Earnings Call Transcript
Vistra Corp. (VST)
Earnings Call Transcript - VST Q1 2023
Operator, Operator
Good day and welcome to the Vistra's First Quarter 2023 Results Conference Call. Today, all participants will be in a listen-only mode. Please note that today's event is being recorded. At this time, I would 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 first quarter 2023 results. Today's discussion is being broadcast live on the investor relations section of our website at www.vistracorp.com. There you can also find copies of today's investor presentation 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's senior executives to address questions during the second part of today's call as necessary. Our earnings release, presentation, and other matters discussed in 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 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 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. I encourage all listeners to review the safe harbor statement included on slide two of the investor presentation on our website that explains the risks and 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, and I'll now turn the call over to our President and CEO, Jim Burke.
Jim Burke, CEO
Thank you, Meagan. Good morning. Thank you all for joining our first quarter 2023 earnings call. I will begin on slide five. We entered the year focused on our four strategic priorities, and we are making great strides. First, our integrated model continues to demonstrate its value and effectiveness. As you probably recall, we spent a majority of 2022 executing on our comprehensive hedging strategy that we said was locking in earnings opportunities for 2023 through 2025. We utilized available liquidity last year to support this strategy as we believe the additional EBITDA opportunities were significant. This first quarter of 2023, we saw this strategy translate into real value as mild weather was experienced across the major markets in which we operate, which led to lower than expected cleared power prices. While we saw power prices clear at approximately $30 a megawatt hour on average, our first quarter results reflect a realization of average prices of around $45 per megawatt hour given we were highly hedged entering the year. In addition, in the outer years where we have been more open, we have seen prices and spark spreads increase as compared to this time last year. We have continued to opportunistically hedge to secure increasing out year earnings potential. We believe this is important not only because it provides an enhanced resiliency of our earnings profile despite an uncertain commodity market, but also because it ensures we can deliver on our commitments to reliably serve our customers, consistently return capital to shareholders, maintain a strong balance sheet, and transform our fleet as we strengthen our position for the long-term. Second, our return of capital to our shareholders remains consistent and robust. Kris will provide a detailed update on our capital allocation plan in just a moment, but I want to highlight that of the aggregate $4.25 billion share repurchase authorization, we have returned approximately $2.7 billion to shareholders from November 2021 through May 4th, 2023. Additionally, we are on track to pay $300 million in common stock dividends in 2023 as planned with our Board approving a second quarter dividend in the amount of $20.40, representing an approximately 15% increase over the second quarter dividend paid in 2022. The share repurchase program together with the structure of our dividend plan work in tandem to provide our shareholders with the expectation of dividend growth each quarter, as the aggregate $300 million in annual dividends is spread across a decreasing number of shares of Vistra common stock. Third, we continue our focus on a strong balance sheet. As we see margin deposits return, we are positioned to utilize that cash for opportunistic deleveraging and/or to reduce the amount of debt we expect to incur to close the Energy Harbor acquisition we announced in March of this year. While the first quarter is typically the lowest free cash flow quarter for Vistra, we were able to repay approximately $500 million of short-term debt. Of course, we're expecting our net debt balance to grow over the balance of the year to fund the Energy Harbor acquisition, which we expect to come with a significant amount of EBITDA. But we remain focused on our goal of a long-term net leverage ratio, excluding any non-recourse debt at Vistra Zero of less than three times, which we expect to achieve in the 2024 to 2025 timeframe. Finally, we are very excited about our announcement just two months ago regarding the acquisition of Energy Harbor, which is expected to close later this year. With this acquisition, our nuclear fleet will grow by an additional 4,000 megawatts in PJM, which will more than double the zero carbon generation we have online today. Turning to slide six, I will discuss this quarter's results. We achieved $554 million of ongoing operations adjusted EBITDA. Strong operational performance and our robust hedging activities helped offset milder than normal weather throughout the U.S. Our retail and generation teams continued their strong operational performance with retail achieving growth in ERCOT customer counts while maintaining attractive margins, and our generation team delivering commercial availability of 97%, while maintaining a focus on safety. The generation team has operated over three years without a significant injury across a large and diverse fleet, and safety remains our number one priority. Looking ahead for the remainder of the year, we are confident in our ability to meet or exceed the midpoint of our $3.4 billion to $4.0 billion adjusted EBITDA from ongoing operations guidance range for 2023 as we announced in the third quarter of 2022. We're also reaffirming our $1.75 billion to $2.35 billion adjusted free cash flow before growth from ongoing operations guidance range. Of course, with nine months to go in the year, including the important summer months, we believe it would be premature to narrow or otherwise adjust our guidance range for 2023. Kris will cover in more detail why we remain bullish on our opportunities in the years ahead. Before I wrap up and turn the call over to Kris to discuss the first quarter's performance in more detail, I want to provide a quick update on the status of our Energy Harbor acquisition. As noted on slide seven, we have filed approval requests with each of the three key agencies and anticipate receiving all needed approvals in time to close by the end of this year. As a reminder, we've committed bridge financing in place and an amount sufficient to close the transaction, but we do expect to replace the entirety of our bridge commitments with permanent financing between now and closing. Finally, I think it's worth noting that as we have seen out year forward price curves improve, our financial forecast for Energy Harbor has also improved in the out years. Previous estimates we shared in March indicated average adjusted EBITDA midpoint opportunities for 2024 through 2025 of approximately $900 million with adjusted free cash flow before growth opportunities at a 65% to 70% range. This is inclusive of synergies and on an open pretax basis. Given recent price curves, we see the average adjusted EBITDA midpoint opportunities from Energy Harbor for 2026 and beyond to be higher than this original estimate. We expect that we will provide more detailed adjusted EBITDA and other financial projections for the combined company closer to closing or just after. Kris, I'll now turn the call over to you.
Kris Moldovan, CFO
Thank you, Jim. Starting on slide nine, Vistra delivered $554 million in ongoing operations adjusted EBITDA, including $583 million from generation and a loss of $29 million from retail. Generations results were strong despite the significant impacts of milder weather on pricing, primarily driven by in the money settled hedges opportunistically backing down generation at times when prices were below unit cost, and the recognition of the net bonus position in PJM for Winter Storm Elliott. Those benefits were partially offset by headwinds for the quarter that were known at the time guidance for 2023 was set, including default service migration costs, and lower PJM capacity revenues, as well as entry year impacts relating to timing of hedges and opportunistic acceleration of planned outages into the first quarter. While retail was also impacted by mild weather, it is important to note that due to strong counts in margin management, the results for retail for the first quarter are in the range of what we expected coming into the year. Given the entry year shaping due to higher power costs in the winter and summer months, we anticipate substantially all of the ongoing operations adjusted EBITDA for retail to be achieved in the second and fourth quarters. Accordingly, we are confident in our ability to meet or exceed the midpoint of the $905 million to $1.065 billion range of ongoing operations adjusted EBITDA for retail that we announced on our third quarter 2022 call. Turning now to slide 10, I'll share a quick update on capital allocation. As of May 4th, we had executed approximately $2.7 billion of share repurchases since the beginning of the program in the fourth quarter of 2021. We expect to utilize the remaining approximately $1.55 billion of authorization by year-end 2024 with at least $1 billion of cumulative repurchases expected in calendar year 2023 as originally planned. Notably as of May 4th, our outstanding share account had fallen to approximately 373 million shares, a significant reduction of approximately 23% from the aggregate number of shares that were outstanding when the program started in November 2021. As a result of our robust and consistent share purchases, our dividend program of approximately $300 million per year or approximately $75 million per quarter continues to result in significant growth in the dividend per share received by our shareholders. To that end, the second quarter 2023 common stock dividend of $20.4 per share, which is payable on June 30th, 2023, is approximately 15% higher per share as compared to the dividend paid in the second quarter of 2022. While we remain committed to consistently returning capital directly to our shareholders, we also remain steadfast in our commitment to a strong balance sheet. Accordingly, we continue to target a long-term net leverage ratio, excluding any non-recourse debt at Vistra Zero of less than three times. Finally, our Vistra Zero growth remains on track. We have allocated over 90% of the net proceeds from the December 2021 green preferred stock issuance and are focused on securing non-recourse project or portfolio level financing to, among other things, support the growth CapEx needs of the company. We anticipate the first such financing to be in place no later than the end of this year. Turning to slide 11, we provide an update on the out year forward price curves as of May 4th. As you recall, we announced last year on the first quarter call that we estimated a range of $3.5 billion to $3.7 billion of potential ongoing operations adjusted EBITDA midpoint opportunities for years 2023 through 2025 based on April 29th, 2022 curves. While we do not expect to update this range before initiating guidance for each applicable year, we did want to note that we currently believe there's upside to the range in each of 2024, 2025, and now 2026, in light of the higher prices in our primary markets and the continued execution of our comprehensive hedging program that has now hedged 2023 through 2025 at approximately 86% on average across all markets, with the balance of 2023 hedge at approximately 99% and 2024 hedge at approximately 96%. As you would expect, 2026 is significantly less hedged, which creates a significant opportunity, but also a wider range given our open position. We remain committed to executing against our 2023 strategic priorities and translating that success into shareholder returns. We look forward to updating you on our progress on our second quarter call. With that operator, we're now ready to open the line for questions.
Operator, Operator
We will now begin the question-and-answer session. Today's first question comes from Shar Pourreza with Guggenheim Partners. Please proceed.
Shahriar Pourreza, Analyst
Hey, good morning, guys.
Jim Burke, CEO
Hey, good morning, Shar.
Kris Moldovan, CFO
Good morning, Shar.
Shahriar Pourreza, Analyst
Good morning. I think you sort of touched on this quickly, but I guess, what point could you revisit and update the two-year commentary you guys have been providing? And then, obviously, those numbers have been floated around first in 2022. I guess, what kind of O&M inflation is embedded in those? Maybe put differently, we've seen a few of your peers kind of flag strong increases in O&M costs of late, so I guess what are you guys seeing in those numbers as well? Thanks.
Jim Burke, CEO
Thanks for your question. The two-year outlook you're referring to is for 2024 and 2025. Last spring, we communicated a range of 3.5 to 3.7 as we began to see changes in the forward curves, and we have been hedging accordingly. By the end of 2022, when discussing 2023, we noted a midpoint of 3.7, which was at the upper end of our range to indicate an improving earnings potential, although we had significant unhedged positions at that time. As we have continued to hedge, we now anticipate the midpoint opportunities for 2024 to 2025 to exceed 3.7, likely falling between 3.7 and 3.8. This reflects our expectation for improved earnings power for 2024, 2025, and more openness in 2026, with the potential for further increases when looking ahead to 2026. When we formalize our guidance at the end of this year for 2024, we will provide a broader range to account for the variability in managing the business.
Shahriar Pourreza, Analyst
Okay. Perfect. I'm sorry to ask, but what is the O&M inflation you are including in those numbers?
Jim Burke, CEO
Yeah. So, the O&M inflation, it depends on which category we're referring to, Shar. We're using, and we have consistently seen something between 3% and 10%, depending on the nature of the input. Labor is different from OEMs doing outages, which is different from variable chemicals we use in the power production process. But it's in that range. And obviously, as a competitive company, we're contracting and procuring as competitively as we possibly can, but we don't have any go-getters, if you will, built into the numbers to that we are trying to solve for; this is our best line of sight of what it takes to run this business.
Shahriar Pourreza, Analyst
Perfect. Perfect. And then just last, I would love to get maybe a pulse check on sort of the legislative cycle right now, and your expectations for resource adequacy in ERCOT. Anything seem to be a little quieter. Now that the Senate has passed several items. I guess, what are your expectations for pathways forward as this session comes to a close? Thanks guys.
Jim Burke, CEO
The situation in Austin is reaching a critical point with just three weeks left. There's rightfully been a lot of focus on reliability, especially since Texas leads the nation in wind energy and will soon be the leader in solar energy, which is significant for sustainability. However, we have recognized the necessity to strengthen the grid in terms of dispatchable generation. This need led to the performance credit mechanism adopted by the Public Utility Commission in January. Depending on the outcome of the legislative process, we expect to initiate the stakeholder process for this mechanism, allowing us to create a market to reward reliability. There are still many bills under consideration in both the House and the Senate, making it difficult to predict which will pass. The PCM aims to not only incentivize new generation but also to prevent existing generation from retiring prematurely due to production tax credits for other generation types, which can exert downward pressure on market prices. We believe maintaining a focus on reliability is crucial. If the PCM is effectively designed and implemented, it should enhance the competitive market. We hope to see ongoing support for our integrated model in Texas, as it effectively serves our customers, and we plan to invest in gas-fired generation if the PCM proves to be well-structured. We believe policymakers are concentrating on the right elements to keep the grid affordable, reliable, and sustainable. We want to be part of that solution in our home state, and while we have three weeks remaining, we will provide updates as the session concludes. The attention on this matter is warranted, and we plan to be actively involved throughout this session and stakeholder process.
Shahriar Pourreza, Analyst
Very helpful, Jim. Thank you so much. Have a good morning. Appreciate it, guys.
Jim Burke, CEO
Thank you, Shar.
Operator, Operator
The next question comes from Julien Dumoulin-Smith with Bank of America. Please proceed.
Julien Dumoulin-Smith, Analyst
Hey, good morning team. Thank you for the time. Appreciate it. Look, I wanted to just follow up on the success of the Energy Harbor transactions. Obviously, it got a lot of folks' attention. Can you talk a little bit about your thoughts about looking into potential further inquisitive activities? Obviously, there's a NorthStar around, buybacks and commitments there in maintaining that throughout. But can you talk today, especially in reaction to Energy Harbor, how you would think about perhaps leaning in further to, whether that's nuclear or other angles that could include retail renewables or what have you. But we'd love to hear your thoughts.
Jim Burke, CEO
Thank you, Julien, and good morning. Look, we have generally stayed away from commenting on M&A. I think it's one of those activities that opportunistically comes your way and you have to be prepared for it. You have to always be what we'd say, hang around the hoop a little bit on opportunities. However, I think the Energy Harbor transaction is a very significant one for us. Certainly, it's our focus right now, not only getting through the approval process with the key agencies but the integration activities with the team at Energy Harbor and with our team. As you note, it's transformative in a lot of ways because we used it as a platform to highlight just how much of a business we have with the carbon-free aspects of our business. And obviously, we're going to more than double that amount of generation with this transaction. The strong balance sheet and the returning capital, the reason we keep repeating the four priorities is because we have to find things that fit within those four priorities and not everything is going to. And I think that's a commitment we've made. I think the Energy Harbor transaction reinforced. We mean those that we're going to stick with those four core principles. So Julien, nothing is ever off the table from the standpoint of looking at it, but it needs to fit the criteria that we've laid out and we're going to remain disciplined in that regard.
Julien Dumoulin-Smith, Analyst
Got it. I appreciate that. Regarding the transaction, can you provide some insight? It seems there may be a slight delay in finalizing it. What caused that delay in the approval or execution process? Also, you mentioned a significant increase in generation. You have a sizable retail platform, yet there were some declines in retail customers quarter over quarter. How do you plan to further develop that retail platform in light of Energy Harbor, Oregon? Is it less of a priority given factors like the nuclear PTCs that could lessen the need to balance the retail business with generation?
Jim Burke, CEO
Sure. Well, on the first matter, I think we're progressing well on the approvals process. We announced the transaction early March. We made the filings, the key filings in April. We believe the NRC is working towards an early October approval, which to be on the six-month track for a license transfer, we think, is actually on the more efficient side of the scale in terms of where we would go. We've talked about closing this in the fourth quarter, and I think that is achievable. Julien, as you know, we don't have anything built into our numbers for 2023 related to Energy Harbor. So, hopefully, there's some opportunity there. But just I think we're tracking well. There's nothing that we're concerned about at this stage, but it's still early in the approval process. But so far so good. On the retail side, our reduction in counts has been more outside of the ERCOT market. We've made some strategic exits in a couple of states. The Energy Harbor platform does give us an opportunity to bolster some of the areas where we do currently operate in retail. And obviously, it gives us an asset base, including some attributes like the emissions-free energy credits, which customers are becoming more interested in that the nuclear units can offer. So, I like our retail; we like our integrated model. We do think the Midwest Northeast market reforms in some of the retail markets are still warranted. As we've talked about, Julien, the level of competition there in terms of the degree to which you can differentiate your products there is still rather limited. It's more of a hedge channel and being able to serve customers with your assets than it is a true business-to-consumer or business-to-business differentiated marketing strategy. We hope to get there in some of these markets and we'll continue our efforts from a stakeholder outreach perspective. But the integrated model is certainly well intact with this acquisition because it comes with a retail business in addition to a generation. But we do need to see these markets open up a little bit from a reform and being open to innovation in these markets, the way Texas has been open to innovation. And so, we do have some work to do there, Julien.
Julien Dumoulin-Smith, Analyst
Excellent. All right, I'll leave it there. Best of luck, guys. We'll see, speak soon.
Jim Burke, CEO
Thank you, Julien.
Operator, Operator
Our next question comes from Michael Sullivan with Wolfe Research. Please proceed.
Michael Sullivan, Analyst
Hey, good morning.
Jim Burke, CEO
Hey, Michael.
Kris Moldovan, CFO
Good morning.
Michael Sullivan, Analyst
Hey, Jim. Hey, Kris. Wanted to just confirm on the upside you're seeing in 2024 all the way out to 2026, that's based on basically current curves. And then if so, maybe if you could just give us your own point of view on where you think things could go just based on supply/demand dynamics in your major markets.
Jim Burke, CEO
You bet, Michael. Thank you. Yes. We base this off of using the May 4th curve. So, it's a function, obviously, of where we have hedged, what we still have open, and the curves as of May 4th. Not that the liquidity is infinitely deep in some of these outer years, but it's not based on a point of view. It is based on curves. We know that this is something that you and our investors are trying to follow, which is, are we seeing some upside? As Kris laid out in his chart, from the time we first initiated the strategy of talking about a three-year horizon, the curves have actually improved in those outer years. So, while we've seen the front of the curves come down because of a number of factors, I'm going to ask Steve Muscato, our President of Wholesale, to comment. We've seen the out years actually strengthen, and we think that that's actually a sign of opportunity for Vistra long-term. But in terms of the dynamics by market, I think it might be helpful for Steve to share a few thoughts as to how we see these markets being impacted by some of the factors obviously late last fall and through this year and where we see that headed. Steve?
Steve Muscato, President of Wholesale
Thanks Jim. Sure. I would add, if we start with natural gas, which is kind of a big driver behind power prices, the marginal shell has now become the Hainesville, which is a dry shell. We're seeing limited growth in the Utica and the Marcellus due to limited pipeline take away and all the growth in the Permian that's happening, even though that's a wet shell, it's not the marginal shell. It's being used to really feed growing LNG export markets. So, that's really provided support on natural gas, which is why you're seeing it stay $4 and above, at least 2025 and beyond. The front end of the curve is really influenced by some excess storage inventories that are due to mild weather, that if you look going forward, if you assume normal weather should balance itself out once you get to the 2020, late 2024, early 2025 period. In terms of fundamentals in each market, you're seeing this integration of renewables, particularly challenging in PJM. You see a lot of coal leaving the stack over time, but a slow incremental movement in renewables. Not only are renewables less effective in markets like PJM because of lower capacity factors, it doesn't have the same irradiance or wind speeds that you see in markets like Texas and Mico. But it also takes a lot to replace it. You could see five to nine to one replacement levels needed in order to maintain same levels of reliability. You also have problems with East Coast gas markets to the extent they can recouple with European markets that could also cause some volatility. And I think Jim mentioned some of the things that are already happening in ERCOT in terms of reform. You have solar pushing the peak out. You only have one-hour batteries coming into ERCOT, which really doesn't help on an extended heat wave that may occur or extended cold front. And so, I think uncertainty around gas and coal assets and determine what happens with the legislature in addition to an aging fleet provides this collision we're seeing over time, which is going to win out the renewables or fossil fuels, and at least in the intermediate term, it appears gas is going to be needed. It's going to be stressed. And so, we think that's supporting fundamentals out.
Jim Burke, CEO
Steve, thanks for that. I'll just add, Michael, that in addition to the dynamics we're seeing of the resource fix and how it's changing, we've seen obviously a handful of significant environmental regulations that have been issued and potentially forthcoming that could also put some pressure on assets that currently are providing a reliability service on these grids. And our assets, even with a Vistra Tradition and a Vistra Vision, coal is 25% to 30% on a go forward basis of Vistra Tradition. It's predominantly our combined cycle gas fleet. We think that has a lot of value in helping these grids be able to sustain a reliable operation while integrating more renewables. And then, of course, our Vistra Vision is anchored by Vistra Zero and also Comanche Peak and Energy Harbor assets on a go forward basis. So, we like our asset position to backstop and what we call firm up our customer commitments. And we think the horizon, whether it's the economics of what happens in competitive markets or whether it's actually some of the incentives and the rules that could come forth from an environmental standpoint, these assets are going to be needed for reliability purposes. And that's our thesis with why we think this business has a long-term earnings potential that we see actually growing through time.
Michael Sullivan, Analyst
Okay. Thanks. That was super comprehensive. Maybe just one quick follow up there on the environmental rules. So, from where you're standing right now, Jim, like any near-term impact in terms of whether it be investments that you have to put into some of your coal plants that you were planning to keep online?
Jim Burke, CEO
Not in the near term, Michael. There are a couple of factors to consider. The CCR and ELG rules we've discussed for years will impact our coal fleet, which we've previously communicated will have retirement dates around 2027 and 2028, with the exception of two of our sites. The recent stay on the Good Neighbor Rule presents an opportunity for Texas to revisit this regulation. It will take some time for the fifth circuit to resolve this, and it could affect some of our older gas units, including Martin Lake, if fully implemented. However, there were valid reasons for the challenge, and we are not the only party involved; many across the industry and the state are part of this. We do not foresee any significant capital expenditure as a result, but we remain engaged. Reliability is crucial, and we believe that the grid's transition should be approached thoughtfully. There are no immediate impacts due to the stay, but there may be some delays regarding its effect on our fleet.
Michael Sullivan, Analyst
Appreciate all the color. Thank you.
Jim Burke, CEO
Thank you, Michael.
Operator, Operator
Next question comes from David Arcaro with Morgan Stanley. Please proceed.
David Arcaro, Analyst
Hey, good morning. Thanks so much for taking my question.
Jim Burke, CEO
Hey, Dave.
David Arcaro, Analyst
I wanted to check on the retail business. Is it on track for the year considering the first quarter results? Will you need to take more proactive measures to stay within the guidance range for this year, or is this just the typical ebb and flow of the EBITDA results for retail?
Kris Moldovan, CFO
Thank you for the question, David. As we mentioned earlier, the $29 million loss was anticipated and falls within our expected range when we set the guidance. This aligns with our forecasts moving forward. We still expect retail to meet or exceed the midpoint of the guidance range we provided in the third quarter of last year. We're aware of some timing issues for the rest of the year, as well as margin and count benefits that will counterbalance some challenges from weather during the first quarter. We don't foresee anything in particular that would require us to stretch to achieve that goal. As a reminder, we anticipate that there will be pressure on the retail side regarding EBITDA in the first and third quarters, while the second and fourth quarters are when they will generate most of their EBITDA. This pattern occurs because power costs are highest during the winter and summer months, leading to pressure on EBITDA in the first and third quarters, which is compensated in the second and fourth quarters.
David Arcaro, Analyst
Got it. Okay. Thanks. That's helpful. And then, similar topic, I was just curious what the latest trends you're seeing are in customers moving to default service. Is that still a trend that's happening or which direction are you seeing right now?
Jim Burke, CEO
Yeah. David, we're still seeing some default prices increase in the markets through their kind of delayed procurement, but you are seeing competitive offers in the market that are now south of that default level. So, you are not seeing the same level of migration to default. You're going to start seeing, and we are seeing, folks moving from default back into the competitive arena that is part of this market dynamic. I was mentioning that from a reform standpoint, ideally you would have a one-to-one relationship with the customer and not have it a customer bouncing between a utility and a retailer. But at this stage of the game, obviously prices have crested, they've started to come off in the wholesale market, and that's creating opportunities for our retail business. But it's also creating some of the migration in some markets away from default and default prices because they're still increasing in some markets through May, that's going to create more and more savings opportunities for customers.
David Arcaro, Analyst
Okay. Great. That makes sense. Thanks so much.
Jim Burke, CEO
Thank you, David.
Operator, Operator
Our next question comes from Durgesh Chopra with Evercore ISI. Please proceed.
Durgesh Chopra, Analyst
Hey, good morning team. Thanks for giving me time. Hey, just wanted to make sure Jim, I sort of heard this clearly in the response to Shar's question earlier, for 2024 and 2025, the midpoint is in the $3.7 billion to $3.8 billion range, and 2026 is expected to be higher than that for the base business?
Jim Burke, CEO
That is correct.
Durgesh Chopra, Analyst
Okay. And kind of above $900 million for Energy Harbor in 2026 as well?
Jim Burke, CEO
That is the perspective we hold. We've discussed this from a hedging standpoint, particularly for Energy Harbor, which is mostly unhedged in 2026. For the numbers we've provided for 2024 and 2025, we do have hedges included for Energy Harbor. By 2026, Energy Harbor will be largely unhedged, and it's possible to see Energy Harbor exceeding $900 million by then based on current projections.
Durgesh Chopra, Analyst
Thank you for clarifying that for me. As we approach the end of the year or as you finalize your acquisition of Energy Harbor, what can we expect regarding disclosures? Will you provide a three-year EBITDA guidance and free cash flow range like you did last year? Any insights you can share would be appreciated. Thank you.
Kris Moldovan, CFO
Yes, we plan to update our guidance for the remainder of 2023 and for 2024 when we approach the closing. We haven't decided how far ahead we will continue to provide updates, but we will likely share our directional outlook. However, I don't believe we will be consistently offering three-year ranges in the future. As we near the closing date, we will provide updates on the information we've shared so far.
Durgesh Chopra, Analyst
Understood. Thanks Jim and Kris.
Jim Burke, CEO
Thank you, Durgesh.
Operator, Operator
Today's final question comes from Angie Storozynski with Seaport. Please proceed.
Angie Storozynski, Analyst
Thank you. I have a couple of questions. The first is regarding the flexibility in financing the Energy Harbor transaction. We're all monitoring credit spreads, and while you have bridge financing in place for this deal, you intend to refinance it before the year ends. I'm curious if you might consider using some of the project-level debt mentioned for your renewable assets to assist with this. The second question is more about the overall picture. When evaluating the mark-to-market earnings of Vistra Vision and Vistra Tradition at current prices, it seems you're on a fast track to deleveraging, likely by 2025 or sooner. How might that influence your decision regarding keeping these two businesses together? Is a separation of Vistra Vision possible that could reveal the true value of these assets? Thank you.
Kris Moldovan, CFO
Angie, I'll address the first question regarding the financing of Energy Harbor. When we announced the transaction, we provided some assumptions about the cash we would utilize and the debt structure. We are actively seeking opportunities. As you've noticed, the margin deposits are returning as anticipated, with over $1 billion, approximately $1.2 billion, coming back from the end of the year to March 31st. We also expect to see more margin deposit returns as we settle our hedges throughout this summer. Therefore, you can expect us to optimize the cash usage from our balance sheet, which may exceed the initial amount indicated during the transaction announcement. Regarding debt, we will explore various opportunities, being strategic about the timing and market conditions, as we are already preparing for these opportunities. You can expect us to pursue multiple avenues for raising debt rather than waiting to do it all at once in one market.
Jim Burke, CEO
And Angie, this is Jim. I'll add to Kris' comments on that. The idea with Vistra Vision was designed to execute this transaction while maintaining a strong balance sheet. It has highlighted a significant portion of our earnings that are associated with zero greenhouse gas emissions. Additionally, it created an investment vehicle for key shareholders of Energy Harbor to participate in this new entity. I view this as a customer-driven business that is adapting to a new perspective on the electric grid, which includes a need for sustainability along with reliability. That is fundamentally what Vistra represents. We're pursuing this through various transactions, with Energy Harbor being the most significant, alongside other ventures like Ambit and Crius, and expanding our retail presence while launching opportunities with Vistra Zero. It’s misleading to reduce this business to a single aspect when the electric grid operates in a multifaceted way. This reflects how we consider investors' interests and their investment preferences. Nevertheless, we believe we can succeed within our current structure. Importantly, we are focused on fundamental value and investing in initiatives that generate sustainable long-term cash flows. While there are discussions about what it might take to achieve a rerate, that aspect is somewhat beyond our control. What we can manage is our capability to make sound decisions, seize market opportunities as they arise, create our own, and provide excellent service to our customers. If we accomplish this, we will aggressively return capital to shareholders and reduce debt. I believe this is a winning strategy. It may not align with the short-term expectations some may have, but we are committed to building a resilient business, which I think will appeal to investors, and we are ready to execute our plans.
Angie Storozynski, Analyst
That's great. And just the last one question. So, you mentioned on some of it, that we're seeing relatively limited liquidity in those forward curves for power, right? There's always this question, is gas more liquid versus power and maybe those spark spreads that look incredible in forward years, I mean that are just to be true. So, I mean, is there a way for you to basically capture that strengths even with limited trading liquidity in power markets, either through some derivative transactions, gas driven hedges, you name it.
Jim Burke, CEO
Yes. Angie, we can. Obviously, gas is more liquid than power, and gas many times is a good proxy for power. But to your point, it's not a perfect proxy for power. And Steve, why don't you comment a little bit on some of the things that we do to try to use liquidity efficient means and how we're thinking about capturing this value. Because we are sensitive, Angie, that the further out we go, depending on how we hedge, there obviously is a use of liquidity, and we balance that into our thinking. And we're not also thinking that these curves just go away tomorrow because again, the fundamentals of what we think is happening with the electric grid speak to reliability and assets with flexibility, which is our portfolio. And we think those are getting valued, and they're getting valued differently than they have in the past, because reliability was taken for granted. But Steve, why don't you comment a little bit on how we're thinking about blocking this in.
Steve Muscato, President of Wholesale
Sure. I believe nuclear assets can use gas as a reliable hedge. We can leverage gas instruments like NYMEX and various NYMEX structures to either secure value or establish a range of value to safeguard against potential losses. The PTC is also a factor to consider. Regarding sparks, we need to purchase gas to secure the spark, and some specific gas locations present more challenges. There's greater liquidity in ERCOT and PJM compared to places like New England. We're attempting to do this efficiently in terms of liquidity because as we project further out, the initial margin requirements for exchanges can become quite costly. Therefore, we are looking to enhance credit using first lien structures for longer-term hedging or through bilateral agreements with counterparties. This process is slower as we're focusing on liquidity-efficient channels and engaging directly with customers and other wholesale partners. We've started this initiative for 2026 and even extending to 2027, but it will require time. It’s crucial for us to utilize liquidity-efficient strategies like first liens and direct bilaterals.
Angie Storozynski, Analyst
Great. Thank you.
Jim Burke, CEO
Angie, thank you for the question.
Operator, Operator
This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Jim Burke for any closing remarks.
Jim Burke, CEO
Yes. Thank you. I want to thank everybody for joining us this morning. We appreciate your interest in Vistra and please know that our Vistra team is working hard to execute well for the summer and our strategic priorities, and we look forward to giving you future updates. Have a great morning everyone. Thanks.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.