Q3 2023 Vistra Corp Earnings Call
Hello, and welcome to this third quarter 2023 earnings call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask question.
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Please note this event is being recorded.
I would now like to turn the conference over to Megan Horn VP Investor Relations. Please go ahead.
Good morning, and thank you all for joining the truth Investor webcast discussing our third quarter 2023 with all our discussion today is being broadcast live from the Investor Relations section of our website at Www Dot that's required dot com. There you can also find copies of today's investor presentation, and the earnings release, leading the call today are Jim Burke, President and Chief.
Second of officer, and Chris milder than the Trust's Executive Vice President and Chief Financial Officer, They're joined by other senior executives to address questions. During the second part of today's call as necessary.
Our earnings release presentation, and other matters discussed on the 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 on the Investor Relations section of the Strange website also.
Today's discussion contains 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 I encourage all listeners to review the safe Harbor statements included on slide two.
That's your 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.
I will now turn the call over to our President and CEO Jim Burke.
Thank you Meghan good morning, and I appreciate all of you for taking the time to join our third quarter 2023 earnings call I am proud to deliver our third quarter results. This morning, which was a very successful quarter for all facets of the business will start this morning on slide five.
Speak to this quarter's operational and financial performance in more detail in a moment, but notably this quarter's adjusted EBITDA from ongoing operations of approximately $1 $6 billion underscored districts capability of achieving consistently strong earnings through its integrated business model with excellent operational performance.
Each of our generation retail and commercial teams and a variety of pricing and weather environment.
In the prior two quarters, we experienced average power prices clearing lower than our realized hedge prices, which highlighted the significant downside risk protection to our earnings that our comprehensive hedging strategy provides.
This quarter that scenario held in the markets outside of ERCOT, We're a milder weather kept prices lower in these markets, we were able to capitalize on our dynamic position management of our hedge portfolio to capture significant earnings at our generation segment we.
We saw this paradigm flip in the ERCOT market and while we were significantly hedged. We did have some open links and the generation fleets operating flexibility was optimized by our integrated teams to respond to higher market prices, while keeping the lights and much needed air conditioning on at competitive prices for.
Our customers throughout the markets we serve.
With each of our four strategic priorities. Our aim is to challenge ourselves with high performance goals and then consistently deliver.
To that end this quarter you saw us continue to advance our other three strategic priorities as well as we focused on a strong balance sheet, our capital return program and our energy transition goals.
As of November 2nd we've now returned over $3 $785 billion of capital to our shareholders through share buybacks or dividend program. Since the capital allocation was first announced in November of 2021.
After we close energy Harbor acquisition and develop a long range plan for the combined company will work with our board on a new multi year capital allocation plan and expect to disclose the specifics of that plan in the first half of 2024.
In the meantime, we continue to opportunistically invest in renewables and energy storage growth, including our expectation that we will begin construction in spring of 2024 on our three largest solar and energy storage developments located at our former Illinois coal plant sites, while maintaining our sub three times leverage.
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I want to move now to slide six to discuss our third quarter operational performance.
This past quarter, we saw unprecedented heat in ERCOT.
It was the highest third quarter on record, even beating the record setting heat of 2011.
Temperatures in Texas were six degrees above normal in August and early September frequently topping 105 degrees in Dallas in over 100 degrees in Houston and San Antonio.
It was vital for our generation team to keep the plants running in these extreme conditions to ensure that people have Texas could continue to live and work in healthy and comfortable environment.
In ERCOT, the solar generation ramped down hours of around six to eight P. M have proven to be a critical time period for the grid.
It is still very hot during those times with strong customer energy demand, but it is also the time period, where we see solar start to ramp down and at times when it may not make up the difference, especially in August the ERCOT grid is operationally complex, having to predict the availability not only dispatch more.
Resources, but also intermittent resources, such as solar and wind limited duration energy storage and demand response activities as the generation mix of intermittent resources increases ERCOT needs more reserves as a backstop to ensure there is adequate generation to cover demand and avoid emergency.
Conditions.
In these scenarios you see flexible generation fleets like ours ramping to meet as much of this demand as possible and that is exactly what we did exceeding 97% commercial availability on average during those critical hours.
These tough weather seasons, our number one priority is ensuring our customers can consistently access competitively priced power to maintain their quality of life and keep the economy's strong.
That's where our retail business excelled.
This summer's marketing campaigns featured several differentiated products tailored to our customers' needs, including a seasonal discount product that helps customers manage the size of their electricity bill through the higher usage summer months.
Our customer focused multi brand and marketing channel strategy and responsive service allowed us to grow our ERCOT residential customer counts over the prior quarter. In addition, our business market segment grew customer volume, 16% year over year as strong margins.
While the retail and generation team stood ready to meet these demands for our customers and the people we serve our commercial team optimized our financial position to create significant value for our shareholders.
Specifically in August the ERCOT market saw average real time pricing around $196 with 43 hours in August clearing over $1000 and during those critical hours of six to eight P. M. In August we saw prices clear on average around $843 <unk>.
Leveraging customer usage insights in our generation fleet strong commercial availability, our commercial team optimized and managed our risk position to create significant value on our open positions. The commercial team further set us up for success in our markets outside of ERCOT, where the weather was milder strategically managing our AR.
Physicians and flexing our generation output to optimize our hedge positions and achieved strong results for the quarter.
We see this trend of new peak demand records in ERCOT, continuing for the foreseeable planning horizon.
Demand that we believe our retail products designed to attract and our diverse and flexible generation fleet is uniquely positioned to serve moving.
Moving now to slide seven again, I am proud of the team's exceptional tightly coordinated performance. This quarter that helped Vista achieve its $1.613 billion of ongoing operations adjusted EBITDA.
Not only did the retail team grow residential customer counts tissue energy maintain the PUC of Texas five star rating extending its St 12 straight months.
Our ERCOT fleet delivered two and a half terawatt hours more than any other quarters output in at least the past 10 years, a 10% increase over the next highest quarterly generation output achieved in the third quarter of 2019. It was a notable feat that when paired with a strong performance by the commercial.
Team to adapt to a variety of weather conditions created significant value across all of our markets.
With the important summer months behind us and only two months left in the year today, we are raising and narrowing the guidance range, we announced last quarter from three $6 billion to $4 billion in adjusted EBITDA from ongoing operations to now $3 95 to $4 $1 billion, we are similarly, increasing and narrowing the.
Our range of adjusted free cash flow before growth from ongoing operations to a new range of 2.35 to $2 $5 billion.
Turning now to slide eight we introduced 2024 guidance ranges for distressed standalone without including any energy Harbor contributions.
We are forecasting adjusted EBITDA from ongoing operations in the range of three seven to $4 1 billion and adjusted free cash flow before growth from ongoing operations in the range of one nine to $2 $3 billion.
Notably our ongoing operations adjusted EBITDA midpoint for 2024, a $3 $9 billion is higher than the mid point opportunities. We previewed on our most recent earnings call in the range of $3 seven to $3 $8 billion.
We are confident in our forecast as we expect consistent earnings from our retail business paired with expected strong performances from our reliable diverse and flexible generation fleet that stands ready to deliver in a variety of economic and weather conditions.
Just as it has this year.
Of course, we will update our guidance ranges to include energy Harbor performance expectations. After we closed the acquisition.
Speaking of the Energy Harbor acquisition Slide nine provides an update on the status of the transaction.
Since we last spoke we have received approval from the NRC in September and we declared substantial compliance with the Doj second request on August 31.
We have responded to all requests from FERC and that process is progressing.
Given our commitment to sell the Richland Stryker generation plants, which we believe eliminates any potential remaining concerns around market competition, we continue to target a closing before the end of the year.
Our team has worked with energy harbor team to prepare for a smooth integration and we are prepared to close the transaction promptly after receiving approval from FERC.
As noted before we intend to provide combined destroyed energy Harbor forecasted guidance information after we close the acquisition, but as shown on slide nine we continue to expect energy Harbor business to deliver an average of approximately $750 million of adjusted EBITDA in 2024 and 2020.
Five including the impact of the hedges and synergies with that number growing to approximately $900 million when considered on an open basis.
I'll now turn the call over to Chris to discuss our quarterly performance in more detail.
Thank you Jim turning to slide 11, visitor's performance in Q3, 2023 was a reflection of available opportunities and outstanding execution throughout the country by both our generation and retail segments. The generation segment exhibited the benefits of maintaining a diverse flexible and durable fleet of assets.
With the team delivering strong results in both ERCOT, where third quarter temperatures were on average the hottest on record and outside of ERCOT, where temperatures were milder.
Notably the $1.440 billion and adjusted EBITDA from ongoing operations delivered by the generation segment. In Q3, 2023 was almost $400 million higher than the same quarter last year.
Moving to the retail segment, despite the challenges of high loads and prices in ERCOT in Q3, the retail team delivered outstanding results for the quarter by focusing on customer counts and margins and consistently optimizing its supply position throughout the quarter.
Although retailers not typically expected to contribute much adjusted EBITDA if any in the summer months when prices are higher the team was able to deliver $173 million in Q3 of this year.
Looking at year to date each of the generation and retail segments are outperforming as compared to last year with the Mr. Earning over $800 million more in ongoing operations adjusted EBITDA through the third quarter of this year as compared to the same period in 2022.
We are proud of the team's execution, thus far this year and we're looking forward to finishing the year strong.
Turning to slide 12, we provide an update on the execution of our capital allocation plan.
As of November 2nd we have executed approximately $3 billion to $6 billion of share repurchases, leading to an approximately 26% reduction in the number of shares that were outstanding in the fourth quarter of 2021.
We expect to utilize the remaining approximately $1 billion of the total for two $5 billion authorization by year end 2024. However.
However, as Jim noted, we do expect to review our capital available for allocation. Shortly after we closed the energy Harbor acquisition and would expect to announce a new comprehensive capital allocation plan in the first half of 2024.
Moving to our dividend program, we announced last week, a fourth quarter 2023 common stock dividend of <unk> 21 three.
Per share, which represents a substantial growth of 42% over the dividend paid in the fourth quarter of 2021, when our capital allocation plan was first established.
This growth highlights the significant returns available to our shareholders as we reduce share count while paying a constant quarterly dividend amount.
Turning to the balance sheet in light of the results achieved in the third quarter, culminating an updated 2023 guidance ranges.
Isn't that leverage ratio currently sits significantly below three times, while net debt will increase upon closing of the energy Harbor acquisition. We currently expect our net leverage ratio to be below three times on a pro forma basis in 2024.
Finally in addition to the transformation, we are achieving with the energy Harbor acquisition. The team has been busy with development and Preconstruction activities. This year at our three largest solar and energy storage developments at our former Illinois coal plant sites for which we now anticipate construction to begin next spring. Despite some headwinds in this high.
<unk> cost and interest rate environment. These projects continue to comfortably exceed our targeted return thresholds as.
As we've stated before we believe in a responsible energy transition that targets disciplined capital outlays for strategic projects and the zero carbon generation growth, we will achieve with these three coldest solar sites are reflective of that core principle.
Touching quickly on slide 13, as we have done in prior quarters. We've provided an update on the out year forward price curves as of November 2nd.
While the ERCOT forward price curve continues to reflect some backwardation the prices still remain higher than the April 29, 2022 curves. When we first spoke to you about increased EBITDA earnings potential in the out years.
The curves and Sparks are holding together well and support our initiated 2024 guidance ranges those curves together with the continued execution of our comprehensive hedging program provides us confidence in an adjusted EBITDA from ongoing operations mid point opportunity for 2025, and the range of three $8 billion to $4 billion.
To wrap up slide 14 provides some additional breakdown of our 2024 initiated guidance ranges, including midpoint expectations among the current business segments.
As we have discussed previously the acquisition of energy Harbor will accelerate the transformation of our company and we would expect it to alter the way we analyze our business results. Accordingly. After we close the transaction, we expect to re segment our businesses.
While we will have more to say on that after closing we do expect to provide you with more visibility into our nuclear and renewable businesses.
I want to reiterate Jim's comments, we are extremely proud of the collaborative work and performance of each of our generation and retail and commercial teams.
We have great line of sight to keep that momentum going for the foreseeable future.
And we will keep striving to meet the expectations of our customers and our communities to keep the lights on in an affordable and reliable manner and markets in which we operate.
And at the same time, we will manage the company in a cost efficient and strategic manner to continue producing adjusted free cash flow yields that we are translating directly into significant returns for our shareholders.
I speak on behalf of all of our employees and partners. When I say that we are striving to end 2023 on a strong note and to execute against our targets for 2024.
With that operator, we're ready to open the line for questions.
Thank you very much we will now begin the question and answer session 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.
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At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Michael Sullivan with Wolfe Research. Please go ahead.
Hey, everyone. Good morning.
Hey, Jim just wanted to start with maybe.
What kind of gives you conviction and being able to close the deal by year end and we'll be able to hear something from FERC in a timely manner here.
Yes, Michael.
We've noted the progress that we've made.
With this transaction you know originally we thought NRC would be the longer pole in the tent and we were pleased to get that approval.
A few months ago, where we sit at the moment is we've got feedback from Doj and we think we've addressed Doj is concerned we expect to have addressed FERC concern by cell.
Selling the Richland Stryker facility, we did not think it was a concern at the time, we initiated the deal. We still don't believe that is a concern but out of an abundance of caution we are making that move.
We have obviously responded to all of their information requests and the intervenors have done the same so our anticipation is that FERC has all the information that they need we've asked for feedback by the middle of November we feel confident that we'll get to something by the end of this year and that we target.
We're planning and targeting to close by the end of this year, but I think it's just been a process Michael and has been one that we've been obviously very responsive to and I think from a FERC standpoint, they've got the information and they've got to do their due diligence, but theres been no new issues raised to us at this point and that's why we think we're going.
To get this done by year end.
Okay, that's very helpful.
Then just on the on the new financial outlook here I wanted to ask on some of the dynamics.
Below EBITDA and the free cash flow line. So it looks like the free cash flow grew 23.
Actually improved more than than Ebitdas, but wanted to get a sense, what's driving that and then it looks like the conversion to free cash then drops again.
And 24.
And just also on that wanted to confirm that does that include the.
The interest costs associated with the debt you issued for energy Harbor.
But obviously not the EBITDA yet.
Sorry that was a bunch there but yeah.
Michael Thank you Michael Thank you for that I'll start by saying that our results for this year.
Which obviously we've continued to guide up as we've gone through the year most of that improvement is as EBITDA, driven and we did a nice job operating in the third quarter with extreme opportunities with pricing and weather being coincident, particularly in ERCOT that EBA.
<unk> largely drops through to the bottom line when we built the plan at the beginning of the year you wouldn't have expected the kind of weather conditions that actually played out.
So that free cash flow in this near term, obviously will fall through and you're seeing that improved conversion. We started the year with an expected lower conversion rate because we wouldn't have had this kind of EBITDA opportunity built into a more normal weather scenario.
We actually talked about free cash flow conversion being a little bit lower in 'twenty, three and 24, when we set our our plans and we talked about the capital required to run the units pulling in some of the long the long term service agreement spend for Capex was one of the main drivers you'll see in the capacity fab.
<unk> that are in the back of the deck our units have been running really well, but they've also been running hard and so we'll spend some capital in 'twenty, four and probably have to spend some capital and 25 to make sure. The fleet stays in tip top condition and so I think the surprise was not.
Where we see 24, playing out from a free cash flow conversion, we actually had some positive free cash flow conversion due to the EBIT opportunities that came our way in.
In 2003 as far as energy Harbor interest in how we're thinking about that financing and its effect on our results in 'twenty three and 'twenty four I'll ask Chris to comment Yes, Michael I think you hit it there are a couple of factors for 2020 three we did plan for some financings that would that would have some interest.
It would hit into 2023 those were.
We didn't execute a financing until later in the year and the first interest payment on that financing will be next year. So we actually it's a little bit counterintuitive, but versus our plan from the start of the year were where we are in a benefit position on interest for 2023, and then Youre right 2024 is the number that youre seeing here does take into account the <unk>.
First expense on the debt that we raised for energy Harbor and that we're holding right now and as you noted we don't have any contribution from energy Harbor results.
Okay Super helpful. Thanks, Thanks, a lot. Thank you Michael.
Thank you. The next question is from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning team. Thank you guys very much really appreciate the opportunity to connect here just coming back to the capital allocation update commentary from the call real quickly I mean, obviously youre going to be introducing a new here in the first half of the year. I think you said, but can you give us a little bit of a sense as to what the parameters are I mean is this just really about how to capitalize the business are you thinking about this.
Vis vis you know new and novel growth avenues that could be emerging here, you know pro forma for the acquisition and or any other directions I just want to make sure I'm understanding you know what youre, saying there is this more about addressing the potential 25 and $26 billion buybacks or is there something more that you're kind of alluding to in terms of how you think about the future growth of the business here.
Julien. Thank you for the question. Good morning, I appreciate the comprehensive question on capital allocation I think it's several things first of all as asked earlier, we want to close this energy Harbor Act.
Acquisition get make sure we've got embedded fully a multiyear view of the potential for that business as well as the synergies that we're anticipating to be able to deliver over a multi year basis. We also because we have raised the this for stand alone.
Guidance, we see more cash available for allocation. So we want to put all that together and go through that process of discussion obviously with our board. When we can have a comprehensive discussion about a number of things. We've mentioned some of this for zero opportunities in this deck that we will continue to execute on the <unk>.
That program, we've been executing actually slightly ahead of pace, we would anticipate that.
When we come back through the approval process with the board. They will remain supportive of the buyback program potentially at the current or even a potential higher pacing and where we've been executing we did not feel like going out too far at this point given that we need to close the acquisition and put the full plan together.
We didn't feel just highlighting one element of a buyback amount in 'twenty five 'twenty six was appropriate at this point, but our commitment to our four strategic priorities and I think the execution against those has been on track if not exceeded and I would expect that to continue as far as growth vectors. There were a lot of.
Things that are that the future holds that are still being sorted out, particularly with the inflation reduction act and are there going to be opportunities here to utilized behind the meter opportunity some of the hydro hydrogen opportunities.
I think just from our standpoint, we still own nearly 60 sites worth of land and interconnect. So we've got plenty of opportunities to still develop.
A number of avenues of our business from a growth strategy, but they need to meet our return requirements and I think that's the discipline. We wanted to continue to demonstrate through this presentation and while we want to come back with a comprehensive capital allocation plan as we have to look at all of the options on the table.
And look at the best ones and not just the ones that we've been executing on to this point, but I see us remaining focused on the four core principles and I think that's worked well I think our investors understand our mindset around these.
We look forward to hopefully given another set of opportunity for our investors to see how we will create value once we close the energy Harbor acquisition.
Yes, absolutely and just speaking of which right I mean, obviously.
The 24 guidance today is not apples to apples with maybe what street quote.
Unquote.
Using out there I mean, any chance that you could give us a little bit of a sense of what the EHR impact is mark to market today, even in a ballpark sense to try to kind of square your guidance.
Well I think Julien.
It is a little bit from a timing standpoint.
On an orange, but I do think you can take a couple of pieces and add them together. So if you look at our Standalone guidance for next year, we're looking at at a midpoint of $3 9 billion and then we unpack the energy Harbor 'twenty four 'twenty five numbers.
Because we what we wanted to do we gave you an average last time of 750 now we're unpacking it saying 700 for 2024.
That's still using some data that we got originally through our cases, but we're tracking curves where you have a sense of things are about where they were at the time, we announced the deal from a power price standpoint. So they are alone you are taking the $3 9 million to 700, you are getting into a 4.6, we had been at up.
Mid point of $4 three five on average when we gave you that direction when we announced the deal. So I think the two pieces just added together put us north of where we have been signaling the combined opportunity and there's still has the targeted synergy levels and here I think we could potentially exceed those targets.
You did.
<unk> levels, but we need to get into the business fully have the details around that execution plan before we would.
Upsize anything there Julien so I do appreciate you calling out because I think theres been some consensus that has included energy Harbor and some that has been stand alone our stand alone as well north of anything that we had signaled at this point and we think our energy Harbor at this point is on track and when we get into it I think we might.
Be able to find some additional upsides, but at this point, we're not reflecting that.
Right at least on track with the synergies it seems but.
You very much again for the time guys I appreciate it I'll pass it.
Thank you Julien.
Thank you. The next question comes from David Arcaro with Morgan Stanley. Please go ahead.
Hey, Thanks, Good morning, Thanks for taking my question Dave.
Could you comment on the retail trends that you're seeing do you expect these this retail strength to continue and I guess looking into the 2020 for guidance.
You've got some solid growth that you're reflecting year over year in our retail segment I'm wondering if 2024 could be potentially considered kind of a.
And new baseline I guess for the performance of that segment.
Yes, David I'll start off and I would like Scott Hudson, our president of retail to add some commentary I think the business. Obviously, we break our business apart quite a bit there's different geographies and the business archive has its own unique design. The other markets. Obviously, you have a different one more with the TCU.
The wires company doing the billing.
Our business has a very heavy residential footprint from an earnings profile standpoint, but a very large scale business and profitable business in the commercial and industrial segment the business has.
Performed better than we expected it to perform this year relative to plan and next year is pretty flat to that so I think it's actually more stable is how I would describe the retail business not a large large growth assumption or a moon shot required for us to be delivering.
In our 2020 for guidance and the team's done a really nice job adapting to a variety of weather conditions extreme weather in ERCOT and actually milder than normal weather in most of the rest of the country, but I think the underlying trends are a function of the creative products and marketing channels I'd like I'd like Scott to comment on.
So you get a feel beyond just the numbers of how the team actually execute dynamically to meet customer needs.
Yes, Thank you Jim and thanks for the question we.
We did see strong margins and growth across all of our customer segments and geographies.
The quarter over quarter.
On the residential side in ERCOT, which is a large concentration of what we do Jim mentioned these summer campaigns that we had very successful across six brands. We have in the markets across multiple different products are seasonal discount product, which helps flatten the customer bill with a discount in the summers for the customer.
Very popular and then on the retention side.
We haven't advanced analytics team that actually identifies customers that we give customer credits two we call them comfort credits and Thats also a way to retain customers and these very extreme summer periods that program. We've had in place for for several years, but we continue to refine.
On the C&I side, what we see is that you know really strong margin performance when there's volatility in these markets and our costs are up and down and this is really an opportunity for us for really providers at scale that have reliable generation and sophisticated commercial capabilities. So we saw some.
Nice margin expansion, both in ERCOT and in the in the Midwest northeast market. So those are just a few examples to give you a flavor but.
To Jim's point, we're always looking to optimize.
Our customer counts are margins, our risk capabilities, along with the customer experience and.
It really is that optimized optimization that allows the business to be consistent and stable and David and thing I would conclude on Scott's remarks, which were spot on with how how we think about the business as the customer.
Be put under a lot of pressure with volatile pricing with the hedging strategies, which we've described before are pretty conservative about about the way in which we procure to handle extreme weather. Our goal is to insulate the customer as much as possible from those kinds of bill shocks that helps franchise value in the long run.
It helps the customers sort of get through the seasonal events, but it does take resources to be to hedge at that level. It takes capital you have to post collateral at times and you have to be a little bit more conservative on how you think about some of your pricing structures, but I think it pays off in the long run and that's why the business not only had a really strong.
<unk> financial quarter, they grew counts in the quarter growing counts in the quarter as being one of the largest market share participants is not an easy thing to do but if you are providing that stable value proposition to the customer.
Yeah.
Excellent yeah, I appreciate that color and thanks for the clarification on the on the trajectory into 2024 and it could I ask just as the retail contribution as you look into 2025 and the indicative midpoint guidance. There does it stay flat into that you're off of 'twenty four.
David we haven't put anything out specifically on retail, but we've given you a sense of where we see 25% on a combined entity, but yes, we see it staying fairly flat and most of the Delta that we would expect to see if any in 25 would be more driven by where the generation segment is we're highly hedged in 'twenty five but.
We have carry more open there so you might see a little bit more variation. There then we would expect to see in retail.
Yep got it understood and.
Just to push out even further just any directional thoughts on 2026, you know how how much might be hedged at this point and just directional trend off of 2025.
Sure. Yes, if you look at the curves David 2026 is looking stronger than 2025.
That.
Particularly has moved in the ERCOT region from the last time, we spoke in fact, when we had our call in August. It was August 9th in August 10th was the all time peak.
In ERCOT. So we were busy and we talked about how we needed to make sure that we got through the summer most of the pricing volatility in ERCOT came in the back half.
Of August and I think the forward curves started to reflect that the sort of on paper level of reserve margin may not actually be with the actual reserve margins are under stressed conditions. So we have seen the curves move up there as Chris noted there are higher than where they were in may of 'twenty.
Two still backward aided but they are higher and I think that's a reflection of this supply and demand.
Calculation that folks are revising for ERCOT. We're still majority opened out in that 2026 time period, we have not provided a hedge position, but our anticipation at the moment is is that energy Harbor also has largely remained opened in 2026, that's why we were comfortable saying we.
We expect it to be around that $900 million range and then we see upside from where we sit today for the rest of the district stand alone for 2026 relative to 2025.
Okay excellent I appreciate it thanks for the time.
Thank you David.
The next question comes from Andrew I'm, Sorry, Angie <unk> with <unk>. Please go ahead.
Good morning, good morning Angie.
Good morning, I, just had a question about market power issues if any.
And how those.
Could prevent you from any ambition of transactions so.
Clearly surprised by that.
That came up with the energy Harbor.
That's not collateral.
Is there any lesson learned from that.
Again, you've seen that.
You have grown to the point, where you might encounter those issues and Apple PJM zone.
Angie.
<unk>.
I don't think we've really learned anything specifically from this other than deals get a lot of scrutiny.
We actually have in all of our filings and all of the screens, we've done and we need to do in order to make our filings complete we did not see and still don't believe that these assets are pivotal in that regard.
So I still think we look at the situation. The exact same way as we did when we made the announcement.
But we do want to.
To move forward and get this deal done. So we made we made the modification that we made.
Even in ERCOT, our market share because the market continued to grow we're more like a 14, 15% market share numbers. So theres, even headroom for us to do something in ERCOT and Thats, where we have the highest.
Level of relative size compared to others in the market. So no I think the field is still open Angie I think we'd love to obviously get this done and move forward and we want to be constructive and work with the regulatory bodies to make sure that that happens in a way they're comfortable but no I don't think theres anything to read.
Great and then you mentioned at El Cubo.
Some clarification about the IRA.
Especially as it is.
That's really to be out trying to meter installations. So I'm just wondering.
That's specifically you're referring to.
Nuclear PTC and how transaction instead of affiliates are non affiliates will be counted towards glass, what I've ever seen for margin.
And the ROE, Hey, Kevin a little bit more clarity around what their leading point.
Yes, so we we obviously await guidance from the IRS on a couple of matters.
The whole hydrogen topic and weather nuclear existing nuclear is going to qualify.
As a clean energy source, whether it's behind the meter or whether they call a hydrogen by wire, where it's more contracted through a PPA type structure.
We await clarification on that we don't have growth built into our plans for that we're not assuming an upside yet.
Our plans, but that's something that we obviously await guidance on I think the more immediate material guidance will be the nuclear PTC.
And what is the revenue basis for determining whether an asset.
Has earned some of the PTC because the realized revenue rate is below the floor.
We expect to get that guidance some point in the spring, but we're not sure how soon it could come obviously goes into effect beginning of next year. Once again, we've not assumed any PTC value in our long range plan, but the way we think about it as the curves are.
Right at slightly above where we see the PTC floor. So it's unclear that it would apply at this moment now there is indexing to that PTC. So if the curve stays flat you might inflate your way into earning some of the PTC.
It is it is still unclear about how affiliate transactions would work, but I feel like there's been commentary and some acknowledgement that some basis of spot whether it's real time of day ahead prices that there needs to be some reflection of what the value the market value is of the power and not just how the hedge transactions.
Even though were done at the portfolio level or at the asset level I think thats a cleaner way to think about it is to think about.
Something in the real time or day ahead market is a better benchmark for the value at the hub of the power, but again, we await that guidance, it's not baked into the plan and I think it provides some downside protection, we're not 100% sure how much yet, but since we still have the upside of where the curves.
Go for the nuclear assets, whether it's Texas, or Pennsylvania, Ohio, We view it as a real opportunity that the irate provides we just don't have clarity on the size of that opportunity at this point.
Great and if I could ask one last one.
There's some additional media with me around the supply of nuclear fuel and the reliance on Russia.
I remember that you mentioned that energy Harper and small hubs for nuclear fuel.
Given that you are doubling down on nuclear power I'm just wondering if you have.
A way to manage the business.
I shared risk.
Either direct or indirect exposure to <unk>, especially.
Yes, Andy Andrew Good question. It is something that the whole industry is paying attention to because it can affect prices for domestic.
More and more.
Global sources beyond Russia as a source so it's got implications, whether you're sourcing directly from Russia or not we have increased some of our nuclear fuel purchases.
We've done that is extra and we have done that both for our own needs, but also in anticipation of closing this transaction. So I feel very good about our financial and our physical supply with or without any Russian exposure over the next several years and we feel that.
We're in good shape from a distressed stand alone actually for the next four to five years, but from a combined basis as we don't have all the detail beyond the next couple of years at this point from Energy Harbor I think our fleet wide purchases will actually help bridge anything we'll see on a combined basis, but we have already we started working.
And this issue we started work on it even before we made.
At announcement about energy Harbor, because obviously this conflict dates back in time, but I think we have done a very nice job. The team has done a nice job not only hedging for the physical part, but financially hedging curves are up for nuclear fuel. There is no doubt youll see nuclear fuel quotes.
The $9 to $10 a megawatt hour kind of range, that's kind of an all in.
Value, we're still and I mentioned.
And that historically were closer to $5 trending up to $6 for distressed Standalone through 2026, that's still where we are.
We don't have all the details on the energy Harbor.
Cost per I know they reset some of theirs early on as they did their restructuring, but we could have some exposure towards the back end of a five year planning horizon on price just because the curves have moved up but there's also discussion about domestic sources and incentivizing additional supply non Russian that may come into play towards the back end.
Over our planning horizon, but I think we've substantially de risked physically and financially there Angie.
Thank you.
Thanks, Andrew.
Thank you. The final question comes from <unk> Chopra with Evercore ISI. Please go ahead.
Okay.
Hey, good morning team, Thanks for taking my questions Hey.
Jim just.
A more pointed question on the capital allocation and I appreciate you're going to go to the board and we'll have a plan here in the first half of next year, but given the move in the stock and I ask you. This on the last call as well do you kind of still view that the security is undervalued here as we think about buybacks respectively beyond 2020.
Sure.
Yes, it's always difficult for management teams to predict where things will go but yes. If you look at the multiples and are now raised EBITDA guidance levels and our expected free cash flow generation.
I think the multiples are just staying where they've been and we're just reflecting a much stronger business profile. I think you can obviously make your case as to what's the right multiple to put on the business I think there's been a view that the free cash flow yields need to be 20 plus percent in order to compensate for the risk of being in the business.
I think our integrated model has shown a real stability to the business model and we've seen various weather conditions pricing conditions play out over the course of this year and I think our team has managed through that ex exceedingly well and we've raised the out years. So I know Chris put in more of an explanation.
<unk> point on this on the last call and it will be.
I'd be interested to see if his view has changed but I'm pretty sure it hasnt, but I'd like to let him to close on this because I want to make sure you guys know we're sticking with these four core principles.
I'll just point out obviously.
As you can see by the pace of our buybacks, we've actually picked up the pace in the third and fourth quarter and as Jim mentioned as we as we look forward and we still have to get with the board and talk about our comprehensive plan, but as Jim mentioned, our intention would be to maintain the pace that we've set this year.
And potentially look to see whether it should stay that same going same pace going forward or whether it should be increased so we still feel good about the prices at which we're buying our stock today.
Customer count growth in the retail segment.
Can you just.
Provide a little bit more color is that predominantly are caught and then just for us to kind of digest that what's like a five year average. So we can you know we.
We can see how strong this quarter was really.
Yes, I can take that and when this is Scott Hudson. The number that was referenced is in the appendix slide in the materials, but it's volumetric growth in our C&I market business and we've seen a lot of success in that business, both in ERCOT and in the Midwest and northeast markets through these times of volatility.
<unk> I think what you find is that larger sophisticated customers want to work with players of scale, because we can structure a lot of complex products, whether those be indexed fixed ability to pass through new charges in New York got markets. We see you know a shift of customers to the larger players.
In this particular environment.
Yes.
Residential.
<unk> growth, but the 16% was a businesses volumetric growth and.
And so but both businesses grew in a group.
Grew their business not only in Texas, but outside of Texas. So it was really strong performance for the business to fundamentally grow in sort of a very dynamic power markets.
Thanks appreciate the color guys. Thank you extra cash.
Thank you. This concludes our question and answer session I would now like to hand, the call back to Jim Burke for closing remark.
Yes, I want to close by thanking the men and women of <unk> for their hard work and for delivering an exceptional quarter for our customers and the communities. We serve we appreciate your interest in Vista and as you saw on our presentation, we have a lot to still accomplish and les.
And we look forward to laying that out for you and speaking to you again soon hopefully you. After we have closed here on the energy Harbor acquisition and we wish you all a great morning. Thank you.
The conference has now concluded. Thank you for your participation you may now disconnect your lines.
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Yeah.
Yes.
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Yes.
Okay.