Operator:

Good morning, and welcome to the Vistra Second Quarter 2024 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Eric Micek, Vice President of Investor Relations. Please go ahead.

Jim Burke:

Thank you, Eric. Good morning, and thank you all for joining us to discuss our second quarter 2024 operational and financial results. Beginning on Slide 5, you can see the team has been hard at work across multiple parts of our business. Through their efforts, we achieved ongoing operations adjusted EBITDA of $1.414 billion, a very strong second quarter against a backdrop of lower wholesale energy prices across the country. While results benefited from the inclusion of the first full quarter contribution from the Energy Harbor businesses, consistent execution from our generation, commercial, and retail teams played a major role in this achievement. Specifically, our diversified portfolio of generation assets produced record levels of power for our customers while completing the planned outages needed to prepare the fleet for the crucial summer months. Our retail business led by our flagship TXU Energy brand delivered year-over-year growth, while producing solid margin performance and maintaining a top score on the PUC of Texas power to choose scorecard. Finally, despite the weather volatility across the country in general, power prices cleared below our hedge levels. Through strong execution of our comprehensive hedging program by our commercial team, our second quarter results reflect the solid performance anticipated when we set our expectations for the year. Turning to guidance. We are reaffirming our guidance range for 2024 ongoing operations adjusted EBITDA of $4.550 billion to $5.050 billion. Based on performance to date and our forecast for the remainder of the year, we are confident in our ability to deliver towards the upper end of this range. As we noted during our first quarter results call, our guidance excludes any potential benefit related to the nuclear production tax credit or PTC, given the uncertainty around the interpretation of gross receipts in the regulations. However, based on where prices settled in the first seven months of the year and the forward curves for the balance of the year, we believe the impact of the PTC to our 2024 ongoing operations adjusted EBITDA could be upwards of $400 million. Moving to our long-term outlook. Our integrated business model, which combines critical dispatchable generation assets with a premier retail business, positions us well to create long-term value in the current volatile and growing markets. Given our hedging activity over the past several months and the recent 2025-2026 PJM planning year auction results, we are raising our estimated 2025 ongoing operations adjusted EBITDA mid-point opportunity range by $200 million to $5.200 billion to $5.700 billion. Similar to our 2024 guidance, our range of 2025 ongoing operations mid-point opportunities excludes any estimates related to the nuclear PTC. However, it is important to note that we believe the nuclear PTC will provide downside support for such range of opportunities and we will continue to evaluate the appropriate timing for including PTC estimates in our forecasts. Underpinning the improvement in our outlook is our focus on our four key strategic priorities outlined on Slide 6. Our integrated business model leverages our diverse portfolio of generation assets coupled with our strong retail brands to deliver more consistent results as evidenced by our second quarter performance. Our core tenant of one team continues to foster not only teamwork, but drives learning and best practices across all aspects of our company to create a culture of continuous improvement, including at our recently added PJM nuclear sites. As discussed on the previous slide, our commercial teams continue to execute on our comprehensive hedging program to provide visibility into the earnings power of the business, while also providing meaningful downside protection to our long-term outlook. While our current 2024 guidance and long-term outlook both exclude any estimates related to the nuclear PTC, we believe the availability of a nuclear PTC de-risks a substantial portion of the earnings potential of our nuclear assets, making them increasingly more valuable. Switching to capital allocation, we view this as a critical responsibility and we will remain disciplined in our allocation process. We continue to execute the capital return plan put in place during the fourth quarter of 2021. Since that time, we've returned approximately $5 billion to our investors, including $4.25 billion of share repurchases through August 5 of this year. We expect to execute at least $2.25 billion of share repurchases throughout 2024 and 2025. Moving to the balance sheet. Our financial position remains strong with net leverage at the end of the quarter at 3x ongoing operations adjusted EBITDA. We continue to expect net leverage to be below 3x by year-end 2024. On energy transition, we continue to be opportunistic in executing on a renewable development pipeline. We began construction on two new large scale solar projects, one in Texas and one in Illinois. To ensure full off-take from these facilities, we executed new long-term power purchase agreements with two of the world's leading technology companies, one with Amazon and the other with Microsoft. We are excited to partner with these well-known companies to provide carbon free electricity for their operations. Moving forward, our development opportunity pipeline remains robust. Our large geographic footprint across the country, which encompasses more than 70 sites with grid interconnects and thousands of acres of land for development, provides ample opportunities to meet customer needs for a particular energy technology or to co-locate operations. Our approach to the energy expansion continues to responsibly balance reliability, affordability and sustainability while ensuring disciplined project returns for our shareholders. We have highlighted this approach in our most recent sustainability report, which we published on July 31. We are proud of the approach we take to sustainability, which ensures that we are reducing our emissions while also creating a sustainable business strategy for all of our stakeholders. Moving to Slide 7. We see a potential significant supply gap emerging in the largest markets we serve. During our first quarter results call, we outlined the potential multiple drivers of future demand and these include the reassuring of industrial activity partially due to the CHIPS Act, the build out of data centers, whether behind the meter or in front of the meter, increased electrification of commercial, industrial and residential loads and strong population growth, particularly in Texas. In addition this demand growth, we believe current environmental policies will drive significant retirements of dispatchable thermal generation, notably coal plants, through the end of the decade, creating a supply/demand gap. Many of these policies are driven by decisions at the state level and are less influenced by federal policies. Supported by PJM's recent market reforms, the higher clearing prices for the 2025/2026 capacity auction are beginning to signal to competitive market participants, including investors who can respond to this supply gap. While it is only one auction clear, capacity revenues over time can help offset lower wholesale energy prices, which have softened in the outer year since our last call in May. Generation units are long-lived assets, and a consistent, predictable market framework focused on reliability is necessary to attract capital for new dispatchable supply. The Texas market relies almost exclusively on the wholesale energy price to incentivize new generation, and we have seen a lot of volatility in these forward curves. Policymakers have recently created the Texas Energy Fund to provide lower cost financing and completion bonuses for up to 10 gigawatts of new gas fuel dispatchable generation. This does provide some financial support for new build, but we believe forward price signals and market reforms will be necessary to attract sufficient equity capital to build new gas fuel generation. However, in a competitive market, as has been the case in Texas for nearly 30 years, there will be many market participants and investors to evaluate their opportunities and decide their best path forward. As we announced in late May, we are targeting up to 2,000 megawatts of dispatchable gas fuel generation additions at ERCOT. This includes 500 megawatts of augmentations at existing facilities, nearly half of which we have brought online already this summer, and up to 600 megawatts from the conversion of our Coleto Creek coal plant to a gas fueled unit, which will take place after the plant's retirement in the middle of 2027. These investments represent accretive opportunities for our company while preserving good paying jobs for our fellow Texans. We also submitted our application in July for the Texas Energy Fund financing for up to 860 megawatts of advanced peaker plants in West Texas. As noted in our announcement, we are in the early stages of development of these plants as we monitor the successful implementation of key market reforms focused on grid reliability as well as sufficient market signals. These key reforms include a suite of ancillary services, the performance credit mechanism, or PCM, and an effective reliability standard, a first for Texas. We will continue to work with policymakers and other stakeholders to shape a robust framework for investment in Texas. Looking broadly across the markets we serve, the interconnection queues are largely filled with wind, solar and battery resources for a number of reasons, including tax incentives, state policies and the preferences of large customers. The combination of low growth coal plant retirements and additional intermittent resources will require both baseload and flexible dispatchable units. Vistra is well-positioned with its diversified fleet and we will continue to work with policymakers, customers, and communities to ensure their energy needs are met reliably, affordably, and sustainably. This is what drives our purpose at Vistra and our team is excited about the future set of opportunities. And with that, I will turn it over to Kris to provide a detailed review of our first quarter results. Kris?

Operator:

We'll now begin the question-and-answer session. [Operator Instructions]. Our first question today is from Shar Pourreza with Guggenheim. Please go ahead.

Jim Burke:

Yes. Shar, it's a great question. PJM has been working on market reforms for quite some time, and we've talked about that on previous calls. It's a long process, and I think they've made great headway in looking at the sort of contribution that different resource classes, like dispatchable, can provide. And I think we saw that reflected in this most recent clear. It is only one auction, of course, and not long enough out in the future to be starting a new project because they are behind, obviously, and they're catching up on the number of auctions in the next couple of years. This December will be another interesting signal. We think it can clear at or above where this most recent clear was just given some of the fundamentals. And I think that does make PJM attractive. I think that's one of the things that PJM is offering now is a signal towards assets that provides us reliability benefit. We have a number of sites in PJM operating. We obviously have some coal plants, we could look at potential conversions at some point to gas. And I think others will look at that as well. But it is a good signal. Shar, it's still early stages, but I think a lot of progress has been made there.

Jim Burke:

Right.

Jim Burke:

Sure. Yes, good question, Shar. So when we first announced the $6 billion plus, we were talking about this on the May call. Curves were actually quite strong at that point in time in the market in Texas and PJM, frankly, across the country. As you know, the curves have come off quite a bit. We were about 50% hedged on that call. Now we're about 55% hedged. So we have seen some gross margin for particularly the unhedged portion, erode some of the 2026 earnings. But we had a sense because of our open position, Shar, we wouldn't have put $6 billion plus out if we couldn't handle some volatility in the curves because that's just the nature of the business we're in. With this clear, obviously, that captures only part of 2026 and this auction coming up in December will capture the other part of 2026. We did not revise the 2026 number. As you noted, we did revise 2025. I think with these -- with the clear we've had, in this upcoming clear, we are strongly above the $6 billion plus figure, but we're going to refresh that next quarter. When we come out next quarter, we'll give you a 2025 guidance number, which is not what we've provided today. We merely reflected the auction clear for 2025, and we'll give more visibility into 2026. But the business has been very resilient. And I think these -- the diversification of our fleet, plus having the retail business, the earnings power of the business is strong.

Jim Burke:

Hey Shar, it has not slowed. The conversation is down. I think, first of all, these conversations are numerous. They are not only are there a lot of customers having -- that we're having conversations with, but they're having conversations with a lot of potential suppliers like ourselves. We're making really good progress with our customers. We're in due diligence for a number of sites. Clearly, this process, including a technical conference will -- it is of interest to folks. But these are some long-dated conversations and these are sizable decisions that folks are making. If they contract for one of our larger sites, for instance, they could be approaching $1 billion a year in power costs at a single site. So these take time to evolve, but it has not slowed the pace of play. I think there's going to be plenty of data center load behind the meter or co-located and also front of the meter. I think there's going to be plenty. And I think they're evaluating these customers are evaluating all their options. So we'll see how the technical conference goes. We're clearly in support FERC approving this amended ISA. We think the record is very clear on that, but more to come, and we're going to stay active, as I know all of the market participants will. But this is a really big opportunity for our industry to meet customer needs. And frankly, create a lot of jobs, a lot of economic development, and I hope as an industry we don't get in our own way here and that we're able to see that this load growth is really beneficial for our economy broadly. And we expect these conversations to stay active until we get to a decision with a couple of key customers, which we're pretty optimistic about.

Jim Burke:

Thank you, Shar.

Angie Storozynski:

Thank you. So just continuing on this topic of the co-locations and general, the load growth. So we're seeing some raised conversations from wires on the utilities and competitive markets, PJM, in particular, they are seemingly concerned about the load growth and reliability of the electric service over the next couple of years as this load materializes. And so that led to some concerns about potential interventions in competitive power markets, regulated new build, you name it. And that seemingly is not just response to the new build projections, but also to this last PJM capacity auction. I mean, it's somewhat concerning, right, because the same parties were not raising their hands to support merchant power plants when power prices were super low. And seemingly, it should be a cyclical market where we should spikes in power and capacity prices to incentivize new build. So I mean, how do you manage this narrative? Do you sort of rush your assets to contract them to protect them against any sort of market interventions? Is it just -- do you think that this is just a rhetoric that will pass? Is the basically the pull so big that all parties can benefit? I mean my take has been that just -- that goes to show that wires on the utilities know that the best way to benefit is through generation assets, but I'm just going to wonder how you're going to approach that.

Angie Storozynski:

And then as far as your approach to those co-location deals and any other long-term contracts, I mean it seems like you were taking this portfolio strategy. But I'm just wondering, it almost feels like the time is of the essence, not just about the time to market for tech companies, but also as far as regulatory scrutiny of these deals. I mean, don't you think that maybe it would be worth pulling forward some of these transactions not to wait for all of the reviews to happen just to announce these deals on like a plant by plant? Again, in other portfolio announcements, but just plant by plant deals, again, if only because there could be more risk to future deals as well as these co-locations happen?

Angie Storozynski:

Okay. And the last one, you mentioned both behind the meter and in front of the meter co-location. Do you have any preference? I mean, it almost feels like in front of the meter co-location would have addressed some of the concerns raised in Talent's ISA?

Operator:

The next question is from David Arcaro with Morgan Stanley. Please go ahead.

Jim Burke:

And David, great question. So a couple of things there. I do think the curve is coming off in the last couple of months, just starting there in and of itself is a different view than where we were even sitting in the first week of May. And so if you just simply look at the curves, these projects are challenged. And I think we're a long -- a net long generator as a company. We have a lot more generation length than we serve retail load. So if we only were looking at the curve and the curve is not that liquid, so you can't overreact to the curves in early May, and you can't overreact to the curves here in early August. But on a curve-only basis, the Texas market is a different investment construct than other markets in the country. And I think the legislature recognized that. That's why they pass the test, and then the Sunset Bill last session, they also put in a couple of other things to work on some reliability reserve service, which is a new ancillary, and they also codified the performance credit mechanism. So in our view, what the Texas legislature did, would say we need to provide some low-cost financing to encourage gas plants to be built. And that has a maximum of 10,000 megawatts. So regardless of how many had notification of interest and how many are in the application process, the max is 10,000 megawatts. That was expected to have $10 billion of funding to back it. And right now, they have funded $5 billion. But it's likely the additional $5 billion could come, before the next session or during the next session, to fully fund up to the 10,000 megawatts. Our view is that low-cost financing and some completion bonuses alone would not make these projects justifiable. The lower cost of financing is helpful, but you still need adequate revenue to be able to make these projects work. So the market reforms we believe are very important part of the overall package. And when we made our announcement in May about the 2,000 megawatts, we're comfortable proceeding with the augmentations. We're comfortable proceeding with the conversion of Coleto, and we don't have any test requests for that, and we expect the -- given the economics of those, those would move forward. However, we did file for TEF for the two new peakers, and we think that the TEF loan is, again, helpful, but we also still need to see the revenue construct that the market reforms are intended to help address. We don't know how those are going to ultimately shake out because there's been so much interest in the TEF that I think some folks believe that maybe that's enough to address the concerns around grid reliability in Texas. We're not sure how much of the TEF generation ultimately gets built. I think it's too early to tell. But for the long-term, not only to incentivize the right reliable -- reliability assets, but also to preserve the reliability assets that are currently on the grid, some of which are aging quite -- to quite long lives, 40, 50 years plus, there needs to be some revenue signals. Not all stakeholders in agreement on that. The advocacy from the large industrials and commercial customer base is very price sensitive, very cost sensitive. This is a market that values low energy prices. So I don't know how the stakeholder process will ultimately work out. We're going to monitor that from here, and we're very active in it, and we'll see how it develops throughout the session. But I think it's too early to tell how all of this is going to come to fruition, especially if some of the market reform aspects are not supported through the end of the process, consistent with the Sunset Bill at SB3.

Jim Burke:

Thank you, David.

Steve Fleishman:

Just to maybe follow-up on that last question on the TEF. Could you give us a better sense of like when the go/no-go decision might need to be made by you and others through this process for whatever the curves? Yes, when do you have to make a decision really?

Steve Fleishman:

That's helpful. And then a couple, I guess, maybe numbers questions. You -- thank you for that disclosure of the $400 million that you would have had from nuclear PTC in 2024, roughly, if you included it. You then say for 2025 that it would provide downside support? Does that mean that on average right now for 2025 you are above the PTC floor? Are you just trying to kind of -- you're not really -- you're just saying that because you're not quantifying it yet. Just could you give more color on that?

Steve Fleishman:

Okay. And then one last question. Just on the upside from the PJM auction in 2025, the $200 million increase. That seems somewhat less than we would have calculated just based on the actual auction outcome. Could you just talk to maybe some of the offsets that might be in there?

Operator:

The next question is from Durgesh Chopra with Evercore ISI. Please go ahead.

Jim Burke:

Hey, Durgesh.

Jim Burke:

Yes. Durgesh, it is a hard question to answer, and I don't mind being put on the spot. I can only answer the question the best I can, which is, these are large complicated deals and they do depend on not only our desire to get one done, but the customers' comfort with getting these deals done. I do think some of the details we're working through extremely well. We have strong engagement and due diligence processes but we know that they're having conversations with multiple parties, not just Vistra. So there's a lot of work in the industry from a power generation as well as the hyperscalers and co-locators, and I do think that there's going to be a process of the funnel working its way down to realistic options. For example, with the questions being raised in the PJM environment regarding the amended ISA. Well, ERCOT does not have that same jurisdiction. So there's a Comanche Peak on a relative value perspective, step up in the process, and we're seeing some interest in Comanche Peak and even as these discussions with PJM have started to become more public on that amended ISA. So Durgesh, it's a dynamic market. It's about the best thing I can say to that, and we're moving as fast as we can, but it does take the customer side to be comfortable with this. As I mentioned, these are very large complicated deals. So our fundamentals of our business, Durgesh, they don't depend on doing a lot of data center deals. I think the supply/demand fundamentals that we've talked about, they're there, whether they're front of the meter or behind the meter, it's just a unique opportunity for a company like ours with so many sites and so many opportunities to partner directly with customers, it is upside. And we have not baked that into our forecast and our views. And so -- but I can tell you we're a competitive bunch that our team is working as hard as we can to get to a deal.

Jim Burke:

We've been through some economic shocks a number of times in our 24 years as kind of a competitive company. Obviously, the near-term, and when I say near-term, the next two years to three years, we feel really strong about our ability to generate consistent returns. But as you move out into 2027 and beyond, our business is going to be more open to the macroeconomic environment. That's not only power price and natural gas price levels, but also just the customer demand is the demand there. We have a very healthy baseload business and a very healthy residential business that tend to be pretty recession proof. And most of our business that's commercial and industrial, we don't have contracts where we're taking sort of the swing or the load risk in that. We tend to sell more take-or-pay or fixed quantity type products to those customers. So I think our business is set up well, Durgesh. I think it's a business that has shown that even when things get soft, we're able to back down some of our units, buyback hedges in the marketplace cost effectively, earn margin, whether we're generating or whether we back down. So I think we've proven the resiliency in the business model, but certainly, long-term, it make you think about your capital allocation and your investment, if you really thought we were at a prolonged sort of downturn. But that is not -- that's not anything we'll worry about in this near-term planning horizon.

Jim Burke:

Thanks, Durgesh.

Unidentified Analyst:

Hi guys, it's actually [indiscernible] for Julien. Hope you are well doing, Jim and Kris. So to follow-up on the data center side, I know you haven't signed anything yet. But maybe can you comment on how the discussion on pricing for these potential contracts has evolved to start evaluating contracts with data center providers? Like the value of reliable baseload capacity is getting more and more recognized. You just had the PJM capacity auction. How do you see pricing trending? And how does that play into your level of comfort into signing a long-term deal?

Unidentified Analyst:

Got it. Thank you. And then lastly, we've been talking a lot about new builds, but these take time to come online. How do you think about buying existing assets? Do you see any opportunities out there? How wide the sort of bid-ask spread has been today?

Unidentified Analyst:

Got it. Thanks, Jim and congrats on the quarter.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Burke for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good day, and welcome to the Vistra First Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Eric Micek, VP, Investor Relations. Please go ahead.

Turning to Slide 7. There has been much discussion in recent months about the substantial power demand growth forecast, including from the potential build-out of data centers and other sources of electricity demand. Third-party research indicates data center-related activity could approach 35 gigawatts of additional demand by 2030. However, our teams also see multiple additional potential drivers of demand in the geographies we serve. These drivers include:

continued reshoring of industrial activity as evidenced by multiple large chip manufacturing site build-outs, partially due to the CHIPS Act; increased electrification of commercial, industrial, and residential load across the country, as evidenced by the expectation of approximately 20 gigawatts of additional power demand in West Texas by 2030; and strong population growth, particularly in the state of Texas, which has been steady at 1.5% to 2% per year.

Shahriar Pourreza:

Jim, not to sound like a broken record here, but obviously, the moves we've seen in sparks, does that change your thoughts around maybe Tradition's stand-alone viability and potentially separating the 2 companies sooner rather than later or kind of vice versa? And then maybe at the very least, should we expect more details around resegmentation with the roll forward later this year as the moves in the curves can obviously change kind of that top level disclosure you just provided between the 2 segments or it's just not a priority?

Shahriar Pourreza:

Got it. That's perfect. And then, Jim, just on the market dynamics. I mean, a big investor debate right now over a new entry in ERCOT and whether it will even make a dent in demand through the end of the decade. I guess what's your house view on gas due builds and scarcity at this point? Are we kind of setting up for another early 2000s rush of turbines?

Kristopher Moldovan:

Yes. On the sensitivity, what I'll say is we feel good about the $6 billion number. We have a high confidence in that number, given where the curves are and where our hedge percentage is. As we look to sensitivities, we haven't given that. But as we think about it versus what you'll see in our deck on 2025, it's roughly twice, I would say, as sensitive to moves in power and sparks is what we're showing for 2025. But we do feel confident in that $6 billion number.

James Burke:

Thank you, Shar.

Durgesh Chopra:

Congrats on the solid print. Just maybe can I ask you on the free cash flow conversion? So it looks like the '24 guidance is about 50% of EBITDA and then you gave us the numbers for Vistra Vision and then Tradition. Just how do you see that trending? The answer to that is higher, but what are the drivers that get you from 50% on the Vision side of the things to 60%? Is that integration, more efficiencies? Maybe just talk to that, please.

James Burke:

Durgesh, what I would add to Kris's comment is, as you see the curves rise, some of that does not necessarily require additional capital and expense to achieve the higher earnings and free cash flow. So as you see the projections improve, you would expect to see some of the free cash flow conversion improve by the nature of the gross margin expansion and more of that dropping to the bottom line. So that is part of the trend that we're describing when we gave you the outlook for the free cash flow conversion.

James Burke:

Sure. Durgesh, I'll start and argue, as a more of a free cash flow yield comparison and how does that compare to the next best use of capital. When we started this process, of course, years ago, we were talking about free cash flow yields north of 20% for the business. It was a very obvious choice, I think, as to how we would deploy capital, recognizing where our relative value was in the marketplace.

Kristopher Moldovan:

Yes. I would just, again, reiterate that we do maintain an internal model and evaluation. And then we get feedback from our partners, our consultants as well, and we've done that recently. And we continue to look at different ways to value our stock. And right now, where it sits is any way we look at it, given the update that we've provided today, we still feel like our stock is a good buy. To the extent it gets to the point where it exceeds our internal valuation, which we don't see as being a near-term issue, but we would have to then discuss -- we will be disciplined in how we spend our capital.

David Arcaro:

Great update. I was wondering, could you talk [indiscernible] I'm curious, which location...

David Arcaro:

Sorry about that. I was wondering the data center opportunity with your nuclear plants, could you give an update as to potential timing, which locations might be more attractive than others?

James Burke:

Yes, David. It actually ties into the earlier question, which is you have existing assets that we have in our portfolio, large-scale combined cycle assets. The goal, obviously, for any of these potential partners with the data centers is speed and then reliability that they can count on for supply. It's going to be really hard to build an asset like a combined cycle to support a new data center without it having the carbon capture equipment that we were talking about. That's a huge lift.

Operator:

The next question comes from Angie Storozynski with Seaport.

Kristopher Moldovan:

Thanks, Angie. I appreciate that. As you know, we just said today, we're right at 3x. I think there's a -- we're 2 notches away from investment-grade with 2 of the agencies and 1 notch away from the other one. So we have some work to do even to get closer to investment grade. I think we're continuing to look at -- as we look at the outlook, I mean, our leverage metrics go down just with the increase in EBITDA that you're seeing over time.

Agnieszka Storozynski:

Okay. And then changing topics a bit, like your sunset assets and the brownfield site especially those associated with the former Dynegy coal plant. So just wondering, is there any change in your views about the longevity of those sunset assets? Now it seems like they're economic, right? I'm sure that some of the increased output from these assets is embedded in those EBITDA ranges that you provided us with. But I just wonder if some of these assets might get reallocated back to this provision, meaning that you will not put them in that sunset bucket. And number two, if there's any upside associated with these brownfield sites from the former coal plants, especially in Illinois.

James Burke:

Yes, Angie, we do see some bilateral trades that are indicating improvement in PJM capacity clears. I think we've still been pretty conservative with our forecast and how we've built assumptions for the auctions that are forthcoming, the first one coming in July. I think where we've seen some of these clears, we've seen them in the $90, $100 kind of megawatt day range. Whether we're going to see that in this upcoming clear or it's going to be one later in December, we like the steps that PJM has been attempting to bring forward.

Operator:

The next question comes from Steve Fleishman with Wolfe Research.

James Burke:

Sure, Steve, the hedging, obviously, from our standpoint, we look at it as more opportunistic. So we look at where the price obviously is, where our fundamental view is and then is there actual liquidity in the market to transact. So just to give a perspective, at the end of last year, so December time frame, we were in a hedge percentage that was going to be closer to 10% to 15% hedged for 2026. So the team, as they've seen this move particularly more recently, have been moving more volume, Steve. There's also been more liquidity in the marketplace.

Stephen Muscato:

Sure, Jim. As you pointed out, we've been waiting for the curve in ERCOT to no longer be in backwardation and move up into a contango formation, which it is. And the second thing we look for is basically liquidity events, meaning there's going to be people that are willing to buy it with enough scale for us to get our hedges off. And we're starting to see that liquidity come in.

James Burke:

Yes, Steve, we weren't planning to comment on specifically by region on that front. But obviously, those are our 2 biggest portfolios so I would just leave it at that. I think it depends on the depth in the market and where we feel we can comfortably move some of the volume. And Steve, I do want to correct 1 thing I shared a minute ago. I was 1 file off as I was trying to respond to your question. We were closer around a 25% hedge at the end of the year in 2023, and that's moved up closer to the 50%. So I was trying to be a little bit too nimble in pulling out my information.

James Burke:

Sure. Yes, we have -- Steve, we have secured the supply physically for the outages all the way through 2027 and substantially financially. There's a few of our products that have some index pricing to it. And we are significantly hedged into 2028 as well. So we feel really good about fueling the 6 units over this planning horizon. With the Russian ban, with an uncertain or to be determined waiver process, I should say, we're very active in the discussions just to make sure that there's ample liquidity in the market as folks will look at these disruptions potentially, and it can cause the spot prices to move up considerably.

William Appicelli:

Most of my questions have been answered. But just on the retail side, can you remind us the average duration of the contracts and the ability to roll those prices forward as the wholesale prices go higher as we move through time?

William Appicelli:

That's very helpful. And then just one follow-up on that same topic. In terms of the -- given the population growth, can you just speak to your market share and the customer counts as you've seen a growing pool of potential customers in the state?

Scott Hudson:

Sure. Well, first of all, let me just touch on current retail performance. We really had strong performance in the quarter and year-over-year. We grew residential direct-to-consumer customer counts by 13%. That came not only from the Energy Harbor acquisition, and we had some really nice success in the market that just opened, but we're also growing these books across all markets sort of organically. So really nice growth rates in Texas around the population. As Jim mentioned earlier, roughly 1.5% to 2%. And it's our goal at retail to grow with the market or exceed that market and grow kind of market share.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Burke for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good day, and welcome to the Vistra's Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. And now I would like to take the conference to Eric Micek. Please go ahead.

Jim Burke:

Thank you, Eric. I appreciate all of you taking the time to join our fourth quarter 2023 earnings call. First, I am proud to share the very strong results that the hard-working Vistra team delivered in 2023. And second, I am excited to announce that we expect to close the Energy Harbor acquisition on Friday, March 1. The Energy Harbor acquisition fits squarely with our continued focus on our four strategic priorities as laid out on slide 5, which starts with operating an integrated business model that combines retail and wholesale operations leading to more resilient and sustainable earnings and a variety of weather and pricing environments. This was not only true in delivering results $440 million above our original guidance level in 2023 and but was recently apparent during Winter Storm Heather in January of this year, where our core competency of operating generation assets was evidenced by our 98% commercial availability, which is particularly impressive in an environment where the ERCOT overall market outage rate for the five days impacted by the storm was 2.5 times Vistra outage rate. Turning to the other key priorities. We continue to execute on our capital return plan put in place during the fourth quarter of 2021. Since that time, we have returned to our investors approximately $4.3 billion through share repurchases and dividends. Further, we are excited to announce the Board approval of an additional $1.5 billion of share repurchases, which we expect to fully utilize by year-end 2025. Importantly, we have strengthened and simplified our balance sheet while maintaining our capital return plan. Net leverage remains low at 2.4 times, and although we expect to be slightly above our three times net leverage target when Energy Harbor closes, we project to return to below three times by year-end 2024. The successful repurchase of approximately 98% of our outstanding tax receivable agreement rights marks further progress in our efforts to simplify Vistra's capital structure, while improving our free cash flow conversion over the foreseeable planning horizon. Our disciplined capital approach also enables us to invest in renewables and energy storage growth that capitalizes on sites and interconnects in the Vistra portfolio. We delivered the Moss Landing 350 megawatt energy storage expansion in June of last year, and we began construction on three of our larger Illinois solar and energy storage developments located at our former coal plant sites in the spring of 2024. With grids in most of our markets tightening in the coming years as older fossil generation retires, mode continues to grow and with interconnection and transmission challenges, Vistra is well-positioned to continue to find ways to serve our customers reliably, affordably and sustainably while remaining disciplined about our capital allocation. Turning to slide 6. We received FERC's approval for both the acquisition of Energy Harbor and the corresponding sale of our Richland and Stryker generation facilities. Energy Harbor is a transformative acquisition and represents another significant step forward for our company. We are diligently working towards closing this transaction, which, as I already mentioned, we expect to close on March 1st. Despite closing later than we had hoped, we remain comfortable with our ability to successfully integrate our teams and deliver the initial guidance of pre-tax run rate synergies of $125 million by year-end 2025. We are also reiterating a 12-month 2024 and 2025 ongoing operations adjusted EBITDA midpoint opportunities from Energy Harbor of $700 million and $800 million, respectively, as well as the expected run rate ongoing operations adjusted EBITDA midpoint opportunity on an unhedged and open basis of $900 million. However, given the anticipated closing date, you can expect our updated 2024 ongoing operations adjusted EBITDA guidance range, which we expect to provide on the first quarter 2024 results call will reflect only 10 months of contribution from Energy Harbor this year. Moving now to slide 7. As a reminder, we began the year with initial guidance for 2023 ongoing operations adjusted EBITDA with a midpoint of $3.7 billion. This guidance was subsequently revised on both our second and third quarter calls, ultimately raised to a midpoint of $4.025 billion. As I stated earlier, despite another year of volatile weather, characterized by mostly mild weather, excluding the unprecedented summer heat in ERCOT during the third quarter, we were able to exceed the midpoint of our original guidance range by $440 million. Importantly, this translated to higher than expected ongoing operations adjusted free cash flow before growth of approximately $2.491 billion, exceeding the midpoint of our original guidance range by $441 million. These results were achieved through strong customer count and margin performance at our retail segment and a nearly 96% commercial availability rate for our Generation segment. Now, I'd like to quickly turn to the 2024 guidance. Given the recent regulatory approval and the upcoming transaction closing, we anticipate providing combined Vistra and Energy Harbor guidance, including an update on synergies, as part of our first quarter 2024 results call. However, we can reaffirm the Vistra stand-alone 2024 guidance for ongoing operations adjusted EBITDA in the range of $3.7 billion to $4.1 billion and ongoing operations adjusted free cash flow before growth in the range of $1.9 billion to $2.3 billion. We are eager and excited to join with the men and women of Energy Harbor and execute on behalf of our customers and communities as one team. I'll now turn the call over to Kris to discuss our quarterly performance in more detail.

Operator:

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] At this time, let's start with a question from Shar Pourreza from Guggenheim Partners. Shar, please go ahead.

Jim Burk:

Yeah, Hey, Shar. Good morning.

Jim Burke:

Yes. Thank you, Shar. I'll let Kris address the TRA, but I'll start with the direction we're headed. I think the Energy Harbor acquisition, as we said, is transformative for the company. It obviously brings a dispatchable 24/7 carbon-free element to the portfolio enhances our starting point that we had with Comanche Peak and Vistra Zero. The other part of the portfolio that I think is incredibly critical is the dispatchable assets that we have with our fossil fleet. Flexibility is an increasingly valuable attribute on these grids, particularly with the renewables penetration that we're seeing across the country, particularly ERCOT and California. So, from our standpoint, with such a large retail position and a growing retail position, the integration of how we can match the customer needs with assets that can provide the base load and the ramp products is an important part of risk management and value creation for our company. So, we see this still as one team. We see it as Vistra delivering on an integrated basis across our business for the long-term. And I think this excitement we have around closing Energy Harbor is it's a path we've been on for quite some time with the other acquisitions we've done. This is yet another one that fits neatly into what customers are looking for and that's why we're ready to get on to this next chapter. I'll let Kris quickly address the TRA.

Shar Pourreza:

Okay, perfect. That's helpful. And then, Jim, just on ERCOT. We've seen a few new build announcements recently. It sounds like one of your peers is waiting for the loan program details before potentially pulling the trigger on a combined cycle. There has also been a substantial amount of noise regarding the ECRS, I guess what's your house view on supply/demand backdrop and sort of ongoing market reforms? Thanks.

Shar Pourreza:

Perfect. Thank you very much. And congrats on the execution. I'll see you soon. Appreciate it

David Arcaro:

Hey, thank you, good morning.

David Arcaro:

Maybe a bit of a follow-on to that question, specifically on data center growth. And as we see that accelerate, wondering if you could speak to how you're thinking about the potential market impact and opportunities for your fleet potentially from new data centers coming on?

David Arcaro:

Yeah. Got it. Thanks. I appreciate that perspective. How early is it? When do you think that you could see potential market impacts if it's upside in the curve or potential contracts like you say with maybe behind-the-meter or contracted power with these customers?

David Arcaro:

Okay, got it. Very helpful. Thanks so much.

Operator:

And we'll follow with a question from Julien Dumoulin-Smith from Bank of America. Julien, please go ahead.

Jim Burke:

Yes, Julien, thank you very much for the questions. I'll start with the data center opportunities, as I mentioned, whether behind-the-meter or whether out on the grid, they have a natural sort of demand increase that could send some price signals for wholesale power prices in the out year. Some of that could be factored into these curves already. I mean people have been reading about this. The curves are stronger today than they were in the spring of 2022 when we first put out our multiyear guidance range. So I think, Vistra being net long in ERCOT has an opportunity, whether we are directly involved with the data center or not. So then you beg the question, when would we get directly involved? It's if we found that there's a return on that capital to do something that would make sense relative to our other capital allocation alternatives. I would say that, I'm not in the detail at a level of comfort yet, that I would tell you, that's actionable. So we know that from a free cash flow yield perspective, it's still pretty attractive for us to be returning capital through the buyback. So we would need to see a level of, what I'd call, transactable economics that have the long-term agreement to bring that to bear as an alternative to our capital allocation strategy, in which case, I think our shareholders would be pleased to see it. But I view this as an opportunity for us with our native position that I think it's specifically an enhanced opportunity for our own assets, if we choose to do something behind the meter. In addition, I didn't even mention, but in addition to the data center, of course, we have population growth in Texas, which is still strong. And we have a Permian Basin growth rate for load that ERCOT has put out some studies that suggest that you could see 13 gigawatts of growth out west from 2023 to 2030. That's oil and gas driven, it's population driven. It's also got some data center loan growth there. So, this is a general theme and then how that -- I think will benefit an asset position like Vistra. And then specifically, how we might target our own assets, I view that as incremental upside, none of which is factored in to our long-range plan at this point. And in terms of when we'll update from a capital allocation and how we think about longer-term buybacks, I'm going to have Kris jump in.

Julien Dumoulin-Smith:

Right, even as a percent of total cash flow beyond '25?

Julien Dumoulin-Smith:

Wonderful. I know it's in flight. Good luck, guys. We'll speak to you then.

Operator:

Our next question comes from Durgesh Chopra from Evercore ICI -- ISI, pardon me. Durgesh, you may proceed.

Jim Burke:

Good morning, Durgesh.

Kris Moldovan :

As we do. We do see some benefits on a -- just a straight free cash flow basis, it is positive from free cash flow. So if you look -- as we talked about, we spent about $150 million of cash and then we issued the preferred. And so over the course of five years, our cash cost for that repurchase is in the neighborhood of $350 million, our estimates that we previously had would have shown that the TRA payments would have been roughly twice that. So there is some free cash flow pickup and that will factor into our conversion percentage. We still see -- obviously, we're in a higher cost and higher interest rate environment. So there are puts and takes. And so I think we still feel really good about saying that our -- our expectation is that we would be 55% on average over the planning horizon. Some years, we expect to be more like this year, you see in our materials that we end up just over 60% conversion. In some years, depending on the timing of maintenance capital could be a little bit lower. But I think on average, 55%, the mid-50s is the right place for our conversion ratio.

Kris Moldovan :

Yes. So we're going to focus here on Energy Harbor and getting it closed. I do think that whether it's on that call or a future call, we are going to continue to assess what is the best way for us to communicate the ongoing value of this company. And so I do think we will -- at the very -- we do expect to plan -- we do expect to give updated guidance for this year. But as we go forward, what metrics we use and how we communicate what we see as the value of the business, we're going to continue to work through that, and we will come back to you whether that. It could come on the May call, but it could come also later this year. We're going to think through that and make sure that we've thought through all the issues.

Durgesh Chopra:

I appreciate that very much. Thank you both.

Michael Sullivan:

Hey, everyone. Good morning.

Michael Sullivan:

Jim, you kind of answered this, but just wanted to confirm. So it sounds like the synergies from the original target, you're going to kind of revisit and refresh. But the Energy Harbor guidance itself, what you're putting out there today, is that just kind of what you saw originally? Or is that actually refreshed and just consistent as of today?

Michael Sullivan:

Okay. Super clear. Thanks. And then we continue to get questions on this. Just can you give us the latest on where you are in terms of having nuclear fuel secured both for Comanche and to the extent Energy Harbor's position?

Michael Sullivan:

Thanks for all the detail. I appreciate it.

Operator:

[Operator Instructions] And now we follow with a question from Angie Storozynski from Seaport. Angie, please go ahead.

Jim Burke:

Good morning, Angie.

Jim Burke:

Yes, Angie, thank you for that. New England was a better clear than we've seen in a while. In fact, about 50% higher in the 2027, 2028 auction than what we saw just prior in the previous auction. Good for our gas fleet, obviously, up in New England. PJM has delayed some of their auctions. So we have to play catch-up with PJM. So we'll see what comes forward. There's going to be a number of auctions that happen in the next 12 months to get caught up in PJM. There have been market reforms proposed for PJM. Some of those are going to be implemented. Some of them were not supported by FERC. So again, it's still a little bit of a struggle as to what is going to be the effect on the capacity, things like market seller offer cap have been very difficult to move the needle on, which has had a dampening effect on capacity prices. But this effective load-carrying capability or ELCC, where potentially the dispatchable assets get proportionally more credit than the intermittent. That's an opportunity for the PJM capacity clear. So I think they are coming to the same conclusion that other grid operators, which is we -- PJM used to be really flushed with excess capacity, but a lot of it is retiring. And the gas plants are critical because the intermittent sources for wind and solar are not nearly as naturally supported in PJM as they are in places like ERCOT in California. As far as Texas is concerned, as I mentioned, the spark, and you see it in the graph that Chris covered, the spark spread has definitely moved up. So gas prices went up and the Russia-Ukraine conflict have come back down. Sparks have stayed elevated relative to that time frame, but they're still strongly backwardated. And I think that still comes from the concern of how much renewables will continue to come in. And then also, will the market reforms support price formation in ERCOT. And ECRS was an example where price formation occurred last summer. There was a lot of concern from a lot of customers and others that maybe there was too much price formation. And so they start having to revisit the rules. And now I would say it's just uncertain how some of these things like ECRS will play out. So certainty around some of these ancillaries will help certainty around PCM will help. That, coupled with the demand growth that is actualized on the ground I think, could help address some of the backwardation in ERCOT, which could then help address the investment signal. But we've said that for a while, ERCOT has been backwardated for about forever. If you go long enough out back in history, so the prop will always be pretty strong because that's where a reality meets the supply/demand. But out in the forwards, you still see concern around whether the price signals will be there. And that's part of the Texas market reform and ultimately, the gas plant investment that folks are considering. But I think that's still yet to play out.

Jim Burke:

Yes. Angie, it's a fair question. I would say the data center growth behind the meter at a nuclear plant is still early stages for anybody in the market. It's certainly been discussed and being considered, but it still takes time for some of these to play out. I do think the two units having an opportunity to have redundancy will be attractive for customers. So Veeva Valley has been the one that is it working towards this path and then Comanche Peak as well. However, I'll go back to a comment I made on an earlier question, between the colocation companies and the hyperscalers, speed is very important to them. So while the redundancy may not be there on a single unit site, pulling from the grid would still be an option. And that's how we manage the behind the meter that we work with, with our gas plant. So while there is a preference list from a customer standpoint of things that check every box, I think there's going to be a balance of factors that the potential data center companies will be considering when they do a site selection. And speed is one of them. Economics is one of them, access to water is another one. So there's a number of variables there beyond just the two units versus one unit. But all things being equal, that would probably be a preferred site Angie. But I -- the fact that we're being approached about gas plants tells you that it isn't just about the carbon attributes. It's about some of these others as well.

Jim Burke:

Yeah. That is an excellent question, Angie. I don't know if it's an all or nothing approach because we have a lot of assets with a lot of length. But with -- if you're speaking nuclear first with a production tax credit that escalates with inflation and our curves are basically sitting at those levels, you would need to see something attractive from a customer to lock it in and it would have to be at a reasonable premium to what your view is of the alternative, which is to stay long to have the PTC as some support on the bottom, but still retain some of the upside for that asset. For other assets like the gas plants, I think you could potentially have more flexibility because you're not necessarily going to see that -- you're not going to see the PTC support for some of those. But from a nuclear standpoint, I don't think there's a rush here for the reasons that you mentioned. And it also takes time because of the complexity of these to put these in place. So I think we agree with how you're framing the question, Angie, and we're going to be patient about how we think about these opportunities.

Jim Burke:

Thank you, Angie.

Jim Burke:

Perfect. Thank you. First, I want to start with just thanking the Vistra team. 2023 was a heck of a year, and we look forward to what is in store with Energy Harbor, who I also want to thank they have done an excellent job running a business during a year of uncertainty, whenever an announcement is made, the units are running very well. The team has been incredibly cooperative on our integration efforts. And we're excited about this Friday and becoming one team. We're going to continue to execute our plan, which includes returning capital in an environment of very strong long-term fundamentals. I think that came out in a number of the questions that we were asked. And I also hope that we get to see many of you in New York next week. We'll be up there for a couple of days, and it's always good to see folks face-to-face. So, thank you for your time this morning, and we'll hopefully see you soon.

Operator:

Hello, and welcome to Vistra's Third Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, VP Investor Relations. Please go ahead.

Jim Burke:

Thank you, Meagan. Good morning, and I appreciate all of you for taking the time to join our third quarter 2023 earnings call. I am proud to deliver our third quarter results this morning, which was a very successful quarter for all facets of the business. We'll start this morning on Slide 5. I'll speak to this quarter's operational and financial performance in more detail in a moment, but notably, this quarter's adjusted EBITDA from ongoing operations of approximately $1.6 billion underscored Vistra's capability of achieving consistently strong earnings through its integrated business model, with excellent operational performance by each of our generation retail and commercial teams and a variety of pricing and weather environments. In the prior two quarters, we experienced average power prices clearing lower than our realized hedge prices, which highlighted the significant downside risk protection to our earnings at our comprehensive hedging strategy provides. This quarter that scenario held in the markets outside of ERCOT were milder weather kept prices lower. In these markets, we were able to capitalize on our dynamic position management of our hedged portfolio to capture significant earnings in our generation segment. We saw this paradigm flip in the ERCOT market and while we were significantly hedged, we did have some open length and the generation fleet's operating flexibility was optimized by our integrated teams to respond to higher market prices, while keeping the lights and much needed air conditioning on at competitive prices for our customers throughout the markets we serve. With each of our four strategic priorities, our aim is to challenge ourselves with high performance goals and then consistently deliver. To that end this quarter, you saw us continue to advance our other three strategic priorities as well, as we focus on a strong balance sheet, our capital return program and our energy transition goals. As of November 2, we've now returned over $3.785 billion of capital to our shareholders through share buybacks and our dividend program, since the capital allocation was first announced in November of 2021. After we close Energy Harbor acquisition and develop a long-range plan for the combined company, we will work with our Board on a new multi-year capital allocation plan and expect to disclose the specifics of that plan in the first half of 2024. In the meantime, we continue to opportunistically invest in renewables and energy storage growth, including our expectation that we will begin construction in spring of 2024 on our three largest solar and energy storage developments located at our former Illinois Coal plant sites while maintaining our sub-three times leverage ratio. I want to move now to slide 6 to discuss our third quarter operational performance. This past quarter, we saw unprecedented heat and ERCOT. It was the highest third quarter on record even beating the record-setting heat of 2011. Temperatures in Texas were six degrees above normal in August and early September frequently topping 105 degrees in Dallas and over 100 degrees in Houston and San Antonio. Cooling degree days were 23% above the 30-year normal for the June through September comparable time period and ERCOT set a new peak demand 10 different times this summer. On August 10, ERCOT experienced its all-time record peak load of over 85,000 megawatts. It was vital for our generation team to keep the plants running in these extreme conditions to ensure that people of Texas could continue to live and work in healthy and comfortable environment. In ERCOT, the solar generation ramp down hours of around 6 to 8 p.m., have proven to be a critical time period for the grid. It is still very hot during those times with strong customer energy demand but it is also the time period where we see solar start to ramp down and at times the wind may not make up the difference especially in August. The ERCOT grid is operationally complex having to predict the availability of not only dispatchable resources but also intermittent resources such as solar and wind, limited duration energy storage and demand response activities. As the generation mix of intermittent resources increases, ERCOT needs more reserves as a backstop to ensure there is adequate generation to cover demand and avoid emergency conditions. In these scenarios, you see flexible generation fleets like ours ramping to meet as much of this demand as possible. And that is exactly what we did, exceeding 97% commercial availability on average during those critical hours. During these tough weather seasons, our number one priority is ensuring our customers can consistently access competitively priced power to maintain their quality of life and keep the economy strong. That's where our retail business excelled. This summer's marketing campaigns featured several differentiated products tailored to our customers' needs, including a seasonal discount product that helps customers manage the size of their electricity bill through the higher usage summer months. Our customer-focused multi-brand and marketing channel strategy and responsive service, allowed us to grow our ERCOT residential customer counts over the prior quarter. In addition, our business market segment grew customer volume 16% year-over-year as strong margins. While the retail and generation teams stood ready to meet these demands for our customers and the people we serve, our commercial team optimized our financial position to create significant value for our shareholders. Specifically, in August, the ERCOT market saw average real-time pricing around $196 with 43 hours in August clearing over $1,000. And during those critical hours at 6:00 to 8:00 PM in August, we saw prices clear on average around $843. Leveraging customer usage insights and our generation fleets strong commercial availability, our commercial team optimized and managed our risk position to create significant value on our open positions. The commercial team further set us up for success in our markets outside of ERCOT where the weather was milder, strategically managing our positions and flexing our generation output to optimize our hedge positions and achieve strong results for the quarter. We see this trend of new peak demand records at ERCOT continuing for the foreseeable planning horizon, demand that we believe our retail products are designed to attract and our diverse and flexible generation fleet is uniquely positioned to serve. Moving now to slide 7. Again I am proud of the team's exceptional, tightly coordinated performance this quarter that helped Vistra achieve its $1.613 billion of ongoing operations adjusted EBITDA. Not only did the retail team grow residential customer accounts, TXU Energy maintained the PUC of Texas five-star rating, extending its streak to 12 straight months. Our ERCOT fleet delivered 2.5 terawatt hours more than any other quarter's output in at least the past 10 years, a 10% increase over the next highest quarterly generation output achieved in the third quarter of 2019. It was a notable feat that when paired with a strong performance by the commercial team to adapt to a variety of weather conditions created significant value across all of our markets. With the important summer months behind us and only two months left in the year, today we are raising and narrowing the guidance range we announced last quarter from $3.6 billion to $4 billion in adjusted EBITDA from ongoing operations to now $3.95 billion to $4.1 billion. We are similarly increasing and narrowing the range of adjusted free cash flow before growth from ongoing operations to a new range of $2.35 billion to $2.5 billion. Turning now to slide 8. We introduced 2024 guidance ranges for Vistra stand-alone without including any Energy Harbor contributions. We are forecasting adjusted EBITDA from ongoing operations in the range of $3.7 billion to $4.1 billion and adjusted free cash flow before growth from ongoing operations in the range of $1.9 billion to $2.3 billion. Notably our ongoing operations adjusted EBITDA midpoint for 2024 of $3.9 billion is higher than the midpoint opportunities we previewed on our most recent earnings call in the range of $3.7 billion to $3.8 billion. We are confident in our forecast as we expect consistent earnings from our retail business paired with expected strong performances from our reliable, diverse and flexible generation fleet that stands ready to deliver in a variety of economic and weather conditions just as it has this year. Of course, we will update our guidance ranges to include Energy Harbor performance expectations after we close the acquisition. Speaking of the Energy Harbor acquisition slide 9 provides an update on the status of the transaction. Since we last spoke, we have received approval from the NRC in September and we declared substantial compliance with the DOJ's second request on August 31st. We have responded to all requests from FERC and that process is progressing. Given our commitment to sell the Richland/Stryker generation plants, which we believe eliminates any potential remaining concerns around market competition, we continue to target a closing before the end of the year. Our team has worked with the Energy Harbor team to prepare for a smooth integration. And we are prepared to close the transaction promptly after receiving approval from FERC. As noted before, we intend to provide combined Vistra and Energy Harbor forecast and guidance information, after we close the acquisition. But as shown on slide 9, we continue to expect the Energy Harbor business to deliver an average of approximately $750 million of adjusted EBITDA in 2024 and 2025 including the impact of the hedges and synergies with that number growing to approximately $900 million when considered on an open basis. I'll now turn the call over to Kris, to discuss our quarterly performance in more detail.

Operator:

Thank you very much. We will now begin the question-and-answer session [Operator Instructions] Today's first question comes from Michael Sullivan with Wolfe Research. Please go ahead.

Jim Burke:

Hey, good morning, Michael.

Jim Burke:

Yes, Michael. We've noted the progress that we've made with this transaction. Originally we thought NRC would be the longer pole in the tent and we were pleased to get that approval a few months ago. Where we sit at the moment is we've got feedback from DOJ and we think we've addressed DOJ's concern. We expect to have addressed FERC's concern by selling the Richland/Stryker facility. We did not think it was a concern at the time we initiated the deal and we still don't believe that's a concern. But out of an abundance of caution we are making that move. We have obviously responded to all of their information requests and the interveners have done the same. So our anticipation is that FERC has all the information that they need. We've asked for a feedback by the middle of November. We feel confident that we'll get to something by the end of this year and that we target to -- we're planning and targeting to close by the end of this year. But I think it's just been a process Michael and it's been one that we've been obviously very responsive to and I think from a FERC standpoint they've got the information and they've got to do their due diligence, but there's been no new issues raised to us at this point and that's why we think we're going to get this done by year end.

Jim Burke:

Yes, Michael, thank you for that. I'll start by saying that our results for this year which obviously we've continued to guide up as we've gone through the year. Most of that improvement is EBITDA-driven and we did a nice job operating in the third quarter with extreme opportunities with pricing and weather being coincident particularly in ERCOT. That EBITDA largely drops through to the bottom-line when we built the plan at the beginning of the year you wouldn't have expected the kind of weather conditions that actually played out. So that free cash flow in this near term obviously will fall through and you're seeing that improved conversion. We started the year with an expected lower conversion rate because we wouldn't have had this kind of EBITDA opportunity built into a more normal weather scenario. We actually talked about free cash flow conversion being a little bit lower in 2023 and 2024 when we set our plans and we talked about the capital required to run the units pulling in some of the long-term service agreement spend for CapEx was one of the main drivers. You'll see in the capacity factors that are in the back of the deck our units have been running really well but they've also been running hard. And so we'll spend some capital in 2024 and probably have to spend some capital in 2025 to make sure the fleet stays in tip top condition. And so I think the surprise was not where we see 24 playing out from a free cash flow conversion. We actually had some positive free cash flow conversion due to the EBITDA opportunities that came our way in 2023. As far as Energy Harbor interest and how we're thinking about that financing and its effect on our results in 2023 -- in 2024 I'll ask Kris to comment.

Michael Sullivan:

Okay, super helpful. Thanks a lot.

Operator:

Thank you. The next question is from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Jim Burke:

Julien, thank you for the question. Good morning. I appreciate the comprehensive question on capital allocation. I think it's several things. First of all, as asked earlier, we want to close this Energy Harbor acquisition get -- make sure we've got embedded fully a multiyear view of the potential for that business as well as the synergies that we're anticipating to be able to deliver over a multiyear basis. We also -- because we've raised the Vistra stand-alone guidance, we see more cash available for allocation. So, we want to put all of that together and go through that process of discussion obviously with our Board when we can have a comprehensive discussion about a number of things. We've mentioned some Vistra Zero opportunities in this deck that we will continue to execute on. The buyback program we've been executing actually slightly ahead of pace. We would anticipate that when we come back through the approval process with the Board, they'll remain supportive of the buyback program potentially at the current or even a potential higher pacing than where we've been executing. We did not feel like going out too far at this point given that we need to close the acquisition and put the full plan together. We didn't feel just highlighting one element of a buyback amount in 2025 or 2026 was appropriate at this point, but our commitment to our four strategic priorities and I think the execution against those has been on track if not exceeded and I would expect that to continue. As far as growth vectors, there are a lot of things that the future holds that are still being sorted out particularly with the Inflation Reduction Act. And are there going to be opportunities here to utilize behind-the-meter opportunity some of the hydrogen opportunities, I think just from our standpoint we still own nearly 60 sites worth of land and interconnect. So, we've got plenty of opportunities to still develop a number of avenues of our business from a growth strategy, but they need to meet our return requirements. And I think that's the discipline we wanted to continue to demonstrate through this presentation and why we want to come back with a comprehensive capital allocation plan is, we have to look at all of the options on the table, and look at the best ones, and not just the ones that we've been executing on to this point. But I see us remaining focused on the four core principles, and I think that's worked well. I think our investors understand our mindset around these, and we look forward to hopefully given another set of opportunity for our investors to see how we'll create value once we close the Energy Harbor acquisition.

Jim Burke:

I think Julien, it is a little bit from a timing standpoint, an apple and an orange, but I do think you can take a couple of pieces and add them together. So if you look at our stand-alone guidance for next year, we're looking at a midpoint of $3.9 billion. And then we unpacked the Energy Harbor 2024 2025 numbers, because we what we wanted to do we gave you an average last time of 750. Now we're unpacking it saying 700 for 2024. That's still using some data that we got originally, through our cases but we're tracking curves. We have a sense of things are about where they were at the time, we announced the deal from a power price standpoint. So there alone you're taking the 3.9 and the 700 here, you're getting to 4.6. We had been at a midpoint of 4.35, on average when we gave you that direction when we announced the deal. So, I think the two pieces just added together put us north of where we have been signaling the combined opportunity. And this still has the targeted synergy levels in here. I think we could potentially exceed those targeted synergy levels, but we need to get into the business fully have the details around that execution plan before, we would upsize anything there Julien. So, I do appreciate you calling out, because I think there's been some consensus that is included. Energy Harbor and some that has been stand-alone. Our stand-alone is well north of anything that we have signaled, at this point and we think our Energy Harbor at this point is on track. And when we get into it, I think we might be able to find some additional upside. But at this point, we're not reflecting that.

Jim Burke:

Thank you, Julien.

Q – David Arcaro:

Hi. Thanks. Good morning. Thanks for taking the question.

Q – David Arcaro:

Could you comment on the retail trends that you're seeing, do you expect this retail strength to continue? And I guess looking into the 2024 guidance, you've got some solid growth that you're reflecting year-over-year in the Retail segment. Wondering if 2024, could be potentially considered kind of a new baseline, I guess for the performance of that segment?

Scott Hudson :

Yes. Thank you Jim, and thanks for the question. We did see strong margins and growth across all of our customer segments and geographies in the quarter-over-quarter. On the residential side in ERCOT, which is a large concentration of what we do, Jim mentioned, the summer campaigns that we had very successful across six brands we have in the markets across multiple different products, our seasonal discount product, which helps flatten the customer bill with the discount in the summer for the customer is very popular. And then on the retention side, we have an advanced analytics team that actually identifies customers that we give customer credits to. We call them comfort credits and that's also a way to retain customers in these very extreme summer periods. That's a program we've had in place for several years, but we continue to refine. On the C&I side, what we see is that really strong margin performance. When there's volatility in these markets and power costs are up and down, this is really an opportunity for us for really providers at scale that have reliable generation and sophisticated commercial capabilities. So we saw some nice margin expansion both in ERCOT and in the Midwest and Northeast market. So those are just a few examples to give you a flavor, but to Jim's point, we're always looking to optimize our customer counts, our margins, our risk capabilities along with the customer experience. And it really is that optimization that allows the business to be consistent and stable.

David Arcaro:

Yes. Excellent. Yes, I appreciate that color. And thanks for the clarification on the trajectory into 2024. And could I ask just does the retail contribution as you look into 2025 and the indicative midpoint guidance there? Does it stay flat into that year off of $24 million?

David Arcaro:

Yes. Got it. Understood. And just to push out even further just any directional thoughts on 2026 how much might be hedged at this point and just directional trend off to 2025?

David Arcaro:

Okay. Excellent. I appreciate it. Thanks for the time.

Operator:

Thank you. The next question comes from Andrew -- I'm sorry Angie Storozynski with Seaport. Please go ahead.

Jim Burke:

Good morning, Angie

Jim Burke:

Angie we -- I don't think we've really learned anything, specifically, from this other than deals get a lot of scrutiny. We actually have in all of our filings and all of the screens we've done that we need to do in order to make our filings complete we did not see and still don't believe that these assets are pivotal in that regard. So I still think we look at the situation in the exact same way as we did when we made the announcement. But we do want to move forward and get this deal done. So we made the modification that we made. Even in ERCOT, our market share -- because the markets continue to grow we're more like a 14%, 15% market share number so there's even headroom for us to do something in ERCOT and that's where we have the highest level of relative size compared to others in the market. So no, I think the field is still open, Angie. I think, we'd love to obviously get this done and move forward and we want to be constructive and work with the regulatory bodies to make sure that that happens in a way they're comfortable. But no, I don't think, there's anything to read through at this point. Of course, we haven't heard finally from FERC on this matter, but we feel very good about our position on this and we think we have headroom to do additional transactions in all the markets.

Jim Burke:

Yeah. So, we obviously await guidance from the IRS on a couple of matters. The whole hydrogen topic and whether nuclear -- existing nuclear is going to qualify as a clean energy source whether it's behind the meter or what they call hydrogen by wire where it's more contracted through a PPA type structure we await clarification on that. We don't have growth built into our plans for that. We're not assuming an upside yet on our plans. But that's something Angie that we obviously await guidance on. I think the more immediate material guidance will be the nuclear PTC. And what is the revenue basis for determining whether an asset has earned some of the PTC, because the realized revenue rate is below the floor. We expect to get that guidance some point in the spring, but we're not sure how soon it could come. Obviously it goes into effect beginning of next year. Once again we've not assumed any PTC value in our long-range plan. But the way we think about it is the curves are right at and slightly above where we see the PTC floor. So it's unclear that it would apply at this moment. Now, there is indexing to that PTC. So if the curve stayed flat you might inflate your way into earning some of the PTC. It is still unclear about how affiliate transactions would work. But I feel like, there's been a commentary and some acknowledgment that some basis of spot whether it's real-time or day-ahead prices that there needs to be some reflection of what the market value is of the power and not just how the hedge transactions either were done at the portfolio level or at the asset level. I think that's a cleaner way to think about, it is to think about something in the real-time or day ahead market as a better benchmark for the value at the hub of the power. But again, we await that guidance. It's not baked into the plan. And I think it provides some downside protection. We're not 100% sure how much yet. But since we still have the upside of where the curves could go for the nuclear assets whether it's Texas or Pennsylvania Ohio, we view it as a real opportunity that the IRA provides. We just don't have clarity on the size of that opportunity at this point.

Jim Burke:

Yeah, Angie, good question. It is something that the whole industry is paying attention to, because it can affect prices for domestic and more global sources beyond Russia as a source. So it's got implications whether you're sourcing directly from Russia or not. We have increased some of our nuclear fuel purchases. We've done that as Vistra. And we have done that both for our own needs, but also in anticipation of closing this transaction. So I feel very good about our financial and our physical supply with or without any Russian exposure over the next several years. And we feel that we're in good shape from a Vistra standalone actually for the next four to five years. But from a combined basis since we don't have all the detail beyond the next couple of years at this point from Energy Harbor, I think our fleet-wide purchases will actually help bridge, anything we'll see on a combined basis. But we have our -- we started working this issue. We started working even before we made an announcement about Energy Harbor, because obviously this conflict dates back in time. But I think we have done a very nice job. The team has done a nice job not only hedging for the physical part, but financially hedging curves are up for nuclear fuel. There's no doubt. You'll see nuclear fuel quotes in the $9 to $10 a megawatt hour kind of raise that's kind of an all-in value. We're still -- and I mentioned we're -- historically, we were closer to $5, trending up to $6 for Vistra standalone through 2026. That's still where we are. We don't have all the details on the Energy Harbor cost per -- I know they reset some of theirs early on as they did their restructuring, but we could have some exposure towards the back-end of a five-year planning horizon on price, just because the curves have moved up. But there's also a discussion about domestic sources and incentivizing additional supply, non-Russian that may come into play towards the back-end of our planning horizon. But I think we've substantially de-risked physically and financially there, Angie.

Jim Burke:

Thanks Angie

Durgesh Chopra:

Hey. Good morning, Jim. Thanks for taking my questions. Hey, Jim just a more pointed question on the capital allocation and I appreciate you're going to go to the Board and we'll have a plan here in the first half of next year. But given the move in the stock and I asked you this on the last call as well, do you kind of still view that the security is undervalued here as we think about buybacks prospectively beyond 2024?

Kris Moldovan:

Yeah. Durgesh, I'll just point out obviously as you can see by the pace of our buybacks, we've actually picked up the pace in the third and fourth quarter. And as Jim mentioned as we look forward and we still have to get with the Board and talk about a comprehensive plan. But as Jim mentioned our intention would be to maintain the pace that we set this year and potentially look to see whether it should stay that same on same pace going forward or whether it should be increased. So we still feel good about the prices at which we're buying our stock today.

Scott Hudson:

Yeah, I can take that. This is Scott Hudson. The number that was referenced is in the appendix slide in the materials, but it's volumetric growth in our C&I market business. And we've seen a lot of success in that business both in ERCOT and in the Midwest Northeast markets through these times of volatility. I think what you find is that larger sophisticated customers want to work with players of scale, because we can structure a lot of complex products whether those be indexed, fixed, stability and pass through, new charges in the ERCOT markets, we see a shift of customers to the larger players in this particular environment.

Durgesh Chopra:

Thanks. Appreciate the color guys. Thank you.

Operator:

Thank you. This concludes our question-and-answer session. I would now like to hand the call back to Jim Burke for closing remarks.

Operator:

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.

Operator:

Good morning, and welcome to the Vistra's Second Quarter 2023 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.

Jim Burke :

Thank you, Megan. Good morning. And thank you all for joining our second quarter 2023 earnings call. The second quarter proved to be another strong one for the business as we delivered $1,008 million in ongoing operations adjusted EBITDA. Typically, we do not formally adjust our guidance ranges until after we get through the critical summer months, but based on performance to-date and our forecast for the remainder of the year, we are confident in our ability to deliver in the upper half of the guidance ranges introduced on the third quarter earnings call last year. Accordingly, we are narrowing that original range which was $3.4 billion to $4 billion to a new range of $3.6 billion to $4 billion for ongoing operations adjusted EBITDA. Looking beyond 2023, the market curves continued to support a strong consistent outlook as well. Our commercial team is working to strategically lock in these opportunities, employing comprehensive hedging strategies to provide better line of sight to our earnings over our planning horizon, which in turn allows us to plan for capital return to our shareholders that is consistent and predictable. In addition, I'm proud of the great strides we're making in the expansion of Vistra zero-carbon generation portfolio with our 350-megawatt addition to the Moss Landing Energy Storage facility that came online this quarter. I'll speak to that milestone momentarily, but first, I'd like to turn to Slide 5 where we once again highlight our four strategic priorities. I think it's important to continue to reiterate our focus on these priorities each quarter with some notable accomplishments, as I believe these are critical to long-term value creation. This quarter saw continued strong generation and commercial team execution combined with our retail business that continues to deliver strong counts and margin performance. This year is proving it can consistently deliver substantial and resilient earnings in a variety of power price and weather conditions. Just as last quarter on average, we saw power prices this quarter clear lower than our realized hedge prices. This is highlighting the significant downside risk protection to our earnings that our comprehensive hedging strategy across the integrated business can and does consistently provide. These de-risks consistent earnings give Vista the confidence to announce aggressive shareholder return programs, and then stick with those programs and amounts equal to or higher than those originally announced. I'll let Chris provide the detailed update on our capital allocation plan, but of the aggregate upsized $7.75 billion capital return plan we originally announced in November of 2021, we've already returned $3.35 billion through August 4, 2023, which is approximately $250 million ahead of the originally announced plan levels. We regularly evaluate how best to bring value to our shareholders and we expect to continue buying back stock and paying dividends that grow each quarter, based on a reduced share count. Our balance sheet strength remains a top of this as well. You saw this quarter that we structured a $450 million P-Cap transaction which is unique and allowing us to post-treasury securities as margin deposits, returning more cash to the balance sheet. We expect to utilize that cash plus the margin deposits that have been returned as expected, as our hedges have settled throughout this year to fund a significant portion of the purchase price we expect to pay in the fourth quarter for Energy Harbor, substantially reducing the amount of acquisition debt to be issued. Finally, as it relates to our opportunities with the energy transition, in addition to the progress we are making on the Energy Harbor acquisition, which I'll speak to in a minute, I would like to turn to Slide 6 regarding our Moss Landing Facility. The Vistra team did an excellent job in bringing online an additional 350 megawatts to add to the existing 400 megawatts at our Moss Landing site in California, which is the largest energy storage facility of its kind in the world. This addition came online ahead of schedule and on budget despite a challenging supply chain environment and extreme rainfall. This is now a total of 750 megawatts of energy storage backed by contracted revenues through our PG&E Resource Adequacy Agreements. Importantly, we continue to see additional opportunities to add batteries to this site in the future. The facility is located in the [Indiscernible] energy market, which is experiencing significantly higher gas price volatility, as well as the potential for scarcity pricing due to high demand and import competition from the neighbouringh balancing authorities. These factors result in favorable conditions for the earnings outlook for a Moss Landing battery facility and our co-located combined cycle plant which has 1,020-megawatts of capacity. This is a tremendous site and a great example of our ability to invest in a discipline way in Vistra zero while also providing for the reliable and affordable energy customers need. Moving to Slide 7, the $1,008 billion of ongoing operations adjusted EBITDA achieved this quarter was a result of strong performance by each of our generation retail and commercial teams with retail achieving attractive counts and margin performance and all customer categories and our generation team delivering commercial availability of approximately 95%. Our people working hard in this extended high yield environment, and they continue to perform extremely well. When we originally announced 2023 guidance in the third quarter of last year, we estimated a range of $3.4 billion to $4 billion in adjusted EBITDA from ongoing operations. As mentioned earlier, we are confident in our ability to deliver in the upper half of that range, leading us to formally update our guidance to reflect the new range of $3.6 billion to $4 billion in adjusted EBITDA from ongoing operations and a new range for adjusted free cash flow before growth. Of course, there was a lot of execution still to go in the balance of the year, and our people remain focused on delivering for our customers and our shareholders. Turning to Slide 8, I just wanted to reiterate that all three key agencies continue to work on the necessary approvals to close the Energy Harbor acquisition. We are working constructively with each agency and an all involved parties and as I mentioned before, we continue to anticipate a fourth quarter closing. We believe Energy Harbor is a terrific transaction for district adding a substantial amount of nuclear generation with the support of the production tax credit. We continue to expect significant contributions from Energy Harbor, including the opportunities for synergies. I think back to the announcement of the Dynegy acquisition when we projected annual ongoing operations adjusted EBITDA of approximately $2.8 billion. Through the hard work of the Vistra and Dynegy teams and including the acquisition and successful integration of Crius and Ambit, together with the expected closing of Energy Harbor later this year, it is exciting that we could see ongoing adjusted EBITDA on average in the '24 to '25 timeframe of $4.5 billion, including synergies and out year prospects potentially even higher. Kris, I'll now turn the call over to you to discuss our quarterly performance in more detail.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Shahriar Pourreza with Guggenheim Partners. Please go ahead.

Jim Burke :

Hey, good morning, Shar.

Jim Burke:

Sure. Shar, I'm going to start. I'm actually going to have Scott Hudson to give a little bit of perspective on the market dynamics as well. You realized last year when we were in a climbing power environment, due to the conflict that we saw with Russia-Ukraine, and then the commodity curves moving up. So retailers in general, were climbing the hill in 2022. We started to see that obviously come off at the beginning of this year. And the team does a very nice job of looking at the multiyear nature of the contracts for large commercial, the 12-month to 24-month range for residential. And their objective, of course, is to have normalized margins. We tend to buy forward as a company, we try to normalize the experience for customers, because our experience has been, if you move the customers price too much, it's not the expectation that they had when they signed up with you. So even on renewals, we're careful about how we manage this. So from a durability standpoint, the retail business has earned strong margins in follow years and in stable years. And I think as part of the brand power of the business, is that we're not selling an index type product that's just floating with a spot price, we're actually taking some of that predictability, risk by hedging forward and giving that benefit to the customer. So I feel very good about the durability. And I would -- Scott, I'd let you to add about the market dynamics.

Jim Burke:

And I would add Shar that the annual view for retail that outlook has improved from when we originally set our guidance for 2023. As Kris noted, the Q1 to Q2 effect is more about the shaping of the cost of goods sold because retail will buy power, according to the shape by month for the year. So the winter costs are much higher than the spring, the summer costs are much higher than the fall and into December. So we see that retail profitability much higher in our results in 2Q and 4Q, and we see less from retail in 1Q and 3Q. So I was giving you the annual view as to how I think about the durability, but there is a quarter to quarter difference because of how we buy power for retail reflecting the shape of power costs. So I hope that helps.

Jim Burke :

Yeah. You bet. So Shar, we have obviously continued our progress of hedging. As we said, we would, we consistently look for opportunities to provide a predictable earnings stream. And so first of all on '24-'25, we feel good about where we are from a outlook standpoint for Vistra stand alone. And that's really the data that we are operating with here Shar. We don't have a view into updates regarding Energy Harbor, and how they look at the moment for '24-'25 because we're going through the regulatory process. And so the data, we have this more the data we had at the time of the announcement. But our view is because we're obviously in the market, and we view the curves, is that we're set up well, for Vistra standalone for '24-'25. We still feel good about raising that range that we mentioned where it was originally 3.5 to 3.7 and now we're looking at 3.7-3.8. So I feel good about where we sit in terms of Vistra standalone. Energy Harbor, we know that had some out of the money hedges at the time that we announced '24-'25. And so our view there was that on a combined basis, we were 4.35 or so on a combined basis recognizing they had some hedges that were out of the money. We believe that there's an opportunity for our business, because of our update that we gave, because we were at 3.6, when we gave you the update for Vistra standalone. If we're at 3.75 now for Vistra standalone, again, be in between 3.7-3.8. That puts the combined enterprise in that for 4.45 to 4.5 range. So $4.5 billion on average in that '24-'25 timeframe. '26, we're pretty open still. In fact, I would say, Steve Muscato is here -- when we look at the markets, we look for opportunities. But when we last talked to you, we were seeing curves in AD Hub, for instance, in PJM that were pretty attractive. They were in sort of the $50 range. Those have come off now to about $44 in that 2026 timeframe, very close to the acquisition case that we announced. So I think we're on track for that $900 million. The upside to that for that piece would need some support from the '26 curve because we've seen that move around from $45 up to the low-50s and back to that sort of 44% range. And we're still pretty open. We assume they're still open. Again, we don't know what hedging they've done for the long term. But I think 900 is still a solid number for 2026 for Energy Harbor. And in terms of our business, Vistra standalone we've seen PJM come off. We've seen ERCOT come up. And ERCOT has come up, and it's been attractive and Steve, I used and you shared some thoughts about how you have seen these markets unfold even in the last month or two.

Jim Burke :

And of course, with the AD hub and with Energy Harbor, we have some PTC support ultimately, Shar, we don't view it as meaningful because it's kind of -- all the curves are close to at the money right now on that, but that's one of the reasons the deal was attractive as well was the support to the downside if we had it. So -- thank you, Steve, and Scott, for the context on that. Shar, thank you for the questions.

Jim Burke :

Thank you.

Michael Sullivan :

Hey, good morning, everyone. And thanks for the color on those last couple of questions. Hey, Jim. Wanted to shift over to -- from the debt -- from the EBITDA side more to the debt side pro forma. I think, Jim, you were mentioning you did the PCAP and then you have some margin collateral posting coming back. Can you just give a better sense of like how much new debt you will ultimately have to issue and if that's changed from when you announced the deal and then what on a pro forma consolidated basis, where the debt is going from where you are today?

Kris Moldovan :

Yeah. Thanks, Michael, for the question. I'll put it into two buckets. As we -- when we announced the transaction, we had shown an assumption that we would use $600 million of cash and $2.6 billion of debt. And of course, we knew that there was going to be some more cash coming back from margin deposits or we expect it to come back for margin deposits, but we wanted to be conservative and make sure that we maintain sufficient liquidity. As we have settled those hedges throughout this year, that money has returned as expected. But that number also included plan to do some nonrecourse financing at Vistra Zero, which we still intend to do. So I would say, over the balance of the year, there's really two different things that we're looking at. There's the acquisition financing you can -- that has with the return of the margin deposits and the cash and the PCAPs transaction that has also returned cash. That has brought that $2.6 billion down to again, assuming we go to the next stage on the non-recourse financing, but that's probably brought that number down to $1 billion to $1.5 billion, somewhere in that range. And then we still have nonrecourse financing in the works that was in our plan that was assumed in those numbers. And I think as we said in the remarks that we still expect to see a transaction in the coming months. And so that will fill in the rest. We still have enough commitment that we're still being conservative with our -- the financing commitment that we have in place. But -- that's really it. And from a debt perspective, as we said, we're still targeting sub three times. At the closing, I think we continue to believe that we're going to be just above that. And as we look forward through a combination of debt repurchases and increasing EBITDA, we think we can get to that sub three times in the 2020 -- as early as 2024. Potentially leaking into the first part of 2025, but we don't see there being a long wait for us to get to the target levels that we're looking at.

Jim Burke :

Sure. Yeah, Michael, it's been a very active kind of last three weeks. I would say it's a daily area of focus Steve would say it's a minute-by-minute focus. And that's really because the grid, as you know, in Texas, it's been a robust, low growth market. And the additional resources that have been added over the last three to five years have largely been wind and solar. The solar move has been consequential 4,000 to 5,000 megawatts year-over-year. which is helping that evening period, and we're getting to the point where solar is filling in that six to eight-hour range fairly well, and we're all focused on the wins ability to pick up where solar left off at that sort of seven to eight hour and beyond. A couple of good points is that earlier in June, while wind overall was lower in third and second quarter this year in ERCOT than last year, at peak times during this evening hours, wind actually when the grid was at 80,000 megawatts or higher, wind actually performed relatively well in the early part of the summer. We didn't see much price formation. In July, late-July and early-August, we're starting to see that the wind in those periods of time is returning more to kind of normal expectations, and we're starting to see that tightness in those late evening hours. And of course, we're talking about the marginal resource of wind or solar. That assumes nuclear, coal, gas are all operating the way they need to be. And that's we sometimes lose focus on that because that's the majority of the grid. The units are running hard. There's no end in sight for this heat that we're in. And so -- the team is doing a terrific job keeping these units online. And I would say, overall, the ERCOT grid and the operators have done a nice job keeping the grid supplied, but there's an asymmetric risk to the upside on prices when you look at how tight the grid actually is. And we're starting to see those forwards in '24-'25, I think, start to reflect that there actually is meaningful supply-demand tightening that's occurring in ERCOT. And as far as whether gas newbuild comes it's a three-year process for the most part from the time you get started. And the loan referendum is in November, the PCM, which was part of the House Bill 1500, the Sunset bill, it has a net billion dollar cap that was inserted as part of that legislation. It could be several years to there years before that could be implemented, the PCM. So there are a lot of variables that are moving at the moment that developers would have to get comfortable with in terms of are they seeing enough to build because the curves are still backwardated. Even though we're saying the curves have moved up in '24-'25 and we're working through it, ERCOT still has -- there's still an assumption in this market. It's going to get overbuilt or there's going to be a lot coming that's just going to be potentially supported by PTCs and create downward pressure on pricing. So I think it remains to be seen what kind of queue there's going to be for gas-fired generation, but there clearly was support in this legislative session to try to keep existing thermal generation and try to incentivize new. Not all stakeholders agreed on what the right solution is to do that, but at least there's recognition that the thermal resources existing and new are important. And that was a good outcome. But there's still a lot of work to do with the P&C and ERCOT in various stakeholder groups to get this over the finish line.

Jim Burke :

Thanks, Michael.

Julien Dumoulin-Smith :

Hey, good morning. Thank you very much for the time. Appreciate it. Just wanted to follow up a little bit on the conversation on the '24-'25, the 4.5 there. Can you elaborate a little bit on what the retail assumptions are there? I know Shar tried to get at this a little bit, but it seems like you're just collapsing the transaction in there. Ultimately come up with that new number in the mid-4s. How do you think about these other retail pieces there? And ultimately, just also what were you alluding to on '26? I know you said it was quite open. Just what does that transposed into '26 if you can start to go there just quickly in terms of the puts and takes?

Julien Dumoulin-Smith :

Got it. And if I can ask you to clarify your forward ERCOT expectations. I mean we've got a few different programs yet to be implemented, I suppose, is the procurement program with a certain level of subsidy baked in there coming, I suppose at some point, curious on your sense of timing on that for any real impact? And then related, we have other reserve programs yet to be fully implemented. I'd be curious on your initial assessment of some of these programs, like the dispatchable reserve strength?

Julien Dumoulin-Smith :

Yeah.

Steve Muscato :

Sure. I think let's start with eCRS because it's the latest and we've actually seen how it's been implemented. And they're putting it in when I say the ERCOT is dispatching it only when critically needed. And so, I think it's serving well from a reliability perspective in terms of keeping ERCOT out of an EEA situation. But one of the other things I've seen is it hasn't necessarily impacted price formation too much. So I really think it gets into how ERCOT handles these reserve products. If they handle them in the way that they're designed, which is really when the grid is approaching tight conditions, and it's not necessarily used to -- for price formation, which is what we're seeing so far. When I see ECRS dispatch, it's been on the very hot days, at the peak hours when needed. And it hasn't been very price suppressive. So we think it's working the way it's intended. And we'll have to see on these new reserves that they're putting in. But to the extent they use them in the same way as ECRS, I think we're in the best of both words where we're avoiding what I'll call emergency conditions on the grid, but we're still seeing very solid price formation when it does get tight.

Julien Dumoulin-Smith :

Right. Net-net, though, there does seem to be some kind of timing discrepancy between when these reserve programs come in. And any ultimate effect of any kind of procurement program here?

Julien Dumoulin-Smith :

Excellent, guys. Good luck. Thank you so much. Talk to you soon.

Durgesh Chopra :

Hey, good morning, Jim. Thanks for taking the questions. Hey, good morning, Jim. Just on the hedges, I think you answered part of my question in your prepared remarks. But the '22 to '25 hedges stayed at 86% and no change since the Q1 update call. Is that just you willing to stay more open given the market conditions? You mentioned the ERCOT curves -- or is it just more normal course of business and you're going to opportunistically hedge more? Just any thoughts there?

Durgesh Chopra :

How about just within that '23 to '25 period. I guess what the message here is that 86% should move higher as we get along here.

Durgesh Chopra :

Understood. Thanks. And then, Jim, one of the questions we consistently get from investors. Obviously, as you look at the stock, right, I mean, since I believe you initiated this buyback program, it was Q3-Q4 '21 the stock was in mid-teens. You broke 30 today. Just your updated thoughts on capital allocation, share buyback versus growth opportunities. How are you thinking about all of that here as the stock hit $30

Steve Muscato :

I just -- I would just add, obviously, you're talking about, as you mentioned, $30. We do as you would expect, internally have our own valuation of what management and the team feels like the stock is worth. And I think, as Jim said, we're still comfortable buying and potentially leaning in at these prices. And so it gives you a feel for where we think fair value is. And we're not there yet.

Jim Burke :

Thanks, Durgesh.

David Arcaro :

Thanks so much good morning.

David Arcaro :

Steve. I was wondering, I noticed a decline in the CapEx for 2023 for solar and storage development. Wondering what's driving that. And then similarly, just looking out to the development plan, some of the in-service dates moved out for several of the solar and storage development projects. Wondering if you could give some color around that dynamic.

David Arcaro :

Got it. Got it. That's helpful. And I guess just maybe following on to that, how do you think of if there's or now maybe this is a little bit separately. I imagine if that growth CapEx number goes down, that was going to be largely financed with non0recourse project financing anyway.

Kris Moldovan:

So we open up additional cash available for allocation at the overall Vistra entity?

Unidentified Analyst:

My question is it just like a structural change that we see in retail margins? Again, if only because of the higher cost of financing? Or is it just we are coming off from a really high price, power price environment? And there's some pricing arbitrage between where we were and what's the current costs to serve these retail contracts?

Scott Hudson :

No, I think that's right, Jim. I think the most dramatic change that we've seen year-over-year is residential customers in the Midwest and Northeast, where it's a cyclic market. We just have an opportunity to bring on more customers, particularly digitally and online, because of where the price to compare is. At we still --

Scott Hudson :

Much higher.

Unidentified Analyst:

Okay, and just one other question. So as we keep going back to the rising cost of financing, but also strengthening of your stock, even though there might be little to no margin expansion yet. If you were I mean -- if you were to do another M&A transaction, just talk to me -- talk me through the financing of any potential deal. Again given the rising cost of financing, you are seemingly that dedicated to share buybacks. So, again, I'm just debating if you are a sufficient scale have pro forma Energy Harbor and if there are additional economies of scale to be had both from an operational perspective and a financing perspective that you would benefit from basically adding one more generation portfolio.

Kris Moldovan:

Yeah, Jim, I would just add As we have talked about, and as we have increased our forecasts for '24-'25 and as we see opportunities in 2026 one thing Angie, to note, and we'll have more to say on this after the Energy Harbor closing. But we still have capital to allocate even above and beyond the billion dollar -- the minimum billion dollars a year of share repurchases that we've talked about and the $300 million of dividends and getting our debt where we needed to get it to go in our renewables growth. So even beyond that, we have a significant amount of cash. And so we'll continue to make decisions. And as I said, we'll have more to say on it coming up. But we'll continue to look at opportunities and that could be growth. There could be additional share repurchases. So, that would damp in any financing that we have. But we feel good about our ability to raise financing. We also have -- we have created a currency with the Vistra Vision equity. We're not looking to use more of that, but there could be a situation where that is available to the extent that it makes sense. So we have a lot of options. And we'll continue to make sure that we are flexible as we go forward.

Jim Burke :

Thank you, Angie.

Jim Burke :

Thank you again for joining us on this call and sorry if the call dropped and you had to get back on. But we really appreciate your interest in us and following how we're progressing. And we look forward to talking to you hopefully, if we see on the road before the next quarter. And wish you a great summer. Thank you.

Operator:

Good day and welcome to the Vistra's First Quarter 2023 Results Conference Call. Today, all participants will be in a listen-only mode. [Operator Instructions] Please note, that today's event is being recorded. At this time, I would like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.

Jim Burke:

Thank you, Meagan. Good morning. Thank you all for joining our first quarter 2023 earnings call. I will begin on slide five. We entered the year focused on our four strategic priorities, and we are making great strides. First, our integrated model continues to demonstrate its value and effectiveness. As you probably recall, we spent a majority of 2022 executing on our comprehensive hedging strategy that we said was locking in earnings opportunities for 2023 through 2025. We utilized available liquidity last year to support this strategy as we believe the additional EBITDA opportunities were significant. This first quarter of 2023 we saw this strategy translate into real value as mild weather was experienced across the major markets in which we operate, which led to lower than expected cleared power prices. While we saw power prices clear at approximately $30 a megawatt hour on average, our first quarter results reflect a realization of average prices of around $45 per megawatt hour given we were highly hedged entering the year. In addition, in the outer years where we have been more open, we have seen prices and spark spreads increase as compared to this time last year. We have continued to opportunistically hedged to secure an increasing out year earnings potential. We believe this is important not only because it provides an enhanced resiliency of our earnings profile despite an uncertain commodity market, but also because it ensures we can deliver on our commitments to reliably serve our customers, consistently return capital to shareholders, maintain a strong balance sheet, and transform our fleet as we strengthen our position for the long-term. Second, our return of capital to our shareholders remains consistent and robust. Kris will provide a detailed update on our capital allocation plan in just a moment, but I want to highlight that of the aggregate 4.25 billion share repurchase authorization, we have returned approximately $2.7 billion to shareholders from November, 2021 through May 4th, 2023. Additionally, we are on track to pay $300 million in common stock dividends in 2023 as planned with our Board approving a second quarter dividend in the amount of $20.40, representing an approximately 15% increase over the second quarter dividend paid in 2022. The share repurchase program together with the structure of our dividend plan work in tandem to provide our shareholders with the expectation of dividend growth each quarter, as the aggregate $300 million in annual dividends is spread across a decreasing number of shares of Vistra common stock. Third, we continue our focus on a strong balance sheet. As we see margin deposits return, we are positioned to utilize that cash for opportunistic delevering and/or to reduce the amount of debt we expect to incur to close the Energy Harbor acquisition we announced in March of this year. While the first quarter is typically the lowest free cash flow quarter for Vistra, we were able to repay approximately $500 million of short-term debt. Of course, we're expecting our net debt balance to grow over the balance of the year to fund the Energy Harbor acquisition, which we expect to come with a significant amount of EBITDA. But we remain focused on our goal of a long-term net leverage ratio, excluding any non-recourse debt at Vistra Zero of less than three times, which we expect to achieve in the 2024 to 2025 timeframe. Finally, we are very excited about our announcement just two months ago regarding the acquisition of Energy Harbor, which is expected to close later this year. With this acquisition, our nuclear fleet will grow by an additional 4,000 megawatts in PJM, which will more than double the zero carbon generation we have online today. Turning to slide six, I will discuss this quarter's results. We achieved $554 million of ongoing operations adjusted EBITDA, strong operational performance and our robust hedging activities helped offset milder than normal weather throughout the U.S. Our retail and generation teams continued their strong operational performance with retail achieving growth in ERCOT customer counts while maintaining attractive margins, and our generation team delivering commercial availability of 97%, while maintaining the focus on safety. The generation team has operated over three years without a significant injury across a large and diverse fleet, and safety remains our number one priority. Looking ahead for the remainder of the year, we are confident in our ability to meet or exceed the midpoint of our $3.4 billion to $4.0 billion adjusted EBITDA from ongoing operations guidance range for 2023 as we announced in the third quarter of 2022. We're also reaffirming our $1.75 billion to $2.35 billion adjusted free cash flow before growth from ongoing operations guidance range. Of course, with nine months to go in the year, including the important summer months, we believe it would be premature to narrow or otherwise adjust our guidance range for 2023. Kris will cover in more detail while we remain bullish on our opportunities and years ahead. Before I wrap up and turn the call over to Kris to discuss the first quarter's performance in more detail, I want to provide a quick update on the status of our Energy Harbor acquisition. As noted on slide seven, we have filed approval request with each of the three key agencies and anticipate receiving all needed approvals in time to close by the end of this year. As a reminder, we've committed bridge financing in place and an amount sufficient to close the transaction, but we do expect to replace the entirety of our bridge commitments with permanent financing between now and closing. Finally, I think it's worth noting that as we have seen out year forward price curves improve, our financial forecast for Energy Harbor has also improved in the out years. Previous estimates we shared in March indicated average adjusted EBITDA midpoint opportunities for 2024 through 2025 of approximately $900 million with adjusted free cash flow before growth opportunities at a 65% to 70% range. This is inclusive of synergies and on an open pretax basis. Given recent price curves, we see the average adjusted EBITDA midpoint opportunities from Energy Harbor for 2026 and beyond to be higher than this original estimate. We expect that we will provide more detailed adjusted EBITDA and other financial projections for the combined company closer to closing or just after. Kris, I'll now turn the call over to you.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Shar Pourreza with Guggenheim Partners. Please proceed.

Jim Burke:

Hey, good mornings, Shar.

Shahriar Pourreza:

Good morning. Good morning. I think you sort of touched on this quickly, but I guess what point could you revisit and update the two-year commentary you guys have been providing. And then, obviously, those numbers have been floated around first in 2022. I guess, what kind of O&M inflation is embedded in those? Maybe put differently, we've seen a few of your peers kind of flag strong, increases in O&M costs of late, so I guess what are you guys seeing in those numbers as well? Thanks.

Shahriar Pourreza:

Hey, Jim.

Shahriar Pourreza:

Okay. Perfect. And then just -- I'm sorry to ask, but what's the O&M inflation you guys are embedding in those numbers?

Shahriar Pourreza:

Perfect. Perfect. And then just last, I would love to get maybe a pulse check on sort of the legislative cycle right now, and your expectations for resource adequacy in ERCOT. Anything seem to be a little quieter. Now that the Senate has passed several items. I guess, what are your expectations for pathways forward as this session comes to a close? Thanks guys.

Shahriar Pourreza:

Very helpful, Jim. Thank you so much. Have a good morning. Appreciate it guys.

Operator:

The next question comes from Julien Dumoulin-Smith with Bank of America. Please proceed.

Jim Burke:

Thank you, Julien and good morning. Look, we have generally stayed away from commenting on M&A. I think it's one of those activities that opportunistically comes your way and you have to be prepared for it. You have to always be what we'd say, hang around the hoop a little bit on opportunities. However, I think the Energy Harbor transaction is a very significant one for us. Certainly, it's our focus right now, not only getting through the approval process with the key agencies, but the integration activities with the team at Energy Harbor and with our team. As you note, it's transformative in a lot of ways, because we used it as a platform to highlight just how much of a business we have with the carbon free aspects of our business. And obviously, we're going to more than double that amount of generation with this transaction. The strong balance sheet and the returning capital, the reason we keep repeating the four priorities is because we have to find things that fit within those four priorities and not everything is going to. And I think that's a commitment we've made. I think the Energy Harbor transaction reinforced. We mean those that we're going to stick with those four core principles. So Julien, nothing is ever off the table from the standpoint of looking at it, but it needs to fit the criteria that we've laid out and we're going to remain disciplined in that regard.

Jim Burke:

Sure. Well, on the first matter, I think we're progressing well on the approvals process. We announced the transaction early March. We made the filings, the key filings in April. We believe the NRC is working towards an early October approval, which to be on the six-month track for a license transfer, we think, is actually on the more efficient side of the scale in terms of where we would go. We've talked about closing this in the fourth quarter, and I think that is achievable. Julien, as you know, we don't have anything built into our numbers for 2023 related to Energy Harbor. So, hopefully, there's some opportunity there. But just I think we're tracking well. There's nothing that we're concerned about at this stage, but it's still early in the approval process. But so far so good. On the retail side, our reduction in counts has been more outside of the ERCOT market. We've made some strategic exits in a couple states. The Energy Harbor platform does give us an opportunity to bolster some of the areas where we do currently operate in retail. And obviously, it gives us an asset base, including some attributes like the emissions free energy credits, which customers are becoming more interested in that the nuclear units can offer. So, I like our retail, we like our integrated model. We do think the Midwest Northeast market reforms in some of the retail markets is still warranted. As we've talked about, Julien, the level of competition there in terms of the degree to which you can differentiate your products, there is still rather limited. It's more of a hedge channel and being able to serve customers with your assets than it is a true business to consumer or business to business differentiated marketing strategy. We hope to get there in some of these markets and we'll continue our efforts from a stakeholder outreach perspective. But the integrated model is certainly well intact with this acquisition, because it comes with a retail business in addition to a generation. But we do need to see these markets open up a little bit from a reform and being open to innovation in these markets, the way Texas has been open innovation. And so, we do have some work to do there, Julien.

Jim Burke:

Thank you, Julien.

Michael Sullivan:

Hey, good morning.

Kris Moldovan:

Good morning.

Jim Burke:

You bet, Michael. Thank you. Yes. We base this off of using the May 4th curve. So, it's a function obviously, of where we have hedged, what we still have open, and the curves as of May 4th. Not that the liquidity is infinitely deep in some of these outer years, but it's not based on a point of view. It is based on curves. We know that this is something that you and our investors are trying to follow, which is, are we seeing some upside? As Kris laid out in his chart, from the time we first initiated the strategy of talking about a three-year horizon, the curves have actually improved in those outer years. So, while we've seen the front of the curves come down because of a number of factors, I'm going to ask Steve Muscato, our President of Wholesale, to comment. We've seen the out years actually strengthen, and we think that that's actually a sign of opportunity for Vistra long-term. But in terms of the dynamics by market, I think it might be helpful for Steve to share a few thoughts as to how we see these markets being impacted by some of the factors obviously late last fall and through this year and where we see that headed. Steve?

Jim Burke:

Steve, thanks for that. I'll just add, Michael, that in addition to the dynamics we're seeing of the resource fix and how it's changing, we've seen obviously a handful of significant environmental regulations that have been issued and potentially forthcoming that could also put some pressure on assets that currently are providing a reliability service on these grids. And our assets even with a Vistra Tradition and a Vistra Vision, coal is 25% to 30% on a go forward basis of Vistra Tradition. It's predominantly our combined cycle gas fleet. We think that has a lot of value in helping these grids be able to sustain a reliable operation while integrating more renewables. And then, of course, our Vistra Vision is anchored by Vistra Zero and also Comanche Peak and Energy Harbor assets on a go forward basis. So, we like our asset position to backstop and what we call firm up our customer commitments. And we think the horizon, whether it's the economics of what happens in competitive markets, or whether it's actually some of the incentives and the rules that could come forth from an environmental standpoint, these assets are going to be needed for reliability purposes. And that's our thesis with why we think this business has a long-term earnings potential that we see actually growing through time.

Jim Burke:

Not in the near term, Michael. A couple things. Obviously, the CCR, ELG rules we have talked about for years, and that does have impacts on our coal fleet, which we've communicated multiple times that will have retirement dates and that sort of 2027, 2028 horizon except for two of our sites. Casper or the Good Neighbor Rule, it did -- it was recently stayed. So, you have an opportunity here for the state of Texas to revisit this rule. Obviously in the fifth circuit, it's going to take some time to sort that out. That could impact some of our old gas units, could impact the Martin Lake if it were to be fully implemented. But I think there were good reasons for the challenge and we're certainly not the only party in that challenge. There's many industry participants outside of even power as well as the state. But no, Michael, we don't have any anticipated large CapEx spend as a result, but we stay active. Again, reliability is important and we think that that this transition that's occurring on the grid needs to be done so thoughtfully, but nothing -- no near term impacts with the stay, maybe a little bit pushed out from that standpoint in terms of impact on our fleet.

Jim Burke:

Thank you, Michael.

David Arcaro:

Hey, good morning. Thanks so much for taking my question.

David Arcaro:

Hey. Let's see. Wanted to check on the retail business. Just wanted to confirm, is that on track for the year, given the first quarter results? Are you going to -- need to pursue some more proactive initiatives to keep kind of in line with the guidance range for this year? Or is this really just the -- maybe more natural ebb and flow of the EBITDA results for retail?

David Arcaro:

Got it. Okay. Thanks. That's helpful. And then, similar topic, I was just curious what the latest trends you're seeing are in customers moving to default service. Is that still a trend that's happening or which direction are you seeing right now?

David Arcaro:

Okay. Great. That makes sense. Thanks so much.

Operator:

Our next question comes from Durgesh Chopra with Evercore ISI. Please proceed.

Jim Burke:

That is correct.

Jim Burke:

Yeah. That is the view that we have. And obviously we've talked about this on a hedge basis, which is largely open in 2026 Energy Harbor. We've talked -- because we are 2024, 2025 numbers that we've given, you have hedges in them for Energy Harbor. Once you get to 2026, Energy Harbor is pretty open. We're pretty open. And actually you could see Energy Harbor doing better than $900 million when you get out to 2026 again at current curves.

Kris Moldovan:

Yeah. We're going to -- I think we will obviously update guidance for the balance of 2023 and then 2024 at or at the time of closing. We haven't made a decision as far as how far out we'll continue to update. We'll probably continue to give directionally where we see things going. But I think we're -- I don't know that we plan to continue to consistently give three-year ranges going forward. But as we get closer to closing, we'll getting updates to what we've put out so far.

Jim Burke:

Thank you, Durgesh.

Angie Storozynski:

Thank you. So -- actually some questions. One about flexibility in financing of the Energy Harbor transaction. So, I think we're all watching credit spreads. You have this deal to finance. You have the bridge financing in place, but you plan to refinance it before the end of the year. So, I'm just wondering if you could use, for example, any of the project level debt you mentioned at the renewable assets to maybe help yourself here. So that's one. And number two from the -- a bigger picture question. So, when you look at the mark-to-market of earnings of Vistra Vision and Vistra Tradition at these prices, you are solving for deleveraging pretty quickly. Probably 2025 if not sooner. So, would that change your thoughts about keeping these two businesses together, i.e. could we see a separation of Vistra Vision, again, which would unlock the true value of these assets? Thanks.

Jim Burke:

And Angie, this is Jim. I'll add to Kris' comments on that. The idea obviously with Vistra Vision as it was conceived in order to execute on this transaction and keep a strong balance sheet, did obviously do two things that highlighted the amount of our earning stream that has a zero greenhouse gas emissions profile. It also created an investment vehicle for some of the key shareholders for Energy Harbor to participate in this future entity. I still step back and think about this as a customer business that is -- that has a changing sort of view of what they're looking for from the electric grid, including a more sustainable grid, but also a reliable grid. That in essence is Vistra. I mean, that is what we're doing. We're doing it, we're expressing it through different transactions. Energy Harbor obviously is the most significant one, but with the Ambit and Crius and growing our retail presence and then our launching of our own opportunities with Vistra Zero. So, the dissynergies that could come about by saying that this business is only this and this business is only that, is not really how the electric grid functions. It is obviously a way in which we can think about investors and how they want to express their point of view of what they invest in. But I think we can achieve that even with the structure we have here. And most importantly, we're still a fundamentals based view on value, and we invest in things that generate long-term sustainable cash flows. I know folks do talk to us about what do we think it might take to get a rerate, that's in some level out of our control. What is in our control is our ability to make good decisions, take advantage of the market opportunities as they come about, create some on our own and serve customers extremely well. And if we do that, we're going to return capital to shareholders very aggressively and paydown debt. And I think that's a winning model. It just may not come with the shorter term moves that some people might want to see, but I think we're building an enduring business and I think that's attractive for investors, and we're prepared to execute on that.

Jim Burke:

Yes. Angie, we can. Obviously, gas is more liquid than power, and gas many times is a good proxy for power. But to your point, it's not a perfect proxy for power. And Steve, why don't you comment a little bit on some of the things that we do to try to use liquidity efficient means and how we're thinking about capturing this value. Because we are sensitive, Angie, that the further out we go, depending on how we hedge, there obviously is a use of liquidity, and we balance that into our thinking. And we're not also thinking that these curves just go away tomorrow because again, the fundamentals of what we think is happening with the electric grid speak to reliability and assets with flexibility, which is our portfolio. And we think those are getting valued and they're getting valued differently than they have in the past, because reliability was taken for granted. But Steve, why don't you comment a little bit on how we're thinking about blocking this in.

Angie Storozynski:

Great. Thank you.

Operator:

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Jim Burke for any closing remarks.

Jim Burke:

Yes. Thank you. I want to thank everybody for joining us this morning. We appreciate your interest in Vistra and please know that our Vistra team is working hard to execute well for the summer, and our strategic priorities, and we look forward to giving you future updates. Have a great morning everyone. Thanks.

Operator:

Good morning, and welcome to the Vistra's Fourth Quarter and Full Year Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.

Jim Burke:

Thank you, Meagan. Good morning. I'm pleased to be here with you all to discuss our fourth quarter and full year 2022 results, which we believe is a positive and straightforward message. Beginning on Slide 5, as we've reiterated over these past quarters, we remain vigilant and focused on our strategic priorities throughout the year, and the 2022 results demonstrate that focus and set us up well for the future. We believe that operating an integrated business model provides the stability and consistency that our customers and our shareholders expect and our operations throughout extreme weather events this past year, we believe, have proved this thesis. You'll recall that we initiated guidance for 2022 for adjusted EBITDA from ongoing operations with a midpoint of $3.06 billion. Despite extreme volatility in commodities and numerous weather events, including winter storm Elliott at the end of December, we ended the year exceeding this midpoint by $55 million. Importantly, we delivered strong adjusted free cash flows along with these higher earnings, delivering a final adjusted free cash flow before growth of $129 million above the midpoint of the narrow guidance range we introduced in the third quarter of 2022. Our integrated portfolio also supported our comprehensive hedging strategy we executed throughout 2022, with the goal of locking an out-year earnings potential in years 2023 to 2025. Kris will speak to this in more detail later, but we concluded the year at approximately 73% hedged across '23 to '25 across all markets. This hedging percentage and the current forward curves continue to support the estimated $3.5 billion to $3.7 billion midpoint of adjusted EBITDA earnings potentials in those years. And with our 2023 adjusted EBITDA guidance midpoint set at $3.7 billion, we look forward to executing squarely on these opportunities. We continue to see Vistra generate significant cash flows and our strategic priorities remain focused on returning meaningful value to our shareholders. Kris will provide a detailed update on our capital allocation plan, but I will note that we returned approximately $2.25 billion to shareholders via our share repurchase program from November 2021 through December 2022, approximately $250 million more than we had originally planned. Additionally, we paid out $300 million in common stock dividends in 2022, as planned, with each quarter's dividend per share growing as the share count was reduced. The fourth quarter dividend paid in December 2022 represented a 29% increase over the fourth quarter dividend paid in December of '21. We expect shareholders to continue to experience increases in dividend returns into 2023 as we expect to continue to pay out an aggregate $300 million in annual dividends due to decreasing number of shares of Vistra common stock. We remain vigilant this year in maintaining a strong balance sheet. While our debt balance did grow to provide the liquidity we needed to support our comprehensive hedging strategy, we achieved our goal of a sub-3x leverage after margin deposits are considered at year-end. We held our debt capacity steady at year-end as we saw less return of margin than originally expected. We have seen the margin deposits start to return to us in the first quarter of 2023, and we continue to actively manage our liquidity and focus on opportunistic timing and structures to further optimize our balance sheet. With the goal to achieve our long-term sub-3x debt leverage ratio target on a pre-margin deposit basis over time. Finally, we are proud of the results we saw in our Vistra Zero business this past year. We added over 400 megawatts of renewable and storage capacity in 2022, and we expect to add another 350 megawatts of storage capacity in California at our Moss Landing Phase 3 facility in mid-2023. We also retired approximately 2,900 megawatts of Ohio and Illinois coal facilities at our Zimmer, Joppa and Edwards plants. We appreciate the dedication of our teams who work at these sites for decades, powering our communities and always with a sharp focus on safety. We are pleased to be able to redevelop these sites in the future Vistra Zero energy facilities. Notably, the Joppa and Edwards sites are part of our Illinois Coal to Solar program where we are transitioning numerous sites into solar and/or storage facilities. Turning to Slide 6. We had a strong 2022, ending the year with $3.115 billion of ongoing operations adjusted EBITDA. This is $55 million above the $3.06 billion midpoint we said in the third quarter of 2021. We achieved nearly $2.4 billion of adjusted free cash flow before growth, $129 million higher than the narrowed guidance midpoint we set in the third quarter of '22. Our financial achievements were underscored by the strong performance of our retail and generation teams. Our flagship retail brand TXU Energy continues to execute well, growing Texas residential customers nearly 2% year-over-year, while maintaining its PUCT 5-star rating. Our Generation team has proven its ability to perform in extreme weather conditions in both the summer and winter months, optimizing the maintenance of our fleet to stand ready to perform when needed. The team's commitment is illustrated by the 95.4% commercial availability achieved fleet-wide this past year. Safety remains our top priority and the culture of continuous improvement is exemplified in our Vistra best defense safety program. I'm pleased with our performance in 2022, but through continuous improvement, we see opportunities to perform operationally at an even higher level in 2023. We now look forward to delivering on the financial guidance we set forth last quarter for 2023. We are reaffirming our $3.4 billion to $4 billion adjusted EBITDA from ongoing operations range for 2023 as well as reaffirming our $1.75 billion to $2.35 billion adjusted free cash flow before growth guidance range. It is early in the year, but notably, despite the volatility in commodity prices we've experienced lately, we continue to have the line of sight to achieve the expectations we've set for ourselves given the potential value our comprehensive hedging program has locked in for 2023. I will now hand the call over to Kris to discuss the 2022 fourth quarter and annual performance in more detail.

Operator:

[Operator Instructions] Our first question will come from Shar Pourreza with Guggenheim Partners.

Jim Burke:

Shar, this is Jim. We knew when we put out 3-year kind of views, we get asked about before and it's not surprising. What's interesting about the curves is that '26 is actually hanging in there relative to '25. You see gas, obviously, still has a little bit of contango in it. We're seeing the heat rates hold up. We're certainly way more open in '26, and the liquidity there is not obviously the same as the near term. But right now, it's just that we're really open in '26, Shar, but actually, the '26 on just sort of a view as to where the curves are today. If we could actually lock that in, we feel pretty good about where we would guide for '26. It's just that's a long ways off, and it's not as liquid as we'd like it to be to be able to act on it. I'm not even sure from a point of view that we would act on it fully, if we could. I think we think that some things might be a little bit overdone on at least as we see the view now with the mild winter and that putting that kind of downward pressure we've seen on the complex overall. But it's a good question. It's one we talk about every day, as we look at how we commercially optimize the business, but '26 is hanging in there.

Jim Burke:

The PCM, as you know, is the leading concept at the moment as a proposal passed by the Public Utility Commission 50 in January. A lot of alternatives still being discussed there. The one thing to note about the PCM is, it was passed, I would say, more with the conceptual framework. The details are still to be worked out, things like what is the reliability standard that the state is actually going to procure resources to ensure reliability. What is the net CONE, what's the slope of the demand curve. There's just a lot of things to work out. And so this idea of trying to calculate its value, I think there's really a couple of concepts we would want to make sure when we get through the stakeholder process. One is, is it material enough to attract investment? And that's one of the ideas that is the concept behind doing anything with market reform. And is it enough to retain the Generation that's currently there? So to the extent that we end up with a PCM that just does not have a lot of value in it, it could be a concept and it could be implemented, but it may not do much attracting of investment or retaining of assets. And I think you'll hear the debate down there that's happening in Austin, there are many stakeholders that do not believe that we have to do significant market reform. We're concerned about market reform from the standpoint that the state of Texas from a reliability standpoint will need to actually incentivize new generation while retaining the existing because we are such a strong economy, and we're seeing the load growth here in markets unlike anywhere else in the country. So I think, Shar, it's too early to say what the PCM is going to provide. Obviously, we believe in a dispatchable resource emphasis around PCM. We think that's core to grid reliability, but there's too many things to still work out in the stakeholder process, if this is the leading concept coming out of the legislative session.

Jim Burke:

Yes, sure, sure. We're obviously not going to comment on any specific aspect of M&A, but you've seen this in the past. If they can leverage our core capabilities, it'd be a consideration. We've done it with Dynegy, Crius, Ambit. I view it as -- I think we're good at 3 things. I think we're very good at operating plants, serving customers and commercially integrating these 2 activities, which as you know, operate in a followable commodity market. So I think we would look at things, and we have been around processes and that's part of just our core strategy of looking how -- looking at ways that we can maximize value for shareholders, but I wouldn't put a caveat. Our investors have been very clear that they do like our return of capital strategy. We try to be very consistent with that approach, as Kris laid out, and I think that still remains our priority. So anything that we're going to consider in that front, I believe, needs to fit within that framework that may or may not be possible, but we have a priority around returning capital to shareholders. And if we can do that and leverage our core capabilities, we'd be interested.

Operator:

Our next question will come from David Arcaro with Morgan Stanley.

Jim Burke:

Sure. It's a good question. So obviously, we ended the year with a really strong weather system that affected not just one market, but multiple markets. When we go into these events and some of this has been refined since Uri, we carry more length into these events because we've seen that particularly, in winter events, you can actually have some fuel disruptions, not just asset performance challenges. So we try to take that into consideration. So we hold back length on the Generation side, and then we expect that retail load, particularly in extremely cold weather, can swing even more than what we would normally have expected on a winter day. And we expect those 2 to offset each other, and in Winter Storm Elliot, that's what happened. So we were able to run our ERCOT fleet, and our fleet performed really well -- and in PJM. And that extra length from an energy perspective covered the extra swing that we experienced on the retail side. On the penalty specifically, because PJM has yet another aspect to it with the penalties, you could be in a bonus or a penalty situation. And our view at this point, although we do not have full information yet from PJM, is that we're in a net bonus situation, not by a lot, but we are in a net bonus situation. But we haircut a bonus expectations because of some of the default risk that others are concerned about, and this actual process could take 8 or 9 months to receive payments for people that are in a penalty, and they need to pay in order for us to receive a bonus. So we've assumed for this purpose that we basically have a breakeven penalty bonus situation in PJM with that haircut on the bonuses. And so we came out of the storm where we expected to be. What we like about our business is, we can handle these events. What you tend to see in the aftermath of these events is some more volatility potentially in the forward curve. And then we try to hedge into that, and that's how we're able to provide the guidance that we provide. But we don't go into any one event looking for it to be a significantly positive or negative event because we're on both sides, the Gen and the Retail. And we try to come out of that event, and we had a good performance at Elliot.

Kris Moldovan:

Yes. This is Kris. So as of the end of the fourth quarter we talked about, we had expected to start seeing margin deposits come back as we settled our – settled some of those hedges in the fourth quarter. With the volatility that continued on in the fourth quarter, especially in December, we actually saw margin deposits go up from September 30 through the end of the year. Over the past 1.5 months, prices and volatility have settled a little bit, and we are seeing some return of cash, and so – and we’ve also settled some additional hedges. So we are seeing cash come back in, and we do expect more cash to come in, in the near term and over the course of the year. And over the course of the year, we would expect a significant portion of the – over $3 billion of cash that we had posted to come back.

Durgesh Chopra:

Jim, can we get your updated thoughts on capital allocation, share buybacks, et cetera, et cetera. On the Q2 call last year, you announced $1.25 billion in additional share buybacks that you're going to complete this year. But just can we get your latest thoughts there? And when should we -- from a timing perspective, when should us and investors be looking for an update in terms of your forward-looking share buyback plans?

Durgesh Chopra:

Got it. So back half of the year. And then my next question is on the nuclear fuel. I see sort of you kind of reiterated your nuclear fuel expense projections for 2023. Some of your peers are showing a pretty sizable ramp-up in nuclear fuel costs looking out in the future. Can you comment on that, please?

Operator:

Next question will come from Angie Storozynski with Seaport.

Jim Burke:

Sure. Angie, thank you. That's a very good question. Vistra Zero has been off to, in our view, a really strong start on the projects that we've got line of sight to. Right now, we did deliver the 3 that were in Texas in 2022, actually on time, on budget. Our focus right now is Moss 350, which will come online for this summer, which adds to the already large battery assembly of 400 megawatts, will become 750. And then we have 9 Coal to Solar projects in Illinois that were focused on the balance of this year and in 2024 to bring those on in late '24 and '25. What we've done, and you put all that together, Angie, you're still looking at about a $200 million to $250 million kind of EBITDA business. So on the basis of the 3.7, it's still not a sizable share, but it's a meaningful share. And what we've done in Texas, as you know, is we slowed down some of the merchant solar development because we've seen those returns be challenged based on not only EPC cost and panel costs, but solar is already starting to cannibalize solar in terms of price realization. So we would want to do additional solar under the right circumstances, which would likely be if it were contracted. So we slowed our process down at this point because we want to make sure that those projects make sense for us. As we stated since we announced Vistra Zero, we hold these options ourselves. They're not on a time constraint that if we don't exercise them, we lose them. And some of these sites, I think, can end up being more valuable through time as we see these interconnect queues are really hard to get through all over the country, and we own dozens and dozens of interconnect queues that we're not utilizing right now that we'd like to. So it is absolutely an option for us. I think you'll see that we will continue to grow this in a very deliberate way. But I think we've also tried to show discipline that we did not give you a headline megawatt number and just go pursue it regardless of returns. I think we've been very disciplined about the approach. And the market opportunity, clearly, with the Inflation Reduction Act is improving some of these returns even on the projects that we've already announced that are executing like Moss 350 and Coal to Solar. So I feel very good about our portfolio that we're executing on, but there is still uncertainty about the back half of the Vistra Zero portfolio and whether they can generate adequate returns. And if they do, we'll pursue it, and if they don't, then we're going to be disciplined and we'll wait because we still own the sites and have the options.

Jim Burke:

Dispatchable assets are core to serving Retail load. In fact, I think we have seen, and this is what Steve Muscato and his commercial team focus on every day is, can you serve Retail loads successfully, simply with renewables and batteries. And it’s a really tough – it’s a really tough effort to manage the risk around that. So dispatchable assets clearly are required to be successful with risk management on Retail. Comanche Peak itself, we talked about was the anchor tenant in Vistra Zero when we first announced Vistra Zero. Obviously, it’s got additional support from the production tax credit. We just obviously put in for the relicensing of it, and it operates at one of the lowest cost structures, if not the lowest cost structure, in the industry. So we do occasionally get inbounds from people that ask that question, Angie, and we are obviously interested in long-term value creation, but we like the Comanche Peak asset. It fits within our portfolio in Texas, given our sizable retail presence. and obviously, nuclear has been given a new level of interest given the Inflation Reduction Act, but we will always engage ideas. But in the core competencies of – we run plants well, we serve customers well, and we commercially risk manage the 2, I think it’s a core asset.

Jim Burke:

I just want to thank everybody for joining. I want to thank the hard-working team at Vistra for a strong 2022, and we have turned our attention, and we’re focused on delivering in 2023. So I hope everybody has a great morning. Look forward to talking to you again soon.

Operator:

Good day, and welcome to the Vistra Third Quarter Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Meagan Horn. Please go ahead.

Jim Burke:

Thank you, Meagan, and good morning to everyone. We plan to keep this call relatively short. We believe we have a straightforward message to deliver today. In prior calls, we've shared with you our priorities for the year and today, we're here to share how we are successfully executing against those priorities and provide our view regarding 2023. Starting on slide five, we had another strong quarter financially earning $1.038 billion and ongoing operations adjusted EBITDA. Our generation team performed extremely well throughout the summer, but their performance was most on display during the high heat weather events experienced in July in the ERCOT region. For example, on one particular day in July when ERCOT experienced periods of low wind and solar output, we saw our Texas generation fleet operate at its max capacity. On this day, we saw prices hit the $5,000 price cap on three different hours. A well-maintained fleet is key to delivering reliable power for our customers and our communities and ensuring value is captured during these weather events and our generation team delivered. Our retail business similarly performed well showing its resiliency by demonstrating the ability to serve customers at attractive margins. Even in light of the higher commodity cost environment. Our retail team responded to our customer's needs, and our performance reflects our deep commitment to our customers. In fact, this commitment was recently acknowledged by the PCT when TXU Energy was recognized as a five-star rated retailer. With three quarters of performance now reported, we are able to narrow our previously announced guidance for ongoing operations, adjusted EBITDA, and ongoing operations adjusted free cash flow before growth. We now see ongoing operations adjusted EBITDA in a range of $2.96 billion to $3.16 billion and ongoing operations adjusted free cash flow before growth in a range of $2.17 billion to $2.37 billion for 2022. We're reaffirming our original midpoint of $3.06 billion of ongoing operations adjusted EBITDA for 2022. This has been a year with significant volatility and fuel prices and weather, in an environment of rising inflation, and yet our team is performing well in tracking at the original guidance provided last November. Due to our comprehensive hedging program to capture higher earnings in future periods, we have incurred some higher interest charges which is reflected in our modestly lower midpoint for ongoing operations adjusted free cash flow before growth. This midpoint is now $2.27 billion. As we have discussed in the past, we took on additional short-term debt to fund the liquidity needed for our comprehensive hedging program. The hedges are locking in significant out-year earnings potential. That higher earnings power is reflected on slide six. Today we are initiating guidance for ongoing operations adjusted EBITDA in a range of $3.4 billion to $4 billion and ongoing operations adjusted free cash flow before growth in a range of $1.75 billion to $2.35 billion for 2023. Our 2023 guidance midpoint of ongoing operations adjusted EBITDA is $3.7 billion. This is the top end of the midpoint opportunity range we estimated for 2023 during our first quarter call, as we saw the dramatic increase in gas and power forward curves. Given the higher EBITDA figures and the volatility we have seen in the market, our range is larger on an absolute basis, but as a similar percentage of the midpoint as we have had in recent years. We are confident in our ability to deliver on this value proposition for 2023 and as you know, our comprehensive hedging program extends in the future years. With that I wanted to take a moment to reiterate Vistra's strategic priorities as we summarized on slide seven. We believe these priorities are delivering and are expected to continue to deliver significant value for investors. We previously stated that we saw annual ongoing operations adjusted EBITDA potential of around $3 billion going forward. As forward power curves increased, we announced Q1 2022 that we saw ongoing operations adjusted EBITDA midpoint potential in a $3.5 billion to $3.7 billion range for years 2023 through 2025. We're now approximately 70% hedged on average across 2023 through 2025. Accordingly, we continue to believe in that range of earnings potential. And in turn, we're using significant cash flows to return value to the shareholders. Vistra continues to execute on our previously announced capital allocation plan and Chris will speak to those details momentarily. But notably, our capital allocation plan offers a robust returns per share. Looking forward to the target share repurchases and dividends under the capital allocation plan between now and year end 2023, we have $1.2 billion of remaining authorization for share repurchases that we expect to utilize by year end 2023 plus $375 million in dividends targeted for payment Q4 2022 through Q4 2023. That capital distributed across our current shareholder base delivers an equivalent of approximately $4 per share of capital being returned. I recognize this as a simple illustration. I only point this out to underscore the incredible value proposition we believe Vistra currently offers. As a reminder, these expected cash returns are achieved even after we make the planned maintenance capital investments to ensure our fleet is well-positioned for the winter and the summer. This is also after we execute on our expected debt reduction to ensure a strong balance sheet. Lastly, we expect Vistra Zero to be financed primarily with third-party capital, enabling us to continue to transition aspects of our fleet, primarily some of our older coal assets in a capital efficient manner. Vistra Zero will also benefit from the Inflation Reduction Act, including setting a price floor for a nuclear asset Comanche peak. You may have seen we recently submitted the relicensing application which would extend our licenses by 20 additional years for each of the two units to 2050 and 2053. We continue to see how important a role our diverse set of assets are playing throughout the U.S. and ensuring reliable, affordable, and sustainable power. Our integrated model of delivering the service that our customers and communities depend upon, and we are excited to be able to share our expectations with you, our owners, that the future is bright for our company. I will now hand the call over to Kris to discuss this quarter's financial performance in more detail.

Operator:

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Michael Sullivan with Wolfe Research. Please go ahead.

Jim Burke:

Good morning.

Jim Burke:

Yes, sure, Michael. So, for 2022 we were tracking a little bit above midpoint when we talked last time. We see ourselves closer to midpoint at the moment. I think we've seen some headwinds with coal constraints that we assumed earlier in the year and even through the summer. We were getting some indication that coal deliveries we pick up. That has been a slower process, not just for us, but I think from everything we can tell, industry-wide. So, that's one of the headwinds. The other headwinds that we mentioned is we picked up some default service mode. We did on that load last year and even as late as early this year before the price ran up. As that -- as the market moved up in the spring, in the summer, customers have the opportunity to move to default service, that's their choice. In addition to that there was one media aggregation in OPEC, that actually in mass moved all their customers to default service. We're not sure that that actually was provided for in the structure of the default service, but it was approved by the Commission in Ohio, those headwinds that have developed even further since our last call. So, when we look at the year, we've been able to offset those. So, we have had very good performance on the retail business, a good performance with the summer as we mentioned in the script, and so we had length, we were able to cover those headwinds, and I think the integrated model shows diversification paid off. But I think that's really the driver as to why we saw ourselves tracking slight above midpoint before, and now we see it on midpoint. But the operational excellence of the fleet in the retail business has been quite strong. And as it relates to 2023, some of the default service carries over into May -- through the May time frame and we also had to recognize that the coal constraints has been a rolling issue. So, we have just modest improvement now assumed in 2023 for coal deliveries. We're still not running everything that we could run from the coal fleet even in the 2023 plan. So, I think there's a little bit of conservatism and it's just something we've learned throughout this year that, it's a tough market. It's a tough challenge just to -- to basically free up the supply chain and have the train sets running and the quantity and the cycle times that we would like. So, we reflected that here. And I think the upper end $3.5 billion to $3.7 billion, we mentioned that on our first week call in May, and we're at the upper end of that midpoint. And so we feel good about being able to weather this volatility. But those are the headwinds and some of the tailwinds that we've reflected now in this guidance.

Jim Burke:

Yeah. On slide 11, you see the direction of the curves, and we've tried to, we knew when we put this out, the first week we made that we'd be asked for continuous updates on this. So we added potentially our disclosure on a more consistent basis now for the third call. But you see the run up late spring and summer, and then you see it coming back off pretty hard, we had been hedging through that period. And I think that's the value of the comprehensive hedging program. So, we were a little bit more bullish about where we saw things. Obviously, when you're in the middle of the summer and the curves were peaking and you had the un-hedged position. We were able to hedge through some of that, but the curves have come off, and we are actually still through this chart showing that through October 31 curves, which is certainly much lower than where they were at the peak of the summer, because we've increased our hedge percentage now to 70% across the years, we still feel good about the $3.5 billion to $3.7 billion. So, again, it's a predictable set of cash flows as far as we can see. We obviously aren't fully hedged. But I think we haven't been trying to time the high and the low. We've been working through this and I think showing that $3.5 billion to $3.7 billion is still there and our expectations for 2024 and 2025 is a sign of that integrated model working.

Jim Burke:

Yeah, we continue -- one of the things we've been able to do this year, which has been a benefit for customers is we forward by, obviously, as you'd expect, in our retail business because our customers expect predictable pricing. And so we've seen our rates move up on existing customers, on average, about 10% this year. So in the aggregate of the inflationary effects and even the price spikes of commodities, I think we've done a nice job smoothing that out for our customer base. As you look at what's going on when you move forward, we do have continued movement in our expectations on average of how we smooth out the prices for customers. So we have even greater margin realization as we go forward, which is a tailwind. We also are seeing -- we've had great margin management this year. We see that continuing. The count story has been very good at ERCOT and that continues. And even our Midwest, Northeast business, which has been more challenged because of the default service, price is lagging the same topic I just mentioned about the fault service migration. It makes it difficult for retail businesses to compete against that. We see that improving in the Midwest, Northeast improving next year as well. So, retail business is in a very good position. It's having a very good year this year, and we expect that to continue to improve. We also have a little bit less retail bill credits that we have as post yearly effect where we have no credits for settling large customers. We have less of that in 2023 versus 2022. So those are the key drivers of the improvement in that business.

Operator:

The next question will come from Paul Zimbardo with Bank of America. Please go ahead.

Paul Zimbardo:

Hi. Good morning. Thanks for the update. A lot to pick through, to start out with, could you discuss the drivers on the 2023 free cash flow conversion, I know you had a 65% target at the Analyst Day in the past. So just curious is kind of 2023 a blip and do we get back there in the future?

Kris Moldovan:

No, Jim, I think you've covered the driver as well.

Jim Burke:

Yeah. Thank you. Thank you, Paul. The retail market in Texas is a robust market. We have done extremely well this year. Part of it is the innovation that you mentioned. We've been able -- in fact, we rolled out an EV miles program just this week. We have a lot of those flexibilities in Texas because the retailer gets to do the billing. We get to design the products that customers are looking for, and that gives us a chance to differentiate. And our accounts have actually been very strong in ERCOT, and we've seen ourselves hold, I think, this position of a trusted brand and that is one of the positives from 2022 going into 2023. These exits that have occurred in other markets are a function of the fact that some of these other market designs. They still don't let the retailer do the billing, but still competing against default rates. And those default rates lag, like we've seen a lag this year in particular, it becomes unprofitable to stay in some of these markets. And so you end up in these boom bust cycles. In fact, I think the default markets could end up seeing peak pricing, and then you'll see the retailers rush back in and pull these customers off default. So there were two things happened. On New York, we actually left the New York market because the regulatory scheme you had to offer a discount to the default rate. So that became untenable once the default rate is not moving and you have to offer a discount to that, it becomes unprofitable is unfortunate, because it was a very good customer base. But we have to look at this and be realistic that if the market design is not there to be able to recover your cost, you need to exit. Connecticut was a different story prior to our acquisition of Crius. There was concern from the regulatory body about some of the bill disclosures and when contract term would end for customers, they wanted to see us settle that matter. And one of the terms of settlement was, they asked us to give up our licenses in Connecticut. It's happened before we ever got the business. It seemed shortsighted from the standpoint that the customer impact wasn't even determined to necessarily be negative. It was a question about how clear was the disclosure around the termination of a contract plan, but as I mentioned earlier, if you're competing against default rates, and you do not have the ability to differentiate your product with the customer. You're essentially a line item on a bill and you're competing on price and that's a difficult proposition. So we have to work to change the mindset of some of these marketplaces to be able to open them up to differentiation. I do think other brands entering the space like Tesla, Shell, BP, can help bring other voices to the table. I think a lot of this is the follow on to the polar vortex in 2014, where there was a lot of concern about how retailers needed to try to recover their cost and prices were moving very, very quickly. And we've got to restore confidence in some of these other markets outside of Texas to be able to differentiate like we do here.

Jim Burke:

Thank you, Paul.

Angie Storozynski :

Hi. Thanks for taking my question. So just, first, one follow-up on the free cash flow projections. It's actually for both 2022 and 2023. I think I'm a little bit confused about working capital changes and new collateral postings. I'm assuming that collateral is coming back. So I was actually hoping for some boost to free cash flow in 2023. So again, maybe if you could talk both about collateral postings and the free cash flow projection?

Angie Storozynski :

Okay. So what's the reason why there is this big positive from working capital perspective this year and basically offsetting negative next year?

Angie Storozynski :

Okay. Okay. And then secondly, on the guidance, right, for 2023. So you were 90% hedged, and I appreciate all the volatility that you're seeing in energy markets. But that's quite a wide range. So can you just give me a sense, for example, what is it that you're trying to hedge against? Is it, as you mentioned, some issues with the call supplies, is the performance issues of your power plants? Again, just what can take me to the high end versus the low end?

Angie Storozynski :

Okay. And then lastly, again, I might have missed it in your in your pack -- in your slides. I was hoping for more disclosures on cash available for distributions and drivers year-over-year. And I appreciate some of the comments you have made in your prepared remarks. But should we expect something like that like cash available for distribution, so we have a better sense of how much can be deployed into either additional buybacks and/or dividends?

Angie Storozynski :

Okay. Thank you. Thanks for taking my questions.

Jim Burke:

Yes, I want to thank you again for joining us this morning. We're excited about Vistra's continued value proposition, and we appreciate your continued interest investor, and we look forward to speaking to you again in a few months when we will discuss our fourth quarter and our full year performance. Have good morning. Thank you.

Operator:

Good day, and welcome to the Q2 2022 Vistra Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, VP Investor Relations. Please go ahead.

Jim Burke:

Thank you, Meagan, and good morning to everyone. I am excited and eager to talk with all of you as I take on this new role for Vistra. Over the past few months, I've been asked what I envision for Vistra's path forward. Accordingly, turning to Slide 5, before I discuss our second quarter results, I would first like to reinforce a few of my thoughts on Vistra's strategic direction and top priorities. I continue to remain confident in our short-term and long-term value proposition precisely because we intend to remain focused on the 4 key strategic priorities we initially defined in the third quarter of 2021. As we've shared in the past, Vistra is well positioned for the long term during this energy transition. In addition to ensuring that our customers and our communities have the power they need, our integrated approach enables us to deliver strong financial and operational performance, particularly in volatile commodity environments through the operational excellence and expertise of our generation retail and commercial teams. As part of this integrated business, we are continuing to execute on the comprehensive hedging strategy that we announced last quarter, which is locking in significant future year earnings potential. This effort is supported by a high-performing generation team and a customer-focused retail team experienced in managing counts, margins and customer experience, and both teams are supported by a strong commercial team that captures market opportunities and manages risk in a dynamic marketplace. Second, it is fundamental to a business that manages through volatile commodity markets to have the financial flexibility to hedge both fuel procurement and power sales for our fleet and for customers. We remain committed to a strong balance sheet and an ample liquidity position. As Kris will cover later, we anticipate paying down a significant amount of debt in the second half of this year as our 2022 hedges settle and the corresponding cash collateral is returned. At year-end, we expect our net leverage ratio to be approximately 3x based on the range of ongoing operations adjusted EBITDA we expect in 2023. Third, we are delivering on our capital allocation plan that prioritizes a significant return of capital to our shareholders through 2026. We remain committed to paying aggregate dividends of approximately $300 million per year with the per share amount increasing as we repurchase our shares. We continue to believe that share repurchases provide an efficient, attractive means to return capital to our shareholders. We are executing on our $2 billion share repurchase program on an accelerated basis, having completed approximately 80% to date and expect to complete the balance before year-end. Accordingly, we're pleased to announce that our Board has authorized an incremental $1.25 billion for share repurchases effective immediately, which brings our cumulative authorization to $3.25 billion and the remaining amount available for repurchases to approximately $1.65 billion. We expect to complete the full authorization by the end of 2023. As we deliver on our earnings potential, we will revisit the size of the share repurchase program on a regular basis. Finally, we've made great progress on the build-out of our Vistra Zero platform, which we expect to grow primarily by utilizing cost-effective third-party capital. I'll speak to updates on Vistra Zero in more detail momentarily. I am committed to the execution of our strategic priorities as I firmly believe that our successful execution of these priorities will enable Vistra to deliver sustainable long-term value for all of our stakeholders. Now turning to Slide 6 for our second quarter results. We achieved $761 million of adjusted EBITDA from ongoing operations. Our Retail segment grew ERCOT residential customer counts in the quarter and year-over-year. In fact, our flagship TXU Energy brand had its best quarter residential counts performance in nearly 15 years while achieving our target margins in a dynamic market. This highlights our expertise as an integrated energy company to acquire and retain customers through volatile and high-priced commodity cycles. Our unique product offerings and multi-brand and channel strategy, combined with our commercial team's expertise in managing risk, drove this success. Our Generation segment similarly performed above expectations, achieving commercial availability of 95%, a strong performance, especially considering the unseasonably warmer weather experienced in Texas in the second quarter. The teams worked diligently to perform regular maintenance on an expedited basis and in some cases, truncated schedules to ensure the plants were available to the grid during the heatwaves experienced in the latter half of the second quarter. We are reaffirming today our previously announced guidance of adjusted EBITDA from ongoing operations of $2.81 billion to $3.31 billion and adjusted free cash flow before growth from ongoing operations of $2.07 billion to $2.57 billion. We don't typically update current year guidance until our third quarter earnings discussion, but favorable weather and strong performance in our Generation and Retail segments provide increased confidence that our 2022 outlook is tracking above the midpoint of guidance. Of course, the remaining summer months are important across the country for us, so we are focused on proactively maintaining our fleet during times of lower demand to avoid unplanned outages as much as possible. We understand that execution is key to delivering the full value we believe possible in this environment. Turning to Slide 7. As we discussed in the first quarter, we are currently experiencing a highly favorable pricing environment. We've used this opportunity to continue to execute on the comprehensive hedging strategy we previously discussed. As a result of our comprehensive hedging strategy, Vistra is now over 60% hedged across the years 2023 to 2025 with 2023 now hedged at approximately 80%. Last quarter, we stated that given the marks as of April 29, we anticipated a risk-adjusted midpoint opportunity in the range of $3.5 billion to $3.7 billion for the years 2023 through 2025. Curves moved up considerably in May and early June before coming off in late June with the drop in natural gas prices. For 2023, when comparing where we were as of April 29 and rolling that forward to July 29, overall, the curves are in a similar place despite the volatility we've seen over the past 3 months. However, for 2024 and 2025 since April 29, as the graphs indicate, both power and gas curves have continued moving up. As our hedge percentages have increased, our confidence in this earnings potential has grown. And more than that, we continue to believe this range could be on the conservative side. Of course, given that we are not fully hedged, there remains a significant range around this earnings potential, especially in '24 and '25. Looking ahead, assuming the forward curves continue to hold or improve, you can expect us to continue to execute on this comprehensive hedging strategy to lock in more value while maintaining sufficient generation length as insurance against the unforeseen. As discussed last quarter, our hedging strategy requires ample liquidity for collateral postings, we continue to proactively manage our liquidity requirements in a way that allows us to remain confident, and we can execute this hedging strategy and the capital allocation plan in tandem. Kris will go into more detail on our liquidity management activities later in the call. Turning now to Slide 8. I wanted to provide a brief update on our Vistra Zero growth trajectory and how we are positioning Vistra to capitalize on this significant opportunity. This past quarter, we returned both phases of our Moss Landing energy storage facility to service with over 98% of its maximum capacity on the expected schedule and ahead of California's hot summer months. We successfully restored and addressed root cause concerns during this timeframe, and we anticipate the final few megawatts to be restored by the fall. In addition, we began construction on the 350-megawatt Phase III expansion of our Moss Landing facility, which we expect to be online by June 2023. In Illinois, we bid in a competitive process. And in May, we were selected by the Illinois Power Agency to provide over 460,000 annual renewable energy credits, or RECs, over the course of 20 years. The contracted sale of these RECs will serve to provide stability of the revenue streams of our coal to solar projects. In June, we were also awarded energy storage grants at our Joppa, Havana and Edwards sites to be received over 10 years. We expect to bring our Illinois projects online in the 2024 timeframe ahead of the required dates for the awarded contracts. Finally, our development projects in Texas continued to make great progress as well. In April, we announced that our 50-megawatt solar facility Brightside was online. This was followed by announcement in May that our 260-megawatt energy storage facility at DeCordova was online. And in June, our 108-megawatt ERCOT solar facility, Emerald Grove, was online. We now have 608 megawatts for Vistra Zero online of solar and energy storage serving the ERCOT grid. In addition, of course, to our Comanche Peak nuclear facility. Our teams did an excellent job of delivering these projects in Texas as well as returning Phases 1 and 2 of our most Moss Landing facility to normal operation in California. Some of our early-stage projects that we are evaluating are facing potential impacts from supply chain constraints and inflation. We prudently reevaluate the business cases of these projects on a regular basis. For example, we have reassessed the timing of certain ERCOT solar projects, and we will move ahead with these projects only if we have confidence in the returns. Since we own these sites and we have the flexibility on timing, this is something we expect to remain dynamic. We are excited about the pipeline and the growth potential of achieving 7.3 gigawatts in Vistra Zero generation online by 2026, but we are also going to remain disciplined on the projects. Of course, in light of the newly introduced Inflation Reduction Act, it is possible that our Vistra Zero development projects could see enhanced returns. It is certainly a dynamic time in the marketplace and Vistra is extremely well positioned with both a strong outlook on our core generation and retail businesses, but also with Vistra Zero. With that, I will turn the call over to Kris Moldovan, our recently named CFO, to discuss the quarter's financial performance and our capital allocation progress in more detail. Many of you already know Kris well and his track record of successfully driving shareholder value for Vistra, and as of late, his active and effective management of our liquidity position. As background, he practiced as an attorney for over a decade, including gaining significant experience through representing clients in merger and acquisition activity as well as complex financing transactions. Kris has been with Vistra and its predecessor for 16 years and joined the finance team in 2010, where he has focused on some of the most complex financial transactions in our industry. I've had the privilege to work with Kris for many years and could attest personally to his insights and capabilities, and I'm very much looking forward to partnering with him as we take Vistra forward in these exciting times of transition and growth. Kris?

Jim Burke:

Kris, very much and congratulations on the new role. Turning to Slide 12, to recap a few key points. First, our integrated model is uniquely positioned to capture long-term value in these dynamic conditions, and we are comprehensively hedging and have locked in over 60% of this value for the period of 2023 to 2025. We believe we have ample liquidity and balance sheet strength to execute this strategy. Our confidence in our outlook is reinforced by the upsizing of the share repurchase program to $3.25 billion, and we continue to return capital through this program and our $300 million annual dividend. Finally, we have made great progress by bringing online over 400 megawatts in new assets in Texas this spring with Vistra Zero while restoring Moss Landing battery operations in California. With our Illinois coal to solar contracts and other pipeline projects, we are excited about our ability to decarbonize our fleet and grow our business. We are tracking ahead of our 60% greenhouse gas emissions reduction target by 2030 for our fleet, and we anticipate Vistra Zero will more than replace the earnings of the retiring coal units and we are doing this with cost-efficient capital. This is an exciting time for Vistra, and we are well positioned for this energy transition to deliver long-term sustainable value for all of our stakeholders. With that, operator, we will open up the line for questions.

Shah Pourreza:

So let me just ask more of a top level and maybe we could start sort of with the capital allocation announcement. It's, obviously, a bit earlier than we expected, but that's a good problem to have. How should we be thinking about the cadence of future updates given the move here? Could we start to see more off-cycle announcements as free cash flow generation for the next 3 years is increasingly locked in with the hedges? I guess what do you mean by “revisit” on a regular basis? And have you and the Board thought about potentially allocating everything you've locked in through '25 all at once?

Shah Pourreza:

Got it. Got it. And just on your hedging real quick, I guess, obviously, the backdrop is really strong. There's some perpetuity to it. I guess, why aren't you just hedging everything at this point? Is it just that you can't give the liquidity out in ‘25, fuel hedging, maybe just a bit of a fundamental view here.

Shah Pourreza:

Got it. And then lastly, Jim, for me is one of your peers recently mentioned that they were considering maybe contracting for new build gas in ERCOT, right? I guess do you agree the market needs more? Do you guys have a fundamental view, I guess, over the next 5 years in Texas. The CDR says one thing, but the real-time markets says another.

Operator:

Our next question comes from Steve Fleishman with Wolfe Research.

Jim Burke:

So that is an average, Steve. And similar to the last call we had, what we see is we're more hedged in the early part of that period, and we're less hedged obviously in the latter part. So even though on an absolute basis, the curves aren't as high and say '25, '23. Once you consider the relative hedge ratios, they actually end up being pretty similar.

Jim Burke:

It is. Now, the good news is that '24 and '25 have continued to run on fine as that shape doesn't look flatter. We're more locked for '23, so we won't capture probably as much upside if '23 were to continue to run. Or the '24, '25 were to then we could absolutely see still upside in that slope actually shifting more to upward.

Jim Burke:

So yes, so we're using curves of [7 29] as we refresh this analysis. We have to take into some consideration, Steve, some of the unknowns. I mean we assume that some factors like coal constraints would have worked their way out more by 2025 and potentially the balance of '22 and '23. So we have done, and we said this risk adjustment, we have taken into account some risk adjustments as we think about this. That's why we think the $3.5 billion to $3.7 billion is conservative. So we still have a decent open position out there. So it can go the other way, right? That's why we feel like hedging makes sense. That's why we like the opportunity to keep ample liquidity. But yes, this is a conservative view on a risk-adjusted basis.

Jim Burke:

Yes. I think there are some. I think obviously, the most immediate ones would be on the renewables piece and the stand-alone batteries. More than 50% of our Vistra Zero opportunity set is storage related, and that was not attached to solar, in most cases to solar. So standalone battery ITC is meaningful for us. On carbon capture, we have some assets that could be good candidates. That's a little bit further out to be able to get the technology, but certainly, the economic incentives could be there, and we've got some attractive assets that could be coal or gas that could be candidates for carbon capture. And then the hydrogen piece, obviously, with the nuclear facility, with Comanche Peak. You've got not only the hydrogen incentive, but the production tax credit, which at today's curves looks a little bit more like it provides a floor support. I wouldn't consider it in the near-term incremental EBITDA, but it certainly helps provide a floor that's a lot higher than where the floor was in 2018, where we were looking at forward curves in the mid-$25 to $27 range for as far as the eye can see. So even if the floor is $40 to $44, that's a much more attractive place to put a anchor for a large carbon-free asset like Comanche Peak. So that's how we think about the IRA.

Jim Burke:

Yes, you bet. And I'll kick it off, Steve, and then I'd like Scott Hudson to comment here in a second. We have had a really good run in the ERCOT retail business for well over a year now. And the second quarter was really strong, as you noted. We tend to do really well. If you go back over the 20 years, when curve start to move up rapidly, and there's a lot of volatility, our value proposition to our customers really shine because we forward buy sometimes the hedging and folks would like to see a more open position. But part of our hedging strategy is selling from generation to retail and retail being able to lock in a good price for that -- for the customer base. A lot of our competitors aren't doing that. So our customers were seeing year-over-year, when inflation for gasoline was up 50% and even doubling, we're seeing our revenue rates over the quarter-over-quarter in the 8% to 10% increase rate. So that's a real value proposition for our customers. So our retention was excellent and then our acquisition with new products that we've announced heading into this hot summer which has been really well received, is something I'd like Scott to comment on because it is a product innovation and a channel strategy. It isn't just a game of oil pricing, but I think the platform that we have of stability for customers is really attractive in these periods, and it's showing up in the customer count. Scott?

Jim Burke:

Steve, I would just wrap with Scott's comment by just adding that these gains are some of the best gains we've seen in 14, 15 years. Competition has kind of winnowed a bit in terms of number of competitors because the balance sheet and the hedging requirements and the volatility make this a difficult business to just be standalone. And I think this is another case where the integrated model has really been able to show its effectiveness.

David Arcaro :

Maybe I have a quick follow-up on the inflation Reduction Act. Any thoughts on the minimum tax and whether that could impact cash flow going forward?

Kris Moldovan:

Thanks, Jim. I think that's right. Given the fact of the losses during Yuri and those book losses, we don't see throughout the entirety of our planning horizon that coming into play. We will continue to monitor it. But it's not -- as Jim said, it's not a near-term effect on us.

Jim Burke:

David, thank you. Great question. First of all, I'm going to tell you about how we have performed, and I hope that doesn't jinx our performance going forward because it is a tough business. And I can't get into the specific details of the financial impacts, but I can tell you from a reliability standpoint, the fleet performed exceptionally well, particularly in July, which was a critical period. The men and women that are out there in these conditions, making these units operate at the level of effectiveness that they have is really just a tremendous, tremendous effort, and there were times, I'm sure you were following where basically every megawatt was needed on the grid to keep the system with a minimum operating level of reserves. So the fleet is in good shape. It remains in good shape. We tend to take some periods on the weekends to come down for some assets to do minor repairs to make sure they're ready to go. And of course, we use our weather -- our weather forecasting as well as coordinating with ERCOT with advanced notice to let them know what our intentions are, and that has been very helpful so that we're able to do the maintenance that we need. I will say in some other parts of the country in July in PJM, we did have a few struggles with some older coal units. And so the performance that we saw from the from the July generation and retail performance was offset some by where we were seeing some unit challenges in PJM, not fully offsetting by any means, but just recognition that when you run a 40,000-megawatt fleet, there's going to be some cases where you have some unplanned impacts. Those units have been recovered and they're operating, but it's still just a matter of a large fleet diversified across the country. But in the moment, when ERCOT was its tightest and when these units were needed there was exceptional performance by the ERCOT fleet.

Durgesh Chopra:

Congratulations to you both. I just wanted to go back to the -- I'm sorry, I was going to ask you a question about your debt-to-EBITDA metrics. And obviously, as of the second quarter, they're kind of -- you've got some margin contributions there. So they're elevated above the 3x target you have long term. Maybe just could you talk to how do you see that trending over the next few years? Should we expect them to kind of remain elevated given the margin deposits? Or how should we think about those targets over the next 12 to 24 months?

Kris Moldovan:

Yes. Thanks, Jim. The only thing that I would add is that it's just the timing that you referenced. As we reported this morning, we have approximately just over $3 billion of cash posted and a significant amount of that cash will come back over the balance of this year. And that's what -- as we perform and our units run. So that's what gives us the ability to be confident we say that we'll be able to repay more than $2.5 billion over the balance of the year and get back into the range of our target, we think, in the very near future.

Jonathan Arnold:

Durgesh just asked what I was going to ask. One other thing I wanted to -- just curious on as Vistra Zero grows and you start to see more of a contribution. How are you going to show that to us? Any thoughts about sort of does it just show up in the segments? Are you going to call it out just sort of back to the comment on anticipating replacing EBITDA from retiring coal with that portfolio over time. There's no -- any sense of just sort of tracking that we'll be able to do on that.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Burke for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning and welcome to Vistra's Investor Webcast discussing First Quarter 2022 Results. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.

Curt Morgan:

Thank you, Meagan. Good morning to everyone and thank you for your continued interest in Vistra. Getting started with Slide 5. I've mentioned before that 2022 is a year of executing on the strategic priorities we outlined in the third quarter of 2021, shown on this slide. Importantly, Vistra has started on the right foot in 2022 with Q1 results consistent with our expectations and it is noteworthy that our confidence regarding 2022 has grown. However, to me, the bigger story is the material movement in energy commodities complex forward curves for '23 and beyond. And our emphasis on a comprehensive hedge strategy, capitalizing on this move that began last year, continued in the first quarter and continues today. Notably, we expect this upward trend to continue given how the U.S. and world energy situation is set up, especially regarding ESG and boardroom actions in response, combined with strong demand and geopolitical events. In a nutshell, the U.S. natural gas complex is already tight and likely to be increasingly tied to world gas economics. As an expanding pivotal supplier on the world stage, we expect U.S. supply and demand to tighten even further. Higher natural gas prices in turn lead to higher power prices and Vistra is long power and natural gas equivalents. Frankly, in my 40 years, I have not seen a confluence of events quite like this. Certainly, Vistra is in the right position to capitalize on the strong forward curves. The effectiveness of our execution will be key as the day-to-day volatility is extraordinary. It is a rare opportunity presented to us and it is our job to create the most value out of it while managing the risk. Our prudent hedging strategy has resulted in Vistra locking in material out-year value in the '23 to '25 timeframe. And it is worth noting that the forwards have also risen materially out to 2030. The market clearly believes there has been a fundamental shift in the energy commodity complex and it started before the aggression against Ukraine. This shift, as reflected in the forwards, offers continued opportunities to hedge more while remaining mindful of the potential liquidity requirements against further commodity price moves. The good news is that this offers right-way risk with our open position as well as the significant value already hedged. We also have tandem hedged, other risks associated with our commodity hedge positions, such as fuel and basis differentials. Our generation fleet has also performed exceptionally well at an average commercial availability in the mid-90s percent as a critical component of our hedging strategies. We bolstered this exceptional historical performance by the additional expenditures after Uri to derisk our ERCOT plant operations and as we have mentioned in the past, we hold back generation to cover forced outages, all to manage any risk exposure that hedges can expose us to. Our primary focus when hedging is on managing risk while capturing value. We are not focused on picking the absolute peak. Our experience is that this futile endeavor leads to a significant risk of missing the opportunity entirely. As it relates to 2022, while we were considerably hedged coming into the year, our open position in the summer months could now benefit from the power price environment which we expect to remain intact given the likely continued strength of natural gas prices, as I just discussed. This is our expectation even without an extreme weather event. In addition, our retail business continues to deliver strong margins while organically growing customer counts as customers in ERCOT value quality retail names like TXU Energy and Ambit. Jim will speak to the significant value capture opportunity in more detail momentarily. But in sum, the EBITDA outlook for Vistra through 2025 has now increased to potentially over $1 billion even with prudently conservative estimates and the market has only continued to move up. As briefly mentioned a moment ago, a robust hedging strategy, of course, requires significant liquidity as collateral postings are required. Notably, our commitment to a strong balance sheet with significant liquidity has positioned us with the cash and access to capital necessary to make the collateral postings while continuing to execute solidly on our $2 billion share repurchase program and pay out significant dividends to our shareholders of record. Of course, in this environment, you can never have enough liquidity. As such, we continually look for ways to efficiently manage our liquidity and are working diligently to enhance access to capital so we can further take advantage of the long-dated move up and forward and capture value for our shareholders. We believe these efforts will be successful given the significant strength of our business and the amount of forward value we can lock in. Finally, we remain committed to sensibly progressing our fleet of zero carbon generation. As of today's call, we have completed construction of our Brightside and Emerald Grove solar facilities and our DeCordova battery energy storage facility in ERCOT. Additionally, we've been working around the clock to install replacement connectors in the water-based heat suppression safety systems at Moss 300 and Moss Landing 100 and expect to begin bringing those megawatts back online ahead of the hot California summer months. Despite the challenges, the supply chain issues or the uncertainties around solar panel procurement that the Department of Commerce's anti-circumvention investigation are causing the industry, we find ourselves well positioned to navigate these particular headwinds and as we continue to advance the growth of our Vistra Zero portfolio. Our planned 2022 development projects are constructed and we've already procured panels for several of our next-in-line solar projects. Further, our remaining projects have a timeline that allows us to opportunistically contract at the right time. It is important to note that we will remain disciplined in our development efforts, especially given that we either have procured the equipment or have flexibility to time our projects with availability and pricing of equipment. It is also important to note that the supply chain bottlenecks and government actions are dampening the build-out of renewables in the U.S., placing more emphasis on the existing fleet of assets, especially natural gas fueled and nuclear power plants. As we have said many times before, natural gas fueled power plants are going to be critical to a rational and just transition to a decarbonized electric system. Moving now to Slide 6. In the first quarter, we achieved $547 million of adjusted EBITDA from ongoing operations in line with our expectations. Notably, this year, our first quarter results are a smaller contribution to our overall annual earnings as compared to certain prior year first quarters. But this new earnings shape was expected for 2022 and is correlated to the seasonality of our retail business in the ERCOT market during the winter months with higher cost of goods sold locked in to hedge retail sales. However, there is greater margin opportunity expected in the remaining months in both our retail and wholesale businesses. With that said, the Retail segment performed above expectations in Q1 in ERCOT with notable organic customer count growth and strong margin performance. Our Generation segment came in a little below expectations, largely due to a greater open position and lower realized prices from a weaker winter. However, with very strong performance in commercial availability rates at the plants of approximately 96% in this first quarter. We are reaffirming our previously announced guidance of adjusted EBITDA from ongoing operations of $2.81 billion to $3.31 billion and adjusted free cash flows before growth from ongoing operations of $2.07 billion to $2.57 billion. We retain the ranges as we are still early in the year, have the summer months ahead of us and at this point in time, we continue to carry a little more open position than in the past for risk management purposes. However, we reaffirm this guidance with increased confidence given the favorable energy commodities markets we continue to experience. In closing, Vistra is very well positioned, especially given the current market environment. Execution is key in 2022 and beyond, especially related to our hedging in forward years and managing adequate liquidity. Now before I turn it over to Jim, as you are likely all aware, this will be my last earnings call as CEO of Vistra. It has been my distinct honor and privilege to serve you all for nearly six years. I want to thank our many stakeholders for their support throughout my tenure. In particular, all of you who entrusted us with your hard-earned money. I know, I gave it my best to do business the right way and create value for our investors. I'm proud of all that we've accomplished and believe Vistra is well positioned to drive continued industry leadership. This is simply the right time for me to transition the CEO role to Jim. Jim has done everything to be prepared for this demanding job. After having worked with Jim for many years, I have the utmost confidence in his capabilities, commitment to Vistra and his leadership skills. He has a deep experience and knowledge of our business, including an understanding of how the disparate parts of the company work together. I am certain and our Board is certain that he is the right person to lead us through our next phase as we execute on our capital allocation plan, including substantial return of capital and expansion of our Vistra Zero portfolio. Finally, to the incredible team members at Vistra. I have never been more honored and proud to work with a group of people. Your life has shown brightly through thick and thin and I am grateful for the time we had together. I believe there is a tremendous opportunity ahead for Vistra as a leader in the power business and look forward to watching that come to fruition. With that, I will turn the call over to Jim.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Shahriar Pourreza from Guggenheim Partners.

Curt Morgan:

Yes. So look, I'll start with a couple of opening questions but Jim can then fill in with specifics and add his flavor to it. But look, I do think we've departed and we're going to depart. If anything, a message we deliver today is that we've got really one of the most rare opportunities in my career and I've been around a long time, to lock in significant value in the out years. The curves have moved up -- sorry, even out into 2030. The thing you have to balance, all of us do, even if you're investment grade, is margins and posting and having enough liquidity. And we feel very good that we will be able to do that. But this is a rare opportunity for us and this is a good news story. It's all about execution and we feel good about it. And then, of course, as these hedges realize, you got to run the assets. And the one thing that we've been very proud of through the years is just the incredible performance of our generating fleet to back up the hedges. So this is one of the best opportunities I've ever seen for a company like ours and we just need to capitalize on it. So philosophically, we are departing a bit and we are looking to hedge '24, '25, I suspect just given the way that the energy commodity price -- world markets are set up, we think this is going to be around a while and we'll roll hedges into '26, '27 and beyond because we believe that you're going to see a strong natural gas market for many years to come. So, it's a rare situation and one we have to step up and capitalize on. And Jim can tell you a little more about the specifics of what we've done in '24 or '25 because we have done some significant hedging which is rare for us because you know this, Shar. Generally, these curves are backward dated. And we are seeing pricing that is at or above our point of view. And we've told you that when we see prices at or above our point of view, we expect to hedge and we're not trying to pick the highs. We're just trying to lock value and then we just have to execute from that. Jim, do you want to add? You bet, Curt.

Curt Morgan:

And Shar, look, we know you guys model. Everybody does. We want to give you some idea of this. But I think it's important to also note that I think the skews to the upside, especially given that commodity prices have moved up and that 3.5% to 3.7% range was a 4.29% [ph] vintage and we've seen a pretty big move up this week alone. And so we're just trying to give you an idea but the earnings power of this company for the next -- at least three years and beyond is significantly higher and it's just the realities of the situation. And like I said, it's our job now to manage that because it's not without risk. But that's what we do and we do it well. So that's -- this is a good news story but we need to execute.

Curt Morgan:

Look, I think it really doesn't change much. I mean, we still like the value proposition of buying our shares. And so -- but this -- you know this, it's a function of where you're trading at in terms of your share price. But if you said, okay, what would you do if you have a pile more cash today? I think we'd say, we'd buy back our shares. But we also want to maintain a strong balance sheet for sure. And we want to pay a healthy dividend. And the buyback our shares has helped us pay a healthy dividend and increase that over time for those -- the shareholders of record. So, I'm not sure that we would change that much. We've said that we would prefer not to use the cash flow from the core business on Vistra Zero to allow Vistra Zero to raise its own capital because we could get cost of active capital there and we still have a high free cash flow yield. And so that may not be the best place to put it. So, I think it's the real three primary capital allocation buckets that we've always talked about and share repurchases would continue to be strong on that list. But again, that's a function of where you're trading at any given time.

Michael Sullivan:

Good morning. Curt, congrats and all the best. And Jim, congrats to you as well and good luck here. Exciting times. Yes, maybe just wanted to start and just with a quick clarification. The $3.5 billion to $3.7 billion range you gave, is that true in each individual year? Or is that an average over the '23 to '25?

Jim Burke:

Yes. So Michael, it is. First of all, it is a range that applies to all three years, okay? So we see all three years within that range. We didn't want to put out individual year guidance and individual year hedge percentages at this point because this is moving -- We've taken advantage of a lot of the hedging opportunities that the month of April provided us where we really started to see this move. But we're pretty flat over that three year period because we have a little bit more hedges on at the beginning when the move started in the near term and a little bit more open to the out even though they're still backwardation, the captured value ends up being pretty similar across that three year period.

Jim Burke:

You bet. Yes. And Curt emphasized liquidity in his remarks and it is front and center for us being able to capture this opportunity and make sure that as we continue to hedge because we'd like to do that, we'd like to continue to put more hedges on at these levels that we have adequate liquidity. So you saw us increase the commodity-linked revolver so that we have $2.1 billion of available liquidity as of yesterday. That is very helpful in managing the hedge levels that we already have put on. We also are looking to do some additional raise and work with other counter-parties in a more credit efficient way which we can do with some of our first lien opportunities to hedge with parties and we do that already but we expect to increase that level of activity. And so our view is that did now is the time to make sure we have ample liquidity because we want to not only hedge more, we want to be able to withstand any further moves because the goal here is all this liquidity comes back to us, right? It all comes back as we operate and deliver the power through the various calendar years. And so it's relatively cost effective for us to load up on even additional liquidity to make sure we can hedge more because we know that this cash does return and just make sure that we have the line of sight and continue to bring the range of outcomes in the out years even tighter. And I think, as Curt noted, I think the midpoint of this range is skewed to the upside. I think the midpoint can continue to move up and we can give you that confidence as we continue to put more hedges on. But we've had great access to liquidity. All of our partners that have worked with us have been very helpful because they understand this is the right-way risk as these hedges continue to be put on and we have to post more. They know the franchise value of the enterprise is continuing to grow. That's a great place to be and this is going to be something that we'll continue to actively manage.

Operator:

The next question comes from Julien Dumoulin-Smith with Bank of America.

Curt Morgan:

You mean when I say was $1 billion of value that we were adding, you're talking about what I said in my remarks?

Curt Morgan:

Jim, you can answer that because you know it, too. So go ahead.

Curt Morgan:

And Jim, can I add that we debated on this one, Julien, because if you take the $3 billion plus that we always say, that number is close to $2 billion. If you take sort of the $3.3 billion that we sort of, I guess, gave a wink and a nod to for 2023 previously, then that number is closer to a little over $1 billion. So the reality is it's a significant amount above -- depending on what you want to use as your baseline. And we looked at consensus, too. And that number is -- no matter how you slice it, it was at least over $1 billion. And so that's why we felt comfortable saying that. And those two, we tried to reconcile those, what Jim said, the $3.5 billion and $3.7 billion and what I said. But no matter how you slice it, it's $1 billion or more. And you can argue with the $3 billion-plus number, it's closer to $2 billion.

Curt Morgan:

Jim, you can talk. Yes, go ahead, Jim.

Curt Morgan:

Well, I'll add to this, Julien, is that we have good relationships with the BN also with KCS. And then down with Coleto Creek, it's UP. And we have good relationships. We have long-term historical relationships. And I think we're going to continue to work and I am and so is Jim with the leadership of those companies to try to help us through this, especially given that we got a summer coming up in Texas. We want to make sure we have adequate access to coal. But it is -- they're struggling like everybody else on the supply chain side and having enough labor. I can't remember the number, Jim but it's like six to nine months to train new people on the railroad. So it takes a long time to get new people -- fresh people in and get them trained. So this is an issue. The good news is we've been conserving where we can. We're going into the summer with a decent pile. We'd like to have more and we'd like to see the train sets get picked up. I think we'll be able to work that out and this is something you just have to work together with the railroads on.

Curt Morgan:

Yes.

Jonathan Arnold:

And congratulations to you both. Just a quick one on given this big shift in the market, does it change any of your thoughts around planned retirements that you have scheduled -- just curious there.

Jonathan Arnold:

Okay. I mean you've not assumed anything like that in this outlook, I imagine?

Jonathan Arnold:

Okay. And then could I just -- just a couple of things on liquidity. Could you maybe update for us just what the current numbers are relative to the ones you put in the release for the end of March, given the April moves? I think you said you now have two available rather than one but I want to make sure net of moves in commodity but I just want to make sure we got that.

Jim Burke:

Yes, we had $3.1 billion available as of the end of March. We now have $2.1 billion available and we added $1 billion to the commodity rate revolving facility for capacity because of the moves, particularly in April. And we wanted to take advantage of hedging more in the month of April. So we increased our capacity some but we still have the ability -- we still have the $2.1 billion available to us after all postings that we've made to date.

Curt Morgan:

Correct. That's correct.

Jim Burke:

It has been changing, Jonathan. I think both the sell side as well as the buy side has -- see this as either opportunity or potentially risk if they don't buy long term. So we've been able to hedge both gas and power out through '25 with fairly deep markets compared to what we've seen historically. And I think that is something that has occurred as people are thinking this is not temporary. We've generally seen, as we talked earlier, things move up in the very short run and then you see some assumed corrections. But you don't even see that with the NYMEX curve now for the next 10 years. So I think folks are seeing that the complex is moving up. They see difficulty in supply chains. They see difficulties with some of the environmental restrictions that are happening. So I think folks are concerned about where this whole commodity complex could go. So there has been folks on the other side willing to make longer-dated purchases that we haven't seen the same depth in prior markets.

Durgesh Chopra:

Maybe just Curt and/or Jim, maybe can you talk to the first quarter 2022 EBITDA? I appreciate sort of the profiling has changed post Uri. But just maybe a little bit color there. And then when you talk about margin opportunity or greater margin opportunity rest of the year, I get, I mean, obviously, there's upside from the commodity standpoint or open positions. But is there something on the retail side in terms of profiling or expenses that we're missing? So any color there is appreciated.

Durgesh Chopra:

Got it. Okay. So just to be clear, it's the retail margins that we're talking about, the profiling of the retail margins Q1 and then rest of the year, right? I mean we're expecting to pick up.

Curt Morgan:

I mean if I can add, though, I mean, look, the prices have moved up, too, though, on the wholesale side. But what we were talking about specifically about what we were seeing and we actually had factored in into our guidance was what Jim talked about which was that shift in retail margins. And we don't -- you know that guys, this is a little bit disappointing is that we don't give quarterly guidance. And unfortunately, there is a consensus out there which is generally built on kind of an assumption of the percentage of EBITDA of the annual and the reality of the situation is that does move at times. And we tandem hedge. When we sell retail, we tandem hedge with wholesale. And we knew this -- this was in our guidance number all along. And we knew that we were going to be a little skinnier on the first quarter but higher in the second and the fourth. Now we've also seen them move up a little bit on the third because of wholesale pricing. We'll see if that comes to fruition. But that's just how things work and we just want to be clear that we understood this phenomenon. And we don't -- we're not seeing it in the outer years, either. We think things will probably, at least over time, move back to more of a traditional split or shape of earnings. But it just happened in '22 just given the way that traded relative to the -- when we locked in retail.

Curt Morgan:

Yes. Well, Jim, I don't want to -- because I'm not going to be here after obvious one but I would expect that just the way we've normally done is later this year, after we get through the summer and also, we've done some more hedging, my guess is we'll talk about at least about '23. And we'll see about '24 and '25.

Operator:

And the last question today will come from James Thalacker from BMO Capital.

Curt Morgan:

Go ahead, Jim.

James Thalacker:

Okay, great. That's helpful. And just sticking along that same line. Do you think that some of the recent move in power could also be a reflection of gas plants being dispatched out of merit to preserve some of these coal stockpiles? Some of the more regulated [indiscernible] we've talked to are down to like 20, 25 days as we move into summer. Just wondering if that could be contributing to the [indiscernible] and the moves recently.

James Thalacker:

Okay, great. And then just the last question and this is kind of -- I apologize for being greedy and I know that we're only a week after the -- when you guys priced your upside of $1 billion through 2025. But obviously, prices have continued to kind of move up. Are you -- going back to that previous question, Curt and Jim, do you think that pricing will kind of hold in this level and that you feel good about kind of being able to lock in, let's say, $300 million across to 2025? Or do you think that we're kind of at a peak here and we should really be sort of baking in any incremental upside from here?

Jim Burke:

Yes. Curt, I agree completely. And I would just add that if prices stay where they are and we continue to increase our hedge percentage, then we would see this range move up from where it is. That's what we meant by we were being conservative because we made this range off of the April 29 curve, James. And as you noted, they've moved up. So, if they stay where they are and we can continue to hedge into that, I would expect that you'd see this midpoint of this range move up.

Curt Morgan:

Yes.

Curt Morgan:

No, no, that's it. I think that's right.

Curt Morgan:

Thanks again. It looks like we ran over time. Sorry about that. Great working with everybody. I'm hoping that I get to see people between now and August 1 and now that we're also getting to see each other. But enjoyed it and look forward to. You're in good hands with Jim and the company is in good shape as ever. So we're excited about the future. Thank you.

Operator:

Good morning, and welcome to the Fourth Quarter and Full Year 2021 Vistra Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President, Investor Relations and Sustainability. Please go ahead.

Curt Morgan:

Thank you, Meagan, and good morning to everyone on the call. As always, we appreciate your interest in Vistra. 2021 was undoubtedly a challenging year and, in many ways, a pivotal one for Vistra. We were faced with an unprecedented weather event at the beginning of the year with Winter Storm Uri, and the financial strength we worked so hard to put in place was challenged. Yet sitting here today, I'm proud of how our team came together to not only confront and mitigate the impact, but to then shift to building a stronger company. That strong balance sheet we built and the resilience of our team helped us stabilize the company and ultimately get back on track within months. Importantly, we accomplished what we set out to do following Uri. We shifted our strategic direction and implemented an enhanced comprehensive capital allocation plan with substantial share repurchases, a new dividend policy and an acceleration of our Vistra Zero portfolio, all while derisking our company after Uri. We believe we exited the year in a position of strength. And we are excited about our competitive positioning and the long-term value creation opportunity ahead. I'd like to now turn to Slide 6 to begin the presentation to discuss the key takeaways from our 2021 performance. We delivered on our adjusted EBITDA from ongoing operations guidance we issued in November which notably was an increased and narrowed range from what we had announced in April. After immediately stabilizing our company after Uri, we conducted a thorough review of our business, announcing a capital allocation plan that returns billions of capital to shareholders, enables us to cost effectively fund the development of Vistra Zero and maintains a strong capital structure by continuing to pay down debt. We also made significant progress in establishing ourselves as a leader in ESG and the clean energy transition with our Vistra Zero carbon-free generation portfolio, and our efforts regarding DEI and sustainability, including enhanced disclosures. In fact, in December, we issued the first ever green U.S. corporate perpetual preferred stock that funds our development and growth of Vistra Zero. We haven't emphasized this in a while, but we continued our OPI savings, realizing $500 million of such savings in 2021 from our generation segments. OPI is now part of our DNA, with continuous idea generation and conversion of ideas to executable opportunities on a regular basis. And our retail business rose to the challenge as well. We grew our ERCOT residential accounts by approximately 23,000 customers, the highest organic growth we've seen since 2008. Most of this growth was within our flagship retail brand TXU Energy, demonstrating the strength of our brand promise and continued importance to our customers. In all, we ended the year back strong again and look forward to building on that momentum through the execution of our four strategic priorities, which we will discuss in more detail a bit later. Before I get to that, I would like to turn to Slide 7 to discuss our 2021 performance in a little more detail. When the dust settled right after Uri, we were facing an adjusted EBITDA picture of right around $1.2 billion. I recall thinking that this is not the way that 2021 is going to end. We've got to put this company on a positive path and improve this picture. We instituted at a stretch target of $500 million in self-help and, in fact, achieved the target coming in at $546 million. At the same time, we were very active in the Texas 2021 legislative and regulatory deliberations regarding Uri, which, among other accomplishments, resulted in Vistra being allocated $544 million in ERCOT securitization payments. I want to thank those in the State of Texas that had to deal with the fallout of Uri for their efforts and specifically securitization for their courage and foresight. The self-help and securitization efforts resulted in improvement following Uri of over $1 billion and significantly contributed to improving that initial picture that I mentioned earlier. In November, we issued refined guidance that increased and narrowed our adjusted EBITDA from ongoing operations estimates we had issued in April, and we delivered at the midpoint of that November guidance at $1.994 billion prior to taking into account an opportunity we had to settle some Uri-related retail bill credit liabilities. Specifically, at the end of the year, we settled a block of these bill credits for $53 million prior to their expected settles in 2022 and 2023, all with internal rates of return ranging from 20% to over 40% and an average of more than 30%. So while it did decrease our final adjusted EBITDA from ongoing operations for 2021, we expect the high IRR settlements will positively impact us in 2022 and 2023. Our adjusted free cash flow before growth from ongoing operations was $179 million for the year, which is within the guidance range we offered in November, and excluding the early retail bill credit settlements that I just talked about, it would be over the midpoint at $232 million. Today, we are also reaffirming our 2022 guidance. We see some headwinds and tailwinds, as is normal, in the coming months. And though the upcoming summer months will be critical to our performance, we continue to anticipate that 2022 will be consistent with our previous statements of adjusted EBITDA from ongoing operations of $3 billion or more. We are not establishing guidance beyond 2022, but our long-term view of Vistra's earnings power remains consistent with our previous views. Our generation and retail performance outlook is strong. And as we always have, we will capitalize on opportunities to not only lock in adjusted EBITDA through hedging activities, but also incrementally add value through commercial optimization. The net of this activity, we believe, will be in the $3 billion plus adjusted EBITDA range. In addition, we are positioned to grow from this level as investments in our Vistra Zero generation fleet become operational, which we will discuss in more detail shortly. This is all and despite the retirement of significant coal generation. Turning now to Slide 8. In November, we announced four strategic priorities

Operator:

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Stephen Byrd with Morgan Stanley. Please go ahead.

Curt Morgan:

Hi, good morning, Stephen.

Curt Morgan:

Well, I think, you outlined the things from a private market perspective that would be attractive about a company like ours, right? So I can't argue with those attributes because I believe they exist. I think I've said this before that we're a big-sized company in terms of a private market transaction. I was with a private equity firm, they have their own set of issues with their LPs in terms of what they can invest in. And they're getting the same pressures on ESG as anybody else. So I think the long-term valuation question that comes up with companies like ours and other fossil fuel-oriented companies, even though we're shifting, tend to come up in a private market setting as they do in a public market setting. Having said that, I think the investments we're making would be attractive on a private market basis. So look, I think we should be attractive, both in public markets and in private markets. I get the point that you make, that this company could be suitable to being in the private markets. And I think there are attributes that make us attractive. So I can't argue with that. Other than that, I can't say anything more than that because there's nothing really to say. I think you're right about that, Stephen.

Curt Morgan:

There could be, yes. We, at time to time, have looked at that and we did not see what we thought were accretive transactions. But yes, there are opportunities and could be opportunities like that, and that's something that we look at on an ongoing basis. So if there is an opportunity like that, we'd be interested in it. And so, it's one of the things that we look at.

Curt Morgan:

Yes. So look, I mean, here's the reality. We have warranties with our contractors and equipment suppliers and we have insurance. There are deductibles with the insurance. But we do – one way or another, we feel like we are covered in this from a cost standpoint. The area where it gets gray sometimes is when you want to improve the current situation, which we are undoubtedly going to want to do. And then there's a question about who pays for those improvements and we'll sort through that. I think the biggest thing we're doing now is we're focused with our contractors and equipment manufacturers to work together because this is bigger than just Vistra or bigger than any one contractor or manufacturer. This is about the long-term transition in the energy sector and batteries have to work. And these two facilities are critical to the summer and beyond. And so I think what we're trying to do is keep this in a situation where we're working together and we're not splintered. And I think once you start going to battle stations on this, then it creates even more issues. I think there's a way to do this in partnership with the folks that worked with us on bringing these two facilities up, and that's what we're going to do. But I think at the end of the day, Stephen, that we have warranties and we have insurance. And we believe that, ultimately, the lion's share of the cost of this are going to be borne by others, but I'll just say that this company is committed to bringing these facilities back online. The good news in my mind is it's not huge money to really fix these the way that they need to be fixed. We're talking about basically the transportation and storage of water and then the release of water into each individual battery module. That should be able to be done in every building and every manufacturing facility in this country and in the world. There are water-based fire suppression systems that do that very thing. And it's frustrating to me that we could not put a system in place that work. These were turnkey deals, we expected the engineering to be right and we're going to get it right. And I think we can do it relatively quickly, and we will get this done right. So we'll sort out the rest of it, but we do have the things in place that you would expect us to, to make sure that we're covered from a cost standpoint.

Operator:

The next question comes from Steve Fleishman with Wolfe. Please go ahead.

Curt Morgan:

Hi, Steve.

Curt Morgan:

It's – look, I got to be careful about because we're still going through all this. I think, Steve, there's a little bit of difference, we believe, in what happened at Moss Landing 300 in the initial phase versus Moss Landing 100. And there are subtleties to all of this. But I think that you hit the areas that we're focused on. It's whether the parts, some of the parts that were part of the water-based heat suppression system were either not installed correctly and/or they had a defect to them or that the design of the overall system needs to be improved. And I think there's – frankly, Steve, there's an element to all of that. And that's what makes it a little complicated in sorting all this out. And I'm just being as honest as I can be about it that, that's what we – we'll end up sorting out in the long run. And I think we've made a lot of progress on it. I think we were making a lot of progress on Moss 300 until 100 happen. And that opened up some additional learnings that we are taking into account. And I think we'll take all of those together and come up with the right game plan for both 300 and 100 to get this right. But there are elements of each of the things you mentioned, Steve, in both the Moss 300 and the Moss 100 situation, but they're a little bit different for each one, and that's about all I can say about it.

Curt Morgan:

Yes. So in 2022, we're pretty hedged. So probably not a lot to talk about. Although we are carrying a little more length going into this summer than what we would normally carry. I think that most of the markets we're in, the price of power is set in many hours by a natural gas unit. So we effectively are long natural gas equivalents as a company. But we also have, obviously, a big short position on, which is our retail business. But we're net long. And I think in 2023 and beyond, we have length, gas length. And it feels to me, I'm not particularly good at predicting commodities, but we're in it. And I think we know it pretty well. But it does feel like we're in a period where natural gas, in particular, is probably going to be set at a little bit higher level than the old $2.50 to $3. It's feeling more to me like $3.50 to $4 or more. You're seeing that U.S. gas is being connected to worldwide gas. We've got geopolitical issues and those are likely to persist for some time, with Russian gas into Europe, China has a big appetite as well as the rest of Asia. And so gas is beginning to trade on a global basis. And it feels like whether it's artificial or not, there's tightness in that system on a worldwide basis which is probably going to mean in the next few years, potentially several years, that we're just at a little higher plateau for gas. That in the long run, is good for our company, given that we are long natural gas equivalent. So I think we're positioned well. The real key though is for us to manage the volatility and to take advantage of it. Because I do believe that regardless of where it settles, the one thing we can pretty much bet on is that it's going to be volatile just given the geopolitical issues that persist in the world. I think our team is up to that challenge and can take advantage of that. Volatility is something that if you're good at it, you can benefit from it. And I think we're in a good position to do that. I don't know if – Jim is on, too. I don't know if he has anything he wants to add to that.

Curt Morgan:

Steve, one other thing just to tell you is that while we've seen forwards move, the liquidity in the markets has been limited. And that's because I think the markets are – the bid and the ask are trying to figure out where this thing is going to settle out and whether some of these geopolitical issues are long-lived or short-lived. And so it takes some time and patience to manage in this type of an environment, and you have to pick and choose the right time to do it. And just – it's not a cautionary note, but more of just a factual one, that the liquidity in the markets has been somewhat limited just because buyers and sellers are trying to sort out whether these are long-term moves or not. Again, if you're in the market every day and you're patient and you take it as it comes, you can take advantage of this. And I think that's what we're trying to do.

Curt Morgan:

Well, go ahead.

Steve Fleishman:

Great. Thank you.

Operator:

The next question comes from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Curt Morgan:

Hey, Julien.

Curt Morgan:

Yes. Can you hear us?

Curt Morgan:

Yes. Sorry, I was talking, Julien, and I had it on mute. So I think we said that both Illinois and California that the underlying revenue streams and EBITDA were about sort of 50% contracted based on the constructs in both of those. They're different constructs, but they ended up coming out about the same, a little bit over that. In Texas, we will contract essentially 100% of those with our – likely with our retail business. And so if you just look at Vista Zero on an isolated basis – and then on a megawatt basis, we're probably looking at maybe half coming out of Texas or so. And so that pushes you into kind of the, I'd say, 2/3 contracted, something like that, just in pure math. And so I'd say that's about what it is. And then, of course, we will try to hedge as we go on further. Jim, anything you want to add to that? But that's the quick math in my head tells me that we'll be somewhere in that range, just given the way that we are contracted both in California and Illinois, how we expect the contract in fact.

Curt Morgan:

Julien, sorry, but these are 10- to 15- to 20-year type contracts, just to remind you that there's a mix of that. But go ahead, sorry.

Curt Morgan:

Yes. I'd say – go ahead, Jim.

Julien Dumoulin-Smith:

Got it. Yes, at least. And just separately, but in parallel with this, I mean, I do want to touch on the strategic aspect here. I mean you guys have substantial plants that are retiring. These have existing latent transmission interconnect, right? So you've got a leg up, shall we say, on independent renewable developers. And in this environment in which so many developers are struggling to get that interconnect, can you speak to your ability to monetize and effectively capitalize on your existing position on the grid from a transmission perspective? It seems like you're doing so already, but again I'd love to hear that from an even more holistic perspective beyond just the narrow context of the plants that you talked about.

Julien Dumoulin-Smith:

Got it. I will leave it there. Thank you guys.

Operator:

The next question comes from Shahriar Pourreza with Guggenheim. Please go ahead.

Curt Morgan:

Hey, Shahriar.

Curt Morgan:

Yes. Look, I think we'll take a look at it around second quarter, because we will have July pretty much in the bucket. But August is the biggest month for us in the summer. And because we've carried more length going into the summer and the winter months, that is what creates the wider distribution. But I think – look, I think we always look at it. And if we feel like we have a high degree of confidence one way or another, we would come to the market with that. But because August is such a big month, and in Texas, September – the first part of September can always be a game changer, we've been hesitant really, Shahriar, to come out and change that until we got into the third quarter call. And in fact, from a retail perspective, the shoulder months are really what are key, and that can be months like October. So that's why we've been a little more hesitant to change. But because we did widen the guidance, I think we'll take a look at it. I just think it's going to be – come down to confidence. And because we're carrying a little bit more length, we may be less apt to do that, but we'll see.

Curt Morgan:

Yes. Look, I mean, we'll call a spade here. I mean, Crius has been – we've struggled, and it's because it was a predominantly door-to-door channel. And door-to-door has suffered because of COVID. You can't go knocking on people's doors with COVID. So we have pivoted to digital offering, but it's been a struggle. The other thing is, is that the standard service offers were hedged out and we've seen power prices go up. And so what's happened is there's been a squeeze on margin. And people also, because the standard service offers have been lower than where market is from some of the retail providers like us, they've moved over to standard offer. That's going to change as those standard offers roll off and there'll be an opportunity. And we're also beginning to get back out on the door to door, but we're also strengthening our other channels. So I think over time, we think we can build back what we've lost, but it's an unfortunate thing that would happen with COVID, and it disproportionately affected Crius because of the door-to-door nature of that channel. But we think we can build it back over time. And Scott Hudson, who's on this call with us is – he and his team have a good plan to do that and it's going to take time, Shahriar. It's not an overnight thing. We think we can do it. The good news is Ambit has been particularly good in Texas. And we've also sort of moved into more of a value offering rather than just an offering on price. We've been successful with that. Our consultants are doing a really good job in that particular channel. And so we're very happy with the Ambit acquisition, in particular, in the ERCOT market in Texas. Crius has struggled some. Overall, though still both very good acquisitions and we think in the long run were the right things to do. And Texas just overall, in particular with TXU Energy, when we went through Uri and some other things, that flight to quality was big. And obviously, TXU Energy was part of that flight to quality and so we grew customers in a significant way. 23,000 customers in a year for us is a big deal down in ERCOT, because as you know, we had typically lost a slight amount of customers in the last few years. But we've been able to turn that tide around and add customers. So that's kind of the lay of the land for retail.

Curt Morgan:

Well, look, here's – what I'll say about that is after Uri, Shahriar, regardless of what we determined about why it happened, you can't ignore the fact that it happened. And so the Board and the management team went to work. And so we looked at a very broad set of actions that we should consider in the wake of that event. And I'll just say that everything got looked at and looked at seriously. And so I think the Board, along with the management team, are – and I know this is going to sound cliche, but I just honestly believe, because I was in the middle of this, we were focused on what we thought was going to bring the most value to the table. The one thing we control, obviously, is our strategy and our capital allocation plan, and we believe we did the right thing around that. Whether there's somebody out there someday that would pay more than what we think that strategy is worth, we're way open-minded on that. And we are flexible in terms of that. Because that's our job at the end of the day, is to get the most value for the company. But in terms of just actively going out and pitching that, we look at that relative to other opportunities. And that's all I can say about it. I just can't get into in more detail. But we are open-minded people and our job is to maximize the value of this company for our current shareholders. And I can guarantee you that's what we're trying to do.

Curt Morgan:

Thank you.

Jonathan Arnold:

Good morning, guys.

Jonathan Arnold:

Good. Thank you. Just want to be sure I understand, on the dividend, Curt, your intention is to run at this $75 million per quarter level but declare it on a per share basis each quarter so we could see multiple changes during the year? Or is it set now for the whole of 2022? I want to make sure I got that right.

Jim Burke:

Sure. Yes, hey Jonathan. We think one of the benefits of this strategy is, as we continue to buy back shares throughout the year, it will constantly change the denominator as we go. So for this quarter, when we announced the dividend, we set the x dividend date from March 21 and the record date for March 22. We had to estimate how many shares do we think will be outstanding by that point in time because we're going to continue to buy back shares. And then that's how we set the dividend rate at $0.17. And then we're going to come back in the next quarter and we'll do the same thing. So you should expect to see, as long as we're consistently out in the marketplace buying back our stock, you would expect to see that increase each quarter as we go. And that gives the investor obviously a sense of just how much of the equity we continue to buy back, but also reward the holders that are continuing to hold the stock that they will see double-digit year-over-year increases in the dividend.

Curt Morgan:

Jim, you want to take that, too?

Jonathan Arnold:

Okay, great. Thank you for that. And I will leave with that.