Q2 2025 Vistra Corp Earnings Call
Good day and welcome to the vistas. Second quarter 2025 earnings conference call.
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I would now like to turn the conference over to Eric Meek, vice president investor relations. Please go ahead.
Good morning and thank you for joining. This is investor webcast. Discussing our second quarter 2025 results. Our discussion today is being broadcast live from the investor relations section of our website at www.vrp.com there. You can also find copies of today's investor presentation and earnings release leading the call today. Are Jim Burke Mrs. President and chief executive officer and Chris moldiv. This is Executive Vice, President and Chief Financial Officer. They are joined by other visitors, senior Executives to address questions during the second part of today's call as necessary, earnings released presentation and other matters. Discussed in the call today, include references to certain non-gaap Financial measures all references to adjusted ibida and adjusted free cash flow before growth throughout this presentation, refer to ongoing operations, adjusted evida and ongoing operations. Adjusted free. Cash flow before growth reconciliation to the most directly comparable. Gaap measures are provided in the earnings release. And in the appendix, to the investor presentation available in the investor relations section of this website.
Also, today's discussion contains forward-looking statements which are based on assumptions. We believe to be reasonable only, as of today's date. Such forward-looking statements or 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 2 of the investor presentation on our website. That explain the risks of forward-looking statements, the limitations of certain industry and Market data included in the presentation and the use of non-gaap financial measures. I'll 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 second quarter, 2025 operational and financial results.
The business continues to perform well and with our strong year-two, date results. We remain on track to achieve a record result for the company in 2025
The trends and demand growth continued to persist in our major markets, the recent experience, in pjm in the Northeast is a great example. With the late. June Heatwave, resulting in pjm load, hitting the highest level in 14 years, in New York, the highest in 10 years. And in New England, the highest in 12 years
Avenues to accelerate America's development of AI and the electricity sources needed to power it.
We continue to believe this will require a diversified solution with capacity coming from all types of generation sources, particularly dispatchable across all major power markets. We believe the challenge of meeting expected load growth in a way that minimizes the impacts to all customers is solvable. And as I will outline later, we believe vistra is, well, positioned to be a leader in developing, these solutions for the energy needs of our customers and our nation.
Starting on slide 5. The team has worked hard across the business and achieved adjusted even of 1 billion 349 million for the quarter, the consistent execution from our team across generation commercial and Retail delivered, reliable power, and customer solutions that reflect the strength of our business model.
The strong execution of our team year-to-date provides us with confidence that we will meet or exceed our plan, despite the impacts of ongoing unplanned outages at a few of our units.
Thus, we are reaffirming the guidance ranges for 2025 adjusted ibida. A 5.5 billion to 6.1 billion dollars and adjusted free. Cash flow before growth of 3 billion to 3.6 billion dollars,
Moving to growth. We recently announced our plans to acquire 7 modern natural gas facilities. From Lotus infrastructure partners with the combined capacity of approximately 2600 megawatts including 1,800 megawatts in the pjm market.
We believe these assets are highly complimentary to our Fleet and we look forward to closing the transaction later this year or early next year,
Lastly, given our hedging activity over the past several months combined with the results of the recently completed 2026-2027 PJM capacity auction, we are increasing our 2026 adjusted EBITDA midpoint opportunity, excluding any contribution from the Lotus assets, to be at least $6.8 billion.
Turning the slide 6 are for strategic priorities, remain integral to our strong business performance, and both are short-term and long-term success, our integrated business model and comprehensive hedging program, leverages our diverse portfolio of generation assets.
This combined with our strong retail Brands, and experienced commercial team provide increased visibility into our earnings potential, while providing considerable downside protection.
Operationally. We achieve commercial availability in line with expectations, as the team worked diligently to prepare the fleet for the critical summer months.
This preparation was evident, especially during the June heat wave in pjm, MSO and the Northeast markets.
Despite the demands placed on the fleet, particularly during the hottest 3 days. Beginning, June 23rd, our Fleet performed very well with a commercial availability of approximately 95% across our Diversified set of assets.
On the retail side, we achieved another solid quarter of performance driven by growth in Kott across our portfolio of brands.
And strong complaint performance versus our competitors.
We also continue to grow our large business markets franchise as customers are looking to secure power while managing price volatility.
In fact, our Texas business markets volumes were 10% higher year-over-year with strong margins.
switching the capital allocation we remain committed to our disciplined approach of returning Capital to shareholders executing on attractive growth opportunities, like the announced acquisition of assets from Lotus infrastructure Partners while also maintaining a strong balance sheet,
Since implementing the capital return plan put in place during the fourth quarter of 2021.
We have returned over 6.5 billion dollars to our investors. Through share repurchases and common stock dividends
We expect to return at least approximately 1.8 billion dollars of incremental Capital to shareholders through, share repurchases and dividends to the end of 2026.
We also expect this Capital return to coincide with significant balance sheet deleveraging
Which we believe will position us for an upgrade to investment grade ratings as our earnings grow and we complete remaining future payments related to The vistra Vision minority interest acquisition.
6.
We continue to evaluate the remainder of our development portfolio for additional opportunities, as long-term power agreements materialize.
Finally, we were excited to achieve the successful relicensing of our Perry Nuclear Power Plant during the quarter.
The nuclear Regulatory Commission approved the license, renewal through 2046 an additional 20 years Beyond its original license. And we look forward to the continued operations of this key based load asset.
We Believe nuclear Powers unique combination of carbon-free. Dispatchable power will continue to play a critical role in meeting our country's electricity needs for decades to come
Turning the slide 7 we continue to see a structurally improved demand backdrop, which has significant positive implications for our business.
While third-party forecasts and utility estimates have wide variation, we continue to see a structural shift in electricity consumption with recent growth in electricity demand across the country returning to pre-2000 Trends after approximately 2 Decades of stagnation.
As we highlighted last quarter energy growth, in our biggest markets, continues to track ahead of electricity demand growth for the entire country.
with whether normalized load in pjm growing approximately 2 to 3% and the urop market growing approximately 6% year-over-year
Growth, energy consumption will outpace the growth in Peak energy, demand.
This will mean higher utilization of existing assets, including generation and transmission and distribution assets, as well as demand response activities. Particularly from large customers including crypto data centers and other industrial customers.
Our view is that markets are beginning to send the much-needed signals for investment in New Generation.
This is underpinned by the continued investment from Industrial and Commercial sectors, including data center customers.
Since the beginning of this year, the administration's push to drive investment into US. Manufacturing has identified over 2 trillion dollars of announced projects.
As covered on recent quarterly investor calls hyperscalers continue to invest in Ai and data center infrastructure, including capital expenditure budget increases of over 50 to 60% on average compared to the prior year.
The recent pjm capacity auction clear is a sign of markets responding to this increased Demand with recent prices signaling. The value of additional capacity whether it's plant augmentations deferring, retirements conversions or new build We Believe returning the pjm capacity auction to its regular schedule with a 3-year lead time combined with the necessary stronger auction clears. Will incentivize the capacity additions the system needs.
Policy makers are understandably concerned about system, reliability, and system costs and programs. Like the reliability resource initiative and pjm can help accelerate dispatchable generation Editions.
Finally we continue to believe near-term demand can be reliably and cost-effectively served by the grid. We have today. Given that electric grids remained underutilized for the vast majority of hours in the year.
This Remains the case for both kott and pjm where Peak load has been approximately 85 gigawatts and 162, gigawatts respectively. But the average load is approximately 55 to 60% of that level throughout the year.
Our thermal Fleet on average runs 50 to 55% capacity factors as most thermal assets do across the grid. These resources can scale to meet additional load requirements. The super peak hours can be reliably met with straightforward Solutions like on-site backup generation and demand response. Allowing the new load to come into our markets. Utilizing the Investments already made by the electricity sector, both regulated and competitive.
In the media, in the long term to sustain the economic growth and meet customer demand, more investment will be needed across the system.
As outlined on slide 8, we believe this is diverse Fleet of generation assets, Innovative retail business and development capabilities. Strategically positioned vistra for success. In the power sector through a variety of opportunities. Customers are looking for multiple tailored solutions, to meet their energy needs. And whether it is Data Center contract opportunities with existing assets or higher, utilization of our, more than 40,000 megawatts of existing assets, we have multiple paths to create value.
Is actively progressing. These opportunities and we have good momentum.
We have a number of short-term medium-term, and long-term options across the generation Fleet. And we feel confident about the status of these opportunities and look forward to providing more details, over the balance of the year.
Our existing asset base provides a strong Foundation from which to grow capacity, through upgrades.
Not only at our gas plants but also at our nuclear sites, where we expect to finish our operating studies by the end of the year.
We anticipate being able to add more than 600 megawatts to our existing nuclear capacity. By early to mid 2030s,
Moving to our call sites are coletto Creek, cig gas conversion remains on track for 2027.
We see additional potential conversion opportunities at our other retiring. Coal, plants, given the strong capacity clears and are improved Market Outlook including our Miami Fort coal, plant located in Ohio.
With the recent capacity auction clears combined with an improved Outlook in forward, Energy prices. And the state's dedication to markets with the passage of House, Bill 15, in Ohio, we are taking concrete steps. To prepare a potential conversion of the plant to gas, allowing it to run beyond the mandated, retirement date and adding key capacity to the pjm market for years to come.
Turning to New Generation, we are proud of our development teams. Their track record makes us a preferred partner, including structuring and evaluating potential opportunities for new build gas generation in partnership with large customers.
For Renewables, we view the vistra zero strategy as complimentary to our dispatchable generation assets and will continue to execute our pipeline, by utilizing, existing sites and interconnects to Serve customer needs.
Finally, as we have demonstrated over time, we believe acquiring and integrating generation, and Retail assets to be a core competency of the team.
We will continue to take an opportunity to approach to m&a as Market opportunities arise.
On the topic of m&a I would like to briefly cover the recently announced Lotus transaction on slide 9.
As you'll recall, we announced mid-may and agreement to acquire 7 modern natural gas facilities. Totaling 2,600 megawatts of capacity from Lotus infrastructure partners.
The acquisition includes 5 combined cycle, gas turbine facilities, and 2 combustion, turbine facilities, located across pjm New England, New York, and California, which will further geographically diversify Vistas natural gas Fleet while providing valuable dual fuel capabilities at 3 of the sites.
This transaction, which was struck at an attractive valuation of approximately 740 dollars per kilowatt of capacity. Before taking into account, any tax benefits while enhance our footprint in the Northeast and provide additional optionality as power markets tighten while exceeding our mid- teens levered, return Target,
The acquisition remains on track for closed later this year or early 2026.
In summary, our financial outlook continues to strengthen, while market tailwinds expand our opportunity set.
We believe we have both the assets and the team to maximize value and deliver for our key stakeholders and we are excited about the numerous opportunities in front of us. Now I'll turn it over to Chris to provide more details on the second quarter results Outlook and capital allocation, Chris
Thank you. Tim turning to slide 11 vistor delivered. 1 billion 349 million in adjusted Eva in the second quarter including 593 million from generation.
And 756 million from retail.
The generation segment continued to realize material benefits from our comprehensive hedging program, with average realized prices nearly $3 per megawatt-hour higher compared to the same quarter last year.
The stronger realized price benefit together with higher capacity, Revenue substantially offset. The impacts of unplanned outages at Martin Lake unit 1 and our battery facilities at Moss. Landing
On a year-to-date basis, the additional 2 months of energy Harper, results combined with higher realized, wholesale prices and higher capacity Revenue.
More than offsetting the impact from the outages.
The team is working diligently to restore site operations at Martin Lake Unit 1.
And we currently anticipate that, it will restart late this year or early next year.
Despite isolated channels at specific plans, the results of the generation segment highlight the benefits of operating a large Diversified Fleet.
Moving to retail, it is important to note that based on the shape and level of Supply costs, we expected a year-over-year increase in results for the first quarter, which was realized, but a modest year-over-year decrease in results for the second quarter.
Notably the second quarter like the first quarter benefited from strong, customer count and margin performance.
Retail continues to generate strong earnings for our business, in a variety of market conditions and is on track to outperform 2024 results.
The team's use of innovative and customer Centric. Solutions, maintains the competitiveness of the business and supports our long-term Outlook,
Moving to slide 12 our commercial team continues to opportunistically hedge, our expected generation, providing more certainty with respect to our expected, 2025, adjusted Ava, and our 2026 adjusted Eva midpoint opportunity.
For 2025, as Jim noted, we have confidence in our ability to deliver 2025 results at, or above the midpoint of the guidance range.
Based on realized prices for the first 6 Months of the Year together with expected forward prices for the balance of the year as of June 30th.
We did not book any nuclear PTC in our second quarter financial statements.
However, we continue to expect the nuclear PTC to provide meaningful downside support to our adjusted EVA outlook.
Turning to 2026. Given our current hedge position combined with the recent price, clear in the 2026 2027, pjm planning year capacity auction. We are increasing the expected floor of our 2026 adjusted Eva, midpoint opportunity to 6.8 billion.
Notably despite a modest pullback in 2026 power prices. Since our first quarter results, call we continue to see the possibility for our 2026 adjusted Eva, midpoint opportunity to be 7 billion dollars.
It's important to note that this improved opportunity for 2026 does not include any benefits from the pending acquisition of gas fired. Power, plants from Lotus infrastructure partners.
We look forward to providing our formal guidance for 2026 as well as a view of our adjusted. Eva midpoint opportunity for 2027 on our third quarter results, call
after we have executed additional Hedges with respect to our expected generation for those years,
Moving to free cash flow. As you may recall, we have targeted a conversion rate of adjusted free cash flow before growth to adjusted IBA of approximately 55 to 60%.
Given the expected benefits from the passage of the 1. Big beautiful. Bill act, we now expect consistently Higher free, cash flow conversion as a result starting in 2026. We are increasing. Our targeted conversion rate of adjusted free cash flow before growth to adjust it Eva over the medium-term to be at or above 60%.
Based on this revised outlook, we expect to generate a meaningful amount of additional unallocated capital. And, as Jim mentioned, we have many options on how to deploy this capital.
We plan to provide a more detailed update on unallocated cash available for allocation on our third quarter results, call
Finally, we provide an update on the execution of our capital allocation plan on slide 13.
The share repurchase program remains an integral part of our Capital allocation framework and has added significant value. Since the initial implementation in late 2021,
since beginning the program, we have reduced our shares outstanding by approximately 30%, repurchasing approximately 164 million shares at an average price per share of just under $33
This reduction has led to a 50% increase in our dividend per share, when comparing the dividend per share in Q4 2021 to the dividend per share, paid in Q2 2025.
Our utilization of a 10B 1 plan, has allowed us to stay in the market even when in possession of material non-public information.
The plan is designed to flex up or down based on multiple predetermined factors including our share price.
For example, in the second quarter, nearly 2/3 of the total share repurchases in the quarter were executed during the April Market downturn achieving an average price paid per share in that month of less than $115.
Going forward, we expect to remain consistent buyers of our shares, with a goal of leaning in during periods of market dislocation.
Moving to the balance sheet, this is net. Leverage ratio is currently approximately 3 times adjusted ibida.
Allocate additional cash to incremental growth, or additional debt repayments.
we remain committed to maintaining very strong, leverage metrics, which we believe when coupled with the expected stability and diversity of our earnings will position us for an upgrade to investment grade credit ratings in the next 12 to 18 months,
Turning to organic growth. We expect to invest just over 700 million dollars on solar and energy storage projects in 2025 including the previously discussed solar project supported by contracts with Amazon and Microsoft.
Consistent with comments made last quarter, we anticipate a significant reduction in solar and energy storage development, and capital expenditures for 2026.
As always, this remains subject to change with any new offtake agreements.
As Jim outlined earlier, we see an exciting and expanding opportunity set of growth projects across all generation types within our Fleet.
We remain committed to our disciplined approach including targeting at least mid teens levered Returns on these projects while continuing to return Capital to our shareholders and limiting the impact on our leverage metrics.
In summary, the team remains focused on delivering another strong year and positioning Vista for long-term value creation.
If at any time your question has been addressed and you would like to withdraw your question.
Please press star. Then 2
Please limit yourself to 1 question and 1 follow-up. If you have further questions, you may re-enter the question queue.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from David araro with Morgan Stanley. Please go ahead.
Oh hey thanks so much. Good morning. Hey David, good morning.
Um, you know, first I thought uh could we start on um convenient cheap Peak? I was wondering if you could just comment on, you know, how how is a potential deal at Camanche Peak progressing in latest thoughts on um timing there in any gating factors. As you look at that opportunity,
Yeah. Hey David. I I somehow knew this 1 was coming so I appreciate you asking it. Um it's an important topic, you know, our strategy
to date has been to announce something when we have a completed agreement and not before
I think that's been a bit differentiating, you know, from from others through this process, and it's important.
That we've been intentional and not providing a specific time frame because reaching any data center. Deal is complex and we actually want to make leverage too in the negotiation of these deals. So in my view, you know, you're not done until you're done. And our Focus has been on finalizing the right deal for our company, which, of course, includes our shareholders. And so it didn't just about price. It's also about terms so given that background. There's been a ton of interest in Comanche Peak
And while I'm not ready to pre-announce anything, I can share with you that. At this point, I feel very good about where things stand and getting a deal done at Comanche Peak. I hope that's helpful color David. I know there's going to be other questions about it, but I feel really good about it. The team feels really good about it. And uh and something that, you know, the teams working hard at
Got it, thanks. No, I uh I can appreciate that. Um, and that is helpful color there and maybe just to add 1 more, uh, question on that topic. I'm I'm curious just you know, is there anything else that's needed from a maybe Texas policy standpoint to move forward? I think you know previously you had characterized sb6 as 1 of the key um elements there. Do you feel like you have everything you need in terms of regulatory Clarity or you know the regulatory approval process is still somewhat in flux. Is that um 1 of the next Milestones that could determine the path forward.
Was an important piece of legislation. I think it's
Primary focus was.
Concern around, you know, load large, load growth and grid reliability and how will either front of the meter or co-located deals?
Highlighted, you know, our project had already been filed and is already subject.
Uh and we believe meets the requirements of all existing urot large load interconnect processes. We think it meet the requirements of any new process but to your point there's still a bit uh uh undetermined about the new process. There's been a workshop. There's been an open meeting here recently. Um our feeling is is that the approach we've taken from the initial construct of this deal and working with our partners to where it sits today?
Is that a binding deal signed before? September 1 is not subject to the new SP6 process.
And we're already underway in that process but if there were requirements that came out of sb6 we feel confident in our project meets that so we don't view that as a gating item necessarily David. I just think it's a process and we've been very interactive with stakeholders at Austin you know throughout our discussion. So again that's all part of when I say I feel good about where we are and getting a deal done. I say it with respect to that and I also say it with respect to timing
Okay, great. Yeah, I really appreciate this, uh, this extra color. I'll leave it there. Thanks so much. Thank you, David.
Our next question comes from Michael Sullivan with Wolf Research. Please go ahead.
Hey, good morning. Hey, Michael. Hey. Hey Jim. So, so just 1 more on on the timing front. I think you said, uh, kind of more updates by year end is, is that
Specifically referring to Camanche Peak or are there other opportunities and and any color you want to provide on maybe some of the other things that might be in that in the hopper that we could get color on.
Yeah, Michael that wasn't specific just to Comanche Peak. Um, you know, as as as I mentioned earlier in the background on responding about the Comanche Peak opportunity.
You know, we have not pre-announced activities, we we will talk to you about.
The level of activity and the fact that we're working across the fleet on front of the meter and co-located Deals. Um, I could see because you, you manage a queue customer interest comes and goes at times, depending on what other options, they're evaluating even beyond our portfolio of opportunities. So, we think that, there could be other opportunities that could come from from, you know, where they sit today to completion by year end. But no, the, the year end comment was not specific to Comanche Peak.
Okay, I appreciate that. Um, and then maybe on on the m&a front, I know you have uh, something pending right now. Do you think about that as
Precluding you at all from doing, any other deals in the interim and any, uh, you know, Market power issues that that you see in any in any, uh, grids that you might be running up against, uh, for any future deals.
It's a good question, Michael. We don't see it as precluding, this was not uh on a percentage basis. This was not as large a deal as obviously some of what our peers recently announced, we had done bigger deals earlier. You might remember, we were
We started this with the acquisition of Dinoy Um way back when, and when prices were even lower from an asset standpoint than today, and then of course, Energy Harbor. And then this one, I do think there are going to be specific tests that obviously regulators will look at and specific pockets. But we think that's manageable; there are plenty of assets that are of interest to us. We have headroom in the major markets, including, you know, the major PJM markets as well as ERCOT. So, you know, we expect to be in the discussions and in the evaluation of future opportunities.
Okay, great. Thank you very much. Thank you, Michael.
Our next question comes from Jeremy tonette with JP Morgan. Please go ahead.
Hi, good morning. Good morning, Jeremy.
Maybe to put a bow on this part of the uh conversation with respect to to Contracting in general, just wondering if you could kind of gauge the momentum here, do you feel more confident in your full opportunity Set? Uh, across the portfolio Now versus the last quarter? Given developments. We've seen over the past several months.
It is interesting that you're gauging at quarter to quarter because we do see conversations ebb and flow at times. Because again, these large customers—and we're talking primarily the hyperscalers.
Come into a conversation where we're talking about multiple deals and then, it'll go a little quiet. And then even more deals, come up for discussion in the aftermath of that, I can only assume our peers are seeing similar type reaction because these are complicated deals. Collocation, for instance, I describe it as sort of like, having a, a permanent roommate, you know, it's not a paper contractor, a hedge, you know, your co-located your coordinating activities, the relationship lasts for decades. Your manager load ramp grid protocols expansion plans, water use land, use, you know, there. There's those are real important Partnerships to get, right? I would say overall the interest this quarter appears just from an activity level to be even greater than it was last quarter.
But I don't want to say that's a prediction that next quarter is going to be even busier, I'm just suggesting that it's not all linear. And the way that these conversations develop
But they do take time to get, right? And that's the most important thing is we aren't focused on just getting a deal. We want to get the right deal for our company and our shareholders, but I do think the activity level has picked up this quarter.
That's helpful. Thank you for that maybe I guess to reframe it a little bit better. Any thoughts, you could share in the relative attractiveness of a long-term Contracting across the the market. You're in such as you know, kott versus pjm or even thinking about new tour versus gas at this juncture.
Yes, I've described in the past and I think I said this a year ago and I don't think my view has changed in the year of these uh discussions and and and the process of developing these opportunities with potential customers.
I think there is still a premium for carbon-free resources, like nuclear. We also see speed-to-market advantages with co-located deals. I think those deserve a premium, and that price spectrum—I’d put those still towards the upper end.
I think as you move to front of the meter for those same resources, there's still attractive. I wouldn't expect them to Garner the same premium that as you move to gas, I think you also have a co-located versus front of the meter and the customers are working that entire spectrum of opportunities, but I think just like any other consumer product, you have people will pay for value.
So if there's land, if there's access to being able to expand, there's value to all of that. So I look at it much more from the standpoint of, these are sophisticated customers.
And I would say that the ipps and those that are regulated utilities working with these customers are learning their needs. But folks will be economically oriented and there are some things that fit their profile differently. And so, for instance, the colocation providers that are not the hyperscalers, they may be more interested in some of the gas Arrangements than the nuclear Arrangements.
I think that's natural; that's how markets should clear. But that price spectrum we've talked about before, I think, is still intact, and that's the flavor of the conversations we're having.
Got it, that's very helpful. I'll leave it there. Thanks super. Thank you.
The next question comes from bill apicelli with UBS. Please go ahead.
Hey.
Just a question on the the free cash flow conversion Improvement you discussed. Can you just uh, put some more, uh, color around that I assume? This is driven by the, the obv, uh, depreciation, uh, improvements, uh, and thanks to what level can that get to you? Is that something we can see you go up to 65% or What's the magnitude
Yeah, I appreciate the question. So I I think, as we said, we, we were in the 55 to 60% range. So, you know, if you kind of look at the mid middle of that, which is, you know, on average where we were, and now we're saying 60 plus percent, that's that's approximately again, I think if you assume 3% a year, which wouldn't be unreasonable. Now, the timing of that
Shifts from year to year. So it's not, it's not straight line, but 3% a year. And if you think about us being, you know, starting in 2026 at 6.8 to 7 billion dollars of of Eva, you know, you get to a approximately 200 million dollars a year and and then again over a 5 year period, that would get you to somewhere in the neighborhood of a billion dollars. That wouldn't be unreasonable. It's again, I want to make sure it's as though the state that that's some of that is a little bit. Uh, lumpy it comes a little bit more in the 27 through 29 time frame than than the 26, you know benefit.
The mention around the investment grade over the next 12 to 18 months. Um,
Can you just speak to that as to to what you need to achieve? Is that just on the hiring? But to a projections and you know, or is this going to increase the effort to Target a lower leverage level? Um in terms of not just or even down moving up but paying
Down additional debt.
Yeah, as we I noted in the remarks we do expect to deliver relatively quickly and and part of that is paying down debt that includes the repurchase obligations relating to our vistra vision, minority interest. But it's not, it's not that. That's not the only debt that we anticipate paying down over the next couple of years. So we will be reducing debt and then, as you say, our additional adjusted debit opportunities that begin starting in 2026. So we deliver very quickly and
We've always said our, our goal was to maintain a very strong balance sheet. Um, we weren't we weren't targeting. I think, over the last couple of years we weren't targeting a specific rating but you know as we've done the energy Harbor deal and now the the Lotus transaction and and we're some opportunities have Arisen. We see our business risk, profile and leverage metrics both improving and that puts us on a clearer path to investment grade ratings and we think that's warranted. Um, we're welcome it and we do think it'd be incrementally positive for visitor and its stakeholders. So I I do think we'll get down to the
Those metrics. I think, you know, you you had we we continue to to say we target Less Than 3 times. I think, uh, we see something materially below that and and I think once we get there, we'll plan to stay as a, as a lower level company. So, I, I, I could see us being materially below 3 times and and, you know, we'll welcome the the investment grade ratings and we'll continue to run our balance sheet accordingly.
All right. Great, thank you. And then just lastly I mean can we just get your your views on on the pjm capacity auction, you know, clearing out the cap and, and where maybe we go from here from a, from a policy perspective. Um, and you know, should we assume that ultimately this capacity price is going to fade down, or do you expect it to stay at certificated level for the foreseeable future?
Yes, that is that is a difficult question to answer. I, I would say from a prediction standpoint, you know, we know we have a cap and a floor for the next auction. And I think that it's giving, you know, at least signals to both the customer side of this, as well as the supplier side that we're going to be in sort of a banded outcome. As, as you guys know, the capacity clears have been all over the board and prior to last summer.
The previous three clears were, you know, effectively in the dirt. And we've seen the market respond to that. We've seen a lack of new builds during that period, but also plant retirements.
With the last 2 clears, including this most recent 1, you're seeing the market respond. I mean on an icap basis on an installed capacity basis. You know, we saw almost 5 gigawatts of of new Supply in just this auction.
Um, obviously when you do it on a UK cap and they factor that down, that's a lower number, but that UCAP gets applied on, you know, the supply side and the demand side. So, I think it's important to not lose sight that all companies are responding in this environment. Miami 4 is a great example of that. It's a 1,000 megawatt coal unit in the Inn near the Cincinnati area and that is slated to retire. We have broadcast that for several years. With the previous auction clears, we couldn't even think about converting that to gas because there's a cost to the pipe. We have to sign a contract for gas supply. So, we increase our fixed costs and then we have to have a view towards capacity and energy. 1,000 megawatts in the DXO zone is very meaningful to the marketplace.
And we've done augmentations. We've submitted a couple of projects as part of the RRI effort, which is going to add about almost 12 gigawatts, and half of that's new gas, including CC GTS and CTS.
So I think people believe that 1 clear everything should appear, but it just doesn't, it takes time and the interconnect cues are part of that as well. And so
Generation. So that we can utilize the capacity that's already on the grid and build new where we need to.
The other part of this that I think is important to keep in mind is a lot of the auction. Clear and what's important is relative to the cost
Of building new as well. The cost of building new has more than doubled in The Last 5 Years. So just looking at a historical auction clear and saying these are higher clears than we've had in the past.
Is interesting, but it's actually not the full equation because we have to pay for not only the capital.
To build a new plant, the labor to construct it, and once you have your capital costs, you know your gas costs. You forecast energy revenue; you look for this capacity piece to help fill in the difference. As those costs have moved up, necessarily, the auction clears need to move up in order to make that math work. And that's true no matter who the investor is. It's not just IPPs; anyone can invest in PJM, anyone can invest in KOTT, and they're all going to look at our proper investment signals there to do.
The consumer bill impacts were a little bigger from the previous auction last from last summer. We think this auction moving up into the 329 range. Uh, per megawatt day is about a 2% Bill increase for customers. So I do think it's a higher level than they've seen, but over the last 10 years, what you've seen customers experience
experience is an overall Bill increase, but if you actually look underneath that the energy and capacity piece is flat to down,
Over that 10 years and the wires rates, the the transmission distribution. Utility charges have generally doubled over that time period. So energy and capacities. Now in most cases a smaller part of the absolute bill.
Than the wires charges are. So, when we think about affordability, overall, we need to look at the total bill. Not just what's there on energy and capacity, but look at the total bill and make sure that, you know, we have a product that's affordable for customers and that we're using the current grid as efficiently as possible. So I know that's a little longer than what your question was from a price prediction. But I do think in this demand where everyone is looking for turbines, and everybody's looking for load growth across the, you know, in many markets across the world, not just the US, the cost of developing new projects is moving up and therefore the cost on the other side. Whether it's a long-term contract, or an auction is going to need to reflect that.
Right. Okay. Great. Thank you so much.
Our next question comes from Julian Dulan Smith with Jefferies LLC. Please go ahead. Hey, good morning team. Thank you guys very much for uh the time the opportunity. Um, Hey Joe look hey, good morning. All right, I I'm sorry to do it but to bring it back. Just given the comments from earlier about the September 1st timeline. I mean, is there just an expectation here that you'd say, look. We're going to try to get it done before 91, considering that? Or just again, the sb6 and, and the way that that's been moving forward, look, you feel entirely fine about how that implementation process looks such. That it's, it would be sort of analogous pre or post, um, in terms of process and would that put any extra strains about what it would look like in terms of the deployment permutation or or what is what you're contemplating.
Sort of irrelevant with respect to sb6 and any other comments about sb6 um requiring or um mandating in any kind of way this to demand response type activity here. Um as far as your negotiations, go sure.
Yes, Julian there there's a lot in there. I would say.
Nothing about our approach to this discussion and completion of of an of an agreement with our customer is, is, you know, based on, trying to extend the time frame. I mean, these are just large complicated deals. And so, we'll be done when we're done and I think our deal.
Will work pre or post a 91 completion and I think to your point about backup Generation, 1 of the challenges, obviously, of working. This on-site partnership is that we want to make sure that that land and water. And the ability to expand this site is there for the customer, including for their backup.
Generation because we do expect that to be part of the reliability offering of a large site like this.
Processed its contemplated. So I don't see that as being a material driver of the outcome of this deal. Obviously Clarity is better than less Clarity. So I I'm not seeking to try to extend the a process that often but we have raised this reliability topic and the idea of how do you manage these super peak hours on a grid that largely has a lot of excess capacity. We've raised that as a company for years. As how do we make sure the customer including residential, of course, has the The energy they need when they need it and the customer we're working with. They want to be part of that same solution. I mean, they have a license to operate and they're looking to be, you know, Economic Development opportunities and they want to be a solution, not a problem. So I think we're aligned Julian. So I don't see it as material.
Actually, since since you say it this way the backup generation or or adjacency opportunity here, I mean, I, I know we're principally talking about a nuclear contract here, but would you expect to effectively undertake that on behalf of? And he said, customer and then effectively? That'd be part of the economics. Is that sort of a package deal that you would develop, um, a, a, a gas plant or some kind of comparable generation that would effectively be paid for through a nuclear contract, or a separate Arrangement on a gas deal. Just trying to understand how you think about that and especially the conversation my customer Julian. I don't want to comment specifically about this particular
Arrangement. But that that's going to differ by customers. Some of them feel very strongly about this being a core competency and something that they want to tightly manage and control and others are looking for a more TurnKey solution. So I think it could be either and uh and you know we will discuss this deal in more detail at a at a later date but we're seeing we're seeing that. It could go either way.
Got it. Excellent. Sorry, I just squeezed 1. Last 1 207 any comments yet about where you guys are relative to what you said about 26. I know you provided a little bit of an update, but curious if you'd offer any initial observations
You know, the current yeah, sure that. So
In from the last update we gave a quarter ago.
You know, the curves are down just a little bit Julian, not enough for us to change our views on 2027. But I think it's reality that
When folks are looking for, whether they're looking for the weather to move the forwards,
And like an erat there just hasn't been much weather, so that's just been the way it's played out and in pjm even though we saw the weather earlier, you know, in the summer and that kind of June, 23rd time frame, we saw prices really move in the, in the sort of real time. And we saw some clears in the thousands of dollars that we haven't seen in those markets in quite some time. But we didn't see the forwards move that much. We think both.
Both are inconsistent, you know, with the load growth.
That's coming. Um, and so we're a little more bullish. I'd say than where the curves are sitting at the moment and we're not fully hedged obviously, um, in 27, you know, we have some Hedges on for sure but um yeah, I would say, don't take this, we've tried not to view this as a quarter to quarter kind of Mark on the business, but 27. Well comments before about 26 27/28, you know, being in this range and trending, you know, in the right direction. Still holding Chris anything you'd like to add. No, I think, uh, just point out that, you know, we have some roll off of some Hedges. But then we have some some, uh, projected gas or coal, plant closures. And so I I agree with Jim, we've continued to say we see those years being in line, but trending uh a little bit in the right direction as we go forward in time. And and I, I agree that still holds Good.
Thanks Chris.
Thanks guys, this is Mark Market. Appreciate it. Take care and speak soon.
Thank you.
We will now conclude our question and answer session.
I would like to turn the conference back over to Jim Burke for any closing remarks.
Yeah, thank you everyone for joining. I want to take a moment to thank our team for their continued execution, and service to our customers and communities. This is an incredibly exciting time for our company. I hope you can tell by some of the topics today that there are a lot of growth opportunities out there and we intend to capture them. We look forward to seeing you in person this fall and have a great day.
The conference is now concluded.
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