Q2 2022 Vistra Corp Earnings Call
And welcome Thank you.
2022 desktop earnings conference call all participants will be in a listen only mode should you need assistance. Please with Miller conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Ask a question you May press Star then one on that Touchtone phone to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like.
What do you make in Horn VP Investor Relations. Please go ahead.
Thank you and good morning, welcome to investors Investor webcast discussing second quarter 2022 results, which is being broadcast live from the Investor Relations section of our website at Www Dot District Court Dot Com also available on our website a copy of today's investor presentation our fee.
10-Q and related press release joining.
Joining me for today's call are Jim Burke, our President and Chief Executive Officer, and Chris Mold event, our executive Vice President and Chief Financial Officer, We have a few additional senior executives present to address questions. During the second part of todays call as necessary.
Before we begin our presentation I encourage all listeners to review the Safe Harbor statements included on slides two and the Investor presentation on our website that explain the risks of forward looking statements the limitations of 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 our forward 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 our new CEO , Jim Burke to kick off our discussion.
Thank you Megan and good morning to everyone I am excited and eager to talk with all of you as I take on this new role for Vista.
Over the past few months I've been asked what I envision for distressed path forward.
Accordingly, turning to slide five before I discuss our second quarter results.
I'd first like to reinforce a few of my thoughts on this for a strategic direction and top priorities.
Continue to remain confident in our short term and long term value proposition precisely because we intend to remain focused on the four key strategic priorities. We initially defined in the third quarter of 2021.
As we've shared in the past <unk> is well positioned for the long term during this energy transition.
In addition to ensuring that our customers and our communities having 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 our comprehensive hedging strategy that we announced last quarter, which is locking in significant future year earnings potential.
This effort is supported by a higher performing generation team and a customer focused retail team experienced in managing counts margins and customer experience and.
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 our 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 Chris 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.
At year end, we expect our net leverage ratio to be approximately three times 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 remained 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 one point to $5 billion for share repurchases effective immediately which brings our cumulative authorization to $3 billion to $5 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 history zero platform, which we expect to grow primarily by utilizing cost effective third party capital.
I'll speak to updates on Vista zero in more detail momentarily.
Yeah.
I am committed to the execution of our strategic priorities as I firmly believe that our successful execution of these priorities will enable this draw to deliver sustainable long term value for all of our stakeholders.
Now turning to slide six 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 T. Extra energy brand had its best quarter residential counts performance in nearly 15 years, while achieving our target margins at a dynamic market.
This highlights our expertise as an integrated energy company to acquire and retain customers do 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%.
Strong performance, especially considering the unseasonably warmer weather experienced in Texas in the second quarter.
The teams worked diligently to perform regular maintenance on a on an expedited basis and in some cases truncated schedules to ensure the plants were available to the grid during the heat waves 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 eight $1 billion to $3 three $1 billion in adjusted free cash flow before growth from ongoing operations of $2.07 billion to 2.57 billion.
Yeah.
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're 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 seven 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 Vista 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 29th and rolling that forward to July 29 overall the curves are in a similar place. Despite the volatility we've seen over the past three 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 'twenty four and twenty-five.
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 that we can execute this hedging strategy and the capital allocation plan in tandem Chris will go into more detail on our liquidity management.
These later in the call.
Turning now to slide eight I wanted to provide a brief update on our Vista zero growth trajectory and how we are positioning <unk> 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 address 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 it may were selected by the Illinois Power agency to provide over 460000 annual renewable energy credits or Rex over the course of 20 years. The contracted sale of these racks will serve to provide stability of the revenue streams of.
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 'twenty 'twenty four time frame ahead of the required dates per the awarded contracts.
Finally, our development projects in Texas continued to make great progress as well in.
In April we announced that our 50 megawatt solar facility bright side was online. This was followed by announcements in May that our 260 megawatt energy storage facility at Decordova was online and in June our 108 megawatt ERCOT solar facility Emerald growth was online.
We now have 608 megawatts for Vista zero online of solar and energy storage serve in the ERCOT grid in.
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, one and two of our 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 seven three gigawatts in district 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 Vista zero development projects could see enhanced returns. It is certainly a dynamic time in the marketplace and Vista is extremely well positioned with both a strong outlook on our core generation and retail businesses, but also with this <unk>.
With that I will turn the call over to Chris Moulton, Our recently named CFO to discuss the quarter's financial performance and our capital allocation progress in more detail.
Many of you already know, Chris well and his track record of successfully driving shareholder value for Vista and as of late is active and effective management of our liquidity position as background, who practice as an attorney for over a decade, including gaining significant experience do representing clients and merger and acquisition.
Activity as well as complex financing transactions, Chris has been with Vista and its predecessor for 16 years and joined the finance team in 2010.
Where he is focused on some of the most complex financial transactions in our industry.
I've had the privilege to work with Chris for many years and can attest personally to his insights and capabilities and I am very much looking forward to partnering with him as we take this reform in these exciting times of transition and growth.
Chris.
Thank you Jim it's an honor to be in the new role and representing restaurant the call today.
While I have met many of the participants on the call in my previous role as the Treasurer of the company I look forward to getting to know everyone and spending time with each of you in the coming months.
I'll turn now to slide 10, as Jim noted earlier visceral delivered strong financial results during the second quarter with adjusted EBITDA from ongoing operations of approximately $761 million, which was above management's expectations.
Retail ended the quarter at $403 million of adjusted EBITDA from ongoing operations and while this result is a $107 million lower than second quarter 2021. It is important to note that this difference is more than accounted for by the amount of one time self help initiatives. We undertook in the second quarter of 2021 to offset some of the losses we experienced.
<unk> from the preceding quarter.
Retail performance this quarter was favorably impacted by warmer weather strong margins and exceptional residential customer count growth in Texas.
Moving to generation, our collective generation segments ended the quarter with $358 million of adjusted EBITDA from ongoing operations. This result was approximately $14 million above our second quarter 2021 results. After adjusting second quarter 2021 to remove the earnings attributable to Zimmer and Joppa.
Which are now reported in the asset closure segment.
This increase was driven primarily by favorable prices, we experienced in the quarter offset by the ongoing coal constraints. The industry continues to experience as well as one time benefits of self help initiatives executed in the second quarter of 2021.
Finally, turning to slide 11, our strong financial results allow us to continue to favorably execute our capital allocation plan spin.
Specifically as of August 2022, we have executed approximately $1.6 billion of the original $2 billion authorization repurchasing approximately 70, and a half million shares or approximately 14, 6% of the shares that were outstanding as of November 2021.
Since we expect to execute the remaining portion of the $2 billion authorization before year end 2022, as Jim noted the board of directors has authorized an incremental one point to $5 billion of share repurchases effective immediately.
As such we have approximately $1 $65 billion of aggregate remaining availability for share repurchases under the upsized $3 billion to $5 billion authorization.
Which we expect to execute between now and the end of 2023.
Additionally, the board recently approved a quarterly dividend to be paid on Vista as common stock in the amount of $18 four per share or approximately $75 million in the aggregate payable on September 30 of 2022.
This is an approximately 23% growth in dividend per share as compared to the dividend paid in the third quarter of 2021.
While we are focused on returning capital to our shareholders. We remain steadfastly committed to balance sheet strength targeting a long term net leverage ratio below three times, excluding any nonrecourse debt, we raise it Mr zero.
This year however, the material increase in forward power prices for the balance of 2022 through 2025 taken together with our increased forward hedging activities to lock in those prices as resulted in significant increases in our collateral posting obligations and required liquidity to support these obligations.
As such we have actively worked to increase our available liquidity, including issuing $1 $5 billion of short term senior secured notes. In addition to increasing the aggregate commitments under our corporate revolver by $725 million and increasing the aggregate commitments under our commodity linked revolver by $250 million.
As a result of these proactive transactions, we have significantly increased our available liquidity, which was approximately $4 $5 billion as of August 3rd.
Looking forward as we deliver power against our hedges over the balance of 2022, we expect to see a material return of collateral, including a significant amount of the cash we had posted at June 30th two.
To that end, we anticipate repaying more than $2 $5 billion of debt by year end, including debt outstanding under our revolving credit facilities of.
Of course, we must continue to prudently balance the timing of these debt repayments against the liquidity needed to support our hedging program.
In addition to repaying debt, we will continue to monitor and optimize the amount and sources of liquidity necessary to support our existing hedges.
As well as any additional hedges, we may execute over time.
We said, we would focus on execution in 2022, and the efforts of our generation retail and commercial teams in the first six months have positioned us well for a successful year we remained.
Focused on our strategic priorities and look forward to discussing third quarter results and our outlook for the balance of 2022 and for 2023 on our next call with that I'll turn the call back over to Jim for a brief wrap up.
Chris Thank you very much and congratulations on the new role.
Turning to slide 12, I would just like 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 periods 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 billion to $5 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 Vista 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 this zero will more than replace the earnings of the retiring.
<unk> units and we are doing this with cost efficient capital.
This is an exciting time for Vista, 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.
Thank you we will now begin the question and answer session to.
I'll ask a question you May press Star then one on your Touchtone phone.
If you like using a speakerphone please pick up your handset before pressing the key.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble IRA Jack.
First question from Shar <unk> with Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Hey, Shar, how are you doing not too bad not too bad.
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 three years is increasingly locked in with the hedges I guess, what do you mean by quote unquote, we visit on a regular basis.
And have you and the board thought about potentially allocating everything you've locked in through 'twenty five all at once.
Thanks.
Hey, sure Theres a lot in that question, let me first start with with the.
The idea that we are just past the halfway point 2022, and we feel good about where 2022 trending we were working through the buyback program and a fairly expeditious manner.
And our next call obviously it would be early November so we thought given where we're tracking in 'twenty two plus the incremental hedging that we've been able to do for 23 through 25.
Our confidence level was higher than we wanted to keep the momentum in the market from a return of capital standpoint, So we.
We felt comfortable asking for the authorization and the board was August and comfortable approving it as a sign that the earnings power of this business has taken a material step up since early this year. When we saw the curve start to rise in April .
As far as the frequency of it I think it's a function of a number of factors. It's a function of what are the market opportunities from the capital standpoint that we could deploy.
In the base business.
We are obviously always even looking for upgrades in our own units, where we can bring in incremental megawatts for instance in ERCOT. We've operated in some of our units to capture some of the.
Some of the prices that we saw this summer. So there is on the margin there is opportunities to deploy on the base business small amounts of capital Mr. Zeroes, obviously something that could take.
To accelerate some with the IRR that we're talking about here, but I think your main thesis, which is as we get the line of sight.
Two of these cash flows 60% is still wellheads, but theres still plenty that's not hedged is that confidence builds we could continue to update the capital return strategy and that was the point, we tried to make in.
In our comments and I think we have to just see how the market curves on followed from this point forward in tandem with our hedging strategy.
Got it got it thank you for that and just on your hedging real quick I guess, obviously, the backdrop backdrops really strong theres some perpetuity to it I.
I guess why arent you just hedging everything at this point is it just that you can't given the liquidity out in 'twenty five.
Fuel hedging may be just a bit of a fundamental view here sure.
I think you hit a couple of the key points in Charlotte the market depth is not as great clearly out in 2025 as it is in 'twenty three.
The liquidity that we have while it has ample it does take more liquidity and reserves to be able to hedge that far out and so you can imagine we've got sort of.
A downward sloping hedge percentage, where 23 is hedged higher as we said over 80% 24 is less than that and then 25 is less than that it's also we do tandem hedging where we wanted to make sure that we've got.
Fuel to backup the hedging for our generation assets and some of the fuel procurement out that far in certain regions is not as steep and so we take all that into consideration and also we're not sure.
And some of these that full value is still realized these curves has moved up in 'twenty four 'twenty five.
But there may still be some room to run and so it's okay for us to have a little bit of exposure to that too got it and then lastly, Jim for me as you know one of your peers recently mentioned that they were considering maybe contracting for new build gas in ERCOT right.
Do you agree the market needs more do you guys have a fundamental view I guess over the next five years in Texas. The CVR says one thing, but the real time market says another thanks.
Yes sure Great question, Yes, it's actually hitting on the bigger topic about ERCOT.
Market reform and how as ERCOT going to sufficiently.
Incentivized not only the potential for new assets to come online that our dispatch of <unk> be it be it thermal or battery, but also retain the asset that it actually has on the grid network that were needed.
Multiple times from May through July .
As the market in the CVR indicates more intermittent resources are clearly in the Q and they've been coming at a fairly robust fashion, but that means that all the other assets are dispatching at times against marginal cost asset that could be dispatching at zero or even negative prices.
So I think ERCOT reform, if you're going to have to consider how does the revenue mechanism or dispatch of all assets have a factor that considers their availability and their reliability and.
That may be a payment mechanism, that's separate and apart from simply when you dispatch for energy purposes that hadn't been figured out yet.
I do think there is a worry that the only thing that has the incentives and that's primarily because the federal incentives to be built or more of the intermittent resources and I think policymakers are focused and interested in having the reliability that the dispatch of bowl asset spring. That's the focus of the study that the consultant.
Is doing on behalf of the public utility Commission, we believe that there needs to be a focus on reliability theres been a lot of focus on on the transition from an environmental and emission standpoint, but in many places around the country and the reliability aspect has not been the key area of focus I think Texas is focused on that.
That in Texas wants to solve this that might incentivize some thermal generation, but without that incentive it is hard to see that penciling now in our analysis and so potentially with market reform that might be something that would work.
Perfect. Thank you guys and Jim and Chris really huge congrats on the spot.
Sure. Thank you very much.
Okay.
Our next question comes from Keith.
Flashman with boot barn.
Please go ahead.
Yeah, Hey, good morning, I want to Echo my congratulations Jim and Chris.
So.
Just on the three and a half to $3 7 billion range between $3 25.
Is that an average over the three years or is that a range you expect each year.
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 ended up being.
Pretty similar.
Okay. So just I guess my next question was just going to be the shaping of the three five to $3 720.
'twenty three 'twenty four 'twenty five it sounds like.
Based on what you said, it's kind of.
Similar.
Each year.
It is now the good news is that 24, and 25 have continued to run out and find that that shape doesn't look flatter.
Last year for 23, so we won't capture probably as much upside of 23 were to continue to run with a 24 25 or two then you could absolutely see still.
Still upside in that slope actually shifting more to upward.
Yes, okay.
That makes sense. So is it fair to assume for 'twenty four 'twenty five year using.
Forward curves as they are right now for the open positions in those years or are you cutting some.
Just because so were you.
So we're using curves of $7 29.
As we refresh this analysis.
We have to take into consideration Steve some of the unknowns I mean, we we assume that some factors like coal constraints would have worked their way out.
More by 2025 and potentially the balance of 22 and 'twenty three.
So we have done and we've said this risk adjusted we have taken into account some risk adjustments as we think about this that's why we think the three five to $3 seven it's conservative, but 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, it is a conservative a conservative view on a risk adjusted basis.
Alright.
That makes a ton of sense. Thank you and then.
Just on the IRR.
Aside from potentially.
Potentially.
Improving returns for your <unk>.
Renewables opportunities any other.
Thoughts on implications for fish Crius it passes.
Yes, I think there are some I think obviously the most immediate ones would be on the renewables piece in the standalone batteries more than 60% of our discharge zero opportunity set is storage related and that was not attached solar in most cases to this.
Solar so standalone battery ITC is meaningful for us.
Carbon capture we have some assets that could be good candidates, that's a little bit farther out to be able to get the technology, but there's 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 a nuclear facility with Comanche peak, you've got not only the hydrogen incentives.
The production tax credit, which at today's curve 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 to 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 I can see so even if the floor is 40% to $44. That's a much more attractive place to put out.
An anchor for us.
Large carbon free asset like Comanche peak, so that's how we think about the IRA.
Okay and then one last quick question on retail.
Very strong quarter.
Quarter for you in terms of customer growth and the like could you just maybe give a little bit more flavor on the competitive dynamics youre.
Youre seeing in retail in Texas.
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.
<unk> had a really good run in the ERCOT retail business for well over a year now in the second quarter was.
What 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 Theres a lot of volatility our value proposition to our customers really shines because we forward buy sometimes the hedging and folks.
Wed 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 from 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 rig 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 channel strategy. It isn't just a game about pricing, but I think the platform that we have stability for customers is really attractive at least in these periods and it's showing up in the customer count.
Yes, Thanks, Jim.
Thanks for the question, Steve a little bit about market dynamics that we're seeing.
The market was extremely active in the quarter first of all with new transactions being up by about 19% and then were.
Due to capture more of that market activity.
We also saw a tremendous amount of leads coming into our call centers and our digital properties, which as Jim mentioned I think really speaks to the effectiveness.
Of the marketing and in times of volatility.
Customers that might be on a less known brand really come to brands that they know and trust in <unk> energy clearly clause in that category and then lastly, as Jim mentioned, we're really known for offering first of a kind mass market product offers in the market. We had the product we added market.
Summit was called ultimate summer passion into seasonal discount product that gives you percentage off during the summer and get because it was so hot that that particular product just really resonated.
With the consumers, but you know we have a lot of proven capabilities in terms of analytics and marketing and channel strategies and it really is just a focus on the customer experience and how we really try to be consultative with our customers and help them find the right product and right plan and it's really all contributed to our success.
But again thanks, thanks for the question.
Thank you, Steve I would just wrap by what Scott's comment by just adding debt. These.
These games are some of the best gains we've seen 14 15 years.
Competition has has has kind of windowed 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 stand alone and I think this is another case, where the integrated model has really.
Been able to show its its its effectiveness.
Steve.
Okay.
Your next question comes from David Arcaro with Morgan Stanley . Please go ahead.
Hey, good morning, Thanks for taking my question.
Maybe just a quick follow up on the on the inflation reduction Act.
Any any thoughts on the minimum tax and whether that could impact cash flow going forward.
Yeah, I'll comment and then I'll ask Chris to say a few words.
It could not in the near term, we don't see anything we still carry losses from Yuri.
And so this is going to be something that for book purposes.
To take a while to work out of.
So it went down the road as we think about what is our federal tax exposure.
It could increase it but it's not a near term kind of in the immediate vicinity of our planning horizon, but I'm going to let Chris comment further.
Thanks, Jim I think that's right.
Given the fact of the losses during Yuri and and those book losses, we don't see throughout the entirety of our planning horizon that that's coming.
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.
Okay, great that makes sense that's helpful.
And then.
There's been a lot of focus on.
Operations, just given how.
I'll take the ERCOT market has been wondering if you could just comment on kind of the current health of your fleet in ERCOT, how comfortable you're feeling as we head into August .
And whether there is just still kind of maintenance work that youre trying to chip away at or just help with the current state of the fleet is right now.
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.
I can't.
I'll get into the specific details of the financial impact, 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're following where basically every megawatt what's needed on.
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 are ready to go and of course, we'll use our weather.
Our weather forecasting as well as coordinating with ERCOT.
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 unique challenges in PJM that not fully offsetting by any means but just recognition that when you run a 40000 megawatt fleet theres 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 where needed and it was an exceptional performance by the aircraft fleet.
Okay, great really appreciate the color. Thanks, so much.
Yeah.
Our next question comes from Doug <unk> with Evercore ISI. Please go ahead.
Hey, good morning, and congratulations to you both.
I just wanted to.
Go back to the.
I am sorry, I was going to ask you a question about your debt to EBITDA metrics.
And obviously you know as of the second quarter Theyre kind of you've got some margin contributions there so they're elevated above the three times.
Target you have long term, maybe just can you talk to how do you see that trending over the next few years.
Should we expect them.
To kind of remain elevated given given the margin deposits or how should we think about those targets you know over the over the next 12 to 24 months. Thank you.
Sure, Yes your gas thank you.
In the deck, we tried to highlight.
The total debt numbers recognizing of course, we have cash on hand, and then we have a significant amount posted this margin.
Posits and of course as we operate our fleet.
And we serve customers we would expect this cash that's posted in terms of net margin deposits to come back into the system and we would use that obviously to pay down debt as Chris indicated.
In his remarks.
I believe that we're tracking and I think you'll see this in the chart I think we're tracking in the low threes.
Under normal course of operation here in the very near term.
If we have to keep posting margin that means that the curves are moving up and that probably means that our unhedged position us even more in the money and that's a good thing from an enterprise value for <unk>.
This growth so I think the most important thing that we've done and Chris have done an excellent job of doing this is securing ample liquidity, which I realized that you've read some announcements over time wondering.
What is the adequate amount to have and that's something we monitor every day and it's a function of how hedged are we what's the volatility in the market how far out are we hedging and if anything we're going to be conservative on the liquidity side and make sure that we are not paying down debt permanent debt any sooner than we should because we want them.
Sure that the liquidity is there to keep taking advantage of these market opportunities and so I'm going to ask Chris if he would like to add something.
Yeah. Thanks, Tim the only thing that I would add is that.
It's just the timing of which 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 it is.
As we perform in our units run so that's what gives us.
The ability to do it.
Confidently 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.
Got it thanks guys.
Thank you.
Our last question comes from Jonathan Arnold with what I think our research partners. Please go ahead.
Hi, good morning, guys.
Good morning, Jonathan.
So I guess just ask what I was going to ask one other thing I wanted to.
Just curious.
Mr Zero grows.
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. How are you going to call it out.
Just sort of back to the comment on.
Anticipating replacing EBITDA for retiree call.
With that portfolio over time.
Any sense of just sort of us tracking.
Tracking that we'll be able to do on that.
Yes, Great question, Jonathan I think I, even indicated earlier this year that we would envision providing visibility to that segment at that same time, we were focused on restoring lost 301 hundred because until we got these assets operating in the spring in Texas and got lost 300 100.
<unk> restored there wasn't a lot of operating EBITDA in district zero now that we have even those assets on the ground and operating with obviously MOF 300, 100, we have a material contribution for 2023, we see it in the ballpark of around $200 million coming from distress zero.
That's not a segment reported yet, but I see us getting to that segment reporting towards the end of this year and we just wanted to make sure. It wasn't it was meaningful Jonathan to go through that exercise at this point and we wanted to get the operating assets on the ground delivering and we've got that so I think you can expect to see more.
Visibility into that towards the end of the year.
Okay, Great. That's helpful. Thank you, Jeff and congrats to both of you.
Thank you Jonathan.
Yes. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jim Burke for any closing remarks.
I just want to thank you for taking the time to join us be with Chris myself and the management team. We are incredibly excited about where it is and we look forward to speaking to you again in a few months as we update you on our execution and our outlook for 2023 and beyond thanks again.
<unk>.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.