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

For the quarterly period ended: September 30, 2009

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 October 28, 2009, there were 256,409,300 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			9
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES			9
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			61
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			110
ITEM 4 — CONTROLS AND PROCEDURES			115
PART II — OTHER INFORMATION			116
ITEM 1 — LEGAL PROCEEDINGS			116
ITEM 1A — RISK FACTORS			116
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			116
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES			116
ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			116
ITEM 5 — OTHER INFORMATION			117
ITEM 6 — EXHIBITS			118
SIGNATURES			119
EX-10.1.A
EX-10.1.B
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
EX-101 DEFINITION LINKBASE DOCUMENT

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

     This Quarterly Report on Form 10-Q 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, 2008 and Risk Factors in Part II, Item 1A, of the Quarterly Report on Form 10-Q, for the quarters ended March 31, 2009 and June 30, 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 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 revenue;
	•		NRG’s ability to achieve its strategy of regularly returning capital to shareholders; and
	•		NRG’s ability to successfully integrate and manage any acquired companies.

     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:

APB		Accounting Principles Board
ASC		The FASB Accounting Standards Codification, which the FASB has established as the source of authoritative U.S. GAAP
ASU		Accounting Standards Updates – updates to the ASC
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
BTA		Best Technology Available
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
CL&P		The Connecticut Light & Power Company
CO2		Carbon dioxide
CREZ		Competitive Renewable Energy Zones
CS		Credit Suisse Group
CSF I		NRG Common Stock Finance I LLC
CSF II		NRG Common Stock Finance II LLC
CSF CAGRs		Embedded derivatives within the CSF debt, individually referred to as CSF I CAGR and CSF II CAGR
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
DNREC		Delaware Department of Natural Resources and Environmental Control
DPUC		Department of Public Utility Control
EITF		Emerging Issues Task Force
EPC		Engineering, Procurement and Construction
ERCOT		Electric Reliability Council of Texas, the Independent System Operator and the Regional Reliability Coordinator of the various electricity systems within Texas
ESPP		Employee Stock Purchase Plan
Exchange Act		The Securities Exchange Act of 1934, as amended
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FSP		FASB Staff Position
GHG		Greenhouse Gases

		GLOSSARY OF TERMS (continued)
Heat Rate		A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWh’s 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.
IGCC		Integrated Gasification Combined Cycle
IRS		Internal Revenue Service
ISO		Independent System Operator, also referred to as Regional Transmission Organizations, or RTO
ISO-NE		ISO New England Inc.
ITISA		Itiquira Energetica S.A.
kV		Kilovolts
kW		Kilowatts
kWh		Kilowatt-hours
LIBOR		London Inter-Bank Offer Rate
Licensing Board		Atomic Licensing and Safety Board
LTIP		Long-Term Incentive Plan
MACT		Maximum Achievable Control Technology
Mass		Residential and small business
MDPSC		Maryland Public Service Commission
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
MRTU		Market Redesign and Technology Upgrade
MVA		Megavolt-ampere
MW		Megawatts
MWh		Saleable megawatt hours net of internal/parasitic load megawatt-hours
MWt		Megawatts Thermal
NAAQS		National Ambient Air Quality Standards
Net Exposure		Counterparty credit exposure to NRG, net of collateral
NINA		Nuclear Innovation North America LLC
NOx		Nitrogen oxide
NOL		Net Operating Loss
NOV		Notice of Violation
NPNS		Normal Purchase Normal Sale
NRC		United States 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

		GLOSSARY OF TERMS (continued)
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 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 over the next decade
REPS		Reliant Energy Power Supply, LLC
RERH		RERH Holding, LLC and its subsidiaries
Revolving Credit Facility		NRG’s $1 billion senior secured revolving credit facility which matures on February 2, 2011
RGGI		Regional Greenhouse Gas Initiative
ROIC		Return on Invested Capital
RPM		Reliability Pricing Model — term for capacity market in PJM market
RTO		Regional Transmission Organization, also referred to as an Independent System Operator, or ISO
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 mature on February 1, 2013, and a $1 billion Revolving Credit Facility, which matures on February 2, 2011
SIFMA		Securities Industry and Financial Markets Association
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, $1.1 billion of 7.375% senior notes due 2017 and $700 million of 8.5% senior notes due 2019
SFAS		Statement of Financial Accounting Standards issued by the FASB
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 Energy Corporation
TANE Facility		NINA’s $500 million credit facility with TANE which matures on February 24, 2012
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
Texas Genco		Texas Genco LLC, now referred to as the Company’s Texas Region
Tonnes		Metric tonnes, which are units of mass or weight in the metric system each equal to 2,205 lbs and are the global measurement for GHG
U.S.		United States of America
U.S. EPA		United States Environmental Protection Agency
U.S. GAAP		Accounting principles generally accepted in the United States
VaR		Value at Risk
WCP		WCP (Generation) Holdings, Inc.

ACCOUNTING PRONOUNCEMENTS

     The following ASC topics are referenced in this report. In addition, certain U.S. GAAP standards and interpretations were adopted by the Company in 2009 prior to the July 1, 2009, effective date of the ASC, and were subsequently incorporated into one or more ASC topics. Further, certain U.S. GAAP standards were ratified by the FASB in 2009 prior to July 1, 2009, but are not yet effective and have therefore not yet been incorporated into the ASC. This glossary includes the definition of these “legacy” standards and interpretations under the ASC topic or topics which have been, or are expected to be, fully or partially incorporated.

ASC 105		ASC-105, Generally Accepted Accounting Principles; incorporates:

•

SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

ASC 270		ASC-270, Interim Reporting; incorporates:

•

FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments

ASC 275		ASC-275, Risks and Uncertainties, incorporates:

•

FSP FAS 142-3, Determination of the Useful Life of Intangible Assets

ASC 320		ASC-320, Investments-Debt and Equity Securities; incorporates:

•

FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments

ASC 323		ASC-323, Investments-Equity Method and Joint Ventures; incorporates:

•

EITF 08-6, Equity Method Investment Accounting Considerations

ASC 350		ASC-350, Intangibles-Goodwill and Others; incorporates:

•

FSP FAS 142-3, Determination of the Useful Life of Intangible Assets

ASC 450		ASC-450, Contingencies
ASC 470		ASC-470, Debt; incorporates:

•

FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)

ASC 715		ASC-715, Compensation-Retirement Benefits, incorporates:

•

FSP FAS 132 (R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets

ASC 718		ASC-718, Compensation-Stock Compensation; incorporates:

•

EITF 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock

ASC 740		ASC-740, Income Taxes
ASC 805		ASC-805, Business Combinations; incorporates:

•

SFAS 141(R), Business Combinations

•

FSP FAS 141R-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies

ASC 810		ASC-810, Consolidation; incorporates:

	•		SFAS 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51, Consolidate Financial Statements
	Expected to incorporate SFAS 167, Amendments to FASB Interpretations No. 46 (R), effective January 1, 2010

ASC 815		ASC-815, Derivatives and Hedging; incorporates:

	•		SFAS 161, Disclosures About Derivative Instruments and Hedging Activities
	•		EITF 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock

ASC 820		ASC-820, Fair Value Measurements and Disclosures; incorporates:

	•		EITF 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement

ASC 825		ASC-825, Financial Instruments; incorporates:

•

FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)

•

FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments

ASC 855		ASC-855, Subsequent Events; incorporates:

•

SFAS 165, Subsequent Events

ASU 2009-5		ASU 2009-5, Fair Value Measurement and Disclosures: Measuring Liabilities at Fair Value
ASU 2009-15		ASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing; incorporates:

•

EITF 09-1, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing

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 September 30,								Nine months ended September 30,
(In millions, except for per share amounts)		2009				2008				2009				2008
Operating Revenues
Total operating revenues		$	2,916			$	2,612			$	6,811			$	5,230
Operating Costs and Expenses
Cost of operations			1,893				997				3,901				2,812
Depreciation and amortization			212				156				594				478
Selling, general and administrative			182				75				396				233
Acquisition-related transaction and integration costs			6				—				41				—
Development costs			12				13				34				29
Total operating costs and expenses			2,305				1,241				4,966				3,552
Operating Income			611				1,371				1,845				1,678
Other Income/(Expense)
Equity in earnings of unconsolidated affiliates			6				58				33				35
Gain on sale of equity method investment			—				—				128				—
Other income/(loss), net			5				(7	)			(9	)			14
Interest expense			(178	)			(142	)			(475	)			(442	)
Total other expense			(167	)			(91	)			(323	)			(393	)
Income From Continuing Operations Before Income Taxes			444				1,280				1,522				1,285
Income tax expense			166				502				614				503
Income From Continuing Operations			278				778				908				782
Income from discontinued operations, net of income taxes			—				—				—				172
Net Income			278				778				908				954
Less: Net loss attributable to noncontrolling interest			—				—				(1	)			—
Net income attributable to NRG Energy, Inc.			278				778				909				954
Dividends for preferred shares			6				13				27				41
Income Available for NRG Energy, Inc. Common Stockholders		$	272			$	765			$	882			$	913
Earnings per share attributable to NRG Energy, Inc.
Common Stockholders
Weighted average number of common shares outstanding — basic			249				235				247				236
Income from continuing operations per weighted average common share — basic		$	1.09			$	3.26			$	3.58			$	3.14
Income from discontinued operations per weighted average common share — basic			—				—				—				0.73
Net Income per Weighted Average Common Share — Basic		$	1.09			$	3.26			$	3.58			$	3.87
Weighted average number of common shares outstanding — diluted			272				277				274				278
Income from continuing operations per weighted average common share — diluted		$	1.02			$	2.81			$	3.29			$	2.79
Income from discontinued operations per weighted average common share — diluted			—				—				—				0.62
Net Income per Weighted Average Common Share — Diluted		$	1.02			$	2.81			$	3.29			$	3.41
Amounts attributable to NRG Energy, Inc.:
Income from continuing operations, net of income taxes		$	278			$	778			$	909			$	782
Income from discontinued operations, net of income taxes			—				—				—				172
Net Income		$	278			$	778			$	909			$	954

See notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30, 2009				December 31, 2008
(In millions, except shares)		(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	2,250			$	1,494
Funds deposited by counterparties			293				754
Restricted cash			26				16
Accounts receivable, less allowance for doubtful accounts of $40 and $3, respectively			1,119				464
Inventory			533				455
Derivative instruments valuation			3,199				4,600
Deferred income taxes			101				—
Cash collateral paid in support of energy risk management activities			475				494
Prepayments and other current assets			215				215
Total current assets			8,211				8,492
Property, plant and equipment, net of accumulated depreciation of $2,876 and $2,343, respectively			11,610				11,545
Other Assets
Equity investments in affiliates			392				490
Capital leases and note receivable, less current portion			507				435
Goodwill			1,718				1,718
Intangible assets, net of accumulated amortization of $483 and $335, respectively			1,942				815
Nuclear decommissioning trust fund			354				303
Derivative instruments valuation			1,039				885
Other non-current assets			181				125
Total other assets			6,133				4,771
Total Assets		$	25,954			$	24,808
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt and capital leases		$	537			$	464
Accounts payable			725				451
Derivative instruments valuation			3,017				3,981
Deferred income taxes			—				201
Cash collateral received in support of energy risk management activities			293				760
Accrued expenses and other current liabilities			636				724
Total current liabilities			5,208				6,581
Other Liabilities
Long-term debt and capital leases			8,229				7,697
Nuclear decommissioning reserve			296				284
Nuclear decommissioning trust liability			249				218
Deferred income taxes			1,572				1,190
Derivative instruments valuation			859				508
Out-of-market contracts			324				291
Other non-current liabilities			1,138				669
Total non-current liabilities			12,667				10,857
Total Liabilities			17,875				17,438
3.625% convertible perpetual preferred stock			247				247
Commitments and Contingencies
Stockholders’ Equity
Preferred stock			406				853
Common stock			3				3
Additional paid-in capital			4,568				4,350
Retained earnings			3,305				2,423
Less treasury stock, at cost — 26,080,051 and 29,242,483 shares, respectively			(782	)			(823	)
Accumulated other comprehensive income			320				310
Noncontrolling interest			12				7
Total Stockholders’ Equity			7,832				7,123
Total Liabilities and Stockholders’ Equity		$	25,954			$	24,808

See notes to condensed consolidated financial statements.

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

(In millions)
Nine months ended September 30,		2009				2008
Cash Flows from Operating Activities
Net income		$	908			$	954
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions and equity in earnings of unconsolidated affiliates			(33	)			(24	)
Depreciation and amortization			594				478
Provision for bad debts			37				—
Amortization of nuclear fuel			28				31
Amortization of financing costs and debt discount/premiums			35				28
Amortization of intangibles and out-of-market contracts			79				(226	)
Changes in deferred income taxes and liability for unrecognized tax benefits			561				439
Changes in nuclear decommissioning trust liability			19				8
Changes in derivatives			(234	)			(144	)
Changes in collateral deposits supporting energy risk management activities			13				(320	)
Loss on sale of assets			2				13
Gain on sale of equity method investment			(128	)			—
Gain on sale of discontinued operations			—				(273	)
Gain on sale of emission allowances			(8	)			(52	)
Gain recognized on settlement of pre-existing relationship			(31	)			—
Amortization of unearned equity compensation			20				21
Changes in option premiums collected			(278	)			203
Cash used by changes in other working capital			(304	)			(50	)
Net Cash Provided by Operating Activities			1,280				1,086
Cash Flows from Investing Activities
Acquisition of Reliant Energy, net of cash acquired			(356	)			—
Capital expenditures			(560	)			(649	)
Increase in restricted cash, net			(10	)			(3	)
(Increase)/decrease in notes receivable			(18	)			20
Purchases of emission allowances			(68	)			(6	)
Proceeds from sale of emission allowances			20				75
Investments in nuclear decommissioning trust fund securities			(237	)			(441	)
Proceeds from sales of nuclear decommissioning trust fund securities			218				434
Proceeds from sale of discontinued operations, net of cash divested			—				241
Proceeds from sale of assets, net			6				14
Proceeds from sale of equity method investment			284				—
Equity investment in unconsolidated affiliate			—				(17	)
Other investments			(6	)			—
Net Cash Used by Investing Activities			(727	)			(332	)
Cash Flows from Financing Activities
Payment of dividends to preferred stockholders			(27	)			(41	)
Net payments to settle acquired derivatives that include financing elements			(140	)			(49	)
Payment to settle CSF I CAGR			—				(45	)
Payment for treasury stock			(250	)			(185	)
Proceeds from issuance of common stock, net of issuance costs			1				8
Installment proceeds from sale of noncontrolling interest in subsidiary			50				50
Proceeds from issuance of long-term debt			843				20
Payment of deferred debt issuance costs			(29	)			(2	)
Payments for short and long-term debt			(248	)			(202	)
Net Cash Provided by/(Used by) Financing Activities			200				(446	)
Change in cash from discontinued operations			—				43
Effect of exchange rate changes on cash and cash equivalents			3				—
Net Increase in Cash and Cash Equivalents			756				351
Cash and Cash Equivalents at Beginning of Period			1,494				1,132
Cash and Cash Equivalents at End of Period		$	2,250			$	1,483

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, as well as a major retail electricity franchise in the ERCOT (Texas) market. NRG is engaged in the ownership, development, construction and operation of power generation facilities, the transacting in and trading of fuel and transportation services, the trading of energy, capacity and related products in the United States and select international markets, and supply of electricity and energy services to retail electricity customers in the Texas market.

     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, 2008. 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 September 30, 2009, the results of operations for the three and nine months ended September 30, 2009, and 2008, and cash flows for the nine months ended September 30, 2009, and 2008. These financial statements and notes reflect the Company’s evaluation of events occurring subsequent to the balance sheet date through November 2, 2009, the date the financial statements were issued.

     Certain prior-year amounts have been reclassified for comparative purposes. In addition, as disclosed in Note 27, Unaudited Quarterly Financial Data, to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, the results of operations for the three months ended September 30, 2008, have been revised to reflect the correction of a $78 million overstatement of revenues from an error in the accounting for energy options. The effect of the revision on the three and nine months ended September 30, 2008 from the Company’s previously filed Form 10-Q, as adjusted for the effect of the adoption of FSP APB 14-1 (as discussed in Note 2, Summary of Significant Accounting Policies), is summarized as follows:

(In millions, except per share amounts)		Adjustment
Increase/(decrease):
Operating revenues		$	(78	)
Operating income			(78	)
Income tax expense			28
Income/(losses) from continuing operations, net of income taxes			(50	)
Net income attributable to NRG Energy, Inc.		$	(50	)
Income/(losses) from continuing operations per weighted average common share — basic		$	(0.21	)
Net income per weighted average common share — basic		$	(0.21	)
Income/(losses) from continuing operations per weighted average common share — diluted		$	(0.18	)
Net income per weighted average common share — diluted		$	(0.18	)

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

Cash and Cash Equivalents

     Cash and cash equivalents at September 30, 2009, were predominantly held in money market funds invested in treasury securities, treasury repurchase agreements or government agency debt.

Other Cash Flow Information

     NRG’s investing activities do not include non-cash capital expenditures of $43 million which were accrued at September 30, 2009.

Recent Accounting Developments

     SFAS 168 — In June 2009, the Financial Accounting Standards Board, or FASB, issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, or SFAS 168. Effective July 1, 2009, this guidance establishes the FASB Accounting Standards Codification, or ASC, as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. In addition, SFAS 168 also specifies that rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the ASC carries an equal level of authority. The Company adopted SFAS 168 for the quarterly reporting period ending September 30, 2009. SFAS 168 has been incorporated into the ASC as ASC-105, Generally Accepted Accounting Principles, or ASC 105.

     Certain U.S. GAAP standards and interpretations were adopted by the Company in 2009 prior to the July 1, 2009, effective date of the ASC, and were subsequently incorporated into one or more ASC topics. Further, certain U.S. GAAP standards were ratified by the FASB in 2009 prior to July 1, 2009, but are not yet effective and have therefore not yet been incorporated into the ASC. This report retains the original title of these standards and interpretations, and references the ASC topic or topics which have been, or are expected to be, incorporated.

     SFAS 141R — The Company adopted SFAS No. 141 (revised 2007), Business Combinations, or SFAS 141R, on January 1, 2009. The provisions of SFAS 141R are applied prospectively to business combinations for which the acquisition date occurs after January 1, 2009. The statement 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 required to be expensed as incurred. As discussed in Note 4, Business Acquisition, to this Form 10-Q, on May 1, 2009, NRG acquired all of the Texas electric retail business operations, or Reliant Energy, of Reliant Energy, Inc., now known as RRI Energy, Inc., or RRI. The Company has applied the provisions of SFAS 141R to the Reliant Energy acquisition. As discussed further in Note 13, Income Taxes, any reductions after January 1, 2009, to existing net deferred tax assets or valuation allowances or changes to uncertain tax benefits, as they relate to Fresh Start or previously completed acquisitions, will be recorded to income tax expense rather than additional paid-in capital or goodwill. SFAS 141R has been incorporated into ASC-805, Business Combinations, or ASC 805.

     FSP FAS 141R-1 — In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, or FSP FAS 141R-1, which the Company adopted effective January 1, 2009. This FSP amends and clarifies SFAS 141R, to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The provisions of FSP FAS 141R-1 are applied prospectively to assets or liabilities arising from contingencies in business combinations for which the acquisition date occurs after January 1, 2009. Accordingly, the Company has applied the provisions of FSP FAS 141R-1 to the Reliant Energy acquisition. The provisions of FSP FAS 141R-1 have been incorporated into ASC 805.

     SFAS 160 — The Company adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51, Consolidated Financial Statements, or SFAS 160, on January 1, 2009. SFAS 160 establishes accounting and reporting standards for the minority interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141R. This statement is applied prospectively from the date of adoption, except for the presentation and disclosure requirements, which shall be applied retrospectively. Accordingly, the Company has conformed its financial statement presentation and disclosures to the requirements of SFAS 160. SFAS 160 has been incorporated into ASC-810, Consolidation, or ASC 810.

     FSP APB 14-1 — The Company adopted FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), or FSP APB 14-1, on January 1, 2009, applying it retrospectively to all periods presented. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability component and the equity component represented by the embedded conversion option in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Upon settlement, the entity shall allocate consideration transferred and transaction costs incurred to the extinguishment of the liability component and the reacquisition of the equity component. The provisions of FSP APB 14-1 have been incorporated into ASC-470, Debt, or ASC 470, and ASC-825, Financial Instruments, or ASC 825.

     During the third quarter 2006, NRG’s unrestricted wholly-owned subsidiaries CSF I and CSF II issued notes and preferred interests, or CSF Debt, which included embedded derivatives, or CSF CAGRs, requiring NRG to pay to Credit Suisse Group, or CS, at maturity, either in cash or stock at NRG’s option, the excess of NRG’s then current stock price over a threshold price. The CSF Debt and CSF CAGRs are accounted for under the guidance in ASC 470. Upon adoption of FSP APB 14-1, the fair value of the CSF CAGRs at the date of issuance was determined to be $32 million and has been recorded as a debt discount to the CSF Debt, with a corresponding credit to Additional Paid-in Capital. This debt discount will be amortized over the terms of the underlying CSF Debt. The cumulative effect of the change in accounting principle for periods prior to December 31, 2008, was recorded as a $7 million decrease to Long-Term Debt, a $13 million decrease to Additional Paid-In Capital, and a $20 million increase to Retained Earnings on the Condensed Consolidated Balance Sheet as of December 31, 2008. In addition, in August 2008 the Company paid $45 million to CS for the benefit of CSF I to early settle the CSF CAGR in the Company’s CSF I notes and preferred interests, which was reclassified from interest expense to Additional Paid-In Capital upon the adoption of FSP APB 14-1.

     The following table summarizes the effect of the adoption of FSP APB 14-1 on income and per-share amounts for all periods presented:

		Three months ended								Nine months ended
		September 30,								September 30,
(In millions, except per share amounts)		2009				2008				2009				2008
Increase/(decrease):
Interest Expense		$	2			$	(44	)		$	5			$	(39	)
Income From Continuing Operations			(2	)			44				(5	)			39
Net Income attributable to NRG Energy, Inc.			(2	)			44				(5	)			39
Basic Earnings Per Share		$	(0.01	)		$	0.19			$	(0.02	)		$	0.16
Diluted Earnings Per Share		$	—			$	0.16			$	(0.02	)		$	0.14

     FSP FAS 157-4 — In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, or FSP FAS 157-4. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with ASC-820, Fair Value Measurements and Disclosure, or ASC 820, when the volume and level of activity for the asset or liability have significantly decreased, includes guidance on identifying circumstances that indicate a transaction is not orderly, and requires disclosures about inputs and valuation techniques used to measure fair value. This FSP applies to all assets and liabilities within the scope of accounting pronouncements that require or permit fair value measurements. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. The Company’s adoption of FSP FAS 157-4 beginning with the interim reporting period ended June 30, 2009, did not have a material impact on the Company’s results of operations, financial position, or cash flows. The provisions of FSP FAS 157-4 have been incorporated into ASC 820.

     FSP FAS 107-1 and APB 28-1 — In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, or FSP 107-1 and APB 28-1. This FSP requires disclosures about fair value of financial instruments for interim and annual reporting periods of publicly traded companies ending after the FSP’s effective date of June 15, 2009. The Company’s adoption of FSP FAS 107-1 and APB 28-1 beginning with the interim period ended June 30, 2009, did not have an impact on the Company’s results of operations, financial position, or cash flows. The provisions of FSP FAS 107-1 and APB 28-1 have been incorporated in ASC-270, Interim Reporting, or ASC 270, and ASC-825, Financial Instruments, or ASC 825.

     FSP FAS 115-2 and FAS 124-2 — In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, or FSP FAS 115-2 and FAS 124-2. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, and its disclosure requirements apply only to periods ending after the FSP’s effective date. The Company’s adoption of FSP FAS 115-2 and FAS 124-2 beginning with the interim period ended June 30, 2009, did not have an impact on the Company’s results of operations, financial position, or cash flows. The provisions of FSP FAS 115-2 and FAS 124-2 have been incorporated in ASC-320, Investments — Debt and Equity Securities, or ASC 320.

     SFAS 165 — In May 2009, the FASB issued SFAS No. 165, Subsequent Events, or SFAS 165. SFAS 165 incorporates the accounting and disclosure requirements related to subsequent events found in auditing standards into U.S. GAAP, effectively making management directly responsible for subsequent events accounting and disclosures. SFAS 165 also requires disclosure of the date through which subsequent events have been evaluated. SFAS 165 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The Company’s adoption of SFAS 165 beginning with the interim period ended June 30, 2009, did not have an impact on the Company’s results of operations, financial position, or cash flows. SFAS 165 has been incorporated in ASC-855, Subsequent Events, or ASC 855.

     SFAS 167 — In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), or SFAS 167. This guidance amends FIN 46(R) by altering how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated. SFAS 167 is effective at the start of the first fiscal year beginning after November 15, 2009. The Company is presently evaluating the impact of SFAS 167 on its results of operations, financial position, and cash flows. SFAS 167 is expected be incorporated into ASC 810 upon its effective date.

     ASU 2009-15/EITF 09-1 — In July 2009, the FASB ratified EITF Issue No. 09-1, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing, or EITF 09-1. This Issue applies to equity-classified share lending arrangements on an entity’s own shares, when executed in contemplation of a convertible debt offering or other financing. EITF 09-1 addresses how to account for the share-lending arrangement and the effect, if any, that the loaned shares have on earnings-per-share calculations. The share lending arrangement is required to be measured at fair value and recognized as an issuance cost associated with the convertible debt offering or other financing. Earnings-per-share calculations would not be affected by the loaned shares unless the share borrower defaults on the arrangement and does not return the shares. If counterparty default is probable, the share lender is required to recognize an expense equal to the then fair value of the unreturned shares, net of the fair value of probable recoveries. The Company will apply EITF 09-1 for share lending agreements entered into after June 15, 2009, and will apply EITF 09-1 on a retrospective basis for arrangements outstanding as of January 1, 2010. NRG is currently evaluating the impact of this statement upon its adoption on the Company’s results of operations, financial position and cash flows. In October 2009, the FASB issued Accounting Standards Update, or ASU No. 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing, or ASU 2009-15, which formally incorporated the provisions of EITF 09-1 into ASC 470.

     ASU 2009-5 — In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurement and Disclosures: Measuring Liabilities at Fair Value, or ASU 2009-5. This ASU, which amends ASC 820 and ASC 825, provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. The Company’s adoption of ASU 2009-5 beginning with the interim period ended September 30, 2009, did not have an impact on the Company’s results of operations, financial position or cash flows.

     Other — The following accounting standards were adopted on January 1, 2009, with no impact on the Company’s results of operations, financial position, or cash flows:

	•		FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which has been incorporated in ASC-275, Risks and Uncertainties, or ASC 275, and ASC-350, Intangibles — Goodwill and Other, or ASC 350.
	•		FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, which has been incorporated in ASC 820.
	•		SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, which has been incorporated in ASC-815, Derivatives and Hedging, or ASC 815.
	•		FSP No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which has been incorporated in ASC-715, Compensation–Retirement Benefits, or ASC 715.
	•		EITF No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, which has been incorporated in ASC 718, Compensation-Equity Compensation, or ASC 718, and ASC 815.
	•		EITF No. 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement, which has been incorporated in ASC 820.
	•		EITF No. 08-6, Equity Method Investment Accounting Considerations, which has been incorporated in ASC-323, Investments-Equity Method and Joint Ventures, or ASC 323.

Note 3 — Comprehensive Income/(Loss)

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

		Three months ended								Nine months ended
		September 30,								September 30,
(In millions)		2009				2008				2009				2008
Net income		$	278			$	778			$	908			$	954
Changes in derivative activity			(73	)			1,112				(9	)			112
Foreign currency translation adjustment			20				(104	)			38				(69	)
Reclassification adjustment for translation loss/(gain) realized upon sale of foreign investments			—				—				(22	)			15
Unrealized gain/(loss) on available-for-sale securities			1				(4	)			3				(1	)
Other comprehensive income/(loss)			(52	)			1,004				10				57
Comprehensive income attributable to noncontrolling interest			—				—				1				—
Comprehensive income attributable to NRG Energy, Inc.		$	226			$	1,782			$	919			$	1,011

     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, 2008		$	310
Changes in derivative activity			(9	)
Foreign currency translation adjustment			38
Reclassification adjustment for translation gain realized upon sale of foreign investment			(22	)
Unrealized gain on available-for-sale securities			3
Accumulated other comprehensive income as of September 30, 2009		$	320

Note 4 — Business Acquisition

General

     On May 1, 2009, NRG, through its wholly-owned subsidiary NRG Retail LLC, acquired Reliant Energy, which consisted of the entire Texas electric retail business operations of RRI, including the exclusive use of the trade name “Reliant.” Reliant Energy arranges for the transmission and delivery of electricity to customers, bills customers, collects payments for electricity sold and maintains call centers to provide customer service. Reliant Energy is the second largest electricity provider to residential and small business, or Mass, customers in Texas, with approximately 1.6 million Mass customers as of September 30, 2009. Reliant Energy also sells electricity and energy services to commercial, industrial and governmental/institutional customers, or C&I, customers in Texas with approximately 0.1 million C&I customers, based on metered locations as of September 30, 2009. These customers include refineries, chemical plants, manufacturing facilities, hospitals, universities, government agencies, restaurants, and other facilities.

     With its complementary generation portfolio, the Texas region is a supplier of power to Reliant Energy, thereby creating the potential for a more stable, reliable and competitive business that benefits Texas consumers. By backing Reliant Energy’s load-serving requirements with NRG’s generation and risk management practices, the need to sell and buy power from other financial institutions and intermediaries that trade in the ERCOT market may be reduced, resulting in reduced transaction costs and credit exposures. This combination of generation and retail allows for a reduction in actual and contingent collateral, initially through offsetting transactions and over time by reducing the need to hedge the retail power supply through third parties, thus reducing collateral postings. In addition, with Reliant Energy’s base of retail customers, NRG now has a customer interface with the scale that is important to the successful deployment of new distributed generation and retail alternative energy technologies.

Credit Support

     On May 1, 2009, NRG arranged with Merrill Lynch Commodities, Inc. and certain of its affiliates, or Merrill Lynch, the former credit provider of RRI Energy, Inc., or RRI, to provide continuing credit support to Reliant Energy after closing the acquisition. In connection with entering into a transitional credit sleeve facility, or CSRA, NRG contributed $200 million of cash to Reliant Energy. In conjunction with the CSRA, NRG Power Marketing LLC, or PML, and Reliant Energy Power Supply LLC, or REPS, wholly-owned subsidiaries of NRG, modified or novated certain transactions with counterparties to transfer PML’s in-the-money transactions to REPS and moved $522 million of cash collateral held by NRG to Merrill Lynch, thereby reducing Merrill Lynch’s actual and contingent collateral supporting Reliant Energy out-of-money positions. At September 30, 2009, these trades with counterparties were still open, thus there was no impact on NRG’s consolidated financial statements, and NRG continued to record unrealized and realized gains/losses for these novated trades in its Texas and Northeast segments. The monthly fee for the CSRA was 5.875% on an annualized basis of the predetermined exposure.

     Additionally, on May 1, 2009, NRG entered into a $50 million working capital facility with Merrill Lynch in connection with the acquisition of Reliant Energy. The facility required that the Company comply with all terms of the CSRA. NRG initially drew $25 million under the facility. These funds accrued interest at the prime rate.

     Reliant Energy conducts its business through RERH Holdings, LLC and subsidiaries, or RERH, Reliant Energy Texas Retail, LLC, and Reliant Energy Services Texas, LLC. Through October 5, 2009, the obligations of Reliant Energy under the CSRA were secured by first liens on substantially all of the assets of RERH, and the obligations of RERH under the CSRA were non-recourse to NRG and its other non-pledgor subsidiaries. The CSRA agreement (a) restricted the ability of RERH to, among other actions, (i) encumber its assets; (ii) sell certain assets; (iii) incur additional debt; (iv) pay dividends or pay subordinated debt; (v) make investments or acquisitions; or (vi) enter into certain transactions with affiliates and (b) required NRG to manage risks related to commodity prices. RERH was designed to maintain the separate nature of its assets in order to ensure that such assets are available first and foremost to satisfy the entities’ creditor claims. At September 30, 2009, the cash balance at RERH was $322 million.

     Effective October 5, 2009, as discussed in Note 20, Subsequent Event, to this Form 10-Q, the Company executed the CSRA Amendment resulting in the removal of the associated first liens and the termination of the $50 million working capital facility with Merrill Lynch.

   Acquisition method of accounting

     The acquisition of Reliant Energy is accounted for under the acquisition method of accounting in accordance with ASC-805. Accordingly, NRG has conducted an assessment of net assets acquired and has recognized provisional amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition are expensed as incurred. The initial accounting for the business combination is not complete because the appraisals necessary to assess the fair values of the net assets acquired and the amount of goodwill (if any) to be recognized are still in process, and the Company is also in the process of valuing the tax basis of the net assets acquired, which will affect the deferred tax balances. The provisional amounts recognized are subject to revision until the appraisals are completed and to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Any changes to the fair value assessments and the tax basis values will affect the final balance of goodwill.

     NRG paid RRI $287.5 million in cash at closing, funded from NRG’s cash on hand. NRG also made payments to RRI of $63 million on June 15, 2009, and $11 million on July 24, 2009, as initial remittances of acquired net working capital. In addition, the Company expects to remit approximately $9 million of acquired net working capital to RRI in the fourth quarter of 2009, bringing the total cash consideration to approximately $370 million. NRG also recognized a $31 million non-cash gain 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. NRG has recorded this gain within “Operating Revenues” in its condensed consolidated statement of operations. This non-cash gain is 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 provisional 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			399
Trade names			178
In-market energy supply contracts			54
Other			6
Derivative assets			1,942
Deferred tax asset, net			14
Goodwill			—
Total assets acquired			4,090
Liabilities
Current and non-current liabilities			550
Derivative liabilities			2,996
Out-of-market energy supply and customer contracts			143
Total liabilities assumed			3,689
Net assets acquired		$	401

     No goodwill is expected to be deductible for tax purposes.

     Current assets include accounts receivable with a preliminary fair value of $569 million and gross contractual amounts of $589 million at the time of acquisition. The Company expects to collect the fair value of the contractual cash flows; any difference between fair value and the amount collected will be an adjustment to the acquired working capital payment due to RRI.

     The Company, through its acquisition of Reliant Energy, is subject to material contingencies relating to Excess Mitigation Credits (see Note 15, Commitments and Contingencies, to this Form 10-Q) and Retail Replacement Reserve (see Note 16, Regulatory Matters, to this Form 10-Q). Due to the number of variables and assumptions involved in assessing the possible outcome of these matters, sufficient information does not exist to reasonably estimate the fair value of these contingent liabilities. These material contingencies have been evaluated in accordance with ASC-450, Contingencies, or ASC 450, and related guidance, and no provisional amounts for these matters have been recorded at the acquisition date. In addition, NRG provided certain indemnities in connection with the acquisition. See Note 18, Guarantees, to this Form 10-Q for further discussion.

Measurement period adjustments

     The following measurement period adjustments to the provisional amounts, attributable to refinement of the underlying appraisal assumptions, were recognized during the quarter ended September 30, 2009:

(In millions)		Increase/(Decrease)
Assets
Intangible assets subject to amortization:
In-market customer contracts		$	57
Customer relationships			(82	)
In-market energy supply contracts			17
Deferred tax asset, net			3
Total assets acquired			(5	)
Liabilities
Out-of-market energy supply and customer contracts			(5	)
Total liabilities assumed			(5	)
Net assets acquired		$	—

Fair value measurements

     The provisional fair values of the intangible assets/liabilities and property, plant and equipment at the acquisition date were measured primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820. Significant inputs were as follows:

	•		Customer contracts — The fair values of the customer contracts, representing those with Reliant Energy’s C&I customers, were estimated based on the present value of the above/below market cash flows attributable to the contracts based on contract type, discounted utilizing a current market interest rate consistent with the overall credit quality of the portfolio. The fair values also accounted for Reliant Energy’s historical costs to acquire customers. The above/below market cash flows were estimated by comparing the expected cash flows to be generated based on existing contracted prices and expected volumes with the cash flows from estimated current market contract prices for the same expected volumes. The estimated current market contract prices were derived considering current market costs, such as price of energy, transmission and distribution costs, and miscellaneous fees, plus a normal profit margin. The customer contracts are amortized to revenues, over a weighted average amortization period of five years, based on expected volumes to be delivered for the portfolio.
	•		Customer relationships — The customer relationships, reflective of Reliant Energy’s Mass customer base, were valued using a variation of the income approach. Under this approach, the Company estimated the present value of expected future cash flows resulting from the existing customer relationships, considering attrition and charges for contributory assets (such as net working capital, fixed assets, software, workforce and trade names) utilized in the business, discounted at an independent power producer peer group’s weighted average cost of capital. The customer relationships are amortized to depreciation and amortization, over a weighted average amortization period of eight years, based on the expected discounted future net cash flows by year.
	•		Trade names — The trade names were valued using a “relief from royalty” method, an approach under which fair value is estimated to be the present value of royalties saved because NRG owns the intangible asset and therefore does not have to pay a royalty for its use. The trade names were valued in two parts based on Reliant Energy’s two primary customer segments — Mass customers and C&I customers. The avoided royalty revenues were discounted at an independent power producer peer group’s weighted average cost of capital. The remaining useful life of the trade names was determined by considering various factors, such as turnover and name changes in the independent power producer and utility industries, the current age of the Reliant brand, management’s intent to continue using the name at the current time, and feedback from external consultants regarding their experience with similar trade names. The trade names are amortized to depreciation and amortization, on a straight-line basis, over 15 years.
	•		Energy supply contracts — The fair values of the in-market and out-of-market energy supply contracts were determined in accordance with ASC 820. These contracts are amortized over periods ranging through 2016, based on the expected delivery under the respective contracts.

•

Property, plant and equipment — The fair value of property, plant and equipment was valued using a cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

     The fair values of derivative assets and liabilities as of the acquisition date were determined in accordance with ASC 820. The breakdown of Level 1, 2 and 3 is as follows:

		Fair Value
(In millions)		Level 1				Level 2				Level 3				Total
Derivative assets		$	534			$	1,375			$	33			$	1,942
Derivative liabilities		$	534			$	2,357			$	105			$	2,996

Amortization of acquired intangible assets and out-of-market contracts

     The following table presents the estimated remaining amortization related to the acquired intangible assets, for periods subsequent to September 30, 2009 and through 2014:

Year Ended December 31,		Customer				Customer				Trade				Energy Supply
(In millions)		Contracts				Relationships				Names				Contracts
2009 (three months)		$	99			$	44			$	3			$	—
2010			225				81				12				3
2011			152				57				12				4
2012			104				44				12				5
2013			49				31				12				6
2014			—				24				12				6

     The following table presents the estimated amortization related to the acquired out-of-market contracts for 2009 — 2014:

		Energy Supply
Year Ended December 31,		and Customer
(In millions)		Contracts
2009 (three months)		$	23
2010			48
2011			18
2012			7
2013			3
2014			—

     These amortization tables reflect the measurement period adjustments recognized during the quarter ended September 30, 2009.

Supplemental Pro Forma Information

     Since the acquisition date, Reliant Energy contributed $2,965 million of operating revenues and $807 million in net income attributable to NRG.

     The following supplemental pro forma information represents the results of operations as if NRG and Reliant Energy had combined at the beginning of the respective reporting periods:

		Three months ended September 30,								Nine months ended September 30,
(In millions, except per share amounts)		2009				2008				2009				2008
Operating revenues		$	2,911			$	5,122			$	8,625			$	11,633
Net income/(loss) attributable to NRG Energy, Inc.			282				(322	)			878				245
Earnings per share attributable to NRG common stockholders:
Basic		$	1.11			$	(1.43	)		$	3.45			$	1.60
Diluted		$	1.04			$	(1.43	)		$	3.17			$	1.49

     The supplemental pro forma information has been adjusted to include the pro forma impact of amortization of intangible assets and out-of-market contracts, and depreciation of property, plant and equipment, based on the preliminary purchase price allocations. The pro forma data has also been adjusted to eliminate the non-recurring transaction costs incurred by NRG. Transactions between NRG and Reliant Energy have not been eliminated. The pro forma results are presented for illustrative purposes only and do not reflect the realization of potential cost savings, or any related integration costs. Certain cost savings may result from the acquisition, however, there can be no assurance that these cost savings will be achieved.

Significant Accounting Policies

     The following pertains to Reliant Energy, in addition to NRG’s significant accounting policies referred to in Note 2, Summary of Significant Accounting Policies, to this Form 10-Q:

	•		Revenues — Gross revenues for energy sales and services to Mass customers and to C&I 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 $151 million for the period ended September 30, 2009. These revenues represent a sale of excess supply to third parties in the market.
			As of September 30, 2009, Reliant Energy recorded unbilled revenues of $321 million for energy sales and services. Accrued unbilled revenues are based on Reliant Energy’s 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.
	•		Cost of Energy — Reliant Energy records cost of energy for electricity sales and services to retail customers based on estimated supply volumes for the applicable reporting period. A portion of its cost of energy ($68 million as of September 30, 2009) consisted of estimated transmission and distribution charges not yet billed by the transmission and distribution utilities. In estimating supply volumes, Reliant Energy considers the effects of historical customer volumes, weather factors and usage by customer class. Reliant Energy estimates its transmission and distribution delivery fees using the same method that it uses for electricity sales and services to retail customers. In addition, Reliant Energy estimates ERCOT ISO fees based on historical trends, estimates 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.
	•		Allowance for Doubtful Accounts — Reliant Energy 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. Reliant Energy writes-off accounts receivable balances against the allowance for doubtful accounts when it determines a receivable is uncollectible.
	•		Gross Receipts Taxes — Reliant Energy records gross receipts taxes on a gross basis in revenues and cost of operations in its condensed consolidated statements of operations. During the period ended September 30, 2009, Reliant Energy’s revenues and cost of operations included gross receipts taxes of $39 million.
	•		Sales Taxes — Reliant Energy 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 condensed consolidated statement of operations.

Note 5 — Investments Accounted for by the Equity Method

MIBRAG — On June 10, 2009, NRG completed the sale of its 50% ownership interest in Mibrag B.V. to a consortium of Severoćeské doly Chomutov, a member of the CEZ Group, and J&T Group. Mibrag B.V.’s principal holding is MIBRAG, which is jointly owned by NRG and URS Corporation. As part of the transaction, URS Corporation also entered into an agreement to sell its 50% stake in MIBRAG.

     For its share, NRG received EUR 203 million ($284 million at an exchange rate of 1.40 U.S.$/EUR), net of transaction costs. During the nine months ended September 30, 2009, NRG recognized an after-tax gain of $128 million. Prior to completion of the sale, NRG continued to record its share of MIBRAG’s operations to “Equity in earnings of unconsolidated affiliates.”

     In connection with the transaction, NRG entered into a foreign currency forward contract to hedge the impact of exchange rate fluctuations on the sale proceeds. The foreign currency forward contract had a fixed exchange rate of 1.277 and required NRG to deliver EUR 200 million in exchange for $255 million on June 15, 2009. For the nine months ended September 30, 2009, NRG recorded an exchange loss of $24 million on the contract within “Other income/(loss), net.”

     NRG provided certain indemnities in connection with its share of the transaction. See Note 18, Guarantees, to this Form 10-Q for further discussion.

Note 6 — 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
		September 30,				December 31,				September 30,				December 31,
		2009				2008				2009				2008
		(In millions)
Cash and cash equivalents		$	2,250			$	1,494			$	2,250			$	1,494
Funds deposited by counterparties			293				754				293				754
Restricted cash			26				16				26				16
Cash collateral paid in support of energy risk management activities			475				494				475				494
Investment in available-for-sale securities (classified within other non-current assets):
Debt securities			8				7				8				7
Marketable equity securities			4				2				4				2
Trust fund investments			356				305				356				305
Notes receivable			214				156				221				166
Derivative assets			4,238				5,485				4,238				5,485
Long-term debt, including current portion			8,636				8,019				8,422				7,475
Cash collateral received in support of energy risk management activities			293				760				293				760
Derivative liabilities			3,876				4,489				3,876				4,489

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 September 30, 2009		Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	2,250			$	—			$	—			$	2,250
Funds deposited by counterparties			293				—				—				293
Restricted cash			26				—				—				26
Cash collateral paid in support of energy risk management activities			475				—				—				475
Investment in available-for-sale securities (classified within other non-current assets):
Debt securities			—				—				8				8
Marketable equity securities			4				—				—				4
Trust fund investments			203				113				40				356
Derivative assets			964				3,171				103				4,238
Total assets		$	4,215			$	3,284			$	151			$	7,650
Cash collateral received in support of energy risk management activities		$	293			$	—			$	—			$	293
Derivative liabilities			956				2,747				173				3,876
Total liabilities		$	1,249			$	2,747			$	173			$	4,169

     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
Nine months ended September 30, 2009		Debt Securities				Investments				Derivatives				Total
Beginning balance as of January 1, 2009		$	7			$	31			$	49			$	87
Total gains/(losses) (realized and unrealized)
Included in earnings			1				—				(110	)			(109	)
Included in nuclear decommissioning obligations			—				8				—				8
Purchases/(sales), net			—				1				(3	)			(2	)
Transfers out of Level 3			—				—				(6	)			(6	)
Ending balance as of September 30, 2009		$	8			$	40			$	(70	)		$	(22	)
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 September 30, 2009		$	—			$	—			$	3			$	3

     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 September 30, 2009, the credit reserve resulted in a $18 million increase in fair value which is composed of a $4 million gain in other comprehensive income, or OCI, and a $14 million gain in operating revenue and cost of operations.

     This footnote should be read in conjunction with the complete description under Note 4, Fair Value of Financial Instruments, to the Company’s financial statements in its 2008 Annual Report on Form 10-K.

     See Note 7, Accounting for Derivative Instruments and Hedging Activities, to this Form 10-Q for discussion regarding concentration of credit risk.

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 Normal Purchase Normal Sale, or 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 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. The ineffective portion of a hedging derivative instrument’s change in fair value is immediately recognized into 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 units 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 in accordance with 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.

     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.
	•		Fixing the price of a portion of anticipated energy purchases to supply Reliant Energy’s customers.

     NRG’s trading activities include contracts entered into to profit from market price changes as opposed to hedging an exposure, and 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. These trading activities are a complement to NRG’s competitive wholesale supply and retail operations.

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 September 30, 2009, 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 derivative transactions broken out by commodity, excluding those derivatives that qualified for the NPNS exception as of September 30, 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 as
				of September 30, 2009
Commodity		Units		(In millions)
Emissions		Short Ton			1
Coal		Short Ton			60
Natural Gas		MMBtu			(582	)
Power(a)		MWH			(27	)
Interest		Dollars		$	3,306

(a)		Power volumes include capacity sales.

Fair Value of Derivative Instruments

     The following table summarizes the fair value within the derivative instrument valuation on the balance sheet as of September 30, 2009:

		Fair Value
(In millions)		Derivatives Asset				Derivatives Liability
Derivatives Designated as Cash Flow or Fair Value Hedges:
Interest rate contracts current		$	—			$	4
Interest rate contracts long term			9				123
Commodity contracts current			278				13
Commodity contracts long term			378				30
Total Derivatives Designated as Cash Flow or Fair Value Hedges			665				170
Derivatives Not Designated as Cash Flow or Fair Value Hedges:
Commodity contracts current			2,921				3,000
Commodity contracts long term			652				706
Total Derivatives Not Designated as Cash Flow or Fair Value Hedges			3,573				3,706
Total Derivatives		$	4,238			$	3,876

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				Nine months ended
(In millions)		September 30, 2009				September 30, 2009
Derivative		$	3			$	(5	)
Senior Notes (hedged item)		$	(3	)		$	5

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

Location of

Amount of

Amount of

Location of

Amount of

gain/(loss)

gain/(loss)

gain/(loss)

gain/(loss)

gain/(loss)

recognized in

recognized in

recognized in OCI

reclassified from

reclassified from

income

income

(In millions)

(effective portion)

Accumulated

Accumulated

(ineffective

(ineffective

Three months ended September 30, 2009

after tax

OCI into Income

OCI into Income

portion)

portion)

Interest rate contracts

$

(2

)

Interest expense

$

—

Interest expense

$

4

Commodity contracts

(71

)

Operating revenue

75

Operating revenue

16

Total

$

(73

)

$

75

$

20

Location of

Amount of

Amount of

Location of

Amount of

gain/(loss)

gain/(loss)

gain/(loss)

gain/(loss)

gain/(loss)

recognized in

recognized in

recognized in OCI

reclassified from

reclassified from

income

Income

(In millions)

(effective portion)

Accumulated

Accumulated

(ineffective

(ineffective

Nine months ended September 30, 2009

after tax

OCI into Income

OCI into Income

portion)

Portion)

Interest rate contracts

$

23

Interest expense

$

—

Interest expense

$

4

Commodity contracts

(32

)

Operating revenue

398

Operating revenue

17

Total

$

(9

)

$

398

$

21