Q1 2023 Vistra Corp Earnings Call
Good day and welcome to the first quarter of 2023 results Conference call.
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At this time I would like to turn the conference over to Megan Horn Vice President.
Relations. Please go ahead.
Good morning, and thank you all for joining that stress investor webcast discussing our first quarter 2023 results. Today's discussion is being broadcast live from the Investor Relations section of our website at Www Dot Dot Com. There you can also find copies of today's investor presentation, and the earnings release, leading the call today.
Jim Burke, President and Chief Executive Officer, and Christian I'll, then as far as the executive Vice President and Chief Financial Officer, They're joined by other distressed senior executives to address questions. During the second part of today's call as necessary.
Earnings release presentation, and other matters discussed on our call today include references to certain non-GAAP financial measures reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the Investor presentation available in the Investor Relations section of Ncr's website.
Today's discussion contains forward looking statements, which are based on our substance we believed 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 I encourage all listeners to review the safe Harbor statements included on.
On slide two of the Investor presentation on our website 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.
Thank you and I will now turn the call over to our president and CEO of timber.
Okay.
Thank you Meghan good morning. Thank you all for joining our first quarter 2023 earnings call I.
I will begin on slide five.
We entered the year focused on our four strategic priorities and we are making great strides first our integrated model continues to demonstrate its value and effectiveness.
As you probably recall, we spent a majority of 2022 executing on our comprehensive hedging strategy that we said it was locking in earnings opportunities for 2023 through 2025.
We utilized available liquidity last year to support their strategy as we believe the additional EBITDA opportunities were significant.
This first quarter of 2023, we saw this strategy translate into real value as mild weather was experienced across the major markets in which we operate which led to lower than expected cleared power prices.
While we saw power prices cleared approximately $30 a megawatt hour on average our first quarter results reflect the realization of average prices of around $45 per megawatt hour given we were highly hedged entering the year.
In addition in the outer years, where we have been more open we have seen prices and spark spreads increase as compared to this time last year.
We have continued to opportunistically hedge to secure an increasing out your earnings potential. We believe this is important not only because it provides an enhanced resiliency of our earnings profile, despite an uncertain commodity market.
But also because it ensures we can deliver on our commitments to reliably serve our customers consistently returned capital to shareholders maintain a strong balance sheet and transform our fleet as we strengthen our position for the long term.
Second our return of capital to our shareholders remains consistent and robust Chris will provide a detailed update on our capital allocation plan in just a moment, but I want to highlight that of the aggregate four point to $5 billion share repurchase authorization. We have returned approximately $2.7 billion to shareholders.
From November 2021 through May four 2023.
Additionally, we are on track to pay $300 million in common stock dividends in 2023 as planned with our board approving a second quarter dividend in the amount of 20.4 cents, representing an approximately 15% increase over the second quarter dividend paid in 2022.
The share repurchase program together with the structure of our dividend plan work in tandem to provide our shareholders with the expectation of dividend growth each quarter as the aggregate $300 million in annual dividends is spread across a decreasing number of shares of district common stock.
Third we continue our focus on our strong balance sheet.
As we see margin deposits return, we are positioned to utilize that cash for opportunistic delevering and or to reduce the amount of debt. We expect to incur to close the energy Harbor acquisition, we announced in March of this year.
While the first quarter is typically the lowest free cash flow quarter for Vista.
We were able to repay approximately $500 million of short term debt.
Of course, we're expecting our net debt balance to grow over the balance of the year to fund the energy Harbor acquisition, which we expect to come with a significant amount of EBITDA, but we remain focused on our goal of a long term net leverage ratio, excluding any non recourse debt at Vista zero of less than three times, which we expect to achieve.
And the 'twenty 'twenty four 'twenty 25 timeframe.
Finally, we are very excited about our announcement just two months ago regarding the acquisition of energy Harbor, which is expected to close later this year with this acquisition our nuclear fleet will grow by an additional 4000 megawatts in PJM, which will more than double the zero carbon generation, we have online today.
Turning to slide six I will discuss this quarter's results, we achieved $554 million of ongoing operations adjusted EBITDA strong operational performance and our robust hedging activities helped offset milder than normal weather throughout the U S. Our retail and generation teams continued their strong.
Long operational performance with retail achieving growth in ERCOT customer counts, while maintaining attractive margins in our generation team delivering commercial availability of 97%, while maintaining the focus on safety. The generation team has operated over three years without a significant injury across a large and diverse.
First fleet and safety remains our number one priority.
Looking ahead for the remainder of the year, we are confident in our ability to meet or exceed the midpoint of our 3.4 to 4.0 billion dollar adjusted EBITDA from ongoing operations guidance range for 'twenty twenty-three as we announced in the third quarter of 2022.
We're also reaffirming our 1.75 to 2.35 billion dollar adjusted free cash flow before growth from ongoing operations guidance range.
Of course with nine months to go in the year, including the important summer months, we believe it would be premature to narrow or otherwise adjust our guidance range for 2023.
Chris will cover in more detail, while we remain bullish on our opportunities in years ahead.
Before I wrap up and turn the call over to Chris to discuss the first quarter's performance in more detail I want to provide a quick update on the status of our energy Harbor acquisition as noted on slide seven we have filed approval request with each of the three key agencies and anticipate receiving all needed approvals and time to close by the end of this year.
As a reminder, we've committed bridge financing in place in an amount sufficient to close the transaction, but we do expect to replace the entirety of our bridge commitments with permanent financing between now and closing.
Finally, I think it's worth noting that as we have seen out year forward price curves improve our financial forecast for energy Harbor has also improved in the out years previous estimates we shared in March indicated average adjusted EBITDA midpoint opportunities for 'twenty 'twenty four through 2025 of approximately 900 million.
With adjusted free cash flow before growth opportunities at a 65% to 70% range.
This is inclusive of synergies and on an open pretax basis.
Given recent price curves, we see the average adjusted EBITDA midpoint opportunities from energy Harbor for 2026 and beyond to be higher than this original estimate we expect that we will provide more detailed adjusted EBITDA and other financial projections for the combined company closer to closing or just.
After Chris I'll now turn the call over to you.
Thank you Jim starting on slide nine Mr delivered $554 million in ongoing operations, adjusted EBITDA, including $583 million from generation and a loss of $29 million from retail.
Generations results were strong despite the significant impact of milder weather and pricing primarily driven by in the money settled hedges opportunistically backing down generation at times when prices were below unit cost and the recognition of the net bonus position in PJM for winter Storm Elliot.
Those benefits were partially offset by headwinds for the quarter that were known at the time guidance for 2023 was set including default service migration cost and lower PJM capacity revenues as well as entry your impacts relating to timing of hedges and opportunistic acceleration of planned outages into the first quarter.
While retail was also impacted by mild weather. It is important to note that due to strong counts and margin management. The results for retail for the first quarter or in the range of what we expected coming into the year given the entry year shaping we continue to see due to higher power cost in the winter and summer months, we anticipate substantially all.
All of the ongoing operations adjusted EBITDA for retail to be achieved in the second and fourth quarters.
Accordingly, we are confident in our ability to meet or exceed the midpoint of the $905 million to $1.065 billion range of ongoing operations adjusted EBITDA for retail that we announced on our third quarter 2022 call.
Turning now to slide 10, I'll share a quick update on capital allocation as of May 4th we have executed approximately $2 $7 billion of share repurchases since the beginning of the program in the fourth quarter of 2021, we.
We expect to utilize the remaining approximately $1.55 billion of authorization by year end 2024, with at least $1 billion of cumulative repurchases expected in calendar year 2023 as originally planned.
Notably as of May 4th our outstanding share count had fallen to approximately 373 million shares.
Significant reduction of approximately 23% from the aggregate number of shares are outstanding when the program started in November 2021.
As a result of our robust and consistent share repurchases, our dividend program of approximately $300 million per year or approximately $75 million per quarter continues to result in significant growth in the dividend per share received by our shareholders to.
To that end the second quarter of 2023 common stock dividend of <unk> 24 cents per share, which is payable on June 30 of 'twenty to 'twenty three is approximately 15% higher per share as compared to the dividend paid in the second quarter of 2022.
While we remain committed to consistently returning capital directly to our shareholders. We also remain steadfast in our commitment to a strong balance sheet. Accordingly, we continue to target a long term net leverage ratio, excluding any non recourse debt at Mr zero of less than three times.
Finally, our victory zero growth remains on track, we have allocated over 90% of the net proceeds from the December 2021 green preferred stock issuance and are focused on securing nonrecourse project or portfolio level financing to among other things support the growth capex needs of the company.
We anticipate the first such financing to be in place no later than the end of this year.
Turning to slide 11, we provide an update on the out year forward price curves as of May 4th.
As you recall, we announced last year in the first quarter call that we estimated a range of 3.5 to $3 $7 billion, but potential ongoing operations adjusted EBITDA midpoint opportunities for years 2023 through 2025 based on April 29, 2022 curves, while we do not expect.
Update this range before initiating guidance for each applicable year, we did want to note that we currently believe there is upside to the range at each of 'twenty 'twenty four 'twenty 'twenty five and now 2026 in light of the higher prices in our primary markets and the continued execution of our comprehensive hedging program.
That is now hedged 2023 through 2025 at approximately 86% on average across all markets.
With the balance of 2023 hedged at approximately 99% in 2024 hedged at approximately 96%.
As you would expect 2026 is significantly less hedged, which creates a significant opportunity, but also a wider range given our open position.
We remain committed to executing against our 2023 strategic priorities and translating that success into shareholder returns. We look forward to updating you on our progress on our second quarter call.
With that operator, we're now ready to open the line for questions.
We will now begin the question and answer session. As a reminder to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
He was part of your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Shar <unk> with Guggenheim Partners. Please proceed.
Hey, good morning, guys.
Good morning, Shar good morning sure.
Good morning, Good morning, I think you sort of touched on this quickly, but you know I guess, what point could you revisit and update the two year commentary you guys had been providing and then obviously those numbers had been floated around.
First in 'twenty, two I guess, what kind of O&M inflation is embedded in those maybe put differently. We've seen a few of your peers kind of flag strong.
Increases in O&M costs as of late so I guess, what are you guys seeing in those numbers as well thanks.
Yeah sure.
Excuse me this is Jim Thanks for your question Jim.
Was it a two year if I understood. Your question to two your view you're speaking to is about 24 and 'twenty five.
And as you noted we had put out the three five to three seven range last spring when.
When we started to see the forward curves move and we've been opportunistic opportunistically hedging into that.
When we got to the end of 'twenty, two and we started to talk about 'twenty. Three obviously, we put out a 3.7 midpoint, which was at the upper end of this mid point range, which was a construct we were trying to use to signal to the market that we see the earnings power of the business, improving but there's still a lot unhedged.
Hedged at the time, we first put it out.
Since we've continued to hedge we see us continuing to move up so using that May force curves.
It is without including energy Harbor, we see that mid point opportunities for 'twenty four 'twenty five to start to move up higher than the three seven and we see it in sort of the three seven to three eight range again. This is the midpoint of those opportunities. So when we would formalized guidance at the end of this year.
For 2024 will have a bigger range around that just given the inherent variability of managing through the business, but as we continue to perfect. These hedges, we still have some open obviously in 'twenty five or more hedged in 'twenty four we see this earnings power are definitely improving for 'twenty four 'twenty five and in.
26 were even more open and if you roll forward to 'twenty six we see an increase even further from these numbers.
Okay, Perfect and then just I'm, sorry to ask but what's the O&M inflation you guys are embedding in those numbers.
Yeah, so the O&M.
Inflation, it depends on which category, we're referring to Shar, we're using and we have consistently seen something between three and 10% depending on the nature.
Of the of the input you know labor is different from Oems doing outages, which is different from variable chemicals, we use and in power production process, but it's in that range and we are obviously as a competitive company, we're contracting and procuring as competitively as we possibly can but we don't have any.
Go get if you will built into the numbers too that we were trying to solve for this is our best line of sight of what it takes to run this business.
Perfect Perfect and then just lastly, I would love to get maybe a pulse check on sort of the legislative cycle right now and your expectations.
For resource adequacy in ERCOT and things seem to be a little quieter now that the Senate has passed several items I guess what are your expectations for pathways forward as the session comes to a close thanks guys.
Sure Yeah sure the.
As you know coming down to the final three weeks.
In Austin I do think there's been a lot of attention and appropriately so on reliability and we've talked about that especially when you consider that Texas is the nation's leader in wind and soon to be the nation's leader in solar which helps from a sustainability point of view, but we've actually seen that theres needs to bolster the grid from a dispatch of bolt.
Generation point of view that was the impetus for the performance credit mechanism that was adopted by the public utility Commission in January and the timing is such that depending on how the legislative process wraps up the stakeholder process would begin for this P. C N mechanism to be able to.
To create a market mechanism to reward.
A lot.
Reliability.
There are still many bills being considered in the house and the Senate. So it's hard to predict you know what might pass.
But I think from our standpoint, the PCM is meant to address not only the incentives for new generation, but ensure that existing generation doesn't retire prematurely because some of the other forms of generation are getting production tax credits, which as you know can create downward pressure.
On market power prices, so from our standpoint, we think the reliability focus is important.
If the P. C M is well designed and it moves forward.
We think that will bolster the competitive market. We obviously want to continue to see support for our integrated model in Texas. We think it's a business that serves our customers well and we would intend to invest in building gas fire generation. If there is a well designed tcf. So we think policymakers are focused.
On the right aspects of what it takes to keep the grid affordable reliable and sustainable and ensure our view is as we want to be part of that solution. You know here in our home state, but we still have three weeks to go and well obviously have to provide more updates as the session wraps up but I do think the attention on this is <unk>.
Well deserved and will.
We will be involved as much as we can through this session and the stakeholder process.
Very helpful. Jim. Thank you so much good morning, I appreciate it guys.
Thank you Sean.
The next question comes from Julien Dumoulin Smith with Bank of America. Please proceed.
Hey, good morning, Hey, they gave us at the time I appreciate it look I I wanted to just follow up on.
The success of the energy Harbor transactions, obviously got a lot of folks are attention can you talk a little bit about your thoughts about looking in to potential further acquisitive activities, obviously theres, the northstar around buybacks and commitments there and in maintaining that throw out but can you talk today, especially in reaction energy Harbor, how you would think about perhaps a leading and a further.
Two whether that's nuclear or other angles are that could include retail or renewables or what have you, but would love to hear your thoughts.
Hey, Julien good morning.
Look we have we have generally stayed away from commenting on M&A I think it's one of those those activities that Opportunistically comes your way and you have to be prepared for it do you have to always be what we'd say hang around the hoop a little bit on opportunities.
I think the energy Harbor transaction is a very significant one for US certainly it's our focus right now not only getting through the approval process with the key agencies, but the integration activities with with the team at energy Harbor and with our team and as you note it's transformative.
And a lot of ways, because we used it as a platform to highlight just how much of a business we have with the carbon free aspects of our business and obviously, we're going to more than double that amount of generation with this transaction the.
Our strong balance sheet and the returning capital. The reason, we keep repeating the four priorities is because we have to find things that fit within those four priorities and not everything is going to.
And I think that's a commitment we've made I think the energy Harbor transaction reinforced we mean, though that we're going to stick with those four core principles. So Julien nothing is ever off the table from the standpoint of looking at it but it needs to fit the criteria that we've laid out and we're going to remain disciplined in that regard.
Got it no fair enough I appreciate that look and then with respect to the transaction itself. I mean can you comment a little bit I mean, it seems like there might be a slight delay in the close of the transaction just what caused that that approval process or just the execution process and then related you talked about a significant jump in and generation here you all obviously have.
A pretty sizeable retail platform.
Awesome quarter over quarter declines in retail customers. How do you think about building out the retail platform a little bit further here in light of energy Harbor, Oregon is that less of a priority considering you know things like the nuclear P. T fees that might do you emphasize the need for a lot of critical balanced that retail business with generation if you will.
Sure well on the first matter I think we're progressing well on the approvals process you know we announced the transaction in early March we made the filings in the key filings in April .
We believe the NRC is working towards an early October approval, which to be on the six month track for a license transfer. We think is actually on the on the the more efficient inside of the scale in terms of where we would go we've talked about closing this in the fourth quarter and I think that is achievable.
Kilian as you know, we don't have anything built into our numbers.
For 2023 related to.
Energy Harbor, so hopefully there's some opportunity there, but just I think we're tracking well there is nothing that.
That we're concerned about at this stage, but it is still early in the approval process, but so far so good on the retail side or a reduction in accounts has been more outside of the ERCOT market. We've made some strategic exits and a couple of states. The energy Harbor platform does gives us give us an opportunity to bolster some of the areas where we do currently.
We operate in retail and obviously it gives us an asset base, including some attributes like the emissions free energy credits, which customers are becoming more interested in that the that the nuclear units can offer so I like our retail we like our integrated model, we do think the Midwest northeast market reforms.
And some of the retail market is still warranted as we've talked about Julien the level of competition. There in terms of the agreed the degree to which you can differentiate your products. There is still rather limited it's more of a hedge channel and being able to serve customers with your assets than it is a true.
Business to consumer or business to business.
Differentiated marketing strategy, we hope to get there in some of these markets and we'll continue our our efforts from a stakeholder outreach perspective, but the integrated model is certainly well intact with this with this acquisition because it comes with a retail business. In addition to the generation, but we do need to see these mark.
That's opened up a little bit from a reform and being open to innovation in these markets. The way, Texas has been open innovation and so we do have some work to do there Julien.
Excellent I'll leave it there best of luck guys will speak soon.
Thank you Janet.
Yeah.
Okay.
Our next question comes from Michael Sullivan with Wolfe Research. Please proceed.
Hey, good morning.
Hey, Michael Good morning.
Hey, Jim Hey, Chris wanted to just confirm.
Confirm on the on the upside you're seeing in 24, all the way out to 'twenty six that that's based on.
Basically current curves and then if so maybe if you could just give us your your own point of view on where you think things could go just based on supply the demand dynamics in your major markets.
You bet Michael Thank you, yes, we we base this off of using the May 4th.
Kurt So it's it's a function obviously of where we have hedged what we still have open.
And the curves as of May 4th.
Not that the liquidity is infinitely deep in some of these outer years, but it's not based on a point of view.
It is based on curves we know that that this is something that you and our investors are trying to follow which is are we seeing some upside as Chris laid out in his chart from the time, we first initiated the strategy of talking about a three year horizon the curves have actually improved.
In those outer years, so while we've seen the front of the curves come down because of a number of factors I might ask Steve Muscocho, our president of wholesale to comment.
We've seen the out years actually strengthened and we think that that's actually a sign of opportunity for additional long term, but in terms of the dynamics by market I think it might be helpful for Steve to share a few thoughts as to how we see these markets are being impacted by some of the factors obviously late last fall and through this year and we're in.
We see that headed Steve Thanks, Jim sure I would add if we start with natural gas, which is kind of a big driver behind power prices. The marginal shale has now become the Haynesville, which is a dry shale, we're seeing limited growth in the Utica and the Marcellus due to limited pipeline takeaway and all the growth in the Permian that's happening, even though that's a wet shale.
Not the marginal shelves being used really see growing LNG export markets. So that's that's really provided support on natural gas, which is why youre seeing it stay $4 and above at least 25 and beyond the front end of the curve is really influenced by a some excess storage inventories that are due to the mild weather that if you look only.
Forward, if you assume normal weather should balance itself out once you get to the 'twenty late 'twenty for early 'twenty five in terms of like say fundamentals in each market Youre seeing this integration of renewables, particularly challenging in PJM you see a lot of coal, leaving the stack over time, but a slow incremental movement in renewables not only of renewables.
Less effective in markets like PJM, because lower capacity factors. It doesn't have the same irradiance wind speeds that you see in markets like Texas and myself.
But it also takes a lot to replace that you could see five to nine to one replacement levels needed in order to maintain the same levels of reliability.
You also have problems with east coast gas markets to the extent they can recall with European markets that could also cause some volatility and I think Jim mentioned some of the things that are already happening in ERCOT in terms of reform you have solar and pushing the peak out you only have one hour batteries coming into ERCOT, which really doesn't help and in <unk>.
Extended.
Heat wave that may occur or extended call for them and so I think uncertainty around gas and coal assets and determine what happens with the legislature. In addition to an aging fleet provides this collision we're seeing over time, which is which is going to win out in renewables or fossil fuels and at least in the intermediate term. It appears gas is gonna be needed its going to be.
Stressed and so we think that's supporting fundamentals that moment, Steve. Thanks for that I'd, just add Michael that in addition to the dynamics, we're seeing of the resource mix and how it's changing we've seen obviously a handful of significant environmental regulations.
That have been issued and potentially forthcoming that could also put some pressure on assets that currently are providing a reliability service on these grids and our assets, even with the district tradition, and a district vision co.
Coal is 25% to 30% on a go forward basis of district tradition, it's predominantly our combined cycle gas fleet. We think that has a lot of value in helping these grids be able to sustain a reliable operation while integrating more renewables and then of course, our Vista revision is anchored by <unk>.
ROE and also Comanche peak and energy Harbor assets on a go forward basis. So we like our asset position to backstop in what we call firm up our customer commitments and we think the horizon, whether it's the economics of what happens in competitive markets or whether it's actually some of the incentives and the rules that could come forward from.
An environmental standpoint, these assets are going to be needed for reliability purposes, and that's our thesis with why we think this business has a long term earnings potential that we see actually growing through time.
Okay. Thanks that was that was super comprehensive.
Maybe just one quick follow up there on the on the environmental rules, so from from where you're <unk>.
Standing right now Jim like any.
Near term impact in terms of whether it be investments that you have to put into some of your coal plants and that you were planning to keep online.
Not not in the near term Michael a couple of things obviously, the CCR E. L. G rules, we have talked about for years and that does have impacts on our on our coal fleet, which we've communicated multiple times that will have retirement dates and that sort of 27 28 horizon except for <unk>.
Two of our sites.
Casper or the good neighbor rule. It did it was recently stayed so you have an opportunity here for the state of Texas to revisit this rule obviously in the fifth circuit, it's going to take some time to sort that out.
That could impact some of our old gas units could impact of Martin Lake if it were to be fully implemented but I think there were good reasons for the challenge and we're certainly not the only party.
And that challenge Theres, many industry participants outside of even power as well as the state, but no. Michael we don't have any anticipated large capex spend as a result, but we say we stay active again reliability is important and we think that that this transition that's occurring on the grid needs to be done so thoughtfully, but.
Nothing no near term impacts and with the stay maybe a little bit pushed out from that standpoint in terms of impact on our fleet.
I appreciate all the color. Thank you.
Thank you Michael.
Next question comes from David Arcaro with Morgan Stanley . Please proceed.
Oh, Hey, good morning, Thanks, so much for taking my question.
Hey, Dave.
Hey, let's see I wanted to check on the retail business just wanted to confirm is that on track for the year given the first quarter results are you going to.
Need to pursue some more proactive initiatives to to keep kind of in line with the guidance range for this year or is this really just the more.
More natural ebb and flow of the EBITDA results for retail.
Yeah. Thanks for the question David as we noted in the comments.
The loss of 29 million that was expected that was within the range of what we expected when we set the guidance. So that's.
That's not far off of what we were expecting going forward. We can send you and I noted this but we continue to expect.
Retail to be able to meet or exceed the midpoint of its guidance range that we provided in the third quarter of last year, we don't see we see some timing effects over the balance of the year and some margin and count benefits that have carried through that we see will offset some of the.
Pressures they saw from weather in the first quarter. So we don't see anything in particular over the balance of the year that we need to stretch to meet that goal again as we would know the shape continues to be the we're going to see pressure on the retail side from an EBIT perspective in the first and third quarters, and the second and fourth quarters, as where theyre going to make.
Substantially all of the EBITDA and that's because they typically have quite flat prices through the year, but the power costs in the winter and summer months are the highest so there's some pressure on EBITDA in the first and third quarters in the second and fourth quarters as where they make it up.
Got it okay. Thanks, that's helpful and then.
Topic I was just curious with the latest trends youre seeing are in customers moving to default service is that still a trend.
Trend that's happening on which direction are you seeing right now.
David were still seeing some default prices increase in the markets do their kind of delayed procurement, but you are seeing competitive offers in the market that are now south of that default.
Level. So you are not seeing the same level of migration to default youre going to start seeing it and we are seeing folks moving from default back into the competitive arena that is part of this market dynamic I was mentioning that from a reform standpoint, ideally you would have a one to one relationship.
With the customer and not avid customer bouncing between a utility and a retailer but at this stage of the game, obviously prices have crested they've started to come off in the wholesale market and that's creating opportunities for our retail business.
But it's also creating some of the that migration and some markets away from default and default prices because we are still increasing in submarkets through may.
That's going to create more and more savings opportunities for customers.
Okay, great that makes sense. Thanks, so much.
Thank you David.
Yeah.
Our next question comes from <unk> Chopra with Evercore ISI. Please proceed.
Hey, good morning team. Thanks for giving me time, Hey, just wanted to make sure they might.
This clearly in the <unk> and the response to <unk> question earlier.
24, and 'twenty five the midpoint is in the three seven to 3.8 billion range at 26 is expected to be higher than that for the base business.
That is correct okay.
Okay, and then kind of above 900 million for four energy Harbor in 2020 six as well.
Yeah that is the view that we have and you know obviously, we've talked about this on a hedged basis, which is largely open in 'twenty six energy Harbor.
<unk> talking to because we are 'twenty four 'twenty five numbers that we've given you have hedges.
In them for energy Harbor, once you get to 'twenty six energy harvest pretty open.
We're pretty open and actually you can see energy harbor doing better than 900, when you get out to 2026 again at at current curves.
Understood. Thank you for for for clarifying that for me.
And then just as we look to the end of the year or maybe.
You know as you can.
Rose.
On energy Harbor, what should we expect in terms of disclosure that is your is it going to be sort of a three year kind of like you did last year EBITDA guidance and free cash flow range. Just any color you can share that would be helpful. Thank you.
Yeah, we.
We're going to.
I think we will obviously update guidance for the balance of 2023, and then 2024 and are at the time of closing.
Well, we haven't made a decision as far as how far out we will continue to update we will.
Probably continue to give directionally, where we see things going but.
Think we're.
I don't know that we plan to continue to consistently give three year ranges going forward.
But you know as we get closer to closing, we'll we'll work on getting updates to what we put out so far.
Understood, Thanks, Jim and Chris.
Thank you Sir.
Today's final question comes from Angie stories and ski with Seaport. Please proceed.
Thank you so so actually too.
Two questions one about you know flexibility in financing of the energy Hydro transaction. So I think we're all watching credit spreads.
You have this deal to finance you you have that the bridge financing in place that you plan to refinance it before.
The end of the year. So I'm just wondering if you could use.
For example, any of the project level that you mentioned.
Hum renewable assets to maybe help yourself yeah.
So that's one and number two from a bigger picture question. So.
When you look at the Mark to market of earning stuff that's extrapolation in district tradition.
At these prices you are solving for deleveraging pretty quickly you know probably 25, if not sooner so would that change your thoughts about keeping these two businesses together I E could we.
D C. A separation of this transition.
Again, which would unlock the true value of these assets.
And Oh.
I'll handle the first question, where you talked about financing of energy Harbor, obviously, we.
When we announced the transaction, we put out some assumptions on the amount of cash that we would use in the amount of debt in a split of the debt. We continue to look for opportunities first first is as you saw the margin deposits are coming back as expected we saw about over $1 billion of approximately $1 $2 billion come back.
From the end of the year and to through March 31st and we continue to see some margin of positive returns as we said of our hedges going through the summer. This year. So you can expect us to continue to optimize the amount of cash that we're gonna use from the balance sheet as we and so it could it could be larger than the amount that we indicated.
<unk> on the on the call when we announced the transaction as far as we're going to look at a number of opportunities, we're going to be opportunistic as to timing and which market that we're in so we're already preparing for those opportunities and I think you'll you'll see us look at a number of different avenues to raise.
And not just wait until the end and try to do it all in one market.
And Angie this is Jim I'll add to Chris's.
Comments on that.
Idea, obviously with distribution as it was conceived in order to execute on this transaction and keep a strong balance sheet. It obviously due to things that highlighted the amount of our earnings stream that debt.
Zero greenhouse gas emissions profile. It also created an investment vehicle for some of the key shareholders for energy Harbor two to participate in this future entity I still step back and think about this as a customer business that is that has a changing sort of.
View of what they are looking for from the electric grid, including a more sustainable grid, but also a reliable grid that in essence is district I mean that is what we're doing we're doing it we're expressing it through different transactions energy Harbor, obviously is the most significant one but with the ambit and crius and growing our retail presence.
And then our launching of our own opportunities with history zero. So.
The dis synergies that could come about by saying that this business is only this that this business is only that is not really how the electric grid functions. It is obviously a way in which we can think about investors and how they want to express their point of view of what they invested but I think we can achieve that even with the structure, we have here and most.
We're still a fundamentals based view on value and we invest in things that generate long term sustainable cash flows I know folks do talk to us about what do we think it might take to get a re rate.
And some level of out of our control what is in our control is our ability to make good decisions take advantage of the market opportunities as they come about create some on our own and serve customers extremely well and if we do that we're going to return capital to shareholders very aggressively and pay down debt and I think that's a winning model. It just may.
Not come with the shorter term moves that some people might might want to see but I think we're building an enduring business and I think thats attractive for investors and we're prepared to execute on that.
That's great and just the last one last final question.
You mentioned on some of that.
Well, we're seeing you know relatively limited liquidity in those forward curves for power right. There's always this question is gas more like quit first is power and maybe the spark spreads type of incredible and forward. Your screen that are just too good to be true.
So I mean is there a way for you to basically capture that strength, even with limited trading liquidity and time markets either through.
Some derivative transactions gas gas driven hedges you name it.
Yes, Angie we can obviously gas is more liquid didn't power.
<unk> gas many times is a good proxy for power, but to your to your point, it's not a perfect proxy for power and Steve Why don't you comment a little bit on some of the things that we do to try to use liquidity efficient means and how we're thinking about capturing this value because we are sensitive Angie that the further out we go depending on how we.
There, obviously is a use of liquidity and we balance that into our thinking and we're not also thinking that these curves just go away tomorrow, because again the fundamentals of what we think is happening with the electric grid.
Speak to.
Liability and assets with flexibility, which is our portfolio and we think those are getting valued and theyre getting value differently than they have in the past is reliability was taken for granted but Steve why don't you comment a little bit on how we're thinking about locking this it sure.
I think for nuclear assets gas as a decent proxy as a hedge and so we are able to use gas instruments like the Nymex.
Current nymex structures to at least either lock in value or put a range of value in place to kind of protect downside, but we do have the PTC. So that's a consideration in terms of the Sparks.
We do have to buy the gas in order to lock in the spark.
And some of the specific gas locations as is more challenging I think ERCOT PJM theres more liquidity than places like new England for sure but.
But we tried to do it in a liquidity efficient manner, because as you get out further the independent postings or the independent the initial margins that you have to post with exchanges can be quite.
Expensive as you go out in time and so we're looking at trying to increase credit using first lien structures. When we go out that far or even bilaterally with counterparties to.
To get that done and so it's a little bit slower from both because we're trying to use liquidity efficient channels.
And also going directly to customers and on other wholesale counterparties, but it is something we've begun working on in 'twenty six even out as far as 27, it but it will definitely take time and again trying to use liquidity efficient channels is important like first liens and directed Bilaterals.
Great. Thank you.
Okay.
Angie Thank you for your question.
This concludes our question and answer session I would now like to turn the conference back over to Mr. Jim Burke for any closing remarks.
Yes. Thank you I want to thank everybody for joining us. This morning. We appreciate your interest in distress and please know that our district team is working hard to execute well for the summer and our strategic priorities and we look forward to giving you future updates have a great morning, everyone. Thanks.
Yeah.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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