Clearway Energy, Inc.: Form 10-Q for the period ended Mar 31, 2026

The following discussion analyzes the Company’s historical financial condition and results of operations.

As you read this discussion and analysis, refer to the Company’s consolidated financial statements to this Form 10-Q, which present the results of operations for the three months ended March 31, 2026 and 2025. Also refer to the Company’s 2025 Form 10-K, 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 statements 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.

Executive Summary

Introduction and Overview

Clearway Energy, Inc., together with its consolidated subsidiaries, or the Company, is a publicly-traded energy infrastructure investor with a focus on investments in clean energy and owner of modern, sustainable and long-term contracted assets across North America. The Company is sponsored by Clearway Energy Group LLC, or CEG.

The Company is one of the largest owners of clean energy generation assets in the U.S. The Company’s portfolio comprises approximately 13.6 GW of gross capacity in 27 states, including approximately 10.8 GW of wind, solar and battery energy storage systems, or BESS, and approximately 2.8 GW of dispatchable combustion-based power generation assets included in the Flexible Generation segment that provide critical grid reliability services. Through this environmentally-sound, diversified and primarily contracted portfolio, the Company endeavors to provide its investors with stable and growing dividend income. The majority of the Company’s revenues are derived from long-term contractual arrangements for the output or capacity from these assets. The weighted average remaining contract duration of the Company’s Renewables & Storage segment offtake agreements was approximately 12 years as of March 31, 2026 based on CAFD.

As of March 31, 2026, the Company’s operating assets are comprised of the following facilities:

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(a) For owned facilities, net capacity represents the maximum, or rated, generating or storage capacity of the facility multiplied by the Company’s percentage ownership in the facility as of March 31, 2026.

(b) Facilities are part of tax equity arrangements, as further described in Note 4, Investments Accounted for by the Equity Method and Variable Interest Entities.

(c) Facilities are part of the Cardinal Portfolio acquisition, which closed on March 30, 2026, as further described in Note 3, Acquisitions.

(d) The Company leases 100% of the interests in the Catalina solar facility through a facility lease agreement that expires in October 2043.

(e) The Goat Mountain wind facility commenced repowering activities in February 2026 and was taken offline. Repowering commercial operations is expected to occur in the second half of 2027.

(f) Rattlesnake has a deliverable capacity of 144 MW.

Significant Events

Third-Party Acquisitions

• On March 30, 2026, the Company, through its indirect subsidiaries, Cardinal Purchaser LLC and Cardinal JV Purchaser LLC, completed the acquisition of the Cardinal Portfolio for total cash consideration of $324 million, subject to post-closing adjustments. Of the total consideration, $244 million was paid by Cardinal Purchaser LLC related to facilities consolidated by the Company and $80 million was paid by Cardinal JV Purchaser LLC related to facilities held through a joint venture with a third-party investor, recorded as an equity method investment. After factoring in cash acquired, transaction expenses and proceeds from the related financing activities, the Company estimates that its net capital investment in the Cardinal Portfolio will be approximately $240 million. See Note 3, Acquisitions, for further discussion of the transaction.

Financing Activities

• On May 1, 2026, when the Honeycomb Portfolio BESS facilities reached substantial completion, the Company paid $81 million to Clearway Renew as additional purchase price in connection with the Company’s acquisition of Honeycomb TargetCo from Clearway Renew on October 15, 2025. The Company’s total capital investment in Honeycomb TargetCo was $97 million. Also, on May 1, 2026, the tax equity investor in Honeycomb TE Holdco LLC contributed an additional $254 million, which was utilized along with the $60 million previously held in escrow, to repay the tax equity bridge loan and to pay associated fees with the remaining proceeds distributed to CEG. See Note 7, Long-term Debt, for further discussion of the transaction.
• On March 30, 2026, the Company, through its indirect subsidiary, Cardinal Investment Holdco LLC, borrowed $100 million under a new financing arrangement that was entered into in February 2026 to partially fund the acquisition of the Cardinal Portfolio. In connection with the acquisition, the Company also assumed non-recourse facility-level debt associated with certain of the acquired facilities. See Note 7, Long-term Debt, for further discussion of the financing arrangement and assumed non-recourse facility-level debt.
• On March 27, 2026, the Company restructured its existing energy‑related commodity contract associated with the Mesquite Sky wind facility, which resulted in an in-substance financing to settle derivative liabilities over time. The term financing obligation has an initial carrying amount of $127 million and total payments over the term of the arrangement are $162 million. In connection with the restructuring, the Company also entered into a 15‑year PPA with an investment‑grade counterparty. See Note 7, Long-term Debt, for further discussion of the Mesquite Sky restructuring.
• On February 27, 2026, the Company, through its indirect subsidiaries, Goat Mountain Class B Holdco LLC and Goat Wind LLC, as co-borrowers, entered into a financing arrangement for non-recourse debt for a total commitment of $703 million. The Company made initial borrowings under the arrangement to fund costs associated with the Goat Mountain repowering, including payments under the development services agreement with Clearway Renew. See Note 7, Long-term Debt, and Note 12, Related Party Transactions, for further discussion.
• On January 15, 2026, the Company repaid the $231 million outstanding on the Pine Forest tax credit transfer bridge loan utilizing the proceeds received from the sale of transferable ITCs and distributed the remaining $51 million to CEG, as further described in Note 7, Long-term Debt, and Note 11, Income Taxes.
• On January 13, 2026, Clearway Energy Operating LLC completed the sale of $600 million aggregate principal amount of 5.75% senior unsecured notes due 2034, or the 2034 Senior Notes. See Note 7, Long-term Debt, for further discussion of the 2034 Senior Notes.

Environmental Matters

The Company is subject to a wide range of environmental laws during the development, construction, ownership and operation of facilities. These existing and future laws generally require that governmental permits and approvals be obtained before construction and maintained during operation of facilities. The Company is obligated to comply with all environmental laws and regulations applicable within each jurisdiction and required to implement environmental programs and procedures to monitor and control risks associated with the construction, operation and decommissioning of regulated or permitted energy assets. Federal, state and local environmental laws have historically become more stringent over time, although this trend has recently shifted at the federal level.

The Company’s environmental matters are further described in the Company’s 2025 Form 10-K in Item 1, Business — Environmental Matters and Item 1A, Risk Factors.

Regulatory Matters

The Company’s regulatory matters are described in Item 1, Business — Regulatory Matters and Item 1A, Risk Factors, of the Company’s 2025 Form 10-K.

Consolidated Results of Operations

The following table provides selected financial information:

(In millions)

(a) Volumes do not include the MWh generated/sold by the Company’s equity method investments.

(b) Typical average capacity factors for solar facilities is 25%. The weighted-average capacity factors can vary based on seasonality and weather.

(c) Typical average capacity factors for wind facilities is 25-45%. The weighted-average capacity factors can vary based on seasonality and weather.

Management’s Discussion of the Results of Operations for the Three Months Ended March 31, 2026 and 2025

Operating Revenues

Operating revenues increased by $56 million during the three months ended March 31, 2026, compared to the same period in 2025, due to a combination of the drivers summarized in the table below:

(In millions)

Depreciation, Amortization and Accretion

Depreciation, amortization and accretion increased by $19 million during the three months ended March 31, 2026, compared to the same period in 2025, primarily due to the solar and BESS acquisitions referenced above.

Interest Expense

Interest expense decreased by $15 million during the three months ended March 31, 2026, compared to the same period in 2025, primarily due to the following:

(In millions)

Income Tax Benefit

For the three months ended March 31, 2026, the Company recorded an income tax benefit of $2 million on a pretax loss of $70 million. For the same period in 2025, the Company recorded an immaterial income tax expense on a pretax loss of $104 million. The $2 million increase in income tax benefit during the three months ended March 31, 2026, compared to the same period in 2025, was primarily due to the allocation of taxable earnings and losses, which includes the effect of applying the HLBV method of accounting for book purposes for certain partnerships.

Net Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

For the three months ended March 31, 2026, the Company had net income of $95 million attributable to noncontrolling interests and redeemable noncontrolling interests comprised of the following:

(In millions)

For the three months ended March 31, 2025, the Company had a net loss of $101 million attributable to noncontrolling interests comprised of the following:

(In millions)

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Liquidity and Capital Resources

The Company’s principal liquidity requirements are to meet its financial commitments, finance current operations, fund capital expenditures, including investments and acquisitions from time to time, service debt and pay dividends. 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, investments, 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.

Current Liquidity Position

As of March 31, 2026 and December 31, 2025, the Company’s liquidity was approximately $1,229 million and $1,061 million, respectively, comprised of cash, restricted cash and availability under the Company’s revolving credit facility.

(In millions)

The Company’s liquidity includes $355 million and $587 million of restricted cash balances as of March 31, 2026 and December 31, 2025, respectively. Restricted cash consists primarily of funds to satisfy the requirements of certain debt arrangements and funds held within the Company’s facilities that are restricted in their use. As of March 31, 2026, these restricted funds were comprised of $141 million designated to fund operating expenses, approximately $97 million designated for current debt service payments and $85 million restricted for reserves including debt service, performance obligations and other reserves, as well as capital expenditures. The remaining $32 million is held in distribution reserve accounts. In January 2026, the Company distributed $174 million to the tax equity investor in Rosie South TE Holdco LLC related to transferable ITCs for the Rosamond South I solar and BESS facility that were included in restricted cash as of December 31, 2025.

Clearway Energy LLC and Clearway Energy Operating LLC Revolving Credit Facility

As of March 31, 2026, the Company had no outstanding borrowings under the revolving credit facility and $151 million in letters of credit outstanding. During January 2026, the Company repaid all of the outstanding borrowings under the revolving credit facility utilizing the proceeds from the sale of the 2034 Senior Notes. The facility will continue to be used for general corporate purposes including financing of future investments or acquisitions and posting letters of credit.

Management believes that the Company’s liquidity position, cash flows from operations and availability under its revolving credit facility will be adequate to meet the Company’s financial commitments; debt service obligations; growth, operating and maintenance capital expenditures; and to fund dividends to holders of the Company’s Class C common stock. Management continues to regularly monitor the Company’s ability to finance the needs of its operating, financing and investing activities within the dictates of prudent balance sheet management.

Credit Ratings

Credit rating agencies rate a firm’s public debt securities. These ratings are utilized by the debt markets in evaluating a firm’s credit risk. Ratings influence the price paid to issue new debt securities by indicating to the market the Company’s ability to pay principal, interest and preferred dividends. Rating agencies evaluate a firm’s industry, cash flow, leverage, liquidity and hedge profile, among other factors, in their credit analysis of a firm’s credit risk.

The following table summarizes the credit ratings for the Company and its Senior Notes as of March 31, 2026:

Sources of Liquidity

The Company’s principal sources of liquidity include cash on hand, cash generated from operations, proceeds from sales of assets, borrowings under new and existing financing arrangements, and the issuance of additional equity and debt securities as appropriate given market conditions. As described in Note 7, Long-term Debt, and Note 9, Changes in Capital Structure, to this Form 10-Q, and Item 15 — Note 10, Long-term Debt, and Note 12, Stockholders’ Equity, to the consolidated financial statements included in the Company’s 2025 Form 10-K, and further below, the Company’s financing arrangements consist of corporate-level debt, which includes Senior Notes and the revolving credit facility; facility-level financings for its various assets; the ATM Program and the DSPP.

Goat Mountain Repowering Financing — On February 27, 2026, the Company, through its indirect subsidiaries, Goat Mountain Class B Holdco LLC and Goat Wind LLC, as co-borrowers, entered into a financing arrangement for non-recourse debt for a total commitment of $703 million, which consists of a construction loan that converts to a five-year term loan upon substantial completion of the repowering, as well as bridge loans to be repaid with the proceeds from the tax equity investor. The construction loan and bridge loans bear interest at a rate of SOFR plus 1.50% and mature on the term conversion date. The initial borrowing of $140 million was primarily used to fund costs associated with the Goat Mountain repowering, including payments under the development services agreement, deferred debt issuance costs and capital expenditures. Under the financing arrangement, the Company borrowed $151 million through March 31, 2026. The Company estimates that its total capital investment in the Goat Mountain repowering will be $200 million, subject to closing adjustments.

2034 Senior Notes — On January 13, 2026, Clearway Energy Operating LLC completed the sale of $600 million aggregate principal amount of senior unsecured notes due 2034, or the 2034 Senior Notes. The 2034 Senior Notes bear interest at a rate of 5.750% per annum and mature on January 15, 2034. Interest on the 2034 Senior Notes is payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2026. The net proceeds from the 2034 Senior Notes were used to repay $361 million in outstanding borrowings under the revolving credit facility and for general corporate purposes.

Direct Stock Purchase Plan, or DSPP — In January 2026, the Company issued 1,445,244 shares of Class C common stock under the DSPP for gross proceeds of $50 million and incurred fees of less than $1 million, which were exchanged for 1,445,244 Class C units of Clearway Energy LLC. As of March 31, 2026, 1,061,554 shares of Class C common stock remained available for issuance under the DSPP.

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 Note 7, Long-term Debt; (ii) capital expenditures; (iii) off-balance sheet arrangements; (iv) acquisitions and investments, as described more fully in Note 3, Acquisitions, Note 7, Long-term Debt, and Note 9, Changes in Capital Structure; and (v) cash dividends to investors.

Capital Expenditures

The Company’s capital spending program is mainly focused on maintenance capital expenditures, consisting of costs to maintain the assets currently operating, such as costs to replace or refurbish assets during routine maintenance, and growth capital expenditures consisting of costs to construct new assets, costs to increase the operating capacity of existing assets and costs to complete the construction of assets where construction is in process.

For the three months ended March 31, 2026, the Company used approximately $75 million to fund capital expenditures, including growth expenditures of $70 million, primarily in the Renewables & Storage segment, funded through construction-related financing. Growth capital expenditures included $29 million incurred in connection with the Honeycomb Portfolio BESS facilities, $22 million incurred in connection with the Pine Forest solar and BESS facility, $17 million incurred in connection with the repowering of the Goat Mountain wind facility and $2 million incurred by other facilities. In addition, the Company incurred $5 million of maintenance capital expenditures.

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 March 31, 2026, the Company has several investments with an ownership interest percentage of 50% or less. GenConn is a VIE 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 $367 million as of March 31, 2026. This indebtedness may restrict the ability of these subsidiaries to issue dividends or distributions to the Company.

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, as disclosed in the Company’s 2025 Form 10-K.

Acquisitions and Investments

The Company intends to acquire generation assets developed and constructed by CEG, as well as generation assets from third parties where the Company believes its knowledge of the market and operating expertise provides a competitive advantage, and to utilize such acquisitions as a means to grow its business.

Honeycomb Portfolio Drop Down — On May 1, 2026, when the Honeycomb Portfolio BESS facilities reached substantial completion, the Company paid $81 million to Clearway Renew as additional purchase price in connection with the Company’s acquisition of Honeycomb TargetCo from Clearway Renew on October 15, 2025, which was funded with existing sources of liquidity. The Company’s total capital investment in Honeycomb TargetCo was $97 million. Also, on May 1, 2026, the tax equity investor in Honeycomb TE Holdco LLC contributed an additional $254 million, which was utilized along with the $60 million previously held in escrow, to repay the tax equity bridge loan and to pay associated fees with the remaining proceeds distributed to CEG. During 2026, the Company borrowed an additional $71 million in construction loans, and on May 1, 2026, the total outstanding construction loans were converted to a term loan.

Cardinal Portfolio Acquisition — On March 30, 2026, the Company, through its indirect subsidiaries, Cardinal Purchaser LLC and Cardinal JV Purchaser LLC, completed the acquisition of the Cardinal Portfolio for total cash consideration of $324 million, subject to post-closing adjustments. Of the total consideration, $244 million was paid by Cardinal Purchaser LLC related to facilities consolidated by the Company and $80 million was paid by Cardinal JV Purchaser LLC related to facilities held through a joint venture with a third-party investor. The Cardinal Portfolio has a weighted average remaining contract duration of approximately 10 years. The acquisition was funded with $100 million in borrowings under the new financing arrangement entered into in connection with the acquisition, as well as existing sources of liquidity. In connection with the acquisition, the Company also assumed non-recourse facility-level debt associated with certain of the acquired facilities. After factoring in cash acquired, transaction expenses and proceeds from the related financing activities, the Company estimates that its net capital investment in the Cardinal Portfolio will be approximately $240 million.

Mesquite Sky Restructuring — On March 27, 2026, the Company restructured its existing energy‑related commodity contract associated with the Mesquite Sky wind facility, which resulted in an in‑substance financing to settle existing derivative liabilities over time. As a result of the restructuring, the Company derecognized derivative liabilities with a fair value of $115 million, as well as $12 million owed to the counterparty that was previously included in other non‑current liabilities, and recognized a term financing obligation with an initial carrying amount of $127 million. The financing obligation is repaid through fixed monthly payments beginning in May 2026 and matures on September 30, 2035. Total payments over the term of the arrangement are $162 million, which implies an effective interest rate of approximately 5.436%. In connection with the restructuring, the Company also entered into a 15‑year PPA with an investment‑grade counterparty, which replaces the volumetric and price exposure of Mesquite Sky’s energy‑related commodity contract with more favorable pricing.

Pine Forest — On January 15, 2026, the Company repaid the $231 million outstanding on the tax credit transfer bridge loan utilizing the proceeds received from the sale of transferable ITCs and distributed the remaining $51 million to CEG, as further described in Note 7, Long-term Debt, and Note 11, Income Taxes.

Since the Company holds the Class A membership interests in Pine Forest TE HoldCo LLC through its ownership of Pine Forest TE Class A, net loss attributable to Clearway Energy, Inc. reflects HLBV allocations associated with Pine Forest’s tax attributes, including ITCs and accelerated tax depreciation. As a result, larger losses were allocated to the Company in the first quarter of 2026 relative to other partnerships and will continue to be allocated to the Company during the early stages of the facility’s operations. These losses are non-cash in nature and do not impact the Company’s liquidity.

Cash Dividends to Investors

The Company intends to use the amount of cash that it receives from its distributions from Clearway Energy LLC to pay quarterly dividends to the holders of its Class C common stock. Clearway Energy LLC intends to distribute to its unit holders in the form of a quarterly distribution all of the CAFD that is generated each quarter, less reserves for the prudent conduct of the business. Dividends on the Class C common stock are subject to available capital, market conditions and compliance with associated laws, regulations and other contractual obligations. The Company expects that, based on current circumstances, comparable cash dividends will continue to be paid in the foreseeable future.

The following table lists the dividends paid on the Company’s Class A common stock and Class C common stock during the three months ended March 31, 2026:

As a result of the Class A Conversion discussed in Note 9, Changes in Capital Structure, the Company no longer has any Class A common stock outstanding, and holders of the Company’s former Class A common stock converted into Class C common stock remain entitled to receive dividends, if declared by the Company, on the same basis as prior to the conversion.

On May 6, 2026, the Company declared quarterly dividends on its Class C common stock, including shares that were received in the Class A Conversion, of $0.4676 per share payable on June 15, 2026 to stockholders of record as of June 1, 2026.

Cash Flow Discussion

The following tables reflect the changes in cash flows for the comparative periods:

(In millions)

Net Cash Provided by Operating Activities

(In millions)

Net Cash Used in Investing Activities

(In millions)

Net Cash Used in Financing Activities

(In millions)

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NOLs, Deferred Tax Assets and Uncertain Tax Position Implications, under ASC 740

As of December 31, 2025, the Company had a cumulative federal NOL carryforward balance of $212 million for financial statement purposes, none of which were subject to expiration. Additionally, as of December 31, 2025, the Company had a cumulative state NOL carryforward balance of $100 million for financial statement purposes, which will expire between 2026 and 2042 if unutilized. The Company does not anticipate material income tax payments through 2030. In addition, as of December 31, 2025, the Company had PTC and ITC carryforward balances totaling $18 million, which will expire between 2036 and 2045 if unutilized.

As of December 31, 2025, the Company had an interest disallowance carryforward of $107 million as a result of Internal Revenue Code §163(j). The disallowed interest deduction has an indefinite carryforward period and any limitations on the utilization of this carryforward have been factored into the Company’s valuation allowance analysis.

The Company, after the utilization of various federal and state NOL carryforwards, paid an immaterial amount of federal and state income taxes during the three months ended March 31, 2026 and does not expect to pay material federal or state income taxes for the remainder of the current year. The Company does not anticipate being subject to the corporate minimum tax on financial statement income.

Federal tax legislation enacted on July 4, 2025 contains a number of revisions to the Internal Revenue Code, including adjustments to the business interest expense disallowance calculation, accelerated tax depreciation and business tax credits and incentives for the development of clean energy facilities and production of clean energy, including wind, solar and BESS facilities. These changes did not have a material impact on the Company’s consolidated financial statements and the Company does not anticipate that these changes will have an adverse impact either (i) on the anticipated pipeline of facilities being developed by the Company’s sponsor, CEG, through at least 2030 or (ii) on the operation of facilities owned and operated by the Company. The Company will continue to monitor future guidance issued by the United States Department of the Treasury to assess for potential impacts on its consolidated financial statements.

The Company is subject to examination by taxing authorities for income tax returns filed in the U.S. federal and various state jurisdictions. All tax returns filed by the Company for the year ended December 31, 2013 and forward remain subject to audit. As of December 31, 2025, the U.S. federal partnership returns of two of the Company’s subsidiaries are under audit by the IRS. The Company and its subsidiaries are also periodically subject to various state tax audits, including one current audit as a result of filing an amended return in order to pursue a potential California tax refund. The IRS has not yet issued any proposed adjustments with respect to the two subsidiaries under audit. The Company believes that the ultimate resolution of each of these audits will not be material to the Company’s financial condition, results of operations or liquidity, and thus no material provision has been made for any adjustments that may result from tax examinations. The outcome of tax audits cannot be predicted with certainty and if any issues addressed in tax audits of the Company are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

The Company has an unrecognized tax benefit of $19 million as of March 31, 2026.

Fair Value of Derivative Instruments

The Company may enter into energy-related commodity contracts to mitigate variability in earnings due to fluctuations in spot market prices. In addition, in order to mitigate interest rate risk associated with the issuance of variable rate debt, the Company enters into interest rate swap agreements.

The tables below disclose the activities of 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 March 31, 2026, based on their level within the fair value hierarchy defined in ASC 820; and indicate the maturities of contracts at March 31, 2026. For a full discussion of the Company’s valuation methodology of its contracts, see Derivative Fair Value Measurements in Note 5, Fair Value of Financial Instruments.

(In millions)

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(In millions)

The Company has elected to disclose derivative assets and liabilities on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of the financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements and related disclosures in compliance with GAAP requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. The application of these policies necessarily involves judgments regarding future events, including the likelihood of success of particular facilities, legal and regulatory challenges and the fair value of certain assets and liabilities. These judgments, in and of themselves, could materially affect the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment may also have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies has not changed.

On an ongoing basis, the Company evaluates these estimates, utilizing historic experience, consultation with experts and other methods the Company considers reasonable. Actual results may differ substantially from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the information that gives rise to the revision becomes known.

The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company’s financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The Company’s critical accounting policies include income taxes and valuation allowance for deferred tax assets, accounting utilizing HLBV and determining the fair value of financial instruments.

Recent Accounting Developments

See Note 2, Summary of Significant Accounting Policies, for a discussion of recent accounting developments.

The Company is exposed to several market risks in its normal business activities. Market risk is the potential loss that may result from market changes associated with the Company’s power generation or with an existing or forecasted financial or commodity transaction. The types of market risks the Company is exposed to are commodity price risk, interest rate risk, liquidity risk and credit risk. The following disclosures about market risk provide an update to, and should be read in conjunction with, Item 7A — Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2025 Form 10-K.

Commodity Price Risk

Commodity price risks result from exposures to changes in spot prices, forward prices, volatilities and correlations between various commodities, such as electricity, natural gas and emissions credits. The Company manages the commodity price risk of certain of its merchant generation operations by entering into derivative or non-derivative instruments to hedge the variability in future cash flows from forecasted power sales. The portion of forecasted transactions hedged may vary based upon management's assessment of market, weather, operation and other factors.

Based on a sensitivity analysis using simplified assumptions, the impact of a $0.50 per MWh increase or decrease in power prices across the term of the long-term power commodity contracts would cause a change of approximately $3 million to the net value of the related derivatives as of March 31, 2026.

Interest Rate Risk

The Company is exposed to fluctuations in interest rates through its issuance of variable rate debt. Exposures to interest rate fluctuations may be mitigated by entering into derivative instruments known as interest rate swaps, caps, collars and put or call options. These contracts reduce exposure to interest rate volatility and result in primarily fixed rate debt obligations when taking into account the combination of the variable rate debt and the interest rate derivative instrument. See Note 6, Derivative Instruments and Hedging Activities, for more information.

The Company and most of its subsidiaries enter into interest rate swaps intended to hedge the risks associated with interest rates on non-recourse facility-level debt or any potential refinancing of the Senior Notes. See Item 15 — Note 10, Long-term Debt, to the Company’s audited consolidated financial statements for the year ended December 31, 2025 included in the 2025 Form 10-K for more information about interest rate swaps of the Company’s subsidiaries.

If all of the interest rate swaps had been discontinued on March 31, 2026, the counterparties would have owed the Company $129 million. Based on the credit ratings of the counterparties, the Company believes its exposure to credit risk due to nonperformance by counterparties to its hedge contracts to be insignificant.

The Company has long-term debt instruments that subject it to the risk of loss associated with movements in market interest rates. As of March 31, 2026, a change of 1%, or 100 basis points, in interest rates would result in an approximately $3 million change in market interest expense on a rolling twelve-month basis.

As of March 31, 2026, the fair value of the Company’s debt was $8,872 million and the carrying value was $9,205 million. The Company estimates that a decrease of 1%, or 100 basis points, in market interest rates would have increased the fair value of its long-term debt by approximately $94 million.

Liquidity Risk

Liquidity risk arises from the general funding needs of the Company’s activities and in the management of the Company’s assets and liabilities.

Counterparty Credit Risk

Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. The Company monitors and manages credit risk through credit policies that include: (i) an established credit approval process; and (ii) the use of credit mitigation measures such as prepayment arrangements or volumetric limits. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty risk by having a diversified portfolio of counterparties. See Note 5, Fair Value of Financial Instruments, to the consolidated financial statements for more information about concentration of credit risk.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its principal executive officer, principal financial officer and principal accounting officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act. Based on this evaluation, the Company’s principal executive officer, principal financial officer and principal accounting officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Remediation of Previously Reported Material Weakness

As previously disclosed in the Company’s 2025 Form 10‑K, the Company’s management identified a material weakness in its internal control over financial reporting related to ineffective controls over the review of certain calculations of HLBV accounting used to allocate net income (loss) to the Company’s redeemable noncontrolling interests and noncontrolling interests in tax equity partnerships. For further discussion, see Item 9A – Controls and Procedures, of the Company’s 2025 Form 10-K.

During the fourth quarter of 2025, the Company implemented and operated enhanced controls over the review of HLBV calculations designed to remediate this material weakness, and the Company again operated these controls during the first quarter of 2026. Based on management’s evaluation, including the operation and testing of these controls, the Company’s management concluded that the material weakness was remediated as of March 31, 2026.

Changes in Internal Control over Financial Reporting

During the first quarter of 2026, there were changes in internal control over financial reporting, specifically, modifications to certain existing internal controls and implementation of new controls and procedures as a result of CEG’s successful implementation of a new enterprise resource planning, or ERP, application to support its core business processes and data. The Company will continue to evaluate its internal control processes, including the operating effectiveness of impacted internal controls.

Other than the matter described above, there were no changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2026 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Information regarding risk factors appears in Part I, Item 1A, Risk Factors, in the Company’s 2025 Form 10-K. There have been no material changes in the Company’s risk factors since those reported in its 2025 Form 10-K.