Q2 2021 Vistra Corp Earnings Call
Yeah.
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Good morning, everyone and welcome to the Vista second quarter 2021, Investor Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Today's call will be 45 minutes in length and after today's presentation. There will be an opportunity to ask questions to ask a question. You May Press Star then 1 on your chest soon for them to withdraw your question. Please press Star then 2 please note that this event is being recorded on now.
Like to turn the conference every day Molly Sorg head of Investor Relations. Please go ahead. Thank.
Thank you and good morning, everyone. Welcome to day second quarter 2021 results conference call, which is being broadcast live from the Investor Relations section of our website at Www Dot Mr Corp. <unk> Com also available on our website for a copy of today's investor presentation, Our form 10-Q and related press release, joining me for today's call are current Morgan.
Chief Executive Officer, and Jim Burke, President and Chief Financial Officer, We have a few additional senior executives present to address questions. During the second part of today's call as necessary before we begin our presentation I encourage all listeners to review the Safe Harbor statements included on slides 2 and 3 in the Investor presentation on our website that explain the risks of forward looking statements still on.
<unk> on certain industry and market data included in the presentation and the use of non-GAAP financial measures. Today's discussion will contain forward looking statements, which are based on assumptions, we believe to be reasonable only as of today's date such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied we assume no obligation to update or for.
Looking statements further today's press release slide presentation and discussions on this call will include certain non-GAAP financial measures for such measures reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the Investor presentation, I will now turn the call over to Curt Morgan to kick off our discussion.
Thank you Molly and good morning to everyone on the call as always we appreciate your interest in Vista.
Especially on this crowded earnings reporting day.
As we find ourselves at the start of August already.
The fact that the power markets are in a state of transition continues to be apparent.
California, Texas, and New York have all requested conservation at various times during the summer.
June of 2021 was America's Hottest June and 127 years of records, beating the prior record for June of 2016 by 8 degrees.
Of this record breaking heat has been observed in the Pacific Northwest.
North, Texas was actually slightly below the 10 year average in June with April and May also being very mild.
So as a nation. There is no question the temperatures have been on the rise in 2021.
As have the extremes in weather conditions.
These weather extremes, coupled with the greater percentage of renewable resources, making up the supply stack in various markets have resulted in a heightened sensitivity to scarcity conditions by the system operators reinforcing the importance of thermal resources, especially natural gas and maintaining a reliable grid.
Now several years into the future.
Our markets and systems must also balance de carbonization.
Efforts with affordability and reliability, which is proving to be a challenge as evidenced in California and Texas.
Given the uncertainty with COVID-19, especially the delta variant and the country's desire to return to normal we have continued to prioritize the safety of our number 1 assets our people.
While delivering reliable and affordable power to our customers.
The second quarter results, we are announcing today reflect this dedication and focus.
During the quarter, we continued our rebound from the very unfortunate impacts from Yuriy, most notably hardening our assets participating in the Texas legislative and regulatory processes and refining our risk management policies. We have also begun a process to review our strategic direction and how we allocate.
Capital.
On slide 6 we show our strong second quarter financial results.
Excluding the second quarter impacts from winter storm Yuri related to bill credits and higher fuel costs. This for delivered adjusted EBITDA from ongoing operations of $909 million.
Comparable to a very strong second quarter 2020 financial results, including these Yuri impacts <unk> adjusted EBITDA from ongoing operations was $845 million. These.
We're pretty much in line with management expectations for the quarter.
We have similarly had a solid start in the execution of the self help initiatives, we identified when we announced our revised financial guidance in April.
We currently have a line of sight to achieving the vast majority of the $500 million of self help initiatives, we previously announced.
And we have achieved more than 40% through June 30.
We will continue to pursue the full $500 million.
But only to the extent, we do not jeopardize the future risk profile and earnings of the company.
As a result, we are reaffirming our 2021 guidance ranges for both ongoing operations adjusted EBITDA and ongoing operations adjusted free cash flow before growth as set forth on slide 6.
Importantly, excluding yuriy <unk> would be tracking in line to ahead of our free Yuri guidance midpoint for the year.
We understand that you already happened but.
We also believe it is important to recognize that the long term earnings potential for Vista remains intact.
Turning now to slide 7.
As I mentioned at the beginning of the call power markets have recently moved up with forward curves in both ERCOT and PJM as well as our other markets.
<unk> fleet over the last several months.
I'm sure you've heard me discuss our point of view in the past, which is our modeled fundamental view of where prices are likely to move over time, incorporating various weather conditions newbuild scenarios and other key variables on a probability weighted basis.
Pretty much since I have been at district, our point of view has decoupled from backwardation forward curves, especially in ERCOT.
Over the years forward markets and to some extent settled prices have afforded vista the opportunity to construct realized price curves in line with our point of view.
It is interesting that the recent positive movement in 2022 forward curves have brought pricing in line with <unk> point of view, especially in ERCOT.
For ERCOT Sparks have increased primarily for the winter and summer months and we believe this is being driven by market participants, reducing their overall risk tolerance falling Uri.
And possibly the potential for market reforms, which could result in more favorable price formation for dispatch for resources in the future to support market reliability.
And PJM. However, it is our view that the rise in power prices has been driven primarily by the increase in natural gas prices.
As of July 30th.
<unk> is now, 54% and 93% hedged in ERCOT and PJM up from 40% and 50% respectively for 2022.
We have similarly meaningfully increased our hedge positions and New York New England.
California.
In the MISO markets over the last several months, taking advantage of the increase in outright power prices and spark spreads.
The recent momentum in forward prices, primarily in ERCOT supports our previously stated strong outlook for 2022.
You might recall last fall at our virtual Investor event in September we offered an early outlook for 2022.
Noting our view debt in a commodity exposed business like ours looking at average adjusted EBITDA over time is a more appropriate way to evaluate the earnings power of the business.
We further offered our view that we believe 2022 ongoing operations adjusted EBITDA could come in line with this average concept specifically, we noted that the average of our 2020 and 2021 ongoing operations adjusted EBITDA guidance midpoint was approximately 3.4 billion.
Which we believe could be indicative of 2022 financial performance and reflected our point of view pricing.
At that time curves were lower.
With the recent uplift in forward curves, especially in ERCOT. We continue to believe 2022 adjusted EBITDA from ongoing operations could be in the range of $3.4 billion.
Excluding the impact of the retail bill credits from Yuri.
With a 60% to 70% conversion to adjusted free cash flow before growth.
I am now on slide 8.
As we mentioned on our business update call in April <unk> is taking several actions intended to address the risk we were exposed to during winter storm Yuri.
First we are investing nearly $50 million in 2021 prior to the 2022 winter on improvements to further harden our coal fuel handling capabilities into further weatherize, our Texas fleet for even colder temperatures and longer durations, we intend to spend up to another $30 million in 2022 to further.
Enhance the ability for our fleet to withstand extreme weather conditions.
We have also contracted for a meaningful amount of additional gas storage, which performed well during the storm to support our gasoline and we are installing dual fuel capabilities at our gas steam units, while similarly, increasing the fuel oil inventory at our dual fuel sites.
Last we plan to carry more generation linked into the peak seasons, increasing the level of physical insurance, we carry to protect against volatility the absolute.
Loot level of excess generation, we carry will be a function of our investments and our generation infrastructure in the ERCOT market improvements that are implemented going forward.
In addition to these improvements we are making on a standalone basis. The Texas Legislature recently passed legislation that provides for mapping of the integrated gas and electric systems, which should help to alleviate gas deliverability issues by identifying critical infrastructure, allowing for weatherization.
In registration with the transmission and distribution utilities to ensure that those assets continue to operate in the in climate conditions and receive power in the event of rolling outages in the future.
We have already seen a significant amount of registration activities and here.
We intend to play a role in ensuring the efforts to map and identify critical gas and power infrastructure are carried out in a manner that results in the intended reduction of risks to the integrated systems.
Last both ERCOT and the public utility Commission of Texas are evaluating various market reform alternatives to reduce risk and ensure that dispatch level resources have adequate revenues to incent.
Investment and serve to balance the system with a growing number of intermittent renewables. We believe any such reforms could further improve ERCOT risk profile for market participants and enhance the attractiveness of the market.
The process is in its early stages.
So it is difficult at this time to speculate on what form these reforms might take though very clearly ERCOT and the PUC are focused on ensuring that Texas have reliable electricity going forward reinforcing the importance of dispatch able resources like districts the.
For most likely potential areas for reform or to the operating reserve demand curve, including reducing the price gap and extending the amount of reserves on the curve and additional ancillary services to incentivize new investment and maintain existing dispatch able generation.
Before I turn the call over to Jim I would like to comment briefly on our strategic direction and capital allocation review.
As we noted on our business update call in April the events of youri required us to step back and rethink our strategic direction enterprise risk and how we allocate capital.
The goal is to unlock the value of our company that we strongly believe remains intact.
As you likely know the events of Youri also have set back the timeline for a potential investment grade rating to at least the end of 2022.
Or at some point in 2023, the strategic review will undoubtedly address our leverage targets and the pursuit of investment grade credit ratings. However, regardless of the direction. We take this for we'll always maintain a strong balance sheet that allows us to withstand extreme risk.
Pursue business opportunities and attract investors.
We understand the urgency of this work given where our stock is trading but we also want to be prudent in our deliberations, we intend to provide more information.
When we have news to discuss on our longer term strategic direction. No later than our third quarter earnings call in early November.
Probably the most important point is that our deliberations have confirmed our confidence for the long term value for our business. It is incumbent on us to put together the plan to realize this value and we intend to do so we believe that our relatively young low cost assets that we are de risking will play a critical role in.
The energy transition for the next couple of decades, which when combined with our attractive retail and zero carbon businesses should deliver relatively consistent financial results, while generating a substantial amount of free cash flow on an annual basis.
At today's stock price investing in our stock has to be at the top of the list of where to allocate our capital.
We look forward to talking more about our strategic direction and how we plan to allocate our significant cash flow in the months ahead.
I'll now turn the call over to Jim Burke.
Okay.
Thank you Kurt as shown on slide 10, <unk> delivered strong financial results during the quarter with adjusted EBITDA from ongoing operations of $825 million.
Excluding the euro related dual credit from fuel cost adjustments. This was adjusted EBITDA from ongoing operations was $909 million.
Results that are comparable to our exceptionally strong second quarter 2020 financial results here.
Period over period, our retail segment results were $109 million higher than second quarter 2020, driven by the realization of our self help initiatives in 'twenty 1.
The collective generation segments ended the quarter $213 million lower than second quarter, 2020, driven primarily by lower realized prices in Texas. After an exceptionally strong 2020 and lower capacity revenues.
Importantly, the long term earnings power of this company has not been affected by year end, which was a highly unusual event.
In fact without the impact of jewelry, we expect we would've been reaffirming our per year on guidance today, which had an adjusted EBITDA from ongoing operations midpoint of $3.2 $75 billion next year, excluding the impact from Euro Bill credits. We believe we have the ability to deliver adjusted EBITDA from ongoing operations.
In the $3.4 billion range with 60% to 70% conversion to free cash flow before growth.
All of this to say we continue to believe this business will have significant capital to allocate in the years ahead, which takes me to slide 11.
Last week, our board approved our third quarter 2021 dividend of <unk> 15.
We're 60 on on annual basis subject to board approval at the appropriate times.
We remain committed to maintaining a strong balance sheet, though as Curt mentioned, we believe we are still a couple of years out on the potential investment grade credit rating.
In the second quarter of 2021, we did execute 1 capital markets transaction issuing $1.25 billion of for 375% senior unsecured notes due may 1.2029, we.
We use the proceeds to repay all of the outstanding principal amount of the $1.25 billion 364 day term loan a debt we issued following year end.
Beyond our priority to maintain a strong balance sheet. We also view our stock is significantly undervalued. We continue to believe that share buybacks at these levels would be 1 of the most attractive uses of our capital and we will continue to evaluate opportunities to reallocate capital for the remainder of 2021.
Last as we previously discussed we are also evaluating alternatives to accelerate the pace of our renewable development using lower cost capital.
All of these capital allocation tenants are being evaluated in our current review. So please stay tuned for more to come on these topics in the months ahead.
In closing while winter storm year. It was a significant 1 time financial hit in the first quarter. Our business has been able to get back on track and execute well on the second quarter and with the recent uptick in forward curves on both PJM and ERCOT. Our forward outlook has only improved with management expecting that we will be able to deliver strong adjusted EBITDA.
Adjusted free cash flow before growth in 'twenty, 2 and beyond.
We believe in the value of this business and our ability to generate significant free cash flow for allocation for years ahead. In fact with our long term view that we will be able to generate $3 billion on more of adjusted EBITDA with 60% to 70% conversion to free cash flow on on annual basis, we could repurchase our entire market cap and Russ.
5 years, if we were to allocate all of this capital to share buybacks.
Attractive value in our opinion.
Our teams are committed to execution, we prioritize operational excellence low cost operations and disciplined financial management as always we're focused on delivering safe and reliable electricity to our customers, while creating value for our stakeholders over the long term.
With that operator, we are now ready to open the lines for questions.
Thank you and we will now begin the question and answer session.
To ask a question you May Press Star then 1 and you touched on for them.
Youre using a speakerphone please pick up your handset before pressing the keys for us.
John Your question. Please press Star then 2 and at this time, we will pause momentarily to assemble the roster.
And our first question today will come from sharper razor with Guggenheim. Please go ahead.
Hey, good morning, guys.
Hey, Shar good to hear from you.
Yes, it seems.
Just.
Quickly on just on your comments regarding a review of your strategic direction on how you allocate capital you mentioned in your prepared remarks as you kind of continue to generate cash can you maybe just speak on how youre thinking about buybacks versus perhaps a special dividend, especially as we're thinking about 'twenty 2 and beyond.
Maybe more inorganic retail deals also.
You kind of specifically also noted strategic direction.
That also imply that there is maybe an internal debate around.
Go private scenario.
Continue to trade at these unsustainable.
The free cash flow yields could kind of go private scenario would be the avenue to realize value.
Just maybe if you can elaborate a little bit more on that strategic direction comment and.
Will you be prepared to discuss this by November or could this be pushed out.
Yeah sure. So thank you that's a great question a lot in that question.
So.
But that I knew that.
I figure, we should get debt question I think after the area that I think.
Most people would expect debt.
The management team on the board and we're going to sit down and have a discussion about our business and.
Something that obviously it was a risk that we did not contemplate and.
The adjusted.
Brush it off and say, we're going to go at things business as usual.
I don't think debt would have set well with anybody and certainly not with me and not with the board. So I think first and foremost debt. We felt a sense of urgency and of course, you've got you got you know this I mean, our stock sold off big.
And more so actually than the actual.
Math that you would put into it in terms of our share is divided into the Los itself. So there was a loss of confidence and I understand that.
But we had to rethink things.
Going forward.
And I think that's what we're doing.
Know that anything has really changed that much but.
I think they were for the 4 main pillars that are driving us as we go through our strategic direction.
And as we think about allocating capital number 1 is our stock is incredibly cheap and we went we've done a lot of analysis and we still believe that.
Net we're significantly undervalued.
And so we.
We have to think about whats the best way.
On to invest in our own company, if others don't believe in us and we need to believe in ourselves and we generate a lot of cash and so I think we have to.
To take a hard look at.
Buying back our shares and that ultimately adds value to the shareholders can stay in the company and so it's a good use of capital in our mind.
We said this in our remarks, Jim on idea that we want to have a strong balance sheet. We never started this though with the idea that we had to pursue investment grade rating that kind of came along with it and if we get there thats fine. What's more important is we have a balance sheet that can withstand the kind of risk.
That we did with <unk>, we were sitting here at 5 or 6 maybe 7 times debt.
Net to EBITDA like the IPP for the past, we'd probably be talking about a completely different situation right now than what we are so we believe a strong balance sheet is still 1 of the cornerstones of our company, but we're.
We're not going to be Penny wise and pound foolish. So we're going to look real hard at that we think a dividend we will continue to be a part of what we do and finally, we did a review of our of our renewable and battery business.
And we have 1 of the best businesses.
See just about every development company, that's trying to sell itself right now we know what those teams look like we understand Nextera has got an incredible business in <unk>.
Kudos to them, but we're not second to anybody else in our view, we've got a great pipeline. We're using sites that have access to transmission. We have a tremendous capability in terms of development development is not just about going out and getting.
Getting into the Internet interconnection queue, you've got to have market knowledge and experience you have to have construction experience in operations and maintenance skills. We have the economies of scale from our functional support standpoint, we bring a lot to the table.
Key for US, though is it has a cost of capital gain and so that's where a partner may come in to this and so we're going to take a real hard look at how we can accelerate the growth in that business and make sure that we have a competitive cost of capital in that business and that could also mean that we may want to do some project financing but search.
Bring in probably some infrastructure type investments. So that's what we're working on there is no disagreement with our board I think our board and the management team are in lock step, but these take these things take a little bit of time, and where docs are going to be prudent about it we want to make sure whatever move we make there.
As a long term move we don't want to have a knee jerk reaction here and then have to do something again and I feel good that we will likely do something no later than the Q3 call timeframe, we'd like to obviously not do it on the Q3 call because that gives you guys all congested because you've got other things to deal with we serve.
We would like to do it before that and separately. So that we can have the kind of time, where we can spend time with investors and with you guys. So that's where we are on this.
Sure.
We continue to believe in the long term value of this company I step back and think about it. This way we've got this incredible.
Business that generates a tremendous amount of cash.
And that cash can open up the opportunity for us to return capital. We've also got this.
This burgeoning.
And very good growth business and that business needs capital and it also needs a cost advantage.
That's what we need to on law, that's what we need to solve for and Thats what were working on.
And I feel very good that we're on a good path to do that but there's a lot of work to be done.
Want to get to the market as soon as we can on this direction because we build the urgency, but we want to do it right.
So just so just to reiterate Kurt so.
On the strategic strategic direction really isn't about a debate on whether investors will ever properly reflect the value on ITT as a public company and whether you're debating whether we should go private because that's what private is willing to pay for assets. This is more of a.
A strategic direction, maybe a change in how youre thinking about buybacks versus dividend versus organic growth versus inorganic growth as a publically traded company. This isn't a debate between whether we should go private or state public.
Yeah, No look we're for sale every day, so if somebody wanted to pay an attractive price, but we're not out.
Hang on our shingle out there.
Because I'll just tell you I've said this before you know the Shaw et cetera to you but.
I've been I've been in.
The private setting I know what it what it is I know what it takes I know what private investors want.
And I think that there are others out there that have gone private debt are realizing that if you go private it's the same thing that is new Republic for these businesses that it's a long term gain and the idea of that.
Private equity firm would come in here on because somehow then exit in 3 to 5 years I, just don't know who that debt exit would be and the thing that makes it difficult for us.
It would take a big equity check.
If I can.
In order to get this done that doesn't mean that it can't happen, but that's not that is not our primary direction, we want to take a direction that we control we don't control that direction.
And so we saw.
Something that we control and that we think can unlock this value. So that's where we're focused.
Fantastic. Thank you guys. So much appreciate it.
Yes. Thank you.
And our next question will come from Stephen Byrd with Morgan Stanley. Please go ahead.
Hi, good morning, Thanks, so much for taking my questions.
Hey, Stephen.
I wanted to just talk a bit more about the opportunities for renewables that youre seeing.
Just get your latest view on sort of the state of play there and as much as I love.
The idea of growing in renewables It does strike me as.
Challenging to kind of be the economics of your own stock and I know you just went through a long discussion of your reviews.
And that this is in process, but just would you mind talking a bit about that opportunity set and renewables, what you're seeing broadly.
I would guess there might be some degree of distress among some of those smaller players out there.
But just could you talk a little bit more about what youre seeing there.
Yes. Good question, Stephen So look I think I tried to say this but I'll make it as clear as I can.
We think at the top of our list of things to use the capital from this.
<unk> cash generation machine that we have.
As our stock right now and so I.
Do you see the free cash flow yields the math is pretty clear.
And so.
But we also wanted to have a strong balance sheet I went through all of these things and we and we do think paying a dividend.
And so we're going to do that the real challenges is can can we return capital and grow what we believe is a very good.
And like I say, a burgeoning renewables and battery storage business. So these are opportunities just because of the sites that we have and more in locations like California, California is talking about 12000 megawatts plus batteries that they need to put it we've got sites that can do that.
We can't walk away from that value proposition, we want to partner with <unk> and others in the state of California, and with the state of California to help them solve their where theyre trying to take their state and we have the sites to do that and so I think what we've concluded is there are ways to do both and that's where we're headed.
We also want we believe that partnering with people who have.
I will say that advantage cost of capital and will put us in a position of having an advantaged cost of capital will put us in a better position.
We have everything else there is to compete in this business and we have the full suite of capabilities. So I don't think it's a question of whether you can do 1 or the other I think we can do both.
So on coal plants have just built them our muni is I should say.
That just built them not too long ago, and they still have a huge amount of debt that are on <unk>.
Number of different municipalities and that creates a lot of angst.
Of course, you know, there's others like us on thermal resources, and we're trying to sort out how does that happen.
And I think even within his own party. There is a debate going on as to how how you actually accomplish that.
So and that has created a bit of a divide and I think at the end of the day, they're going to try to work together and I believe they will because there's too much at stake here and they will come to a reasonable conclusion to move to stay forward in terms of lowering its emissions. We're in the middle of that trying to help debt. The 1 thing that I've.
Tried to mention to people is that if you get the omnibus Bill in place and you put the kind of stipulations in the direct auctions and require developers to actually complete their projects and get them on line that by that very nature will end up crowding out thermal resources.
<unk> reduced emissions without having to have a heavy handed set of criteria that debt forces those to happen in a non natural fashion and so I think if they get this bill passed and they put the right teeth in so that they can get the development that they want of the net.
The renewable and battery resources, they will accomplish a major amount of what they want to get done so the real essence. So at the end of the day can something get we're cautiously optimistic that there will be a way.
Path forward that everybody will come together because again there is too much at stake there is.
There's a lot of.
Investment that they want to do in renewables.
Our coal to solar as part of that we feel strongly that we're solidly in the legislation we have a very good program. It helps communities that are losing jobs from the fact that we're shutting down coal plants and investing in those communities, bringing property tax base and we're real we're a real company we have real.
<unk> and we can bring those online in a very short period of time and so we think theres a lot in that for us as well and so we would like to obviously help bridge this gap and work together and that's what we're doing we're working together with as many people as we can to try to help bridge. This divide I think it will get done Stephen but but.
You never know.
We're cautiously optimistic, but there's a lot at stake and we think of course, the nukes I didn't even mention that those are very important to the state they've made that very clear. So all of that has to come together most of it is already together.
At the end of the day, it's just getting through this debt.
What do we do in the long run with thermal resources and the glide path for those 2 to exit and I think that's where we need to come up with a compromise on I believe we'll be able to do that.
That's really really helpful. Thank you so much.
Thank you.
Yeah.
And our next question will come from Steve Flushing.
Freshman with Wolfe Research. Please go ahead.
Hey, good morning.
Okay.
Hey, Kurt just on the could you just remind us the current capital plan.
What was in there in terms of dollars for renewables.
Capex over the next few years.
Maybe just also give us an update on where you stand on <unk>.
Projects are there, particularly the ones the other.
Other ones you were planning to do in Texas.
Yeah. So.
We have said that we would put a half a billion roughly $500 million.
Jim while I'm answering as Jim may be able to find the exact numbers that we that we have but there are half a billion dollars a year.
We have said for 10 years and when we put out that 10 year view.
And I think we're largely a little bit more on a little bit less on a couple of years, but we were going to reinvest that amount.
Into renewables.
Batteries, and we're tracking sort of in that range.
And that was that was the investment in terms of the projects themselves.
I don't have the list in front of me, but I know that we have and.
And I don't know Jim if you have that list and have you been able to find that but if you can pull up that list of where we are on.
On each of the different projects.
Sure.
Steve We had in our Investor day, we had talked about our capital allocation plan that would put.
Over $600 million into 'twenty, 1 we said 650 approximately in 'twenty, 1 and 522 weeks.
We scaled the $6.50 down to $4.25.
For this year and we did that as part of the earlier questions were kind of reading the market signals on.
Where we should best allocate our capital and we control. These sites. So these are sites that we can bring on in.
In the timeframe that we would like we're going to be the off taker predominantly for the Texas.
Sites and so this gives us a lot of flexibility to.
To be able to bring them on.
And do it in the timeframe that makes the most sense for us is for.
For us the sites themselves, we have both the mast 300, 100, which were completed.
And those are operating with an agreement from P. G&A the other.
Other sites that we're focused on on the bright side Solar project. The day corridor of a battery project, which is our hybrid project.
Here in Texas, We've got Emerald growth and we've got just a little bit of spend to keep some options a lot of it a few other sites. That's the bulk of our spend for for this year and we will continue to build build out for the balance of this year. We got some phase 1 projects that we had announced earlier.
Just slowed the path down and we haven't got gotten going yet on phase 2 so the strategic review that current has mentioned will obviously dictate a lot in terms of the pace and can we find a cheaper form of financing that helps us accelerate this but still use our capital for kind of its highest.
Return.
And.
And so we'll share that as we bring the details of that going forward, but it's a it's the pipeline we've talked about before just a little bit slower go given we were resetting post Jerry but the projects that we have are moving forward well.
Projects in California are performing well.
And 1 thing.
1 other thing to add on that Andrews County is 1 that we pulled back when we when we pulled back to this lower spend.
And that was initially this is why I talk about you know, having the capability and having the discipline in development if youre a development company and all of US are going to do is kind of build this thing up and flip it it's a little bit different but we were going to have to live with it but we had some issues with congestion and.
And we've worked with encore and we now believe that side you could go up to 200 megawatts, but this is a kind of stuff that we have a dedicated group on transmission.
That are incredible at what they do and they can keep us out of issues.
By over developing in an area and then having congestion and having the price reduce significantly.
So that we pulled that back in but now since we've been able to work at it.
It's a project we'll do later on.
As Jim said, we control that site. So that that was part of why we also pulled that back.
Okay.
Just on I guess, a high level question related to the renewables is just in your slide you mentioned the.
Alternatives to accelerate the pace of development.
Using a cheaper cost of capital, which makes a lot of sense and it frees up a lot more capital for buyback.
In terms of then.
The mix of the company if someone else is going to own. Some of this like can you grow the business fast enough quick.
Quicker that even if somebody is going to own some of it.
The overall company keeps moving a lot greener.
Over the period.
If someone if you have a partner.
Yeah sure. So yeah, I mean, that's a really good question and 1 that we have spent a lot of time, Jim and I have recently by the way, but you know you're talking about whether you know how do you do this is this a JV and.
And you know those things tend to have governance associated with them and you know theres a lot to them.
I think.
We're thinking about as Steve is.
There's a couple of ways to do this zone.
Have an equity investment you can also have sort of a strength of what I'll call a structured financing.
Where.
Maybe it's a.
Our preferred convertible preferred or something like that there's a number of ways to cut. This in terms of how do you raise the capital against the spend and the value of the company that can allow you to.
Grow this company and to maintain the ownership in the governance that allows you to control the shots because you can get into a situation. If you don't have the right partner.
Where it can get gummed up and that's not what we're looking to do what we're looking to do is get access to.
2 there's a lot of capital out there right now and a lot of infrastructure funds and a lot of people looking for companies like us that are legitimate.
A capability and so we.
We think that we can raise a reasonably price capital.
N E governance friendly manner to continue to allow us to grow our business and so.
We'll see.
And the extent of how much the party would have a governance position and the company will depend on the size of the capital investment and.
And the type of capital investment and there'll be a balance that we will make there we've got a number of good friends out there that are interested in this and we.
We know this because there are people there are inbounds coming to us because I'm, making comments like this on calls like this but we know that there is interest in this and then it comes down to just 1 other terms look like but we have people that we know that where like minded with debt. We can do debt we could work with.
And that we believe that understand what we're trying to do which is accelerate this not slow it down.
Okay.
Great makes it makes a lot of sense. Thank you.
Thank you.
Yeah.
And our next question will come from <unk> Chopra with Evercore ISI. Please go ahead.
Hey, good morning team just on the Street.
Just on the strategic review you mentioned the size of the check I'm just wondering like as you go into the sort of the Q3 call and as you think through this is there a possibility so not sell the company outright, but perhaps get a like minded partner, who sees the value in the cash flow stream sell a portion of the assets are for.
So on companies that a possibility.
Yes.
Absolutely.
Okay, Perfect and then just in terms of just the.
On the buyback you mentioned, obviously the currencies is is heavily discounted.
On the Q3 call should we expect sort of a formal program to be announced or like what are what do sort of.
You have this previous guidance on I think it was believed to have dollars worth then share buyback. So should we expect expect the larger program or would you have done you've taken some actions before that.
You know I I.
I hesitate to get into precise numbers, because we're we're working through this week.
We have a pretty big program that we already have out there.
For the next couple of years I think what youre going on here, though is what we would like to do even longer term I mean I think.
We would like to paint a picture of again, we've got this core business.
That generates a lot of cash and I think we would like to earmark that to returning a bunch of cash and so we want to give a picture of the future.
That goes multi years and just kind of shows just how much.
Return on capital that we can do over that period of time from that business and then I think we also would like to paint a picture of what the growth side of our business would look like and those 2 let's call them 2 separate.
Businesses in 2 separate tracks, but at some point those 2 ultimately emerge again.
I think our biggest problem has been is that people don't can't can't invent envision the company long term they say well at some point those thermal assets are going to go away, but if you have 2 tracks 1 that you're generating a lot of cash and youre returning it to shareholders from your core business and Youre building. This long.
<unk>.
Burgeoning renewable and battery business at some point those merge again and then you have solved your long term terminal value because our retail business isn't going anywhere and were going to grow that business is how we manufacture power electricity that matters and we've got a great business that returns a lot of capital I think.
We'll continue to do so for a long time that we can return to shareholders. We also have advantage sites.
On a core capability to be able to grow in renewables and batteries and we want to be able to unlock both of those things, we think bringing in partners in <unk> and <unk>.
Additional capital is the way to do that and then at some point in time those to emerge again and that you have this you can then visualize this company in the long run because.
The supply side of our business.
Has been essentially replaced from thermal to renewable on batteries, that's really the vision here.
And then we need to get into the details of how that happens.
That makes a ton of sense Kurt. Thank you just a quick 1 here.
You could there be share buyback this year and 2021 potentially previously have said because of urea and sort of the balance sheet. There would be no share buybacks in 2020, but could you reevaluate that.
We could we could reevaluate that yes.
Okay perfect. Thank you so much I appreciate you taking the time.
Yeah. Thank you thanks for the questions.
And this will conclude our question and answer session I would like to turn the conference back over to Curt Morgan for any closing remarks.
So thanks again, everybody for joining the Q2 call I know, it's a busy very busy day, we tried to show 2 we thought it was a pretty you know human by quarter.
The company has rebounded well so we didn't want to take the full hour hopefully this will give you some time, but you know we.
We have a lot to talk about in the future in the near term, we will be getting back to you soon with the strategic direction and the capital allocation. So thanks again, I hope everybody is well take care.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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