Vistra Corp.

specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Molly Sorg, head of investor relations. Please go ahead, ma'am.

Thank you, and good morning, everyone. Welcome to Vistra's third quarter 2021 results conference call, which is being broadcast live from the investor relations section of our website at www.vistracorp.com. Also available on our website are a copy of today's investor presentation, our form 10-Q, and the related press release. Joining me for today's call are Kurt Morgan, Chief Executive Officer, and Jim Burke, President and Chief Financial Officer. We have a few additional senior executives present to address questions during the second part of today's call as necessary. Before we begin our presentation, I encourage all listeners to review the safe harbor statements included on slides two and three in 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. Today's discussion will contain forward-looking statements, which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward-looking statements. Further, today's press release, slide presentation, and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the investor presentation. I will now turn the call over to Kurt Morgan to kick off our discussion.

Thank you, Molly, and good morning to everyone on the call. As always, we appreciate your interest in Vistra. While we have a lot to cover today, we will do our best to be as pithy as possible to leave sufficient time for Q&A. Not only will we be discussing our third quarter and year-to-date financial results, but we are also initiating our 2022 guidance, as is customary on our third quarter results call. And most importantly, we are laying out additional details of our long-term capital allocation plans. which I'm excited to share with you. So let's get started. It's hard to believe we're still in the same year where we experienced the significant effects from winter storm URI. I'm proud of how our company has recovered from a business standpoint, and we are beginning to execute on our strategic priorities, which are a product of a thorough review with the board that had begun prior to URI but accelerated greatly immediately on the heels of the storm. We will discuss these priorities in more detail later. Consistent with the bounce back of our business, slide six reports our strong third quarter financial results despite a weak Texas summer where Vistra delivered adjusted EBITDA from ongoing operations of $1.177 billion or $1.167 billion excluding the impacts from winter storm Yuri realized in the third quarter, which included a small positive impact from ERCOT's 180-day resettlement statements. As of September 30th, Vistra has already achieved approximately 85% of the $500 million self-help target we announced following Yuri, and all of that done without really impacting any future periods. And we have a clear line of sight to achieving the balance in the fourth quarter. The combination of our solid execution on these self-help initiatives together with the inclusion of the approximately $500 million of proceeds we expect to realize from ERCOT's securitization of certain charges allocated to load-serving entities during EURIC We are in a position today to both narrow and raise our 2021 ongoing operations adjusted EBITDA guidance range, as shown on the slide. The securitization and self-help materially offset the more than $2 billion loss from URI, such as the retail bill credits we will discuss later. As you likely recall, internal and third-party analysis has shown that BISTRA's URI loss was driven predominantly by the uncontrollable failure of the Texas intrastate gas system. We are also narrowing and revising our ongoing operations adjustment free cash flow before growth guidance, which is similarly reflected on slide six. The cash flow associated with securitization is expected to be received in the first half of 2022. Consequently, The cash impact of securitization is reflected in our 2022 guidance on the next slide. So turning to slide seven, VISTA is initiating its 2022 guidance today, forecasting ongoing operations adjusted EBITDA in the range of $2.81 to $3.31 billion. With ongoing operations adjusted free cash flow before growth in the range of $2.07 to $2.57 billion. This represents a free cash flow conversion ratio of approximately 76%, which is higher than our historical conversion ratio due to the anticipated receipt of the securitization proceeds in the first half of 2022. On slide seven, we also offer an illustrative view of VISTA's 2022 guidance ranges. which exclude Winter Storm URI-related bill credits of approximately $185 million, and also the negative in-year impact from the execution of NPV-positive long-dated contracts with retail customers of approximately $55 million, and the $500 million of securitization proceeds in free cash flow before growth only. We believe this illustrative view is the best way to think about district's future financial performance potential as it demonstrates the long-term earnings power and cash generation of the business. Notably, the adverse impact from the bill credits in 2022 guidance are more than offset by the securitization included in the 2021 updated guidance. In fact, securitization will likely more than offset the retail bill credits across all years. Looking beyond 2022, Vistra's long-term view of our earnings power remains robust. The company is less edged in 2023 and beyond, which affords an even greater opportunity to capture momentum from the rising curves we have observed in recent months. In fact, we have seen a move up in both gas and heat rate in ERCOT as the gap between market and our fundamental view converge, which we have similarly seen in the last several years. In fact, this conversion has resulted in projected results using market curves for the next several years in line with our stated view that we can generate consistent EBITDA of $3 billion or greater. Previously, the out years using steeply backwardated market curves were below $3 billion. This leaves us in a stronger position to optimize our EBITDA within the $3 billion or greater EBITDA range, especially as we add our growth investments. We continue to remain confident in the ability of this business to earn significant cash flow on an annual basis, and we intend to return a majority of that cash flow to our financial stakeholders in the years ahead, as I will outline on the next few slides. Slide eight sets forth the four key priorities that our recent strategic review identified. We believe the best way to unlock the value inherent in this business and maximize value for our financial stakeholders is to drive long-term sustainable value through our integrated business model, which has been strengthened following URI through various investments in our fleet and fuel supply, as well as our enhanced risk management practices. return a significant amount of capital to shareholders via share repurchases and a meaningful dividend program, especially for as long as our stock remains at what we believe is such a meaningful discount to its fundamental value. And if our stock responds, we will continue to return that capital in the most optimal way to our shareholders. The key is that we generate substantial capital year-over-year, and we intend to return a significant amount to our shareholders. Also, we intend to maintain a strong balance sheet and, last but not least, accelerate our Bistro Zero growth pipeline with cost-effective capital. As we set forth on the next slide, our long-term capital allocation plan reflects these strategic priorities. Bistra's long-term capital allocation plan reflects an anticipated return of capital of at least $7.5 billion to its common stockholders through year-end 2026, while simultaneously reducing our corporate level leverage and accelerating our Bistra zero growth pipeline. Specifically, as we announced in October, our board recently approved a $2 billion share repurchase program, which we expect to fully execute by year-end 2022. The share repurchase program is partially funded by the $1 billion of 8% preferred equity we issued last month. We then expect we will allocate approximately $1 billion per year towards share repurchases from 2023 through 2026 for a total of $6 billion in five years. And again, if our stock responds, we will reallocate those funds back to our shareholders in some other cost-effective manner. This $6 billion of return of capital represents more than 60% of our current market cap. This significant amount of capital allocated to share repurchases is evidence of both management and the board's conviction of the long-term earnings power of the business, juxtaposed with what we believe is a significant undervaluation of our stocks. We will expect we will continue to prioritize share repurchases so long as we believe our stock is undervalued. And let me tell you, in my view, we have a long way to go. We're also reinforcing our commitment to paying a meaningful and growing dividend. Rather than identifying a target annual growth rate for our dividend, management expects that it will, subject to board approval at the appropriate time, allocate $300 million per year toward its common dividend. As we retire more and more of our shares over time, this $300 million dividend pool will be spread over fewer shares and will offer potentially outsized growth on the remaining shares. For example, if we were to execute all $6 billion worth of the share repurchases at our recent stock price, our annualized dividend per share would grow by more than 175% by year end 2026. At our current share price, these share repurchases and dividend programs are projected to result in an annual average cash yield on the stock of an attractive 15%. As always, we are also committed to a strong balance sheet. We expect we will retire another approximately $1.5 billion of corporate-level debt by the end of next year and up to $3 billion by 2026 with projections of debt to EBITDA in the mid to high twos during this time frame for the VISTA-based business. For our previous comments, we expect to combine project financing with renewable-related preferred equity and cash flows from existing renewable projects to cost-effectively develop our current nearly five gigawatt renewable and battery pipeline over the next five years using only $500 million of our own capital. And that is $500 million on a cumulative basis over the five-year period, a significantly lower estimate than our previous expectation of spending approximately $500 million per year on growth capital. These funds can now be used to support other capital allocation priorities. especially share repurchases. It is important to note that Vistra Zero will be a highly contracted business with third-party and internal PPAs, so the leverage ratios will be commensurate with similarly situated businesses. Slide 10 outlines the sources and uses for the long-term capital allocation plan that I just laid out. Importantly, we expect we will be able to execute on this capital allocation plan while growing our VISTA Zero renewable and battery storage portfolio to a more than 5 gigawatt business generating approximately $450 to $500 million of adjusted EBITDA annually by year end 2026. We are excited about this long-term capital allocation plan and believe strongly that it is the best way to maximize the value of our business. As we expect, we will return the majority of our free cash flow from our base business to our financial stakeholders while being mindful of our overall leverage levels and cost-effectively accelerating our renewables and battery storage growth pipeline, which should ultimately be valued at a higher multiple over time. Using the midpoint of the Vistra Zero EBITDA of $475 million by 2026 and a 14 times multiple would result in a total value of $6.65 billion for these projects. As I mentioned earlier, the strategic review we undertook was thorough, evaluating multiple scenarios and potential paths to unlock shareholder value. Ultimately, we believe the path we have outlined here today will be the path that will result in the greatest financial reward over time, taking into account risk of execution, cost effectiveness, and economies of scale. With that, I will now turn the call over to Jim Burke to discuss our financial results in more detail. Jim?

Thank you, Kurt. As shown on slide 12, Vistra delivered strong financial results during the quarter with adjusted EBITDA from ongoing operations of $1.177 billion, results that are comparable to our third quarter 2020 financial results. Period over period, our retail segment results were $205 million higher than third quarter 2020, driven by the realization of our self-help initiatives and the lower cost of goods sold in 2021. The collective generation segments ended the quarter $211 million lower than third quarter 2020, driven primarily by the lower realized energy margin in Texas, East, and Sunset after a very strong 2020. Turning now to slide 13, we wanted to briefly touch on the momentum we have seen in spark spreads across the markets where we operate. Since September, we've seen a dramatic rise in commodity pricing across the board, as gas prices, power prices, and spark spreads are all climbing higher for 2022 and beyond. This is true in all the markets where we operate, though we highlight our two largest markets, ERCOT and PJM on the slide. As a general rule, Vistra is a company that benefits from higher natural gas price environments, as gas units are typically the marginal units setting the price of power, leading to higher overall power prices. We expect this will benefit us in the outer years where we are less hedged. As of October 31st, Vistra is now 27% and 50% hedged in ERCOT and PJM respectively for 2023. We are hedged at relatively similar levels in New York New England, KISO, and MISO, as we have taken advantage of the increase in outright power prices and spark spreads over the last couple of months, which are rising more in line with our fundamental point of view. We expect our commercial team will continue to take advantage of commodity pricing volatility, working to position our integrated operations to earn a relatively stable earnings profile over time. I'm turning now to slide 14, which provides a more detailed breakdown of our 2022 financial guidance. We believe the illustrative guidance in the range of $3.05 to $3.55 billion, adding back the impact of the URI-related bill credits and the year one impact of various NPV-positive long-dated retail contracts, is the best way to think about the long-term earnings power of this business. We continue to believe that Vistra will be able to convert a majority of its adjusted EBITDA to adjusted free cash flow before growth. Similarly, our guidance for ongoing operations adjusted free cash flow before growth includes the anticipated receipt of securitization proceeds in addition to the other URI impacts, such as bill credits. So our illustrative guidance removes these for a more normalized view of adjusted EBITDA and adjusted free cash flow before growth. A strong conversion percentage, as shown on the slide, enables the significant return of capital that Kurt discussed. while also supporting a strong balance sheet and the transformation of our fleet with our Vistra Zero pipeline. Before we close this morning, I wanted to briefly address our long-term leverage target in pursuit of investment grade credit ratings, which I know has been a strategic question for many of you following URI. Foundationally, a strong balance sheet is core to Vistra's strategy. Our low leverage level proved critical during URI as our financial strength supported our ability to quickly add more than $2 billion of debt in response to the storm. As outlined on slide 15, we believe our current leverage in the range of approximately three to three and a half times net debt to adjusted EBITDA is a leverage level that will afford us the same level of financial strength. We believe we will be able to maintain our leverage in this range in the near term and reach the mid to high twos over the next five years. We also believe that we would still be a candidate for investment grade credit ratings in the future as our corporate leverage drops below three times and any project financing will relate to a lower risk contracted part of the business. So as we said recently, we believe this opportunity is at least a few years in the future. In closing, as I hope you can see from the long-term capital allocation plan we laid out today, we believe in the value of this business and our ability to generate significant free cash flow for allocation in the years ahead. By prioritizing returning the majority of our capital to our financial stakeholders while maintaining a strong balance sheet and pursuing accelerated growth of our distro zero portfolio, we believe that we will unlock the value of our business over time. With that operator, we're now ready to open the lines for questions.

Thank you. We'll now begin the question and answer session. If you'd like to ask a question, please press star then one on your touchtone phone. If you're using a speaker phone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Steven Bird in Morgan Stanley. Please go ahead.

Hey, good morning and congratulations on laying out a very thoughtful capital allocation approach.

Hey, Stephen, good morning. Good to hear from you.

So I wanted to focus on Vistra Zero and the updated guidance here. And, you know, you mentioned your prepared remarks. It's fairly capital-like from your perspective, as you mentioned, you know, $5 billion in total capital needed, but only $500 million in net capital from Vistra, net of project debt, other financing, cash flow, et cetera. Can you just elaborate a little bit more on that? I guess I was thinking that's a fairly high level of project leverage, and we can get that typically when we have contract durations of, you know, 20, 25 years. I thought it might be more challenging to achieve that level of leverage here. And what gives you the confidence in sort of such a capital-wide approach?

Yeah. So, um, I'll, I'll take a first shot at that. Then Jim, feel free to jump in. But so I think we're also looking at a, um, you know, a sort of a, what I'll call a, a kickstart, uh, upfront, um, you know, tranche of capital. We haven't determined exactly what that tranche will look like, but it'll be equity like let's put it that way. Um, and then when you combine that with leverage Steven, that's more around about 60%, type leverage, you know, project leverage, uh, with, you know, the, the contracted cash flows. So it's not like we're putting 80% leverage, but I think there, the other thing that's missing maybe in this is that, you know, the, the effort that we're pursuing to, to bring in, um, uh, another tranche of capital in here of some consequence. And then when we look at the cash flows off of the business, and, you know, the maintenance expense and things because it's fairly low for these types of assets. You know, we generate enough cash along with project financing and this project capital along with our, you know, $500 million to basically self-fund the build-out of the, you know, roughly five gigs through 2026. So, you know, we have looked at this. We feel comfortable with, you know, how we're setting it up. Clearly, we would like to grow it even further than that, and I expect us to add to the pipeline, whether that's through acquiring projects or potentially even a platform. But just what is line of sight that we have already in the queue, we feel like we can raise sufficient capital and through the cash flows, that would be more than adequate to be able to run that business.

Jim, anything you want to add? Kurt, you covered it well. The only thing that I would amplify is that we intend to structure the PPAs from these assets back to Vistra to create the contracted cash flows. That gives us the chance then to put 60% to 70% project debt. The balance comes from the three sources Kurt mentioned, apparent contribution of less than $500 million, some form of structured financing or equity, and then the cash flows from the projects themselves. And so when we think of this as a self-sustaining entity and an entity that can grow even faster than we anticipated when we announced this pipeline last summer. And so I think it gives us a way to use more cost-effective capital and still take advantage of the opportunities given the pipeline of great sites that we have.

Yeah, it's really helpful and makes a lot of sense. And then just on the the five gigawatt target by year end 2026. Could you just give us your latest thoughts on sort of visibility of growth, degree of competition, sort of how you see that sort of playing out?

Yeah, go ahead, Jim.

Sure, sure. Thanks, Kurt. What we've tried to do here, Stephen, is focus on where we've got a strong place to start, which is sites that we have control over. Its focus right now is primarily Texas, California, and now with coal to solar, you know, the Illinois fleet. We have a few opportunities at a couple other, you know, coal plants that we intend to convert, but this does not include, as Kurt mentioned, this does not include an expectation of prospecting for a bunch of sites we don't have control over or an m a type platform so i think we've got a really good pipeline that we can set up based on you know our partnerships we've got very good partnerships on the solar side and the epc side and our batteries and so it's really just a matter of taking advantage of this methodically over the next five years. And then in addition to that, I think there's other opportunities that Kurt mentioned. But this is our focus, not a heavy focus on PJM and ISO New England at this point. Those are possibilities. But what we've got in front of us is quite a bit.

Steven, you know we have Moss Landing site that can take probably up to another thousand megawatts. We have a site called Morro Bay. which can be up to 700 megawatts. Those are both in California. We have a number of sites. We're one of the largest landholders, especially at our sites that have some of the old coal plants in Texas. We obviously know that market quite well. And we're partnering in California with the utilities there. And of course, we were in the omnibus energy legislation in Illinois. We pursued that for three years out of thin air and raised this coal to solar and battery storage legislation that then was woven into the ultimate omnibus bill. So I think we came up with an idea to utilize sites that already have transmission access in many of the areas where the assets were being shut down or were already retired. And that's proven to work very well. And, you know, I think we have other opportunities down the road.

It's a great point. I mean, the site value for many of those sites in places like California and Illinois, clearly quite high. So thanks so much for the color. Appreciate it. Yep. Thank you.

And our next question today comes from Char Perez with Guggenheim. Please go ahead.

Good morning, guys. Hey, Char. Just two-part question on 23. Kurt, you indicated you're pretty open still. Is your fundamental view for more expansion and sparks as we draw closer? And directionally, can you just also indicate where EBITDA would shake out under the current dynamic?

Yeah, for 23 now you're talking about?

Yes, please. Yep, yep, perfect.

yeah yeah so you know look i i we had a period of time where sparks were compressed they've actually um you know come back to what i call a more normalized level but you know there's still a you know a fair amount of backwardation in the curves going from 22 to 23. you know i think our fundamental view would suggest there's still room to move with the curves relative to the fundamental view in 2023 but the one good thing is that that those two curves market and our fundamental view, our point of view, have converged significantly. And I think I made it in my remarks. But, you know, we're now seeing over the next five years, you know, EBITDA levels that are $3 billion plus even at the curbs. And prior to that, Char, we were seeing when you marked it to the curve below $3 billion. So that has converged significantly. In terms of spark spreads, you know, there's probably some further, what I'll call normalization that can occur in 23 on sparks. And, and so, you know, there could be, you know, you know, some of that movement, but we've seen a pretty strong move, uh, in sparks. But if you take a look at 22 sparks, uh, versus, uh, 20, you know, 23 sparks, they're still, uh, about, I'm going to say maybe about $4 difference. And we would expect that to that gap to close. And so there is some upward mobility, and our fundamental view shows that. In terms of directionally 22 to 23, we always say this, but I want to be clear this time, that we're within the range of being at a very similar EBITDA level using that illustrative EBITDA number. And when I say that, that's plus or minus a couple hundred million dollars, because an open position can go either way depending on weather. And so, you know, but we're well within the bounds of, you know, where we are in 22 for 23. And I would say, you know, directionally, when we look at the distribution of outcomes, probably with a greater probability of upside versus downside, just knowing where the curves are, where our fundamental view is, and knowing that our commercial team is able to take advantage of when the curves are at the point of view or better. So I feel good about 2023. I think directionally it's in that range, and now we have to go out and execute and capture that value.

At least at a minimum, the reality versus your views is starting to align, which is what you've been pitching for a while, so it's good to see that. And then, you know, the $4 billion in additional buybacks is predicated, obviously, on your view of the stock value, right? Any guidance here on what you see, Kurt, as something of a more sustainable free cash flow yield?

Well, yeah, that's a, man, that's, I wish I had the crystal ball. And, you know, but look, I think what, I would hope to see, especially with this capital allocation plan and with our execution, you know, is something that is much more in the mid teens and going down into the low double digits. I think that we certainly warrant that when, you know, I understand that there was a major event in February and you know this as well as I do that, you know, any kind of return is a part of that is the anticipated risk of the business. And I think that exposed some risk. But I think once we show how we have invested in our business, we've reduced the risk significantly, and we're able to execute, I would expect that risk premium to come down. And then I also believe that people are beginning to realize that a combination of renewables, batteries, and low heat rate, very efficient fossil fuel, mainly gas plants, is really going to be um the the right mix of assets going into the next you know 15 to 20 years because you're going to need dispatchable resources for reliability purposes the market's going to have to pay for those clearly we're going to need to have you know clean and green resources going forward and battery storage is going to be a big piece of that i think that's what our company is lining up with and then we've got this large retail business that i think people don't think about that you know we can contract much of our renewable and battery business with that also has very consistent and significant margins. And we expect that to continue as well. So we feel like we're lined up. If we can execute, then we would expect that the risk premium that is a function of both a perceived risk in the business model, which I think we're closing, but also the terminal value question, we believe that we have a company that's here for a long period of time. We should see that, you know, that risk premium come down. And commensurately, we ought to see, you know, a much lower free cash flow yield, which in turn, as you know, means a higher and stronger stock price.

Right. Got it. And then just lastly for me, are you having any coal or sort of material supply challenges with the sunset fleet?

Yeah, we are. We are. You know, if you take 2021's outcome and you take the $500 million securitization, you back it off, you'll notice that we were a little bit under. And a big chunk of that, more than half of it, is the challenges we've had at the sunset segment. Not just coal constraints, but also we've had some outages that were this year that came about. What I would call, though, our coal constraints mainly is an opportunity loss more than anything else. And I'll tell you why. We have been prioritizing building coal inventory for the winter because the price curves are saying that it's much more economic to run in Q1 of 22 than it is in Q4 of 21. And if you think of it, we have a finite amount of coal because of the supply constraints. we're going to have to optimize between Q4 21 and Q1 of 22. We have opted to run a little bit less in Q4 of 21 to conserve and preserve the amount of coal we have so that we are going to be there for Q1 of 22 because the price curves are telling us that's where it's most economic and that's what we intend to do. The other thing I'll tell you is that I'm still a little bit concerned about making sure that the entire grid in Texas is weatherized, including the gas system for this particular winter. And so we want to be very cautious. We're going to go into that carrying more length because of that, and we want to make sure that we don't have any hiccups. And then just the broader energy commodity complex, as you know, is quite volatile. And so, you know, because of that, we're taking a very, very – conservative approach going into Q1, and that means trying to conserve some of our coal to make sure that we can run in Q1 of 22.

Got it. Appreciate it, guys. I'll jump back in the queue. It's refreshing seeing these results. Thank you. Thanks, guys. Bye. Thank you.

And our next question today comes from Julian Doolin-Smith at Bank of America. Please go ahead.

Hey, good morning, team. Well done, truly. Listen, I wanted to follow up a couple of easy questions if I can. First off, in terms of the buyback itself here, any thoughts about a tender versus other mechanisms to execute here? Obviously, a lot to buy at hand. And then separately related here on the 23 EBITDA, I'll throw it out there quickly. Some inbound questions here. I mean, how are you thinking about that relative to 22 levels? I know you said it's better than three, but what about better than 22, if I can ask you? in that way.

Jim, do you want to take the first one around buyback, what we're looking at around buybacks, and then if you want to take a stab at the second one, that's fine, and I can add to it. Go ahead.

Sure. Good morning, Julian. Thanks for the questions. So on the buyback, we are looking at a number of alternatives. We have not settled on, on the method that we're going to use. Um, you know, hopefully coming out of, out of this, uh, this earnings call will be very aggressive, um, with the buyback program in order to be able to implement the 2 billion by the end of 22. We don't intend to telegraph, uh, how we're, how we're going to buy when we're going to buy, but we'll report, you know, each quarter, uh, how we have, how we've effectuated the number of shares that we've, that we've purchased. But it is a meaningful percentage, as you note, of what's outstanding, not only for the program through 22, but through 26. The other question, you know, as we think about 23, I think as Kurt mentioned, we have a large open position, you know, in 23 relative to 22. And that can work, you know, obviously to create an overperformance opportunity or come in slightly under, And we've seen the curves continue to rise. And I think the commercial team has done a very nice job looking at our point of view and trying to figure out when to put the positions on to be able to manage the expectation. I think, as Kurt said, 23 was much lower. You saw that with forward curves in the past, particularly this time last year. That gap has closed considerably. It hasn't fully closed. And then you see that even in our charts in the slides that we presented for the SPARC spreads. So we think 23 has a very good chance of being in line with 22, but there's still room. There's still room for the curves to move and we still have a large open position. So we've talked about a three plus billion business on a run rate basis. And I think the fact is that there's going to be a range around these outcomes. We are in a competitive segment. We're benefited by having a large retail position that can work almost in a counter-cyclical manner to the wholesale position at times, but we still have some variation around it as the markets have shown some volatility, but we view that as something we can capture. So I think looking at it more in line is where we would expect to be, but we still have a ways to go for the 23, given that there's still some backwardation relative to 22.

Okay, got it. So, ways to go as in uncertainty or still a little bit below?

No, I, well, I think, Julian, the way I would describe it is it has, go ahead, Kurt. No, no, no, go ahead, Jim, sorry. No, I would say you have, if you're simply, and this is the struggle that we talk about because we have a point of view on the business that has consistently, shown that the market curves begin to approach as we get towards a prompt year so if all you do is look at where are curves today and you just look at it and say lock all that in it's going to be lower than 22. I mean that's just math that's not how we run our business we run our business based on where we think it makes sense to put positions on and where we think curves would likely end up given supply-demand characteristics and the queue that comes in, you know, for new build, et cetera. And so when we look at it over that basis, we feel that 23 has a very good chance to be right in line with 22, but that's just not where the curves are at the moment. And that does not concern us. We've been in this spot before, and it's happened for 22. It's happened in previous years. And so, you know, we anticipate it would likely happen again in 23. Okay.

Yeah.

So, Julian, I think, you know, I think that's why we say we're not trying to be evasive here at all. It's just that when you're this far out and the curves are still backward dated and we've seen every year that when you get into the summer and come out of the summer, that the next summer and the winters tend to begin to move up. And we expect that from our fundamental view, you know, marking something just to a current curve, we'll give you one result. Marking something to our fundamental view, we'll give you a different result. We think those, the good news is this time around, is that those two things are still within the range of 22 for 23. In the past, the curves, and you brought this up before. In the past, the curves were well below the $3 billion mark. And now, the curves in the fundamental view have converged. But there's still some room to move So I like to think about there's a distribution around 23, but clearly the 22 EBITDA midpoint on a lustrous basis is within that distribution. And so we think there's a good chance that we can come in around where 22 levels are for 23. That's going to come down to execution and being ready when the curves are ripe and, and, and, you know, our team, that's what we do. That's what we get paid to do. So we feel pretty good about going into 22. We clearly feel good about it being 3 billion plus and being plus 3 billion, um, where it will land, you know, in terms of 20, you know, in terms of 22 for 23, you know, we're going to be with, we're going to be within, you know, spitting distance of 23. I think we have a good chance of hitting it and we could actually even exceed it. So, That distribution, I think, is favorable. It's now about execution and getting opportunities.

Wow. Thank you, Tim. So much for an easy question here, and certainly not evasive at all. Now, let me ask you a slightly more detailed question, then. On this Vistra Zero side of the equation, you talk about $450 to $500 million of adjusted EBITDA. How much capex are you thinking needs to get invested to get that outcome here? And just to be clear, it sounds like none of that would be paid at least prospectively by the corporate capital. It would all be funded with various other project and segment specific sources as well. I know that this is an update that's coming, but I just want to make sure if I'm capturing this holistically correctly. Okay.

Yeah, I think it's in the $5 to $5.5 billion range of total capital that would have to be invested. And you are right, the amount of equity capital that we would be putting in is relatively low, although we're obviously putting in some projects into that as well that have value on the market. But yeah, I think it's $5 to $5.5 billion, if I remember right, that we would have to invest. And we obviously have plans for how we would do that.

The contribution principally is just your existing storage asset, right? Without being too specific.

Well, yeah, I think I mentioned it. It's Moss Landing. It's Morro Bay. It's our Oakland site in California. It's, what is it, nine sites in Illinois that would have batteries or something like that. It's batteries in Texas. We have one that's 265 megawatt. A one-hour battery coming on in Texas. We have a 10-megawatt already on. But that's what the battery storage picture looks like. And, of course, we're predominantly a solar on the renewable side. We haven't found wind to be economic. You know, we're not an offshore wind person yet, and I don't expect us to be that. But we're not afraid of wind. It's just that we haven't found the opportunity for that. But those are the primary projects. Of course, there's a lot of solar both in Texas and in Illinois.

Thanks, guys. Really appreciate the detail there.

Thank you.

And our next question today comes from Steve Fleischman at Wolf Research. Please go ahead.

Hey, good morning.

Hey, Kurt. So just Want to just, the NRG issues yesterday, call, you discussed some, but I guess also the Texas ancillary costs and call treatment, et cetera. How do you feel like those are embedded in your outlook? And obviously your asset position is different, but just want to kind of clarify that. you're okay on those issues. Yeah.

Yeah. So, and Jim, you can jump in after this, but, you know, so over half of, well, let's just put this way, about $40 million in 21 was the, is the effect of coal constraints, you know? And so, you know, just, so we've captured that, Steve, that's in our, you know, our updated guidance and we've captured that. I think I've mentioned we've decided to build inventory for Q1 because the economics are more compelling to be ready for Q1. So we have created this constraint in Q4 of 21 in favor of Q1 of 22. Any constraint that we have going into 22 is already built into our guidance. So there's nothing... There's nothing more to talk about there. We expect, given what we're doing in Q4 of 21, in favor of Q1 of 22, will actually allow us to run where we want to in Q1 of 22. I think you know this, too, that some of our plants, two of them in PJM and Ohio, are not on PRB. A lot of these constraints are coming out of the PRB and on the rails. from the PRB. And then, of course, Oak Grove mines its own coal. So we don't have those limitations there. And then, you know, many of our other, we just don't have a lot of EBITDA coming from like the Illinois plants. And so the constraints just aren't as big for us. And I think the other thing is our team got way out in front. I mean, this came to me more than a couple of months ago that we were concerned about this. And so we've been managing toward that, and we've been working with the Burlington Northern folks. You know, I've talked to their leadership team about getting more trains so that we can get them in, and they're doing the best they can. They know it's important for this winter in Texas. So all in all, I think, you know, we really kind of took what I call a $40 million opportunity loss in Q4 2020. But we're also going to have, you know, more inventory for Q1 or 22. And all of that's baked in both of our guidance ranges.

Okay. I'm sorry. How about later? Go ahead on the ancillaries. Did you ask about ancillaries, Steve? Can you hear us?

Yes. That was a big part of the issue they had, too. Yeah.

Yeah. We have that. That's also, ours is just much lower. And Jim, you might want to add to this, but, you know, our effect, we have ancillary, the effects of ancillaries, you know, baked into our numbers. Jim, do you want to add to that? Any specifics?

Sure. Yeah, we do. It's baked into our plan. We view the ancillary costs similar to the other costs that any retailer would face. You've got to work at a dear price and you've got to ultimately reflect it with the customers. We have that built into our plan for 22 and beyond. And of course, we do have, as you mentioned, Steve, a different position, having some generation assets as well. But the integrated effect and the effect on retail is slowly reflected in our plan.

Great. And then just on the renewables plan, how are you going to deal with the Texas sites in terms of, you know, historically you were looking at developing those as merchant, but obviously you can't project finance that. So are you, are you going to do PPAs with, with, uh, Vistra retail or with third parties? You know, what's your strategy on the Texas renewables?

Yeah, it could be both Steve, but I think, um, I think most of it we're looking at right now, this can be different in the future, is, you know, back with our retail. And that's actually, we have an entity that lives between our wholesale and retail group that manages the supply. You know, we call it the supply book, but it manages the supply for our retail business. And, you know, they buy and they sell to third-party retailers as well as to our own retail business. They're the one that will ultimately end up contracting, and then, you know, they will then supply our retail book as well as other retailers. But that's where, you know, it's really sort of back-to-back with our retail arm, and so that's where those contracts will be set up.

Great.

Thank you very much.

Thank you.

And our next question today comes from Dragesh Chopra with Ivercore ISI. Please go ahead.

Hey, good morning, team. Thank you for taking my question. I have a clarification and a follow-up. Just, you know, the $500 million prospective EBITDA from the Vistra Zero platform, just to be clear, as you're thinking about the structured financing or equity for those projects, that that ends up diluting that $500 million, right? That $500 million is the gross number, then what's Vistra's share is going to be lower depending on what financing you choose. Am I thinking about it the right way or no?

You are, but let me just put it this way. You know, we will own 100% of the common equity of this entity. So just to be very clear about it, you know, that capital tranche that we're looking at, you know, we haven't decided exactly what it'll look like, but you know, we will, we will own a hundred percent of the common, uh, equity of that business. Um, and so, you know, you can sort of figure out what kind of, what kind of, uh, um, you know, tranches that could be. Um, but we're not looking to sell and partner, you know, with the equity ownership of that. I think there are other ways to do what we want to do and maintain our control. Jim, anything you want to add?

Yes, I think the way you're thinking about it is correct. You know, what Kurt mentioned is an EBITDA number. And so we would expect that we would have some interest expense because we're going to be doing the project financing and any other sort of third party capital charges that we would have. So we have some ongoing cost of that capital, which we believe to be more cost effective than our own. And then over time, we'd have some amortization of the project debt, the project-level debt that we would take on. So that's not meant to be a free cash flow number, if that, I think, was getting to the nature of your question. It is an EBITDA number. And as Kurt mentioned, our goal is to maintain 100% equity control so that from a terminal value standpoint, we're building a business of $500 million on a five-year basis, we can get to $500 million and have long-dated, long-lived assets, very ESG-friendly asset portfolio that's grown rapidly and use third-party capital, more cost-effective capital to do it. So there will be some distributions out of that EBITDA to pay for that, but we think that's more cost-effective than doing it all on balance sheet.

Got it. That's super helpful. Yeah, I was really interested in whether it's going to be 100% owned by you and sounds like it will be. Okay. Second question, in terms of that three plus billion EBITDA number, you mentioned, you know, cold retirements amongst other things that kind of give you opportunity to get to that five gigawatt zero platform number. Is there degradation to that base three billion EBITDA as you ramp up on the Wister Zero platform?

Well, yeah, if you break these things, and Jim, you can go, but if you break them out, right, and you say, okay, let's isolate what impact do we have, you know, from our closing, you know, from our closing or retiring of our coal fleet, yeah, there is some slight degradation and EBITDA from that. I will say that, you know, there's very little coming from these assets and the value of these assets have been written down to zero. on the books, so they're just not, you know, economically not contributing a lot and certainly not on EBITDA basis. What we're seeing, though, is that that effect is more than offset by, you know, over time as we invest in the VISTA Zero platform. So we're able to actually ultimately grow EBITDA over time as we invest. And so we do see an increase in EBITDA profile when we project that out. So while they do, if you isolate it, they do have a negative effect on EBITDA, meaning the retired coal plants. The other projects that are coming on more than offset that. Jim, go ahead. I'm sorry. I didn't mean to interrupt.

No, Curt, you covered it well. There's nearly 8,000 megawatts of slated retirements. Well, we obviously have two large facilities in Texas that do not have anticipated retirement dates, but the EBITDA contribution of that nearly 8,000 has come down through time and is not material on the go-forward horizon, but it's something that we built into our plan, and that's the whole point of transitioning this fleet is to be able to put new, long-lived, high-margin facilities assets with the Vistra Zero to more than overcome that so that we have a growing EBITDA profile through time.

Got it. Thanks, guys. And that sounds like, you know, your buy is higher, you know, on that three plus billion EBITDA prospectively, right? Like, you know, counting in the requirements. Okay. Thank you, guys. Appreciate it. Yep.

Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to Kurt Morgan for any closing remarks.

Thanks again for everybody for your interest in our company. I'm proud of what we've done after this February event. I think we're back on track. I feel like we're as strong as ever and really appreciate the interest in Vistra and we look forward to speaking to you in the near future. Thank you.

And ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.