The Company performed step zero of the goodwill impairment test, performing its qualitative assessment of macroeconomic, industry and market events and circumstances, and the overall financial performance of the NRG B2B reporting unit (NRG Curtailment Solutions). The Company determined it was not more likely than not that the fair value of the goodwill attributed to this reporting unit was less than its carrying amount and accordingly, no impairment existed for the year ended December 31, 2015.
The Company performed step one of the two-step impairment test 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, 2015:
Reporting Unit (Segment)
% Fair Value Over Carrying Value
Midwest Generation (NRG Business)
NRG Home Retail - Commodity (NRG Home Retail)
NRG Home Retail - non-Commodity (NRG Home Retail)
Solar Power Partners (NRG Renew)
The Company also performed step one of the two-step impairment test for its NRG Texas, NRG Home Solar and Goal Zero reporting units. The Company determined the fair value of these reporting units primarily using an income approach. In each case, the fair value of the reporting unit was determined to be less than its carrying amount and accordingly, the Company performed step two of the two-step impairment test. The results of the impairment tests for these reporting units are detailed below and in Item 15 - Note 10, Asset Impairments, to the Consolidated Financial Statements.
The Company believes the methodology and assumptions used in the valuation 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 considers 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 in the Texas region. 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;
Based on 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;
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 additional significant assumptions used in overall valuation of NRG Texas are as follows:
The discount rate applied to internally developed cash flow projections for the NRG Texas reporting unit represents the weighted average cost of capital consistent with the risk inherent in future cash flows and based upon an assumed capital structure, cost of long-term debt and cost of equity consistent with comparable companies in the integrated utility industry.