UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-15891

NRG Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware		41-1724239
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)
211 Carnegie Center, Princeton, New Jersey		08540
(Address of principal executive offices)		(Zip Code)

(609) 524-4500
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required 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 þ No o

     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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes þ No o

     As of May 5, 2010, there were 255,312,628 shares of common stock outstanding, par value $0.01 per share.

 

 

TABLE OF CONTENTS
Index

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION			3
GLOSSARY OF TERMS			4
PART I — FINANCIAL INFORMATION			8
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES			8
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			44
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			77
ITEM 4 — CONTROLS AND PROCEDURES			82
PART II — OTHER INFORMATION			83
ITEM 1 — LEGAL PROCEEDINGS			83
ITEM 1A — RISK FACTORS			83
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			83
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES			83
ITEM 4 — (REMOVED AND RESERVED)			83
ITEM 5 — OTHER INFORMATION			83
ITEM 6 — EXHIBITS			84
SIGNATURES			85
EX-31.1
EX-31.2
EX-31.3
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

     This Quarterly Report on Form 10-Q 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 the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the 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 which 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 Risks Factors Related to NRG Energy, Inc. in Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended December 31, 2009, including the following:

•

General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;

•

Volatile power supply costs and demand for power;

•

Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather 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, manage capital expenditures and costs tightly, 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 compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws and increased regulation of carbon dioxide and other greenhouse gas emissions;

•

Price mitigation strategies and other market structures employed by ISOs or RTOs that result in a failure to adequately compensate NRG’s generation units for all of its costs;

•

NRG’s ability to borrow additional 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;

•

NRG’s ability to implement its RepoweringNRG strategy of developing and building new power generation facilities, including new nuclear, wind and solar projects;

•

NRG’s ability to implement its econrg strategy of finding ways to meet the challenges of climate change, clean air and protecting our natural resources while taking advantage of business opportunities;

•

NRG’s ability to implement its FORNRG strategy of increasing the return on invested capital through operational performance improvements and a range of initiatives at plants and corporate offices to reduce costs or generate revenues;

•

NRG’s ability to achieve its strategy of regularly returning capital to shareholders;

•

Reliant Energy’s ability to maintain market share;

•

NRG’s ability to successfully evaluate investments in new business and growth initiatives; and

•

NRG’s ability to successfully integrate and manage acquired businesses.

     Forward-looking statements speak only as of the date they were made, and NRG 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 Quarterly Report on Form 10-Q should not be construed as exhaustive.

GLOSSARY OF TERMS

     When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:

Baseload capacity		Electric power generation capacity normally expected to serve loads on an around-the-clock basis throughout the calendar year
BACT		Best Available Control Technology
BTU		British Thermal Unit
CAA		Clean Air Act
CAGR		Compound annual growth rate
CAIR		Clean Air Interstate Rule
CAISO		California Independent System Operator
Capital Allocation Plan		Share repurchase program
Capital Allocation Program		NRG’s plan of allocating capital between debt reduction, reinvestment in the business, and share repurchases through the Capital Allocation Plan
CDWR		California Department of Water Resources
C&I		Commercial, industrial and governmental/institutional
CO2		Carbon dioxide
CPS		CPS Energy
CSF Debt		CSF I and CSF II issued notes and preferred interest, individually referred to as CSF I Debt and CSF II Debt
CSRA		Credit Sleeve Reimbursement Agreement with Merrill Lynch in connection with acquisition of Reliant Energy, as hereinafter defined
CSRA Amendment		Amendment of the existing CSRA with Merrill Lynch which became effective October 5, 2009
DNREC		Delaware Department of Natural Resources and Environmental Control
DPUC		Department of Public Utility Control
ERCOT		Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
Exchange Act		The Securities Exchange Act of 1934, as amended
Expected Baseload Generation		The net baseload generation limited by economic factors (relationship between cost of generation and market price) and reliability factors (scheduled and unplanned outages)
FASB		Financial Accounting Standards Board — the designated organization for establishing standards for financial accounting and reporting
FERC		Federal Energy Regulatory Commission
GHG		Greenhouse Gases
GWh		Gigawatt hour
IGCC		Integrated Gasification Combined Cycle

ISO		Independent System Operator, also referred to as Regional Transmission Organizations, or RTO
ISO-NE		ISO New England Inc.
kV		Kilovolts
kW		Kilowatts
kWh		Kilowatt-hours
LIBOR		London Inter-Bank Offer Rate
LTIP		Long-Term Incentive Plan
MACT		Maximum Achievable Control Technology
Mass		Residential and small business
Merit Order		A term used for the ranking of power stations in order of ascending marginal cost
MIBRAG		Mitteldeutsche Braunkohlengesellschaft mbH
MMBtu		Million British Thermal Units
MVA		Megavolt-ampere
MW		Megawatts
MWh		Saleable megawatt hours net of internal/parasitic load megawatt-hours
NAAQS		National Ambient Air Quality Standards
NINA		Nuclear Innovation North America LLC
NOx		Nitrogen oxide
NPNS		Normal Purchase Normal Sale
NRC		U.S. Nuclear Regulatory Commission
NSR		New Source Review
NYISO		New York Independent System Operator
OCI		Other comprehensive income
Phase II 316(b) Rule		A section of the Clean Water Act regulating cooling water intake structures
PJM		PJM Interconnection, LLC
PJM market		The wholesale and retail electric market operated by PJM primarily in all or parts of Delaware, the District of Columbia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia
PML		NRG Power Marketing, LLC, a wholly-owned subsidiary of NRG which procures transportation and fuel for the Company’s generation facilities, sells the power from these facilities and supply for Reliant Energy, and manages all commodity trading and hedging for NRG
PPA		Power Purchase Agreement
PUCT		Public Utility Commission of Texas
Reliant Energy		NRG’s retail business in Texas purchased on May 1, 2009, from Reliant Energy, Inc. which is now known as RRI Energy, Inc., or RRI

Repowering		Technologies utilized to replace, rebuild, or redevelop major portions of an existing electrical generating facility, not only to achieve a substantial emissions reduction, but also to increase facility capacity, and improve system efficiency
RepoweringNRG		NRG’s program designed to develop, finance, construct and operate new, highly efficient, environmentally responsible capacity
REPS		Reliant Energy Power Supply, LLC
RERH		RERH Holding, LLC and its subsidiaries
Revolving Credit Facility		NRG’s $1 billion senior secured credit facility which matures on February 2, 2011
RGGI		Regional Greenhouse Gas Initiative
RMR		Reliability Must-Run
ROIC		Return on invested capital
RRI		RRI Energy, Inc. (formerly Reliant Energy, Inc.)
Sarbanes-Oxley		Sarbanes-Oxley Act of 2002, as amended
SEC		United States Securities and Exchange Commission
Securities Act		The Securities Act of 1933, as amended
Senior Credit Facility		NRG’s senior secured facility, which is comprised of a Term Loan Facility and a $1.3 billion Synthetic Letter of Credit Facility which matures on February 1, 2013, and a $1 billion Revolving Credit Facility, which matures on February 2, 2011
Senior Notes		The Company’s $5.4 billion outstanding unsecured senior notes consisting of $1.2 billion of 7.25% senior notes due 2014, $2.4 billion of 7.375% senior notes due 2016 and $1.1 billion of 7.375% senior notes due 2017 and $700 million of 8.5% senior notes due 2019
SO2		Sulfur dioxide
STP		South Texas Project — nuclear generating facility located near Bay City, Texas in which NRG owns a 44% Interest
STPNOC		South Texas Project Nuclear Operating Company
Synthetic Letter of Credit Facility		NRG’s $1.3 billion senior secured synthetic letter of credit facility which matures on February 1, 2013
TANE		Toshiba American Nuclear Operating Company
TANE Facility		NINA’s $500 million credit facility with TANE which matures on February 24, 2012
TEPCO		The Tokyo Electric Power Company of Japan, Inc.
Term Loan Facility		A senior first priority secured term loan which matures on February 1, 2013, and is included as part of NRG’s Senior Credit Facility
TNEA		TEPCO Nuclear Energy America LLC
Tonnes		Metric tonnes, which are units of mass or weight in the metric system each equal to 2,205lbs and are the global measurement for GHG
TWh		Terawatt hour
U.S.		United States of America
U.S. DOE		United States Department of Energy
U.S. EPA		United States Environmental Protection Agency
U.S. GAAP		Accounting principles generally accepted in the United States
VaR		Value at Risk

ACCOUNTING PRONOUNCEMENTS

     The FASB has established the FASB Accounting Standards Codification, or ASC, as the source of authoritative U.S. GAAP. The FASB issues updates to the ASC through Accounting Standards Updates, or ASUs. The following ASC topics and ASUs are referenced in this report:

ASC 280		ASC-280, Segment Reporting
ASC 450		ASC-450, Contingencies
ASC 740		ASC-740, Income Taxes
ASC 805		ASC-805, Business Combinations
ASC 810		ASC-810, Consolidation
ASC 815		ASC-815, Derivatives and Hedging
ASC 820		ASC-820, Fair Value Measurements and Disclosures
ASC 980		ASC-980, Regulated Operations
ASU 2009-15		ASU No. 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
ASU 2009-17		ASU No. 2009-17, Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
ASU 2010-02		ASU No. 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification
ASU 2010-06		ASU No. 2010-06, Fair Value Measurement and Disclosures: Improving Disclosures about Fair Value Measurements
ASU 2010-09		ASU No. 2010-09, Subsequent Events (Topic 815): Amendments to Certain Recognition and Disclosure Requirements
ASU 2010-10		ASU No. 2010-10, Consolidation (Topic 810): Amendments for Certain Investment Funds

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended March 31,
(In millions, except for per share amounts)		2010				2009
Operating Revenues
Total operating revenues		$	2,215			$	1,658
Operating Costs and Expenses
Cost of operations			1,639				766
Depreciation and amortization			202				169
Selling, general and administrative			130				95
Development costs			9				13
Total operating costs and expenses			1,980				1,043
Gain on sale of assets			23				—
Operating Income			258				615
Other Income/(Expense)
Equity in earnings of unconsolidated affiliates			14				22
Other income/(loss), net			4				(3	)
Interest expense			(153	)			(138	)
Total other expense			(135	)			(119	)
Income Before Income Taxes			123				496
Income tax expense			65				298
Net Income attributable to NRG Energy, Inc.			58				198
Dividends for preferred shares			2				14
Income Available for NRG Energy, Inc. Common Stockholders		$	56			$	184
Earnings per share attributable to NRG Energy, Inc. Common Stockholders
Weighted average number of common shares outstanding — basic			254				237
Net Income per Weighted Average Common Share — basic		$	0.22			$	0.78
Weighted average number of common shares outstanding — diluted			257				275
Net Income per Weighted Average Common Share — diluted		$	0.22			$	0.70

See notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31, 2010				December 31, 2009
(In millions, except shares)		(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	1,813			$	2,304
Funds deposited by counterparties			509				177
Restricted cash			7				2
Accounts receivable — trade, less allowance for doubtful accounts of $21 and $29, respectively			700				876
Inventory			549				541
Derivative instruments valuation			2,724				1,636
Cash collateral paid in support of energy risk management activities			533				361
Prepayments and other current assets			307				311
Total current assets			7,142				6,208
Property, plant and equipment, net of accumulated depreciation of $3,236 and $3,052, respectively			11,627				11,564
Other Assets
Equity investments in affiliates			421				409
Note receivable — affiliate and capital leases, less current portion			476				504
Goodwill			1,713				1,718
Intangible assets, net of accumulated amortization of $758 and $648, respectively			1,686				1,777
Nuclear decommissioning trust fund			382				367
Derivative instruments valuation			975				683
Other non-current assets			156				148
Total other assets			5,809				5,606
Total Assets		$	24,578			$	23,378
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt and capital leases		$	152			$	571
Accounts payable			595				697
Derivative instruments valuation			2,354				1,473
Deferred income taxes			174				197
Cash collateral received in support of energy risk management activities			509				177
Accrued expenses and other current liabilities			588				647
Total current liabilities			4,372				3,762
Other Liabilities
Long-term debt and capital leases			7,846				7,847
Nuclear decommissioning reserve			304				300
Nuclear decommissioning trust liability			262				255
Deferred income taxes			1,925				1,783
Derivative instruments valuation			439				387
Out-of-market contracts			277				294
Other non-current liabilities			885				806
Total non-current liabilities			11,938				11,672
Total Liabilities			16,310				15,434
3.625% convertible perpetual preferred stock (at liquidation value, net of issuance costs)			247				247
Commitments and Contingencies
Stockholders’ Equity
Preferred stock (at liquidation value, net of issuance costs)			—				149
Common stock			3				3
Additional paid-in capital			5,274				4,948
Retained earnings			3,388				3,332
Less treasury stock, at cost — 48,411,606 and 41,866,451 shares, respectively			(1,323	)			(1,163	)
Accumulated other comprehensive income			667				416
Noncontrolling interest			12				12
Total Stockholders’ Equity			8,021				7,697
Total Liabilities and Stockholders’ Equity		$	24,578			$	23,378

See notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In millions)
Three months ended March 31,		2010				2009
Cash Flows from Operating Activities
Net income		$	58			$	198
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions and equity in earnings of unconsolidated affiliates			(5	)			(22	)
Depreciation and amortization			202				169
Provision for bad debts			9				—
Amortization of nuclear fuel			10				10
Amortization of financing costs and debt discount/premiums			8				9
Amortization of intangibles and out-of-market contracts			—				(34	)
Changes in deferred income taxes and liability for unrecognized tax benefits			74				299
Changes in nuclear decommissioning trust liability			11				6
Changes in derivatives			24				(304	)
Changes in collateral deposits supporting energy risk management activities			(172	)			312
Gain on sale of assets			(21	)			(1	)
Gain on sale of emission allowances			—				(7	)
Amortization of unearned equity compensation			6				7
Changes in option premiums collected			92				(270	)
Cash used by changes in other working capital			(182	)			(233	)
Net Cash Provided by Operating Activities			114				139
Cash Flows from Investing Activities
Capital expenditures			(185	)			(233	)
Increase in restricted cash, net			(5	)			(1	)
Decrease in notes receivable			7				3
Purchases of emission allowances			(34	)			(35	)
Proceeds from sale of emission allowances			9				8
Investments in nuclear decommissioning trust fund securities			(78	)			(83	)
Proceeds from sales of nuclear decommissioning trust fund securities			67				78
Proceeds from sale of assets			30				4
Other			(5	)			—
Net Cash Used by Investing Activities			(194	)			(259	)
Cash Flows from Financing Activities
Payment of dividends to preferred stockholders			(2	)			(14	)
Net receipts from acquired derivatives that include financing elements			13				40
Proceeds from issuance of long-term debt			10				—
Proceeds from issuance of common stock			2				—
Payment of deferred debt issuance costs			(2	)			(1	)
Payments for short and long-term debt			(429	)			(209	)
Net Cash Used by Financing Activities			(408	)			(184	)
Effect of exchange rate changes on cash and cash equivalents			(3	)			(2	)
Net Decrease in Cash and Cash Equivalents			(491	)			(306	)
Cash and Cash Equivalents at Beginning of Period			2,304				1,494
Cash and Cash Equivalents at End of Period		$	1,813			$	1,188

See notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Basis of Presentation

     NRG Energy, Inc., or NRG or the Company, is primarily a wholesale power generation company with a significant presence in major competitive power markets in the United States of America, or U.S., as well as a major retail electricity provider in the ERCOT (Texas) market. NRG is engaged in the ownership, development, construction and operation of power generation facilities, both conventional and renewable, the transacting in and trading of fuel and transportation services, the trading of energy, capacity and related products in the U.S. and select international markets, and supply of electricity and energy services to retail electricity customers in the Texas market. The Company also seeks to invest in and deploy new energy technologies.

     The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission’s, or SEC’s, regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the Company’s financial statements in its Annual Report on Form 10-K for the year ended December 31, 2009. Interim results are not necessarily indicative of results for a full year.

     In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company’s consolidated financial position as of March 31, 2010, and the results of operations and cash flows for the three months ended March 31, 2010, and 2009.

  Use of Estimates

     The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during the reporting period. Actual results could be different from these estimates.

Note 2 — Summary of Significant Accounting Policies

  Other Cash Flow Information

     NRG’s investing activities do not include non-cash capital expenditures of $90 million which were accrued at March 31, 2010.

  Recent Accounting Developments

     ASU No. 2009-17 — On January 1, 2010, the Company adopted the provisions of ASU No. 2009-17, Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, or ASU 2009-17. This guidance amends ASC 810 by altering how a company determines when an entity that is insufficiently capitalized or not controlled through its voting interests should be consolidated. The previous ASC 810 guidance required a quantitative analysis of the economic risk/rewards of a Variable Interest Entity, or a VIE, to determine the primary beneficiary. ASU 2009-17 specifies that a qualitative analysis be performed, requiring the primary beneficiary to have both the power to direct the activities of a VIE that most significantly impact the entities’ economic performance, as well as either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company’s adoption of ASU 2009-17 on January 1, 2010, did not have an impact on its results of operations, financial position or cash flows.

     ASU No. 2010-10 — In February 2010, the FASB issued ASU No. 2010-10, Consolidation (Topic 810): Amendments for Certain Investment Funds, or ASU 2010-10. The amendments to ASC 810 clarify that related parties should be considered when evaluating the criteria for determining whether a decision maker’s or service provider’s fee represents a variable interest. In addition, the amendments clarify that a quantitative calculation should not be the sole basis for evaluating whether a decision maker’s or service provider’s fee represents a variable interest. The Company adopted the provisions of ASU 2010-10 effective January 1, 2010, with no impact on its results of operations, financial position or cash flows.

     Other effects of ASU 2009-17/ASU 2010-10 adoption — NRG determined that one of its equity method investments was a VIE as of January 1, 2010, upon adoption of this new guidance. NRG owns a 50% interest in Sherbino I Wind Farm LLC, or Sherbino, a 150MW wind farm operated as a joint venture with BP Wind Energy North America Inc., or BP Wind. The Company has determined that Sherbino is a VIE, but the Company is not the primary beneficiary, under the amended guidance in ASU 2009-17 and ASU 2010-10. Therefore, NRG will continue to account for its investment in Sherbino under the equity method. NRG’s maximum exposure to loss is limited to its equity investment, which is $101 million as of March 31, 2010.

     Borrowings of an equity method investment — In December 2008 Sherbino entered into a 15-year term loan facility which is non-recourse to NRG. As of March 31, 2010 the outstanding principal balance of the term loan facility was $133 million, and is secured by substantially all of Sherbino’s assets and membership interests.

     ASU No. 2010-09 — In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements, or ASU 2010-09. Under the amendments of ASU 2010-09, an entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. As this guidance provides only disclosure requirements, the adoption of ASU 2010-09 effective January 1, 2010, did not impact the Company’s results of operations, financial position or cash flows.

     Other — The following accounting standards were adopted on January 1, 2010, with no impact on the Company’s results of operations, financial position or cash flows:

•

ASU No. 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing, or ASU 2009-15.

•

ASU No. 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification, or ASU 2010-02.

•

ASU No. 2010-06, Fair Value Measurement and Disclosures: Improving Disclosures about Fair Value Measurements, or ASU 2010-06.

Note 3 — Comprehensive Income

     The following table summarizes the components of the Company’s comprehensive income, net of tax:

(In millions)
Three months ended March 31,		2010				2009
Net Income attributable to NRG Energy, Inc.		$	58			$	198
Changes in derivative activity			257				173
Foreign currency translation adjustment			(6	)			(18	)
Unrealized gain on available-for-sale securities			—				1
Other comprehensive income		$	251				156
Comprehensive income		$	309			$	354

     The following table summarizes the changes in the Company’s accumulated other comprehensive income, net of tax:

(In millions)
Accumulated other comprehensive income as of December 31, 2009		$	416
Changes in derivative activity			257
Foreign currency translation adjustment			(6	)
Accumulated other comprehensive income as of March 31, 2010		$	667

Note 4 —Acquisitions and Dispositions

  Acquisition of Reliant Energy

     On May 1, 2009, NRG, through its wholly-owned subsidiary NRG Retail LLC, acquired Reliant Energy from RRI Energy, Inc., or RRI, which consisted of the entire Texas electric retail business operations of RRI, including the exclusive use of the trade name “Reliant” and related branding rights. The acquisition of Reliant Energy was accounted for under the acquisition method of accounting in accordance with ASC 805. Accordingly, NRG conducted an assessment of net assets acquired and recognized identifiable assets acquired and liabilities assumed at their acquisition date fair values. The accounting for this business combination was complete as of March 31, 2010.

     NRG paid RRI $287.5 million in cash at closing, and made payments to RRI of $79 million as remittances of acquired net working capital. In addition, the Company expects to remit approximately $3 million of acquired net working capital to RRI by the second quarter 2010, bringing the total cash consideration to approximately $370 million. NRG also recognized a $31 million non-cash gain at the acquisition date, on the settlement of a pre-existing relationship, representing the in-the-money value to NRG of an agreement that permits Reliant Energy to call on certain NRG gas plants when necessary for Reliant Energy to meet its load obligations. This non-cash gain was considered a component of consideration in accordance with ASC 805, and together with cash consideration, brings total consideration to approximately $401 million.

     The following table summarizes the values assigned to the net assets acquired, including cash acquired of $6 million, as of the acquisition date:

		(In millions)
Assets
Current and non-current assets		$	635
Property, plant and equipment			72
Intangible assets subject to amortization:
In-market customer contracts			790
Customer relationships			405
Trade names			178
In-market energy supply contracts			54
Other			6
Derivative assets			1,942
Deferred tax asset, net			14
Goodwill			—
Total assets acquired		$	4,096
Liabilities
Current and non-current liabilities		$	556
Derivative liabilities			2,996
Out-of-market energy supply and customer contracts			143
Total liabilities assumed		$	3,695
Net assets acquired		$	401

Measurement period adjustments

     The following measurement period adjustments to the provisional amounts, attributable to refinement of the underlying appraisal assumptions, were recognized during 2009 subsequent to the acquisition date and the first quarter of 2010:

		Increase/(Decrease)
		(In millions)
Assets
Intangible assets subject to amortization:
In-market customer contracts		$	57
Customer relationships			(76	)
In-market energy supply contracts			17
Deferred tax asset, net			3
Total assets acquired			1
Liabilities
Current and non-current liabilities			6
Out-of-market energy supply and customer contracts			(5	)
Total liabilities assumed			1
Net assets acquired		$	—

  Disposition of Padoma

     On January 11, 2010, NRG sold its terrestrial wind development company, Padoma Wind Power LLC, or Padoma, to Enel North America, Inc., or Enel. NRG retained its existing ownership interest in its three Texas wind farms: Sherbino, Elbow Creek and Langford. In addition, NRG will maintain a strategic partnership with Enel to evaluate potential opportunities in renewable energy, including the opportunity to participate in wind projects currently in development. NRG recognized a gain on the sale of Padoma of $23 million, which was recorded as a component of operating income in the statement of operations.

Note 5 — Fair Value of Financial Instruments

     The estimated carrying values and fair values of NRG’s recorded financial instruments are as follows:

		Carrying Amount								Fair Value
		March 31,				December 31,				March 31,				December 31,
		2010				2009				2010				2009
						(In millions)
Cash and cash equivalents		$	1,813			$	2,304			$	1,813			$	2,304
Funds deposited by counterparties			509				177				509				177
Restricted cash			7				2				7				2
Cash collateral paid in support of energy risk management activities			533				361				533				361
Investment in available-for-sale securities (classified within other non-current assets):
Debt securities			9				9				9				9
Marketable equity securities			5				5				5				5
Trust fund investments			384				369				384				369
Notes receivable			229				231				236				238
Derivative assets			3,699				2,319				3,699				2,319
Long-term debt, including current portion			7,883				8,295				7,832				8,211
Cash collateral received in support of energy risk management activities			509				177				509				177
Derivative liabilities		$	2,793			$	1,860			$	2,793			$	1,860

  Recurring Fair Value Measurements

     The following table presents assets and liabilities measured and recorded at fair value on the Company’s condensed consolidated balance sheet on a recurring basis and their level within the fair value hierarchy:

(In millions)						Fair Value
As of March 31, 2010		Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	1,813			$	—			$	—			$	1,813
Funds deposited by counterparties			509				—				—				509
Restricted cash			7				—				—				7
Cash collateral paid in support of energy risk management activities			533				—				—				533
Investment in available-for-sale securities (classified within other non-current assets):
Debt securities			—				—				9				9
Marketable equity securities			5				—				—				5
Trust fund investments
Cash and cash equivalents			8				—				—				8
U.S. government and federal agency obligations			23				—				—				23
Federal agency mortgage-backed securities			—				63				—				63
Commercial mortgage-backed securities			—				9				—				9
Corporate debt securities			—				48				—				48
Marketable equity securities			194				—				37				231
Foreign government fixed income securities			—				2				—				2
Derivative assets
Commodity contracts			995				2,593				100				3,688
Interest rate contracts			—				—				11				11
Total assets		$	4,087			$	2,715			$	157			$	6,959
Cash collateral received in support of energy risk management activities		$	509			$	—			$	—			$	509
Derivative liabilities
Commodity contracts			1,119				1,430				136				2,685
Interest rate contracts			—				108				—				108
Total liabilities		$	1,628			$	1,538			$	136			$	3,302

(In millions)		Fair Value
As of December 31, 2009		Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	2,304			$	—			$	—			$	2,304
Funds deposited by counterparties			177				—				—				177
Restricted cash			2				—				—				2
Cash collateral paid in support of energy risk management activities			361				—				—				361
Investment in available-for-sale securities (classified within other non-current assets):
Debt securities			—				—				9				9
Marketable equity securities			5				—				—				5
Trust fund investments			214				118				37				369
Derivative assets			489				1,767				63				2,319
Total assets		$	3,552			$	1,885			$	109			$	5,546
Cash collateral received in support of energy risk management activities		$	177			$	—			$	—			$	177
Derivative liabilities			501				1,283				76				1,860
Total liabilities		$	678			$	1,283			$	76			$	2,037

     There have been no transfers during the three months ended March 31, 2010, between Levels 1 and 2. The following table reconciles the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements using significant unobservable inputs:

		Fair Value Measurement Using Significant Unobservable Inputs
		(Level 3)
(In millions)						Trust Fund
Three months ended March 31, 2010		Debt Securities				Investments				Derivatives(a)				Total
Beginning balance as of January 1, 2010		$	9			$	37			$	(13	)		$	33
Total gains/(losses) (realized and unrealized)
Included in earnings			—				—				32				32
Purchases			—				—				1				1
Transfers in to Level 3(b)			—				—				(62	)			(62	)
Transfers out of Level 3(b)			—				—				17				17
Ending balance as of March 31, 2010		$	9			$	37			$	(25	)		$	21
The amount of the total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held as of March 31, 2010		$	—			$	—			$	25			$	25

		Fair Value Measurement Using Significant Unobservable Inputs
		(Level 3)
(In millions)						Trust Fund
Three months ended March 31, 2009		Debt Securities				Investments				Derivatives(a)				Total
Beginning balance as of January 1, 2009		$	7			$	31			$	49			$	87
Total gains/(losses) (realized and unrealized)
Included in earnings			—				—				19				19
Included in nuclear decommissioning trust liability			—				(4	)			—				(4	)
Purchases/(sales), net			—				—				4				4
Transfers in/out of Level 3(b)			—				—				54				54
Ending balance as of March 31, 2009		$	7			$	27			$	126			$	160
The amount of the total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held as of March 31, 2009		$	—			$	—			$	29			$	29

(a)		Consists of derivative assets and liabilities, net
(b)		Transfers in/out of Level 3 are related to the availability of external broker quotes, and are all with Level 2.

     Realized and unrealized gains and losses included in earnings that are related to the energy derivatives are recorded in operating revenues and cost of operations.

     In determining the fair value of NRG’s Level 2 and 3 derivative contracts, NRG applies a credit reserve to reflect credit risk which is calculated based on credit default swaps. As of March 31, 2010, the credit reserve resulted in a $2 million decrease in fair value which is composed of a $3 million loss in other comprehensive income, or OCI, and a $1 million gain in operating revenue and cost of operations.

  Concentration of Credit Risk

     In addition to the credit risk discussion as disclosed in Note 2, Summary of Significant Accounting Policies, to the Company’s financial statements in its Annual Report on Form 10-K for the year ended December 31, 2009, 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. NRG is exposed to counterparty credit risk through various activities including wholesale sales, fuel purchases and retail supply and retail customer credit risk through its retail load activities.

     Counterparty Credit Risk

     The Company monitors and manages counterparty 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, credit derivatives, 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 credit risk with 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 NRG to cover the credit risk of the counterparty until positions settle.

     As of March 31, 2010, total counterparty credit exposure to substantially all counterparties was $1.7 billion and NRG held cash collateral against those positions of $509 million resulting in a net exposure of $1.2 billion. Total counterparty credit exposure is discounted at the risk free rate.

     The following table highlights the counterparty credit quality and the net counterparty credit exposure by industry sector. 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 Normal Purchase Normal Sale, or NPNS, and non-derivative transactions. The exposure is shown net of collateral held, and includes amounts net of receivables or payables.

		Net Exposure (a)
Category		(% of Total)
Financial institutions			67	%
Utilities, energy, merchants, marketers and other			30
Coal suppliers			1
ISOs			2
Total as of March 31, 2010			100	%

		Net Exposure (a)
Category		(% of Total)
Investment grade			80	%
Non-Investment grade			1
Non-rated			19
Total as of March 31, 2010			100	%

(a)		Counterparty credit exposure excludes California tolling, Northeast load obligations, New England Reliability Must-Run, or RMR, certain cooperative load contracts, and Texas Westmoreland coal contracts. The aforementioned exposures were excluded for various reasons including regulatory support or liens held against the contracts which serve to reduce the risk of loss. NRG also excludes uranium and coal transportation contracts from counterparty credit exposure because of the illiquidity of the reference markets. Credit exposure also excludes any exposure NRG has to counterparties of non-recourse subsidiaries.

     NRG has counterparty credit risk exposure to certain counterparties representing more than 10% of total net exposure and the aggregate of such counterparties was $399 million. Approximately 82% of NRG’s positions relating to credit risk roll-off by the end of 2012. 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 results or results of operations from nonperformance by any of NRG’s counterparties.

  Retail Customer Credit Risk

     NRG is exposed to retail credit risk through the Company’s competitive electricity supply business, which serves C&I customers and the Mass market in Texas. Retail credit risk results 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 March 31, 2010, the Company’s retail customer credit exposure to C&I customers was diversified across many customers and various industries, with a significant portion of the exposure with government entities.

     NRG is also exposed to retail customer credit risk relating to its 1.5 million Mass customers, which may result in a write-off of bad debt. During the quarter, the Company experienced improved customer payment behavior, but 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.

     This footnote should be read in conjunction with the complete description under Note 5, Fair Value of Financial Instruments, to the Company’s financial statements in its Annual Report on Form 10-K for the year ended December 31, 2009.

Note 6 — Nuclear Decommissioning Trust Fund

     NRG’s nuclear decommissioning trust fund assets, which are for our portion of the decommissioning of the South Texas Project, or STP, are comprised of securities classified as available-for-sale and recorded at fair value based on actively quoted market prices. NRG accounts for the nuclear decommissioning trust fund in accordance with ASC-980 — Regulated Operations, or ASC 980. 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 to the ratepayers 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 of March 31, 2010, and December 31, 2009, as well as information about the contractual maturities of those securities. The cost of securities sold is determined on the specific identification method.

		As of March 31, 2010																As of December 31, 2009
														Weighted-																Weighted-
														average																average
		Fair				Unrealized				Unrealized				maturities				Fair				Unrealized				Unrealized				maturities
(In millions, except otherwise noted)		Value				gains				losses				(in years)				Value				gains				losses				(in years)
Cash and cash equivalents		$	8			$	—			$	—				—			$	4			$	—			$	—				—
U.S. government and federal agency obligations			21				1				—				8				23				1				—				8
Federal agency mortgage-backed securities			63				2				—				22				60				2				—				23
Commercial mortgage-backed securities			9				—				1				29				10				—				1				29
Corporate debt securities			48				3				1				9				48				3				1				10
Marketable equity securities			231				99				1				—				220				89				2				—
Foreign government fixed income securities			2				—				—				7				2				—				—				6
Total		$	382			$	105			$	3							$	367			$	95			$	4

     The following tables summarize proceeds from sales of available-for-sale securities and the related realized gains and losses from these sales.

		Three months ended March 31,
(In millions)		2010				2009
Realized gains		$	1			$	2
Realized losses			1				8
Proceeds from sale of securities			67				78

Note 7 — Accounting for Derivative Instruments and Hedging Activities

     ASC 815 requires NRG 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. If certain conditions are met, NRG may be able to designate certain derivatives as cash flow hedges and defer the effective portion of the change in fair value of the derivatives to accumulated OCI, until the hedged transactions occur and are recognized in earnings. The ineffective portion of a cash flow hedge is immediately recognized in earnings.

     For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair value of both the derivative and the hedged transaction are recorded in current 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. Under the guidelines established per ASC 815, 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 foreign exchange contracts.

     As the Company engages principally in the trading and marketing of its generation assets and retail business, some of NRG’s commercial activities qualify for hedge accounting under the requirements of ASC 815. 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, many trades in support of NRG’s baseload units normally qualify for NPNS or cash flow hedge accounting treatment, and trades in support of NRG’s peaking unit’s 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 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 and retail power sales from the Company’s electric generation facilities, NRG may enter into a variety of derivative and non-derivative hedging instruments, utilizing the following:

•

Forward contracts, which commit NRG to sell or purchase 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 counter-parties based upon the differential between two prices for a predetermined contractual, or notional, quantity.

•

Option contracts, which convey the right or obligation to purchase or sell a commodity.

•

Weather and hurricane derivative products used to mitigate a portion of Reliant Energy’s lost revenue due to weather.

     As of March 31, 2010, NRG had cash flow hedge energy-related derivative financial instruments extending through December 2013. The objectives for entering into derivative contracts designated as hedges include:

•

Fixing the price for a portion of anticipated future electricity sales through the use of various derivative instruments including gas collars and swaps at a level 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 NRG’s power plants.

     NRG’s trading 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.

  Interest Rate Swaps

     NRG is exposed to changes in interest rates through the Company’s issuance of variable and fixed rate debt. In order to manage the Company’s interest rate risk, NRG enters into interest rate swap agreements. As of March 31, 2010, NRG had interest rate derivative instruments extending through June 2019, all of which had been designated as either cash flow or fair value 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 March 31, 2010, and December 31, 2009. 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.

				Total Volume
				March 31,				December 31,
				2010				2009
Commodity		Units		(In millions)
Emissions		Short Ton			(6	)			(2	)
Coal		Short Ton			49				55
Natural Gas		MMBtu			(250	)			(484	)
Oil		Barrel			1				1
Power(a)		MWH			(41	)			(41	)
Interest		Dollars		$	3,101			$	3,291

(a)		Power volumes include capacity sales.

Fair Value of Derivative Instruments

     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 paid on the Company’s derivative assets or liabilities are recorded on a separate line item on the balance sheet. The Company has chosen not to offset positions as permitted in ASC 815. As of March 31, 2010, the Company recorded $533 million of cash collateral paid and $509 million of cash collateral received on its balance sheet.

     The following table summarizes the fair value within the derivative instrument valuation on the balance sheet as of March 31, 2010, and December 31, 2009:

		Fair Value
		Derivatives Asset								Derivatives Liability
		March 31,				December 31,				March 31,				December 31,
(In millions)		2010				2009				2010				2009
Derivatives Designated as Cash Flow or Fair Value Hedges:
Interest rate contracts current		$	—			$	—			$	65			$	2
Interest rate contracts long-term			11				8				43				106
Commodity contracts current			521				300				12				12
Commodity contracts long-term			759				508				2				6
Total Derivatives Designated as Cash Flow or Fair Value Hedges			1,291				816				122				126
Derivatives Not Designated as Cash Flow or Fair Value Hedges:
Commodity contracts current			2,203				1,336				2,277				1,459
Commodity contracts long-term			205				167				394				275
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges			2,408				1,503				2,671				1,734
Total Derivatives		$	3,699			$	2,319			$	2,793			$	1,860

Impact of Derivative Instruments on the Statement of Operations

     The following table summarizes the amount of gain/(loss) resulting from fair value hedges reflected in interest income/(expense) for interest rate contracts:

Amount of gain/(loss) recognized		Three months ended March 31,
(In millions)		2010				2009
Derivative		$	3			$	(1	)
Senior Notes (hedged item)		$	(3	)		$	1

     The following table summarizes the location and amount of gain/(loss) resulting from cash flow hedges:

Amount of

Amount of

Amount of

Location of

gain/(loss)

Location of

gain/(loss)

gain/(loss)

gain/(loss)

reclassified from

gain/(loss)

recognized in

recognized in OCI

reclassified from

Accumulated

recognized in

income

(In millions)

(effective portion)

Accumulated

OCI into Income

income

(ineffective

Three months ended March 31, 2010

after tax

OCI into Income

after tax

(ineffective portion)

portion)

Interest rate contracts

$

(1

)

Interest expense

$

(2

)

Interest expense

$

—

Commodity contracts

258

Operating revenue

106

Operating revenue

(2

)

Total

$

257

$

104

$

(2

)

Amount of

Amount of

Amount of

Location of

gain/(loss)

Location of

gain/(loss)

gain/(loss)

gain/(loss)

reclassified from

gain/(loss)

recognized in

recognized in OCI

reclassified from

Accumulated

recognized in

income

(In millions)

(effective portion)

Accumulated

OCI into Income

income

(ineffective

Three months ended March 31, 2009

after tax

OCI into Income

after tax

(ineffective portion)

portion)

Interest rate contracts

$

12

Interest expense

$

(1

)

Interest expense

$

—

Commodity contracts

161

Operating revenue

245

Operating revenue

4

Total

$

173

$

244

$

4

     The following table summarizes the amount of gain/(loss) recognized in income for derivatives not designated as cash flow or fair value hedges on commodity contracts:

Amount of gain/(loss) recognized in income or cost of operations for derivatives		Three months ended March 31,
(In millions)		2010				2009
Location of gain/(loss) recognized in income for derivatives:
Operating revenue		$	71			$	323
Cost of operations		$	(107	)		$	(52	)

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 was 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 March 31, 2010, was $42 million. The collateral required or contracts with credit rating contingent features that are in a net liability position as of March 31, 2010, was $16 million. The Company is also a party to certain marginable agreements where NRG has a net liability position but the counterparty has not called for the collateral due, which is approximately $7 million as of March 31, 2010.

     On April 28, 2010, Merrill Lynch agreed to continue to provide credit support to four Reliant Energy counterparties under the Amended CSRA through December 15, 2010. The Company intends to have no Reliant Energy counterparties under the Amended CSRA by December 15, 2010.

     See Note 5, Fair Value of Financial Instruments, to this Form 10-Q for discussion regarding concentration of credit risk.

  Accumulated Other Comprehensive Income

     The following table summarizes the effects of ASC 815 on NRG’s accumulated OCI balance attributable to hedged derivatives, net of tax:

(In millions)		Energy				Interest
Three months ended March 31, 2010		Commodities				Rate				Total
Accumulated OCI balance at December 31, 2009		$	461			$	(55	)		$	406
Realized from OCI during the period:
- Due to realization of previously deferred amounts			(106	)			2				(104	)
Mark-to-market of cash flow hedge accounting contracts			364				(3	)			361
Accumulated OCI balance at March 31, 2010, net of $398 tax		$	719			$	(56	)		$	663
Gains/(losses) expected to be realized from OCI during the next 12 months, net of $228 tax		$	432			$	(43	)		$	389

(In millions)		Energy				Interest
Three months ended March 31, 2009		Commodities				Rate				Total
Accumulated OCI balance at December 31, 2008		$	406			$	(91	)		$	315
Realized from OCI during the period:
- Due to realization of previously deferred amounts			(112	)			1				(111	)
- Due to discontinuation of cash flow hedge accounting			(133	)			—				(133	)
Mark-to-market of cash flow hedge accounting contracts			406				11				417
Accumulated OCI balance at March 31, 2009, net of $305 tax		$	567			$	(79	)		$	488

     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 July 31, 2008, the Company’s regression analysis for natural gas prices to ERCOT power prices, while positively correlated, did not meet the required threshold for cash flow hedge accounting for calendar years 2012 and 2013. As a result, the Company de-designated its 2012 and 2013 ERCOT cash flow hedges as of July 31, 2008, and prospectively marked these derivatives to market. On April 1, 2009, the required correlation threshold for cash flow hedge accounting was achieved for these transactions, and accordingly, these hedges were re-designated as cash flow hedges.

     As discussed in Note 3, Acquisitions, to the Company’s financial statements in its Annual Report on Form 10-K for the year ended December 31, 2009, on October 5, 2009, the Company amended the CSRA with Merrill Lynch. In connection with the CSRA Amendment, NRG net settled certain in-the-money transactions with Morgan Stanley. As these transactions were net settled, $245 million in accumulated OCI was frozen and will be recognized into income when the underlying power from the baseload plants is generated.

     Statement of Operations

     In accordance with ASC 815, unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as cash flow hedge derivatives and ineffectiveness of hedge derivatives are reflected in current period earnings.

     The following table summarizes the pre-tax effects of economic hedges that did not qualify for cash flow hedge accounting, ineffectiveness on cash flow hedges, and trading activity on NRG’s statement of operations. These amounts are included within operating revenues and cost of operations.

		Three months ended
		March 31,
(In millions)		2010				2009
Unrealized mark-to-market results
Reversal of previously recognized unrealized gains on settled positions related to economic hedges		$	(40	)		$	(16	)
Reversal of loss positions acquired as part of the Reliant Energy acquisition as of May 1, 2009			90				—
Reversal of previously recognized unrealized losses/(gains) on settled positions related to trading activity			18				(69	)
Net unrealized (losses)/gains on open positions related to economic hedges			(118	)			349
(Losses)/gains on ineffectiveness associated with open positions treated as cash flow hedges			(2	)			4
Net unrealized gains on open positions related to trading activity			14				7
Total unrealized (losses)/gains		$	(38	)		$	275

		Three months ended
		March 31,
(In millions)		2010				2009
Revenue from operations — energy commodities		$	69			$	327
Cost of operations			(107	)			(52	)
Total impact to statement of operations		$	(38	)		$	275

     Reliant Energy’s loss positions were acquired as of May 1, 2009, and valued using forward prices on that date. The $90 million roll-off amounts were offset by realized losses at the settled prices and are reflected in the cost of operations during the same period.

     The $118 million loss from economic hedge positions is the result of a decrease in value of forward purchases and sales of natural gas, electricity and fuel due to decrease in forward power and gas prices.

     For the period ended March 31, 2009, the $349 million gain from economic hedge positions includes $217 million recognized in earnings from previously deferred amounts in accumulated OCI as the Company discontinued cash flow hedge accounting for certain 2009 transactions in Texas and New York due to lower expected generation, and $132 million of increase in value of forward sales of electricity and fuel due to forward power and gas prices. The $4 million gain is primarily from hedge accounting ineffectiveness related to gas trades in Texas which was driven by decreasing forward gas prices while forward power prices decreased at a slower pace.

     Discontinued Normal Purchase and Sale for Coal Purchases — Due to lower coal-fired generation during the first quarter 2009, the Company’s coal consumption was lower than forecasted. The Company net settled some of its coal purchases under NPNS designation and thus was no longer able to assert physical delivery under these coal contracts. The forward positions previously treated as accrual accounting were reclassified into mark-to-market accounting during the first quarter and prospectively. The impact of discontinuance of coal NPNS designated transactions resulted in a derivative loss of $29 million that was reflected in the cost of operations for the three months ended March 31, 2009.

Note 8 — Long-Term Debt

   Senior Credit Facility

     In March 2010, NRG made a repayment of approximately $229 million to its first lien lenders under the Term Loan Facility. This payment resulted from the mandatory annual offer of a portion of NRG’s excess cash flow (as defined in the Senior Credit Facility) for the prior year.

  Debt Related to Capital Allocation Program

     On March 3, 2010, the Company completed the early unwinding of the CSF I Debt by remitting a cash payment to Credit Suisse, or CS, of $242 million to settle the outstanding principal and interest, as compared to $249 million that would have been due at maturity in June 2010. As part of the unwind, CS returned to NRG 6,600,000 shares of NRG common stock borrowed under the Share Lending Agreement, or SLA, between the parties and released all 12,441,973 shares of NRG common stock held as collateral for the CSF I Debt. The 6,600,000 shares of NRG common stock were returned to treasury stock and will no longer be treated as outstanding for corporate law purposes. The Company has now settled all obligations related to the CSF I and II Debt entered into in 2006, as amended from time to time, as well as the SLA entered into in February 2009.

     Dunkirk Power LLC Tax-Exempt Bonds

     On February 1, 2010, the Company fixed the rate on the Dunkirk bonds originally issued in April 2009, at 5.875%. Interest on the bonds will be payable semiannually. In addition, the $59 million letter of credit issued by NRG in support of the bonds was cancelled and replaced with an NRG guarantee.

     GenConn Energy LLC related financings

     NRG Connecticut Peaking Development LLC made funding requests under the equity bridge loan, or EBL, during the quarter. The EBL is backed by a letter of credit issued by NRG under its Synthetic Letter of Credit Facility equal to 104% of the amount outstanding. The proceeds of the EBL received through March 31, 2010, were $114 million and the remaining amounts will be drawn as necessary to fund interest on the EBL as the maximum amount permitted to be drawn for project costs for both projects has been met.

     Borrowings of an equity method investment — In April 2009, GenConn secured financing for 50% of the Devon and Middletown project construction costs through a seven-year term loan facility, and also entered into a five-year revolving working capital loan and letter of credit facility, which collectively with the term loan is referred to as the GenConn Facility. The aggregate credit amount secured under the GenConn Facility, which is non-recourse to NRG, is $291 million, including $48 million for the revolving facility. In August 2009, GenConn began to draw under the GenConn Facility to cover costs related to the Devon project. As of March 31, 2010, $75 million had been drawn.

Note 9 — Changes in Capital Structure

     The following table reflects the changes in NRG’s common stock issued and outstanding during the three months ended March 31, 2010:

		Authorized				Issued				Treasury				Outstanding
Balance as of December 31, 2009			500,000,000				295,861,759				(41,866,451	)			253,995,308
Shares issued under LTIP			—				150,853				—				150,853
Shares issued under NRG Employee Stock Purchase Plan, or ESPP			—				—				54,845				54,845
Shares returned by affiliate of CS			—				—				(6,600,000	)			(6,600,000	)
4% Preferred Stock conversion			—				7,701,450				—				7,701,450
Balance as of March 31, 2010			500,000,000				303,714,062				(48,411,606	)			255,302,456

  Employee Stock Purchase Plan

     As of March 31, 2010, there were 363,623 shares of treasury stock reserved for issuance under the ESPP.

  4% Preferred Stock

     As of January 21, 2010, the Company completed the redemption of all remaining outstanding shares of 4% Preferred Stock, with holders converting 154,029 Preferred Stock shares into 7,701,450 shares of common stock and the Company redeeming 28 Preferred Stock shares for $28 thousand in cash.

  Share Lending Agreements

     As part of the CSF I Debt unwind, CS returned to NRG 6,600,000 shares of NRG common stock borrowed under the SLA between the parties. The 6,600,000 shares of NRG common stock were returned to treasury stock and will no longer be treated as outstanding for corporate law purposes. See Note 8, Long-Term Debt, to this Form 10-Q for more information.

Note 10 — Equity Compensation

   Non-Qualified Stock Options, or NQSOs

     The following table summarizes the Company’s NQSO activity as of March 31, 2010, and changes during the three months then ended:

						Weighted				Aggregate Intrinsic
						Average				Value
		Shares				Exercise Price				(In millions)
Outstanding as of December 31, 2009			4,793,585			$	25.07
Granted			754,200				23.79
Exercised			(109,165	)			22.15
Forfeited			(214,241	)			30.82
Outstanding at March 31, 2010			5,224,379				24.71			$	10
Exercisable at March 31, 2010			3,302,851			$	23.68			$	10