Q4 2024 Vistra Corp Earnings Call
Speaker Change: Good morning and welcome to Vistra's fourth quarter 2024 earnings call.
And Chris I'm older than she was 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 all references to adjusted EBITA and adjusted free cash flow before grow.
Speaker Change: Throughout this presentation refer to ongoing operations adjusted EBITDA and ongoing operations adjusted free cash flow before growth reconciliations to the most directly comparable GAAP measures are provided in the earnings release and in the appendix to the Investor presentation available on the Investor Relations section of <unk> website also today's discussion contains forward looking statements.
Speaker Change: You 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 of the Investor presentation on our website.
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 will now turn the call over to our President and CEO Jim Burke.
Thank you Eric Good morning, and thank you for joining us to discuss our fourth quarter and full year 2024 operational and financial results.
Speaker Change: 'twenty 'twenty four was a transformational year for our company defined by growth and execution in the past 12 months, we closed on a unique acquisition, adding three new nuclear sites and 1 million retail customers with nearly 2000 team members joining the Mr family.
Speaker Change: We completed a 20 year license renewal for our Comanche peak nuclear power plant and secured two large power purchase agreements for our renewable pipeline.
Speaker Change: Our retail business grew and reach performance levels not achieved in the past two decades of competitive markets.
Speaker Change: This was a result of our one team mindset of distress and I'm excited about what we can achieve in 2025.
Speaker Change: Turning to slide five district delivered another strong year of financial and operational performance, resulting in full year, adjusted EBITDA of $5 billion $656 million.
Speaker Change: This outstanding financial performance, which the team achieved despite a mostly maag year of weather in our key markets exceeded the top end of our original guidance range, even before considering the $545 million benefit from the nuclear production tax credit that we recognized in the fourth quarter.
Speaker Change: This consistent execution from our team across generation commercial and retail supported by our focused corporate services team delivered reliable power and customer solutions that reflect the strength of our integrated business model.
Speaker Change: We believe the performance achieved in 2024 is proof that a diversified portfolio of generation assets, including nuclear and gas combined with a best in class retail business and a sophisticated commercial team.
Speaker Change: This is a superior business model for operating in volatile power markets.
Speaker Change: Moving to our longer term outlook, we are reaffirming the guidance ranges for 2025, adjusted EBITDA of $5 5 billion to $6 $1 billion in adjusted free cash flow before growth of 3 billion to $3 $6 billion that were introduced on our third quarter call.
Speaker Change: As you can see we are also maintaining our outlook for 2026, adjusted EBITDA midpoint opportunity of over $6 billion, while we have the potential to be significantly above this amount. There are still a number of variables in play including final approval of the 2026 2027 PJM auction parameters.
Speaker Change: And remaining hedging activity required to take us above the current hedge level of 80% we.
Speaker Change: We expect to provide more clarity on our expectations for 2026 later this year.
Speaker Change: Finally during 2020 for Vista repositioned itself to deliver significant capacity additions in our key markets to meet the coming load growth. This.
Speaker Change: This starts with the megawatts, we can bring to the grid most quickly augmentations of existing gas assets in our Texas market totaling approximately 500 megawatts. These.
Speaker Change: These operates represented an effective and efficient use of capital to add capacity to the market, especially on the hours when it's needed. Most we completed nearly half of those op rates in 2024, and we will finish the remainder in time for this summer.
Speaker Change: We also announced the expected conversion of our collateral Creek coal plant to gas fueled plant once it ceases coal operations in 2027, enabling it to operate beyond its previously announced retirement date.
Speaker Change: In addition, we adjusted the 2000 and twenty-five retirement date for Baldwin extending operations to 2027, which will help with reliability concerns in MISO and we are developing contracted solar and battery projects in a number of competitive markets.
Speaker Change: Moving to new gas build as we announced last May we are in the early stages of development for two natural gas pickers totaling up to 860 megawatts of capacity.
Speaker Change: While we continue to target a commercial operations date for these units in the middle of 2028, the ultimate decision on construction will depend on our view of the economics, including any market reforms being considered.
Speaker Change: Turning to slide six our four key strategic priorities remain central to our strong operational and financial business performance is.
Speaker Change: As highlighted on the previous slide our integrated business model and comprehensive hedging program provide increased visibility into our long term financial outlook.
Speaker Change: From an operational perspective, our generation team achieved another year of strong commercial availability and approximately 95% for our gas and coal fleet.
Speaker Change: Our nuclear fleet also delivered a solid result, with a capacity factor of 92%.
Speaker Change: We are excited about the work that's already been done in the form of nuclear fleet operating model and we believe we have opportunities going forward with respect to our operations performance improvement efforts.
Speaker Change: Our team continues to deliver high commercial availability, particularly in hours when it's needed most.
Speaker Change: Most recent example, being the winter storms in February of this year, where the team achieved commercial availability of approximately 96% across the fleet nationwide.
Speaker Change: On the retail side the team delivered an impressive result, driven by strong customer count growth and disciplined margin management, despite milder weather in most of our markets.
Speaker Change: Switching to capital allocation, we remain disciplined in our approach to allocating shareholder capital through a strategy that balances return of capital and investment in growth as part of this approach we continue to execute the capital return plan put in place during the fourth quarter of 2021 since that time, we have returned approximately.
Speaker Change: <unk> five $9 billion to our investors through open market share repurchases and common stock dividends, we expect to return at least $2 billion in total through share repurchases in 2025, and 2026, which includes the additional $1 billion share repurchase authorization announced last quarter.
Speaker Change: We also closed on the highly accretive acquisition of the 15%. This revision minority interest at acquisition, which represents a significant investment in our nuclear and renewable generation assets as well as our retail franchise simplifies our business model and increases our proportion of zero carbon revenue streams.
Speaker Change: All while balancing financial leverage.
Speaker Change: Moving to the balance sheet, our financial position is ahead of expectations communicated during our third quarter call with net debt at the end of 2024 below three times adjusted EBITDA.
Speaker Change: We expect further deleveraging through 2025 and 2026.
Speaker Change: With respect to zero carbon growth projects, we continue to execute on our strategy of utilizing existing land and interconnects to opportunistically complete solar and energy storage projects.
Speaker Change: As part of this strategy, we completed and brought online to solar and energy storage facilities at our Baldwin and coffee insights in Illinois, which is part of our Illinois coal to solar and energy storage initiative in the fourth quarter.
Speaker Change: We have also begun construction at our sites in Oak Hill, Texas in support of our contract with Amazon and Pulaski, Illinois for our contract with Microsoft.
Speaker Change: Once online these facilities will add over 600 megawatts of renewable capacity to our portfolio.
Speaker Change: Moving to our nuclear portfolio, we have engineering studies in process with initial estimates, indicating the potential for operates across our nuclear fleet of approximately 10%. We expect to finalize these studies over the next year with target online dates in the early twenties thirties.
Speaker Change: Before I continue I'd like to take a minute to address our Moss landing site in California.
Speaker Change: As you know one of our facilities on the site. The 300 megawatt phase one battery storage facility experienced a fire.
Speaker Change: We are grateful there were no injuries and the event was managed safely by our team and first responders and we appreciate the support of the community.
Speaker Change: Other facilities located on site, including the 100 megawatt phase two battery storage facility of 350 megawatt phase three battery storage facility and the <unk> thousand 20 megawatt combined cycle gas plant were not damaged by the incident.
Speaker Change: The combined cycle plant has since restarted and resumed normal operations. The other two battery facilities will remain offline until we've had sufficient time to evaluate them in light of what is learned.
Speaker Change: We will continue to work with the community and state leaders on our path forward, including the remediation of the phase one facility with safety remaining the team's highest priority.
Speaker Change: Moving to slide seven we continue to see real time load growth in our primary markets similar to the 'twenty 'twenty four summer peak load growth highlighted in our third quarter results call actual load growth weather normalized in PJM and ERCOT for the 2020 for 2025 Winter peak also exceeded historical rates. This.
Speaker Change: Included New records for Winter peak load of 145, Gigawatts in PJM exceeding winter storm Elliott by approximately nine Gigawatts and approximately 80 gigawatts in ERCOT exceeding last years winter storm Heather by approximately three gigawatts.
Speaker Change: Energy usage in these markets is growing even faster than peak demand, indicating likely future acceleration and peak load growth as these numbers converge.
Speaker Change: We continue to believe the level of growth across across both markets confirms our view that load growth is already ramping and the most recent updates to load forecast from PJM and ERCOT reflect these accelerating drug trends.
Speaker Change: J M. In ERCOT have consistently revised long term forecasts upwards and that is certainly a bullish sign.
Speaker Change: We will keep an eye on the ramp rates as we go importantly, the source of this expected low growth remains diversified across industries with power demand related to AI data centers being only one aspect of the growth in large load sources.
Speaker Change: The magnitude is expected load growth has raised the level of discussions with differing views on how to solve projected declines in system wide reserve margins.
Speaker Change: Over the last few months, there has been significant regulatory and legislative action related to market design in both PJM and ERCOT.
Speaker Change: Generation interconnect use across the country remain heavily weighted towards renewable projects, which do not provide the same reliability benefits as dispatch level resources, while there had been some short term actions taken by policymakers long term market structure questions remain recent developments with respect to the PJM capacity.
Speaker Change: The auction will provide some clarity, but continued delays in persistent regulatory uncertainty have made it difficult for generators to respond in a timely manner.
Speaker Change: First recent 206 order, which we believe indicates that co located load in PJM will continue to be permitted as a step in the right direction. However, there are a number of questions to be answered and clarity may not be provided until this summer.
Speaker Change: In Texas policymakers remained concerned with grid reliability and the challenges of meeting the forecast for rapidly growing load.
Speaker Change: We appreciate policymakers concerns about grid reliability, it's a message we have consistently reinforced for many years.
Speaker Change: However, the market reforms to incentivize new generation had been limited or shelved, which is leading to a heightened concern about new large loads.
Speaker Change: Recent legislative activity in Texas is raising some questions with both generators and large load customers, particularly datacenter customers.
Speaker Change: It is still early in the legislative process and it is not yet clear whether customers will pause or change any of their citing decisions for datacenters in ERCOT, while the legislation is under consideration, but we see workable pathways to a resolution.
Speaker Change: With the proper policy framework, our competitive markets can welcome to load growth and the economic development that accompanies it.
Speaker Change: We can build generation faster and at a lower cost in other areas of the country, while the utilities buildout that needed transmission.
Speaker Change: The team at <unk> will continue to work with policymakers and regulators on these key issues. This is a big opportunity for the areas of the country that find a way to do this well and it aligns with our national interest.
Speaker Change: In competitive markets, our view remains to let markets function by sending the proper supply and demand signals.
Speaker Change: Load growth by itself as a market signal that can incentivize generation as we've discussed on previous calls we expect load growth to come from many sources, including residential onshoring of manufacturing oil and gas electrification as well as data centers, including those focused on AI.
Speaker Change: Regardless of the demand source, we believe a new paradigm of load growth is already occurring and we expect it to continue.
Speaker Change: With that I will turn it over to Chris to provide more information on our fourth quarter and full year results, our outlook and our capital allocation Chris.
Chris: Thank you Jeremy turning to slide nine as a reminder, on our first quarter results call. Following the closing of the Energy Harbor acquisition, we initiated guidance for 2024 combined adjusted EBITDA with a range of $4 55 billion to $5.05 billion, including $700 million expected to be contributed from owning.
Speaker Change: Energy Arbor business for 10 months.
Speaker Change: Despite the lower cleared prices and the mostly milder weather we experienced throughout 2024, we delivered adjusted EBITDA, excluding the nuclear production tax credit.
Speaker Change: More than $300 million above the midpoint and more than $50 million above the top end of that range.
Speaker Change: Including the nuclear production tax credit our adjusted EBITDA was more than $850 million above the mid point and more than $600 million above the top end.
Speaker Change: Notably the 10 month contribution from energy Harbor, including the nuclear PTC exceeded our $700 million expectation by approximately $200 million.
Speaker Change: As you would expect the adjusted EBITDA over performance in 2024 translated to a higher than expected adjusted free cash flow before growth of approximately $2.888 billion.
Speaker Change: Playing a conversion ratio of approximately 57% when excluding the nuclear P. T C from adjusted EBITDA.
Speaker Change: As we've stated previously we didn't expect that 'twenty 'twenty four nuclear PTC to begin impacting cash until 2025 at the earliest.
Speaker Change: Looking forward, we continue to target a conversion rate of adjusted EBITDA to adjusted free cash flow before growth of at least 55% to 60%.
Speaker Change: Moving to slide 10, despite the potential impact from the Moss landing fire, including the uncertainty around the timing and treatment of insurance recoveries.
Speaker Change: Which we expect to total up to $500 million.
Speaker Change: We are reaffirming our 2025 adjusted EBITDA guidance range of $5 5 billion to $6 $1 billion and our adjusted free cash flow before growth range of $3 billion to $3 $6 billion.
Speaker Change: Looking forward to 2026 as Jim noted, we continue to have high confidence that on an adjusted EBITDA midpoint opportunity of over $6 billion.
Speaker Change: As always our guidance and long term outlook remains supported by our comprehensive hedging program since our third quarter call. Our 2026 hedge ratio has increased from 64% to 80%.
Speaker Change: Our commercial team continues to be opportunistic and taking advantage of periods of power price strength and volatility to protect our gross margin.
Speaker Change: Turning to slide 11, we provide an update on the progress of our capital allocation plan our share repurchase program continues to generate significant value for our shareholders.
Speaker Change: Since beginning the program in November 2021, we have reduced our shares outstanding by approximately 30% repurchasing approximately 160 million shares at an average price per share of approximately $30.46.
Speaker Change: Notably this reduction on our share count has led to an approximately 48% increase in our dividend per share since Q4 of 2021.
Speaker Change: Moving to the balance sheet as of the end of 2024, our net leverage was below our stated long term target of three times adjusted EBITDA. Despite closing the acquisition of the 15% rest revision minority interest on the last day of the year and recognizing the remaining payment obligations as debt.
Speaker Change: Going forward, we expect to continue to manage the balance sheet in a conservative manner.
Speaker Change: Finally, we will remain disciplined in the deployment of capital towards further deleveraging growth and shareholder return to that end, we expect to spend just over $700 million on solar and energy storage projects in 2025, including the previously announced solar projects supported by contracts with Amazon and Microsoft.
Speaker Change: Based on our current pipeline of contracted projects, we expect a moderate step down in solar and energy storage development Capex for 2026, but this could change as additional off take agreements are executed.
Speaker Change: Of course, we will continue to pursue opportunities to fund a significant portion of our growth expenditures for third party capital, including nonrecourse loans.
Speaker Change: Finally, we continue to expect to return at least $1 $3 billion to our shareholders in each of 2025 and 2026 through dividends and share repurchases.
Speaker Change: Even after taking that into account we continue to expect to have at least the $1.5 billion of incremental capital available for allocation through the end of 2026 that we highlighted lighted on our third quarter call.
Speaker Change: As a reminder, this amount is based on an assumed $6 billion of adjusted EBITDA in 2026, So we see potential for significant upside.
Speaker Change: We are excited for the opportunities in the coming year and believe <unk> remains well positioned to take advantage of the growing energy dynamics in our primary markets.
Speaker Change: We believe the significant amount of cash that we generate combined with our disciplined capital allocation program will continue to add substantial value for our shareholders 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 youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question.
Speaker Change: Please press Star then two 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.
Shar: Hey, guys good morning.
Shar: Hey, Shar good morning, good morning, Jim.
Shar: No surprise on the line of questioning here, but I guess what color can you provide on the timeline for deal at this point I mean can you at least bookended should we be.
Shar: Should we see something by mid year year end 26, I guess, what's the primary impediment on getting a deal done as the Texas legislature that deep sea Spooking customers is it for <unk> and PJM something else I appreciate it. Thank you.
Shar: Yeah. Thank you Shar I think we had a sense this question might be coming.
Shar: I would say I'm, assuming this is an M&A and it's about data center deals because there's multiple deals that all the time, but I will tell you that.
Shar: On the data center side, it's important I think to elevate the dialogue from.
Shar: The simple nature that Theres, just a contract to be signed the flavor of the deal matters. So you can assume that we're speaking to all of the major hyperscale or is in there. We're actively engaged with them and the major data center developers, but theyre flavors of complexity. So the virtual P. P, a which would be a fee.
Shar: Wanted the meter those are relatively straightforward deals to execute we have a number of discussions going on with those those do not offer we see the same margin potential as the more complicated deals, which do involve co location, whether it's with existing assets or new assets.
Shar: When you think about that.
Because it's a new concept, there's a lot of terms and conditions, including the risk sharing that goes into that partnership because you're making it 10, 15 20 year commitment and you see not many deals has been announced that have actually been co location related we think colo deals offer a lot of benefits for.
Shar: Not only the datacenter customer and our fleet, but the market overall, the overall customer base because it not only provides speed to market for the customer. It can result in lower transmission build out at the grid absorbs today.
Shar: So the customer may be willing to pay for that speed pay for the reliability benefits, but because it's fairly complicated it's elevated the discussion in all regulatory and policy, making circles Sofia of course theres been active on that and we have seen some positive progress there, Texas has just recently filed legislation trying.
Shar: To sort out how do they think about front of the meter and co location deals and customers are aware of that so when we're talking to these customers they want to be viewed as constructive.
Shar: They want clarity on these rules and so I think the timing of an announcement, we will also be dependent at some level and when we get clarity on how these deals can move through the process both in P. J M.
Shar: And in Texas, It wouldn't prevent us from signing front of the meter virtual ppas, but I think the deal that you're speaking about in that folks want to see is where the marriage of the load and the generation asset is proximate because that makes a lot of sense for a lot of reasons and that complexity. I think is is raised I think that level of.
Shar: Of discussion at the federal and state level as well as our customers, but we are in this discussion every single day, we feel good about the direction of travel.
Shar: On it but it's still something that that we've got to actually get over the finish line before you'd see us announce something.
Shar: Got it and it's just fair to assume that Comanche peak is probably the lowest hanging fruit versus Davis besse here Beaver Valley et cetera is that is that in your discussions is that where the focus is.
Shar: I would say that there is interest in in both markets for different reasons I would say the Comanche peak opportunity, it's probably right now considered the most attractive.
Shar: For a variety of reasons, but I think it's also.
Shar: One that as from the standpoint of having the amount of land, we have and the ability to bring that on pretty quickly just the construction timelines in Texas working with the wires companies to make sure that we're set up we think it's probably the fastest execution that we have across the portfolio.
Shar: Perfect and just lastly, just on the commercial question, obviously, the Ctr was very bullish for power, but the moves in the forwards has been a little slower than what we may have expected. We just hit a winter peak demand last week can you just talk a little bit about what the commercial team is seeing in the outer years of the forwards.
Shar: And maybe just how that impacts your positioning thanks, guys I appreciate it.
Shar: Sure.
Shar: Sure. That's a that that leads to also the question of if you were to sign a long term deal at a power price. What do you think is a fair power price.
Shar: If you don't think the forwards today reflect the load growth that everyone is worried about that.
Shar: And then you got to be thoughtful about what's the right price to be selling at 10, 15, 20 year deal, especially if it's a fixed price construct.
Shar: We don't think that the forwards while they have moved out in the last couple of months I'm speaking about ERCOT, they've actually turned a little bit on the outer years in PJM. So we're not seeing exactly the same direction and in those two markets, but speaking of ERCOT. Since you referenced the C. D. R. We don't think the kind of load growth that's in the office or attestation.
Shar: Or even if you haircut it by 50% we don't think that's in the forwards falling and so we're going to be thoughtful about signing up a valuable asset that's producing power and selling on a routine basis at a level that's producing very strong earnings like we just covered in 2024.
Shar: And so our commercial team thinks that while we're starting to see some of that response, we don't think it's fully in there and that colors. The discussions we have with customers. Because they also are trying to figure out what does the forward look like what's going to happen with the inflation reduction act or the solar and battery is going to continue to come at the same level in <unk>.
Shar: All of that affects this supply and demand.
Shar: Signal that I talked about in my prepared remarks so.
Shar: We're bullish our of course, because our fleet is well positioned but I think the signals that are there. If you were just taken the forwards we'd be reluctant to just be signing that up on a 10 15 20 year basis and be comfortable that we can tell our shareholders that that's fair value.
Speaker Change: Got it and I appreciate it Jim that's actually very helpful and I think it's something that investors should think about as you your views around power and contracting. So thank you so much on that I. Appreciate it. Thank you shar.
Speaker Change: The next question comes from Julien Dumoulin Smith with Jefferies. Please go ahead.
Speaker Change: Hey, good morning team. Thank you guys very much I appreciate the time.
Speaker Change: Maybe just a follow up on where Shar left it and some of the comments that you made how do you think about the additionality right and they mean that in a more complex sense of.
Speaker Change: Is there a need immediately or over time to add to existing sites. I mean, obviously, we see sort of the intent of SB fix in some respects and we see some of the commentary how are you thinking about managing that both in the PJM and ERCOT narrative in and how does that figure into your planning and then I got a follow up on the guidance here quickly.
Speaker Change: Yeah Julien Thank you for the question.
Speaker Change: When you think about this 24 by seven low debt is is the profile that the datacenters expect to have and then you look at our grid like ERCOT, we're only tight certain hours of the year.
Speaker Change: So the question I think that we're trying to work through with policymakers is what problem are we trying to solve and I think the problem that we're trying to solve is that if this load continues to come on aggressively.
Speaker Change: In ERCOT with its current portfolio of resources can it add a lot more load and not worry about any reliability impacts, particularly to the residential customer base, who has traditionally been part of any load shed protocol in fact, even first in the load shed protocol and I think that's very fair to elevate.
Speaker Change: That concern.
Speaker Change: But since we're talking about a few hours of the year summer and winter and likely even more winter than summer all of these datacenters expect to be bringing one for one backup resources. That's unlike any other customer class.
Speaker Change: So what we're working through is on those limited hours of the year.
Speaker Change: In the backup resources with proper notification condos backup resources, the be utilized and if they can and we can get the clarity of that with the environmental rules.
Speaker Change: Then we can solve a problem in this in the Super peak hours and I don't think it takes new.
Speaker Change: New combined cycles just to solve this problem. Okay. I think we've got a very active and diversified portfolio of resources, but we need to have flexibility to use that backup I think that is gaining some interest and I think that's something that policymakers are open to but I think we've also got to be clear that they have to have.
Speaker Change: High reliability and fidelity of power and so that needs the notification process and they've got to be prepared to shift to that and some of the legislation. That's been proposed it's unclear if theres going to be noticed if there's for instance of a disconnect switch that somebody else can trigger and so we need to work through some of those asps.
Speaker Change: But I think the concept is that theres actually excess capacity most hours of the year on the ERCOT grid, our combined cycles run at 50% to 60% capacity factor. So the issue is not the average day the issues really about Super peak hours and that's what we're focused on.
Speaker Change: Alright, So you still think something could happen this year, though right after the summer for legislative session and PJM resolution.
Speaker Change: I certainly hope so Julien I will tell you, though and I've tried to message this on previous calls.
Speaker Change: These customers have a lot of options.
Speaker Change: Everybody is talking to them they have markets all over the country, obviously, they have international opportunities, but even in the U S.
Speaker Change: I do expect that we're going to get something done, but I respect their ability to negotiate and work their option set and they're sophisticated.
Speaker Change: And so having just the land and the interconnect and the gas turbines and look we have two slots come in for turbines and 26 in first quarter 'twenty seven words early in the queue on that Budd.
Speaker Change: When I look at it they still have choices of where theyre going to go and we have value in those assets and that needs to marry up and so yes, I do expect to make progress and I think policymakers and legislative clarity here withheld.
Speaker Change: Got it excellent. Thank you again guys appreciate the time.
Speaker Change: I mean.
Speaker Change: The next question comes from David Arcaro with Morgan Stanley. Please go ahead.
David Arcaro: Hey, thanks, so much good morning.
Speaker Change: Hey, David Good morning.
David Arcaro: Good morning, I was wondering are you.
Speaker Change: Well, the discuss or give a rough range of kind of what pricing levels that you might be thinking or discussing out there with potential deal structures. We had some suggestions from a peer of yours yesterday wondering if.
Speaker Change: If you would give any color around how that compares to your own discussions.
Yes.
Speaker Change: A lot of reasons I don't think I'm comfortable talking about pricing and.
Speaker Change: Competitively sensitive kind of category that we're in.
Speaker Change: And obviously the it matters on the value proposition. So as I mentioned on the earlier response, a straight sort of front of the meter virtual P. P. A I'd expect to have.
Speaker Change: Our lower margin assumption, because it's a less differentiated product you might get paid for some.
Speaker Change: Emissions attributes like if it's a carbon free energy creditors of sorts, but you can capture some of that value co location on an existing resource where you're offering speed the market for a customer. If you can execute on that I think you would potentially see the highest margin.
Speaker Change: The one that I think is unclear at the moment, if you pair new generation with a new customer.
Speaker Change: And they need to take a take or pay, especially if it's not grid connected there could be a premium that the customer has to pay to make that whole model work, but it may not be a margin. It may just give you your required equity return and maybe not a lot of extra but that took a lot of investment for you to bring that about so.
Speaker Change: The sweet spot as we see it is.
Speaker Change: Understanding what value proposition you have with your fleet.
Speaker Change: And then figuring out is there a place where you can meet in the middle with a customer for what you provide and I think that's what district has that differentiates us from many others is that we've got a lot of operating assets with a lot of land. We can do a colo on existing sites, but we can also go to sites that we have over.
Speaker Change: 50 that don't have power plant.
Speaker Change: Assets on them, we could build new there we could partner with a customer that isn't typically the fastest speed to market. So when we have a conversation with a customer and they're asking us what can you do to help us in 27 with our needs those packages look like 29 and 30.
Speaker Change: And there are interesting, but theyre not as actionable to the customers that we're speaking with.
Speaker Change: Okay got it that makes sense and then wondering if you could give an update on the prospects for potential gas plant co location, you know, what's the interest level in in those assets from potential counterparties.
Speaker Change: How do you see the size of that.
Speaker Change: Excuse me this Saturday opportunity within your fleet.
Speaker Change: Yeah.
Speaker Change: So David you guys have heard a lot from me I'm going to turn this over to Stacy Dore, who has been leading this effort you've heard from from her before on previous calls and I'd like for her to give you a sense of the variation of the models, we're talking about with gas plants. So you have a sense of how we're how we're attacking it.
Stacy Dore: Thanks, Jim Hi, David and <unk>.
Stacy Dore: So I think we talked a little bit on the previous call about the fact that we are seeing interest in our existing gas sites, primarily from the data center developers at this point and I think there are a variety of ways too.
Stacy Dore: Our range does deals typically you're going to need a great connection and a gas plant. So youre going to have to go through the same regulatory approval process that you would even for a front of the meter interconnection so that adds some.
Stacy Dore: Complexity and time, and you probably need to be able to add some maybe batteries and other back at Jan to replicate the reliability that customers need and a lot of our gas is you don't have quite as much land associated with MSA and nuclear site. So he has the challenge of thinking about where the data center will be built.
Stacy Dore: Having said that we're progressing a lot of those conversations on a handful of our sites in detail and working on agreements and to bring those to bring those projects to fruition fruition.
Stacy Dore: And in addition to that we are in a number of conversations.
Stacy Dore: That building, new gas and for data centers as well with I can without great connections and in various markets.
Stacy Dore: So we have a number of conversations going on that are at the papering stage and as Jim referenced earlier, you know those those agreements can be complex, but we are optimistic about our ability to bring those projects to a close.
Speaker Change: Okay, great. Thanks, so much for the color.
Speaker Change: The next question comes from Michael Sullivan with Wolfe Research. Please go ahead.
Michael Sullivan: Hey, good morning.
Speaker Change: Hey, Michael.
Speaker Change: Hey, Hey wanted to just ask on on the forward outlook and maybe why the decision to continue to Mark off of November curves and then when you talk about the certainty needed for a 2026.
Speaker Change: To give a formal range there is it more so you need to see the auction result, or or or just more clarity on the rules and parameters.
Michael Sullivan: Yeah, Michael I'll start then I'll ask Chris to provide some input.
Michael Sullivan: Look when we say 6 billion plus and I think I toned into my remarks, we're very confident about $6 billion and so theres ranges around that the issue that we have is just that.
Michael Sullivan: Because we don't have the auction cleared in the parameters arent set yet and we're not fully hedged whatever next bump we give you.
Michael Sullivan: Or the market I should say, they're going to be asking for the range around that and we really want to be in the process of giving that next year guidance on the on our call that we have in the third quarter.
Michael Sullivan: And I think you can assume that the earnings power of the business looks much stronger than the 6 billion plus for 2026, and we don't see that tailing off in 27 and 28, so I'm going to ask Chris to provide his color on this but I think Michael it's really more about what's the right cadence for provide.
Michael Sullivan: The updates not simply there are a couple of variables moving around but yeah I agree I think it's the cadence that it's also we continue there there are some variables that we're waiting on you mentioned the capacity auction, we're still even though we're 80% hedged in 2026 that leaves approximately 45.
Michael Sullivan: Terawatt hours of generation, that's open and so you know I think as we continue to hedge and we get some more clarity on the auction parameters later this year, we'll be in a position.
Michael Sullivan: Jim says once we start moving the number then we get into ranges and so were we.
Michael Sullivan: We're hesitant to do that at this time, and that's where the curves I think youll see that historically as we reaffirmed guidance we haven't updated that.
Michael Sullivan: We say that it's still based on the curves because we're reaffirming the guidance that we gave before but you can you can assume that we have considered changes in curves and all of the factors that go into it when we go ahead and reaffirm its typically I mean this is obviously early in the year and we don't typically move guidance at this point.
Michael Sullivan: So we'll wait until later in the year to adjust guidance, but.
Michael Sullivan: I wouldn't read into the fact that we're still basically on November 4th curves, where we're certainly to get to the reaffirming stage thinking about all the puts and takes that have happened since we put out that guidance.
Speaker Change: Okay I appreciate all the color there and then kind of related to that but more on the policy side too.
Michael Sullivan: Two questions I guess.
Michael Sullivan: What should we think about the likelihood of the cap floor proposal passing.
Michael Sullivan: Capacity auction.
Michael Sullivan: And then in Texas, I mean, you talked about customer.
Michael Sullivan: Customers, having choices and options and the like is there any particular provision in NSP six as it stands that you think would.
Michael Sullivan: <unk> them away from Texas.
Speaker Change: Yeah, Michael Great questions on the first I think we feel the cap and floor is likely to be approved.
Speaker Change: We've seen obviously stakeholders weigh in we've seen IMF comment so I think that's likely for the next two auctions.
Speaker Change: I think that the.
Speaker Change: That brings some of the volatility around the marketplace, which as you've seen we've had low clears for the last three auctions until this most recent one and then that's the only one that makes the news you know the low clears were not newsworthy, but they were adding real impacts on bringing capacity and asset.
Speaker Change: Retirements.
Speaker Change: On Texas.
Speaker Change: Yes, there are things in SB six that are certainly helpful for the marketplace.
Speaker Change: The idea that we need to understand what's really in the interconnect Q from a load standpoint, and maybe raising the bar. So that we get more clarity about the load forecast if it's a really low bar and folks are worried that we're going to see the grid double by 2030. It causes concern when the next <unk>.
Speaker Change: Deal gets announced for a data center because the view is is that we need to solve all the way up to 150 Gigawatts. We have not that has not been our view you've seen us for many quarters suggest that that.
Speaker Change: That the load growth, while robust is not a double digit CAGR on peak demand each year, we see it more in the 3% to 5% peak demand range.
Speaker Change: So, bringing clarity to that and getting our load forecast I think will help policymakers, who were trying to figure out how big of a grid.
Solving for and frankly, the talent Amazon deal what it really did cause that datacenter could be funded the meter. It's still the same load as it would be if it's sitting next to a new plant. It just catalyze the conversation on a resource adequacy. It really wasn't about co location and Theres always going to be a question about is there a transmission charge that should be.
Speaker Change: Or not setting that aside the concern was do we have a resource adequacy issue and that's what a large co location deal really brought to light so incentive bill six part of how they are looking to solve that is to put requirements on customers larger than 75 megawatts.
Speaker Change: To shed load during critical peak hours, which we agree with and we think the customers that we're talking to are preparing and they're designed to be able to do that but I think when you get to something like a remote disconnect switch.
Speaker Change: That's unusual and would only exists for these customers.
Speaker Change: And that's something that gives them pause because theyre going to spend tens of billions of dollars and they need to know that they're in control of.
Speaker Change: Of those assets and they're more than willing to work as we are with the policymakers to give them comfort that with no. Just look these weather events. They do give you. Some notice. So all we really need to do is get to some adequate notice.
Speaker Change: And we can move forward. The final one is the transmission charges, we just need clarity on them. They just want to know are they going to get something that's commensurate with the transmission and grid utilization, there's a revisiting potentially of the four coincident peak methodology that problem.
Speaker Change: Does need revisiting because some companies some customers are able to either reduce their load or turn on backup and minimize their transmission exposure, which means those costs go to other customers, including potentially residential customers and since we serve nearly 5 million customers, we're sensitive to that as well so.
Speaker Change: There is a lot in that bill there was a hearing going on today about it theyre going to get a lot of feedback, but I would say clarity is what we need and then this disconnect. This remote disconnect I would say is one of the things that we hear from the customer side is very concerning as theyre not seeing that specific.
Speaker Change: Approach in other markets right now.
Speaker Change: Okay.
Speaker Change: I appreciate all the thoughts thank you.
Speaker Change: Michael.
Speaker Change: The next question comes from Angie stores Henske with Seaport. Please go ahead.
Speaker Change: Thank you. Thank you so maybe first.
Speaker Change: I mean, just taking a step back so it doesn't sound like gas deals are awaiting Chinese regulatory clarity, it's just more about a contract.
Speaker Change: Contractual arrangements.
Speaker Change: No.
Speaker Change: You know why haven't we heard of any gas.
Speaker Change: Is it that you know you.
Speaker Change: You mentioned in the past some sort of a portfolio deals are they.
Speaker Change: Associated with some of the nuclear deals that Youre working on and that's why we haven't hurt.
Speaker Change: Of those or is that.
Speaker Change: Some reluctance I E <unk>.
Speaker Change: The Allstate Curiously you two contracts these gas plants.
Speaker Change: You know at current terms are the terms that they are offering.
Speaker Change: Andy Hi, this is stacy thanks for the question I would say that the gas deals that we're working on the co location deals with existing assets are waiting on regulatory clarity as well I mean the same.
Speaker Change: The same uncertainty that is applying in behind the meter or co located deals in PJM. For example, with the FERC proceedings would apply whether the asset is nuclear or gas because the question really that's being asked is what is the transmission charge if any that has to be paid.
Speaker Change: On those deals so.
Speaker Change: Pjm's willingness to move forward with necessary steady agreements for example applies whether it's gas or nuclear similarly in Texas with and with SB fix all of the provisions and that build it could affect Colette co located load would apply whether the acid gas or nuclear so I do think the same.
Speaker Change: <unk> regulatory clarity that Jan referenced that we need and customers need to move forward on any.
Speaker Change: Co location with existing with new.
Speaker Change: Grid connected and all of that will be necessary for and for these deals to ultimately be understood well.
Speaker Change: And in terms of the portfolio of probes and that I mentioned on the last call. We are still in discussions with a number of parties, including some.
Speaker Change: Financial and <unk>.
Speaker Change: Backers and capital providers about those kinds of approaches I would not say that the data those conversations is holding a particular deals because we also had discussions about specific sites that continue on in parallel and so all of those conversations continue on a daily basis.
Speaker Change: In detail with a lot of work being done in terms of on the customer side as well as our side and understanding.
Speaker Change: The physical attributes of those priced projects the regulatory timeline as well as the commercial terms.
Speaker Change: Okay, and then on the nuclear deals.
So you know it was my understanding in the past that you know I found that at least Directionally you understand how to structure. These deals you might proceed with them even before we have rules in place.
Speaker Change: If omni because for example.
Speaker Change: Would be some time lag between.
Speaker Change: With your announcement of when you would be asking.
Speaker Change: FERC plenty RSA amendments.
Speaker Change: Has that changed this approach that we are we waiting both in Texas and and first before the final rules to be passed before any any deals can be announced.
Speaker Change: Yeah, Thanks, Angie and.
Speaker Change: We are not waiting necessarily on.
Speaker Change: Full clarity from either FERC or Texas, before we announced the deal having said that while.
Speaker Change: While all of these proceedings are going on in the background. It raises questions in the commercial discussions about things like this is going to be you know taking the risk on a change of law, you'll always that change in law provisions and contracts that you have to negotiate but when youre in the middle of the actual legal proceedings that are contemplating changes in law is heightened.
Speaker Change: The discussion around those kinds of terms.
Speaker Change: And in addition to that you know I think we've referenced before that we do have what we believe to be a final necessary steady agreement at Beaver Valley, and we are continuing to progress that project again on the ground and with customers and but I believe that PJM does feel that they need some additional clarity from FERC.
Speaker Change: You actually file an amended IFA, having said that that doesn't prevent us from continuing to work.
Speaker Change: And the customers that we're talking to you about Beaver Valley, and then just with our own team on doing the development work that has to be done.
Speaker Change: And directly connect data center to Beaver Valley or Comanche peak. So all of that work continues or there is no pause there is no waiting until we have an absolute answer, but having said that the regulatory process does affect the discussions and I think we're both sides both us and our customers are trying to work through that entity.
Speaker Change: You're out how we can and contract around some of the and answer questions.
Speaker Change: In Asia, what I'd like to add thank you Stacy is.
Speaker Change: Underpinning some of the reaction to the.
Speaker Change: To the Amazon Talon deal and even the filing of SB six in the hearing.
Speaker Change: It's still a view that co locating load with a plant is a concern for their grid, but having an equal amount of load sitting one mile down the road from the plant is not a concern for the grid in physics, those are going to be the same supply and demand and reliability.
Speaker Change: All of the concerns either way and we need to solve for the supply and demand in both cases, but I do believe that the customers are sensitive that they want to be viewed as I'm, bringing economic development on bringing jobs on bringing.
Speaker Change: A capability that we think.
Speaker Change: Net multiple states want to be a leader in.
Speaker Change: And so they want to be welcomed in that context, the fastest speed to market are the co location deals, but if you read the commentary and you read the concerns there are views that that is somehow taking megawatts off the grid.
Speaker Change: But the same sized data center one mile down the road is not taking megawatts off the grid that fundamental difference of view drives a lot of the discussion and it's our job along with other stakeholders in the process.
Speaker Change: To be as clear as we can be about what the supply demand effects. Our load is load and we need to have adequate supply. The co location of that does not change that fundamental supply demand balance, but I think it still is a is a is an awareness that the customers have right now that we need to get that thought.
Speaker Change: More clearly articulated in way, we inform policymakers and engage with them. So that those kinds of deals are viewed as actually net beneficial because they will likely result in less aggregate transmission build out just to put something in front of the meter and that could get uplifted to all customers.
Speaker Change: So there is a discussion here about the pros and the cons and both are going to be on the grid. We've said that multiple times are going to be a lot that's going to be done in front of the meter regardless and there should be some we think there should be a fair amount done through co location, because it's efficient and effective.
Speaker Change: Okay. It's just that I think we would have hoped that this discussion has already taken place given that it's been almost exactly 12 months since the Susquehanna deal was announced now so.
Speaker Change: And that this is somewhat of a contentious topic, but that's down.
Speaker Change: Time is of the essence as you know.
Yes.
Speaker Change: Real quick Angie we share your view.
Speaker Change: Honored percent.
Speaker Change: And partly our business model as you know is no matter what is getting built out on the grid, whether it's front of the meter.
Speaker Change: And it's done by the Hyperscale or through Colo providers oil and gas electrification our assets are positioned to see benefit.
Speaker Change: From demand growth.
Speaker Change: In addition, we'd like to capture this value if we can capture it if we for some reason this gets delayed or it's just difficult to capture we're going to capture a lot of value with our business. The way its set up today, because we are net long generation beyond our retail requirements and so I think we're set up well for that but.
Stacy Dore: We agree with you we thought we'd be further along as an industry and some of the fundamentals on this discussion, but we arent yet and we're going to have to keep working it Stacy yes.
Speaker Change: Yeah, Angie I would just add to that and I thought it was interesting that in the FERC to those six order that came out last week, which is setting this co location.
Speaker Change: Topic for finally on our schedule, which we're optimistic about and we think is a positive step forward and we hope to have some clarity from FERC in the next five to six nights on that and I appreciate and we appreciated the commissioners focus on urgency because to your point and.
Speaker Change: We would have hoped we would have figured out this conversation by now because at the end of the day. We've all said we as Joe has said the customers have said that we believe that these co location co located load should pay some aspect of great charges for whatever services. They are using but that can be different.
Speaker Change: And based on the configuration of that particular project and that needs to be taken into account and I think forget finally, and setting up a process to consider that they did recognizing the order. This exact point that Jim is making and we bring to this point ourselves, which is that there is no resource adequacy difference between friends.
Speaker Change: Our load and behind the meter.
Speaker Change: And they both are 500 megawatt data center is at 500 megawatts of power, whether it's behind the meter in front of me here. So I think FERC recognized the argument that there is no resource adequacy difference at the same time, they pointed out that what they believe policymakers are concerned about is the timing.
Speaker Change: Well located load, bringing the load faster than what is happening in front of the meter and that's exactly why the customers are interested in it. So that's the disconnect that we have to solve is the customers wanted to get online as they are willing to pay for that and behind the meter configuration. At the same time policymakers are concerned about resource adequacy and <unk>.
Speaker Change: Our concern that allowing this co location will bring resources on load on faster than the utilities can get it all in front of the meter and I think we all owe it to the customers and to economic development until what's best for the national interest and figure that out and to make sure that we have the appropriate procedures.
Speaker Change: <unk> co location and then the last thing I'd say is that FERC order first press release on the order was also positive in the sense that it pointed out that the purpose of that he loves. This proceeding is to decide how to appropriately allow co location, so that les definitive and argue that FERC knows and why.
Speaker Change: These co location projects to move forward and we just need to figure out what the rules of the road are.
Speaker Change: Good thank you.
Speaker Change: Thanks Angel.
Speaker Change: The last question comes from <unk> Chopra with Evercore ISI. Please go ahead.
Speaker Change: Hey, Thanks for squeezing me in there for a quick clarification I think Chris you mentioned, the $500 million associated with Moss landing.
Speaker Change: What is that exactly is that is that the insurance coverage is that the cash burn and that's what we are reporting today.
Yes, the 500 million, we have an insurance policy that covers the Moss landing battery assets and it's got a limit of $500 million and our expectation at this point is that we would.
Speaker Change: Receive up to that $500 million limit on that insurance policy.
Speaker Change: Okay got it okay, one of the news outlets kind of calling it out.
Speaker Change: Or is the cash payout from that so I just wanted to clarify quickly. Okay. So that's an insurance policy.
Speaker Change: Jim.
Speaker Change: One thing I wanted to kind of get your thoughts on it.
Speaker Change: Assuming that we get clarity from Goldcorp.
Speaker Change: Mark on co location, it's smooth sailing going forward what are the things you mentioned is the disconnect.
Speaker Change: Between you know on the on the.
Speaker Change: What do you know how youre seeing forward prices with some other customers as nickel prices.
Speaker Change: Obviously, you've been prudent when you signed these long term contracts, how do you get around that so assuming just fast forward to second half we have all the clarity in the world.
Speaker Change: Still a disconnect between where forward ERCOT prices might be in 'twenty eight 'twenty nine.
Speaker Change: What do you think of it to be working with your customers how do you get around that.
Speaker Change: Sure.
Stacy Dore: First of all I don't think there's a single clearing price for these deals like there is sort of like a real time price of power. So I think it gets to the site characteristics. The nature of that transaction with respect to say speed to market and any other benefits as stacy laid out any risk sharing and things that we're bringing to the table as part of.
Speaker Change: The structure so.
Speaker Change: There are a lot of customers that we talked to some are in better shape during certain time periods of like the next five year horizon, and so depending on different customers motivation, where in the country. They want to be the speed with which they want to get there. These that's why this is actually part time consuming exercises.
Speaker Change: It's really all one to one conversations that you have to have there isn't really an auction for all of this to happen and clear, but I do think it's gonna be a spectrum and speed does matter not only the speed to actually bring these assets online, but in these conversations and getting to term sheets are we're pretty conservative there geis and.
Speaker Change: And that's my fault, but.
Speaker Change: When things are real they're real and there'll be announced and it's just hard to see underneath the hood. Because you are not here to see what we're doing and the kinds of activity, that's actually happening on a daily basis and the engagement, we're having and I know that's frustrating for folks, but I'd like to think that what we have focused on for the.
Speaker Change: For many years and will continue to do so as we call it putting points on the board with which is where you know you have something definitive and we could move forward and give our shareholders confidence and that's just not where we are yet on these deals, but we're working hard to get there.
Jim: Thank you Jim I appreciate your.
Speaker Change: Commentary discussing there.
Speaker Change: Thank you for your cash.
Speaker Change: Yes.
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: Thank you everyone for joining 2024 was a very strong year in a row.
Jim Burke: Really want to thank our teams for their continued execution and service to our customers and community. Some of that can get lost is we talk about just what's next on the horizon, but this is a this was a really strong year and folks deserve.
Jim Burke: Congratulations for their execution and Theyre also signed up for a strong 2025 and beyond and I expect we're going to create value in a variety of ways as demand continues to accelerate I know, we're going to see a lot of you on the road and we hope that we get to see you in person soon.
Jim Burke: Thanks for joining and have a great day.
Jim Burke: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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