YieldCo 12.31.2013 10K
                                
                                                                        

 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2013.
 
 
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from                      to                       .
Commission File Number: 001-36002
NRG Yield, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
46-1777204
(I.R.S. Employer Identification No.)
 
 
 
211 Carnegie Center, Princeton, New Jersey
(Address of principal executive offices)
 
08540
(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
 
Name of Exchange on Which Registered
Common Stock, Class A, par value $0.01
 
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 o    No x
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 o    No x
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 x    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 x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    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.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer x
 
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 Act).    Yes o    No x
The registrant completed its initial public offering of its Class A common stock on July 22, 2013. The registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and therefore cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date.
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 February 26, 2014
Common Stock, Class A, par value $0.01 per share
 
22,511,250
Common Stock, Class B, par value $0.01 per share
 
42,738,750
Documents Incorporated by Reference:
Portions of the Registrant's definitive Proxy Statement relating to its 2014 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Annual Report on Form 10-K
 
 
 
 
 

1

                                
                                                                        

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

2

                                
                                                                        

GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
ARRA
 
American Recovery and Reinvestment Act of 2009
ASC
 
The FASB Accounting Standards Codification, which the FASB established as the source of
authoritative U.S. GAAP
ASU
 
Accounting Standards Updates – updates to the ASC
CfD
 
Contract for Differences
COD
 
Commercial operations date
CFTC
 
U.S. Commodity Future Trading Commission
DGCL
 
Delaware General Corporation Law
Distributed Solar
 
Solar power projects, typically less than 20 MW in size, that primarily sell power produced to customers for usage on site, or are interconnected to sell power into the local distribution grid
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
EWG
 
Exempt Wholesale Generator
Exchange Act
 
The Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FCM
 
Forward Capacity Market
FERC
 
Federal Energy Regulatory Commission
FFB
 
Federal Financing Bank
FPA
 
Federal Power Act
ISO
 
Independent System Operator, also referred to as Regional Transmission Organization, or RTO
ISO-NE
 
ISO New England Inc.
ITC
 
Investment Tax Credit
JOBS Act
 
Jumpstart Our Business Startups Act
LIBOR
 
London Inter-Bank Offered Rate
Marsh Landing
 
NRG Marsh Landing LLC, formerly GenOn Marsh Landing LLC
MMBtu
 
Million British Thermal Units
MW
 
Megawatt
MWh
 
Saleable megawatt hours, net of internal/parasitic load megawatt-hours
MWt
 
Megawatts Thermal Equivalent
NEPOOL
 
New England Power Pool
NERC
 
North American Electric Reliability Corporation
Net Exposure
 
Counterparty credit exposure to NRG Yield, Inc. net of collateral
NOLs
 
Net operating losses
NPNS
 
Normal Purchase Normal Sale
NRG
 
NRG Energy, Inc.
NRG Yield
 
Accounting predecessor, representing the combination of the projects that were acquired by NRG Yield LLC
NRG Yield, Inc.
 
NRG Yield, Inc., or the Company
NRG Yield LLC
 
The holding company through which the projects are owned by NRG, the holder of Class B common units, and NRG Yield, Inc., the holder of the Class A common units
NRG Yield Operating LLC
 
The holder of the project assets that belong to NRG Yield LLC
OCI
 
Other comprehensive income
OMB
 
Office of Management and Budget
PPA
 
Power Purchase Agreement

3

                                
                                                                        

PUCT
 
Public Utility Commission of Texas
PURPA
 
Public Utility Regulatory Policies Act of 1978
QF
 
Qualifying Facility under PURPA
RPM
 
Reliability Pricing Model
RPS
 
Renewable Portfolio Standard
RTO
 
Renewable Transmission Originator
U.S.
 
United States of America
U.S. DOE
 
U.S. Department of Energy
U.S. GAAP
 
Accounting principles generally accepted in the United States
Utility Scale Solar
 
Solar power projects, typically 20 MW or greater in size (on an alternating current, or AC, 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

4

                                
                                                                        

PART I
Item 1 — Business
General
NRG Yield, Inc., or the Company, is a dividend growth-oriented company formed to serve as the primary vehicle through which NRG will own, operate and acquire contracted renewable and conventional generation and thermal infrastructure assets. The Company owns a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the United States. The contracted generation portfolio includes three natural gas or dual-fired facilities, eight utility-scale solar and wind generation facilities and two portfolios of distributed solar facilities that collectively represent 1,324 net MW. Each of these assets sells substantially all of its output pursuant to long-term, fixed price offtake agreements to credit-worthy counterparties. The average remaining contract life, weighted by MWs, of these offtake agreements was approximately 16 years as of December 31, 2013. The Company also owns thermal infrastructure assets with an aggregate steam and chilled water capacity of 1,346 net MWt and electric generation capacity of 123 net MW. These thermal infrastructure assets provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units in multiple locations, principally through long-term contracts or pursuant to rates regulated by state utility commissions.
History
The Company was formed by NRG as a Delaware corporation on December 20, 2012. On July 22, 2013, the Company closed the initial public offering of 22,511,250 shares of its Class A common stock at an offering price of $22.00 per share. In connection with the offering, the Company’s shares of Class A common stock began trading on the New York Stock Exchange under the symbol “NYLD”. The proceeds to the Company from the offering, before deducting underwriting discounts, were approximately $468 million of which the Company used approximately $395 million to purchase 19,011,250 NRG Yield LLC Class A common units from NRG.
The Company is the sole managing member of NRG Yield LLC and operates and controls all of the business and affairs and consolidates the financial results of NRG Yield LLC and its subsidiaries. NRG Yield LLC is a holding company for the companies that directly and indirectly own and operate NRG Yield, Inc.'s business.
As of December 31, 2013, NRG owned 42,738,750 NRG Yield LLC Class B common units and the Company owned 22,511,250 NRG Yield LLC Class A common units, and NRG through its holdings of Class B common stock has 65.5% of the voting power in the Company, and the holders of the Company's issued and outstanding shares of Class A common stock have 34.5% of the voting power in the Company. As a result of the current ownership of the Class B common stock and the NRG Yield LLC Class A common units, NRG continues at the present time to control the Company, and the Company in turn, as the sole managing member of NRG Yield LLC, controls NRG Yield LLC and its subsidiaries.
See Item 1A - Risk Factors and Item 13 - Certain Relationships and Related Transactions, and Director Independence.

5

                                
                                                                        

The diagram below depicts the Company’s organizational structure as of December 31, 2013:

6

                                
                                                                        

Operations Overview
The Company's operating assets are comprised of the following projects:
Projects
 
Percentage Ownership
 
Net Capacity (MW) (a)
 
Offtake Counterparty
 
Expiration
Conventional
 
 
 
 
 
 
 
 
GenConn Middletown
 
49.95
%
 
95

 
Connecticut Light & Power
 
2041
GenConn Devon
 
49.95
%
 
95

 
Connecticut Light & Power
 
2040
Marsh Landing
 
100
%
 
720

 
Pacific Gas and Electric
 
2023
 
 
 
 
910

 
 
 
 
Utility Scale Solar
 
 
 
 
 
 
 
 
Alpine
 
100
%
 
66

 
Pacific Gas and Electric
 
2033
Avenal
 
49.95
%
 
23

 
Pacific Gas and Electric
 
2031
Avra Valley
 
100
%
 
25

 
Tucson Electric Power
 
2032
Blythe
 
100
%
 
21

 
Southern California Edison
 
2029
Borrego
 
100
%
 
26

 
San Diego Gas and Electric
 
2038
Roadrunner
 
100
%
 
20

 
El Paso Electric
 
2031
CVSR
 
48.95
%
 
122

 
Pacific Gas and Electric
 
2038
 
 
 
 
303

 
 
 
 
Distributed Solar
 
 
 
 
 
 
 
 
AZ DG Solar Projects
 
100
%
 
5

 
Various
 
2025 - 2033
PFMG DG Solar Projects
 
51
%
 
5

 
Various
 
2032
 
 
 
 
10

 
 
 
 
Wind
 
 
 
 
 
 
 
 
South Trent
 
100
%
 
101

 
AEP Energy Partners
 
2029
Thermal
 
 
 
 
 
 
 
 
Thermal equivalent MWt(b)
 
100
%
 
1,346

 
Various
 
Various
Thermal generation
 
100
%
 
123

 
Various
 
Various
 
 
 
 
 
 
 
 
 
Total net capacity (excluding equivalent MWt)
 
1,447

 
 
 
 
(a) Net capacity represents the maximum, or rated, generating capacity of the facility multiplied by the Company's percentage ownership in the facility as of December 31, 2013.
(b) For thermal energy, net capacity represents MWt for steam or chilled water.
During the year ended December 31, 2013, the Company derived approximately 34% of its consolidated revenue from Pacific Gas and Electric.
Business Strategy
The Company's primary business strategy is to focus on the acquisition and ownership of assets with minimal long term price or volumetric offtake risk in order that it may be able to increase the cash dividends of Class A common stock over time without compromising the ongoing stability of the business. The Company's plan for executing this strategy includes the following key components:
Focus on contracted renewable energy and conventional generation and thermal infrastructure assets. The Company owns and operates renewable energy and natural gas-fired generation, thermal and other infrastructure assets with proven technologies, low operating risks and stable cash flows. The Company believes by focusing on this core asset class and leveraging its industry knowledge, it will maximize its strategic opportunities, be a leader in operational efficiency and maximize its overall financial performance.

7

                                
                                                                        

Growing the business through acquisitions of contracted operating assets. NRG Yield, Inc. believes that its base of operations and relationship with NRG provide a platform in the power generation and thermal sectors for strategic growth through cash accretive and tax advantaged acquisitions complementary to its existing portfolio. NRG has granted the Company a right of first offer to acquire six of its power generating assets, or the NRG ROFO Assets, if and to the extent NRG elects to sell any of these assets prior to July 2018.  The table below lists the NRG ROFO Assets.
Asset
Fuel Type
Net Capacity
(MW)(1)
COD
Offtake
(Term/Offtaker)
TA High Desert†
Solar
20
2013
20 year PPA/Southern California Edison
RE Kansas South†
Solar
20
2013
20 year PPA/Pacific Gas & Electric
El Segundo†
Natural Gas
550
2013
10 year Tolling Agreement/Southern California Edison
CVSR†(2)
Solar
128
2013
25 year PPA/Pacific Gas & Electric
Ivanpah(3)
Solar
193
2013
20-25 year PPA/Pacific Gas & Electric and Southern California Edison
Agua Caliente(4)
Solar
148
Early 2014(5)
25 year PPA/Pacific Gas & Electric
†    Indicates NRG ROFO Assets the Company expects NRG to offer the opportunity to purchase during 2014.  However, NRG is not obligated to sell any of the NRG ROFO Assets and, therefore, the Company has no assurances when, if ever, these assets will be offered to it or, if offered, that they will be offered on favorable terms.
(1)  Represents the maximum, or rated, electricity generating capacity of the facility in MW multiplied by NRG’s percentage ownership interest in the facility as of December 31, 2013.
(2)  Represents NRG’s remaining 51.05% ownership interest in CVSR.
(3)  Represents NRG’s 49.95% ownership interest in Ivanpah. Following a sale of this 49.95% interest, the remaining 50.05% of Ivanpah would be owned by NRG, Google Inc. and BrightSource Energy Inc.
(4)  Represents NRG’s 51% ownership interest in Agua Caliente. The remaining 49% of Agua Caliente is owned by MidAmerican Energy Holdings Inc.
(5)  While Agua Caliente is expected to fully achieve commercial operations in early 2014, the maximum capacity deliverable under the PPA of 290 MWs is currently on-line.
In addition, NRG recently announced its agreement to acquire substantially all of the assets of Edison Mission Energy, or EME, pursuant to an acquisition agreement that is expected to close in the first quarter of 2014, subject to customary conditions, including federal and state regulatory approvals and confirmation of a Plan of Reorganization by the U.S. Bankruptcy Court of the Northern District of Illinois.  NRG has stated publicly its near-term plan to commence offering to the Company certain of the EME assets it believes fit within the Company’s asset portfolio following the consummation of the EME acquisition, or the NYLD-Eligible Assets.  NRG is not obligated to sell the NRG ROFO Assets or the NYLD - Eligible Assets to the Company and, if offered, the Company cannot be sure whether these assets will be offered on acceptable terms, or that the Company will choose to consummate such acquisitions. The NYLD-Eligible Assets are currently owned by EME and may never be acquired by NRG, in which event it is uncertain that the Company will ever be able to acquire them.
In addition, the Company expects to have significant opportunities to acquire other generation and thermal infrastructure assets from third parties where the Company believes its knowledge of the market, operating expertise and access to capital provides it with a competitive advantage.
Focus on North America. The Company intends to focus its investments in North America and its unincorporated territories. The Company believes that industry fundamentals in North America present it with significant opportunity to acquire renewable, natural gas-fired generation and thermal infrastructure assets, without creating significant exposure to currency and sovereign risk. By focusing its efforts on North America, the Company believes it will best leverage its regional knowledge of power markets, industry relationships and skill sets to maximize value for the stockholders.
Maintain sound financial practices to grow the dividend. The Company intends to maintain a commitment to disciplined financial analysis and a balanced capital structure to enable it to increase the dividend over time and serve the long-term interests of stockholders. The Company's financial practices will include a risk and credit policy focused on transacting with credit-worthy counterparties; a financing policy, which will focus on seeking an optimal capital structure through various capital formation alternatives to minimize interest rate and refinancing risks, ensure stable long-term dividends and maximize value; and a dividend policy, which is based on distributing all or substantially all cash available for distribution each quarter. The Company intends to evaluate various alternatives for financing future acquisitions and refinancing of existing project-level debt, in each case, to reduce the cost of debt, extend maturities and maximize cash available for distribution. The Company believes it has additional flexibility to seek alternative financing arrangements, including, but not limited to, debt financings at a holding company level.

8

                                
                                                                        

Competition
Power generation is a capital-intensive, commodity-driven business with numerous industry participants. The Company competes on the basis of the location of its plants and ownership of portfolios of plants in various regions, which increases the stability and reliability of its energy supply. Power generation is a regional business that is currently highly fragmented and diverse in terms of industry structure. As such, there is a wide variation in terms of the capabilities, resources, nature and identity of the companies with whom the Company competes with depending on the market. Competitors include regulated utilities, other independent power producers and power marketers or trading companies, including those owned by financial institutions, municipalities and cooperatives.
The Company's thermal business has certain cost efficiencies that may form barriers to entry. Generally, there is only one district energy system in a given territory, for which the only competition comes from on-site systems. While the district energy system can usually make an effective case for the efficiency of its services, some building owners nonetheless may opt for on-site systems, either due to corporate policies regarding allocation of capital, unique situations where an on-site system might in fact prove more efficient, or because of previously committed capital in systems that are already on-site. Growth in existing district energy system generally comes from new building construction or existing building conversions within the service territory of the district energy provider.
Competitive Strengths
Stable, high quality cash flows with attractive tax profile. The Company's facilities have a highly stable, predictable cash flow profile consisting of predominantly long-life electric generation assets that sell electricity under long-term fixed priced contracts or pursuant to regulated rates with credit-worthy counterparties. Additionally, the Company's facilities have minimal fuel risk. For the Company's three conventional assets, fuel is provided by the toll counterparty or the cost thereof is a pass-through cost under the CfD. Renewable facilities have no fuel costs, and most of the Company's thermal infrastructure assets have contractual or regulatory tariff mechanisms for fuel cost recovery. The offtake agreements for the Company's conventional and renewable generation facilities have a weighted-average remaining duration of approximately 16 years based on net capacity under contract, providing long-term cash flow stability. The Company's generation offtake agreements for rated counterparties for whom credit ratings are available have a weighted-average Moody’s rating of A3 based on rated capacity under contract. Based on the current portfolio of assets, the Company does not expect to pay significant federal income tax for a period of approximately ten years. All of the Company's assets are in the United States and accordingly have no currency or repatriation risks.
High quality, long-lived assets with low operating and capital requirements. The Company benefits from a portfolio of relatively newly-constructed assets, with all of its conventional and renewable assets either having achieved COD within the past five years or in the late stages of construction. The Company's assets are comprised of proven and reliable technologies, provided by leading original equipment manufacturers such as General Electric, or GE, Siemens AG, SunPower Corporation, or SunPower, and First Solar Inc., or First Solar. Given the modern nature of the portfolio, which includes a substantial number of relatively low operating and maintenance cost solar generation assets, the Company expects to achieve high fleet availability and expend modest maintenance-related capital expenditures. Additionally, with the support of services provided by NRG, the Company expects to continue to implement the same rigorous preventative operating and management practices that NRG uses across its fleet of assets. In 2012, NRG achieved its best safety performance with a 0.52 Occupational Safety and Health Administration (OSHA) recordable rate, well within the top decile plant operating performance for its entire fleet, based on applicable or OSHA, standards. The Company estimates its solar portfolio has a weighted average remaining expected life (based on rated MW) of approximately 29 years.
Significant scale and diversity. The Company owns and operates a large and diverse portfolio of contracted electric generation and thermal infrastructure assets. The Company's 1,324 net MW contracted generation portfolio, consisting of eleven assets and two distributed solar generation portfolios, benefits from significant diversification in terms of technology, fuel type, counterparty and geography. The Company's thermal business consists of nine Energy Centers and has over 690 steam and chilled water customers. The Company believes its scale and access to best practices across the fleet improves its business development opportunities through enhanced industry relationships, reputation and understanding of regional power market dynamics. Furthermore, the Company's diversification reduces its operating risk profile and reliance on any single market.

9

                                
                                                                        

Relationship with NRG. The Company believes its relationship with NRG, including NRG’s expressed intention to maintain a controlling interest in the Company, provides significant benefits, including management and operational expertise, and future growth opportunities. The Company's executive officers have considerable experience in owning and operating, as well as developing, acquiring and integrating, generation and thermal infrastructure assets, with, on average, over 15 years in the energy sector:
NRG Management and Operational Expertise. The Company has access to the significant resources of NRG, the largest competitive power generator in the United States, to support the operational, finance, legal, regulatory and environmental aspects, and growth strategy of its business. As such, the Company believes it avails itself of best-in-class resources, including management and operational expertise.
NRG Asset Development and Acquisition Track Record. Over the last five years, excluding assets acquired from GenOn, NRG has constructed or has acquired eight conventional assets totaling 2,420 MW, nine utility scale solar assets totaling 1,113 MW, four wind assets totaling 451 MW and 40 MW of distributed solar facilities. In addition, NRG acquired the 134 MWt Phoenix Energy Center in 2010 and recently constructed the 38 MWt Princeton Energy Center. NRG’s growth is supported by considerable development and strategic teams, including over 70 professionals focused on the development and acquisition of renewable generation assets, as well as approximately 6,000 MW of conventional and other renewable projects under development as of December 31, 2013.
NRG Financing Experience. The Company believes NRG has demonstrated a successful track record of sourcing attractive low-cost, long duration capital to fund project development and acquisitions. Since 2009, NRG has raised approximately $6 billion in long-term non-recourse project financing for over 15 projects from financial institutions and institutional debt markets as well as under the U.S. DOE loan guarantee program. The Company expects to realize significant benefits from NRG’s financing and structuring expertise as well as its relationships with financial institutions and other lenders.
Environmentally well-positioned portfolio of assets. On a net capacity basis, the Company's portfolio of electric generation assets consists of 414 net MW of renewable generation capacity that are non-emitting sources of power generation. The Company's conventional assets consist of the dual fuel-fired GenConn assets as well as the Marsh Landing simple cycle natural gas-fired peaking generation facility. The Company does not anticipate having to expend any significant capital expenditures in the foreseeable future to comply with current environmental regulations applicable to its generation assets. Taken as a whole, the Company believes its strategy will be a net beneficiary of current and potential environmental legislation and regulatory requirements that may serve as a catalyst for capacity retirements and improve market opportunities for environmentally well-positioned assets like the Company's assets once its current offtake agreements expire.
Thermal infrastructure business has high entry costs. Significant capital has been invested to construct the Company's thermal infrastructure assets, serving as a barrier to entry in the markets in which such assets operate. As of December 31, 2013, the Company's thermal gross property, plant, and equipment was approximately $421 million. The Company's thermal district energy centers are located in urban city areas, with the chilled water and steam delivery systems located underground. Constructing underground delivery systems in urban areas requires long lead times for permitting, rights of way and inspections and is costly. By contrast, the incremental cost to add new customers in existing markets is relatively low. Once thermal infrastructure is established, the Company believes it has the ability to retain customers over long periods of time and to compete effectively for additional business against stand-alone on-site heating and cooling generation facilities. Installation of stand-alone equipment can require significant modification to a building as well as significant space for equipment and funding for capital expenditures. The Company's system technologies often provide economies of scale in terms of fuel procurement, ability to switch between multiple types of fuel to generate thermal energy, and fuel conversion efficiency. The Company's top ten thermal customers, which make up approximately 18% of the Company's consolidated revenues for the twelve months ended December 31, 2013, have had a relationship with the Company for an average of over 20 years.

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Segment Review
The following table summarizes the Company's operating revenues, net income and assets by segment for the years ended December 31, 2013, 2012 and 2011, as discussed in Item 15 - Note 12, Segment Reporting, to the Consolidated Financial Statements. Refer to that footnote for additional information about the Company's segments. In addition, refer to Item 2 - Properties, for information about the facilities in each of the Company's segments.

Year ended December 31, 2013
(In millions)
Conventional Generation

Renewables

Thermal

Corporate

Total
Operating revenues
$
82

 
$
79

 
$
152

 
$

 
$
313

Net income/(loss)
64

 
40

 
20

 
(15
)
 
109

Total assets
839

 
866

 
436

 
172

 
2,313

 
Year ended December 31, 2012
(In millions)
Conventional Generation
 
Renewables
 
Thermal
 
Corporate
 
Total
Operating revenues
$

 
$
33

 
$
142

 
$

 
$
175

Net income/(loss)
15

 
(1
)
 
16

 
(17
)
 
13

Total assets
744

 
893

 
326

 
1

 
1,964

 
Year ended December 31, 2011
(In millions)
Conventional Generation
 
Renewables
 
Thermal
 
Corporate
 
Total
Operating revenues
$

 
$
26

 
$
138

 
$

 
$
164

Net income/(loss)
12

 
5

 
13

 
(15
)
 
15

Government Incentives
Government incentives enhance the economic viability of the Company's operating assets by providing additional sources of funding for the construction of such assets. NRG has applied for and received cash grants in lieu of ITCs, pursuant to section 1603 of the American Recovery and Reinvestment Tax Act of 2009, for assets that are currently operating including Blythe, South Trent, Roadrunner, Avra Valley and certain Distributed Solar assets. In addition, NRG has submitted applications for cash grants in lieu of ITCs for Alpine and Borrego of $72 million and $39 million, respectively. The amounts receivable by the Company for the Alpine and Borrego projects were subsequently reduced to $66 million and $36 million, respectively, as a result of automatic federal spending cuts in 2013 that have taken place pursuant to the Balanced Budget and Emergency Deficit Control Act of 1985 as amended, commonly known as sequestration. Cash grants are treated as a reduction to the book basis of the property, plant and equipment and reduce the related depreciation over the useful life of the asset.
In January 2014, the Company received from the U.S. Treasury Department $66 million in cash grants for Alpine.
One of the Company's equity method investments, CVSR, obtained a loan guarantee from the U.S. DOE in support of its borrowings from the Federal Financing Bank, or FFB, to fund the construction of the facility, and CVSR submitted applications for cash grants in lieu of ITCs of $414 million ($392 million net of sequestration). In connection with the CVSR financing, as of December 31, 2013, there was $341 million in outstanding DOE-guaranteed cash grant bridge loans on the project, of which $166 million was due on February 5, 2014, and the remaining amount was due on August 5, 2014. In January 2014, the U.S. Treasury Department awarded cash grants on the CVSR project of $307 million ($285 million net of sequestration), which is approximately 75% of the cash grant amount for which the Company had applied. The cash grant proceeds were used to pay the outstanding balance of the bridge loan due in February 2014 and the remaining amount was used to pay a portion of the outstanding balance on the bridge loan due in August 2014. The remaining balance of the bridge loan due in August 2014 was paid by SunPower. CVSR is evaluating the basis for the U.S. Treasury Department’s award and all of its options for recovering the amount by which the U.S. Treasury Department reduced the CVSR cash grant award.

11

                                
                                                                        

Regulatory Matters
As operators of power plants and participants in wholesale energy markets, certain of the Company's entities are subject to regulation by various federal and state government agencies. These include the CFTC, FERC, and the PUCT, as well as other public utility commissions in certain states where the Company's generating, thermal, or distributed solar assets are located. In addition, the Company is subject to the market rules, procedures and protocols of the various ISO markets in which it participates. The Company must also comply with the mandatory reliability requirements imposed by the North American Electric Reliability Corporation and the regional reliability entities in the regions where the Company operates.
The Company's operations within the ERCOT footprint are not subject to rate regulation by the FERC, as they are deemed to operate solely within the ERCOT market and not in interstate commerce. These operations are subject to regulation by PUCT.
CFTC
The CFTC, among other things, has regulatory oversight authority over the trading of electricity and natural gas commodities, including financial products and derivatives, under the Commodity Exchange Act, or CEA. The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, among other things, aims to improve transparency and accountability in derivative markets. The Dodd-Frank Act increases the CFTC’s regulatory authority on matters related to over-the-counter derivatives, market clearing, position reporting, and capital requirements.
The Company expects that in 2014, the CFTC will clarify the scope of the Dodd-Frank Act and issue final rules concerning position limits, margin requirements, and other issues that will affect NRG’s over-the-counter derivatives trading. Because there are many details that remain to be addressed in CFTC rulemaking proceedings, at this time the expected impact to the Company on its current operations cannot be measured.
FERC
FERC, among other things, regulates the transmission and the wholesale sale of electricity in interstate commerce under the authority of the FPA. The transmission of electric energy occurring wholly within ERCOT is not subject to the FERC’s jurisdiction under Sections 203 or 205 of the FPA. Under existing regulations, the FERC determines whether an entity owning a generation facility is an EWG, as defined in the PUHCA. FERC also determines whether a generation facility meets the ownership and technical criteria of a Qualifying Facility, or QF, under the PURPA. Each of the Company’s non-ERCOT U.S. generating facilities qualifies as an EWG.
The FPA gives the FERC exclusive rate-making jurisdiction over the wholesale sale of electricity and transmission of electricity in interstate commerce of public utilities (as defined by the FPA). Under the FPA, the FERC, with certain exceptions, regulates the owners of facilities used for the wholesale sale of electricity or transmission in interstate commerce as public utilities, and establishes market rules that are just and reasonable.
Public utilities are required to obtain the FERC’s acceptance, pursuant to Section 205 of the FPA, of their rate schedules for the wholesale sale of electricity. All of the Company’s non-QF generating entities located outside of ERCOT make sales of electricity pursuant to market-based rates, as opposed to traditional cost-of-service regulated rates. Every three years FERC will conduct a review of the Company’s market based rates and potential market power on a regional basis, consistent with FERC’s prior reviews of NRG’s market based rates and potential market power.
In accordance with the Energy Policy Act of 2005, the FERC has approved the NERC as the national Energy Reliability Organization, or ERO. As the ERO, NERC is responsible for the development and enforcement of mandatory reliability standards for the wholesale electric power system. In addition to complying with NERC requirements, each NRG entity must comply with the requirements of the regional reliability entity for the region in which it is located.
PUHCA provides the FERC with certain authority over and access to books and records of public utility holding companies not otherwise exempt by virtue of their ownership of EWGs, QFs, and Foreign Utility Companies. The Company is exempt from many of the accounting, record retention, and reporting requirements of the PUHCA.
PURPA was passed in 1978 in large part to promote increased energy efficiency and development of independent power producers. PURPA created QFs to further both goals, and the FERC is primarily charged with administering PURPA as it applies to QFs. Certain QFs are exempt from regulation, either in whole or in part, under the FPA as public utilities.

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Regulatory Developments
Thermal
NRG Energy Center Harrisburg LLC Rate Case — On April 12, 2013, NRG Energy Center Harrisburg LLC, or NRG Harrisburg, one of the Company's regulated steam utility in Harrisburg, Pennsylvania, filed a base rate case with the Pennsylvania Public Utility Commission, or PA PUC, for an increase in annual revenues of $875,000. On December 5, 2013, the PA PUC approved the base rate increase and the new rates became effective December 6, 2013.
Conventional Generation
Performance Incentive Proposal — On January 17, 2014, ISO-NE filed at FERC to fundamentally revamp its forward capacity market, or FCM, by making a resource’s forward capacity market compensation dependent on resource output during short intervals of operating reserve scarcity. The ISO-NE proposal would replace the existing shortage event penalty structure with a new performance incentive, or PI, mechanism, resulting in capacity payments to resources that would be the combination of two components: (1) a base capacity payment and (2) a performance payment or charge. The performance payment or charge would be entirely dependent upon the resource’s delivery of energy or operating reserves during scarcity conditions, and could be larger than the base payment.
NEPOOL, the ISO-NE stakeholder group, filed an alternative proposal to ISO-NE’s PI proposal at FERC, under which the market rules would be revised to maintain the FCM capacity product as a tool to ensure resource adequacy, and would place real-time performance incentive-related improvements directly into the energy and reserve markets. The Company supports the NEPOOL alternative. The matter is pending at FERC.
Employees
The Company does not employ any of the individuals who manage operations. The personnel that carry out these activities are employees of NRG, and their services are provided for the Company's benefit under the Management Services Agreement with NRG as described in Item 15, Note 14, Related Party Transactions.
Available Information
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through the Company's website, www.nrgyield.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The Company also routinely posts press releases, presentations, webcasts, and other information regarding the Company on its website.

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Item 1A — Risk Factors
Risks Related to the Business
Certain facilities are newly constructed and may not perform as expected.
All of the Company's conventional and renewable assets have achieved commercial operations within the past 5 years. The ability of these facilities to meet the Company's performance expectations is subject to the risks inherent in newly constructed power generation facilities and the construction of such facilities, including, but not limited to, degradation of equipment in excess of the Company's expectations, system failures, and outages. The failure of these facilities to perform as the Company expects could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows and its ability to pay dividends to holders of the Company's Class A common stock.
Pursuant to the Company's cash dividend policy, the Company intends to distribute all or substantially all of the cash available for distribution through regular quarterly distributions and dividends, and the Company's ability to grow and make acquisitions through cash on hand could be limited.
The Company expects to distribute all or substantially all of the cash available for distribution each quarter and to rely primarily upon external financing sources, including the issuance of debt and equity securities and, if applicable, borrowings under the Company's revolving credit facility to fund acquisitions and growth capital expenditures. The Company may be precluded from pursuing otherwise attractive acquisitions if the projected short-term cash flow from the acquisition or investment is not adequate to service the capital raised to fund the acquisition or investment, after giving effect to the Company's available cash reserves. The Company's growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent the Company issues additional equity securities in connection with any acquisitions or growth capital expenditures, the payment of dividends on these additional equity securities may increase the risk that the Company will be unable to maintain or increase its per share dividend. The incurrence of bank borrowings or other debt by NRG Yield Operating LLC or by the Company project-level subsidiaries to finance the Company’s growth strategy will result in increased interest expense and the imposition of additional or more restrictive covenants, which, in turn, may impact the cash distributions the Company receives to distribute to holders of the Company’s Class A common stock.
The Company may not be able to effectively identify or consummate any future acquisitions on favorable terms, or at all.

The Company business strategy includes growth through the acquisitions of additional generation assets (including through corporate acquisitions). This strategy depends on the Company’s ability to successfully identify and evaluate acquisition opportunities and consummate acquisitions on favorable terms. However, the number of acquisition opportunities is limited. In addition, the Company will compete with other companies for these limited acquisition opportunities, which may increase the Company’s cost of making acquisitions or cause the Company to refrain from making acquisitions at all. Some of the Company’s competitors for acquisitions are much larger than the Company with substantially greater resources. These companies may be able to pay more for acquisitions and may be able to identify, evaluate, bid for and purchase a greater number of assets than the Company’s financial or human resources permit. If the Company is unable to identify and consummate future acquisitions, it will impede the Company’s ability to execute its growth strategy and limit the Company’s ability to increase the amount of dividends paid to holders of the Company’s Class A common stock.

Furthermore, the Company’s ability to acquire future renewable facilities may depend on the viability of renewable assets generally. These assets currently are largely contingent on public policy mechanisms including ITCs, cash grants, loan guarantees, accelerated depreciation, RPS and carbon trading plans. These mechanisms have been implemented at the state and federal levels to support the development of renewable generation, demand-side and smart grid and other clean infrastructure technologies. The availability and continuation of public policy support mechanisms will drive a significant part of the economics and viability of the Company’s growth strategy and expansion into clean energy investments.


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The Company’s ability to effectively consummate future acquisitions will also depend on the Company’s ability to arrange the required or desired financing for acquisitions.

The Company may not have sufficient availability under the Company’s credit facilities or have access to project-level financing on commercially reasonable terms when acquisition opportunities arise. An inability to obtain the required or desired financing could significantly limit the Company’s ability to consummate future acquisitions and effectuate the Company’s growth strategy. If financing is available, utilization of the Company’s credit facilities or project-level financing for all or a portion of the purchase price of an acquisition could significantly increase the Company’s interest expense, impose additional or more restrictive covenants and reduce cash available for distribution. Similarly, the issuance of additional equity securities as consideration for acquisitions could cause significant stockholder dilution and reduce the Company’s per share cash available for distribution if the acquisitions are not sufficiently accretive. The Company’s ability to consummate future acquisitions may also depend on the Company’s ability to obtain any required regulatory approvals for such acquisitions, including, but not limited to, approval by the U.S. FERC under Section 203 of the FPA.

Finally, the acquisition of companies and assets are subject to substantial risks, including the failure to identify material problems during due diligence (for which the Company may not be indemnified post-closing), the risk of over-paying for assets (or not making acquisitions on an accretive basis) and the ability to retain customers. Further, the integration and consolidation of acquisitions requires substantial human, financial and other resources and, ultimately, the Company acquisitions may divert management’s attention from the Company existing business concerns, disrupt the Company ongoing business or not be successfully integrated. There can be no assurances that any future acquisitions will perform as expected or that the returns from such acquisitions will support the financing utilized to acquire them or maintain them. As a result, the consummation of acquisitions may have a material adverse effect on the Company business, financial condition, results of operations and cash flows and ability to pay dividends to holders of the Company’s Class A common stock.

The Company’s indebtedness could adversely affect its ability to raise additional capital to fund the Company’s operations or pay dividends. It could also expose the Company to the risk of increased interest rates and limit the Company’s ability to react to changes in the economy or the Company’s industry as well as impact the Company’s cash available for distribution.

As of December 31, 2013, the Company had approximately $1,133 million of total consolidated indebtedness, all of which was incurred by the Company's non-guarantor subsidiaries. In addition, the Company’s share of its unconsolidated affiliates’ total indebtedness and letters of credit outstanding as of December 31, 2013 totaled approximately $715 million and $25 million, respectively (calculated as the Company’s unconsolidated affiliates’ total indebtedness as of such date multiplied by the Company’s percentage membership interest in such assets). On July 22, 2013, the Company entered into a $60 million revolving credit facility. In addition, the Company had $90 million of letters of credit outstanding to support contracted obligations at the Company’s project-level entities. All of the Company’s existing indebtedness is incurred at the project level. In February 2014, the Company closed on its offering of $300 million aggregate principal amount of 3.50% Convertible Senior Notes (Notes) due 2019. Additionally, the initial purchasers exercised their option to purchase an additional $45 million in aggregate principal amount of the NRG Yield Senior Notes.  The Notes are convertible, under certain circumstances, into the Company’s common stock, cash or a combination thereof at an initial conversion price of $46.55 per Class A common share, which is equivalent to an initial conversion rate of approximately 21.4822 shares of Class A common stock per $1,000 principal amount of Notes. The Company’s substantial debt could have important negative consequences on the Company’s financial condition, including:

increasing the Company’s vulnerability to general economic and industry conditions;
requiring a substantial portion of the Company’s cash flow from operations to be dedicated to the payment of principal and interest on the Company’s indebtedness, therefore reducing the Company’s ability to pay dividends to holders of the Company’s Class A common stock or to use the Company’s cash flow to fund its operations, capital expenditures and future business opportunities;
limiting the Company’s ability to enter into long-term power sales or fuel purchases which require credit support;
limiting the Company’s ability to fund operations or future acquisitions;
restricting the Company’s ability to make certain distributions with respect to the Company’s Class A common stock and the ability of the Company’s subsidiaries to make certain distributions to it, in light of restricted payment and other financial covenants in the Company’s credit facilities and other financing agreements;
exposing the Company to the risk of increased interest rates because certain of the Company’s borrowings, which may include borrowings under the Company’s revolving credit facility, are at variable rates of interest;
limiting the Company’s ability to obtain additional financing for working capital including collateral postings, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and
limiting the Company’s ability to adjust to changing market conditions and placing it at a competitive disadvantage compared to the Company’s competitors who have less debt.


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The Company revolving credit facility contains financial and other restrictive covenants that limit the Company’s ability to return capital to stockholders or otherwise engage in activities that may be in the Company’s long-term best interests. The Company’s inability to satisfy certain financial covenants could prevent the Company from paying cash dividends, and the Company’s failure to comply with those and other covenants could result in an event of default which, if not cured or waived, may entitle the related lenders to demand repayment or enforce their security interests, which could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. In addition, failure to comply with such covenants may entitle the related lenders to demand repayment and accelerate all such indebtedness.

The agreements governing the Company’s project-level financing contain financial and other restrictive covenants that limit the Company’s project subsidiaries’ ability to make distributions to it or otherwise engage in activities that may be in the Company’s long-term best interests. The project-level financing agreements generally prohibit distributions from the project entities to the Company unless certain specific conditions are met, including the satisfaction of certain financial ratios. The Company’s inability to satisfy certain financial covenants may prevent cash distributions by the particular project(s) to it and, the Company’s failure to comply with those and other covenants could result in an event of default which, if not cured or waived may entitle the related lenders to demand repayment or enforce their security interests, which could have a material adverse effect on the Company’s business, results of operations and financial condition. In addition, failure to comply with such covenants may entitle the related lenders to demand repayment and accelerate all such indebtedness. If the Company is unable to make distributions from the Company’s project-level subsidiaries, it would likely have a material adverse effect on the Company’s ability to pay dividends to holders of the Company’s Class A common stock.

Letter of credit facilities to support project-level contractual obligations generally need to be renewed after five to seven years, at which time the Company will need to satisfy applicable financial ratios and covenants. If the Company is unable to renew the Company’s letters of credit as expected or replace them with letters of credit under different facilities on favorable terms or at all, the Company may experience a material adverse effect on its business, financial condition or results of operations and cash flows. Furthermore, such inability may constitute a default under certain project-level financing arrangements, restrict the ability of the project-level subsidiary to make distributions to it and/or reduce the amount of cash available at such subsidiary to make distributions to the Company.

In addition, the Company’s ability to arrange financing, either at the corporate level or at a non-recourse project-level subsidiary, and the costs of such capital, are dependent on numerous factors, including:
general economic and capital market conditions;
credit availability from banks and other financial institutions;
investor confidence in the Company, its partners, NRG, as the Company’s principal stockholder (on a combined voting basis) and manager under the Management Services Agreement, and the regional wholesale power markets;
the Company’s financial performance and the financial performance of the Company subsidiaries;
the Company’s level of indebtedness and compliance with covenants in debt agreements;
maintenance of acceptable project credit ratings or credit quality;
cash flow; and
provisions of tax and securities laws that may impact raising capital.
The Company may not be successful in obtaining additional capital for these or other reasons. Furthermore, the Company may be unable to refinance or replace project-level financing arrangements or other credit facilities on favorable terms or at all upon the expiration or termination thereof. The Company failure, or the failure of any of the Company’s projects, to obtain additional capital or enter into new or replacement financing arrangements when due may constitute a default under such existing indebtedness and may have a material adverse effect on the Company business, financial condition, results of operations and cash flows.
The Company's long-term contracts may be challenged or declared invalid by a court of competent jurisdiction.
A significant portion of the Company's revenues are derived from long-term bilateral contracts. Those contracts may be subject to challenge under a variety of legal doctrines. If those contracts were to be declared invalid, profitability may suffer and the Company would be exposed to merchant market risk.

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The generation of electric energy from solar and wind energy sources depends heavily on suitable meteorological conditions.
If solar or wind conditions are unfavorable, the Company's electricity generation and revenue from renewable generation facilities may be substantially below the Company's expectations. The electricity produced and revenues generated by a solar electric or wind energy generation facility is highly dependent on suitable solar or wind conditions, as applicable, and associated weather conditions, which are beyond the Company's control. Furthermore, components of the Company's systems, such as solar panels and inverters, could be damaged by severe weather, such as hailstorms or tornadoes. In addition, replacement and spare parts for key components may be difficult or costly to acquire or may be unavailable. Unfavorable weather and atmospheric conditions could impair the effectiveness of the Company's assets or reduce their output beneath their rated capacity or require shutdown of key equipment, impeding operation of the Company's renewable assets.
The Company bases its investment decisions with respect to each renewable generation facility on the findings of related wind and solar studies conducted on-site prior to construction or based on historical conditions at existing facilities. However, actual climatic conditions at a facility site, particularly wind conditions, may not conform to the findings of these studies and therefore, the Company's solar and wind energy facilities may not meet anticipated production levels or the rated capacity of the Company's generation assets, which could adversely affect the business, financial condition and results of operations and cash flows.
Operation of electric generation facilities involves significant risks and hazards customary to the power industry that could have a material adverse effect on the business, financial condition, results of operations and cash flows.
The ongoing operation of the Company's facilities involves risks that include the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among other things. Operation of the Company's facilities also involves risks that the Company will be unable to transport its product to its customers in an efficient manner due to a lack of transmission capacity. Unplanned outages of generating units, including extensions of scheduled outages due to mechanical failures or other problems, occur from time to time and are an inherent risk of the business. Unplanned outages typically increase operation and maintenance expenses and may reduce revenues as a result of selling fewer MWh or require the Company to incur significant costs as a result of obtaining replacement power from third parties in the open market to satisfy forward power sales obligations. The Company's inability to operate its electric generation assets efficiently, manage capital expenditures and costs and generate earnings and cash flow from the Company's asset-based businesses could have a material adverse effect on the business, financial condition, results of operations and cash flows. While the Company maintains insurance, obtains warranties from vendors and obligates contractors to meet certain performance levels, the proceeds of such insurance, warranties or performance guarantees may not cover the Company's lost revenues, increased expenses or liquidated damages payments should it experience equipment breakdown or non-performance by contractors or vendors.
Power generation involves hazardous activities, including acquiring, transporting and unloading fuel, operating large pieces of rotating equipment and delivering electricity to transmission and distribution systems.
In addition to natural risks such as earthquake, flood, lightning, hurricane and wind, other hazards, such as fire, explosion, structural collapse and machinery failure are inherent risks in the Company's operations. These and other hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment and contamination of, or damage to, the environment and suspension of operations. The occurrence of any one of these events may result in the Company being named as a defendant in lawsuits asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties. The Company maintains an amount of insurance protection that it considers adequate but cannot provide any assurance that the Company's insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which the Company may be subject. Furthermore, the Company's insurance coverage is subject to deductibles, caps, exclusions and other limitations. A loss for which the Company is not fully insured (which may include a significant judgment against any facility or facility operator) could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. Further, due to rising insurance costs and changes in the insurance markets, the Company cannot provide any assurance that its insurance coverage will continue to be available at all or at rates or on terms similar to those presently available. Any losses not covered by insurance could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.

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Maintenance, expansion and refurbishment of electric generation facilities involve significant risks that could result in unplanned power outages or reduced output.
The Company's facilities may require periodic upgrading and improvement. Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, could reduce the Company's facilities' generating capacity below expected levels, reducing the Company's revenues and jeopardizing the Company's ability to pay dividends to holders of its Class A common stock at forecasted levels or at all. Degradation of the performance of the Company's solar facilities above levels provided for in the related offtake agreements may also reduce the Company's revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing the Company's facilities may also reduce profitability.
If the Company makes any major modifications to its conventional power generation facilities, it may be required to install the best available control technology or to achieve the lowest achievable emission rates as such terms are defined under the new source review provisions of the federal Clean Air Act in the future. Any such modifications could likely result in substantial additional capital expenditures. The Company may also choose to repower, refurbish or upgrade its facilities based on its assessment that such activity will provide adequate financial returns. Such facilities require time for development and capital expenditures before commencement of commercial operations, and key assumptions underpinning a decision to make such an investment may prove incorrect, including assumptions regarding construction costs, timing, available financing and future fuel and power prices. This could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.
Counterparties to the Company's offtake agreements may not fulfill their obligations and, as the contracts expire, the Company may not be able to replace them with agreements on similar terms in light of increasing competition in the markets in which the Company operates.
A significant portion of the electric power the Company generates is sold under long-term offtake agreements with public utilities or industrial or commercial end-users, with a weighted average remaining duration of approximately 16 years (based on net capacity under contract). As of December 31, 2013, the largest customers of the Company's power generation assets, including assets in which the Company has less than a 100% membership interest, were PG&E, CL&P and American Electric Power, which represented 70%, 14% and 8% respectively, of the net electric generation capacity of the Company's facilities.
If, for any reason, any of the purchasers of power under these agreements are unable or unwilling to fulfill their related contractual obligations or if they refuse to accept delivery of power delivered thereunder or if they otherwise terminate such agreements prior to the expiration thereof, the Company's assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected. Furthermore, to the extent any of the Company's power purchasers are, or are controlled by, governmental entities, the Company's facilities may be subject to legislative or other political action that may impair their contractual performance.
The power generation industry is characterized by intense competition and the Company's electric generation assets encounter competition from utilities, industrial companies and other independent power producers, in particular with respect to uncontracted output. In recent years, there has been increasing competition among generators for offtake agreements and this has contributed to a reduction in electricity prices in certain markets characterized by excess supply above designated reserve margins. In light of these market conditions, the Company may not be able to replace an expiring or terminated agreement with an agreement on equivalent terms and conditions, including at prices that permit operation of the related facility on a profitable basis. In addition, the Company believes many of its competitors have well-established relationships with the Company's current and potential suppliers, lenders, customers and have extensive knowledge of its target markets. As a result, these competitors may be able to respond more quickly to evolving industry standards and changing customer requirements than the Company will be able to. Adoption of technology more advanced than the Company's could reduce its competitors' power production costs resulting in their having a lower cost structure than is achievable with the technologies currently employed by the Company and adversely affect its ability to compete for offtake agreement renewals. If the Company is unable to replace an expiring or terminated offtake agreement, the affected facility may temporarily or permanently cease operations. External events, such as a severe economic downturn, could also impair the ability of some counterparties to the Company's offtake agreements and other customer agreements to pay for energy and/or other products and services received.
The Company's inability to enter into new or replacement offtake agreements or to compete successfully against current and future competitors in the markets in which the Company operates could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.

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Certain of the Company thermal generation assets operate, wholly or partially, without long-term power sale agreements.
The Company’s Dover and Paxton thermal generation assets have 116 net MW of generation capacity that have been sold through May 2017 in the annual Base Residual Auction, or BRA, under the PJM-administered RPM. Capacity revenue beginning in June 2017 is not yet determined. These facilities do not have offtake agreements for energy sales and sell energy through NRG Power Marketing, an NRG affiliate, into the bid-based auction market for energy administered by PJM based on economic dispatch of their units. If the Company is unable to sell available capacity from those facilities beginning in June 2017 through the BRA or one of the other RPM capacity auctions or is unable to enter into a offtake agreement or otherwise sell unallocated or unsold capacity at favorable terms, there may be a material adverse effect on the Company's business, financial condition, results of operations and cash flows.

A portion of the steam and chilled water produced by the Company's thermal assets is sold at regulated rates, and the revenue earned by the Company's GenConn assets is established each year in a rate case; accordingly, the profitability of these assets is dependent on regulatory approval.
Approximately 395 net MWt of capacity from certain of the Company's thermal assets are sold at rates approved by one or more federal or state regulatory commissions, including the Pennsylvania Public Utility Commission and the California Public Utilities Commission for the thermal assets. Similarly, the revenues related to approximately 380 MW of capacity from the GenConn assets are established each year by the Connecticut Public Utilities Regulatory Authority. While such regulatory oversight is generally premised on the recovery of prudently incurred costs and a reasonable rate of return on invested capital, the rates that the Company may charge, or the revenue that the Company may earn with respect to this capacity are subject to authorization of the applicable regulatory authorities. There can be no assurance that such regulatory authorities will consider all of the costs to have been prudently incurred or that the regulatory process by which rates or revenues are determined will always result in rates or revenues that achieve full recovery of costs or an adequate return on the Company's capital investments. While the Company's rates and revenues are generally established based on an analysis of costs incurred in a base year, the rates the Company is allowed to charge, and the revenues the Company is authorized to earn, may or may not match the costs at any given time. If the Company's costs are not adequately recovered through these regulatory processes, it could have a material adverse effect on the business, financial condition, results of operations and cash flows.
Supplier concentration at certain of the Company's facilities may expose the Company to significant financial credit or performance risks.
The Company often relies on a single contracted supplier or a small number of suppliers for the provision of fuel, transportation of fuel, equipment, technology and/or other services required for the operation of certain facilities. In addition, certain of the Company's suppliers provide long-term warranties with respect to the performance of their products or services. If any of these suppliers cannot perform under their agreements with the Company, or satisfy their related warranty obligations, the Company will need to utilize the marketplace to provide or repair these products and services. There can be no assurance that the marketplace can provide these products and services as, when and where required. The Company may not be able to enter into replacement agreements on favorable terms or at all. If the Company is unable to enter into replacement agreements to provide for fuel, equipment, technology and other required services, it would seek to purchase the related goods or services at market prices, exposing the Company to market price volatility and the risk that fuel and transportation may not be available during certain periods at any price. The Company may also be required to make significant capital contributions to remove, replace or redesign equipment that cannot be supported or maintained by replacement suppliers, which could have a material adverse effect on the business, financial condition, results of operations, credit support terms and cash flows.
In addition, potential or existing customers at the Company’s district energy centers and combined heat and power plants, or the Energy Centers, may opt for on-site systems in lieu of using the Company’s Energy Centers, either due to corporate policies regarding the allocation of capital, unique situations where an on-site system might in fact prove more efficient, because of previously committed capital in systems that are already on-site, or otherwise.
The failure of any supplier to fulfill its contractual obligations to the Company or the Company’s loss of potential or existing customers could have a material adverse effect on its financial results. Consequently, the financial performance of the Company's facilities is dependent on the credit quality of, and continued performance by, the Company's suppliers and vendors and the Company’s ability to solicit and retain customers.

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The Company currently owns, and in the future may acquire, certain assets in which the Company has limited control over management decisions and its interests in such assets may be subject to transfer or other related restrictions.
The Company has limited control over the operation of GenConn, Avenal and CVSR because the Company beneficially owns 49.95%, 49.95% and 48.95%, respectively, of the membership interests in such assets. The Company may seek to acquire additional assets in which it owns less than a majority of the related membership interests in the future. In these investments, the Company will seek to exert a degree of influence with respect to the management and operation of assets in which it owns less than a majority of the membership interests by negotiating to obtain positions on management committees or to receive certain limited governance rights, such as rights to veto significant actions. However, the Company may not always succeed in such negotiations. The Company may be dependent on its co-venturers to operate such assets. The Company's co-venturers may not have the level of experience, technical expertise, human resources management and other attributes necessary to operate these assets optimally. In addition, conflicts of interest may arise in the future between the Company and its stockholders, on the one hand, and the Company's co-venturers, on the other hand, where the Company's co-venturers' business interests are inconsistent with the interests of the Company and its stockholders. Further, disagreements or disputes between the Company and its co-venturers could result in litigation, which could increase expenses and potentially limit the time and effort the Company's officers and directors are able to devote to the business.
The approval of co-venturers also may be required for the Company to receive distributions of funds from assets or to sell, pledge, transfer, assign or otherwise convey its interest in such assets, or for the Company to acquire NRG's interests in such co-ventures as an initial matter. Alternatively, the Company's co-venturers may have rights of first refusal or rights of first offer in the event of a proposed sale or transfer of the Company's interests in such assets. These restrictions may limit the price or interest level for interests in such assets, in the event the Company wants to sell such interests.
Furthermore, certain of the Company's facilities, including Alpine, Avra Valley, Blythe and Roadrunner, are operated by third-party operators, such as First Solar. To the extent that third-party operators do not fulfill their obligations to manage operations of the facilities or are not effective in doing so, the amount of cash available for distribution may be adversely affected.
The Company's assets are exposed to risks inherent in the use of interest rate swaps and forward fuel purchase contracts and the Company may be exposed to additional risks in the future if it utilizes other derivative instruments.
The Company uses interest rate swaps to manage interest rate risk. In addition, the Company uses forward fuel purchase contracts to hedge its limited commodity exposure with respect to the Company's district energy assets. If the Company elects to enter into such commodity hedges, the related asset could recognize financial losses on these arrangements as a result of volatility in the market values of the underlying commodities or if a counterparty fails to perform under a contract. If actively quoted market prices and pricing information from external sources are not available, the valuation of these contracts would involve judgment or the use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts. If the values of these financial contracts change in a manner that the Company does not anticipate, or if a counterparty fails to perform under a contract, it could harm the business, financial condition, results of operations and cash flows.
The Company's business is subject to restrictions resulting from environmental, health and safety laws and regulations.
The Company is subject to various federal, state and local environmental and health and safety laws and regulations. In addition, the Company may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of any property where there has been a release or threatened release of a hazardous regulated material as well as other affected properties, regardless of whether the Company knew of or caused the release. In addition to these costs, which are typically not limited by law or regulation and could exceed an affected property's value, the Company could be liable for certain other costs, including governmental fines and injuries to persons, property or natural resources. Further, some environmental laws provide for the creation of a lien on a contaminated site in favor of the government as security for damages and any costs the government incurs in connection with such contamination and associated clean-up. Although the Company generally requires its operators to undertake to indemnify it for environmental liabilities they cause, the amount of such liabilities could exceed the financial ability of the operator to indemnify the Company. The presence of contamination or the failure to remediate contamination may adversely affect the Company's ability to operate the business.

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The Company does not own all of the land on which its power generation or thermal assets are located, which could result in disruption to its operations.
The Company does not own all of the land on which its power generation or thermal assets are located and the Company is, therefore, subject to the possibility of less desirable terms and increased costs to retain necessary land use if it does not have valid leases or rights-of-way or if such rights-of-way lapse or terminate. Although the Company has obtained rights to construct and operate these assets pursuant to related lease arrangements, the rights to conduct those activities are subject to certain exceptions, including the term of the lease arrangement. The loss of these rights, through the Company's inability to renew right-of-way contracts or otherwise, may adversely affect the Company's ability to operate its generation and thermal infrastructure assets.
The electric generation business is subject to substantial governmental regulation and may be adversely affected by changes in laws or regulations, as well as liability under, or any future inability to comply with, existing or future regulations or other legal requirements.
The Company's electric generation business is subject to extensive U.S. federal, state and local laws and regulation. Compliance with the requirements under these various regulatory regimes may cause the Company to incur significant additional costs, and failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines, and/or civil or criminal liability. Public utilities under the FPA are required to obtain FERC acceptance of their rate schedules for wholesale sales of electric energy, capacity and ancillary services. Except for generating facilities within the footprint of ERCOT which are regulated by the PUCT, all of the Company’s assets make wholesale sales of electric energy, capacity and ancillary services in interstate commerce and are public utilities for purposes of the FPA, unless otherwise exempt from such status. The FERC's orders that grant such wholesale sellers market-based rate authority reserve the right to revoke or revise that authority if the FERC subsequently determines that the seller can exercise market power in transmission or generation, create barriers to entry, or engage in abusive affiliate transactions. In addition, public utilities are subject to FERC reporting requirements that impose administrative burdens and that, if violated, can expose the company to criminal and civil penalties or other risks.
The Company's market-based sales will be subject to certain market behavior rules, and if any of the Company's generating companies are deemed to have violated those rules, they will be subject to potential disgorgement of profits associated with the violation, penalties, suspension or revocation of market based rate authority. If such generating companies were to lose their market-based rate authority, such companies would be required to obtain the FERC's acceptance of a cost-of-service rate schedule and could become subject to the significant accounting, record-keeping, and reporting requirements that are imposed on utilities with cost- based rate schedules. This could have a material adverse effect on the rates the Company is able to charge for power from its facilities.
Most of the Company's assets are operating as Exempt Wholesale Generators as defined under the PUHCA, or Qualifying Facilities as defined under the PURPA, as amended, and therefore are exempt from certain regulation under PUHCA. If a facility fails to maintain its status as an Exempt Wholesale Generator or a Qualifying Facility or there are legislative or regulatory changes revoking or limiting the exemptions to PUHCA, then the Company may be subject to significant accounting, record-keeping, access to books and records and reporting requirements and failure to comply with such requirements could result in the imposition of penalties and additional compliance obligations.
Substantially all of the Company's generation assets are also subject to the reliability standards of the NERC. If the Company fails to comply with the mandatory reliability standards, it could be subject to sanctions, including substantial monetary penalties and increased compliance obligations. The Company will also be affected by legislative and regulatory changes, as well as changes to market design, market rules, tariffs, cost allocations, and bidding rules that occur in the existing regional markets operated by RTOs or ISOs, such as PJM. The RTOs/ISOs that oversee most of the wholesale power markets impose, and in the future may continue to impose, mitigation, including price limitations, offer caps, and other mechanisms to address some of the volatility and the potential exercise of market power in these markets. These types of price limitations and other regulatory mechanisms may have a material adverse effect on the profitability of the Company's generation facilities acquired in the future that sell energy, capacity and ancillary products into the wholesale power markets. The regulatory environment for electric generation has undergone significant changes in the last several years due to state and federal policies affecting wholesale competition and the creation of incentives for the addition of large amounts of new renewable generation and, in some cases, transmission assets. These changes are ongoing and the Company cannot predict the future design of the wholesale power markets or the ultimate effect that the changing regulatory environment will have on the Company's business. In addition, in some of these markets, interested parties have proposed material market re-regulate the markets or require divestiture of electric generation assets by asset owners or operators to reduce their market share. Other proposals to re-regulate may be made and legislative or other attention to the electric power market restructuring process may delay or reverse the deregulation process. If competitive restructuring of the electric power markets is reversed, discontinued, or delayed, the Company's business prospects and financial results could be negatively impacted.

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The Company is subject to environmental laws and regulations that impose extensive and increasingly stringent requirements on its operations, as well as potentially substantial liabilities arising out of environmental contamination.
The Company's assets are subject to numerous and significant federal, state and local laws, including statutes, regulations, guidelines, policies, directives and other requirements governing or relating to, among other things: protection of wildlife, including threatened and endangered species; air emissions; discharges into water; water use; the storage, handling, use, transportation and distribution of dangerous goods and hazardous, residual and other regulated materials, such as chemicals; the prevention of releases of hazardous materials into the environment; the prevention, presence and remediation of hazardous materials in soil and groundwater, both on and offsite; land use and zoning matters; and workers' health and safety matters. The Company's facilities could experience incidents, malfunctions and other unplanned events that could result in spills or emissions in excess of permitted levels and result in personal injury, penalties and property damage. As such, the operation of the Company's facilities carries an inherent risk of environmental, health and safety liabilities (including potential civil actions, compliance or remediation orders, fines and other penalties), and may result in the assets being involved from time to time in administrative and judicial proceedings relating to such matters. The Company has implemented environmental, health and safety management programs designed to continually improve environmental, health and safety performance. Environmental laws and regulations have generally become more stringent over time, and the Company expects this trend to continue. Significant costs may be incurred for capital expenditures under environmental programs to keep the assets compliant with such environmental laws and regulations. If it is not economical to make those expenditures, it may be necessary to retire or mothball facilities or restrict or modify the Company's operations to comply with more stringent standards. These environmental requirements and liabilities could have a material adverse effect on the business, financial condition, results of operations and cash flows.
Risks that are beyond the Company's control, including but not limited to acts of terrorism or related acts of war, natural disaster, hostile cyber intrusions or other catastrophic events, could have a material adverse effect on the business, financial condition, results of operations and cash flows.
The Company's generation facilities that were acquired or those that the Company otherwise acquires or constructs and the facilities of third parties on which they rely may be targets of terrorist activities, as well as events occurring in response to or in connection with them, that could cause environmental repercussions and/or result in full or partial disruption of the facilities ability to generate, transmit, transport or distribute electricity or natural gas. Strategic targets, such as energy-related facilities, may be at greater risk of future terrorist activities than other domestic targets. Hostile cyber intrusions, including those targeting information systems as well as electronic control systems used at the generating plants and for the related distribution systems, could severely disrupt business operations and result in loss of service to customers, as well as create significant expense to repair security breaches or system damage.
Furthermore, certain of the Company's power generation thermal assets are located in active earthquake zones in California and Arizona, and certain project companies and suppliers conduct their operations in the same region or in other locations that are susceptible to natural disasters. In addition, California and some of the locations where certain suppliers are located, from time to time, have experienced shortages of water, electric power and natural gas. The occurrence of a natural disaster, such as an earthquake, drought, flood or localized extended outages of critical utilities or transportation systems, or any critical resource shortages, affecting the Company or its suppliers, could cause a significant interruption in the business, damage or destroy the Company's facilities or those of its suppliers or the manufacturing equipment or inventory of the Company's suppliers. Any such terrorist acts, environmental repercussions or disruptions or natural disasters could result in a significant decrease in revenues or significant reconstruction or remediation costs, beyond what could be recovered through insurance policies, which could have a material adverse effect on the business, financial condition, results of operations and cash flows.
Government regulations providing incentives for renewable generation could change at any time and such changes may negatively impact the Company's growth strategy.
The Company's growth strategy depends in part on government policies that support renewable generation and enhance the economic viability of owning renewable electric generation assets. Renewable generation assets currently benefit from various federal, state and local governmental incentives such as ITCs, cash grants in lieu of ITCs, loan guarantees, RPS, programs, modified accelerated cost-recovery system of depreciation and bonus depreciation. For example, the U.S. Internal Revenue Code of 1986, as amended, provides an ITC of 30% of the cost-basis of an eligible resource, including solar energy facilities placed in service prior to the end of 2016, which percentage is currently scheduled to be reduced to 10% for solar energy systems placed in service after December 31, 2016.

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Many states have adopted RPS programs mandating that a specified percentage of electricity sales come from eligible sources of renewable energy. However, the regulations that govern the RPS programs, including pricing incentives for renewable energy, or reasonableness guidelines for pricing that increase valuation compared to conventional power (such as a projected value for carbon reduction or consideration of avoided integration costs), may change. If the RPS requirements are reduced or eliminated, it could lead to fewer future power contracts or lead to lower prices for the sale of power in future power contracts, which could have a material adverse effect on the Company's future growth prospects.
Such material adverse effects may result from decreased revenues, reduced economic returns on certain project company investments, increased financing costs, and/or difficulty obtaining financing. Furthermore, the ARRA included incentives to encourage investment in the renewable energy sector, such as cash grants in lieu of ITCs, bonus depreciation and expansion of the U.S. DOE loan guarantee program. It is uncertain what loan guarantees may be made by the U.S. DOE loan guarantee program in the future. In addition, the cash grant in lieu of ITCs program only applies to facilities that commenced construction prior to December 31, 2011, which commencement date may be determined in accordance with the safe harbor if more than 5% of the total cost of the eligible property was paid or incurred by December 31, 2011.
If the Company is unable to utilize various federal, state and local government incentives to acquire additional renewable assets in the future, or the terms of such incentives are revised in a manner that is less favorable to the Company, it may suffer a material adverse effect on the business, financial condition, results of operations and cash flows.
A significant reduction or elimination of government subsidies under the 1603 Cash Grant Program may have a material adverse effect on the Company's existing operations and may reduce the Company's cash available for distribution. The ARRA section 1603 Cash Grant Program provides a cash payment from the federal government in lieu of ITCs for eligible renewable generation sources for which construction commenced prior to December 31, 2011, which commencement date may be determined in accordance with the 5% safe harbor. The amount of the 1603 Cash Grant Proceeds received is based on an application filed with the U.S. Treasury Department after a facility has reached COD. The applications are reviewed by, and are subject to approval by, the U.S. Treasury Department. In addition, the U.S. Treasury Department has said that it may reduce the amount of an applicant's cash grant award in cases where project costs exceed certain per watt cost benchmarks or in cases where project costs exceed certain percentage thresholds. The amount of 1603 Cash Grant Proceeds that the Company actually receives may differ materially from the amount expected and/or may be received at a later time than expected. On March 1, 2013, the federal sequestration went into effect, and, as a result, 1603 Cash Grant Proceeds for approved applications through September 30, 2013 were subject to an 8.7% reduction and approved applications after September 30, 2013 were subject to a 7.2% reduction.
The Company has submitted applications for and has received the related 1603 Cash Grant Proceeds for Alpine, Blythe, CVSR, South Trent, Roadrunner, Avra Valley and certain Distributed Solar assets. In addition, NRG has submitted an application for cash grants for Borrego of $39 million. The amount receivable by the Company was reduced to $36 million as a result of sequestration.
If the Company does not receive the expected 1603 Cash Grant Proceeds for Borrego, the related financing will have to be repaid by other means before distributions from Borrego are available to be part of the quarterly dividend to holders of the Company's Class A common stock. If the Company does not receive the expected 1603 Cash Grant Proceeds, or if such proceeds are materially reduced, its financial position could be materially adversely affected. Additionally, reductions in or eliminations or expirations of, the 1603 Cash Grant Program or the U.S. Treasury Department's rejection of the Company's application for cash grants could also have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows and may reduce the cash available for distribution.

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The Company relies on electric interconnection and transmission facilities that it does not own or control and that are subject to transmission constraints within a number of the Company's regions. If these facilities fail to provide the Company with adequate transmission capacity, it may be restricted in its ability to deliver electric power to its customers and may either incur additional costs or forego revenues.
The Company depends on electric interconnection and transmission facilities owned and operated by others to deliver the wholesale power it will sell from its electric generation assets to its customers. A failure or delay in the operation or development of these interconnection or transmission facilities or a significant increase in the cost of the development of such facilities could result in lost revenues. Such failures or delays could limit the amount of power the Company's operating facilities deliver or delay the completion of the Company's construction projects. Additionally, such failures, delays or increased costs could have a material adverse effect on the business, financial condition and results of operations. If a region's power transmission infrastructure is inadequate, the Company's recovery of wholesale costs and profits may be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have a sufficient incentive to invest in expansion of transmission infrastructure. The Company also cannot predict whether interconnection and transmission facilities will be expanded in specific markets to accommodate competitive access to those markets. In addition, certain of the Company's operating facilities' generation of electricity may be curtailed without compensation due to transmission limitations or limitations on the electricity grid's ability to accommodate intermittent electricity generating sources, reducing the Company's revenues and impairing its ability to capitalize fully on a particular facility's generating potential. Such curtailments could have a material adverse effect on the business, financial condition, results of operations and cash flows. Furthermore, economic congestion on transmission networks in certain of the markets in which the Company operates may occur and the Company may be deemed responsible for congestion costs. If the Company were liable for such congestion costs, its financial results could be adversely affected.
The Company's costs, results of operations, financial condition and cash flows could be adversely impacted by the disruption of the fuel supplies necessary to generate power at its conventional and thermal power generation facilities.
Delivery of fossil fuels to fuel the Company's conventional and thermal generation facilities is dependent upon the infrastructure (including natural gas pipelines) available to serve each such generation facility as well as upon the continuing financial viability of contractual counterparties. As a result, the Company is subject to the risks of disruptions or curtailments in the production of power at these generation facilities if a counterparty fails to perform or if there is a disruption in the fuel delivery infrastructure.
Risks Related to the Relationship with NRG
NRG is the Company's controlling stockholder and exercises substantial influence over the Company. The Company is highly dependent on NRG.
NRG owns all of the Company's outstanding Class B common stock. Each share of the Company's outstanding Class B common stock is entitled to one vote per share. As a result of its ownership of the Class B common stock, NRG owns 65.5% of the combined voting power of the Company's Class A and Class B common stock as of December 31, 2013. NRG has also expressed its intention to maintain a controlling interest in the Company. As a result of this ownership, NRG has a substantial influence on the Company's affairs and its voting power will constitute a large percentage of any quorum of the Company's stockholders voting on any matter requiring the approval of the Company's stockholders. Such matters include the election of directors, the adoption of amendments to the Company's amended and restated certificate of incorporation and bylaws and approval of mergers or sale of all or substantially all of its assets. This concentration of ownership may also have the effect of delaying or preventing a change in control of the Company or discouraging others from making tender offers for their shares. In addition, NRG will have the right to appoint all of the Company's directors. NRG may cause corporate actions to be taken even if their interests conflict with the interests of the Company's other stockholders (including holders of the Company's Class A common stock).
Furthermore, the Company depends on the management and administration services provided by or under the direction of NRG under the Management Services Agreement. NRG personnel and support staff that provide services to the Company under the Management Services Agreement are not required to, and the Company does not expect that they will, have as their primary responsibility the management and administration of the Company or to act exclusively for the Company and the Management Services Agreement does not require any specific individuals to be provided by NRG. Under the Management Services Agreement, NRG has the discretion to determine which of its employees perform assignments required to be provided to the Company. Any failure to effectively manage the Company's operations or to implement its strategy could have a material adverse effect on the business, financial condition, results of operations and cash flows. The Management Services Agreement will continue in perpetuity, until terminated in accordance with its terms.

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The Company also depends upon NRG for the provision of management and administration services at all of the Company's facilities. Any failure by NRG to perform its requirements under these arrangements or the failure by the Company to identify and contract with replacement service providers, if required, could adversely affect the operation of the Company's facilities and have a material adverse effect on the business, financial condition, results of operations and cash flows.
The Company may not be able to consummate future acquisitions from NRG.
The Company's ability to grow through acquisitions depends, in part, on NRG's ability to identify and present the Company with acquisition opportunities. NRG established the Company to hold and acquire a diversified suite of power generating assets in the United States and its territories. Although NRG has agreed to grant the Company a right of first offer with respect to certain power generation assets that NRG may elect to sell in the future, NRG will be under no obligation to sell the NRG ROFO Assets or to accept any related offer from us. Furthermore, NRG has no obligation to source acquisition opportunities specifically for the Company. In addition, NRG has not agreed to commit any minimum level of dedicated resources for the pursuit of renewable power-related acquisitions. There are a number of factors which could materially and adversely impact the extent to which suitable acquisition opportunities are made available from NRG, including:
the same professionals within NRG's organization that are involved in acquisitions that are suitable for the Company have responsibilities within NRG's broader asset management business, which may include sourcing acquisition opportunities for NRG. Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities for the Company; and
in addition to structural limitations, the question of whether a particular asset is suitable is highly subjective and is dependent on a number of factors including an assessment by NRG relating to the Company's liquidity position at the time, the risk profile of the opportunity and its fit with the balance of the Company's then current operations and other factors. If NRG determines that an opportunity is not suitable for the Company, it may still pursue such opportunity on its own behalf, or on behalf of another NRG affiliate.
In making these determinations, NRG may be influenced by factors that result in a misalignment or conflict of interest.
The departure of some or all of NRG's employees could prevent the Company from achieving its objectives.
The Company depends on the diligence, skill and business contacts of NRG's professionals and the information and opportunities they generate during the normal course of their activities. Furthermore, approximately 58.8% of NRG's employees at the Company generation plants are covered by collective bargaining agreements as of December 31, 2013. The Company's future success will depend on the continued service of these individuals, who are not obligated to remain employed with NRG, or otherwise successfully renegotiate their collective bargaining agreements when such agreements expire or otherwise terminate. NRG has experienced departures of key professionals and personnel in the past and may do so in the future, and the Company cannot predict the impact that any such departures will have on its ability to achieve its objectives. The departure of a significant number of NRG's professionals or a material portion of the NRG employees who work at any of the Company's facilities for any reason, or the failure to appoint qualified or effective successors in the event of such departures, could have a material adverse effect on the Company's ability to achieve its objectives. The Management Services Agreement does not require NRG to maintain the employment of any of its professionals or to cause any particular professional to provide services to the Company or on its behalf.
The Company's organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in the best interests of the Company or the best interests of holders of its Class A common stock and that may have a material adverse effect on the business, financial condition, results of operations and cash flows.
The Company's organizational and ownership structure involves a number of relationships that may give rise to certain conflicts of interest between the Company and holders of its Class A common stock, on the one hand, and NRG, on the other hand. The Company has entered into a Management Services Agreement with NRG. Each of the Company's executive officers are a shared NRG executive and devote his or her time to both the Company and NRG as needed to conduct the respective businesses pursuant to the Management Services Agreement. Although the Company's directors and executive officers owe fiduciary duties to the Company's stockholders, these shared NRG executives have fiduciary and other duties to NRG, which duties may be inconsistent with the Company's best interests and holders of the Company's Class A common stock. In addition, NRG and its representatives, agents and affiliates have access to the Company's confidential information. Although some of these persons are subject to confidentiality obligations pursuant to confidentiality agreements or implied duties of confidence, the Management Services Agreement does not contain general confidentiality provisions.

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Additionally, all of the Company's executive officers continue to have economic interests in NRG and, accordingly, the benefit to NRG from a transaction between the Company and NRG will proportionately inure to their benefit as holders of economic interests in NRG. NRG is a related party under the applicable securities laws governing related party transactions and may have interests which differ from the Company's interests or those of holders of the Class A common stock, including with respect to the types of acquisitions made, the timing and amount of dividends by the Company, the reinvestment of returns generated by the Company's operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers. Any material transaction between the Company and NRG will be subject to the Company's related party transaction policy, which will require prior approval of such transaction by the Company's corporate committees. Those of the Company's executive officers who have economic interests in NRG may be conflicted when advising the Company's corporate committees or otherwise participating in the negotiation or approval of such transactions. These executive officers have significant project- and industry-specific expertise that could prove beneficial to the Company's decision-making process and the absence of such strategic guidance could have a material adverse effect on the corporate committees' ability to evaluate any such transaction. Furthermore, the creation of corporate committees and the Company's related party transaction approval policy may not insulate the Company from derivative claims related to related party transactions and the conflicts of interest described in this risk factor. Regardless of the merits of such claims, the Company may be required to expend significant management time and financial resources in the defense thereof. Additionally, to the extent the Company fails to appropriately deal with any such conflicts, it could negatively impact the Company's reputation and ability to raise additional funds and the willingness of counterparties to do business with the Company, all of which could have a material adverse effect on the business, financial condition, results of operations and cash flows.
The Company may be unable or unwilling to terminate the Management Services Agreement.
The Management Services Agreement provides that the Company may terminate the agreement upon 30 days prior written notice to NRG upon the occurrence of any of the following: (i) NRG defaults in the performance or observance of any material term, condition or covenant contained therein in a manner that results in material harm to the Company and the default continues unremedied for a period of 30 days after written notice thereof is given to NRG; (ii) NRG engages in any act of fraud, misappropriation of funds or embezzlement that results in material harm to the Company; (iii) NRG is grossly negligent in the performance of its duties under the agreement and such negligence results in material harm to the Company; or (iv) upon the happening of certain events relating to the bankruptcy or insolvency of NRG. Furthermore, if the Company requests an amendment to the scope of services provided by NRG under the Management Services Agreement and is not able to agree with NRG as to a change to the service fee resulting from a change in the scope of services within 180 days of the request, the Company will be able terminate the agreement upon 30 days prior notice to NRG. The Company will not be able to terminate the agreement for any other reason, including if NRG experiences a change of control, and the agreement continues in perpetuity, until terminated in accordance with its terms. If NRG's performance does not meet the expectations of investors, and the Company is unable to terminate the Management Services Agreement, the market price of the Class A common stock could suffer.
If NRG terminates the Management Services Agreement or defaults in the performance of its obligations under the agreement the Company may be unable to contract with a substitute service provider on similar terms, or at all.
The Company relies on NRG to provide it with management services under the Management Services Agreement and will not have independent executive or senior management personnel. The Management Services Agreement provides that NRG may terminate the agreement upon 180 days prior written notice of termination to the Company if it defaults in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm and the default continues unremedied for a period of 30 days after written notice of the breach is given. If NRG terminates the Management Services Agreement or defaults in the performance of its obligations under the agreement, the Company may be unable to contract with a substitute service provider on similar terms or at all, and the costs of substituting service providers may be substantial. In addition, in light of NRG's familiarity with the Company's assets, a substitute service provider may not be able to provide the same level of service due to lack of pre-existing synergies. If the Company cannot locate a service provider that is able to provide substantially similar services as NRG does under the Management Services Agreement on similar terms, it would likely have a material adverse effect on the business, financial condition, results of operation and cash flows.

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The liability of NRG is limited under the Company's arrangements with it and the Company has agreed to indemnify NRG against claims that it may face in connection with such arrangements, which may lead it to assume greater risks when making decisions relating to the Company than it otherwise would if acting solely for its own account.
Under the Management Services Agreement, NRG does not assume any responsibility other than to provide or arrange for the provision of the services described in the Management Services Agreement in good faith. In addition, under the Management Services Agreement, the liability of NRG and its affiliates will be limited to the fullest extent permitted by law to conduct involving bad faith, fraud, willful misconduct or gross negligence or, in the case of a criminal matter, action that was known to have been unlawful. In addition, the Company has agreed to indemnify NRG to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred by an indemnified person or threatened in connection with the Company's operations, investments and activities or in respect of or arising from the Management Services Agreement or the services provided by NRG, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in NRG tolerating greater risks when making decisions than otherwise would be the case, including when determining whether to use leverage in connection with acquisitions. The indemnification arrangements to which NRG is a party may also give rise to legal claims for indemnification that are adverse to the Company and holders of its Class A common stock.
Risks Inherent in an Investment in the Company
The Company may not be able to continue paying comparable or growing cash dividends to holders of its Class A common stock in the future.
              The amount of cash available for distribution principally depends upon the amount of cash the Company generates from its operations, which will fluctuate from quarter to quarter based on, among other things:
the level and timing of capital expenditures the Company makes;
the completion of ongoing construction activities on time and on budget;
the level of operating and general and administrative expenses, including reimbursements to NRG for services provided to the Company in accordance with the Management Services Agreement;
seasonal variations in revenues generated by the business;
debt service requirements and other liabilities;
fluctuations in working capital needs;
the Company's ability to borrow funds and access capital markets;
restrictions contained in the Company's debt agreements (including project-level financing and the Company's revolving credit facility); and
other business risks affecting cash levels.
              As a result of all these factors, the Company cannot guarantee that it will have sufficient cash generated from operations to pay a specific level of cash dividends to holders of its Class A common stock. Furthermore, holders of the Company's Class A common stock should be aware that the amount of cash available for distribution depends primarily on cash flow, and is not solely a function of profitability, which is affected by non-cash items. The Company may incur other expenses or liabilities during a period that could significantly reduce or eliminate its cash available for distribution and, in turn, impair its ability to pay dividends to holders of the Company's Class A common stock during the period. Because the Company is a holding company, its ability to pay dividends on the Company's Class A common stock is limited by restrictions on the ability of the Company's subsidiaries to pay dividends or make other distributions to the Company, including restrictions under the terms of the agreements governing project-level financing. The project-level financing agreements generally prohibit distributions from the project entities prior to COD and thereafter prohibit distributions to the Company unless certain specific conditions are met, including the satisfaction of financial ratios. The Company's revolving credit facility will also restrict the Company's ability to declare and pay dividends if an event of default has occurred and is continuing or if the payment of the dividend would result in an event of default.
              NRG Yield LLC's cash available for distribution will likely fluctuate from quarter to quarter, in some cases significantly, due to seasonality. As result, the Company may cause NRG Yield LLC to reduce the amount of cash it distributes to its members in a particular quarter to establish reserves to fund distributions to its members in future periods for which the cash distributions the Company would otherwise receive from NRG Yield LLC would otherwise be insufficient to fund its quarterly dividend. If the Company fails to cause NRG Yield LLC to establish sufficient reserves, the Company may not be able to maintain its quarterly dividend with a respect to a quarter adversely affected by seasonality.
              Finally, dividends to holders of the Company's Class A common stock will be paid at the discretion of the Company's board of directors. The Company's board of directors may decrease the level of or entirely discontinue payment of dividends.

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The Company is a holding company and its only material asset is its interest in NRG Yield LLC, and the Company is accordingly dependent upon distributions from NRG Yield LLC and its subsidiaries to pay dividends and taxes and other expenses.
              The Company is a holding company and has no material assets other than its ownership of membership interests in NRG Yield LLC, a holding company that has no material assets other than its interest in NRG Yield Operating LLC, whose sole material assets are the project companies. None of the Company, NRG Yield LLC or NRG Yield Operating LLC has any independent means of generating revenue. The Company intends to cause NRG Yield Operating LLC's subsidiaries to make distributions to NRG Yield Operating LLC and, in turn, make distributions to NRG Yield LLC, and, in turn, to make distributions to the Company in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by the Company. To the extent that the Company needs funds for a quarterly cash dividend to holders of the Company's Class A common stock or otherwise, and NRG Yield Operating LLC or NRG Yield LLC is restricted from making such distributions under applicable law or regulation or is otherwise unable to provide such funds (including as a result of NRG Yield Operating LLC's operating subsidiaries being unable to make distributions), it could materially adversely affect the Company's liquidity and financial condition and limit the Company's ability to pay dividends to holders of the Company's Class A common stock.
The Company has a limited operating history and as a result there is no assurance the Company can operate on a profitable basis.
              The Company has a limited operating history on which to base an evaluation of its business and prospects. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of operation. The Company cannot assure investors that it will be successful in addressing the risks the Company may encounter, and the Company's failure to do so could have a material adverse effect on its business, financial condition, results of operations and cash flows.
Market interest rates may have an effect on the value of the Company's Class A common stock.
              One of the factors that will influence the price of shares of the Company's Class A common stock will be the effective dividend yield of such shares (i.e., the yield as a percentage of the then market price of the Company's shares) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead investors of shares of the Company's Class A common stock to expect a higher dividend yield and the Company's inability to increase its dividend as a result of an increase in borrowing costs, insufficient cash available for distribution or otherwise, could result in selling pressure on, and a decrease in the market price of the Company's Class A common stock as investors seek alternative investments with higher yield.
If the Company is deemed to be an investment company, the Company may be required to institute burdensome compliance requirements and the Company's activities may be restricted, which may make it difficult for the Company to complete strategic acquisitions or effect combinations.
              If the Company is deemed to be an investment company under the Investment Company Act of 1940, or the Investment Company Act, the Company's business would be subject to applicable restrictions under the Investment Company Act, which could make it impracticable for the Company to continue its business as contemplated.
              The Company believes its company is not an investment company under Section 3(b)(1) of the Investment Company Act because the Company is primarily engaged in a non-investment company business. The Company intends to conduct its operations so that the Company will not be deemed an investment company. However, if the Company were to be deemed an investment company, restrictions imposed by the Investment Company Act, including limitations on the Company's capital structure and the Company's ability to transact with affiliates, could make it impractical for the Company to continue its business as contemplated.
Market volatility may affect the price of the Company's Class A common stock.
              The market price of the Company's Class A common stock may fluctuate significantly in response to a number of factors, most of which the Company cannot predict or control, including general market and economic conditions, disruptions, downgrades, credit events and perceived problems in the credit markets; actual or anticipated variations in its quarterly operating results or dividends; changes in the Company's investments or asset composition; write-downs or perceived credit or liquidity issues affecting the Company's assets; market perception of NRG, the Company's business and the Company's assets; the Company's level of indebtedness and/or adverse market reaction to any indebtedness the Company incur in the future; the Company's ability to raise capital on favorable terms or at all; loss of any major funding source; the termination of the Management Services Agreement or additions or departures of NRG's key personnel; changes in market valuations of similar power generation companies; and speculation in the press or investment community regarding the Company or NRG.

28

                                
                                                                        

              Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. Any broad market fluctuations may adversely affect the trading price of the Company's Class A common stock.
The Company is a "controlled company," controlled by NRG, whose interest in the Company's business may be different from the holders of the Company's Class A common stock.
              As of December 31, 2013, NRG controls 65.5% of the Company's combined voting power and is able to elect all of the Company's board of directors. As a result, the Company is considered a "controlled company" for the purposes of the NYSE listing requirements. As a "controlled company," the Company is permitted to, and the Company may, opt out of the NYSE listing requirements that would require (i) a majority of the members of the Company's board of directors to be independent, (ii) that the Company establish a compensation committee and a nominating and governance committee, each comprised entirely of independent directors, or (iii) that the compensation of the Company's executive officers and nominees for directors are determined or recommended to the Company's board of directors by the independent members of the Company's board of directors. The NYSE listing requirements are intended to ensure that directors who meet the independence standard are free of any conflicting interest that could influence their actions as directors.
Provisions of the Company's charter documents or Delaware law could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to holders of the Company's Class A common stock, and could make it more difficult to change management.
              Provisions of the Company's amended and restated certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control that holders of the Company's Class A common stock may consider favorable, including transactions in which such stockholders might otherwise receive a premium for their shares. This is because these provisions may prevent or frustrate attempts by stockholders to replace or remove members of the Company's management. These provisions include:
a prohibition on stockholder action through written consent;
a requirement that special meetings of stockholders be called upon a resolution approved by a majority of the Company's directors then in office;
advance notice requirements for stockholder proposals and nominations; and
the authority of the board of directors to issue preferred stock with such terms as the board of directors may determine.
              Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person that together with its affiliates owns or within the last three years has owned 15% of voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
              Additionally, the Company's amended and restated certificate of incorporation prohibits any person and any of its associate or affiliate companies in the aggregate, public utility or holding company from acquiring, other than secondary market transactions, an amount of the Company's Class A common stock sufficient to result in a transfer of control without the prior written consent of the Company's board of directors. Any such change of control, in addition to prior approval from the Company's board of directors, would require prior authorization from FERC. Similar restrictions may apply to certain purchasers of the Company's securities which are holding companies regardless of whether the Company's securities are purchased in offerings by the Company or NRG, in open market transactions or otherwise. A purchaser of the Company's securities which is a holding company will need to determine whether a given purchase of the Company's securities may require prior FERC approval.
Investors may experience dilution of ownership interest due to the future issuance of additional shares of the Company's Class A common stock.
              The Company is in a capital intensive business, and may not have sufficient funds to finance the growth of the Company's business, future acquisitions or to support the Company's projected capital expenditures. As a result, the Company may require additional funds from further equity or debt financings, including tax equity financing transactions or sales of preferred shares or convertible debt to complete future acquisitions, expansions and capital expenditures and pay the general and administrative costs of the Company's business. In the future, the Company may issue the Company's previously authorized and unissued securities, resulting in the dilution of the ownership interests of purchasers of the Company's Class A common stock offered hereby. Under the Company's amended and restated certificate of incorporation, the Company is authorized to issue 500,000,000 shares of Class A common stock, 500,000,000 shares of Class B common stock and 10,000,000 shares of preferred stock with preferences and rights as determined by the Company's board of directors. The potential issuance of additional shares of common stock or preferred stock or convertible debt may create downward pressure on the trading price of the Company's Class A common stock.

29

                                
                                                                        

If securities or industry analysts do not publish or cease publishing research or reports about the Company, the Company's business or the Company's market, or if they adversely change their recommendations regarding the Company's Class A common stock adversely, the stock price and trading volume of the Company's Class A common stock could decline.
              The trading market for the Company's Class A common stock is influenced by the research and reports that industry or securities analysts may publish about the Company, the Company's business, the Company's market or the Company's competitors. If any of the analysts who may cover the Company change their recommendation regarding the Company's Class A common stock adversely, or provide more favorable relative recommendations about the Company's competitors, the price of the Company's Class A common stock would likely decline. If any analyst who covers the Company were to cease coverage of the Company or fail to regularly publish reports on the Company, the Company could lose visibility in the financial markets, which in turn could cause the stock price or trading volume of the Company's Class A common stock to decline.
Future sales of the Company's common stock by NRG may cause the price of the Company's Class A common stock to fall.
              The market price of the Company's Class A common stock could decline as a result of sales by NRG of such shares (issuable to NRG upon the exchange of some or all of its NRG Yield LLC Class B units) in the market, or the perception that these sales could occur. The market price of the Company's Class A common stock may also decline as a result of NRG disposing or transferring some or all of the Company's outstanding Class B common stock, which disposals or transfers would reduce NRG's ownership interest in, and voting control over the Company. These sales might also make it more difficult for the Company to sell equity securities at a time and price that the Company deem appropriate.
              NRG and certain of its affiliates have certain demand and piggyback registration rights with respect to shares of the Company's Class A common stock issuable upon the exchange of NRG Yield LLC's Class B units. The presence of additional shares of the Company's Class A common stock trading in the public market, as a result of the exercise of such registration rights may have a material adverse effect on the market price of the Company's securities.
The Company is an "emerging growth company" and may elect to comply with reduced public company reporting requirements, which could make the Company's Class A common stock less attractive to investors.
              The Company currently is an "emerging growth company," as defined by the JOBS Act. For as long as the Company continues to be an emerging growth company, the Company may choose to take advantage of exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in the Company's periodic reports, proxy statements and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. The Company could be an emerging growth company for up to five years after the first sale of the Company's common equity securities pursuant to an effective registration statement under the Securities Act, which such fifth anniversary will occur in July 2017. However, if certain events occur prior to the end of such five-year period, including if the Company becomes a "large accelerated filer," the Company's annual gross revenues exceed $1.0 billion or the Company issues more than $1.0 billion of non-convertible debt in any three-year period, the Company would cease to be an emerging growth company prior to the end of such five-year period. The Company intends to take advantage of certain of the reduced disclosure obligations regarding executive compensation and may elect to take advantage of other reduced burdens in future filings. As a result, the information that the Company provides to holders of the Company's Class A common stock may be different than you might receive from other public reporting companies in which they hold equity interests. The Company cannot predict if investors will find the Company's Class A common stock less attractive as a result of the Company's reliance on these exemptions. If some investors find the Company's Class A common stock less attractive as a result of any choice the Company makes to reduce disclosure, there may be a less active trading market for the Company's Class A common stock and the price for the Company's Class A common stock may be more volatile.
              Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, the Company has irrevocably elected not to avail itself of this extended transition period for complying with new or revised accounting standards and, therefore, the Company will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

30

                                
                                                                        

Risks Related to Taxation
The Company's future tax liability may be greater than expected if the Company does not generate NOLs sufficient to offset taxable income.
              The Company expects to generate NOLs and NOL carryforwards that it can utilize to offset future taxable income. Based on the Company's current portfolio of assets, which include renewable assets that benefit from an accelerated tax depreciation schedule, and subject to potential tax audits, which may result in income, sales, use or other tax obligations, the Company does not expect to pay significant federal income tax for a period of approximately ten years. While the Company expect these losses will be available to the Company as a future benefit, in the event that they are not generated as expected, successfully challenged by the IRS (in a tax audit or otherwise) or subject to future limitations as discussed below, the Company's ability to realize these benefits may be limited. A reduction in the Company's expected NOLs, a limitation on the Company's ability to the use such losses or future tax audits, may result in a material increase in the Company's estimated future income tax liability and may negatively impact the Company's liquidity and financial condition.
The Company's ability to use NOLs to offset future income may be limited.
              The Company's ability to the use NOLs generated in the future could be substantially limited if the Company were to experience an "ownership change" as defined under Section 382 of the Code. In general, an "ownership change" would occur if the Company's "5-percent shareholders," as defined under Section 382 of the Code, collectively increased their ownership in the Company by more than 50 percentage points over a rolling three-year period. A corporation that experiences an ownership change will generally be subject to an annual limitation on the use of its pre-ownership change deferred tax assets equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month in which the ownership change occurs. Future sales of the Company's Class A common stock by NRG, as well as future issuances by the Company, could contribute to a potential ownership change.
A valuation allowance may be required for the Company's deferred tax assets.
              The Company's expected NOLs will be reflected as a deferred tax asset as they are generated until utilized to offset income. Valuation allowances may need to be maintained for deferred tax assets that the Company estimates are more likely than not to be unrealizable, based on available evidence at the time the estimate is made. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory tax rates and future taxable income levels and based on input from the Company's auditors, tax advisors or regulatory authorities. In the event that the Company were to determine that the Company would not be able to realize all or a portion of the Company's net deferred tax assets in the future, the Company would reduce such amounts through a charge to income tax expense in the period in which that determination was made, which could have a material adverse impact on the Company's financial condition and results of operations and the Company's ability to maintain profitability.
Distributions to holders of the Company's Class A common stock may be taxable as dividends.
              It is difficult to predict whether the Company will generate earnings or profits as computed for federal income tax purposes in any given tax year. If the Company makes distributions from current or accumulated earnings and profits as computed for federal income tax purposes, such distributions will generally be taxable to holders of the Company's Class A common stock in the current period as ordinary dividend income for federal income tax purposes. Under current law, such dividends would be eligible for the lower tax rates applicable to qualified dividend income of non-corporate taxpayers. While the Company expects that a portion of its distributions to holders of the Company's Class A common stock may exceed the Company's current and accumulated earnings and profits as computed for federal income tax purposes and therefore constitute a non-taxable return of capital distribution to the extent of a stockholder's basis in the Company's Class A common stock, no assurance can be given that this will occur.

31

                                
                                                                        

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K of NRG Yield, Inc., or the Company, 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 that may cause the Company'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 Item 1A — Risk Factors and the following:
The Company's ability to maintain and grow its quarterly dividend;
The Company's ability to successfully identify, evaluate and consummate acquisitions;
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 the Company may not have adequate insurance to cover losses as a result of such hazards;
The Company's ability to operate its businesses efficiently, manage maintenance capital expenditures and costs effectively, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
Counterparties to the Company's offtake agreements willingness and ability to fulfill their obligations under such agreements;
The Company's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices as current offtake agreements expire;
Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws;
The Company's ability to receive anticipated cash grants with respect to certain renewable (wind and solar) assets;
Operating and financial restrictions placed on the Company and its subsidiaries that are contained in the project-level debt facilities and other agreements of certain subsidiaries and project-level subsidiaries generally and in the NRG Yield Operating LLC revolving credit facility; and
The Company's ability to borrow additional funds and access capital markets, as well as the Company's substantial indebtedness and the possibility that the Company may incur additional indebtedness going forward.
Forward-looking statements speak only as of the date they were made, and the Company 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 the Company's actual results to differ materially from those contemplated in any forward-looking statements included in this Annual Report on Form 10-K should not be construed as exhaustive.
Item 1B — Unresolved Staff Comments
None.

32

                                
                                                                        

Item 2 — Properties
Listed below are descriptions of NRG Yield, Inc.'s interests in facilities, operations and/or projects owned or leased as of December 31, 2013.
 
 
 
 
Capacity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rated MW
 
Net MW
 
Owner-ship
 
 
 
 
 
PPA Terms
Assets
 
Location
 
 
 
 
Fuel
 
COD
 
Counterparty
 
Expiration
Conventional
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GenConn Devon
 
Milford, CT
 
190

 
95

 
49.95
%
 
Natural gas/Oil
 
June 2010
 
CL&P
 
2040
GenConn Middletown
 
Middletown, CT
 
190

 
95

 
49.95
%
 
Natural gas/Oil
 
June 2011
 
CL&P
 
2041
Marsh Landing
 
Antioch, CA
 
720

 
720

 
100
%
 
Natural gas
 
May 2013
 
PG&E
 
2023
Total Conventional
 
1,100

 
910

 
 
 
 
 
 
 
 
 
 
Utility Scale Solar
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Blythe
 
Blythe, CA
 
21

 
21

 
100
%
 
Solar
 
December 2009
 
SCE
 
2029
Roadrunner
 
Santa Teresa, NM
 
20

 
20

 
100
%
 
Solar
 
August 2011
 
El Paso Electric
 
2031
Avenal
 
Avenal, CA
 
45

 
23

 
49.95
%
 
Solar
 
August 2011
 
PG&E
 
2031
Avra Valley
 
Pima County, AZ
 
25

 
25

 
100
%
 
Solar
 
December 2012
 
Tucson Electric Power
 
2032
Alpine
 
Lancaster, CA
 
66

 
66

 
100
%
 
Solar
 
January 2013
 
PG&E
 
2033
Borrego
 
Borrego Springs, CA
 
26

 
26

 
100
%
 
Solar
 
February 2013
 
SDG&E
 
2038
CVSR
 
San Luis Obispo, CA
 
250

 
122

 
48.95
%
 
Solar
 
October 2013
 
PG&E
 
2038
Total Utility Scale Solar
 
453

 
303

 
 
 
 
 
 
 
 
 
 
Thermal Generation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dover
 
Dover, DE
 
104

 
104

 
100
%
 
Natural Gas
 
June 2013
 
Power sold into PJM markets
Princeton Hospital
 
Princeton, NJ
 
5

 
5

 
100
%
 
Natural Gas
 
January 2012
 
Excess power sold into local grid
Paxton Creek Cogen
 
Harrisburg, PA 
 
12

 
12

 
100
%
 
Natural Gas
 
November 1986
 
Power sold into PJM markets
Tucson Convention Center
 
Tucson, AZ
 
2

 
2

 
100
%
 
Natural Gas
 
January 2003
 
Excess power sold into local grid
Total Thermal Generation
 
123

 
123

 
 
 
 
 
 
 
 
 
 
Distributed Solar
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AZ DG Solar Projects
 
AZ
 
5

 
5

 
100
%
 
Solar
 
December 2010 - January 2013
 
Various public entities
 
2025-2033
PFMG DG Solar Projects
 
CA
 
9

 
5

 
51
%
 
Solar
 
October 2012 - December 2012
 
Various public entities
 
2032
Total Distributed Solar
 
14

 
10

 
 
 
 
 
 
 
 
 
 
Wind
 
 
 
 
 
 
 
 
 
 
 
 
 
 
South Trent
 
Sweetwater, TX
 
101

 
101

 
100
%
 
Wind
 
January 2009
 
AEP Energy Partners
 
2029
Total Wind
 
101

 
101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total NRG Yield, Inc.
 
1,791

 
1,447

 
 
 
 
 
 
 
 
 
 

33

                                
                                                                        

The following table summarizes the Company's thermal steam and chilled water facilities as of December 31, 2013:
Name and Location of Facility
 
% Owned
 
Thermal Energy Purchaser
 
Megawatt
Thermal
Equivalent
Capacity (MWt)
 
Generating
Capacity
NRG Energy Center Minneapolis, MN
 
100.0
 
Approx. 100 steam and 50 chilled water customers
 
334
141

 
Steam: 1,140 MMBtu/hr.
Chilled water: 40,200 tons
NRG Energy Center San Francisco, CA
 
100.0
 
Approx 175 steam customers
 
133

 
Steam: 454 MMBtu/hr.
NRG Energy Center Omaha, NE
 
100.0
12.0 100.0
 
Approx 60 steam and 60 chilled water customers
 
142
9
77

 
Steam: 485 MMBtu/hr
Steam: 30 MMBtu/hr
Chilled water: 22,000 tons
NRG Energy Center Harrisburg, PA
 
100.0
 
Approx 140 steam and 3 chilled water customers
 
129
12

 
Steam: 440 MMBtu/hr.
Chilled water: 3,600 tons
NRG Energy Center Phoenix, AZ
 
100.0
0%(a)
 
Approx 35 chilled water customers
 
106
28

 
Chilled water: 30,100 tons
Chilled water: 8,000 tons
NRG Energy Center Pittsburgh, PA
 
100.0
 
Approx 25 steam and 25 chilled water customers
 
87
46

 
Steam: 296 MMBtu/hr.
Chilled water: 12,920 tons
NRG Energy Center San Diego, CA
 
100.0
 
Approx 20 chilled water customers
 
26

 
Chilled water: 7,425 tons
NRG Energy Center Dover, DE
 
100.0
 
Kraft Foods Inc. and Procter & Gamble Company
 
66

 
Steam: 225 MMBtu/hr.
NRG Energy Center Princeton, NJ
 
100.0
 
Princeton HealthCare System
 
21
17

 
Steam: 72 MMBtu/hr.
Chilled water: 4,700 tons
 
 
 
 
Total Generating Capacity (MWt)
 
1,374

 
 
(a)
Capacity available under right-to-use provision of the Chilled Water Service Agreement.
Item 3 — Legal Proceedings
None.
Item 4 — Mine Safety Disclosures
Not applicable.

34

                                
                                                                        

PART II
Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders
The Company's Class A common stock trades on the New York Stock Exchange under the symbol “NYLD.” The Company's Class B common stock is not publicly traded.
As of February 26, 2014, there was one holder of record of the Class A common stock and one holder of record of the Class B common stock.
The following table sets forth, for the period indicated, the high and low sales prices as well as the closing price of the Company's Class A common stock as reported by the New York Stock Exchange from July 17, 2013, the first day of trading following the Company's initial public offering announcement, through December 31, 2013. The initial public offering price of the Company's Class A common stock was $22.00 per share.
Common Stock Price
Fourth
Quarter
2013
 
Period from July 17 to September 30, 2013
High
$41.18
 
$31.26
Low
30.07
 
26.50
Closing
40.01
 
30.29
Dividends Per Common Share
$0.23
 
n/a
Dividends
On December 16, 2013, NRG Yield, Inc. paid a quarterly dividend on the Company's Class A and Class B common stock of $0.23 per share.
On January 30, 2014, NRG Yield, Inc. declared a quarterly dividend on the Company's Class A and Class B common stock of $0.33 per share payable on March 17, 2014 to shareholders of record as of March 3, 2014.

35

                                
                                                                        

Stock Performance Graph
The performance graph below compares NRG Yield, Inc.'s cumulative total stockholder return on the Company's Class A common stock for the period from July 16, 2013 through December 31, 2013, with the cumulative total return of the Standard & Poor's 500 Composite Stock Price Index, or S&P 500, and the Philadelphia Utility Sector Index, or UTY.
The performance graph shown below is being furnished and compares each period assuming that $100 was invested on the initial public offering date in each of the Class A common stock of the Company, the stocks included in the S&P 500 and the stocks included in the UTY, and that all dividends were reinvested.
Comparison of Cumulative Total Return
 
July 16, 2013
 
December 31, 2013
NRG Yield, Inc.
$
100.00

 
$
183.04

S&P 500
100.00

 
111.36

UTY
100.00

 
97.77


36

                                
                                                                        

Item 6 — Selected Financial Data
The following table presents the Company's historical selected financial data. For all periods prior to the initial public offering, the data below reflects the Company's accounting predecessor, or NRG Yield, which were prepared on a ''carve-out'' basis from NRG and are intended to represent the financial results of the contracted renewable energy and conventional generation and thermal infrastructure assets in the United States that were acquired by NRG Yield LLC on July 22, 2013. For all periods subsequent to the initial public offering, the data below reflects the Company's consolidated financial results.
This historical data should be read in conjunction with the Consolidated Financial Statements and the related notes thereto in Item 15 and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
Fiscal year ended December 31,
(In millions)
2013
 
2012
 
2011
 
2010
Statement of Income Data:
 
Operating Revenues:
 
 
 
 
 
 
 
  Total operating revenues
$
313

 
$
175

 
$
164

 
$
143

Operating Costs and Expenses
 
 
 
 
 
 
 
  Cost of operations
127

 
112

 
108

 
102

  Depreciation and amortization
51

 
25

 
22

 
16

  General and administrative - affiliate
7

 
7

 
6

 
5

    Total operating costs and expenses
185

 
144

 
136

 
123

Operating Income
128

 
31

 
28

 
20

Other Income/(Expense)
 
 
 
 
 
 
 
  Equity in earnings of unconsolidated affiliates
22

 
19

 
13

 
1

  Other income, net
2

 
1

 
2

 
3

  Interest expense
(35
)
 
(28
)
 
(19
)
 
(13
)
    Total other expense
(11
)
 
(8
)
 
(4
)
 
(9
)
Income Before Income Taxes
117

 
23

 
24

 
11

  Income tax expense
8

 
10

 
9

 
4

Net income
$
109

 
$
13

 
$
15

 
$
7

Other Financial Data:
 
 
 
 
 
 
 
  Capital expenditures
238

 
380

 
132

 
25

Cash Flow Data:
 
 
 
 
 
 
 
  Net cash provided by (used in):
 
 
 
 
 
 
 
    Operating activities
$
141

 
$
58

 
$
33

 
$
36

    Investing activities
(388
)
 
(405
)
 
(219
)
 
(160
)
    Financing activities
261

 
345

 
180

 
136

Balance Sheet Data (at period end):
 
 
 
 
 
 
 
  Cash and cash equivalents
$
36

 
$
22

 
$
24

 
$
30

  Property and equipment, net
1,541

 
1,598

 
526

 
421

  Total assets
2,313

 
1,964

 
874

 
676

  Total liabilities
1,302

 
1,124

 
487

 
483

  Total stockholders' equity
1,011

 
840

 
387

 
193



37

                                
                                                                        

Item 7 — Management's Discussion and Analysis of Financial Condition and the Results of Operations
The following discussion analyzes the Company's historical financial condition and results of operations. For all periods prior to the initial public offering, the discussion reflects the financial statements of the Company's accounting predecessor, or NRG Yield, which were prepared on a ''carve-out'' basis from NRG and are intended to represent the financial results of the contracted renewable energy and conventional generation and thermal infrastructure assets in the United States that were acquired by NRG Yield LLC on July 22, 2013. For all periods subsequent to the initial public offering, the discussion reflects the Company's consolidated financial results. As you read this discussion and analysis, refer to the Company's Consolidated Statements of Operations to this Form 10-K, which present the results of operations for the years ended December 31, 2013, 2012 and 2011. Also refer to Item 1 — Business, which includes detailed discussions of various items impacting the Company's business, results of operations and financial condition.
The discussion and analysis below has been organized as follows:
Executive Summary, including a description of the business and significant events that are important to understanding the results of operations and financial condition;
Results of operations, including an explanation of significant differences between the periods in the specific line items of the consolidated statement of operations;
Financial condition addressing liquidity position, sources and uses of cash, capital resources and requirements, commitments, and off-balance sheet arrangements;
Known trends that may affect the Company’s results of operations and financial condition in the future; and
Critical accounting policies which are most important to both the portrayal of the Company's financial condition and results of operations, and which require management's most difficult, subjective or complex judgment.

38

                                
                                                                        

Executive Summary
Introduction and Overview
NRG Yield, Inc. is a dividend growth-oriented company formed to serve as the primary vehicle through which NRG will own, operate and acquire contracted renewable and conventional generation and thermal infrastructure assets. The Company owns a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the United States. The contracted generation portfolio includes three natural gas or dual-fired facilities, eight utility-scale solar and wind generation facilities and two portfolios of distributed solar facilities that collectively represent 1,324 net MW. Each of these assets sells substantially all of its output pursuant to long-term, fixed price offtake agreements to credit-worthy counterparties. The average remaining contract life, weighted by MWs, of these offtake agreements was approximately 16 years as of December 31, 2013. The Company also owns thermal infrastructure assets with an aggregate steam and chilled water capacity of 1,346 net MWt and electric generation capacity of 123 net MW. These thermal infrastructure assets provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units in multiple locations, principally through long-term contracts or pursuant to rates regulated by state utility commissions.
Government Incentives
Government incentives enhance the economic viability of the Company's operating assets by providing additional sources of funding for the construction of these assets. NRG has applied for and received cash grants in lieu of ITCs, pursuant to section 1603 of the ARRA, for assets that are currently operating including Blythe, South Trent, Roadrunner, Avra Valley and certain Distributed Solar assets. In addition, NRG has submitted applications for cash grants in lieu of ITCs for Alpine and Borrego of $72 million and $39 million, respectively. The amounts receivable by the Company for the Alpine and Borrego projects were subsequently reduced to $66 million and $36 million, respectively, as a result of automatic federal spending cuts in 2013 that have taken place pursuant to the Balanced Budget and Emergency Deficit Control Act of 1985 as amended, commonly known as sequestration. Cash grants are treated as a reduction to the book basis of the property, plant and equipment and reduce the related depreciation over the useful life of the asset.
In January 2014, the Company received from the U.S. Treasury Department $66 million in cash grants for Alpine.
One of the Company's equity method investments, CVSR, obtained a loan guarantee from the U.S. DOE in support of its borrowings from the Federal Financing Bank, or FFB, to fund the construction of the facility, and CVSR submitted applications for cash grants in lieu of ITCs of $414 million ($392 million net of sequestration). In connection with the CVSR financing, as of December 31, 2013, there was $341 million in outstanding DOE-guaranteed cash grant bridge loans on the project, of which $166 million was due on February 5, 2014, and the remaining amount was due on August 5, 2014. In January 2014, the U.S. Treasury Department awarded cash grants on the CVSR project of $307 million ($285 million net of sequestration), which is approximately 75% of the cash grant amount for which the Company had applied. The cash grant proceeds were used to pay the outstanding balance of the bridge loan due in February 2014 and the remaining amount was used to pay a portion of the outstanding balance on the bridge loan due in August 2014. The remaining balance of the bridge loan due in August 2014 was paid by SunPower. CVSR is evaluating the basis for the U.S. Treasury Department’s award and all of its options for recovering the amount by which the U.S. Treasury Department reduced the CVSR cash grant award.
If the full amount of the cash grant for Borrego is not received, as a result of review of the application or as a result of sequestration, net income will be reduced by the amount of the additional depreciation over the useful life of the assets, which is approximately 28 years, partially offset by less deferred tax expense.
Regulatory Matters
Details of regulatory matters are presented in Item 1, Business — Regulatory Matters. Some of this information relates to costs that may be material to the Company's financial results.
Significant Events During the Twelve Months Ended December 31, 2013
During 2013, Alpine, Borrego, Marsh Landing and CVSR achieved COD. In addition, Borrego completed a financing arrangement with a group of lenders. See Item - 15, Note 9, Long-term Debt, for information related to these financing activities. The Company completed its initial public offering of its Class A common stock on July 22, 2013. See Item - 15, Note 1, Nature of Business, for information related to the initial public offering.
On December 31, 2013, NRG Energy Center Omaha Holdings, LLC, an indirect wholly owned subsidiary of NRG Yield LLC, acquired Energy Systems Company, or Energy Systems, an operator of steam and chilled thermal facilities that provides heating and cooling services to nonresidential customers in Omaha, Nebraska. See Item - 15, Note 3, Business Acquisitions, for information related to the acquisition.

39

                                
                                                                        

Significant Events During the Twelve Months Ended December 31, 2012
During 2012, Alpine completed a financing arrangement with a group of lenders. See Item 15 - Note 9, Long-term Debt for information related to this financing activity.
Significant Events During the Twelve Months Ended December 31, 2011
In late 2011, Roadrunner reached COD and entered into the Roadrunner financing arrangement. Construction began on Alpine, Avra Valley and Borrego. On September 30, 2011, CVSR was acquired by NRG.
Basis of Presentation
For all periods prior to the Company's initial public offering, the accompanying combined financial statements represent the combination of the assets that NRG Yield LLC acquired and were prepared using NRG's historical basis in the assets and liabilities. For the purposes of the combined financial statements, the term "NRG Yield" represents the accounting predecessor, or the combination of the acquired businesses. For all periods subsequent to the initial public offering, the accompanying consolidated financial statements represent the consolidated results of NRG Yield, Inc., which consolidates NRG Yield LLC through its controlling interest.
Consolidated Results of Operations
2013 compared to 2012
The following table provides selected financial information:
 
Year ended December 31,
(In millions except otherwise noted)
2013
 
2012
 
Change %
Operating Revenues
 
 
 
 
 
Total operating revenues
$
313

 
$
175

 
79

Operating Costs and Expenses
 
 
 
 
 
Cost of operations
127

 
112

 
13

Depreciation and amortization
51

 
25

 
104

General and administrative — affiliate
7

 
7

 

Total operating costs and expenses
185

 
144

 
28

Operating Income
128

 
31

 
313

Other Income/(Expense)
 
 
 
 

Equity in earnings of unconsolidated affiliates
22

 
19

 
16

Other income, net
2

 
1

 
100

Interest expense
(35
)
 
(28
)
 
25

Total other expense
(11
)
 
(8
)
 
38

Income Before Income Taxes
117

 
23

 
409

Income tax expense
8

 
10

 
(20
)
Net Income
109

 
$
13

 
738

Less: Predecessor income prior to initial public offering on July 22, 2013
54

 
 
 
 
Net Income Subsequent to Initial Public Offering
55

 
 
 
 
Less: Net income attributable to noncontrolling interest
42

 
 
 


Net Income Attributed to NRG Yield Inc. Subsequent to Initial Public Offering
$
13

 

 


 
Year ended December 31,
Business metrics:
2013 (a)
 
2012 (a)
Renewable MWh sold (in millions)
963

 
464

Thermal MWht sold (in thousands)
1,679

 
1,517

(a) Volumes sold reflect MWh for Renewables and MWht for Thermal and do not include MWh of 139 thousand and 88 thousand for thermal generation.

40

                                
                                                                        

Management’s discussion of the results of operations for the year ended December 31, 2013 and 2012
Operating Revenues
Operating revenues increased by $138 million during the twelve months ended December 31, 2013 compared to the same period in 2012:
 
Conventional
 
Renewables
 
Thermal
 
Total
(In millions)
 
Year ended December 31, 2013
$
82

 
$
79

 
$
152

 
$
313

Year ended December 31, 2012

 
33

 
142

 
175

The increase in operating revenues is due to:
Increase in Conventional Generation revenues as Marsh Landing reached commercial operations in 2013
$
82

Increase in Renewables revenue as Alpine, Avra Valley and Borrego reached commercial operations in late 2012 and early 2013
46

Increase in Thermal revenue due to repowering of Dover facilities in 2013 as well as full year of operation of the Princeton hospital
$
10

 
$
138

Operating Costs
Operating expense increased by $15 million during the year ended December 31, 2013 compared 2012, primarily due to an increase in operations and maintenance expense related to Marsh Landing, Alpine, Borrego and Avra Valley reaching commercial operations in late 2012 and 2013, as well as the repowering of the Dover facility completed in 2013.      
Depreciation and Amortization
Depreciation and amortization increased by $26 million during the year ended December 31, 2013 compared to 2012, due primarily to additional depreciation for the projects that reached commercial operations in late 2012 and 2013.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates increased by $3 million during the year ended December 31, 2013 compared to 2012, due primarily to CVSR reaching commercial operations in 2013.
Interest Expense     
Interest expense increased by $7 million during the year ended December 31, 2013 compared to 2012, due primarily to the additional interest expense for the projects that reached commercial operations in late 2012 and 2013, offset in part by the recognition of an unrealized gain on the Alpine interest rate swap in the current year compared to an unrealized loss in the prior year.
Income Tax Expense
For the year ended December 31, 2013, the Company recorded income tax expense of $8 million on pretax income of $117 million. For the same period in 2012, the Company recorded income tax expense of $10 million on pretax income of $23 million. For the year ended December 31, 2013, the overall effective tax rate was different than the statutory rate of 35% primarily due to taxable earnings allocated to NRG resulting from its 65.5% interest in NRG Yield LLC. For the same period in 2012, the Company's overall effective tax rate was different than the statutory rate of 35% primarily due to the impact of state and local income taxes.
Noncontrolling Interest
Noncontrolling interest of $42 million represents NRG's 65.5% interest in NRG Yield LLC's net income during the period from July 22, 2013 through December 31, 2013.

41

                                
                                                                        

Consolidated Results of Operations
2012 compared to 2011
The following table provides selected financial information:
 
Year ended December 31,
(In millions except otherwise noted)
2012
 
2011
 
Change %
Operating Revenues
 
 
 
 
 
Total operating revenues
$
175

 
$
164

 
7

Operating Costs and Expenses
 
 
 
 
 
Cost of operations
112

 
108

 
4

Depreciation and amortization
25

 
22

 
14

General and administrative — affiliate
7

 
6

 
17

Total operating costs and expenses
144

 
136

 
6

Operating Income
31

 
28

 
11

Other Income/(Expense)
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
19

 
13

 
46

Other income, net
1

 
2

 
(50
)
Interest expense
(28
)
 
(19
)
 
47

Total other expense
(8
)
 
(4
)
 
100

Income Before Income Taxes
23

 
24

 
(4
)
Income tax expense
10

 
9

 
11

Net Income
$
13

 
$
15

 
(13
)
 
Year ended December 31,
Business metrics:
2012 (a)
 
2011 (a)
Renewable MWh sold (in millions)
464

 
420

Thermal MWht sold (in thousands)
1,517

 
1,541

(a) Volumes sold reflect MWh for Renewables and MWht for Thermal and do not include MWh of 88 thousand and 100 thousand for thermal generation.

42

                                
                                                                        

Management’s discussion of the results of operations for the year ended December 31, 2012, and 2011
Operating Revenues
Operating revenues increased by $11 million, during the year ended December 31, 2012, compared to 2011, due to:
 
Renewables
 
Thermal
 
Total
 (In millions)
 
Year ended December 31, 2012
$
33

 
$
142

 
$
175

Year ended December 31, 2011
26

 
138

 
164

The increase in operating revenues is due primarily to increased volume from the Roadrunner facility, which reached commercial operations in late 2011, and additional revenue from distributed solar projects, of which one AZ DG project and all of the PFMG DG projects commenced commercial operations in 2012.
Operating Costs
Operating expense increased by $5 million, during the year ended December 31, 2012 compared to the same period in 2011, primarily due to an increase in Renewables operating costs primarily due to an increase in operations and maintenance expense related to Roadrunner reaching commercial operations in 2011 as well as an increase in operations for the two distributed solar portfolios.    
Depreciation and Amortization
Depreciation and amortization increased by $3 million during the year ended December 31, 2012 compared to the same period in 2011, due primarily to additional depreciation for solar projects that reached commercial operations in late 2011.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates increased by $6 million during the year ended December 31, 2012 compared to the same period in 2011, as GenConn Middletown reached commercial operations in June 2011.
Interest Expense     
Interest expense increased by $9 million during the year ended December 31, 2012 compared to the same period in 2011, due primarily to the recognition of the ineffective portion of the unrealized loss on the Alpine interest rate swap.
Income Tax Expense
For the year ended December 31, 2012, the Company recorded income tax expense of $10 million on pretax income of $23 million. For the same period in 2011, the Company recorded income tax expense of $9 million on pretax income of $24 million. For the year ended December 31, 2012 and 2011 the Company's overall effective tax rate was different than the statutory rate of 35% primarily due to the impact of state and local income taxes.
Liquidity and Capital Resources
The Company's principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from time to time, and to service debt. Historically, the Company's predecessor operations were financed as part of NRG's integrated operations and largely relied on internally generated cash flows as well as corporate and/or project-level borrowings to satisfy its capital expenditure requirements. As a normal part of the Company's business, depending on market conditions, the Company will from time to time consider opportunities to repay, redeem, repurchase or refinance its indebtedness. Changes in the Company's operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause the Company to seek additional debt or equity financing in future periods. There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions.
Liquidity Position
As of December 31, 2013 and December 31, 2012, the Company's liquidity was approximately $150 million and $42 million, respectively, comprised of cash and restricted cash, and as of December 31, 2013, availability under the Company's revolving credit facility. The Company's various financing arrangements are described in Item 15 - Note 9, Long-term Debt.

43

                                
                                                                        

Management believes that the Company's liquidity position and cash flows from operations will be adequate to finance growth, operating and maintenance capital expenditures, to fund dividends to holders of the Company's Class A common stock and other liquidity commitments. Management continues to regularly monitor the Company's ability to finance the needs of its operating, financing and investing activity within the dictates of prudent balance sheet management.
Sources of Liquidity
The Company's principal sources of liquidity include cash on hand, cash generated from operations, borrowings under new and existing financing arrangements and the issuance of additional equity securities as appropriate given market conditions. As described in Item 15 - Note 9, Long-term Debt, the Company's financing arrangements consist mainly of the project-level financings for its various assets.
On July 22, 2013, the Company issued 22,511,250 shares of Class A common stock in an initial public offering at a price of $22 per share, which resulted in net proceeds of $468 million, net of underwriting discounts. The Company used $395 million to acquire Class A units of NRG Yield LLC from NRG. The remaining $73 million was used to acquire Class A units of NRG Yield LLC directly from NRG Yield LLC.
In connection with the initial public offering of the Company's Class A common stock, as further described in Item 15 - Note 1, Nature of Business, NRG Yield LLC and its direct wholly owned subsidiary, NRG Yield Operating LLC, entered into a senior secured revolving credit facility which provides a revolving line of credit of $60 million. The Company's revolving credit facility can be used for cash or for the issuance of letters of credit.
On February 11, 2014, the Company closed on its offering of $300 million aggregate principal amount of 3.50% Convertible Senior Notes, or Notes, due 2019. The initial purchasers exercised their option to purchase an additional $45 million in aggregate principal amount of the NRG Yield Senior Notes.  NRG Yield, Inc. expects to receive the related proceeds in early March. The Notes are convertible, under certain circumstances, into the Company’s common stock, cash or a combination thereof at an initial conversion price of $46.55 per Class A common share, which is equivalent to an initial conversion rate of approximately 21.4822 shares of Class A common stock per $1,000 principal amount of Notes. Interest on the Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2014.
Uses of Liquidity
The Company's requirements for liquidity and capital resources, other than for operating its facilities, are categorized as: (i) debt service obligations, as described more fully in Item 15 - Note 9, Long-term Debt; (ii) capital expenditures; and (iii) cash dividends to investors.
Debt Service Obligations
Principal payments on debt as of December 31, 2013, are due in the following periods:
Description
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
(In millions)
NRG Marsh Landing LLC, due 2017 and 2023
42

 
43

 
45

 
47

 
49

 
247

 
$
473

NRG Solar Alpine LLC, due 2022
69

 
7

 
8

 
8

 
7

 
122

 
221

NRG Energy Center Minneapolis LLC, senior secured notes, due 2017 and 2025
7

 
12

 
12

 
13

 
8

 
75

 
127

NRG Solar Borrego I LLC, due 2024 and 2038
3

 
3

 
3

 
2

 
2

 
65

 
78

South Trent Wind LLC, due 2020
4

 
4

 
4

 
4

 
4

 
49

 
69

NRG Solar Avra Valley LLC, due 2031
3

 
3

 
3

 
3

 
3

 
48

 
63

NRG Roadrunner LLC, due 2031
2

 
2

 
2

 
3

 
3

 
32

 
44

NRG Solar Blythe LLC, due 2028
1

 
2

 
1

 
2

 
2

 
16

 
24

PFMG and related subsidiaries, due 2030
1

 
2

 
2

 
2

 
1

 
24

 
32

NRG Energy Center Princeton LLC, due 2017
1

 

 
1

 

 

 

 
2

Total debt
$
133

 
$
78

 
$
81


$
84


$
79


$
678


$
1,133


44

                                
                                                                        

Capital Expenditures
The Company's capital spending program is focused on completing the construction of assets where construction is in process and maintaining the assets currently operating. The Company develops annual capital spending plans based on projected requirements for maintenance capital and completion of facilities under construction. For the years ended December 31, 2013, 2012 and 2011, the Company used approximately $238 million, $380 million, and $132 million, respectively, to fund capital expenditures, primarily related to the construction of its solar generating assets and Marsh Landing.
Acquisitions
The Company intends to acquire generation assets developed and constructed by NRG in the future, as well as generation and thermal infrastructure assets from third parties where the Company believes its knowledge of the market, operating expertise and access to capital provides a competitive advantage, and to utilize such acquisitions as a means to grow its cash available for distribution. 
On December 31, 2013, the Company completed its acquisition of Energy Systems Company, a thermal district energy supplier in Omaha, Nebraska, for approximately $120 million in cash.  Energy Systems is an operator of steam and chilled water thermal facilities that provide heating and cooling services to nonresidential customers in Omaha, Nebraska. The acquisition was recorded as a business combination under ASC 805, with identifiable assets acquired and liabilities assumed provisionally recorded at their estimated fair values on the acquisition date. The purchase price was primarily allocated to property, plant and equipment of $60 million, customer relationships of $59 million, and $1 million of working capital.
Cash Dividends to Investors
The Company intends to use the amount of cash that it receives from its distributions from NRG Yield LLC to pay quarterly dividends to the holders of its Class A common stock. NRG Yield LLC intends to distribute to its unit holders in the form of a quarterly distribution all of the cash available for distribution that is generated each quarter less reserves for the prudent conduct of the business, including among others, maintenance capital expenditures to maintain the operating capacity of the assets. Cash available for distribution is defined as earnings before income taxes, depreciation and amortization, excluding contract amortization, cash interest paid, income taxes paid, maintenance capital expenditures, investments in unconsolidated affiliates, growth capital expenditures, net of capital and debt funding, and principal amortization of indebtedness, and including cash distributions from unconsolidated affiliates.
The Company declared a pro-rated initial dividend of $0.23 per common share on October 31, 2013, and paid the dividend on Class A and Class B common stock on December 16, 2013, to shareholders of record as of December 2, 2013. On January 30, 2014, the Company declared a quarterly dividend on its Class A and Class B common stock of $0.33 per share payable on March 17, 2014 to shareholders of record as of March 3, 2014.
The common stock dividend is subject to available capital, market conditions, and compliance with associated laws and regulations.

45

                                
                                                                        

Cash Flow Discussion
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
The following table reflects the changes in cash flows for the year ended December 31, 2013 compared to 2012:
Year ended December 31,
2013
 
2012
 
Change
(In millions)
 
Net cash provided by operating activities
$
141

 
$
58

 
$
83

Net cash used by investing activities
(388
)
 
(405
)
 
17

Net cash provided by financing activities
261

 
345

 
(84
)
Net Cash Provided By Operating Activities
Changes to net cash provided by operating activities were driven by:
 
Increase in operating income due to Borrego, Avra Valley, Alpine and Marsh Landing being placed in service in late 2012 or 2013 adjusted for non-cash charges
$
100

Higher net distributions from unconsolidated affiliates for the period ending December 31, 2013 compared to the same period in 2012
(8
)
Increased working capital requirements due to assets placed in service in late 2012 and 2013
(9
)
 
$
83

Net Cash Used By Investing Activities
Changes to net cash used by investing activities were driven by:
 
Decrease in capital expenditures for Borrego, Avra Valley and Alpine as the assets were placed in service in late 2012 or 2013
$
142

Acquisition of Energy Systems in December 2013
(120
)
Increase in restricted cash, primarily for Marsh Landing
(22
)
Increase in investments in unconsolidated affiliates
(7
)
Decrease in notes receivable
27

Decrease in proceeds from renewable grants
(3
)
 
$
17

Net Cash Provided By Financing Activities
Changes in net cash provided by financing activities were driven by:
 
Increase in dividends and returns of capital to NRG, net of change in cash contributions from NRG
$
(819
)
Proceeds from the issuance of Class A common stock
468

Net increase in cash received from proceeds for issuance of long-term debt, net of payments
275

Dividends to Class A and Class B common shareholders in 2013
(15
)
Decrease in cash paid for deferred financing costs
7

 
$
(84
)

46

                                
                                                                        

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
The following table reflects the changes in cash flows for the year ended December 31, 2012 compared to 2011:
Year ended December 31,
2012
 
2011
 
Change
(In millions)
 
Net cash provided by operating activities
$
58

 
$
33

 
$
25

Net cash used by investing activities
(405
)
 
(219
)
 
(186
)
Net cash provided by financing activities
345

 
180

 
165

Net Cash Provided By Operating Activities
Increase in net cash provided by operating activities was primarily driven by a reduction in affiliate balance for Thermal, as well as by cash dividends received from the Company's investment in GenConn, as Middletown reached commercial operations in June of 2011.
Net Cash Used By Investing Activities
Changes to net cash used by investing activities were driven by:
 
Increase in capital expenditures, primarily for construction activities at Alpine, Borrego and Avra Valley
$
(248
)
Increase in notes receivable, primarily for reimbursable network upgrades for Alpine and Borrego
(21
)
Proceeds from renewable energy grants
28

Change in restricted cash
(8
)
Decrease in investments in unconsolidated affiliates
61

Other
2

 
$
(186
)
Net Cash Provided By Financing Activities
Changes in net cash provided by financing activities were driven by:
 
Net increase in cash received from proceeds for the issuance of long-term debt, net of payments
$
91

Increase in capital contributions from NRG
137

Increase in dividends and returns of capital paid to NRG
(54
)
Increase in cash paid for deferred financing costs
(9
)
 
$
165

NOLs, Deferred Tax Assets and Uncertain Tax Position Implications, under ASC 740
The Company has no tax effected uncertain tax benefits. As of December 31, 2013, the Company has generated NOL carryforwards of $173 million for financial statement purposes and does not anticipate any federal income tax payments for 2014. As a result of the Company's tax position, and based on current forecasts, the Company does not anticipate significant income tax payments for state and local jurisdictions in 2014.

47

                                
                                                                        

Off-Balance Sheet Arrangements
Obligations under Certain Guarantee Contracts
The Company may enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties.
Retained or Contingent Interests
The Company does not have any material retained or contingent interests in assets transferred to an unconsolidated entity.
Obligations Arising Out of a Variable Interest in an Unconsolidated Entity
Variable interest in equity investments — As of December 31, 2013, the Company has several investments with an ownership interest percentage of 50% or less in energy and energy-related entities that are accounted for under the equity method. One of these investments is a variable interest entity for which the Company is not the primary beneficiary.
The Company's pro-rata share of non-recourse debt held by unconsolidated affiliates was approximately $715 million as of December 31, 2013. This indebtedness may restrict the ability of these subsidiaries to issue dividends or distributions to the Company. See also Item 15 - Note 5, Investments Accounted for by the Equity Method and Variable Interest Entities.
Contractual Obligations and Commercial Commitments
The Company has a variety of contractual obligations and other commercial commitments that represent prospective cash requirements in addition to the Company's capital expenditure programs. The following table summarizes the Company's contractual obligations. See Item 15 - Note 9, Long-Term Debt and Item 15 - Note 15, Commitments and Contingencies, to the Company's audited financial statements for additional discussion.
 
By Remaining Maturity at December 31,
 
2013
 
 
Contractual Cash Obligations
Under
1 Year
 
1-3 Years
 
3-5 Years
 
Over
5 Years
 
Total
 
2012
 
(In millions)
Long-term debt (including estimated interest)
$
196

 
$
272

 
$
259

 
$
848

 
$
1,575

 
$
1,186

Operating leases
2

 
4

 
3

 
9

 
18

 
18

Fuel purchase and transportation obligations
16

 
7

 
6

 
26

 
55

 
14

Other liabilities
3

 
6

 
5

 
11

 
25

 
7

Total
$
217

 
$
289

 
$
273

 
$
894

 
$
1,673

 
$
1,225

Fair Value of Derivative Instruments
The Company may enter into long-term fuel purchase contracts and other energy-related financial instruments to mitigate variability in earnings due to fluctuations in spot market prices and to hedge fuel requirements at certain generation facilities. In addition, in order to mitigate interest rate risk associated with the issuance of variable rate and fixed rate debt, the Company enters into interest rate swap agreements.
The tables below disclose the activities that include non-exchange traded contracts accounted for at fair value in accordance with ASC 820. Specifically, these tables disaggregate realized and unrealized changes in fair value; disaggregate estimated fair values at December 31, 2013, based on their level within the fair value hierarchy defined in ASC 820; and indicate the maturities of contracts at December 31, 2013. For a full discussion of the Company's valuation methodology of its contracts, see Derivative Fair Value Measurements in Item 15 - Note 6, Fair Value of Financial Instruments.
Derivative Activity Gains/(Losses)
(In millions)
Fair value of contracts as of December 31, 2012
$
(80
)
Contracts realized or otherwise settled during the period
20

Changes in fair value
33

Fair value of contracts as of December 31, 2013
$
(27
)

48

                                
                                                                        

 
Fair Value of Contracts as of December 31, 2013
 
Maturity
 
 
Fair value hierarchy Gains/(Losses)