Earnings Call Transcript - VST Q2 2023

Operator, Operator

Good morning, and welcome to Vistra's Second Quarter 2023 Results Conference Call. 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.

Meagan Horn, Vice President of Investor Relations

Good morning and thank you all for joining Vistra's investor webcast discussing our second quarter 2023 results. Today's discussion is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. There you can also find copies of today's investor presentations and earnings release. Leading the call today are Jim Burke, Vistra's President and Chief Executive Officer, and Kris Moldovan, Vistra's Executive Vice President and Chief Financial Officer. They are joined by other Vistra senior executives to address questions during the second part of today's call as necessary. Our earnings release presentation and other matters discussed on our call today include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the investor presentation, all available in the Investor Relations section of Vistra's website. Also, today's discussion contains forward-looking statements, which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward-looking statements. I encourage all listeners to review the Safe Harbor statements included on Slide 2 of the investor presentation on our website that explains 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. Thank you. I'll now turn the call over to our President and CEO, Jim Burke.

Jim Burke, President and CEO

Thank you, Meagan. Good morning. And thank you all for joining our second quarter 2023 earnings call. The second quarter proved to be another strong one for the business as we delivered $1,008 million in ongoing operations adjusted EBITDA. Typically, we do not formally adjust our guidance ranges until after we get through the critical summer months, but based on performance to date and our forecast for the remainder of the year, we are confident in our ability to deliver in the upper half of the guidance ranges introduced on the third quarter earnings call last year. Accordingly, we are narrowing that original range, which was $3.4 billion to $4 billion, to a new range of $3.6 billion to $4 billion for ongoing operations adjusted EBITDA. Looking beyond 2023, the market curves continue to support a strong consistent outlook as well. Our commercial team is working to strategically lock in these opportunities, employing comprehensive hedging strategies to provide better line of sight to our earnings over our planning horizon, which in turn allows us to plan for capital return to our shareholders that is consistent and predictable. In addition, I'm proud of the great strides we're making in the expansion of Vistra's zero-carbon generation portfolio with our 350-megawatt addition to the Moss Landing Energy Storage facility that came online this quarter. I'll speak to that milestone momentarily, but first, I'd like to turn to Slide 5 where we once again highlight our four strategic priorities. I think it's important to continue to reiterate our focus on these priorities each quarter with some notable accomplishments, as I believe these are critical to long-term value creation. This quarter saw continued strong generation and commercial team execution combined with our retail business that continues to deliver strong counts and margin performance. This year is proving it can consistently deliver substantial and resilient earnings in a variety of power price and weather conditions. Just as last quarter, on average, we saw power prices this quarter clear lower than our realized hedge prices. This highlights the significant downside risk protection to our earnings that our comprehensive hedging strategy across the integrated business provides. These de-risked earnings give Vistra the confidence to announce aggressive shareholder return programs, and then stick with those programs and amounts equal to or higher than those originally announced. I'll let Kris provide the detailed update on our capital allocation plan, but of the aggregate upsized $7.75 billion capital return plan we originally announced in November of 2021, we've already returned $3.35 billion through August 4, 2023, which is approximately $250 million ahead of the originally announced plan levels. We regularly evaluate how best to bring value to our shareholders, and we expect to continue buying back stock and paying dividends that grow each quarter, based on a reduced share count. Our balance sheet strength remains a top priority as well. You saw this quarter that we structured a $450 million P-Cap transaction which is unique and allowing us to post-treasury securities as margin deposits, returning more cash to the balance sheet. We expect to utilize that cash, plus the margin deposits that have been returned as expected, as our hedges have settled throughout this year to fund a significant portion of the purchase price we expect to pay in the fourth quarter for Energy Harbor, substantially reducing the amount of acquisition debt to be issued. Finally, as it relates to our opportunities with the energy transition, in addition to the progress we are making on the Energy Harbor acquisition, I would like to turn to Slide 6 regarding our Moss Landing Facility. The Vistra team did an excellent job in bringing online an additional 350 megawatts to add to the existing 400 megawatts at our Moss Landing site in California, which is the largest energy storage facility of its kind in the world. This addition came online ahead of schedule and on budget despite a challenging supply chain environment and extreme rainfall. This is now a total of 750 megawatts of energy storage backed by contracted revenues through our PG&E Resource Adequacy Agreements. Importantly, we continue to see additional opportunities to add batteries to this site in the future. The facility is located in the California energy market, which is experiencing significantly higher gas price volatility, as well as the potential for scarcity pricing due to high demand and import competition from the neighboring balancing authorities. These factors result in favorable conditions for the earnings outlook for the Moss Landing battery facility and our co-located combined cycle plant which has a capacity of 1,020 megawatts. This is a tremendous site and a great example of our ability to invest in a disciplined way in Vistra zero while also providing reliable and affordable energy that customers need. Moving to Slide 7, the $1,008 million of ongoing operations adjusted EBITDA achieved this quarter was a result of strong performance by each of our generation, retail, and commercial teams, with retail achieving attractive counts and margin performance across all customer categories, and our generation team delivering commercial availability of approximately 95%. Our people are working hard in this extended high yield environment, and they continue to perform extremely well. When we originally announced 2023 guidance in the third quarter of last year, we estimated a range of $3.4 billion to $4 billion in adjusted EBITDA from ongoing operations. As mentioned earlier, we are confident in our ability to deliver in the upper half of that range, leading us to formally update our guidance to reflect the new range of $3.6 billion to $4 billion in adjusted EBITDA from ongoing operations and a new range for adjusted free cash flow before growth. Of course, there was a lot of execution still left in the balance of the year, and our people remain focused on delivering for our customers and our shareholders. Turning to Slide 8, I just wanted to reiterate that all three key agencies continue to work on the necessary approvals to close the Energy Harbor acquisition. We are working constructively with each agency and all involved parties, and as I mentioned before, we continue to anticipate a fourth quarter closing. We believe Energy Harbor is a terrific transaction for Vistra, adding a substantial amount of nuclear generation with the support of the production tax credit. We continue to expect significant contributions from Energy Harbor, including opportunities for synergies. I think back to the announcement of the Dynegy acquisition when we projected annual ongoing operations adjusted EBITDA of approximately $2.8 billion. Through the hard work of the Vistra and Dynegy teams, and including the acquisition and successful integration of Crius and Ambit, together with the expected closing of Energy Harbor later this year, it is exciting that we could see ongoing adjusted EBITDA on average in the 2024 to 2025 timeframe of $4.5 billion, including synergies and out year prospects potentially even higher. Kris, I'll now turn the call over to you to discuss our quarterly performance in more detail.

Kris Moldovan, Executive Vice President and Chief Financial Officer

Thank you, Jim. Starting on Slide 10, Vistra delivered $1,008 million in ongoing operations adjusted EBITDA in the second quarter, including $510 million from generation and $498 million from retail. Generation's results were favorable compared to the second quarter of 2022, primarily due to higher energy margin achieved through our comprehensive hedging strategy. And as we did last quarter, our ability to capture value by backing down generation in times when prices are below unit costs. Retail’s results were also favorable as compared to the second quarter of 2022. While the segment was impacted by less favorable weather, this was more than offset by continued strong counts and margin performance. As I discussed last quarter, the entire year shaping that damping the first quarter's earnings contribution to the overall year was offset as expected in the second quarter. Turning to Slide 11, as Jim mentioned, we have been consistently delivering on our capital allocation plan. As of August 4, we have executed approximately $2.9 billion of share repurchases since beginning the program in the fourth quarter of 2021. We expect to utilize the remaining approximately $1.35 billion of the total $4.25 billion authorization by year-end 2024. Notably, our outstanding share count has been reduced to approximately 367.5 million shares as of August 4, an impressive approximately 24% reduction in the number of shares that were outstanding in November 2021. This meaningful and consistent share reduction has led to robust dividend growth. For example, the recently approved third quarter 2023 common stock dividend of $0.206 per share represents an increase of approximately 12% per share, as compared to the dividend paid in the third quarter of 2022. Finally, as Jim mentioned, we remain focused on maintaining a strong balance sheet and a disciplined approach to growth. We have fully allocated the net proceeds from the December 2021 Green-preferred stock issuance and are now turning to securing non-recourse project or portfolio-level financing to support the growth CapEx needs of the company. We anticipate launching the first such financing in the coming months. To wrap up on Slide 12, we have provided an update on the out year forward price curves as of August 4. As you can see the forward curves continue to hold together well. Specifically, since our last call we've seen forward curves increase in ERCOT in 2024 and 2025, increasing our confidence in our ability to achieve the previously disclosed $3.7 billion to $3.8 billion ongoing operations adjusted EBITDA midpoint opportunities in those years. As a reminder, we are significantly hedged in years 2023 through 2025, approximately 86% on average of expected generation across all markets, with the balance of 2023 expected generation hedged at approximately 98% and 2024 expected generation hedged at approximately 95%. Finally, Crius and Ambit continue to provide opportunities to lock in significant earnings, especially during times of scarcity. Our commercial team continues to work to de-risk these opportunities by executing on our multiyear comprehensive hedging strategy, which strategy continues to be supported by our standby liquidity facilities. We are proud of the performance of our generation, retail, and commercial teams thus far this year and are excited to continue our work towards executing against our remaining 2023 goals and long-term strategic priorities, as we translate that success and to shareholder returns. We look forward to updating you on our progress on our third quarter call. With that operator, we're ready to open the line for questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question comes from the line of Shahriar Pourreza with Guggenheim Partners. Please go ahead.

Shahriar Pourreza, Analyst

Hey, guys. Good morning.

Jim Burke, President and CEO

Hey, good morning, Shar.

Shahriar Pourreza, Analyst

Good morning. So first up, I guess you're now obviously the third IPP to report stronger retail margins. Could you just unpack a little more what you saw this quarter, kind of within the strength as we're thinking about optimization versus actual margin expansion, and the degree to which I guess you guys see this as being durable? Thanks.

Jim Burke, President and CEO

Sure. Shar, I'm going to start. I'm actually going to have Scott Hudson to give a little bit of perspective on the market dynamics as well. You realized last year when we were in a climbing power environment due to the conflict that we saw with Russia and Ukraine, and then the commodity curves moving up. So retailers in general were climbing the hill in 2022. We started to see that obviously come down at the beginning of this year. And the team does a very nice job of looking at the multiyear nature of the contracts for large commercial, and the 12-month to 24-month range for residential. Their objective, of course, is to have normalized margins. We tend to buy forward as a company; we try to normalize the experience for customers because our experience has been that if you move the customers' price too much, it's not the expectation that they had when they signed up with you. So even on renewals, we're careful about how we manage this. From a durability standpoint, the retail business has earned strong margins in follow years and in stable years. And I think as part of the brand power of the business, we are not selling an index-type product that's just floating with a spot price; we are actually taking some of that predictability and risk by hedging forward and giving that benefit to the customer. So I feel very good about the durability.

Scott Hudson, Senior Executive

Sure. Shar, thanks for the question. I would just add to what Jim said is that we've got multiple brands at play in the ERCOT markets, and each of those brands are designed to attract a different customer segment. But in general in ERCOT, on the residential side, transactions remain at historical levels. So there were a lot of moves and switches and opportunities to win customers in the market. This really reflects the health of the Texas market migrations to consumers. As Jim said, prices have come down materially compared to this time last year, and the number of offers in the market has increased as have the number of competitors in these markets. So it's very robust. But I think where we're successful in both accounts in the margin side is the differentiation of our products and services across those brands. So our summer campaign, this summer features three distinct products; a seasonal discount product, a first-to-market time of use product, and also an electric vehicle product, which really is doing well on the gains and helping us mitigate losses as well.

Jim Burke, President and CEO

And I would add, Shar, that the annual view for retail that outlook has improved from when we originally set our guidance for 2023. As Kris noted, the Q1 to Q2 effect is more about the shaping of the cost of goods sold because retail will buy power according to the shape by month for the year. So the winter costs are much higher than the spring, the summer costs are much higher than the fall and into December. So we see that retail profitability much higher in our results in Q2 and Q4, and we see less from retail in Q1 and Q3. So I was giving you the annual view as to how I think about the durability, but there is a quarter-to-quarter difference because of how we buy power for retail, reflecting the shape of power costs. So I hope that helps.

Shahriar Pourreza, Analyst

No, it does. And that's helpful. Thank you for that. And then just lastly, I don't want to push too far but such great color on '24 and '25. Can you just speak to how the EBITDA opportunity looks for '26 or at least the degree to which you've been able to hedge that far? And just maybe refresh us on the Energy Harbor EBITDA opportunity that far out? Are you still seeing things north of $900 million? Thank you, guys.

Jim Burke, President and CEO

Absolutely. We have continued our progress with hedging as planned and are always looking for ways to ensure a predictable earnings stream. For the 2024-2025 period, we feel optimistic about our outlook for Vistra. However, we don’t have information on Energy Harbor’s updates for that period since we are still navigating the regulatory process. The data we possess is from the time of the original announcement. From our analysis, we believe Vistra stands well for 2024-2025. We’re also confident in raising our previously mentioned range from $3.5 billion to $3.7 billion to a new estimate of $3.7 billion to $3.8 billion. Regarding Energy Harbor, they had some out-of-the-money hedges during our last announcement, leading us to estimate a combined range of about $4.35 billion. With the adjustments we made for Vistra stand-alone, if we are at $3.75 billion now, this would position the combined enterprise at around $4.45 billion to $4.5 billion, averaging $4.5 billion for that timeframe. For 2026, we remain flexible. We observed attractive curves in the markets previously, particularly in AD Hub and PJM, where rates were around $50, but they have since dropped to about $44 for that year, which is close to our acquisition case. We aim for the $900 million target, though it would benefit from the support of the 2026 curve, which has fluctuated between $45 and the low $50s. We’re still uncertain about the long-term hedging Energy Harbor may pursue, but we maintain that $900 million is a solid figure for 2026 for Energy Harbor. And in terms of our business, Vistra stand-alone, we've seen PJM come off. We've seen ERCOT come up. ERCOT has come up, and it's been attractive. And Steve, I used, and you shared some thoughts about how you have seen these markets unfold even in the last month or two.

Steve Muscato, Senior Executive

Sure. We've seen ERCOT because of the heat that we've been experiencing and the periodic bouts of scarcity that have been kind of a routine issue here in the last several weeks with the heat in Texas. It has rippled into the forward curves, and so fixed price is holding in there. So we're able to hedge some of our solid fuel free. And we're also seeing sparks, to your point, Jim, expand as we move out into that period. And so we're opportunistically hedging ERCOT where available, as you can imagine, '26 is somewhat illiquid, but we are having some success open our retail and wholesale channels and increasing those hedge percentages when the opportunities present themselves.

Jim Burke, President and CEO

With the AD hub and Energy Harbor, we have some PTC support, Shar. We don't see it as significant since all the curves are nearly at the money right now, but one reason the deal was appealing was the downside support it could provide if needed. Thank you, Steve and Scott, for the context on that. Shar, I appreciate your questions.

Operator, Operator

The next question comes from the line of Michael Sullivan with Wolfe Research. Please go ahead.

Michael Sullivan, Analyst

Good morning, everyone. Thank you for the insights on those previous questions. Jim, I'd like to transition from discussing EBITDA to the debt aspect. You mentioned earlier about the PCAP and upcoming margin collateral posting. Could you provide more clarity on the amount of new debt you will eventually need to issue and whether that has changed since the deal announcement? Additionally, what does the pro forma consolidated view look like regarding your current debt situation?

Jim Burke, President and CEO

Sure. Michael, I would say that the conditions, obviously, in terms of margin deposits and the return of cash has been pretty favorable this year. I'll turn it to Kris to talk about how that influences the way we think about financing Energy Harbor and the overall credit metrics and targets that we're looking at.

Kris Moldovan, Executive Vice President and Chief Financial Officer

Thank you for your question, Michael. I’ll break this down into two parts. When we announced the transaction, we projected using $600 million in cash and $2.6 billion in debt. We anticipated some cash to return from margin deposits, but we aimed to be conservative and maintain enough liquidity. As we've settled those hedges this year, the expected funds have returned. This amount also accounted for plans for non-recourse financing at Vistra Zero, which we still plan to pursue. Looking ahead for the rest of the year, we are considering two main factors. One is the acquisition financing, influenced by the return of margin deposits and additional cash from the PCAP transaction, which has reduced the $2.6 billion estimate to between $1 billion and $1.5 billion, pending our next steps with non-recourse financing. We also have that non-recourse financing planned, and as noted earlier, we expect a transaction in the coming months, which will help complete our financing picture. We remain committed to being conservative with our financing strategies. As for our debt outlook, we are still targeting below three times. At the closing, we believe we will be just above that. With a combination of debt repurchases and rising EBITDA, we think we can reach that sub-three times goal in 2024, possibly extending into early 2025, but we do not anticipate a long wait to achieve our target levels.

Michael Sullivan, Analyst

Okay. Thanks. I appreciate all the color there. And then maybe just on ERCOT looking forward here, obviously, it's been pretty hot down there. What are you seeing in terms of just the grid holding up for the rest of the summer? And then thoughts on potential new build response later this year around the referendum vote.

Jim Burke, President and CEO

Sure. Michael, it's been very active over the last three weeks. It's a daily focus, and Steve would say it's a minute-by-minute focus. This is due to the robust, low growth market of the Texas grid. The resources added in the last three to five years have mostly been wind and solar. The increase in solar has been significant, around 4,000 to 5,000 megawatts year-over-year, which is enhancing the evening period. We're nearing a point where solar effectively covers the six to eight-hour range, and we're concentrating on how wind can pick up after solar during the seven to eight-hour period and beyond. Notably, earlier in June, although wind overall was lower in the third and second quarters of this year in ERCOT compared to last year, it performed quite well during peak evening hours in the initial part of summer. Price formation was minimal. However, by late July and early August, wind is starting to align more with normal expectations, and we are observing increased tightness during late evening hours. This assessment considers that nuclear, coal, and gas must be operating efficiently, as they represent the majority of the grid. The units are working hard, and there's no end in sight for the current heat. The team is doing well at keeping these units operational. Overall, the ERCOT grid and the operators have managed to maintain supply, but there is a significant risk of rising prices due to the grid's tight conditions. This tightening is beginning to be reflected in the forward prices for 2024-2025. Regarding new gas builds, the process typically takes about three years once started. The loan referendum is scheduled for November, and the PCM from House Bill 1500 includes a billion-dollar cap that was introduced by the legislation. Implementation of the PCM may take several years. There are many variables that developers must consider regarding whether they see enough incentive to build, especially since backdated curves remain an issue. Although curves have recently improved for 2024-2025, there is still a belief in the market that it will be overbuilt or that a lot of new resources will arrive, potentially supported by PTCs, exerting downward pressure on prices. It’s uncertain what the demand for gas-fired generation will be, but there was clear legislative support for maintaining existing thermal generation and encouraging new development. While not all stakeholders agreed on the best approach, there is acknowledgment of the importance of both existing and new thermal resources, which is a positive outcome. However, much work remains with the P&C and ERCOT to finalize these efforts.

Michael Sullivan, Analyst

Thanks so much. Appreciate it.

Jim Burke, President and CEO

Thanks, Michael.

Operator, Operator

The next question comes from the line of Julien Dumoulin-Smith with Bank of America. Please go ahead.

Julien Dumoulin-Smith, Analyst

Hey, good morning. Thank you very much for the time. Appreciate it. Just wanted to follow up a little bit on the conversation on the '24-'25, the 4.5 there. Can you elaborate a little bit on what the retail assumptions are there? I know Shar tried to get at this a little bit, but it seems like you're just collapsing the transaction in there. Ultimately come up with that new number in the mid-4s. How do you think about these other retail pieces there? And ultimately, just also, what were you alluding to on '26? I know you said it was quite open. Just what does that translate into '26 if you can start to go there just quickly in terms of the puts and takes?

Jim Burke, President and CEO

Sure. Well, if you look at our revised guidance for 2023 and you look at that sort of midpoint, if you take that and add the Energy Harbor numbers to it that I'd shared with you for '24-'25, you're getting to that $4.5 billion number. What we've seen in our business model, Julian, is because of where we've hedged and how we've been able to hedge, the realized kind of margin expectations are pretty flat from this kind of '23-'24-'25 timeframe. The split between retail and gen might vary a little bit, but not materially. And I think that's 1 of the durable parts about our model is, and we saw it last year, and we're going to see it a little bit this year is that you may see a little bit of movement between retail and gen based on market conditions. But retail is very solid in this kind of $1 billion range over that horizon. And I would expect the difference being the wholesale to get to that $3.8 billion. That's actually, I think one of the things that we've been excited to share is that the business is stable doesn’t mean we're not working hard every day to hold on to it. I don't want to make it sound like just because we've hedged it, it's going to be realized. We have to deliver every single day on the business. But the outlook is actually above where we were in May of last year when we announced it and stable. We'll be adding Energy Harbor to it. That line of sight with those hedge percentages we feel really good about where we are in that '24-'25 timeframe. Certainly '26 is more open. As I mentioned earlier, ERCOT is looking favorable relative to the last time we talked. But PJM is down on fixed price power at this point in 2026, but then we also have some PTC support for that for the Energy Harbor length. It doesn't look like ERCOT would be in that PTC range right now because of where the curves have moved up to. But we've got kind of geographic flexibility and segment flexibility, or I should say, diversification and how I think 2026 will play out.

Julien Dumoulin-Smith, Analyst

Got it. And if I can ask you to clarify your forward ERCOT expectations. I mean we've got a few different programs yet to be implemented, I suppose is the procurement program with a certain level of subsidy baked in there coming, I suppose at some point, curious on your sense of timing on that for any real impact? And then related, we have other reserve programs yet to be fully implemented. I'd be curious on your initial assessment of some of these programs, like the dispatchable reserve strength?

Jim Burke, President and CEO

Sure. I'll start. I think you're referring to the loan program and the grants that could be coming. Yes, the referendum is in November. The initial amount shared as part of the bill was $10 billion, but the budget currently reflects $5 billion. The exact amount of that $5 billion allocated for building new gas plants is still uncertain, but it could be in the $3 billion to $3.5 billion range. When we analyze the numbers, a 3% interest on a 60% loan to value can slightly improve your returns, but it doesn't compensate for possibly missing revenue in a backwardated market. This leads to your other question about whether programs like the ORDC bridge, PCM, and the recently implemented eCRS and DRS by the end of 2024 will collectively help us recognize the reliability for the assets Ken mentioned. We don't have a clear answer yet and are still evaluating it. Steve, I’d be interested in hearing your thoughts on how the new ancillaries like eCRS and DRS might impact the market.

Steve Muscato, Senior Executive

Sure. I think let's start with eCRS because it's the latest and we've actually seen how it's been implemented. They're putting it in when I say the ERCOT is dispatching it only when critically needed. I think it's serving well from a reliability perspective in terms of keeping ERCOT out of an EEA situation. But one of the other things I've seen is that it hasn't necessarily impacted price formation too much. So, I really think it gets into how ERCOT handles these reserve products. If they handle them in the way that they're designed, which is really when the grid is approaching tight conditions, and it's not necessarily used for price formation, which is what we're seeing so far. When I see ECRS dispatch, it's been on the very hot days, at the peak hours when needed. It hasn't been very price suppressive. So we think it's working the way it's intended. And we'll have to see on these new reserves that they're putting in. But to the extent they use them in the same way as ECRS, I think we're in the best of both worlds where we're avoiding what I'll call emergency conditions on the grid, but we're still seeing very solid price formation when it does get tight.

Jim Burke, President and CEO

And I think it's too early to call DRS at this point. I mean it's still early-stage to think about that one. Julien. That was one of the ones that some certain stakeholders were pushing as kind of the market solution. And so I believe the P&C and ERCOT have enough tools that they can work with to try to build some incentives for existing and new assets to be recognized and rewarded for their reliability, including a firming requirement for assets that come onto the grid after January 1, 2027. And that they have to effectively be able to backstop the expected generation that they are committing to. Those were all the right, I think, concepts. It's just early-stage for us to know at this point how that's going to affect prices.

Julien Dumoulin-Smith, Analyst

Right. Net-net, though, there does seem to be some kind of timing discrepancy between when these reserve programs come in and any ultimate effect of any kind of procurement program here?

Jim Burke, President and CEO

I think so. The procurement program or the loan program and grant program alone, like I said, is marginally beneficial, but it does not solve the broader problem that we entered the session trying to solve. I think that's why we ended up with a menu of things, and frankly, it's a ton of work for the Public Utility Commission in ERCOT to work through this. And they're going to have their plate more than full. I mean, there's real-time co-optimization that has to fit in there before even PCM. So there is a lot still to, I think, figure out. And we'll obviously be active and work with the stakeholders involved to try to bring clarity to it. But yes, on a calendar basis, it's multiyear at this point.

Julien Dumoulin-Smith, Analyst

Excellent, guys. Good luck. Thank you so much. Talk to you soon.

Operator, Operator

The next question comes from the line of Durgesh Chopra with Evercore ISI. Please go ahead.

Durgesh Chopra, Analyst

Good morning, Jim. Thank you for addressing my questions. Regarding the hedges, I believe you covered part of my inquiry in your opening remarks. The hedges from 2022 to 2025 are still at 86%, with no changes since the update in Q1. Is this simply a matter of you being more open to the current market conditions? You mentioned the ERCOT curves, or is it more of a standard approach to business where you plan to hedge opportunistically? I would appreciate any insights you can share.

Jim Burke, President and CEO

Yes, it's a very good question, Durgesh. I would say there's a combination of factors. One is we've actually added some length given that the curves have moved up. So that's a good thing. There's more hours in the money for the fleet. So that means there's actually more to hedge. That's ultimately a good thing. And so when you look at the percentage, it's not a static amount of generation. So that's one element. The second element is that's as of June 30 that we were giving you these percentages. We've continued to hedge since June 30, particularly in the 2025 timeframe. I don't feel that where we sit working with our team that we feel '26 is at a place where you have to go lock it all in because of the dynamics we talked about earlier. We think there's still upside in some of these markets. And we feel good about the visibility we've given for '24-'25, and we've got time to work on '26. So the curves, as I mentioned, in '26 for PJM had come down, ERCOT has gone up, but not anything that we need to go rush out and move materially on '26 at this stage.

Durgesh Chopra, Analyst

How about just within that '23 to '25 period. I guess what the message here is that 86% should move higher as we get along here.

Jim Burke, President and CEO

It's already higher since June 30, Durgesh. And so the '26 hasn't moved much, but we have moved up on '25 and we're nearly fully hedged, obviously for '24. But these percentages do move because, again, being in the money means you have more hours to hedge because there's gross margin. So the hedge percentage could drop, but your earnings forecast could go up as a function of just simply looking at the opportunity set. Some of it is just the timing and the fact that these curves do move around.

Durgesh Chopra, Analyst

Understood. Thanks. And then, Jim, one of the questions we consistently get from investors. Obviously, as you look at the stock, right, I mean, since I believe you initiated this buyback program, it was Q3-Q4 '21 the stock was in the mid-teens. You broke 30 today. Just your updated thoughts on capital allocation, share buyback versus growth opportunities. How are you thinking about all of that here as the stock hit $30?

Jim Burke, President and CEO

Sure. It's great to see the stock price increase. We consider this a long-term strategy that we felt confident about from the beginning. A significant part of the stock price increase can be attributed to the reduction in share count rather than a substantial rise in enterprise value. This is beneficial for current shareholders who are effectively increasing their ownership percentage in Vistra. Since May of last year, we have improved the company's earnings outlook significantly, which could lead to multiple expansion, though we haven't experienced much of that yet. I believe the market will start to recognize our achievements as we consistently deliver results. Once investors are assured of our sustainable earning potential beyond two to three years, we might see some multiple expansion, but we aren't there yet. Our capital allocation plan is solid for the foreseeable future, and while there's a chance we might increase the pace of buybacks if we continue to do well, we are disciplined about our investments. We want our shareholders to trust that we make thoughtful decisions regarding buybacks versus growth opportunities. Those growth options must be attractive, so we will focus on the best Vistra Zero projects without simply pursuing renewable projects. I believe in our portfolio, and we are excited to advance our capital allocation plan because we think it’s beneficial for both our shareholders and debt holders.

Steve Muscato, Senior Executive

I would just add that we're discussing the $30 mark. We have our own internal valuation of what management believes the stock is worth. As Jim mentioned, we are still comfortable with the idea of buying and possibly increasing our investments at these prices. This reflects our assessment of fair value, which we have not yet reached.

Durgesh Chopra, Analyst

Got it. Thank you, both. And congrats on the solid execution here on several quarters. Thanks.

Jim Burke, President and CEO

Thanks, Durgesh.

Operator, Operator

The next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.

David Arcaro, Analyst

Thanks so much. Good morning.

Jim Burke, President and CEO

Good morning, Dave.

David Arcaro, Analyst

Steve. I was wondering, I noticed a decline in the CapEx for 2023 for solar and storage development. Wondering what's driving that. And then similarly, just looking out to the development plan, some of the in-service dates moved out for several of the solar and storage development projects. Wondering if you could give some color around that dynamic.

Jim Burke, President and CEO

Yeah, absolutely. Those two are related, David. We have the Illinois coal to solar; we had the majority of that reduction that you see was some movement out of 2023 and into '24-'25. We're still working the procurement cycle with working with vendors on EPC and obviously, the equipment. We are still working that process in Illinois. It's more just a deferral at this point for the coal to solar projects. That was about two thirds of what was moving out. The other is, as I've mentioned on a couple of previous calls, on the ERCOT solar, we're starting to see the solar hours kind of cannibalize the solar hours. So we'll move forward on solar projects with a PPA, but we're not going to move those in a merchant-type model. That was the other part of what lowered the CapEx. Now, as I've mentioned, we own these projects; the pacing of these, a project may not be ripe now, could be ripe three years from now, depending on market conditions and depending on how some of these rules played out that we talked about on one of the earlier questions. But that is really a reduction at this point this year that's a deferral on the coal to solar. But I would say next year, we're probably still in this kind of $600 million number. So we're not pushing the number down this year to then take the next year number up fully. We're showing the discipline because the Texas piece, in particular, is something that we want to keep a close eye on. So I think even for next year, you're going to see a development number for CapEx that's pretty close to this year.

David Arcaro, Analyst

Got it. That's helpful. And I guess just maybe following on to that, how do you think of if there's or now maybe this is a little bit separately. I imagine if that growth CapEx number goes down, that was going to be largely financed with non-recourse project financing anyway.

Steve Muscato, Senior Executive

That's correct.

Kris Moldovan, Executive Vice President and Chief Financial Officer

So we open up additional cash available for allocation at the overall Vistra entity?

Jim Burke, President and CEO

Yes, that's right.

Unidentified Analyst, Analyst

My question is, just like a structural change that we see in retail margins? Again, if only because of the higher cost of financing? Or is it just we are coming off from a really high price power price environment? And there's some pricing arbitrage between where we were and what's the current costs to serve these retail contracts?

Jim Burke, President and CEO

Yes, there's a lot in your question, Angie. And I'll break it down I think into two big market distinctions. The ERCOT market is more of a scarcity-driven market. We have seen in just the last two months, the volatility pickup and the cost that a retailer needs to be prepared to pay to insure against that volatility has moved up. So you had the whole energy complex move up in '22, then it started to come off earlier this year. Now we're having the actual scarcity of basically supply and demand tightening in ERCOT. We're starting to see the costs for swings, which is part of that full requirements, particularly for residential, that's very costly. Large commercial and industrial do not have as much of a swing aspect to its load profile. So we are a very residential-heavy retail book. We have a great LCI business, but we are dominated from an earnings standpoint by our presence in residential. So we manage that swing in the pricing for our customer. Scott Hudson has to provide for the fact that he's wearing full requirements risk and serving this load. We have the assets to back it up, and I think that's what's distinctive about our model is that we've got the base load, the intermediate, and the peakers so that Steve Muscato and the team can fulfill. If there's any issue with that, we get it just right on the quantity hedged, which hedging is always imperfect. We've got an opportunity between the retail and the gen side to balance each other out. In ERCOT where we've really seen that volatility. In the other market, it's been more gas-driven. We've seen a general downward slope in the gas curves and these other markets, and retailers generally can expand margin in a declining gas and power cost environment. They might see some compression in margins in a rising. Some of the tailwind in 2023 in signing deals is based on the fact that if you signed deals in 2022 that were multiyear deals with large commercial, you might have had negative margins in the first year and 2022 because power costs were so high because you average the cost for the customer. Then you would have seen positive margins in the out years. That's normalized now. You can now sign deals and see positive margins in '23-'24-'25. This is a cyclical business. You've got to run it for the long term. You've got to set customer expectations around being predictable and not move them around too much, as I mentioned earlier. So those are the two dynamics I see in the market. Scott, is there anything you'd like to add to that?

Scott Hudson, Senior Executive

No, I think that's right, Jim. I think the most dramatic change that we've seen year-over-year is residential customers in the Midwest and Northeast, where it's a cyclic market. We just have an opportunity to bring on more customers, particularly digitally and online, because of where the price to compare is. Our price to compare is still much higher than what our power costs are. But I think there was such an extreme last year that that will stabilize over time. But you really do have to think about these as very market specific, and then customer product and brand-specific segments. Thank you. Thank you, Scott.

Unidentified Analyst, Analyst

Okay, and just one other question. As we consider the increasing costs of financing alongside your stock's performance, even without significant margin growth, could you discuss the potential financing for another M&A transaction? Given the rising financing costs and your commitment to share buybacks, I'm wondering if you believe you have the necessary scale with the pro forma Energy Harbor and whether there are further operational and financial efficiencies to gain by adding another generation portfolio.

Jim Burke, President and CEO

So, Angie, thank you. Always looking ahead. We are clearly focused on Energy Harbor. As Kris mentioned earlier, we've got some return of cash this year. So it can help change our financing needs to close the Energy Harbor transaction. We don't comment on any potential M&A. I think we demonstrated that we keep an eye out and we have the right conversations to be aware of the opportunity set. If there is an attractive one at the right price, we'd be in a position to move. But I've also said, and I said it on our Vistra stand-alone case, we liked the Vistra stand-alone case at the time we announced Energy Harbor. So we had to get comfortable that Energy Harbor would truly be accretive in a long-term good fit for our company, and we made that determination. We're very excited about it. We would use a similar lens on anything else. We still think the capital allocation plan, which we kept intact through Energy Harbor. I think we still need to consider that in anything that we're doing that our shareholders have come to expect that capital allocation plan that will execute on it.

Kris Moldovan, Executive Vice President and Chief Financial Officer

Yeah, Jim, I would just add. As we have talked about, and as we have increased our forecasts for '24-'25 and as we see opportunities in 2026, one thing, Angie, to note, and we'll have more to say on this after the Energy Harbor closing. But we still have capital to allocate even above and beyond the minimum billion dollars a year of share repurchases that we've talked about and the $300 million of dividends and getting our debt where we needed to get it to go in our renewables growth. So even beyond that, we have a significant amount of cash. We'll continue to make decisions. As I said, we'll have more to say on it coming up. We'll continue to look at opportunities, and that could be growth or additional share repurchases. That would dampen any financing that we have. But we feel good about our ability to raise financing. We also have created a currency with the Vistra Vision equity. We're not looking to use more of that, but there could be a situation where that is available to the extent that it makes sense. So we have a lot of options. We'll continue to make sure that we are flexible as we go forward.

Unidentified Analyst, Analyst

Thank you. Thanks.

Jim Burke, President and CEO

Thank you, Angie.

Operator, Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Jim Burke, President and CEO for any closing remarks.

Jim Burke, President and CEO

Thank you again for joining us on this call, and sorry if the call dropped and you had to get back on. But we really appreciate your interest in us and following how we're progressing. We look forward to talking to you hopefully, if we see you on the road before the next quarter. Have a great summer. Thank you.

Operator, Operator

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