Good morning, and welcome to the Vistra Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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 Curt 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 2 and 3 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 Curt 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 brief 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 plan, which I’m excited to share with you. So, let’s get started. It’s hard to believe we are 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 began prior to Uri but accelerated greatly immediately following the storm. We will discuss these priorities in more detail later. Consistent with the bounce-back of our business, slide 6 reports our strong third quarter financial results, despite a weak Texas summer. Vistra delivered adjusted EBITDA from ongoing operations of $1.177 billion or $1.167 billion, excluding the impacts from Winter Storm Uri 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 Uri, all without really impacting any future periods. 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 in proceeds we expect to realize from ERCOT’s securitization of certain charges allocated to load serving entities during Uri, puts us 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 Vistra’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 adjusted free cash flow before growth guidance, which is similarly reflected on slide 6. 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 7, Vistra is initiating its 2022 guidance today, forecasting ongoing operations adjusted EBITDA in the range of $2.81 billion to $3.31 billion, with ongoing operations adjusted free cash flow before growth in the range of $2.07 billion 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 7, we also offer an illustrative view of Vistra’s 2022 guidance ranges, which exclude Winter Storm Uri related bill credits of approximately $185 million, as well as 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 Vistra’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 hedged 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 an increase in both gas and heat rate in ERCOT as the gap between market and our fundamental view converges, which we have similarly observed 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 generate 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 8 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 while our stock remains at what we believe is a significant discount to its fundamental value. 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. Last but not least, we will accelerate our Vistra 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. Vistra’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 Vistra 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. Again, if our stock responds, we will reallocate those funds back to our shareholders in a similar 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 stock. We expect to continue prioritizing 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 are 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-2s during this time frame for the Vistra base business. Per 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 5 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. 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 by growing our Vistra Zero renewable and battery storage portfolio to a more than 5 gigawatt business, generating approximately $450 million 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 one 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, Curt. 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 segment 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, CAISO 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 billion 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 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 Curt 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 3 to 3.5 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 2s 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 3 times and any project financing will relate to a lower risk contracted part of the business, though, 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 Vistra Zero portfolio, we believe that we will unlock the value of our business over time.

Today’s first question comes from Stephen Byrd at Morgan Stanley. Please proceed.

Hey. Good morning and congratulations on laying out a very thoughtful capital allocation approach. So, I wanted to focus on Vistra Zero and the updated guidance here. You mentioned in your prepared remarks, it’s fairly capital light from your perspective, as you mentioned, $5 billion in total capital needed, but only $500 million in net capital from Vistra net of project debt, other financing, cash flow, etc. Could you just elaborate a little bit more on that? I guess, I was thinking that’s a fairly high level of project leverage. We can typically achieve that when we have contract durations of 20, 25 years. I thought it might be more challenging to achieve that level of leverage here. What gives you the confidence in sort of such a capital-wide approach?

Yes, I'll start with that and then Jim can add if needed. We're considering an initial round of capital, which we haven't fully defined yet, but it will resemble equity. When combined with leverage, we’re looking at around 60% project leverage with the contracted cash flows, rather than 80% leverage. Additionally, we are also working on securing another significant round of capital. Given the cash flows and relatively low maintenance costs associated with these assets, we can generate enough cash alongside project financing and our $500 million to fund the build-out of approximately 5 gigawatts by 2026. We have assessed this situation and are confident in our approach. We aim to expand further, potentially by acquiring projects or a platform. Based on the projects already lined up, we're optimistic about raising sufficient capital, and the expected cash flows should be more than enough to sustain the business. Jim, do you have anything to add?

Curt, 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 Curt mentioned, the parent contribution of less than $500 million, some form of structured financing or equity, and the cash flows from the projects themselves. We think of this as a self-sustaining entity that can grow even faster than we anticipated when we announced this pipeline last summer. This gives us a way to use more cost-effective capital and still take advantage of the opportunities, given the strong pipeline of great sites that we have.

That’s really helpful and makes a lot of sense. And then, just on the 5 gigawatt target by year-end 2026, could you just give us your latest thoughts on sort of visibility of growth, degree of competition, how you see that playing out?

Yes. Go ahead, Jim.

Sure, thanks, Curt. Our approach focuses on leveraging sites we control, primarily in Texas, California, and now including the Illinois fleet with the Coal to Solar initiative. We have additional opportunities at a couple of other coal plants we plan to convert. This strategy does not involve seeking out unfamiliar sites or looking for mergers and acquisitions. We have a solid pipeline built on our partnerships, particularly in solar, engineering, procurement, construction, and battery sectors. Our goal is to systematically capitalize on these opportunities over the next five years. Additionally, there are other prospects we've discussed, but our main focus currently is not on PJM or ISO New England, although those remain possibilities. What we have ahead of us is quite significant.

Yes. Stephen, you know we have the Moss Landing site that can take probably up to another 1,000 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. We’re partnering in California with the utilities there. Of course, we are in the Omnibus Energy Legislation in Illinois. We pursued that for three years out of thin air and raised the Coal to Solar and battery storage legislation that was woven into the ultimate Omnibus bill. 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. That’s proven to work very well. I think we have other opportunities down the road.

It’s a great point. I mean the site value from any of those sites in places like California and Illinois is clearly quite high. So, thanks so much for the insight. I appreciate it.

And our next question today comes from Shahriar Pourreza with Guggenheim. Please go ahead.

Just a two-part question on ‘23. Curt, you indicated you’re pretty open still. Is your fundamental view for more expansion in sparks as we draw closer? Directionally, can you indicate where EBITDA would shake out under the current dynamic?

Yes. For ‘23 now, you’re talking about?

Yes, please. Yes, yes, perfect.

Yes. Look, we had a period of time where sparks were compressed. They’ve come back to what I’d call a more normalized level, but there’s still a fair amount of backwardation in the curve going from ‘22 to ‘23. I think our fundamental view would suggest there’s still room to move with the curves relative to the fundamental view in 2023. The good thing is that those two curves, market and our fundamental view, have converged significantly, and I think I made it in my remarks. We’re now seeing over the next five years, EBITDA levels that are $3 billion plus even at the curves. Prior to that, Shahriar, we were seeing when you marked it to the curve below $3 billion. That has converged significantly. In terms of the spark spreads, there’s probably some further normalization that can occur in ‘23 on sparks. Yes, there could be some of that movement. We’ve seen a strong move in sparks. If you look at ‘22 sparks versus ‘23 sparks, they’re still about, I’m going to say, maybe about $4 difference. We would expect that gap to close. 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 in a very similar EBITDA level using that illustrative EBITDA number. When I say that, that’s plus or minus a couple of hundred million dollars, because an open position can go either way depending on weather. We’re well within the bounds of where we are in ‘22 for ‘23. I would say directionally, when we look at the distribution of outcomes, we have probably a greater probability of upside versus downside, just knowing where the curves are, where our fundamental view is, and knowing our commercial team is able to take advantage of when the curves are at the point of view or better. 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.

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

I wish I could predict the future. Ideally, I would like to see our capital allocation plan and execution lead to returns in the mid-teens, tapering down into the low double digits. Given the significant event in February, we recognize that any returns come with inherent business risks, which were highlighted during that time. However, as we demonstrate our investments and significantly reduce risks, we anticipate a decrease in risk premiums. I believe people are starting to appreciate that a mix of renewables, batteries, and highly efficient natural gas plants will be essential for the next 15 to 20 years to ensure reliable dispatchable resources. The market will need to compensate for these requirements. Emphasizing clean energy and battery storage is crucial, and our company is aligning with this vision. We also have a substantial retail segment that can support much of our renewable and battery initiatives, which has consistent and strong margins that we expect to maintain. If we execute effectively, the perceived risk in our business model, which we are addressing, along with our long-term viability, should lower the risk premium. Consequently, we anticipate a significantly lower free cash flow yield, which implies a 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?

Yes, we are. If you take 2021’s outcome, and you take the $500 million securitization, 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 came about this year. What I would call our coal constraint mainly is an opportunity loss more than anything else. I’ll tell you why. We have been prioritizing building coal inventory for the winter because the price curves indicate that it’s much more reasonable to run in Q1 of ‘22 than it is in Q4 of ‘21. Given that we have a finite amount of coal because of the supply constraints, we are going to have to optimize between Q4 ‘21 and Q1 ‘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 prepared for Q1 of ‘22 because the price curves show that’s where it’s most economic, and that’s what we intend to do. I’m also a little bit concerned about ensuring that the entire grid in Texas is weatherized, including the gas system, for this particular winter. We want to be cautious. We’re going into that carrying more length because of that, and we want to make sure that we don’t have any hiccups. The broader energy commodity complex, as you know, is quite volatile. Hence, we’re taking a very conservative approach entering Q1, meaning trying to conserve some of our coal to be able to run in Q1 of ‘22.

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

Good morning, team. Great job, truly. I wanted to follow up with a couple of straightforward questions. First, regarding the buyback, do you have any thoughts on using a tender versus other methods to implement it? There's a lot to consider here. Secondly, about your 2023 EBITDA, I have some incoming queries on that. How do you see it compared to 2022 levels? I know you mentioned it's better than 3, but can you give me more details on how it compares to 2022?

Jim, do you want to take the first one about buybacks, and then we can figure out the second one?

Sure. Good morning, Julien. Thanks for the questions. On the buyback, we are looking at a number of alternatives. We have not settled on the method that we’ll use, but hopefully coming out of this earnings call, we’ll be very aggressive 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 how we’re going to buy, when we’re going to buy, but we’ll report each quarter how we’ve effectuated the number of shares that we’ve purchased. It is a meaningful percentage, as you know, of what’s outstanding, not only for the program through ‘22 but through ‘26. The other question; as we think about ‘23, as Curt mentioned, we have a large open position in ’23 relative to ’22, and that can work to create an overperformance opportunity or come in slightly under. We’ve seen the curves continue to rise. The commercial team has done a very nice job looking at our point of view and figuring out when to put the positions on to manage expectations. I think, as Curt said, ’23 was much lower and you saw that with forward curves in the past, particularly this time last year. That gap has closed considerably. It hasn’t fully closed. You see that even in our charts in the slides that we presented for spark spreads. 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. We’ve talked about a $3-plus billion business on a run rate basis. 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 countercyclical manner to the wholesale position at times. But we still have some variation around it as the markets have shown some volatility. We view that as something we can capture. Looking at it more in line is where we would expect to be, but we still have a ways to go for ‘23, given that there’s still some backwardation relative to ‘22.

Yes, Julien, I think that’s why we say we’re not trying to be evasive at all. The reality is that when you’re this far out and the curves are still in backwardation, we have seen that when we get into summer and then come out of it, the next summer and winter tend to rise, which we expect based on our fundamental perspective. Marking something to the current curve will yield one outcome, while marking it to our fundamental view will yield another. The positive aspect this time is that both perspectives are still within the range from 2022 for 2023. In the past, the curves were significantly below the $3 billion mark, but now the fundamental view aligns with them, and there’s still potential for movement. I would consider that there’s a distribution around 2023. Clearly, the 2022 EBITDA midpoint serves as an illustration within that distribution. We believe there’s a strong possibility we could achieve levels similar to 2022 for 2023, depending on execution and readiness as the curves become favorable. Our team is dedicated to this; it's our job. So we are optimistic about entering 2022, particularly regarding exceeding $3 billion. As for where we will land regarding 2022 to 2023, it should be in close proximity to 2023. I think we have a good shot at it, and we might even surpass it. That distribution appears favorable. Now, it comes down to execution and seizing opportunities.

Wow! Thank you, team. 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 talked about $450 million to $500 million of adjusted EBITDA. How much CapEx are you thinking needs to be invested to get that outcome here? 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 this is an update that’s coming, but I just want to make sure I’m capturing this holistically correctly.

I believe the total capital investment needed falls between $5 billion and $5.5 billion. While the amount of equity capital we plan to invest is relatively small, we are also incorporating some valuable projects into this. So, it looks like we need to invest about $5 billion to $5.5 billion, and we have a clear plan for how to approach this.

And the contribution, principally, is just your existing storage assets, right, without being too specific?

Well, yes, I think I mentioned it. It’s Moss Landing, Morro Bay, and our Oakland site in California, along with about nine sites in Illinois that will have batteries. There are also batteries in Texas. We have a 265-megawatt, 1-hour battery coming online in Texas, and we already have a 10-megawatt battery operating. That’s the overview of our battery storage situation. Of course, we’re primarily focused on solar. In terms of renewable energy, we have found wind to be cost-effective. However, we’re not currently involved in offshore wind, and I don’t expect that to change. We’re open to wind energy; it’s just that we haven’t encountered the right opportunities for it. Those are the main projects we are working on. Additionally, we have significant solar projects in both Texas and Illinois.

And our next question today comes from Steve Fleishman at Wolfe Research. Please go ahead.

I wanted to ask about the NRG issues that were discussed yesterday, as well as the Texas ancillary costs and coal treatment. How do you see these factors reflected in your outlook? I know your asset position has changed, but I want to confirm that you are managing these issues effectively.

Yes. Jim, you can jump in after this. About $40 million in ‘21 is the effect of coal constraints. So, we’ve captured that, Steve. That’s in our updated guidance, and we’ve captured that. I think I mentioned we’ve decided to build inventory for Q1 because the economics are more compelling to be ready for Q1. Any constraint we have going into ‘22 is already built into our guidance. There’s nothing more to discuss. I think 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. 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. Many of our other suppliers don’t face those limitations. Our team got way out in front; this came to me months ago that we were concerned about this. We’ve been managing toward that and working with the Burlington Northern folks. 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, we took a $40 million opportunity loss in Q4, but we’re also going to have more inventory for Q1 of ‘22. All of that’s baked into our guidance ranges.

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 to, yes.

Yes, we have that, but ours is much lower. We have ancillary effects included in our numbers. Jim, would you like to add any specifics?

Sure. Yes, 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 it into your price and ultimately reflect it with your customers. We have that built into our plan for ‘22 and beyond. Of course, we do have, as you mentioned, Steve, a different position, having some generation assets as well, so. The integrated effect and the effect on retail is slowly reflected in our plan.

Great. Regarding the renewables plan, how will you handle the Texas sites? Historically, you were considering developing those as merchant projects, but it's clear that you can't project finance that. Will you enter into power purchase agreements with Vistra retail or third parties? What’s your strategy for the Texas renewals?

Yes. It could be both, Steve. But I think most of it we’re looking at right now, is back with our retail. We have a structured relationship between our wholesale and retail group that manages the supply. We call it the supply boat, but it manages supply for our retail business. They buy and sell to third-party retailers as well as our own retail business. They’re the ones who will ultimately end up contracting, then supply our retail book and other retailers, but that’s where those contracts will be set up.

And our next question today comes from Durgesh Chopra with Evercore ISI. Please go ahead.

I have a clarification and a follow-up. Just 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 ends up diluting that $500 million, right? That $500 million is the gross number. What’s Vistra’s share is going to be lower depending on what financing you choose. Am I thinking about the right way or no?

You are, but let me clarify. We will own 100% of the common equity of this entity. Just to be very clear about it. That capital tranche we’re looking at, we haven’t determined exactly what it will look like, but we will own 100% of the common equity of that business. You can figure out what kind of tranches that could be. But we’re not looking to sell and partner with the equity ownership of that. I think there are other ways to achieve what we want to do and maintain control. Jim, anything to add?

Yes. Durgesh, I think the way you’re thinking about it is correct. What Curt mentioned is an EBITDA number. We expect to have some interest expense because we’re going to use project financing and any other sort of third-party capital charges that we would incur. We anticipate some ongoing cost of that capital, which we believe to be more cost-effective than our own capital. Over time, we’d have some amortization of the project level debt that we would take on. This is not meant to be a free cash flow number if that’s what your question was getting at. It is an EBITDA number. As Curt 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 achieve $500 million and have long-dated, long-lived assets that are very ESG-friendly and have a rapidly growing portfolio using third-party capital, more cost-effective capital. 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 the balance sheet.

Got it. That’s super helpful. Yes, I was really interested in whether it’s going to be 100% owned by you and it sounds like it will be. Okay. Second question: in terms of that $3-plus-billion EBITDA number. You mentioned coal retirements, among other things, that give you opportunity to hit that 5 gigawatt zero platform number. Is there a degradation to that base $3 billion EBITDA as you ramp up on the Vistra Zero platform?

Yes, if you break this out and say, okay, let’s isolate the impact of our coal fleet’s retirements. Yes, there is some degradation in EBITDA from that. That said, there’s very little coming from these assets, meaning the value of these assets have been written down to zero on the books. They’re just not economically contributing much, certainly not on the EBITDA basis. What we’re seeing, though, is that effect is more than offset by over time as we invest in the Vistra Zero platform. We’re able to actually grow EBITDA over time as we invest. So, we do see an increasing EBITDA profile going forward when we project that out. While there is a negative effect on EBITDA from the retired coal plants, the other projects that are coming on more than offset that.

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

Got it. Thanks, guys. Net-net, it sounds like you’re biased higher on that $3-plus-billion EBITDA prospectively, right? Like counting in the…

Correct.

Ladies and gentlemen, this concludes the question-and-answer session. I’d like to turn the conference back over to Curt 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.