VISTRA CORP. The discussion below, as well as other portions of this quarterly report on Form 10-Q, contain forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. In addition, management may make forward-looking statements orally or in other writing, including, but not limited to, in press releases, quarterly earnings calls, executive presentations, in the annual report to stockholders and in other filings with theSEC . Readers can usually identify these forward-looking statements by the use of such words as "may," "will," "should," "likely," "plans," "projects," "expects," "anticipates," "believes" or similar words. These statements involve a number of risks and uncertainties. Actual results could materially differ from those anticipated by such forward-looking statements. For more discussion about risk factors that could cause or contribute to such differences, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part I, Item 1A "Risk Factors" in the Company's 2021 Form 10-K and any updates contained herein. Forward-looking statements reflect the information only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statements to reflect future events, developments, or other information. IfVistra does update one or more forward-looking statements, no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements. This discussion is intended to clarify and focus on our results of operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the condensed consolidated financial statements included under Part I, Item 1 of this quarterly report on Form 10-Q for the three and six months endedJune 30, 2022 . This discussion should be read in conjunction with those condensed consolidated financial statements and the related notes and is qualified by reference to them. The following discussion and analysis of our financial condition and results of operations for the three and six months endedJune 30, 2022 and 2021 should be read in conjunction with our condensed consolidated financial statements and the notes to those statements.
All dollar amounts in the tables in the following discussion and analysis are
stated in millions of
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial position and results of operations is based upon its condensed consolidated financial statements. The preparation of these condensed consolidated financial statements requires estimation and judgment that affect the reported amounts of revenue, expenses, assets and liabilities. The Company bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the accounting for assets and liabilities that are not readily apparent from other sources. If the estimates differ materially from actual results, the impact on the condensed consolidated financial statements may be material. The Company's critical accounting policies are disclosed in our 2021 Form 10-K.
Business
Vistra is a holding company operating an integrated retail and electric power generation business primarily in markets throughout theU.S. Through our subsidiaries, we are engaged in competitive energy market activities including electricity generation, wholesale energy sales and purchases, commodity risk management and retail sales of electricity and natural gas to end users.
Operating Segments
Vistra has six reportable segments: (i) Retail, (ii)Texas , (iii) East, (iv) West, (v) Sunset and (vi) Asset Closure. See Note 16 to the Financial Statements for further information concerning our reportable business segments. 50 -------------------------------------------------------------------------------- Table of Contents CEO Transition InMarch 2022 ,Vistra announced that the Board had namedJim Burke as its next Chief Executive Officer (CEO), effectiveAugust 1, 2022 .Mr. Burke , who previously served as President and Chief Financial Officer, also joined the Company's Board upon assuming his new role.Vistra's previous CEO and director,Curt Morgan , will serve as a special advisor toMr. Burke and the Board untilApril 30, 2023 . The transition fromMr. Morgan toMr. Burke was a product of the Company's formal succession planning process. InJuly 2022 , the Company announced the appointment ofKris Moldovan as the Company's Executive Vice President and Chief Financial Officer, effectiveAugust 1, 2022 .
Significant Activities and Events and Items Influencing Future Performance
Climate Change, Investments in Clean Energy and CO2 Reductions
Environmental Regulations - We are subject to extensive environmental regulation by governmental authorities, including theEPA and the environmental regulatory bodies of states in which we operate. Environmental regulations could have a material impact on our business, such as certain corrective action measures that may be required under the CCR rule and the ELG rule (see Note 11 to the Financial Statements). However, such rules and the regulatory environment are continuing to evolve and change, and we cannot predict the ultimate effect that such changes may have on our business. Emissions Reductions -Vistra is targeting to achieve a 60% reduction in Scope 1 and Scope 2 CO2 equivalent emissions by 2030 as compared to a 2010 baseline, with a long-term goal to achieve net-zero carbon emissions by 2050, assuming necessary advancements in technology and supportive market constructs and public policy. In furtherance ofVistra's efforts to meet its net-zero target,Vistra expects to deploy multiple levers to transition the Company to operating with net-zero emissions. Solar Generation andEnergy Storage Projects - InJanuary 2022 , we announced that, subject to approval by the CPUC, we would enter into a 15-year resource adequacy contract with PG&E to develop an additional 350 MW battery ESS at ourMoss Landing Power Plant site. The CPUC approved the resource adequacy contract inApril 2022 . InSeptember 2021 , we announced the planned development, at a cost of approximately$550 million , of up to 300 MW of solar photovoltaic power generation facilities and up to 150 MW of battery ESS at retired or to-be-retired plant sites inIllinois , based on the passage ofIllinois Senate Bill 2408, the Energy Transition Act. InSeptember 2020 , we announced the planned development, at a cost of approximately$850 million , of up to 768 MW of solar photovoltaic power generation facilities and 260 MW of battery ESS inTexas . Of this planned development inTexas , 158 MW of solar generation and the 260 MW battery ESS came online in the first six months of 2022. We will only invest in these growth projects if we are confident in the expected returns. See Note 2 to the Financial Statements for a summary of our solar and battery energy storage projects. CO2 Reductions - InApril 2021 , we announced we would retire theJoppa generation facilities bySeptember 1, 2022 , and inJune 2022 , we retired the Zimmer coal generation facility. See Note 3 to the Financial Statements for a summary of our planned generation retirements.
Moss Landing Outages
InSeptember 2021 , Moss Landing Phase I experienced an incident impacting a portion of the battery ESS. A review found the root cause originated in systems separate from the battery system. The facility was offline as we performed the work necessary to return the facility to service. Moss Landing Phase II was not affected by this incident. InFebruary 2022 , Moss Landing Phase II experienced an incident impacting a portion of the Battery ESS. A review found the root cause originated in systems separate from the battery system. The facility was offline as we performed the work necessary to return the facility to service. Moss Landing Phase I was not affected by this incident.
We have continued restoration work on the facilities and have restored
approximately 393 MW (or 98% of the 400 MW capacity) at
We do not expect these incidents to have a material impact on our results of operations.
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Winter Storm Uri
In
The weather event resulted in a$2.9 billion negative impact on the Company's pre-tax earnings in the six months endedJune 30, 2021 . The weather event resulted in a$2.2 billion negative impact on the Company's pre-tax earnings in the year endedDecember 31, 2021 , after taking into account approximately$544 million in securitization proceedsVistra received fromERCOT as further described below. The primary drivers of the loss were the need to procure power inERCOT at market prices at or near the price cap due to lower output from our natural gas-fueled power plants driven by natural gas deliverability issues and our coal-fueled power plants driven by coal fuel handling challenges, high fuel costs, and high retail load costs. As part of the 2021 regularTexas legislative sessions and in response to extraordinary costs incurred by electricity market participants during Winter Storm Uri, theTexas legislature passed House Bill (HB) 4492 forERCOT to obtain financing to distribute to load-serving entities (LSEs) that were charged and paid toERCOT exceptionally high price adders and ancillary service costs during Winter Storm Uri. InOctober 2021 , the PUCT issued a debt obligation order approvingERCOT's $2.1 billion financing and the methodology for allocation of proceeds to the LSEs. InDecember 2021 ,ERCOT finalized the amount of allocations to the LSEs, and we received$544 million in proceeds fromERCOT in the second quarter of 2022. We concluded that the threshold for recognizing a receivable was met inDecember 2021 as the amounts to be received were determinable andERCOT was directed by its governing body, the PUCT, to take all actions required to effectuate the$2.1 billion funding approved in the debt obligation order. Accordingly, we recognized the$544 million in expected proceeds as an expense reduction in the fourth quarter of 2021 within fuel, purchased power costs and delivery fees in our consolidated statements of operation. The final financial impact of Winter Storm Uri continues to be subject to the outcome of litigation arising from the event.Vistra has taken various actions to improve its risk profile for future weather-driven volatility events, including investing in improvements to further harden its coal fuel handling capabilities and to further weatherize itsERCOT fleet for even colder temperatures and longer durations; carrying more backup generation into the peak seasons after accounting for weatherization investments andERCOT market improvements implemented going forward; contracting for incremental gas storage to support its gas fleet; adding additional dual fuel capabilities at its gas steam units and increasing fuel oil inventory at its existing dual fuel sites; participating in processes with the PUCT andERCOT for registration of gas infrastructure as critical resources with the transmission and distribution utilities and for enhanced winterization of both gas and power assets in the state; and engaging in processes to evaluate potential market reforms.
Dividend Program
InNovember 2018 , we announced that the Board had adopted a dividend program, which we initiated in the first quarter of 2019. See Note 12 to the Financial Statements for more information about our dividend program.
Preferred Stock Offerings
InOctober 2021 , we issued 1,000,000 shares of Series A Preferred Stock in a private offering (Offering). The net proceeds of the Offering were approximately$990 million , after deducting underwriting commissions and offering expenses. We intend to use the net proceeds from the Offering to repurchase shares of our outstanding common stock under the Share Repurchase Program (discussed below). InDecember 2021 , we issued 1,000,000 shares of Series B Preferred Stock in a private offering (Series B Offering) under our Green Finance Framework. The net proceeds of the Series B Offering were approximately$985 million , after deducting underwriting commissions and offering expenses. We intend to use the proceeds from the Series B Offering to pay for or reimburse existing and new eligible renewable and battery ESS developments.
See Note 12 to the Financial Statements for more information concerning the Series A Preferred Stock and the Series B Preferred Stock.
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Share Repurchase Program
In October 2021 , we announced that the Board had authorized a new share
repurchase program (Share Repurchase Program) under which up to $2.0 billion of
our outstanding common stock may be repurchased. The Share Repurchase Program
became effective in October 2021 . The Share Repurchase Program superseded the
$1.5 billion share repurchase program previously announced in September 2020
(2020 Share Repurchase Program). In the six months ended June 30, 2022 ,
46,661,160 shares of our common stock were repurchased under the Share
Repurchase Program for approximately $1.086 billion at an average price of
$23.28 per share of common stock (shares repurchased include 320,000 of
unsettled shares repurchased for $7 million as of June 30, 2022 ). As of June 30,
2022 , approximately $505 million was available for additional repurchases under
the Share Repurchase Program. From July 1, 2022 through August 2, 2022 ,
4,530,102 of our common stock had been repurchased under the Share Repurchase
Program for $105 million at an average price per share of common stock of
$23.06 , and at August 2, 2022 , $400 million was available for repurchase under
the Share Repurchase Program. Since inception, 70,521,627 shares of our common
stock were repurchased under the Share Repurchase Program for approximately $1.6
billion at an average price of $22.68 per share of common stock.
On August 4, 2022 , the Board authorized an incremental $1.25 billion for
repurchases under the Share Repurchase Program. Including the original Board
authorization, approximately $1.65 billion remains available for share
repurchases under the Share Repurchase Program as of August 4, 2022 . We expect
to complete repurchases under the Share Repurchase Program by the end of 2023.
See Note 12 to the Financial Statements for more information concerning the
Share Repurchase Program and the 2020 Share Repurchase Program.
Macroeconomic Conditions
Global market demand, geopolitical events and high natural gas price volatility have resulted in increased market prices for energy, and we expect these conditions to persist, in particular in the near term. Due in large part to theRussia andUkraine conflict as well as other factors, we have experienced substantial shifts in commodity prices, which in turn have (i) facilitated our comprehensive hedging strategy which we believe has positioned us to lock in significant revenues and Adjusted EBITDA opportunities in 2023 and beyond, (ii) led to significant mark-to-market impacts on forward commodity derivative instruments, and (iii) combined with our comprehensive hedging strategy, resulted in significant increases in our collateral posting obligations and required liquidity to support these net liabilities. See also Financial Condition for further discussion of our collateral posting obligations and liquidity management activities. Accordingly, with forward power and natural gas curves increasing materially in 2022, we have increased our hedging for future periods. As ofJune 30, 2022 , we have hedged over 60% of our expected generation volumes on average for the three-year period 2023 to 2025 (with approximately 80% hedged for 2023). Changes to the geopolitical situation and the inflationary environment, among other factors, have also created supply chain constraints that have reduced the availability of certain fuels, such as coal, as well as reduced the availability of certain equipment and supply relevant to construction of renewables projects. We are proactively managing through increased costs of materials and supply chain disruptions and continuing to prudently re-evaluate the business cases and timing of our planned development projects, which has resulted in a deferral of some of our planned capital spend for our renewables projects from 2022 to 2023. In addition, depending on the final passage of the recently proposed Inflation Reduction Act, our Vistra Zero development projects could see enhanced returns from the impact of this legislation. Additionally, we are closely monitoring developments of theRussia andUkraine conflict including sanctions (or potential sanctions) against Russian energy exports and Russian nuclear fuel supply and enrichment activities, as well as actions byRussia to limit energy deliveries, which may further impact commodity prices inEurope and globally. Our 2022 refueling has not been affected by theRussia andUkraine conflict. We work with a diverse set of global nuclear fuel cycle suppliers to procure our nuclear fuel, and therefore, we expect to have enough nuclear fuel to support all our refueling needs for the next few years. We are taking affirmative action by including mitigating strategies in our procurement portfolio to ensure we can secure the nuclear fuel needed to continue to operate our nuclear facility. If imports fromRussia were banned,U.S. nuclear power generators could be in jeopardy of not being able to refuel all reactors. 53 -------------------------------------------------------------------------------- Table of Contents Debt Activity We have stated our objective to reduce our consolidated net leverage. We also intend to continue to simplify and optimize our capital structure, maintain adequate liquidity and pursue opportunities to refinance our long-term debt to extend maturities and/or reduce ongoing interest expense. While the financial impacts resulting from Winter Storm Uri and higher margining requirements as a result of increasing power prices have caused an increase in our consolidated net leverage, the Company remains committed to a strong balance sheet. See Note 10 to the Financial Statements for details of our debt activity and Note 9 to the Financial Statements for details of our accounts receivable financing. Vistra Operations Credit Agreement Amendments - InApril 2022 andJuly 2022 , the Vistra Operations Credit Agreement was amended to, among other things, (i) establish new classes of extended revolving credit commitments in aggregate amounts of$2.8 billion and$725 million as ofApril 2022 andJuly 2022 , respectively, and the maturity date was extended fromJune 14, 2023 toApril 29, 2027 , (ii) requireVistra Operations to terminate at least$350 million in revolving commitments maturingApril 29, 2027 byDecember 30, 2022 or earlier ifVistra Operations or any guarantor receives proceeds from any capital markets transaction whose primary purpose is designed to enhance the liquidity ofVistra Operations and its guarantors, and (iii) appoint certain additional revolving letter of credit issuers. See Note 10 to the Financial Statements for details of the Vistra Operations Credit Agreement amendments. Commodity-Linked Revolving Credit Facility - InFebruary 2022 ,Vistra Operations entered into a credit agreement by and amongVistra Operations ,Vistra Intermediate , the lenders, joint lead arrangers and joint bookrunners party thereto, andCitibank, N.A ., as administrative agent and collateral agent. The Credit Agreement provides for a senior secured commodity-linked revolving credit facility (the Commodity-Linked Facility).Vistra Operations intends to use the liquidity provided under the Commodity-Linked Facility to make cash postings as required under various commodity contracts to whichVistra Operations and its subsidiaries are parties as power prices increase from time-to time and for other working capital and general corporate purposes. In order to support our comprehensive hedging strategy, inMay 2022 , we entered into an amendment to our Commodity-Linked Facility to increase the aggregate available commitments from$1.0 billion to$2.0 billion and to provide the flexibility, subject to our ability to obtain additional commitments, to further increase the size of the Commodity-Linked Facility by an additional$1.0 billion to a facility size of$3.0 billion . Subsequent amendments inMay 2022 andJune 2022 increased the aggregate available commitments under the Commodity-Linked Facility from$2.0 billion to$2.25 billion .
See Note 10 to the Financial Statements for more information concerning the Commodity-Linked Facility.
Power Price, Natural Gas Price and Market Heat Rate Exposure
Estimated hedging levels for generation volumes in our
2022 2023
Nuclear/Renewable/Coal Generation:
Texas 95 % 85 %
Sunset 97 % 75 %
Gas Generation:
Texas 87 % 52 %
East 95 % 89 %
West 96 % 92 %
54-------------------------------------------------------------------------------- Table of Contents The following sensitivity table provides approximate estimates of the potential impact of movements in power prices and spark spreads (the difference between the power revenue and fuel expense of natural gas-fired generation as calculated using an assumed heat rate of 7.2 MMBtu/MWh) on realized pre-tax earnings (in millions) taking into account the hedge positions noted above for the periods presented. The residual gas position is calculated based on two steps: first, calculating the difference between actual heat rates of our natural gas generation units and the assumed 7.2 heat rate used to calculate the sensitivity to spark spreads; and second, calculating the residual natural gas exposure that is not already included in the gas generation spark spread sensitivity shown in the table below. The estimates related to price sensitivity are based on our expected generation, related hedges and forward prices as ofJune 30, 2022 . Balance 2022 2023
Nuclear/Renewable/Coal Generation:
3 $ 18
Nuclear/Renewable/Coal Generation: $2.50 /MWh decrease in power price $ (3) $ (17)
Gas Generation: $1.00 /MWh increase in spark spread $ 4 $ 20
Gas Generation: $1.00 /MWh decrease in spark spread $ (3) $ (19)
Residual Natural Gas Position: $0.25 /MMBtu increase in natural gas price $ 1 $ (19)
Residual Natural Gas Position: $0.25 /MMBtu decrease in natural gas price $ (1) $ 13
East:
Gas Generation: $1.00 /MWh increase in spark spread $ 2 $ 6
Gas Generation: $1.00 /MWh decrease in spark spread $ (1) $ (4)
Residual Natural Gas Position: $0.25 /MMBtu increase in natural gas price $ (1) $ 6
Residual Natural Gas Position: $0.25 /MMBtu decrease in natural gas price $ 1 $ (6)
West:
Gas Generation: $1.00 /MWh increase in spark spread $ - $ -
Gas Generation: $1.00 /MWh decrease in spark spread $ - $ -
Residual Natural Gas Position: $0.25 /MMBtu increase in natural gas price $ - $ 1
Residual Natural Gas Position: $0.25 /MMBtu decrease in natural gas price $ - $ (1)
Sunset:
Coal Generation: $2.50 /MWh increase in power price $ 1 $ 13
Coal Generation: $2.50 /MWh decrease in power price $ (1) $ (12)
Residual Natural Gas Position: $0.25 /MMBtu increase in natural gas price $ 1 $ (10)
Residual Natural Gas Position: $0.25 /MMBtu increase in natural gas price $ (1) $ 10
PJM Auction Results
In June 2022 , Vistra reported its results from PJM's Reliability Pricing Model
(RPM) auction results for planning year 2023-2024, and the table below lists
clearing price per MW-day and our cleared capacity volumes by zone:
Clearing Price Sunset Segment MW Total
per MW-day East Segment MW Cleared Cleared MW Cleared
RTO zone $ 34.13 2,890 - 2,890
ComEd zone $ 34.13 1,151 408 1,559
DEOK zone $ 34.13 11 924 935
EMAAC zone $ 49.49 828 - 828
MAAC zone $ 49.49 545 - 545
ATSI zone $ 34.13 112 - 112
Total $ 37.20 5,537 1,332 6,869
55-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS In the three and six months endedJune 30, 2022 , our operating segments delivered strong operating performance with a disciplined focus on cost management, while generating and selling essential electricity in a safe and reliable manner. Our performance reflected the stability of our integrated model, including a diversified generation fleet, retail and commercial and hedging activities in support of our integrated business. Notably, we hedged longer-dated revenues and fuel costs to reduce risk and lock in value as forward power and gas curves moved up materially, and we executed on our share repurchase strategy.
Consolidated Financial Results - Three and Six Months Ended
Three Months Ended Favorable Six Months Ended Favorable
June 30, (Unfavorable) June 30, (Unfavorable)
2022 2021 $ Change 2022 2021 $ Change
Operating revenues $ 1,588 $ 2,565 $ (977) $ 4,713 $ 5,772 $ (1,059)
Fuel, purchased power costs and
delivery fees (2,162) (1,320) (842) (4,441) (6,065) 1,624
Operating costs (435) (429) (6) (851) (801) (50)
Depreciation and amortization (394) (464) 70 (824) (887) 63
Selling, general and
administrative expenses (280) (252) (28) (569) (502) (67)
Impairment of long-lived assets - (38) 38 - (38) 38
Operating income (loss) (1,683) 62 (1,745) (1,972) (2,521) 549
Other income 71 36 35 77 92 (15)
Other deductions (9) (2) (7) (13) (7) (6)
Interest expense and related
charges (109) (135) 26 (116) (164) 48
Impacts of Tax Receivable
Agreement (34) (41) 7 (115) (4) (111)
Income (loss) before income
taxes (1,764) (80) (1,684) (2,139) (2,604) 465
Income tax benefit 407 115 292 498 600 (102)
Net income (loss) $ (1,357) $ 35 $ (1,392) $ (1,641) $ (2,004) $ 363
Three Months Ended June 30, 2022
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues
$ 79 $ (83) $ 121 $ (17)$ 1,588 Fuel, purchased power costs and delivery fees (616) (697) (713) (51) 17 (119) 17
(2,162)
Operating costs (35) (208) (73) (11) (74) (34) - (435) Depreciation and amortization (36) (146) (179) 11 (18) (9) (17) (394) Selling, general and administrative expenses (195) (32) (15) (4) (10) (9) (15) (280) Operating income (loss) 910 (1,706) (661) 24 (168) (50) (32) (1,683) Other income - 63 - - - 6 2 71 Other deductions (8) (1) - - - - - (9) Interest expense and related charges (4) 6 (1) 1 - (1) (110) (109) Impacts of Tax Receivable Agreement - - - - - - (34) (34) Income (loss) before income taxes 898 (1,638) (662)
25 (168) (45) (174)
(1,764)
Income tax benefit - - - - - - 407 407
Net income (loss) $ 898 $ (1,638) $ (662) $ 25 $ (168) $ (45) $ 233$ (1,357) 56
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Three Months Ended June 30, 2021
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues $ 1,919 $ (468) $ 505 $ 48 $ (7) $ (41) $ 609 $ 2,565
Fuel, purchased power
costs and delivery fees 150 (333) (319) (38) (139) (32) (609) (1,320)
Operating costs (29) (184) (69) (10) (69) (68) - (429)
Depreciation and
amortization (54) (159) (193) (10) (26) (4) (18) (464)
Selling, general and
administrative expenses (175) (23) (19) (8) (8) (11) (8) (252)
Impairment of long-lived
assets - - - - - (38) - (38)
Operating income (loss) 1,811 (1,167) (95) (18) (249) (194) (26) 62
Other income 1 27 - - 3 2 3 36
Other deductions - (2) - - - - - (2)
Interest expense and
related charges (2) 4 (5) 5 - - (137) (135)
Impacts of Tax Receivable
Agreement - - - - - - (41) (41)
Income (loss) before
income taxes 1,810 (1,138) (100) (13) (246) (192) (201) (80)
Income tax benefit - - - - - - 115 115
Net income (loss) $ 1,810 $ (1,138) $ (100) $ (13) $ (246) $ (192) $ (86) $ 35
Consolidated results decreased $1.745 billion to an operating loss of $1.683
billion in the three months ended June 30, 2022 compared to the three months
ended June 30, 2021 . The change in results is primarily driven by a $1.709
billion pre-tax increase in unrealized mark-to-market losses on commodity
hedging transactions which was driven by a material increase in forward power
and natural gas price curves during the three months ended June 30, 2022 and a
pre-tax net unrealized loss of $414 million recorded due to the discontinuance
of NPNS accounting as of June 30, 2022 on a retail electric contract portfolio
where physical settlement is no longer considered probable throughout the
contract term as we opportunistically monetized certain positions. We believe
the increase in forward power and natural gas prices has positioned us to
significantly benefit operating results in 2023 and beyond.
Interest expense and related charges decreased $26 million to $109 million in
the three months ended June 30, 2022 compared to the three months ended June 30,
2021 driven by unrealized mark-to-market gains on interest rate swaps of $45
million in 2022 compared to unrealized mark-to-market losses on interest rate
swaps of $9 million in 2021. The change in unrealized results is driven by an
increase in interest rates during the three months ended June 30, 2022 . This
favorable variance is partially offset by an increase in interest paid/accrued
of $29 million driven by higher average borrowings during the three months ended
June 30, 2022 . See Note 17 to the Financial Statements.
For the three months ended
For the three months endedJune 30, 2022 , income tax benefit totaled$407 million and the effective tax rate was 23.1%. For the three months endedJune 30, 2021 , income tax benefit totaled$115 million and the effective tax rate was 143.8%. See Note 6 to the Financial Statements for reconciliation of the effective rates to theU.S. federal statutory rate. 57
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Six Months Ended June 30, 2022
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues
$ 4,713 Fuel, purchased power costs and delivery fees 248 (1,223) (1,541) (124) (196) (221) (1,384)
(4,441)
Operating costs (68) (409) (130) (23) (142) (78) (1) (851) Depreciation and amortization (72) (269) (358) (31) (37) (23) (34) (824) Selling, general and administrative expenses (383) (65) (33) (10) (20) (19) (39) (569) Operating income (loss) 3,342 (3,684) (788) (37) (618) (113) (74) (1,972) Other income - 64 - - - 8 5 77 Other deductions (11) (1) - - - (1) - (13) Interest expense and related charges (5) 11 (3) 1 (1) (1) (118) (116) Impacts of Tax Receivable Agreement - - - - - - (115) (115) Income (loss) before income taxes 3,326 (3,610) (791) (36) (619) (107) (302) (2,139) Income tax benefit - - - - - - 498 498 Net income (loss)$ 3,326 $ (3,610) $ (791)
$ (36) $ (619) $ (107) $ 196$ (1,641) Six Months Ended June 30, 2021 Asset Eliminations / Vistra Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues
$ 81 $ 249 $ (19) $ (53)$ 5,772 Fuel, purchased power costs and delivery fees (1,250) (3,651) (773) (86) (299) (59) 53
(6,065)
Operating costs (60) (364) (123) (17) (129) (108) - (801) Depreciation and amortization (107) (283) (389) (15) (51) (8) (34) (887) Selling, general and administrative expenses (347) (40) (37) (15) (16) (26) (21) (502) Impairment of long-lived assets - - - - - (38) - (38) Operating income (loss) 1,905 (3,723) (92) (52) (246) (258) (55) (2,521) Other income 1 64 - - 4 19 4 92 Other deductions (4) (4) - - 1 - - (7) Interest expense and related charges (4) 7 (7) 8 - - (168) (164) Impacts of Tax Receivable Agreement - - - - - - (4) (4) Income (loss) before income taxes 1,898 (3,656) (99) (44) (241) (239) (223) (2,604) Income tax benefit - - - - - - 600 600 Net income (loss)$ 1,898 $ (3,656) $ (99)
$ (44) $ (241) $ (239) $ 377$ (2,004) 58
-------------------------------------------------------------------------------- Table of Contents Operating loss decreased$549 million to$1.972 billion in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The change in results is driven by the$2.9 billion realized loss associated with Winter Storm Uri in the first quarter of 2021. Partially offsetting the Winter Storm Uri impact, results were unfavorably impacted by a$2.165 billion increase in pre-tax unrealized mark-to-market losses on derivative positions. Power and natural gas forward market curves moved up during the six months endedJune 30, 2022 driving pre-tax unrealized mark-to-market losses on commodity hedging transactions. Additionally, a pre-tax net unrealized loss of$414 million was recorded due to the discontinuance of NPNS accounting as ofJune 30, 2022 on a retail electric contract portfolio where physical settlement is no longer considered probable throughout the contract term as we opportunistically monetized certain positions. We believe the increase in forward power and natural gas prices has positioned us to significantly benefit operating results in 2023 and beyond. Interest expense and related charges decreased$48 million to$116 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 driven by unrealized mark-to-market gains on interest rate swaps of$171 million in 2022 compared to$79 million in 2021 which is due to a more significant rise in interest rates in the six months endedJune 30, 2022 , partially offset by an increase in interest paid/accrued of$43 million driven by higher average borrowings in 2022. See Note 17 to the Financial Statements.
For the six months ended
For the six months endedJune 30, 2022 , income tax benefit totaled$498 million and the effective tax rate was 23.3%. For the six months endedJune 30, 2021 , income tax benefit totaled$600 million , and the effective tax rate was 23.0%. See Note 6 to the Financial Statements for reconciliation of the effective rates to theU.S. federal statutory rate.
Discussion of Adjusted EBITDA
Non-GAAP Measures - In analyzing and planning for our business, we supplement our use of GAAP financial measures with non-GAAP financial measures, including EBITDA and Adjusted EBITDA as performance measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures included in the tables below, may provide a more complete understanding of factors and trends affecting our business. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures and are, by definition, an incomplete understanding ofVistra and must be considered in conjunction with GAAP measures. In addition, non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure. EBITDA and Adjusted EBITDA - We believe EBITDA and Adjusted EBITDA provide meaningful representations of our operating performance. We consider EBITDA as another way to measure financial performance on an ongoing basis. Adjusted EBITDA is meant to reflect the operating performance of our segments for the period presented. We define EBITDA as earnings (loss) before interest expense, income tax expense (benefit) and depreciation and amortization expense. We define Adjusted EBITDA as EBITDA adjusted to exclude (i) gains or losses on the sale or retirement of certain assets, (ii) the impacts of mark-to-market changes on derivatives, (iii) the impact of impairment charges, (iv) certain amounts associated with fresh-start reporting, acquisitions, dispositions, transition costs or restructurings, (v) non-cash compensation expense, (vi) impacts from the Tax Receivable Agreement and (vii) other material nonrecurring or unusual items.
Because EBITDA and Adjusted EBITDA are financial measures that management uses to allocate resources, determine our ability to fund capital expenditures, assess performance against our peers, and evaluate overall financial performance, we believe they provide useful information for investors.
When EBITDA or Adjusted EBITDA is discussed in reference to performance on a consolidated basis, the most directly comparable GAAP financial measure to EBITDA and Adjusted EBITDA is Net income (loss).
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Adjusted EBITDA - Three and Six Months Ended June 30, 2022 Compared to Three and
Six Months Ended June 30, 2021
Three Months Ended Favorable Six Months Ended Favorable
June 30, (Unfavorable) June 30, (Unfavorable)
2022 2021 $ Change 2022 2021 $ Change
Net income (loss) $ (1,357) $ 35 $ (1,392) $ (1,641) $ (2,004) $ 363
Income tax benefit (407) (115) (292) (498) (600) 102
Interest expense and related
charges (a) 109 135 (26) 116 164 (48)
Depreciation and amortization (b) 412 484 (72) 864 927 (63) EBITDA before Adjustments (1,243) 539 (1,782) (1,159) (1,513) 354 Unrealized net loss resulting from commodity hedging transactions (c) 1,987 278 1,709 2,347 182 2,165 Generation plant retirement expenses - 15 (15) 6 15 (9) Fresh start/purchase accounting impacts - (79) 79 - (79)
79
Impacts of Tax Receivable Agreement 34 41 (7) 115 4
111
Non-cash compensation expenses 17 12 5 34 29
5
Transition and merger expenses 3 1 2 20 (13)
33
Impairment of long-lived assets - 38 (38) - 38 (38) Winter Storm Uri impact (d) (62) (35) (27) (116) 900 (1,016) Other, net 1 1 - 31 7 24 Adjusted EBITDA$ 737 $ 811 $ (74)$ 1,278 $ (430) $ 1,708 ____________ (a)Includes unrealized mark-to-market net gains on interest rate swaps of$45 million and unrealized mark-to-market losses on interest rate swaps of$9 million for the three months endedJune 30, 2022 and 2021, respectively, and unrealized mark-to-market net gains on interest rate swaps of$171 million and$79 million for the six months endedJune 30, 2022 and 2021, respectively. (b)Includes nuclear fuel amortization in theTexas segment of$18 million and$20 million for the three months endedJune 30, 2022 and 2021, respectively, and$40 million and$40 million for the six months endedJune 30, 2022 and 2021, respectively. (c)Net pre-tax unrealized mark-to-market losses on commodity and hedging transactions were driven by the increase in power and natural gas forward market curves during the three and six months endedJune 30, 2022 . Additionally, a pre-tax net unrealized loss of$414 million was recorded due to the discontinuance of NPNS accounting as ofJune 30, 2022 on a retail electric contract portfolio where physical settlement is no longer considered probable throughout the contract term as we opportunistically monetized certain positions. (d)For the six months endedJune 30, 2021 , includes the following of the Winter Storm Uri impacts, which we believe are not reflective of our operating performance: the allocation ofERCOT default uplift charges which are expected to be paid over several decades under current protocols, accrual of Koch earn-out amounts that we paid in the second quarter of 2022, future bill credits related to Winter Storm Uri and Winter Storm Uri related legal fees and other costs. The adjustment for future bill credits relates to large commercial and industrial customers that curtailed their usage during Winter Storm Uri and will reverse and impact Adjusted EBITDA in future periods as the credits are applied to customer bills. The Company believes the inclusion of the bill credits as a reduction to Adjusted EBITDA in the years in which such bill credits are applied more accurately reflects its operating performance. Accordingly, for the three and six months endedJune 30, 2022 and the three months endedJune 30, 2021 , includes reductions to Adjusted EBITDA attributable to bill credit applications of$53 million ,$66 million and$50 million , respectively. Also includes a reduction to Adjusted EBITDA related to a reduction in the allocation ofERCOT default uplift charges of$12 million and$56 million for the three and six months endedJune 30, 2022 , respectively, attributable toERCOT receiving payments that reduced the market wide default balance. 60
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Three Months Ended June 30, 2022
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Net income (loss) $ 898 $ (1,638) $ (662) $ 25 $ (168) $ (45) $ 233 $ (1,357)
Income tax benefit - - - - - - (407) (407)
Interest expense and related
charges (a) 4 (6) 1 (1) - 1 110 109
Depreciation and amortization
(b) 36 164 179 (11) 18 9 17 412
EBITDA before Adjustments 938 (1,480) (482) 13 (150) (35) (47) (1,243)
Unrealized net (gain) loss
resulting from hedging
transactions (500) 1,665 645 28 140 9 - 1,987
Generation plant retirement
expenses - - - - 1 (1) - -
Impacts of Tax Receivable
Agreement - - - - - - 34 34
Non-cash compensation expenses - - - - - - 17 17
Transition and merger expenses 3 - - - - - - 3
Winter Storm Uri impacts (c) (52) (10) - - - - - (62)
Other, net 14 6 1 (1) (7) 3 (15) 1
Adjusted EBITDA $ 403 $ 181 $ 164 $ 40 $ (16) $ (24) $ (11) $ 737
____________
(a)Includes $45 million of unrealized mark-to-market net gains on interest rate
swaps.
(b)Includes nuclear fuel amortization of $18 million in Texas segment.
(c)Includes the application of future bill credits to large commercial and
industrial customers that curtailed their usage during Winter Storm Uri and a
reduction in the allocation of ERCOT default uplift charges which are expected
to be paid over several decades under current protocols.
Three Months Ended June 30, 2021
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other ConsolidatedNet income (loss)$ 1,810 $ (1,138) $ (100) $ (13) $ (246) $ (192) $ (86) $ 35 Income tax benefit - - - (115) (115) Interest expense and related charges (a) 2 (4) 5 (5) - - 137 135 Depreciation and amortization (b) 54 179 193 10 26 4 18 484 EBITDA before Adjustments 1,866 (963) 98 (8) (220) (188) (46) 539 Unrealized net (gain) loss resulting from hedging transactions (1,318) 1,093 133 27 248 95 - 278 Generation plant retirement expenses - - - - (1) 15 1 15 Fresh start/purchase accounting impacts 2 (1) (73) - (4) (3) - (79) Impacts of Tax Receivable Agreement - - - - - - 41 41 Non-cash compensation expenses - - - - - - 12 12 Transition and merger expenses 3 - - - - - (2) 1 Impairment of long-lived assets - - - - - 38 - 38 Winter Storm Uri impacts (c) (47) 12 - - - - - (35) Other, net 4 3 2 2 2 - (12) 1 Adjusted EBITDA$ 510 $ 144 $ 160 $ 21 $ 25 $ (43) $ (6) $ 811 ____________ (a)Includes$9 million of unrealized mark-to-market net losses on interest rate swaps. (b)Includes nuclear fuel amortization of$20 million inTexas segment. 61 -------------------------------------------------------------------------------- Table of Contents (c)Includes the following of the Winter Storm Uri impacts, which we believe are not reflective of our operating performance: future bill credits related to Winter Storm Uri, partially offset by the allocation of additionalERCOT default uplift charges, which are expected to be paid over several decades under current protocols, and Winter Storm Uri related legal fees and other costs. The adjustment for future bill credits relates to large commercial and industrial customers that curtailed their usage during Winter Storm Uri and will reverse and impact Adjusted EBITDA in future periods as the credits are applied to customer bills. The Company believes the inclusion of the bill credits as a reduction to Adjusted EBITDA in the years in which such bill credits are applied more accurately reflects its operating performance. Six Months Ended June 30, 2022 Asset Eliminations / Vistra Retail Texas East West Sunset Closure Corporate and Other Consolidated Net income (loss)$ 3,326 $ (3,610) $ (791) $ (36) $ (619) $ (107) $ 196$ (1,641) Income tax benefit - - - - - - (498) (498) Interest expense and related charges (a) 5 (11) 3 (1) 1 1 118 116 Depreciation and amortization (b) 72 309 358 31 37 23 34 864 EBITDA before Adjustments 3,403 (3,312) (430) (6) (581) (83) (150) (1,159) Unrealized net (gain) loss resulting from hedging transactions (2,805) 3,696 738 71 605 42 - 2,347 Generation plant retirement expenses - - - - 5 1 - 6 Impacts of Tax Receivable Agreement - - - - - - 115 115 Non-cash compensation expenses - - - - - - 34 34 Transition and merger expenses 9 - 1 - - - 10 20 Winter Storm Uri impacts (c) (64) (52) - - - - - (116) Other, net 23 19 3 1 4 10 (29) 31 Adjusted EBITDA$ 566 $ 351 $ 312 $ 66 $ 33 $ (30) $ (20)$ 1,278 ____________ (a)Includes$171 million of unrealized mark-to-market net gains on interest rate swaps. (b)Includes nuclear fuel amortization of$40 million inTexas segment. (c)Includes the application of bill credits to large commercial and industrial customers that curtailed their usage during Winter Storm Uri and a reduction in the allocation ofERCOT default uplift charges which are expected to be paid over several decades under current protocols. We estimate bill credit amounts to be applied in future periods are for the remainder of 2022 (approximately$82 million ), 2023 (approximately$44 million ), 2024 (approximately$39 million ) and 2025 (approximately$1 million ). 62
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Six Months Ended June 30, 2021
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Net income (loss) $ 1,898 $ (3,656) $ (99) $ (44) $ (241) $ (239) $ 377 $ (2,004)
Income tax benefit - - - - - - (600) (600)
Interest expense and related
charges (a) 4 (7) 7 (8) - - 168 164
Depreciation and amortization (b) 107 323 389 15 51 8 34 927
EBITDA before Adjustments 2,009 (3,340) 297 (37) (190) (231) (21) (1,513)
Unrealized net (gain) loss
resulting from hedging
transactions (2,101) 1,615 153 80 315 120 - 182
Generation plant retirement
expenses - - - - - 15 - 15
Fresh start/purchase accounting
impacts 3 (2) (74) - (3) (3) - (79)
Impacts of Tax Receivable
Agreement - - - - - - 4 4
Non-cash compensation expenses - - - - - - 29 29
Transition and merger expenses 3 - - - - (15) (1) (13)
Impairment of long-lived assets - - - - - 38 - 38
Winter Storm Uri impacts (c) 384 514 - - 1 - 1 900
Other, net 12 5 4 2 4 - (20) 7
Adjusted EBITDA $ 310 $ (1,208) $ 380 $ 45 $ 127 $ (76) $ (8) $ (430)
____________
(a)Includes $79 million of unrealized mark-to-market net gains on interest rate
swaps.
(b)Includes nuclear fuel amortization of $40 million in Texas segment.
(c)Includes the following of the Winter Storm Uri impacts, which we believe are
not reflective of our operating performance: the allocation of ERCOT default
uplift charges which are expected to be paid over several decades under current
protocols, accrual of Koch earn-out amounts that we paid in the second quarter
of 2022, future bill credits related to Winter Storm Uri and Winter Storm Uri
related legal fees and other costs. The adjustment for future bill credits
relates to large commercial and industrial customers that curtailed their usage
during Winter Storm Uri and will reverse and impact Adjusted EBITDA in future
periods as the credits are applied to customer bills. The Company believes the
inclusion of the bill credits as a reduction to Adjusted EBITDA in the years in
which such bill credits are applied more accurately reflects its operating
performance.
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Retail Segment - Three and Six Months Ended June 30, 2022 Compared to Three and
Six Months Ended June 30, 2021
Three Months Ended Favorable Six Months Ended Favorable
June 30, (Unfavorable) June 30, (Unfavorable)
2022 2021 Change 2022 2021 Change
Operating revenues:
Revenues in ERCOT $ 1,913 $ 1,434 $ 479 $ 3,465 $ 2,604 $ 861
Revenues in Northeast/Midwest 547 504 43 1,190 1,091 99
Amortization expense (1) (2) 1 (1) (3) 2
Unrealized net losses on hedging
activities (a) (667) (17) (650) (1,037) (23) (1,014)
Total operating revenues 1,792 1,919 (127) 3,617 3,669 (52)
Fuel, purchased power costs and
delivery fees:
Purchases from affiliates (1,183) (726) (457) (2,453) (2,177) (276)
Unrealized net gains on hedging
activities with affiliates (b) 1,166 1,336 (170) 3,838 2,126 1,712
Unrealized net gains (losses) on
hedging activities 1 - 1 4 (3) 7
Delivery fees (563) (436) (127) (1,074) (877) (197)
Other costs (c) (37) (24) (13) (67) (319) 252
Total fuel, purchased power costs
and delivery fees (616) 150 (766) 248 (1,250) 1,498
Net income $ 898 $ 1,810 $ (912) $ 3,326 $ 1,898 $ 1,428
Adjusted EBITDA $ 403 $ 510 $ (107) $ 566 $ 310 $ 256
Retail sales volumes (GWh):
Retail electricity sales volumes:
Sales volumes in ERCOT 16,823 13,636 3,187 31,036 26,483 4,553
Sales volumes in Northeast/Midwest 8,326 8,474 (148) 17,432 17,524 (92)
Total retail electricity sales
volumes 25,149 22,110 3,039 48,468 44,007 4,461
Weather (North Texas average) -
percent of normal (d):
Cooling degree days 139.8 % 80.6 % 136.2 % 79.3 %
Heating degree days 27.7 % 127.1 % 111.2 % 117.1 %
____________
(a)For both the three and six months ended June 30, 2022 , Retail segment
includes unrealized net losses of $414 million due to the discontinuance of NPNS
accounting on a retail electric contract portfolio where physical settlement is
no longer considered probable throughout the contract term as we
opportunistically monetized certain positions.
(b)Includes unrealized net gains from mark-to-market valuations of commodity
positions with the Texas , East and Sunset segments.
(c)For the six months ended June 30, 2021 , includes $162 million of future bill
credits to large commercial and industrial customers.
(d)Weather data is obtained from Weatherbank, Inc. For the three and six months
ended June 30, 2022 , normal is defined as the average over the 10-year period
from June 2012 to June 2021 . For the three and six months ended June 30, 2021 ,
normal is defined as the average over the 10-year period from June 2011 to June
2020 .
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The following table presents changes in net income and Adjusted EBITDA for the
three and six months ended June 30, 2022 compared to the three and six months
ended June 30, 2021 .
Three Months Ended Six Months Ended
June 30, 2022 June 30, 2022
Compared to 2021 Compared to 2021
Winter Storm Uri, including bill credits $ (16) $ 498
Higher/(lower) seasonal commodity costs 3 (111)
Lower margins reflecting self-help gains in 2021 partially offset by favorable weather in 2022
(65) (89)
Other driven by higher bad debt expense and revenue-based taxes due to higher revenues in 2022
(29) (42)
Change in Adjusted EBITDA $ (107) $ 256
Favorable/(unfavorable) impact of unrealized net gains on hedging activities
(818) 704
Future bill credits and other costs related to Winter Storm Uri 5 448
Decrease in depreciation and amortization expenses 18 35
Change in transition and merger and other expenses (10) (15)
Change in net income $ (912) $ 1,428
65-------------------------------------------------------------------------------- Table of Contents Generation - Three Months EndedJune 30, 2022 Compared to Three Months EndedJune 30, 2021
Three Months Ended
Texas East West Sunset
2022 2021 2022 2021 2022 2021 2022 2021
Operating revenues:
Electricity sales $ 369 $ 340 $ 573 $ 241 $ 111 $ 82 $ 59 $ 140
Capacity revenue from
ISO/RTO - - (4) 2 - - 25 32
Sales to affiliates 660 308 397 337 1 - 125 82
Rolloff of unrealized net
gains (losses) representing
positions settled in the
current period (63) (129) (105) (23) 2 (6) 37 3
Unrealized net losses on
hedging activities (671) (35) (393) 138 (37) (29) (228) (141)
Unrealized net gains
(losses) on hedging
activities with affiliates (918) (952) (151) (263) 2 - (99) (121)
Other revenues - - 2 73 - 1 (2) (2)
Operating revenues (623) (468) 319 505 79 48 (83) (7)
Fuel, purchased power costs
and delivery fees:
Fuel for generation
facilities and purchased
power costs (582) (310) (709) (326) (55) (44) (132) (148)
Fuel for generation facilities and purchased power costs from affiliates (3) (1) 1 - - - 2 - Unrealized gains (losses) from hedging activities (11) 23 4 15 5 8 148 11 Unrealized net gains (losses) on hedging activities with affiliates (2) - - - - - 2 - Ancillary and other costs (99) (45) (9) (8) (1) (2) (3)
(2)
Fuel, purchased power costs and delivery fees (697) (333) (713) (319) (51) (38) 17 (139) Net loss$ (1,638) $ (1,138) $ (662) $ (100) $ 25 $ (13) $ (168) $ (246) Adjusted EBITDA$ 181 $ 144 $ 164 $ 160 $ 40 $ 21 $ (16) $ 25 Production volumes (GWh): Natural gas facilities 7,749 6,698 11,418 12,143 869 1,101 Lignite and coal facilities 5,363 5,580 5,219 6,540 Nuclear facilities 4,137 4,879 Solar facilities 263 126 Capacity factors: CCGT facilities 43.7 % 37.9 % 48.0 % 49.9 % 37.7 % 49.4 % Lignite and coal facilities 63.8 % 66.4 % 46.3 % 58.0 % Nuclear facilities 82.3 % 97.1 % Weather - percent of normal (a): Cooling degree days 129.6 % 88.5 % 96.2 % 126.5 % 101.7 % 101.7 % 126.0 % 119.0 % Heating degree days 17.6 % 148.6 % 95.0 % 94.1 % 127.5 % 96.9 % 96.9 % 95.4 % ____________
(a)Reflects cooling degree days or heating degree days for the region based on
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Three Months Ended Three Months Ended
June 30, June 30,
2022 2021 2022 2021
Average Market On-Peak Power
Market pricing Prices ($MWh) (b):
Average ERCOT North power PJM West Hub $ 93.27 $ 33.71
price ($/MWh) $ 63.08 $ 35.91 AEP Dayton Hub $ 94.06 $ 35.35
Average NYMEX Henry Hub NYISO Zone C $ 50.24 $ 22.43
natural gas price ($/MMBtu) $ 7.40 $ 2.88 Massachusetts Hub $ 73.29 $ 33.85
Average natural gas price (a): Indiana Hub $ 95.15 $ 35.32
TetcoM3 ($/MMBtu) $ 6.78 $ 2.32 Northern Illinois Hub $ 84.99 $ 32.07
Algonquin Citygates ($/MMBtu) $ 7.19 $ 2.49 CAISO NP15 $ 69.55 $ 42.76 ___________
(a) Reflects the average of daily quoted prices for the periods presented and does not reflect costs incurred by us. (b)Reflects the average of day-ahead quoted prices for the periods presented and does not necessarily reflect prices we realized.
The following table presents changes in net income (loss) and Adjusted EBITDA
for the three months ended
Three
Months Ended
Texas East West Sunset
Favorable/(unfavorable) change in revenue net of fuel
47 - - -
Unfavorable change in other operating costs (25) (4) (1) (18)
Favorable/(unfavorable) change in selling, general and
administrative expenses (4) 4 1 -
Other 32 - - 7
Change in Adjusted EBITDA $ 37 $ 4 $ 19 $ (41)
Favorable change in depreciation and amortization 15 14 21 8
Change in unrealized net losses on hedging activities (572)
(512) (1) 108
Generation plant retirement, transition and merger expenses
- - - (2)
Fresh start/purchase accounting impacts (1) (73) - (4)
Winter Storm Uri impact (
22 - - -
Other (including interest and COVID-19 related expenses) (1)
5 (1) 9
Change in Net income (loss) $ (500) The change inTexas and East segment results was primarily driven by higher unrealized hedging losses in the three months endedJune 30, 2022 versus the three endedJune 30, 2021 due to material increases in forward power prices in 2022. The increase in operating costs are due to summer readiness expenses and inflationary pressures in the three months endedJune 30, 2022 . The change in West segment results was driven by higher realized energy margins in CAISO in the three months endedJune 30, 2022 versus the three months endedJune 30, 2021 . The change in Sunset segment results was driven by lower unrealized hedging losses in the three months endedJune 30, 2022 versus the three months endedJune 30, 2021 due to unrealized gains on forward lignite and coal purchases as forward prices increased in the three months endedJune 30, 2022 , partially offset by a favorable change in revenue net of fuel. 67
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Generation - Six Months Ended
Six Months Ended
Texas East West Sunset
2022 2021 2022 2021 2022 2021 2022 2021
Operating revenues:
Electricity sales $ 603 $ 1,040 $ 1,218 $ 575 $ 227 $ 167 $ 211 $ 345 Capacity revenue from ISO/RTO - - (10) (2) - - 63 61 Sales to affiliates 1,304 1,232 914 765 3 2 232 181 Rolloff of unrealized net gains (losses) representing positions settled in the current period 188 (154) (69) 32 (2) (11) 86 (25) Unrealized net gains (losses) on hedging activities (885) 122 (120) 132 (80) (77) (558) (151) Unrealized net gains (losses) on hedging activities with affiliates (2,928) (1,625) (660) (347) 3 - (253) (154) Other revenues - - 1 75 - - (4) (8) Operating revenues (1,718) 615 1,274 1,230 151 81 (223) 249 Fuel, purchased power costs and delivery fees: Fuel for generation facilities and purchased power costs (993) (1,982) (1,638) (785) (129) (92) (311)
(310)
Fuel for generation facilities and purchased power costs from affiliates (3) (1) 1 - - - 1
(1)
Unrealized (gains) losses from hedging activities (66) 42 110 30 8 8 116
16
Unrealized (gains) losses from hedging activities with affiliates (5) - 1 - - - 4
-
Ancillary and other costs (156) (1,710) (15) (18) (3) (2) (6)
(4)
Fuel, purchased power costs and delivery fees (1,223) (3,651) (1,541) (773) (124) (86) (196) (299) Net loss$ (3,610) $ (3,656) $ (791) $ (99) $ (36) $ (44) $ (619) $ (241) Adjusted EBITDA$ 351 $ (1,208) $ 312 $ 380 $ 66 $ 45 $ 33 $ 127 Production volumes (GWh): Natural gas facilities 13,650 13,545 25,754 26,021 2,065 2,363 Lignite and coal facilities 11,733 11,472 11,868 13,576 Nuclear facilities 9,360 10,089 Solar facilities 429 222 Capacity factors: CCGT facilities 38.9 % 38.2 % 54.7 % 54.7 % 45.8 % 53.3 % Lignite and coal facilities 70.2 % 68.6 % 52.9 % 60.5 % Nuclear facilities 93.7 % 101.0 % Weather - percent of normal (a): Cooling degree days 122.9 % 85.8 % 96.0 % 126.3 % 100.9 % 99.0 % 126.0 % 119.0 % Heating degree days 128.1 % 122.9 % 99.4 % 96.0 % 98.1 % 108.2 % 103.7 % 94.8 % ____________
(a)Reflects cooling degree days or heating degree days for the region based on
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Six Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Average Market On-Peak Power
Market pricing Prices ($MWh) (b):
Average ERCOT North power PJM West Hub $ 75.68 $ 34.20
price
($/MWh) $ 50.07 $ 262.05 AEP Dayton Hub $ 72.45 $ 35.04
Average NYMEX Henry Hub NYISO Zone C $ 61.32 $ 25.88
natural gas price ($/MMBtu)
$ 94.11 $ 44.07 Average natural gas price (a): Indiana Hub$ 75.53 $ 40.16 TetcoM3 ($/MMBtu)$ 6.75 $ 2.79 Northern Illinois Hub$ 64.72 $ 32.52 Algonquin Citygates ($/MMBtu)$ 10.41 $ 3.97 CAISO NP15$ 60.06 $ 43.76 ___________ (a) Reflects the average of daily quoted prices for the periods presented and does not reflect costs incurred by us. (b)Reflects the average of day-ahead quoted prices for the periods presented and does not necessarily reflect prices we realized. The following table presents changes in net income (loss) and Adjusted EBITDA for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Six Months
Ended
Texas East West Sunset
Favorable/(unfavorable) change in revenue net of fuel
1,548 (50) - (17)
Unfavorable change in other operating costs (52) (8) (6) (25)
Favorable/(unfavorable) change in selling, general and
administrative expenses (14) 5 3 (4)
Other (2) 2 - 9
Change in Adjusted EBITDA $ 1,559
14 31 (16) 14
Change in unrealized net losses on hedging activities (2,081)
(585) 9 (290)
Generation plant retirement expenses - - - (5)
Fresh start/purchase accounting impacts (2) (74) - (3)
Winter Storm Uri impact (
566 - - 1
Other (including interest and COVID-19 related expenses) (10)
4 (6) (1)
Change in Net income (loss) $ 46 The change inTexas segment results was primarily driven by the Winter Storm Uri impacts in 2021, partially offset by higher unrealized hedging losses in the six months endedJune 30, 2022 versus the six months endedJune 30, 2021 due to increases in forward power prices. The increase in operating costs are due to summer readiness expenses and inflationary pressures in the six months endedJune 30, 2022 .
The change in East segment results was driven by higher unrealized hedging
losses in the six months ended
The change in West segment results was driven by higher depreciation and amortization in the six months endedJune 30, 2022 versus the six months endedJune 30, 2021 reflecting battery ESS projects placed in service during summer 2021 (see Note 2 to the Financial Statements), partially offset by a favorable change in revenue net of fuel driven by higher realized energy margins. 69 -------------------------------------------------------------------------------- Table of Contents The change in Sunset segment results was driven by higher unrealized hedging losses in the six months endedJune 30, 2022 versus the six months endedJune 30, 2021 due to increases in forward power prices and an unfavorable change in revenue net of fuel.
Asset Closure Segment - Three and Six Months Ended
Three Months Ended Favorable Six Months Ended Favorable
June 30, (Unfavorable) June 30, (Unfavorable)
2022 2021 Change 2022 2021 Change
Operating revenues $ 121 $ (41) $ 162 $ 228 $ (19) $ 247
Fuel, purchased power costs and
delivery fees (119) (32) (87) (221) (59) (162)
Operating costs $ (34) $ (68) $ 34 $ (78) $ (108) $ 30
Depreciation and amortization (9) (4) (5) (23) (8) (15)
Selling, general and
administrative expenses (9) (11) 2 (19) (26) 7
Impairment of long-lived assets - (38) 38 - (38) 38
Operating loss (50) (194) 144 (113) (258) 145
Other income 6 2 4 8 19 (11)
Other deductions - - - (1) - (1)
Interest expense and related
charges (1) - (1) (1) - (1)
Loss before income taxes (45) (192) 147 (107) (239) 132
Net loss $ (45) $ (192) $ 147 $ (107) $ (239) $ 132
Adjusted EBITDA $ (24) $ (43) $ 19 $ (30) $ (76) $ 46
Production volumes (GWh) 2,660 2,055 605 5,859 3,552 2,307
Results and volumes for the Asset Closure segment include those from the Zimmer
and Joppa generation plants that we retired in May 2022 and plan to retire in
September 2022 , respectively. Operating costs for the three and six months ended
June 30, 2022 and 2021 also include ongoing costs associated with the
decommissioning and reclamation of retired plants and mines. The change in Asset
Closure segment results for both the three and six months ended June 30, 2022 is
primarily due to severance and impairment expense recorded in the three months
ended June 30, 2021 , in connection with plant closure announcements (see Note 3
to the Financial Statements).
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Energy-Related Commodity Contracts and Mark-to-Market Activities
The table below summarizes the changes in commodity contract assets and
liabilities for the six months ended June 30, 2022 and 2021. The net change in
these assets and liabilities, excluding "other activity" as described below,
reflects $2.347 billion and $182 million in unrealized net losses, respectively,
for the six months ended June 30, 2022 and 2021, respectively, arising from
mark-to-market accounting for positions in the commodity contract portfolio.
Six Months Ended
2022 2021
Commodity contract net liability at beginning of period $ (866) $ (75)
Settlements/termination of positions (a) 319 (199)
Changes in fair value of positions in the portfolio (b) (2,666) 17
Other activity (c) 37 (52)
Commodity contract net liability at end of period $
(3,176)
____________
(a)Represents reversals of previously recognized unrealized gains and losses upon settlement/termination (offsets realized gains and losses recognized in the settlement period). Excludes changes in fair value in the month the position settled as well as amounts related to positions entered into, and settled, in the same month. (b)Represents unrealized net gains (losses) recognized, reflecting the effect of changes in fair value. Excludes changes in fair value in the month the position settled as well as amounts related to positions entered into, and settled, in the same month. (c)Represents changes in fair value of positions due to receipt or payment of cash not reflected in unrealized gains or losses. Amounts are generally related to premiums related to options purchased or sold as well as certain margin deposits classified as settlement for certain transactions executed on the CME.
Maturity Table - The following table presents the net commodity contract
liability arising from recognition of fair values at
Maturity dates of unrealized
commodity contract net liability at
Less than Excess of
Source of fair value 1 year 1-3 years 4-5 years 5 years Total
Prices actively quoted $ (1,205) $ (469) $ (28) $ - $ (1,702)
Prices provided by other
external sources (357) (103) 1 - (459)
Prices based on models (434) (365) (141) (75) (1,015)
Total $ (1,996) $ (937) $ (168) $ (75) $ (3,176)
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Table of Contents FINANCIAL CONDITION Operating Cash Flows Cash used in operating activities totaled$723 million for the six months endedJune 30, 2022 compared to cash used in operating activities of$1.057 billion for the six months endedJune 30, 2021 . The favorable change of$334 million was primarily driven by lower cash from operations in 2021 due to Winter Storm Uri impacts and$544 million of securitization proceeds fromERCOT in 2022 (see Note 1 to the Financial Statements), partially offset by$1.653 billion in higher margin deposits in 2022 related to commodity contracts which support our comprehensive hedging strategy. Depreciation and amortization expense reported as a reconciling adjustment in the condensed consolidated statements of cash flows exceeds the amount reported in the condensed consolidated statements of operations by$230 million and$82 million for the six months endedJune 30, 2022 and 2021, respectively. The difference represented amortization of nuclear fuel, which is reported as fuel costs in the condensed consolidated statements of operations consistent with industry practice, and amortization of intangible net assets and liabilities that are reported in various other condensed consolidated statements of operations line items including operating revenues and fuel and purchased power costs and delivery fees. Investing Cash Flows Cash used in investing activities totaled$609 million and$575 million for the six months endedJune 30, 2022 and 2021, respectively. Capital expenditures totaled$613 million and$546 million for the six months endedJune 30, 2022 and 2021, respectively, and consisted of the following:
Six Months Ended
2022 2021
Capital expenditures, including LTSA prepayments $ 293 $ 273
Nuclear fuel purchases $ 117 $ 15
Growth and development expenditures $ 203 $ 258
Capital expenditures $ 613 $ 546
Cash used in investing activities for the six months ended June 30, 2022 and
2021 also reflected net sales of environmental allowances of $8 million and net
purchases of environmental allowances of $109 million , respectively. In the six
months ended June 30, 2022 and 2021, we received insurance proceeds for
reimbursement of capital expenditures of $1 million and $63 million ,
respectively.
Financing Cash Flows
Cash provided by financing activities totaled$1.880 billion and$1.671 billion for the six months endedJune 30, 2022 and 2021, respectively. The change was primarily driven by: •the issuance of$1.498 billion principal amount ofVistra Operations senior secured notes inMay 2022 ; •net borrowings of$1.050 billion under the Commodity-Linked Facility in 2022; and •net borrowings of$725 million under the accounts receivable financing facilities in 2022 compared to net borrowings of$361 million in 2021.
These increases in cash provided by financing activities are partially offset by:
•the issuance of$1.250 billion principal amount ofVistra Operations senior unsecured notes inMay 2021 ; •$1.194 billion in cash paid for share repurchases in 2022, including$114 million of unsettled share repurchases accrued as ofDecember 31, 2021 and excluding$7 million of unsettled share repurchases accrued as ofJune 30, 2022 , compared to$175 million in cash paid in 2021; •$500 million in cash received from the sale of a portion of the PJM capacity that cleared for Planning Years 2021-2022 in 2021; and •dividends of$76 million paid to preferred stockholders in 2022. 72 -------------------------------------------------------------------------------- Table of Contents Debt Activity The maturities of our long-term debt are relatively modest until 2024. See Note 9 to the Financial Statements for details of the Receivables Facility and Repurchase Facility and Note 10 to the Financial Statements for details of the Vistra Operations Credit Facilities and other long-term debt.
Available Liquidity
The following table summarizes changes in available liquidity for the six months endedJune 30, 2022 : December 31, June 30, 2022 2021 Change Cash and cash equivalents$ 1,871 $ 1,325 $ 546 Vistra Operations Credit Facilities - Revolving Credit Facility 368 1,254 (886) Vistra Operations - Commodity-Linked Facility (a) 1,200 - 1,200 Total available liquidity (b)$ 3,439
____________
(a)Assumes the borrowing base equals the aggregate commitments of$2.25 billion . (b)Excludes amounts available to be borrowed under the Receivables Facility and the Repurchase Facility, respectively. See Note 9 to the Financial Statements for detail on our accounts receivable financing. The$860 million increase in available liquidity for the six months endedJune 30, 2022 was primarily driven by$1.498 billion principal amount ofVistra Operations senior secured notes issued,$1.05 billion in net borrowings under the new Commodity-Linked Facility and$725 million in net cash borrowings under the accounts receivable financing facilities, partially offset by cash used in operations, including the change in margin deposits related to commodity contracts,$1.194 billion in cash paid for share repurchases,$613 million of capital expenditures (including LTSA prepayments, nuclear fuel and development and growth expenditures), a$911 million increase in letters of credit outstanding under the Revolving Credit Facility,$152 million in dividends paid to common stockholders and$76 million in dividends paid to preferred stockholders.
We believe that we will have access to sufficient liquidity to fund our anticipated cash requirements through at least the next 12 months. Our operational cash flows tend to be seasonal and weighted toward the second half of the year.
Higher commodity market prices combined with our comprehensive hedging strategy have resulted in significantly increased collateral posting obligations during the first six months of 2022. The majority of this collateral relates to hedges in place through 2023 and is expected to be returned as we satisfy our obligations under those contracts. As ofAugust 3, 2022 ,Vistra had approximately$4.5 billion of cash and availability under its credit facilities to meet its liquidity needs. The Company believes it has additional alternatives to maintain access to liquidity, including drawing upon available liquidity, accessing additional sources of capital, or reducing capital expenditures, planned voluntary debt repayments or operating costs.
Liquidity Effects of Commodity Hedging and Trading Activities
We have entered into commodity hedging and trading transactions that require us
to post collateral if the forward price of the underlying commodity moves such
that the hedging or trading instrument we hold has declined in value. We use
cash, letters of credit and other forms of credit support to satisfy such
collateral posting obligations. See Note 10 to the Financial Statements for
discussion of the Vistra Operations Credit Facilities and the Commodity-Linked
Facility.
Exchange cleared transactions typically require initial margin (i.e., the
upfront cash and/or letter of credit posted to take into account the size and
maturity of the positions and credit quality) in addition to variation margin
(i.e., the daily cash margin posted to take into account changes in the value of
the underlying commodity). The amount of initial margin required is generally
defined by exchange rules. Clearing agents, however, typically have the right to
request additional initial margin based on various factors, including market
depth, volatility and credit quality, which may be in the form of cash, letters
of credit, a guaranty or other forms as negotiated with the clearing agent. Cash
collateral received from counterparties is either used for working capital and
other business purposes, including reducing borrowings under credit facilities,
or is required to be deposited in a separate account and restricted from being
used for working capital and other corporate purposes. With respect to
over-the-counter transactions, counterparties generally have the right to
substitute letters of credit for such cash collateral. In such event, the cash
collateral previously posted would be returned to such counterparties, which
would reduce liquidity in the event the cash was not restricted.
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At June 30, 2022 , we received or posted cash and letters of credit for commodity
hedging and trading activities as follows:
•$3.160 billion in cash has been posted with counterparties as compared to
$1.263 billion posted at December 31, 2021 ;
•$43 million in cash has been received from counterparties as compared to $39
million received at December 31, 2021 ;
•$2.565 billion in letters of credit have been posted with counterparties as
compared to $1.558 billion posted at December 31, 2021 ; and
•$49 million in letters of credit have been received from counterparties as
compared to $35 million received at December 31, 2021 .
See Collateral Support Obligations below for information related to collateral posted in accordance with the PUCT and ISO/RTO rules.
Income Tax Payments
In the next 12 months, we do not expect to make federal income tax payments due toVistra's NOL carryforwards. We expect to make approximately$45 million in state income tax payments, offset by$5 million in state tax refunds, and$1 million in TRA payments in the next 12 months.
For the six months ended
Financial Covenants
The Vistra Operations Credit Agreement includes a covenant, solely with respect to the Revolving Credit Facility and solely during a compliance period (which, in general, is applicable when the aggregate revolving borrowings and issued revolving letters of credit (in excess of$300 million ) exceed 30% of the revolving commitments), that requires the consolidated first-lien net leverage ratio not exceed 4.25 to 1.00 (or, during a collateral suspension period, a total net leverage ratio not to exceed 5.50 million to 1.00). As ofJune 30, 2022 , we were in compliance with this financial covenant.
See Note 10 to the Financial Statements for discussion of other covenants related to the Vistra Operations Credit Facilities.
Collateral Support Obligations
The RCT has rules in place to assure that parties can meet their mining reclamation obligations. InSeptember 2016 , the RCT agreed to a collateral bond of up to$975 million to support Luminant's reclamation obligations. The collateral bond is effectively a first lien on all ofVistra Operations' assets (which ranks pari passu with the Vistra Operations Credit Facilities) that contractually enables the RCT to be paid (up to$975 million ) before the other first-lien lenders in the event of a liquidation of our assets. Collateral support relates to land mined or being mined and not yet reclaimed as well as land for which permits have been obtained but mining activities have not yet begun and land already reclaimed but not released from regulatory obligations by the RCT, and includes cost contingency amounts. The PUCT has rules in place to assure adequate creditworthiness of each REP, including the ability to return customer deposits, if necessary. Under these rules, atJune 30, 2022 ,Vistra has posted letters of credit in the amount of$74 million with the PUCT, which is subject to adjustments. The ISOs/RTOs we operate in have rules in place to assure adequate creditworthiness of parties that participate in the markets operated by those ISOs/RTOs. Under these rules,Vistra has posted collateral support totaling$574 million in the form of letters of credit,$20 million in the form of a surety bond and$26 million of cash atJune 30, 2022 (which is subject to daily adjustments based on settlement activity with the ISOs/RTOs).
Material Cross Default/Acceleration Provisions
Certain of our contractual arrangements contain provisions that could result in
an event of default if there were a failure under financing arrangements to meet
payment terms or to observe covenants that could result in an acceleration of
payments due. Such provisions are referred to as "cross default" or "cross
acceleration" provisions.
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A default by Vistra Operations or any of its restricted subsidiaries in respect
of certain specified indebtedness in an aggregate amount in excess of $300
million may result in a cross default under the Vistra Operations Credit
Facilities. Such a default would allow the lenders to accelerate the maturity of
outstanding balances under such facilities, which totaled approximately $2.779
billion at June 30, 2022 .
Each of Vistra Operations' (or its subsidiaries') commodity hedging agreements
and interest rate swap agreements that are secured with a lien on its assets on
a pari passu basis with the Vistra Operations Credit Facilities lenders contains
a cross-default provision. An event of a default by Vistra Operations or any of
its subsidiaries relating to indebtedness equal to or above a threshold defined
in the applicable agreement that results in the acceleration of such debt, would
give such counterparty under these hedging agreements the right to terminate its
hedge or interest rate swap agreement with Vistra Operations (or its applicable
subsidiary) and require all outstanding obligations under such agreement to be
settled.
Under the Vistra Operations Senior Unsecured Indentures and the Vistra
Operations Senior Secured Indenture, a default under any document evidencing
indebtedness for borrowed money by Vistra Operations or any Guarantor Subsidiary
for failure to pay principal when due at final maturity or that results in the
acceleration of such indebtedness in an aggregate amount of $300 million or more
may result in a cross default under the Vistra Operations Senior Unsecured
Notes, the Senior Secured Notes, the Vistra Operations Credit Facilities, the
Receivables Facility, the Commodity-Linked Facility and other current or future
documents evidencing any indebtedness for borrowed money by the applicable
borrower or issuer, as the case may be, and the applicable Guarantor
Subsidiaries party thereto.
Additionally, we enter into energy-related physical and financial contracts, the
master forms of which contain provisions whereby an event of default or
acceleration of settlement would occur if we were to default under an obligation
in respect of borrowings in excess of thresholds, which may vary by contract.
The Receivables Facility contains a cross-default provision. The cross-default
provision applies, among other instances, if TXU Energy , Dynegy Energy Services,
Ambit Texas, Value Based Brands and TriEagle, each indirect subsidiaries of
Vistra and originators under the Receivables Facility (Originators), fails to
make a payment of principal or interest on any indebtedness that is outstanding
in a principal amount of at least $300 million , or, in the case of TXU Energy or
any of the other Originators, in a principal amount of at least $50 million ,
after the expiration of any applicable grace period, or if other events occur or
circumstances exist under such indebtedness which give rise to a right of the
debtholder to accelerate such indebtedness, or if such indebtedness becomes due
before its stated maturity. If this cross-default provision is triggered, a
termination event under the Receivables Facility would occur and the Receivables
Facility may be terminated.
The Repurchase Facility contains a cross-default provision. The cross-default
provision applies, among other instances, if an event of default (or similar
event) occurs under the Receivables Facility or the Vistra Operations Credit
Facilities. If this cross-default provision is triggered, a termination event
under the Repurchase Facility would occur and the Repurchase Facility may be
terminated.
Under the Secured LOC Facilities, a default under any document evidencing
indebtedness for borrowed money by Vistra Operations or any Guarantor Subsidiary
for failure to pay principal when due at final maturity or that results in the
acceleration of such indebtedness in an aggregate amount of $300 million or
more, may result in a termination of the Secured LOC Facilities.
Under the Commodity-Linked Facility, a default under any document evidencing
indebtedness for borrowed money by Vistra Operations or any Guarantor Subsidiary
for failure to pay principal when due at final maturity or that results in the
acceleration of such indebtedness in an aggregate amount of $300 million or
more, may result in a termination of the Commodity-Linked Facility.
Guarantees
See Note 11 to the Financial Statements for discussion of guarantees.
COMMITMENTS AND CONTINGENCIES
See Note 11 to the Financial Statements for discussion of commitments and contingencies.
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CHANGES IN ACCOUNTING STANDARDS
See Note 1 to the Financial Statements for discussion of changes in accounting standards.
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