Description of Business and Accounting and Reporting Policies

3 Months Ended

Mar. 31, 2012

Description of Business and Accounting and Reporting Policies

Description of Business and Accounting and Reporting Policies

1. Description of Business and Accounting and Reporting Policies

Background

GenOn Americas Generation is a wholesale generator with approximately 9,729 MW of net electric generating capacity located, in many cases, near major metropolitan load centers in the Eastern PJM and Northeast regions and northern California. GenOn Americas Generation also operates integrated asset management and proprietary trading operations. See note 2 for a discussion of two generating facilities that we expect to retire in 2012 and 2013.

GenOn Mid Atlantic operates and owns or leases 5,209 MW of net electric generating capacity in the Washington, D.C. area. GenOn Mid-Atlantic’s electric generating capacity is part of the 9,729 MW of net electric generating capacity of GenOn Americas Generation. GenOn Mid-Atlantic’s generating facilities serve the Eastern PJM markets. The PJM ISO operates the largest centrally dispatched control area in the United States.

We are Delaware limited liability companies and indirect wholly-owned subsidiaries of GenOn. GenOn Mid-Atlantic is a wholly-owned subsidiary of GenOn North America and an indirect wholly-owned subsidiary of GenOn Americas Generation.

We have a number of service arrangements for labor and administrative services with GenOn Energy Services. GenOn Energy Management provides services to certain operating subsidiaries of GenOn Americas, outside of GenOn Americas Generation, which include the bidding and dispatch of the generating units, fuel procurement and the execution of contracts, including economic hedges, to reduce price risk. See note 5.

Basis of Presentation

The consolidated interim financial statements and notes (interim financial statements) are unaudited, omit certain disclosures and should be read in conjunction with our audited consolidated financial statements and notes in our 2011 Annual Report on Form 10-K. These interim financial statements have been prepared in accordance with GAAP from records maintained by us. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim financial statements reflect all normal recurring adjustments necessary, in management’s opinion, to present fairly our financial position and results of operations for the reported periods. Amounts reported for interim periods may not be indicative of a full year period because of seasonal fluctuations in demand for electricity and energy services, changes in commodity prices, and changes in regulations, timing of maintenance and other expenditures, dispositions, changes in interest expense and other factors.

At December 31, 2011 and March 31, 2012, substantially all of our subsidiaries are wholly-owned and located in the United States. We do not consolidate two power generating facilities, which are under operating leases.

The preparation of interim financial statements in conformity with GAAP requires management to make various estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Our significant estimates include:

· estimating the fair value of certain derivative contracts;

· estimating the inventory reserve;

· estimating the useful lives of long-lived assets;

· estimating future costs and the valuation of asset retirement obligations;

· estimating future cash flows in determining impairments of long-lived assets and definite-lived intangible assets; and

· estimating losses to be recorded for contingent liabilities.

We evaluate events that occur after the balance sheet date but before the financial statements are issued for potential recognition or disclosure. Based on the evaluation, we determined that there were no material subsequent events for recognition or disclosure other than those disclosed herein.

Funds on Deposit

Funds on deposit are included in current and noncurrent assets in the consolidated balance sheets. Funds on deposit include the following:

GenOn Americas Generation

	March 31, 2012		December 31, 2011
	(in millions)

GenOn Mid-Atlantic restricted cash(1)	$	166	$	166
Cash collateral posted — energy trading and marketing	104		118
Cash collateral posted — other operating activities(2)	58		38
Total current and noncurrent funds on deposit	328		322
Less: Current funds on deposit	322		316
Total noncurrent funds on deposit	$	6	$	6

(1) Represents cash reserved in respect of interlocutory liens related to the scrubber contract litigation. See note 8.

(2) Includes $32 million related to the Potomac River settlement. See note 2.

GenOn Mid-Atlantic

	March 31, 2012		December 31, 2011
	(in millions)

GenOn Mid-Atlantic restricted cash(1)	$	166	$	166
Cash collateral posted(2)	32		32
Total current and noncurrent funds on deposit	198		198
Less: Current funds on deposit	198		198
Total noncurrent funds on deposit	$	—	$	—

(1) Represents cash reserved in respect of interlocutory liens related to the scrubber contract litigation. See note 8.

(2) Represents amount related to the Potomac River settlement. See note 2.

Inventories

Inventories were comprised of the following:

GenOn Americas Generation

	March 31, 2012		December 31, 2011
	(in millions)

Fuel inventory:
Coal	$	101	$	92
Fuel oil	63		68
Natural gas	—		1
Other	3		3
Materials and supplies(1)	69		74
Purchased emissions allowances	32		19
Total inventories	$	268	$	257

(1) Amount is net of an inventory reserve of $6 million and $0 at March 31, 2012 and December 31, 2011, respectively. See note 2.

GenOn Mid-Atlantic

	March 31, 2012		December 31, 2011
	(in millions)

Fuel inventory:
Coal	$	101	$	92
Fuel oil	18		20
Other	3		3
Materials and supplies(1)	48		52
Total inventories	$	170	$	167

(1) Amount is net of an inventory reserve of $4 million and $0 at March 31, 2012 and December 31, 2011, respectively. See note 2.

During the three months ended March 31, 2012 and 2011, GenOn Americas Generation recorded $25 million and $0, respectively, for lower of average cost or market valuation adjustments in cost of fuel, electricity and other products.

During the three months ended March 31, 2012 and 2011, GenOn Mid-Atlantic recorded $25 million and $0, respectively, for lower of average cost or market valuation adjustments in cost of fuel, electricity and other products.

Capitalization of Interest Cost (GenOn Americas Generation)

GenOn Americas Generation incurred the following interest costs:

	Three Months Ended March 31,
	2012			2011
	(in millions)

Total interest costs	$	19		$	31
Capitalized and included in property, plant and equipment, net	(1		)	(1		)
Interest expense	$	18		$	30

The amounts of capitalized interest above include interest accrued. During the three months ended March 31, 2012 and 2011, no cash was paid for interest.

Guarantees and Indemnifications (GenOn Americas Generation)

GenOn generally conducts its business through various holding companies, including GenOn Americas Generation, and various operating subsidiaries, which enter into contracts as part of their business activities. In certain instances, the contractual obligations of such subsidiaries are guaranteed by, or otherwise supported by, GenOn or another of its subsidiaries, including by letters of credit issued under the GenOn credit facilities. At March 31, 2012, $151 million of letters of credit was posted by GenOn for the benefit of GenOn Americas Generation.

In addition, GenOn Americas Generation and its subsidiaries enter into various contracts that include indemnification and guarantee provisions. Examples of these contracts include financing and lease arrangements, purchase and sale agreements, agreements to purchase or sell commodities, construction agreements and agreements with vendors. Although the primary obligation of GenOn Americas Generation or a subsidiary under such contracts is to pay money or render performance, such contracts may include obligations to indemnify the counterparty for damages arising from the breach thereof and, in certain instances, other existing or potential liabilities. In many cases GenOn Americas Generation’s maximum potential liability cannot be estimated because some of the underlying agreements contain no limits on potential liability.

Recently Adopted Accounting Guidance

Fair Value Measurement and Disclosure. We adopted FASB accounting guidance for the quarter ended March 31, 2012 that requires disclosure of the following:

· quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy;

· for those fair value measurements categorized within Level 3 of the fair value hierarchy, both the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any; and

· the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed.

See note 3 for these additional disclosures.

New Accounting Guidance Not Yet Adopted at March 31, 2012

Balance Sheet Offsetting. In December 2011, the FASB issued updated guidance to provide enhanced disclosures such that users of the financial statements will be able to better evaluate the effect or potential effect of netting arrangements in the balance sheet. The guidance requires improved information about financial instruments and derivative instruments that are either offset according to specific guidance or subject to an enforceable master netting agreement or similar arrangement. The disclosures will provide both net and gross information for these assets and liabilities. Although we do not currently elect to offset assets and liabilities within the scope of the guidance, expanded disclosures will be required starting for the quarter ended March 31, 2013, along with retrospective presentation of prior periods.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

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+ Details

GENON MID-ATLANTIC, LLC 10-Q