CEO Presentation. Curt Morgan Chief Executive Officer

Transcription

1 CEO Presentation Curt Morgan Chief Executive Officer

2 Vistra Energy: Changing the Power Landscape

3 EVOLUTION OF SECTOR & INVESTOR SENTIMENT LATE 2016 / EARLY 2017 TODAY Overall Sector Sentiment Poor Retail Multiple Low IPP Model Long Generation Integrated Leverage High Costs Mixed Low Valuation Return of Capital Low Multiples High FCF Yield Inconsistent to non-existent Priority, consistent with leverage and FCF 3

4 VISTRA S EVOLUTION / HISTORY OF EXECUTION PRE-BK EMERGENCE POST-BK EMERGENCE POST MERGER MARKETS 100% ERCOT 100% ERCOT 84% ERCOT, PJM, ISO-NE GENERATION 67% Coal (2015 TWhs) 36% Gas / Renewables (2018E stand-alone TWhs) 53% Gas / Renewables (2019E TWhs) COST High Cost 1 (~$20/MWh) Low Cost 1 (~$10.80/MWh) Lowest Cost 1 (~$8.60/MWh) STRUCTURE Less Focus on Retail Emphasis on Retail and Integrated Value Integrated Platform for Retail Growth LEVERAGE High Leverage (>12x net debt / Adj. EBITDA) Low Leverage (2x net debt / Adj. EBITDA) Balance Sheet Strength Maintained (2.5x net debt / Adj. EBITDA YE ) 1 $/MWh includes SG&A, O&M, and maintenance capex, and excludes nuclear. Pre-bankruptcy emergence: 2015A. Post-bankruptcy emergence: 2018E stand-alone. Post-merger includes non-nuclear projected annual run-rate EBITDA value levers and $20mm projected capex savings. 2 Long-term leverage target. 4

5 VISTRA S INTEGRATED BUSINESS MODEL Results in relatively stable EBITDA with substantial conversion to FCF 1. FINANCIAL DISCIPLINE 2. LOW-COST OPERATIONS 3. DIVERSIFICATION 2.5x net debt/ebitda target by YE 2019; exhibit discipline toward growth investments Lowest costs through lean support cost model and OPI to maximize EBITDA and FCF Improved risk profile via earnings, geographic, and fuel diversification 4. LEADING RETAIL PLATFORM 5. IN-THE-MONEY FLEET 6. COMMERCIAL OPTIMIZATION Results in higher integrated margins and greater stability of earnings Highly efficient gas-fueled fleet with advantaged coal and nuclear assets Manage risk while optimizing value of portfolio 5

6 VISTRA S STRATEGIC PRIORITIES INVESTORS Rotate shareholders Generate stable EBITDA and FCF Exhibit investment discipline Return capital BUSINESS OPERATIONS Integrate DYN; capture synergies/opi Retail expansion Portfolio assessment & rationalization Asset optimization/hedging Generate ~$9.8 billion in Adj. FCF; >$6 billion in CAFA thru x net debt/ebitda by YE 2019 Optimize cost of debt and maturities Maintain strong liquidity Minimize taxes FINANCIAL MARKETS FERC: improve/protect markets PJM: capacity and energy reforms ISO-NE: out of market compensation MISO: MPS and move to PJM ERCOT: stay the course Retail: support competitive markets 6

7 VISTRA S INTEGRATED BUSINESS MODEL CAPITAL ALLOCATION MARKET UPDATE KEY TAKEAWAYS

8 1. FINANCIAL DISCIPLINE Vistra s long-term leverage target is 2.5x net debt to EBITDA BALANCE SHEET DISCIPLINE Vistra Emerged From Bankruptcy With Materially Lower Leverage vs. the Other Public IPPs Vistra s Balance Sheet Is Forecast to Remain Strong Following Merger With Dynegy 7x 2x 2.9x 2.2x 1 Average Net Debt / EBITDA of Public IPP Peers December 2016 VST Net Debt / EBITDA December E 2019E INVESTMENT DISCIPLINE Vistra s investment threshold is bps above cost of capital 1 Assumes projected ~$1 billion excess cash remains on balance sheet. 8

9 2. LOW-COST OPERATIONS Vistra s management team prioritizes low-cost leadership WHOLESALE RETAIL $/MWh 1 $20 $/RCE 2 $80 $65 $45 $10.80 VST Stand-Alone Oct VST Stand-Alone 2018E VST Pro forma for Merger $8.60 $/MWh 2 $8 $6.50 $4.50 VST Stand-Alone Oct VST Stand-Alone 2018E VST Pro forma for Merger VST Stand-Alone Oct VST Stand-Alone 2018E VST Pro forma for Merger 1 Includes Wholesale SG&A, O&M, and maintenance capex. Excludes nuclear. VST pro forma for merger includes non-nuclear projected annual run-rate EBITDA value levers and $20mm of projected capex savings. 2 Includes Retail SG&A. RCE defined as Residential Customer Equivalent, on a Delivered RCE Basis. 9

10 3. DIVERSIFICATION Vistra s fleet is well-positioned in the attractive ERCOT, PJM, and ISO-NE markets ADUSTED EBITDA BY MARKET 1 PJM ERCOT Other ISO-NE/NY 5% 12% 23% 23% Retail 24% 36% Wholesale CAPACITY & ENERGY GROSS MARGIN BY MARKET 2 Market representative CCGTs $17.00 $17.42 $17.42 $15.13 $12.52 $11.12 $10.57 $4.44 $6.44 $10.57 $8.08 $2.32 $4.68 $2.32 PJM ISO-NE ERCOT 2017 ERCOT 2019 Capacity ($/kw-mo) Energy ($/kw-mo) New CCGT (Required $/kw-mo) ~60% Adj. EBITDA from ERCOT ~45% GM from Capacity and Retail PJM AND ISO-NE TOTAL GROSS MARGIN HAVE BEEN RELATIVELY STABLE BETWEEN ~$9-12/KW-MO; ERCOT HAS BEEN MORE VOLATILE WITH HIGHER UPSIDE. MARKETS STILL DO NOT SUPPORT NEW BUILD E E for representative CCGTs (other than ERCOT 2017, which is 2017A for ERCOT North/HSC). PJM reflects an average of WHUB/M3/MAAC, AD/ M2/RTO, and NI/CCG/COMED pricing points. ERCOT reflects ERCOT North/HSC. ISO-NE reflects Mass Hub/Algonquin. Energy revenues reflect forward curves as of 5/21/18 and capacity revenues reflect calendar year

11 4. LEADING RETAIL PLATFORM LARGEST SINGLE BRAND RESIDENTIAL MARKET SHARE IN ERCOT 1 HIGHER INTEGRATED MARGINS 24% 21% 10% 7% 5% 5% 4% 2% 2% 2% We estimate Vistra retains ~$3-4/MWh when transacting directly between its retail and wholesale subsidiaries (vs. third parties): Transaction efficiency Collateral efficiency VISTRA ENERGY CUSTOMER COUNTS 1.5mm Residential 1.1mm Muni-Agg 300K Business Retail Margin Wholesale Margin MORE STABLE CASH FLOWS Generation Fuel Cost Integrated retail / wholesale model 2 (illustrative) EIA data. Based on customer counts. 2 Company analysis. Time period is reflective of

12 5. IN-THE-MONEY FLEET MEANINGFUL ENERGY & CAPACITY CONTRIBUTION FROM GAS-PREDOMINANT FLEET IN-THE-MONEY ASSETS IN CORE MARKETS (~75% of Vistra Generation Capacity) GROSS MARGIN CONTRIBUTION BY REVENUE SOURCE 1 VISTRA IN-THE-MONEY COAL & NUCLEAR ASSETS VISTRA IN-THE-MONEY CCGTs Energy Retail Capacity $ % % 57% $5-25 $27 $ FORECAST GENERATION BY FUEL TYPE GW 5.6 GW 7.8 GW 5.9 GW 3.5 GW Gas Coal Nuclear Other 10% <1% 38% 52% ERCOT PJM $/MWh Marginal Cost ERCOT PJM ISO-NE Heat Rate (mmbtu/mwh) Range Market Clearing Marginal Cost (ATC) or Peak Heat Rate E E market forwards as of May 30,

13 6. COMMERCIAL OPTIMIZATION OPTIMIZE VALUE OF PORTFOLIO 1. Develop fundamental point of view; hedge at or above 2. Take advantage of volatility in forward curves to hedge through settled date, optimizing value of fleet 3. Requires in-the-money generating assets to support initial hedge and strong balance sheet to execute forward transactions CREATE REALIZED PRICE CURVE HIGHER THAN POV AND SETTLED PRICE MINIMIZE DOWNSIDE RISK, PRESERVE UPSIDE $39.88 $25.15 $43.23 $46.56 $30.50 $33.93 $43.51 $23.78 $37.57 $21.06 $33.39 $ Annual Settled Power Price ($/MWh) Annual Realized Power Price ($/MWh) 13

14 THE VISTRA INTEGRATED MODEL Committed to capital discipline and creating value for our shareholders 1. FINANCIAL DISCIPLINE 2. LOW-COST OPERATIONS 3. DIVERSIFICATION 4. LEADING RETAIL PLATFORM 5. IN-THE-MONEY FLEET 6. COMMERCIAL OPTIMIZATION Improved risk profile; Stable EBITDA and FCF: Supports $3 billion+ annual Ongoing Operations Adj. EBITDA target; ~60% of Ongoing Operations Adj. EBITDA converted to Adj. FCF 14

15 STABILITY OF EARNINGS Vistra believes >60% of its earnings stream is visible 3 years out Illustrative Year 1 Year 2 Year 3 Retail Capacity Hedged Length Open 15

16 VISTRA S INTEGRATED BUSINESS MODEL CAPITAL ALLOCATION MARKET UPDATE KEY TAKEAWAYS

17 ATTRACTIVE EARNINGS PROFILE Creating visible long-term value through achievement of value lever targets and a disciplined approach to capital allocation STABLE EBITDA AND FCF Integrated operations Earnings, geographic, and fuel diversification - ~45% of GM from Retail and Capacity - ~60% of Adj. EBITDA from ERCOT Low-cost operations 2.5x net debt / EBITDA by year-end VALUE CREATION On track to deliver an estimated: - $500mm EBITDA value levers by YE $258mm after-tax FCF benefits by YE ~$1.7 billion tax/tra savings; AMT refunds Forecasting ~60% conversion of adjusted EBITDA from ongoing operations to FCF ~$1 billion Capital available for allocation projected through year-end 2019 >$6 billion Capital available for allocation projected through year-end 2022; ~$9.8 billion in Ongoing Ops Adj. FCF with ~$3.6 billion in debt repayments Does not include EBITDA or FCF from Retail Expansion or other Growth Opportunities 1 Long-term leverage target. 17

18 NEAR-TERM CAPITAL ALLOCATION PLAN Maintaining a strong balance sheet remains the top capital allocation priority After achieving its 2.5x net debt / EBITDA target by year-end 2019, Vistra estimates it will have ~$1 billion in capital available for allocation Announcing Authorization of $500mm Share Repurchase Program Vistra intends to execute repurchases on an opportunistic basis ~$500mm in additional capital forecast to be available for allocation through year-end 2019: Recurring Dividend Could institute a recurring dividend with a meaningful yield and opportunity for growth Share Repurchases Could allocate additional capital toward opportunistic share repurchases if best value Opportunistic Growth Focus on organic retail growth; highlight disciplined acquisitions and renewables 18

19 LONG-TERM PHILOSOPHY Vistra expects to generate nearly $10 billion in ongoing operations adjusted FCF through year-end 2022 >$6 billion in capital forecast to be available for allocation through year-end 2022 DIVERSE ALLOCATION OF CAPITAL Hypothetical annual capital generation: ~$3+ billion in adjusted EBITDA from ongoing operations ~60% conversion to free cash flow Would result in ~$1.8+ billion in adjusted FCF from ongoing operations per year Hypothetical annual capital allocation: ~$ mm allocated to recurring dividend ~$1,300-1,400mm available for future dividend growth, opportunistic share repurchases, or growth investments Incremental CAFA could be available if Vistra rationalizes non-strategic assets 19

20 GROWTH OPPORTUNITIES Vistra s meaningful FCF and relationship with customers will enable strategic evolution RETAIL EXPANSION OPPORTUNITIES Focus on organic growth - Most economic - Attractive markets - Matched generation Acquisition opportunities - Price discipline - Quality of portfolio - Highly Selective GENERATION EVOLUTION OPPORTUNITIES Vistra rotated supply base toward gasfueled assets - ERCOT: ~4,200 MW coal retirements; ~8,000 MWs of attractive CCGT acquisitions - Unlikely near-term focus New technologies present future opportunities - Flexible balance sheet and meaningful FCF - Support retail / customer needs - Storage offers selective opportunities Vistra s length offers the opportunity to develop multiple retail channels with higher integrated margins and lower collateral requirements 20

21 PORTFOLIO OPTIMIZATION Portfolio optimization activities could further increase Vistra s capital available for allocation MISO OPI process ongoing Multi-pollutant Standard (MPS) Pursue opportunity for MISO Zone 4 to join PJM NYISO Single asset (Independence, ~1.2 GW CCGT) Well-positioned asset, but single asset ownership not a strategy CAISO Attractive sites with opportunities to optimize value 21

22 VISTRA S INTEGRATED BUSINESS MODEL CAPITAL ALLOCATION MARKET UPDATE KEY TAKEAWAYS

23 ERCOT: MARKET FUNCTIONING AS DESIGNED Vistra anticipates reserve margins will be below those forecast by the ERCOT May CDR GW 79.6 ERCOT SUMMER CDR ~2% firm peak load growth forecast / year 11.0% 12.3% 12.0% 10.9% 8.9% Firm Peak Load, GW Total Capacity, GW Reserve Margin NEW BUILD ASSUMED (BY YEAR) IN ERCOT SUMMER CDR Wind 4,656 MW 4,862 MW 558 MW Solar 1,057 MW 997 MW 200 MW Thermal 1,289 MW 1,217 MW 1,067 MW 654 MW 23

24 PJM AND ISO-NE: PRESERVING COMPETITION PJM and ISO-NE are taking constructive steps to combat out-of-market subsidies; FERC must continue to support competitive markets, not incentivize state out -of-market actions PJM 21/22 BRA constructive MOPR-ex with no exemptions is a viable solution Energy reform likely to follow fast start and capacity reforms ISO-NE CASPR is a constructive solution Fuel security RMR proposal is problematic and ill-timed Vistra s fleet is well-positioned in the PJM and ISO-NE markets 24 24

25 VISTRA S INTEGRATED BUSINESS MODEL CAPITAL ALLOCATION MARKET UPDATE KEY TAKEAWAYS

26 ANALYST DAY TAKEAWAYS Relatively Stable Earnings With Multi-Year Visibility Integrated with multi-channel Retail Assets in key capacity markets Capability and balance sheet to hedge in-themoney assets Low Leverage, Low Cost a Must Attract long-oriented investors investment grade Highly efficient assets and lean support costs Right Business Model Leads to Strong Conversion of EBITDA to FCF Low sustaining capex; low debt low interest expense Multiple capital allocation alternatives Good Fundamentals Irreplaceable product Inelastic demand Modest near-term growth electrification of transport FERC and ISOs Protecting Markets Despite Intervention ISO-NE: LICAP FCM CASPR PJM: ICAP RPM CP ERCOT: System-wide offer cap; ORDC Involvement in DOE process Renewables and Batteries an Opportunity, Not a Threat Balance sheet and cash flow to participate Core business remains strong under possible penetration Mitigation measures 26

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