Q4 2018 Earnings Call
As the operator today at this time I would like to welcome everyone to the district Energy 2018 results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. Please press Star then the number one on your teller.
Phone keypad to withdraw your question press the pound key thank you Molly Sorg VP Investor Relations at Vista Energy you May begin your conference.
Thank you and good morning, everyone. Welcome to Vista Energy's Investor webcast discussing 2018 results, which is being broadcast live from the Investor Relations section of our website at Www Dot visitor energy Dot Com also available on our website are a copy of today's investor presentation, Our 10-K and the related earnings release.
Joining me for today's call are Curt Morgan, President and Chief Executive Officer, Jim Burke Executive Vice President and Chief Operating Officer, and Bill Holden Executive Vice President and Chief Financial Officer.
I have a few additional senior executives in the room to address questions in 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 two and three in 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.
Further our earnings release slide presentation and discussions on the call will include certain non-GAAP financial measures for such measures reconciliations to the most directly comparable GAAP measures are in the earnings release and in the appendix of 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 district energy turning to slide six I am happy to announce today. The district concluded the year reporting adjusted EBITDA from its ongoing operations of 280 9 billion results that are both.
Above consensus as well as slightly above our 2018 guidance midpoint of $2 8 billion.
When compared against our original 2018 guidance, which utilized October 2017 curves, we finished the year more than $180 million above the comparable midpoint.
Mr achieved these results through strong cost management across all markets, which helped to offset a relatively mild August in ERCOT.
In fact as you can see on the next slide.
<unk> finished 2018 $25 million ahead of plan on achieving its dynegy merger EBITDA value lever targets 20 million of which we realized in the year.
This relentless focus on cost management flowed through to various capital projects, we had forecast for 2018.
For operating teams exhibited meaningful capex spending discipline throughout the year, enabling <unk> to achieve ongoing operations adjusted free cash flow before growth of 161 1 billion results that were $61 million above the high end of our guidance range, reflecting an EBITDA to free cash.
Cash flow conversion ratio of nearly 60% for the year.
Since the close of the Dynegy merger in April of 2018, we have developed an understanding of the operations and maintenance expenses and capital expenditures necessary to maintain the fleet of generation assets that we project will allow us to uphold the spending discipline into the future.
Including the cumulative impact of the partial buybacks of the Odessa power plant earn out this drove adjusted EBITDA from ongoing operations would have been $2 $791 billion and its adjusted free cash flow before growth from ongoing operations would have been 158 9 billion.
As a reminder, when we executed the Odessa earn our buybacks, which we view as a growth expenditure the economic benefit net of the premium paid was approximately $25 million, which we largely locked in around the time that the buyback execution.
Before we turn to our Dynegy merger synergy tracking update I want to briefly highlight our recent retail growth initiatives.
As I am sure you are all aware earlier this month, we announced that we executed an agreement to purchase Crius Energy Trust, a retail energy provider with approximately 1 million residential customer equivalents in 19 states and the district of Columbia We.
We estimate the purchase at approximately four times EV to EBITDA and we project the acquisition will be immediately accretive to EBITDA and free cash flow per share the.
The transaction meets our internal investment return threshold and is expected to further improve our free cash flow conversion ratio as we estimate the creative portfolio will convert approximately 90% of its EBITDA to free cash flow.
As I'm sure everyone. On this call is also aware, we did increase our purchase price for <unk> due to an unexpected and hostile bid for the company.
While unfortunate, especially because this hostile bidder had an opportunity to be the successful bidder in the competitive auction process conducted by curious leading up to the signing of our agreement. We continue to believe curious is attractive to Vista at this new price point.
It is not our desire to get into a bidding war.
We have put in place stronger breakup protections and together with <unk> are moving quickly to obtain all necessary approvals.
Including the shareholders' approval to close the transaction both of which support our bid over any potential future hostile one.
Any hostile bidder that would step in to the process now would have to justify the higher price, including the increased termination fee and the delay in the approvals and overall closing timeline, a tough thing to accomplish in our view.
I would also like to emphasize that we're fully prepared to take any necessary legal action that we believe is available to us to defend our acquisition of <unk> against any efforts by the hostile bidder to disrupt and interfere with our acquisition.
Jim will provide more details about this transaction later on the call, but suffice it to say we are very excited about the quality of the <unk> portfolio and its strategic fit with our existing integrated platform.
Last I'm excited to announce that our retail team.
Grew organically residential customer counts in ERCOT by approximately 15000 customers. In 2018. This is the first year. The team has achieved net growth on an organic basis since 2008, a tremendous outcome for the team and further proof that our marketing programs and customer satisfaction.
And service efforts in the ERCOT market have been affected.
Let's now turn to slide seven for an update on our progress achieving the dynegy merger value lever targets on our last earnings call in November we increased our synergy value lever target to $290 million from $275 million and we increased our operations performance initiative value lever target to $2 75 from $200.
$5 million, we are reaffirming these EBITDA value lever targets today, anticipating we will achieve the full run rate of $565 million EBITDA.
Per year by the end of 2020.
I am happy to report as you can see on slide seven that we finished 2018 tracking ahead of schedule capturing these merger value levers realizing 195 million of EBITDA targets. In 2018 ahead of our initial forecast by $20 million, we achieved a run rate of <unk> $385 million by the end of 2018 $25 million ahead of.
Our planned.
<unk> as a result of our latest balance sheet optimization transaction that closed earlier. This month, we have increased our forecast annual after tax free cash flow benefits by another 15 million to $310 million. We continue to believe there could be upside to the $275 million op target. So stay tuned for further up.
Data on this topic in the second half of the year.
Moving on to 2019 as you can see on slide eight we are reaffirming our 2018 adjusted EBITDA and adjusted free cash flow before growth guidance for our ongoing operations. We are calling 2019 the year of execution as.
As we complete the full integration of Dynegy merger and capture the value levers implement our capital allocation plans and hit our targeted numbers of course closing and integrating <unk> will be important as well.
We do not expect to update 2019 guidance to reflect the pending crius acquisition until after the acquisition closes, which we estimate will be in the second quarter of this year, perhaps even as early as April .
Given that the greatest unit holder vote is scheduled for March 28, and as I mentioned earlier. The teams have already filed for the regulatory approvals, we do not expect any issues with obtaining regulatory approvals from the Doj or FERC.
Importantly, our 2019 ongoing operations adjusted EBITDA guidance range of $3 two two to 342 billion and our 2019 ongoing operations adjusted free cash flow before growth guidance range of two 1% to $2 3 billion represent a free cash flow conversion ratio of approximately 66 six.
6%.
As Bill will discuss later, we are significantly hedged in 2019 and have materially increased our hedges in 2020, we purposely have dry powder available in ERCOT in 2020, given our expectation that the more significant move in ERCOT prices due to the <unk> D. C change will occur in that year.
I have said it before and I'll say it again, the 66% free cash flow conversion ratio is a highly attractive feature of our company and significantly higher than that of other commodity based capital intensive energy industries. As a result, we continue to believe that Vista is valuation should shift away from the historical EBIT to EBITDA multiples.
Which no longer reflect the value proposition of the sector toward our free cash flow yield valuation metric at a proper yield we believe our future valuation will eventually reflect this new reality as the financial markets continue to gain confidence in the new integrated power company model with the attractive features of low leverage low cost.
<unk> and industry, leading retail operations paired within the money generation, all leading to relative earnings stability.
Beyond 2019, we anticipate our integrated business model will enable us to continue to realize relative earnings stability. As we are expecting 2020, adjusted EBITDA to be approximately flat to 2019, our expectation for generally consistent adjusted EBITDA year over year is a marked improvement from Dynegy is pre merger forecast which reflect.
Declining EBITDA in 2020 in 2021, due principally to lower capacity revenues in PJM.
Through curve improvements changes to the operating reserve demand curve in ERCOT and enhanced management expectations for merger value lever achievement. The previous Dynegy declining EBITDA forecast now reflects expected EBITDA strength and stability.
In the near term, we are continuing to focus on achieving our financial and leverage targets, returning capital to shareholders and meeting or exceeding our merger synergy targets.
As it relates to returning capital to shareholders. Our capital allocation plan remains on track as of February 15, we had executed a total of $937 million of our aggregate $1 75 billion share repurchase program authorization slightly ahead of where we thought we would be at this point in time.
Because market technicals gave us an opportunity to repurchase shares at an attractive price at the end of 2018, we.
We now have 486 million shares outstanding as of February 15th a 7% reduction as compared to the number of shares outstanding at the time, the Dynegy merger closed with $813 million still available for opportunistic repurchases on the program under the program. So long as our stock is trading at such a high free.
Cash flow yield and what we believe is a meaningful discount to fair value. We expect we will continue to allocate capital towards share repurchases.
We also announced earlier this week that our board has declared <unk> initial quarterly dividend of $12.05 per share or <unk> 50 per share on an annualized basis. The dividend is payable on March 29, 2019 to shareholders of record as of March 15 2019.
Management expects to grow the dividend at an annual rate of approximately 6% to 8% per share.
As a reminder, the payment of the dividend of this size represents just more than 10% of <unk> forecast 2019 free cash flow before growth from from the consolidated business and less than 35% of forecast 2019 free cash flow before growth from our stable retail operations, we believe our targeted 6% to 8% per share dividend growth.
Rate is supported by our projected free cash flow, including tuck in EBITDA growth initiatives, such as our recently announced Moss landing battery storage project and the <unk> acquisition importantly, the Crius acquisition is not expected to delay this or as achievement of its long term leverage target of two five times net debt to EBITDA.
By year end 2020.
Balance sheet strength is a core tenet of <unk> operating model and we plan to manage our business and cash flows accordingly.
We believe the execution of our diverse capital allocation plan will continue to attract new long term investors, while providing our shareholders with an attractive total shareholder return over the years.
In fact, we now consider 15 out of our top 20 shareholders to be long term investors and Vanguard and fidelity are now our second and third largest shareholders, respectively, replacing Apollo and Oaktree.
Before I turn the call over to Jim to discuss highlights of our planned Crius acquisition I would like to spend a few minutes, giving a market update in January the public utility Commission of Texas approved important updates to ERCOT scarcity pricing formula known as the operating reserve demand curve or the <unk>.
The update simplified the <unk> D C from 24 different curves for different seasons, and time of day to a single curve and shifted the loss of load probability by a half of a standard deviation in two steps a quarter of a standard deviation in 2019 and another quarter of standard deviation in 2020.
What all this means in plain English is that the market participants should expect to see modestly higher prices during peak periods as the scarcity pricing formula should know better pricing and the risk of load shedding events.
The goal of the market changes was twofold to better reflect significantly higher reliability risks in the market.
As well as to provide better price signals with an aim to help avoid additional retirements from marginal generators and to support new investment in generating capacity.
We are fully supportive of the market changes as ensuring ERCOT has sufficient generating capacity to meet texan's demand for electricity is critical to the reputation of the growing Texas economy, we estimate the potential impact of these changes to the around the clock forward curves could be approximately two to $3 per megawatt.
Our 2019 and approximately three to $4 per megawatt hour in 2020 modest overall increases in price that should support generation investment in the market, while not meaningfully increasing the price of power to Texas consumers. It is difficult to estimate the potential impact of these changes to district as it is <unk>.
<unk> to discern how the forward markets have already responded and will react in response to the new market design.
Assuming the market fully values the impact of these changes and appreciates the risks inherent in the tight reserve margins margins forecasted we expect Vista could see upside in 2020, where we are much less hedged than in 2019. In fact, some of the improved 2020 outlook that flattens EBITDA is due to the <unk> improvement.
We have hedged some of our open position as we believe the 2020 forward curve has moved up in anticipation of the Puc's.
Potential action, especially prior to the action as there was speculation of a larger move.
We believe this action by the public utility Commission of Texas was a necessary step to ensure the long term success of the Texas competitive electric market and we continue to like our meaningful position in New York up market, where we forecast we will derive more than half of our EBITDA in 2019. It is the right move balancing the need to support new and existing assets.
And cost to customers with the end result of maintaining a healthy supply demand balance.
Another market update has occurred since our last earnings call. The clearing of the most recent ISO new England capacity auction. This year's auction cleared at a price of $3 80 per kw month down from $4 63.
And the last year's auction, despite the lower priced district cleared nearly 500 more megawatts in the current auction, making the estimated negative impact of <unk> of the lower clearing price approximately $60 million or less than a half a percent of <unk> forecast 2019, adjusted EBITDA from ongoing operations, while the lower clearing price in the Oct.
It's certainly not ideal it is relatively immaterial to Vista, given the diversity of our revenue sources from energy capacity and retail in multiple competitive electric markets across the U S.
More fundamentally we continue to be confounded that anyone will be able to raise capital to finance a new gas plant in ISO new England at a capacity price of only $3 80 per kw month as many of you know a new 650 megawatt combined cycle plant cleared the latest capacity auction for calendar years 2020 in 2023.
I cannot emphasize this point enough since the restructuring of the power markets began in the late 19 nineties, we are hard pressed to find merchant power plants, where the original equity owner received an adequate return and many suffered financial distress and bankruptcy rather it is the developers who earn sizable upfront fees to site permit and construct.
New thermal resources that make money, leaving the third party debt and equity investors owning an uneconomic asset.
One can only hope this reality will start to sink in with the financial community, so debt and equity investors stop making irrational investments like this latest gas plant slated for development in ISO New England. Our analysis suggests that the entire equity and likely some portion of the debt will be underwater the day. The ISO new England plan is put into operation if it ever is.
In our view something is wrong with the market design that allows a plant like this to clear and suppressed prices with a high probability it never gets built.
The last relevant market update is of course, the status of the pending PJM capacity auction reforms. Unfortunately, we don't have much to say on this topic as the Devil will really be in the details. After we hear from FERC. However, we continue to believe the outcome of any capacity market reforms will be at worse neutral to the current state recall.
And then in June of 2018, FERC labeled the existing PJM capacity auction is unjust and unreasonable given the impact of subsidized resources have on the auction as a result, it would it would seem very counterintuitive.
To Ferc's original intent to land at an outcome that is meaningfully worse for existing generators history tells us that FERC has consistently promoted balanced market reforms that support competitive markets, which by the way is their first order of priority despite political affiliation.
States can formulate their own energy policy, but they cannot destroy competitive markets in doing so.
Like all of you we are anxiously awaiting ferc's decision on this issue and remain cautiously optimistic for a constructive outcome.
We continue to believe that Vista will be in a position to provide relatively robust and stable earnings in the years to come given our strong balance sheet low cost integrated operations and the money generating fleet and market, leading retail operations, which are about to become even more diverse with the closing of the pending Crius acquisition.
On that note I will turn the call over to Jim Burke to talk a bit more about the crius transaction.
Thank you Kirk turning to slide 11, as you can see from the high level bullets on the slide.
We're excited about the strategic fit of the <unk> portfolio.
<unk> existing retail and generation platform.
Importantly, as Curt mentioned at the beginning of the call. We believe the economics of this transaction are very attractive exceeding our internal investment threshold and valued at approximately a four times enterprise value to EBITDA multiple pro forma for the full run rate of forecasted synergies in fact as a national integral.
<unk> power company with generation and retail assets in multiple states Vista is uniquely positioned to create value with the <unk> platform.
We project, we'll be able to achieve approximately $15 million in annual EBITDA synergies and approximately $12 million in additional annual free cash flow synergies. Following the closing of the transaction. The acquisition will also accelerate <unk> previously announced organic growth strategy.
Enabling us to forgo approximately $29 million of expenditures through 2023 from this effort.
The actual benefits aside we are particularly excited about this transaction as a result of the quality of the portfolio, we will be acquiring.
The curious portfolio has recognized established brands market, leading attrition rates.
Demonstrated track record of successful customer acquisition through multiple sales channels the portfolio complements <unk> long generation position in the Midwest and northeast markets and as just mentioned will accelerate our data growth strategy. In these regions. In addition, the composition of the portfolio was largely residential and small business.
<unk> should command a higher multiple due to the inherently higher margins in these segments, let's dive a bit deeper into some of these points on the next slide.
<unk> with its approximately 1 million residential customer equivalents.
Demonstrated success with its high growth high margin retail strategy, focusing on higher value residential and small business customers Korea has an impressive track record of new customer gains through various sales channels across multiple brands and its attrition rates are the lowest among peers in the markets where it operates.
<unk> has been successful as customer acquisition and retention efforts as a result of leveraging its diverse sales channels and exclusive partnership strategies.
These partnership strategies are primarily executed through its energy rewards platform, where Korea as partners with established providers to cross sell its retail electricity offerings.
These integrated energy platform offerings will expand <unk> existing sales and marketing channels enhancing its strategic fit with our organization.
Following the acquisition <unk> will have a retail presence in 19 states and the district of Columbia with dual energy market offerings in many states as you can see on slide 13. This rule will now have a retail gas product portfolio in 13 States, which we believe will be a great addition to our existing operations retail gas tends to have.
Similar margins as electricity.
Gas customers tend to be a bit stickier as bill size is often meaningfully lower in this segment due to lower overall volumes being able to sell a customer to services electricity and gas leverages the cost of acquisition by adding incremental margin to the customer relationship.
In addition, retail gas is a naturally synergistic business for Vista as we are already one of the largest purchasers of natural gas in the country.
To give you a bit of background on how the retail gas business work. The local utilities are responsible for ensuring that natural gas can be delivered to residents in their service territories.
As a result, the local utilities contract for the necessary gas pipeline and transport capacity as well as for local gas storage and allocate the applicable transportation and storage assets to entities, providing our retail gas product to the end users.
Mr. Therefore will only be responsible for procuring and delivering the actual commodity which is very easy for us to do in an affordable manner. Because we already are a bulk purchaser of natural gas necessary for the operation of our gas plants.
In short, though the retail gas portfolio is only approximately 15% of the Korean retail business by volume, we find it to be a nice strategic fit for our organization and we are excited to meaningfully expand our retail gas operations at the transaction close finally, one of the greatest benefits.
The <unk> transaction that the incremental retail load district will be acquiring which meaningfully improves our expected generation to load match, including in default service load Vista has contracted we forecast we will be nearly 50% matched in 2019 with approximately 90% of that forecast load being sold through.
Our preferred retail channel.
As we depict on the right hand side of slide 14, our commercial team can sell this for as long generation through three primary channels there.
Directly to one of our retail subsidiaries to utilities and default service auctions or directly to third parties in the wholesale markets of.
These channels, we prefer selling are linked directly to our own retail subsidiaries as we are able to eliminate transaction cost leakage on the bid ask spread and reduce the total cost of collateral postings.
Other sales channels are effective, but marginally less attractive with sales through default service auctions and third party sales in the wholesale markets being the next most attractive channels in that order.
The incremental load we will be acquiring with the <unk> acquisition is primarily located in the Midwest and northeast markets, which is exactly where we are planning to focus our organic growth efforts, giving us established brands sales channels and infrastructure as a platform for this organic growth.
Over the last several weeks of this current management team has been working diligently with curious to ensure a smooth transition.
As our teams have continued to interface and share best practices, we're even more excited about this transaction.
Investor teams emphasize a high performance culture with a primary focus on the customer I have no doubt. The curious operations are the right fit for our organization and I look forward to announcing a closing of the deal hopefully in the second quarter I am hopeful we can quickly closed the transaction to avoid any further disruption that has the potential to erode the value.
Of the business I will now turn the call over to Bill Holden to cover fourth quarter and full year financial results. Thank.
Thank you Jim.
Turning now to slide 16.
As Curt mentioned district concluded 2018, delivering 280 9 billion of adjusted EBITDA from our ongoing operations.
These results reflect a full year of operations from legacy Vestra and results from the legacy Dynegy operations for the period from April nine 2018 through December 31 2018.
Including the negative $18 million net impact of the partial buybacks of the Odessa power plant earn out that we executed in February and May.
Adjusted EBITDA from its ongoing operations would have been $2 79 1 billion for the year.
This drove strong results coming in above consensus and just above the midpoint of management guidance were directly.
<unk> attributable to robust cost management across all markets.
Setting a relatively mild August in archive.
Retail also exceeded management expectations for the year, driven by residential customer count growth and margin and cost management.
For the full year <unk> exceeded expectations due to favorable prices higher generation volumes and lower SG&A expenses. While PJM was also favorable as a result of the net coal plant retirement and subsequent move to the asset closure segment.
This sort of 2018 adjusted free cash flow before growth from its ongoing operations was 161 1 billion.
Which as Carl mentioned at $61 million above the high end of managements prior guidance range.
The favorable results are primarily attributable to capex spending discipline during the year.
Including the negative $22 million net impact of the partial buybacks of the Odessa power plant earn out.
<unk> 2018, adjusted free cash flow before growth from its ongoing operations would have been 158 9 billion.
For the fourth quarter of 2018, adjusted EBITDA from its ongoing operations was $719 million or $721 million, including the positive $2 million net impact of the partial buybacks of the Odessa power plant earn out.
Both segment results for the quarter can be found on slide 22 in the appendix.
As Curt mentioned that today, we're also reaffirming our 2019 guidance ranges and we still believe 2020 adjusted EBITDA from ongoing operations is tracking relatively flat to 2019.
Our confidence in our 2019 guidance ranges and the improvement in our 2020 outlook is due in large part to the incremental hedges we have added for those years.
As you can see on slide 17, and 18 as of December 31, 2018, we were largely hedged for 2019 in our core markets of ERCOT, PJM, and ISO New England and.
And as of last week, we are nearly fully hedged in these markets for the year.
Similarly as of December 31, 2018, we were largely hedged for natural gas and archived in 2020, and we improved our ERCOT heat rate position to 42% from 28% at September 30.
Also in the fourth quarter of 2018, we improved on New York, New England, and PJM hedged percentages by 8% and 32% respectively.
As our commercial strategy is to take advantage of the volatility in forward curves to hedge at prices that are at or above our fundamental point of view, we have improved the 2020 hedge percentages even further in the first two months of 2019.
With that operator, we're now ready to open the lines for questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your first question comes from the line of Greg Gordon with Evercore ISI, Greg Your line is open.
Thanks, Good morning.
Hey, Greg.
Sorry, I did hop on the call just a tad late silver I'm asking you. A question you already answered my apologies when you talk about the <unk>.
Upside that you think you see in <unk>.
From the change in the <unk>.
Rules, how much of that do you think is already priced into the curves and how much of that do you think is needs to be sort of validated by.
Volatility that we might see this summer that would cause the curves move.
The move to where you think intrinsic values.
Yes.
Maybe more than you are.
Mortgaging forward.
Think it's worth just talking about how the curves have moved Greg because.
Back after the summer we came out there was a lot of chatter about needing to.
Needing to improve the or D C or some other reform as you may recall.
And then there was chatter out there.
Maybe a one standard deviation move.
No discussion about whether it would be a single curve or the 24 curve but.
We were pretty certain at that point in time, some some amount.
That was factored into the curve I think people felt like there was a high probability that something would get done.
We took some advantage of that.
Scott.
Steve has gone out here.
Yeah. This is Stephen Scott.
The way the way to think about it is yes, we do hold back some generation for basically potential outages or weather changes that make our load move.
Move up pretty rapidly with temperature.
The way to think about it is is it gives us the opportunity to capture any deviations between the day ahead in a real time, because it's the day ahead clears at a particular level. We could typically cover are low changes in the day ahead, which then gives us a lot of that open generation for changes in the real time market. So that we can we just.
Greg just ask Elizabeth what the civil question in our heads percentage does it include the the.
The 12 50 in it so that open position or not and I think it dug the thing is that it doesn't have any openings. So great. Just asking you that against that because you know you've got this hold back and it does include it.
And is it okay. If you have it's clear guys Greg. Thank you.
Yep.
Yeah, one other thing just to tell you we've sort of purposely held some open here in 20.
I think you probably picked it up from what I was saying is that we think there's room to move pretty significant room to move and 20.
We don't see it's hard to see that much.
Newbuilds coming on and and between now and 20, So and we're also don't think that the market is fully absorbed the O. R. D. C effect, but we do think there are some movement and so that we have we're we're kind of sit in a little bit on 20.
Curves move you should expect us and they move up you should expect is probably to take some more off if they don't then we're going to be patient.
Great. One more quick question for you it might be a curve ball because I don't know if you've probably didn't see it but NRG and they're released this morning talked about how they are they are reducing their net debt to EBITDA target.
Between 2.5 and two point.
Seven five so they are coming down to sort of where you guys already are in terms of your net debt to EBITDA aspirations and.
They are explicitly targeting eventually getting to an investment grade credit rating. So can you just reiterate because it seems like it.
People have been pushing you in the past sort of why don't you go towards NRG and go to three times and buy back more stock, but now it seems like nrg's figured out that they need to come in your direction. So can you just reiterate what your aspirations are in terms of capital allocation.
Credit metrics and do you aspire also to ultimately get to I G.
Yeah. So the first thing I'd say is <unk>.
Imitation is sincerest form of flattery.
So, but but more importantly into the point, we've been pre we've been pretty steadfast and we did move and you know this we did move getting to two five times.
A year, because we felt like just where our stock was trading.
Made sense to reallocate capital in 2019, and so we did do that but we are absolutely committed two and half times and we believe I think it's going to take time.
I think the first step is actually to get an upgrade from where we are today I think.
That's squarely in our sides and I think we executed that will happen and that will then lead us to the to the position where we can get investment grade, we do want to get to investment grade.
Credit spreads at least today, probably don't say that that's something that's a big deal, but it's not about there I think it would be good for the equity and it also would open up opportunities on our commercial industrial retail business.
At times, we have to sleep or we may not even get to see the business. So there's a visit business proposition in here and I think the reason one of the reasons I believe we have such a high free cash flow yield is the risk premium in our business I think that has been driven in the past over overtime, because I'm carrying too much leverage.
And there was the risk of financial distress and these stocks and I think we want to put that completely in our rearview mirror and I think two five times as of right place to get to have that discussion.
The agencies and then we'll see what we do from there, but we feel like given the metrics at that at two five times and just the absolute level of that it just it feels to us like that's the right place to be in order to have a serious discussion about investment grade.
Alright, and then that drives a lower free cash flow yield at a higher share price. So that's sort of the magic potion of.
Yes exactly right.
Yeah.
I've taken way too much time, guys I'll go.
I'll hop off thank you.
Right. Thanks, Greg.
Your next question comes from the lineup eight as Arafat touch back at your line is open.
Good morning, congratulations on a successful year.
I think that.
Any thoughts on.
Timing of refinancing the rest of the high cost legacy Dynegy debt.
Key dates to focus on where some of that that becomes callable.
Yet.
So I think in terms of just refinancing.
The two new bond issues that we did.
And covered most of the amount that we would need to refinance with with new money at lower cost.
So the remaining amount of the debt reduction.
Are the lion's share of it will be done with redemptions from cash.
I think you can look at when the redemption premium step down.
I think a large number of some of those are in November each year.
We would do the math when we when we're planning getting close the redemption days about whether it makes sense then do it earlier wait until the step down in the redemption.
But I think we've laid out in the cap table.
At the end of the presentation that planning to do about $800 million. This year and then the balance.
To get to the 2.5 tons of.
2020.
Got it.
And then can you provide an update on the status of the most lending buttery one was spending supposed to ramp up in.
Is there something you're waiting for before putting capital to work there.
Yeah. So a good question as you know that's a bit of a.
Fluid situation and.
And with the Nextera sort of throw in the the.
It seems an R and bankruptcies in our sector. There is an obligatory federal versus state site that always seems to go on for versus the state.
Kind of.
Loads of things down.
And it's created what I would say just a little more hair on how PGN. He wants to proceed but what I can say because we're we're in constant contact with these guys as well in the state wanted this project number two the CPUC.
Approved it and number three it doesn't suffer from what others have which is not wildly out of the money in fact.
It was it was by far the lowest cost deal because of the Moss landing site. So there's no mark to market gained by rejecting the contract.
And so what we're hearing for PGD is full steam ahead, what the real question is is when are they going to assume these types of contracts and they're a little concern.
I believe in how they're going to handle that given this jurisdictional issue with Burke and the battle is going on there. So we're moving forward and we we talk to them they want to move forward in the contract.
We still have a valid contract it's not been rejected the question is when will it be assumed.
And we're hopeful that sooner rather than later I think what we have to remember is that we do have a contractual commitment here and then we have to weigh the odds of whether it would ever be rejected and at this point in time, we feel like it's an extremely low probability that it would be rejected given the discussions that we've had directly with.
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Got it thank you yes.
Thank you.
Your next question comes from the line of Papo made out with Citigroup passenger your line is open.
Thanks, how much hi, guys.
Hey profitable.
Okay. So just following up on most landing it doesn't sound like the decision to reject or assume is going to be taken any time soon because they probably have to figure out what the exit looks like it could take time, let's just put it that way. So if it does take time is the assumption that you would continue on the current.
Of course, assuming that it will at some point get assumed or do you have to hold and wait for the decision, which could slow down the entire process.
Yeah. So.
Because we are inactive discussion TJ any I don't feel like.
Like it would be fair for me to have that discussion, but I think your observations are correct. That's what I was trying to convey and it'll be just very direct about it.
The assumption of contracts could could be pushed out.
And we have a a contract right now.
Only thing that would change that as if it was rejected I think the likelihood of that is very very low and so will work with our board and will work with P. Janie when we get to the point, which is going to be in the April debate late April may timeframe, where we would have to actually sign the big contracts for the equipment.
And this winter compared to what you've seen historically during cold snaps like if you look at 2014 as an example, and that that decline in volatility is participating through.
The market and a big reason for it was there was some LNG tankers brought in.
At the Gateway terminal outside of Boston, So, it's something that we have to monitor from year to year how.
How LNG impacts that market and perceptions and how it's going to impact and the only thing I would just add onto a stage said some of those price increases or an off peak hours, which has affected the dispatch and to the extent, we dispatch more in the off peak.
It lowers the average realized price because.
Run that we're earning margin, but we are running more at a lower price hour.
Got it alright excellent and then lastly, just real quickly on on the Illinois situation.
Obviously somewhat dynamic and fluid here given the M. P S and the prospects of legislation and your own process on examining the portfolio can you give us a little bit of a more of a Samsung timeline and then what the potential combinations here are I. Suppose legislation is is probably at some point during the session. This year mps's.
At some point this year question, Mark, but just help us understand your decision tree if you will.
Yeah. So.
Good question.
Yeah, I think you guys know that there is a new administration in Illinois.
They side onto the Paris, a core he made a big announcement on that.
The the Governor had has asked us.
At least that's our understanding through the Illinois EPA.