $2.2 billion for financial statement purposes. In addition, NRG has cumulative foreign NOL carryforwards of $224 million, which do not have an expiration date. As a result of the Company's tax position, including the benefit of a worthless stock deduction of $9.5 billion upon GenOn emerging from bankruptcy and upon evaluation of the Tax Cuts and Jobs Act potential impact on taxable income and based on current forecasts, the Company anticipates income tax payments, primarily due to state and local jurisdictions, of up to $20 million in 2018. The Company has recorded a long term receivable of $64 million representing refundable alternative minimum tax credits from the IRS, net of sequestration, which are anticipated to be received from 2019 through 2022 pursuant to the 50% annual limitation as enacted by the Tax Act upon repeal of corporate AMT effective January 1, 2018. In addition to these amounts, the Company has $30 million of tax effected uncertain tax benefits for which the Company has recorded a non-current tax liability of $33 million until such final resolution with the related taxing authority. The $33 million non-current tax liability for uncertain tax benefits is from positions taken on various state returns, including accrued interest. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2015. With few exceptions, state and local income tax examinations are no longer open for years before 2010. Off-Balance Sheet Arrangements Obligations under Certain Guarantee Contracts NRG and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include financial and performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. See also Item 15 — Note 26, Guarantees, to the Consolidated Financial Statements for additional discussion. Retained or Contingent Interests NRG does not have any material retained or contingent interests in assets transferred to an unconsolidated entity. Obligations Arising Out of a Variable Interest in an Unconsolidated Entity Variable interest in Equity investments — As of December 31, 2017, NRG has several investments with an ownership interest percentage of 50% or less in energy and energy-related entities that are accounted for under the equity method of accounting. Several of these investments are variable interest entities for which NRG is not the primary beneficiary. NRG's pro-rata share of non-recourse debt held by unconsolidated affiliates was approximately $606 million as of December 31, 2017. This indebtedness may restrict the ability of these subsidiaries to issue dividends or distributions to NRG. See also Item 15 — Note 16, Investments Accounted for by the Equity Method and Variable Interest Entities, to the Consolidated Financial Statements for additional discussion. 102 103 Contractual Obligations and Commercial Commitments Fair Value of Derivative Instruments NRG has a variety of contractual obligations and other commercial commitments that represent prospective cash requirements in addition to the Company's capital expenditure programs. The following tables summarize NRG's contractual obligations and contingent obligations for guarantees. See also Item 15 — Note 12, Debt and Capital Leases, Note 22, Commitments and Contingencies, and Note 26, Guarantees, to the Consolidated Financial Statements for additional discussion. 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 generation facilities or retail load obligations. In addition, in order to mitigate interest rate risk associated with the issuance of the Company's variable rate and fixed rate debt, NRG enters into interest rate swap agreements. Contractual Cash Obligations Long-term debt (including estimated interest) Capital lease obligations (including estimated interest) Operating leases Fuel purchase and transportation obligations Fixed purchased power commitments Pension minimum funding requirement (b) Other postretirement benefits minimum funding requirement (c) Other liabilities (d) Total By Remaining Maturity at December 31, 2017 Under 1 Year 1-3 Years 3-5 Years Over 5 Years Total (a) 2016 Total (In millions) $ 1,521 $ 3,315 $ 3,913 $ 14,738 $ 23,487 $ 24,863 4 79 527 21 29 7 75 1 157 338 26 48 16 151 — 138 215 21 42 16 116 — 707 296 — 86 35 309 5 1,081 1,376 68 205 74 651 7 982 1,476 87 375 80 917 $ 2,263 $ 4,052 $ 4,461 $ 16,171 $ 26,947 $ 28,787 (a) Excludes $30 million non-current payable relating to NRG's uncertain tax benefits under ASC 740 as the period of payment cannot be reasonably estimated. Also excludes $771 million of asset retirement obligations which are discussed in Item 15 — Note 13, Asset Retirement Obligations, to the Consolidated Financial Statements. (b) These amounts represent the Company's estimated minimum pension contributions required under the Pension Protection Act of 2006. These amounts represent estimates that are based on assumptions that are subject to change. (c) These amounts represent estimates that are based on assumptions that are subject to change. The minimum required contribution for years after 2027 are currently not available. Includes water right agreements, service and maintenance agreements, stadium naming rights, LTSA commitments and other contractual obligations. (d) Guarantees Letters of credit and surety bonds(a) Asset sales guarantee obligations Other guarantees Total guarantees By Remaining Maturity at December 31, 2017 Under 1 Year 1-3 Years 3-5 Years Over 5 Years Total 2016 Total $ $ 1,467 — — 1,467 $ $ 66 — 32 98 $ $ (In millions) 7 257 — 264 $ $ 93 55 613 761 $ $ 1,633 312 645 2,590 $ $ 1,837 677 253 2,767 (a) Excludes $92 million and $272 million of letters of credit issued under the intercompany revolving credit agreement between NRG and GenOn as of December 31, 2017 and 2016, respectively. NRG's trading activities are subject to limits in accordance with the Company's Risk Management Policy. These contracts are recognized on the balance sheet at fair value and changes in the fair value of these derivative financial instruments are recognized in earnings. The tables below disclose the activities that include both exchange and non-exchange traded contracts accounted for at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures, or ASC 820. Specifically, these tables disaggregate realized and unrealized changes in fair value; disaggregate estimated fair values at December 31, 2017, based on their level within the fair value hierarchy defined in ASC 820; and indicate the maturities of contracts at December 31, 2017. For a full discussion of the Company's valuation methodology of its contracts, see Derivative Fair Value Measurements in Item 15 — Note 4, Fair Value of Financial Instruments, to the Consolidated Financial Statements. Derivative Activity (Losses)/Gains Fair value of contracts as of December 31, 2016 Contracts realized or otherwise settled during the period Derivatives reclassified to held for sale Changes in fair value Fair value of contracts as of December 31, 2017 (In millions) $ (128) 37 (14) 151 46 Fair Value of Contracts as of December 31, 2017 Maturity $ Fair value hierarchy (Losses)/Gains 1 Year or Less Greater Than 1 Year to 3 Years Greater Than 3 Years to 5 Years (In millions) Greater Than 5 Years Total Fair Value Level 1 Level 2 Level 3 Total $ $ (22) $ 98 (5) 71 $ (41) $ 49 (6) 2 $ (3) $ — (6) (9) $ — $ (3) (15) (18) $ (66) 144 (32) 46 The Company has elected to disclose derivative assets and liabilities on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. Also, collateral received or posted on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. Consequently, the magnitude of the changes in individual current and non- current derivative assets or liabilities is higher than the underlying credit and market risk of the Company's portfolio. As discussed in Item 7A — Quantitative and Qualitative Disclosures About Market Risk, Commodity Price Risk, NRG measures the sensitivity of the Company's portfolio to potential changes in market prices using VaR, a statistical model which attempts to predict risk of loss based on market price and volatility. NRG's risk management policy places a limit on one-day holding period VaR, which limits the Company's net open position. 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, 2017, NRG's net derivative asset was $46 million, an increase to total fair value of $174 million as compared to December 31, 2016. This increase was primarily driven by gains in fair value and roll off trades that were settled during the period, partially offset by derivatives reclassified to held for sale. 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 $64 million in the net value of derivatives as of December 31, 2017. 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 $67 million in the net value of derivatives as of December 31, 2017. 104 105 Critical Accounting Policies and Estimates Derivative Instruments NRG's discussion and analysis of the financial condition and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements and related disclosures in compliance with GAAP requires the application of appropriate technical accounting rules and guidance as well as the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. The application of these policies involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges, and the fair value of certain assets and liabilities. These judgments, in and of themselves, could materially affect the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment may also have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies have not changed. On an ongoing basis, NRG evaluates these estimates, utilizing historic experience, consultation with experts and other methods the Company considers reasonable. In any event, actual results may differ substantially from the Company's estimates. Any effects on the Company's business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the information that gives rise to the revision becomes known. NRG's significant accounting policies are summarized in Item 15 — Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements. The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company's financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. Accounting Policy Derivative Instruments Income Taxes and Valuation Allowance for Deferred Tax Assets Impairment of Long-Lived Assets and Investments Goodwill and Other Intangible Assets Contingencies Judgments/Uncertainties Affecting Application Assumptions used in valuation techniques Assumptions used in forecasting generation Assumptions used in forecasting borrowings Market maturity and economic conditions Contract interpretation Market conditions in the energy industry, especially the effects of price volatility on contractual commitments Ability to be sustained upon audit examination of taxing authorities Interpret existing tax statute and regulations upon application to transactions Ability to utilize tax benefits through carry backs to prior periods and carry forwards to future periods Recoverability of investment through future operations Regulatory and political environments and requirements Estimated useful lives of assets Environmental obligations and operational limitations Estimates of future cash flows Estimates of fair value Judgment about impairment triggering events Estimated useful lives for finite-lived intangible assets Judgment about impairment triggering events Estimates of reporting unit's fair value Fair value estimate of intangible assets acquired in business combinations Estimated financial impact of event(s) Judgment about likelihood of event(s) occurring Regulatory and political environments and requirements The Company follows the guidance of ASC 815 to account for derivative instruments. ASC 815 requires the Company to mark-to-market all derivative instruments on the balance sheet and recognize changes in the fair value of non-hedge derivative instruments immediately in earnings. In certain cases, NRG may apply hedge accounting to the Company's derivative instruments. The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure; (ii) whether the overall risk is being reduced; and (iii) if there is a correlation between the changes in fair value of the derivative instrument and the underlying hedged item. Changes in the fair value of derivatives instruments accounted for as hedges are deferred and recorded as a component of OCI and subsequently recognized in earnings when the hedged transactions occur. For purposes of measuring the fair value of derivative instruments, NRG uses quoted exchange prices and broker quotes. When external prices are not available, NRG uses internal models to determine the fair value. These internal models include assumptions of the future prices of energy commodities based on the specific market in which the energy commodity is being purchased or sold, using externally available forward market pricing curves for all periods possible under the pricing model. In order to qualify the derivative instruments for hedged transactions, NRG estimates the forecasted generation and forecasted borrowings for interest rate swaps occurring within a specified time period. Judgments related to the probability of forecasted generation occurring are based on available baseload capacity, internal forecasts of sales and generation, and historical physical delivery on similar contracts. Judgments related to the probability of forecasted borrowings are based on the estimated timing of project construction, which can vary based on various factors. The probability that hedged forecasted generation and forecasted borrowings will occur by the end of a specified time period could change the results of operations by requiring amounts currently classified in OCI to be reclassified into earnings, creating increased variability in the Company's earnings. These estimations are considered to be critical accounting estimates. 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. The availability of this exception is based upon the assumption that NRG has the ability and it is probable to deliver or take delivery of the underlying item. These assumptions are based on available baseload capacity, internal forecasts of sales and generation and historical physical delivery on contracts. Derivatives that are considered to be NPNS are exempt from derivative accounting treatment and are accounted for under accrual accounting. If it is determined that a transaction designated as NPNS no longer meets the scope exception due to changes in estimates, the related contract would be recorded on the balance sheet at fair value combined with the immediate recognition through earnings. Income Taxes and Valuation Allowance for Deferred Tax Assets As of December 31, 2017, NRG had a valuation allowance of $1.8 billion. This amount is comprised of domestic federal net deferred tax assets of approximately $1.5 billion, domestic state net deferred tax assets of $267 million, foreign net operating loss carryforwards of $66 million, and foreign capital loss carryforwards of approximately $1 million. The Company believes it is more likely than not that the results of future operations will not generate sufficient taxable income which includes the future reversal of existing taxable temporary differences to realize deferred tax assets, requiring a valuation allowance to be recorded. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company may recognize provisional amounts for the effect of the changes related to the Tax Act. Consistent with that guidance, the Company recognized provisional amounts based upon our interpretation of the tax laws and estimates which require significant judgments. NRG continues to be under audit for multiple years by taxing authorities in other jurisdictions. Considerable judgment is required to determine the tax treatment of a particular item that involves interpretations of complex tax laws including the impact of the Tax Cuts and Jobs Act effective December 22, 2017. NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2015. With few exceptions, state and local income tax examinations are no longer open for years before 2010. 106 107 Evaluation of Assets for Impairment and Other-Than-Temporary Decline in Value The Company also recorded the following impairments in 2017 based on specific triggering events that occurred: In accordance with ASC 360, Property, Plant, and Equipment, or ASC 360, NRG evaluates property, plant and equipment and certain intangible assets for impairment whenever indicators of impairment exist. Examples of such indicators or events are: • • Significant decrease in the market price of a long-lived asset; Significant adverse change in the manner an asset is being used or its physical condition; • Adverse business climate; • Accumulation of costs significantly in excess of the amount originally expected for the construction or acquisition of an asset; • Current period loss combined with a history of losses or the projection of future losses; and • Change in the Company's intent about an asset from an intent to hold to a greater than 50% likelihood that an asset will be sold or disposed of before the end of its previously estimated useful life. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset, through considering project specific assumptions for long-term power pool prices, escalated future project operating costs and expected plant operations. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets by factoring in the probability weighting of different courses of action available to the Company. Generally, fair value will be determined using valuation techniques such as the present value of expected future cash flows. NRG uses its best estimates in making these evaluations and considers various factors, including forward price curves for energy, fuel costs and operating costs. However, actual future market prices and project costs could vary from the assumptions used in the Company's estimates, and the impact of such variations could be material. For assets to be held and used, if the Company determines that the undiscounted cash flows from the asset are less than the carrying amount of the asset, NRG must estimate fair value to determine the amount of any impairment loss. 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 under ASC 360, 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. NRG considers quoted market prices in active markets to the extent they are available. In the absence of such information, the Company may consider prices of similar assets, consult with brokers, or employ other valuation techniques. NRG will also discount the estimated future cash flows associated with the asset using a single interest rate representative of the risk involved with such an investment or employ an expected present value method that probability-weights a range of possible outcomes. The use of these methods involves the same inherent uncertainty of future cash flows as previously discussed with respect to undiscounted cash flows. Actual future market prices and project costs could vary from those used in the Company's estimates, and the impact of such variations could be material. Annually, during the fourth quarter, the Company revises its views of power and fuel prices including the Company's fundamental view for long term prices, forecasted generation and operating and capital expenditures, in connection with the preparation of its annual budget. Changes to the Company’s views of long term power and fuel prices impacted the Company’s projections of profitability, based on management's estimate of supply and demand within the sub-markets for each plant and the physical and economic characteristics of each plant. During the fourth quarter of 2017, the Company completed its annual budget and revised its view of long-term power and fuel prices and the corresponding impact on estimated cash flows associated with its long-lived assets. The most significant impact was a decrease in the Company’s long-term view of natural gas prices which resulted in a reduction to long-term power prices and had a negative impact on the Company’s coal, nuclear and renewable facilities. As a result, the following long-lived asset impairments were recorded during the fourth quarter of 2017, as further described in Item 15 —Note 10, Asset Impairments, to the consolidated financial statements: • South Texas Project, or STP - The Company recognized an impairment loss of $1,248 million related to its interest in STP as a result of the decrease in the Company's view of long-term power prices in ERCOT. • Indian River - The Company recognized an impairment loss of $36 million for Indian River as a result of the decrease in the Company's view of long-term power prices in PJM. • Keystone and Conemaugh - The Company recognized impairment losses of $35 million for Keystone and $35 million for Conemaugh as a result of the decrease in the Company's view of long-term power prices in PJM. • Wind Facilities - The Company recorded impairment losses of $110 million, $26 million and $4 million for Langford, Elbow Creek and Forward, respectively, as a result of the decrease in the Company's view of long-term merchant power prices in ERCOT and PJM. While Elbow Creek and Forward have contracts to sell power, the significant decrease in estimated power prices had an impact on cash flows in post-contract periods. • Bacliff Project - On June 16, 2017, NRG Texas Power LLC provided notice to BTEC New Albany, LLC that it was exercising its right to terminate the Amended and Restated Membership Interest Purchase Agreement, or MIPA, due to the Bacliff Project, a new peaking facility at the former P.H. Robinson Electric Generating Station, not achieving commercial completion by the contractual expiration date of May 31, 2017. As a result of the MIPA termination, the Company recorded an impairment loss of $41 million to reduce the carrying amount of the related construction in progress to zero during the second quarter of 2017. • Other Impairments - During the second, third and fourth quarters of 2017, the Company recorded impairment losses of approximately $22 million, $14 million and $15 million, respectively, in connection with the Company's Renewables business. These impairment losses were primarily to record the value of certain long-lived assets, including property, plant and equipment and intangible assets, at fair market value at acquisition date or in connection with an impairment indicator. NRG is also required to evaluate its equity method and cost method investments to determine whether or not they are impaired in accordance with ASC 323, Investments - Equity Method and Joint Ventures, or ASC 323. The standard for determining whether an impairment must be recorded under ASC 323 is whether a decline in the value is considered an other-than-temporary decline in value. The evaluation and measurement of impairments under ASC 323 involves the same uncertainties as described for long- lived assets that the Company owns directly and accounts for in accordance with ASC 360. Similarly, the estimates that NRG makes with respect to its equity and cost-method investments are subjective, and the impact of variations in these estimates could be material. Additionally, if the projects in which the Company holds these investments recognize an impairment under the provisions of ASC 360, NRG would record its proportionate share of that impairment loss and would evaluate its investment for an other-than-temporary decline in value under ASC 323. During the year ended December 31, 2016, the Company recorded impairment losses on its equity method and cost method investments of $79 million due to other-than-temporary declines in value, including the following: During the fourth quarter of 2017, in connection with the preparation of the annual budget, management revised its view of oil production expectations with respect to Petra Nova Parish Holdings. As a result, the Company reviewed its 50% interest in Petra Nova Parish Holdings for impairment utilizing the other-than-temporary impairment model. In determining fair value, the Company utilized an income approach and considered project specific assumptions for the future project cash flows. The carrying amount of the Company's equity method investment exceeded the fair value of the investment and the Company concluded that the decline is considered to be other-than-temporary. As a result, the Company measured the impairment loss as the difference between the carrying amount and the fair value of the investment and recorded an impairment loss of $69 million. Goodwill and Other Intangible Assets At December 31, 2017, NRG reported goodwill of $539 million, consisting of $165 million associated with the acquisition of EME, $341 million for retail business acquisitions, and $33 million associated with other business acquisitions. The Company applies ASC 805, Business Combinations, or ASC 805, and ASC 350, to account for its goodwill and intangible assets. Under these standards, the Company amortizes all finite-lived intangible assets over their respective estimated weighted- average useful lives, while goodwill has an indefinite life and is not amortized. Goodwill and all intangible assets not subject to amortization are tested for impairments at least annually, or more frequently whenever an event or change in circumstances occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company tests goodwill for impairment at the reporting unit level, which is identified by assessing whether the components of the Company's operating segments constitute businesses for which discrete financial information is available and whether segment management regularly reviews the operating results of those components. The Company performs the annual goodwill impairment assessment as of December 31 or when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that 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. If it is determined that the fair value of a reporting unit is below its carrying amount, where necessary, the Company's goodwill will be impaired at that time. The Company performed its qualitative assessment of macroeconomic, industry and market events and circumstances, and the overall financial performance of the NRG Business Solutions (NRG Curtailment Solutions) and Retail Mass reporting units. The Company determined it was not more likely than not that the fair value of the goodwill attributed to these reporting units were less than their carrying amount and accordingly, no impairment existed for the year ended December 31, 2017. 108 109 The Company performed a quantitative assessment for the reporting units in the following table. The Company determined the fair value of these reporting units using primarily an income approach. Under the income approach, the Company estimated the fair value of the reporting units' invested capital exceeds its carrying value and, as such, the Company concluded that goodwill associated with the reporting units in the following table is not impaired as of December 31, 2017: Recent Accounting Developments See Item 15 — Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for a discussion of recent accounting developments. Reporting Unit Midwest Generation (Generation Segment) Texas Non-Commodity - excluding Goal Zero (Retail Segment) Goal Zero (Retail Segment) % Fair Value Over Carrying Value 133% 325% 141% The Company believes the methodology and assumptions used in its quantitative assessment are consistent with the views of market participants. Significant inputs to the determination of fair value were as follows: • The Company applied a discounted cash flow methodology to the long-term budgets for all of the plants in the region. The significant assumptions used to derive the long-term budgets used in the income approach are affected by the following key inputs: The Company's views of power and fuel prices consider market prices for the first five-year period and the Company's fundamental view for the longer term, which reflect the Company's long-term view of the price of natural gas. The Company's fundamental view for the longer term reflects the implied power price and heat rate that would support new build of a combined cycle gas plant. The price of natural gas plays an important role in setting the price of electricity in many of the regions where NRG operates power plants. Hedging is included to the extent of contracts already in place; The Company's estimate of generation, fuel costs, capital expenditure requirements and the existing and anticipated impact of environmental regulations; The Company's fundamental view for the longer term, cash flows for the plants in the region were included in the fair value calculation through the end of each plants' estimated useful life; and Projected generation and resulting energy gross margin in the long-term budgets is based on an hourly dispatch that simulates dispatch of each unit into the power market. The dispatch simulation is based on power prices, fuel prices, and the physical and economic characteristics of each plant. • The Company applied a discounted cash flow methodology to the long-term budgets for the Texas Non-Commodity and Goal Zero reporting units. The significant assumptions used to derive the long-term budgets used in the income approach are affected by the following key inputs: a terminal value utilizing assumed growth rates and discount rates that reflect the inherent cash flow risk for each reporting unit. During the fourth quarter of 2017, the Company concluded that BETM was held for sale in connection with board approval and advanced negotiations to sell the business. Accordingly, the Company recorded the assets and liabilities at fair market value as of December 31, 2017, which resulted in an impairment loss of $90 million to record BETM's goodwill at fair market value. During the fourth quarter of 2017, NRG sold its interests in certain SPP projects to NRG Yield. The goodwill recorded during the SPP acquisition was related primarily to its development pipeline, which was not sold to NRG Yield. As the Company does not expect to separately develop these projects and accordingly, has no cash flow stream associated with the goodwill, an impairment loss of $12 million was recorded to reduce the value to zero as of December 31, 2017. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. Contingencies NRG records reserves for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. Gain contingencies are not recorded until management determines it is certain that the future event will become or does become a reality. Such determinations are subject to interpretations of current facts and circumstances, forecasts of future events, and estimates of the financial impacts of such events. NRG describes in detail its contingencies in Item 15 — Note 22, Commitments and Contingencies, to the consolidated financial statements. 110 111 Item 7A — Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk NRG is exposed to several market risks in the Company's normal business activities. Market risk is the potential loss that may result from market changes associated with the Company's merchant power generation or with an existing or forecasted financial or commodity transaction. The types of market risks the Company is exposed to are commodity price risk, interest rate risk, liquidity risk, credit risk and currency exchange risk. In order to manage these risks, the Company uses various fixed-price forward purchase and sales contracts, futures and option contracts traded on NYMEX, and swaps and options traded in the over- the-counter financial markets to: • Manage and hedge fixed-price purchase and sales commitments; • Manage and hedge exposure to variable rate debt obligations; • Reduce exposure to the volatility of cash market prices, and • Hedge fuel requirements for the Company's generating facilities. Commodity Price Risk Commodity price risks result from exposures to changes in spot prices, forward prices, volatilities, and correlations between various commodities, such as natural gas, electricity, coal, oil, and emissions credits. NRG manages the commodity price risk of the Company's merchant generation operations and load serving obligations by entering into various derivative or non-derivative instruments to hedge the variability in future cash flows from forecasted sales and purchases of electricity and fuel. These instruments include forwards, futures, swaps, and option contracts traded on various exchanges, such as NYMEX and ICE, as well as over-the-counter markets. The portion of forecasted transactions hedged may vary based upon management's assessment of market, weather, operation and other factors. While some of the contracts the Company uses to manage risk represent commodities or instruments for which prices are available from external sources, other commodities and certain contracts are not actively traded and are valued using other pricing sources and modeling techniques to determine expected future market prices, contract quantities, or both. NRG uses the Company's best estimates to determine the fair value of those derivative contracts. However, it is likely that future market prices could vary from those used in recording mark-to-market derivative instrument valuation and such variations could be material. NRG measures the risk of the Company's portfolio using several analytical methods, including sensitivity tests, scenario tests, stress tests, position reports, and VaR. NRG uses a Monte Carlo simulation based VaR model to estimate the potential loss in the fair value of the Company's energy assets and liabilities, which includes generation assets, load obligations, and bilateral physical and financial transactions. The key assumptions for the Company's VaR model include: (i) lognormal distribution of prices; (ii) one-day holding period; (iii) 95% confidence interval; (iv) rolling 36-month forward looking period; and (v) market implied volatilities and historical price correlations. As of December 31, 2017, the VaR for NRG's commodity portfolio, including generation assets, load obligations and bilateral physical and financial transactions calculated using the VaR model was $46 million. The following table summarizes average, maximum and minimum VaR for NRG for the years ended December 31, 2017 and 2016: (In millions) VaR as of December 31, For the year ended December 31, Average Maximum Minimum $ $ 2017 2016 $ $ 46 51 66 40 41 53 72 32 Due to the inherent limitations of statistical measures such as VaR, the evolving nature of the competitive markets for electricity and related derivatives, and the seasonality of changes in market prices, the VaR calculation may not capture the full extent of commodity price exposure. As a result, actual changes in the fair value of mark-to-market energy assets and liabilities could differ from the calculated VaR, and such changes could have a material impact on the Company's financial results. In order to provide additional information, the Company also uses VaR to estimate the potential loss of derivative financial instruments that are subject to mark-to-market accounting. These derivative instruments include transactions that were entered into for both asset management and trading purposes. The VaR for the derivative financial instruments calculated using the diversified VaR model for the entire term of these instruments entered into for both asset management and trading was $30 million as of December 31, 2017, primarily driven by asset-backed transactions. NRG is exposed to fluctuations in interest rates through the Company's issuance of fixed rate and variable rate debt. Exposures to interest rate fluctuations may be mitigated by entering into derivative instruments known as interest rate swaps, caps, collars and put or call options. These contracts reduce exposure to interest rate volatility and result in primarily fixed rate debt obligations when taking into account the combination of the variable rate debt and the interest rate derivative instrument. NRG's risk management policies allow the Company to reduce interest rate exposure from variable rate debt obligations. In addition to those discussed above, the Company's project subsidiaries enter into interest rate swaps, intended to hedge the risks associated with interest rates on non-recourse project level debt. See Item 15 — Note 12, Debt and Capital Leases, to the Consolidated Financial Statements, for more information about interest rate swaps of the Company's project subsidiaries. If all of the above swaps had been discontinued on December 31, 2017, the Company would have owed the counterparties $11 million. Based on the investment grade rating of the counterparties, NRG believes its exposure to credit risk due to nonperformance by counterparties to its hedge contracts to be insignificant. NRG has both long and short-term debt instruments that subject the Company to the risk of loss associated with movements in market interest rates. As of December 31, 2017, a 1% change in interest rates would result in a $14.2 million change in interest expense on a rolling twelve month basis. As of December 31, 2017, the Company's debt fair value was $16.9 billion and carrying value was $16.6 billion. NRG estimates that a 1% decrease in market interest rates would have increased the fair value of the Company's long-term debt by $989 million. Liquidity Risk Liquidity risk arises from the general funding needs of the Company's activities and in the management of the Company's assets and liabilities. The Company is currently exposed to additional collateral posting if natural gas prices decline primarily due to the long natural gas equivalent position at various exchanges used to hedge NRG's retail supply load obligations. Based on a sensitivity analysis for power and gas positions under marginable contracts, a $0.50 per MMBtu change in natural gas prices across the term of the marginable contracts would cause a change in margin collateral posted of approximately $120 million as of December 31, 2017, and a 1.00 MMBtu/MWh change in heat rates for heat rate positions would result in a change in margin collateral posted of approximately $64 million as of December 31, 2017. This analysis uses simplified assumptions and is calculated based on portfolio composition and margin-related contract provisions as of December 31, 2017. Counterparty Credit Risk Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. The Company monitors and manages credit risk through credit policies that include: (i) an established credit approval process; (ii) a daily monitoring of counterparties' credit limits; (iii) the use of credit mitigation measures such as margin, collateral, prepayment arrangements, or volumetric limits; (iv) the use of payment netting agreements; and (v) the use of master netting agreements that allow for the netting of positive and negative exposures of various contracts associated with a single counterparty. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty risk by having a diversified portfolio of counterparties. The Company also has credit protection within various agreements to call on additional collateral support if and when necessary. Cash margin is collected and held at the Company to cover the credit risk of the counterparty until positions settle. 112 113 As of December 31, 2017, aggregate counterparty credit exposure to a significant portion of the Company's counterparties totaled $220 million, of which the Company held collateral (cash and letters of credit) against those positions of $30 million resulting in a net exposure of $196 million. Approximately 73% of the Company's exposure before collateral is expected to roll off by the end of 2019. The following table highlights the net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market, NPNS, and non-derivative transactions. As of December 31, 2017, the aggregate credit exposure is shown net of collateral held, and includes amounts net of receivables or payables. Category Financial institutions Utilities, energy merchants, marketers and other Total Category Investment grade Non-Investment grade/Non-Rated Total Net Exposure (a) (b) (% of Total) 14% 86 100% Net Exposure (a) (b) (% of Total) 69% 31 100% (a) Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices. (b) The figures in the tables above exclude potential counterparty credit exposure related to RTOs, ISOs, registered commodity exchanges and certain long term contracts. The Company has credit exposure to certain wholesale counterparties, each of which represent more than 10% of the total net exposure discussed above and the aggregate credit exposure to such counterparties was $37 million as of December 31, 2017. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. Given the credit quality, diversification and term of the exposure in the portfolio, the Company does not anticipate a material impact on its financial position or results of operations from nonperformance by any counterparty. RTOs and ISOs The Company participates in the organized markets of CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in these markets is approved by FERC, or in the case of ERCOT, approved by the PUCT and include credit policies that, under certain circumstances, require that losses arising from the default of one member on spot market transactions be shared by the remaining participants. As a result, the counterparty credit risk to these markets is limited to NRG’s applicable share of the overall market and are excluded from the above exposures. Long Term Contracts Counterparty credit exposure described above excludes credit risk exposure under certain long term contracts, including California tolling agreements, Gulf Coast load obligations, and wind and solar PPAs. As external sources or observable market quotes are not available to estimate such exposure, the Company values these contracts based on various techniques including but not limited to internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of December 31, 2017, aggregate credit risk exposure managed by NRG to these counterparties was approximately $4.1 billion, of which $2.6 billion related to assets of NRG Yield, Inc., for the next five years. This amount excludes potential credit exposures for projects with long term PPAs that have not reached commercial operations. The majority of these power contracts are with utilities or public power entities with strong credit quality and public utility commission or other regulatory support. However, such regulated utility counterparties can be impacted by changes in government regulations, which NRG is unable to predict. Retail Customer Credit Risk NRG is exposed to retail credit risk through its retail electricity providers, which serve C&I customers and the Mass market. Retail credit risk results in losses when a customer fails to pay for services rendered. The losses could be incurred from nonpayment of customer accounts receivable and any in-the-money forward value. NRG manages retail credit risk through the use of established credit policies that include monitoring of the portfolio, and the use of credit mitigation measures such as deposits or prepayment arrangements. As of December 31, 2017, the Company's retail customer credit exposure to C&I and Mass customers was diversified across many customers and various industries, as well as government entities. The Company is also subject to risk with respect to its residential solar customers. The Company's bad debt expense resulting from credit risk was $68 million, $48 million, and $64 million for the years ending December 31, 2017, 2016, and 2015, respectively. Current economic conditions may affect the Company's customers' ability to pay bills in a timely manner, which could increase customer delinquencies and may lead to an increase in bad debt expense. Credit Risk Related Contingent Features Certain of the Company's hedging agreements contain provisions that require the Company to post additional collateral if the counterparty determines that there has been deterioration in credit quality, generally termed "adequate assurance" under the agreements, or require the Company to post additional collateral if there were a one notch downgrade in the Company's credit rating. The collateral required for contracts that have adequate assurance clauses that are in a net liability position as of December 31, 2017, was $25 million. The collateral required for contracts with credit rating contingent features that are in a net liability position as of December 31, 2017, was $7 million. The Company is also a party to certain marginable agreements under which it has a net liability position, but the counterparty has not called for the collateral due, which is approximately $4 million as of December 31, 2017. Exchange Traded Transactions Currency Exchange Risk The Company enters into commodity transactions on registered exchanges, notably ICE and NYMEX. These clearinghouses act as the counterparty and transactions are subject to extensive collateral and margining requirements. As a result, these commodity transactions have limited counterparty credit risk. NRG's foreign earnings and investments may be subject to foreign currency exchange risk, which NRG generally does not hedge. As these earnings and investments are not material to NRG's consolidated results, the Company's foreign currency exposure is limited. 114 115 Item 8 — Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements and schedules are listed in Part IV, Item 15 of this Form 10-K. Item 9 — Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A — Controls and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures and Internal Control Over Financial Reporting Under the supervision and with the participation of NRG's management, including its principal executive officer, principal financial officer and principal accounting officer, NRG conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act. Based on this evaluation, the Company's principal executive officer, principal financial officer and principal accounting officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10- K. Management's report on the Company's internal control over financial reporting and the report of the Company's independent registered public accounting firm are incorporated under the caption "Management's Report on Internal Control over Financial Reporting" and under the caption "Report of Independent Registered Public Accounting Firm" in this Annual Report on Form 10- K for the fiscal year ended December 31, 2017. Changes in Internal Control over Financial Reporting There were no changes in NRG’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred in the fourth quarter of 2017 that materially affected, or are reasonably likely to materially affect, NRG’s internal control over financial reporting. Inherent Limitations over Internal Controls NRG's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that: 1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; 2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that the Company's receipts and expenditures are being made only in accordance with authorizations of its management and directors; and 3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the consolidated financial statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management's Report on Internal Control over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company's management, including its principal executive officer, principal financial officer and principal accounting officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company's evaluation under the framework in Internal Control — Integrated Framework (2013), the Company's management concluded that its internal control over financial reporting was effective as of December 31, 2017. The effectiveness of the Company's internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, the Company's independent registered public accounting firm, as stated in its report which is included in this Annual Report on Form 10 K. The Board of Directors and Stockholders NRG Energy, Inc.: Opinion on Internal Control Over Financial Reporting We have audited NRG Energy, Inc.’s and subsidiaries (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive (loss)/income, cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated March 1, 2018 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. (signed) KPMG LLP Philadelphia, Pennsylvania March 1, 2018 116 117 Item 9B — Other Information None. Item 10 — Directors, Executive Officers and Corporate Governance PART III Directors E. Spencer Abraham has been a director of NRG since December 2012. Previously, he served as a director of GenOn Energy, Inc. from January 2012 to December 2012. He is Chairman and Chief Executive Officer of The Abraham Group, an international strategic consulting firm based in Washington, D.C which he founded in 2005. Prior to that, Secretary Abraham served as Secretary of Energy under President George W. Bush from 2001 through January 2005 and was a U.S. Senator for the State of Michigan from 1995 to 2001. Secretary Abraham serves on the boards of the following public companies: Occidental Petroleum Corporation, PBF Energy, and Two Harbors Investment Corp., as well as chairman of the board of Uranium Energy Corp. He also serves on the board of C3 IoT, a private company. Secretary Abraham previously served as the non-executive chairman of AREVA, Inc., the U.S. subsidiary of the French-owned nuclear company, and as a director of Deepwater Wind LLC, International Battery, Green Rock Energy, ICx Technologies, PetroTiger and Sindicatum Sustainable Resources. He also previously served on the advisory board or committees of Midas Medici (Utilipoint), Millennium Private Equity, Sunovia and Wetherly Capital. Kirbyjon H. Caldwell has been a director of NRG since March 2009. He was a director of Reliant Energy, Inc. from August 2003 to March 2009. Since 1982, he has served as Senior Pastor at the 16,000-member Windsor Village United Methodist Church in Houston, Texas. Pastor Caldwell was also a director of United Continental Holdings, Inc. (formerly Continental Airlines, Inc.) from 1999 to September 2011. Pastor Caldwell is also on the Board of Trustees of Baylor College of Medicine. Lawrence S. Coben has served as Chairman of the Board of NRG since 2017 and has been a director of NRG since December 2003. He is currently Chairman and Chief Executive Officer of Tremisis Energy Corporation LLC. Dr. Coben was Chairman and Chief Executive Officer of Tremisis Energy Acquisition Corporation II, a publicly held company, from July 2007 through March 2009 and of Tremisis Energy Acquisition Corporation from February 2004 to May 2006. From January 2001 to January 2004, he was a Senior Principal of Sunrise Capital Partners L.P., a private equity firm. From 1997 to January 2001, Dr. Coben was an independent consultant. From 1994 to 1996, Dr. Coben was Chief Executive Officer of Bolivian Power Company. Dr. Coben serves on the board of Freshpet, Inc. and served on the advisory board of Morgan Stanley Infrastructure II, L.P. from September 2014 through December 2016. Dr. Coben is also Executive Director of the Sustainable Preservation Initiative and a Consulting Scholar at the University of Pennsylvania Museum of Archaeology and Anthropology. Terry G. Dallas has been a director of NRG since December 2012. Previously, he served as a director of GenOn Energy, Inc. from December 2010 to December 2012. Mr. Dallas served as a director of Mirant Corporation from 2006 until December 2010. Mr. Dallas was also the former Executive Vice President and Chief Financial Officer of Unocal Corporation, an oil and gas exploration and production company prior to its merger with Chevron Corporation, from 2000 to 2005. Prior to that, Mr. Dallas held various executive finance positions in his 21-year career with Atlantic Richfield Corporation, an oil and gas company with major operations in the United States, Latin America, Asia, Europe and the Middle East. Mauricio Gutierrez has served as President and Chief Executive Officer of NRG since December 2015 and as a director of NRG since January 2016. Prior to December 2015, Mr. Gutierrez was the Executive Vice President and Chief Operating Officer of NRG from July 2010 to December 2015. Mr. Gutierrez also served as the Interim President and Chief Executive Officer of NRG Yield, Inc. from December 2015 to May 2016 and Executive Vice President and Chief Operating Officer of NRG Yield, Inc. from December 2012 to December 2015. Mr. Gutierrez has also served on the board of NRG Yield, Inc. since its formation in December 2012. Mr. Gutierrez has been with NRG since August 2004 and served in multiple executive positions within NRG including Executive Vice President - Commercial Operations from January 2009 to July 2010 and Senior Vice President - Commercial Operations from March 2008 to January 2009. Prior to joining NRG in August 2004, Mr. Gutierrez held various commercial positions within Dynegy, Inc. William E. Hantke has been a director of NRG since March 2006. Mr. Hantke served as Executive Vice President and Chief Financial Officer of Premcor, Inc., a refining company, from February 2002 until December 2005. Mr. Hantke was Corporate Vice President of Development of Tosco Corporation, a refining and marketing company, from September 1999 until September 2001, and he also served as Corporate Controller from December 1993 until September 1999. Prior to that position, he was employed by Coopers & Lybrand as Senior Manager, Mergers and Acquisitions from 1989 until 1990. He also held various positions from 1975 until 1988 with AMAX, Inc., including Corporate Vice President, Operations Analysis and Senior Vice President, Finance and Administration, Metals and Mining. He was employed by Arthur Young from 1970 to 1975 as Staff/Senior Accountant. Mr. Hantke was Non-Executive Chairman of Process Energy Solutions, a private alternative energy company until March 31, 2008 and served as director and Vice-Chairman of NTR Acquisition Co., an oil refining start-up, until January 2009. Mr. Hantke has served on the board of PBF Energy Inc. since February 2016. 118 119 Paul W. Hobby has been a director of NRG since March 2006. Mr. Hobby is the Managing Partner of Genesis Park, L.P., a Houston-based private equity business specializing in technology and communications investments which he founded in 1999. Mr. Hobby routinely provides management and governance services to Genesis Park portfolio companies, and is currently serving as Chairman of Texas Monthly. He previously served as the Chief Executive Officer of Alpheus Communications, Inc., a Texas wholesale telecommunications provider from 2004 to 2011, and as Former Chairman of CapRock Services Corp., the largest provider of satellite services to the global energy business from 2002 to 2006. From November 1992 until January 2001, he served as Chairman and Chief Executive Officer of Hobby Media Services and was Chairman of Columbine JDS Systems, Inc. from 1995 until 1997. Mr. Hobby is former Chairman of the Houston Branch of the Federal Reserve Bank of Dallas and the Greater Houston Partnership and is former Chairman of the Texas Ethics Commission. He was an Assistant U.S. Attorney for the Southern District of Texas from 1989 to 1992, Chief of Staff to the Lieutenant Governor of Texas, Bob Bullock and an Associate at Fulbright & Jaworski from 1986 to 1989. Anne C. Schaumburg has been a director of NRG since April 2005. From 1984 until her retirement in January 2002, she was Managing Director of Credit Suisse First Boston and a Senior Banker in the Global Energy Group. From 1979 to 1984, she was in the Utilities Group at Dean Witter Financial Services Group, where she last served as Managing Director. From 1971 to 1978, she was at The First Boston Corporation in the Public Utilities Group. Ms. Schaumburg is also a director of Brookfield Infrastructure Partners L.P. Evan J. Silverstein has been a director of NRG since December 2012. Previously, he served as a director of GenOn from August 2006 to December 2012. He served as General Partner and Portfolio Manager of SILCAP LLC, a market-neutral hedge fund that principally invests in utilities and energy companies, from January 1993 until his retirement in December 2005. Previously, he served as portfolio manager specializing in utilities and energy companies and as senior equity utility analyst. Mr. Silverstein has given numerous speeches and has testified before Congress on a variety of energy-related issues. He is an audit committee financial expert. Barry T. Smitherman has been a director of NRG since February 2017. Mr. Smitherman is currently an energy industry consultant and senior advisor, as well as a licensed attorney in Texas and an adjunct professor of Energy Law at The University of Texas School of Law. From April 2015 to January 2017, Mr. Smitherman was a partner with the law firm Vinson & Elkins LLP. Mr. Smitherman served on the Railroad Commission of Texas (RRC) from July 2011 through January 2015 where he acted as chairman from February 2012 to August 2014. From April 2004 through July 2011, Mr. Smitherman served on the Public Utility Commission of Texas where he acted as chairman from November 2007 through July 2011. Thomas H. Weidemeyer has been a director of NRG since December 2003. Until his retirement in December 2003, Mr. Weidemeyer served as Director, Senior Vice President and Chief Operating Officer of United Parcel Service, Inc., the world's largest transportation company and President of UPS Airlines. Mr. Weidemeyer became Manager of the Americas International Operation in 1989, and in that capacity directed the development of the UPS delivery network throughout Central and South America. In 1990, Mr. Weidemeyer became Vice President and Airline Manager of UPS Airlines and, in 1994, was elected its President and Chief Operating Officer. Mr. Weidemeyer became Senior Vice President and a member of the Management Committee of United Parcel Service, Inc. that same year, and he became Chief Operating Officer of United Parcel Service, Inc. in January 2001. Mr. Weidemeyer also serves as a director of The Goodyear Tire & Rubber Co., Waste Management, Inc. and Amsted Industries Incorporated. C. John Wilder has been a director of NRG since February 2017. Mr. Wilder has served as the Executive Chairman and a member of Investment Committees of three investment vehicles: (i) Bluescape Resources Company; (ii) Parallel Resource Partners; and (iii) Bluescape Energy Partners since 2007. Wilder has served as Executive Chairman and director of Exco Resources, Inc. from September 2015 to November 2017. Mr. Wilder is on the advisory boards of the McCombs School of Business at the University of Texas at Austin and the A.B. Freeman School of Business at Tulane University. Mr. Wilder is a Trustee of Texas Health Resources and is a past member of the National Petroleum Council, a Secretary of Energy Appointment. Walter R. Young has been a director of NRG since December 2003. From May 1990 to June 2003, Mr. Young was Chairman, Chief Executive Officer and President of Champion Enterprises, Inc., an assembler and manufacturer of manufactured homes. Mr. Young has held senior management positions with The Henley Group, The Budd Company and BFGoodrich. Executive Officers Mauricio Gutierrez has served as President and Chief Executive Officer of NRG since December 2015 and as a director of NRG since January 2016. For additional biographical information for Mr. Gutierrez, see above under "Directors." Kirkland Andrews has served as Executive Vice President and Chief Financial Officer of NRG Energy since September 2011. Mr. Andrews is a director of NRG Yield, Inc. and also served as Executive Vice President, Chief Financial Officer of NRG Yield, Inc. from December 2012 to November 2016. Prior to joining NRG, he served as Managing Director and Co-Head Investment Banking, Power and Utilities - Americas at Deutsche Bank Securities from June 2009 to September 2011. Prior to this, he served in several capacities at Citigroup Global Markets Inc., including Managing Director, Group Head, North American Power from November 2007 to June 2009, and Head of Power M&A, Mergers and Acquisitions from July 2005 to November 2007. In his banking career, Mr. Andrews led multiple large and innovative strategic, debt, equity and commodities transactions. David Callen has served as Senior Vice President and Chief Accounting Officer since February 2016 and Vice President and Chief Accounting Officer from March 2015 to February 2016. In this capacity, Mr. Callen is responsible for directing NRG's financial accounting and reporting activities. Mr. Callen also has served as Vice President and Chief Accounting Officer of NRG Yield, Inc. since March 2015. Prior to this, Mr. Callen served as the Company's Vice President, Financial Planning & Analysis from November 2010 to March 2015. He previously served as Director, Finance from October 2007 through October 2010, Director, Financial Reporting from February 2006 through October 2007, and Manager, Accounting Research from September 2004 through February 2006. Prior to NRG, Mr. Callen was an auditor for KPMG LLP in both New York City and Tel Aviv Israel from October 1996 through April 2001. John Chillemi has served as Executive Vice President, National Business Development of NRG since December 2015. In this role, Mr. Chillemi is responsible for all wholesale generation development activities for NRG across the nation. Prior to December 2015, Mr. Chillemi was Senior Vice President and Regional President, West since the acquisition of GenOn in December 2012. Mr. Chillemi served as the Regional President in California and the West for GenOn from December 2010 to December 2012, and as President and Vice President of the West at Mirant Corporation from 2007 to December 2010. Mr. Chillemi has also served as a director of NRG Yield, Inc. since May 2016. Mr. Chillemi has 30 years of power industry experience, beginning with Georgia Power in 1986. David R. Hill has served as Executive Vice President and General Counsel since September 2012. Mr. Hill also has served as the Executive Vice President and General Counsel of NRG Yield, Inc. since December 2012. Prior to joining NRG, Mr. Hill was a partner and co-head of Sidley Austin LLP's global energy practice group from February 2009 to August 2012. Prior to this, Mr. Hill served as General Counsel of the U.S. Department of Energy from August 2005 to January 2009 and, for the three years prior to that, as Deputy General Counsel for Energy Policy of the U.S. Department of Energy. Before his federal government service, Mr. Hill was a partner in major law firms in Washington, D.C. and Kansas City, Missouri, and handled a variety of regulatory, litigation and corporate matters. Elizabeth Killinger has served as Executive Vice President and President, NRG Retail and Reliant of NRG since February 2016. Ms. Killinger was Senior Vice President and President, NRG Retail from June 2015 to February 2016 and Senior Vice President and President, NRG Texas Retail from January 2013 to June 2015. Ms. Killinger has also served as President of Reliant, a subsidiary of NRG, since October 2012. Prior to that, Ms. Killinger was Senior Vice President of Retail Operations and Reliant Residential from January 2011 to October 2012. Ms. Killinger has been with the Company and its predecessors since 2002 and has held various operational and business leadership positions within the retail organization. Prior to joining the Company, Ms. Killinger spent a decade providing strategy, management and systems consulting to energy, oilfield services and retail distribution companies across the U.S. and in Europe. Christopher Moser has served as Executive Vice President, Operations of NRG since January 2018. Mr. Moser previously served as Senior Vice President, Operations of NRG, with responsibility for Plant Operations, Commercial Operations, Business Operations and Engineering and Construction, beginning in March 2016. From June 2010 to March 2016, Mr. Moser served as Senior Vice President, Commercial Operations. In this capacity, he was responsible for the optimization of the Company's wholesale generation fleet. Code of Ethics NRG has adopted a code of ethics entitled "NRG Code of Conduct" that applies to directors, officers and employees, including the chief executive officer and senior financial officers of NRG. It may be accessed through the "Governance" section of the Company's website at www.nrg.com. NRG also elects to disclose the information required by Form 8-K, Item 5.05, "Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics," through the Company's website, and such information will remain available on this website for at least a 12-month period. A copy of the "NRG Energy, Inc. Code of Conduct" is available in print to any stockholder who requests it. 120 121 Other information required by this Item will be incorporated by reference to the similarly named section of NRG's Definitive Item 14 — Principal Accounting Fees and Services Information required by this Item will be incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2018 Annual Meeting of Stockholders. Proxy Statement for its 2018 Annual Meeting of Stockholders. Item 11 — Executive Compensation Information required by this Item will be incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2018 Annual Meeting of Stockholders. Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Securities Authorized for Issuance under Equity Compensation Plans Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) 6,211,050 (1) $ 1,369,880 (2) 7,580,930 $ 21.49 25.21 23.21 11,831,645 — (4) 11,831,645 (3) (1) Consists of shares issuable under the NRG LTIP and the ESPP. The NRG LTIP became effective upon the Company's emergence from bankruptcy. On April 27, 2017, the NRG LTIP was amended and restated to increase the number of shares available for issuance to 25,000,000. The ESPP, as amended and restated, was approved by the Company's stockholders on April 27, 2017, and became effective April 28, 2017. As of December 31, 2017, there were 3,107,050 shares reserved from the Company's treasury shares for the ESPP. (2) Consists of shares issuable under the NRG GenOn LTIP. On December 14, 2012, in connection with the Merger, NRG assumed the GenOn Energy, Inc. 2010 Omnibus Incentive Plan and changed the name to the NRG 2010 Stock Plan for GenOn Employees, or the NRG GenOn LTIP. While the GenOn Energy, Inc. 2010 Omnibus Incentive Plan was previously approved by stockholders of RRI Energy, Inc. before it became GenOn, the plan is listed as “not approved” because the NRG GenOn LTIP was not subject to separate line item approval by NRG's stockholders when the Merger (which included the assumption of this plan) was approved. As part of the Merger, NRG also assumed the GenOn Energy, Inc. 2002 Long-Term Incentive Plan, the GenOn Energy, Inc. 2002 Stock Plan, and the Mirant Corporation 2005 Omnibus Incentive Compensation Plan. NRG has no intention of making any grants or awards of its own equity securities under these plans. The number of securities to be issued upon the exercise of outstanding awards under these plans is 227,531 at a weighted-average exercise price of $36.07. See Item 15 — Note 20, Stock-Based Compensation, to Consolidated Financial Statements for a discussion of the NRG GenOn LTIP. (3) Consists of 8,724,595 shares of common stock under NRG's LTIP and 3,107,050 shares of treasury stock reserved for issuance under the ESPP. In the first quarter of 2018, 175,862 shares were issued to employees' accounts from the treasury stock reserve for the ESPP. Beginning January 2018, NRG suspended the ESPP. (4) Upon adoption of the NRG Amended and Restated LTIP effective April 27, 2017, no securities remain available for future issuance under the NRG GenOn LTIP. See Note 20, Stock-Based Compensation, for additional information. Both the NRG LTIP and the NRG GenOn LTIP provide for grants of stock options, restricted stock, market stock units, performance stock units, deferred stock units and dividend equivalent rights. NRG's directors, officers and employees, as well as other individuals performing services for, or to whom an offer of employment has been extended by the Company, are eligible to receive grants under the NRG LTIP and the NRG GenOn LTIP. However, participants eligible for the NRG LTIP at the time of the Merger are not eligible to receive grants under the NRG GenOn LTIP. The purpose of the NRG LTIP and the NRG GenOn LTIP is to promote the Company's long-term growth and profitability by providing these individuals with incentives to maximize stockholder value and otherwise contribute to the Company's success and to enable the Company to attract, retain and reward the best available persons for positions of responsibility. The Compensation Committee of the Board of Directors administers the NRG LTIP and the NRG GenOn LTIP. Other information required by this Item will be incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2018 Annual Meeting of Stockholders. Item 13 — Certain Relationships and Related Transactions, and Director Independence Information required by this Item will be incorporated by reference to the similarly named section of NRG's Definitive Proxy Statement for its 2018 Annual Meeting of Stockholders. 122 123 PART IV REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Item 15 — Exhibits, Financial Statement Schedules (a)(1) Financial Statements The following consolidated financial statements of NRG Energy, Inc. and related notes thereto, together with the reports thereon of KPMG LLP, are included herein: Consolidated Statements of Operations — Years ended December 31, 2017, 2016, and 2015 Consolidated Statements of Comprehensive (Loss)/Income — Years ended December 31, 2017, 2016, and 2015 Consolidated Balance Sheets — As of December 31, 2017 and 2016 Consolidated Statements of Cash Flows — Years ended December 31, 2017, 2016, and 2015 Consolidated Statement of Stockholders' Equity — Years ended December 31, 2017, 2016, and 2015 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedule The following Consolidated Financial Statement Schedule of NRG Energy, Inc. is filed as part of Item 15 of this report and should be read in conjunction with the Consolidated Financial Statements. Schedule II — Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted. (a)(3) Exhibits: See Exhibit Index submitted as a separate section of this report. (b) Exhibits See Exhibit Index submitted as a separate section of this report. (c) Not applicable The Board of Directors and Stockholders NRG Energy, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of NRG Energy, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive (loss)/income, cash flows, and stockholders’ equity for each of the years in the three year period ended December 31, 2017, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. (signed) KPMG LLP We have served as the Company's auditor since 2004. Philadelphia, Pennsylvania March 1, 2018 124 125 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME Net Loss Other Comprehensive Income, net of tax Unrealized gain/(loss) on derivatives, net of income tax expense of $1, $1, and $19 Foreign currency translation adjustments, net of income tax benefit of $(2), $0, and $0 Available-for-sale securities, net of income tax expense/(benefit) of $10, $0, and $(3) Defined benefit plan, net of income tax (benefit)/expense of $(21), $0 and $69 Other comprehensive income Comprehensive Loss Less: Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests Comprehensive Loss Attributable to NRG Energy, Inc. Dividends for preferred shares Gain on redemption of preferred shares For the Year Ended December 31, 2017 2016 2015 (In millions) $ (2,337) $ (891) $ (6,436) 13 12 (8) 46 63 (2,274) (179) (2,095) — — 35 (1) 1 3 38 (853) (117) (736) 5 (78) (15) (11) 17 10 1 (6,435) (73) (6,362) 20 — Comprehensive Loss Available for Common Stockholders $ (2,095) $ (663) $ (6,382) See notes to Consolidated Financial Statements. NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Operating Revenues Total operating revenues Operating Costs and Expenses Cost of operations Depreciation and amortization Impairment losses Selling, general and administrative Reorganization costs Development costs Total operating costs and expenses Other income - affiliate Gain/(loss) on sale of assets Gain on postretirement benefits curtailment Operating (Loss)/Income Other Income/(Expense) Equity in earnings of unconsolidated affiliates Impairment losses on investments Other income, net Loss on sale of equity method investment Net (loss)/gain on debt extinguishment Interest expense Total other expense Loss from Continuing Operations Before Income Taxes Income tax expense Net Loss from Continuing Operations (Loss)/income from discontinued operations, net of income tax Net Loss Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net Loss Attributable to NRG Energy, Inc. Dividends for preferred shares Gain on redemption of preferred shares Loss Available for Common Stockholders Loss Per Share Attributable to NRG Energy, Inc. Common Stockholders Weighted average number of common shares outstanding — basic and diluted Loss from continuing operations per weighted average common share — basic and diluted (Loss)/Income from discontinued operations per weighted average common share — basic and diluted Net Loss per Weighted Average Common Share — Basic and Diluted Dividends Per Common Share $ $ $ $ $ See notes to Consolidated Financial Statements. For the Year Ended December 31, 2017 2016 2015 $ 10,629 $ 10,512 $ 12,328 7,536 1,056 1,709 907 44 67 11,319 87 16 — (587) 31 (79) 38 — (53) (890) (953) (1,540) 8 (1,548) (789) (2,337) 7,301 1,172 702 1,095 — 89 10,359 193 (80) — 266 27 (268) 34 — (142) (895) (1,244) (978) 5 (983) 92 (891) (184) (2,153) — — (2,153) $ (117) (774) 5 (78) (701) $ 9,000 1,351 4,860 1,228 — 154 16,593 193 — 21 (4,051) 36 (56) 26 (14) 10 (937) (935) (4,986) 1,345 (6,331) (105) (6,436) (54) (6,382) 20 — (6,402) 317 316 329 (4.30) $ (2.51) $ (19.14) (2.49) $ (6.79) $ $ 0.12 0.29 $ (2.22) $ $ 0.24 (0.32) (19.46) 0.58 126 127 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Current Assets ASSETS Cash and cash equivalents Funds deposited by counterparties Restricted cash Accounts receivable — trade Inventory Derivative instruments Cash collateral posted in support of energy risk management activities Accounts receivable — affiliate Current assets held-for-sale Prepayments and other current assets Current assets - discontinued operations Total current assets Property, plant and equipment, net Other Assets Equity investments in affiliates Notes receivable, less current portion Goodwill Intangible assets, net Nuclear decommissioning trust fund Derivative instruments Deferred income taxes Non-current assets held-for-sale Other non-current assets Non-current assets - discontinued operations Total other assets Total Assets See notes to Consolidated Financial Statements. As of December 31, 2017 2016 (In millions) $ $ 991 37 508 1,079 532 626 171 95 115 261 — 4,415 13,908 1,038 2 539 1,746 692 172 134 43 629 — 4,995 23,318 $ $ 938 2 446 1,058 721 1,067 150 — 9 404 1,919 6,714 15,369 1,120 16 662 1,973 610 181 225 10 841 2,961 8,599 30,682 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and capital leases Accounts payable Accounts payable - affiliate Derivative instruments Cash collateral received in support of energy risk management activities Accrued interest expense Current liabilities - held for sale Other accrued expenses and other current liabilities Other accrued expenses and other current liabilities - affiliate Current liabilities - discontinued operations Total current liabilities Other Liabilities Long-term debt and capital leases Nuclear decommissioning reserve Nuclear decommissioning trust liability Postretirement and other benefit obligations Deferred income taxes Derivative instruments Out-of-market contracts, net Non-current liabilities held-for-sale Other non-current liabilities Non-current liabilities - discontinued operations Total non-current liabilities Total Liabilities Redeemable noncontrolling interest in subsidiaries Commitments and Contingencies Stockholders' Equity Common stock; $0.01 par value; 500,000,000 shares authorized; 418,323,134 and 417,583,825 shares issued; and 316,743,089 and 315,443,011 shares outstanding at December 31, 2017 and 2016 Additional paid-in capital Accumulated deficit Treasury stock, at cost; 101,580,045 and 102,140,814 shares at December 31, 2017 and 2016 Accumulated other comprehensive loss Noncontrolling interest Total Stockholders' Equity Total Liabilities and Stockholders' Equity See notes to Consolidated Financial Statements. As of December 31, 2017 2016 (In millions, except share data) $ $ $ 688 881 33 555 37 156 72 734 161 — 3,317 15,716 269 415 458 21 197 207 8 664 — 17,955 21,272 78 4 8,376 (6,268) (2,386) (72) 2,314 1,968 23,318 $ 516 782 31 1,092 81 180 — 810 — 1,210 4,702 15,957 287 339 510 20 284 230 11 666 3,184 21,488 26,190 46 4 8,358 (3,787) (2,399) (135) 2,405 4,446 30,682 128 129 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2016 2017 2015 Cash Flows from Operating Activities Net loss (Loss)/income from discontinued operations, net of income tax Loss from continuing operations Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Equity in earnings and distribution of unconsolidated affiliates Depreciation and amortization Provision for bad debts Amortization of nuclear fuel Amortization of financing costs and debt discount/premiums Adjustment for debt extinguishment Amortization of intangibles and out-of-market contracts Amortization of unearned equity compensation Net (gain)/loss on sale of assets and equity method investments Gain on post retirement benefits curtailment Impairment losses Changes in derivative instruments Changes in deferred income taxes and liability for uncertain tax benefits Changes in collateral deposits in support of risk management activities Proceeds from sale of emission allowances Changes in nuclear decommissioning trust liability Cash provided/(used) by changes in other working capital, net of acquisition and disposition effects: Accounts receivable - trade Inventory Prepayments and other current assets Accounts payable Accrued expenses and other current liabilities Other assets and liabilities Cash provided by continuing operations Cash (used)/provided by discontinued operations Net Cash Provided by Operating Activities Cash Flows from Investing Activities Acquisition of businesses, net of cash acquired Capital expenditures Net cash proceeds from notes receivable Proceeds from renewable energy grants Proceeds from/(purchases) of emission allowances, net of purchases Investments in nuclear decommissioning trust fund securities Proceeds from sales of nuclear decommissioning trust fund securities Proceeds from sale of assets, net Investments in unconsolidated affiliates Other Cash used by continuing operations Cash (used)/provided by discontinued operations Net Cash Used by Investing Activities Cash Flows from Financing Activities Payments of dividends to preferred and common stockholders Net receipts from settlement of acquired derivatives that include financing elements Payments for treasury stock Payments for preferred shares Payments for debt extinguishment costs Distributions to, net of contributions from, noncontrolling interests in subsidiaries Proceeds from sale of noncontrolling interests in subsidiaries (Payments)/Proceeds from issuance of common stock Proceeds from issuance of long-term debt Payments of debt issuance and hedging costs Payments for short and long-term debt Receivable from affiliate Other Cash used by continuing operations Cash (used)/provided by discontinued operations Net Cash Used by Financing Activities Effect of exchange rate changes on cash and cash equivalents Change in Cash from discontinued operations Net Increase/(Decrease) in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period (In millions) (2,337) (789) (1,548) $ $ (891) 92 (983) $ (6,436) (105) (6,331) 55 1,056 68 51 60 53 108 35 (34) — 1,788 (171) 91 (80) 25 11 (99) 143 12 77 (60) (216) 1,425 (38) 1,387 (41) (1,111) 17 8 66 (512) 501 87 (40) 12 (1,013) (53) (1,066) (38) 2 — — (42) 95 — (2) 2,270 (63) (2,348) (125) (10) (261) (224) (485) (1) (315) 150 1,386 54 1,172 48 49 55 142 167 10 70 — 972 32 (43) 398 34 41 (7) 71 (44) (39) (35) 43 2,207 (119) 2,088 (209) (976) 17 36 (1) (551) 510 73 (23) 35 (1,089) 297 (792) (76) 6 — (226) (121) (156) — 1 5,527 (89) (5,908) — (13) (1,055) 140 (915) 1 318 64 1,322 37 1,351 64 45 47 (10) 151 39 14 (21) 4,916 235 1,326 (334) (24) (2) 113 (59) (21) (180) (29) (40) 1,287 62 1,349 (31) (1,029) 18 82 41 (629) 631 27 (395) 16 (1,269) (259) (1,528) (201) 14 (437) — — 47 600 1 1,004 (21) (1,362) — (22) (377) (55) (432) 10 (252) (349) 1,671 NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Common Stock Additional Paid-In Capital Retained Earnings/ (Accumu- lated Deficit) Accumulated Other Comprehensive Income/(Loss) Noncon- trolling Interest Total Stock- holders' Equity Treasury Stock (In millions) Balances at December 31, 2014 $ 4 $ 8,327 $ 3,588 $ (1,983) $ (174) $ 1,914 Net loss Other comprehensive income/(loss) Sale of assets to NRG Yield, Inc. ESPP share purchases Equity-based compensation Purchase of treasury stock Common stock dividends Preferred stock dividends Distributions to noncontrolling interests Contributions from noncontrolling interests Acquisition of noncontrolling interests by NRG Yield, Inc. Impact of NRG Yield, Inc. public offering Equity component of NRG Yield, Inc. convertible notes (56) (1) 26 (6,382) (2) (191) (20) 7 (437) 1 (37) (4) 83 (159) 234 74 599 23 11,676 (6,419) (3) 27 6 24 (437) (191) (20) (159) 234 74 599 23 Balances at December 31, 2015 $ 4 $ 8,296 $ (3,007) $ (2,413) $ (173) $ 2,727 $ 5,434 Net loss Other comprehensive income Sale of assets to NRG Yield, Inc. ESPP share purchases Equity-based compensation Common stock dividends Dividend for preferred shares Gain on redemption of preferred shares Distributions to noncontrolling interests Dividends paid to NRG Yield, Inc. Contributions from noncontrolling interests Redemption of noncontrolling interests 59 (2) 5 (774) (6) 1 (74) (5) 78 (79) (853) 38 (16) 14 (158) (92) 30 (7) 38 43 6 6 (74) (5) 78 (158) (92) 30 (7) Balances at December 31, 2016 $ 4 $ 8,358 $ (3,787) $ (2,399) $ (135) $ 2,405 $ 4,446 Net loss Other comprehensive income Sale of assets to NRG Yield, Inc. ESPP share purchases Equity-based compensation Common stock dividends Distributions to noncontrolling interests Dividends paid to NRG Yield, Inc. Contributions from noncontrolling interests Early adoption of new accounting standards (2,153) (98) (2,251) 51 (25) (3) 29 (4) 13 (38) 17 (286) 12 20 (65) (108) 160 51 (5) 6 29 (38) (65) (108) 160 (257) Balances at December 31, 2017 $ 4 $ 8,376 $ (6,268) $ (2,386) $ (72) $ 2,314 $ 1,968 See notes to Consolidated Financial Statements. Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period $ 1,536 $ 1,386 $ 1,322 See notes to Consolidated Financial Statements. 130 131 NRG ENERGY, INC. AND SUBSIDIARIES Transformation Plan NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Nature of Business General NRG Energy, Inc., or NRG or the Company, is a leading integrated power company built on the strength of a diverse competitive electric generation portfolio and leading retail electricity platform. NRG aims to create a sustainable energy future by producing, selling and delivering electricity and related products and services in major competitive power markets in the U.S. in a manner that delivers value to all of NRG's stakeholders. The Company owns and operates approximately 30,000 MW of generation; engages in the trading of wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG”, "Reliant" and other retail brand names owned by NRG. Generation consists of the Company’s wholesale operations, commercial operations, EPC operations, energy services and other critical related functions. NRG has traditionally referred to this business as its wholesale power generation business. In addition to the traditional functions from NRG’s wholesale power generation business, Generation also includes NRG’s business solutions, which include demand response, commodity sales, energy efficiency and energy management services, and NRG’s conventional distributed generation business, consisting of reliability, combined heat and power, thermal and district heating and cooling and large-scale distributed generation. Retail is a consumer facing business that includes the Company’s residential retail and C&I business. Products and services range from retail energy, portable solar and battery products home services, and a variety of bundled products which combine energy with protection products, energy efficiency and renewable energy solutions as well as other distributed and reliability products. Renewables operates the Company’s existing renewables business, including operation of the NRG Yield renewable assets. Renewables is also one of the largest solar and wind power developers and owner-operators in the U.S., having developed, constructed and financed a full range of solutions for utilities, schools, municipalities and commercial market segments. GenOn Chapter 11 Cases On June 14, 2017, or the Petition Date, GenOn, along with GenOn Americas Generation and certain of their directly and indirectly-owned subsidiaries, or collectively the GenOn Entities, filed voluntary petitions for relief under Chapter 11, or the Chapter 11 Cases, of the U.S. Bankruptcy Code, or the Bankruptcy Code, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, or the Bankruptcy Court. GenOn Mid-Atlantic, as well as its consolidated subsidiaries, REMA and certain other subsidiaries, did not file for relief under Chapter 11. As a result of the bankruptcy filings and beginning on June 14, 2017, GenOn and its subsidiaries were deconsolidated from NRG’s consolidated financial statements. NRG recorded its investment in GenOn under the cost method with an estimated fair value of zero. NRG determined that this disposal of GenOn and its subsidiaries is a discontinued operation; and, accordingly, the financial information for all historical periods has been recast to reflect GenOn as a discontinued operation. In connection with the disposal, NRG recorded a loss on deconsolidation of $208 million during the quarter ended June 30, 2017. See Note 3, Discontinued Operations, Acquisitions and Dispositions, for more information. Prior to the GenOn Entities' filing the Chapter 11 Cases, on June 12, 2017, NRG entered into a restructuring support and lock-up agreement, or the Restructuring Support Agreement, with the GenOn Entities and certain holders of the GenOn and GenOn Americas Generation Senior Notes, that provides for a restructuring and recapitalization of the GenOn Entities through a prearranged plan of reorganization. On December 12, 2017, the Bankruptcy Court entered an order confirming the plan of reorganization. There is no assurance that the GenOn Entities' plan will be successfully implemented. The principal terms of the Restructuring Support Agreement and further information regarding the Chapter 11 Cases are described further in Note 3, Discontinued Operations, Acquisitions and Dispositions. On July 12, 2017, NRG announced its Transformation Plan designed to significantly strengthen earnings and cost competitiveness, lower risk and volatility, and create significant shareholder value. The three-part, three-year plan is comprised of the following targets: Operations and cost excellence — Cost savings and margin enhancement of $1,065 million recurring, which consists of $590 million of annual cost savings, a $215 million net margin enhancement program, $50 million annual reduction in maintenance capital expenditures, and $210 million in permanent selling, general and administrative expense reduction associated with asset sales. Portfolio optimization — Targeting up to $3.2 billion of asset sale net cash proceeds, including divestitures of 6 GWs of conventional generation and businesses (excluding GenOn) and the expected monetization of 100% of its interest in NRG Yield, Inc. and its renewables platform. Capital structure and allocation enhancements — A prioritized capital allocation strategy that targets a reduction in consolidated debt from approximately $19.5 billion ($18 billion net debt) to approximately $6.5 billion ($6 billion net debt). Following the completion of the contemplated asset sales, the Company expects $5.3 billion in excess cash to be available for allocation through 2020, after achieving its targeted 3.0x net debt / Adjusted EBITDA corporate credit ratio. The Company expects to fully implement the Transformation Plan by the end of 2020 with significant completion by the end of 2018. The Company expects to realize (i) $370 million of working capital improvements through 2020 and (ii) approximately $290 million, one-time costs to achieve. NRG Yield, Inc. Ownership In 2013, the Company formed NRG Yield, Inc. to own and operate a portfolio of contracted generation assets and thermal infrastructure assets that have historically been owned and/or operated by NRG and its subsidiaries. In 2013 and 2014, NRG Yield, Inc. issued Class A common stock to its public shareholders and utilized the proceeds to acquire a controlling interest in NRG Yield LLC, through its ownership of Class A units. At that time, the Company owned the Class B common stock of NRG Yield, Inc. and the Class B units of NRG Yield LLC. On May 14, 2015, NRG Yield, Inc. completed a stock split in connection with which each outstanding share of Class A common stock was split into one share of Class A common stock and one share of Class C common stock, and each outstanding share of Class B common stock was split into one share of Class B common stock and one share of Class D common stock. A similar split was effected at NRG Yield LLC with respect to its member units. The Company consolidates NRG Yield, Inc. for financial reporting purposes as it maintains a controlling voting interest, and presents the public ownership of the Class A and Class C common stock as noncontrolling interest. The Company receives distributions from NRG Yield LLC, through its ownership of Class B and Class D units. 132 133 The following table represents the structure of NRG Yield, Inc. as of December 31, 2017: Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with an original maturity of three months or less at the time of purchase. Funds Deposited by Counterparties Funds deposited by counterparties consist of cash held by the Company as a result of collateral posting obligations from its counterparties. Some amounts are segregated into separate accounts that are not contractually restricted but, based on the Company's intention, are not available for the payment of general corporate obligations. Depending on market fluctuations and the settlement of the underlying contracts, the Company will refund this collateral to the hedge counterparties pursuant to the terms and conditions of the underlying trades. Since collateral requirements fluctuate daily and the Company cannot predict if any collateral will be held for more than twelve months, the funds deposited by counterparties are classified as a current asset on the Company's balance sheet, with an offsetting liability for this cash collateral received within current liabilities. As of December 31, 2016, $79 million of the cash collateral received was from GenOn, previously a consolidated subsidiary, and is included in cash collateral received in current liabilities as a result of deconsolidating GenOn, with the offset included in cash and cash equivalents. Restricted Cash The following table provides a reconciliation of cash and cash equivalents, restricted cash and funds deposited by counterparties reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the statement of cash flows. Cash and cash equivalents Funds deposited by counterparties Restricted cash Cash and cash equivalents, funds deposited by counterparties and restricted cash shown in the statement of cash flows Year Ended December 31, 2017 2016 2015 (In millions) 991 $ 938 $ 37 508 2 446 853 55 414 1,536 $ 1,386 $ 1,322 $ $ Restricted cash consists primarily of funds held to satisfy the requirements of certain debt agreements and funds held within the Company's projects that are restricted in their use. Of these funds, as of December 31, 2017, approximately $51 million is designated for current debt service payments, $65 million is designated to fund operating expenses, and $57 million is designated to fund distributions, with the remaining $335 million restricted for reserves including debt service, performance obligations and other reserves, as well as capital expenditures. Trade Receivables and Allowance for Doubtful Accounts Trade receivables are reported in the balance sheet at outstanding principal adjusted for any write-offs and the allowance for doubtful accounts. For its retail business, the Company accrues an allowance for doubtful accounts based on estimates of uncollectible revenues by analyzing counterparty credit ratings (for commercial and industrial customers), historical collections, accounts receivable aging and other factors. The retail business writes-off accounts receivable balances against the allowance for doubtful accounts when it determines a receivable is uncollectible. In addition, the Company considers a reserve for doubtful accounts based on the credit worthiness of the customers and continually reviews and adjusts for current economic trends that might impact the level of future credit losses. The reserve represents management's best estimate of uncollectible amounts. As of December 31, 2017 and 2016, the allowance for doubtful accounts was $28 million and $29 million, respectively. Inventory Inventory is valued at the lower of weighted average cost or market, and consists principally of fuel oil, coal and raw materials used to generate electricity or steam. The Company removes these inventories as they are used in the production of electricity or steam. Spare parts inventory is valued at weighted average cost. The Company removes these inventories when they are used for repairs, maintenance or capital projects. The Company expects to recover the fuel oil, coal, raw materials, and spare parts costs in the ordinary course of business. Finished goods inventory is valued at the lower of cost or net realizable value with cost being determined on a first-in first-out basis. The Company removes these inventories as they are sold to customers. Sales of inventory are classified as an operating activity in the consolidated statements of cash flows. Note 2 — Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The Company's consolidated financial statements have been prepared in accordance with GAAP. The ASC, established by the FASB, is the source of authoritative GAAP to be applied by nongovernmental entities. In addition, the rules and interpretative releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The consolidated financial statements include NRG's accounts and operations and those of its subsidiaries in which the Company has a controlling interest. All significant intercompany transactions and balances have been eliminated in consolidation. The usual condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. However, a controlling financial interest may also exist through arrangements that do not involve controlling voting interests. As such, NRG applies the guidance of ASC 810, Consolidations, or ASC 810, to determine when an entity that is insufficiently capitalized or not controlled through its voting interests, referred to as a VIE, should be consolidated. Segment Reporting The Company's businesses are segregated as follows: Generation, which includes generation, international and BETM; Retail, which includes Mass customers, and Business Solutions, which includes C&I customers and other distributed and reliability products; Renewables, which includes solar and wind assets, excluding those in NRG Yield; NRG Yield; and corporate activities. On June 14, 2017, as described in Note 3, Discontinued Operations, Acquisitions and Dispositions, NRG deconsolidated GenOn for financial reporting purposes. The financial information for all historical periods has been recast to reflect the presentation of GenOn as discontinued operations within the corporate segment. The Company's segment structure and its allocation of corporate expenses were updated to reflect how management makes financial decisions and allocates resources. The Company has recast data from prior periods to reflect this change in reportable segments to conform to the current year presentation. 134 135 Property, Plant and Equipment Property, plant and equipment are stated at cost or, in the case of business acquisitions, fair value; however, impairment adjustments are recorded whenever events or changes in circumstances indicate that their carrying values may not be recoverable. See Note 3, Discontinued Operations, Acquisitions and Dispositions, for more information on acquired property, plant and equipment. NRG also classifies nuclear fuel related to the Company's 44% ownership interest in STP as part of the Company's property, plant, and equipment. Significant additions or improvements extending asset lives are capitalized as incurred, while repairs and maintenance that do not improve or extend the life of the respective asset are charged to expense as incurred. Depreciation, other than nuclear fuel, is computed using the straight-line method, while nuclear fuel is amortized based on units of production over the estimated useful lives. Certain assets and their related accumulated depreciation amounts are adjusted for asset retirements and disposals with the resulting gain or loss included in cost of operations in the consolidated statements of operations. Asset Impairments Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with ASC 360. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded in operating costs and expenses in the consolidated statements of operations. Fair values are determined by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques. Investments accounted for by the equity method are reviewed for impairment in accordance with ASC 323, Investments- Equity Method and Joint Ventures, or ASC 323, which requires that a loss in value of an investment that is an other-than-temporary decline should be recognized. The Company identifies and measures losses in the value of equity method investments based upon a comparison of fair value to carrying value. For further discussion of these matters, refer to Note 10, Asset Impairments. Development Costs and Capitalized Interest Development costs include project development costs, which are expensed in the preliminary stages of a project and capitalized when the project is deemed to be commercially viable. Commercial viability is determined by one or a series of actions including, among others, Board of Director approval pursuant to a formal project plan that subjects the Company to significant future obligations that can only be discharged by the use of a Company asset. When a project is available for operations, capitalized interest and capitalized project development costs are reclassified to property, plant and equipment and depreciated on a straight- line basis over the estimated useful life of the project's related assets. Capitalized costs are charged to expense if a project is abandoned or management otherwise determines the costs to be unrecoverable. Interest incurred on funds borrowed to finance capital projects is capitalized until the project under construction is ready for its intended use. The amount of interest capitalized for the years ended December 31, 2017, 2016, and 2015, was $34 million, $30 million, and $25 million, respectively. Debt Issuance Costs Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt. Intangible Assets Intangible assets represent contractual rights held by the Company. The Company recognizes specifically identifiable intangible assets including customer contracts, customer relationships, energy supply contracts, marketing partnerships, power purchase agreements, trade names, emission allowances, and fuel contracts when specific rights and contracts are acquired. In addition, the Company also established values for emission allowances and power contracts upon adoption of Fresh Start reporting. These intangible assets are amortized based on expected volumes, expected delivery, expected discounted future net cash flows, straight line or units of production basis. As of December 31, 2017 and 2016, the Company had accumulated amortization related to its intangible assets of $1.8 billion and $1.7 billion, respectively. Intangible assets determined to have indefinite lives are not amortized, but rather are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that such acquired intangible assets have been determined to have finite lives and should now be amortized over their useful lives. Emission allowances held-for-sale, which are included in other non-current assets on the Company's consolidated balance sheet, are not amortized; they are carried at the lower of cost or fair value and reviewed for impairment in accordance with ASC 360. Goodwill In accordance with ASC 350, the Company recognizes goodwill for the excess cost of an acquired entity over the net value assigned to assets acquired and liabilities assumed. NRG performs goodwill impairment tests annually, during the fourth quarter, and when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, there is no goodwill impairment. In the absence of sufficient qualitative factors, the Company performs a quantitative assessment by determining the fair value of the reporting unit and comparing the fair value to its book value. If the fair value of the reporting unit exceeds its book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, the Company recognizes an impairment loss equal to the difference between book value and fair value. For further discussion of goodwill and goodwill impairment losses recognized during 2017 and 2016, refer to Note 11, Goodwill and Other Intangibles. Income Taxes The Company accounts for income taxes using the liability method in accordance with ASC 740, which requires that the Company use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. The Company has two categories of income tax expense or benefit — current and deferred, as follows: • Current income tax expense or benefit consists solely of current taxes payable less applicable tax credits, and • Deferred income tax expense or benefit is the change in the net deferred income tax asset or liability, excluding amounts charged or credited to accumulated other comprehensive income. The Company reports some of its revenues and expenses differently for financial statement purposes than for income tax return purposes, resulting in temporary and permanent differences between the Company's financial statements and income tax returns. The tax effects of such temporary differences are recorded as either deferred income tax assets or deferred income tax liabilities in the Company's consolidated balance sheets. The Company measures its deferred income tax assets and deferred income tax liabilities using income tax rates that are currently in effect. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income which includes the future reversal of existing taxable temporary differences to realize deferred tax assets, net of valuation allowances. In arriving at this conclusion to utilize projections of future profit before tax in its estimate of future taxable income, including the potential impact of the Tax Cuts and Jobs Act legislation, or the Tax Act, the Company considered the profit before tax generated in recent years. A valuation allowance is recorded to reduce the Company's net deferred tax assets to an amount that is more-likely-than-not to be realized. The Company reduces its current income tax expense in the consolidated statement of operations for any investment tax credits, or ITCs, that are not convertible into cash grants, as well as other tax credits, in the period the tax credit is generated. ITCs that are convertible into cash grants, as well as the deferred income tax benefit generated by the difference in the financial statement and tax basis of the related assets, are recorded as a reduction to the carrying value of the underlying property and subsequently amortized to earnings on a straight-line basis over the useful life of each underlying property. The Company accounts for uncertain tax positions in accordance with ASC 740, which applies to all tax positions related to income taxes. Under ASC 740, tax benefits are recognized when it is more-likely-than-not that a tax position will be sustained upon examination by the authorities. The benefit recognized from a position that has surpassed the more-likely-than-not threshold is the largest amount of benefit that is more than 50% likely to be realized upon settlement. The Company recognizes interest and penalties accrued related to uncertain tax benefits as a component of income tax expense. In accordance with ASC 805 and as discussed further in Note 19, Income Taxes, changes to existing net deferred tax assets or valuation allowances or changes to uncertain tax benefits, are recorded to income tax expense. 136 137 Revenue Recognition Cost of Energy for Retail Operations Energy — Both physical and financial transactions are entered into to optimize the financial performance of the Company's generating facilities. Electric energy revenue is recognized upon transmission to the customer. Physical transactions, or the sale of generated electricity to meet supply and demand, are recorded on a gross basis in the Company's consolidated statements of operations. Financial transactions, or the buying and selling of energy for trading purposes, are recorded net within operating revenues in the consolidated statements of operations in accordance with ASC 815. Capacity — Capacity revenues are recognized when contractually earned, and consist of revenues billed to a third party at either the market or a negotiated contract price for making installed generation capacity available in order to satisfy system integrity and reliability requirements. Sale of Emission Allowances — The Company records its bank of emission allowances as part of intangible assets. From time to time, management may authorize the transfer of emission allowances in excess of usage from the Company's emission bank to intangible assets held-for-sale for trading purposes. The Company records the sale of emission allowances on a net basis within operating revenue in the Company's consolidated statements of operations. Contract Amortization — Assets and liabilities recognized from power sales agreements assumed at Fresh Start and through acquisitions related to the sale of electric capacity and energy in future periods for which the fair value has been determined to be significantly less (more) than market are amortized to revenue over the term of each underlying contract based on actual generation and/or contracted volumes. Retail revenues — Gross revenues for energy sales and services to retail customers are recognized upon delivery under the accrual method. Energy sales and services that have been delivered but not billed by period end are estimated. Gross revenues also includes energy revenues from resales of purchased power, which were $187 million, $154 million and $165 million for the years ended December 31, 2017, 2016, and 2015, respectively. These revenues represent the sale of excess supply to third parties in the market. Accrued unbilled revenues are based on estimates of customer usage since the date of the last meter reading provided by the independent system operators or electric distribution companies. Volume estimates are based on daily forecasted volumes and estimated customer usage by class. Unbilled revenues are calculated by multiplying these volume estimates by the applicable rate by customer class. Estimated amounts are adjusted when actual usage is known and billed. The Company recorded receivables for unbilled revenues of $376 million, $321 million and $307 million as of December 31, 2017, 2016, and 2015, respectively, for retail energy sales and services. Consumer product revenues are recognized when title and risk of loss pass to the retailer, distributor, or end-customer and when all of the following have occurred: a firm sales agreement is in place, delivery has occurred, pricing is fixed and determinable, and collection is reasonably assured. Revenue is recognized as the net amount expected to be received after deducting estimated amounts for product returns, discounts, and allowances based on historical return rates and reasonable judgment. Lessor Accounting Certain of the Company’s revenues are obtained through PPAs or other contractual agreements. Many of these agreements are accounted for as operating leases under ASC 840 Leases. Certain of these leases have no minimum lease payments and all of the rent is recorded as contingent rent on an actual basis when the electricity is delivered. Judgment is required by management in determining the economic life of each generating facility, in evaluating whether certain lease provisions constitute minimum payments or represent contingent rent and other factors in determining whether a contract contains a lease and whether the lease is an operating lease or capital lease. Contingent rental income recognized in the years ended December 31, 2017, 2016, and 2015 was $879 million, $912 million, and $753 million, respectively. Gross Receipts and Sales Taxes In connection with its retail business, the Company records gross receipts taxes on a gross basis in revenues and cost of operations in its consolidated statements of operations. During the years ended December 31, 2017, 2016, and 2015, the Company's revenues and cost of operations included gross receipts taxes of $92 million, $101 million, and $110 million, respectively. Additionally, the retail business records sales taxes collected from its taxable customers and remitted to the various governmental entities on a net basis; thus, there is no impact on the Company's consolidated statement of operations. The cost of energy for electricity sales and services to retail customers is included in cost of operations and is based on estimated supply volumes for the applicable reporting period. A portion of the cost of energy ($107 million, $90 million and $85 million as of December 31, 2017, 2016, and 2015, respectively) was accrued and consisted of estimated transmission and distribution charges not yet billed by the transmission and distribution utilities. In estimating supply volumes, the Company considers the effects of historical customer volumes, weather factors and usage by customer class. Transmission and distribution delivery fees are estimated using the same method used for electricity sales and services to retail customers. In addition, ISO fees are estimated based on historical trends, estimated supply volumes and initial ERCOT ISO settlements. Volume estimates are then multiplied by the supply rate and recorded as cost of operations in the applicable reporting period. Derivative Financial Instruments The Company accounts for derivative financial instruments under ASC 815, which requires the Company to record all derivatives on the balance sheet at fair value unless they qualify for a NPNS exception. Changes in the fair value of non-hedge derivatives are immediately recognized in earnings. Changes in the fair value of derivatives accounted for as cash flow hedges, if elected for hedge accounting, are deferred and recorded as a component of accumulated OCI until the hedged transactions occur and are recognized in earnings. The Company's primary derivative instruments are power purchase or sales contracts, fuels purchase contracts, other energy related commodities, and interest rate instruments used to mitigate variability in earnings due to fluctuations in market prices and interest rates. On an ongoing basis, the Company assesses the effectiveness of all derivatives that are designated as hedges for accounting purposes in order to determine that each derivative continues to be highly effective in offsetting changes in fair values or cash flows of hedged items. Internal analyses that measure the statistical correlation between the derivative and the associated hedged item determine the effectiveness of such a contract designated as a hedge. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting will be discontinued prospectively. In this case, the gain or loss previously deferred in accumulated OCI would be frozen until the underlying hedged instrument is delivered unless the transactions being hedged are no longer probable of occurring in which case the amount in OCI would be immediately reclassified into earnings. If the derivative instrument is terminated, the effective portion of this derivative deferred in accumulated OCI will be frozen until the underlying hedged item is delivered. Revenues and expenses on contracts that qualify for the NPNS exception are recognized when the underlying physical transaction is delivered. While these contracts are considered derivative financial instruments under ASC 815, they are not recorded at fair value, but on an accrual basis of accounting. If it is determined that a transaction designated as NPNS no longer meets the scope exception, the fair value of the related contract is recorded on the balance sheet and immediately recognized through earnings. NRG's trading activities are subject to limits in accordance with the Company's Risk Management Policy. These contracts are recognized on the balance sheet at fair value and changes in the fair value of these derivative financial instruments are recognized in earnings. Foreign Currency Translation and Transaction Gains and Losses The local currencies are generally the functional currency of NRG's foreign operations. Foreign currency denominated assets and liabilities are translated at end-of-period rates of exchange. Revenues, expenses, and cash flows are translated at the weighted- average rates of exchange for the period. The resulting currency translation adjustments are not included in the Company's consolidated statements of operations for the period, but are accumulated and reported as a separate component of stockholders' equity until sale or complete or substantially complete liquidation of the net investment in the foreign entity takes place. Foreign currency transaction gains or losses are reported within other income/(expense) in the Company's consolidated statements of operations. For the years ended December 31, 2017, 2016, and 2015, amounts recognized as foreign currency transaction gains (losses) were immaterial. The Company's cumulative translation adjustment balances as of December 31, 2017, 2016, and 2015 were $(2) million, $(11) million and $(10) million, respectively. 138 139 Concentrations of Credit Risk Investments Accounted for by the Equity Method Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trust funds, accounts receivable, notes receivable, derivatives, and investments in debt securities. Trust funds are held in accounts managed by experienced investment advisors. Certain accounts receivable, notes receivable, and derivative instruments are concentrated within entities engaged in the energy industry. These industry concentrations may impact the Company's overall exposure to credit risk, either positively or negatively, in that the customers may be similarly affected by changes in economic, industry or other conditions. Receivables and other contractual arrangements are subject to collateral requirements under the terms of enabling agreements. However, the Company believes that the credit risk posed by industry concentration is offset by the diversification and creditworthiness of its customer base. See Note 4, Fair Value of Financial Instruments, for a further discussion of derivative concentrations. The Company has investments in various domestic energy projects, as well as one Australian project. The equity method of accounting is applied to such investments in affiliates, which include joint ventures and partnerships, because the ownership structure prevents the Company from exercising a controlling influence over the operating and financial policies of the projects. Under this method, equity in pre-tax income or losses of domestic partnerships and, generally, in the net income or losses of its Australian project, are reflected as equity in earnings of unconsolidated affiliates. For certain investments that relate to tax equity arrangements, equity earnings are allocated using the hypothetical liquidation at book value, or HLBV, method which is described below. Distributions from equity method investments that represent earnings on the Company's investment are included within cash flows from operating activities and distributions from equity method investments that represent a return of the Company's investment are included within cash flows from investing activities. Fair Value of Financial Instruments Tax Equity Arrangements The carrying amount of cash and cash equivalents, funds deposited by counterparties, receivables, accounts payable, and accrued liabilities approximate fair value because of the short-term maturity of these instruments. See Note 4, Fair Value of Financial Instruments, for a further discussion of fair value of financial instruments. Asset Retirement Obligations The Company accounts for AROs in accordance with ASC 410-20, Asset Retirement Obligations, or ASC 410-20. Retirement obligations associated with long-lived assets included within the scope of ASC 410-20 are those for which a legal obligation exists under enacted laws, statutes, and written or oral contracts, including obligations arising under the doctrine of promissory estoppel, and for which the timing and/or method of settlement may be conditional on a future event. ASC 410-20 requires an entity to recognize the fair value of a liability for an ARO in the period in which it is incurred and a reasonable estimate of fair value can be made. Upon initial recognition of a liability for an ARO, the Company capitalizes the asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount. Over time, the liability is accreted to its future value, while the capitalized cost is depreciated over the useful life of the related asset. See Note 13, Asset Retirement Obligations, for a further discussion of AROs. Pensions and Other Postretirement Benefits The Company offers pension benefits through a defined benefit pension plan. In addition, the Company provides postretirement health and welfare benefits for certain groups of employees. The Company accounts for pension and other postretirement benefits in accordance with ASC 715, Compensation — Retirement Benefits. The Company recognizes the funded status of the Company's defined benefit plans in the statement of financial position and records an offset for gains and losses as well as all prior service costs that have not been included as part of the Company's net periodic benefit cost to other comprehensive income. The determination of the Company's obligation and expenses for pension benefits is dependent on the selection of certain assumptions. These assumptions determined by management include the discount rate, the expected rate of return on plan assets and the rate of future compensation increases. The Company's actuarial consultants determine assumptions for such items as retirement age. The assumptions used may differ materially from actual results, which may result in a significant impact to the amount of pension obligation or expense recorded by the Company. The Company measures the fair value of its pension assets in accordance with ASC 820, Fair Value Measurements and Disclosures, or ASC 820. Stock-Based Compensation The Company accounts for its stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation, or ASC 718. The fair value of the Company's non-qualified stock options and market stock units are estimated on the date of grant using the Black-Scholes option-pricing model and the Monte Carlo valuation model, respectively. NRG uses the Company's common stock price on the date of grant as the fair value of the Company's restricted stock units and deferred stock units. Forfeiture rates are estimated based on an analysis of the Company's historical forfeitures, employment turnover, and expected future behavior. The Company recognizes compensation expense for both graded and cliff vesting awards on a straight- line basis over the requisite service period for the entire award. The Company’s redeemable noncontrolling interest in subsidiaries and certain amounts within noncontrolling interest, included in stockholders' equity, represent third-party interests in the net assets under certain tax equity arrangements, which are consolidated by the Company, that have been entered into to finance the cost of solar energy systems under operating leases and wind facilities eligible for certain tax credits. The Company has determined that the provisions in the contractual agreements of these structures represent substantive profit sharing arrangements. Further, the Company has determined that the appropriate methodology for calculating the noncontrolling interest and redeemable noncontrolling interest that reflects the substantive profit sharing arrangements is a balance sheet approach utilizing the HLBV method. Under the HLBV method, the amounts reported as noncontrolling interest and redeemable noncontrolling interests represent the amounts the investors that are party to the tax equity arrangements would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements, assuming the net assets of the funding structures were liquidated at their recorded amounts determined in accordance with GAAP. The investors’ interests in the results of operations of the funding structures are determined as the difference in noncontrolling interest and redeemable noncontrolling interests at the start and end of each reporting period, after taking into account any capital transactions between the structures and the funds’ investors. The calculations utilized to apply the HLBV method include estimated calculations of taxable income or losses for each reporting period. Redeemable Noncontrolling Interest To the extent that the third-party has the right to redeem their interests for cash or other assets, the Company has included the noncontrolling interest attributable to the third party as a component of temporary equity in the mezzanine section of the consolidated balance sheet. The following table reflects the changes in the Company's redeemable noncontrolling interest balance for the years ended December 31, 2017, 2016, and 2015. Balance as of December 31, 2014 Cash contributions from redeemable noncontrolling interest Comprehensive loss attributable to redeemable noncontrolling interest Balance as of December 31, 2015 Distributions to redeemable noncontrolling interest Contributions from redeemable noncontrolling interest Non-cash adjustments to redeemable noncontrolling interest Comprehensive loss attributable to redeemable noncontrolling interest Balance as of December 31, 2016 Distributions to redeemable noncontrolling interest Contributions from redeemable noncontrolling interest Non-cash adjustments to redeemable noncontrolling interest Comprehensive loss attributable to redeemable noncontrolling interest Balance as of December 31, 2017 (In millions) $ $ 19 27 (17) 29 (1) 33 23 (38) 46 (2) 99 7 (72) 78 140 141 Sale-Leaseback Arrangements Recent Accounting Developments - Guidance Adopted in 2017 NRG is party to sale-leaseback arrangements that provide for the sale of certain assets to a third party and simultaneous leaseback to the Company. In accordance with ASC 840-40, Sale-Leaseback Transactions, if the seller-lessee retains, through the leaseback, substantially all of the benefits and risks incident to the ownership of the property sold, the sale-leaseback transaction is accounted for as a financing arrangement. An example of this type of continuing involvement would include an option to repurchase the assets or the buyer-lessor having the option to sell the assets back to the Company. This provision is included in most of the Company’s sale-leaseback arrangements. As such, the Company accounts for these arrangements as financings. Under the financing method, the Company does not recognize as income any of the sale proceeds received from the lessor that contractually constitutes payment to acquire the assets subject to these arrangements. Instead, the sale proceeds received are accounted for as financing obligations and leaseback payments made by the Company are allocated between interest expense and as a reduction to the financing obligation. Interest on the financing obligation is calculated using the Company’s incremental borrowing rate at the inception of the arrangement on the outstanding financing obligation. Judgment is required to determine the appropriate borrowing rate for the arrangement and in determining any gain or loss on the transaction that would be recorded either at the end of or over the lease term. Marketing and Advertising Costs The Company expenses its marketing and advertising costs as incurred and which are included within selling, general and administrative expenses. Marketing and advertising expenses for the years ended December 31, 2017, 2016, and 2015 were $184 million, $247 million, and $309 million, respectively. The costs of tangible assets used in advertising campaigns are recorded as fixed assets or deferred advertising costs and amortized as advertising costs over the shorter of the useful life of the asset or the advertising campaign. The Company has several long-term sponsorship arrangements. Payments related to these arrangements are deferred and expensed over the term of the arrangement. Advertising expenses for the years ended December 31, 2017, 2016, and 2015 were $42 million, $53 million, and $135 million, respectively. Reorganization Costs Reorganization costs include costs incurred by the Company related to the Transformation Plan implementation and primarily reflect personnel costs related to cost savings initiatives. As of December 31, 2017, $44 million has been incurred. Business Combinations The Company accounts for its business combinations in accordance with ASC 805, Business Combinations, or ASC 805. ASC 805 requires an acquirer to recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at fair value at the acquisition date. It also recognizes and measures the goodwill acquired or a gain from a bargain purchase in the business combination and determines what information to disclose to enable users of an entity's financial statements to evaluate the nature and financial effects of the business combination. In addition, transaction costs are expensed as incurred. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available. Estimates are used for such items as plant depreciable lives, tax provisions, uncollectible accounts, actuarially determined benefit costs, the valuation of energy commodity contracts, environmental liabilities, legal costs incurred in connection with recorded loss contingencies, and assets acquired and liabilities assumed in business combinations, among others. In addition, estimates are used to test long-lived assets and goodwill for impairment and to determine the fair value of impaired assets. As better information becomes available or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. Reclassifications Certain prior-year amounts have been reclassified for comparative purposes. The reclassifications did not affect results from operations, net assets or cash flows. ASU 2018-02 — In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, or ASU No. 2018-02. Prior to ASU No. 2018-02, GAAP required the remeasurement of deferred tax assets and liabilities as a result of a change in tax laws or rates to be presented in net income from continuing operations, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income. As a result, such items, referred to as stranded tax effects, did not reflect the appropriate tax rate. Under ASU No. 2018-02, entities are permitted, but not required, to reclassify from accumulated other comprehensive income to retained earnings those stranded tax effects resulting from the Tax Act. ASU No. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new standard effective December 31, 2017. As a result of the adoption, the Company reclassified $13 million from accumulated other comprehensive loss to retained earnings in the consolidated balance sheet as of December 31, 2017. ASU 2017-12 — In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, or ASU No. 2017-12. The amendments of ASU No. 2017-12 were issued to simplify the application of hedge accounting guidance and more closely align financial reporting for hedging relationships with economic results of an entity's risk management activities. The issues addressed by ASU No. 2017-12 include but are not limited to alignment of risk management activities and financial reporting, risk component hedging, accounting for the hedged item in fair value hedges of interest rate risk, recognition and presentation of the effects of hedging instruments, amounts excluded from the assessment of hedge effectiveness, and other simplifications of hedge accounting guidance. The Company adopted the guidance in ASU No. 2017-12 during the fourth quarter of 2017, with no material adjustments recorded to the consolidated results of operations, cash flows, and statement of financial position. ASU 2016-18 — In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, or ASU No. 2016-18. The amendments of ASU No. 2016-18 require an entity to include amounts generally described as restricted cash and restricted cash equivalents, including funds deposited by counterparties with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The amendments of ASU No. 2016-18 are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted and the adoption of ASU No. 2016-18 will be applied retrospectively. The Company adopted the guidance in ASU No. 2016-18 during the second quarter of 2017. In connection with the adoption of the standard, the Company has applied the guidance retrospectively which resulted in a (decrease)/increase in cash flows from operations of $(53) million and $37 million and an increase/(decrease) in cash flows from investing of $32 million and $(43) million on the statement of cash flows for the years ended December 31, 2016 and 2015, respectively. ASU 2016-16 — In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory, or ASU No. 2016-16. Previous GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party which has resulted in diversity in practice and increased complexity within financial reporting. The amendments of ASU No. 2016-16 require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted the guidance in ASU No. 2016-16 effective January 1, 2017. In connection with the adoption of the standard, the Company recorded a reduction to non-current assets of $267 million with a corresponding reduction to cumulative retained deficit as of December 31, 2017. ASU 2016-15 — In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, or ASU No. 2016-15. The amendments of ASU No. 2016-15 were issued to address eight specific cash flow issues for which stakeholders have indicated to the FASB that a diversity in practice existed in how entities were presenting and classifying these items in the statement of cash flows. The issues addressed by ASU No. 2016-15 include but are not limited to the classification of debt prepayment and debt extinguishment costs, payments made for contingent consideration for a business combination, proceeds from the settlement of insurance proceeds, distributions received from equity method investees and separately identifiable cash flows and the application of the predominance principle. The Company adopted the guidance in ASU No. 2016-15 effective January 1, 2017. In connection with the adoption of the standard, the Company has applied the guidance retrospectively which resulted in an increase in cash flows from operations of $121 million and a decrease in cash flows from financing of $121 million on the statement of cash flows for the year ended December 31, 2016. There was no impact to the statement of cash flows for the year ended December 31, 2015, as a result of adoption. 142 143 ASU 2016-09 — In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), or ASU No. 2016-09. The amendments focused on simplification specifically with regard to share-based payment transactions, including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. The Company adopted the guidance in ASU No. 2016-09 effective January 1, 2017, with no material adjustments recorded to the Company's consolidated financial statements. By eliminating a large portion of its operations in the PJM market with the deconsolidation of GenOn, NRG concluded that GenOn meets the criteria for discontinued operations, as this represents a strategic shift in the markets in which NRG operates. As such, all prior period results for GenOn have been reclassified as discontinued operations while NRG will record all ongoing results of GenOn as a cost method investment, which was valued at zero at the date of deconsolidation. Summarized results of discontinued operations were as follows: Recent Accounting Developments - Guidance Not Yet Adopted ASU 2017-07 — In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU No. 2017-07. Current GAAP does not indicate where the amount of net benefit cost should be presented in an entity’s income statement and does not require entities to disclose the amount of net benefit cost that is included in the income statement. The amendments of ASU No. 2017-07 require an entity to report the service cost component of net benefit costs in the same line item as other compensation costs arising from services rendered by the related employees during the applicable service period. The other components of net benefit cost are required to be presented separately from the service cost component and outside the subtotal of income from operations. Further, ASU No. 2017-07 prescribes that only the service cost component of net benefit costs is eligible for capitalization. The Company adopted the amendments of ASU No. 2017-07 effective January 1, 2018. The adoption of ASU No. 2017-07 will not have a material impact on the Company's results of operations, cash flows, and statement of financial position. ASU 2016-02 — In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or Topic 842, with the objective to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and to improve financial reporting by expanding the related disclosures. The guidance in Topic 842 provides that a lessee that may have previously accounted for a lease as an operating lease under current GAAP should recognize the assets and liabilities that arise from a lease on the balance sheet. In addition, Topic 842 expands the required quantitative and qualitative disclosures with regards to lease arrangements. The Company will adopt the standard effective January 1, 2019, and expects to elect certain of the practical expedients permitted, including the expedient that permits the Company to retain its existing lease assessment and classification. The Company is currently working through an adoption plan which includes the evaluation of lease contracts compared to the new standard. While the Company is currently evaluating the impact the new guidance will have on its financial position and results of operations, the Company expects to recognize lease liabilities and right of use assets. The extent of the increase to assets and liabilities associated with these amounts remains to be determined pending the Company’s review of its existing lease contracts and service contracts which may contain embedded leases. While this review is still in process, NRG believes the adoption of Topic 842 will have a material impact on its financial statements. The Company is continuing to monitor potential changes to Topic 842 that have been proposed by the FASB and will assess any necessary changes to the implementation process as the guidance is updated. ASU 2014-09 — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or Topic 606, which was further amended through various updates issued by the FASB thereafter. The amendments of Topic 606 completed the joint effort between the FASB and the IASB, to develop a common revenue standard for GAAP and IFRS, and to improve financial reporting. The guidance under Topic 606 provides that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services provided and establishes a five step model to be applied by an entity in evaluating its contracts with customers. The Company has also elected the practical expedient available under Topic 606 for measuring progress toward complete satisfaction of a performance obligation and for disclosure requirements of remaining performance obligations. The practical expedient allows an entity to recognize revenue in the amount to which the entity has the right to invoice such that the entity has a right to the consideration in an amount that corresponds directly with the value to the customer for performance completed to date by the entity. The Company adopted the standard effective January 1, 2018. The adoption of Topic 606 at the date of initial application, as prescribed under the modified retrospective transition method, will not have a material impact on the Company's financial statements. The adoption of Topic 606 also includes additional disclosure requirements beginning in the first quarter of 2018. Many of these disclosures are not substantially different than the Company's existing disclosures. Topic 606 requires disclosure of disaggregated revenue amounts, which the Company expects would include types of operating revenues by business. Note 3 — Discontinued Operations, Acquisitions and Dispositions Discontinued Operations As described in Note 1, Nature of Business, on the Petition Date, the GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of the bankruptcy filings, NRG concluded that it no longer controls GenOn as it is subject to the control of the Bankruptcy Court; and, accordingly, NRG no longer consolidates GenOn for financial reporting purposes. (In millions) Operating revenues Operating costs and expenses Gain on sale of assets Other expenses (Loss)/Income from operations of discontinued components, before tax Income tax expense (Loss)/Income from operations of discontinued components Interest income - affiliate (Loss)/Income from operations of discontinued components, net of tax Pre-tax loss on deconsolidation Settlement consideration and services credit Pension and post-retirement liability assumption Other Loss on disposal of discontinued components, net of tax (Loss)/Income from discontinued operations, net of tax Year ended December 31, 2017 2016 $ 646 (702) — (98) (154) 9 (163) 8 (155) (208) (289) (131) (6) (634) (789) $ 1,862 (1,896) 294 (168) 92 11 81 11 92 — — — — — 92 $ $ The following table summarizes the major classes of assets and liabilities classified as discontinued operations as of December 31, 2016. As of June 14, 2017, NRG no longer consolidates GenOn for financial reporting purposes. (In millions) Cash and cash equivalents Other current assets Current assets - discontinued operations Property, plant and equipment, net Other non-current assets Non-current assets - discontinued operations Current portion of long term debt and capital leases Other current liabilities Current liabilities - discontinued operations Long-term debt and capital leases Out-of-market contracts Other non-current liabilities Non-current liabilities - discontinued operations Chapter 11 Cases December 31, 2016 1,034 885 1,919 2,543 418 2,961 704 506 1,210 2,050 811 323 3,184 $ $ Prior to the GenOn Entities' filing the Chapter 11 Cases, on June 12, 2017, NRG entered into a restructuring support and lock-up agreement, or the Restructuring Support Agreement, with the GenOn Entities and certain holders of the GenOn and GenOn Americas Generation Senior Notes, that provides for a restructuring and recapitalization of the GenOn Entities through a prearranged plan of reorganization. There is no assurance that the GenOn Entities' plan will be successfully implemented. The principal terms of the Restructuring Support Agreement are described further below. 144 145 On September 18, 2017, and October 2, 2017, the GenOn Entities filed amendments to the plan of reorganization and the disclosure statement which primarily provided the GenOn Entities with the flexibility to complete sales of certain assets pursuant to the amended plan of reorganization and removed the GenOn Entities' requirement to conduct a rights offering in connection with the GenOn Entities' exit financing. and the letter of credit facility obtained in July 2017. 8) NRG and GenOn have agreed to cooperate in good faith to maximize the value of certain development projects. Pursuant to this, GenOn made a one-time payment in the amount of $15 million to NRG in December 2017 as compensation for a purchase option with respect to the Canal 3 project. On October 31, 2017, the GenOn Entities announced that they entered into a Consent Agreement with certain holders of GenOn’s Senior Notes and GenOn Americas Generation's Senior Notes, collectively, the Consenting Holders, whereby the GenOn Entities and the Consenting Holders agreed to extend the milestones in the Restructuring Support Agreement, by which the plan of reorganization must become effective, or the Effective Date. Specifically, the Consent Agreement extended the Effective Date milestone to June 30, 2018, or September 30, 2018, if regulatory approvals are still pending, or the Extended Effective Dates. On December 12, 2017, the Bankruptcy Court entered an order confirming the plan of reorganization, and effective December 12, 2017, GenOn and NRG entered into agreements concerning (i) timeline and transition, (ii) cooperation and co-development matters, (iii) post-employment and retiree health and welfare benefits and pension benefits, (iv) tax matters, and (v) intercompany balances and releases, consistent with the Restructuring Support Agreement, which among other things, provide for the transition of GenOn to a standalone enterprise, the resolution of substantial intercompany claims between GenOn and NRG, and the allocation of certain costs and liabilities between GenOn and NRG. On December 12, 2017, the Bankruptcy Court also entered an order giving effect to the Consent Agreement. Forms of certain of the definitive documents that make up the plan supplement were filed with the Bankruptcy Court by the GenOn Entities and approved by the Bankruptcy Court in connection with the confirmation of the plan of reorganization. It is a condition precedent to the occurrence of the effective date of the plan of reorganization that the final version of the plan supplement be consistent with the Restructuring Support Agreement, in all material respects. Restructuring Support Agreement As described in Note 1, Nature of Business, NRG, GenOn and certain holders representing greater than 93% in aggregate principal amount of GenOn’s Senior Notes and certain holders representing greater than 93% in aggregate principal amount of GenOn Americas Generation’s Senior Notes entered into a Restructuring Support Agreement that provides for a restructuring and recapitalization of the GenOn Entities through a prearranged plan of reorganization that was approved by the Bankruptcy Court pursuant to an order of confirmation. Completion of the agreed upon terms is contingent upon certain milestones in the Restructuring Support Agreement and the satisfaction or waiver or certain conditions precedent. Certain principal terms of the Restructuring Support Agreement and the plan of reorganization are detailed below: 1) The dismissal of litigation and full releases from GenOn and GenOn Americas Generation in favor of NRG upon the earlier of the consummation of the GenOn Entities' plan of reorganization or the Settlement Agreement; a condition precedent to the consummation of the Settlement Agreement is a full release or indemnification in favor of NRG from any claims of GenOn Mid-Atlantic and REMA. 2) NRG will provide settlement cash consideration to GenOn of $261.3 million, which will be paid in cash less any amounts owed to NRG under the intercompany secured revolving credit facility. As of December 31, 2017, GenOn owed NRG approximately $125 million under the intercompany secured revolving credit facility. See Note 21, Related Party Transactions, for further discussion of the intercompany secured revolving credit facility. 3) NRG will consent to the cancellation of its interests in the equity of GenOn and be entitled to a worthless stock deduction, as further described in the tax matters agreement. The equity interests in the reorganized GenOn will be issued to the holders of the GenOn Senior Notes. 4) NRG will retain the pension liability, including payment of approximately $13 million of 2017 pension contributions, for GenOn employees for service provided prior to the completion of the reorganization, which was paid in September 2017. GenOn’s pension liability as of December 31, 2017, was approximately $92 million. NRG will also retain the liability for GenOn’s post-employment and retiree health and welfare benefits, in an amount up to $25 million. 5) The shared services agreement between NRG and GenOn was terminated and replaced as of the plan confirmation date with a transition services agreement. Under the transition services agreement, NRG will continue to provide the shared services and other separation services at an annualized rate of $84 million, subject to certain credits and adjustments. See Note 21, Related Party Transactions, for further discussion of the Services Agreement. 6) NRG will provide a credit of $28 million to GenOn to apply against amounts owed under the transition services agreement. Any unused amount can be paid in cash at GenOn’s request. The credit was intended to reimburse GenOn for its payment of financing costs. 7) NRG agreed to provide GenOn with a letter of credit facility during the pendency of the Chapter 11 Cases, which could be utilized for required letters of credit in lieu of the intercompany secured revolving credit facility. GenOn can no longer utilize the intercompany secured revolving credit facility and, on July 27, 2017, the letter of credit facility was terminated, as GenOn had obtained a separate letter of credit facility with a third party financial institution. See Note 21, Related Party Transactions, for further discussion of the intercompany secured revolver credit facility Settlement Consideration NRG has determined that the payment of the settlement consideration is probable and has recorded a liability for the amount due of $261.3 million in accrued expenses and other current liabilities - affiliate with a corresponding loss from discontinued operations. NRG expects to pay this amount net of amounts due from GenOn under the intercompany secured revolving credit facility, which is further described in Note 21, Related Party Transactions. Pension Liability NRG will retain the pension liability, including payment of approximately $13 million of 2017 pension contributions, which was paid in September 2017, for the GenOn employees for service provided prior to emergence from bankruptcy. NRG determined that the retention of this liability is probable and has recorded the estimated accumulated pension benefit obligation as of December 31, 2017 of $92 million in other non-current liabilities with a corresponding loss from discontinued operations. NRG's obligation for this liability will be revalued through and at GenOn's emergence from bankruptcy. Services Agreement In December 2017, in conjunction with the confirmation of the GenOn Entities' plan of reorganization, the Services Agreement was terminated and replaced by the transition services agreement. Under the transition services agreement, NRG will continue to provide shared services and other separation services to GenOn at an annualized rate of $84 million until June 30, 2018, which may be extended by GenOn through September 30, 2018. NRG may provide additional separation services that are necessary for or reasonably related to the operation of GenOn's business after such date, subject to NRG's prior written consent, not to be unreasonably withheld. Beginning on June 14, 2017, and through December 2017, NRG recorded amounts earned for shared services of approximately $5 million per month. In December 2017, NRG provided GenOn with a $3.5 million credit for services provided under the transition services agreement and began recording amounts earned for shared services of approximately $7 million per month. NRG has also agreed to provide GenOn with a credit of $28 million against amounts owed under the transition services agreement. Any unused amount can be paid in cash at GenOn’s request, subject to the terms and conditions of the transition services agreement. As a result, NRG has concluded that the liability for this credit is probable and has recorded a payable to GenOn for $28 million in accrued expenses and other current liabilities - affiliate with a corresponding loss from discontinued operations. Commercial Operations For pre-disposal periods, NRG provided GenOn with services as described in Note 21, Related Party Transactions. Under intercompany agreements, NRG Power Marketing LLC has entered into physical and financial intercompany commodity and hedging transactions with GenOn and certain of its subsidiaries. Subject to applicable collateral thresholds, these arrangements may provide for the bilateral exchange of credit support based upon market exposure and potential market movements. The terms and conditions of the agreements are generally consistent with industry practices and other third party arrangements. For current and pre-disposal periods, revenue and expense associated with these transactions is recorded in continuing operations. GenOn Debt As of June 14, 2017, the GenOn Senior Notes and GenOn Americas Generation Senior Notes, which totaled approximately $2.5 billion, were deconsolidated from NRG's consolidated financial statements. The filing of the Chapter 11 Cases constitutes an event of default under the following debt instruments of GenOn: 1) The intercompany secured revolving credit facility with NRG; 2) The indenture governing the GenOn 7.875% Senior Notes due 2017 (as amended or supplemented from time to time); 3) The indenture governing the GenOn 9.500% Notes due 2018 (as amended or supplemented from time to time); 4) The indenture governing the GenOn 9.875% Notes due 2020 (as amended or supplemented from time to time); 5) The indenture governing the GenOn Americas Generation 8.50% Senior Notes due 2021 (as amended or supplemented from time to time); and 6) The indenture governing the GenOn Americas Generation 9.125% Senior Notes due 2031 (as amended or supplemented from time to time). 146 147 Dispositions 2016 Disposition of Majority Interest in EVgo On June 17, 2016, the Company completed the sale of a majority interest in its EVgo business to Vision Ridge Partners for total consideration of approximately $39 million, including $17 million in cash received, which is net of $2.5 million in working capital adjustments, $15 million contributed as capital to the EVgo business and $7 million of future contributions by Vision Ridge Partners, all of which were determined based on forecasted cash requirements to operate the business in future periods. In addition, the Company has future earnout potential of up to $70 million based on future profitability targets. NRG retained its original financial obligation of $102.5 million under its agreement with the CPUC whereby EVgo will build at least 200 public fast charging Freedom Station sites and perform the associated work to prepare 10,000 commercial and multi-family parking spaces for electric vehicle charging in California. As part of the sale, NRG has contracted with EVgo to continue to build the remaining required Freedom Stations and commercial and multi-family parking spaces for electric vehicle charging required under this obligation and EVgo will be directly reimbursed by NRG for the costs. As a result of the sale, the Company recorded a loss on sale of $78 million during the second quarter of 2016, which reflects the loss on the sale of the equity interest of $27 million and the accrual of NRG's remaining obligation under its agreement with the CPUC of $56 million, of which $25 million remains as of December 31, 2017. On February 22, 2017, the Company and CPUC entered into a second amendment to the agreement which extended the operating period commitment for the Freedom Stations to December 5, 2020. As of December 31, 2017, the Company's remaining 35% interest in EVgo of $1 million was accounted for as an equity method investment. 2016 Rockford Disposition On May 12, 2016, the Company entered into an agreement with RA Generation, LLC to sell 100% of its interests in the Rockford I and Rockford II generating stations, or Rockford, for cash consideration of $55 million, subject to adjustments for working capital and the results of the PJM 2019/2020 base residual auction. Rockford is a 450-MW natural gas facility located in Rockford, Illinois. The transaction triggered an indicator of impairment as the sales price was less than the carrying amount of the assets and, as a result, the assets were considered to be impaired. The Company measured the impairment loss as the difference between the carrying amount of the assets and the agreed-upon sales price. The Company recorded an impairment loss of $17 million during the quarter ended June 30, 2016 to reduce the carrying amount of the assets held for sale to the fair market value. On July 12, 2016, the Company completed the sale of Rockford for cash proceeds of $56 million, including $1 million in adjustments for the PJM base residual auction results. For further discussion on this impairment, refer to Note 10, Asset Impairments. 2015 Disposition of Altenex On December 31, 2015, the Company completed the sale of its 32% interest in Altenex, LLC to Edison Energy, LLC and Edison Energy NewCo 2, LLC for cash consideration of $26 million. The Company had accounted for its investment in Altenex as an equity method investment and recognized a loss of $14 million as a result of the transactions within the Company's consolidated statements of operations. Acquisitions 2016 Utility-Scale Solar and Wind Acquisition On November 2, 2016, the Company acquired equity interests in a tax equity portfolio from SunEdison, located in Utah, comprised of 530 MW of mechanically-complete solar assets, of which NRG’s net interest based on cash to be distributed is 265 MW, for upfront cash consideration of $111 million. In connection with the acquisition, the Company assumed non-recourse debt of $222 million. The Company also borrowed additional amounts of $65 million during the fourth quarter of 2016, as described in Note 12, Debt and Capital Leases, which effectively reduced the Company's use of liquidity related to the acquisition. The Company does not have a controlling interest in the tax equity portfolio and, accordingly, its interest is recorded as an equity method investment. The purchase price was allocated to the equity method investment balance of approximately $328 million, current assets of $5 million and the assumed non-recourse debt of $222 million. The assets reached commercial operations during the fourth quarter of 2016 and have 20-year PPAs with PacifiCorp. The Company acquired a 110-MW portfolio of construction-ready and 71 MW of development solar assets in Hawaii from SunEdison for upfront cash consideration of $2 million on October 3, 2016, and a 154-MW construction-ready solar project in Texas for upfront cash consideration of $11 million on November 9, 2016. In addition to the total $124 million in upfront cash consideration paid for the above acquisitions, the Company expects to make an estimated $59 million in additional payments contingent upon future development milestones, of which $20 million was paid as of December 31, 2017. 2016 Solar Distributed Generation Acquisition On October 3, 2016, the Company acquired a 29-MW portfolio of mechanically-complete and construction-ready distributed generation solar assets from SunEdison for cash consideration of approximately $67 million excluding post-closing adjustments which reduced the purchase price by $5 million. Subsequent to the acquisition, the Company sold these assets into a tax-equity financed portfolio within the DGPV Holdco partnership between NRG and NRG Yield, Inc. The purchase price was allocated to $47 million in construction in progress and $15 million in intangible assets. 2015 Acquisition of Desert Sunlight On June 29, 2015, NRG Yield, Inc., through its subsidiary NRG Yield Operating LLC, acquired 25% of the membership interest in Desert Sunlight Investment Holdings, LLC, which owns two solar photovoltaic facilities that total 550 MW located in Desert Center, California from EFS Desert Sun, LLC, an affiliate of GE Energy Financial Services, for a purchase price of $285 million. The Company accounts for its 25% investment as an equity method investment. Transfers of Assets under Common Control On November 1, 2017, NRG completed the sale of a 38-MW solar portfolio primarily comprised of assets from SPP funds, in addition to other projects developed by NRG, to NRG Yield, Inc. for cash consideration of $71 million, plus $3 million in working capital adjustments. On August 1, 2017, NRG closed on the sale of its remaining 25% interest in NRG Wind TE Holdco, a portfolio of 12 wind projects, to NRG Yield, Inc. for total cash consideration of $44 million, including working capital adjustment of $3 million. The transaction also includes potential additional payments to NRG dependent upon actual energy prices for merchant periods beginning in 2027. On March 27, 2017, the Company sold to NRG Yield, Inc.: (i) a 16% interest in the Agua Caliente solar project, representing ownership of approximately 46 net MW of capacity and (ii) NRG's interests in seven utility-scale solar projects located in Utah representing 265 net MW of capacity, which have reached commercial operations. NRG Yield, Inc. paid cash consideration of $130 million, plus $1 million in working capital adjustments, and assumed non-recourse debt of approximately $328 million. On September 1, 2016, the Company completed the sale of its remaining 51.05% interest in the CVSR project to NRG Yield, Inc. for total cash consideration of $78.5 million, plus an immaterial working capital adjustment. In addition, NRG Yield, Inc. assumed non-recourse project level debt of $496 million. On November 3, 2015, the Company sold 75% of the Class B interests of NRG Wind TE Holdco, which owns a portfolio of 12 wind facilities totaling 814 net MW, to NRG Yield, Inc. NRG Yield, Inc. paid total cash consideration of $209 million, subject to working capital adjustments. NRG Yield, Inc. is responsible for its pro-rata share of non-recourse project debt of $193 million and noncontrolling interest associated with a tax equity structure of $159 million (as of the acquisition date). In February 2016, the Company made a final working capital payment of $2 million to NRG Yield, Inc. reducing total cash consideration to $207 million. On January 2, 2015, the Company sold the following facilities to NRG Yield, Inc.: Walnut Creek, the Tapestry projects (Buffalo Bear, Pinnacle and Taloga) and Laredo Ridge. NRG Yield, Inc. paid total cash consideration of $489 million, including $9 million of working capital adjustments, plus assumed project level debt of $737 million. The above sales were recorded as transfers of entities under common control and the related assets were transferred at their carrying value. 148 149 Note 4 — Fair Value of Financial Instruments Recurring Fair Value Measurements For cash and cash equivalents, funds deposited by counterparties, accounts and other receivables, accounts payable, restricted cash, and cash collateral posted and received in support of energy risk management activities, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy. Debt securities, equity securities, and trust fund investments, which are comprised of various U.S. debt and equity securities, and derivative assets and liabilities, are carried at fair market value. The following tables present assets and liabilities measured and recorded at fair value on the Company's consolidated balance The estimated carrying values and fair values of the Company's recorded financial instruments not carried at fair market sheets on a recurring basis and their level within the fair value hierarchy: value are as follows: Assets Notes receivable (a) Liabilities Long-term debt, including current portion (b) As of December 31, 2017 2016 Carrying Amount Fair Value Carrying Amount Fair Value (In millions) $ $ 16 16,603 $ $ 15 16,894 $ $ 34 16,655 $ $ 34 16,620 (a) Includes the current portion of notes receivable which is recorded in prepayments and other current assets on the Company's consolidated balance sheets. (b) Excludes deferred financing costs, which are recorded as a reduction to long-term debt on the Company's consolidated balance sheets. The fair value of the Company's publicly-traded long-term debt is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non-publicly traded long-term debt, and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy. The following table presents the level within the fair value hierarchy for long-term debt, including current portion as of December 31, 2017 and 2016: Long-term debt, including current portion $ 8,934 $ (In millions) $ 7,960 9,205 $ 7,415 As of December 31, 2017 As of December 31, 2016 Level 2 Level 3 Level 2 Level 3 Fair Value Accounting under ASC 820 ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows: • Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. NRG's financial assets and liabilities utilizing Level 1 inputs include active exchange- traded securities, energy derivatives, and trust fund investments. • Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. NRG's financial assets and liabilities utilizing Level 2 inputs include fixed income securities, exchange-based derivatives, and over the counter derivatives such as swaps, options and forward contracts. • Level 3 — unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. NRG's financial assets and liabilities utilizing Level 3 inputs include infrequently- traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models. In accordance with ASC 820, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety. Investments in securities (classified within other non-current assets): Debt securities Available-for-sale securities Nuclear trust fund investments: Cash and cash equivalents U.S. government and federal agency obligations Federal agency mortgage-backed securities Commercial mortgage-backed securities Corporate debt securities Equity securities Foreign government fixed income securities Other trust fund investments: U.S. government and federal agency obligations Derivative assets: Commodity contracts Interest rate contracts Measured using net asset value practical expedient: Equity securities Total assets Derivative liabilities: Commodity contracts Interest rate contracts Total liabilities As of December 31, 2017 Fair Value Total Level 1 Level 2 Level 3 (In millions) $ $ 19 3 — $ 3 — $ — 47 43 82 14 99 334 5 1 745 53 68 1,513 693 59 752 $ $ $ $ $ $ 45 42 — — — 334 — 1 191 — 616 257 — 257 $ $ $ 2 1 82 14 99 — 5 — 509 53 765 359 59 418 $ $ $ 19 — — — — — — — — — 45 — 64 77 — 77 150 151 Investments in securities (classified within other non-current assets): Debt securities Available-for-sale securities Nuclear trust fund investments: Cash and cash equivalents U.S. government and federal agency obligations Federal agency mortgage-backed securities Commercial mortgage-backed securities Corporate debt securities Equity securities Foreign government fixed income securities Other trust fund investments: U.S. government and federal agency obligations Derivative assets: Commodity contracts Interest rate contracts Measured using net asset value practical expedient: Equity securities Total assets Derivative liabilities: Commodity contracts Interest rate contracts Total liabilities As of December 31, 2016 Fair Value Total Level 1 Level 2 Level 3 $ $ 17 10 — $ 10 — $ — 25 73 62 17 84 292 3 1 1,199 49 54 1,886 1,288 88 1,376 $ $ $ $ $ $ 25 72 — — — 292 — 1 560 — 960 494 — 494 $ $ $ — 1 62 17 84 — 3 — 549 49 765 636 88 724 17 — — — — — — — — — 90 — $ $ $ 107 158 — 158 There have been no transfers during the year ended December 31, 2017 between Levels 1 and 2. The following tables reconcile, for the years ended December 31, 2017 and 2016, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements at least annually using significant unobservable inputs: Beginning balance as of January 1, 2017 Total gains/(losses) realized/unrealized: Included in earnings Included in nuclear decommissioning obligations Purchases Contracts reclassified to held-for-sale Transfers into Level 3 (b) Transfers out of Level 3 (b) Ending balance as of December 31, 2017 Gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of December 31, 2017 $ $ (a) Consists of derivatives assets and liabilities, net. For the Year Ended December 31, 2017 Fair Value Measurement Using Significant Unobservable Inputs (Level 3) Debt Securities Derivatives (a) (In millions) Total $ 17 $ (68) $ 2 — — — — — 19 $ 43 — (23) 4 (1) 13 (32) $ (51) 45 — (23) 4 (1) 13 (13) 2 $ 6 $ 8 Beginning balance as of January 1, 2016 $ 17 $ 54 $ (22) $ For the Year Ended December 31, 2016 Fair Value Measurement Using Significant Unobservable Inputs (Level 3) Debt Securities Trust Fund Investments (c) Derivatives (a) Total (In millions) Total gains/(losses) realized/unrealized: Included in earnings Included in nuclear decommissioning obligations Purchases Transfers into Level 3 (b) Transfer out of Level 3 (b) Ending balance as of December 31, 2016 Losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held as of December 31, 2016 $ $ — — — — — 17 $ — (1) 1 — (54) — $ 2 — (29) (18) (1) (68) $ 49 2 (1) (28) (18) (55) (51) — $ — $ (13) $ (13) (a) Consists of derivatives assets and liabilities, net. (b) Transfers into/out of Level 3 are related to the availability of external broker quotes, and are valued as of the end of the reporting period. All transfers into/out of Level 3 are from/to Level 2. (c) All Trust Fund Investments were considered transferred out of Level 3 as these investments are measured using net asset value as a practical expedient and are thus classified outside of the fair value hierarchy as of December 31, 2016. Realized and unrealized gains and losses included in earnings that are related to the energy derivatives are recorded in operating revenues and cost of operations. Non-derivative fair value measurements NRG's investments in debt securities are classified as Level 3 and consist of non-traded debt instruments that are valued based on third-party market value assessments. The trust fund investments are held primarily to satisfy NRG's nuclear decommissioning obligations. These trust fund investments hold debt and equity securities directly and equity securities indirectly through commingled funds. The fair values of equity securities held directly by the trust funds are based on quoted prices in active markets and are categorized in Level 1. In addition, U.S. government and federal agency obligations are categorized as Level 1 because they trade in a highly liquid and transparent market. The fair values of corporate debt securities are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized in Level 2. Certain equity securities, classified as commingled funds, are analogous to mutual funds, are maintained by investment companies, and hold certain investments in accordance with a stated set of fund objectives. The fair value of the equity securities classified as commingled funds are based on net asset values per fund share (the unit of account), derived from the quoted prices in active markets of the underlying equity securities. However, because the shares in the commingled funds are not publicly quoted, not traded in an active market and are subject to certain restrictions regarding their purchase and sale, the commingled funds are categorized in Level 3. See also Note 6, Nuclear Decommissioning Trust Fund. (b) Transfers into/out of Level 3 are related to the availability of external broker quotes, and are valued as of the end of the reporting period. All transfers into/out of Level 3 are from/to Level 2. 152 153 Derivative fair value measurements A portion of the Company's contracts are exchange-traded contracts with readily available quoted market prices. A majority of NRG's contracts are non-exchange-traded contracts valued using prices provided by external sources, primarily price quotations available through brokers or over-the-counter and on-line exchanges. For the majority of NRG markets, the Company receives quotes from multiple sources. To the extent that NRG receives multiple quotes, the Company's prices reflect the average of the bid-ask mid-point prices obtained from all sources that NRG believes provide the most liquid market for the commodity. If the Company receives one quote, then the mid-point of the bid-ask spread for that quote is used. The terms for which such price information is available vary by commodity, region and product. A significant portion of the fair value of the Company's derivative portfolio is based on price quotes from brokers in active markets who regularly facilitate those transactions and the Company believes such price quotes are executable. The Company does not use third party sources that derive price based on proprietary models or market surveys. The remainder of the assets and liabilities represents contracts for which external sources or observable market quotes are not available. These contracts are valued based on various valuation techniques including but not limited to internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Contracts valued with prices provided by models and other valuation techniques make up 6% of derivative assets and 10% of derivative liabilities. The fair value of each contract is discounted using a risk free interest rate. In addition, the Company applies a credit reserve to reflect credit risk, which for interest rate swaps is calculated utilizing the bilateral method based on published default probabilities. For commodities, to the extent that NRG's net exposure under a specific master agreement is an asset, the Company uses the counterparty's default swap rate. If the exposure under a specific master agreement is a liability, the Company uses NRG's default swap rate. For interest rate swaps and commodities, the credit reserve is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume NRG's liabilities or that a market participant would be willing to pay for NRG's assets. As of December 31, 2017, the credit reserve resulted in no change in fair value in operating revenue and cost of operations. As of December 31, 2016 the credit reserve resulted in a $10 million decrease in fair value in operating revenue and cost of operations. The fair values in each category reflect the level of forward prices and volatility factors as of December 31, 2017, and may change as a result of changes in these factors. Management uses its best estimates to determine the fair value of commodity and derivative contracts NRG holds and sells. These estimates consider various factors including closing exchange and over-the- counter price quotations, time value, volatility factors and credit exposure. It is possible, however, that future market prices could vary from those used in recording assets and liabilities from energy marketing and trading activities and such variations could be material. NRG's significant positions classified as Level 3 include physical and financial power executed in illiquid markets as well as financial transmission rights, or FTRs. The significant unobservable inputs used in developing fair value include illiquid power location pricing which is derived as a basis to liquid locations. The basis spread is based on observable market data when available or derived from historic prices and forward market prices from similar observable markets when not available. For FTRs, NRG uses the most recent auction prices to derive the fair value. The following tables quantify the significant unobservable inputs used in developing the fair value of the Company's Level 3 positions as of December 31, 2017 and 2016: Significant Unobservable Inputs December 31, 2017 Fair Value Input/Range Power Contracts FTRs Assets Liabilities (In millions) $ $ 34 $ 11 45 $ 65 12 77 Valuation Technique Significant Unobservable Input Low High Weighted Average Discounted Cash Flow Discounted Cash Flow Forward Market Price (per MWh) Auction Prices (per MWh) $ 10 $ 142 $ (28) 46 33 — Significant Unobservable Inputs December 31, 2016 Fair Value Input/Range Power Contracts FTRs Assets Liabilities (In millions) $ $ 39 $ 51 90 $ 108 50 158 Valuation Technique Significant Unobservable Input Low High Weighted Average Discounted Cash Flow Discounted Cash Flow Forward Market Price (per MWh) Auction Prices (per MWh) $ 11 $ 104 $ (22) 17 31 — The following table provides sensitivity of fair value measurements to increases/(decreases) in significant unobservable inputs as of December 31, 2017 and 2016: Significant Unobservable Input Forward Market Price Power Forward Market Price Power FTR Prices FTR Prices Position Buy Sell Buy Sell Change In Input Increase/(Decrease) Increase/(Decrease) Increase/(Decrease) Increase/(Decrease) Impact on Fair Value Measurement Higher/(Lower) Lower/(Higher) Higher/(Lower) Lower/(Higher) Under the guidance of ASC 815, entities may choose to offset cash collateral posted or received against the fair value of derivative positions executed with the same counterparties under the same master netting agreements. The Company has chosen not to offset positions as defined in ASC 815. As of December 31, 2017, the Company recorded $171 million of cash collateral posted and $37 million of cash collateral received on its balance sheet. Concentration of Credit Risk In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, the following item is a discussion of the concentration of credit risk for the Company's financial instruments. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. The Company monitors and manages credit risk through credit policies that include: (i) an established credit approval process; (ii) a daily monitoring of counterparties' credit limits; (iii) the use of credit mitigation measures such as margin, collateral, prepayment arrangements, or volumetric limits; (iv) the use of payment netting agreements; and (v) the use of master netting agreements that allow for the netting of positive and negative exposures of various contracts associated with a single counterparty. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty risk by having a diversified portfolio of counterparties. The Company also has credit protection within various agreements to call on additional collateral support if and when necessary. Cash margin is collected and held at the Company to cover the credit risk of the counterparty until positions settle. 154 155 Counterparty Credit Risk Retail Customer Credit Risk As of December 31, 2017, counterparty credit exposure, excluding credit exposure from RTOs, ISOs, and registered commodity exchanges and certain long-term agreements, was $220 million and NRG held collateral (cash and letters of credit) against those positions of $30 million, resulting in a net exposure of $196 million. Approximately 73% of the Company's exposure before collateral is expected to roll off by the end of 2019. Counterparty credit exposure is valued through observable market quotes and discounted at a risk free interest rate. The following tables highlight net counterparty credit exposure by industry sector and by counterparty credit quality. Net counterparty credit exposure is defined as the aggregate net asset position for NRG with counterparties where netting is permitted under the enabling agreement and includes all cash flow, mark-to-market and NPNS, and non-derivative transactions. The exposure is shown net of collateral held, and includes amounts net of receivables or payables. Category Financial institutions Utilities, energy merchants, marketers and other Total Category Investment grade Non-Investment grade/Non-Rated Total Net Exposure (a) (b) (% of Total) 14% 86 100% Net Exposure (a) (b) (% of Total) 69% 31 100% (a) Counterparty credit exposure excludes uranium and coal transportation contracts because of the unavailability of market prices. (b) The figures in the tables above exclude potential counterparty credit exposure related to RTOs, ISOs, registered commodity exchanges and certain long term contracts. NRG has counterparty credit risk exposure to certain counterparties, each of which represent more than 10% of total net exposure discussed above. The aggregate of such counterparties' exposure was $37 million as of December 31, 2017. Changes in hedge positions and market prices will affect credit exposure and counterparty concentration. Given the credit quality, diversification and term of the exposure in the portfolio, NRG does not anticipate a material impact on the Company's financial position or results of operations from nonperformance by any of NRG's counterparties. RTOs and ISOs The Company participates in the organized markets of CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM, known as RTOs or ISOs. Trading in these markets is approved by FERC, or in the case of ERCOT, approved by the PUCT and includes credit policies that, under certain circumstances, require that losses arising from the default of one member on spot market transactions be shared by the remaining participants. As a result, the counterparty credit risk to these markets is limited to NRG’s share of overall market and are excluded from the above exposures. Exchange Traded Transactions The Company enters into commodity transactions on registered exchanges, notably ICE and NYMEX. These clearinghouses act as the counterparty and transactions are subject to extensive collateral and margining requirements. As a result, these commodity transactions have limited counterparty credit risk. Long Term Contracts Counterparty credit exposure described above excludes credit risk exposure under certain long term agreements, including California tolling agreements, Gulf Coast load obligations, wind and solar PPAs. As external sources or observable market quotes are not available to estimate such exposure, the Company values these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of December 31, 2017, aggregate credit risk exposure managed by NRG to these counterparties was approximately $4.1 billion, including $2.6 billion related to assets of NRG Yield, Inc., for the next five years. This amount excludes potential credit exposures for projects with long term PPAs that have not reached commercial operations. The majority of these power contracts are with utilities or public power entities with strong credit quality and public utility commission or other regulatory support. However, such regulated utility counterparties can be impacted by changes in government regulations, which NRG is unable to predict. The Company is exposed to retail credit risk through the Company's retail electricity providers, which serve C&I customers and the Mass market. Retail credit risk results in losses when a customer fails to pay for services rendered. The losses may result from both nonpayment of customer accounts receivable and the loss of in-the-money forward value. The Company manages retail credit risk through the use of established credit policies that include monitoring of the portfolio and the use of credit mitigation measures such as deposits or prepayment arrangements. As of December 31, 2017, the Company's retail customer credit exposure to C&I and Mass customers was diversified across many customers and various industries, as well as government entities. The Company is also subject to risk with respect to its residential solar customers. The Company's bad debt expense was $68 million, $48 million, and $64 million for the years ending December 31, 2017, 2016, and 2015, respectively. Current economic conditions may affect the Company's customers' ability to pay bills in a timely manner, which could increase customer delinquencies and may lead to an increase in bad debt expense. Note 5 — Accounting for Derivative Instruments and Hedging Activities ASC 815 requires the Company to recognize all derivative instruments on the balance sheet as either assets or liabilities and to measure them at fair value each reporting period unless they qualify for a NPNS exception. The Company may elect to designate certain derivatives as cash flow hedges, if certain conditions are met, and defer the change in fair value of the derivatives to accumulated OCI, until the hedged transactions occur and are recognized in earnings. For derivatives that are not designated as cash flow hedges or do not qualify for hedge accounting treatment, the changes in the fair value will be immediately recognized in earnings. Certain derivative instruments may qualify for the NPNS exception and are therefore exempt from fair value accounting treatment. ASC 815 applies to NRG's energy related commodity contracts, interest rate swaps, and equity contracts. As the Company engages principally in the trading and marketing of its generation assets and retail businesses, some of NRG's commercial activities qualify for hedge accounting. In order for the generation assets to qualify, the physical generation and sale of electricity should be highly probable at inception of the trade and throughout the period it is held, as is the case with the Company's baseload plants. For this reason, trades in support of NRG's baseload units may qualify for NPNS or cash flow hedge accounting treatment, and trades in support of NRG's peaking units' asset optimization will generally not qualify for hedge accounting treatment, with any changes in fair value likely to be reflected on a mark-to-market basis in the statement of operations. Most of the retail load contracts either qualify for the NPNS exception or fail to meet the criteria for a derivative and the majority of the retail supply and fuels supply contracts are recorded under mark-to-market accounting. All of NRG's hedging and trading activities are subject to limits within the Company's Risk Management Policy. Energy-Related Commodities To manage the commodity price risk associated with the Company's competitive supply activities and the price risk associated with wholesale power sales from the Company's electric generation facilities and retail power sales from NRG's retail businesses, NRG enters into a variety of derivative and non-derivative hedging instruments, utilizing the following: • • • Forward contracts, which commit NRG to purchase or sell energy commodities or purchase fuels in the future; Futures contracts, which are exchange-traded standardized commitments to purchase or sell a commodity or financial instrument; Swap agreements, which require payments to or from counterparties based upon the differential between two prices for a predetermined contractual, or notional, quantity; • Option contracts, which convey to the option holder the right but not the obligation to purchase or sell a commodity; • Extendable swaps, which include a combination of swaps and options executed simultaneously for different periods. This combination of instruments allows NRG to sell out-year volatility through call options in exchange for natural gas swaps with fixed prices in excess of the market price for natural gas at that time. The above-market swap combined with its later-year call option are priced in aggregate at market at the trade's inception; and • Weather derivative products used to mitigate a portion of lost revenue due to weather. The objectives for entering into derivative contracts designated as hedges include: • • • Fixing the price for a portion of anticipated future electricity sales that provides an acceptable return on the Company's electric generation operations; Fixing the price of a portion of anticipated fuel purchases for the operation of the Company's power plants; and Fixing the price of a portion of anticipated power purchases for the Company's retail sales. 156 157 NRG's trading and hedging activities are subject to limits within the Company's Risk Management Policy. These contracts are recognized on the balance sheet at fair value and changes in the fair value of these derivative financial instruments are recognized in earnings. As of December 31, 2017, NRG's derivative assets and liabilities consisted primarily of the following: • • Forward and financial contracts for the purchase/sale of electricity and related products economically hedging NRG's generation assets' forecasted output or NRG's retail load obligations through 2031; Forward and financial contracts for the purchase of fuel commodities relating to the forecasted usage of NRG's generation assets through 2019; and • Other energy derivatives instruments extending through 2024. Also, as of December 31, 2017, NRG had other energy-related contracts that did not meet the definition of a derivative instrument or qualified for the NPNS exception and were therefore exempt from fair value accounting treatment as follows: • Load-following forward electric sale contracts extending through 2026; • Power tolling contracts through 2043; • Coal purchase contracts through 2021; • Power transmission contracts through 2025; • Natural gas transportation contracts and storage agreements through 2030; and • Coal transportation contracts through 2029. Interest Rate Swaps NRG is exposed to changes in interest rates through the Company's issuance of variable rate debt. In order to manage the Company's interest rate risk, NRG enters into interest rate swap agreements. As of December 31, 2017, NRG had interest rate derivative instruments on recourse debt extending through 2021 and non-recourse debt extending through 2041, some of which are designated as cash flow hedges. Volumetric Underlying Derivative Transactions The following table summarizes the net notional volume buy/(sell) of NRG's open derivative transactions broken out by commodity, excluding those derivatives that qualified for the NPNS exception as of December 31, 2017 and 2016. Option contracts are reflected using delta volume. Delta volume equals the notional volume of an option adjusted for the probability that the option will be in-the-money at its expiration date. Commodity Units Short Ton Short Ton Emissions Coal Natural Gas MMBtu Oil Power Capacity Interest Equity Barrel MWh MW/Day Dollars Shares Total Volume December 31, 2017 December 31, 2016 (In millions) 1 21 (17) — 14 (1) 3,876 1 $ — 35 (53) 1 7 (1) 3,429 1 $ Fair Value of Derivative Instruments The following table summarizes the fair value within the derivative instrument valuation on the balance sheet: (In millions) Derivatives Designated as Cash Flow or Fair Value Hedges: Interest rate contracts current Interest rate contracts long-term Total Derivatives Designated as Cash Flow or Fair Value Hedges Derivatives Not Designated as Cash Flow or Fair Value Hedges: Interest rate contracts current Interest rate contracts long-term Commodity contracts current Commodity contracts long-term Total Derivatives Not Designated as Cash Flow or Fair Value Hedges Total Derivatives $ $ Fair Value Derivative Assets Derivative Liabilities December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 1 11 12 9 32 616 129 786 798 $ — $ 12 12 — 37 1,067 132 1,236 $ 1,248 $ 5 11 16 15 28 535 158 736 752 $ $ 28 41 69 7 12 1,057 231 1,307 1,376 The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. In addition, collateral received or paid on the Company's derivative assets or liabilities are recorded on a separate line item on the balance sheet. The following table summarizes the offsetting derivatives by counterparty master agreement level and collateral received or paid: Gross Amounts Not Offset in the Statement of Financial Position Gross Amounts of Recognized Assets/ Liabilities Derivative Instruments Cash Collateral (Held)/Posted Net Amount As of December 31, 2017 Commodity contracts: Derivative assets $ Derivative liabilities Total commodity contracts Interest rate contracts: Derivative assets Derivative liabilities Total interest rate contracts 745 $ (693) 52 53 (59) (6) (In millions) (578) $ 578 — (3) 3 — Total derivative instruments $ 46 $ — $ (11) $ 73 62 — — — 62 $ 156 (42) 114 50 (56) (6) 108 The decrease in the natural gas position was primarily the result of the settlement of generation hedge positions. The increase in the interest rate position was primarily the result of entering into new interest rate swaps to hedge additional non- recourse project level debt. 158 159 Gross Amounts Not Offset in the Statement of Financial Position Gross Amounts of Recognized Assets/ Liabilities Derivative Instruments Cash Collateral (Held)/Posted Net Amount As of December 31, 2016 Commodity contracts: Derivative assets $ 1,199 $ Derivative liabilities Total commodity contracts Interest rate contracts: Derivative assets Derivative liabilities Total interest rate contracts (1,288) (89) 49 (88) (39) (In millions) (1,021) $ 1,021 — (4) 4 — Total derivative instruments $ (128) $ — $ Accumulated Other Comprehensive Income (13) $ 13 — — — — $ 165 (254) (89) 45 (84) (39) (128) The following tables summarize the effects on NRG's accumulated OCI balance attributable to cash flow hedge derivatives, net of tax: Accumulated OCI balance at December 31, 2016 Reclassified from accumulated OCI to income: Due to realization of previously deferred amounts Mark-to-market of cash flow hedge accounting contracts Accumulated OCI balance at December 31, 2017, net of $8 tax Losses expected to be realized from other comprehensive loss during the next 12 months, net of $2 tax Accumulated OCI balance at December 31, 2015 Reclassified from accumulated OCI to income: Due to realization of previously deferred amounts Mark-to-market of cash flow hedge accounting contracts Accumulated OCI balance at December 31, 2016, net of $16 tax $ $ $ $ $ Accumulated OCI balance at December 31, 2014 Reclassified from accumulated OCI to income: Due to realization of previously deferred amounts Mark-to-market of cash flow hedge accounting contracts Accumulated OCI balance at December 31, 2015, net of $16 tax $ $ Year Ended December 31, 2015 Energy Commodities Interest Rate (In millions) Total (1) $ (67) $ 1 — — $ 14 (48) (101) $ Year Ended December 31, 2017 Interest Rate Total (In millions) (66) $ 12 — (54) $ (12) $ (66) 12 — (54) (12) Year Ended December 31, 2016 Interest Rate Total (In millions) (101) $ 21 14 (66) $ (101) 21 14 (66) (68) 15 (48) (101) Amounts reclassified from accumulated OCI into income are recorded to operating revenue for commodity contracts and interest expense for interest rate contracts. Accounting guidelines require a high degree of correlation between the derivative and the hedged item throughout the period in order to qualify as a cash flow hedge. As of December 31, 2016, the Company's regression analysis for Viento Funding II interest rate swaps, while positively correlated, did not meet the required threshold for cash flow hedge accounting. As a result, the Company de-designated the Viento Funding II cash flow hedges as of December 31, 2016, and will prospectively mark these derivatives to market through the income statement. The Company's regression analysis for Marsh Landing, Walnut Creek and Avra Valley interest rate swaps, while positively correlated, no longer contain matching terms for cash flow hedge accounting. As a result, the Company voluntarily de-designated the Marsh Landing, Walnut Creek and Avra Valley cash flow hedges as of April 28, 2017, and will prospectively mark these derivatives to market through the income statement. Impact of Derivative Instruments on the Statement of Operations Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedges are reflected in current period earnings. The following table summarizes the pre-tax effects of economic hedges that have not been designated as cash flow hedges, and trading activity on the Company's statement of operations. The effect of commodity hedges is included within operating revenues and cost of operations and the effect of interest rate hedges is included in interest expense. Unrealized mark-to-market results Reversal of previously recognized unrealized loss/(gains) on settled positions related to economic hedges Reversal of acquired gain positions related to economic hedges Net unrealized gains/(losses) on open positions related to economic hedges Total unrealized mark-to-market gains/(losses) for economic hedging activities Reversal of previously recognized unrealized (gains)/losses on settled positions related to trading activity Reversal of acquired gain positions related to trading activity Net unrealized gains/(losses) on open positions related to trading activity Total unrealized mark-to-market (losses)/gains for trading activity Total unrealized gains/(losses) Unrealized gains/(losses) included in operating revenues Unrealized (losses)/gains included in cost of operations Total impact to statement of operations — energy commodities Total impact to statement of operations — interest rate contracts Year Ended December 31, 2017 2016 (In millions) 2015 $ $ $ $ $ $ 47 — (128) $ (12) 146 193 (25) — 14 (11) 182 6 (134) 10 — 18 28 (106) $ $ Year Ended December 31, 2017 2016 (In millions) 2015 228 (46) 182 9 $ $ $ (614) $ 508 (106) $ $ 36 (162) (22) (9) (193) (46) (14) (16) (76) (269) (210) (59) (269) 17 The reversal of gain or loss positions acquired as part of acquisitions were valued based upon the forward prices on the acquisition dates. The roll-off amounts were offset by realized gains or losses at the settled prices and are reflected in revenue or cost of operations during the same period. For the year ended December 31, 2017, the $146 million gain from economic hedge positions was primarily the result of an increase in the value of forward purchases of ERCOT heat rate contracts due to ERCOT heat rate expansion. For the year ended December 31, 2016, the $6 million gain from economic hedge positions was primarily the result of an increase in the value of forward purchases of natural gas due to an increase in natural gas prices. 160 161 For the year ended December 31, 2015, the $9 million loss from economic hedge positions was primarily the result of a The following table summarizes proceeds from sales of available-for-sale securities and the related realized gains and losses decrease in the value of forward purchases of natural gas due to a decrease in natural gas prices. from these sales. The cost of securities sold is determined using the specific identification method. Credit Risk Related Contingent Features Certain of the Company's hedging agreements contain provisions that require the Company to post additional collateral if the counterparty determines that there has been deterioration in credit quality, generally termed "adequate assurance" under the agreements, or require the Company to post additional collateral if there were a one notch downgrade in the Company's credit rating. The collateral required for contracts that have adequate assurance clauses that are in net liability positions as of December 31, 2017 was $25 million. The collateral required for contracts with credit rating contingent features that are in a net liability position as of December 31, 2017 was $7 million. The Company is also a party to certain marginable agreements under which it has a net liability position, but the counterparty has not called for the collateral due, which was approximately $4 million as of December 31, 2017. See Note 4, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk. Note 6 — Nuclear Decommissioning Trust Fund NRG's Nuclear Decommissioning Trust Fund assets, which are for the decommissioning of STP, are comprised of securities classified as available-for-sale and recorded at fair value based on actively quoted market prices. Although NRG is responsible for managing the decommissioning of its 44% interest in STP, the predecessor utilities that owned STP are authorized by the PUCT to collect decommissioning funds from their ratepayers to cover decommissioning costs on behalf of NRG. NRC requirements determine the decommissioning cost estimate which is the minimum required level of funding. In the event that funds from the ratepayers that accumulate in the nuclear decommissioning trust are ultimately determined to be inadequate to decommission the STP facilities, the utilities will be required to collect through rates charged to rate payers all additional amounts, with no obligation from NRG, provided that NRG has complied with PUCT rules and regulations regarding decommissioning trusts. Following completion of the decommissioning, if surplus funds remain in the decommissioning trusts, any excess will be refunded to the respective ratepayers of the utilities. NRG accounts for the Nuclear Decommissioning Trust Fund in accordance with ASC 980, Regulated Operations, or ASC 980, because the Company's nuclear decommissioning activities are subject to approval by the PUCT, with regulated rates that are designed to recover all decommissioning costs and that can be charged to and collected from the ratepayers per PUCT mandate. Since the Company is in compliance with PUCT rules and regulations regarding decommissioning trusts and the cost of decommissioning is the responsibility of the Texas ratepayers, not NRG, all realized and unrealized gains or losses (including other-than-temporary impairments) related to the Nuclear Decommissioning Trust Fund are recorded to the Nuclear Decommissioning Trust liability and are not included in net income or accumulated other comprehensive income, consistent with regulatory treatment. The following table summarizes the aggregate fair values and unrealized gains and losses (including other-than-temporary impairments) for the securities held in the trust funds, as well as information about the contractual maturities of those securities. Realized gains Realized losses Proceeds from sale of securities Note 7 — Inventory Inventory consisted of: Fuel oil Coal/Lignite Natural gas Spare parts Total Inventory Year Ended December 31, 2017 2016 (In millions) 2015 $ $ 22 8 501 $ 26 11 510 As of December 31, 2017 2016 (In millions) $ $ 90 126 24 292 532 $ $ 21 14 631 142 219 28 332 721 During the year ended December 31, 2017, the Company recorded a lower of weighted average cost or market adjustment related to fuel oil of $33 million. Note 8 — Notes Receivable Notes receivable consist of fixed and variable rate notes related primarily to amounts owed to the Company from transmission owners for certain projects for the financing of network upgrades. The Company's notes receivable were as follows: Notes receivable Less current maturities(a) Total notes receivable — non-current As of December 31, 2017 2016 (In millions) $ $ 16 14 2 $ $ 34 18 16 (a) The current portion of notes receivable is recorded in prepayments and other current assets on the consolidated balance sheets. As of December 31, 2017 As of December 31, 2016 Note 9 — Property, Plant and Equipment (In millions, except otherwise noted) Fair Value Unrealized Gains Unrealized Losses Cash and cash equivalents $ 47 $ — $ U.S. government and federal agency obligations Federal agency mortgage-backed securities Commercial mortgage-backed securities Corporate debt securities Equity securities Foreign government fixed income securities Total 43 82 13 99 403 5 1 1 — 2 272 — $ 692 $ 276 $ — — 1 — 1 — — 2 Weighted- average maturities (in years) Fair Value Unrealized Gains Unrealized Losses Weighted- average maturities (in years) — $ 25 $ — $ 11 23 20 11 — 9 73 62 17 84 346 3 1 1 — 1 214 — $ 610 $ 217 $ — — 1 1 2 — — 4 — 11 25 26 11 — 9 The Company's major classes of property, plant, and equipment were as follows: Facilities and equipment Land and improvements Nuclear fuel Office furnishings and equipment Construction in progress Total property, plant, and equipment Accumulated depreciation Net property, plant, and equipment Depreciable Lives 1-40 Years 5 Years 2-10 Years As of December 31, 2017 2016 (In millions) $ $ 15,907 710 236 434 1,086 18,373 (4,465) 13,908 $ $ 18,698 750 226 412 619 20,705 (5,336) 15,369 162 163 The Company recorded long-lived asset impairments during the years ended December 31, 2017 and 2016, as further described in Note 10, Asset Impairments. Note 10 — Asset Impairments 2017 Impairment Losses During the fourth quarter of 2017, the Company completed its annual budget and revised its view of long-term power and fuel prices and the corresponding impact on estimated cash flows associated with its long-lived assets. The most significant impact was a decrease in the Company's long-term view of natural gas prices which resulted in a reduction to long-term power prices and had a negative impact on the Company's coal, nuclear and renewable facilities. Each of the facilities below had estimated cash flows that were lower than the carrying amount and the assets were considered impaired. The fair values of the assets were determined using an income approach by applying a discounted cash flow methodology to the long-term budget for the facility. The income approach utilized estimates of discounted future cash flows, which were Level 3 fair value measurements, an include key inputs such as forecasted power prices, nuclear fuel costs, forecasted operating and maintenance costs, plant investment capital expenditures and discount rates. South Texas Project, or STP — The Company recognized an impairment loss of $1,248 million related to its interest in STP as a result of the decrease in the Company's view of long-term power prices in ERCOT. Indian River — The Company recognized an impairment loss of $36 million for Indian River as a result of the decrease in the Company's view of long-term power prices in PJM. Keystone and Conemaugh — The Company recognized impairment losses of $35 million for Keystone and $35 million for Conemaugh as a result of the decrease in the Company's view of long-term power prices in PJM. Wind Facilities — The Company recorded impairment losses of $110 million, $26 million and $4 million for Langford, Elbow Creek and Forward, respectively, as a result of the decrease in the Company's view of long-term merchant power prices in ERCOT and PJM. While Elbow Creek and Forward have contracts to sell power, the significant decrease in estimated power prices had an impact on cash flows in post-contract periods. The Company also recorded the following impairments in 2017 based on specific triggering events that occurred: Bacliff Project — On June 16, 2017, NRG Texas Power LLC provided notice to BTEC New Albany, LLC that it was exercising its right to terminate the Amended and Restated Membership Interest Purchase Agreement, or MIPA, due to the Bacliff Project, a new peaking facility at the former P.H. Robinson Electric Generating Station, not achieving commercial completion by the contractual expiration date of May 31, 2017. As a result of the MIPA termination, the Company recorded an impairment loss of $41 million to reduce the carrying amount of the related construction in progress to zero during the second quarter of 2017. On July 14, 2017, the Company gave notice to BTEC New Albany, LLC that it owes NRG Texas Power LLC approximately $48 million under the terminated MIPA, consisting of $38 million in purchaser incurred costs and $10 million in liquidated damages. Other Long-Lived Asset Impairments — During the second, third and fourth quarters of 2017, the Company recorded impairment losses of approximately $22 million, $14 million and $15 million, respectively, in connection with the Company's Renewables business. These impairment losses were primarily to record the value of certain long-lived assets, including property, plant and equipment and intangible assets, at fair market value at acquisition date or in connection with an impairment indicator. Petra Nova Parish Holdings — In connection with the preparation of the annual budget during the fourth quarter, management revised its view of oil production expectations with respect to Petra Nova Parish Holdings. As a result, the Company reviewed its 50% interest in Petra Nova Parish Holdings for impairment utilizing the other-than-temporary impairment model. In determining fair value, the Company utilized an income approach and considered project specific assumptions for the future project cash flows. The carrying amount of the Company's equity method investment exceeded the fair value of the investment and the Company concluded that the decline is considered to be other-than-temporary. As a result, the Company measured the impairment loss as the difference between the carrying amount and the fair value of the investment and recorded an impairment loss of $69 million. The Company also recorded an additional $11 million in impairment losses for other investments during the fourth quarter of 2017. 2016 Impairment Losses Rockford — As described in Note 3, Discontinued Operations, Acquisitions and Dispositions, on May 12, 2016, the Company entered into an agreement with RA Generation, LLC to sell 100% of its interests in the Rockford generating stations for cash consideration of $55 million. The transaction triggered an indicator of impairment as the sale price was less than the carrying amount of the assets, and, as a result, the assets were considered to be impaired. The Company measured the impairment loss as the difference between the carrying amount of the assets and the agreed-upon sale price. The Company recorded an impairment loss of $17 million during the year ended December 31, 2016, to reduce the carrying amount of the assets held for sale to the fair market value. Wind Facilities — During the fourth quarter of 2016, as the Company updated its estimated future cash flows in connection with the preparation of its annual budget, the Company determined that the cash flows for the Elbow Creek and Goat Wind projects, located in Texas and the Forward project, located in Pennsylvania were below the carrying value of the related assets, primarily driven by the declining merchant power prices in post-contract periods, and the assets were considered impaired. The fair values of the facilities were determined using an income approach by applying a discounted cash flow methodology to the long-term budgets for each respective plant. The income approach utilized estimates of discounted future cash flows, which were Level 3 fair value measurements and include key inputs, such as forecasted power prices, operations and maintenance expense and discount rates. The Company measured the impairment loss as the difference between the carrying amount and the fair value of the assets and recorded impairment losses of $117 million, $60 million and $6 million for Elbow Creek, Goat Wind and Forward, respectively. Long Beach — During the fourth quarter of 2016, the Company determined that by the end of 2017 it would retire its Long Beach generation station located in Long Beach, California. The generating station was not awarded a PPA extension in SCE's capacity auction during the fourth quarter of 2016 for the PPA set to expire on July 31, 2017. The Company considered this to be an indicator of impairment and performed an impairment test. The Company measured the impairment loss as the difference between the carrying amount and the fair value of the assets and recorded an impairment loss of $36 million. Subsequently, management decided to continue to operate in 2018, which did not significantly impact fair value. Other Impairments — During 2016, the Company recorded other impairment losses of $153 million, which included $23 million in excess SO2 allowances, $23 million for other intangible assets, $19 million in previously purchased solar panels, $18 million in deferred marketing expenses, $22 million in other investments and $48 million of other impairment losses. Petra Nova Parish Holdings — During the first quarter of 2016, management changed its plans with respect to its future capital commitments driven in part by the continued decline in oil prices. As a result, the Company reviewed its 50% interest in Petra Nova Parish Holdings for impairment utilizing the other-than-temporary impairment model. In determining fair value, the Company utilized an income approach and considered project specific assumptions for the future project cash flows. The carrying amount of the Company's equity method investment exceeded the fair value of the investment and the Company concluded that the decline is considered to be other-than-temporary. As a result, the Company measured the impairment loss as the difference between the carrying amount and the fair value of the investment and recorded an impairment loss of $140 million. Community Wind North and Sherbino — During the fourth quarter of 2016, the Company offered several projects to NRG Yield including its interest in Community Wind North. The offer price was below its current carrying amount and this decline in fair value was determined to be other-than-temporary. Accordingly, the Company recorded an impairment loss of $36 million to reduce its carrying amount to fair value. In addition, in connection with the preparation of the annual budget, the Company noted that due to the anticipated difficulty in refinancing Sherbino’s debt that will mature in 2018, the project’s fair value had decreased significantly below its carrying amount and this decline was determined to be other-than-temporary. Accordingly, the Company determined that an other-than-temporary impairment existed and recorded an impairment loss on its investment in Sherbino of $70 million. 2015 Impairment Losses Limestone and W.A. Parish — During the fourth quarter of 2015, as the Company updated its estimates of future cash flows in connection with the preparation of its annual budget, it was noted that the cash flows for the Limestone and W.A. Parish coal- fired facilities located in Texas were lower than the carrying amount, primarily driven by declining power prices as the cost of commodities continues to decline and the assets were impaired. The fair value of the Limestone and W.A. Parish plants was determined using an income approach by applying a discounted cash flow methodology to the long-term budgets for each respective plant. The income approach utilized estimates of discounted future cash flows, which were Level 3 fair value measurements, and include key inputs such as forecasted power prices, fuel costs and emissions credit expense, forecasted operating and capital expenditures and discount rates. The Company measured the impairment loss as the difference between the carrying amount and the fair value of the assets and recognized impairment losses of $1,514 million and $1,295 million related to Limestone and W.A. Parish, respectively. 164 165 Huntley — On August 25, 2015, the Company filed a notice with the NYSPSC of its intent to retire Huntley's operating units on March 1, 2016. The Company considered this to be an indicator of impairment and performed an impairment test for these assets under ASC 360, Property, Plant and Equipment. On October 14, 2015, the Company filed a cost-of-service filing at FERC in anticipation that the Huntley operating units would be needed for reliability purposes, proposing a reliability must run service agreement for a four-year period beginning on March 1, 2016. On October 30, 2015, NYISO released the results of its reliability study, indicating that the Huntley operating units are not needed for bulk system reliability. The Company considered the impact of the reliability study conducted and evaluated the estimated cash flows associated with the facility. Accordingly, the Company determined that the carrying amount of the assets was higher than the estimated future net cash flows expected to be generated by the assets and that the assets were impaired. The fair value of the Huntley operating units was determined using the income approach. The income approach utilized estimates of discounted future cash flows, which were Level 3 fair value measurements, and include key inputs such as forecasted contract prices, forecasted operating expenses and discount rates. The Company recorded an impairment loss of $132 million during the year ended December 31, 2015. Dunkirk — The Company signed a ten-year agreement in November 2014 with National Grid to add natural gas-burning capabilities at the Dunkirk facility. On August 25, 2015, NRG announced that Dunkirk Unit 2 would be mothballed on January 1, 2016 at the expiration of its reliability support services agreement. The project to add natural gas-burning capabilities has been suspended, pending the outcome of litigation with respect to the gas addition contract and its validity. On October 30, 2015, NYISO released the results of its reliability study, indicating that the Dunkirk facility is not needed for system reliability. In connection with the planned mothball of the facility, the pending litigation and the latest reliability assessment completed by NYISO, the Company evaluated whether the related fixed assets were impaired. The Company determined that the carrying amount of the assets was higher than the estimated future net cash flows expected to be generated by the assets and that the assets were impaired. The fair value of the Dunkirk facility was determined using the income approach. The income approach utilized estimates of discounted future cash flows, which were Level 3 fair value measurements, and include key inputs such as forecasted contract prices, forecasted operating and capital expenditures and discount rates. The Company recorded an impairment loss of $160 million during the year ended December 31, 2015. Gregory — During the fourth quarter of 2015, the Company determined that the carrying amount of the assets was higher than the estimated future net cash flows expected to be generated by the assets and that the assets were impaired. The fair value of the Gregory facility was determined using the income approach, which utilized estimates of discounted future cash flows, which were Level 3 fair value measurements, and include key inputs such as forecasted prices, operating and capital expenditures and discount rates. The Company recorded an impairment loss of $176 million during the year ended December 31, 2015. Solar Panels — During the fourth quarter of 2015, the Company recorded an impairment loss of $29 million to reduce the carrying value of certain solar panels to their approximate fair value. Investments — During the fourth quarter of 2015, the Company reviewed certain of its cost method and equity method investments and concluded that losses incurred by these investments were other-than-temporary. These losses were primarily driven by the sustained decline in stock price of a publicly traded investment as well as change in financing structures of certain non-publicly traded investments. As a result, the Company recorded losses related to these investments of $56 million. Note 11 — Goodwill and Other Intangibles Goodwill NRG's goodwill balance was $539 million and $662 million as of December 31, 2017 and 2016, respectively. As of December 31, 2017, and 2016, NRG had approximately $460 million and $547 million, respectively, of goodwill that is deductible for U.S. income tax purposes in future periods. As of December 31, 2017, goodwill consisted of $165 million associated with the acquisition of EME, $341 million for Retail business acquisitions, and $33 million associated with other business acquisitions. 2017 Impairments of Goodwill BETM — During the fourth quarter of 2017, the Company concluded that BETM was held for sale in connection with board approval and advanced negotiations to sell the business. Accordingly, the Company recorded the assets and liabilities at fair market value as of December 31, 2017, which resulted in an impairment loss of $90 million to record BETM’s goodwill at fair market value. The remaining goodwill balance for BETM of $21 million is included within non-current assets held-for-sale as of December 31, 2017. SPP — During the fourth quarter of 2017, NRG sold its interests in certain SPP projects to NRG Yield. The goodwill recorded during the SPP acquisition was related primarily to its development pipeline, which was not sold to NRG Yield. As the Company does not expect to separately develop these projects and accordingly, has no cash flow stream associated with the goodwill, an impairment loss of $12 million was recorded to reduce the value to zero as of December 31, 2017. 2016 Impairments of Goodwill During the year ended December 31, 2016, the Company recorded a goodwill impairment charge of $337 million related to its Texas reporting unit, reducing the goodwill balance for Texas to zero. In connection with the annual impairment assessment, the Company performed step one of the two-step impairment test for the Texas reporting unit, for which $1.7 billion of goodwill was recognized as part of the Texas Genco acquisition in 2006 and $1.4 billion was written off in 2015. The Company determined the fair value of the Texas reporting unit primarily using an income approach through which the Company applied a discounted cash flow methodology to the long-term budgets for all plants in the regions. Significant inputs impacting the income approach include the Company's views of power and fuel prices for the first five- year period and the Company's view for the longer term, which were finalized in connection with the preparation of the fourth quarter financial statements, projected generation based on an hourly dispatch meant to simulate the dispatch of each unit into the power market which is impacted by power prices, fuel prices, and the physical and economic characteristics of each plant, intangible value to Texas for synergies it provides to NRG's retail businesses, and the discount rate applied to cash flow projections. Under step one, the estimated fair value of the Texas invested capital was 43% below its carrying value as of December 31, 2016, and the Company concluded step two was required. Based on the results of step two of the impairment test, the Company determined the carrying amount of the reporting unit was higher than the fair value, and accordingly, the Company recognized an impairment loss of $337 million as of December 31, 2016. Intangible Assets The Company's intangible assets as of December 31, 2017, primarily reflect intangible assets established with the acquisitions of various companies and are comprised of the following: • Emission Allowances — These intangibles primarily consist of SO2 and NOx emission allowances established with the 2006 Texas Genco acquisition and also include RGGI emission credits which NRG began purchasing in 2009. These emission allowances are held-for-use and are amortized to cost of operations, with NOx allowances amortized on a straight-line basis and SO2 allowances and RGGI credits amortized based on units of production. During the year ended December 31, 2017, the Company recorded an impairment loss of $20 million to reduce the value of excess SO2 allowances to zero. • Energy supply contracts — Established with the acquisitions of Reliant Energy and Green Mountain Energy, these represent the fair value at the acquisition date of in-market contracts for the purchase of energy to serve retail electric customers. The contracts are amortized to cost of operations based on the expected delivery under the respective contracts. • In-market fuel (gas and nuclear) contracts — These intangibles were established with the Texas Genco acquisition in 2006 and are amortized to cost of operations over expected volumes over the life of each contract. • Customer contracts — Established with the acquisitions of Reliant Energy, Green Mountain Energy, and Northwind Phoenix, these intangibles represent the fair value at the acquisition date of contracts that primarily provide electricity to Reliant Energy's and Green Mountain Energy's C&I customers. These contracts are amortized to revenues based on expected volumes to be delivered for the portfolio. • Customer relationships — These intangibles represent the fair value at the acquisition date of acquired businesses' customer base, primarily for Dominion, Energy Alternatives, Energy Plus, Reliant Energy, Green Mountain Energy, Energy Systems, Energy Curtailment Specialists, and Source Power & Gas. The customer relationships are amortized to depreciation and amortization expense based on the expected discounted future net cash flows by year. • Marketing partnerships — Established with the acquisition of Energy Plus, these intangibles represent the fair value at the acquisition date of existing agreements with loyalty and affinity partners. The marketing partnerships are amortized to depreciation and amortization expense based on the expected discounted future net cash flows by year. • Trade names — Established with the Reliant Energy, Green Mountain, Energy Plus and Dominion acquisitions, these intangibles are amortized to depreciation and amortization expense, on a straight-line basis. • Power purchase agreements — Established predominantly with the EME and Alta Wind acquisitions, these represent the fair value of PPAs acquired. These will be amortized to revenues, generally on a straight-line basis, over the terms of the PPAs. During the year ended December 31, 2017, the Company recorded an impairment loss of $6 million related to PPAs. • Other — Consists of renewable energy credits, wind leasehold rights, costs to extend the operating license for STP Units 1 and 2, and the intangible assets related to purchased ground leases. 166 167 The following tables summarize the components of NRG's intangible assets subject to amortization: The following table presents NRG's amortization of intangible assets for each of the past three years: Year Ended December 31, 2017 Emission Allowances Energy Supply Fuel Customer Customer Relationships Marketing Partnerships Trade Names PPA Other Total Amortization Contracts January 1, 2017 Purchases Acquisition of businesses Usage Write-off of fully amortized balances(a) Impairment Other December 31, 2017 Less accumulated amortization $ 789 31 — (10) — (20) (23) 767 $ $72 54 — — $ — — — — (54) (23) — — — — — 49 16 — — — — — — 16 (591) — (45) (9) Net carrying amount $ 176 $ — $ 4 $ 7 $ $ (In millions) 816 — $ 18 — — — — 834 88 — — — — — — 88 $ 342 — $ 1,286 — $198 32 $ 3,661 63 — — — — — 342 — — — (28) 18 (38) — — (6) — (19) 5 183 1,285 (77) (26) (37) 3,564 Emission allowances Energy supply contracts Fuel contracts Customer contracts Customer relationships Marketing partnerships Trade names Power purchase agreements Other Total amortization Years Ended December 31, 2017 2016 (In millions) 2015 $ 73 — 1 1 35 5 23 62 7 $ 66 $ 7 2 2 49 8 22 64 11 60 5 2 2 67 14 23 51 14 $ 207 $ 231 $ 238 (a) Adjusted for write-off of fully amortized energy supply contracts of $54 million and fuel contracts of $23 million. Contracts Contracts Year Ended December 31, Emission Allowances Fuel Customer Customer Relationships Marketing Partnerships Trade Names PPA Other Total Year Ended December 31, 2016 Emission Allowances Energy Supply Fuel Customer Customer Relationships Marketing Partnerships Trade Names PPA Other Total (698) 136 $ (54) 34 $ (182) 160 (205) $ 1,080 (34) $149 (1,818) $ 1,746 The following table presents estimated amortization of NRG's intangible assets for each of the next five years: January 1, 2016 $ 816 $ 54 $72 $ Purchases Acquisition of businesses Usage Write-off of fully amortized balances(a) Impairment(b) Other December 31, 2016 Less accumulated amortization 13 — (1) (10) (23) (6) 789 — — — — — — — — — — — — 54 72 (In millions) $ 834 $ — — — — (18) — 816 16 — — — — — — 16 88 — — — — — — 88 $ 342 $ 1,286 $213 $ 3,721 — — — — — — — 34 18 — (44) — — — (23) — — 47 18 (45) (10) (64) (6) 342 1,286 198 3,661 Net carrying amount $ 271 $ — $ 5 $ 8 $ (518) (54) (67) (8) (663) 153 $ (49) 39 $ (159) 183 (143) $ 1,143 (27) $171 (1,688) $ 1,973 (a) Adjusted for write-off of fully amortized emission allowances of $10 million. (b) The impairment of customer relationships and other intangibles included a write-off of accumulated amortization of $10 million and $8 million, respectively. 2018 2019 2020 2021 2022 $ 33 $ 1 $ 30 — 16 — 16 — 15 — $ 1 1 1 1 1 (In millions) $ 25 21 17 13 7 $ 5 4 4 4 3 $ 22 22 22 22 22 $ 64 64 64 64 64 8 8 8 8 8 $ 159 150 132 128 120 Intangible assets held for sale — From time to time, management may authorize the transfer from the Company's emission bank of emission allowances held-for-use to intangible assets held-for-sale. Emission allowances held-for-sale are included in other non-current assets on the Company's consolidated balance sheet and are not amortized, but rather expensed as sold. As of December 31, 2017, the value of emission allowances held-for-sale is $9 million and is managed within the Corporate segment. Once transferred to held-for-sale, these emission allowances are prohibited from moving back to held-for-use. Out-of-market contracts — Due primarily to business acquisitions, NRG acquired certain out-of-market contracts, which are classified as non-current liabilities on NRG's consolidated balance sheet. These include out-of-market lease contracts of $159 million acquired in the acquisition of EME. These out-of-market contracts are amortized to cost of operations. As of December 31, 2017 and 2016, the Company had accumulated amortization for out-of-market contracts of $358 million and $457 million, respectively. The following table summarizes the estimated amortization related to NRG's out-of-market contracts: Year Ended December 31, Power Contracts Leases Total 2018 2019 2020 2021 2022 $ 16 16 17 14 1 (In millions $ $ 9 9 9 9 9 25 25 26 23 10 168 169 December 31, 2017 2016 December 31, 2017 Interest Rate % (a) Note 12 — Debt and Capital Leases Long-term debt and capital leases consisted of the following: (In millions, except rates) Recourse debt: Senior notes, due 2018 Senior notes, due 2021 Senior notes, due 2022 Senior notes, due 2023 Senior notes, due 2024 Senior notes, due 2026 Senior notes, due 2027 Senior notes, due 2028 Term loan facility, due 2023 Tax-exempt bonds Subtotal recourse debt Non-recourse debt: $ — $ — 992 — 733 1,000 1,250 870 1,872 465 7,182 NRG Yield Operating LLC Senior Notes, due 2024 NRG Yield Operating LLC Senior Notes, due 2026 NRG Yield, Inc. Convertible Senior Notes, due 2019 NRG Yield, Inc. Convertible Senior Notes, due 2020 NRG Yield LLC and NRG Yield Operating LLC Revolving Credit Facility, due 2019 (b) El Segundo Energy Center, due 2023 Marsh Landing, due 2023 Alta Wind I - V lease financing arrangements, due 2034 and 2035 Walnut Creek, term loans due 2023 Utah Portfolio, due 2022 Tapestry, due 2021 CVSR, due 2037 CVSR HoldCo, due 2037 Alpine, due 2022 Energy Center Minneapolis, due 2025 Energy Center Minneapolis, due 2031 Viento, due 2023 NRG Yield - other Subtotal NRG Yield debt (non-recourse to NRG) (c) Ivanpah, due 2033 and 2038 Carlsbad Energy Project (c) Agua Caliente, due 2037 Agua Caliente Borrower 1, due 2038 Cedro Hill, due 2029 (c) Midwest Generation, due 2019 NRG Other Renewables (c) NRG Other Subtotal other non-recourse debt Subtotal all non-recourse debt Subtotal long-term debt (including current maturities) Capital leases Subtotal long-term debt and capital leases (including current maturities) Less current maturities Less debt issuance costs Discounts Total long-term debt and capital leases $ 500 350 345 288 55 400 318 926 267 278 162 746 194 135 83 125 163 579 5,914 1,073 427 818 89 151 152 647 180 3,537 9,451 16,633 5 16,638 (688) (204) (30) 15,716 $ 7.625 7.875 6.250 6.625 6.250 7.250 6.625 5.750 L+2.25 4.125 - 6.00 5.375 5.000 3.500 3.250 L+2.500 L+1.75 - L+2.375 L+1.875 5.696 - 7.015 L+1.625 L+2.625 L+1.625 2.339 - 3.775 4.680 L+1.750 3.55 - 5.95 3.55 L+3.00 various 2.285 - 4.256 L+1.625 -.04120 2.395 - 3.633 5.430 L+1.75 4.390 various various 398 207 992 869 733 1,000 1,250 — 1,891 455 7,795 500 350 345 288 — 443 370 965 310 287 172 771 199 145 96 125 178 603 6,147 1,113 — 849 — 163 231 269 137 2,762 8,909 16,704 6 16,710 (516) (188) (49) 15,957 Long-term debt includes the following discounts: Term loan facility, due 2023 (a) Yield, Inc. Convertible notes, due 2019 Yield, Inc. Convertible notes, due 2020 Midwest Generation, due 2019 Total discounts As of December 31, 2017 2016 (In millions) (7) $ (5) (13) (5) (30) $ (9) (10) (17) (13) (49) $ $ (a) Term loan facility, due 2018 replaced with the Term loan facility due 2023. Discount of $1 million was related to current maturities in 2016. Consolidated Annual Maturities Annual payments based on the maturities of NRG's debt and capital leases for the years ending after December 31, 2017 are as follows: 2018 2019 2020 2021 2022 Thereafter Total Recourse Debt Senior Notes (In millions) 695 933 805 606 1,854 11,745 16,638 $ $ Issuance of 2028 Senior Notes On December 7, 2017, NRG issued $870 million of aggregate principal amount at par of 5.75% senior unsecured notes due 2028. The 2028 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on July 15, 2018, until the maturity date of January 15, 2028. The proceeds from the issuance of the 2028 Senior Notes were utilized to redeem the Company's 6.625% Senior Notes due 2023. Issuance of 2026 Senior Notes On May 23, 2016, NRG issued $1.0 billion in aggregate principal amount at par of 7.25% senior notes due 2026, or the 2026 Senior Notes. The 2026 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on November 15, 2016, until the maturity date of May 15, 2026. The proceeds from the issuance of the 2026 Senior Notes were utilized to repurchase a portion of the Senior Notes during 2016. Issuance of 2027 Senior Notes On August 2, 2016, NRG issued $1.25 billion in aggregate principal amount at par of 6.625% senior notes due 2027, or the 2027 Senior Notes. The 2027 Senior Notes are senior unsecured obligations of NRG and are guaranteed by certain of its subsidiaries. Interest is paid semi-annually beginning on January 15, 2017, until the maturity date of January 15, 2027. The proceeds from the issuance of the 2027 Senior Notes were utilized to retire the Company's 8.250% senior notes due 2020 and reduce the balance of the Company's 7.875% senior notes due 2021. (a) As of December 31, 2017, L+ equals 3 month LIBOR plus x%, except for the Utah Solar Portfolio where L+ equals 1 month LIBOR plus 2.629%. (b) Applicable rate is determined by the Borrower Leverage Ratio, as defined in the credit agreement (c) Debt associated with the asset sales announced in February 2018 170 171 2017 Senior Note Redemptions The Company periodically enters into supplemental indentures for the purpose of adding entities under the Senior Notes During the year ended December 31, 2017, the Company redeemed $1.5 billion in aggregate principal of its Senior Notes for $1.5 billion, which included accrued interest of $29 million. In connection with the redemptions, a $49 million loss on debt extinguishment was recorded, which included the write-off of previously deferred financing costs of $7 million. Amount in millions, except rates 7.625% senior notes due 2018 7.875% senior notes due 2021 6.625% senior notes due 2023 Total (a) Includes payment for accrued interest. 2016 Senior Notes Repurchases Principal Repurchased Cash Paid (a) Average Early Redemption Percentage $ $ 398 206 869 1,473 $ $ 411 218 915 1,544 101.42% 102.63% 103.57% During the year ended December 31, 2016, the Company repurchased $3.0 billion in aggregate principal of its Senior Notes for $3.1 billion, which included accrued interest of $77 million. In connection with the repurchases, a $117 million loss on debt extinguishment was recorded, which included the write-off of previously deferred financing costs of $16 million. Amount in millions, except rates 7.625% senior notes due 2018 (b) 8.250% senior notes due 2020 7.875% senior notes due 2021 (c) 6.250% senior notes due 2022 6.625% senior notes due 2023 6.250% senior notes due 2024 Total (a) Includes payment for accrued interest. (b) $186 million of the redemptions financed by cash on hand. (c) $193 million of the redemptions financed by cash on hand. Senior Notes Outstanding Principal Repurchased Cash Paid (a) Average Early Redemption Percentage $ $ $ 641 1,058 922 108 67 171 2,967 $ 706 1,129 978 105 64 163 3,145 107.89% 103.12% 104.00% 94.73% 94.13% 94.52% As of December 31, 2017, NRG had the following outstanding issuances of senior notes, or Senior Notes: i. ii. iii. iv. v. 6.250% senior notes, issued January 27, 2014 and due July 15, 2022, or the 2022 Senior Notes; 6.250% senior notes, issued April 21, 2014 and due November 1, 2024, or the 2024 Senior Notes; 7.250% senior notes, issued May 23, 2016 and due May 15, 2026, or the 2026 Senior Notes; 6.625% senior notes, issued August 2, 2016 and due January 15, 2027, or the 2027 Senior Notes; and 5.750% senior notes, issued December 7, 2017 and due January 15, 2028, or the 2028 Senior Notes. as guarantors. The indentures and the forms of notes provide, among other things, that the Senior Notes will be senior unsecured obligations of NRG. The indentures also provide for customary events of default, which include, among others: nonpayment of principal or interest; breach of other agreements in the indentures; defaults in failure to pay certain other indebtedness; the rendering of judgments to pay certain amounts of money against NRG and its subsidiaries; the failure of certain guarantees to be enforceable; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs, the Trustee or the Holders of at least 25% in principal amount of the then outstanding series of Senior Notes may declare all of the Senior Notes of such series to be due and payable immediately. The terms of the indentures, among other things, limit NRG's ability and certain of its subsidiaries' ability to return capital to stockholders, grant liens on assets to lenders and incur additional debt. Interest is payable semi-annually on the Senior Notes until their maturity dates. 2022 Senior Notes At any time prior to July 15, 2017, NRG may redeem up to 35% of the aggregate principal amount of the 2022 Senior Notes, at a redemption price equal to 106.25% of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings. At any time prior to July 15, 2018, NRG may redeem all or a part of the 2022 Senior Notes, at a redemption price equal to 100% of the principal amount, accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1% of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 103.125% of the note, plus interest payments due on the note from the date of redemption through July 15, 2018, computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50%. In addition, on or after July 15, 2018, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period July 15, 2018 to July 14, 2019 July 15, 2019 to July 14, 2020 July 15, 2020 and thereafter 2024 Senior Notes Redemption Percentage 103.125% 101.563% 100.000% At any time prior to May 1, 2017, NRG may redeem up to 35% of the aggregate principal amount of the 2024 Senior Notes, at a redemption price equal to 106.25% of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings. At any time prior to May 1, 2019, NRG may redeem all or a part of the 2024 Senior Notes, at a redemption price equal to 100% of the principal amount, accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1% of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 103.125% of the note, plus interest payments due on the note from the date of redemption through May 1, 2019 computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50%. In addition, on or after May 1, 2019, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period May 1, 2019 to April 30, 2020 May 1, 2020 to April 30, 2021 May 1, 2021 to April 30, 2022 May 1, 2022 and thereafter Redemption Percentage 103.125% 102.083% 101.042% 100.000% 172 173 2026 Senior Notes At any time prior to May 15, 2019, NRG may redeem up to 35% of the aggregate principal amount of the 2026 Senior Notes, at a redemption price equal to 107.25% of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings. At any time prior to May 15, 2021, NRG may redeem all or a part of the 2026 Senior Notes, at a redemption price equal to 100% of the principal amount, accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1% of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 103.625% of the note, plus interest payments due on the note from the date of redemption through May 15, 2021 computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50%. In addition, on or after May 15, 2021, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period May 15, 2021 to May 14, 2022 May 15, 2022 to May 14, 2023 May 15, 2023 to May 14, 2024 May 15, 2024 and thereafter 2027 Senior Notes Redemption Percentage 103.625% 102.417% 101.208% 100.000% At any time prior to July 15, 2019, NRG may redeem up to 35% of the aggregate principal amount of the 2027 Senior Notes, at a redemption price equal to 106.625% of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings. At any time prior to July 15, 2021 NRG may redeem all or a part of the 2027 Senior Notes, at a redemption price equal to 100% of the principal amount, accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1% of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 103.313% of the note, plus interest payments due on the note from the date of redemption through July 15, 2021 computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50%. In addition, on or after July 15, 2021, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period July 15, 2021 to July14, 2022 July 15, 2022 to July 14, 2023 July 15, 2023 to July 14, 2024 July 15, 2024 and thereafter 2028 Senior Notes Redemption Percentage 103.313% 102.208% 101.104% 100.000% At any time prior to January 15, 2021, NRG may redeem up to 35% of the aggregate principal amount of the 2028 Senior Notes, at a redemption price equal to 105.750% of the principal amount of the notes redeemed, plus accrued and unpaid interest, with an amount equal to the net cash proceeds of certain equity offerings. At any time prior to January 15, 2023 NRG may redeem all or a part of the 2028 Senior Notes, at a redemption price equal to 100% of the principal amount, accrued and unpaid interest to the redemption date, plus a premium. The premium is the greater of: (i) 1% of the principal amount of the notes; or (ii) the excess of the principal amount of the note over the following: the present value of 102.875% of the note, plus interest payments due on the note from the date of redemption through January 15, 2023 computed using a discount rate equal to the Treasury Rate as of such redemption date plus 0.50%. In addition, on or after January 15, 2023, NRG may redeem some or all of the notes at redemption prices expressed as percentages of principal amount as set forth in the following table, plus accrued and unpaid interest on the notes redeemed to the first applicable redemption date: Redemption Period January 15, 2023 to January 14, 2024 January 15, 2024 to January 14, 2025 January 15, 2025 to January 14, 2026 January 15, 2026 and thereafter Senior Credit Facility Redemption Percentage 102.875% 101.917% 100.958% 100.000% On June 30, 2016, NRG replaced its Senior Credit Facility, consisting of its Term Loan Facility and Revolving Credit Facility with a new senior secured facility, or the Senior Credit Facility, which includes the following: • A $1.9 billion term loan facility, or the 2023 Term Loan Facility, with a maturity date of June 30, 2023, which will pay interest at a rate of LIBOR plus 2.75%, with a LIBOR floor of 0.75%. The debt was issued at 99.50% of face value; the discount will be amortized to interest expense over the life of the loan. Repayments under the 2023 Term Loan Facility will consist of 0.25% of principal per quarter, with the remainder due at maturity. The proceeds of the new term loan facility as well as cash on hand were used to repay the 2018 Term Loan Facility balance outstanding. A $21 million loss on extinguishment of the Term Loan Facility was recorded during the second quarter of 2016, which consisted of the write-off of previously deferred financing costs. On January 24, 2017, NRG repriced the 2023 Term Loan Facility, reducing the interest rate margin by 50 basis points to LIBOR plus 2.25%, the LIBOR floor remains 0.75%. • A $289 million revolving senior credit facility, or the Tranche A Revolving Facility, with a maturity date of July 1, 2018 and a $2.2 billion revolving senior credit facility, or the Tranche B Revolving Facility, with a maturity date of June 30, 2021, which will pay interest at a rate of LIBOR plus 2.25%. The Senior Credit Facility is guaranteed by substantially all of NRG's existing and future direct and indirect subsidiaries, with certain customary or agreed-upon exceptions for unrestricted foreign subsidiaries, and certain other subsidiaries, including GenOn, NRG Yield, Inc. and their respective subsidiaries. The capital stock of these guarantor subsidiaries has been pledged for the benefit of the Senior Credit Facility's lenders. The Senior Credit Facility is also secured by first-priority perfected security interests in substantially all of the property and assets owned or acquired by NRG and its subsidiaries, other than certain limited exceptions. These exceptions include assets of certain unrestricted subsidiaries, equity interests in certain of NRG's affiliates that have non-recourse debt financing, including GenOn, NRG Yield, Inc. and their respective subsidiaries, and voting equity interests in excess of 66% of the total outstanding voting equity interest of certain of NRG's foreign subsidiaries. Tax Exempt Bonds Amount in millions, except rates Indian River Power tax exempt bonds, due 2040 Indian River Power LLC, tax exempt bonds, due 2045 Dunkirk Power LLC, tax exempt bonds, due 2042 City of Texas City, tax exempt bonds, due 2045 Fort Bend County, tax exempt bonds, due 2038 Fort Bend County, tax exempt bonds, due 2042 Total As of December 31, 2017 2016 Interest Rate % $ $ $ 57 190 59 32 54 73 465 $ 57 190 59 22 54 73 455 6.000 5.375 5.875 4.125 4.750 4.750 174 175 Non-Recourse Debt The following are descriptions of certain indebtedness of NRG's subsidiaries that are outstanding as of December 31, 2017. All of NRG's non-recourse debt is secured by the assets in the respective project subsidiaries as further described below. Yield LLC and Yield Operating LLC Revolving Credit Facility NRG Yield LLC and its direct wholly owned subsidiary, NRG Yield Operating LLC, entered into a senior secured revolving credit facility, which can be used for cash and for the issuance of letters of credit. At December 31, 2017, there was $55 million outstanding on the revolver and $74 million of letters of credit issued under the revolving credit facility. NRG Yield Operating 2026 Senior Notes On August 18, 2016, NRG Yield Operating LLC issued $350 million of senior unsecured notes, or the NRG Yield Operating 2026 Senior Notes. The NRG Yield Operating 2026 Senior Notes bear interest of 5.00% and mature on September 15, 2026. Interest on the notes is payable semi-annually on March 15 and September 15 of each year, and will commence on March 15, 2017. The Yield Operating 2026 Senior Notes are senior unsecured obligations of NRG Yield Operating LLC and are guaranteed by NRG Yield LLC, and by certain of NRG Yield Operating LLC’s wholly owned current and future subsidiaries. A portion of the proceeds from the 2026 Senior Notes was used to repay NRG Yield Operating LLC's revolving credit facility. Project Financings The following are descriptions of certain indebtedness of NRG's project subsidiaries that are outstanding as of December 31, 2017. Aqua Caliente Holdco Financing Agreement On February 17, 2017, Agua Caliente Borrower I LLC and Agua Caliente Borrower II LLC, Agua Caliente Holdco, the indirect owners of the Agua Caliente solar facility, issued $130 million of senior secured notes under the Agua Caliente Holdco Financing Agreement, or 2038 Agua Caliente Holdco Notes, that bear interest at 5.43% and mature on December 31, 2038. Net proceeds were distributed to the Company. Carlsbad Project Financing On May 26, 2017, Carlsbad Energy Holdings, LLC entered into a note payable agreement with financial institutions for the issuance of up to $407 million of senior secured notes that bear interest at a rate of 4.12%, and mature on October 31, 2038. As of December 31, 2017, all $407 million of these notes were outstanding. Also on May 26, 2017, Carlsbad Energy Holdings, LLC entered into a credit agreement, or the Carlsbad Financing Agreement, with the issuing banks, for a $194 million construction loan, that will convert to a term loan upon completion of the project. The Carlsbad Financing Agreement also includes a letter of credit facility with an aggregate principle amount not to exceed $83 million, and a working capital loan facility with an aggregate principle amount not to exceed $4 million. As of December 31, 2017, $20 million was outstanding under the construction loan and $29 million in in letters of credit in support of the project were issued. Utah Portfolio As part of the November 2, 2016 utility-scale solar and wind acquisition, as discussed in Note 3, Discontinued Operations, Acquisitions and Dispositions, NRG recorded $222 million of non-recourse project level debt. As of term conversion for the three associated debt facilities, the Company borrowed an additional $65 million of non-recourse debt. Each facility bears interest of LIBOR plus 2.625% and matures on December 16, 2022. Thermal Financing On October 31, 2016, NRG Energy Center Minneapolis LLC, a subsidiary of NRG Yield, Inc., received proceeds of $125 million from the issuance of 3.55% Series D notes due October 31, 2031, or the Series D Notes, and entered into a shelf facility for the anticipated issuance of an additional $70 million of notes. The Series D Notes are secured by substantially all of the assets of NRG Energy Center Minneapolis LLC. NRG Thermal LLC has guaranteed the indebtedness and its guarantee is secured by a pledge of the equity interests in all of NRG Thermal LLC’s subsidiaries. NRG Energy Center Minneapolis LLC distributed the proceeds of the Series D Notes to NRG Thermal LLC, who in turn distributed the proceeds to NRG Yield Operating LLC to be utilized for general corporate purposes, including potential acquisitions. Alta Wind lease financing arrangements Alta Wind Holdings (Alta Wind II - V) and Alta I have finance lease obligations issued under lease transactions whereby the respective operating entities sold and leased back undivided interests in specific assets of the projects. All of the assets of Alta I-V are pledged as collateral under these arrangements. The sale and related lease transactions are accounted for as financing arrangements as the operating entities have continued involvement with the property. Amount in millions, except rates Non-Recourse Debt Alta Wind I Alta Wind II Alta Wind III Alta Wind IV Alta Wind V Total Lease Financing Arrangement Letter of Credit Facility Amount Outstanding as of December 31, 2017 Interest Rate Maturity Date Amount Outstanding as of December 31, 2017 $ $ 231 183 191 123 198 926 7.015% 12/30/2034 $ 5.696% 6.067% 5.938% 6.071% 12/30/2034 12/30/2034 12/30/2034 6/30/2035 $ 16 27 27 19 30 119 Interest Rate 3.00% - 3.25% 1.250% 1.750% 1.750% 1.750% Maturity Date 1/5/2021 3/21/2022 various various various Midwest Generation On April 7, 2016, Midwest Generation, LLC, or MWG, entered into an agreement to sell certain quantities of unforced capacity that has cleared various PJM Reliability Pricing Model auctions to a trading counterparty for net proceeds of $253 million. MWG will continue to operate the applicable generation facilities and remains responsible for performance penalties and eligible for performance bonus payments, if any. Accordingly, MWG will continue to account for all revenues and costs as before; however, the proceeds will be recorded as a financing obligation while capacity payments by PJM to the counterparty will be reflected as debt amortization and interest expense through the end of the 2018/19 delivery year. MWG will amortize the upfront discount to interest expense, at an effective interest rate of 4.39%, over the term of the arrangement, through June 2019. As of December 31, 2017, $152 million was outstanding. CVSR On July 15, 2016, CVSR Holdco LLC, the indirect owner of the CVSR project, issued $200 million of senior secured notes. The $199 million of net proceeds from the notes were distributed to a subsidiary of NRG and NRG Yield Operating LLC, the owners of CVSR Holdco LLC, based on their pro-rata ownership. The notes were issued at par and bear an interest rate at 4.68%. Interest is payable semi-annually beginning on September 30, 2016, until the maturity date of March 31, 2037. Capistrano Refinancing On July 13, 2016, Cedro Hill, Broken Bow and Crofton Bluffs, subsidiaries of Capistrano Wind Partners, each amended their respective credit facilities to increase borrowings to a total of $312 million and to lower their respective interest rates. The net proceeds of $87 million were distributed to Capistrano Wind Partners and subsequently distributed to the holders of the Class B preferred equity interests of Capistrano Wind Partners. 176 177 Interest Rate Swaps — Project Financings Note 13 — Asset Retirement Obligations Many of NRG's project subsidiaries entered into interest rate swaps, intended to hedge the risks associated with interest rates on non-recourse project level debt. These swaps amortize in proportion to their respective loans and are floating for fixed where the project subsidiary pays its counterparty the equivalent of a fixed interest payment on a predetermined notional value and will receive quarterly the equivalent of a floating interest payment based on the same notional value. All interest rate swap payments by the project subsidiary and its counterparty are made quarterly, and the LIBOR is determined in advance of each interest period. The following table summarizes the swaps, some of which are forward starting as indicated, related to NRG's project level debt as of December 31, 2017. % of Principal Fixed Interest Rate Floating Interest Rate Notional Amount at December 31, 2017 (In millions) Effective Date Maturity Date 85% various 1-mo. LIBOR $ 1,000 June 30, 2016 June 30, 2021 Recourse Debt NRG Energy Non-Recourse Debt El Segundo Energy Center 75% various 3-mo. LIBOR South Trent Wind LLC South Trent Wind LLC NRG Solar Roadrunner LLC NRG Solar Alpine LLC 75% 75% 3.265% 3-mo. LIBOR 4.95% 3-mo. LIBOR 75% 85% various 4.313% 3-mo. LIBOR 3-mo. LIBOR 340 40 21 26 115 various June 15, 2010 June 30, 2020 various June 14, 2020 June 14, 2028 September 30, 2011 various December 31, 2029 various NRG Solar Avra Valley LLC 85% 2.333% 3-mo. LIBOR 46 November 30, 2012 November 30, 2030 NRG Marsh Landing Utah Portfolio DGPV 4 Other EME Project Financings Broken Bow Cedro Hill Crofton Bluffs Laredo Ridge Tapestry Tapestry Viento Funding II Viento Funding II Walnut Creek Energy WCEP Holdings Alta Wind Project Financings AWAM Total 75% 80% various 3.244% 3-mo. LIBOR 1-mo. LIBOR 85% various 3-mo. LIBOR 75% various various 75% various 3-mo. LIBOR 90% various 3-mo. LIBOR 75% various 3-mo. LIBOR 75% 75% 50% 2.310% 3-mo. LIBOR 2.210% 3-mo. LIBOR 3.570% 3-mo. LIBOR 90% various 6-mo. LIBOR 90% 4.985% 6-mo. LIBOR 75% various 3-mo. LIBOR 90% 4.003% 3-mo. LIBOR 100% 2.470% 3-mo. LIBOR $ 295 223 95 653 — 55 136 36 75 June 28, 2013 various June 30, 2023 September 30, 2036 various various various various various various various various various various March 31, 2011 March 31, 2026 146 December 30, 2011 December 21, 2021 60 December 21, 2021 December 21, 2029 148 65 239 45 17 3,876 various July 11, 2023 June 28, 2013 June 28, 2013 various June 30, 2028 May 31, 2023 May 21, 2023 May 22, 2013 May 15, 2031 The Company's AROs are primarily related to the future dismantlement of equipment on leased property and environmental obligations related to nuclear decommissioning, ash disposal, site closures, and fuel storage facilities. In addition, the Company has also identified conditional AROs for asbestos removal and disposal, which are specific to certain power generation operations. See Note 6, Nuclear Decommissioning Trust Fund, for a further discussion of the Company's nuclear decommissioning obligations. Accretion for the nuclear decommissioning ARO and amortization of the related ARO asset are recorded to the Nuclear Decommissioning Trust Liability to the ratepayers and are not included in net income, consistent with regulatory treatment. The following table represents the balance of ARO obligations as of December 31, 2017 and 2016, along with the additions, reductions and accretion related to the Company's ARO obligations for the year ended December 31, 2017: Balance as of December 31, 2016 Revisions in estimates for current obligations Additions Spending for current obligations Accretion — Expense Accretion — Nuclear decommissioning Balance as of December 31, 2017 (In millions) 735 (3) 9 (21) 35 16 771 $ $ Note 14 — Benefit Plans and Other Postretirement Benefits NRG sponsors and operates defined benefit pension and other postretirement plans. NRG pension benefits are available to eligible non-union and union employees through various defined benefit pension plans. These benefits are based on pay, service history and age at retirement. Most pension benefits are provided through tax- qualified plans. NRG also provides postretirement health and welfare benefits for certain groups of employees. Cost sharing provisions vary by the terms of any applicable collective bargaining agreements. NRG maintains two separate qualified pension plans, the NRG Pension Plan for Bargained Employees and the NRG Pension Plan. Employees of both NRG and GenOn participate in each of the pension plans, depending upon whether their employment is covered by a bargaining agreement. As controlled group members, ERISA requires that NRG and GenOn are jointly and severally liable for the NRG Pension Plan for Bargained Employees and the NRG Pension Plan, including pension liabilities associated with GenOn employees. As described in Note 1, Nature of Business, and Note 3, Discontinued Operations, Acquisitions and Dispositions, NRG and GenOn entered into a Restructuring Support Agreement and various support agreements, including a transition services agreement, that provides for a restructuring and recapitalization of the GenOn Entities through a prearranged plan of reorganization and was approved by the Bankruptcy Court pursuant to an order of confirmation on December 12, 2017. In accordance with the agreements, NRG will retain GenOn's pension liability for service provided by GenOn employees prior to the completion of the reorganization. NRG determined that the retention of this liability is probable and has recorded the estimated accumulated pension benefit obligation as of December 31, 2017 of $92 million in other non-current liabilities with a corresponding loss from discontinued operations. The balance reflects a contribution of $13 million to the plans with respect to GenOn's employees paid in September 2017. NRG will also retain the liability for GenOn's post-employment and retiree health and welfare benefits, in an amount up to $25 million. Retention of this liability is probable and accordingly, NRG has recorded the $25 million in other non-current liabilities with a corresponding loss from discontinued operations as of December 31, 2017. NRG's obligation for both of these liabilities will be revalued through and at GenOn's emergence from bankruptcy, with NRG's obligation for the post-employment and retiree health and welfare plan capped at $25 million. NRG expects to contribute $31 million to the Company's pension plans in 2018. Of this amount, $13 million related to employees of GenOn. 178 179 NRG Defined Benefit Plans Amounts recognized in NRG's balance sheets were as follows: The annual net periodic benefit cost/(credit) related to NRG's pension and other postretirement benefit plans include the following components: Service cost benefits earned Interest cost on benefit obligation Expected return on plan assets Amortization of unrecognized net loss Net periodic benefit cost Service cost benefits earned Interest cost on benefit obligation Amortization of unrecognized prior service credit Amortization of unrecognized net (gain)/loss Curtailment gain Net periodic benefit (credit)/cost 2017 Year Ended December 31, Pension Benefits 2016 (In millions) 2015 26 43 (58) 4 15 $ $ 30 43 (60) 2 15 $ $ Year Ended December 31, Other Postretirement Benefits 2017 2016 (In millions) 2015 $ 1 4 (9) (1) — (5) $ 2 6 (5) — — 3 $ $ 32 53 (62) 2 25 3 9 (5) 1 (14) (6) $ $ $ $ A comparison of the pension benefit obligation, other postretirement benefit obligations and related plan assets for NRG's plans on a combined basis is as follows: As of December 31, Pension Benefits 2017 2016 Other Postretirement Benefits 2017 2016 Benefit obligation at January 1 Service cost Interest cost Plan amendments Actuarial loss/(gain) Employee and retiree contributions Benefit payments Benefit obligation at December 31 Fair value of plan assets at January 1 Actual return on plan assets Employee and retiree contributions Employer contributions Benefit payments Fair value of plan assets at December 31 Funded status at December 31 — excess of obligation over assets Less: GenOn postretirement obligation(a) Add: Retained obligation in bankruptcy proceeding(a) Net obligation for NRG $ 1,241 26 43 — 77 — (58) 1,329 953 173 — 36 (58) 1,104 (In millions) $ 1,196 30 43 — 40 — (68) 1,241 916 72 — 33 (68) 953 $ 128 1 4 (1) 6 3 (13) 128 — — 3 10 (13) — (225) $ — — (225) $ (288) $ — — (288) $ (128) $ 38 (25) (115) $ $ $ $ 178 2 6 (42) (2) 3 (17) 128 — — 3 14 (17) — (128) 46 (25) (107) Current liabilities Less: GenOn other postretirement benefits(a) Total current liabilities Non-current liabilities Less: GenOn other postretirement benefits(a) Total non-current liabilities As of December 31, Pension Benefits Other Postretirement Benefits 2017 2016 2017 2016 $ $ $ $ — $ — — $ 225 — 225 $ $ (In millions) — $ — — $ 288 — 288 $ $ 7 (3) 4 121 (10) 111 $ $ $ $ 8 (5) 3 120 (16) 104 (a) The difference between GenOn's postretirement benefit obligation and NRG's retained obligation of $13 million and $21 million is presented in noncurrent liabilities for discontinued operations as of December 31, 2017 and 2016, respectively. Of the amounts recognized in NRG's balance sheet, $92 million and $120 million related to GenOn's pension benefits obligation as of December 31, 2017 and 2016, respectively, and $25 million related to GenOn's postretirement benefits obligation as of December 31, 2017 and 2016. Amounts recognized in NRG's accumulated OCI that have not yet been recognized as components of net periodic benefit cost were as follows: Net loss/(gain) Prior service cost/(credit) Total accumulated OCI Less: GenOn (deconsolidated June 14, 2017) Net accumulated OCI As of December 31, Pension Benefits Other Postretirement Benefits 2017 2016 2017 2016 $ $ $ 53 3 56 (22) 34 $ $ $ (In millions) 94 3 97 (37) 60 $ $ $ (4) $ (37) (41) $ 10 (31) $ Other changes in plan assets and benefit obligations recognized in OCI were as follows: Year Ended December 31, Pension Benefits Other Postretirement Benefits 2017 2016 2017 2016 Net actuarial (gain)/loss Amortization of net actuarial (gain)/loss Prior service credit Amortization of prior service cost Total recognized in OCI Less: GenOn (deconsolidated June 14, 2017) Net recognized in OCI Less: GenOn (deconsolidated June 14, 2017) Net recognized in net periodic pension (credit)/cost and OCI $ $ $ $ (37) $ (4) — — (41) $ $ 15 (26) $ 15 (11) $ (In millions) $ 28 (2) — — 26 $ (17) $ $ 9 (17) $ $ $ $ 6 1 (1) 9 15 2 17 3 24 $ 13 $ (11) (45) (56) 8 (48) (2) — (41) 5 (38) 3 (35) 3 39 (a) The difference between GenOn's postretirement benefit obligation and NRG's retained obligation of $13 million and $21 million is presented in noncurrent liabilities for discontinued operations as of December 31, 2017 and 2016, respectively. As a result of GenOn's deconsolidation during 2017, NRG reduced the loss recorded in other comprehensive income by $28 million related to GenOn's pension and other postretirement benefits. 180 181 The Company's estimated unrecognized loss and unrecognized prior service cost for NRG's pension plan that will be amortized from accumulated OCI to net periodic cost over the next fiscal year is less than $1 million. The Company's estimated unrecognized gain and unrecognized prior service credit for NRG's postretirement plan that will be amortized from accumulated OCI to net periodic cost over the next fiscal year is less than $1 million and $7 million, respectively. The following table presents the balances of significant components of NRG's pension plan: Projected benefit obligation Accumulated benefit obligation Fair value of plan assets As of December 31, Pension Benefits 2017 2016 $ (In millions) $ 1,329 1,255 1,104 1,241 1,174 953 NRG's market-related value of its plan assets is the fair value of the assets. The fair values of the Company's pension plan assets by asset category and their level within the fair value hierarchy are as follows: Common/collective trust investment — U.S. equity Common/collective trust investment — non-U.S. equity Common/collective trust investment — non-core assets Common/collective trust investment — fixed income Short-term investment fund Subtotal fair value Measured at net asset value practical expedient Common/collective trust investment — non-U.S. equity Common/collective trust investment — fixed income Partnerships/joint ventures Total fair value Common/collective trust investment — U.S. equity Common/collective trust investment — non-U.S. equity Common/collective trust investment — global equity Common/collective trust investment — fixed income Short-term investment fund Subtotal fair value Measured at net asset value practical expedient Common/collective trust investment — non-U.S. equity Common/collective trust investment — fixed income Partnerships/joint ventures Total fair value Fair Value Measurements as of December 31, 2017 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) (In millions) Total $ $ — $ — — — 5 5 $ 256 66 178 230 — 730 $ $ $ 256 66 178 230 5 735 94 233 42 1,104 Fair Value Measurements as of December 31, 2016 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) (In millions) Total $ $ — $ — — — 3 3 $ 283 71 104 190 — 648 $ $ $ 283 71 104 190 3 651 78 193 31 953 In accordance with ASC 820, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety. The fair value of the common/collective trust investments is valued at fair value which is equal to the sum of the market value of all of the fund's underlying investments. Certain common/collective trust investments have readily determinable fair value as they publish daily net asset value, or NAV, per share and are categorized as Level 2. Certain other common/collective trust investments and partnerships/joint ventures use NAV per share, or its equivalent, as a practical expedient for valuation, and thus have been removed from the fair value hierarchy table. The following table presents the significant assumptions used to calculate NRG's benefit obligations: Weighted-Average Assumptions Discount rate Rate of compensation increase Health care trend rate As of December 31, Pension Benefits Other Postretirement Benefits 2017 2016 2017 2016 3.71% 3.00% — 4.26% 3.00% — 3.71% N/A 8.2% grading to 4.5% in 2025 4.29% N/A 7.0% grading to 5.0% in 2025 The following table presents the significant assumptions used to calculate NRG's benefit expense: Pension Benefits Other Postretirement Benefits As of December 31, Weighted-Average Assumptions Discount rate Expected return on plan assets Rate of compensation increase 2017 2016 2015 2017 2016 2015 4.26% 4.52% 4.16% 4.29% 4.55% 4.20% 6.85% 6.65% 6.36% 3.00% 3.00% 3.45% — — — — — — Health care trend rate — — 7.0% grading to 5.0% in 2025 7.25% grading to 5.0% in 2025 8.6% grading to 5.0% in 2023 — NRG uses December 31 of each respective year as the measurement date for the Company's pension and other postretirement benefit plans. The Company sets the discount rate assumptions on an annual basis for each of NRG's defined benefit retirement plans as of December 31. The discount rate assumptions represent the current rate at which the associated liabilities could be effectively settled at December 31. The Company utilizes the Aon Hewitt AA Above Median, or AA-AM, yield curve to select the appropriate discount rate assumption for each retirement plan. The AA-AM yield curve is a hypothetical AA yield curve represented by a series of annualized individual spot discount rates from 6 months to 99 years. Each bond issue used to build this yield curve must be non-callable, and have an average rating of AA when averaging available Moody's Investor Services, Standard & Poor's and Fitch ratings. NRG employs a total return investment approach, whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The Investment Committee reviews the asset mix periodically and as the plan assets increase in future years, the Investment Committee may examine other asset classes such as real estate or private equity. NRG employs a building block approach to determining the long-term rate of return assumption for plan assets, with proper consideration given to diversification and rebalancing. Historical markets are studied and long-term historical relationships between equities and fixed income are preserved, consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonableness and appropriateness. In 2016, NRG changed the approach utilized to estimate the service cost and interest cost components of net periodic benefit cost for pension and postretirement benefit plans. Historically, the Company estimated these components by using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation. The Company has elected to use a spot rate approach in the estimation of the components of benefit cost by applying specific spot rates along the yield curve to the relevant projected cash flows, as this provides a better estimate of service and interest costs. This election is considered a change in estimate and, accordingly, has been accounted for starting in 2016. This change does not affect the measurement of NRG's total benefit obligation. 182 183 The target allocations of NRG's pension plan assets were as follows for the year ended December 31, 2017: OCI related to its 44% interest in STP: The Company has recognized the following in its statement of financial position, statement of operations and accumulated U.S. equity Non-U.S. equity Non-core assets U.S. fixed income 22% 14% 19% 45% Plan assets are currently invested in a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S., non-U.S., global, and emerging market equities, as well as among growth, value, small and large capitalization stocks. Investment risk and performance are monitored on an ongoing basis through quarterly portfolio reviews of each asset fund class to a related performance benchmark, if applicable, and annual pension liability measurements. Performance benchmarks are composed of the following indices: As of December 31, Pension Benefits Other Postretirement Benefits 2017 2016 2017 2016 Funded status — STPNOC benefit plans Net periodic benefit cost/(credit) Other changes in plan assets and benefit obligations recognized in other comprehensive (loss)/income $ (76) $ 8 (6) Defined Contribution Plans (In millions) (74) $ 7 11 (24) $ (3) 5 (23) (2) (1) NRG's employees are also eligible to participate in defined contribution 401(k) plans. Asset Class Index The Company's contributions to these plans were as follows: U.S. equities Non-U.S. equities Non-core assets(a) Fixed income securities Dow Jones U.S. Total Stock Market Index MSCI All Country World Ex-U.S. IMI Index Various (per underlying asset class) Barclays Capital Long Term Government/Credit Index & Barclays Strips 20+ Index Company contributions to defined contribution plans $ 56 $ 55 $ 53 Year Ended December 31, 2017 2016 (In millions) 2015 (a) Non-Core Assets are defined as diversifying asset classes approved by the Investment Committee that are intended to enhance returns and/or reduce volatility of the U.S. and non-U.S. equities. Asset classes considered Non-Core include, but may not be limited to: Emerging Market Equity, Emerging Market Debt, Non-US Developed Market Small Cap, High Yield Fixed Income, Real Estate, Bank Loans, Global Infrastructure and other Alternatives. NRG's expected future benefit payments for each of the next five years, and in the aggregate for the five years thereafter, Note 15 — Capital Structure For the period from December 31, 2014 to December 31, 2017, the Company had 10,000,000 shares of preferred stock authorized, and 500,000,000 shares of common stock authorized. The following table reflects the changes in NRG's common shares issued and outstanding for each period presented: are as follows: 2018 2019 2020 2021 2022 2023-2027 Other Postretirement Benefit Pension Benefit Payments Benefit Payments (In millions) Medicare Prescription Drug Reimbursements $ $ 68 71 75 79 82 421 $ 7 8 8 8 8 33 — — — — — 1 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one- percentage-point change in assumed health care cost trend rates would have the following effect: Effect on total service and interest cost components Effect on postretirement benefit obligation STP Defined Benefit Plans 1-Percentage- Point Increase 1-Percentage- Point Decrease $ (In millions) $ 1 9 — (8) NRG has a 44% undivided ownership interest in STP, as discussed further in Note 27, Jointly Owned Plants. STPNOC, which operates and maintains STP, provides its employees a defined benefit pension plan as well as postretirement health and welfare benefits. Although NRG does not sponsor the STP plan, it reimburses STPNOC for 44% of the contributions made towards its retirement plan obligations. For the year ended December 31, 2017, NRG reimbursed STPNOC $8 million towards its defined benefit plans. For the year ended December 31, 2016, NRG reimbursed STPNOC $7 million towards its defined benefit plans. In 2018, NRG expects to reimburse STPNOC $6 million for its contribution towards the plans. Balance as of December 31, 2014 Shares issued under ESPP Shares issued under LTIPs Share repurchases Balance as of December 31, 2015 Shares issued under ESPP Shares issued under LTIPs Balance as of December 31, 2016 Shares issued under ESPP Shares issued under LTIPs Balance as of December 31, 2017 Common Stock Issued 415,506,176 — 1,433,774 — 416,939,950 — 643,875 417,583,825 — 739,309 418,323,134 Common Treasury (78,843,552) 283,139 — (24,189,495) (102,749,908) 609,094 — (102,140,814) 560,769 — (101,580,045) Outstanding 336,662,624 283,139 1,433,774 (24,189,495) 314,190,042 609,094 643,875 315,443,011 560,769 739,309 316,743,089 The following table summarizes NRG's common stock reserved for the maximum number of shares potentially issuable based on the conversion and redemption features of the long-term incentive plans as of December 31, 2017: Equity Instrument Long-term incentive plans Common Stock Reserve Balance 19,597,433 Common stock dividends — In 2015, NRG paid quarterly dividends on the Company's common stock of $0.145 per share, or $0.58 per share on an annualized basis. In 2016, as part of the 2016 Capital Allocation Program, the Company decreased its annual common stock dividend by 79% to $0.12 per share for 2016 and 2017. The following table lists the dividends paid per common share during 2017, 2016 and 2015: 184 185 2017 2016 2015 Fourth Quarter Third Quarter Second Quarter First Quarter $ $ $ 0.030 0.030 0.145 $ $ $ 0.030 0.030 0.145 $ $ $ 0.030 0.030 0.145 $ $ $ 0.030 0.145 0.145 On January 19, 2018, NRG declared a quarterly dividend on the Company's common stock of $0.03 per share, or $0.12 per share on an annualized basis, payable on February 15, 2018, to stockholders of record as of February 1, 2018. Employee Stock Purchase Plan — Under the ESPP, eligible employees may elect to withhold up to 10% of their eligible compensation to purchase shares of NRG common stock at the lesser of 85% of its fair market value on the offering date or 85% of the fair market value on the exercise date. An offering date occurs each January 1 and July 1. An exercise date occurs each June 30 and December 31. As of December 31, 2017, there remained 3,107,050 shares of treasury stock reserved for issuance under the ESPP, and in January of 2018, 175,862 shares of common stock were issued to employee accounts from treasury stock for the offering period of July 1, 2017 to December 31, 2017. Beginning January 2018, NRG suspended the ESPP. Share Repurchases — During 2015 and 2014, the Company's board of directors authorized share repurchases of $481 million of its common stock, which were made as follows: Board Authorized Share Repurchases Fourth Quarter 2014 First Quarter 2015 Second Quarter 2015 Third Quarter 2015 Fourth Quarter 2015 Total Board Authorized Share Repurchases Total number of shares purchased Average price paid per share (a) Amounts paid for shares purchased (in millions) (a) 1,624,360 $ 26.95 $ 3,146,484 4,379,907 11,104,184 5,558,920 25,813,855 25.15 24.53 15.06 15.03 $ 44 79 107 167 84 481 (a) The average price paid per share and amounts paid for shares purchased exclude the commissions of $0.015 per share paid in connection with the share repurchase. Preferred Stock 2.822% Redeemable Preferred Stock Preferred Stock On May 24, 2016, NRG entered an agreement with Credit Suisse Group to repurchase 100% of the outstanding shares of its $344.5 million 2.822% preferred stock. On June 13, 2016, the Company completed the repurchase from Credit Suisse of 100% of the outstanding shares at a price of $226 million. The transaction resulted in a gain on redemption of $78 million, measured as the difference between the fair value of the cash consideration paid upon redemption of $226 million and the carrying value of the preferred stock at the time of the redemption of $304 million. This amount is reflected in net income/(loss) available to NRG common stockholders in the calculation of earnings per share. The following table reflects the changes in the Company's redeemable preferred stock balance for the years ended December 31, 2017, 2016, and 2015: Balance as of December 31, 2014 Accretion to redemption value Balance as of December 31, 2015 Accretion to redemption value Repurchase of 2.822% redeemable preferred stock Gain on redemption of 2.822% redeemable preferred stock Balance as of December 31, 2016 Balance as of December 31, 2017 (In millions) $ $ 291 11 302 2 (226) (78) — — Note 16 — Investments Accounted for by the Equity Method and Variable Interest Entities Entities that are not Consolidated NRG accounts for the Company's significant investments using the equity method of accounting. NRG's carrying value of equity investments can be impacted by impairments, unrealized gains and losses on derivatives and movements in foreign currency exchange rates, as well as other adjustments. The following table summarizes NRG's equity method investments as of December 31, 2017: Name Avenal Solar Holdings LLC (a) Desert Sunlight Investment Holdings, LLC (a) Elkhorn Ridge Wind, LLC (a) GenConn Energy LLC (a) Four Brothers Solar, LLC (a)(c) Granite Mountain Holdings, LLC (a)(c) Iron Springs Holdings, LLC (a)(c) Midway-Sunset Cogeneration Company San Juan Mesa Wind Project, LLC (a) Watson Cogeneration Company Gladstone Power Station (b) Other(d) Total equity investments in affiliates (a) Equity method investments owned by NRG Yield (b) Gladstone Power Station is located in Australia (c) Economic interest based on cash to be distributed (d) Refer to Note 10 - Asset Impairments for discussion of NRG's investment in Petra Nova Parish Holdings, LLC. Undistributed earnings from equity investments Variable Interest Entities Economic Interest Investment Balance (In millions) 50.0% $ 25.0% 47.0% 50.0% 50.0% 50.0% 50.0% 50.0% 75.0% 49.0% 37.5% Various $ (6) 272 73 102 213 78 54 16 66 21 139 10 1,038 As of December 31, 2017 2016 $ (In millions) 120 $ 101 NRG accounts for its interests in certain entities that are considered VIEs under ASC 810, for which NRG is not the primary beneficiary, under the equity method. Utility-Scale Solar Portfolio — As described in Note 3, Discontinued Operations, Acquisitions and Dispositions, on November 2, 2016, the Company acquired equity interests in a tax equity financed portfolio comprised of 530 MW of mechanically-complete solar assets located in Utah, and subsequently sold these interests to NRG Yield, Inc. on March 27, 2017. These equity interests in Four Brothers Solar, LLC, Granite Mountain Holdings, LLC, and Iron Springs Holdings, LLC are accounted for as equity method investments as the Company does not have a controlling financial interest. The assets reached commercial operations during the fourth quarter of 2016 and have 20-year PPAs with PacifiCorp. NRG's maximum exposure to loss is limited to its equity investment, which was $345 million as of December 31, 2017. GenConn — NRG owns a 50% interest in GenConn, a limited liability company formed to construct, own and operate two 190-MW peaking generation facilities in Connecticut at NRG's Devon and Middletown sites. GenConn has a $237 million note with an interest rate of 4.73% and a maturity date of July 2041 and a 5-year, $35 million working capital facility which can be used to issue letters of credit at an interest rate of 1.875%. As of December 31, 2017, $204 million was outstanding under the note and $14 million of letters of credit issued under the working capital facility. The note is secured by all of the GenConn assets. NRG's maximum exposure to loss is limited to its equity investment, which was $102 million as of December 31, 2017. 186 187 Other Equity Investments Note 17 — Earnings/(Loss) Per Share Gladstone — Through a joint venture, NRG owns a 37.5% interest in Gladstone, a 1,613 MW coal-fueled power generation facility in Queensland, Australia. The power generation facility is managed by the joint venture participants and the facility is operated by NRG. Operating expenses incurred in connection with the operation of the facility are funded by each of the participants in proportion to their ownership interests. Coal is sourced from local mines in Queensland. NRG and the joint venture participants receive their respective share of revenues directly from the off takers in proportion to the ownership interests in the joint venture. Power generated by the facility is primarily sold to an adjacent aluminum smelter, with excess power sold to the Queensland Government owned utility under long term supply contracts. NRG's investment in Gladstone was $139 million as of December 31, 2017. Entities that are Consolidated The Company has a controlling financial interest in certain entities which have been identified as VIEs under ASC 810. These arrangements are primarily related to tax equity arrangements entered into with third-parties in order to finance the cost of solar energy systems under operating leases and wind facilities eligible for certain tax credits as further described in Note 2, Summary of Significant Accounting Policies. For one of the tax equity arrangements, the Company has a deficit restoration obligation equal to $110 million as of December 31, 2017, which would be required to be funded if the arrangement were to be dissolved. The summarized financial information for the Company's consolidated VIEs consisted of the following: (In millions) Current assets Net property, plant and equipment Other long-term assets Total assets Current liabilities Long-term debt Other long-term liabilities Total liabilities Redeemable noncontrolling interests Noncontrolling interests Net assets less noncontrolling interests December 31, 2017 December 31, 2016 $ 118 $ 2,337 658 3,113 96 661 209 966 78 507 87 1,534 954 2,575 59 442 183 684 46 529 $ 1,562 $ 1,316 Basic earnings/(loss) per common share is computed by dividing net income/(loss) less accumulated preferred stock dividends by the weighted average number of common shares outstanding. Shares issued and treasury shares repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted earnings/(loss) per share is computed in a manner consistent with that of basic earnings/(loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period. Dilutive effect for equity compensation and other equity instruments — The outstanding non-qualified stock options, non- vested restricted stock units, and market stock units are not considered outstanding for purposes of computing basic earnings/ (loss) per share. However, these instruments are included in the denominator for purposes of computing diluted earnings/(loss) per share under the treasury stock method. The if-converted method was used to determine the dilutive effect of embedded derivatives in the Company's 2.822% Preferred Stock for the year ended December 31, 2015. During 2016, the Company repurchased 100% of the outstanding shares of its 2.822% preferred stock. The reconciliation of NRG's basic earnings/(loss) per share to diluted earnings/(loss) per share is shown in the following table: Basic and diluted loss per share attributable to NRG common stockholders Net loss attributable to NRG Energy, Inc. Dividends for preferred shares Gain on redemption of 2.822% redeemable perpetual preferred shares Loss Available to Common Stockholders Weighted average number of common shares outstanding Loss per weighted average common share — basic and diluted Year Ended December 31, 2017 2016 2015 (In millions, except per share amounts) $ $ $ (2,153) $ (774) $ (6,382) — — 5 (78) 20 — (2,153) $ (701) $ (6,402) 317 316 329 (6.79) $ (2.22) $ (19.46) The following table summarizes NRG's outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company's diluted loss per share: Equity compensation Embedded derivative of 2.822% redeemable perpetual preferred stock Total Year Ended December 31, 2017 2016 2015 (In millions of shares) 5 — 5 5 — 5 6 16 22 188 189  Note 18 — Segment Reporting For the Year Ended December 31, 2016 The Company's segment structure reflects how management currently makes financial decisions and allocates resources. The Company's businesses are segregated as follows: Generation, which includes generation, international and BETM; Retail, which includes Mass customers and Business Solutions, which includes C&I customers and other distributed and reliability products; Renewables, which includes solar and wind assets, excluding those in NRG Yield; NRG Yield; and corporate activities. Intersegment sales are accounted for at market. NRG Yield includes certain of the Company's contracted generation assets. During 2017, NRG Yield acquired several projects totaling 555 MW for cash consideration of approximately $245 million from NRG. These acquisitions were treated as a transfer of entities under common control and accordingly, the financial information for years ended December 31, 2017, 2016, and 2015 have been recast to reflect these changes. On June 14, 2017, as described in Note 3, Discontinued Operations, Acquisitions and Dispositions, NRG deconsolidated GenOn for financial reporting purposes. The financial information for years ended December 31, 2017, 2016, and 2015 have been recast to present GenOn as discontinued operations within the corporate segment. NRG’s chief operating decision maker, its chief executive officer, evaluates the performance of its segments based on operational measures including adjusted earnings before interest, taxes, depreciation and amortization, or Adjusted EBITDA, free cash flow and capital for allocation, as well as net income/(loss) and net income/(loss) attributable to NRG Energy, Inc. During the years ended December 31, 2017, 2016 and 2015, the Company had no customer which comprised more than 10% of the Company's consolidated revenues. For the Year Ended December 31, 2017 Generation(a) Retail (a) Renewables(a) NRG Yield(a) Corporate(a) Eliminations Total Generation(a) Retail (a) Renewables(a) Operating revenues(a) Operating expenses Depreciation and amortization Impairment losses Development costs $ 3,833 $ 6,335 $ 3,545 516 430 15 5,164 111 1 4 Total operating cost and expenses 4,506 5,280 Other income - affiliate Loss on sale of assets Operating (loss)/income Equity in (losses)/earnings of unconsolidated affiliates Impairment losses on investments Other income, net Loss on debt extinguishment Interest expense (Loss)/income from continuing operations before income taxes Income tax (benefit)/expense Net (loss)/income from continuing operations Income from discontinued operations, net of income tax — — — (1) (673) 1,054 (5) (142) 21 — (26) (825) (1) (824) — (824) — — (6) — 6 1,054 1 1,053 — 1,053 NRG Yield(a) (In millions) 1,035 $ $ Corporate(a) Eliminations Total 77 $ (1,174) $ 10,512 325 303 185 — 813 — — 222 60 — 3 — (284) 1 (1) 2 — 2 323 57 32 30 442 193 (79) (251) 13 (21) 19 (142) (495) (877) 26 (903) 92 (811) (1,178) — — — 8,396 1,172 702 89 (1,178) 10,359 — 4 17 — (4) — 2 19 — 19 19 193 (80) 266 27 (268) 34 (142) (895) (978) 5 (983) 92 (891) 406 217 185 54 40 496 — — (90) (58) (105) 1 — (98) (350) (20) (330) — (330) $ (In millions) $ 1,009 424 $ 14 $ (971) $ 10,629 Net (Loss)/Income $ $ 3,773 3,300 377 1,504 13 5,194 — 20 (1,401) (14) (74) 22 — (29) (1,496) 2 6,380 5,372 117 7 2 5,498 — — 882 — — 1 — (6) 877 (9) 211 196 154 45 606 — (5) (187) — — — (1) (98) (286) (20) 348 334 44 — 726 — — 283 71 — 4 (3) (306) 49 72 220 32 — 7 259 87 1 (157) 6 (5) 11 (49) (451) (645) (37) (964) — — — 8,487 1,056 1,709 67 (964) 11,319 — — (7) (32) — — — — (39) — 87 16 (587) 31 (79) 38 (53) (890) (1,540) 8 Less: Net (loss)/income attributable to noncontrolling interests and redeemable noncontrolling interests Net (loss)/income attributable to NRG Energy, Inc. Balance sheet Equity investments in affiliates Capital expenditures(b) Goodwill Total assets (a) Inter-segment sales and net derivative gains and losses included in operating revenues (b) Includes accruals. — (2) (13) (54) 18 (66) (117) $ $ $ (824) $ 1,055 $ (317) $ 56 204 522 276 $ — $ 26 $ 886 12 374 330 12 23 — $ $ (829) $ 85 $ (774) 4 $ — $ 1,120 110 — — — 997 662 13,514 $ 2,332 $ 4,921 $ 8,962 $ 11,891 $ (10,938) $ 30,682 $ 1,033 $ 4 $ 24 $ 8 $ 105 $ — $ 1,174 $ (1,498) $ 886 $ (266) $ (23) $ (608) $ (39) $ (1,548) — (1,498) — — 886 2 — (266) — (23) (789) (1,397) — $ (789) (39) (2,337) (103) (87) (4) 8 (184) (1,498) $ 884 $ (163) $ 64 $ (1,393) $ (47) $ (2,153) 179 481 165 $ — $ 4 $ 852 $ 82 374 521 — 31 — 3 12 — $ — $ — — 1,038 1,127 539 7,209 $ 2,630 $ 5,129 $ 8,283 $ 8,919 $ (8,852) $ 23,318 $ $ $ $ 910 $ 5 $ 31 $ — $ 25 $ — $ 971 190 191 Operating revenues(a) Operating expenses Depreciation and amortization Impairment losses Development costs Total operating cost and expenses Other income - affiliate Gain/(loss) on sale of assets Operating (loss)/income Equity in (losses)/earnings of unconsolidated affiliates Impairment losses on investments Other income, net Loss on debt extinguishment Interest expense (Loss)/income from continuing operations before income taxes Income tax expense/(benefit) Net (loss)/income from continuing operations Loss from discontinued operations, net of income tax Net (Loss)/Income Less: Net income/(loss) attributable to noncontrolling interests and redeemable noncontrolling interests Net (loss)/income attributable to NRG Energy, Inc. Balance sheet Equity investments in affiliates Capital expenditures (b) Goodwill Total assets (a) Inter-segment sales and net derivative gains and losses included in operating revenues (b) Includes accruals. For the Year Ended December 31, 2015 Note 19 — Income Taxes Renewables(a) NRG Yield(a) Corporate(a) (In millions) $ 968 383 38 $ $ Generation(a) Retail(a) $ 5,179 $ 6,913 4,198 693 4,655 26 9,572 — 21 (4,372) 10 (14) 18 — — (25) (4,383) — $ (4,383) — (4,383) 6,138 132 36 4 6,310 — — 603 — — (4) — — 2 601 1 600 — 600 Operating revenues(a) Operating expenses Depreciation and amortization Impairment losses Development costs Total operating costs and expenses Other income - affiliate Gain on postretirement benefits curtailment Operating (loss)/income Equity in earnings/(losses)of unconsolidated affiliates Impairment losses on investments Other income, net Loss on sale of equity method investment Loss on debt extinguishment Interest expense (Loss)/income from continuing operations before income taxes Income tax expense/(benefit) Net (loss)/income from continuing operations Loss from discontinued operations, net of income tax Net (Loss)/Income Less: Net income/(loss) attributable to noncontrolling interests and redeemable noncontrolling interests Net (loss)/income attributable to NRG Energy, Inc. (a) Inter-segment sales and net derivative gains and losses included in operating revenues Eliminations Total $ (1,153) $ 12,328 (1,135) 10,228 — 22 — 1,351 4,860 154 (1,113) 16,593 — — 193 21 502 47 133 63 745 193 — (514) (40) (4,051) — (42) 13 (14) 19 (574) (1,112) 1,350 (2,462) (105) (2,567) 2 — (7) — — 6 (39) — 36 (56) 26 (14) 10 (937) (4,986) 1,345 (39) (6,331) — (39) (105) (6,436) 187 176 13 61 437 — — (54) (7) — 3 — — (79) (137) (18) (119) — (119) 338 303 1 — 642 — — 326 31 — 3 — (9) (267) 84 12 72 — 72 19 The income tax provision from continuing operations consisted of the following amounts: Current State Total — current Deferred U.S. Federal State Foreign Total — deferred Total income tax expense Effective tax rate Year Ended December 31, 2017 2016 2015 (In millions, except percentages) $ $ $ $ 19 19 (6) (7) 2 (11) 8 (0.5)% $ $ 6 6 3 (6) 2 (1) 5 (0.5)% 9 9 1,020 315 1 1,336 1,345 (27.0)% The following represents the domestic and foreign components of loss before income tax expense: U.S. Foreign Total Year Ended December 31, 2017 2016 (In millions) 2015 $ $ (1,557) $ 17 (1,540) $ (989) $ 11 (978) $ (4,997) 11 (4,986) — — 6 (37) (42) (54) A reconciliation of the U.S. federal statutory rate of 35% to NRG's effective rate is as follows: $ $ (4,383) $ 600 $ (125) $ 53 $ (2,530) $ 3 $ (6,382) 896 $ 6 $ 31 $ 29 $ 191 $ — $ 1,153 Loss before income taxes Tax at 35% State taxes Foreign operations Federal and state tax credits, excluding PTCs Tax Act - corporate income tax rate change Valuation allowance due to corporate income tax rate change Valuation allowance - current period activities Impact of non-taxable equity earnings Book goodwill impairment Net interest accrued on uncertain tax positions Production tax credits Recognition of uncertain tax benefits Tax expense attributable to consolidated partnerships State rate change including true-up to current period activity AMT refundable credit Other Income tax expense Effective income tax rate Year Ended December 31, 2017 2016 2015 (In millions, except percentages) $ $ (1,540) (539) 19 2 — 733 (660) 482 (5) 30 — (20) (5) 4 18 (64) 13 8 (0.5)% $ $ $ $ (978) (342) — 10 — — — 398 22 — 1 (26) 2 (1) (59) — — 5 (0.5)% (4,986) (1,745) (215) 1 (5) — — 3,023 (10) 340 (3) (33) (15) 12 (7) — 2 1,345 (27.0)% 192 193 For the year ended December 31, 2017, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to tax expense recorded from the revaluation of the existing net deferred tax asset and state taxes, partially offset by the change in valuation allowance, establishing the AMT credit receivable and the generation of PTC’s from various wind facilities. The tax expense recorded for revaluation of the net deferred tax asset is required to reflect the reduction in the corporate income tax rate from 35% to 21% in accordance with the Tax Cuts and Jobs Act of 2017, or the Tax Act. For the year ended December 31, 2016, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the change in valuation allowance, the impact of non-taxable equity earnings and current state tax expense, partially offset by the generation of PTCs from various wind facilities. For the year ended December 31, 2015, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to recording of a valuation allowance on the federal and certain state net deferred tax assets that may not be realizable under a “more likely than not” measurement. In addition, a portion of the book goodwill impairment is classified as a permanent reversal impacting the effective tax rate. The temporary differences, which gave rise to the Company's deferred tax assets and liabilities consisted of the following: Deferred tax liabilities: Emissions allowances Derivatives, net Cumulative translation adjustments Investment in projects Discount/premium on notes Deferred financing costs Discontinued operations Total deferred tax liabilities Deferred tax assets: Deferred compensation, accrued vacation and other reserves Difference between book and tax basis of property Goodwill Differences between book and tax basis of contracts Pension and other postretirement benefits Equity compensation Bad debt reserve U.S. capital loss carryforwards U.S. Federal net operating loss carryforwards Foreign net operating loss carryforwards State net operating loss carryforwards Foreign capital loss carryforwards Federal and state tax credit carryforwards Federal benefit on state uncertain tax positions Intangibles amortization (excluding goodwill) Derivatives, net Inventory obsolescence Other Discontinued operations Total deferred tax assets Valuation allowance Discontinued operations Total deferred tax assets, net of valuation allowance Net deferred tax asset As of December 31, 2017 2016 (In millions) $ 15 15 — 231 2 2 — 265 141 596 38 68 74 10 14 1 596 66 140 1 376 7 101 — 12 — — 2,241 (1,863) — 378 113 $ 31 — 11 378 5 2 6 433 256 530 83 60 122 11 12 1 728 63 106 1 446 12 115 106 5 7 2,093 4,757 (2,032) (2,087) 638 205 $ $ The following table summarizes NRG's net deferred tax position: As of December 31, 2017 2016 Net deferred tax asset — noncurrent Net deferred tax liability — noncurrent Net deferred tax asset $ $ $ (In millions) 134 (21) 113 $ 225 (20) 205 The primary driver for the decrease in the net deferred tax asset from $205 million to $113 million is the revaluation of the ending balance utilizing a 21% corporate income tax rate instead of a 35% corporate income tax rate pursuant to the Tax Act as of December 22, 2017. NRG Energy, Inc.’s revaluation is completely offset by its valuation allowance. Since NRG Yield, Inc. does not have a valuation allowance against its net deferred tax asset, its ending balance remains at December 31, 2017. Additionally, due to GenOn's petition for bankruptcy on June 14, 2017, its inventory of deferreds is reclassed to discontinued operations for the year ended December 31, 2016 and is completely deconsolidated for the year ended December 31, 2017. Deferred tax assets and valuation allowance Net deferred tax balance — As of December 31, 2017 and 2016, NRG recorded a net deferred tax asset of $1.9 billion and $2.2 billion, respectively. The Company believes the federal and certain state net deferred tax assets may not be realizable under a “more likely than not” measurement and as such, a valuation allowance has been recorded to reduce the asset accordingly. The Company assesses cumulative and forecasted pretax book earnings and the future reversal of existing taxable temporary differences, including the potential impacts of the recently enacted Tax Act. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company may recognize provisional amounts for the effect of the changes related to the Tax Act. Consistent with that guidance, the Company recognized provisional amounts based upon our interpretation of the tax laws and estimates which require significant judgments. Based on the Company's assessment of positive and negative evidence, including available tax planning strategies, NRG believes that it is more likely than not that a benefit will not be realized on $1.8 billion and $2.0 billion of tax assets as of December 31, 2017, and 2016, respectively, thus a valuation allowance has been recorded. The net deferred tax asset of $113 million is predominantly due to the inclusion of NRG Yield Inc.'s net deferred tax asset consisting primarily of net operating losses. NOL carryforwards — At December 31, 2017, the Company had tax effected cumulative domestic NOLs consisting of carryforwards for federal income tax purposes of $596 million and state of $140 million. The Company estimates it will need to generate future taxable income to fully realize the net federal deferred tax asset before expiration commencing in 2026. In addition, NRG has cumulative foreign NOL carryforwards of $66 million with no expiration date. Valuation allowance — As of December 31, 2017, the Company's tax effected valuation allowance was $1.8 billion, consisting of domestic federal net deferred tax assets of approximately $1.5 billion, domestic state net deferred tax assets of $267 million, foreign net operating loss carryforwards of $66 million and foreign capital loss carryforwards of approximately $1 million. Based upon the assessment of cumulative and forecasted pretax book earnings, and the future reversal of existing taxable temporary differences, it was determined that a valuation allowance was required to be recorded during the year. Taxes Receivable and Payable As of December 31, 2017, NRG recorded a current tax payable of $7 million that represents a tax liability due for state income taxes. NRG has a tax receivable of $1 million, comprised of refunds due from state income tax estimated payments and return filings for 2017 and 2016, respectively. Uncertain tax benefits NRG has identified uncertain tax benefits whose after-tax value is $30 million for which, as of December 31, 2017 and 2016, NRG has recorded a non-current tax liability of $33 million and $37 million, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. During the year ended December 31, 2017, the Company recognized an expense of $1 million in interest. As of December 31, 2017 and 2016, NRG had cumulative interest and penalties related to these uncertain tax benefits of $3 million and $4 million, respectively. Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia. 194 195 The Company is no longer subject to U.S. federal income tax examinations for years prior to 2015. With few exceptions, Restricted Stock Units state and local income tax examinations are no longer open for years before 2010. The following table reconciles the total amounts of uncertain tax benefits: Balance as of January 1 Increase due to current year positions Decrease due to prior year positions Decrease due to settlements and payments Uncertain tax benefits as of December 31 Note 20 — Stock-Based Compensation NRG Energy, Inc. Long-Term Incentive Plan As of December 31, 2017 2016 (In millions) $ $ 34 4 (8) — 30 $ $ 32 8 — (6) 34 On April 27, 2017, the NRG LTIP was amended to increase the number of shares available for issuance by 3,000,000. As of December 31, 2017 and 2016, a total of 25,000,000 and 22,000,000 shares of NRG common stock were authorized for issuance under the NRG LTIP, respectively. There were 8,724,595 and 7,487,058 shares of common stock remaining available for grants under the NRG LTIP as of December 31, 2017 and 2016, respectively. The NRG LTIP is subject to adjustments in the event of reorganization, recapitalization, stock split, reverse stock split, stock dividend, and a combination of shares, merger or similar change in NRG's structure or outstanding shares of common stock. Upon adoption of the amended NRG LTIP effective April 27, 2017, no shares of NRG common stock remain available for future issuance under the NRG GenOn LTIP as of December 31, 2017. There were 5,558,390 shares of NRG common stock authorized for issuance under the NRG GenOn LTIP as of December 31, 2016. As of December 31, 2017 and 2016, there were 1,369,880 and 960,904 shares of common stock remaining available for grants under the NRG GenOn LTIP, respectively. Non-Qualified Stock Options NQSOs granted under the NRG LTIP and the NRG GenOn LTIP typically have three-year graded vesting schedules beginning on the grant date and become exercisable at the end of the requisite service period. NRG recognizes compensation costs for NQSOs over the requisite service period for the entire award. The maximum contractual term is 10 years for NRG's outstanding NQSOs. No NQSOs were granted in 2017, 2016 or 2015. The following table summarizes the Company's NQSO activity and changes during the year: Outstanding at December 31, 2016 Forfeited Exercised Outstanding at December 31, 2017 Exercisable at December 31, 2017 Shares(a) Weighted Average Exercise Price $ 1,522,919 (50,001) (187,060) 1,285,858 1,285,858 25.03 29.35 20.71 25.49 25.49 Weighted Average Remaining Contractual Term (In years) Aggregate Intrinsic Value (In millions) 3 $ 3 3 — 6 6 (a) As of December 31, 2017, 51,207 NQSOs granted to employees of GenOn remain outstanding and exercisable. The following table summarizes the total intrinsic value of options exercised and the cash received from the exercises of options: Total intrinsic value of options exercised Cash received from options exercised 2017 Year Ended December 31, 2016 (In millions) 2015 $ $ 1 4 — $ — 2 9 There were no options exercised during the year ended December 31, 2016. As of December 31, 2017, RSUs granted under the Company's LTIPs typically have three-year graded vesting schedules beginning on the grant date. Fair value of the RSUs is based on the closing price of NRG common stock on the date of grant. The following table summarizes the Company's non-vested RSU awards and changes during the year: Non-vested at December 31, 2016 Granted Forfeited Vested Non-vested at December 31, 2017 (a) As of December 31, 2017, 20,822 RSUs granted to GenOn employees remain outstanding. Units(a) 1,980,141 1,247,075 (176,132) (673,271) 2,377,813 Weighted Average Grant- Date Fair Value per Unit 19.29 $ 12.44 14.98 23.65 14.63 The total fair value of RSUs vested during the years ended December 31, 2017, 2016, and 2015, was $19 million, $11 million and $10 million, respectively. The weighted average grant date fair value of RSUs granted during the years ended December 31, 2017, 2016, and 2015 was $12.44, $11.54, and $27.31, respectively. Deferred Stock Units DSUs represent the right of a participant to be paid one share of NRG common stock at the end of a deferral period established under the terms of the award. DSUs granted under the Company's LTIPs are fully vested at the date of issuance. Fair value of the DSUs, which is based on the closing price of NRG common stock on the date of grant, is recorded as compensation expense in the period of grant. The following table summarizes the Company's outstanding DSU awards and changes during the year: Outstanding at December 31, 2016 Granted Converted to Common Stock Outstanding at December 31, 2017 (a) There were no DSUs granted to GenOn employees and outstanding as of December 31, 2017. Units(a) 453,674 120,251 (146,777) 427,148 Weighted Average Grant- Date Fair Value per Unit 21.54 $ 16.76 17.62 21.54 The aggregate intrinsic values for DSUs outstanding as of December 31, 2017, 2016, and 2015 were approximately $12 million, $6 million, and $5 million, respectively. The aggregate intrinsic values for DSUs converted to common stock for the years ended December 31, 2017, 2016, and 2015 were $4 million, $1 million, and less than a million, respectively. The weighted average grant date fair value of DSUs granted during the years ended December 31, 2017, 2016, and 2015 was $16.76, $16.85 and $25.14, respectively. Performance Stock Units PSUs entitle the recipient to stock upon vesting. The amount of the award is subject to the Company's achievement of certain performance measures over the vesting period. As of December 31, 2017, non-vested PSUs consist of Market Stock Units, or MSUs, and Relative Performance Stock Units, or RPSUs. Relative Performance Stock Units — RPSUs are restricted grants where the quantity of shares increases and decreases alongside the Company's Total Shareholder Return, or TSR, relative to the TSR of the Company’s current proxy peer group and the total returns of select indexes, or Peer Group. Each RPSU represents the potential to receive NRG common stock after the completion of the performance period, typically three years of service from the date of grant. The number of shares of NRG common stock to be paid (if any) as of the vesting date for each RPSU will depend on the Company’s percentile rank within the Peer Group. The number of shares of common stock to be paid as of the vesting date for each RPSU is linearly interpolated for TSR performance between the following points: (i) 0% if ranked below the 25th percentile; (ii) 25% if ranked at the 25th percentile; (iii) 100% if ranked at the 55th percentile (or the 65th percentile if the Company’s absolute TSR is less than negative 15%); and (iv) 200% if ranked at the 75th percentile or above. The value of the common stock on the date of grant is based on the closing price of NRG common stock on the date of grant. 196 197 Market Stock Units — MSUs are restricted grants where the quantity of shares increases and decreases alongside the Company's TSR. Each MSU represents the potential to receive NRG common stock after the completion of the performance period, typically three years of service from the date of grant. The number of shares of common stock to be paid as of the vesting date for each MSU is : (i) zero shares, if the TSR has decreased by more than 25% over the performance period, (ii) three-quarters of one share, if the TSR has decreased by 25% over the performance period; (iii) interpolated between three- quarters of one share and one share, if the TSR has decreased less than 25% over the performance period; (iv) one share, if there is no change in TSR over the performance period; (v) interpolated between one share and two shares, if TSR increases less than 100% during the performance period; and (vi) two shares, if the TSR increases 100% over the performance period. The value of the common stock on the date of grant is based on the closing price of NRG common stock on the date of grant. The Company last granted MSUs during the year ended December 31, 2016. The following table summarizes the Company's non-vested PSU awards and changes during the year: Non-vested at December 31, 2016 Granted Forfeited Non-vested at December 31, 2017 (a) There were no PSUs granted to GenOn employees and outstanding as of December 31, 2017. Units(a) 1,282,588 738,830 (162,597) 1,858,821 Weighted Average Grant- Date Fair Value per Unit 21.47 $ 15.91 31.85 18.27 The weighted average grant date fair value of PSUs granted during the years ended December 31, 2017, 2016 and 2015, was $15.91, $14.73 and $26.68, respectively. The fair value of PSUs is estimated on the date of grant using a Monte Carlo simulation model and expensed over the service period, which equals the vesting period. Significant assumptions used in the fair value model with respect to the Company's PSUs are summarized below: Expected volatility Expected term (in years) Risk free rate 2017 RPSUs 2016 MSUs 43.96% 3 1.5% 34.33% 3 1.31% For the years ended December 31, 2017 and 2016, expected volatility is calculated based on NRG's historical stock price volatility data over the period commensurate with the expected term of the PSU, which equals the vesting period. Supplemental Information The following table summarizes NRG's total compensation expense recognized for the years presented as well as total non- vested compensation costs not yet recognized and the period over which this expense is expected to be recognized as of December 31, 2017, for each of the types of awards issued under the LTIPs. Minimum tax withholdings of $5 million, $5 million, and $21 million for the years ended December 31, 2017, 2016, and 2015, respectively, are reflected as a reduction to additional paid-in capital on the Company's consolidated balance sheet and are reflected as operating activities on the Company's consolidated statement of cash flows. Award Compensation Expense Year Ended December 31, 2016 2017 Non-vested Compensation Cost Unrecognized Total Cost Weighted Average Recognition Period Remaining (In years) As of December 31, 2015 2017 2017 (In millions, except weighted average data) $ NQSOs(a) RSUs DSUs MSUs RPSUs PRSUs(b) Total(c) Tax detriment recognized (a) All NQSOs granted under the Company's LTIP were fully vested as of December 31, 2017, 2016, and 2015. (b) Phantom Restricted Stock Units, PRSUs, are liability-classified time-based awards that typically vest ratably over a three-year period. The amount to be paid upon vesting is based on NRG's closing stock price for the period. (c) Does not include GenOn compensation expense incurred prior to the deconsolidation of GenOn on June 14, 2017, of approximately $1 million for each of the years ended December 31, 2017, 2016, and 2015, which is recorded in loss from discontinued operations in the Company's consolidated statement of operations. — $ 22 2 16 — — 40 (12) — $ 17 2 6 4 15 44 $ (5) $ — $ 13 2 3 — 5 23 $ (4) $ — 1.37 — 0.82 1.99 1.51 — 13 — 4 6 14 37 $ $ $ Note 21 — Related Party Transactions The following table summarizes NRG's material related party transactions with third party affiliates that are included in the Company's operating revenues, operating costs and other income and expense: Revenues from Related Parties Included in Operating Revenues Gladstone GenConn Total Year Ended December 31, 2017 2016 (In millions) 2015 $ $ 3 5 8 $ $ 2 5 7 $ $ 4 4 8 Gladstone — NRG provides services to Gladstone, an equity method investment, under an operations and maintenance agreement. Fees for services under this contract primarily include recovery of NRG's costs of operating the plant as approved in the annual budget, as well as a base monthly fee. GenConn — NRG provides services to GenConn under operations and maintenance agreements with GenConn Devon and GenConn Middletown that began in June 2010 and June 2011, respectively. 198 199 Services Agreement and Transition Services Agreement with GenOn Commercial Operations Agreement The Company provides GenOn with various management, personnel and other services, which include human resources, regulatory and public affairs, accounting, tax, legal, information systems, treasury, risk management, commercial operations, and asset management, as set forth in the services agreement with GenOn, or the Services Agreement. The initial term of the Services Agreement was through December 31, 2013, with an automatic renewal absent a request for termination. The fee charged was determined based on a fixed amount as described in the Services Agreement and was calculated based on historical GenOn expenses prior to the NRG Merger. The annual fees under the Services Agreement were approximately $193 million and management has concluded that this method of charging overhead costs is reasonable. As described in Note 3, Discontinued Operations, Acquisitions and Dispositions, in connection with the Restructuring Support Agreement, NRG agreed to provide shared services to GenOn under the Services Agreement for an adjusted annualized fee of $84 million. Beginning on June 14, 2017, and through December 2017, NRG recorded amounts earned for shared services of approximately $5 million per month. In December 2017, in conjunction with the confirmation of the GenOn Entities' plan of reorganization, the Services Agreement was terminated and replaced by the transition services agreement. Under the transition services agreement, NRG will continue to provide the shared services and other separation services at an annualized rate of $84 million, subject to certain credits and adjustments, until June 30, 2018, which may be extended by GenOn through September 30, 2018. NRG may provide additional separation services that are necessary for or reasonably related to the operation of GenOn's business after such date, subject to NRG's prior written consent, not to be unreasonably withheld. For the year ended December 31, 2017, NRG recorded other income - affiliate related to these services of $87 million prior to the Chapter 11 Filing and $42 million against selling, general and administrative expenses post-Chapter 11 Filing. For the year ended December 31, 2016, NRG recorded other income - affiliate related to these services of $193 million. Also in December 2017, NRG provided GenOn with a $3.5 million credit for services provided under the transition services agreement and began recording amounts earned of approximately $7 million per month. NRG has also agreed to provide GenOn with a $28 million credit against amounts owed to NRG under the transition services agreement. The credit is intended to reimburse GenOn for its payment of financing costs. Any unused amount can be paid in cash at GenOn's request, subject to the terms and conditions of the transition services agreement. See Note 3, Discontinued Operations, Acquisitions and Dispositions, for further discussion regarding the December 2017 agreed upon changes to the Restructuring Support Agreement and transition services agreement, based on which NRG recorded a reserve of $12 million against affiliate receivable balances as of December 31, 2017. Credit Agreement with GenOn NRG and GenOn are party to a secured intercompany revolving credit agreement. The intercompany revolving credit agreement provided for a $500 million revolving credit facility, all of which was available for revolving loans and letters of credit. At December 31, 2017 and December 31, 2016, $92 million and $272 million, respectively, of letters of credit were issued and outstanding under the NRG credit agreement for GenOn. Additionally, as of December 31, 2017, there were $125 million of loans outstanding under the intercompany secured revolving credit facility. As of December 31, 2016, no loans were outstanding under this intercompany secured revolving credit facility. In addition, the intercompany secured revolving credit facility contains customary covenants and events of default. As of December 31, 2017, GenOn was in default under the secured intercompany revolving credit agreement due to the filing of the Chapter 11 Cases. As a result of the Chapter 11 Cases, no additional revolving loans or letters of credit are available to GenOn. In addition, NRG agreed to provide GenOn with a letter of credit facility during the pendency of the Chapter 11 Cases, which could be utilized for required letters of credit in lieu of the intercompany secured revolving credit facility. The letter of credit facility provided availability of up to $330 million less amounts borrowed and letters of credit provided are required to be cash collateralized at 103% of the letter of credit amount. On July 27, 2017, this letter of credit facility was terminated as GenOn has obtained a separate letter of credit facility with a third party financial institution. Effective with completion of the reorganization, GenOn must repay NRG for all revolving loans outstanding, with such amount to be netted against the settlement payment owed from NRG to GenOn. Accordingly, the affiliate receivable is recorded net within accrued expenses and other current liabilities - affiliate on the consolidated balance sheet as of December 31, 2017. Interest continues to accrue during the pendency of the Chapter 11 Cases and borrowings remain secured obligations. NRG Power Marketing LLC has entered into physical and financial intercompany commodity and hedging transactions with GenOn and certain of its subsidiaries. Subject to applicable collateral thresholds, these arrangements may provide for the bilateral exchange of credit support based upon market exposure and potential market movements. The terms and conditions of the agreements are generally consistent with industry practices and other third party arrangements. As of December 31, 2017, derivative assets and liabilities associated with these transactions are recorded within NRG's derivative instruments balances on the consolidated balance sheet, with related revenues and costs within operating revenues and cost of operations, respectively. Additionally, as of December 31, 2017 and December 31, 2016, the Company had $32 million and $79 million, respectively, of cash collateral posted in support of energy risk management activities by GenOn. Note 22 — Commitments and Contingencies Operating Lease Commitments Powerton and Joliet Leases The Company leases 100% interests in the Powerton facility and Unit 7 and Unit 8 of the Joliet facility through 2034 and 2030, respectively, through its indirect subsidiary, Midwest Generation, LLC. The Company accounts for these leases as operating leases and records lease expense on a straight-line basis over the lease term. In connection with the acquisition of EME, the Company recorded the out-of-market value as a liability in out-of-market contracts of $159 million. The liability will be amortized through rent expense on a straight-line basis over the term of the lease. The Company expects to record lease expense, net of amortization of the out-of-market liability, of approximately $14 million per year through the term of the lease. Future minimum lease commitments under the Powerton and Joliet operating leases for the years ending after December 31, 2017 are as follows: Period 2018 2019 2020 2021 2022 Thereafter Total Other Operating Leases (In millions) 1 1 1 3 6 228 240 $ $ NRG leases certain Company facilities and equipment under operating leases, some of which include escalation clauses, expiring on various dates through 2041. NRG also has certain tolling arrangements to purchase power, which qualify as operating leases. Certain operating lease agreements include provisions such as scheduled rent increases, leasehold incentives, and rent concessions over their lease term. The Company recognizes the effects of these scheduled rent increases, leasehold incentives, and rent concessions on a straight-line basis over the lease term unless another systematic and rational allocation basis is more representative of the time pattern in which the leased property is physically employed. Lease expense under operating leases was $81 million, $96 million, and $97 million for the years ended December 31, 2017, 2016, and 2015, respectively. Future minimum lease commitments under operating leases for the years ending after December 31, 2017 are as follows: Period 2018 2019 2020 2021 2022 Thereafter Total (a) (In millions) 78 80 75 65 64 479 841 $ $ 200 201 (a) Amounts in the table exclude future sublease income of $49 million associated with long-term leases for office locations. Coal, Gas and Transportation Commitments Nuclear Insurance NRG has entered into long-term contractual arrangements to procure fuel and transportation services for the Company's generation assets and for the years ended December 31, 2017, 2016, and 2015, the Company purchased $1.2 billion, $1.2 billion, and $1.8 billion, respectively, under such arrangements. As of December 31, 2017, the Company's commitments under such outstanding agreements are as follows: Period 2018 2019 2020 2021 2022 Thereafter Total (In millions) 527 188 150 112 103 296 1,376 $ $ Purchased Power Commitments NRG has purchased power contracts of various quantities and durations that are not classified as derivative assets and liabilities and do not qualify as operating leases. These contracts are not included in the consolidated balance sheet as of December 31, 2017. Minimum purchase commitment obligations are as follows as of December 31, 2017: Period 2018 2019 2020 2021 2022 Thereafter Total (a) (a) As of December 31, 2017, the maximum remaining term under any individual purchased power contract is five years. First Lien Structure (In millions) 21 14 12 11 10 — 68 $ $ NRG has granted first liens to certain counterparties on a substantial portion of the Company's assets, excluding assets acquired in the GenOn and EME (including Midwest Generation) acquisitions, assets held by NRG Yield, Inc. and NRG's assets that have project-level financing, 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. The Company's lien counterparties may have a claim on NRG's assets to the extent market prices exceed the hedged price. As of December 31, 2017, hedges under the first lien were in-the-money for NRG on a counterparty aggregate basis. Lignite Contract with Texas Westmoreland Coal Co. The Company's Limestone facility utilizes a blend of coal including lignite obtained from the Jewett mine, a surface mine adjacent to the Limestone facility, under a long-term contract with Texas Westmoreland Coal Co., or TWCC. The contract is a cost-plus arrangement with certain performance incentives and penalties. On August 18, 2016, NRG gave notice to TWCC terminating the active mining of lignite under the contract, effective on December 31, 2016. Under the contract, TWCC continues to be responsible for reclamation activities. NRG is responsible for reclamation costs and has recorded an adequate ARO liability. The Railroad Commission of Texas has imposed a bond obligation of $95.5 million on TWCC for the reclamation of the mine. Pursuant to the contract with TWCC, NRG supports this obligation through surety bonds. Additionally, NRG is obligated to provide additional performance assurance if required by the Railroad Commission of Texas. STP maintains required insurance coverage for liability claims arising from nuclear incidents pursuant to the Price-Anderson Act. Effective January 1, 2017, the current liability limit per incident is $13.44 billion, subject to change to account for the effects of inflation and the number of licensed reactors. An inflation adjustment must be made at least once every five years with the next due no later than September 10, 2018. Under the Price-Anderson Act, owners of nuclear power plants in the U.S. are required to purchase primary insurance limits of $450 million for each operating site. In addition, the Price-Anderson Act requires an additional layer of protection through mandatory participation in a retrospective rating plan for power reactors resulting in an additional $13 billion in funds available for public liability claims. The current maximum assessment per incident, per reactor, is approximately $127 million, taking into account a 5% adjustment for administrative fees, payable at approximately $19 million per year, per reactor. NRG would be responsible for 44% of the maximum assessment, or $8 million per year, per reactor, and a maximum of $112 million per incident. In addition, the U.S. Congress retains the ability to impose additional financial requirements on the nuclear industry to pay liability claims that exceed $13 billion for a single incident. The liabilities of the co-owners of STP with respect to the retrospective premium assessments for nuclear liability insurance are joint and several. STP purchases insurance for property damage and site decontamination cleanup costs from Nuclear Electric Insurance Limited, or NEIL, an industry mutual insurance company, of which STP is a member. STP has purchased $2.75 billion in limits for nuclear events and $1.5 billion in limits for non-nuclear events, the maximum available from NEIL. The upper $1.25 billion in limits (excess of the first $1.5 billion in limits) is a single limit blanket policy shared with two Diablo Canyon nuclear reactors, which have no affiliation with the Company. This shared limit is not subject to automatic reinstatement in the event of a loss. The NEIL policy covers both nuclear and non-nuclear property damage events, and a NEIL companion policy provides Accidental Outage coverage for the co-owners of STP's lost revenue following a property damage event, at a weekly indemnity limit of $2.52 million per unit up to a maximum of $274.4 million nuclear and $183.5 million non-nuclear, and is subject to an eight-week waiting period. NRG also purchases an Accidental Outage policy from NEIL, which provides protection for lost revenue due to an insurable event. This coverage allows for reimbursement up to $1.98 million per week per unit up to a maximum of $215.6 million nuclear and $144 million non-nuclear, and is subject to an eight-week waiting period. Under the terms of the NEIL policies, member companies may be assessed up to ten times their annual premium if the NEIL Board of Directors determines their surplus has been depleted due to the payment of property losses at any of the licensed reactors in a single policy year. NEIL requires that its members maintain an investment grade credit rating or insure their annual retrospective obligation by providing a financial guarantee, letter of credit, deposit premium, or an insurance policy. NRG has purchased an insurance policy from NEIL to guarantee the Company's obligation; however this insurance will only respond to retrospective premium adjustments assessed within twenty-four months after the policy term, whereas NEIL's Board of Directors can make such an adjustment up to 6 years after the policy expires. Contingencies The Company's material legal proceedings are described below. The Company believes that it has valid defenses to these legal proceedings and intends to defend them vigorously. NRG records reserves for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. As applicable, the Company has established an adequate reserve for the matters discussed below. In addition, legal costs are expensed as incurred. Management has assessed each of the following matters based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought, and the probability of success. Unless specified below, the Company is unable to predict the outcome of these legal proceedings or reasonably estimate the scope or amount of any associated costs and potential liabilities. As additional information becomes available, management adjusts its assessment and estimates of such contingencies accordingly. Because litigation is subject to inherent uncertainties and unfavorable rulings or developments, it is possible that the ultimate resolution of the Company's liabilities and contingencies could be at amounts that are different from its currently recorded reserves and that such difference could be material. In addition to the legal proceedings noted below, NRG and its subsidiaries are party to other litigation or legal proceedings arising in the ordinary course of business. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows. Midwest Generation Asbestos Liabilities — The Company, through its subsidiary, Midwest Generation, may be subject to potential asbestos liabilities as a result of its acquisition of EME. The Company is currently analyzing the scope of potential liability as it may relate to Midwest Generation. The Company believes that it has established an adequate reserve for these cases. Energy Plus Holdings — On August 7, 2012, Energy Plus Holdings received a subpoena from the NYAG which generally sought information and business records related to Energy Plus Holdings' sales, marketing and business practices. Energy Plus Holdings provided documents and information to the NYAG. On June 22, 2015, the NYAG issued another subpoena seeking additional information. Energy Plus Holdings provided responsive documents to this second subpoena. On August 28, 2017, the parties entered into an Assurance of Discontinuance resolving this matter. 202 203 Midwest Generation New Source Review Litigation — In August 2009, the EPA and the Illinois Attorney General, or the Government Plaintiffs, filed a complaint, or the Governments’ Complaint, in the U.S. District Court for the Northern District of Illinois alleging violations of CAA PSD requirements by Midwest Generation arising from maintenance, repair or replacement projects at six Illinois coal-fired electric generating stations performed by Midwest Generation or ComEd, a prior owner of the stations, including alleged failures to obtain PSD construction permits and to comply with BACT requirements. The Government Plaintiffs also alleged violations of opacity and PM standards at the Midwest Generation plants. Finally, the Government Plaintiffs alleged that Midwest Generation violated certain operating permit requirements under Title V of the CAA allegedly arising from such claimed PSD, opacity and PM emission violations. Several environmental groups intervened as plaintiffs in this litigation and filed a complaint, or the Intervenors’ Complaint, which alleged opacity, PM and related Title V violations. Midwest Generation filed a motion to dismiss nine of the ten PSD counts in the Governments’ Complaint, and to dismiss the tenth PSD count to the extent the Governments’ Complaint sought civil penalties for that count. The trial court granted the motion in March 2010. In June 2010, the Government Plaintiffs and Intervenors each filed an amended complaint. The Governments’ Amended Complaint again alleged that Midwest Generation violated PSD (based upon the same projects as alleged in their original complaint, but adding allegations that the Company was liable as the “successor” to ComEd), Title V and opacity and PM standards. It named EME and ComEd as additional defendants and alleged PSD violations (again, premised on the same projects) against them. The Intervenors’ Amended Complaint named only Midwest Generation as a defendant and alleged Title V and opacity/PM violations, as well as one of the ten PSD violations alleged in the Governments’ Amended Complaint. Midwest Generation again moved to dismiss all but one of the Government Plaintiffs’ PSD claims and the related Title V claims. Midwest Generation also filed a motion to dismiss the PSD claim in the Intervenors’ Amended Complaint and the related Title V claims. In March 2011, the trial court granted Midwest Generation’s partial motion to dismiss the Government Plaintiffs’ PSD claims. The trial court denied Midwest Generation’s motion to dismiss the PSD claim asserted in the Intervenors’ Amended Complaint, but noted that the plaintiffs would be required to convince the court that the statute of limitations should be equitably tolled. The trial court did not address other counts in the amended complaints that allege violations of opacity and PM emission limitations under the Illinois State Implementation Plan and related Title V claims. The trial court also granted the motions to dismiss the PSD claims asserted against EME and ComEd. Following the trial court ruling, the Government Plaintiffs appealed the trial court’s dismissals of their PSD claims, including the dismissal of nine of the ten PSD claims against Midwest Generation and of the PSD claims against the other defendants. Those PSD claim dismissals were affirmed by the U.S. Court of Appeals for the Seventh Circuit in July 2013. In addition, in 2012, all but one of the environmental groups that had intervened in the case dismissed their claims without prejudice. As a result, only one environmental group remains a plaintiff intervenor in the case. In February 2018, the parties agreed in principal to settle the matter. After the settlement agreement is signed by all parties (which the Company expects to occur in March 2018) and approved by the court, Midwest Generation will be required to (x) pay $500,000 to each of the State of Illinois and the Federal Government and (y) make and maintain certain operational improvements. Telephone Consumer Protection Act Purported Class Actions — Three purported class action lawsuits have been filed against NRG Residential Solar Solutions, LLC —one in California and two in New Jersey. The plaintiffs generally allege misrepresentation by the call agents and violations of the TCPA, claiming that the defendants engaged in a telemarketing campaign placing unsolicited calls to individuals on the “Do Not Call List.” The plaintiffs seek statutory damages of up to $1,500 per plaintiff, actual damages and equitable relief. On June 22, 2017, plaintiffs in the California case filed a motion for leave to file a second amended complaint to substitute new plaintiffs. Defendants filed an opposition to this motion on June 26, 2017. The court granted plaintiffs' motion to substitute new plaintiffs and on August 1, 2017, defendants filed an answer to the second amended complaint. On August 31, 2017, the court in the California case agreed that the litigation should be stayed pending final court approval of the New Jersey settlement. On July 12, 2017, the parties in the New Jersey action reached an agreement in principle to resolve the class allegations which was confirmed by a term sheet signed by the parties on July 28, 2017. On September 27, 2017, plaintiffs in the New Jersey case filed their motion for preliminary approval of the class settlement which was approved by the court on November 17, 2017. On February 20, 2018 at the close of the objection deadline, two objections were filed to the Dobkin class settlement. California Department of Water Resources and San Diego Gas & Electric Company v. Sunrise Power Company LLC — On January 29, 2016, CDWR and SDG&E filed a lawsuit against Sunrise Power Company, along with NRG and Chevron Power Corporation. In June 2001, CDWR and Sunrise entered into a 10-year PPA under which Sunrise would construct and operate a generating facility and provide power to CDWR. At the time the PPA was entered into, Sunrise had a transportation services agreement, or TSA, to purchase natural gas from Kern River through April 30, 2018. In August 2003, CDWR entered into an agreement with Sunrise and Kern River in which CDWR accepted assignment of the TSA through the term of the PPA. After the PPA expired, Kern River demanded that any reassignment be to a party which met certain creditworthiness standards which Sunrise did not. As such, the plaintiffs brought this lawsuit against the defendants alleging breach of contract, breach of covenant of good faith and fair dealing and improper distributions. Plaintiffs generally claim damages of $1.2 million per month for the remaining 70 months of the TSA. On April 20, 2016, the defendants filed objections in response to the plaintiffs' complaint. The objections were granted on June 14, 2016; however, the plaintiffs were allowed to file amended complaints on July 1, 2016. On July 27, 2016, defendants filed objections to the amended complaints. On November 18, 2016, the court sustained the objections and allowed plaintiffs another opportunity to file a second amended lawsuit which they did on January 13, 2017. On April 21, 2017, the court issued an order sustaining the objections without leave to amend. On July 14, 2017, CDWR filed a notice of appeal. On January 10, 2018, CDWR filed its appellate brief. Braun v. NRG Yield, Inc. — On April 19, 2016, plaintiffs filed a putative class action lawsuit against NRG Yield, Inc., the current and former members of its board of directors individually, and other parties in California Superior Court in Kern County, CA. Plaintiffs allege various violations of the Securities Act due to the defendants’ alleged failure to disclose material facts related to low wind production prior to the NRG Yield, Inc.'s June 22, 2015 Class C common stock offering. Plaintiffs seek compensatory damages, rescission, attorney’s fees and costs. The Defendants filed objections and a motion challenging jurisdiction on October 18, 2016. On December 1, 2017, the parties agreed to a stipulation which provides the plaintiffs' opposition is due on March 6, 2018 and defendants' reply is due on May 4, 2018. Ahmed v. NRG Energy, Inc. and the NRG Yield Board of Directors — On September 15, 2016, plaintiffs filed a putative class action lawsuit against NRG Energy, Inc., the directors of NRG Yield, Inc., and other parties in the Delaware Chancery Court. The complaint alleges that the defendants breached their respective fiduciary duties with regard to the recapitalization of NRG Yield, Inc. common stock in 2015. The plaintiffs generally seek economic damages, attorney’s fees and injunctive relief. The defendants filed a motion to dismiss the lawsuit on December 21, 2016. Plaintiffs filed their objection to the motion to dismiss on February 15, 2017. The defendants' reply was filed on March 24, 2017. The court heard oral argument on defendants' motion to dismiss on June 20, 2017. On September 7, 2017, the court requested additional briefing which the parties provided on September 21, 2017. On December 11, 2017, the court dismissed the lawsuit with prejudice, thereby ending the case. Griffoul v. NRG Residential Solar Solutions — On February 28, 2017, plaintiffs, consisting of New Jersey residential solar customers, filed a purported class action lawsuit in New Jersey state court. Plaintiffs allege violations of the New Jersey Consumer Fraud Action and Truth-in-Consumer Contracts, Warranty and Notice Act with regard to certain provisions of their residential solar contracts. The plaintiffs seek damages and injunctive relief as to the proper allocation of the solar renewable energy credits. On June 6, 2017, the defendants filed a motion to compel arbitration or dismiss the lawsuit. Plaintiffs filed their opposition on June 29, 2017. On July 14, 2017, the court denied NRG's motion to compel arbitration or dismiss the case. On July 25, 2017, NRG filed a motion for reconsideration of the appeal, which the court denied. On August 22, 2017, NRG filed a notice of appeal. The appeal is fully briefed and scheduled for argument on April 24, 2018. Rice v. NRG — On April 14, 2017, plaintiffs filed a purported class action lawsuit in the U.S. District Court for the Western District of Pennsylvania against NRG, First Energy Corporation and Matt Canastrale Contracting, Inc. Plaintiffs generally claim personal injury, trespass, nuisance and property damage related to the disposal of coal ash from GenOn's Elrama Power Plant and First Energy’s Mitchell and Hatfield Power Plants. Plaintiffs generally seek monetary damages, medical monitoring and remediation of their property. Plaintiffs filed an amended complaint on August 14, 2017. On October 20, 2017, NRG filed its answer and affirmative defenses. Washington-St. Tammany and Claiborne Electric Cooperative v. LaGen — On June 28, 2017, plaintiffs Washington-St. Tammany Electric Cooperative, Inc. and Claiborne Electric Cooperative, Inc. filed a lawsuit against Louisiana Generating, L.L.C., or LaGen, in the United States District Court for the Middle District of Louisiana. The plaintiffs claim breach of contract against LaGen for allegedly improperly charging the plaintiffs for costs related to the installation and maintenance of certain pollution control technology. Plaintiffs seek damages for the alleged improper charges and a declaration as to which charges are proper under the contract. On September 14, 2017, the court issued a scheduling order setting this case for trial on October 21, 2019. LaGen filed a motion for a more definite statement on September 18, 2017 which the court denied on November 2, 2017. LaGen filed its answer and affirmative defenses on November 17, 2017. 204 205 GenOn Chapter 11 Cases — On the Petition Date, the GenOn Entities filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Under the Restructuring Support Agreement to which the GenOn Entities, NRG and certain of GenOn's and GenOn Americas Generation's senior unsecured noteholders are parties, each of them supported the Bankruptcy Court's approval of the plan of reorganization. GenOn has a customary "fiduciary out" under the Restructuring Support Agreement. If the plan of reorganization is not consummated, NRG may not be entitled to the benefits of the Settlement Agreement provided under the Restructuring Support Agreement and it will remain subject to any claims of GenOn and the noteholders, including claims relating to or arising out of any shared services and any other relationships or transactions between the companies. See Note 3, Discontinued Operations, Dispositions and Acquisitions, for additional information related to the Chapter 11 Cases. GenOn Noteholders' Lawsuit — On December 13, 2016, certain indenture trustees for an ad hoc group of holders, or the Noteholders, of the GenOn Energy, Inc. 7.875% Senior Notes due 2017, 9.500% Notes due 2018, and 9.875% Notes due 2020, and the GenOn Americas Generation, LLC8.50% Senior Notes due 2021 and 9.125% Senior Notes due 2031, along with certain of the Noteholders, filed a complaint in the Superior Court of the State of Delaware against NRG and GenOn alleging certain claims related to the Services Agreement between NRG and GenOn. Plaintiffs generally seek return of all monies paid under the Services Agreement and any other damages that the court deems appropriate. On February 3, 2017, the court entered an order approving a Standstill Agreement whereby the parties agreed to suspend all deadlines in the case until March 1, 2017. The Standstill Agreement terminated on March 1, 2017. On April 30, 2017, the Noteholders filed an amended complaint that asserts (i) additional fraudulent transfer claims in relation to GenOn’s sale of the Marsh Landing project to NRG Yield LLC, (ii) alleged breaches of fiduciary duty by certain current and former officers and directors of GenOn in relation to the Services Agreement and the alleged usurpation of corporate opportunities concerning the Mandalay and Canal projects and (iii) claims against NRG for allegedly aiding and abetting such claimed breaches of fiduciary duties. In addition to NRG and GenOn, the amended complaint names NRG Yield LLC and certain current and former officers and directors of GenOn as defendants. The plaintiffs, among other things, generally seek return of all monies paid under the services agreement and any other damages that the court deems appropriate. On December 14, 2017, a settlement agreement was executed between GenOn and NRG which should ultimately resolve this lawsuit. Morgantown v. GenOn Mid-Atlantic — On June 8, 2017, Morgantown and Dickerson Owner Lessors filed a lawsuit against GenOn Mid-Atlantic, LLC, NRG North America LLC, GenOn Americas Generation, LLC, NRG Americas, Inc., GenOn Energy Holdings, Inc., GenOn Energy, Inc., and NRG Energy, Inc. in New York State Supreme Court. The plaintiffs allege that they were overcharged by defendants for certain services outlined in a Services Agreement and that defendants caused a Qualified Credit Support portion of a Participation Agreement, or QCS Agreement, to be violated by causing the transfer of certain money outside the allowable confines set forth in the QCS Agreement. In addition, plaintiffs claim that the transfers were unfairly executed and done so in an effort to defraud plaintiffs and hinder their ability to continue to do business. As such, plaintiffs seek, among other things, the return of certain transferred funds and service charges paid and to bar defendants from executing additional transfers on plaintiffs’ behalf. On November 7, 2017, the Bankruptcy Court issued an order estimating the claims to be valued at $0. On December 14, 2017, a settlement agreement was executed between GenOn and NRG which should ultimately resolve this lawsuit. BTEC v. NRG Texas Power — On July 18, 2017, BTEC New Albany LLC, or BTEC, filed a lawsuit against NRG Texas Power LLC, or NRG Texas Power, in the Harris County District Court in Texas. On January 15, 2013, the parties entered into a Membership Interest and Purchase Agreement, or MIPA, whereby BTEC agreed to dismantle, transport and rebuild an electric power generation facility at the former P.H. Robinson Electric Generating Station in Bacliff, Texas. The MIPA required BTEC to meet a Guaranteed Commercial Completion Date of May 31, 2016. But even a year later, BTEC had not satisfied all of the contractually-required acceptance criteria. As a result and given that the MIPA expiration date passed on May 31, 2017, NRG elected to terminate the contract in June 2017. BTEC claims that NRG Texas Power breached the MIPA by improperly terminating it, and seeks a declaratory judgment as to the rights and obligations of the parties. In addition, BTEC seeks damages, interest and attorney’s fees. On August 14, 2017, NRG Texas Power served its answer to the lawsuit. On September 7, 2017, NRG Texas Power filed a counterclaim seeking damages in excess of $48 million. GenOn Related Contingencies Actions Pursued by MC Asset Recovery — With Mirant Corporation's emergence from bankruptcy protection in 2006, certain actions filed by GenOn Energy Holdings and some of its subsidiaries against third parties were transferred to MC Asset Recovery, a wholly owned subsidiary of GenOn Energy Holdings. MC Asset Recovery is governed by a manager who is independent of NRG and GenOn. MC Asset Recovery is a disregarded entity for income tax purposes. Under the remaining action transferred to MC Asset Recovery, MC Asset Recovery seeks to recover damages from Commerzbank AG and various other banks, or the Commerzbank Defendants, for alleged fraudulent transfers that occurred prior to Mirant's bankruptcy proceedings. In December 2010, the U.S. District Court for the Northern District of Texas dismissed MC Asset Recovery's complaint against the Commerzbank Defendants. In January 2011, MC Asset Recovery appealed the District Court's dismissal of its complaint against the Commerzbank Defendants to the U.S. Court of Appeals for the Fifth Circuit, or the Fifth Circuit. In March 2012, the Fifth Circuit reversed the District Court's dismissal and reinstated MC Asset Recovery's amended complaint against the Commerzbank Defendants. On December 10, 2015, the District Court granted summary judgment in favor of the Commerzbank Defendants. On December 29, 2015, MC Asset Recovery filed a notice to appeal this judgment with the Fifth Circuit. On June 1, 2017, the Fifth Circuit affirmed the District Court's judgment. On June 12, 2017, MC Asset Recovery petitioned the Fifth Circuit for rehearing. The petition for rehearing was denied and a court order and judgment affirming the District Court's judgments was entered on July 17, 2017. The bankruptcy court is scheduled to hear a Motion for a Final Decree in the Mirant bankruptcy on April 11, 2018. Natural Gas Litigation — GenOn is party to several lawsuits, certain of which are class action lawsuits, in state and federal courts in Kansas, Missouri, Nevada and Wisconsin. These lawsuits were filed in the aftermath of the California energy crisis in 2000 and 2001 and the resulting FERC investigations and relate to alleged conduct to increase natural gas prices in violation of state antitrust law and similar laws. The lawsuits seek treble or punitive damages, restitution and/or expenses. The lawsuits also name as parties a number of energy companies unaffiliated with NRG. In July 2011, the U.S. District Court for the District of Nevada, which was handling four of the five cases, granted the defendants' motion for summary judgment and dismissed all claims against GenOn in those cases. The plaintiffs appealed to the U.S. Court of Appeals for the Ninth Circuit, or the Ninth Circuit, which reversed the decision of the District Court. GenOn along with the other defendants in the lawsuit filed a petition for a writ of certiorari to the U.S. Supreme Court challenging the Ninth Circuit's decision and the U.S. Supreme Court granted the petition. On April 21, 2015, the U.S. Supreme Court affirmed the Ninth Circuit’s holding that plaintiffs’ state antitrust law claims are not field- preempted by the federal Natural Gas Act and the Supremacy Clause of the U.S. Constitution. The U.S. Supreme Court left open whether the claims were preempted on the basis of conflict preemption. The U.S. Supreme Court directed that the case be remanded to the U.S. District Court for the District of Nevada for further proceedings. On March 7, 2016, class plaintiffs filed their motions for class certification. Defendants filed their briefs in opposition to class plaintiffs' motions for class certification on June 24, 2016. On March 30, 2017, the court denied the plaintiffs' motions for class certification. On April 13, 2017, the plaintiffs petitioned the Ninth Circuit for interlocutory review of the court’s order denying class certification. On June 13, 2017, the Ninth Circuit granted plaintiffs' petition for interlocutory review. On November 22, 2017, plaintiffs filed their appellate brief. On January 22, 2018, the defendants filed their opposition brief. In May 2016 in one of the Kansas cases, the U.S. District Court for the District of Nevada granted the defendants' motion for summary judgment. Subsequently in December 2016, the plaintiffs filed a notice of appeal with the Ninth Circuit. The appeal has been fully briefed by the parties and was argued on February 16, 2018. GenOn has agreed to indemnify CenterPoint against certain losses relating to these lawsuits. In September 2012, the State of Nevada Supreme Court, which was handling the remaining case, affirmed dismissal by the Eighth Judicial District Court for Clark County, Nevada of all plaintiffs' claims against GenOn. In February 2013, the plaintiffs in the Nevada case filed a petition for a writ of certiorari to the U.S. Supreme Court. In June 2013, the U.S. Supreme Court denied the petition for a writ of certiorari, thereby ending one of the five lawsuits. Potomac River Environmental Investigation — In March 2013, NRG Potomac River LLC, a subsidiary of GenOn, received notice that the District of Columbia Department of Environment (now renamed the Department of Energy and Environment, or DOEE) was investigating potential discharges to the Potomac River originating from the Potomac River Generating facility site, a site where the generation facility is no longer in operation. In connection with that investigation, DOEE served a civil subpoena on NRG Potomac River LLC requesting information related to the site and potential discharges occurring from the site. NRG Potomac River LLC provided various responsive materials. In January 2016, DOEE advised NRG Potomac River LLC that DOEE believed various environmental violations had occurred as a result of discharges DOEE believes occurred to the Potomac River from the Potomac River Generating facility site and as a result of associated failures to accurately or sufficiently report such discharges. DOEE has indicated it believes that penalties are appropriate in light of the violations. NRG Potomac River LLC is currently reviewing the information provided by DOEE. 206 207 Natixis v. GenOn Mid-Atlantic — On February 16, 2018, Natixis Funding Corp. and Natixis, New York Branch filed a complaint in the Supreme Court of the State of New York against GenOn Mid-Atlantic, the owner lessors under GenOn Mid- Atlantic’s operating leases of the Dickerson and Morgantown coal generation units, and the lease indenture trustee under those leases. The plaintiffs’ allegations against GenOn Mid-Atlantic relate to a payment agreement between GenOn Mid-Atlantic and Natixis Funding Corp. to procure credit support for the payment of certain lease payments owed pursuant to the GenOn Mid- Atlantic operating leases for Morgantown and Dickerson. Plaintiffs seek approximately $34 million in damages arising from GenOn Mid-Atlantic’s purported breach of certain warranties in the payment agreement. Note 23 — Regulatory Matters East/West Montgomery County Station Power Tax — On December 20, 2013, NRG received a letter from Montgomery County, Maryland requesting payment of an energy tax for the consumption of station power at the Dickerson Facility over the previous three years. Montgomery County seeks payment in the amount of $22 million, which includes tax, interest and penalties. NRG disputed the applicability of the tax. On December 11, 2015, the Maryland Tax Court reversed Montgomery County's assessment. Montgomery County filed an appeal, and on February 2, 2017, the Montgomery County Circuit Court affirmed the decision of the tax court. On February 17, 2017, Montgomery County filed an appeal to the Court of Special Appeals of Maryland. On February 1, 2018, the court heard oral arguments. NRG operates in a highly regulated industry and is subject to regulation by various federal and state agencies. As such, NRG is affected by regulatory developments at both the federal and state levels and in the regions in which NRG operates. In addition, NRG is subject to the market rules, procedures, and protocols of the various ISO and RTO markets in which NRG participates. These power markets are subject to ongoing legislative and regulatory changes that may impact NRG's wholesale and retail businesses. California Station Power — As the result of unfavorable final and non-appealable litigation, the Company has accrued a liability associated with consumption of station power at three of the Company’s power plants in California, after August 30, 2010. In December 2017, subsidiaries of the Company entered into settlements with SCE for the liabilities associated with the Company's El Segundo and Long Beach facilities. The Company has established an appropriate reserve pending potential regulatory action by SDG&E regarding Encina. In addition to the regulatory proceedings noted below, NRG and its subsidiaries are parties to other regulatory proceedings arising in the ordinary course of business or have other regulatory exposure. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect NRG's consolidated financial position, results of operations, or cash flows. National Zero-Emission Credits for Nuclear Plants in Illinois — In 2016, Illinois enacted a Zero Emission Credit, or ZEC, program for selected nuclear units in Illinois. In total, the program directs over $2.5 billion over ten years to nuclear plants in Illinois that would otherwise retire. Pursuant to the legislation, the Illinois Power Agency, or IPA, conducts a competitive solicitation to procure ZECs, although both the Governor of Illinois and Exelon have already announced that the ZECs will be awarded to two Exelon- owned nuclear power plants in Illinois. These ZECs are out-of-market subsidies that threaten to artificially suppress market prices and interfere with the wholesale power market. On February 14, 2017, NRG, along with other companies, filed a complaint in the U.S. District Court for the Northern District of Illinois alleging that the state program is preempted by federal law and in violation of the dormant commerce clause. Another plaintiff group filed a similar complaint on the same day. Subsequently, on March 31, 2017, NRG, along with other companies, filed a motion for preliminary injunction. On April 10, 2017, Exelon, as an intervenor defendant, and State defendants filed motions to dismiss. On July 14, 2017, Defendants' motions to dismiss were granted. On July 17, 2017, NRG, along with other companies, filed a notice of appeal to the U.S. Court of Appeals for the Seventh Circuit. Briefing is complete. Oral argument was held on January 3, 2018, with supplemental briefs filed on January 26, 2018. On February 21, 2018, the Seventh Circuit invited the U.S. to file an amicus brief in the proceeding. Zero-Emission Credits for Nuclear Plants in New York — On August 1, 2016, the NYSPSC issued its Clean Energy Standard, or CES, which provided for ZECs which would provide more than $7.6 billion over 12 years in out-of-market subsidy payments to certain selected nuclear generating units in the state. These ZECs are out-of-market subsidies that threaten to artificially suppress market prices and interfere with the wholesale power market. On October 19, 2016, NRG, along with other companies, filed a complaint in the U.S. District Court for the Southern District of New York, challenging the validity of the NYSPSC action and the ZEC program. On March 29, 2017, the U.S. District Court heard oral arguments on a motion to dismiss filed by defendants. On July 25, 2017, the defendants' motions to dismiss were granted. On August 24, 2017, NRG, along with other plaintiff companies, filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit. Briefing is complete. Oral argument has been noticed for March 12, 2018. Department of Energy's Proposed Grid Resiliency Pricing Rule — On September 29, 2017, the Department of Energy issued a proposed rulemaking titled the "Grid Resiliency Pricing Rule." The rulemaking directs FERC to take action to reform the ISO/ RTO markets to value certain reliability and resiliency attributes of electric generation resources. On October 2, 2017, FERC issued a notice inviting comments. On October 4, 2017, FERC staff issued a series of questions requesting commenters to address. On October 23, 2017, NRG filed comments encouraging FERC to act expeditiously to modernize energy and capacity markets in a manner compatible with robust competitive markets. On January 8, 2018, FERC terminated the proposed rulemaking and opened a new rulemaking asking each ISO/RTO to address specific questions focused on grid resilience. Puente Power Project — On October 5, 2017, the California Energy Commission, or CEC, the agency responsible for permitting the Puente Power Project, issued a statement on behalf of the committee of two Commissioners overseeing the permitting process stating their intention to issue a proposed decision that would deny a permit for the Puente Power Project. On October 16, 2017, NRG filed a motion to suspend the permitting proceeding for at least six months, which was granted on November 3, 2017. During the six month suspension period, which could conceivably be extended, NRG will evaluate the progress of a procurement process initiated by SCE to replace the Puente Power Project. Note 24 — Environmental Matters NRG is subject to a wide range of environmental laws in the development, construction, ownership and operation of projects. These laws generally require that governmental permits and approvals be obtained before construction and during operation of power plants. NRG is also subject to laws regarding the protection of wildlife, including migratory birds, eagles and threatened and endangered species. The electric generation industry has been facing requirements regarding GHGs, combustion byproducts, water discharge and use, and threatened and endangered species that have been put in place in recent years. However, under the current U.S. presidential administration, some of these rules are being reconsidered and reviewed. In general, future laws are expected to require the addition of emissions controls or other environmental controls or to impose certain restrictions on the operations of the Company's facilities, which could have a material effect on the Company's consolidated financial position, results of operations, or cash flows. Federal and state environmental laws generally have become more stringent over time, although this trend could slow or pause in the near term with respect to federal laws under the current U.S. presidential administration. The EPA finalized CSAPR in 2011, which was intended to replace CAIR in January 2012, to address certain states' obligations to reduce emissions so that downwind states can achieve federal air quality standards. In December 2011, the D.C. Circuit stayed the implementation of CSAPR and then vacated CSAPR in August 2012 but kept CAIR in place until the EPA could replace it. In April 2014, the U.S. Supreme Court reversed and remanded the D.C. Circuit's decision. In October 2014, the D.C. Circuit lifted the stay of CSAPR. In response, the EPA in November 2014 amended the CSAPR compliance dates. Accordingly, CSAPR replaced CAIR on January 1, 2015. On July 28, 2015, the D.C. Circuit held that the EPA had exceeded its authority by requiring certain reductions that were not necessary for downwind states to achieve federal standards. Although the D.C. Circuit kept the rule in place, the court ordered the EPA to revise the Phase 2 (or 2017) (i) SO2 budgets for four states including Texas and (ii) ozone- season NOx budgets for 11 states including Maryland, New Jersey, New York, Ohio, Pennsylvania and Texas. On October 26, 2016, the EPA finalized the CSAPR Update Rule, which reduces future NOx allocations and discounts the current banked allowances to account for the more stringent 2008 Ozone NAAQS and to address the D.C. Circuit's July 2015 decision. This rule has been challenged in the D.C. Circuit. The Company believes its investment in pollution controls and cleaner technologies leave the fleet well-positioned for compliance. 208 209 In February 2012, the EPA promulgated standards (the MATS rule) to control emissions of HAPs from coal and oil-fired electric generating units. The rule established limits for mercury, non-mercury metals, certain organics and acid gases, which had to be met beginning in April 2015 (with some units getting a 1-year extension). In June 2015, the U.S. Supreme Court issued a decision in the case of Michigan v. EPA, and held that the EPA unreasonably refused to consider costs when it determined that it was "appropriate and necessary" to regulate HAPs emitted by electric generating units. The U.S. Supreme Court did not vacate the MATS rule but rather remanded it to the D.C. Circuit for further proceedings. In December 2015, the D.C. Circuit remanded the MATS rule to the EPA without vacatur. On April 25, 2016, the EPA released a supplemental finding that the benefits of this regulation outweigh the costs to address the U.S. Supreme Court's ruling that the EPA had not properly considered costs. This finding has been challenged in the D.C. Circuit. On April 18, 2017, the EPA asked the D.C. Circuit to postpone oral argument that had been scheduled for May 18, 2017 because the EPA is closely reviewing the supplemental finding to determine whether it should reconsider all or part of the rule. On April 27, 2017, the D.C. Circuit granted EPA's request to postpone the oral argument and hold the case in abeyance. While NRG cannot predict the final outcome of this rulemaking, NRG believes that because it has already invested in pollution controls and cleaner technologies, the fleet is well-positioned to comply with the MATS rule. Water In August 2014, the EPA finalized the regulation regarding the use of water for once through cooling at existing facilities to address impingement and entrainment concerns. NRG anticipates that more stringent requirements will be incorporated into some of its water discharge permits over the next several years as NPDES permits are renewed. Effluent Limitations Guidelines — In November 2015, the EPA revised the Effluent Limitations Guidelines for Steam Electric Generating Facilities, which would have imposed more stringent requirements (as individual permits were renewed) for wastewater streams from flue gas desulfurization, or FGD, fly ash, bottom ash, and flue gas mercury control. In April 2017, the EPA granted two petitions to reconsider the rule and also administratively stayed some of the deadlines. On September 18, 2017, the EPA promulgated a final rule that (i) postpones the compliance dates to preserve the status quo for FGD wastewater and bottom ash transport water by two years to November 2020 until the EPA completes its next rulemaking and (ii) withdrew the April 2017 administrative stay. The legal challenges have been suspended while the EPA reconsiders and likely modifies the rule. Accordingly, the Company has largely eliminated its estimate of the environmental capital expenditures that would have been required to comply with permits incorporating the revised guidelines. The Company will revisit these estimates after the rule is revised. Byproducts, Wastes, Hazardous Materials and Contamination In April 2015, the EPA finalized the rule regulating byproducts of coal combustion (e.g., ash and gypsum) as solid wastes under the RCRA. On September 13, 2017, the EPA granted the petition for reconsideration that the Utility Solid Waste Activities Group filed in May 2017. The Company has evaluated the impact of the new rule on the Company's consolidated financial position, results of operations, or cash flows and has accrued its environmental and asset retirement obligations under the rule based on current estimates as of December 31, 2017. East/West Region New Source Review — The EPA and various states have been investigating compliance of electric generating facilities with the pre-construction permitting requirements of the CAA known as “new source review,” or NSR. In 2007, Midwest Generation received an NOV from the EPA alleging that past work at Crawford, Fisk, Joliet, Powerton, Waukegan and Will County generating stations violated NSR and other regulations. These alleged violations are the subject of litigation described in Item 15 — Note 22, Commitments and Contingencies. Additionally, in April 2013, the Connecticut Department of Energy and Environmental Protection issued four NOVs alleging that past work at oil-fired combustion turbines at the Torrington Terminal, Franklin, Branford and Middletown generating stations violated regulations regarding NSR. Burton Island Old Ash Landfill — In January 2006, NRG's Indian River Power LLC was notified that it may be a potentially responsible party with respect to Burton Island Old Ash Landfill, a historic captive landfill located at the Indian River facility. On October 1, 2007, NRG signed an agreement with DNREC to investigate the site through the Voluntary Clean-up Program, or the VCP. On February 4, 2008, DNREC issued findings that no further action was required in relation to surface water and that a previously planned shoreline stabilization project would satisfactorily address shoreline erosion. The landfill itself required a Remedial Investigation and Feasibility Study to determine the type and scope of any additional required work. DNREC approved the Feasibility Study in December 2012. In January 2013, DNREC proposed a remediation plan based on the Feasibility Study. The remediation plan was approved in October 2013. In December 2015, DNREC approved the Company's remediation design, the Company's Closure Report and the Company's Long Term Stewardship Plan. In the second quarter of 2017, the Company completed the remediation requirements in the remediation plan. The cost of completing the work required by the remediation plan was within amounts budgeted in early 2016 and remediation was completed in 2017. The estimated cost to comply with the Long-Term Stewardship Plan was added to the liability in December 2016. In addition to the VCP, on May 29, 2008, DNREC requested that NRG's Indian River Power LLC participate in the development and performance of a Natural Resource Damage Assessment at the Burton Island Old Ash Landfill. NRG is currently working with DNREC and other trustees to close out the assessment process. For further discussion of these matters, refer to Note 22, Commitments and Contingencies. Note 25 — Cash Flow Information Detail of supplemental disclosures of cash flow and non-cash investing and financing information was: Interest paid, net of amount capitalized Income taxes paid (a) Non-cash investing and financing activities: Additions/(decrease) to fixed assets for accrued capital expenditures Year Ended December 31, 2017 2016 2015 (In millions) $ 868 $ 890 $ 9 70 14 35 924 12 (44) (a) In 2017, income taxes paid of $11 million are offset by $2 million in income tax refunds. In 2015, income taxes paid of $13 million are offset by $1 million in income tax refunds. Note 26 — Guarantees NRG and its subsidiaries enter into various contracts that include indemnification and guarantee provisions as a routine part of the Company's business activities. Examples of these contracts include asset purchases and sale agreements, commodity sale and purchase agreements, retail contracts, joint venture agreements, EPC agreements, operation and maintenance agreements, service agreements, settlement agreements, and other types of contractual agreements with vendors and other third parties, as well as affiliates. These contracts generally indemnify the counterparty for tax, environmental liability, litigation and other matters, as well as breaches of representations, warranties and covenants set forth in these agreements. The Company is obligated with respect to customer deposits associated with the Company's retail businesses. In some cases, NRG's maximum potential liability cannot be estimated, since the underlying agreements contain no limits on potential liability. The following table summarizes the maximum potential exposures that can be estimated for NRG's guarantees, indemnities, and other contingent liabilities by maturity: Guarantees Letters of credit and surety bonds(a) Asset sales guarantee obligations Other guarantees Total guarantees By Remaining Maturity at December 31, 2017 Under 1 Year 1-3 Years 3-5 Years Over 5 Years Total 2016 Total $ $ 1,467 — — 1,467 $ $ 66 — 32 98 $ $ (In millions) 7 257 — 264 $ $ 93 55 613 761 $ $ 1,633 312 645 2,590 $ $ 1,837 677 253 2,767 (a) Excludes$92 million and $272 million of letters of credit issued under the intercompany revolving credit agreement between NRG and GenOn as of December 31, 2017 and 2016, respectively. Letters of credit and surety bonds — As of December 31, 2017, NRG and its consolidated subsidiaries were contingently obligated for a total of $1.6 billion under letters of credit and surety bonds. Most of these letters of credit and surety bonds are issued in support of the Company's obligations to perform under commodity agreements and obligations associated with future closure and maintenance of ash sites, as well as for financing or other arrangements. A majority of these letters of credit and surety bonds expire within one year of issuance, and it is typical for the Company to renew them on similar terms. The material indemnities, within the scope of ASC 460, are as follows: Asset sales — The purchase and sale agreements which govern NRG's asset or share investments and divestitures customarily contain guarantees and indemnifications of the transaction to third parties. The contracts indemnify the parties for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party, or as a result of a change in tax laws. These obligations generally have a discrete term and are intended to protect the parties against risks that are difficult to predict or estimate at the time of the transaction. In several cases, the contract limits the liability of the indemnifier. NRG has no reason to believe that the Company currently has any material liability relating to such routine indemnification obligations. 210 211 Other guarantees — NRG has issued other guarantees of obligations including payments under certain agreements with respect to certain of its unconsolidated subsidiaries, payment or performance by fuel providers and payment or reimbursement of credit support and deposits. The Company does not believe that it will be required to perform under these guarantees. Other indemnities — Other indemnifications NRG has provided cover operational, tax, litigation and breaches of representations, warranties and covenants. NRG has also indemnified, on a routine basis in the ordinary course of business, consultants or other vendors who have provided services to the Company. NRG's maximum potential exposure under these indemnifications can range from a specified dollar amount to an indeterminate amount, depending on the nature of the transaction. Total maximum potential exposure under these indemnifications is not estimable due to uncertainty as to whether claims will be made or how they will be resolved. NRG does not have any reason to believe that the Company will be required to make any material payments under these indemnity provisions. Because many of the guarantees and indemnities NRG issues to third parties and affiliates do not limit the amount or duration of its obligations to perform under them, there exists a risk that the Company may have obligations in excess of the amounts described above. For those guarantees and indemnities that do not limit the Company's liability exposure, it may not be able to estimate what the Company's liability would be, until a claim is made for payment or performance, due to the contingent nature of these contracts. Note 27 — Jointly Owned Plants Certain NRG subsidiaries own undivided interests in jointly-owned plants, as described below. These plants are maintained and operated pursuant to their joint ownership participation and operating agreements. NRG is responsible for its subsidiaries' share of operating costs and direct expenses and includes its proportionate share of the facilities and related revenues and direct expenses in these jointly-owned plants in the corresponding balance sheet and income statement captions of the Company's consolidated financial statements. The following table summarizes NRG's proportionate ownership interest in the Company's jointly-owned facilities: As of December 31, 2017 Ownership Interest Property, Plant & Equipment Accumulated Depreciation Construction in Progress (In millions unless otherwise stated) South Texas Project Units 1 and 2, Bay City, TX 44.00% $ Big Cajun II Unit 3, New Roads, LA Cedar Bayou Unit 4, Baytown, TX Keystone, Shelocta, PA Conemaugh, New Florence, PA 58.00% 50.00% 3.70% 3.72% $ 395 202 215 12 14 (207) $ (132) (75) — — 7 — 7 1 1 Note 28 — Unaudited Quarterly Financial Data Refer to Note 3, Discontinued Operations, Acquisitions and Dispositions, and Note 10, Asset Impairments, for a description of the effect of unusual or infrequently occurring events during the quarterly periods. Summarized unaudited quarterly financial data is as follows: Quarter Ended 2017 December 31 September 30 June 30 March 31 Operating revenues Operating (loss)/ income Net (loss)/income from continuing operations Income/(loss) from discontinued operations Net (loss)/income Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net (loss)/income attributable to NRG Energy, Inc. (Loss)/income available to Common Stockholders Weighted average number of common shares outstanding — basic Income/(loss) from discontinued operations per weighted average common share — basic Net (loss)/income per weighted average common share — basic Weighted average number of common shares outstanding — diluted Income/(loss) from discontinued operations per weighted average common share — diluted Net (loss)/income per weighted average common share — diluted Operating revenues Operating (loss)/income Net (loss)/income from continuing operations (Loss)/income from discontinued operations Net (loss)/income Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net (loss)/income attributable to NRG Energy, Inc. (Loss)/income available to Common Stockholders Weighted average number of common shares outstanding — basic (Loss)/income from discontinued operations per weighted average common share — basic Net (loss)/income per weighted average common share — basic Weighted average number of common shares outstanding — diluted (Loss)/income from discontinued operations per weighted average common share — diluted Net (loss)/income per weighted average common share — diluted $ $ $ $ $ $ $ $ $ $ $ $ $ (In millions, except per share data) 2,701 $ 343 99 (741) (642) 3,049 376 190 (27) 163 $ 2,497 (1,345) (1,667) 13 (1,655) (120) (1,535) (1,535) $ 317 (8) 171 171 317 $ (16) (626) (626) $ 316 0.04 $ (0.09) $ (2.34) $ (4.84) $ 0.54 $ (1.98) $ 317 322 316 0.04 $ (0.08) $ (2.34) $ (4.84) $ 0.53 $ (1.98) $ 2,382 39 (170) (34) (203) (40) (163) (163) 316 (0.11) (0.52) 316 (0.11) (0.52) Quarter Ended 2016 December 31 September 30 June 30 March 31 $ (In millions, except per share data) 2,248 $ 164 (163) (113) (276) 3,421 429 128 265 393 $ 2,184 (658) (891) (164) (1,055) (68) (987) (987) $ 316 (0.52) $ (3.12) $ 316 (0.52) $ (3.12) $ (9) 402 402 316 0.84 1.27 317 0.84 1.27 $ $ $ $ $ (5) (271) (193) $ 315 (0.36) $ (0.61) $ 315 (0.36) $ (0.61) $ 2,659 331 (57) 104 47 (35) 82 77 315 0.33 0.24 315 0.33 0.24 212 213 The non-guarantor subsidiaries include all of NRG's foreign subsidiaries and certain domestic subsidiaries. NRG conducts much of its business through and derives much of its income from its subsidiaries. Therefore, the Company's ability to make required payments with respect to its indebtedness and other obligations depends on the financial results and condition of its subsidiaries and NRG's ability to receive funds from its subsidiaries. Except for NRG Bayou Cove, LLC, which is subject to certain restrictions under the Company's Peaker financing agreements, there are no restrictions on the ability of any of the guarantor subsidiaries to transfer funds to NRG. In addition, there may be restrictions for certain non-guarantor subsidiaries. The following condensed consolidating financial information presents the financial information of NRG Energy, Inc., the guarantor subsidiaries and the non-guarantor subsidiaries in accordance with Rule 3-10 under the SEC's Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor subsidiaries or non-guarantor subsidiaries operated as independent entities. In this presentation, NRG Energy, Inc. consists of parent company operations. Guarantor subsidiaries and non-guarantor subsidiaries of NRG are reported on an equity basis. For companies acquired, the fair values of the assets and liabilities acquired have been presented on a push-down accounting basis. In addition, the condensed parent company financial statements are provided in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of NRG Energy, Inc.’s subsidiaries exceed 25 percent of the consolidated net assets of NRG Energy, Inc. These statements should be read in conjunction with the consolidated statements and notes thereto of NRG Energy, Inc. For a discussion of NRG Energy, Inc.'s long-term debt, see Note 12, Debt and Capital Leases to the consolidated financial statements. For a discussion of NRG Energy, Inc.'s contingencies, see Note 22, Commitments and Contingencies to the consolidated financial statements. For a discussion of NRG Energy, Inc.'s guarantees, see Note 26, Guarantees to the consolidated financial statements. Note 29 — Condensed Consolidating Financial Information As of December 31, 2017, the Company had outstanding $4.8 billion of Senior Notes due 2022 - 2028, as shown in Note 12, Debt and Capital Leases. These Senior Notes are guaranteed by certain of NRG's current and future 100% owned domestic subsidiaries, or guarantor subsidiaries. These guarantees are both joint and several. The non-guarantor subsidiaries include all of NRG's foreign subsidiaries and certain domestic subsidiaries, including GenOn and its subsidiaries and NRG Yield, Inc. and its subsidiaries. Unless otherwise noted below, each of the following guarantor subsidiaries fully and unconditionally guaranteed the Senior Notes as of December 31, 2017: NRG Norwalk Harbor Operations Inc. NRG Operating Services, Inc. NRG Oswego Harbor Power Operations Inc. NRG PacGen Inc. NRG Portable Power LLC NRG Power Marketing LLC NRG Reliability Solutions LLC NRG Renter's Protection LLC NRG Retail LLC NRG Retail Northeast LLC New Genco GP, LLC Norwalk Power LLC NRG Advisory Services LLC NRG Affiliate Services Inc. NRG Arthur Kill Operations Inc. NRG Astoria Gas Turbine Operations Inc. NRG Bayou Cove LLC NRG Business Services LLC NRG Cabrillo Power Operations Inc. NRG California Peaker Operations LLC NRG Cedar Bayou Development Company, LLC NRG Rockford Acquisition LLC NRG Connected Home LLC NRG Connecticut Affiliate Services Inc. NRG Construction LLC NRG Curtailment Solutions, Inc NRG Development Company Inc. NRG Devon Operations Inc. NRG Dispatch Services LLC Ace Energy, Inc. Allied Home Warranty GP LLC Allied Warranty LLC Arthur Kill Power LLC Astoria Gas Turbine Power LLC Bayou Cove Peaking Power, LLC BidURenergy, Inc. Cabrillo Power I LLC Cabrillo Power II LLC Carbon Management Solutions LLC Cirro Group, Inc. Cirro Energy Services, Inc. Conemaugh Power LLC Connecticut Jet Power LLC Cottonwood Development LLC Cottonwood Energy Company LP Cottonwood Generating Partners I LLC Cottonwood Generating Partners II LLC Cottonwood Generating Partners III LLC NRG Distributed Energy Resources Holdings Cottonwood Technology Partners LP Devon Power LLC Dunkirk Power LLC Eastern Sierra Energy Company LLC El Segundo Power, LLC El Segundo Power II LLC Energy Alternatives Wholesale, LLC Energy Choice Solutions LLC Energy Plus Holdings LLC Energy Plus Natural Gas LLC Energy Protection Insurance Company Everything Energy LLC Forward Home Security, LLC GCP Funding Company, LLC Green Mountain Energy Company Gregory Partners, LLC Gregory Power Partners LLC Huntley Power LLC Independence Energy Alliance LLC Independence Energy Group LLC Independence Energy Natural Gas LLC Indian River Operations Inc. Indian River Power LLC Keystone Power LLC Langford Wind Power, LLC Louisiana Generating LLC Meriden Gas Turbines LLC Middletown Power LLC Montville Power LLC NEO Corporation NRG Distributed Generation PR LLC NRG Dunkirk Operations Inc. NRG El Segundo Operations Inc. NRG Energy Efficiency-L LLC NRG Energy Labor Services LLC NRG ECOKAP Holdings LLC NRG Energy Services Group LLC NRG Energy Services International Inc. NRG Energy Services LLC NRG Generation Holdings, Inc. NRG Greenco LLC NRG Home & Business Solutions LLC NRG Home Services LLC NRG Home Solutions LLC NRG Home Solutions Product LLC NRG Homer City Services LLC NRG Huntley Operations Inc. NRG HQ DG LLC NRG Identity Protect LLC NRG Ilion Limited Partnership NRG Ilion LP LLC NRG International LLC NRG Maintenance Services LLC NRG Mextrans Inc. NRG MidAtlantic Affiliate Services Inc. NRG Middletown Operations Inc. NRG Montville Operations Inc. NRG New Roads Holdings LLC NRG North Central Operations Inc. NRG Northeast Affiliate Services Inc. NRG Saguaro Operations Inc. NRG Security LLC NRG Services Corporation NRG SimplySmart Solutions LLC NRG South Central Affiliate Services Inc. NRG South Central Generating LLC NRG South Central Operations Inc. NRG South Texas LP NRG SPV #1 LLC NRG Texas C&I Supply LLC NRG Texas Gregory LLC NRG Texas Holding Inc. NRG Texas LLC NRG Texas Power LLC NRG Warranty Services LLC NRG West Coast LLC NRG Western Affiliate Services Inc. O'Brien Cogeneration, Inc. II ONSITE Energy, Inc. Oswego Harbor Power LLC Reliant Energy Northeast LLC Reliant Energy Power Supply, LLC Reliant Energy Retail Holdings, LLC Reliant Energy Retail Services, LLC RERH Holdings, LLC Saguaro Power LLC Somerset Operations Inc. Somerset Power LLC Texas Genco GP, LLC Texas Genco Holdings, Inc. Texas Genco LP, LLC Texas Genco Services, LP US Retailers LLC Vienna Operations Inc. Vienna Power LLC WCP (Generation) Holdings LLC West Coast Power LLC 214 215 NRG ENERGY, INC. AND SUBSIDIARIES NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME For the Year Ended December 31, 2017 For the Year Ended December 31, 2017 Net Loss Other Comprehensive (Loss)/Income, net of tax Unrealized gain on derivatives, net Foreign currency translation adjustments, net Available-for-sale securities, net Defined benefit plan, net Other comprehensive (loss)/income Comprehensive Loss Less: Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests Comprehensive Loss Attributable to NRG Energy, Inc. Guarantor Subsidiaries Non- Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) (In millions) Eliminations(a) Consolidated Balance $ (1,001) $ (356) $ (2,169) $ 1,189 $ (2,337) 1 6 — (24) (17) (1,018) 13 7 — 29 49 (307) 25 — (8) 41 58 (2,111) (26) (1) — — (27) 1,162 13 12 (8) 46 63 (2,274) — (103) (16) (60) (179) $ (1,018) $ (204) $ (2,095) $ 1,222 $ (2,095) (a) All significant intercompany transactions have been eliminated in consolidation. Operating Revenues Total operating revenues Operating Costs and Expenses Cost of operations Depreciation and amortization Impairment losses Selling, general and administrative Reorganization costs Development costs Total operating costs and expenses Other income - affiliate Gain on sale of assets Operating (Loss)/Income Other (Expense)/Income Equity in (losses)/earnings of consolidated subsidiaries Equity in earnings/(losses) of unconsolidated affiliates Impairment losses on investments Other income, net Net loss on debt extinguishment Interest expense Total other expense Loss from Continuing Operations Before Income Taxes Income tax (benefit)/expense Loss from Continuing Operations Loss from Discontinued Operations, net of income tax Net Loss Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) Eliminations (a) Consolidated Balance (In millions) $ 7,182 $ 3,699 $ — $ (252) $ 10,629 5,373 405 1,463 371 6 — 7,618 — 4 (432) (1,162) — — 9 — (14) (1,167) (1,599) (598) (1,001) — (1,001) 2,353 619 246 146 — 49 3,413 — 12 298 (113) 95 (75) 17 (4) (424) (504) (206) (10) (196) (160) (356) 59 32 — 393 38 18 540 87 — (453) (249) — — (3) — — (252) — — — 26 1,249 (4) (4) 12 (49) (452) (471) (924) 616 (1,540) (629) (2,169) (60) — — — — 1,189 1,189 — 1,189 — 1,189 7,536 1,056 1,709 907 44 67 11,319 87 16 (587) — 31 (79) 38 (53) (890) (953) (1,540) 8 (1,548) (789) (2,337) Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests Net Loss Attributable to NRG Energy, Inc. $ — (1,001) $ (108) (248) $ (16) (2,153) $ (60) 1,249 $ (184) (2,153) (a) All significant intercompany transactions have been eliminated in consolidation. 216 217 NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2017 Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. Eliminations (a) Consolidated Balance (In millions) ASSETS Current Assets Cash and cash equivalents Funds deposited by counterparties Restricted cash Accounts receivable - trade Inventory Derivative instruments Cash collateral posted in support of energy risk management activities Accounts receivable - affiliate Current assets held-for-sale Prepayments and other current assets Total current assets Net Property, Plant and Equipment Other Assets Investment in subsidiaries Equity investments in affiliates Notes receivable, less current portion Goodwill Intangible assets, net Nuclear decommissioning trust fund Deferred income taxes Derivative instruments Non-current assets held-for-sale Other non-current assets Total other assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and capital leases Accounts payable Accounts payable - affiliate Derivative instruments Cash collateral received in support of energy risk management activities Accrued interest expense Current liabilities - held-for-sale Other accrued expenses and other current liabilities Other accrued expenses and other current liabilities - affiliate Total current liabilities Other Liabilities Long-term debt and capital leases Nuclear decommissioning reserve Nuclear decommissioning trust liability Postretirement and other benefit obligations Deferred income taxes Derivative instruments Out-of-market contracts, net Non-current liabilities held-for-sale Other non-current liabilities Total non-current liabilities Total Liabilities Redeemable noncontrolling interest in subsidiaries Stockholders' Equity $ $ $ — $ 37 4 769 339 625 170 712 8 116 2,780 2,527 (106) — — 360 458 692 377 121 — 51 1,953 $ 348 — 504 306 193 80 1 210 107 118 1,867 11,169 28 1,036 2 179 1,291 — (7) 40 43 458 3,070 643 — — 4 — 9 — (129) — 27 554 238 7,581 2 36 — — — (236) 31 — 120 7,534 $ — $ — — — — (88) — (698) — — (786) (26) (7,503) — (36) — (3) — — (20) — — (7,562) 991 37 508 1,079 532 626 171 95 115 261 4,415 13,908 — 1,038 2 539 1,746 692 134 172 43 629 4,995 7,260 $ 16,106 $ 8,326 $ (8,374) $ 23,318 — $ 546 752 535 37 3 — 288 — 2,161 244 269 415 118 112 110 66 — 295 1,629 3,790 — 3,470 $ 667 280 (202) 108 — 56 72 118 — 1,099 8,733 — — 1 64 107 141 8 317 9,371 10,470 78 5,558 57 55 181 — — 97 — 328 161 879 6,739 — — 339 (155) — — — 52 6,975 7,854 — 472 $ (36) $ — (698) (88) — — — — — (822) — — — — — (20) — — — (20) (842) — (7,532) 688 881 33 555 37 156 72 734 161 3,317 15,716 269 415 458 21 197 207 8 664 17,955 21,272 78 1,968 Total Liabilities and Stockholders' Equity $ 7,260 $ 16,106 $ 8,326 $ (8,374) $ 23,318 (a) All significant intercompany transactions have been eliminated in consolidation. NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2017 Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) Eliminations(a) Consolidated Balance Cash Flows from Operating Activities Net loss Loss from discontinued operations Net loss from continuing operations $ $ (1,001) — (1,001) Adjustments to reconcile net loss to net cash provided by operating activities: Equity in earnings and distributions from unconsolidated affiliates Depreciation and amortization Provision for bad debts Amortization of nuclear fuel Amortization of financing costs and debt discount/premiums Adjustment for debt extinguishment Amortization of intangibles and out-of-market contracts Amortization of unearned equity compensation Net gain on sale of assets and equity method investments Impairment losses Changes in derivative instruments Changes in deferred income taxes and liability for uncertain tax benefits Changes in collateral deposits in support of energy risk management activities Proceeds from sale of emission allowances Changes in nuclear decommissioning trust liability Cash (used)/provided by changes in other working capital Cash provided by continuing operations Cash used by discontinued operations Net Cash Provided by Operating Activities Cash Flows from Investing Activities Dividends from NRG Yield, Inc. Acquisition of Drop Down Assets, net of cash acquired Intercompany dividends Acquisition of businesses, net of cash acquired Capital expenditures Net cash proceeds from notes receivable Proceeds from renewable energy grants Proceeds from sale of emission allowances Investments in nuclear decommissioning trust fund securities Proceeds from sales of nuclear decommissioning trust fund securities Proceeds from sale of assets, net Investments in unconsolidated affiliates Other Cash (used)/provided by continuing operations Cash used by discontinued operations Net Cash (Used)/Provided by Investing Activities Cash Flows from Financing Activities Dividends from NRG Yield, Inc. Payments from/(for) intercompany loans Acquisition of Drop Down Assets, net of cash acquired Intercompany dividends Payment of dividends to common and preferred stockholders Net receipts from settlement of acquired derivatives that include financing elements Payments for debt extinguishment costs Distributions from, net of contributions to, noncontrolling interest in subsidiaries Payments from issuance of common stock Proceeds from issuance of long-term debt Payment of debt issuance and hedging costs Payments for short and long-term debt Receivable from affiliate Other Cash provided/(used) by continuing operations Cash used by discontinued operations Net Cash Provided/(Used) by Financing Activities Effect of exchange rate changes on cash and cash equivalents Change in cash from discontinued operations Net Increase/(Decrease) in Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties at Beginning of Period Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties at End of Period (a) All significant intercompany transactions have been eliminated in consolidation. — 405 54 51 — — 27 — (18) 1,463 (100) (300) (98) 25 11 (363) 156 — 156 — — — (14) (183) — 8 66 (512) 501 33 — 18 (83) — (83) — (45) — — — — — — — — — — — — (45) — (45) — — 28 13 (356) (160) (196) 5 619 2 — 42 4 81 — (16) 321 (69) 69 18 — — (164) 716 (38) 678 — (249) — (27) (906) 17 — — — — 54 (40) (6) (1,157) (53) (1,210) (94) 13 — (129) — 2 — 95 — 1,186 (47) (647) (125) (10) 244 (224) 20 (1) (315) (198) 1,050 $ $ (2,169) (629) (1,540) $ 1,189 — 1,189 (2,337) (789) (1,548) 4 32 12 — 18 49 — 35 — 4 24 322 — — — 1,593 553 — 553 94 — 129 — (22) — — — — — — — — 201 — 201 — 32 249 — (38) — (42) — (2) 1,084 (16) (1,701) — — (434) — (434) — — 320 323 46 — — — — — — — — — (26) — — — — (1,209) — — — (94) 249 (129) — — — — — — — — — — 26 — 26 94 — (249) 129 — — — — — — — — — — (26) — (26) — — — — 55 1,056 68 51 60 53 108 35 (34) 1,788 (171) 91 (80) 25 11 (143) 1,425 (38) 1,387 — — — (41) (1,111) 17 8 66 (512) 501 87 (40) 12 (1,013) (53) (1,066) — — — — (38) 2 (42) 95 (2) 2,270 (63) (2,348) (125) (10) (261) (224) (485) (1) (315) 150 1,386 $ 41 $ 852 $ 643 $ — $ 1,536 218 219 NRG ENERGY, INC. AND SUBSIDIARIES NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME For the Year Ended December 31, 2016 For the Year Ended December 31, 2016 Net Income/(Loss) Other Comprehensive Income, net of tax Unrealized gain on derivatives, net Foreign currency translation adjustments, net Available-for-sale securities, net Defined benefit plan, net Other comprehensive income Comprehensive Income/(Loss) Less: Comprehensive (loss)/income attributable to noncontrolling interests and redeemable noncontrolling interests Comprehensive Income/(Loss) Attributable to NRG Energy, Inc. Dividends for preferred shares Gain on redemption of preferred shares Comprehensive Income/(Loss) Available for Common Stockholders Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) Eliminations(a) Consolidated Balance $ 567 $ (538) $ (718) $ (202) $ (891) (In millions) — (1) — 34 33 600 — 600 — — 32 (1) — (13) 18 (520) (103) (417) — — 89 (1) 1 (51) 38 (680) 56 (736) 5 (78) (86) 2 — 33 (51) (253) (70) (183) — — 35 (1) 1 3 38 (853) (117) (736) 5 (78) $ 600 $ (417) $ (663) $ (183) $ (663) (a) All significant intercompany transactions have been eliminated in consolidation. Operating Revenues Total operating revenues Operating Costs and Expenses Cost of operations Depreciation and amortization Impairment losses Selling, general and administrative Development costs Total operating costs and expenses Other income - affiliate Loss on sale of assets Operating Income/(Loss) Other (Expense)/Income Equity in (losses)/earnings of consolidated subsidiaries Equity in earnings/(losses) of unconsolidated affiliates Impairment losses on investments Other income, net Net loss on debt extinguishment Interest expense Total other expense Income/(Loss) from Continuing Operations Before Income Taxes Income tax (benefit)/expense Income/(Loss) from Continuing Operations Income from Discontinued Operations, net of income tax Net Income/(Loss) Less: Net (loss)/income attributable to noncontrolling interests and redeemable noncontrolling interests Net Income/(Loss) Attributable to NRG Energy, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) (In millions) Eliminations (a) Consolidated Balance $ 7,509 $ 3,222 $ — $ (219) $ 10,512 5,402 565 378 415 — 6,760 — (1) 748 (176) 5 — 4 — (15) (182) 566 (1) 567 — 567 2,080 581 324 192 59 3,236 — — (14) (5) 36 (252) 23 (4) (396) (598) (612) 7 (619) 81 (538) 42 26 — 488 30 586 193 (79) (472) 313 (4) (16) 9 (138) (484) (320) (792) (63) (729) 11 (718) (223) — — — — (223) — — 4 (132) (10) — (2) — — (144) (140) 62 (202) — (202) 7,301 1,172 702 1,095 89 10,359 193 (80) 266 — 27 (268) 34 (142) (895) (1,244) (978) 5 (983) 92 (891) — (103) 56 (70) (117) $ 567 $ (435) $ (774) $ (132) $ (774) (a) All significant intercompany transactions have been eliminated in consolidation. 220 221 NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2016 Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. Eliminations (a) Consolidated Balance ASSETS Current Assets Cash and cash equivalents Funds deposited by counterparties Restricted cash Accounts receivable - trade Inventory Derivative instruments Cash collateral posted in support of energy risk management activities Accounts receivable - affiliate Current assets held-for-sale Prepayments and other current assets Current assets - discontinued operations Total current assets Net Property, Plant and Equipment Other Assets Investment in subsidiaries Equity investments in affiliates Notes receivable, less current portion Goodwill Intangible assets, net Nuclear decommissioning trust fund Derivative instruments Deferred income taxes Non-current assets held for sale Other non-current assets Non-current assets - discontinued operations Total other assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and capital leases Accounts payable Accounts payable - affiliate Derivative instruments Cash collateral received in support of energy risk management activities Accrued interest expense Other accrued expenses and other current liabilities Current liabilities - discontinued operations Total current liabilities Other Liabilities Long-term debt and capital leases Nuclear decommissioning reserve Nuclear decommissioning trust liability Postretirement and other benefit obligations Deferred income taxes Derivative instruments Out-of-market contracts, net Non-current liabilities held-for-sale Other non-current liabilities Other non-current liabilities - discontinued operations Total non-current liabilities Total Liabilities Redeemable noncontrolling interest in subsidiaries Stockholders' Equity Total Liabilities and Stockholders' Equity $ — $ 2 11 734 482 962 116 307 — 76 — 2,690 4,219 1,090 (13) — 359 592 610 144 3 — 67 — 2,852 9,761 $ — $ 501 753 947 81 3 313 — 2,598 244 287 339 113 186 157 80 — 283 — 1,689 4,287 — 5,474 9,761 $ $ $ $ (a) All significant intercompany transactions have been eliminated in consolidation. $ 615 — 435 321 239 196 34 (254) 9 152 1,919 3,666 10,926 145 1,103 16 303 1,384 — 44 — 10 446 2,961 6,412 21,004 498 247 (443) 237 — 54 155 1,210 1,958 8,252 — — 122 125 170 150 11 309 3,184 12,323 14,281 46 6,677 21,004 $ $ $ 323 — — 3 — 1 — 200 — 62 — 589 251 10,128 30 (76) — — — 36 222 — 328 — 10,668 11,508 $ $ (58) $ 34 (200) — — 123 342 — 241 7,461 — — 275 (291) — — — 74 — 7,519 7,760 — 3,748 11,508 $ — $ — — — — (92) — (139) — — — (231) (27) (11,363) — 76 — (3) — (43) — — — — (11,333) (11,591) $ $ 76 — (79) (92) — — — — (95) — — — — — (43) — — — — (43) (138) — (11,453) (11,591) $ 938 2 446 1,058 721 1,067 150 114 9 290 1,919 6,714 15,369 — 1,120 16 662 1,973 610 181 225 10 841 2,961 8,599 30,682 516 782 31 1,092 81 180 810 1,210 4,702 15,957 287 339 510 20 284 230 11 666 3,184 21,488 26,190 46 4,446 30,682 NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2016 Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) (In millions) Eliminations(a) Consolidated Balance Cash Flows from Operating Activities Net income/(loss) Income from discontinued operations Net income/(loss) from continuing operations Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Equity in earnings and distribution of unconsolidated affiliates Depreciation and amortization Provision for bad debts Amortization of nuclear fuel Amortization of financing costs and debt discount/premiums Adjustment for debt extinguishment Amortization of intangibles and out-of-market contracts Amortization of unearned equity compensation Net loss on sale of assets and equity method investments, net Impairment losses Changes in derivative instruments Changes in deferred income taxes and liability for uncertain tax benefits Changes in collateral deposits in support of energy risk management activities Proceeds from sale of emission allowances Changes in nuclear decommissioning trust liability Cash (used)/provided by changes in other working capital Cash provided by continuing operations Cash used by discontinued operations Net Cash Provided by Operating Activities Cash Flows from Investing Activities Dividends from NRG Yield, Inc. Intercompany dividends Acquisition of Drop Down Assets, net of cash acquired Acquisition of businesses, net of cash acquired Capital expenditures Net cash proceeds from notes receivable Proceeds from renewable energy grants Purchases of emission allowances, net of proceeds Investments in nuclear decommissioning trust fund securities Proceeds from sales of nuclear decommissioning trust fund securities Proceeds from sale of assets, net Investments in unconsolidated affiliates Other Cash (used)/provided by continuing operations Cash provided by discontinued operations Net Cash (Used)/Provided by Investing Activities Cash Flows from Financing Activities Dividends from NRG Yield, Inc. Intercompany dividends Payments (for)/from intercompany loans Acquisition of Drop Down Assets, net of cash acquired Payment of dividends to common and preferred stockholders Net receipts from settlement of acquired derivatives that include financing elements Payment for preferred shares Payments for debt extinguishment costs Distributions from, net of contributions to, noncontrolling interest in subsidiaries Proceeds from issuance of common stock Proceeds from issuance of long-term debt Payment of debt issuance and hedging costs Payments for short and long-term debt Other Cash (used)/provided by continuing operations Cash provided by discontinued operations Net Cash (Used)/Provided by Financing Activities Effect of exchange rate changes on cash and cash equivalents Change in cash from discontinued operations Net (Decrease)/Increase in Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties at Beginning of Period Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties at End of Period $ $ 567 — 567 (538) $ 81 (619) (718) $ 11 (729) (202) $ — (202) (5) 565 41 49 — — 39 — — 378 (77) (1) 437 34 41 (1,815) 253 — 253 — — — — (180) — — (1) (551) 510 — 3 27 (192) — (192) — (52) (52) — — — — — — — — — (1) (3) (108) — (108) — — (47) 60 52 581 7 — 34 4 128 — — 578 145 18 (39) — — 417 1,306 (119) 1,187 — — (77) (209) (748) 17 36 — — — 56 (26) — (951) 297 (654) (81) 40 (49) — — 6 — — (156) — 1,387 (29) (983) (10) 125 140 265 1 318 481 569 5 26 — — 21 138 — 10 70 16 (36) (60) — — — 1,187 648 — 648 81 12 — — (48) — — — — — 17 — 8 70 — 70 — — 101 77 (76) — (226) (121) — 1 4,140 (60) (4,924) — (1,088) — (1,088) — — (370) 693 2 — — — — — — — — — — — — — — 200 — — — (81) (12) 77 — — — — — — — — — — (16) — (16) 81 12 — (77) — — — — — — — — — — 16 — 16 — — — — $ 13 $ 1,050 $ 323 $ — $ (891) 92 (983) 54 1,172 48 49 55 142 167 10 70 972 32 (43) 398 34 41 (11) 2,207 (119) 2,088 — — — (209) (976) 17 36 (1) (551) 510 73 (23) 35 (1,089) 297 (792) — — — — (76) 6 (226) (121) (156) 1 5,527 (89) (5,908) (13) (1,055) 140 (915) 1 318 64 1,322 1,386 222 (a) All significant intercompany transactions have been eliminated in consolidation. 223 NRG ENERGY, INC. AND SUBSIDIARIES NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME For the Year Ended December 31, 2015 For the Year Ended December 31, 2015 Net Loss Other Comprehensive (Loss)/Income, net of tax Unrealized (loss)/gain on derivatives, net Foreign currency translation adjustments, net Available-for-sale securities, net Defined benefit plan, net Other comprehensive (loss)/income Comprehensive Loss Less: Comprehensive (loss)/income attributable to noncontrolling interest Comprehensive Loss Attributable to NRG Energy, Inc. Dividends for preferred shares Comprehensive Loss Available for Common Stockholders Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) Eliminations(a) Consolidated Balance $ (2,449) $ (484) $ (6,351) $ 2,848 $ (6,436) (In millions) (8) — — (22) (30) (2,479) — (2,479) — (16) (7) (1) (15) (39) (523) (42) (481) — 48 (4) 18 (42) 20 (6,331) (39) — — 89 50 2,898 (15) (11) 17 10 1 (6,435) 31 (62) (73) (6,362) 20 2,960 — (6,362) 20 $ (2,479) $ (481) $ (6,382) $ 2,960 $ (6,382) (a) All significant intercompany transactions have been eliminated in consolidation. Operating Revenues Total operating revenues Operating Costs and Expenses Cost of operations Depreciation and amortization Impairment losses Selling, general and administrative Development costs Total operating costs and expenses Other income - affiliate Gain on postretirement benefits curtailment Operating Loss Other (Expense)/Income Equity in losses of consolidated subsidiaries Equity in earnings of unconsolidated affiliates Impairment losses on investments Other income, net Loss on sale of equity-method investment Net (loss)/gain on debt extinguishment Interest expense Total other expense Loss from Continuing Operations Before Income Taxes Income tax (benefit)/expense Loss from Continuing Operations Loss/(income) from Discontinued Operations, net of income tax Net Loss Less: Net (loss)/income attributable to noncontrolling interests and redeemable noncontrolling interests Net Loss Attributable to NRG Energy, Inc. $ Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. Eliminations (a) Consolidated Balance (In millions) $ 9,881 $ 2,541 $ — $ (94) $ 12,328 7,610 751 4,494 468 — 13,323 — — (3,442) (109) 8 — 4 — — (14) (111) (3,553) (1,104) (2,449) — (2,449) 1,470 580 366 204 61 2,681 — 21 (119) (1) 37 (25) 21 — (9) (366) (343) (462) (93) (369) (115) (484) 14 20 — 556 93 683 193 — (490) (2,800) — (31) 1 (14) 19 (557) (3,382) (3,872) 2,489 (6,361) 10 (6,351) (94) — — — — (94) — — — 2,910 (9) — — — — — 2,901 2,901 53 2,848 — 2,848 9,000 1,351 4,860 1,228 154 16,593 193 21 (4,051) — 36 (56) 26 (14) 10 (937) (935) (4,986) 1,345 (6,331) (105) (6,436) — (2,449) $ (23) (461) $ 31 (6,382) $ (62) 2,910 $ (54) (6,382) (a) All significant intercompany transactions have been eliminated in consolidation. 224 225 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2017, 2016, and 2015 Allowance for doubtful accounts, deducted from accounts receivable Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015 Income tax valuation allowance, deducted from deferred tax assets(b) Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts (In millions) Deductions Balance at End of Period $ $ 29 21 21 $ 56 47 62 — $ — — (57) (a) $ (39) (a) (62) (a) 28 29 21 Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015 $ 4,116 $ 3,575 265 (151) $ 306 3,039 (15) $ (2,087) (c) $ 235 — 271 — 1,863 4,116 3,575 (a) Represents principally net amounts charged as uncollectible. (b) Includes income tax valuation allowance deducted from deferred tax assets recorded as discontinued operations, which amounted to $2,087 million and $2,194 million as of December 31, 2016 and 2015, respectively. (c) Represents deconsolidation of GenOn due to its petition for bankruptcy on June 14, 2017. NRG ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2015 Cash Flows from Operating Activities Net loss (Loss)/income from discontinued operations Net loss from continuing operations Adjustments to reconcile net loss to net cash (used)/provided by operating activities: Equity in earnings and distribution of unconsolidated affiliates Depreciation and amortization Provision for bad debts Amortization of nuclear fuel Amortization of financing costs and debt discount/premiums Adjustment for debt extinguishment Amortization of intangibles and out-of-market contracts Amortization of unearned equity compensation Net loss on sale of assets and equity method investments Gain on post retirement benefits curtailment Impairment losses Changes in derivative instruments Changes in deferred income taxes and liability for uncertain tax benefits Changes in collateral deposits in support of energy risk management activities Proceeds from sale of emission allowances Changes in nuclear decommissioning trust liability Cash (used)/provided by changes in other working capital Cash (used)/provided by continuing operations Cash provided by discontinued operations Net Cash (Used)/Provided by Operating Activities Cash Flows from Investing Activities Dividends from NRG Yield, Inc. Intercompany dividends Acquisition of Drop Down Assets, net of cash acquired Acquisition of business, net of cash acquired Capital expenditures Net cash proceeds from notes receivable Proceeds from renewable energy grants Proceeds from emission allowances, net of purchases Investments in nuclear decommissioning trust fund securities Proceeds from sales of nuclear decommissioning trust fund securities Proceeds from sale of assets, net Investments in unconsolidated affiliates Other Cash (used)/provided by continuing operations Cash used by discontinued operations Net Cash (Used)/Provided by Investing Activities Cash Flows from Financing Activities Dividends from NRG Yield, Inc. Intercompany dividends Payments from/(for) intercompany loans Acquisition of Drop Down Assets, net of cash acquired Payment of dividends to common and preferred stockholders Net receipts from settlement of acquired derivatives that include financing elements Payment for treasury stock Distributions from, net of contributions to, noncontrolling interest in subsidiaries Proceeds from sale of noncontrolling interests in subsidiaries Proceeds from issuance of common stock Proceeds from issuance of long-term debt Payment of debt issuance and hedging costs Payments for short and long-term debt Other Cash provided/(used) by continuing operations Cash used by discontinued operations Net Cash Provided/(Used) by Financing Activities Effect of exchange rate changes on cash and cash equivalents Change in cash from discontinued operations Net Increase/(Decrease) in Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties at Beginning of Period Cash and Cash Equivalents, Restricted Cash, and Funds Deposited by Counterparties at End of Period Guarantor Subsidiaries Non-Guarantor Subsidiaries NRG Energy, Inc. (Note Issuer) (In millions) Eliminations(a) Consolidated Balance $ (2,449) $ — (2,449) (484) $ (115) (369) (6,351) $ 10 (6,361) $ 2,848 — 2,848 (6,436) (105) (6,331) (5) 751 58 45 — — 52 — — — 4,494 264 (1,092) (323) (24) (2) (8,656) (6,887) — (6,887) — — — — (316) — — 41 (629) 631 — 1 — (272) — (272) — — 7,183 — — — — — — — — — — — 7,183 — 7,183 — — 24 36 54 580 3 — 21 9 99 (2) — (21) 391 (29) (237) (11) — — (907) (419) 62 (357) — — (698) (31) (654) 18 82 — — — 1 (357) 16 (1,623) (259) (1,882) (70) (33) 1,258 — — 14 — 47 600 — 953 (21) (1,116) (22) 1,610 (55) 1,555 10 (252) (422) 991 — 20 3 — 26 (19) — 41 14 — 31 — 2,655 — — — 12,183 8,593 — 8,593 70 33 — — (59) — — — — — 26 (39) — 31 — 31 — — (8,441) 698 (201) — (437) — — 1 51 — (246) — (8,575) — (8,575) — — 49 644 (12) — — — — — — — — — — — — — — — (2,836) — — — (70) (33) 698 — — — — — — — — — — 595 — 595 70 33 — (698) — — — — — — — — — — (595) — (595) — — — — $ 60 $ 569 $ 693 $ — $ 37 1,351 64 45 47 (10) 151 39 14 (21) 4,916 235 1,326 (334) (24) (2) (216) 1,287 62 1,349 — — — (31) (1,029) 18 82 41 (629) 631 27 (395) 16 (1,269) (259) (1,528) — — — — (201) 14 (437) 47 600 1 1,004 (21) (1,362) (22) (377) (55) (432) 10 (252) (349) 1,671 1,322 (a) All significant intercompany transactions have been eliminated in consolidation. 226 227 Number Description Method of Filing EXHIBIT INDEX 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Third Amended Joint Plan of Reorganization of NRG Energy, Inc., NRG Power Marketing, Inc., NRG Capital LLC, NRG Finance Company I LLC, and NRGenerating Holdings (No. 23) B.V. Incorporated herein by reference to Exhibit 99.1 to the Registrant's current report on Form 8-K filed on November 19, 2003. First Amended Joint Plan of Reorganization of NRG Northeast Generating LLC (and certain of its subsidiaries), NRG South Central Generating (and certain of its subsidiaries) and Berrians I Gas Turbine Power LLC. Incorporated herein by reference to Exhibit 99.2 to the Registrant's current report on Form 8-K filed on November 19, 2003. Acquisition Agreement, dated as of September 30, 2005, by and among NRG Energy, Inc., Texas Genco LLC and the Direct and Indirect Owners of Texas Genco LLC. Incorporated herein by reference to Exhibit 2.1 to the Registrant's current report on Form 8-K filed on October 3, 2005. Purchase and Sale Agreement by and between Denali Merger Sub Inc. and NRG Energy, Inc. dated as of August 13, 2010. Incorporated herein by reference to Exhibit 99.2 to the Registrant's current report on Form 8-K filed on August 13, 2010. Agreement and Plan of Merger, dated as of July 20, 2012, by and among NRG Energy, Inc., Plus Merger Corporation and GenOn Energy, Inc. Incorporated herein by reference to Exhibit 2.1 to the Registrant's current report on Form 8-K filed on July 23, 2012. Plan Sponsor Agreement, dated October 18, 2013, by and among NRG Energy, Inc., NRG Energy Holdings, Inc., Edison Mission Energy, certain of Edison Mission Energy’s debtor subsidiaries, the Official Committee of Unsecured Creditors of Edison Mission Energy and its affiliated debtors, the PoJo Parties (as defined therein) and the proponent noteholders thereto. Incorporated herein by reference to Exhibit 2.1 to Amendment No. 1 to the Registrant’s current report on Form 8-K filed on October 21, 2013. Asset Purchase Agreement, dated October 18, 2013, by and among NRG Energy, Inc., Edison Mission Energy and NRG Energy Holdings Inc. Incorporated herein by reference to Exhibit 2.2 to Amendment No. 1 to the Registrant’s current report on Form 8-K filed on October 21, 2013. Third Amended Joint Plan of Reorganization of GenOn Energy, Inc. and its Debtor Affiliates. Incorporated herein by reference to Exhibit 2.1 to the Registrant's current report on Form 8-K filed on December 18, 2017. 2.9†^ 2.10^ Purchase and Sale Agreement, dated as of February 6, 2018, by and among NRG Energy, Inc. and NRG Repowering Holdings LLC, and GIP III Zephyr Acquisition Partners, L.P. Purchase and Sale Agreement, dated as of February 6, 2018, by and between NRG Energy, Inc., NRG South Central Generating LLC, and Cleco Energy LLC. Filed herewith. Filed herewith. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4.1 Amended and Restated Certificate of Incorporation. Certificate of Amendment to Amended and Restated Certificate of Incorporation. Fourth Amended and Restated By-Laws. Certificate of Designations relating to the Series 1 Exchangeable Limited Liability Company Preferred Interests of NRG Common Stock Finance I LLC, as filed with the Secretary of State of Delaware on August 4, 2006. Certificate of Amendment to Certificate of Designations relating to the Series 1 Exchangeable Limited Liability Company Preferred Interests of NRG Common Stock Finance I LLC, as filed with the Secretary of State of Delaware on February 27, 2008. Second Certificate of Amendment to Certificate of Designations relating to the Series 1 Exchangeable Limited Liability Company Preferred Interests of NRG Common Stock Finance I LLC, as filed with the Secretary of State of Delaware on August 8, 2008. Incorporated herein by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q filed on May 3, 2012. Incorporated herein by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on December 14, 2012. Incorporated herein by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on February 13, 2017. Incorporated herein by reference to Exhibit 10.7 to the Registrant's current report on Form 8-K filed on August 10, 2006. Incorporated herein by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q filed on May 1, 2008. Incorporated herein by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q filed on October 30, 2008. Certificate of Designations of 2.822% Convertible Perpetual Preferred Stock, as filed with the Secretary of State of the State of Delaware on December 30, 2014. Incorporated herein by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on December 30, 2014. Supplemental Indenture, dated as of December 30, 2005, among NRG Energy, Inc., the subsidiary guarantors named on Schedule A thereto and Law Debenture Trust Company of New York, as trustee. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on January 4, 2006. 4.2 4.3 4.4 4.5 4.6 4.7 4.8 Amended and Restated Common Agreement among XL Capital Assurance Inc., Goldman Sachs Mitsui Marine Derivative Products, L.P., Law Debenture Trust Company of New York, as Trustee, The Bank of New York, as Collateral Agent, NRG Peaker Finance Company LLC and each Project Company Party thereto, dated as of January 6, 2004, together with Annex A to the Common Agreement. Amended and Restated Security Deposit Agreement among NRG Peaker Finance Company, LLC and each Project Company party thereto, and the Bank of New York, as Collateral Agent and Depositary Agent, dated as of January 6, 2004. NRG Parent Agreement by NRG Energy, Inc. in favor of the Bank of New York, as Collateral Agent, dated as of January 6, 2004. Indenture dated June 18, 2002, between NRG Peaker Finance Company LLC, as Issuer, Bayou Cove Peaking Power LLC, Big Cajun I Peaking Power LLC, NRG Rockford LLC, NRG Rockford II LLC and Sterlington Power LLC, as Guarantors, XL Capital Assurance Inc., as Insurer, and Law Debenture Trust Company, as Successor Trustee to the Bank of New York. Specimen of Certificate representing common stock of NRG Energy, Inc. Indenture, dated February 2, 2006, among NRG Energy, Inc. and Law Debenture Trust Company of New York. Thirty-Sixth Supplemental Indenture, dated August 20, 2010, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.'s 8.25% Senior Notes due 2020. 4.9 Form of 8.25% Senior Note due 2020. 4.10 4.11 4.12 Registration Rights Agreement, dated August 20, 2010, among NRG Energy, Inc., the guarantors named therein and Citigroup Global Markets Inc., Banc of America Securities LLC and Deutsche Bank Securities Inc., as representatives of the several initial purchasers. Forty-First Supplemental Indenture, dated as of December 15, 2010, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.'s 8.25% Senior Notes due 2020. Forty-Second Supplemental Indenture, dated January 26, 2011, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. 4.13 Form of 7.625% Senior Note due 2018. Incorporated herein by reference to Exhibit 4.9 to the Registrant's annual report on Form 10-K filed on March 16, 2004. Incorporated herein by reference to Exhibit 4.10 to the Registrant's annual report on Form 10-K filed on March 16, 2004. Incorporated herein by reference to Exhibit 4.11 to the Registrant's annual report on Form 10-K filed on March 16, 2004. Incorporated herein by reference to Exhibit 4.23 to the Registrant's annual report on Form 10-K filed on March 31, 2003. Incorporated herein by reference to Exhibit 4.3 to the Registrant's quarterly report on Form 10-Q filed on August 4, 2006. Incorporated herein by reference to Exhibit 4.1 to the Registrant's current report on Form 8-K filed on February 6, 2006. Incorporated herein by reference to Exhibit 4.1 to the Registrant's current report on Form 8-K filed on August 20, 2010. Incorporated herein by reference to Exhibit 4.2 to the Registrant's current report on Form 8-K filed on August 20, 2010. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on August 20, 2010. Incorporated herein by reference to Exhibit 4.5 to the Registrant's current report on Form 8-K filed on December 16, 2010. Incorporated herein by reference to Exhibit 4.1 to the Registrant's current report on Form 8-K filed on January 28, 2011. Incorporated herein by reference to Exhibit 4.2 to the Registrant's current report on Form 8-K filed on January 28, 2011. 4.14 4.15 4.16 4.17 Registration Rights Agreement, dated January 26, 2011, among NRG Energy, Inc., the guarantors named therein and J.P. Morgan Securities LLC, as initial purchaser. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on January 28, 2011. Forty-Eighth Supplemental Indenture, dated May 20, 2011, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Forty-Ninth Supplemental Indenture, dated May 20, 2011, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Fifty-First Supplemental Indenture, dated May 24, 2011, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Incorporated herein by reference to Exhibit 4.4 to the Registrant's current report on Form 8-K filed on May 25, 2011. Incorporated herein by reference to Exhibit 4.5 to the Registrant's current report on Form 8-K filed on May 25, 2011. Incorporated herein by reference to Exhibit 4.3 to the Registrant's current report on Form 8-K filed on May 25, 2011. 228 229 4.18 Form of 7.875% Senior Note due 2021. 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 Registration Rights Agreement, dated May 24, 2011, among NRG Energy, Inc., the guarantors named therein and Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC and RBS Securities Inc., as representatives of the initial purchasers. Fifty-Fourth Supplemental Indenture, dated November 8, 2011, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Fifty-Fifth Supplemental Indenture, dated November 8, 2011, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Fifty-Seventh Supplemental Indenture, dated November 8, 2011, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Sixtieth Supplemental Indenture, dated April 5, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Sixty-First Supplemental Indenture, dated April 5, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Sixty-Third Supplemental Indenture, dated April 5, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Sixty-Sixth Supplemental Indenture, dated May 9, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Sixty-Seventh Supplemental Indenture, dated May 9, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Sixty-Ninth Supplemental Indenture, dated May 9, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Seventieth Supplemental Indenture, dated September 24, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 6.625% Senior Notes due 2023. 4.30 Form of 6.625% Senior Note due 2023. 4.31 Seventy-Second Supplemental Indenture, dated October 9, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Incorporated herein by reference to Exhibit 4.4 to the Registrant's current report on Form 8-K filed on May 25, 2011. Incorporated herein by reference to Exhibit 4.5 to the Registrant's current report on Form 8-K filed on May 25, 2011. Incorporated herein by reference to Exhibit 4.3 to the Registrant's current report on Form 8-K filed on November 8, 2011. Incorporated herein by reference to Exhibit 4.4 to the Registrant's current report on Form 8-K filed on November 8, 2011. Incorporated herein by reference to Exhibit 4.6 to the Registrant's current report on Form 8-K filed on November 8, 2011. Incorporated herein by reference to Exhibit 4.3 to the Registrant's current report on Form 8-K filed on April 6, 2012. Incorporated herein by reference to Exhibit 4.4 to the Registrant's current report on Form 8-K filed on April 6, 2012. Incorporated herein by reference to Exhibit 4.6 to the Registrant's current report on Form 8-K filed on April 6, 2012. Incorporated herein by reference to Exhibit 4.3 to the Registrant's current report on Form 8-K filed on May 11, 2012. Incorporated herein by reference to Exhibit 4.4 to the Registrant's current report on Form 8-K filed on May 11, 2012. Incorporated herein by reference to Exhibit 4.6 to the Registrant's current report on Form 8-K filed on May 11, 2012. Incorporated herein by reference to Exhibit 4.1 to the Registrant's current report on Form 8-K filed on September 24, 2012. Incorporated herein by reference to Exhibit 4.2 to the Registrant's current report on Form 8-K filed on September 24, 2012. Incorporated herein by reference to Exhibit 4.2 to the Registrant's current report on Form 8-K filed on October 12, 2012. 4.32 4.33 4.34 4.35 4.36 4.37 4.38 4.39 4.40 4.41 4.42 4.43 4.44 4.45 4.46 4.47 4.48 Seventy-Third Supplemental Indenture, dated October 9, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Seventy-Fifth Supplemental Indenture, dated October 9, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Seventy-Sixth Supplemental Indenture, dated October 9, 2012, among NRG Energy, Inc., the existing guarantors named therein, the guaranteeing subsidiaries named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.’s 6.625% Senior Notes due 2023. Senior Indenture, dated December 22, 2004, between Reliant Energy, Inc. and Wilmington Trust Company. Fourth Supplemental Indenture, dated June 13, 2007, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company as Trustee, re: GenOn Energy, Inc.’s 7.625% Senior Notes due 2014. Fifth Supplemental Indenture, dated June 13, 2007, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company as Trustee, re: GenOn Energy, Inc.’s 7.875% Senior Notes due 2017. Indenture, dated May 1, 2001, between Mirant Americas Generation, Inc. and Bankers Trust Company as Trustee. Incorporated herein by reference to Exhibit 4.3 to the Registrant's current report on Form 8-K filed on October 12, 2012. Incorporated herein by reference to Exhibit 4.5 to the Registrant's current report on Form 8-K filed on October 12, 2012. Incorporated herein by reference to Exhibit 4.6 to the Registrant's current report on Form 8-K filed on October 12, 2012. Incorporated herein by reference to Exhibit 4.1 to GenOn Energy, Inc.’s current report on Form 8-K filed on December 27, 2004. Incorporated herein by reference to Exhibit 4.1 to GenOn Energy Inc.'s current report on Form 8-K filed on June 15, 2007. Incorporated herein by reference to Exhibit 4.2 to GenOn Energy Inc.'s current report on Form 8-K filed June 15, 2007. Incorporated herein by reference to Exhibit 4.1 to Mirant Americas Generation, Inc.'s Registration Statement on Form S-4 filed on June 18, 2001. Third Supplemental Indenture, dated May 1, 2001, between Mirant Americas Generation, Inc. and Bankers Trust Company as Trustee, re: GenOn Americas Generation, LLC’s 9.125% Senior Notes due 2031. Incorporated herein by reference to Exhibit 4.4 to Mirant Americas Generation, Inc.'s Registration Statement on Form S-4 filed on June 18, 2001. Fifth Supplemental Indenture, dated October 9, 2001, between Mirant Americas Generation, Inc. and Bankers Trust Company as Trustee, re: GenOn Americas Generation, LLC’s 8.5% Senior Notes due 2021. Incorporated herein by reference to Exhibit 4.6 to Mirant Americas Generation, Inc.'s Registration Statement on Form S-4/A filed on May 7, 2002. Sixth Supplemental Indenture, dated November 1, 2001, between Mirant Americas Generation LLC and Bankers Trust Company, re: Indenture, dated May 1, 2001. Incorporated herein by reference to Exhibit 4.6 to Mirant Corporation's annual report on Form 10-K filed on February 27, 2009. Seventh Supplemental Indenture, dated January 3, 2006, between Mirant Americas Generation LLC and Wells Fargo Bank National Association (as successor to Bankers Trust Company), re: Indenture, dated May 1, 2001. Incorporated herein by reference to Exhibit 4.1 to Mirant Americas Generation, LLC's quarterly report on Form 10-Q filed on May 14, 2007. Senior Notes Indenture, dated October 4, 2010, by GenOn Escrow Corp. and Wilmington Trust Company as trustee, re: GenOn Energy, Inc.’s 9.5% Senior Notes due 2018 and 9.875% Senior Notes due 2020. Incorporated by reference to Exhibit 4.4 to Mirant Corporation's quarterly report on Form 10-Q filed on November 5, 2010. Supplemental Indenture, dated December 3, 2010, by and among GenOn Energy, Inc., GenOn Escrow Corp. and Wilmington Trust Company as trustee, re: GenOn Energy, Inc.’s 9.5% Senior Notes due 2018 and 9.875% Senior Notes due 2020. Seventy-Eighth Supplemental Indenture, dated as of January 3, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Seventy-Ninth Supplemental Indenture, dated as of January 3, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Eighty-First Supplemental Indenture, dated as of January 3, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Eighty-Second Supplemental Indenture, dated as of January 3, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 6.625% Senior Notes due 2023. Incorporated by reference to Exhibit 4.2 to GenOn Energy Inc.'s current report on Form 8-K filed on December 7, 2010. Incorporated herein by reference to Exhibit 4.2 to the Registrant’s current report on Form 8-K filed on January 9, 2013. Incorporated herein by reference to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed on January 9, 2013. Incorporated herein by reference to Exhibit 4.5 to the Registrant’s current report on Form 8-K filed on January 9, 2013. Incorporated herein by reference to Exhibit 4.6 to the Registrant’s current report on Form 8-K filed on January 9, 2013. 230 231 4.49 4.50 4.51 4.52 4.53 4.54 4.55 4.56 4.57 4.58 4.59 4.60 4.61 4.62 4.63 4.64 4.65 Eighty-Fourth Supplemental Indenture, dated as of March 13, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Eighty-Fifth Supplemental Indenture, dated as of March 13, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Eighty-Seventh Supplemental Indenture, dated as of March 13, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Eighty-Eighth Supplemental Indenture, dated as of March 13, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 6.625% Senior Notes due 2023. Incorporated herein by reference to Exhibit 4.2 to the Registrant’s current report on Form 8-K filed on March 13, 2013. Incorporated herein by reference to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed on March 13, 2013. Incorporated herein by reference to Exhibit 4.5 to the Registrant’s current report on Form 8-K filed on March 13, 2013. Incorporated herein by reference to Exhibit 4.6 to the Registrant’s current report on Form 8-K filed on March 13, 2013. Eighty-Ninth Supplemental Indenture, dated as of March 13, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.7 to the Registrant’s current report on Form 8-K filed on March 13, 2013. Ninety-First Supplemental Indenture, dated as of May 2, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Ninety-Second Supplemental Indenture, dated as of May 2, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. Ninety-Fourth Supplemental Indenture, dated as of May 2, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. Ninety-Fifth Supplemental Indenture, dated as of May 2, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 6.625% Senior Notes due 2023. Ninety-Seventh Supplemental Indenture, dated as of September 4, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. Ninety-Eighth Supplemental Indenture, dated as of September 4, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018 One Hundredth Supplemental Indenture, dated as of September 4, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. One Hundred-First Supplemental Indenture, dated as of September 4, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 6.625% Senior Notes due 2023. One Hundred-Third Supplemental Indenture, dated as of October 7, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 8.25% Senior Notes due 2020. One Hundred-Fourth Supplemental Indenture, dated as of October 7, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.625% Senior Notes due 2018. One Hundred-Sixth Supplemental Indenture, dated as of October 7, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 7.875% Senior Notes due 2021. One Hundred-Seventh Supplemental Indenture, dated as of October 7, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 6.625% Senior Notes due 2023. Incorporated herein by reference to Exhibit 4.2 to the Registrant’s current report on Form 8-K filed on May 3, 2013. Incorporated herein by reference to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed on May 3, 2013. Incorporated herein by reference to Exhibit 4.5 to the Registrant’s current report on Form 8-K filed on May 3, 2013. Incorporated herein by reference to Exhibit 4.6 to the Registrant’s current report on Form 8-K filed on May 3, 2013. Incorporated herein by reference to Exhibit 4.2 to the Registrant’s current report on Form 8-K filed on September 6, 2013. Incorporated herein by reference to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed on September 6, 2013. Incorporated herein by reference to Exhibit 4.5 to the Registrant’s current report on Form 8-K filed on September 6, 2013. Incorporated herein by reference to Exhibit 4.6 to the Registrant’s current report on Form 8-K filed on September 6, 2013. Incorporated herein by reference to Exhibit 4.2 to the Registrant’s current report on Form 8-K filed on October 8, 2013. Incorporated herein by reference to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed on October 8, 2013. Incorporated herein by reference to Exhibit 4.5 to the Registrant’s current report on Form 8-K filed on October 8, 2013. Incorporated herein by reference to Exhibit 4.6 to the Registrant’s current report on Form 8-K filed on October 8, 2013. 4.66 4.67 One Hundred-Eighth Supplemental Indenture, dated as of November 13, 2013, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.’s 8.5% Senior Notes due 2019, 8.25% Senior Notes due 2020, 7.625% Senior Notes due 2018, 7.625% Senior Notes due 2019, 7.875% Senior Notes due 2021 and 6.625% Senior Notes due 2023. One Hundred-Ninth Supplemental Indenture, dated as of January 27, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy's 6.25% Senior Notes due 2022. 4.68 Form of 6.25% Senior Note due 2022. Registration Rights Agreement, dated January 27, 2014, among NRG Energy, Inc., the guarantors named therein and Barclays Capital Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co., Morgan Stanley & Co. LLC, Credit Agricole Securities (USA) Inc., Natixis Securities Americas LLC and RBC Capital Markets, LLC, as initial purchasers. One Hundred-Tenth Supplemental Indenture, dated as of March 24, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.'s 8.5% Senior Notes due 2019, 8.25% Senior Notes due 2020, 7.625% Senior Notes due 2018, 7.625% Senior Notes due 2019, 7.875% Senior Notes due 2021, 6.625% Senior Notes due 2023 and 6.25% Senior Notes due 2022. Incorporated herein by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K filed on November 13, 2013. Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January 27, 2014. Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on January 27, 2014. Incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed on January 27, 2014. Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on March 28, 2014. Indenture, dated as of April 21, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as Trustee, re: NRG Energy, Inc.'s 6.25% Senior Notes due 2024. Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 21, 2014. 4.72 Form of 6.25% Senior Note due 2024. Registration Rights Agreement, dated April 21, 2014, among NRG Energy, Inc., the guarantors named therein and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA), Inc., J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc., SMBC Nikko Securities America, Inc. and RBS Securities Inc. One Hundred-Eleventh Supplemental Indenture, dated as of April 28, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.'s 8.5% Senior Notes due 2019, 8.25% Senior Notes due 2020, 7.625% Senior Notes due 2018, 7.625% Senior Notes due 2019, 7.875% Senior Notes due 2021, 6.625% Senior Notes due 2023 and 6.25% Senior Notes due 2022. First Supplemental Indenture, dated as of May 2, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.'s 6.25% Senior Notes due 2024. Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on April 21, 2014. Incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed on April 21, 2014. Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 2, 2014. Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on May 2, 2014. One Hundred-Twelfth Supplemental Indenture, dated as of October 3, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 3, 2014. Second Supplemental Indenture, dated as of October 3, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.'s 6.25% Senior Notes due 2024. One Hundred-Thirteenth Supplemental Indenture, dated as of November 12, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York as trustee, re: NRG Energy, Inc.'s 8.25% Senior Notes due 2020, 7.625% Senior Notes due 2018, 7.875% Senior Notes due 2021, 6.625% Senior Notes due 2023 and 6.25% Senior Notes due 2022. Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 3, 2014. Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on November 14, 2014. Third Supplemental Indenture, dated as of November 12, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on November 14, 2014. 4.69 4.70 4.71 4.73 4.74 4.75 4.76 4.77 4.78 4.79 232 233 Incorporated herein by reference to Exhibit 4.1 to the Registrant's current report on Form 8-K filed on November 25, 2014. 4.97 Third Supplemental Indenture, dated August 2, 2016, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on August 3, 2016. 4.80 4.81 4.82 4.83 4.84 4.85 4.86 4.87 4.88 4.89 4.90 4.91 4.93 4.94 4.95 4.96 One Hundred-Fourteenth Supplemental Indenture, dated as of November 24, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York, as trustee, re: NRG Energy, Inc.'s 8.25% Senior Notes due 2020, 7.625% Senior Notes due 2018, 7.875% Senior Notes due 2021, 6.625% Senior Notes due 2023 and 6.25% Senior Notes due 2022. Fourth Supplemental Indenture, dated as of November 24, 2014, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York, as trustee, re: NRG Energy, Inc.'s 6.25% Senior Notes due 2024. Incorporated herein by reference to Exhibit 4.2 to the Registrant's current report on Form 8-K filed on November 25, 2014. One Hundred-Fifteenth Supplemental Indenture, dated as of April 8, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on April 9, 2015. Fifth Supplemental Indenture, dated as of April 8, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Company's current report on Form 8-K filed on April 9, 2015. One Hundred-Sixteenth Supplemental Indenture, dated as of April 29, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on April 30, 2015. Sixth Supplemental Indenture, dated as of April 29, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Company's current report on Form 8-K filed on April 30, 2015. One Hundred-Seventeenth Supplemental Indenture, dated as of May 22, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on May 22, 2015. Seventh Supplemental Indenture, dated as of May 22, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Company's current report on Form 8-K filed on May 22, 2015. One Hundred-Eighteenth Supplemental Indenture, dated as of October 28, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on November 2, 2015. Eighth Supplemental Indenture, dated as of October 28, 2015, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Company's current report on Form 8-K filed on November 2, 2015. Indenture, dated May 23, 2016, between NRG Energy, Inc. and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on May 23, 2016. Supplemental Indenture, dated May 23, 2016, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on May 23, 2016. 4.92 Form of 7.250% Senior Note due 2026. Registration Rights Agreement, dated May 23, 2016, among NRG Energy, Inc., the guarantors named therein and Deutsche Bank Securities Inc., as representative to the initial purchasers listed in Schedule I thereto. Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on May 23, 2016. Incorporated herein by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K, filed on May 23, 2016. One Hundred-Nineteenth Supplemental Indenture, dated as of July 19, 2016, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on July 25, 2016. Ninth Supplemental Indenture, dated as of July 19, 2016, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on July 25, 2016. Second Supplemental Indenture, dated as of July 19, 2016, among NRG Energy, Inc., the guarantors named therein and Law Debenture Trust Company of New York. Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on July 25, 2016. 4.98 Form of 6.625% Senior Note due 2027. Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on August 3, 2016. 4.99 4.100 Registration Rights Agreement, dated August 2, 2016, among NRG Energy, Inc., the guarantors named therein and Morgan Stanley & Co. LLC, as representative to the initial purchasers listed in Schedule I thereto. Incorporated herein by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K, filed on August 3, 2016. Supplemental Indenture, dated December 7, 2017, among NRG Energy, Inc., the guarantors named therein and Delaware Trust Company, as trustee. Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on December 8, 2017. 4.101 Form of 5.75% Senior Notes due 2028 Registration Rights Agreement, dated December 7, 2017, among NRG Energy, Inc., the guarantors named therein and Citigroup Global Markets, Inc., as representative to the initial purchasers listed in Schedule I thereto. Note Agreement, dated August 20, 1993, between NRG Energy, Inc., Energy Center, Inc. and each of the purchasers named therein. Master Shelf and Revolving Credit Agreement, dated August 20, 1993, between NRG Energy, Inc., Energy Center, Inc., The Prudential Insurance Registrants of America and each Prudential Affiliate, which becomes party thereto. Form of NRG Energy Inc. Long-Term Incentive Plan Deferred Stock Unit Agreement for Officers and Key Management. Form of NRG Energy, Inc. Long-Term Incentive Plan Deferred Stock Unit Agreement for Directors. Form of NRG Energy, Inc. Long-Term Incentive Plan Non-Qualified Stock Option Agreement. Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on December 8, 2017. Incorporated herein by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K, filed on December 8, 2017. Incorporated herein by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, as amended, Registration No. 333-33397. Incorporated herein by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1, as amended, Registration No. 333-33397. Incorporated herein by reference to Exhibit 10.14 to the Registrant's annual report on Form 10-K filed on March 30, 2005. Incorporated herein by reference to Exhibit 10.15 to the Registrant's annual report on Form 10-K filed on March 30, 2005. Incorporated herein by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-Q filed on November 9, 2004. Form of NRG Energy, Inc. Long-Term Incentive Plan Restricted Stock Unit Agreement for Officers. Filed herewith. Form of NRG Energy, Inc. Long-Term Incentive Plan Restricted Stock Unit Agreement for Non-Officers. Filed herewith Form of NRG Energy, Inc. Long-Term Incentive Plan Performance Stock Unit Agreement. Second Amended and Restated Annual Incentive Plan for Designated Corporate Officers. Incorporated herein by reference to Exhibit 10.7 to the Registrant's annual report on Form 10-K filed on February 23, 2010. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on May 7, 2015. Railroad Car Full Service Master Leasing Agreement, dated as of February 18, 2005, between General Electric Railcar Services Corporation and NRG Power Marketing Inc. Incorporated herein by reference to Exhibit 10.28 to the Registrant's annual report on Form 10-K filed on March 30, 2005. Purchase Agreement (West Coast Power) dated as of December 27, 2005, by and among NRG Energy, Inc., NRG West Coast LLC (Buyer), DPC II Inc. (Seller) and Dynegy, Inc. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on December 28, 2005. Purchase Agreement (Rocky Road Power), dated as of December 27, 2005, by and among Termo Santander Holding, L.L.C.(Buyer), Dynegy, Inc., NRG Rocky Road LLC (Seller) and NRG Energy, Inc. Incorporated herein by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed on December 28, 2005. Stock Purchase Agreement, dated as of August 10, 2005, by and between NRG Energy, Inc. and Credit Suisse First Boston Capital LLC. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on August 11, 2005. Agreement with respect to the Stock Purchase Agreement, dated December 19, 2008, by and between NRG Energy, Inc. and Credit Suisse First Boston Capital LLC. Incorporated herein by reference to Exhibit 10.13 to the Registrant's annual report on Form 10-K filed on February 12, 2009. 4.102 10.1 10.2 10.3* 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 10.10 10.11 10.12 10.13 10.14 234 235 10.15 10.16† 10.17* 10.18* 10.19* 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33† Investor Rights Agreement, dated as of February 2, 2006, by and among NRG Energy, Inc. and Certain Stockholders of NRG Energy, Inc. set forth therein. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on February 8, 2006. Terms and Conditions of Sale, dated as of October 5, 2005, between Texas Genco II LP and Freight Car America, Inc., (including the Proposal Letter and Amendment thereto). Incorporated herein by reference to Exhibit 10.32 to the Registrant's annual report on Form 10-K filed on March 7, 2006. Amended and Restated Employment Agreement, dated December 4, 2008, between NRG Energy, Inc. and David Crane. Incorporated herein by reference to Exhibit 10.16 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Amendment 2014-1 to the Amended and Restated Employment Agreement between NRG Energy, Inc. and David Crane, dated December 4, 2014. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on December 10, 2014. General Release, dated January 4, 2016, between NRG Energy, Inc. and David Crane. Limited Liability Company Agreement of NRG Common Stock Finance I LLC. Incorporated herein by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K/A filed on January 8, 2016. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on August 10, 2006. Note Purchase Agreement, dated August 4, 2006, between NRG Common Stock Finance I LLC, Credit Suisse International and Credit Suisse Securities (USA) LLC. Incorporated herein by reference to Exhibit 10.3 to the Registrant's current report on Form 8-K filed on August 10, 2006. Amendment Agreement, dated February 27, 2008, to the Note Purchase Agreement by and among NRG Common Stock Finance I LLC, Credit Suisse International, and Credit Suisse Securities (USA) LLC. Amendment Agreement, dated December 19, 2008, to the Note Purchase Agreement by and among NRG Common Stock Finance I LLC, Credit Suisse International, and Credit Suisse Securities (USA) LLC. Amendment Agreement, dated December 19, 2008, to the Note Purchase Agreement by and among NRG Common Stock Finance II LLC, Credit Suisse International, and Credit Suisse Securities (USA) LLC. Agreement with respect to Note Purchase Agreement, dated December 19, 2008, by and among NRG Common Stock Finance I LLC, NRG Energy, Inc., Credit Suisse International, and Credit Suisse Securities (USA) LLC. Agreement with respect to Note Purchase Agreement, dated December 19, 2008, by and among NRG Common Stock Finance II LLC, NRG Energy, Inc., Credit Suisse International, and Credit Suisse Securities (USA) LLC. Incorporated herein by reference to Exhibit 10.5 to the Registrant's quarterly report on Form 10-Q filed on May 1, 2008. Incorporated herein by reference to Exhibit 10.23 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Incorporated herein by reference to Exhibit 10.26 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Incorporated herein by reference to Exhibit 10.24 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Incorporated herein by reference to Exhibit 10.27 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Preferred Interest Purchase Agreement, dated August 4, 2006, between NRG Common Stock Finance I LLC, Credit Suisse Capital LLC and Credit Suisse Securities (USA) LLC, as agent. Incorporated herein by reference to Exhibit 10.5 to the Registrant's current report on Form 8-K filed on August 10, 2006. Preferred Interest Amendment Agreement, dated February 27, 2008, by and among NRG Common Stock Finance I LLC, Credit Suisse Capital LLC, and Credit Suisse Securities (USA) LLC. Incorporated herein by reference to Exhibit 10.6 to the Registrant's quarterly report on Form 10-Q filed on May 1, 2008. Preferred Interest Amendment Agreement, dated December 19, 2008, by and among NRG Common Stock Finance I LLC, Credit Suisse International, and Credit Suisse Securities (USA) LLC. Incorporated herein by reference to Exhibit 10.31 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Preferred Interest Amendment Agreement, dated December 19, 2008, by and among NRG Common Stock Finance II LLC, Credit Suisse Capital LLC, and Credit Suisse Securities (USA) LLC. Incorporated herein by reference to Exhibit 10.34 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Agreement with respect to Preferred Interest Purchase Agreement, dated December 19, 2008, by and among NRG Common Stock Finance I LLC, NRG Energy, Inc., Credit Suisse Capital LLC, and Credit Suisse Securities (USA) LLC. Agreement with respect to Preferred Interest Purchase Agreement, dated December 19, 2008, by and among NRG Common Stock Finance II LLC, NRG Energy, Inc., Credit Suisse Capital LLC, and Credit Suisse Securities (USA) LLC. Amended and Restated Contribution Agreement (NRG), dated March 25, 2008, by and among Texas Genco Holdings, Inc., NRG South Texas LP and NRG Nuclear Development Company LLC and Certain Subsidiaries Thereof. Incorporated herein by reference to Exhibit 10.32 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Incorporated herein by reference to Exhibit 10.35 to the Registrant's annual report on Form 10-K filed on February 12, 2009. Incorporated herein by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-Q filed on May 1, 2008. 10.34† 10.35† 10.36† 10.37† 10.38 10.39† 10.40* 10.41† 10.42† 10.43(a) 10.43(b) 10.44* 10.45 Contribution Agreement (Toshiba), dated February 29, 2008, by and between Toshiba Corporation and NRG Nuclear Development Company LLC. Incorporated herein by reference to Exhibit 10.2 to the Registrant's quarterly report on Form 10-Q filed on May 1, 2008. Multi-Unit Agreement, dated February 29, 2008, by and among Toshiba Corporation, NRG Nuclear Development Company LLC and NRG Energy, Inc. Incorporated herein by reference to Exhibit 10.3 to the Registrant's quarterly report on Form 10-Q filed on May 1, 2008. Amended and Restated Operating Agreement of Nuclear Innovation North America LLC, dated May 1, 2008. LLC Membership Interest Purchase Agreement between Reliant Energy, Inc. and NRG Retail LLC, dated as of February 28, 2009. Project Agreement, Settlement Agreement and Mutual Release, dated March 1, 2010, by and among by and among Nuclear Innovation North America LLC, the City of San Antonio acting by and through the City Public Service Board of San Antonio, a Texas municipal utility, NINA Texas 3 LLC and NINA Texas 4 LLC, and solely for purposes of certain sections of the Settlement Agreement, by NRG Energy, Inc and NRG South Texas LP. Incorporated herein by reference to Exhibit 10.4 to the Registrant's quarterly report on Form 10-Q filed on May 1, 2008. Incorporated herein by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-Q filed on April 30, 2009. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on March 2, 2010. STP 3 & 4 Owners Agreement, dated March 1, 2010, by and among Nuclear Innovation North America LLC, the City of San Antonio, NINA Texas 3 LLC and NINA Texas 4 LLC. Incorporated herein by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed on March 2, 2010. Amended and Restated Executive Change-in-Control and General Severance Plan. Filed herewith. Investment and Option Agreement by and among NINA Investments Holdings LLC, Nuclear Innovation North America LLC and TEPCO Nuclear Energy America LLC, dated as of May 10, 2010. Incorporated herein by reference to Exhibit 10.3 to the Registrant's quarterly report on Form 10-Q filed on August 2, 2010. Parent Company Agreement by and among NRG Energy, Inc., Nuclear Innovation North America LLC, The Tokyo Electric Power Company and TEPCO Nuclear Energy America LLC, dated as of May 10, 2010. Incorporated herein by reference to Exhibit 10.4 to the Registrant's quarterly report on Form 10-Q filed on August 2, 2010. Letter of Credit and Reimbursement Agreement, dated as of June 30, 2010, by and among NRG LC Facility Company LLC, NRG Energy, Inc. and Citibank, N.A. Incorporated herein by reference to Exhibit 10.2(a) the Registrant's current report on Form 8-K filed on July 1, 2010. Letter of Credit and Reimbursement Agreement, dated as of June 30, 2010, by and among NRG LC Facility Company LLC, NRG Energy, Inc. and Deutsche Bank AG, New York Bank. Incorporated herein by reference to Exhibit 10.2(b) to the Registrant's current report on Form 8-K filed on July 1, 2010. The NRG Energy, Inc. Amended and Restated Long-Term Incentive Plan. Amended and Restated Credit Agreement, dated July 1, 2011, by and among NRG Energy, Inc., the lenders party thereto, the joint lead bookrunners and joint lead arrangers party thereto, Citicorp North America, Inc., Morgan Stanley Senior Funding, Inc. and the documentation agents party thereto. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on April 28, 2017. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on July 5, 2011. 10.46* Form of Market Stock Unit Grant Agreement. 10.47 Registration Rights Agreement, dated September 24, 2012, among NRG Energy, Inc., the guarantors named therein and Deutsche Bank Securities Inc., Merrill, Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RBS Securities Inc., as initial purchasers. 10.48* NRG 2010 Stock Plan for GenOn Employees. 10.49 10.50 Revolving Credit Agreement among GenOn Energy, Inc., as Borrower, GenOn Americas, Inc., as Borrower, the several lenders from time to time parties thereto, and NRG Energy, Inc., as Administrative Agent, dated as of December 14, 2012. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K/A filed on September 12, 2011. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on September 24, 2012. Incorporated herein by reference to Exhibit 10.49 to the Registrant’s annual report on Form 10-K filed on February 27, 2013. Incorporated herein by reference to Exhibit 10.50 to the Registrant’s annual report on Form 10-K filed on February 27, 2013. First Amendment Agreement, dated as of February 6, 2013, to the Amended and Restated Credit Agreement and the Second Amended and Restated Collateral Trust Agreement. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q filed on May 7, 2013. 236 237 10.51 10.52* 10.53* Second Amendment Agreement, dated as of June 4, 2013, to the Amended and Restated Credit Agreement, the Second Amended and Restated Collateral Trust Agreement and the Amended and Restated Guarantee and Collateral Agreement. NRG Energy, Inc. Long-Term Incentive Plan Market Stock Unit Agreement. NRG Energy, Inc. 2010 Stock Plan For GenOn Employees Market Stock Unit Agreement 10.54* Amended and Restated Employee Stock Purchase Plan. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed on June 10, 2013. Incorporated herein by reference to Exhibit 10.53 to the Registrant's annual report on Form 10-K filed on February 28, 2014. Incorporated herein by reference to Exhibit 10.54 to the Registrant's annual report on Form 10-K filed on February 28, 2014. Incorporated herein by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed on April 28, 2017. 10.55 10.56 10.57 10.58 10.59 10.60 10.61 10.62 10.63(a) 10.63(b) 10.64(a) 10.64(b) 10.65 10.66 Amendment Agreement, dated as of December 23, 2014, by and between NRG Energy, Inc. and Credit Suisse First Boston Capital LLC. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on December 30, 2014. Employment Agreement, dated December 21, 2015, by and between NRG Energy, Inc. and Mauricio Gutierrez. Amendment and Restatement Agreement, dated as of June 30, 2016, to the Amended and Restated Credit Agreement, the Second Amended and Restated Collateral Trust Agreement and the Amended and Restated Guarantee and Collateral Agreement. Second Amended and Restated Credit Agreement, dated as of June 30, 2016, by and among NRG Energy, Inc., the lenders party thereto, the joint lead arrangers and joint lead bookrunners party thereto, Citicorp North America, Inc., Commerzbank AG, New York Branch, Keybank Capital Markets Inc. and CIT Bank, N.A. First Amendment Agreement, dated as of January 24, 2017, dated as of January 24, 2017, by and among NRG Energy, Inc., the lenders from time to time parties thereto and Citicorp North America, Inc., as administrative agent and collateral agent. Incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on December 24, 2015. Incorporated herein by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-Q filed on August 9, 2016. Incorporated herein by reference to Exhibit 10.2 to the Registrant's quarterly report on Form 10-Q filed on August 9, 2016. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 24, 2017. Cooperation Agreement, dated as of February 13, 2017, by and among NRG Energy, Inc., Elliott Associates, L.P., Elliott International, L.P. and Elliott International Capital Advisors Inc. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on February 13, 2017. Cooperation Agreement, dated as of February 13, 2017, by and among NRG Energy, Inc., Bluescape Energy Partners LLC and BEP Special Situations 2 LLC. Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on February 13, 2017. Consent Agreement, dated as of May 22, 2017, by and among GenOn Energy, Inc., NRG Energy, Inc. and the holders of Notes signatory thereto. Restructuring Support and Lock-Up Agreement, dated as of June 12, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, the subsidiaries signatory thereto, NRG Energy, Inc. and the noteholders signatory thereto. First Amendment, dated as of October 2, 2017, to the Restructuring Support and Lock-Up Agreement, dated as of June 12, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, NRG Energy, Inc. and the consenting noteholders party thereto. Backstop Commitment Letter, dated as of June 12, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, the subsidiaries signatory thereto and the noteholders signatory thereto. Incorporated herein by reference to Exhibit 10.1 to GenOn Energy, Inc. and GenOn Americas Generation, LLC's Current Report on Form 8-K filed on May 23, 2017. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 14, 2017. Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on October 6, 2017. Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on June 14, 2017. Amended and Restated Backstop Commitment Letter, dated as of October 2, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, the guarantors party thereto and backstop parties thereto. Backstop Fee Letter, dated as of June 12, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, the subsidiaries signatory thereto and the noteholders signatory thereto. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on October 6, 2017. Incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on June 14, 2017. Consent Agreement, by and among GenOn, GAG and the Consenting Holders, dated as of October 30, 2017. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on October 31, 2017. 10.67 10.68 10.69 10.70 10.71 10.72 10.73* 10.74* 10.75† 12.1 12.2 21.1 23.1 31.1 31.2 31.3 32 Settlement Agreement, dated as of December 14, 2017, by and between NRG Energy, Inc. on behalf of itself and the NRG Parties, GenOn Energy, Inc. on behalf of itself and the Debtors. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. Transition Services Agreement, dated as of December 14, 2017, by and between GenOn Energy, Inc. and NRG Energy, Inc. Cooperation Agreement, dated as of December 14, 2017, by and between GenOn Energy, Inc. and NRG Energy, Inc. Pension Indemnity Agreement, dated as of December 14, 2017, by and between NRG Energy, Inc. and GenOn Energy, Inc. Employee Matters Agreement, dated as of December 14, 2017, by and between NRG Energy, Inc. and GenOn Energy, Inc. Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. Incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. Incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. Incorporated herein by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. Tax Matters Agreement, initially dated as of December 14, 2017, by and between NRG Energy, Inc. and GenOn Energy, Inc. and by Reorganized GenOn upon the Effective Date. Incorporated herein by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed on December 18, 2017. Form of NRG Energy, Inc. Long-Term Incentive Plan Relative Performance Stock Unit Agreement for Officers. Filed herewith. Form of NRG Energy, Inc. Long-Term Incentive Plan Relative Performance Stock Unit Agreement for Senior Vice Presidents. Filed herewith. Consent and Indemnity Agreement, dated as of February 6, 2018, by and among NRG Energy, Inc., NRG Repowering Holdings LLC, NRG Yield, Inc., and GIP III Zephyr Acquisition Partners, L.P., and NRG Yield Operating LLC (solely with respect to Sections E.5, E.6 and G. 12). Incorporated herein by reference to Exhibit 10.34 to NRG Yield, Inc.'s Annual Report on Form 10-K filed on March 1, 2018. NRG Energy, Inc. Computation of Ratio of Earnings to Fixed Charges. Filed herewith. NRG Energy, Inc. Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements. Filed herewith. Subsidiaries of NRG Energy, Inc. Consent of KPMG LLP. Rule 13a-14(a)/15d-14(a) certification of Mauricio Gutierrez. Rule 13a-14(a)/15d-14(a) certification of Kirkland B. Andrews. Rule 13a-14(a)/15d-14(a) certification of David Callen. Filed herewith. Filed herewith. Filed herewith. Filed herewith. Filed herewith. Section 1350 Certification. Furnished herewith. 101 INS XBRL Instance Document. 101 SCH XBRL Taxonomy Extension Schema. 101 CAL XBRL Taxonomy Extension Calculation Linkbase. 101 DEF XBRL Taxonomy Extension Definition Linkbase. 101 LAB XBRL Taxonomy Extension Label Linkbase. 101 PRE XBRL Taxonomy Extension Presentation Linkbase. Filed herewith. Filed herewith. Filed herewith. Filed herewith. Filed herewith. Filed herewith. * † ^ Exhibit relates to compensation arrangements. Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. This filing excludes schedules pursuant to Item 601(b)(2) of Regulation S-K, which the registrant agrees to furnish supplementary to the Securities and Exchange Commission upon request by the Commission. Item 16. Form 10-K Summary None. 238 239 SIGNATURES POWER OF ATTORNEY Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NRG ENERGY, INC. (Registrant) By: /s/ MAURICIO GUTIERREZ Mauricio Gutierrez Chief Executive Officer Date: March 1, 2018 Each person whose signature appears below constitutes and appoints David R. Hill and Brian E. Curci, each or any of them, such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in such person's name, place and stead, in any and all capacities, to sign any and all amendments to this report on Form 10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as such person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant in the capacities indicated on March 1, 2018. Signature /s/ MAURICIO GUTIERREZ Mauricio Gutierrez /s/ KIRKLAND B. ANDREWS Kirkland B. Andrews /s/ DAVID CALLEN David Callen /s/ LAWRENCE S. COBEN Lawrence S. Coben /s/ E. SPENCER ABRAHAM E. Spencer Abraham /s/ KIRBYJON H. CALDWELL Kirbyjon H. Caldwell /s/ TERRY G. DALLAS Terry G. Dallas /s/ WILLIAM E. HANTKE William E. Hantke /s/ PAUL W. HOBBY Paul W. Hobby /s/ ANNE C. SCHAUMBURG Anne C. Schaumburg /s/ EVAN J. SILVERSTEIN Evan J. Silverstein /s/ BARRY T. SMITHERMAN Barry T. Smitherman /s/ THOMAS H. WEIDEMEYER Thomas H. Weidemeyer /s/ C. JOHN WILDER C. John Wilder /s/ WALTER R. YOUNG Walter R. Young Title President, Chief Executive Officer and Director (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer (Principal Accounting Officer) Date March 1, 2018 March 1, 2018 March 1, 2018 Chairman of the Board March 1, 2018 Director Director Director Director Director Director Director Director Director Director Director March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 240 241 (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3)(cid:3)(This(cid:3)page(cid:3)intentionally(cid:3)left(cid:3)blank)(cid:3) (cid:3)(cid:3)(cid:3)(This(cid:3)page(cid:3)intentionally(cid:3)left(cid:3)blank)(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3) (cid:3) (cid:3)(cid:3)(cid:3)(This(cid:3)page(cid:3)intentionally(cid:3)left(cid:3)blank)(cid:3) NRG Energy 804 Carnegie Center Princeton, NJ 08540-6213 t: 609.524.4500 f: 609.524.4501 nrg.com 1201 Fannin Street Houston, TX 77002-6929 t: 713.537.3000 N R G E n e r g y | 2 0 1 7 F o r m 1 0 - K 

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