Earnings Call Transcript
Vistra Corp. (VST)
Earnings Call Transcript - VST Q4 2020
Operator, Operator
Ladies and gentlemen, thank you for being here, and welcome to Vistra's Fourth Quarter 2020 Results Conference Call. After the presentations, there will be a question-and-answer session. I would now like to turn the call over to Molly Sorg, Head of Investor Relations for Vistra. Please go ahead, Ms. Sorg.
Molly Sorg, Head of Investor Relations
Thank you Carol, and good morning, everyone. Welcome to Vistra's investor webcast discussing fourth quarter and full-year 2020 results, which is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. Also available on our website are a copy of today's investor presentation, our Form 10-K and the related earnings release. Joining me for today's call are Curt Morgan, Chief Executive Officer; and Jim Burke, President and Chief Financial Officer. We have a few additional senior executives present to address questions during the second part of today's call as necessary. Before we begin our presentation, I encourage all listeners to review the Safe Harbor statements included on slides two and three in the investor presentation on our website that explain the risks of forward-looking statements, the limitations of certain industry and market data included in the presentation, and the use of non-GAAP financial measures. Today's discussion will contain forward-looking statements which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward-looking statements. Further, our earnings 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 earnings release and in the appendix to the investor presentation. I will now turn the call over to Curt Morgan to kick off our discussion.
Curt Morgan, CEO
Thank you, Molly, and good morning everybody. We appreciate your interest in this call. Today, this morning, I would like to start out with the elephant in the room. We had a rough week last week, to say the least, and for our investors who are listening to this call, I want to say on behalf of everybody at Vistra that we are disappointed in our inability to deal with this unprecedented event in a way that was favorable for the company. But I can assure you that we did everything we could to try to come out on top. And I would like to take you through a little bit, and Jim Burke will cover the events that ensued, what we tried to do to deal with those events, what happened, and also just to tell you up front that it has taken us until the middle of this week to really sort out what ultimately ended up happening. And so therefore, we felt it was imperative to have this discussion today and start the process of conversing about what actually happened before we get to the final numbers. I can assure you that there isn't anybody more disappointed than we are. It is disappointing to me that we let you down because we pride ourselves in execution, and I think we have done a good job of it over the five years I have been here. And within literally an hour or two, our worlds kind of turned upside down. First of all, this was unprecedented for Texas, and those of us who lived in the Northeast or the North may not have thought it was a big deal, but in Texas, it was an unprecedented event. The infrastructure, and I don't mean just the electric infrastructure, but I'm talking about housing and other things, is built really for the heat. You don't see this kind of event. And I think history tells us that this was one of those so-called one-in-100-year events that did happen. And the reality is, even if it is one in a hundred, it can happen. So there is no excuse. But it tells you the depth of what happens. As I understand it, it was the coldest three-day stretch on record in Texas, from the 14th to the 16th. So what did that mean? Well, that meant we had unprecedented demand. To take you back, and I think it is important to lay this out. I think it was the ninth of February when Steve Moscato, who is on this call, came to me and said our meteorologists that we have on staff came to him and said, 'We have an unprecedented event.' We ran the numbers and we were seeing load in the range of 72,000 to 74,000 megawatts. Now, let's put that in perspective. The worst-case scenario or what you might call overcrowding performance was about 67,000 megawatts or so, maybe 67 or 68. And Steve was concerned, not just because of the load but also looking at wind forecasts and concerns about solar. The bottom line was we didn't have enough capacity to cover that load. And I have been testifying to this in Texas; I'm still here in Austin. In the last couple of days, I have been talking more about this situation. But we did vote in ERCOT because they had, I think it was about 65,000 megawatts for Monday. And this is, by the way, for Monday and Tuesday, the 15th and 16th. Just to give you a timeline, we were out in front of it. I have testified to this, I believe. And now that I have been giving testimony again, I believe that they thought they had it under control, and I will tell you in a minute what happened. I think they weren't even prepared for what ultimately happened. But the bottom line is, the company positioned itself relative to that to be long or flat. And in some instances, we were short going into that situation but then we went out and bought power at very high prices because we believed power was going to go to the cap, that it was not if but when it would happen. And so we were prepared. We also spent, and we have been open about this, about $10 million in preparation. We brought on about 200 additional contractors on site. We essentially did our whole winter readiness in Texas all over again, which we normally do in the fall. We felt very well prepared going into this situation. And then Monday came, and I was on the phone with Steve, and it was 1:00 AM, and Steve, like he always does, said, 'Okay, here it comes.' We think load shreds are going to begin. And of course, we were supposed to have rolling blackouts, and then it started. I mean, we all saw it because we were 30 minutes on, 15 off. That went on for a relatively short period of time. And then Steve told me that we almost lost the entire grid. Frequencies were erratic, and it tripped a couple of our units, and shortly after that, everything locked down. What we find out through testimony is that the transmission distribution entities, not ERCOT, essentially locked down each of their systems at whatever they were because they were afraid they were going to lose the system. Now we have a situation, and all of a sudden, that book of business changed. Loads were down to about 40,000. And the reason they locked it down is that we were losing generation on the grid left and right. The predominant reason we were losing generation on the grid was because of gas pressures, but also outages. Unfortunately for NRG, and this is public knowledge, they had issues with South Texas Project Fripp, and this became a significant component of events for ERCOT during that time. For two years, they managed a very different risk profile with about 30,000 megawatts of generation, and they could not run a system on rolling blackouts with that level of generation. So they just had to preserve the system. That was the first event that changed our books. How did it change? It locked whatever loads you had in your area based on what was operational at that time. If you were on rolling blackouts and you were in North Texas, which we were, that threw that into a particular level. Then we began getting our gas contracts because of pressures. So all of a sudden, our book went from a flat to a mixed book that included long and short positions, and we were scrambling at that point. And then on top of that, we had gas contracts where people declared force majeure. So we had gas, and then we didn't have gas. All of that happened within a very short period of time. We had millions of people without power in Texas. We were scrambling to get gas. Gas prices shot through the roof. We turned our attention to preserving the Texas market and the grid, putting in every megawatt we could. We said, 'We have to put everything on it.' We will count this up at the end, but the one thing we knew we needed to do was serve customers, stabilize the grid, and we would sort it out later. And that is what we did. I look back on that every day and over the nights when I can't sleep, I say to myself, 'What could we have done different, Curt? How could we have played this differently?' I think those decisions, as I play them over and over again, were right. Now we had some things, and by the way, I know it doesn't matter in life. You know, what doesn't matter if you lose the Super Bowl; no one goes and says, 'Oh, that was just because of a mistake or a bad call.' You lost. I get that. I'm just trying to explain what we were trying to do to manage this unprecedented situation, and we were trying to do the best we could. It took us frankly until the middle of this week, in fact all the way up to last night, having a Board meeting to get a sense of what that range would be. We still don't know exactly what all the numbers are because we are still gathering the information – ERCOT shut down for a while, and it wasn't providing forecasts. We are beginning to get that picture. If you think about what happened, there was a confluence of events. The biggest reason we have not seen is all the way from the wellhead. We were experiencing freeze-ups. So there wasn't enough gas to inject into the pipelines. We had gas processing facilities that were having winter equipment issues. And one of the biggest issues that happened was the TDUs didn't have an updated list of critical infrastructure. All of a sudden, they couldn't help it; they shut down what they didn't think was critical. We had gas compressors that run on electricity that pack the pipes, they were shut off. They weren't listed as critical infrastructure. We had gas processing facilities shut off for the same reason. We had producing wells that were shut off for the same reason. Therefore, we had to triage the situation. We had to go upstream, looking for people and determining what was wrong. We helped the TDUs turn back on critical infrastructure. It took a couple of days for those systems to get operational again, and then it takes another day to repressurize the pipe. So it took the balance of the week to get gas restored. We experienced a significant amount of curtailments, and we were buying gas at exorbitant prices. One challenge we faced was with our coal fleet. We experienced some operational issues at Martin Lake, which led to derates. We didn't come off-line; we just didn't produce at maximum capacity. We had difficulties at Oak Grove. We mine lignite and ship it, and we had the rails frozen, which caused problems that took us down for about a day and a half. Why does that matter? Because Oak Grove has about a $5 per megawatt hour cost structure as opposed to essentially replacing it with gas at hundreds of dollars in MMBTU. Therefore, the margin we were getting for that day and a half was significantly lost. Overall, we had pricing issues on Monday as well. We were in what we call an EEA3, which is the highest alert at ERCOT. That means you have no reserves. In fact, we had 30,000 megawatts of negative reserves. Where was the price? Pricing was trading at LMPs, in some instances, $1,000 below our cost. We called ERCOT multiple times. What is going on? We then determined there was a pricing anomaly. We worked with the PUC the next day, and they came out with an order and said, 'We are going to reprice that at the cap and keep it there until we exit EEA3.' Honestly, it was the right decision, and it was a major win for us. Unfortunately, 18 hours later they flipped the decision and decided to change it prospectively but not retroactively. Their claim was that during the early hours of the morning on Monday, people relied on that price point. Ridiculous. Monday was significant for us because we were in a long position that day. Gas infrastructure issues were just beginning to arise. This loss of value and confusing market dynamics are things we continue to evaluate. Despite this, we performed relatively well, providing 25% to 30% of all megawatts on the grid relative to our 18% market share. Great effort; again no good deed goes unpunished. The challenge was that we had a mismatch when the system locked down between megawatts and load. We also produced from higher-cost assets than we anticipated, and that impacted our cost of goods sold mix. I have talked you through the first part of this. I want to say a little about the market because I think the other fair question is, 'Okay, well, what's this mean for the Texas market?' Frankly, I thought it was the best market in the country, but this event has made me think. Not just me, a lot of people have re-evaluated it. But I still believe the fundamental principles of a strong market exist here. The one thing we must work on with policymakers and regulators, and we have some good momentum on this, is that the grid in Texas today, with the all-energy market and the price caps, is a grid different from the one that existed when we went competitive. This was a market characterized by having a lot less dispatchable resources. In fact, we have fewer dispatchable resources than at peak loads. We now rely much more heavily on renewables. Renewables are good; nothing is wrong with that. But it changes the risk profile. Renewables during this event were operating at capacity factors from 5% to 15%. They didn't contribute much during this time. That is why I said when we were at 74,000 peak load, we didn't have enough megawatts in the system. Again, it wasn't a matter of if; it was a matter of when. We were telling everyone that. So concerning market design, I feel that reserves must be the number one emphasis. There are ways to increase reserves on the system. Additionally, we must take a hard look at the balance between market competitiveness and reliability. That puts many things on the table, such as potentially greater reserves that ERCOT must acquire to maintain the system or even a capacity market. I know that may be contentious for some in Texas, but I think it must be considered. I believe that the outcome of this will still yield a very good competitive market, providing opportunities for people to succeed while moving the spectrum from competitiveness toward reliability. We will sort through these details more comprehensively as we move forward. I have confidence that Texas will rise to the occasion. This economy mandates it, and the policymakers, the governor, and others know that this economic engine is powered by electricity. With electrification advancing, we must get it right. We are a significant player with a prominent seat at the table. We have many good ideas, and I believe the market is poised to advance to a better place. Regarding the weather event, we are believers in climate change. We don't know if this type of event will become more frequent, but history tells us that such events, while rare, can happen. Therefore, we need to adapt. We must harden our assets. One significant focus should be ensuring the gas and electric systems work seamlessly, upgrading critical infrastructure, and ensuring the gas system operates effectively, similar to ours that harden in terms of infrastructure. It is unacceptable to fail to deliver gas at maximum pressures during a natural disaster. You cannot say, 'Well, I don't regulate that.' So, we have work to do, but I still have tremendous faith in this market. This has been a difficult time. We hope to maintain your trust, and at a minimum, we hope to earn it back. I'm disappointed, and it hurts. It is easy to lead when things are going well, but it is essential to lead during adversity. I believe our foundational franchise and financial strength that we worked hard to establish has helped us endure this. Our best days remain ahead of us. The integrated model is still effective, and we only need to make some adjustments. We must work diligently on market design, but I still believe in this business and in these markets because they are crucial. Electricity is the lifeblood of the economy; we have to get this right. There is no choice when you say, 'Well, how do I trust that?' Texas cannot go through something like this again, and they recognize this. That is what I put my faith in. We are a major player here, and I believe the resulting changes will be beneficial for Texas, the market, and Vistra. Moving on, I want to hate to say this, but I will move into 2020. Not because I hate 2020, perhaps I do. But I want to highlight that we had an exceptional year, and this event has overshadowed it. The men and women of Vistra worked tremendously hard in 2020 in the face of COVID and various social challenges and performed as well as could be expected, allowing us to pay down a significant amount of debt. Our retail business achieved exceptional results, approaching almost $1 billion of EBITDA. We made strides in cost savings, but I'm not going to throw a big number out there today and state that we will save hundreds of millions because we maintain a lean business, and I will not starve this business. You cannot starve power plants for maintenance costs; it will bite you in the next couple of years. But we, as we always do, will look for opportunities to optimize earnings moving forward, and once we gauge the full effects of this situation, I am confident in the capabilities of our team to identify these opportunities. However, I will not throw a significant number out there that I believe may not be in the company's best interest long-term. We are in this for the long haul. As for 2021, I reiterate that this event will not define us. We will ensure this company can compete and perform even better in the future. I am now on delivering the financial results slide. A phenomenal year – $3.77 billion of EBITDA and almost $2.6 billion in free cash flow before growth, translating to almost a 70% conversion ratio. I recall during discussions regarding the Dynegy acquisition when we published our projections. Assessing our achievement in 2020 relative to those projections has been nothing short of remarkable. Disciplined investment in the business has paid off, and I am proud of our accomplishments. I believe since my tenure began, we have generated nearly $600 million above the midpoint of guidance over those years. But it pains me to convey that we have returned that and more; this is a difficult reality for us. The operational performance initiatives continue, and they will persist. We integrated those into our EBITDA, and we want you to know when we say we will execute, we do. We are also on track with our synergies for previous acquisitions – namely, Crius and Ambit since Dynegy has mostly concluded at this point. Lastly, I just want to emphasize our focus on all stakeholders through this process. That has been our approach since I arrived. We have made significant advancements on the environmental side, as well as with our employees, contractors, customers, and suppliers in our communities. We take pride in that and will continue to insist on that. I wanted to point out that we announced a $5 million assistance program for our customers. Some people may ask, 'Well, isn't that a cost savings right there, Curt? Why proceed with that?' Our rationale is straightforward. We are about helping people. As a company, we are not solely about making profits. Yes, we do care about financials, but we also care about our community. This has evolved into a survival effort for many individuals, and we treat that seriously. Just as we view our role as stewards of your investments, we equally value helping those in need. With that, I will pass it to Jim, who will walk everyone through the financial results. Then I know you will have questions, and we will strive to address everything comprehensively as possible. So, IWill turn it over to Jim. Thank you.
James Burke, CFO
Thanks, Curt. I'm going to quickly cover Slide 16. As Curt said, I know we want to get to Q&A. I want to just hit two slides. Our full-year 2020 retail results were $176 million higher than our full-year 2019 results, driven by the acquisitions of Crius and Ambit, plus strong ERCOT margin performance, partially offset by milder weather. The $197 million favorability in our collective generation segments was driven by higher margins in our Texas, East and Sunset segments, including higher period-over-period benefits from our operational performance initiatives, which were partially offset by lower capacity revenues. In relation to the impacts of COVID-19, Vistra navigated through the challenges posed by the pandemic with minimal impacts to our financial performance. On the retail front, we saw only a small increase in bad debt this year, and while our lower business volumes were offset by higher residential volumes. Additionally, as discussed on our first-quarter earnings call in May of 2020, our commercial team executed some opportunistic transactions in anticipation of the market volatility caused by COVID-19, yielding positive results for Vistra. In addition to these strong financial results, our retail business grew its residential customer count in Texas year-over-year, demonstrating the strong performance of our legacy brands. Our generation business once again excelled with a commercial availability of over 95%. On the liquidity side, as of year-end 2020, Vistra had total available liquidity of approximately $2.4 billion, primarily comprised of cash and availability under our revolving credit facility. This strong liquidity position enabled us to effectively manage the collateral requirements related to the winter storm Uri. As of February 25th, Vistra had more than $1.5 billion of cash and availability under our revolving credit facility to meet any liquidity needs. Moving on to Slide 17. Vistra repaid more than $1.5 billion of debt in 2020, ending the year at our long-term leverage target of 2.5 times net debt to adjusted EBITDA. As of February 23rd, we repurchased approximately 5.9 million shares at an average price of $21.15. We still have $1.375 billion available under this authorization. We remain committed to executing our strategic renewable and energy storage investments, including our Texas Phase I and California battery projects. We have communicated that we will be disciplined in our approach to deploying capital, regularly evaluating all growth projects for financial viability. We will only invest in growth projects if we have confidence in the expected returns. Due to ongoing evaluations, we are currently pausing one growth project in West Texas due to updated economics driven by higher-than-anticipated congestion costs. Many of you may be wondering how our existing capital allocation plan will change due to the impacts of this winter storm; we expect to provide an updated capital allocation plan for 2021 on our first-quarter earnings call. We remain committed to our dividend trajectory and to maintaining a strong balance sheet. The challenges posed by the global pandemic in 2020 along with this historic winter storm in Texas last week have tested our business model. We genuinely believe this was a one-time historic event with the winter impacting our finances significantly. However, our team performed exceptionally under tough conditions, generating as much power as possible. Importantly, we retain the strong assets that we had two weeks ago. Our customer base and generation footprint remain intact, and we believe the prospects for growth are solid. We are resilient and will continue focusing on creating long-term value for our stakeholders. With that, operator, we are now ready to open the lines for questions.
Operator, Operator
Thank you. Your first question this morning comes from Stephen Byrd from Morgan Stanley. Please go ahead.
Stephen Byrd, Analyst
Thanks so much for taking my questions and I really do appreciate the very frank and thorough review that you all provided. So thank you. Just first, maybe on the natural gas supply situation. In terms of just the supplier obligations to you, is there a potential to litigate to the extent that firm supply was not provided, or is that not likely?
Curt Morgan, CEO
No, there is a potential for that.
Stephen Byrd, Analyst
Okay, in the sense that it seems folks who had some firm supply obligation to you did not provide the gas, and the situations in Texas wouldn't necessarily excuse their delivery obligations?
Curt Morgan, CEO
Yes. I mean, look, it is going to come down to – and I don't want to actually litigate it, but there are provisions in contracts. Every one of them is a little bit different, and it will come down to whether those provisions applied in this instance or not. To be very simple in the analysis, what I will say is there is potential. We are still doing the analysis as to whether it will make sense or not, and we can update you guys on that. But obviously it is something we need to take a look at because we thought we had gas at a particular price, and obviously we didn't, which was a big hit for us. So we will see where that stands, but there could be some disputes.
Stephen Byrd, Analyst
Yes, understood. And then the ERCOT pricing glitch on Monday, that is obviously - I share your frustration. That just seems like a tremendous mistake in terms of how the price was set. Is that also possible to – I know there was language about sort of adjusting that. But could that be adjusted? And obviously that would have a very substantial impact on your loss position. So I was just curious how you think about that.
Curt Morgan, CEO
I think the interesting thing on that one, Steve, is first of all, yes, it can be disputed. Secondly, it is going to be disputed on both ends. The prospective increase to the cap and actually keeping it at the cap on Thursday into Friday is something that is not only going to be challenged with the Public Utility Commission, but it may also be challenged at the legislature. We absolutely believe that when you are in EEA 3 and do not have reserves, you have negative reserves, you cannot be anywhere but at the cap. There is a particular mechanism in the pricing scheme that actually kicked in that had the prices being set at LMPs that were below the cap at times. I think the commission rightly so determined that the price should be at the cap. Ultimately, I think they have the authority to make that order. I think we will likely challenge the notion that you cannot retroactively price, but I think there may be others, like retailers, who may also challenge whether it should have been set at the cap. It is an unfortunate situation because billions of dollars changed hands in a week. People are going to go out of business over it. I think people are going to try to see what they can do to change the playing field. So we won't really know until we get through all that math, which I expect will take some time. We will likely contribute a bit more to this mess because there are things we believe are legitimate to dispute, and we may pursue that.
Stephen Byrd, Analyst
And Curt, just on that, this point about the position of gas-fired power plants, it strikes me as such a problem from a market design point of view, in the sense that the gas plant owners found themselves in a really tough position. Do you buy gas at very high prices not knowing necessarily whether you are going to dispatch, while simultaneously trying to provide as many electrons as possible to the people of Texas? Am I getting that right or may I have misunderstood?
Curt Morgan, CEO
No, you have got it exactly right, Stephen. This was the dilemma with an unknown load, an unknown financial obligation, but an absolute obligation to human needs. I said this yesterday to the House and the Senate in Texas: I don’t believe Texas can stop this type of event, and I don’t think really any state can. They don’t like the price cap; they don’t like the grid products; they don’t like consumers being subjected to tragic situations like this either. We certainly do not want to pass it on to consumers because they will shop for a different supplier or retailer. We all agree that volatility in this market is probably not what it should be. We are not sure everyone is prepared to go into a full capacity market, but we believe it is important to make necessary adjustments where the price cap comes down and we increase the number of reserves, which boosts revenues and paves the way for more infrastructure. This provides stabilization with less layoffs and lower risks to consumers. The issue for us as a retailer is we don’t want to increase prices in the middle of this type of event, yet our suppliers are increasing prices as they wish. This creates a tension where we are squeezed in the middle, and it is an untenable situation. I believe I made good points and people are starting to recognize it in this market. Very simply, we cannot allow the gas system to fail again, and it did—no matter what anyone says. From the wellhead, we are producing now oil and gas in North Dakota; don't tell me it can’t be produced in that kind of weather. We cannot have that happen again in Texas regardless; the reality is pressures on the lines were insufficient for gas generators, and we are in a virtuous cycle. We need gas to produce electricity, while gas production needs electricity for compressors and processing. They need to work together. That is what regulation is for and what policymakers must do.
Stephen Byrd, Analyst
Very good. I could ask 50 more questions, but I will hand it over to others.
Curt Morgan, CEO
I think we provide a chance for that next week.
Operator, Operator
Our next question comes from Steve Fleishman from Wolfe Research. Please go ahead.
Steven Fleishman, Analyst
Hi, good morning. Thanks. I will try to limit it to one question and follow-up.
Curt Morgan, CEO
You can do more than one.
Steven Fleishman, Analyst
Okay. Thanks, Curt. Just a couple of days ago, you raised the dividend, and frankly, more than you were initially planning to for this year. Could you just talk about your thinking in doing that in the context of everything?
Curt Morgan, CEO
Yes, that is an excellent question. We adjusted it in September, and then we decided to raise it a couple of pennies to $0.60. That was about $10 million, Steve. We made the call and decided not to go back on it. $10 million is still a meaningful amount. We went forward with it and thought it was the right thing to do. Some people will question, 'Why increase your dividend in the middle of this?' Honestly, we think of this as a one-time event. While unfortunate, we are still on track to meet our capital allocation plan when 2022 rolls around, and we believed it was appropriate to continue. Although relative small, it is a notable decision considering the situation. We made this call before the storm hit. As a board, we agreed to this decision and chose not to revisit it.
Steven Fleishman, Analyst
Okay. But I assume you did that with context knowing that you could get through even though this was a big hit, it is manageable in light of the company's overall health?
Curt Morgan, CEO
Yes. From a liquidity standpoint, we feel good. Not only do we feel good with what we have, but we are confident in the relationships we have with several financial institutions that have been supportive. They weren't aware of our profitability, but they knew the dynamics—winners and losers. They came to us and said, 'Look, we believe in your long-term trajectory. If you need liquidity, we would be happy to extend our support.' I am convinced that this isn't a liquidity crisis for this company; rather, it was a significant short-term hit. We took a body blow but will emerge stronger. The appreciation from our partners during this is monumental for us. If we hadn't reduced our debt and transitioned from the traditional IPP model, our standing would be significantly different.
Steven Fleishman, Analyst
Yes, good. And then just a follow-up is just thinking—trying to ignore 2021 and what happened—on looking to 2022 and beyond. Can you just discuss how you’re thinking about generation, which has moved up some? Is there any shift in strategy there? Then on retail, thoughts about implications for retail and 2022 and beyond?
Curt Morgan, CEO
Yes. A number that Jim can elaborate on for retail. But I want to say we still fundamentally believe in Texas more than ever. Until market design changes, our generation is vital. We are aware of the gas supply chain around generation’s importance. We acknowledge coal retirements will continue, and now more than ever, we see value in the renewable projects we are pursuing. As we continue, how we finance these projects will remain flexible. I think in terms of buybacks, making prudent investments, or re-evaluating return, we will consider that. In 2022 and beyond, by the way, our retail operations performed well during this event. We may actually end up as a provider of last resort in ERCOT and may gain some customers if other retailers drop customers onto the provider of last resort. So, we are keen on continuing M&A related to retail. We have expressed a desire to expand our retail operations, a business we know how to execute. This hasn’t changed. Regarding generation, we were reducing our exposure anyway, aiming for a balanced portfolio. I know this event shakes perspectives because we were short—induced by uncontrollable variables. Nonetheless, we aim towards maintaining our generation while retiring coal and adding renewables and battery storage to ensure balance.
James Burke, CFO
Yes, I would. Steve, throughout the evolution of the markets in ERCOT, we have observed these events happening every three to five years. This event has posed challenges for retailers, requiring a change in collateral and hedging strategies to remain viable. It had the potential for significant negative impacts on retail, and load shedding increased exposure for many. The difficulties brought about by this event highlight that retail operations are more demanding than most people realize. Even in a familiar market, being prepared with operational assets while facing gas supply issues was unexpected. I anticipate that there will be consolidation within the retail sector, whether through the appropriate processes or a review of financial statements. We will emerge from this in a strong position, and we see 2022 and beyond as a return to normalcy. In terms of curve rates, the recent increase of 200 million to 300 million from a few weeks ago points to a positive trend.
Curt Morgan, CEO
Thank you, Steve.
Operator, Operator
Your next question comes from Julien Dumoulin-Smith from Bank of America.
Julien Dumoulin-Smith, Analyst
Hey, thank you for all the color and commentary. I wish you guys the best. Can we talk about capital allocation? I know you mentioned an update coming, but you just alluded to it. It seems like there is some latitude in the budget, especially if you think about having a preferable perspective on buybacks. How do you think about investments in renewables and the capacity to avoid pursuing them but monetizing selectively as you complete them? Certainly, it seems like an added source. Additionally, can we address the credit rating and your strategy with rating agencies?
Curt Morgan, CEO
Yes, great questions, Julien. On renewables, I think you captured it accurately. I tried to portray it, but may not have been effective. There is indeed an opportunity to raise capital differently, possibly focusing on buybacks. We like to buy back our shares, so we will remain open-minded. These projects have inherent value, and that may involve either contracting them with our retail business or externally with third parties. In 2021, I anticipate that financing options for these projects could provide resources towards buybacks, a higher priority now. Jim, did you want to add anything?
James Burke, CFO
Our view aligns with Curt’s. There may be opportunities to consider current operating assets in the market. These existing projects may offer insights into performance and hedging strategies during our operational difficulties. This creates alternative avenues merely absent from our thinking a few weeks ago.
Curt Morgan, CEO
We have examined that, Julien. The challenge arises when considering selling, and returning to the hedge; that could be plausible but current values aren't ideal. The market is saturated with generating assets for either explicit or implicit sales; we aren't feeling any compulsion to sell. While that opportunity could exist, we won't rush because our finances remain stable. I prefer to seek avenues for saving or optimizing before mandating sales in an unfavorable market. Regarding rating agencies, we have had preliminary discussions with them. This event has shaken the industry including the evaluations. They recognize our discipline and that we continue focusing on debt reduction. My overall view is constructive discussions with them thus far; I have nothing formally to announce at this stage.
Julien Dumoulin-Smith, Analyst
Okay. Thanks a lot.
Curt Morgan, CEO
Thank you.
Operator, Operator
Your next question comes from Shar Prasa from Guggenheim Partners. Please go ahead.
James Kennedy, Analyst
It is actually James for Shar. Curt, to build off your policy points about middle ground between high-priced assets and a capacity market, I mean we watched the hearings yesterday. It sounds like there is momentum from where we stand today. Could you provide insights around the probability for policy change coming out of this session in the legislature?
Curt Morgan, CEO
Yes. Look, we were asked to bring back ideas within a week. This event has truly shaken Texas from the top down. I have had the opportunity to engage with state leadership, and they are concerned about preventing a repeat of this event. They are beginning to recognize that the mix of assets along with the structure is not sustainable. They are also aware this was an extreme weather event we cannot overlook. However, they need to grapple with the reality that they do not want to risk repeating such an event, leading them to consider necessary changes. I think they will likely do so while maintaining the functional marketplace; I see a strong possibility that we can enact change and would score this north of 50%. I wouldn’t usually express so high of a probability, but I see actual momentum. I know our company will take a seat at this table, and we will be working extensively in the coming days to ensure we remain engaged. It is time to get everyone together to develop a viable solution that ensures competitive market principles while providing stability.
James Kennedy, Analyst
Got it. Thanks. This will be it.
Curt Morgan, CEO
Thank you.
Operator, Operator
Our next question comes from Amit Sakar from BMO. Please go ahead.
Unidentified Analyst, Analyst
Hey Curt, thank you for taking my questions. I’m in Houston. So I hope you will indulge me since I just got the power back. So I figure I have earned it too. I think Curt, you kind of talked a little bit about the Oak Grove coal supply issues with some of the rail transportation not kind of getting through. I'm just curious, but don't you typically have like a coal power that would represent a couple of weeks of burn? I guess you aren’t shipping coal every day to kind of burn that coal. Can you kind of fill us in a little bit on kind of the issues there?
Curt Morgan, CEO
Yes, I will. Then Jim can jump in. It was kind of two things. Getting coal to the coal silos but it also was wet coal that we had. That was creating issues with the front-end process to burn it properly. So we were trying to get fresh coal in, and that was complicated by issues with the rail. The coal we had was frozen or wet, leading to problems that resulted in taking some units offline. But that is my understanding. Jim has been working on this continuously, so let him explain his insights on the situation.
James Burke, CFO
Thanks, Amit, for the question. That is one of the benefits of having a mine operation on-site, as we can self-supply; we have several days of coal available at the plant. Of course, we have much more stored under the ground at the mine. The thought was that when the coal pile, which is right by the plant, froze over, it became like chunks of ice that we couldn’t manipulate through the machinery without risking damage. The goal was to get dryer coal over from the mine to the plant. The transportation system faced challenges—not just the tracks, but the railcars’ doors were freezing shut. Once we managed to get them open, shutting them back proved difficult. We encountered supply chain issues impacting our own system because conditions forced us to take down certain units. This weather presented significant challenges with operational capabilities.,
Unidentified Analyst, Analyst
I guess that kind of leads into my follow-up question. Just going back to the press release you guys put out Wednesday, I guess kind of in the midst of all of this. If I kind of look at the percentage of load you reserved, and I kind of used Monday as an example, that was kind of the height of this. Is it fair to say if we set aside MGP, assume that ran—that your fossil fleet kind of ran at a kind of a blended capacity factor of like 70%?
Curt Morgan, CEO
Yes, and with prices on Tuesday and Wednesday clearing at the cap, and it looked like you guys had some length or heat rate length open going into this, I am still trying to understand why the losses were so steep in that context. Are you basically stating that because you did such a good job in a light state on the North zone versus the Houston zone, that you just - and demand was so high there relatively, that you just found yourselves short? Whereas other generation units that were pointed at the Houston zone primarily had the benefits of the load just basically being cut, so they essentially weren't short anymore?
Scott Hudson, CIO
Yes, essentially this was a very unique scenario because heading into the weather event when you see what the temperatures were, it seemed like generators with length had an opportunity for returns. Retailers were bound to swing, thus entailing costs tied to consumers' obligations. Initially, it seemed beneficial for our generator segment, but when the load shed scenario contained more than just retail curtailments, it also heightened tensions with gas supply issues. Eventually, this increased risk shifted from retailers back onto generation due to our inability to secure sufficient fuel. The takeaway is we began this market on a positive note but quickly navigated in a way we did not foresee and shifted our perspectives.
Curt Morgan, CEO
Yes, Jim, I will add, too that what happened was Monday's pricing was not at the cap, and for some strange reason we ended up being in a long position that day. Then we started encountering gas delivery issues, pricing issues, as well as pressure challenges. We subsequently lost Oak Grove for about a day and a half, which is our lowest cost fuel. It is one of those situations where if it could go poorly, it did. All of these factors aligned together leading to complications that negatively impacted us financially. I cannot stress how hard we tried to be prepared; we were one of the largest contributors to the grid relative to our market share. However, upon closely inspecting the situation, it makes sense how our stance changed due to the inability to fulfill our obligations. It was a tough lesson.
Unidentified Analyst, Analyst
I appreciate your time, Curt. I know you had a challenging day yesterday.
Curt Morgan, CEO
Yes. Take care.
Operator, Operator
This concludes the Q&A portion of our call. I would like to turn it back to Curt Morgan for final comments.
Curt Morgan, CEO
Well, I appreciate everyone who is still hanging in there. Thank you very much for your interest in our company. Last week was tough, but this company is strong and resilient. It is a good company, and we are determined to come out of this situation stronger than ever. I hope you all have a great weekend and I look forward to talking to you soon.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating. You may now disconnect.