Q3 2024 Vistra Corp Earnings Call

Good morning and welcome to VISTRA's third quarter 2024 earnings call. All participants will be in listen-only mode.

Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.

After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Eric Micek, Vice President, Investor Relations. Please go ahead.

Eric Micek: Good morning and thank you for joining Vistra's investor webcast discussing our third quarter 2024 results. Our discussion today is being broadcast live from the investor relations section of our website at www.vistracorp.com. There you can also find copies of today's investor presentation and earnings release.

Eric Micek: Leading the call today are Jim Burke, VISTRA's President and Chief Executive Officer, and Chris Moldovan, VISTRA's Executive Vice President and Chief Financial Officer.

Speaker Change: They are joined by other Bistro senior executives to address questions during the second part of today's call as necessary. Earnings, release, presentation, and other matters discussed in the call today include references to certain non-GAAP financial measures.

Speaker Change: Reconciliations to the most directly comparable gap measures are provided in the earnings release and in the appendix to the investor presentation available in the investor relations section of VISTA's website.

Speaker Change: Also, today's discussion contains forward-looking statements which are based on assumptions we believe to be reasonable only as of today's date.

We assume no obligation to update our forward-looking statements.

Speaker Change: I encourage all listeners to review the Safe Harbor Statements included on slide 2 of the investor presentation on our website that explains 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'll now turn the call over to our President and CEO, Jim Burke.

Jim Burke: Thank you, Eric. Good morning and thank you for joining us to discuss our third quarter 2024 operational and financial results. It has been an active year on a number of fronts, and I'm very proud of what the VISTA team has been able to deliver so far in 2024, while setting the stage for long-term value creation.

Jim Burke: Turning to slide 5, I would like to recognize the VISTRA team for another quarter of hard work and strong operational performance.

Jim Burke: Through their efforts, we achieved a solid quarterly financial result of ongoing operations adjusted of $1,444,000,000 despite a continuation of the milder Texas weather we have experienced most of the year.

Jim Burke: The consistent execution from our team across generation, commercial, and retail delivered reliable power and customer solutions that reflect the strength of our integrated business model.

Jim Burke: As you may remember from our second quarter results call, we indicated our 2024 ongoing operations adjusted EBITDA was trending toward the upper end of the guidance range.

Jim Burke: I am pleased to report that with the results announced today and our outlook for the fourth quarter,

Jim Burke: We are raising and narrowing our guidance range for 2024 ongoing operations adjusted EBITDA to $5.0 billion to $5.2 billion with a midpoint above the upper end of our previous range.

Jim Burke: We are also raising and narrowing the guidance range for ongoing operations adjusted free cash flow before growth to 2.65 billion to 2.85 billion dollars.

Jim Burke: As we noted on our previous results call, our guidance excludes any potential benefit related to the Nuclear Production Tax Credit, or PTC, as we await clarity from Treasury around the interpretation of gross receipts.

Jim Burke: However, based on year-to-date settle prices and the forward curve for the balance of the year, we believe the impact of the nuclear PTC or 2024 ongoing operations adjusted EBITDA could be approximately $500 million.

Jim Burke: While our ongoing operations adjusted EBITDA guidance for 2025 is not currently expected to benefit from the nuclear PTC in any significant amount,

Jim Burke: We do expect the availability of the nuclear PTC to provide downside protection in the event prices settle lower.

Jim Burke: Further, the delay in the 2026-2027 PJM capacity auction, including the potential modification of the associated auction parameters, creates some additional uncertainty.

Jim Burke: For these reasons, we are maintaining our outlook for a 2026 ongoing operations-adjusted EBITDA midpoint opportunity of over $6 billion, with line-of-sight to potentially be meaningfully higher.

Jim Burke: Finally, the third quarter marked an active period of capital allocation and capital return.

Jim Burke: We believe this acquisition will be highly accretive to our shareholders with an implied transaction multiple of less than eight times enterprise value to EBITDA, 100% ownership upon closing at year-end, and financial flexibility allowed through an extended payment schedule.

Jim Burke: In addition, the significant share price weakness we experienced in late August and early September resulted in an uptick in repurchases we were able to execute in the quarter.

Jim Burke: In all, we repurchased approximately $400 million of shares in the open market in the third quarter at an average purchase price of approximately $83 per share.

Jim Burke: Combined with the VIST revision 15% minority interest acquisition, which we view as similar to a forward share repurchase program with a deferred payment schedule, we were able to allocate a combined approximately 3.5 billion dollars to the repurchase of our equity.

Jim Burke: at an average indicative purchase price between $80 and $85 per share, roughly a 30% discount to our recent share price.

Jim Burke: Turning to slide six, our four key strategic priorities remain integral to our strong business performance.

From an operational perspective, our team continues to deliver.

Jim Burke: Our generation team achieved overall commercial availability of approximately 96% for our gas and coal fleet.

Jim Burke: Our nuclear fleet also had an outstanding quarter with capacity factors averaging approximately 98% for the period as we continue to make great progress on our integration efforts.

Jim Burke: On the retail side, the team continues to outperform through both strong customer count performance in the Texas and Midwest Northeast markets, as well as disciplined margin management.

Jim Burke: Finally, we are seeing persistent growth in our large business market segment through longer term customer relationships as a result of providing solutions to meet customers goals including sustainability objectives and budget certainty.

Jim Burke: Switching to capital allocation, we remain disciplined in our approach by targeting a significant return of capital and executing on attractive growth projects like the Energy Harbor Acquisition, while also maintaining a strong balance sheet.

Jim Burke: As part of this approach, we continue to execute the capital return plan put in place during the fourth quarter of 2021.

Jim Burke: Since that time, we have returned approximately $5.4 billion to our investors through open market share repurchases and common stock dividends.

Speaker Change: Chris will cover capital allocation in more detail later in the presentation, but you will see that we expect at least an additional $1.5 billion of capital available to allocate through year-end 2026.

Jim Burke: This number is net of our current capital responsibilities, including the recently announced VIST revision 15% minority interest purchase, and the recent board authorization for an additional $1 billion of share repurchases expected to be executed by year-end 2026.

Jim Burke: Speaking of the balance sheet, our financial position remains strong with net debt at the end of the third quarter at approximately 2.7 times ongoing operations adjusted EBITDA.

Jim Burke: Although our net leverage is expected to move slightly above three times with the closing of the VISTA revision 15% minority interest purchase, we expect it to fall back below three times in 2025.

Jim Burke: Moving to energy transition, as you know, our approach continues to responsibly balance reliability, affordability, and sustainability while ensuring disciplined returns for our shareholders. The VISTA Revision 15% minority interest purchase is a great example of this strategy.

Jim Burke: as we view the transaction as an attractive investment in our carbon-free assets and retail franchise.

Jim Burke: In addition to repurchasing the minority interest in our best-in-class retail business, through this acquisition, we will increase our ownership of nuclear generation by approximately 970 megawatts.

Jim Burke: across our four sites at an average price of approximately $2,100 per kilowatt.

Jim Burke: We believe this compares very favorably to per unit costs for other nuclear generation alternatives such as plant upgrades, new build, or additional M&A.

Jim Burke: Finally, the acquisition will result in an approximately 200 megawatt increase in our solar and storage capacity assets, and we look forward to continued growth in this business through the disciplined execution of our existing project pipeline.

Jim Burke: As highlighted on slide 7 in this year alone, we have seen numerous announcements of major manufacturing and data center additions by companies spanning across industries.

Jim Burke: These announcements have spurred heightened awareness and projections of power demand growth.

Jim Burke: Some grid operators have already raised their expectations for demand growth through mid-year updates, while numerous industry observers have published forecasts reflecting an acceleration in power demand across the country.

Jim Burke: We also discussed this growth dynamic on our first and second quarter calls, specifically highlighting many of the drivers of power demand growth, including the build-out of large chip manufacturing facilities, partially due to the CHIPS Act, the electrification of oil and gas load in the Permian Basin of West Texas,

Jim Burke: the reshoring of industrial activity, and of course, the build out of data centers.

Jim Burke: As shown in the bar chart on the left, actual weather-adjusted low growth for 2024 in PJM and ERCOT not only exceeded historical rates, but is trending towards long-term forecasted levels.

Jim Burke: We believe the level of growth across both markets confirms our view that low growth is already occurring and we expect it to continue.

Jim Burke: While there has been a lot of focus on FERC's rejection of the amended TALON Interconnection Service Agreement or ISA, we believe there will be multiple paths to resolve any issues as it relates to that project and other similar projects.

Jim Burke: FERC's ruling was narrowly based on the Commission's view that the ISA failed to meet previous FERC precedent.

Jim Burke: leaving the door open for a refiling of a streamlined ISA.

Jim Burke: Nothing about FERC's ruling prevents us or other generators from contracting with customers who are seeking to co-locate for their needs. We will need to address open issues and find the path to FERC approval of interconnection service agreements, which we believe is doable.

Jim Burke: As we've stated before, there will be many large load opportunities that will have a variety of configurations, whether located next to a generation facility or in a more traditional front-of-the-meter configuration.

Jim Burke: We don't believe there will be a one-size-fits-all approach to this, and there shouldn't be, as customer needs will vary.

Jim Burke: Vistra's mission is to meet these needs and that of our broader customer base just as we do today.

Jim Burke: I'm sure we will discuss this more in the Q&A, but I will turn it over to Chris to provide a detailed review of our third-quarter results, our outlook, and capital allocation.

Chris

Chris Moldovan: Thank you, Jim. Turning to slide nine, while the third quarter did not benefit from the same weather opportunities as last year,

Chris Moldovan: which we estimate added approximately $300 million to our earnings in the third quarter of 2023, VISTA was able to deliver solid results due to excellent operating performance and execution by our generation retail and commercial teams.

Chris Moldovan: Despite lower cleared wholesale prices compared to last year, our flexible generation fleet continued to perform extremely well and maximize available opportunities.

Chris Moldovan: Turning to retail, as expected, third quarter results reflected higher power costs compared to 2023. However, year-to-date results are meaningfully higher compared to 2023 as the team continues to deliver strong customer count and margin results.

Chris Moldovan: Finally, our third quarter 2024 results for both generation and retail benefited from the inclusion of Energy Harbor, which we estimate to be approximately $165 million for generation and approximately $35 million for retail.

Speaker Change: Moving to slide 10, as Jim noted, we are raising and narrowing our 2024 ongoing operations adjusted EBITDA guidance range to 5 billion to 5.2 billion dollars.

Speaker Change: We are also raising and narrowing our 2024 ongoing operations adjusted free cash flow before growth guidance range to 2.65 billion to 2.85 billion dollars.

Jim Burke: Although our team is executing at a high level across the business in 2024, this latest increase in our guidance ranges is primarily related to the performance of our retail business.

Jim Burke: Moving to 2025, the improvement in our outlook is attributable to increased expectations for both our generation and retail businesses.

Jim Burke: Specifically, as it relates to retail, we have previously communicated that we expected this business to contribute adjusted EBITDA in the range of $1 billion to $1.2 billion on an annual basis.

Jim Burke: Due to several factors, including the addition of Energy Harbor and sustained growth in residential demand in Texas and large business market demand across the country,

Jim Burke: We now expect the annual adjusted EBITDA contribution from this business over the next several years to be in the range of $1.3 billion to $1.4 billion.

Jim Burke: However, for 2024, we do project our retail results to come in above that range due to a few tailwinds that are one-time in nature.

Jim Burke: Switching to ongoing operations adjusted free cash flow before growth, the midpoint of our guidance range implies a conversion ratio of approximately 58%, comfortably in our previously indicated long-term target range of approximately 55 to 60%.

Jim Burke: Of course, our guidance and long-term outlook remain supported by our comprehensive hedging program.

Jim Burke: Our commercial team continues to be opportunistic in taking advantage of recent power market volatility.

Jim Burke: increasing our wholesale hedge balances to approximately 96% for calendar year 2025 and approximately 64% for calendar year 2026.

Jim Burke: Turning to capital allocation on slide 11, our share repurchase program has generated significant value for our shareholders.

Jim Burke: Since beginning the program in November 2021, we have reduced our shares outstanding by approximately 30%, repurchasing approximately 158 million shares at an average price per share below $29.

Jim Burke: Purchasing approximately 158 million shares at an average price per share below $20 million, notably this reduction in our share count has led to an approximately 46% increase in our dividend per share since Q4 2021.

Jim Burke: Notably, this reduction in our share count has led to an approximately 46% increase in our dividend per share since Q4 2021.

Jim Burke: Moving to the balance sheet as of the end of the third quarter. Our net leverage was comfortably below our long term target of three times ongoing operations adjusted EBITDA.

Jim Burke: Moving to the balance sheet, as of the end of the third quarter, our net leverage was comfortably below our long-term target of three times ongoing operations adjusted EBITDA.

Jim Burke: Although we expect that ratio to move slightly above three times. When you closed the acquisition of the 15% minority interest we expect to Delever quickly and be comfortably below three times by year end 2025.

Jim Burke: Although we expect that ratio to move slightly above 3X when we close the acquisition of the 15% minority interest, we expect to delever quickly and be comfortably below 3X by year-end 2025.

Jim Burke: Importantly, our business remains well capitalized and we continue to manage the balance sheet in a conservative way as evidenced by the recent upgrade of our corporate credit rating to double B plus by standard and Poor's.

Jim Burke: Importantly, our business remains well-capitalized and we continue to manage the balance sheet in a conservative way, as evidenced by the recent upgrade of our corporate credit rating to double B plus by Standard and Poor's.

Jim Burke: Finally, we will continue to be opportunistic yet disciplined in the deployment of capital towards growth to that end, we expect to spend approximately $700 million in 2024 and 2025 as we execute on our development project pipeline, including the recently announced solar projects for Amazon and Microsoft.

Jim Burke: Finally, we will continue to be opportunistic yet disciplined in the deployment of capital towards growth.

Jim Burke: To that end, we expect to spend approximately $700 million in 2024 and 2025 as we execute on our development project pipeline, including the recently announced solar projects for Amazon and Microsoft.

Jim Burke: Of course, we will continue to pursue opportunities to fund those expenditures with third party capital, including nonrecourse loans.

Jim Burke: Of course, we will continue to pursue opportunities to fund those expenditures with third-party capital, including non-recourse loans.

Jim Burke: Finishing on slide 12 based on our guidance for 2025, and our current expected 'twenty 'twenty six ongoing operations adjusted EBITDA midpoint opportunity of at least $6 billion as.

Jim Burke: Finishing on slide 12, based on our guidance for 2025 and our current expected 2026 ongoing operations adjusted EBITDA midpoint opportunity of at least six billion dollars.

Jim Burke: As well as our expectation that we will continue to achieve our targeted long term ongoing operations adjusted free cash flow before growth conversion rate.

Jim Burke: As well as our expectation that we will continue to achieve our targeted long-term ongoing operations adjusted free cash flow before growth conversion rate.

Jim Burke: We project to generate a meaningful amount of capital through year end 2026, we also expect our net leverage excluding our nonrecourse financings to reduce materially as our earnings power improves providing additional capital flexibility.

Jim Burke: We project to generate a meaningful amount of capital for a year in 2026.

Jim Burke: We also expect our net leverage, excluding our non-recourse financings, to reduce materially as our earnings power improves, providing additional capital flexibility.

Jim Burke: As you can see our current capital allocation plan through year end 2026 continues to focus on shareholder return with over $6 $5 billion allocated to the Vista revision, 15% minority interest purchase.

Jim Burke: Common and preferred dividends and expected open market share repurchases comprised of approximately $2 $2 billion remaining under the existing authorization through 2026.

Jim Burke: Including the additional $1 billion share repurchase authorization announced today.

including the additional $1 billion share repurchase authorization announced today.

Jim Burke: However, despite the significant amount of capital already earmarked for shareholders. We still expect to have approximately $1 $5 billion of incremental capital available for allocation through the end of 2026.

Jim Burke: However, despite the significant amount of capital already earmarked for shareholders, we still expect to have approximately $1.5 billion of incremental capital available for allocation through the end of 2026.

Jim Burke: This amount is based on $6 billion of ongoing operations adjusted EBITDA, we see the potential for upside to this amount.

Jim Burke: As highlighted on the previous slide over the last three years, we have been significant buyers of our common stock, including jumpstarting to repurchase by issuing preferred equity.

Jim Burke: As highlighted on the previous slide, over the last three years, we have been significant buyers of our common stock, including jump-starting the repurchase by issuing preferred equity.

Jim Burke: However, it is important to remember that the decision to repurchase our stock was only one aspect of our capital allocation framework, which ought to a balanced capital return, maintaining a strong and resilient balance sheet and executing on opportunistic growth.

Jim Burke: However, it is important to remember that the decision to repurchase our stock was only one aspect of our capital allocation framework, which sought to balance capital return, maintaining a strong and resilient balance sheet, and executing on an opportunistic growth.

Jim Burke: We expect this framework to continue to guide our capital allocation decisions not only through year end 2026, but also over the longer term.

Jim Burke: We expect this framework to continue to guide our capital allocation decisions, not only through year-end 2026, but also over the longer term.

Jim Burke: Importantly, our return thresholds for both organic and inorganic growth have not changed and we remain disciplined in choosing the opportunities we pursue.

Jim Burke: Importantly, our return thresholds for both organic and inorganic growth have not changed and we remain disciplined in choosing the opportunities we pursue.

Jim Burke: I do think it is also important to note that we still see our shares trading at an elevated free cash flow yield, especially when compared to the average free cash flow yield for companies in the S&P 500, and we continue to believe allocating capital to share repurchases as an important priority.

Jim Burke: I do think it is also important to note that we still see our shares trading at an elevated free cash flow yield, especially when compared to the average free cash flow yield for companies in the S&P 500, and we continue to believe allocating capital to share repurchases is an important priority.

Speaker Change: With that operator, we're ready to open the line for questions.

Jim Burke: With that, Operator, we're ready to open the line for questions.

Speaker Change: 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're using a speaker phone. Please pick up your handset before pressing the keys.

We will now begin the question and answer session.

Jim Burke: To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.

Jim Burke: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then Tim at this time, we will pause momentarily to assemble our roster.

Jim Burke: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Jim Burke: At this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from Shar <unk> with Guggenheim Partners. Please go ahead.

Jim Burke: The first question comes from Char Porresa with Guggenheim Partners. Please go ahead.

Speaker Change: Hey, guys, sorry, it's actually James on for Shar, Good morning, Hey, Jamie with time.

Jim Burke: Hey guys, how are you? It's actually James on for sure. Good morning and thanks for the time.

Jim Burke: Thank you Jim.

I'll be on Jim

Speaker Change: So I guess, maybe just coming back to the Susquehanna I S. A and some of your prepared I guess, how is the rejection impacted your customer conversations in the past week one of your peers. It sounds committed to co locations in other maybe.

Jim Burke: So I guess maybe just coming back to the Tuscohana ISA and some of your prepared, I guess, how has the rejection impacted your customer conversations in the past week? One of your peers sounds committed to co-locations, another maybe

Jim Burke: We're focused on front of the meter I guess, where do you fall kind of within those who pulled it sounds maybe a little more like close but just any more color there would be helpful. Thanks.

Jim Burke: more focused on front-of-the-meter. I guess, you know, where do you fall kind of within those two poles? It sounds maybe a little more like Kolos, but just any more color that would be helpful. Thanks.

Speaker Change: Yes, James It we were disappointed with the ruling last Friday, but I think if you.

Speaker Change: James, we were disappointed with the ruling last Friday but I think if you

Speaker Change: Look at our discussions on this topic in the past we've acknowledged that these are complicated deals you know they take time, they're large they're large even by the standards of the customers that we're talking to and if you look at the quantity of deals that this country is going to do the vast majority of them are going to be front of the meter.

Jim Burke: They're large. They're large even by the standards of the customers that we're talking to. And if you look at the quantity of deals that this country is going to do, the vast majority of them are going to be front of the meter.

Jim Burke: It's unique to have the large sites that we have and have an opportunity to do a co located deal.

Jim Burke: It's unique to have the large sites that we have and have an opportunity to do a co-located deal.

Jim Burke: We think there are multiple paths forward on this we're not 100% sure how the other parties that are obviously active on that particular, I say, you're going to want to pursue it but nothing precludes us from still moving forward with our plans I I would acknowledge that.

Jim Burke: We think there are multiple paths forward on this. We're not 100% sure.

Jim Burke: how the other parties that are obviously active on that particular ISA are going to want to pursue it.

Jim Burke: But nothing precludes us from still moving forward with our plans. I would acknowledge that...

Jim Burke: Everyone's looking at these types of issues and how do we work through them because they are they are not I mean, some of them. Some of the co located deals even though we've done they were smaller and so when things are of the scale. There are more questions that need to be answered, but we think there's multiple paths or we can go into some.

Jim Burke: everyone's looking at these types of issues and how do we work through them because they are

Jim Burke: They are novel. I mean some of the some of the co-located deals even that we've done they were smaller and so when things are of this scale

Jim Burke: There are more questions that need to be answered, but we think there's multiple paths forward. We can go into some details as to how we think that might play out, but...

Jim Burke: As to how we think that might play out but our conversations are still continuing we still have a number of really good options, both with our nuclear sites as well as gas sites and potentially even newbuild.

Jim Burke: Our conversations are still continuing. We still have a number of really good options, both with our nuclear sites as well as gas sites, and potentially even new-built.

Jim Burke: And so I don't think that this is a load profile and a customer base that.

Jim Burke: And so I don't think that this is a load profile and a customer base that is going to slow down and aggregate. I just think it comes down to which areas of the country are more open to this.

Jim Burke: <unk> is going to slow down in aggregate I, just think it comes down to which areas of the country are more open to this.

Jim Burke: Are they able to attract this load because it's a huge economic development opportunity.

Jim Burke: And we'll have to see how that plays out it could play out differently in different parts of the country. So I just think that's where we are and it's a process and we're going to work through it with our peers in the industry the vertically integrated utilities.

Jim Burke: and we'll have to see how that plays out. And it could play out differently in different parts of the country. So I just think that's where we are and it's a process. And, you know, we're going to work through it with our peers in the industry, the vertically integrated utilities.

Jim Burke: Obviously, the isos and and any of the other stakeholders as we need.

Jim Burke: obviously the ISOs and any of the other stakeholders as we need.

Speaker Change: Okay, Great and then maybe just kind of piggybacking on that if we could touch on your thoughts around additionality.

Jim Burke: Okay, great. And then maybe just kind of piggybacking on that, if we could touch on your thoughts around additionality. We heard some commentary from certain members of the PUCT in recent weeks kind of calling for it, so I guess at this point do you think a COLO in ERCOT, like Comanche Peak, would have to come with additionality? Maybe just some more general thoughts there, thanks.

Jim Burke: We heard some commentary from certain members of the P. C. T. In recent weeks kind of calling for it I guess at this point do you think a.

Jim Burke: Colo in ERCOT.

Jim Burke: At Comanche peak would have to come with additionality, maybe just some more general thoughts there. Thanks.

Speaker Change: Yes, I do think there are couple of issues. Obviously at play here one is resource adequacy in general right. So even without the additional.

Jim Burke: Data center load that could come to say, Texas. In this example, James since you mentioned it there've been questions about whether there is adequate price signals for new investment regardless.

Jim Burke: data center load that could come to, say, Texas, in this example, James, since you mentioned it.

Jim Burke: There have been questions about whether there's adequate price signals for new investment regardless, you know, of just the data center load. In fact, the data center load over the next five to six years will probably not be the largest source of load growth.

Jim Burke: Of just the data center load in fact, the data center load over the next five to six years will probably not be the largest source of load growth.

Jim Burke: In ERCOT.

and Ircott.

Jim Burke: It just so happens, though when you start talking about the data centers. It looks like one big chunky load coming at a time. So it gets the attention as you know we've put out our announcement of our intention to add megawatts in.

Jim Burke: It just so happens, though, when you start talking about the data centers, it looks like one big chunky load coming at a time, so it gets the attention.

Jim Burke: As you know, we've put out our announcement of our intention to add megawatts.

Jim Burke: In ERCOT, both with the collateral Creek conversion as well as the augmentation of existing gas sites. You know those two alone are going to bring 1100 megawatts. The peak or is our projects that we're still developing still need to see some of the market reforms come to fruition to make those economic or contracts.

Jim Burke: both with the Coleto Creek conversion as well as the augmentation of existing gas sites, those two alone are going to bring 1,100 megawatts.

Jim Burke: The peakers are projects that we're still developing, still need to see some of the market reforms come to fruition to make those economic, or contracts. You know, contracts that could come from bilateral contracts with customers can make those kinds of projects.

Jim Burke: Contracts that could come from bilateral contract with customers can make those kinds of projects.

Jim Burke: Feasible. So I don't think you know this is a discussion that you can solve with just a rule because we've got multiple customer classes coming that are bringing additional load requirements to ERCOT.

Jim Burke: feasible. So I don't think, you know, this is a discussion that you can solve with just a rule because we've got multiple customer classes coming that are bringing, you know, additional load requirements to ERCOT.

Jim Burke: But I do think that the objective of the customers that we're talking to they want to see resources at it they're not looking to see the grid become tighter and tighter either so we are very active in the discussion about what additional resources, we can bring potentially even in addition to the ones, we've already announced and we.

we've already announced.

Jim Burke: Hope that if that is a compact that works for all the stakeholders.

Jim Burke: And we hope that if that is a compact that works for all the stakeholders, that that can help set up a confidence.

Jim Burke: That could help set up a confidence that welcoming the load to Texas or any part of the country is actually going to send to the investment signal for the supply side and having discussions about whether we may or may not want the load can actually create its own problems and so we have seen in.

that welcoming the load.

Jim Burke: to Texas or any part of the country is actually going to send the investment signal for the supply side.

Jim Burke: and having discussions about whether we may or may not want the load.

Jim Burke: can actually create its own problems. And so, we've seen in many cycles in this industry, people are prepared to invest and build if the signals are there.

Jim Burke: Many cycles in this industry people are prepared to invest and build if the signals are there.

Jim Burke: I think this is more than just a typical load coming to the market. This is a unique opportunity for regions of the country and specifically for the U S to lead on this topic for such a critical load and uses artificial intelligence that I I hope I hope, we all see it that way and that's that's been our main focus at our discussions with Paula.

Jim Burke: I think this is more than just a typical load coming to the market.

Jim Burke: Makers.

Speaker Change: Excellent I'll leave it there thank you.

Excellent. I'll leave it there. Thank you. Thank you, James.

Speaker Change: Thank you James.

Speaker Change: The next question comes from David Arcaro with Morgan Stanley. Please go ahead.

Speaker Change: The next question comes from David Arcaro with Morgan Stanley. Please go ahead.

Speaker Change: Hey, Thanks, good morning.

Hey, thanks. Good morning.

Speaker Change: Good morning, David.

Morning, David.

Speaker Change: Hey, maybe a little bit of a follow up on that on your comments. There. Thanks very helpful. We heard yesterday from encore that they're seeing over 80 gigawatts of data centers looking and just their service territory at least in the pipeline I mean, you just given that scale.

Speaker Change: Hey, maybe a little bit of a follow up on that on your comments there. Thanks. Very helpful. You know, we heard yesterday from Encore that, you know, they're seeing over 80 gigawatts of data centers looking in just their service territory, at least in the pipeline. I mean, just given that scale, there's.

Speaker Change: You just got to be a bunch of approaches maybe a diversity of approaches that these data centers are going to consider and so maybe just given that like what are you seeing as the interest in co location at your gas plants in ERCOT and then wondering if you could elaborate too on just that Newbuild idea like are there are you.

Jim Burke: There's just got to be a bunch of approaches, maybe a diversity of approaches that these data centers are going to consider. And so maybe just given that, like, what are you seeing as the interest in co-location at your gas plants?

Jim Burke: in ERCOT and then wondering if you could elaborate too on just that new build idea like are there are you in conversations with potential data centers that you might be able to partner with contract with a new a new plant build as well?

Jim Burke: In conversations with potential data centers that you might be able to partner with contract with a new a new plant build as well.

Jim Burke: Sure.

Jim Burke: David Great question, I'm going to start Emmet at Stacy door ahead of strategy to comment on this she's working on these types of opportunities.

Jim Burke: On a very near full time basis.

Jim Burke: It's.

Jim Burke: Certainly an active time for all of those types of conversations.

Jim Burke: I'd start with load forecast.

Jim Burke: Have been obviously extremely robust in ERCOT centerpoint put out some information about the kinds of load growth, they're seeing in their territory certainly oncor through the separate call yesterday in ERCOT itself has revised middle of the summer its long term load forecast, we've been a bit.

Jim Burke: More conservative only because we believe still it's hard to understand the full duplication that could exist not only within the state, but even across the country because folks are looking for paths to get speed to be able to bring this load and so theyre exploring all options.

Jim Burke: I do think that that demand if we can satisfy it I do think Texas is probably as well positioned as any part of the country to satisfy that demand.

Jim Burke: And we certainly want to be part of that not only on providing the relationship from the load, but the potential addition of resources and so I'd like I'd like for Stacy to provide some color on the types of conversations we're having and how we're working with encore with Centerpoint with ERCOT to make sure that we can help solve this together.

Jim Burke: Other.

Speaker Change: Yeah, Thanks, Tim and thanks for the question, David and so we are <unk>.

Speaker Change: Currently pursuing deals at multiple sites in our portfolio and we're also having some early conversations it sounds like the developers about a portfolio approach, where with one customer we might be able to.

Jim Burke: Christina Colocation deals at multiple sites and combine that with even buildings that new generation.

Jim Burke: And you know we had we're at we're in pretty detailed customer discussions and at some of our nuclear site. There's a lot of interest obviously in the nuclear sites, but we have ongoing conversations with several different development companies about a handful of our gas sites, both in PJM and in ERCOT and wearing.

Speaker Change: Discussions with some of the Hyperscale or is about nuclear at rates and some some new build as well as Jim mentioned.

Jim Burke: And then finally, we're in discussions with two particular large company, it's about building new gas plants to support a data center project. So as you can see.

Jim Burke: These discussions just take a number of forms with multiple companies around multiple sites and of course, we're including stakeholders are in those conversations as well from policymakers to the applicable transmission distribution distribution utilities and actually you said before the diligence process for these deals takes.

Speaker Change: A long time.

Jim Burke: And it's it's an intense effort because these are very long term commitments to purchasing power and so we're devoting a lot of time and resources to these discussions that were excited about the opportunity and we believe that the whether it's Texas or other states that we operate in Pennsylvania, and Ohio. These are jurisdictions that are really into.

Jim Burke: Stay in welcoming this low because of the economic development it brings and and so it's a multi party conversation that from for all of these projects.

Speaker Change: Yeah, Thanks for that.

Speaker Change: Oh, sorry.

Speaker Change: No go ahead, David you so much for that.

Speaker Change: It makes sense just given the staggering scale here that so many options are under consideration and I guess.

Speaker Change: Maybe to ask it.

Speaker Change: More directly to in terms of Comanche peak has have you seen them.

Speaker Change: Comanche peak, becoming better positioned here just after seeing the FERC challenges that have popped up in PJM like his urgency increase there and just would be curious your latest thinking on what the timing of the deal could potentially be.

Speaker Change: Yeah.

Speaker Change: Yeah. Thanks, David So we you know.

Speaker Change: Our discussions on Comanche peak had been ongoing for some time and there certainly is interest and in that location because at the speed to market advantage. It has even before the FERC decision frankly, I mean archive and ERCOT is one of the fastest interconnection processes in the country and in the store.

Speaker Change: <unk> prides itself on that that the TD used in ERCOT as well working together to get load interconnected is an advantage and in Texas. So certainly the fact that aircraft is not subject to the FERC.

Speaker Change: Stiction and and the order that came out last Friday and has continued to make Comanche peak and attractive site that it was before the FERC order as well so and in terms of timing you know, it's hard to say exactly when we could conclude discussions on that side, because again and there is.

Speaker Change: Theres a lot of work to be done and there's a lot of stakeholders to involve and not just archive policymakers oncor, who is the local T. D. You at that site that local officials as well. So theres a lot of you know a lot of conversations to have and we're well into that deep into that process and continuing.

Speaker Change: To pursue that opportunity and it's a great opportunity for <unk> and for customers.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thanks for taking the question.

Speaker Change: The next question comes from Steve Fleishman with Wolfe Research. Please go ahead.

Speaker Change:

Speaker Change: Yeah, Hi, I guess I'll Dare ask one.

Speaker Change: Other question on this topic, which is just.

Speaker Change: You know, Texas has emphasized availability of resources at kind of emergency or a peak times and the like DTC solutions in ERCOT, where where you could have the generation even if its co located available for.

Speaker Change: Kind of the more sensitive periods.

Speaker Change: Yes, we do we have even noted I think in previous discussions customers are learning how they can also manage their load during sort of emergency conditions.

Speaker Change: Whether it's something around a load response or whether its the backup generation that could be also configured at the site.

Speaker Change: Again, I think these large customers I think they are responding to some of the questions that there you know.

Speaker Change: They are receiving and concerns around resource adequacy and.

Speaker Change: They're showing that they wanted to be part of that solution. So that is again to Stacy as earlier point why these discussions do take some time and they're complex is there's a lot of variables that we're managing so I do think there's going to be some flexibility there, Steve and I think that'll help you know multiple stakeholders become comfortable with it.

Speaker Change: Okay and then on the we just obviously had this.

Speaker Change: Big election result, and I'm, just I know, it's two days in but just the.

Speaker Change: Any kind of thought process on what this means for.

Speaker Change: Kind of both Newbuild gas and then also.

Speaker Change: For your coal fleet.

Speaker Change: Yes, Steve I would tell you the.

Speaker Change: The election prediction business is tough and so as the policy prediction business. It's.

Speaker Change: I guess some of the thoughts that we are working through that.

Speaker Change: The G H G rule.

Speaker Change: And thats already being challenged obviously legally.

Speaker Change: But the D C circuit theres that could potentially be revised at some point and you can see that.

Speaker Change: With this administration.

Speaker Change: That affected not only the coal units, but also new gas and so that's something that.

Speaker Change: We'll have to see how that plays out and that could still take some time to play out but that does appear to be more open at the moment at least in concept, but getting back to this resource adequacy topic and also just the administration changes it's hard to look at you know 30, 35 year assets and look.

Speaker Change: The changes that happened policy wise on a four year cadence and see through all of that that's a that's a difficult thing for investors to do one of the things I like about our business model and I don't think this is something we talk about a lot is that we're a pretty diversified company we.

Speaker Change: Geographic diversity across major markets in the U S different jurisdictions.

Speaker Change: All obviously competitive markets, but we have a broad technology diversity the largest part of our fleet is gas fired generation, but then its nuclear and coal business, that's continuing to decline and our growing solar and battery business. So we have a lot of diversity in technologies.

Speaker Change: And in line of business you know you heard today, the retail business is large and growing and that tends to be complementary to the generation business. So.

Speaker Change: It's really hard to look at first and second order effects of potential policy changes, but I think we've demonstrated.

Speaker Change: That we're flexible as a company and that will take the opportunities that the market presents us and execute on it so.

Speaker Change: I view this as you know I wouldn't say this is normal course for vis drove but this has been a lot of our history and the competitive market is having to adapt and so we are obviously open to the technologies that you've mentioned, it's a big part of our portfolio and we'll have to see if that you know if some of those get some.

Speaker Change: Ended life opportunities, but too early to call.

Speaker Change: Okay, and then one one last quick one you.

Speaker Change: You added dimension for 2026.

Speaker Change: Potentially meaningfully above the $6 billion.

Speaker Change: I don't know if you care to define what meaningful means.

Speaker Change: And the like are just in the event that.

Speaker Change: In the event that the PJM auction, just where to price where it did the last Oct.

Speaker Change: Auction.

Speaker Change: Is there any kind of more color you could give about.

Speaker Change: About that is that the main driver or is it really more ERCOT pricing just any color would be helpful. Thank you.

Speaker Change: Yeah, Steve I'm going to let Chris take this one.

Chris Moldovan: Good. Good question, we know words matter and that that would be one that you.

Chris Moldovan: You pick up on so Chris Yeah, I see but I think it's a combination of those things I think obviously as you look at it we're.

Speaker Change: Only 64% has we're making progress in that area, but I'm, even though if you look at our 2025 guidance. There's a there's a good range around that of its 5% plus or minus around our 2025 guidance and we're 96% hedged there. So as we look out to 2026, and we see 64% hedged.

Speaker Change: You know you can you can imagine that our a range around that is a little bit wider and you also mentioned the PJM auction.

Speaker Change: That's an area so.

Speaker Change: We think it's still prudent to say 6 billion I think if the auction comes in where you know where we were it came in the last time and as we hedge a little bit more we have built in some.

Speaker Change: Protection against those things potentially going against us. So you could you could see some upside in and I think that you know we're.

Speaker Change: We're not going to we're not going to state that the you know where we see the upper end, but you can imagine that we've built in a little bit of upside to that if those things as we hedge more and as we see the auction results come in.

Speaker Change: Great. Thank you.

Speaker Change: I appreciate it.

Speaker Change: The next question comes from Jeremy Tonet with J P. Morgan. Please go ahead.

Speaker Change: Hi, good morning.

Speaker Change: Hey, Jeremy.

Speaker Change: Just wanted to pick up I guess on the diversified footprint as you mentioned there.

Speaker Change: Just wondering how you think about the ERCOT versus PJM opportunity set at this point in time, you know, particularly in light of the town I SA ruling granted it's early days, but do you see things like this kind of starting to taper or caught more at the margin.

Speaker Change: No I don't I don't think so Jeremy.

Speaker Change: You know the capacity again, the I would say is one dimension, but a capacity market construct in PJM is something that I think creates a real opportunity to send the price signal.

Speaker Change: And encourage investment whether that's some assets that are on the grid to not retire or to bring new new assets and obviously meeting the load growth that PJM is now forecasting that market design does not exist in Texas, and that's something that from a capacity market discussion.

Speaker Change: It's an energy only market.

Speaker Change: And so it's it has been a bit more volatile in terms of you might have a really strong summer in 2023, but we've had weaker.

Speaker Change: Clears in 2024, so if you were putting batteries on the grid right now in 24, you're probably wondering if youre going to get a return on those batteries, whereas you might have felt really good about it heading into the summer of 2023. So the <unk> is only one dimension of it is important to note that load is load if.

Speaker Change: This load comes into PJM, whether it's behind the meter of front of the meter inflow growth.

Speaker Change: Passive market should send a signal like it did at the end of July but there was intervention coming on the heels of that that's now led to a request for a six month delay.

Speaker Change: Again as I stated earlier, if these markets would consistently run there are opportunities for the auction in the case of PJM and for taxes being clear about signaling wanting the load to come I think these price signals would be there there'd be investment opportunities in both of them, but right now P. J M as a more structured.

Speaker Change: Way of valuing capacity and signaling in a forward curve basis, the need for that capacity then does the ERCOT market.

Speaker Change: Got it understood on the PJM capacity auction, there, but maybe coming back to the ERCOT.

Speaker Change: Power curves.

Speaker Change: How do you see that evolving over time do you think that demand is really reflected in future pricing. There how do you see that kind of evolving.

Speaker Change: Yeah that would get more to sort of a fundamental view of where do we think the curves are relative to this load growth and I would say.

Speaker Change: It feels to me and Steve Muscato, our head of our wholesale and Gen business.

Speaker Change: Can chime in here, but it feels to me that the curves are not factoring in all of this load growth at this point that there's a lot of forecasts out there folks are going to want to see more data points that it's actually coming to fruition.

Speaker Change: And we tried to put in our presentation were seeing it that we're on this curve of load growth, we put that in for what we're seeing in 2024, but as noted earlier in some of the questions. There's massive load growth being forecasted by the ISO as well as the wires companies I would not say the curves.

Speaker Change: Reflect all of that coming in at this point and I think just some of the recency of this summer is also weighing on the curves and Steve I would like to have you added some comments to that sure I agree Jim I think people are extrapolating, what I'll call historical loan growth from the last two years or three years of between 3% to 4% over the peaks and I think they're putting that forward in their models.

Speaker Change: It really gets down to how much of you know I think someone mentioned the encore study with 80 Gigawatts of data. So how much of that actually gets in and will we exceed the historical trends that we've seen.

Speaker Change: Before I also do think Theres, some recency bias. Unfortunately powers only liquid to may be out till 2028, 2029, it's hard to see beyond that and there's not a lot of activity and so the recent.

Speaker Change: <unk>.

Speaker Change: I think you'll see traders focus on more in the future, is what kind of premium do you put on winter? Because even if batteries continue to come into the market, which I think they're going to be challenged because they're, you know, as you mentioned earlier, Jim, they're cannibalizing the revenue streams.

Speaker Change: Right now there's so many of them, there's more batteries in the market right now than the ancillary services can handle, which is their primary source of revenue, not necessarily energy arbitrage.

Speaker Change: And when you mix that in with a winter event that's not just one or two hours in duration, I think you may see some more scarcity come into the winter curves going forward. Thank you, Steve. And I'd like to add, Jeremy, just two other dimensions. This was the first month.

Speaker Change: or solar and storage and wind were actually less than the number of projects canceled or Moved into inactive status. So I do think markets have a way of

Speaker Change: very attractive in this sort of May 24 time frame and I think the TEF, the quantity of the TEF interest and the discussions of continuing TEF or even having a larger TEF, I'm sorry I'm saying TEF, Texas Energy Fund.

Speaker Change: That is something that I think the markets are struggling to figure out how to handicap.

Speaker Change: and look at is that only going to be an incentive for new generation only or is that going to send a signal to keep existing generation?

Speaker Change: online. And so there's still a lot to sort out, I think, on the TEF because we're still in early stages with the due diligence process and we're going to enter a legislative session next year and I think folks are trying to figure out what is the state going to do if they're going to actually

Speaker Change: increase that quantity of assets qualifying for TEP or if they're going to let the market send a price signal to try to bring that investment and I think that's still you know still too early to call.

Speaker Change: Got it. That's helpful there. That was kind of getting to my last question here with regards to TEF and just your project development activities in ERCA, especially with the TEF considerations they said there. Could you just, I guess, update us overall on your thought process?

Speaker Change: Sure, yes we did submit two peakers as part of the TEF application. Basically each party that was selected was selected for one project, so one of our two peakers was selected.

Speaker Change: As we stated when we made the announcement in May and have continued to state since then, we want to see the actual development from a market design standpoint make progress. A reliability standard...

has been developed. It's not linked.

to a requirement if we fall below.

Speaker Change: A reserve or there are concerns around reliability is not linked to a market mechanism to procure additional resources in the market, but at least the reliability standard has been designed and will be studied on a periodic basis.

The PCM, Performance Credit Mechanism, is now hard capped.

Speaker Change: At $1 billion, it was a net cap, so presumably that could mean a lower overall quantity of resources being dedicated to a performance credit mechanism. And there's some discussions about even that being challenged, potentially in the legislative session.

Speaker Change: So, I think that and the ancillary services like the Dispatchable Reliability Reserve Service are still to be figured out.

Speaker Change: Real-time co-optimization is in flight as well for ancillaries and energy. That could be bearish for some price formation.

Speaker Change: and that also speaks to how do we incentivize resources to come into the state to meet the load growth and I don't think we have all that figured out yet in Texas.

Speaker Change: and I think that's work that we've got to do as an industry.

Speaker Change: so that we can continue to meet the need. We've designed our projects for the peakers that we're continuing to move forward.

Speaker Change: The team is, you know, working on all the efforts we need on site as well as with our key partners. But we also have off ramps to both of those peakers if the market...

Speaker Change: developments that we need to see don't occur. And we hope that's not the case because we'd like to bring those peakers, but we've got to make economic decisions and we're still not there yet.

Got it. Thank you for that.

Thank you, Jeremy.

Speaker Change: The next question comes from Angie Storzynski with Seaport. Please go ahead.

Angie Storzynski: Thank you. So maybe first on 26, maybe even 27, so just wondering

Speaker Change: if by then, by 26, 27, you would expect to have any meaningful EBITDA impact from...

Speaker Change: from those data center deals, be it co-locations or virtual PPAs, and also if that changes the way you're hedging your, especially baseload units in those outer years.

Speaker Change: of building out what you need to on the ground and then obviously powering the site as resources, servers, chips become available and installed. And that's after the study processes have to be done.

Speaker Change: on the front end, and so the timeline for these, you know, you could be in a four to five year process before you're putting a meaningful amount of power to a co-located...

Speaker Change: facilities. So I think timeline wise it's not really affecting how we're thinking about the hedging in the more near term sort of this 2026-2027 and if it did we'd start layering it in and I'm more my we're pretty open still obviously 2027 more than 26.

Speaker Change: So we hope that opportunity is there to be layering that in, but I would not say from a guidance perspective or from a hedging perspective. It's in the horizon that we've been talking to the market about in terms of our direction here for our earnings power.

Speaker Change: Okay, and then changing topics, so lots of discussion obviously and interest in your nuclear plants. You have, you know,

many more gas plants.

Speaker Change: Can you just give us a sense, directionally, you know, about the pricing differential for nuclear assets versus gas assets? Is it as simple as just the carbon-free attributes or, again, just even directionally, how these prices compare in the discussions that you have with data centers?

Thank you.

Speaker Change: Yes, thank you, Angie. I would say we aren't able and really would prefer not to share pricing differences by asset class, but I will say that in previous calls I've mentioned that

Speaker Change: You know customers look at this as a list of preferences, you know There's things that they are seeking that are more ideal including, you know Location and what kind of energy needs there might be for cooling, right? So there's all sorts of variables that are going to go into the equation of how valuable is this to

Speaker Change: customer and speed and land and water and other variables are going to play into their their willingness to pay under certain circumstances.

Speaker Change: more or less for different locations. And so I would not expect, I could be wrong, but I would not expect the gas assets to have the same premium as nuclear because of the carbon-free 24-7 attributes of nuclear.

Speaker Change: But there is an openness to gas that we're encouraged about and I think the flexibility of being able to work with these assets

Speaker Change: is attractive for a number of parties, including co-location partners that aren't directly the hyperscalers themselves. So, I think I'd like to leave it at that, Angie, but I think that's the way we're thinking about it.

Speaker Change: And then last one, and I know I promised Eric just one question, but can you comment about the transmission capacity around your PJM assets, especially Beaver Valley? So, for example, if there were to be a need for a virtual PPA in front of the meter deal for that asset, is the transmission sort of overbuilt around it or do you have to wait for upgrades?

Speaker Change: Yeah, I'll start, Angie, and I'll ask Stacey for her views, but, you know, we sit in a pretty balanced area where we are from a congestion point of view with

Speaker Change: locations we have, you know, the three locations there and PJM, there's still going to be study processes and efforts to connect load even if there is a perceived

Speaker Change: capacity available on the transmission system, because there is still studying to be done about what adding load in a particular spot is going to do to the whole system. And I don't think we view it necessarily as it's going to be faster or slower.

Speaker Change: If there is some capacity or not, I think it's probably going to be slower if it's front-of-the-meter versus co-located.

Speaker Change: And I think that's what we need to work on, and we may end up doing both.

in the area, in that region of the country.

Speaker Change: Stacey, anything you'd like to add to that? I would just add that at Beaver Valley, you know, we do have a necessary study agreement. It's already been studied that a load could be co-located there without negative impact.

Speaker Change: to the grid. And so, you know, I agree with Jim that it's the benefit of co-location and the reason customers are pursuing it is for speed.

Speaker Change: to market, so it will be faster than front-of-the-meter. Having said that, you know, again referencing what Jim said earlier, there will be plenty of, you know, front-of-the-meter connections as well, and to the extent

Speaker Change: as we do with all customers, that we can serve those customers with PPA for their front-of-the-meter connection. You know, we're certainly open to those discussions and having some of those discussions as well.

McPhil.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Jim Burke for any closing remarks.

Jim Burke: Yes, thank you for joining us today. I want to thank the team for their continued execution and service, you know, to our customers and communities.

Jim Burke: We appreciate we're having this call in a very dynamic time, and I can just assure you our team is focused on delivering. We appreciate your interest in Vistra, and we certainly hope to see you in person soon. Have a great rest of your day. Thank you.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.