Earnings Call Transcript
Vistra Corp. (VST)
Earnings Call Transcript - VST Q4 2023
Operator, Operator
Good morning, and thank you all for joining Vistra's investor webcast discussing our fourth quarter and full year 2023 results. Our discussion today 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 presentation and the earnings release. Leading the call today are Jim Burke, Vistra's President and Chief Executive Officer; and Chris 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 on the call today include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the earnings release and in the appendix to the investor presentation available in the Investor Relations section of Visa'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 statements included on Slide 2 of the investor presentation on our website that explain the risks of forward-looking statements, limitations of certain industry and market data included in the presentation and the use of non-GAAP financial measures. I will now turn the call over to our President and CEO, Jim Burke.
Jim Burke, CEO
Thank you, Eric. I appreciate all of you taking the time to join our fourth quarter 2023 earnings call. First, I am proud to share the very strong results that the hard-working Vistra team delivered in 2023. And second, I am excited to announce that we expect to close the Energy Harbor acquisition on Friday, March 1. The Energy Harbor acquisition fits squarely with our continued focus on our four strategic priorities as laid out on slide 5, which starts with operating an integrated business model that combines retail and wholesale operations leading to more resilient and sustainable earnings and a variety of weather and pricing environments. This was not only true in delivering results $440 million above our original guidance level in 2023 but was recently apparent during Winter Storm Heather in January of this year, where our core competency of operating generation assets was evidenced by our 98% commercial availability, which is particularly impressive in an environment where the ERCOT overall market outage rate for the five days impacted by the storm was 2.5 times Vistra's outage rate. Turning to the other key priorities. We continue to execute on our capital return plan put in place during the fourth quarter of 2021. Since that time, we have returned to our investors approximately $4.3 billion through share repurchases and dividends. Further, we are excited to announce the Board approval of an additional $1.5 billion of share repurchases, which we expect to fully utilize by year-end 2025. Importantly, we have strengthened and simplified our balance sheet while maintaining our capital return plan. Net leverage remains low at 2.4 times, and although we expect to be slightly above our three times net leverage target when Energy Harbor closes, we project to return to below three times by year-end 2024. The successful repurchase of approximately 98% of our outstanding tax receivable agreement rights marks further progress in our efforts to simplify Vistra's capital structure, while improving our free cash flow conversion over the foreseeable planning horizon. Our disciplined capital approach also enables us to invest in renewables and energy storage growth that capitalizes on sites and interconnects in the Vistra portfolio. We delivered the Moss Landing 350 megawatt energy storage expansion in June of last year, and we began construction on three of our larger Illinois solar and energy storage developments located at our former coal plant sites in the spring of 2024. With grids in most of our markets tightening in the coming years as older fossil generation retires, demand continues to grow and with interconnection and transmission challenges, Vistra is well-positioned to continue to find ways to serve our customers reliably, affordably, and sustainably while remaining disciplined about our capital allocation. Turning to slide 6. We received FERC's approval for both the acquisition of Energy Harbor and the corresponding sale of our Richland and Stryker generation facilities. Energy Harbor is a transformative acquisition and represents another significant step forward for our company. We are diligently working towards closing this transaction, which, as I already mentioned, we expect to close on March 1st. Despite closing later than we had hoped, we remain comfortable with our ability to successfully integrate our teams and deliver the initial guidance of pre-tax run rate synergies of $125 million by year-end 2025. We are also reiterating a 12-month 2024 and 2025 ongoing operations adjusted EBITDA midpoint opportunities from Energy Harbor of $700 million and $800 million, respectively, as well as the expected run rate ongoing operations adjusted EBITDA midpoint opportunity on an unhedged and open basis of $900 million. However, given the anticipated closing date, you can expect our updated 2024 ongoing operations adjusted EBITDA guidance range, which we expect to provide on the first quarter 2024 results call will reflect only 10 months of contribution from Energy Harbor this year. Moving now to slide 7. As a reminder, we began the year with initial guidance for 2023 ongoing operations adjusted EBITDA with a midpoint of $3.7 billion. This guidance was subsequently revised on both our second and third quarter calls, ultimately raised to a midpoint of $4.025 billion. As I stated earlier, despite another year of volatile weather, characterized by mostly mild weather, excluding the unprecedented summer heat in ERCOT during the third quarter, we were able to exceed the midpoint of our original guidance range by $440 million. Importantly, this translated to higher than expected ongoing operations adjusted free cash flow before growth of approximately $2.491 billion, exceeding the midpoint of our original guidance range by $441 million. These results were achieved through strong customer count and margin performance at our retail segment and a nearly 96% commercial availability rate for our Generation segment. Now, I'd like to quickly turn to the 2024 guidance. Given the recent regulatory approval and the upcoming transaction closing, we anticipate providing combined Vistra and Energy Harbor guidance, including an update on synergies, as part of our first quarter 2024 results call. However, we can reaffirm the Vistra stand-alone 2024 guidance for ongoing operations adjusted EBITDA in the range of $3.7 billion to $4.1 billion and ongoing operations adjusted free cash flow before growth in the range of $1.9 billion to $2.3 billion. We are eager and excited to join with the men and women of Energy Harbor and execute on behalf of our customers and communities as one team. I'll now turn the call over to Kris to discuss our quarterly performance in more detail.
Kris Moldovan, CFO
Thank you, Jim. Turning to slide 9. Vistra delivered strong fourth quarter results in 2023 with ongoing operations adjusted EBITDA of approximately $965 million, including $463 million from retail and $502 million from generation. For the year, Vistra delivered $4,140 million of ongoing operations adjusted EBITDA including $1,105 million from retail and $3,035 million from generation. Despite mild weather conditions for much of the year, the performance of our generation units combined with our comprehensive hedging program and our ability to optimize our flexible assets drove the significant year-over-year improvement in our generation results in every region in the country. Moving to the Retail segment. The strong margin performance seen in the first nine months of the year continued in the fourth quarter. Positive residential customer count growth was driven by our multi-brand strategy with organic growth by our flagship brand, TXU Energy, for the third consecutive year. Turning to slide 10. We provide an update on the execution of our capital allocation plan. As of February 23, we executed approximately $3.7 billion of share repurchases, leading to an approximately 28% reduction compared to the number of shares that were outstanding in November of 2021. We expect to utilize $2.25 billion consisting of the $750 million remaining under the previous authorization as of the end of 2023 and the additional $1.5 billion of authorization announced today over the course of 2024 and 2025. We will review our capital available for allocation after we close the Energy Harbor acquisition and expect to share any updates later this year. Moving to our dividend program. We announced last week a fourth quarter 2023 common stock dividend of $0.215 per share, which represents an increase of approximately 9% over the dividend paid in Q1 2023 and an impressive 43% increase over the dividend paid in the fourth quarter of 2021, when our capital allocation plan was first established. Turning to the balance sheet. Vistra's net leverage ratio currently sits significantly below three times. As Jim stated earlier, although net debt will increase upon closing of the Energy Harbor acquisition, it will remain close to three times, and we expect it to return to below three times by the end of 2024. In addition to maintaining low leverage, we took an important step to further simplify the balance sheet at the end of 2023 and the beginning of 2024. As of February 23, 2024, we have repurchased approximately 98% of the outstanding rights to receive payments under our tax receivable agreement. To pay for these rights, which were entitled to receive approximately $1.4 billion over time on an undiscounted basis. We paid approximately $625 million, consisting of approximately $475 million in aggregate face value of Series C perpetual preferred stock and approximately $150 million of cash. Based on our forecast of payments that would have been due under the tax receivable agreement over the foreseeable planning horizon, we believe this transaction results in accretion to free cash flow over that time period and provides robust net present value to the company. Finally, the team is preparing to begin construction activities at three of our larger Illinois solar and energy storage developments at our former coal plant sites this spring. We believe these projects will continue to exceed our targeted return thresholds despite some headwinds in this higher cost and interest rate environment. The three key tenets of our responsible energy transition reliability, affordability, and sustainability will continue to guide our renewables development program. We remain disciplined in our approach and continue to benchmark all projects against other uses of capital, including our share repurchase program. Touching quickly on slide 11. As we have done in prior quarters, we have provided an update on the out-year forward price curves as of February 23. While the ERCOT forward price curves continue to reflect on backwardation, the prices remain higher than the April 29, 2022 curvatures when we first spoke to you about increased EBITDA earnings potential in the out years. These curves together with the continued execution of our comprehensive hedging program, give us confidence in the ongoing operations adjusted EBITDA midpoint opportunity for 2025 in the range of $3.8 billion to $4 billion for Vistra stand-alone discussed last quarter. Again, we expect to update the 2025 opportunity, including the expected contribution from Energy Harbor on the first quarter results call. We are extremely proud of the performance of our generation, retail, and commercial teams during 2023 and the start of 2024. We believe our commercial optimization activities and flexible generation assets combined with an industry-leading retail business provide significant opportunities going forward. We will continue to focus on being a reliable, cost-efficient operator of assets, while producing adjusted free cash flow yields that translate directly into significant returns for our stockholders. With that, operator, we're ready to open the line for questions.
Operator, Operator
Thank you very much. We will now begin the question-and-answer session. At this time, let's start with a question from Shar Pourreza from Guggenheim Partners. Shar, please go ahead.
Shar Pourreza, Analyst
Can you hear me?
Jim Burke, CEO
Yeah, Hey, Shar. Good morning.
Shar Pourreza, Analyst
Hey, Jim, sorry about that little tech issue. I guess, Jim, you're getting closer to closing the Energy Harbor, and you've repurchased the TRAs to clean up the cap structure. Can we just get a little more color on how you're thinking about the longer-term profile of the business? I mean, do you see a pathway for traditional and vision to go their separate ways in the years ahead? Or is this kind of a longer date process in your mind?
Jim Burke, CEO
Yes. Thank you, Shar. I'll let Kris address the TRA, but I'll start with the direction we're headed. I think the Energy Harbor acquisition, as we said, is transformative for the company. It obviously brings a dispatchable 24/7 carbon-free element to the portfolio and enhances our starting point that we had with Comanche Peak and Vistra Zero. The other part of the portfolio that I think is incredibly critical is the dispatchable assets that we have with our fossil fleet. Flexibility is an increasingly valuable attribute on these grids, particularly with the renewables penetration that we're seeing across the country, particularly ERCOT and California. So, from our standpoint, with such a large retail position and a growing retail position, the integration of how we can match the customer needs with assets that can provide the base load and the ramp products is an important part of risk management and value creation for our company. So, we see this still as one team. We see it as Vistra delivering on an integrated basis across our business for the long term. And I think this excitement we have around closing Energy Harbor is it's a path we've been on for quite some time with the other acquisitions we've done. This is yet another one that fits neatly into what customers are looking for, and that's why we're ready to get on to this next chapter. I'll let Kris quickly address the TRA.
Kris Moldovan, CFO
Yes, Shar, as mentioned earlier, the main goal of the TRA is economic, although it has some non-economic benefits as well. When we removed an instrument valued at $1.4 billion and executed it with just over $600 million, with more than three-quarters of that being perpetual stock, the transaction turned out to be highly favorable economically for the company. Our primary focus was on the financial advantages. In terms of simplifying our capital structure, we prefer not to dwell on this topic moving forward. However, it remains one of the hurdles to a split. There are still other debt securities at the Vistra operations level, and we continue to have preferred stock in place, so there are additional issues to tackle. Thus, the main reason for this transaction was the significant economic benefit it provided to the company, which includes a notable amount of net present value for us.
Shar Pourreza, Analyst
Okay, perfect. That's helpful. And then, Jim, just on ERCOT. We've seen a few new build announcements recently. It sounds like one of your peers is waiting for the loan program details before potentially pulling the trigger on a combined cycle. There has also been a substantial amount of noise regarding the ECRS. I guess what's your house view on the supply/demand backdrop and sort of ongoing market reforms? Thanks.
Jim Burke, CEO
Yes, that's a great question. The growth in demand has caught many of us by surprise, both in what we experienced last summer and with the impact of Heather. The strong, low growth in Texas, combined with extreme weather, has pushed the grid to a level of tightness not seen in a while. The loan program is clearly an indication from the legislature and policymakers that they want to see the growth of dispatchable resources in Texas, at least to support the increasing reliance on intermittent resources. For example, during the tightest hours of winter storm Heather, around 5% of power came from intermittent sources, while 95% came from dispatchable sources. The desire for more dispatchable resources is evident. The loan program is a boost since it offers a 3% interest rate, which is better than current market rates. However, you mentioned an important point about the series of market reforms under discussion between ERCOT and the Public Utility Commission, generally focused on ancillary services. ECRS is one of those, and DRS is another, with details yet to be finalized. We expect to learn more about ECRS in the coming months, and it’s possible it could be implemented sooner than last summer, potentially leading to lower prices. Regarding DRS, its timeline is further out, and its impact on price signals remains unclear. Lastly, the performance credit mechanism in law, associated with House Bill 1500, is also anticipated around 2027. Policymakers are trying to find a balance between ensuring adequate revenue to attract equity investments while also providing reliable and affordable electricity in Texas. This tension is reflected in the ongoing rule makings and procedures, which we expect to gain clarity on over the next three to six months. While the loan program is beneficial, we don't consider it sufficiently strong as a revenue signal. Our PowerPoint highlights a backwardation in the spark spreads for ERCOT. Despite being higher than when we last discussed long-dated curves in 2022, they still show backwardation. Support for price signals is necessary to instill confidence in the returns on 20- to 30-year assets. Efforts are being made to achieve this, but it's still to be determined.
Shar Pourreza, Analyst
Perfect. Thank you very much. And congrats on the execution. I'll see you soon. Appreciate it.
Operator, Operator
And now we have a question from David Arcaro from Morgan Stanley. David, please go ahead.
David Arcaro, Analyst
Hey, thank you, good morning.
Jim Burke, CEO
Hey, David.
David Arcaro, Analyst
Maybe a bit of a follow-on to that question, specifically on data center growth. And as we see that accelerate, I wonder if you could speak to how you're thinking about the potential market impact and opportunities for your fleet potentially from new data centers coming on?
Jim Burke, CEO
Sure. Yes. Thanks, David, for the question. I'll step back just a second to say that as the grids have become a little bit tighter across the country, we're seeing the fossil assets retire, particularly coal. And then we're seeing more electrification. We're seeing customers approach us at a rate that we haven't seen in my history with this industry. And data centers specifically, they're looking for speed to market, so they're trying to get online as fast as they can. They're obviously looking for where they've got good fiber, particularly potentially access to water for cooling needs, but reliability is now entering that discussion. So many of them are talking about while they can do it out on the grid, they're interested in also being behind-the-meter. And depending on who the customer is, it doesn't need to be a nuclear plant. They're actually entertaining gas plants for behind-the-meter opportunities. And we've done that with some of the crypto load already in Texas. We've done some behind-the-meter. So we're familiar with it. Whether that load goes behind-the-meter or out on the grid, it's new demand. And that's part of the supply and demand equation that might also send the price signals that could also then incentivize new supply. But it's meaningful, David. It's hard to get locked in on any one forecast. But most forecasts have a doubling of this data center load by 2030. Texas is a pretty easy place to do business. So Texas, which is already the second largest data center market in the country, may end up getting a disproportionate amount of it. But we do see this as a real opportunity for our company. I will tell you, in terms of customers approaching us, way more customers approaching us around data centers than we've had so far on hydrogen. And part of that is just the rules uncertainty around hydrogen, but also I think we're serving a customer demand. There's actually a demand for where this is going, where the hydrogen has been a little bit more supply-driven and trying to create a product that's inexpensive. This is more pull from the customer, and we're having a lot of conversations. We're pretty excited about it.
David Arcaro, Analyst
Yeah. Got it. Thanks. I appreciate that perspective. How early is it? When do you think that you could see potential market impacts if it's upside in the curve or potential contracts like you say with maybe behind-the-meter or contracted power with these customers?
Jim Burke, CEO
Yeah. The behind-the-meter activity still takes some planning studies that we work on with ERCOT and the wires company. You may also need to be doing the substation construction, getting some of the high-voltage switchgear. So you could still be looking at a couple of years for something to go from concept to reality. So I wouldn't say that it's immediately around the corner for something that's a new conversation. There are clearly some current data centers that could actually even be repowered. Those can actually go from existing chips that are used more for cloud services to the more energy-intensive AI purpose chips. That could be happening over the course of the next two years. But I would say it's a couple of year process, David, from my perspective.
David Arcaro, Analyst
Okay, got it. Very helpful. Thanks so much.
Jim Burke, CEO
Yeah. Thanks, David.
Operator, Operator
And we'll follow with a question from Julien Dumoulin-Smith from Bank of America. Julien, please go ahead.
Julien Dumoulin-Smith, Analyst
Good morning, Jim, and congratulations on the progress here, nicely done. In fact, I wanted to follow-up on the last question and the expectations for 1Q update here. Can you give us an initial glimpse on how you think about capital allocation? I presume to a certain extent, there could be capital commitments on your part to enable some of these data-oriented strategies to perhaps provide some of the warehousing, et cetera. So how do you think about that impacting capital location, as you say, maybe a couple of years out 2025, 2026? And then maybe to marry that up, how do you think about sustaining this level of buyback? Or do you have any broad heuristics that you might be willing to share as you think about buybacks beyond 2025 and beyond here as you think about this updated plan with 1Q?
Jim Burke, CEO
Thank you for the questions, Julien. I'll begin with the opportunities in data centers. Whether we are discussing behind-the-meter setups or those connected to the grid, there is a natural demand increase that could influence wholesale power prices in the coming years. Part of this may already be reflected in the market data. The pricing outlook is more robust now than it was in the spring of 2022 when we last provided our multiyear guidance. Vistra, with its net long position in ERCOT, has the chance to benefit from data center activities, regardless of our direct involvement. The question then becomes when we would choose to engage directly. This would depend on whether we see a return on our investment that justifies it compared to our other capital allocation options. At this point, I don't feel confident enough to say it's actionable. From a free cash flow yield perspective, consistently returning capital through buybacks remains an attractive option for us. We would need to identify a substantial economic opportunity, grounded in a long-term agreement, to consider shifting our capital allocation strategy, which I believe would be favorable for our shareholders. I see this as a chance for us, particularly enhancing our existing assets if we opt for a behind-the-meter approach. Additionally, the population growth in Texas remains robust, and ERCOT forecasts indicate that the Permian Basin could see 13 gigawatts of growth in load from 2023 to 2030, driven by oil and gas as well as population increases and data center demand. This trend could generally benefit Vistra’s asset position, and specifically, targeting our own assets presents incremental opportunities, which we haven’t yet incorporated into our long-range plan. Regarding updates on capital allocation and our approach to buybacks in the long term, I’ll have Kris provide additional insights.
Kris Moldovan, CFO
Yes, Julien, I would say you hit it with the Energy Harbor transaction. So as that closes, as we look forward, we talked about expecting to spend $2.25 billion on share repurchases over 2024 and 2025. We also have a little bit of debt to repay, and we have some growth that you see for our renewables and energy storage business. But on top of that, we do expect to have additional cash available for allocation that's unallocated. We think it's preliminary right now to get into the levels that that is because we just want to make sure to get this Energy Harbor deal closed and put the two businesses, start integrating the businesses. But I do think we will come back to you and talk about an additional amount that over the next two years that we have to allocate on top of the share repurchase estimate that we're making. And so, I don't believe that any of those opportunities would disrupt our pacing on share repurchases.
Julien Dumoulin-Smith, Analyst
Right, even as a percent of total cash flow beyond '25?
Kris Moldovan, CFO
We'll continue to come back. I still think that while we haven't officially stated it as a percentage, I believe the gross amount is in the $1 billion-plus range on an annual basis, and we don’t anticipate anything changing that now. However, we will keep evaluating this with our Board.
Julien Dumoulin-Smith, Analyst
Wonderful. I know it's in flight. Good luck, guys. We'll speak to you then.
Kris Moldovan, CFO
Thank you, Julien.
Operator, Operator
Our next question comes from Durgesh Chopra from Evercore ISI. Durgesh, you may proceed.
Durgesh Chopra, Analyst
Yes. Thanks so much. Appreciate the time team. Good morning to you.
Jim Burke, CEO
Good morning, Durgesh.
Durgesh Chopra, Analyst
Hey, good morning, Jim. Hey, Kris, just maybe this is a stupid question. Will ask it anyway. The TRA transaction that you did, does that have any implication on like your forward looking free cash flow guidance? You kind of talked to it as being somewhat cash flow accretive. So are there any implications as we think about sort of 2025 guidance and beyond?
Kris Moldovan, CFO
We do see some benefits on a straight free cash flow basis, and it is positive from free cash flow. We spent about $150 million in cash and issued the preferred stock, so over the course of five years, our cash cost for that repurchase is around $350 million. Our previous estimates indicated that the TRA payments would have been about twice that amount. Therefore, there is some increase in free cash flow, which will influence our conversion percentage. We acknowledge that we are currently in a high-cost and high-interest rate environment, which has its pros and cons. Nonetheless, we remain optimistic about our expectation to achieve an average of 55% conversion over the planning horizon. This year, you will notice from our materials that we reach just over 60% conversion, while in some years, due to the timing of maintenance capital, it may be slightly lower. However, on average, aiming for 55% in the mid-50s is the appropriate target for our conversion ratio.
Durgesh Chopra, Analyst
That's very helpful. It's accretive to your cash flow guidance, but there are other factors to consider, and you're comfortable with the 55% range, which is the main point. Thank you. I also wanted to ask about what to expect regarding disclosures in the first quarter call, specifically whether EBITDA will still be the key metric. Additionally, what can you share about forward-looking years?
Kris Moldovan, CFO
Yes. We will focus on finalizing Energy Harbor. I believe that whether it's during this call or a future one, we will continually evaluate the best way to convey the ongoing value of our company. We do expect to provide updated guidance for this year. As we move forward, we will determine what metrics to use and how to express our assessment of the business's value. We may address this in the May call, but it might also be later this year. We will carefully consider all aspects before making a decision.
Jim Burke, CEO
Durgesh, what I would add is, once we close Energy Harbor, we will go through a process to confirm the synergy numbers. So we'll talk about that on the May call. That will then lead to the 2024 expectation, as Kris said, of the combined companies. We will also, as he noted in his script, talk about where we see the 2025 headed as well. And obviously, the synergies are part of that. Capital allocation, there will be an amount that's still unallocated that we see that we will be talking to our Board with, with respect to how we think about the best use of that capital. But what you could expect to hear about in May, at least for 2024 with a nod to 2025 with our guidance and then these updated synergy expectations. As far as the best metrics, clearly, with Constellation's call yesterday, very successful in their description of how to think about the value drivers. For our business, where we have looked at it and since the buyback program was enhanced in 2021. So far, we've really focused on the return of cash and capital to the shareholders. And on a per-share basis, between the buyback programs and the dividends, you're seeing that in the sort of $4.45 on the high end and that's an opportunity that's per share. And so that's just from a return of capital standpoint. In terms of the adjusted free cash flow before growth on a per-share basis, it's much higher on a stand-alone basis, that's closer to $6 a share. As far as working through GAAP and working through the mark-to-market, working through depreciation and amortization, we will be taking a look at that. What we've tried to focus on to date has been much more about the proof points around the capital we're returning and the sustainability of that and frankly, the upsizing of that. But clearly, the investor response yesterday was super positive. And if there's opportunities for us to be more clear about the value drivers and the comfort that investors are looking for, for the long term, we owe it to them. We'll be certainly taking a look at that.
Durgesh Chopra, Analyst
I appreciate that very much. Thank you both.
Operator, Operator
We are now taking a question from Michael Sullivan from Wolfe Research. Michael, please go ahead.
Michael Sullivan, Analyst
Hey, everyone. Good morning.
Jim Burke, CEO
Good morning.
Michael Sullivan, Analyst
Jim, you kind of answered this, but just wanted to confirm. So it sounds like the synergies from the original target, you're going to kind of revisit and refresh. But the Energy Harbor guidance itself, what you're putting out there today, is that just kind of what you saw originally? Or is that actually refreshed and just consistent as of today?
Jim Burke, CEO
We have been tracking our progress as we work towards closing the deal, and we feel positive about it. When we assessed the $700 million on a 12-month basis, we believe we will be around 10 months of that figure. When you add this to our current Vistra stand-alone status, it brings us to about $4.5 billion for the calendar year 2024, which is higher than when we announced the acquisition in March 2023. While I expect some upside in the synergy figures, it’s unlikely that we'll see this in calendar year 2024 since we anticipated closing the deal later last year, causing us to start later. By the end of this year, we expect to align with our initial run rate expectations. There is potential for increased figures in the coming years, and we plan to discuss this in more detail during our May call. Your understanding is accurate, and we believe it’s beneficial to finalize the deal, collaborate closely with our teams, clarify all assumptions, and if we identify opportunities to enhance figures during the May call, we will do so then.
Michael Sullivan, Analyst
Okay. Super clear. Thanks. And then we continue to get questions on this. Just can you give us the latest on where you are in terms of having nuclear fuel secured both for Comanche and to the extent Energy Harbor's position?
Jim Burke, CEO
Sure. Yes, we believe we're in really good shape. Michael, we have, as I've indicated on previous calls, we have, as Vistra done some additional procurement through time since we announced the transaction. Obviously, we had a high percentage likelihood in our view of being able to close the transaction. Either way, the markets continue to go up in price, and that's been speculation on the part of a number of folks based on whether Russia pans or limitations would ultimately be put in place. So we have a physical procurement strategy that we are secure for both Energy Harbor sites and our site Comanche Peak through 2027 refuelings. And we feel good about that. We're also substantially hedged into 2028 as well. So we feel good about the risk management around that. And of course, long term, depending on where this goes with the domestic fuel supply capabilities and whether the federal government will incentivize more domestic capabilities for enrichment remains to be seen. But I think we have a very good line of sight and very consistent with everything that we've shared publicly so far and our expectations of this deal.
Michael Sullivan, Analyst
Thanks for all the detail. I appreciate it.
Jim Burke, CEO
Thank you, Michael.
Operator, Operator
And now we will take a question from Angie Storozynski from Seaport. Angie, please go ahead.
Angie Storozynski, Analyst
Thank you. Good morning. So maybe first…
Jim Burke, CEO
Good morning, Angie.
Angie Storozynski, Analyst
Good morning. Maybe first with — yeah, the fundamentals of our markets are tightening, but we don't see it in forward power curves and probably very low natural gas prices do not help. But I'm just wondering if you think that there will be a step change in those power curves on the back of any big announcements about data centers, you name it. We've seen some positive surprise in capacity prices in New England. I'm wondering if you'd hope to see a similar message being sent from the next PJM capacity auction, and again, how do you think we will see more of a forward-looking signal that the profitability of your assets is improving?
Jim Burke, CEO
Yes, thank you, Angie. New England showed a strong performance, with capacity prices about 50% higher in the upcoming 2027 and 2028 auction compared to the last one. This is beneficial for our gas fleet in the region. PJM has postponed some of its auctions, so we need to catch up. There will be several auctions in the next 12 months for PJM. Proposed market reforms in PJM are still in flux, with some approved and others rejected by FERC, leading to uncertainty regarding their impact on capacity. The challenges with market seller offer caps have also limited upward movement in capacity prices. However, the concept of effective load-carrying capability suggests that dispatchable assets could receive more credit compared to intermittent sources, which may positively impact capacity clearing in PJM. Similar to other grid operators, PJM is recognizing that it has less excess capacity available, as many plants are retiring, and gas plants are essential given the lower support for wind and solar in PJM compared to places like ERCOT or California. Regarding Texas, the spark spread is trending upwards, influenced by rising gas prices and the recent fluctuations related to the Russia-Ukraine situation. While sparks remain elevated, they are still backwardated due to concerns about the continuing influx of renewables and whether market reforms will adequately support price formation in ERCOT. Last summer, there was significant price formation with the ECRS, leading to concerns about whether it was excessive, prompting a review of the rules. There's currently uncertainty on how aspects like ECRS will evolve. Clear expectations on ancillary services and around PCM could alleviate some backwardation issues in ERCOT, potentially signaling better investment opportunities. Historically, ERCOT has faced backwardation, but there are lingering worries about future price signals, which ties into the ongoing market reforms and considerations for gas plant investments. The outcomes of these developments remain to be seen.
Angie Storozynski, Analyst
Okay. And then changing topics. So I understand that the Energy Harbor transaction hasn't closed, but I'm sure that it has been taking months to close. You were probably looking at the assets you're acquiring and potential revenue and cost synergies. So we're waiting for probably the first colocation of a data center within a nuclear plant. And I'm just wondering, one, if you think that this will have an impact on other nuclear power owners? And also, how do you see the portfolio and large portfolio of nuclear plants vis-à-vis that opportunity? I'm mostly asking most of your sites are single-unit nuclear plants. So there's no backup from additional units that a data center would get? And would you think that it's somewhat of an impediment to the pursuit of such a colocation strategy on your sites?
Jim Burke, CEO
Yes. Angie, it's a fair question. I would say the data center growth behind the meter at a nuclear plant is still early stages for anybody in the market. It's certainly been discussed and is being considered, but it still takes time for some of these to play out. I do think the two units having an opportunity to have redundancy will be attractive for customers. So Veeva Valley has been the one that is working towards this path and then Comanche Peak as well. However, I'll go back to a comment I made on an earlier question, between the colocation companies and the hyperscalers, speed is very important to them. So while the redundancy may not be there on a single-unit site, pulling from the grid would still be an option. And that's how we manage the behind the meter that we work with, with our gas plant. So while there is a preference list from a customer standpoint of things that check every box, I think there's going to be a balance of factors that the potential data center companies will be considering when they do a site selection. And speed is one of them. Economics is one of them, access to water is another one. So there's a number of variables there beyond just the two units versus one unit. But all things being equal, that would probably be a preferred site Angie. But the fact that we're being approached about gas plants tells you that it isn't just about the carbon attributes. It's about some of these others as well.
Angie Storozynski, Analyst
Okay. And then lastly, I'm sorry that I'm asking so many questions. But if you were to be approached by some of these tech companies and offer long-term contracts. And again, against a very depressed forward power curve, would you be willing to actually lock in some of these assets? Or are you basically thinking that we're about to see a step change in how the market assesses the value of your assets? And so there's no need to actually lock the value at the bottom of a potential bottom of the sell-the-cycle?
Jim Burke, CEO
That's a great question, Angie. I'm not sure it's an all-or-nothing scenario since we have various assets and lengths. Regarding nuclear specifically, if there's a production tax credit that increases with inflation and our projections align with those levels, we would need to receive a compelling offer from a customer to secure it. That offer would need to provide a reasonable premium compared to alternatives, which involve retaining the tax credit for some support while still benefiting from the asset's potential. For gas plants, there's likely more flexibility because they won't benefit from that tax credit. However, from a nuclear perspective, I don't think we need to hurry for the reasons you've pointed out. We need to allow time to navigate the complexities involved in these decisions. We agree with your view on this, and we plan to be patient as we evaluate these opportunities.
Angie Storozynski, Analyst
Thank you.
Jim Burke, CEO
Thank you, Angie.
Operator, Operator
And with that, we conclude the question-and-answer session. I would like to turn the conference back over to Jim Burke, the CEO of Vistra for some closing remarks.
Jim Burke, CEO
Perfect. Thank you. First, I want to start with just thanking the Vistra team. 2023 was a heck of a year, and we look forward to what is in store with Energy Harbor, who I also want to thank they have done an excellent job running a business during a year of uncertainty, whenever an announcement is made, the units are running very well. The team has been incredibly cooperative on our integration efforts. And we're excited about this Friday and becoming one team. We're going to continue to execute our plan, which includes returning capital in an environment of very strong long-term fundamentals. I think that came out in a number of the questions that we were asked. And I also hope that we get to see many of you in New York next week. We'll be up there for a couple of days, and it's always good to see folks face-to-face. So, thank you for your time this morning, and we'll hopefully see you soon.
Operator, Operator
And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a good day.