Vistra Corp. Q3 FY2024 earnings call

• Jim Burke noted a strong third quarter with ongoing operations adjusted EBITDA of $1.444 million despite mild Texas weather.
• Vistra is raising and narrowing 2024 ongoing operations adjusted EBITDA guidance to $5.0 billion to $5.2 billion and ongoing operations adjusted free cash flow before growth to $2.65 billion to $2.85 billion.
• Announced acquisition of Vistra Vision 15% minority interest, which is accretive to shareholders, increases nuclear generation ownership, and adds solar and storage capacity.
• Four key strategic priorities remain integral, including integrated business model and comprehensive hedging program.
• Discussed power demand growth drivers like manufacturing, data centers, and electrification, with actual load growth in PJM and ERCOT exceeding historical rates.

For the third quarter, Vistra achieved ongoing operations adjusted EBITDA of $1.444 million. For 2024, the guidance for ongoing operations adjusted EBITDA is raised and narrowed to $5.0 billion to $5.2 billion, and for ongoing operations adjusted free cash flow before growth to $2.65 billion to $2.85 billion. The generation team had an overall commercial availability of approximately 96% for gas and coal fleet, nuclear fleet had capacity factors averaging ~98%. Retail team saw strong customer count performance in Texas and Midwest Northeast markets with disciplined margin management.

• Raised and narrowed 2024 ongoing operations adjusted EBITDA guidance to $5.0 billion to $5.2 billion and ongoing operations adjusted free cash flow before growth to $2.65 billion to $2.85 billion.
• Introduced 2025 ongoing operations adjusted EBITDA guidance of $5.5 billion to $6.1 billion and ongoing operations adjusted free cash flow before growth of $3.0 billion to $3.6 billion.
• Maintained 2026 ongoing operations adjusted EBITDA midpoint opportunity of over $6 billion with line of sight to potentially be meaningfully higher.
• Guidance excludes potential benefit from nuclear production tax credit pending treasury clarity.

• FERC's rejection of the amended interconnection service agreement poses uncertainty, but multiple paths to resolve exist.
• Uncertainty around PJM capacity auction, including potential modification of auction parameters.
• Policy changes affecting gas and coal fleets, with election results adding to unpredictability in policy outcomes.

Q: Hey guys. It's actually James [ph] on for Shar. Good morning and thanks for the time. So I guess maybe just coming back to the Susquehanna ISA and some of your prepared, I guess, how has the rejection impacted your customer conversations in the past week. One of your peers sounds committed to co-locations and other maybe more focused on front of the meter. I guess, where do you fall kind of within those soup polls? It sounds maybe a little more like colos, but just any more color there would be helpful. Thanks.

A: James, we were disappointed with the ruling last Friday. But I think if you look at our discussions on this topic in the past, we've acknowledged that these are complicated deals. They take time they're large even by the standards of the customers that we're talking to. Then if you look at the quantity of deals that this country is going to do, the vast majority of them are going to be front of the meter. It's unique to have the large sites that we have and have an opportunity to do a co-located deal. We think there are multiple paths forward on this. We're not 100% sure how the other parties that are obviously active on that particular ISA you're going to want to pursue it. But nothing precludes us from still moving forward with our plans. I would acknowledge that everyone is looking at these types of issues and how do we work through them because they are they are novel. I mean some of the co-located deals even that we've done, they were smaller. And so when things are of this scale, there are more questions that need to be answered. But we think there's multiple paths forward. We can go into some details as to how we think that might play out. But our conversations are still continuing. We still have a number of really good options, both with our nuclear sites as well as gas sites and potentially the new build. And so I don't think that this is a load profile and a customer base that is going to slow down in aggregate. I just think it comes down to which areas of the country are more open to this? Are they able to attract this load because it's a huge economic development opportunity and we'll have to see how that plays out? And it could play out differently in different parts of the country.

Q: Hey thanks, good morning.

A: Good morning, David.

Q: Hey, maybe a little bit of a follow-up on that on your comments there, thanks. Very helpful. We heard yesterday from Encore that they're seeing over 80 gigawatts of data centers looking in just their service territory, at least in the pipeline. I mean just given that scale, there's just got to be a bunch of approaches, maybe diversity of approaches that these data centers are going to consider. And so maybe just given that, like what are you seeing as the interest in co-location at your gas plants in ERCOT? And then wondering if you could elaborate, too, on just that new build idea? Like are there -- are you in conversations with potential data centers that you might be able to partner with contract with a new plant build as well?

A: Sure. David, great question. I'm going to start, I'm going to ask Stacey Doré, our Head of Strategy, to comment on this. She's working on these types of opportunities on a very near full-time basis. It's certainly an active time for all those types of conversations. I'd start with load forecasts have been obviously extremely robust in ERCOT, CenterPoint put out some information about the kinds of load growth they're seeing in their territory, certainly Encore through the separate call yesterday, and ERCOT itself has revised middle of the summer, it's long-term load forecast. We've been a bit more conservative only because we believe still it's hard to understand the full duplication that could exist not only within a state, but even across the country because folks are looking for PaaS to get speed to be able to bring this load. And so they're exploring all options. I do think that demand, if we can satisfy it, I do think Texas is probably as well positioned as any part of the country to satisfy that demand. And we certainly want to be part of that, not only on providing the relationship for the load, but the potential addition of resources. So I'd like for Stacey to provide some color on the types of conversations we're having and how we're working with Encore, with CenterPoint with ERCOT to make sure that we can all solve this together.

Q: Hi, I guess I'll dare ask one other question on this topic, which is just Texas has emphasized availability of resources at kind of emergency or peak times and the like. Do you see solutions in ERCOT where you could have the generation even if it's co-located, available for kind of the more sensitive periods?

A: Yes, Steve, we do. We have even noted, I think, in previous discussions, customers are learning how they can also manage their load during sort of emergency conditions. So whether it's something around a load response or whether it's the backup generation that could be also configured at the site. Again, I think these large customers, I think they're responding to some of the questions that they're receiving and the concerns around resource adequacy, and they're showing that they want to be part of that solution. So that is, again, to Stacey's earlier point, why these discussions do take some time, and they're complex is there's a lot of variables that we're managing. So I do think there's going to be some flexibility there, Steve, and I think that will help multiple stakeholders become comfortable with it.

Q: Hi, good morning.

A: Hey Jeremy.

Q: I just wanted to pick up, I guess, on the diversified footprint as you mentioned there. Just wondering how you think about the ERCOT versus PJM opportunity set at this point in time, particularly in light of the Town ISA ruling granted it's early days, but do you see things like this kind of starting to favor ERCOT more at the margin?

A: I don't think so, Jeremy. The capacity, again, the ISA is one dimension, but a capacity market construct in PJM is something that I think creates a real opportunity to send a price signal and encourage investment, whether that's some assets that are on the grid to not retire or to bring new assets and obviously meeting the load growth that PJM is now forecasting that market design does not exist in Texas. And that's something that from a capacity market discussion, where it's an energy-only market. And so it has been a bit more volatile in terms of you might have a really strong summer in 2023, but we've had weaker clears in 2024. So if you were putting batteries on the grid right now in 2024, you're probably wondering if you're going to get a return on those batteries, whereas you might have felt really good about it heading into the summer of 2023. So the ISA is only one dimension. It's important to note that load is low. If this load comes into PJM, whether it's behind the meter or front of the meter, it's load growth a capacity market should send a signal like it did at the end of July, but there was intervention coming on the heels of that that's now led to a request for a 6-month delay. Again, as I stated earlier, if these markets would consistently run their opportunities for the auction in the case of PJM. And for Texas being clear about signaling wanting the load to come, I think these price signals would be there. There'd be investment opportunities in both of them. But right now, PJM has a more structured way of valuing capacity and signaling in a forward curve basis, the need for that capacity then does the ERCOT market.

Q: Thank you. So maybe first on 2026, maybe even 2027. So just wondering if by then, by 2026, 2027, you would expect to have any meaningful EBITDA impact from those data center deals, be it colocations or virtual PPAs? And also, if that changes the way you're hedging your especially baseload units in those outer years?

A: Yes, Angie, thank you for the question. I would say it's tough to see it being meaningful in 2026, 2027 simply because of the physics building out what you need to on the ground and then obviously powering the site as resources, servers chips become available and installed. And that's after the study processes have to be done on the front end. And so the time line for these, you could be in a 4 to 5-year process before you're putting a meaningful amount of power to a co-located facility. So I think time line wise, it's not really affecting how we're thinking about the hedging in the more near term sort of this 2026, 2027. And if it did, we'd start layering it in, in a more -- we're pretty open, still obviously, 2027, more than 2026. So we hope that opportunity is there to be layering that in, but I would not say from a guidance perspective or from a hedging perspective, it's in the horizon that we've been talking to the market about in terms of our direction here for our earnings power.

Q: Thank you. So a lot of discussion, obviously, in interest in your nuclear plants. You have many more gas plants. Can you just give us a sense directionally about the pricing differential for nuclear assets versus gas assets? Is it as simple as just the carbon-free attributes or again, just even directionally, how these prices compare and the discussions that you have with the data centers.

A: Yes. Thank you, Angie. I would say we aren't able and really would prefer not to share pricing differences by asset class. But I will say that in previous calls, I've mentioned that customers look at this as a list of preferences. There's things that they are seeking that are more ideal including location and what kind of energy needs there might be for cooling, right? So there's all sorts of variables that are going to go into the equation of how valuable is this to a customer in speed and land and water and other variables are going to play into their willingness to pay under certain circumstances, more or less for different locations. And so I would not expect -- I could be wrong, but I would not expect the gas assets to have the same premium as nuclear because of the carbon 3 24/7 attributes of nuclear. But there is an openness to gas that we're encouraged about. And I think the flexibility of being able to work with these assets is attractive for a number of parties, including co-location partners that aren't directly the hyperscalers themselves. So I think I'd like to leave it at that, Angie, but I think that's the way we're thinking about it.