Accounting for Derivative Instruments and Hedging Activities (Notes) (NRG Yield)

6 Months Ended

Jun. 30, 2013

NRG Yield

Derivative

Accounting for Derivative Instruments and Hedging Activities

Accounting for Derivative Instruments and Hedging Activities

Energy-Related Commodities

As of June 30, 2013, NRG Yield had forward contracts for the purchase of fuel commodities relating to the forecasted usage of NRG Yield’s district energy centers. At June 30, 2013, these contracts were not designated as cash flow or fair value hedges.

Interest Rate Swaps

As of June 30, 2013, NRG Yield had interest rate derivative instruments on non-recourse debt extending through 2030, the majority of which are designated as cash flow hedges.

Volumetric Underlying Derivative Transactions

The following table summarizes the net notional volume buy/(sell) of NRG Yield's open derivative transactions broken out by commodity as of June 30, 2013 and December 31, 2012.

		Total Volume
		June 30, 2013		December 31, 2012
Commodity	Units	(In millions)
Natural Gas	MMBtu	2		2
Interest	Dollars	$	840	$	804

Fair Value of Derivative Instruments

The following table summarizes the fair value within the derivative instrument valuation on the balance sheet:

	Fair Value
	Derivative Assets				Derivative Liabilities
	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
	(In millions)
Derivatives Designated as Cash Flow Hedges:
Interest rate contracts current	$	—	$	—	$	18	$	14
Interest rate contracts long-term	3		—		25		54
Total Derivatives Designated as Cash Flow Hedges	3		—		43		68
Derivatives Not Designated as Cash Flow Hedges:
Interest rate contracts current	—		—		3		3
Interest rate contracts long-term	3		—		1		7
Commodity contracts current	—		—		2		2
Total Derivatives Not Designated as Cash Flow Hedges	3		—		6		12
Total Derivatives	$	6	$	—	$	49	$	80

NRG Yield has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis. NRG Yield's derivative positions are not subject to an enforceable master netting arrangement and there is no outstanding collateral paid or received.  Thus, there would be no change to the balance sheet if presenting derivative assets and liabilities on a net presentation.

Accumulated Other Comprehensive Income

The following table summarizes the effects on NRG Yield’s accumulated OCI balance attributable to interest rate swaps designated as cash flow hedge derivatives, net of tax:

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
	(In millions)
Accumulated OCI beginning balance	$	(23	)	$	(17	)	$	(24	)	$	(15	)
Reclassified from accumulated OCI to income due to realization of previously deferred amounts	1			—			3			1
Mark-to-market of cash flow hedge accounting contracts	17			(5		)	16			(8		)
Accumulated OCI ending balance, net of income tax of $2 and $5, respectively	$	(5	)	$	(22	)	$	(5	)	$	(22	)

A loss of $13 million is expected to be realized from OCI during the next 12 months, net of $5 million tax.

Amounts reclassified from accumulated OCI into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to interest expense.

Impact of Derivative Instruments on the Statements of Operations

NRG Yield had interest rate derivative instruments that were not designated as cash flow hedges as well as ineffectiveness on cash flow hedge derivatives. For the three months ended June 30, 2013 and 2012, the impact to the statement of operations was a gain of $6 million and a loss of $11 million, respectively. For the six months ended June 30, 2013 and 2012, the impact to the statement of operations was a gain of $9 million and a loss of $11 million, respectively.

NRG Yield’s derivative commodity contracts relate to its Thermal business for the purchase of fuel commodities related to the forecasted usage of the Thermal district energy centers. Realized gains and losses on these contracts are reflected in the fuel costs that are permitted to be billed to customers through the related customer contracts or tariffs and accordingly, no gains or losses are reflected in the statement of operations for these contracts.

See Note 5, Fair Value of Financial Instruments, for discussion regarding concentration of credit risk.