CEO Presentation - s21.q4cdn.com · Vistra Energy Analyst Day Presentation 2018 VISTRA’S...

CEO Presentation

Curt MorganChief Executive Officer

Vistra Energy Analyst Day Presentat ion 2018

Vistra Energy:

Changing the Power Landscape


EVOLUTION OF SECTOR & INVESTOR SENTIMENT

3

LATE 2016 /

EARLY 2017

TODAY

Overall Sector Sentiment Poor

Retail Multiple Low

IPP Model Long Generation Integrated

Leverage High

Costs Mixed Low

ValuationLow Multiples

High FCF Yield

Return of Capital Inconsistent to non-existentPriority, consistent with

leverage and FCF


VISTRA’S EVOLUTION / HISTORY OF EXECUTION

4

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.

MARKETS

GENERATION

COST

STRUCTURE

LEVERAGE

PRE-BK

EMERGENCE

100% ERCOT

67% Coal (2015 TWhs)

High Cost1

(~$20/MWh)

Less Focus

on Retail

High Leverage(>12x net debt / Adj.

EBITDA)

POST-BK

EMERGENCE

100% ERCOT

36% Gas / Renewables(2018E stand-alone TWhs)

Low Cost1

(~$10.80/MWh)

Emphasis on Retail and

Integrated Value

Low Leverage(2x net debt / Adj. EBITDA)

POST

MERGER

84% ERCOT, PJM,

ISO-NE

53% Gas / Renewables(2019E TWhs)

Lowest Cost1

(~$8.60/MWh)

Integrated Platform for Retail

Growth

Balance Sheet

Strength Maintained(2.5x net debt / Adj. EBITDA YE 20192)


VISTRA’S INTEGRATED BUSINESS MODEL

5

Lowest costs through lean

support cost model and OPI to maximize

EBITDA and FCF

2. LOW-COST

OPERATIONS

2.5x net debt/EBITDAtarget by YE 2019;

exhibit discipline toward

growth investments

1. FINANCIAL

DISCIPLINE

Results in higher

integrated margins and greater

stability of earnings

4. LEADING RETAIL

PLATFORM

Highly efficient

gas-fueled fleet with

advantaged coal and

nuclear assets

5. IN-THE-MONEY

FLEET

Manage riskwhile

optimizing valueof portfolio

6. COMMERCIAL

OPTIMIZATION

Improved risk profile via earnings, geographic,

and fuel diversification

3. DIVERSIFICATION

Results in relatively stable EBITDA with substantial conversion to FCF


VISTRA’S STRATEGIC PRIORITIES

6

• Rotate shareholders

• Generate stable EBITDA and FCF

• Exhibit investment discipline

• Return capital

INVESTORS

• Generate ~$9.8 billion in Adj. FCF;

>$6 billion in CAFA thru 2022

• 2.5x net debt/EBITDA by YE 2019

• Optimize cost of debt and maturities

• Maintain strong liquidity

• Minimize taxes

FINANCIAL

• Integrate DYN; capture synergies/OPI

• Retail expansion

• Portfolio assessment & rationalization

• Asset optimization/hedging

BUSINESS OPERATIONS

• 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

MARKETS



CAPITAL ALLOCATION

MARKET UPDATE

KEY TAKEAWAYS


1. FINANCIAL DISCIPLINE

8

Vistra’s long-term leverage target is 2.5x net debt to EBITDA

Vistra Emerged From Bankruptcy With Materially

Lower Leverage vs. the Other Public IPPs

Average Net Debt / EBITDA

of Public IPP Peers

December 2016

VST

Net Debt / EBITDA

December 2016

Vistra’s Balance Sheet Is Forecast to Remain

Strong Following Merger With Dynegy

2018E 2019E

1 Assumes projected ~$1 billion excess cash remains on balance sheet.

2.9x 2.2x1

7x

2x

BALANCE SHEET DISCIPLINE

INVESTMENT DISCIPLINE

Vistra’s investment threshold is 500-600 bps above cost of capital


$80 $65

$45

VST Stand-AloneOct. 2016

VST Stand-Alone2018E

VST Pro formafor Merger

2. LOW-COST OPERATIONS

9

$/RCE2

Vistra’s management team prioritizes low-cost leadership

$20

$10.80

$8.60




$/MWh1

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.

WHOLESALE RETAIL

$8$6.50

$4.50




$/MWh2


$4.68 $8.08

$6.44

$4.44

$2.32

$10.57

PJM ISO-NE ERCOT 2017 ERCOT 2019

Capacity ($/kw-mo) Energy ($/kw-mo)

$11.12$12.52

New CCGT (Required $/kw-mo)

3. DIVERSIFICATION

10

Vistra’s fleet is well-positioned in the attractive ERCOT, PJM, and ISO-NE markets

ADUSTED EBITDA

BY MARKET1

24%

36%Wholesale

23%

5%12%

PJM ERCOT Other ISO-NE/NY

23%Retail

CAPACITY & ENERGY GROSS MARGIN BY MARKET2

1 2019E.2 2019E 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 2019.

~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

$2.32

$10.57

$17.00

$15.13

$17.42 $17.42Market representative CCGTs


24%

21%

10%

7% 5% 5%

4% 2% 2% 2%

4. LEADING RETAIL PLATFORM

11

LARGEST SINGLE BRAND RESIDENTIAL

MARKET SHARE IN ERCOT1

HIGHER INTEGRATED

MARGINS

We estimate Vistra retains

~$3-4/MWh when transacting directly between

its retail and wholesale

subsidiaries (vs. third parties):

Transaction efficiency

Collateral efficiency

1 2016 EIA data. Based on customer counts. 2 Company analysis. Time period is reflective of 2015-2017.

Retail Margin

Wholesale Margin

MORE STABLE CASH FLOWS

Integrated retail / wholesale model2

(illustrative)

Generation Fuel Cost

VISTRA ENERGY

CUSTOMER

COUNTS

• 1.5mm Residential

• 1.1mm Muni-Agg

• 300K Business


ERCOT PJM

5. IN-THE-MONEY FLEET

12

1 2019E. 2 2019E market forwards as of May 30, 2018.

52%38%

10%<1%

Gas Coal Nuclear Other

57%23%

20%

Energy Retail Capacity

GROSS MARGIN CONTRIBUTION

BY REVENUE SOURCE1

FORECAST GENERATION

BY FUEL TYPE1

MEANINGFUL ENERGY &

CAPACITY CONTRIBUTION FROM

GAS-PREDOMINANT FLEET

IN-THE-MONEY ASSETS IN CORE MARKETS

(~75% of Vistra Generation Capacity)

VISTRA IN-THE-MONEY

COAL & NUCLEAR ASSETS

VISTRA IN-THE-MONEY

CCGTs

$5-25

$34

$19-26

$/MWh Marginal Cost

$27

Market Clearing Marginal Cost (ATC) or Peak Heat Rate2

Heat Rate (mmbtu/MWh)

ERCOT PJM ISO-NE

6.8 - 7.7

17.5

6.8 - 8.6

13.5

7.1 - 8.3

10.3

7.2 GW 5.6 GW 7.8 GW 5.9 GW 3.5 GW

Range


6. COMMERCIAL OPTIMIZATION

13

CREATE REALIZED PRICE CURVE HIGHER THAN POV AND SETTLED

PRICE – MINIMIZE DOWNSIDE RISK, PRESERVE UPSIDE

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

$25.15 $30.50

$33.93

$23.78 $21.06

$23.22

$39.88 $43.23 $46.56

$43.51 $37.57

$33.39

2012 2013 2014 2015 2016 2017

Annual Settled Power Price ($/MWh) Annual Realized Power Price ($/MWh)


THE VISTRA INTEGRATED MODEL

14

4. LEADING

RETAIL PLATFORM

5. IN-THE-MONEY

FLEET

6. COMMERCIAL

OPTIMIZATION

1. FINANCIAL

DISCIPLINE

2. LOW-COST

OPERATIONS3. DIVERSIFICATION

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

Committed to capital discipline and creating value for our shareholders


STABILITY OF EARNINGS

15

Vistra believes >60% of its earnings stream is visible 3 years out

0

25

50

75

100

Year 1 Year 2 Year 3

Retail Capacity Hedged Length Open

Illustrative



CAPITAL ALLOCATION

MARKET UPDATE

KEY TAKEAWAYS


ATTRACTIVE EARNINGS PROFILE

17

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 20191

Creating visible long-term value through achievement of

value lever targets and a disciplined approach to capital allocation

VALUE CREATION

• On track to deliver an estimated:

- $500mm EBITDA value levers by YE 2019

- $258mm after-tax FCF benefits by YE 2019

- ~$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.


NEAR-TERM CAPITAL ALLOCATION PLAN

18

Maintaining a strong balance sheet remains the top capital allocation priority

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

Opportunistic Growth

Focus on organic retail growth;

highlight disciplined

acquisitions and renewables

Share Repurchases

Could allocate additional capital

toward opportunistic share

repurchases if best value

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


LONG-TERM PHILOSOPHY

19

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:

• ~$400-500mm 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

>$6 billion in capital forecast to be available for allocation

through year-end 2022

Vistra expects to generate nearly $10 billion in ongoing operations

adjusted FCF through year-end 2022


GROWTH OPPORTUNITIES

20

Vistra’s meaningful FCF and relationship with customers will enable strategic evolution

RETAIL EXPANSION

OPPORTUNITIES

GENERATION EVOLUTION

OPPORTUNITIES

• Vistra rotated supply base toward gas-

fueled 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

• Focus on organic growth

- Most economic

- Attractive markets

- Matched generation

• Acquisition opportunities

- Price discipline

- Quality of portfolio

- Highly Selective

Vistra’s length offers the opportunity to develop multiple retail channels with

higher integrated margins and lower collateral requirements


PORTFOLIO OPTIMIZATION

21

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



CAPITAL ALLOCATION

MARKET UPDATE

KEY TAKEAWAYS


ERCOT: MARKET FUNCTIONING AS DESIGNED

23

Vistra anticipates reserve margins will be below those forecast by the ERCOT May CDR

71.7 73.4 75.1 76.5 77.979.682.4 84.1 84.8 84.8

11.0%12.3% 12.0%

10.9%8.9%

2019 2020 2021 2022 2023

GW

Firm Peak Load, GW Total Capacity, GW Reserve Margin

ERCOT SUMMER CDR

~2% firm peak

load growth

forecast / year

2019 2020 2021 2022 2023

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 –

NEW BUILD ASSUMED (BY YEAR) IN ERCOT SUMMER CDR


PJM AND ISO-NE: PRESERVING COMPETITION

24

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

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

Vistra’s fleet is well-positioned in the PJM and ISO-NE markets

24



CAPITAL ALLOCATION

MARKET UPDATE

KEY TAKEAWAYS


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

ANALYST DAY TAKEAWAYS

26

Relatively Stable Earnings With

Multi-Year Visibility

• Integrated with multi-channel Retail

• Assets in key capacity markets

• Capability and balance sheet to hedge “in-the-

money” 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

Mitigation

measures

END SLIDE

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