Good morning and welcome to Vistra's Investor Webcast discussing First Quarter 2022 Results. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. Welcome to Vistra's investor webcast discussing first quarter 2022 results which is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. Also available on our website are copies of today's investor presentation, our Form 10-Q and the related press release. Joining me for today's call are Curt Morgan, our Chief Executive Officer; and Jim Burke, our 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 Slide 2 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, Meagan. Good morning to everyone and thank you for your continued interest in Vistra. Getting started with Slide 5. I've mentioned before that 2022 is a year of executing on the strategic priorities we outlined in the third quarter of 2021, shown on this slide. Importantly, Vistra has started on the right foot in 2022 with Q1 results consistent with our expectations and it is noteworthy that our confidence regarding 2022 has grown. However, to me, the bigger story is the material movement in the energy commodities complex forward curves for '23 and beyond. And our emphasis on a comprehensive hedge strategy, capitalizing on this move that began last year, continued in the first quarter and continues today. Notably, we expect this upward trend to continue given how the U.S. and world energy situation is set up, especially regarding ESG and boardroom actions in response, combined with strong demand and geopolitical events. In a nutshell, the U.S. natural gas complex is already tight and likely to be increasingly tied to world gas economics. As an expanding pivotal supplier on the world stage, we expect U.S. supply and demand to tighten even further. Higher natural gas prices in turn lead to higher power prices and Vistra is long power and natural gas equivalents. Frankly, in my 40 years, I have not seen a confluence of events quite like this. Certainly, Vistra is in the right position to capitalize on the strong forward curves. The effectiveness of our execution will be key as the day-to-day volatility is extraordinary. It is a rare opportunity presented to us and it is our job to create the most value out of it while managing the risk. Our prudent hedging strategy has resulted in Vistra locking in material out-year value in the '23 to '25 timeframe. And it is worth noting that the forwards have also risen materially out to 2030. The market clearly believes there has been a fundamental shift in the energy commodity complex and it started before the aggression against Ukraine. This shift, as reflected in the forwards, offers continued opportunities to hedge more while remaining mindful of the potential liquidity requirements against further commodity price moves. The good news is that this offers right-way risk with our open position as well as the significant value already hedged. We also have tandem hedged other risks associated with our commodity hedge positions, such as fuel and basis differentials. Our generation fleet has also performed exceptionally well at an average commercial availability in the mid-90s percent as a critical component of our hedging strategies. We bolstered this exceptional historical performance by the additional expenditures after Uri to derisk our ERCOT plant operations and as we have mentioned in the past, we hold back generation to cover forced outages, all to manage any risk exposure that hedges can expose us to. Our primary focus when hedging is on managing risk while capturing value. We are not focused on picking the absolute peak. Our experience is that this futile endeavor leads to a significant risk of missing the opportunity entirely. As it relates to 2022, while we were considerably hedged coming into the year, our open position in the summer months could now benefit from the power price environment which we expect to remain intact given the likely continued strength of natural gas prices, as I just discussed. This is our expectation even without an extreme weather event. In addition, our retail business continues to deliver strong margins while organically growing customer counts as customers in ERCOT value quality retail names like TXU Energy and Ambit. Jim will speak to the significant value capture opportunity in more detail momentarily. But in sum, the EBITDA outlook for Vistra through 2025 has now increased to potentially over $1 billion even with prudently conservative estimates and the market has only continued to move up. As briefly mentioned a moment ago, a robust hedging strategy, of course, requires significant liquidity as collateral postings are required. Notably, our commitment to a strong balance sheet with significant liquidity has positioned us with the cash and access to capital necessary to make the collateral postings while continuing to execute solidly on our $2 billion share repurchase program and pay out significant dividends to our shareholders of record. Of course, in this environment, you can never have enough liquidity. As such, we continually look for ways to efficiently manage our liquidity and are working diligently to enhance access to capital so we can further take advantage of the long-dated move up and forward and capture value for our shareholders. We believe these efforts will be successful given the significant strength of our business and the amount of forward value we can lock in. Finally, we remain committed to sensibly progressing our fleet of zero carbon generation. As of today's call, we have completed construction of our Brightside and Emerald Grove solar facilities and our DeCordova battery energy storage facility in ERCOT. Additionally, we've been working around the clock to install replacement connectors in the water-based heat suppression safety systems at Moss 300 and Moss Landing 100 and expect to begin bringing those megawatts back online ahead of the hot California summer months. Despite the challenges, the supply chain issues or the uncertainties around solar panel procurement that the Department of Commerce's anti-circumvention investigation are causing the industry, we find ourselves well positioned to navigate these particular headwinds and as we continue to advance the growth of our Vistra Zero portfolio. Our planned 2022 development projects are constructed and we've already procured panels for several of our next-in-line solar projects. Further, our remaining projects have a timeline that allows us to opportunistically contract at the right time. It is important to note that we will remain disciplined in our development efforts, especially given that we either have procured the equipment or have flexibility to time our projects with availability and pricing of equipment. It is also important to note that the supply chain bottlenecks and government actions are dampening the build-out of renewables in the U.S., placing more emphasis on the existing fleet of assets, especially those fueled by natural gas and nuclear power plants. As we have said many times before, natural gas fueled power plants are going to be critical to a rational and just transition to a decarbonized electric system. Moving now to Slide 6. In the first quarter, we achieved $547 million of adjusted EBITDA from ongoing operations in line with our expectations. Notably, this year, our first quarter results are a smaller contribution to our overall annual earnings as compared to certain prior year first quarters. But this new earnings shape was expected for 2022 and is correlated to the seasonality of our retail business in the ERCOT market during the winter months with higher cost of goods sold locked in to hedge retail sales. However, there is greater margin opportunity expected in the remaining months in both our retail and wholesale businesses. With that said, the Retail segment performed above expectations in Q1 in ERCOT with notable organic customer count growth and strong margin performance. Our Generation segment came in a little below expectations, largely due to a greater open position and lower realized prices from a weaker winter. However, with very strong performance in commercial availability rates at the plants of approximately 96% in this first quarter, we are reaffirming our previously announced guidance of adjusted EBITDA from ongoing operations of $2.81 billion to $3.31 billion and adjusted free cash flows before growth from ongoing operations of $2.07 billion to $2.57 billion. We retain the ranges as we are still early in the year, have the summer months ahead of us and at this point in time, we continue to carry a little more open position than in the past for risk management purposes. However, we reaffirm this guidance with increased confidence given the favorable energy commodities markets we continue to experience. In closing, Vistra is very well positioned, especially given the current market environment. Execution is key in 2022 and beyond, especially related to our hedging in forward years and managing adequate liquidity. Now before I turn it over to Jim, as you are likely all aware, this will be my last earnings call as CEO of Vistra. It has been my distinct honor and privilege to serve you all for nearly six years. I want to thank our many stakeholders for their support throughout my tenure. In particular, all of you who entrusted us with your hard-earned money. I know I gave it my best to do business the right way and create value for our investors. I'm proud of all that we've accomplished and believe Vistra is well positioned to drive continued industry leadership. This is simply the right time for me to transition the CEO role to Jim. Jim has done everything to be prepared for this demanding job. After having worked with Jim for many years, I have the utmost confidence in his capabilities, commitment to Vistra and his leadership skills. He has a deep experience and knowledge of our business, including an understanding of how the disparate parts of the company work together. I am certain and our Board is certain that he is the right person to lead us through our next phase as we execute on our capital allocation plan, including substantial return of capital and expansion of our Vistra Zero portfolio. Finally, to the incredible team members at Vistra. I have never been more honored and proud to work with a group of people. Your light has shone brightly through thick and thin and I am grateful for the time we had together. I believe there is a tremendous opportunity ahead for Vistra as a leader in the power business and look forward to watching that come to fruition. With that, I will turn the call over to Jim.

Thank you, Curt. I will get into additional details surrounding our first quarter's financial performance outlook and our strategy. But before I do so, I want to express my appreciation for all Curt has done to lead this company over the past six years. Curt has been a mentor and a friend to me. But more importantly, Curt has been a champion of Vistra and its many varied stakeholders. Vistra's accomplishments under Curt's leadership since he took the helm in 2016 are many. We grew our business by acquiring Dynegy, Crius and Ambit, moving from a Texas-only company to one operating in over 20 states, delivering over $850 million a year in annual value drivers while pivoting the company to being predominantly a natural gas-powered fleet serving over four million retail customers and well positioned for future growth with Vistra Zero. Curt championed the integrated model and highlighted the benefits of our commercial capability that is tightly integrated with our generation and retail businesses and the importance of a strong balance sheet. He pioneered our ESG and DEI efforts despite the challenges we faced with Uri and the COVID pandemic. These accomplishments, among many others, resulted in a doubling in value for our shareholders while also providing a strong foundation for the future. I want to reassure you all on the call today that as CEO, I'm ready to build on what we have achieved and I intend to remain focused on our previously announced capital allocation plan with a commitment, as always, to delivering sustainable, long-term value for our shareholders and other stakeholders. Turning now to Slide 8. Vistra delivered strong financial results during the quarter that were in line with our expectations with adjusted EBITDA from ongoing operations of approximately $547 million. We recognize the quarter-over-quarter comparison is not meaningful given the Uri impacts to last year's earnings. Retail ended the first quarter in 2022 at $163 million of adjusted EBITDA from ongoing operations and our collective generation segments ended the quarter with $384 million in adjusted EBITDA from ongoing operations. Despite the expected lower than historical contribution, we believe these first quarter results from ongoing operations position us to achieve or exceed the midpoint of the EBITDA guidance previously announced. This quarter also continued the execution of our previously announced capital allocation plan. We repurchased approximately 18.6 million shares since our last reported share count as of February 22, 2022. As of May 3, 2022, we've repurchased approximately 54 million shares since the share buyback program was initiated, accounting for a total of approximately 10.5% of shares then outstanding. Approximately 431.8 million shares remain outstanding as of May 3, 2022 and $805 million remains available for additional share repurchases for the remainder of 2022. The Board has also approved a quarterly dividend to be paid on the common stock in the amount of $0.177 per share payable on June 30, 2022. This is approximately 18% growth in dividend per share as compared to the dividend paid in the second quarter of 2021. We continue to prioritize a strong balance sheet in the near term and are balancing the hedging opportunities to lock in value with ensuring sufficient liquidity for these dynamic markets, especially given that the hedging activity is locking in materially higher future earnings. We will continue to provide updates on the $1.5 billion debt repayment as the year progresses and as we capitalize on opportunities to lock in value and manage liquidity. Similarly, we are committed to our transformational growth and are actively exploring avenues to support the Vistra Zero portfolio with nonrecourse financing where we find those financing markets remain open and with satisfactory interest rates. We can't discuss our capital allocation plan in full without acknowledging the commodities and power pricing environment that we've been experiencing this past quarter. As reflected on Slide 9, this quarter saw dramatic increases in both the ERCOT and PJM weighted spark spreads for 2023. These trends have continued through April and into May. Given the favorable environment, we've continued our hedging strategy to lock in value in 2023 and beyond. As of March 31, 2022, we were 93% and 96% hedged in Texas and East segments, respectively, for 2022 and we were 60% and 67% hedged in those segments, respectively, for 2023. Turning now to Slide 10. This slide illustrates in more detail the phenomena we've all been observing, reflecting that power price forwards are up dramatically in correlation with the increase in the gas price forwards. This environment increases margins across our fleet in the money gas generation plants, coal, nuclear and renewables. In addition to locking in the revenue values, we have also been hedging coal, gas and nuclear fuel cost as a result of our comprehensive hedging strategy. Vistra is now over 50% hedged across the years 2023 to 2025. To provide a sense of magnitude, we have stated in the past that we expect to consistently earn above $3 billion of adjusted EBITDA from ongoing operations on a go-forward basis. Given the marks as of April 29, we now anticipate a risk-adjusted midpoint in the range of $3.5 billion to $3.7 billion for adjusted EBITDA from ongoing operations for the years 2023 through 2025. Again, we are just over 50% hedged, so there is still a significant range around this midpoint. However, the curves have continued to move up materially since April 29. So we believe that range of estimates to be on the conservative side. We are continuing to execute on our comprehensive hedging strategy to lock in as much of that value as possible. Notably, a comprehensive hedging strategy requires significant liquidity for collateral postings. We are actively managing our liquidity requirements in a way that allows us to remain confident at this time that we can execute our hedging strategy and the capital allocation plan in tandem. In closing, we continue to focus on execution in 2022, execution on the growth of our Vistra Zero portfolio, of our comprehensive hedging strategy and of our previously announced capital allocation plan. And we firmly believe in the value this execution will bring to our shareholders. We look forward to updating you on our achievements as we progress throughout the remainder of 2022. With that, operator, we are now ready to open the lines for questions.

We will now begin the question-and-answer session. The first question comes from Shahriar Pourreza from Guggenheim Partners.

So, maybe if we could start with earnings and the hedging outlook and sort of in light of the current commodity environment. It looks like you guys hedged into '23 fairly well here versus February. And obviously, we appreciate the high-level color on '24 and '25 in the slides. But can you give us any more detail on the amount of hedging you've done into the outer years of the curve, if at all? I mean, put differently, have you departed from your typical hedging profile here given the opportunities or fundamental view? I'm really thinking about your approach to '25 and '26, but I do obviously appreciate that the curves can get a little bit illiquid on the power side quickly.

Yes. So look, I'll start with a couple of opening questions, but Jim can then fill in with specifics and add his flavor to it. But look, I do think we've departed and we're going to depart. If anything, a message we deliver today is that we've got really one of the most rare opportunities in my career, and I've been around a long time, to lock in significant value in the out years. The curves have moved up even out into 2030. The thing you have to balance, all of us do, even if you're investment grade, is margins and posting and having enough liquidity. And we feel very good that we will be able to do that. But this is a rare opportunity for us and this is a good news story. It's all about execution and we feel good about it. And then, of course, as these hedges realize, you got to run the assets. And the one thing that we've been very proud of through the years is just the incredible performance of our generating fleet to back up the hedges. So this is one of the best opportunities I've ever seen for a company like ours and we just need to capitalize on it. So philosophically, we are departing a bit, and we are looking to hedge '24, '25. I suspect just given the way that the energy commodity price world markets are set up, we think this is going to be around a while and we'll roll hedges into '26, '27 and beyond because we believe that you're going to see a strong natural gas market for many years to come. So, it's a rare situation and one we have to step up and capitalize on. And Jim can tell you a little more about the specifics of what we've done in '24 or '25 because we have done some significant hedging, which is rare for us because you know this, Shar. Generally, these curves are backward dated. And we are seeing pricing that is at or above our point of view. And we've told you that when we see prices at or above our point of view, we expect to hedge and we're not trying to pick the highs. We're just trying to lock value and then we just have to execute from that. Jim, do you want to add?

You bet, Curt. Shar, the way Curt described it, looks like a unique opportunity, and we're taking advantage of it because we have typically seen tremendous backwardation. So we'll see prompt months and maybe a year show up, but then the outer periods have not responded. I think on Slide 10, where you saw the curve moves, particularly gas-driven but also the sparks that have driven considerably higher in the '23, '24 period, we decided to layer on more hedges. That's what gave us the confidence to talk about '23 to '25. As you know, we would normally talk about 2023 after the summer, and we would generally and I cannot recall that we've ever spoken specifically with confidence two and three years out. But we're representing that in our materials today because we have hedged over 50% in total for that three-year period, a little bit more in the front in '23, a little bit less in '25. There's still a range around that, and that's the important thing. And that range can go higher. It could also go lower. We recognize that. And that's why we talk about that range as a midpoint. So there's a chance for that number to go down. We would put this in the range of potentially $500 million, $600 million to the downside, possibly that to the upside, and we think that's reasonable. And so giving you a sense of how much we've hedged and putting that out with all was important for investors because these opportunities, as Curt said, don't come around very often.

And Shar, we understand that you all model projections. We want to provide you with some insight on this. It's also crucial to emphasize that the potential is leaning more towards the upside, particularly since commodity prices have increased. The range of $3.5 billion to $3.7 billion corresponds to a $4.29 billion baseline, and we have observed a significant rise just this week. We're attempting to give you a clearer picture, but the earning potential of this company over the next few years and beyond is considerably greater, reflecting the real circumstances we face. As I've mentioned, our responsibility now is to manage this because it does come with risks. However, that's part of what we do, and we do it effectively. This is a positive development, but we must execute well.

Got it. Got it. And as we think about sort of the potential for extra cash to come in the door versus your plans last fall, how does your, I guess, calculus shift at all? I mean at a high level, how would you maybe prioritize the incremental cash? Should we be thinking about returning to shareholders more deleveraging growth CapEx like Vistra Zero acceleration? And the reason why I'm asking this is, this is obviously in light of your view that the curves, the moves in the curves aren't really transitory, right?

I believe not much will change. We still value the proposition of buying back our shares, although it does depend on our current share price. If we had more cash available today, we would choose to repurchase our shares. However, we also intend to maintain a strong balance sheet and continue to pay a healthy dividend. The share buyback has enabled us to maintain and even increase dividends for current shareholders. I don't think our strategy would alter significantly. We prefer not to use cash flow from the core business for Vistra Zero to allow it to raise its own capital, where we can achieve a better cost of active capital, as we still enjoy a high free cash flow yield. Therefore, we maintain three primary capital allocation priorities, with share repurchases remaining at the forefront, though that too depends on market conditions.

The next question comes from Michael Sullivan with Wolfe Research.

Good morning. Curt, congrats and all the best. And Jim, congrats to you as well and good luck here. Exciting times. Yes, maybe just wanted to start and just with a quick clarification. The $3.5 billion to $3.7 billion range you gave, is that true in each individual year? Or is that an average over the '23 to '25?

Jim, do you want to take that?

Yes, Michael, it applies to all three years. We see the range being consistent across the three years. We chose not to provide guidance for individual years and their respective hedge percentages at this time because conditions are changing. We have utilized several hedging opportunities available to us in April, which is when we noticed the changes. However, we are relatively stable over the three-year period since we have implemented more hedges early when the changes began and have more open positions moving forward. Despite still being in backwardation, the overall captured value remains quite similar throughout the three years.

Okay. That's super helpful color. And then maybe just on the liquidity side, Jim, if you could give us an update there on some of the steps you're taking. I think there was a revolver update yesterday and just as things continue to evolve here? And it sounds like you expect things to get increasingly more volatile. Just how you're thinking about that and what are some of the steps you can take to manage that liquidity? Just more color there would be helpful.

You bet. Yes. And Curt emphasized liquidity in his remarks and it is front and center for us being able to capture this opportunity and make sure that as we continue to hedge because we'd like to do that, we'd like to continue to put more hedges on at these levels that we have adequate liquidity. So you saw us increase the commodity-linked revolver so that we have $2.1 billion of available liquidity as of yesterday. That is very helpful in managing the hedge levels that we already have put on. We also are looking to do some additional raise and work with other counterparties in a more credit-efficient way, which we can do with some of our first lien opportunities to hedge with parties and we do that already, but we expect to increase that level of activity. And so our view is that now is the time to make sure we have ample liquidity because we want to not only hedge more, we want to be able to withstand any further moves because the goal here is all this liquidity comes back to us, right? It all comes back as we operate and deliver the power through the various calendar years. And so it's relatively cost-effective for us to load up on even additional liquidity to make sure we can hedge more because we know that this cash does return and just make sure that we have the line of sight and continue to bring the range of outcomes in the out years even tighter. And I think, as Curt noted, I think the midpoint of this range is skewed to the upside. I think the midpoint can continue to move up and we can give you that confidence as we continue to put more hedges on. But we've had great access to liquidity. All of our partners that have worked with us have been very helpful because they understand this is the right-way risk as these hedges continue to be put on and we have to post more. They know the franchise value of the enterprise is continuing to grow. That's a great place to be, and this is going to be something that we'll continue to actively manage.

Michael, I want to add that the advantage of increasing our liquidity is that we can maintain it on our balance sheet for as long as necessary. If we find ourselves in a high-priced and volatile market, we can extend this liquidity and secure value. The annual cost of this liquidity compared to the value we lock in is very low, making it an attractive proposition. If we were to return to more typical commodity price levels, which may or may not happen, we could always adjust our balance sheet and reduce the liquidity to match market volatility at that time; we have that flexibility. Additionally, since we are managing risk the right way and hedging not only commodity risk but also basis and fuel risk, we are confident in achieving the cash flow our hedges promise, which will cover the cost of the added liquidity. Currently, this strategy is working for us. Liquidity is crucial for us, and having access to it enables us to lock in significant value for the long term, which is a unique opportunity for companies.

The next question comes from Julien Dumoulin-Smith with Bank of America.

And congratulations to both of you but very well-earned retirement here. Leaving on a high note, as we say. I suppose just coming back to this quasi guidance, if you will. Just to reconcile that $1 billion number you threw out in the comments versus the $3.6 billion midpoint that you just talked about a second ago. Just the $1 billion, that was relative to what? Just to make sure I understood that appropriately.

You mean when I say was $1 billion of value that we were adding, you're talking about what I said in my remarks?

Yes, Julien, we mentioned in the remarks that through 2025, we project a cumulative minimum value increase of nearly $1 billion. This translates to a minimum of $333 million per year, which contributes to our estimated range of $3.5 billion to $3.7 billion. This is higher than previous expectations, considering recent commodity movements; we have stated that we are a $3-plus billion business. Some estimates suggest we're closer to $3.2 billion or $3.3 billion. We're taking that difference into account and estimating $300-plus million per year, which leads us to the midpoint of the range we discussed, resulting in that $1 billion over three years.

And Jim, I want to add that we had a discussion about this, Julien. If you consider the $3 billion figure we often mention, that figure is actually nearer to $2 billion. On the other hand, if we consider the $3.3 billion we hinted at for 2023 earlier, then that figure is more than $1 billion. The reality is it's a substantial amount depending on the baseline you choose. We also reviewed the consensus, and that figure was consistently over $1 billion. That’s why we felt confident stating that. We attempted to reconcile the $3.5 billion and $3.7 billion figures Jim mentioned with my earlier comments. Regardless of how you look at it, it stands at $1 billion or more. You could debate the $3 billion-plus figure, but it's closer to $2 billion.

Yes. No, no, no, indeed. Both numbers are conservative. I got you. I hear you. Well, listen, I mean, just to keep that focus going on the commodity front, what are you seeing with your coal counterparties and your logistics counterparties here? I mean, are the PRB suppliers finally ramping up? And to that end, how have you made arrangements and what are you seeing with logistics? And ultimately, what's priced into that $3.6 billion, for instance, on delivered PRB and your lignite, etcetera?

Jim, you can talk. Yes, go ahead, Jim.

Julien, I'll start and Curt, thank you for that. We have factored in that even in 2022, it has been tough for some of the PRB suppliers to fully ramp up. As you would expect, as gas continues to move up, everyone is trying to get more coal and that's logical, but it is difficult for some of these coal supply chains to respond. And some of it is simply hiring and having enough people to actually operate the equipment, and some of it is weather-driven. There's been storms that have actually disrupted some supplies. We factored that into how we think about 2022 and we have factored in the ranges we just gave you. So we are not assuming perfect execution on the coal supply chain. We do think, over time, this will get resolved either because there will be a more fulsome response to the supply chain maybe even outside of the 2022 timeframe before that happens, or gas may actually, at some point, dissipate and not put quite as much strain on the system. But it has been a challenge more on the PRB and the train set as so with the barge coal that we have access to for our Ohio plants, but that is something we took into consideration when we provided these numbers. Go ahead, Curt.

I’d like to add that we have strong relationships with BN and KCS, as well as with Coleto Creek, which is UP. We have a long history of collaboration and I believe we will continue to work closely with the leadership of these companies to support our needs, especially with summer approaching in Texas. Our goal is to ensure we have sufficient access to coal. However, like others, they are facing supply chain challenges and difficulties with labor. The training process for new railroad personnel typically takes about six to nine months, which slows down the hiring of fresh staff. This remains an issue. The positive aspect is that we have been conserving resources where possible and are entering summer with a reasonable coal supply. Although we would prefer to have more, we expect to resolve the situation with the train sets. This is something we need to collaboratively address with the railroads.

Got it. Okay. But you're pricing in kind of current strip pricing or...

The next question comes from Jonathan Arnold with Vertical Research Partners.

And congratulations to you both. Just a quick one on given this big shift in the market, does it change any of your thoughts around planned retirements that you have scheduled? Just curious there.

So some of our retirements are already scheduled because they are part of agreements that we have. I'd say there are some that are not. And certainly, we're going to look at the whole suite of things that we look at when we decide whether we retire a plant. But I think the other thing we have to balance is markets are tight and we're part of the reliability of markets and also the affordability of our product as well as emissions. And so I could see a situation where maybe we would extend some of the coal plants. But we've also agreed to shut those down as part of the coal combustion residual rule at EPA. And so a lot to take into account. But could we say maybe go from '25 to '26 for something? We might. And I think we just have to consider what does the market look like, what's the need of the power plant. And it's not a foregone conclusion that all these are economic even with these prices. Having said that, we're economic people, but we're also about trying to help with reliability in the markets that we serve and keeping prices affordable. So we'll have to balance all that and see what that brings us. We haven't made any definitive decisions on any of those other coal plants other than the ones that we have committed to retiring as part of some sort of a commitment.

Okay. I mean you've not assumed anything like that in this outlook, I imagine?

That's right. That's correct. We have not.

Could you provide an update on the current liquidity numbers compared to those released at the end of March, considering the changes in April? I believe you mentioned having two available instead of one, but I want to confirm that in light of the movements in commodities.

Jim will take that.

Yes, we had $3.1 billion available at the end of March. We now have $2.1 billion available and we added $1 billion to the commodity rate revolving facility for capacity due to the changes, especially in April. We aimed to take advantage of hedging more in April. While we have increased our capacity, we still have $2.1 billion available to us after all the postings made to date.

Okay. And the implication of your prior comments is that you feel confident you could flex more if you needed to?

Correct. That's correct.

I have a different question regarding liquidity. In previous years, it has been difficult to find liquidity in power markets, but perhaps gas has been more liquid. Can you provide any insight on whether this is changing? Additionally, what is the nature of the hedges you are able to establish for that distant future?

It has been changing, Jonathan. I think both the sell side and the buy side view this as either an opportunity or a potential risk if they don't commit long term. We’ve managed to hedge both gas and power through 2025 with fairly deep markets compared to historical trends. This change suggests that people believe the current situation is not just temporary. Generally, we have observed, as mentioned earlier, initial price increases followed by assumed corrections; however, we aren’t seeing this with the NYMEX curve for the next ten years. People are recognizing that the market is trending upward. They are also facing challenges with supply chains and various environmental restrictions, leading to concerns about the future of the commodity market. Consequently, we have seen interest from buyers willing to make longer-term purchases that were less common in previous markets.

The next question comes from Durgesh Chopra from Evercore.

Maybe just Curt and/or Jim, can you talk to the first quarter 2022 EBITDA? I appreciate sort of the profiling has changed post Uri. But just maybe a little bit color there. And then when you talk about margin opportunity or greater margin opportunity rest of the year, I get, I mean, obviously, there's upside from the commodity standpoint or open positions. But is there something on the retail side in terms of profiling or expenses that we're missing? So any color there is appreciated.

Sure. Yes, Durgesh, what ended up happening post Uri is the first quarter cost structure shifted up remarkably as people started to conclude that the winter has potentially even if not more volatility built into it than the summer. ERCOT, as you know, has always been a summer focus. People have always talked about peak capacity and peak demand in the summer. Uri shifted that. And now we saw the first quarter part of the curve move up considerably. Retail has to buy that, but they generally flat price their customers. We don't have a lot of indexed-based structures with particularly residential customers. So when we flat price, it basically means that the margins get squeezed considerably still positive but definitely lower in the first quarter than historical patterns. What that means is it really opens up the margins in 2Q and 4Q relative to what we have seen in the past. So when Curt was alluding to we have greater earnings power in the back part of the year, that's not assuming anything with the open position. That's just simply if you were to model retail margins on a monthly basis, you would have historically seen a better first quarter margin than we're seeing at the moment because of the shape of the 12-month curve.

Got it. Okay. So just to be clear, it's the retail margins that we're talking about, the profiling of the retail margins Q1 and then rest of the year, right? I mean we're expecting to pick up.

That's correct. Yes.

If I can add, the prices on the wholesale side have increased as well. However, what we were specifically discussing and what we had incorporated into our guidance was the shift in retail margins that Jim mentioned. It's a bit disappointing that we don't provide quarterly guidance, and there exists a consensus based on the assumption of a percentage of EBITDA annually, which can fluctuate. We hedge in tandem; when we sell retail, we hedge with wholesale, and this was factored into our guidance from the start. We anticipated a tighter margin in the first quarter but expected higher margins in the second and fourth quarters. We've also seen some increase in the third quarter due to wholesale pricing, and we'll see if that holds. This is just how it operates, and we want to clarify that we were aware of this situation. We're not observing this issue in the outer years either. We believe that over time, earnings will likely revert to a more typical distribution. This change occurred in '22 due to how things traded when we secured retail.

Got it. That's super helpful color. Just one quick one for me. On the topic of share repurchases, the latest guidance you have for '23 and beyond is, I believe, at least $1 billion a year and right? And we're looking at sizable EBITDA cash flow upside, Curt, that you alluded to in your commentary and the EBITDA estimates going forward. When should we expect sort of an update on the use of that excess cash that now you're seeing over 2023 and beyond? Is that sometime later this year? When should we expect an update on that in the use of the cash proceeds?

Yes. Well, Jim, I don't want to say too much since I won't be here after this call, but I would expect that, similar to what we've done in the past, after we get through the summer and have done some more hedging, we will likely discuss at least the situation for 2023. We will also look into 2024 and 2025.

No, I was going to say, Curt, I agree with that completely. I think we need to get through the summer. Let's look at the additional hedges that we anticipate putting on at these kind of levels. And obviously, we won't hedge all the way up, but we still think there's value to capture here. So we'll again, emphasis on liquidity. All this money will come back to us eventually but we do want to preserve long-term value and take advantage. So I think it would be prudent for us to talk about that in the fall when we give the guidance for next year. That will be a good time for us to update our cash flow and our capital allocation assumptions for '23.

And the last question today will come from James Thalacker from BMO Capital.

Congratulations, Curt, It's really been a pleasure. Just had two real quick questions. Just following up on Julien's coal question. I know you said your outlook reflects basically the current curves on coal pricing. But is that coal pricing based on an FOB basis? I know that the rails are also having some labor issues also on deliveries and that could be impacting upward pressure on transport costs. So just wondering what you guys are seeing there.

Go ahead, Jim.

Yes. I was going to say, we have some long-dated transportation arrangements for our key facilities, James. So our issue has been less rail transport cost. It has been simply about quantity as it relates to PRB, getting all the quantity that our plants could consume in the higher kind of power price and natural gas price worlds. So we have been less exposed to the cost of transport. It's been for us a little bit more on the quantity side.

Okay, great. That's helpful. And just sticking along that same line. Do you think that some of the recent move in power could also be a reflection of gas plants being dispatched out of merit to preserve some of these coal stockpiles? Some of the more regulated utilities we've talked to are down to like 20, 25 days as we move into summer. Just wondering if that could be contributing to the pricing and the moves recently.

Absolutely. I am confident that this is impacting the situation because some people are waiting during periods when the margin on coal isn't very high; they are stepping back. Gas is being used at a set price. Therefore, the interaction between gas and coal will continue until the coal issue is resolved. This definitely has an effect on price.

Okay, great. Yes. Sorry about the greedy question, but I was just curious because it seems the biggest delimiter that you guys probably have, to your point, is really just maintaining adequate liquidity as well as probably just sourcing liquidity in the markets, especially as we probably get out past '24, '25, '26, I would think that it probably gets a little bit more thin out there, and so you might have to take some discount to sort of get those hedges on.

Yes.

We might see things. But as Curt said, we're not trying to get every last nickel here. So there's plenty of room for us to lock this in and move the midpoints up. And as you said, liquidity is a key area of focus. We feel good about it, but we're going to keep actively working that so that we could capture this opportunity. Sorry to pick, Curt.

This concludes our question-and-answer session. I would like to turn the conference back over to Curt Morgan for any closing remarks.

Thanks again. It looks like we ran over time. Sorry about that. Great working with everybody. I'm hoping that I get to see people between now and August 1 and now that we're also getting to see each other. But enjoyed it and look forward to. You're in good hands with Jim and the company is in good shape as ever. So we're excited about the future. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.