UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended: June 30, 2008

NRG Energy, Inc.

(Exact name of Registrant as specified in its charter)

Delaware		41-1724239
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
211 Carnegie Center Princeton, New Jersey		08540
(Address of principal executive offices)		(Zip Code)

(609) 524-4500
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ   No o

     Indicate by check mark whether the registrant 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 12 b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No þ

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes þ   No o

     As of July 25, 2008, there were 235,984,609 shares of common stock outstanding, par value $0.01 per share.

 

 

TABLE OF CONTENTS

		Page No.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION			3
GLOSSARY OF TERMS			4
PART I — FINANCIAL INFORMATION			7
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES			7
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			40
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			78
ITEM 4 — CONTROLS AND PROCEDURES			82
PART II — OTHER INFORMATION			82
ITEM 1 — LEGAL PROCEEDINGS			82
ITEM 1A — RISK FACTORS			82
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			82
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES			82
ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			83
ITEM 5 — OTHER INFORMATION			83
ITEM 6 — EXHIBITS			83
SIGNATURES			84
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-31.3: CERTIFICATION
EX-32: CERTIFICATION

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

     This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “projects”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause NRG’s actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Risks Related to NRG in Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended December 31, 2007, including the following:

	•		General economic conditions, changes in the wholesale power markets and fluctuations in the cost of fuel;
	•		Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that NRG may not have adequate insurance to cover losses as a result of such hazards;
	•		The effectiveness of NRG’s risk management policies and procedures, and the ability of NRG’s counterparties to satisfy their financial commitments;
	•		Counterparties’ collateral demands and other factors affecting NRG’s liquidity position and financial condition;
	•		NRG’s ability to operate its businesses efficiently, manage capital expenditures and costs tightly, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
	•		NRG’s potential inability to enter into contracts to sell power and procure fuel on acceptable terms and prices;
	•		The liquidity and competitiveness of wholesale markets for energy commodities;
	•		Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws and increased regulation of carbon dioxide and other greenhouse gas emissions;
	•		Price mitigation strategies and other market structures employed by independent system operators, or ISOs, or regional transmission organizations, or RTOs, that result in a failure to adequately compensate NRG’s generation units for all of its costs;
	•		NRG’s ability to borrow additional funds and access capital markets, as well as NRG’s substantial indebtedness and the possibility that NRG may incur additional indebtedness going forward;
	•		Operating and financial restrictions placed on NRG and its subsidiaries that are contained in the indentures governing NRG’s outstanding notes, in NRG’s Senior Credit Facility, and in debt and other agreements of certain of NRG subsidiaries and project affiliates generally;
	•		NRG’s ability to implement its RepoweringNRG strategy of developing and building new power generation facilities, including new nuclear units, Integrated Gasification Combined Cycle, or IGCC, units and wind projects;
	•		NRG’s ability to implement its econrg strategy of finding ways to meet the challenges of climate change, clean air and protecting our natural resources while taking advantage of business opportunities; and
	•		NRG’s ability to achieve its strategy of regularly returning capital to shareholders.

     Forward-looking statements speak only as of the date they were made, and NRG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG’s actual results to differ materially from those contemplated in any forward-looking statements included in this Quarterly Report on Form 10-Q should not be construed as exhaustive.

GLOSSARY OF TERMS

     When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:

Acquisition		February 2, 2006 acquisition of Texas Genco LLC, now referred to as the Company’s Texas region
ABWR		Advanced Boiling Water Reactor
ANPR		Advanced Notice of Proposed Rulemaking
ARO		Asset Retirement Obligation
BACT		Best Available Control Technology
Baseload Capacity		Electric power generation capacity normally expected to serve loads on an around-the-clock basis throughout the calendar year
BP		BP Alternative Energy North America Inc.
BTU		British Thermal Unit
CAA		Clean Air Act
CAIR		Clean Air Interstate Rule
CAMR		Clean Air Mercury Rule
CDWR		California Department of Water Resources
CL&P		Connecticut Light & Power
CO2		Carbon dioxide
COLA		Combined Operating License Application
CSF I		NRG Common Stock Finance I LLC
CSF II		NRG Common Stock Finance II LLC
DNREC		Delaware Department of Natural Resources
DPUC		Connecticut Department of Public Utility Control
EFOR		Equivalent Forced Outage Rates — considers the equivalent impact that forced de-ratings have in addition to full forced outages
EPC		Engineering, Procurement and Construction
ERCOT		Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
ESPP		Employee Stock Purchase Plan
Exchange Act		The Securities Exchange Act of 1934, as amended
FASB		Financial Accounting Standards Board, the designated organization for establishing standards for financial accounting and reporting
FCM		Forward Capacity Market
FERC		Federal Energy Regulatory Commission
FIN		FASB Interpretation
FIN 48		FIN 48, Accounting for Uncertainty in Income Taxes
FSP		FASB Staff Position
GHG		Greenhouse Gases
IGCC		Integrated Gasification Combined Cycle
ISO		Independent System Operator, also referred to as Regional Transmission Organization, or RTO
ISO-NE		ISO New England, Inc.
ITISA		Itiquira Energetica S.A.
kW		Kilowatts
kWh		Kilowatt-hours
LFRM		Locational Forward Reserve Market
LIBOR		London Inter-Bank Offer Rate
LMP		Locational Marginal Prices
LTIP		Long Term Incentive Plan
MACT		Maximum Achievable Control Technology
Merit Order		A term used for the ranking of power stations in terms of increasing order of fuel costs
MMBtu		Million British Thermal Units
MOU		Memorandum of Understanding
MRTU		Market Redesign and Technology Upgrade
MW		Megawatts
MWh		Saleable megawatt hours net of internal/parasitic load megawatt-hours
NAAQS		National Ambient Air Quality Standard

		GLOSSARY OF TERMS (cont’d)
NEPOOL		New England Power Pool
NiMo		Niagara Mohawk Power Corporation
NINA		Nuclear Innovation North America LLC
NOx		Nitrogen oxide
NOL		Net Operating Loss
NOV		Notice of Violation
NPNS		Normal Purchase Normal Sale
NRC		Nuclear Regulatory Commission
NYISO		New York Independent System Operator
NYPA		New York Power Authority
OCI		Other Comprehensive Income
Phase II 316(b) Rule		A section of the Clean Water Act regulating cooling water intake structures
PJM		PJM Interconnection LLC
PJM Market		The wholesale and retail electric market operated by PJM primarily in all or parts of Delaware, the District of Columbia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia
PMI		NRG Power Marketing LLC, a wholly-owned subsidiary of NRG which procures transportation and fuel for the Company’s generation facilities, sells the power from these facilities, and manages all commodity trading and hedging for NRG
PPA		Power Purchase Agreement
PPM		Parts per Million
PSD		Prevention of Significant Deterioration
PUCT		The Public Utility Commission of Texas
Repowering		Replacing, rebuilding, or redeveloping major portions of an existing electrical generating facility, not only to achieve a substantial emissions reduction, but also to increase facility capacity, and improve system efficiency
RepoweringNRG		NRG’s program designed to develop, finance, construct and operate new, highly efficient, environmentally responsible capacity over the next decade
Revolving Credit Facility		NRG’s $1 billion senior secured credit facility which matures on February 2, 2011
RGGI		Regional Greenhouse Gas Initiative
RMR		Reliability Must-Run
RPM		Reliability Pricing Model — term for capacity market in PJM market
RTO		Regional Transmission Organization, also referred to as an Independent System Operator, or ISO
Sarbanes-Oxley		Sarbanes-Oxley Act of 2002
SEC		United States Securities and Exchange Commission
Securities Act		The Securities Act of 1933, as amended
Senior Credit Facility		NRG’s senior secured facility, which is comprised of a Term B loan facility which matures on February 1, 2013, a $1.3 billion Letter of Credit Facility, and a $1 billion Revolving Credit Facility, which matures on February 2, 2011
Senior Notes		The Company’s $4.7 billion outstanding unsecured senior notes consisting of $1.2 billion of 7.25% senior notes due 2014, $2.4 billion of 7.375% senior notes due 2016 and $1.1 billion of 7.375% senior notes due 2017
SFAS		Statement of Financial Accounting Standards issued by the FASB
SFAS 109		SFAS No. 109, “Accounting for Income Taxes”
SFAS 133		SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
SFAS 141R		SFAS No. 141 (revised 2007), “Business Combinations”
SFAS 157		SFAS No. 157, “Fair Value Measurements”
SFAS 160		SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements”
SFAS 161		SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133”
Sherbino		Sherbino I Wind Farm LLC
SO2		Sulfur dioxide
SOP		Statement of Position issued by the American Institute of Certified Public Accountants
STP		South Texas Project — Nuclear generating facility located near Bay City, Texas in which NRG owns a 44% interest
STPNOC		South Texas Project Nuclear Operating Company

		GLOSSARY OF TERMS (cont’d)
Synthetic Letter of Credit Facility		NRG’s $1.3 billion senior secured synthetic letter of credit facility which matures on February 1, 2013
Term B loan		A senior first priority secured term loan which matures on February 1, 2013, and is included as part of NRG’s Senior Credit Facility
Texas Genco		Texas Genco LLC, now referred to as the Company’s Texas region
Texas West		The West Zone of Texas’ ERCOT power market
Tosli		Tosli Acquisition B.V.
US		United States of America
USEPA		United States Environmental Protection Agency
U.S. GAAP		Accounting principles generally accepted in the United States
VAR		Value at Risk
WCP		WCP (Generation) Holdings, LLC

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

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

		Three months ended June 30								Six months ended June 30
(In millions, except for per share amounts)		2008				2007				2008				2007
Operating Revenues
Total operating revenues		$	1,316			$	1,536			$	2,618			$	2,835
Operating Costs and Expenses
Cost of operations			1,011				840				1,815				1,621
Depreciation and amortization			161				161				322				321
General and administrative			83				71				158				156
Development costs			4				36				16				59
Total operating costs and expenses			1,259				1,108				2,311				2,157
(Loss)/gain on sale of assets			—				(1	)			—				16
Operating Income			57				427				307				694
Other Income/(Expense)
Equity in (losses)/earnings of unconsolidated affiliates			(19	)			8				(23	)			21
Other income, net			12				15				21				30
Refinancing expense			—				(35	)			—				(35	)
Interest expense			(142	)			(172	)			(295	)			(351	)
Total other expense			(149	)			(184	)			(297	)			(335	)
(Losses)/Income From Continuing Operations Before Income Taxes			(92	)			243				10				359
Income tax (benefit)/expense			(53	)			100				1				155
(Losses)/Income From Continuing Operations			(39	)			143				9				204
Income from discontinued operations, net of income tax expense			168				6				172				10
Net Income			129				149				181				214
Dividends for preferred shares			14				14				28				28
Income Available for Common Stockholders		$	115			$	135			$	153			$	186
Weighted average number of common shares outstanding — basic			236				240				236				241
(Losses)/income from continuing operations per weighted average common share — basic		$	(0.22	)		$	0.54			$	(0.08	)		$	0.73
Income from discontinued operations per weighted average common share — basic			0.71				0.02				0.73				0.04
Net Income per Weighted Average Common Share — Basic		$	0.49			$	0.56			$	0.65			$	0.77
Weighted average number of common shares outstanding — diluted			236				288				236				273
(Losses)/income from continuing operations per weighted average common share — diluted		$	(0.22	)		$	0.49			$	(0.08	)		$	0.67
Income from discontinued operations per weighted average common share — diluted			0.71				0.02				0.73				0.04
Net Income per Weighted Average Common Share — Diluted		$	0.49			$	0.51			$	0.65			$	0.71

See notes to condensed consolidated financial statements.

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30, 2008				December 31, 2007
(In millions, except shares and par value)		(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	1,263			$	1,132
Restricted cash			30				29
Accounts receivable, less allowance for doubtful accounts of $1 and $1, respectively			700				482
Inventory			454				451
Derivative instruments valuation			5,716				1,034
Deferred income taxes			977				124
Prepayments and other current assets			640				259
Current assets — discontinued operations			—				51
Total current assets			9,780				3,562
Property, plant and equipment, net of accumulated depreciation of $2,025 and $1,695, respectively			11,430				11,320
Other Assets
Equity investments in affiliates			454				425
Notes receivable and capital lease, less current portion			515				491
Goodwill			1,786				1,786
Intangible assets, net of accumulated amortization of $411 and $372, respectively			834				873
Nuclear decommissioning trust fund			377				384
Derivative instruments valuation			1,444				150
Other non-current assets			164				176
Intangible assets held-for-sale			5				14
Non-current assets — discontinued operations			—				93
Total other assets			5,579				4,392
Total Assets		$	26,789			$	19,274
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt and capital leases		$	130			$	466
Accounts payable			490				384
Derivative instruments valuation			6,404				917
Accrued expenses and other current liabilities			508				473
Current liabilities — discontinued operations			—				37
Total current liabilities			7,532				2,277
Other Liabilities
Long-term debt and capital leases			8,068				7,895
Nuclear decommissioning reserve			316				307
Nuclear decommissioning trust liability			304				326
Deferred income taxes			943				843
Derivative instruments valuation			3,570				759
Out-of-market contracts			418				628
Other non-current liabilities			686				412
Non-current liabilities — discontinued operations			—				76
Total non-current liabilities			14,305				11,246
Total Liabilities			21,837				13,523
Minority Interest			7				—
3.625% convertible perpetual preferred stock (at liquidation value, net of issuance costs)			247				247
Commitments and Contingencies
Stockholders’ Equity
Preferred stock (at liquidation value, net of issuance costs)			892				892
Common stock			3				3
Additional paid-in capital			4,134				4,092
Retained earnings			1,424				1,270
Less treasury stock, at cost — 25,832,200 and 24,550,600 shares, respectively			(693	)			(638	)
Accumulated other comprehensive loss			(1,062	)			(115	)
Total Stockholders’ Equity			4,698				5,504
Total Liabilities and Stockholders’ Equity		$	26,789			$	19,274

See notes to condensed consolidated financial statements.

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

(In millions)
Six months ended June 30,		2008				2007
Cash Flows from Operating Activities
Net income		$	181			$	214
Adjustments to reconcile net income to net cash provided by operating activities
Distributions and equity in loss/(earnings) of unconsolidated affiliates			32				(7	)
Depreciation and amortization			322				322
Amortization of nuclear fuel			30				26
Amortization and write-off of financing costs and debt discount/premiums			14				51
Amortization of intangibles and out-of-market contracts			(147	)			(73	)
Changes in deferred income taxes and liability for unrecognized tax benefits			96				142
Changes in nuclear decommissioning trust liability			17				20
Changes in derivatives			669				47
Changes in collateral deposits supporting energy risk management activities			(328	)			(103	)
Loss/(gain) on disposal and sales of assets			2				(16	)
Gain on sale of discontinued operations			(270	)			—
Gain on sale of emission allowances			(42	)			(24	)
Amortization of unearned equity compensation			14				14
Cash used by changes in other working capital			(154	)			(154	)
Net Cash Provided by Operating Activities			436				459
Cash Flows from Investing Activities
Capital expenditures			(409	)			(205	)
Increase in restricted cash, net			(1	)			(8	)
Decrease in notes receivable			21				17
Purchases of emission allowances			(4	)			(135	)
Proceeds from sale of emission allowances			61				131
Investments in nuclear decommissioning trust fund securities			(285	)			(140	)
Proceeds from sales of nuclear decommissioning trust fund securities			269				120
Proceeds from sale of discontinued operations, net			229				—
Proceeds from sale of assets			14				29
Proceeds from sale of investments			—				2
Decrease in trust fund balances			—				13
Investment in projects			(17	)			—
Other			—				4
Net Cash Used by Investing Activities			(122	)			(172	)
Cash Flows from Financing Activities
Payment of dividends to preferred stockholders			(28	)			(28	)
Payment of financing element of acquired derivatives			(28	)			—
Payment for treasury stock			(55	)			(215	)
Proceeds from issuance of common stock, net of issuance costs			8				—
Proceeds from sale of minority interest in subsidiary			50				—
Proceeds from issuance of long-term debt			10				1,411
Payment of deferred debt issuance costs			(2	)			—
Payments for short and long-term debt			(188	)			(1,459	)
Net Cash Used by Financing Activities			(233	)			(291	)
Change in cash from discontinued operations			43				(6	)
Effect of exchange rate changes on cash and cash equivalents			7				4
Net Increase/(Decrease) in Cash and Cash Equivalents			131				(6	)
Cash and Cash Equivalents at Beginning of Period			1,132				777
Cash and Cash Equivalents at End of Period		$	1,263			$	771

See notes to condensed consolidated financial statements.

NRG ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Basis of Presentation

     NRG Energy, Inc., or NRG, or the Company, is a wholesale power generation company with a significant presence in major competitive power markets in the United States. NRG is engaged in the ownership, development, construction and operation of power generation facilities, the transacting in and trading of fuel and transportation services, and the trading of energy, capacity and related products in the United States and select international markets.

     The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the SEC’s regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The accounting policies NRG follows are set forth in Note 2, Summary of Significant Accounting Policies, to the Company’s financial statements in its Annual Report on Form 10-K for the year ended December 31, 2007. The following notes should be read in conjunction with such policies and other disclosures in the Form 10-K. Interim results are not necessarily indicative of results for a full year.

     In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company’s consolidated financial position as of June 30, 2008, the results of operations for the three and six months ended June 30, 2008 and 2007, and cash flows for the six months ended June 30, 2008 and 2007. Certain prior-year amounts have been reclassified for comparative purposes.

     Use of Estimates

     The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during the reporting period. Actual results could be different from these estimates.

     Investment in Affiliate

     In February 2008, a wholly-owned subsidiary of NRG entered into a 50/50 joint venture with a subsidiary of BP Alternative Energy North America Inc., or BP, to build and own the Sherbino I Wind Farm LLC, or Sherbino. This is a 150 MW wind project consisting of 50 Vestas 3 MW wind turbine generators, located in the West Zone of Texas’ ERCOT power market, or Texas West. The project will be funded through a combination of equity contributions from the owners and non-recourse project-level debt. NRG delivered a $59 million promissory note to Sherbino to support its initial capital contribution, payable no later than December 1, 2008, made an additional $17 million contribution on April 18, 2008, and expects to contribute another $11 million by year-end, bringing its total expected equity contribution to $87 million. NRG has posted a letter of credit in this amount. NRG’s maximum exposure to loss is limited to its expected equity investments.

     Sherbino has entered into a long-term natural gas swap to mitigate a portion of power price risk for its expected power generation. As the changes in natural gas prices and in Texas West power prices do not meet the required correlation for cash flow hedge accounting, Sherbino will account for the natural gas swap hedge under mark-to-market accounting.

     NRG accounts for its investment in Sherbino under the equity method of accounting. NRG’s share of mark-to-market results of the natural gas swap, which was a loss of $49 million for the six months ended June 30, 2008, is included in NRG’s equity in earnings of Sherbino. NRG’s investment at June 30, 2008, net of its promissory note commitment, is a negative $33 million, which is included in “Equity Investments in Affiliates” on the condensed consolidated balance sheet.

     Other Cash Flow Information

     NRG had non-cash capital additions of $88 million for the six months ended June 30, 2008 for which the associated liability is reflected within accounts payable and accrued expenses.

     Recent Accounting Developments

     The Company partially adopted SFAS No. 157, Fair Value Measurements, or SFAS 157, on January 1, 2008, delaying application for non-financial assets and non-financial liabilities as permitted. This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position, or FSP, No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which amends SFAS 157 to exclude SFAS Statement No. 13, Accounting for Leases, or SFAS 13, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13. In February 2008, the FASB also issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, which permitted delayed application of this statement for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The partial adoption of SFAS 157 did not have a material impact on the Company’s consolidated financial position, statement of operations, and cash flows. The Company is currently evaluating the impact of the deferred portion of SFAS 157 on the Company’s consolidated financial position, statement of operations, and cash flows.

     The Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115, or SFAS 159, on January 1, 2008. This statement provides entities with an option to measure and report selected financial assets and liabilities at fair value. This statement requires a business entity to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. An entity may decide whether to elect the fair value option for each eligible item on its election date, subject to certain requirements described in the statement. The Company does not intend to apply this standard to any of its eligible assets or liabilities; therefore, there was no impact on NRG’s consolidated financial position, results of operations, or cash flows.

     The Company adopted FSP FIN 39-1, Amendment of FASB Interpretation No. 39, or FSP FIN 39-1, which amends FIN 39, Offsetting of Amounts Related to Certain Contracts, on January 1, 2008. FSP FIN 39-1 impacts entities that enter into master netting arrangements as part of their derivative transactions. Under the guidance in this FSP, entities may choose to offset derivative positions in the financial statements against the fair value of amounts recognized as cash collateral paid or received under those arrangements. The Company chose not to offset positions as defined in this FSP; therefore there was no impact on NRG’s consolidated financial position, results of operations, or cash flows.

     NRG has non-qualified stock options for which it has insufficient historical exercise data and therefore estimates the expected term using the simplified method, as allowed under Staff Accounting Bulletin, or SAB, No. 107, Share Based Payment, or SAB 107. In December 2007, the SEC issued SAB No. 110, Certain Assumptions Used in Valuation Methods, which eliminates the December 31, 2007 expiration of SAB 107’s permission to use this simplified method. NRG will therefore continue to use this simplified method, for as long as the Company deems it to be the most appropriate method.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, or SFAS 141R. This statement applies prospectively to all business combinations for which the acquisition date is on or after the beginning of an entity’s first annual reporting period beginning on or after December 15, 2008. The statement establishes principles and requires an acquirer to recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at fair value at the acquisition date. It also recognizes and measures the goodwill acquired or a gain from a bargain purchase in the business combination and determines what information to disclose to enable users of an entity’s financial statements to evaluate the nature and financial effects of the business combination. As discussed further in Note 11, Income Taxes, SFAS 141R will change the application of fresh start accounting to certain of the Company’s unrecognized tax benefits. NRG is currently evaluating the impact of this statement upon its adoption on the Company’s results of operations, financial position and cash flows.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51, Consolidated Financial Statements, or SFAS 160. This Statement amends ARB No. 51 to establish accounting and reporting standards for the minority interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141R. This Statement shall be effective and applied prospectively for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the

presentation and disclosure requirements, which shall be applied retrospectively. NRG is currently evaluating the impact of this statement upon its adoption on the Company’s results of operations, financial position and cash flows.

     In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, or SFAS 161. SFAS 161 requires entities to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended or SFAS 133, and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The enhanced disclosures regarding derivative and hedging instruments required by SFAS 161 are relevant to NRG, but will not have an impact on the Company’s results of operations, financial position, or cash flows.

     In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with early adoption prohibited. NRG is currently evaluating the impact of this statement upon its adoption on the Company’s results of operations, financial position and cash flows.

     In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), or FSP APB 14-1. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) do not fall within the scope of paragraph 12 of Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, and specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 does not apply to embedded conversion options that must be separately accounted for as derivatives under SFAS 133. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and is to be applied retrospectively. NRG is currently evaluating the impact of this statement upon its adoption on the Company’s results of operations, financial position and cash flows.

     In June 2008, the Emerging Issues Task Force, or EITF, issued EITF No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, or EITF 07-5. EITF 07-5 clarifies that contingent and other adjustment features in equity-linked financial instruments are consistent with equity indexation if they are based on variables that would be inputs to a “plain vanilla” option or forward pricing model and they do not increase the contract’s exposure to those variables. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. NRG is currently evaluating the impact of this statement upon its adoption on the Company’s results of operations, financial position and cash flows.

Note 2 — Comprehensive Income/Loss

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

		Three months ended								Six months ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
Net income		$	129			$	149			$	181			$	214
Changes in derivative activity			(698	)			(41	)			(1,000	)			(324	)
Foreign currency translation adjustment			8				15				50				25
Unrealized gain on available-for-sale securities			1				2				3				2
Other comprehensive loss		$	(689	)		$	(24	)		$	(947	)		$	(297	)
Comprehensive (loss)/income		$	(560	)		$	125			$	(766	)		$	(83	)

     The following table summarizes the changes in the Company’s accumulated other comprehensive loss, net of tax.

(In millions)
As of June 30,		2008
Accumulated other comprehensive loss as of December 31, 2007		$	(115	)
Changes in derivative activity			(1,000	)
Foreign currency translation adjustments			50
Unrealized gain on available-for-sale securities			3
Accumulated other comprehensive loss as of June 30, 2008		$	(1,062	)

Note 3 — Discontinued Operations

     NRG has classified material business operations and gains/losses recognized on sale as discontinued operations for projects that were sold or have met the required criteria for such classification. The financial results for the affected businesses have been accounted for as discontinued operations.

     The assets and liabilities reported in the balance sheet as of December 31, 2007 as discontinued operations represent those of Itiquira Energetica S.A., or ITISA. On April 28, 2008, NRG completed the sale of its 100% interest in Tosli Acquisition B.V., or Tosli, which holds all NRG’s interest in ITISA, to Brookfield Renewable Power Inc. (previously Brookfield Power Inc.), a wholly-owned subsidiary of Brookfield Asset Management Inc., and received $288 million in cash proceeds. The sale process removed $163 million of assets, including $59 million of cash, and $122 million of liabilities, including $63 million of debt, from the discontinued assets and liabilities on the condensed consolidated balance sheet as of June 30, 2008. NRG recognized a pre-tax gain of $270 million, including an estimated purchase price adjustment of $9 million as of June 30, 2008, against which $105 million of income taxes were recorded.

     Summarized operating results for the Company’s discontinued operations, consisting of ITISA’s activities, were as follows:

		Three months ended								Six months ended
		June 30,								June 30,
(In millions)		2008				2007				2008				2007
Operating revenues		$	5			$	12			$	20			$	23
Pre-tax income from discontinued operations			274				7				281				12
Income from discontinued operations, net of income tax expense			168				6				172				10

Note 4 — Fair Value of Financial Instruments

     The Company partially adopted SFAS 157 on January 1, 2008, delaying application for non-financial assets and non-financial liabilities as permitted. This statement establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

     SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

	•		Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. NRG’s financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.
	•		Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. NRG’s financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds and fair-value hedges.
	•		Level 3 — unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. NRG’s financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

     In accordance with SFAS 157, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety.

     The following table presents assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet on a recurring basis and their level within the fair value hierarchy as of June 30, 2008:

(In millions)		Fair Value
As of June 30, 2008		Level 1				Level 2				Level 3				Total
Investment in available-for-sale securities (classified within other non-current assets):
Debt securities		$	—			$	—			$	29			$	29
Marketable equity securities			12				—				—				12
Trust fund investments			217				134				28				379
Derivative assets			1,517				5,456				187				7,160
Total assets		$	1,746			$	5,590			$	244			$	7,580
Derivative liabilities		$	1,642			$	8,049			$	283			$	9,974

     The following table reconciles, for the period ended June 30, 2008, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements at least annually using significant unobservable inputs:

		Fair Value Measurement Using Significant Unobservable Inputs
		(Level 3)
(In millions)						Trust Fund
Six months ended June 30, 2008		Debt Securities				Investments				Derivatives				Total
Beginning balance as of January 1, 2008		$	32			$	37			$	27			$	96
Total gains and losses (realized/unrealized)
Included in earnings			(3	)			—				(123	)			(126	)
Included in nuclear decommissioning obligations			—				(1	)			—				(1	)
Included in other comprehensive income			—				—				14				14
Net sales			—				(9	)			(18	)			(27	)
Transfer into Level 3			—				1				4				5
Ending balance as of June 30, 2008		$	29			$	28			$	(96	)		$	(39	)
The amount of the total gains or losses for the period included in earnings attributable to the change in unrealized gains and losses relating to assets still held as of June 30, 2008		$	(3	)		$	—			$	(110	)		$	(113	)

     Realized and unrealized gains and losses included in earnings that are related to the debt securities are recorded in other income, while those related to derivatives are recorded in operating revenues.

     Non-derivative fair value measurements

     NRG’s debt securities are classified as Level 3 and consist of non-traded debt instruments that are valued based on discounted cash flow methodology which utilizes significant assumptions that are unobservable.

     The trust fund investments are held primarily to satisfy NRG’s nuclear decommissioning obligations. These trust fund investments hold debt and equity securities directly and equity securities indirectly through commingled funds. The fair values of equity securities held directly by the trust funds are based on quoted prices in active markets and are categorized in Level 1. In addition, U.S. Treasury securities are categorized as Level 1 because they trade in a highly liquid and transparent market. The fair values of fixed income securities, excluding U.S. Treasury securities, are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized in Level 2. Commingled funds, which are analogous to mutual funds, are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives. The fair value of commingled funds are based on net asset values per fund share (the unit of account), derived from the quoted prices in active markets of the underlying equity securities. However, because the shares in the commingled funds are not publicly quoted, not traded in an active market and are subject to certain restrictions regarding their purchase and sale, the commingled funds are categorized in Level 3.

     Derivative fair value measurements

     The majority of NRG’s energy-related contracts are non-exchange-traded contracts valued using prices provided by external sources, primarily price quotations available through brokers or over-the-counter, on-line exchanges. Prices reflect the average of the bid-ask mid-point prices obtained from all sources that NRG believes provide the most liquid market for the commodity. The terms for which such price information is available vary by commodity, region and product. The remainder of the assets and liabilities represents contracts for which external valuations are not available, primarily option contracts. These contracts are valued using the Black Scholes model, an industry standard option valuation model. The fair values in each category reflect the level of forward prices and volatility factors as of June 30, 2008 and may change as a result of changes in these factors. NRG’s risk management group uses its best estimates to determine the fair value of commodity and derivative contracts NRG holds and sells. These estimates consider various factors including closing exchange and over-the-counter price quotations, time value, volatility factors and credit exposure. It is possible, however, that future market prices could vary from those used in recording assets and liabilities from energy marketing and trading activities and such variations could be material.

     Credit Risk Associated with Derivative Instruments

     NRG would be exposed to credit-related losses in the event of non-performance by counterparties that enter into derivative instruments. The credit exposure of derivative contracts, before collateral, is represented by the fair value of the contracts as of the reporting date. For energy-related derivative instruments, NRG attempts to enter into enabling agreements that allow for payment netting with its counterparties, which reduces NRG’s exposure to counterparty credit risk by providing for the offset of amounts payable against amounts receivable to or from the counterparty. Each enabling agreement is commodity specific and so netting is limited to transactions involving that specific commodity except where master netting agreements exist that allow for cross commodity netting. In addition to payment netting language, the credit risk group establishes credit limits and collateral requirements for a counterparty as defined in the enabling agreements. Counterparty credit limits are based on an internal credit assessment that considers a variety of quantitative and qualitative factors, including but not limited to the financial health of the counterparty, credit ratings and risk management capabilities. To the extent that a credit limit is exceeded by the counterparty, NRG may require the counterparty to post collateral to the extent specified in the enabling agreement. NRG’s credit risk group monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and portfolio basis.

     Under the guidance of FSP FIN 39-1, entities may choose to offset derivative positions in the financial statements against the fair value of the amounts recognized as cash collateral paid or received under those arrangements. The Company has credit arrangements within various agreements to call on or pay additional collateral support. The Company has chosen not to offset positions as defined in this FSP. As of June 30, 2008, the Company included $430 million of cash collateral paid in other current assets and $31 million of cash collateral received in other current liabilities.

Note 5 — Accounting for Derivative Instruments and Hedging Activities

     SFAS 133, requires NRG to recognize all derivative instruments on the balance sheet as either assets or liabilities and to measure them at fair value each reporting period unless they qualify for a Normal Purchase Normal Sale, or NPNS, exception. If certain conditions are met, NRG may be able to designate certain derivatives as cash flow hedges and defer the effective portion of the change in fair value of the derivatives to Other Comprehensive Income, or OCI, until the hedged transactions occur and are recognized in earnings. The ineffective portion of a cash flow hedge is immediately recognized in earnings.

     Accumulated Other Comprehensive Income

     The following tables summarize the effects of SFAS 133 on NRG’s OCI balance attributable to hedged derivatives, net of tax:

(In millions)		Energy				Interest
Three months ended June 30, 2008		Commodities				Rate				Total
Accumulated OCI balance at March 31, 2008		$	(493	)		$	(74	)		$	(567	)
Realized from OCI during the period:
— Due to realization of previously deferred amounts			21				—				21
Mark-to-market of hedge contracts			(763	)			44				(719	)
Accumulated OCI balance at June 30, 2008		$	(1,235	)		$	(30	)		$	(1,265	)
Losses expected to be realized from OCI during the next 12 months, net of $183 tax		$	(279	)		$	(1	)		$	(280	)
(In millions)		Energy				Interest
Three months ended June 30, 2007		Commodities				Rate				Total
Accumulated OCI balance at March 31, 2007		$	(83	)		$	9			$	(74	)
Realized from OCI during the period:
— Due to realization of previously deferred amounts			(10	)			—				(10	)
Mark-to-market of hedge contracts			(52	)			21				(31	)
Accumulated OCI balance at June 30, 2007		$	(145	)		$	30			$	(115	)
(In millions)		Energy				Interest
Six months ended June 30, 2008		Commodities				Rate				Total
Accumulated OCI balance at December 31, 2007		$	(234	)		$	(31	)		$	(265	)
Realized from OCI during the period:
— Due to realization of previously deferred amounts			6				—				6
Mark-to-market of hedge contracts			(1,007	)			1				(1,006	)
Accumulated OCI balance at June 30, 2008		$	(1,235	)		$	(30	)		$	(1,265	)
(In millions)		Energy				Interest
Six months ended June 30, 2007		Commodities				Rate				Total
Accumulated OCI balance at December 31, 2006		$	193			$	16			$	209
Realized from OCI during the period:
— Due to realization of previously deferred amounts			(27	)			—				(27	)
Mark-to-market of hedge contracts			(311	)			14				(297	)
Accumulated OCI balance at June 30, 2007		$	(145	)		$	30			$	(115	)

     As of June 30, 2008 and 2007, the net balances in OCI relating to SFAS 133 were unrecognized losses of approximately $1,265 million and $115 million, which were net of income taxes of $829 million and $77 million, respectively.

     Statement of Operations

     In accordance with SFAS 133, unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted for as hedge derivatives and ineffectiveness of hedge derivatives are reflected in current period earnings.

     The following table summarizes the pre-tax effects of non-hedge derivatives, derivatives that did not qualify as hedges, and ineffectiveness of hedge derivatives on NRG’s statement of operations. These amounts are included within operating revenues.

		Three Months ended June 30,								Six months ended June 30,
(In millions)		2008				2007				2008				2007
Unrealized mark-to-market results
Reversal of previously recognized unrealized gains on settled positions related to economic hedges		$	(15	)		$	(35	)		$	(25	)		$	(92	)
Reversal of previously recognized unrealized gains on settled positions related to trading activity			(7	)			(8	)			(12	)			(21	)
Net unrealized (losses)/gains on open positions related to economic hedges			(162	)			100				(259	)			21
(Loss)/gain on ineffectiveness associated with trades treated as cash flow hedges			(333	)			(21	)			(378	)			23
Net unrealized gains on open positions related to trading activity			15				7				31				22
Total unrealized mark-to-market results		$	(502	)		$	43			$	(643	)		$	(47	)

Note 6 — Long Term Debt

     Debt Related to NRG Common Stock Finance I, LLC

     In March 2008, the Company executed an arrangement with Credit Suisse to extend the notes and preferred interest maturities of NRG Common Stock Finance I, LLC, or CSF I, from October 2008 to June 2010. In addition, the settlement date for any share price appreciation beyond a 20% compound annual growth rate since the original date of purchase by CSF I was extended 30 days to early December 2008. As part of this extension arrangement, the Company contributed 795,503 treasury shares to CSF I as additional collateral to maintain a blended interest rate in the CSF I facility of approximately 7.5%. Accordingly, the amount due at maturity in June 2010 for the CSF I notes and preferred interests will be $248 million.

     Senior Credit Facility

     Beginning in 2008, NRG must annually offer a portion of its excess cash flow (as defined in the Senior Credit Facility) for the prior year to its first lien lenders under the Company’s Term B loan. The percentage of the excess cash flow offered to these lenders is dependent upon the Company’s consolidated leverage ratio (as defined in the Senior Credit Facility) at the end of the preceding year. Of the amount offered, the first lien lenders must accept 50%, while the remaining 50% may either be accepted or rejected at the lenders’ option. The mandatory annual offer required for 2008 was $446 million, against which the Company made a prepayment of $300 million in December 2007. Of the remaining $146 million, the lenders accepted a repayment of $143 million in March 2008. The amount retained by the Company can be used for investments, capital expenditures and other items as permitted by the Senior Credit Facility.

Note 7 — Changes in Capital Structure

     The following table reflects the changes in NRG’s common stock issued and outstanding during the six months ended June 30, 2008:

		Authorized				Issued				Treasury				Outstanding
Balance as of December 31, 2007			500,000,000				261,285,529				(24,550,600	)			236,734,929
2008 Capital Allocation Program			—				—				(1,281,600	)			(1,281,600	)
Shares issued from LTIP			—				522,490				—				522,490
Balance as of June 30, 2008			500,000,000				261,808,019				(25,832,200	)			235,975,819

     Treasury Stock

     In December 2007, the Company initiated its 2008 Capital Allocation Program, with the repurchase of 2,037,700 shares of NRG common stock during that month for approximately $85 million. This was followed in January 2008 with the repurchase of an additional 344,000 shares of NRG common stock for approximately $15 million. In February 2008, the Company’s Board of Directors authorized an additional $200 million in common share repurchases that would raise the total 2008 Capital Allocation Program to approximately $300 million. In March 2008, the Company repurchased an additional 937,600 shares of NRG common stock in the open market for approximately $40 million. As of June 30, 2008, NRG had repurchased a total of 3,319,300 shares of NRG common stock at a cost of approximately $140 million as part of its 2008 Capital Allocation Program.

Note 8 — Equity Compensation

     Non-Qualified Stock Options, or NQSO’s

     The following table summarizes the Company’s NQSO activity as of June 30, 2008 and the changes during the six months then ended:

						Weighted				Aggregate Intrinsic
						Average				Value
		Shares				Exercise Price				(In millions)
Outstanding as of December 31, 2007			3,579,775			$	19.98
Granted			1,022,300				42.72
Forfeited			(28,701	)			32.98
Exercised			(476,052	)			15.81
Outstanding at June 30, 2008			4,097,322				26.04			$	69
Exercisable at June 30, 2008			2,030,416			$	17.50				52

     The weighted average grant date fair value of NQSO’s granted for the six months ending June 30, 2008 was $11.10.

     Restricted Stock Units, or RSU’s

     The following table summarizes the Company’s non-vested RSU awards as of June 30, 2008 and changes during the six months then ended:

						Weighted Average
						Grant-Date
Non-vested Shares			Shares			Fair Value Per Unit
Non-vested as of December 31, 2007			1,588,316			$	26.99
Granted			145,300				41.79
Vested			(16,400)				18.26
Forfeited			(37,010)				30.74
Non-vested as of June 30, 2008			1,680,206			$	28.27

     Performance Units, or PU’s

     The following table summarizes the Company’s non-vested PU awards as of June 30, 2008 and changes during the six months then ended:

						Weighted Average
						Grant- Date
Non-vested Shares		Shares				Fair Value Per Unit
Non-vested as of December 31, 2007			536,764			$	20.18
Granted			197,900				28.94
Forfeited			(12,500)				20.75
Non-vested as of June 30, 2008			722,164			$	22.57

Employee Stock Purchase Plan

     In May 2008, NRG shareholders approved the adoption of the NRG Energy, Inc. Employee Stock Purchase Plan, or ESPP, pursuant to which eligible employees may elect to withhold up to 10% of their eligible compensation to purchase shares of NRG common stock at 85% of its fair market value on the exercise date. An exercise date occurs each June 30 and December 31. The initial six month employee withholding period began July 1, 2008 and ends December 31, 2008. There are 500,000 shares of treasury stock reserved for issuance under the ESPP.

Note 9 — Earnings Per Share

     Basic earnings per common share is computed by dividing net income/(loss) adjusted for accumulated preferred stock dividends by the weighted average number of common shares outstanding. Shares issued and treasury shares repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted earnings per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period.

     The reconciliation of basic earnings per common share to diluted earnings per share is as follows:

		Three Months ended June 30,								Six months ended June 30,
(In millions, except per share data)		2008				2007				2008				2007
Basic earnings per share
Numerator:
(Loss)/income from continuing operations		$	(39	)		$	143			$	9			$	204
Preferred stock dividends			(14	)			(14	)			(28	)			(28	)
Net (loss)/income available to common stockholders from continuing operations			(53	)			129				(19	)			176
Discontinued operations, net of income tax expense			168				6				172				10
Net income available to common stockholders		$	115			$	135			$	153			$	186
Denominator:
Weighted average number of common shares outstanding			235.9				240.3				236.1				241.1
Basic earnings per share:
(Loss)/income from continuing operations		$	(0.22	)		$	0.54			$	(0.08	)		$	0.73
Discontinued operations, net of income tax expense			0.71				0.02				0.73				0.04
Net income		$	0.49			$	0.56			$	0.65			$	0.77
Diluted earnings per share
Numerator:
Net (loss)/income available to common stockholders from continuing operations		$	(53	)		$	129			$	(19	)		$	176
Add preferred stock dividends for dilutive preferred stock			—				11				—				8
Adjusted (loss)/income from continuing operations available to common shareholders			(53	)			140				(19	)			184
Discontinued operations, net of tax			168				6				172				10
Net income available to common stockholders		$	115			$	146			$	153			$	194
Denominator:
Weighted average number of common shares outstanding			235.9				240.3				236.1				241.1
Incremental shares attributable to the issuance of equity compensation (treasury stock method)			—				3.7				—				3.5
Incremental shares attributable to embedded derivatives of certain financial instruments (if-converted method)			—				6.5				—				7.4
Incremental shares attributable to assumed conversion features of outstanding preferred stock (if-converted method)			—				37.5				—				21.0
Total dilutive shares			235.9				288.0				236.1				273.0
Diluted earnings per share:
(Loss)/income from continuing operations available to common shareholders		$	(0.22	)		$	0.49			$	(0.08	)		$	0.67
Income from discontinued operations, net of tax			0.71				0.02				0.73				0.04
Net income		$	0.49			$	0.51			$	0.65			$	0.71

     For the three and six months ended June 30, 2008, basic and diluted per share amounts were the same within each period reported because potential common shares had an anti-dilutive effect on loss from continuing operations available to common shares and were excluded from the computation.

Effects on Earnings per Share

     The following table summarizes NRG’s outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company’s diluted earnings per share:

		Three months ended June 30,								Six months ended June 30,
(In millions of shares)		2008				2007				2008				2007
Equity compensation			7.5				—				7.5				0.5
4.0% convertible preferred stock			21.0				—				21.0				—
5.75% convertible preferred stock			16.5				—				16.5				16.5
Embedded derivative of 3.625% convertible perpetual preferred stock			16.0				11.8				16.0				11.2
Embedded derivative of preferred interests and notes issued by CSF I and CSF II			18.3				16.0				18.3				15.7
Total			79.3				27.8				79.3				43.9

Note 10 — Segment Reporting

     The Company’s segment structure reflects NRG’s core areas of operation which are primarily the geographic regions of the Company’s wholesale power generation, thermal and chilled water business, and corporate activities. Within NRG’s wholesale power generation operations, there are distinct components with separate operating results and management structures for the following regions: Texas, Northeast, South Central, West and International.

(In millions)		Wholesale Power Generation
Three months ended										South
June 30, 2008		Texas				Northeast				Central				West				International				Thermal				Corporate				Elimination				Total
Operating revenues		$	751			$	265			$	172			$	49			$	43			$	34			$	3			$	(1	)		$	1,316
Depreciation and amortization			113				25				17				3				—				2				1				—				161
Equity in (losses)/earnings of unconsolidated affiliates			(32	)			—				—				(1	)			14				—				—				—				(19	)
Income/(loss) from continuing operations before income taxes			14				(45	)			(6	)			13				23				2				(83	)			(10	)			(92	)
Income from discontinued operations, net of income taxes			—				—				—				—				168				—				—				—				168
Net income/(loss)		$	13			$	(45	)		$	(6	)		$	13			$	186			$	2			$	(24	)		$	(10	)		$	129
Total assets		$	12,105			$	1,334			$	1,804			$	579			$	1,081			$	277			$	18,247			$	(8,638	)		$	26,789
(In millions)		Wholesale Power Generation
Three months ended										South
June 30, 2007		Texas				Northeast				Central				West				International				Thermal				Corporate				Elimination				Total
Operating revenues		$	875			$	395			$	164			$	29			$	32			$	37			$	17			$	(13	)		$	1,536
Depreciation and amortization			114				24				17				1				—				3				2				—				161
Equity in (losses)/earnings of unconsolidated affiliates			—				—				—				(1	)			9				—				—				—				8
Income/(loss) from continuing operations before income taxes			236				110				(4	)			8				16				5				(116	)			(12	)			243
Income from discontinued operations, net of income taxes			—				—				—				—				6				—				—				—				6
Net income/(loss)		$	134			$	110			$	(4	)		$	8			$	17			$	5			$	(109	)		$	(12	)		$	149

(In millions)		Wholesale Power Generation
Six months ended										South
June 30, 2008		Texas				Northeast				Central				West				International				Thermal				Corporate				Elimination				Total
Operating revenues		$	1,400			$	625			$	351			$	87			$	81			$	78			$	(2	)		$	(2	)		$	2,618
Depreciation and amortization			226				51				34				4				—				5				2				—				322
Equity in (losses)/earnings of unconsolidated affiliates			(50	)			—				—				(3	)			30				—				—				—				(23	)
Income/(loss) from continuing operations before income taxes			81				14				33				25				47				7				(187	)			(10	)			10
Income from discontinued operations, net of income taxes			—				—				—				—				172				—				—				—				172
Net income/(loss)		$	50			$	14			$	33			$	25			$	210			$	7			$	(148	)		$	(10	)		$	181
(In millions)		Wholesale Power Generation
Six months ended										South
June 30, 2007		Texas				Northeast				Central				West				International				Thermal				Corporate				Elimination				Total
Operating revenues		$	1,570			$	737			$	314			$	57			$	64			$	86			$	22			$	(15	)		$	2,835
Depreciation and amortization			228				49				34				1				—				6				3				—				321
Equity in (losses)/earnings of unconsolidated affiliates			—				—				—				(3	)			24				—				—				—				21
Income/(loss) from continuing operations before income taxes			349				148				6				13				35				28				(208	)			(12	)			359
Income from discontinued operations, net of income taxes			—				—				—				—				10				—				—				—				10
Net income/(loss)		$	194			$	148			$	6			$	13			$	34			$	28			$	(197	)		$	(12	)		$	214

Note 11 — Income Taxes

     Income tax (benefit)/expense from continuing operations for the three months and six months ended June 30, 2008 was ($53) million and $1 million, respectively, compared to $100 million and $155 million for the three and six months ended June 30, 2007, respectively. The income tax expense for the three months and six months ended June 30, 2008 included domestic tax benefit of ($58) million and ($8) million, respectively, and foreign tax expense of $5 million and $9 million, respectively. The income tax expense for the three and six months ended June 30, 2007 included domestic tax expense of $95 million and $143 million, respectively, and foreign tax expense of $5 million and $12 million, respectively.

     A reconciliation of the U.S. statutory rate to NRG’s effective tax rate from continuing operations is as follows:

(In millions except percentages)
Six months ended June 30,		2008				2007
Income from continuing operations before income taxes		$	10			$	359
Tax at 35%			4				126
State taxes			(1	)			16
Valuation allowance			(1	)			1
Foreign operations			(8	)			(1	)
Foreign dividend			5				8
Non-deductible interest			5				5
Other permanent differences including subpart F income			(3	)			—
Income tax expense		$	1			$	155
Effective income tax rate			10.0	%			43.2	%

     The effective income tax rate for the six months ended June 30, 2008 and 2007 differs from the U.S. statutory rate of 35% due to a taxable dividend from foreign operations and non-deductible interest, offset by earnings in foreign jurisdictions that are taxed at rates lower than the U.S. statutory rate.

     Deferred tax assets and valuation allowance

     Net deferred tax balance — As of June 30, 2008, NRG recorded a net deferred tax asset of $587 million. However, due to an assessment of positive and negative evidence, including projected capital gains and available tax planning strategies, NRG believes that it is more likely than not that a benefit will not be realized on $552 million of tax assets, thus a valuation allowance has remained, resulting in a net deferred tax asset of $35 million.

     NOL carryforwards — As of June 30, 2008, the Company had cumulative foreign NOL carryforwards of $307 million, of which $78 million will expire starting in 2011 through 2017 and $229 million do not have an expiration date.

     Uncertain tax benefits

     NRG has identified certain unrecognized tax benefits whose after-tax value was $709 million, of which $36 million would impact the Company’s income tax expense. Of the $709 million in unrecognized tax benefits, $673 million relates to periods prior to the Company’s emergence from bankruptcy. In accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, and the application of fresh start accounting, recognition of previously unrecognized tax benefits existing pre-emergence would not impact the Company’s effective tax rate but would increase additional paid-in capital, or APIC. In accordance with SFAS 141R, any changes to our uncertain tax benefits occurring after January 1, 2009 will be credited to income tax expense rather than APIC.

      As of June 30, 2008, NRG has recorded a $239 million non-current tax liability for unrecognized tax benefits, resulting from taxable earnings for the period, which for financial statement purposes there are insufficient NOLs available to offset. NRG accrued interest and penalties related to these unrecognized tax benefits of approximately $4 million as of June 30, 2008. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. For the six months ended June 30, 2008, the Company incurred an immaterial amount of interest and penalties related to its unrecognized tax benefits.

     Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including major operations located in Germany and Australia. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2002. With few exceptions, state and local income tax examinations are no longer open for years before 2003. The Company’s significant foreign operations are also no longer subject to examination by local jurisdictions for years prior to 2000.

     The Company has been contacted for examination by the Internal Revenue Service for years 2004 through 2006. The audit is expected to commence in third quarter 2008 and continue for approximately 18 to 24 months.

Note 12 — Benefit Plans and Other Postretirement Benefits

     NRG Defined Benefit Plans

     NRG sponsors and operates three defined benefit pension and other postretirement plans. The NRG Plan for Bargained Employees and the NRG Plan for Non-Bargained Employees are maintained solely for eligible legacy NRG participants. A third plan, the Texas Genco Retirement Plan, is maintained for participation solely by eligible Texas-based employees. The total amount of employer contributions paid for the six months ended June 30, 2008 was $23 million. NRG expects to make $42 million in further contributions for the remainder of 2008.

     The net periodic pension cost related to all of the Company’s defined benefit pension plans includes the following components:

		Defined Benefit Pension Plans
		Three months ended June 30,								Six months ended June 30,
(In millions)		2008				2007				2008				2007
Service cost benefits earned		$	3			$	4			$	7			$	8
Interest cost on benefit obligation			4				5				9				9
Net gain			(1	)			—				(1	)			—
Expected return on plan assets			(3	)			(3	)			(7	)			(6	)
Net periodic benefit cost		$	3			$	6			$	8			$	11
The net periodic cost related to all of the Company’s other postretirement benefits plans include the following components:
		Other Postretirement Benefits Plans
		Three months ended June 30,								Six months ended June 30,
(In millions)		2008				2007				2008				2007
Service cost benefits earned		$	—			$	—			$	1			$	1
Interest cost on benefit obligation			2				1				3				2
Net periodic benefit cost		$	2			$	1			$	4			$	3