NRG Energy Annual Report 2021

Form 10-K (NYSE:NRG)

Published: March 1st, 2021

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 2020. ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to . Commission file No. 001-15891 NRG Energy, Inc. (Exact name of registrant as specified in its charter) Delaware 41-1724239 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 804 Carnegie Center , Princeton , New Jersey 08540 (Address of principal executive offices) (Zip Code) (609) 524-4500 (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol(s) Name of Exchange on Which Registered Common Stock, par value $0.01 NRG New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ As of the last business day of the most recently completed second fiscal quarter, the aggregate market value of the common stock of the registrant held by non- affiliates was approximately $6,941,658,699 based on the closing sale price of $32.56 as reported on the New York Stock Exchange. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding at March 1, 2021 Common Stock, par value $0.01 per share 244,687,907 Documents Incorporated by Reference: Portions of the Registrant's definitive Proxy Statement relating to its 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K

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TABLE OF CONTENTS

GLOSSARY OF TERMS 3 PART I 7 Item 1 — Business 8 Item 1A — Risk Factors 26 Item 1B — Unresolved Staff Comments 42 Item 2 — Properties 43 Item 3 — Legal Proceedings 44 Item 4 — Mine Safety Disclosures 44 PART II 45 Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 45 Item 6 — Removed and Reserved 45 Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations 46 Item 7A — Quantitative and Qualitative Disclosures About Market Risk 78 Item 8 — Financial Statements and Supplementary Data 81 Item 9 — Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 81 Item 9A — Controls and Procedures 81 Item 9B — Other Information 83 PART III 85 Item 10 — Directors, Executive Officers and Corporate Governance 85 Item 11 — Executive Compensation 88 Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 88 Item 13 — Certain Relationships and Related Transactions, and Director Independence 88 Item 14 — Principal Accounting Fees and Services 88 PART IV 89 Item 15 — Exhibits, Financial Statement Schedules 89 Item 16 — Form 10-K Summary 171 EXHIBIT INDEX 167

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Glossary of Terms When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below: 2023 Term Loan Facility The Company's term loan facility due 2023, a component of the Senior Credit Facility, which was repaid during the second quarter of 2019 ACE Affordable Clean Energy Adjusted EBITDA Adjusted earnings before interest, taxes, depreciation and amortization ARO Asset Retirement Obligation ASC The FASB Accounting Standards Codification, which the FASB established as the source of authoritative GAAP ASU Accounting Standards Updates – updates to the ASC AUC Alberta Utilities Commission Average realized prices Volume-weighted average power prices, net of average fuel costs and reflecting the impact of settled hedges Bankruptcy Code Chapter 11 of Title 11 of the U.S. Bankruptcy Code Bankruptcy Court United States Bankruptcy Court for the Southern District of Texas, Houston Division Baseload Units expected to satisfy minimum baseload requirements of the system and produce electricity at an essentially constant rate and run continuously BETM Boston Energy Trading and Marketing LLC BTU British Thermal Unit Business Solutions NRG's business solutions group, which includes demand response, commodity sales, energy efficiency and energy management services CAA Clean Air Act CAISO California Independent System Operator California Bankruptcy Court United States Bankruptcy Court for the Northern District of California, San Francisco Division CARES Act Coronavirus Aid, Relief, and Economic Security Act Carlsbad Carlsbad Energy Center, a 528 MW natural gas-fired project located in Carlsbad, CA CCR Coal Combustion Residuals CDD Cooling Degree Day CFTC U.S. Commodity Futures Trading Commission Chapter 11 Cases Voluntary cases commenced by the GenOn Entities under the Bankruptcy Code in the Bankruptcy Court C&I Commercial, industrial and governmental/institutional CES Clean Energy Standard Cleco Cleco Corporate Holdings LLC Carbon Dioxide CO2

CO2e Carbon Dioxide Equivalents ComEd Commonwealth Edison Company NRG Energy, Inc. Convertible Senior Notes As of December 31, 2020, consists of NRG’s $575 million unsecured 2.75% Convertible Senior Notes due 2048 Cottonwood Cottonwood Generating Station, a 1,153 MW natural gas-fueled plant COVID-19 Coronavirus Disease 2019 CPP Clean Power Plan CPUC California Public Utilities Commission CWA Clean Water Act D.C. Circuit U.S. Court of Appeals for the District of Columbia Circuit Distributed Solar Solar power projects that primarily sell power to customers for usage on site, or are interconnected to sell power into a local distribution grid DSI Dry Sorbent Injection

DSU Deferred Stock Unit Economic gross margin Sum of energy revenue, capacity revenue, retail revenue and other revenue, less cost of fuels and other cost of sales EGU Electric Generating Unit EME Edison Mission Energy Energy Plus Holdings Energy Plus Holdings LLC EPA U.S. Environmental Protection Agency 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 ESCO Energy Service Companies ESP Electrostatic Precipitator ESPP NRG Energy, Inc. Amended and Restated Employee Stock Purchase Plan Exchange Act The Securities Exchange Act of 1934, as amended FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FGD Flue gas desulfurization FPA Federal Power Act FTRs Financial Transmission Rights GAAP Generally accepted accounting principles in the U.S. GenConn GenConn Energy LLC GenOn GenOn Energy, Inc. GenOn Americas Generation GenOn Americas Generation, LLC GenOn Entities GenOn and certain of its wholly owned subsidiaries, including GenOn Americas Generation, that filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court on June 14, 2017 GenOn Mid-Atlantic GenOn Mid-Atlantic, LLC and, except where the context indicates otherwise, its subsidiaries, which include the coal generation units at two generating facilities under operating leases GHG Greenhouse Gas GIP Global Infrastructure Partners Green Mountain Energy Green Mountain Energy Company Guam NRG's wholly owned subsidiary NRG Solar Guam, LLC that was sold during the first quarter of 2019 GW Gigawatt GWh Gigawatt Hour HDD Heating Degree Day Heat Rate A measure of thermal efficiency computed by dividing the total BTU content of the fuel burned by the resulting kWhs generated. Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output measured is gross or net generation and is generally expressed as BTU per net kWh HLBV Hypothetical Liquidation at Book Value HLW High-level radioactive waste IPPNY Independent Power Producers of New York ICE Intercontinental Exchange ISO Independent System Operator, also referred to as RTOs ISO-NE ISO New England Inc. Ivanpah Ivanpah Solar Electric Generation Station, a 393 MW solar thermal power plant located in California's Mojave Desert in which NRG owns 54.5% interest kWh Kilowatt-hour

LaGen Louisiana Generating LLC LIBOR London Inter-Bank Offered Rate LSE Load Serving Entities LTIPs Collectively, the NRG LTIP and the NRG GenOn LTIP Mass Market Residential and small commercial customers MATS Mercury and Air Toxics Standards promulgated by the EPA MDth Thousand Dekatherms Merger The merger completed on December 14, 2012 by NRG and GenOn pursuant to the Merger Agreement Midwest Generation Midwest Generation, LLC MISO Midcontinent Independent System Operator, Inc. MMBtu Million British Thermal Units MMDth Million Dekatherms MSU Market Stock Unit MW Megawatts MWe Megawatt equivalent MWh Saleable megawatt hour net of internal/parasitic load megawatt-hour NAAQS National Ambient Air Quality Standards NEIL Nuclear Electric Insurance Limited NEPOOL New England Power Pool NERC North American Electric Reliability Corporation Net Capacity Factor The net amount of electricity that a generating unit produces over a period of time divided by the net amount of electricity it could have produced if it had run at full power over that time period. The net amount of electricity produced is the total amount of electricity generated minus the amount of electricity used during generation Net Exposure Counterparty credit exposure to NRG, net of collateral Net Generation The net amount of electricity produced, expressed in kWhs or MWhs, that is the total amount of electricity generated (gross) minus the amount of electricity used during generation Net Revenue Rate Sum of retail revenues less TDSP transportation charges NJBPU New Jersey Board of Public Utilities NOL Net Operating Loss NOx Nitrogen Oxides NPNS Normal Purchase Normal Sale NQSO Non-Qualified Stock Option NRC U.S. Nuclear Regulatory Commission NRG NRG Energy, Inc. NRG GenOn LTIP NRG 2010 Stock Plan for GenOn Employees (formerly the GenOn Energy, Inc. 2010 Omnibus Incentive Plan, which was assumed by NRG in connection with the Merger) NRG LTIP NRG Energy, Inc. Amended and Restated Long-Term Incentive Plan NRG Yield, Inc. NRG Yield, Inc., which changed its name to Clearway energy, Inc. following the sale by NRG or NRG Yield and the Renewables Platform to GIP Nuclear Decommissioning Trust Fund NRG's nuclear decommissioning trust fund assets, which are for the Company's portion of the decommissioning of the STP, units 1 & 2 Nuclear Waste Policy Act U.S. Nuclear Waste Policy Act of 1982 NYISO New York Independent System Operator NYMEX New York Mercantile Exchange NYSDEC New York State Department of Environmental Conservation NYSPSC New York State Public Service Commission OCI/OCL Other Comprehensive Income/(Loss)

ORDC Operating Reserve Demand Curve Peaking Units expected to satisfy demand requirements during the periods of greatest or peak load on the system PER Peak Energy Rent Petra Nova Petra Nova Parish Holdings, LLC PG&E PG&E Corporation (NYSE: PCG) and its primary operating subsidiary, Pacific Gas and Electric Company Pipeline Projects that range from identified lead to shortlisted with an offtake, and represents a lower level of execution certainty PJM PJM Interconnection, LLC PM2.5 Particulate Matter that has a diameter of less than 2.5 micrometers PPA Power Purchase Agreement PPM Parts per million PSU Performance Stock Unit PTC Production Tax Credit PUCT Public Utility Commission of Texas RCE Residential Customer Equivalent is a unit of measure used by the energy industry to denote the typical annual commodity consumption by a single-family residential customer. 1 RCE represents 1,000 therms of natural gas or 10,000 kWh of electricity RCRA Resource Conservation and Recovery Act of 1976 RECs Renewable Energy Certificates REMA NRG REMA LLC, which leases a 100% interest in the Shawville generating facility and 16.7% and 16.5% interests in the Keystone and Conemaugh generating facilities, respectively Renewables Consists of the following projects in which NRG has an ownership interest: Agua Caliente, Ivanpah, and solar generating stations located at various NFL Stadiums Renewables Platform The renewable operating and development platform sold to GIP with NRG's interest in NRG Yield. Restructuring Support Agreement Restructuring Support and Lock-Up Agreement, dated as of June 12, 2017 and as amended on October 2, 2017, by and among GenOn Energy, Inc., GenOn Americas Generation, LLC, and subsidiaries signatory thereto, NRG Energy, Inc. and the noteholders signatory thereto Revolving Credit Facility The Company's $2.6 billion revolving credit facility as of December 31, 2020, a component of the Senior Credit Facility, due 2024 was amended on May 28, 2019 and August 20, 2020 RGGI Regional Greenhouse Gas Initiative RMR Reliability Must-Run RPM Reliability Pricing Model RPS Renewable Portfolio Standards RPSU Relative Performance Stock Unit RSU Restricted Stock Unit RTO Regional Transmission Organization SCE Southern California Edison Company SCR Selective Catalytic Reduction Control System SDG&E San Diego Gas & Electric SEC U.S. Securities and Exchange Commission Securities Act The Securities Act of 1933, as amended Senior Credit Facility NRG's senior secured credit facility, comprised of the Revolving Credit Facility and the 2023 Term Loan Facility. The 2023 Term Loan Facility was repaid in the second quarter of 2019

Senior Notes As of December 31, 2020, NRG's $5.3 billion outstanding unsecured senior notes consisting of $1.0 billion of the 7.25% senior notes due 2026, $1.23 billion of the 6.625% senior notes due 2027, $821 million of 5.75% senior notes due 2028, $733 million of the 5.25% senior notes due 2029, $500 million of the 3.375% senior notes due 2029, and $1.0 billion of the 3.625% senior notes due 2031 Senior Secured Notes As of December 31, 2020, NRG’s $2.5 billion outstanding Senior Secured First Lien Notes consists of $600 million of the 3.75% Senior Secured First Lien Notes due 2024, $500 million of the 2.0% Senior Secured First Lien Notes due 2025, $900 million of the 2.45% Senior Secured First Lien Notes due 2027, and $500 million of the 4.45% Senior Secured First Lien Notes due 2029 Services Agreement NRG provided GenOn with various management, personnel and other services, which include human resources, regulatory and public affairs, accounting, tax, legal, information systems, treasury, risk management, commercial operations, and asset management, as set forth in the services agreement with GenOn Settlement Agreement A settlement agreement and any other documents necessary to effectuate the settlement among NRG, GenOn, and certain holders of senior unsecured notes of GenOn Americas Generations and GenOn, and certain of GenOn's direct and indirect subsidiaries SNF Spent Nuclear Fuel SO2 Sulfur Dioxide South Central Portfolio NRG's South Central Portfolio, which owned and operated a portfolio of generation assets consisting of Bayou Cove, Big Cajun-I, Big Cajun-II, Cottonwood and Sterlington, was sold on February 4, 2019. NRG is leasing back the Cottonwood facility through May 2025 S&P Standard & Poor's 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 Tax Act The Tax Cuts and Jobs Act of 2017 TDSP Transmission/distribution service provider Texas Genco Texas Genco LLC Transformation Plan NRG's three-year plan announced in 2017 that included targets related to operations and excellence, portfolio optimization, and capital structure and allocation enhancement and was completed as of December 31, 2020 TSA Transportation Services Agreement TSR Total Shareholder Return TWCC Texas Westmoreland Coal Co. TWh Terawatt Hour UPMC University of Pittsburgh Medical Center U.S. United States of America U.S. DOE U.S. Department of Energy Utility-Scale Solar Solar power projects, typically 20 MW or greater in size (on an alternating current basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level VaR Value at Risk VIE Variable Interest Entity WECC Western Electricity Coordinating Council

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PART I Item 1 — Business General NRG Energy, Inc., or NRG or the Company, is an integrated power company built on dynamic retail brands with diverse generation assets. NRG brings the power of energy to customers by producing and selling energy and related products and services, in major competitive power and gas markets in the U.S. and Canada in a manner that delivers value to all of NRG's stakeholders. NRG is a customer-centric business focused on perfecting the integrated model by balancing retail load with generation supply within its deregulated markets. As of December 31, 2020, the Company sold energy, services, and innovative, sustainable products and services directly to retail customers under the brand names NRG, Reliant, Green Mountain Energy, Stream, and XOOM Energy, as well as other brand names owned by NRG, supported by approximately 23,000 MW of generation. NRG also conducts business under the brand name of Direct Energy as a result of the Company's acquisition of Direct Energy, a North American subsidiary of Centrica plc, on January 5, 2021. Direct Energy is a leading retail provider of electricity, natural gas, and home and business energy related products and services in North America, with operations in all 50 U.S. states and 8 Canadian provinces. In addition, Direct Energy is a participant in the wholesale gas and power markets in the United States and Canada. See Item 15 — Note 4, Acquisitions, Discontinued Operations and Dispositions , to the Consolidated Financial Statements for further discussion of the acquisition of Direct Energy. On February 28, 2021, the Company entered into a definitive purchase agreement with Generation Bridge, an affiliate of ArcLight Capital Partners, to sell approximately 4,850 MWs of fossil generating assets from its East and West regions of operations for total proceeds of $760 million, subject to standard purchase price adjustments and certain other indemnifications. As part of the transaction, NRG is entering into a tolling agreement for its 866 MW Arthur Kill plant in New York City through April 2025. The transaction is expected to close in the fourth quarter of 2021, and is subject to various closing conditions, approvals and consents, including FERC, NYSPSC, and antitrust review under Hart-Scott-Rodino. The Company has achieved the targets related to operations and cost excellence, portfolio optimization, and capital structure and allocation enhancement, as set out by the Transformation Plan. See Item 7 - Management's Discussion and Analysis of Financial Conditions and Results of Operations for further discussion. Strategy NRG's strategy is to maximize stakeholder value through the safe production and sale of reliable power and gas to its customers in the markets it serves, while positioning the Company to provide innovative solutions to the end-use energy customer. This strategy is intended to enable the Company to optimize its integrated model to generate stable and predictable cash flow, significantly strengthen earnings and cost competitiveness, and lower risk and volatility. To effectuate the Company’s strategy, NRG is focused on: (i) serving the energy needs of end-use residential, commercial and industrial, and wholesale customers in competitive markets through multiple brands and channels; (ii) offering a variety of energy products and services, including renewable energy solutions, that are differentiated by innovative features, premium service, sustainability, and loyalty/affinity programs; (iii) excellence in operating performance of its existing assets; (iv) optimal hedging of NRG's portfolio; and (v) engaging in disciplined and transparent capital allocation. Sustainability is an integral piece of NRG's strategy and ties directly to business success, reduced risks and brand value. In 2019, NRG announced the acceleration of its science-based GHG emissions reduction goals to align with prevailing climate science, limiting global warming in the post-industrial era to 1.5 degree Celsius. Under its new GHG emissions reduction timeline, NRG is targeting a 50% reduction by 2025, from its current 2014 baseline, and net-zero emissions by 2050. The Company is on track to meet its 2025 goal. Business Overview The Company’s core business is the sale of electricity and natural gas to residential, commercial and industrial customers, supported by the Company's wholesale generation. As part of perfecting the integrated model, in which the majority of the Company’s generation serves its retail customers, the Company began managing its operations based on the combined results of the retail and wholesale generation businesses with a geographical focus in 2020. As a result, the Company changed its business segments from Retail and Generation to Texas, East and West/Other beginning in the first quarter of 2020. The Company's updated segment structure reflects how management makes financial decisions and allocates resources. The Company's business is segregated as follows: • Texas, which includes all activity related to customer, plant and market operations in Texas;

• East, which includes the remaining activity related to customer operations and all activity related to plant and market operations in the East; • West/Other, which includes the following assets and activities: (i) all activity related to plant and market operations in the West, (ii) activity related to the Cottonwood power plant that was sold to Cleco on February 4, 2019 and is being leased back until 2025, (iii) the remaining renewables activity, including the Company’s equity method investments in Ivanpah Master Holdings, LLC and Agua Caliente (which was sold on February 3, 2021) and the NFL stadium solar generating assets, and (iv) activity related to the Company’s equity method investment for the Gladstone power plant in Australia; and • Corporate activities. As of December 31, 2020, the vast majority of the Company’s business was in Texas, where the Company’s generation supply is fully integrated with its retail load. In the East, the Company’s retail load is more dispersed throughout the region and not fully integrated with the Company’s generation supply due to the locations of its power plants in that region. In the West, the Company’s business is primarily generation supply. The acquisition of Direct Energy broadens the Company's presence in the Northeast and into states and locales where it did not previously operate, supporting NRG's objective to diversify its business. The acquired operations of Direct Energy will be integrated into the existing NRG segment structure. Domestic customer and market operations will be combined into the corresponding geographical segments of Texas, East and West/Other. The East segment will also include the deregulated customer and market operations of Canada. The West/Other segment will also include activity related to the regulated operations in Alberta, Canada and the services businesses. The Company’s integrated model consists of three core functions: Customer Operations, Market Operations and Plant Operations, which directly support each other in each geographic region. The Company’s integrated model provides the advantage of being able to supply the Company’s retail customers with electricity from the Company’s assets, which reduces the need to sell electricity to and buy electricity from other institutions and intermediaries, resulting in stable earnings and cash flows, lower transaction costs and less credit exposure. The integrated model also results in a reduction in actual and contingent collateral through offsetting transactions, thereby minimizing transactions with third parties. NRG provides energy and related services to residential, industrial and commercial, and wholesale customers at either fixed, indexed or month-to- month prices through various brands and sales channels across the U.S. and Canada. Residential and small commercial ("Mass market") customers typically contract for terms ranging from one month to five years, while industrial and large commercial ("C&I") contracts are often between one year and five years in length. NRG sold approximately 68.2 TWhs of electricity and 23.5 MMDth of natural gas in 2020 and served approximately 3.6 million customers as of December 31, 2020, making it one of the largest competitive energy retailers in the U.S. In any given year, the quantity of TWhs and MMDth sold can be affected by weather, economic conditions and competition. As of the end of 2020, NRG had recurring electricity and/or natural gas sales in 19 U.S. states, the District of Columbia, and 2 provinces in Canada. Following the acquisition of Direct Energy, NRG has recurring electricity and/or natural gas sales in 24 U.S. states, the District of Columbia, and 8 provinces in Canada. NRG's retail brands, collectively, have the largest share of competitively served residential electric customers in Texas and nationwide.

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