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Mail Stop 0308
April 29, 2005
VIA U.S. MAIL AND FACSIMILE
Timothy W.J. O`Brien, Esq.
Vice President and General Counsel
NRG Energy, Inc.
211 Carnegie Center
Princeton, New Jersey 08540
Re: NRG Energy, Inc.
Registration Statement on Form S-3
Filed March 30, 2005
File No. 333-123677
Annual Report on Form 10-K for the Period Ended December 31,
2004
Filed March 30, 2005
Preliminary Proxy Statement on Schedule 14A
Filed March 30, 2005
File No. 1-15891
Dear Mr. O`Brien:
We have reviewed your filing and have the following
comments.
Please be aware that we have limited our review to the financial
statements and related information. Where indicated, we think you
should revise your document in response to these comments. If you
disagree, we will consider your explanation as to why our comment
is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K
Item 7 - Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Revenue from Majority-Owned Operations
Reorganized NRG, page 55
1. In future filings please provide a more detailed discussion, by
reportable segment, for each component of revenues from majority-
owned operations. We understand given the reorganization of the
company that a year over year analysis comparing 2004 to 2003 that
discusses and quantifies the changes in the components of revenues
may be difficult or non-beneficial to the reader; however, we
would
expect there to be a more in depth discussion and quantification
of
the changes in future periods. For example, a discussion and
quantification of the change in megawatt hours, rates,
temperature,
plant outages and other factors that both positively and
negatively
impact revenues from year to year with a focus on trends and
uncertainties will allow a reader to better understand your
revenues.
Additionally, as it relates to capacity revenues, with the
exception
of the RMR agreements, you indicate that other agreements lead to
the
generation of revenues for particular regions however you do not
provide the amounts that these agreements contributed for the
periods
presented or the length of time you expect these agreements to
continue to contribute to the revenues of those segments. For
example, you indicate that long-term contracts provide for
capacity
payments in the South Central region and that Other North American
capacity revenues were generated by your Kendall Operation, which
had
a long-term tolling agreement but you do not quantify the impact
of
these agreements. A more in-depth quantification and discussion
of
the impact of these items you mention will allow the reader to
more
fully understand your operations. For additional guidance, refer
to
Item 303(a)(3) of Regulation S-K and SEC Release 33-8350.
Cost of Majority-Owned Operations
Reorganized NRG, page 56
2. Throughout this section, you refer to various types of costs
that
make up and contribute to both the cost of energy, operating
expenses
and also general, administrative and development costs for the
reported periods. In future filings, in addition to this
information
please provide an explanation as to the positive and negative
factors
that impacted those costs. Additionally, rather than using the
terms
"primarily" or "were largely driven by" in describing changes, to
the
extent practicable quantify the amount of the change from year to
year that is attributable to the primary source you identify. See
Item 303(a) of Regulation S-K and Financial Reporting Codification
501.04. In addition to quantifying the dollar effect of the
various
contributing factors, ensure that you
describe the significant developments in the marketplace or at
your
company that led to the changes.
Liquidity and Capital Resources
Sources of Funds, page 81
3. You indicate that a principal source of liquidity for future
operations and capital expenditures are proceeds from the sale of
certain assets and businesses. Conversely, on page 82 you
indicate
that the Amended Credit Facility and the indenture governing the
notes place restrictions on the use of any proceeds you may
receive
from certain assets sales. Please explain and also clarify your
disclosures in future filings.
Contractual Obligations and Commercial Commitments, page 86
4. Please revise future filings to include other long term-
liabilities reflected in your balance sheet as required by Item
303(a)(5) of Regulation S-K or tell us why you exclude such
amounts
from the table. Additionally, to the extent material, please
include
cash requirements for amounts to be funded to cover post-
employment,
including retirement, benefits in the table or a related footnote
to
the table.
Critical Accounting Policies
Revenue Recognition and Uncollectible Receivables, page 91
5. You indicate that in certain markets you record sale and
purchase
transactions with Independent System Operators on a net basis.
Please
tell us the GAAP literature you relied upon for your accounting
treatment, and specifically how you applied it to your fact
pattern.
Finally, please tell us how your accounting treatment compares to
others in your industry.
Consolidated Financial Statements
Consolidated Balance Sheets, page 105
6. We read your disclosure in Note 2 as to the nature of the
restricted cash on your balance sheet and we are unclear as to why
you believe that the restricted cash should be classified as
current
instead of long-term on your balance sheet.
7. Tell us and disclose the nature of the amounts included in the
"other" categories within both current and other liabilities. We
noted certain items throughout the filing that you indicate as
being
included in these line items; however, it is unclear as to whether
or
not additional amounts should be separately disclosed. If those
amounts meet the materiality threshold - 5% of total current
liabilities and 5% of total liabilities for non-current
liabilities -
in Rule 5-02(20) and (24) of Regulation S-X please disclose such
amounts in future filings.
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation, page 110
8. Please tell us more about the impact the adoption of FIN 46(R)
had
on your consolidated financial position and results of operations.
Your disclosure that "the nature of the operations consolidated
consisted of hydropower facilities on the East Coast" is unclear.
If
you are stating that the adoption lead to the consolidation of
certain hydropower facilities that were not previously
consolidated
please clarify and quantify the impact for us and clarify your
disclosures in future filings. Please consider the need for
incremental disclosure consistent with paragraph 23 of FIN 46(R).
9. Please tell us how you determined that your investment in West
Coast Power, LLC, did not require consolidation under FIN46(R).
We
note that the other 50% owner of West Coast Power, LLC does not
consolidate the entity.
Note 13- Investments Accounted for by the Equity Method
West Coast Power LLC Summarized Financial Information, page 141
10. You indicate that the operating revenues for West Coast Power
for
the year ended December 31, 2004 are $1,334,000. However, the
operating revenues for the same period in the audited financial
statements of West Coast Power LLC included in Exhibit 99.1 appear
to
be $725,626,000. We assume that you intended to disclose within
Note
13 that the amounts are in millions instead of thousands, implying
that the operating revenues are $1,334,000,000. Furthermore, if
the
difference between the $1,334,000,000 and the $725,626,000 was the
result of a typographical error please confirm that to us and
revise
future filings accordingly to ensure consistency between the
audited
financial statements of West Coast Power and the summarized
financial
information that you provide in your financial statements,
otherwise
please explain why the amounts do not agree.
Note 18 - Debt and Capital Leases
Project Financings
Itiquira Energetica S.A., page 156
11. You indicate Eletrobras owns preferred shares in Itiquira but
it
is unclear as to who or what Eletrobras is and what relationship
they
have to Itiquira. If Eletrobras and Unibanco are different names
for
the same entity please clarify. Additionally, please clarify for
us
why the preferred shares are recorded as debt under US GAAP. If
the
preferred shares are redeemable for cash at the option of the
holder
then confirm our understanding, otherwise advise us of your
accounting.
Schkopau, page 156
12. Tell us the US GAAP basis for recording the Schkopau debt
obligations as capital leases.
Note 22 - Earnings Per Share, page 165
13. You indicate that the deferred stock units are considered
outstanding upon the grant date on a weighted average basis for
computing basic earnings per share however it appears you have not
considered them in your basic earnings per share calculation on
page
166, instead you have included them in your diluted earnings per
share calculation. If your disclosure is incorrect as a result of
a
typographical error and you intended to state that they are
considered in your diluted earnings per share calculation then
please
revise your disclosure in future filings. If you believe it is
appropriate to include the deferred stock units in your diluted
earnings per share calculation please tell us why.
Note 29 - Guarantees and Other Contingent Liabilities
Other types of guarantees, page 191
14. You indicate that the maximum quantifiable liability under the
environmental guarantees is approximately $65.9 million, most of
which is a guarantee for plant removal and site remediation
obligations at your Flinders facilities. In light of this, please
tell us whether the plant removal and site remediation obligations
of
your Flinders facilities are included in your asset retirement
obligation balance as of December 31, 2004 and if so tell us the
amount. If no asset retirement obligation has been recorded
please
tell us why.
Exhibit 99.1 - West Coast Power LLC
Note 2 - Accounting Policies
Revenue Recognition, page 11
15. You indicate that you recognize revenues identified as being
subject to future resolution as discussed above at "Allowance for
Doubtful Account." However, the referenced disclosure does not
appear to contain a discussion of your revenue recognition
policies.
Please supplementally explain the nature and amount of revenues
recognized that are subject to further resolution and how you
support
your accounting. Please refer to SAB Topic 13A.
Note 5 - Derivatives and Hedging, page 12
16. You indicate that the values of the fair value hedges as well
as
the corresponding value of the hedged risk at December 31, 2004
are
zero. In light of this, we are unclear as to the nature of the
assets and liabilities from risk-management activities recorded on
your balance sheet as of December 31, 2004. Please explain.
Note 33 - Condensed Consolidated Financial Information, page 195
17. Please confirm to us, if true, and revise future filings to
indicate that the guarantees are joint and several and that each
guarantee is 100% owned. Otherwise, tell us how your disclosure
complies with Rule 3-10 of Regulation S-X.
* * * * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact David DiGiacomo at (202) 551-3319 or George Ohsiek
at
(202) 551-3843, if you have questions regarding comments on the
financial statements and related matters. Please contact Matthew
Benson, Staff Attorney, at (202) 551-3335, David Mittelman, Legal
Branch Chief, at (202) 551-3214, or me at (202) 551-3720 with any
other questions.
Sincerely,
H. Christopher Owings
Assistant Director
cc: Michael P. Rogan, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Via Fax: (202) 393-5760
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NRG Energy, Inc.
April 29, 2005
Page 8