Vistra Corp (VST) 2018 Q2 法說會逐字稿

Good morning.

My name is Tim, and I'll be your conference operator today.

At this time, I'd like to welcome everyone to the Vistra Energy Second Quarter 2018 Results Conference Call.

(Operator Instructions)

Ms. Molly Sorg, you may begin your conference.

Thank you, and good morning, everyone.

Welcome to Vistra Energy's investor webcast discussing second quarter 2018 results, which is being broadcast live from the Investor Relations section of our website at www.vistraenergy.com.

Also available on our website are a copy of today's investor presentation, our 10-Q and the related earnings release.

Joining me for today's call are Curt Morgan, President and Chief Executive Officer; Bill Holden, Executive Vice President and Chief Financial Officer; and Steve Muscato, Senior Vice President and Chief Commercial Officer.

We also have additional senior executives in the room to address questions in the second part of today's call as necessary.

Before we begin our presentation, I encourage all listeners to review the safe harbor statements included on Slides 2 and 3 in the investor presentation on our website, which explain the risks of forward-looking statements, the limitations of certain industry and market data included in the presentation and the use of non-GAAP financial measures.

Today's discussion will contain forward-looking statements, which are based on assumptions we believe to be reasonable only as of today's date.

Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied.

Further, our earnings release, slide presentation and discussions on this call will include certain non-GAAP financial measures.

For such measures, reconciliations to the most directly comparable GAAP measures are in the earnings release and in the appendix to the investor presentation.

I will now turn the call over to Curt Morgan to kick off our discussion.

Thank you, Molly, and good morning to everyone on the call.

As always, we appreciate your interest in Vistra Energy.

I'm going to turn to Slide 6, and I'd like to cover our second quarter highlights, starting with our quarter and year-to-date 2018 financial results.

We had another very good quarter.

This is even after initiating our combined company guidance in May, which reflects higher forward curves and increased retail expectations, particularly in ERCOT.

We concluded the quarter delivering $653 million in adjusted EBITDA from our ongoing operations, results that exceeded our expectations for the quarter primarily as a result of higher realized prices, lower-than-forecast operations and maintenance expenses and ERCOT retail favorability that was offset by higher power costs than planned for our Ohio retail portfolio.

A meaningful yet imperfect comparison we thought might be of interest is a comparison of second quarter 2017 versus second quarter 2018 results using Dynegy's and Vistra's previously disclosed stand-alone quarterly results for 2017.

This comparison indicates a more than 20% increase in 2018 over 2017, driven primarily by higher ERCOT retail and wholesale contribution margins and realized merger synergies.

And similar to the first quarter of 2018, we once again executed a partial buyback of the Odessa Power P earn-out in May, which reduced second quarter adjusted EBITDA by approximately $10 million.

We expect the 3-year impact of the transaction net of the premium paid to be a positive $2 million.

Excluding this second quarter negative impact, Vistra's adjusted EBITDA from its ongoing operations would have been $663 million.

I would also like to highlight that in the second quarter, our retail team grew residential customer counts in ERCOT by more than 1% year-over-year, ending the quarter with 1.493 million customers.

This is the highest ERCOT residential customer count we have had since 2015, and it demonstrates how the strength of our retail brands and volatility in wholesale power prices can present an opportunity to acquire and retain new customers.

Notably, during volatile wholesale price environments, our retail business has historically experienced growth as customers switch providers due to higher bills.

This is very important not only in the short run, but we are generally able to retain the customer for the long run.

Year-to-date, Vistra's adjusted EBITDA from its ongoing operations is $916 million.

Excluding the impact to adjusted EBITDA of negative $28 million resulting from the partial buybacks of the Odessa power plant earn-out in February and May, Vistra's year-to-date adjusted EBITDA would have been $944 million.

When we executed the Odessa earn-out buybacks, the economic benefit net of the premium paid was approximately $25 million, which we largely locked in around the time of execution.

In addition to Vistra's results through June 30 tracking ahead of internal expectations, July is shaping up to be a strong month as we saw high temperatures and strong demand in the second half of the month.

ERCOT set multiple peak demand records in July, with the highest peak demand being 73,259 megawatts, meaningfully higher than ERCOT's forecast summer peak of 72.8 gigawatts.

Given these high temperatures, day-ahead hourly prices were regularly higher than $1,000 per megawatt hour.

Vistra was able to capture some of this favorability in the day-ahead hourly prices, and our integrated operations performed well to meet retail customer demand.

It is important to note that the July real-time prices settled largely consistent with our expectations when taking into account normal actual wind and strong ERCOT-wide plant performance.

It appears the hype was overdone coming into the summer, just like the response recently on August 2018 forwards and 2019 and 2020 forwards to the downside.

As Steve Muscato will discuss in more detail later on the call, we continue to believe 2019 and 2020 will experience increasingly tight market conditions and forward curves will offer us multiple opportunities to hedge above our point of view, especially as retail players look to hedge those periods.

Despite the recent softening in the ERCOT 2018 August and 2019 forwards since we first provided combined company guidance in May, we are confident today reaffirming both our 2018 and our 2019 ongoing operations guidance ranges, which are set forth on Slide 6. It is worth mentioning again that we increased our guidance for both companies in May when we initiated guidance for the combined company.

If we were comparing performance today to our original guidance issued in November of last year, the beat would be significantly greater.

I also want to point out that even though current forwards are below their year-to-date highs, Vistra was able to hedge some of its August 2018 and summer 2019 length in the spring when the forward curve ran up and was higher than our fundamental point of view.

As you know, it is this volatility in the forward curve that allows Vistra to construct a realized price curve that has historically been meaningfully higher than settled prices and above our point of view.

Now you might be wondering why we are not updating our 2018 ongoing operations guidance ranges given the year-to-date performance that has exceeded expectations embedded in the May guidance.

Well, first of all, we already increased guidance in May to reflect higher curves in ERCOT and better expected retail results.

In addition, it would be atypical for us to update our guidance prior to closing out the summer as Vistra would typically expect to generate around 40% or more of its adjusted EBITDA in the third quarter.

August is a very important month for wholesale operations, especially in ERCOT, and the first half of September is also important in ERCOT.

As we have discussed on previous earnings calls, our ERCOT retail business performs well in the shoulder months, especially in October and December.

We believe it is prudent at this point to reaffirm our guidance and wait until our third quarter call to consider an update to both the 2018 and 2019 guidance ranges.

However, we feel very good about where we are at this point in time.

Moving on to our merger value lever targets that are shown on Slide 7. I am happy to report that we remain on track to deliver the $500 million of EBITDA value levers and the $260 million of additional after-tax free cash flow benefits we previously announced to achieve by year-end 2019.

We also remain on track to capture the substantial tax and TRA savings and AMT credit refunds of approximately $1.7 billion.

Specifically, as we depict on Slide 7, of the $275 million of traditional merger synergies, we remain on track to realize $115 million in 2018 and $260 million in 2019.

We expect to achieve the full run rate of $275 million by year-end 2019, allowing us to realize the full amount in 2020.

Similarly, of the $225 million of operations performance initiative EBITDA value lever targets, we remain on track to realize $50 million in 2018 and $160 million in 2019.

We expect to achieve the full run rate of $225 million by year-end 2019, resulting in realization of the full run-rate amount in 2020.

You may recall that we are already realizing $50 million on a run-rate basis from previous OP work completed on the Vistra ERCOT fossil fuel fleet.

On the free cash flow side, of the $260 million of additional after-tax free cash flow benefits, we expect to realize approximately $70 million of benefits in 2018 and $190 million of benefits in 2019.

We expect to achieve the full run rate of $260 million by year-end 2019, resulting in realization of the full run-rate amount in 2020.

As I have mentioned previously, we believe there could be more OP value to come.

However, it would take the balance of 2018 to prove this out, so please stay tuned for further updates on this topic.

In addition, as our team continues to optimize the balance sheet to reduce Vistra's overall cost of borrowing, we could continue to see improvements in our adjusted free cash flow forecast from further interest expense savings.

We will keep you apprised of these potential future benefits as they are identified.

Last on taxes, Vistra is forecasting an approximately $25 million TRA payment in 2018 related to the 2017 tax year and is now forecasting it will pay just under $10 million in TRA payments from 2020 through 2022.

Importantly, Vistra still expects to not be a federal cash taxpayer from 2018 through 2022.

We are also still forecasting to receive approximately $240 million in AMT credit refunds during the same period.

Turning now to Slide 8. We have a few updates as it relates to capital allocation.

As you will likely recall from our June Analyst Day presentation, we are forecasting we will have approximately $1 billion of cash available for allocation through year-end 2019, and this is after allocating approximately $3.6 billion of capital toward debt reduction over the same time period.

Allocating cash toward debt reduction is Vistra's highest priority for capital allocation in the near term as Vistra is focused first and foremost on achieving its long-term leverage target of approximately 2.5x net-debt-to-EBITDA by year-end 2019.

As we announced at our Analyst Day in June, Vistra's board approved the allocation of up to $500 million for opportunistic share repurchases through year-end 2019.

We believe our stock is currently meaningfully undervalued, and as a result, we have been executing on our share repurchase program since its launch on June 13.

As of July 31, we have repurchased approximately 6.4 million shares at an average price of approximately $23.46 per share.

As such, we have executed on approximately 30% of our current authorization, leaving approximately $350 million of capital remaining to be deployed under the program.

We now expect to have approximately $550 million available for capital allocation through 2019 beyond the repurchase program.

As we have discussed previously, we will be assessing a number of attractive opportunities to allocate this capital, including initiation of a dividend, investment to optimize the balance sheet and further incremental share repurchases.

We will also allocate some of this capital to previously announced Moss Landing battery storage project.

As you may recall, this project is still subject to the California Public Utility Commission approval and will have a 20-year resource adequacy contract with PG&E.

Given the PG&E contract and the enormous need for flexible peaking assets in California due to substantial solar generation, we believe Moss Landing will be a relatively low-risk project, and we forecast it will yield attractive returns exceeding our 50 to 60 basis points above our cost of capital investment threshold.

We have flexibility in how much we deploy to this project in 2019, and we are likely to fund it 100% on balance sheet because we like the returns, the spreads are not that attractive and we want to keep our capital structure as straightforward and simple as possible.

Of course, we always retain the flexibility to do a project financing.

In the end, as we execute as expected in 2018 and 2019, we can move on a number of capital allocation fronts, including potentially initiating a dividend in 2019, which will likely be decided by year end 2018.

I'm moving now to Slide 9. As you can see, beginning in 2020, after we have paid off about $3.6 billion of debt and achieved our long-term leverage target, Vistra is forecasting it will have more than $6 billion in capital available for allocation through 20 -- year end 2022.

As we expect, we will convert approximately 60% of our adjusted EBITDA to adjusted free cash flow.

This meaningful free cash flow generation should enable Vistra to pursue a wide variety of capital allocation alternatives, including supporting and growing a recurring dividend, opportunistically executing on incremental share repurchases and investing in additional strategic growth opportunities.

As always, we will be disciplined in the pursuit of growth, [taking] opportunities that we project will satisfy our return threshold.

As you have heard me say many times before, the 60% free cash flow conversion ratio is significantly higher than that of other commodity-based capital-intensive energy industries.

And as a result, we believe, over time, this unique financial characteristic will lead to a full valuation for Vistra.

It takes very low maintenance capital to support the EBITDA of the company given the combination of highly efficient, low-cost, in-the-money fleet in our top-tier retail business, in addition to low cost of debt from a very strong balance sheet.

We also have the commercial prowess and market liquidity to capitalize on volatility and lock in value on a 2- to 3-year forward basis, contributing to certainty, stability and visibility of our EBITDA and free cash flow.

However, we do not believe our stock price reflects the favorable attributes of our business.

While we would like to see our stock reflect its full value, we are focused on what we control, which is executing our business plan and continuing to deliver on our commitment as we prove to the market that our new business model and commitment to it can create strong, stable earnings and significant cash flow conversion even in a challenging wholesale power price environment.

In fact, I believe the recent volatility in our stock price, which has been highly correlated to recent volatility in ERCOT north of August 2018 power prices, is a bit puzzling.

As you know, Vistra is largely hedged for 2018, and we took advantage of the previous run-up in 2019 to lock in value significantly above our point of view.

As Steve Muscato will discuss momentarily, we are confident we will have ample opportunity to hedge 2019 and 2020 at attractive prices above our point of view.

However, what is interesting is, the volatility and recognition of tight market conditions seems to be contained to about a year forward, leaving the longer-term forwards steeply backwardated and unsupportive of new build, especially thermal.

It is our view that any thermal newbuild with the current forward curves would have to be underwrote on the balance sheet by a strategic as it seems project financing would be very difficult and will require a substantial equity infusion.

We do not see any more strategics lining up to place that bet.

Overall, investment in a new thermal asset in ERCOT would be a very risky proposition, especially for one-off projects.

In the end, if the forwards remain backwardated, the ERCOT market should remain tight and attractive.

Before I leave the newbuild subject, I would like to comment on a recent Platts Megawatt Daily article that suggested ERCOT has 3,550 megawatts under construction that will help relieve the tight supply-demand dynamics in the market.

In the article, Platts Megawatt Daily indicated that 848 megawatts of new gas peakers are under construction.

In fact, our research suggests that all of those assets are either in commercial operations already or they're in testing mode ready to be released, they're abandoned, or behind the fence.

In short, to the best of our knowledge, there are no new or material plants under construction in ERCOT between now and summer 2019.

Most of the balance of newbuilds cited in the article is wind capacity.

But the article is reporting nameplate capacity, ignoring the fact that the peak contribution of wind is generally only around 20% of nameplate capacity, thus meaningfully overstating supply that will be available to the market, not to mention congestion issues in the Panhandle, where wind is at its best.

It is also important to note that peak ERCOT load is forecast to grow by approximately 2% each year, which is about 1,400 megawatts.

And with no plants under construction, we believe reserve margins will remain well below ERCOT's target reserve margin of 13.75% for the foreseeable future.

We remain excited about the future of our company and the value proposition we bring to investors.

We believe our business model, centered on low leverage, integrated and low-cost operations, disciplined growth and a commitment to return substantial capital to shareholders, is a winning formula and will lead to long-term shareholder value.

I would now like to turn the call over to Steve Muscato, our Chief Commercial Officer, to give an update on the ERCOT wholesale power market.

Steve?

Thanks, Curt.

Turning now to Slide 11.

We wanted to spend a few minutes on the call today discussing the state of the ERCOT margin.

As many of you know, Texas experienced extreme temperatures in the last 2 weeks of July.

During this period, ERCOT saw meaningful daily and intraday volatility, as is depicted on the 2 graphs on the slide.

During the 2-week period, ERCOT North Hub on-peak day-ahead average prices were consistently above $100 per megawatt hour and even reached $401 per megawatt hour on July 23, with a single hour exceeding $2,000 per megawatt hour.

These high day-ahead prices provided Vistra the opportunity to sell unhedged length at attractive prices during the month of July.

However, while day-ahead prices during the month of July were strong, real-time prices came in meaningfully lower during the month.

Real-time prices settled below the day-ahead market because ERCOT had sufficient supply to meet the demand despite the above-average temperatures.

Specifically, July 2018 wind production at the peak hour was right around the average wind production at the peak hour over the last 3 years in July.

Outages in July this year, however, were well below the July average over the last 3 years.

As a result, generation supply in ERCOT was robust enough to meet the peak demand as represented by real-time prices.

Importantly, however, even though July prices did not reach the scarcity extremes that some might have expected during the July heat wave, average July on-peak day-ahead prices still averaged approximately $112 per megawatt hour.

As a result, we are well positioned heading into August.

Turning now to Slide 12.

You can see there has been meaningful volatility in the ERCOT 5x16 summer heat rates, particularly for 2018.

It is this volatility that gives Vistra the chance to opportunistically hedge when forwards are above our fundamental point of view.

In the spring of 2018, for example, ERCOT forwards traded above Vistra's fundamental point of view, and we took the opportunity to hedge some incremental open length into those attractive forward pricing.

Vistra's hedging approach turns this price volatility into earnings stability.

It is important to note that Vistra is net long generation.

And when we talk about our hedging approach, it reflects locking in value against this net long position.

Even though we have seen less volatility in the 2019 and 2020 forward curves, Vistra has still been able to hedge incrementally in those years when volatility was present.

In particular, as you will see on Slide 26 in the appendix, Vistra is now approximately 91% hedged on a natural gas equivalent basis in 2019 and approximately 58% hedged on a heat rate basis in 2019.

We continue to believe both the 2019 and 2020 forward curves will improve from their current trading levels.

Much like the 2018 forward curve did not move meaningfully higher until the early part of 2018, we believe 2019 and 2020 forward curves will continue to improve as we get closer to the [prompt] summer.

Load in ERCOT is expected to grow at approximately 2% a year, and ERCOT is not expected to see any meaningfully new thermal generation over the next 2 years.

As a result, we believe the supply-demand forecast will remain tight and forward curves will only improve in the months to come, as we depict on Slide 13.

In the chart on the left-hand side of the slide, we have taken the ERCOT May CDR and backed out any new thermal generation that is in the CDR forecast for 2019 and 2020 but that is not yet under construction, on the premise that if you are not yet under construction today, you will not be online by summer 2020.

Making only this adjustment, ERCOT should see a declining reserve margin from 2018 through 2020, implying that tight supply-demand conditions are only going to persist in ERCOT in the coming years.

Despite these declining reserve margins, however, the current 7x16 North Hub spark spreads are meaningfully backwardated as we depict on the right-hand side of the slide.

Given the tight reserve margins we expect through at least summer 2020, we believe this backwardation will reverse at some point in the future.

Importantly and as Curt indicated earlier in the call, the backwardation in the curve makes the development and construction of a new CCGT in ERCOT uneconomic and highly unlikely, especially because ERCOT is an energy-only market, making it difficult to secure financing.

As a result, so long as financial players make rational decisions as it relates to new investment, it remains our view that the supply-demand dynamics in ERCOT will remain favorable, likely even beyond summer 2020.

With that, I would like to turn the call over to Bill Holden to discuss second quarter financial highlights.

Thank you, Steve.

Turning now to Slide 15.

As Curt mentioned, Vistra concluded the second quarter of 2018 delivering $653 million in adjusted EBITDA from our ongoing operations, exceeding our expectations for the quarter that were embedded in our guidance.

Excluding the negative $10 million impact of the partial buyback of the Odessa power plant earn-out in May, Vistra's adjusted EBITDA from its ongoing operations would have been $663 million.

We expect this partial buyback to have a 3-year impact, net of the premium paid, of positive $2 million.

Vistra's second quarter 2018 adjusted EBITDA from ongoing operations of $653 million compares favorably to our expectations for the quarter because of higher realized prices and strong unit performance in our key generation segments, lower operating costs and favorable results in ERCOT retail that were offset by higher power costs in the Ohio retail market.

Segment results for the quarter can be found on Slide 20 in the appendix, where you will see that following the merger with Dynegy, Vistra is now reporting 6 segments: nationwide retail, ERCOT wholesale, PJM wholesale, New York/New England wholesale, MISO wholesale and the Asset Closure segment.

The corporate and other non-segment consists primarily of corporate expenses, interest and taxes and CAISO operations.

Year-to-date, Vistra's adjusted EBITDA from its ongoing operations is $916 million, which reflects 6 months of results from the legacy Vistra operations and results from the legacy Dynegy operations for the period from April 9, 2018, through June 30, 2018.

Excluding the negative $28 million impact of the partial buyback of the Odessa power plant earn-out that we executed in February and May, Vistra's adjusted EBITDA from ongoing operations would have been $944 million for the period.

We expect these partial buybacks to have a positive impact, net of the premium paid, over the period from 2018 through 2020.

Turning now to Slide 16.

You will see that Vistra is reaffirming its 2018 and 2019 guidance for its ongoing operations.

As a reminder, Vistra's 2018 guidance reflects Vistra's results on a stand-alone basis for the period prior to April 9, 2018, and anticipated results of the combined company for the period from April 9 through December 31, 2018.

Vistra is reaffirming its 2018 guidance, forecasting adjusted EBITDA from ongoing operations of $2.7 billion to $2.9 billion and adjusted free cash flow from ongoing operations of $1.4 billion to $1.6 billion.

Vistra is also reaffirming its 2019 guidance, forecasting adjusted EBITDA from ongoing operations of $3.2 billion to $3.5 billion and adjusted free cash flow from ongoing operations of $2.05 billion to $2.35 billion.

You will see on Slide 16 that we have updated our 2018 and 2019 forecast for the Asset Closure segment.

As we continue to finalize purchase accounting and evaluate the Asset Closure obligations of the legacy Dynegy fleet, we expect the forecast for this segment could continue to shift in future quarters.

I would note that we included our current 10-year forecast for the Asset Closure segment on Slide 21 in the appendix to today's investor presentation.

Adjusted free cash flow for the Asset Closure segment is driven mostly by expenditures from mine reclamation work and plant retirement costs and also includes property taxes, fees and allocated support costs.

As you will see, we expect the cash spend for the Asset Closure segment to fall off significantly beginning in year 6. We expect the cash spend to decline even further beyond year 10.

It is important to note that much of the spend in the next 10 years is included in the ARO reserve on our balance sheet.

In addition, the current forecast does not reflect potential optimization opportunities, including potential sales of property.

As always, Molly is available to answer any of the detailed questions you may have.

Finally, turning to Slide 17.

As we discussed at our June Analyst Day, Vistra has already begun to reduce its leverage and optimize its capital structure; most recently, repricing and refinancing approximately $5 billion of debt and consolidating the legacy Vistra and Dynegy -- and legacy Dynegy revolvers into a new $2.5 billion facility.

As a result of the increase in revolver capacity from $2.3 billion to $2.5 billion, Vistra has reduced its minimum cash requirement from $500 million to $400 million, as is now reflected in the table on Slide 17.

Following the anticipated voluntary retirement of approximately $2.4 billion of senior notes through year-end 2019, we expect to achieve our long-term leverage target of 2.5x net-debt-to-EBITDA and have approximately $550 million of capital available for allocation.

This $550 million is in addition to the $500 million of capital that has already been allocated to opportunistic share repurchases.

As we continue to optimize our balance sheet and reduce our total debt, Vistra also will continue to focus on minimizing our total borrowing costs, which could provide incremental opportunities to improve our free cash flow savings from the merger.

As Curt mentioned previously, assuming we achieve our long-term leverage target at year end 2019, Vistra's capital available for allocation is forecast to increase materially.

Vistra is forecasting it will have more than $6 billion of capital to return to shareholders through share repurchases or dividends or to invest in strategic growth investments from 2020 through 2022.

This healthy cash flow forecast is a direct result of our ability to convert approximately 60% of our adjusted EBITDA from ongoing operations to adjusted free cash flow, an operating characteristic that we believe sets us apart from other commodity-exposed, capital-intensive industries and one that we expect will create meaningful shareholder value over the long term.

With that, operator, we are now ready to open the lines for questions.

(Operator Instructions) Your first question comes from the line of Shar Pourreza with Guggenheim Partners.

So Curt, if you're correct around the curves and you layer on incremental hedges post summer peaks, you could actually end up with somewhat higher available capital than you currently project, right?

So how are you sort of thinking about the size of buyback, especially given the recent weakness in the shares?

I mean, the stock is trading at somewhere in the mid-double-digit free cash flow yields here.

So has the size of the buybacks -- has that thought process even evolved since the Analyst Day or could it evolve?

Yes, Shar, it could evolve.

I think the way we have discussed this with the board is that depending on where our share price is, it could continue to be the best investment that we can make.

And I think it's a trade-off, frankly, in '18, '19 because this is not an issue once you pay down debt in '19 because then our cash flow is strong.

But it's a real question of whether you continue to do share buybacks or whether you institute a dividend.

And we're very focused, as you know because you've been with us, around talking to investors, we're trying to get feedback as to what we think the right use of that capital would be in '19 because that's really where the choice has to be made because we are so focused on paying down debt and we're going to have some excess cash.

Now look, if we're -- we have a better cash picture than what we're talking about right now, then you can do both.

And so we're going to look at that obviously and try to manage that.

But right now, given where our stock is, we think it is a very good investment for the company to buy back our shares.

We still have a significant amount left to do, and we're going to be focused on it.

And I will add too that I think when we instituted the buyback program, we were at around $24.

And we would have gone, I'd say, meaningfully above that and continue to buy back because we feel our share price is well north of even that.

So I think you'll see us execute this $500 million.

I think the board -- we'll talk to the board near the end of this year about what we want to do.

This is why we also want to see how we come out of the summer and what our cash position looks like.

And then, I think, by the end of this year, we're going to be able to come back out to the market, probably around the Q3 call, and we'll be able to talk about what capital allocation might look like in '19.

And that will definitely include both share buybacks as well as a recurring dividend.

Okay, that's perfect.

And then just remind us, the recurring dividend, when you -- assuming the board approves it obviously, assuming when you can pay out your first?

So the timing is what you're asking me?

That's correct.

Yes.

Look, I think this is a question that we need to talk to the board about.

It has to do with what our cash picture looks like.

So look, I don't want to get out in front of the board on this one.

But it would be some time -- if we did something, it'd be some time in '19.

And I would guess it would probably be more in the first half, but we would need to talk to the board about this.

But it's in that kind of timeframe.

Got it, got it.

And then just on the leverage, since you mentioned it, is there -- how are sort of conversations, if any, going with the rating agencies as far as thinking about maybe an investment-grade rating?

We have not had a conversation with the agencies yet because we're still meaningfully above where we want to get to.

I'm sure like that's a '19 issue that -- maybe late '18, '19 where we'll engage with them.

I think we also -- they're like everybody else about this sector.

They want to see it first, so I think we have to execute and to demonstrate to them.

So we have not yet engaged.

We've had some cursory discussions with the agencies, but we have not had a detailed discussion.

I think what we will end up doing is going in to see them with a detailed presentation of what our financial plan looks like and have direct discussions.

But that's probably later this year, early '19 before we engage in that.

Okay, got it.

And then just lastly, on the synergy stuff.

It's good to see you guys are achieving ahead of schedule and like there's upside.

Just on the timing of the upside as far as the adjusted EBITDA or free cash flow levers, so how are we -- is this a 2019 story as well?

Or are we going into 2020 as you think about incremental opportunities?

And then just in general, I think in some of your prepared remarks you gave some color there.

But where the incremental levers sort of coming from?

Is it sort of around further optimization, additional maybe 1 or 2 coal retirements, refis?

Just a little bit of color on sort of where you're seeing the incremental levers post deal closing.

Yes.

So on just the operations performance initiative, the OP process, that's probably more a '19 -- later '19 and probably end of '20 because it takes time to get through each of these plants.

It's very detailed, and there's -- for each plant, there's probably 100 different ideas that end up getting implemented.

So that's all about getting through our process, and that -- I would guess that's what that looks like.

In terms of incremental interest expense savings through optimization of the balance sheet, that could be later '18 into '19.

So there are things that we're looking at right now that could reduce interest expense and optimize the balance sheet.

And there may be a little bit on the synergy side, but that -- we probably wouldn't talk about that til the Q3 call, and it's not a material amount.

But I think those are the things that we still have available to us.

And I think the nice thing is I think Q3 call, we will have a little bit to talk about there.

And I think in extending into '19, we'll have a lot to talk about it.

If you think about it, we're going to have, I think, a good year this year relative to any expectation.

And Shar, I do want to reemphasize to folks here that when we came out with guidance back in November, we used October curves.

That's what everybody else is using.

We then increased it to the -- basically, the end of March curves, which were substantially higher.

So we already increased guidance already this year once and then we're beating relative to that, whereas the other guidance that you guys are hearing are probably back into the October 2017 curves, which are meaningfully lower.

So we're continuing to produce strong earnings, strong cash.

We have catalysts coming forward as well around the OP effort and other balance sheet improvements.

And then we're going to talk to the market about whether we want to continue to buy back shares and/or do a recurring dividend.

So we feel good about the catalysts coming forward in the next 6 months, and we'll have a lot to talk about.

Your next question comes from the line of Praful Mehta with Citigroup.

So quickly on the EBITDA for this quarter.

You mentioned that this was higher than what you had embedded in your guidance.

Can you give us any sense for how much higher was the EBITDA?

And obviously, you're going to look at full year guidance as well.

But is there any color you can give us on where that is tracking broadly?

So on the front end, Bill, do you want to -- I mean, we can -- I think we can tell generally where -- how much higher it was, right?

I don't know how we -- yes, I mean what -- we can't...

I mean, basically, I'd say retail was roughly in line, the wholesale segment was higher and it's probably in the sort of $60 million to $70 million range.

Yes.

Yes, I think that's right.

And then on the full year basis -- on the full year basis, we're not ready to -- because remember, this is against the higher guidance that we gave in May.

We're not ready to do anything with full year guidance.

And I think that's because August is playing out.

Weather has subsided a bit in early August, but you guys know this.

I mean, the ERCOT weather can change on a dime.

And so we want to -- I think it's prudent for us not to do anything yet on full year guidance, and we'll have a lot to talk about at the Q3 call around that.

And you'll -- and so I think it's better for us to hold on at this point on full year guidance.

But as I said in my prepared remarks, we feel pretty good about where we are for 2018, especially given the fact that we had increased guidance to much higher curves than the back in the October '17 curves that others are using.

And then this Asset Closure segment, just so we understand, the NPV, you've -- almost $500 million year negative, you said there are funds on the balance sheet to kind of support most of it.

Can you just give us a sense of how much cash is sitting to kind of support this Asset Closure kind of investment over time?

Yes, Praful.

I think what we're referring to is the asset retirement obligation for which a liability has already been booked for those expenditures.

And then if you look at it, the total at the end of Q2 for mining and plant retirement -- asset retirement obligations was about $1,068,000,000 in total, and roughly half of that would be attributable to the Asset Closure segment.

So Praful, another way to say this is, if you were looking at the asset retirement obligation on the balance sheet of both Vistra and Dynegy all along, which I assume you guys look at, right, because that is the NPV of what the -- it's future expected retirement obligations are of the company.

That number has not changed much.

So that total is -- it has been and it continues to be about the same, and about half of that relates to the Asset Closure segment.

There's another rather large obligation related to the nuclear plant, Comanche Peak.

You probably know this, that we -- there's a surcharge on the Oncor rates that actually go against that.

We do have a large reserve against that particular obligation that grows over time as that surcharge is collected.

And then obviously, we invest in conservative securities to earn a return on what we have in the reserve to go against that.

Got you, super helpful.

And finally, just quickly on ERCOT.

There's ongoing debates on what's actually better for IPPs, whether it's the volatility like this and no enough price movement to attract newbuild.

Or do you prefer to have the spikes and see some newbuild come in over time just to keep some kind of stability on the ERCOT market?

Curt, where do you see your preference, I guess?

What would you rather see in ERCOT and how should it play out?

I think somebody called it and I can't remember which one of you guys called it, the Goldilocks, [it went up] just right.

And what's just right?

Look, I think for us, in particular, we like summers in the kind of the 105, 106 range.

That's a good, sweet spot for us in the way that we're set up.

We -- but I -- we can't be too concerned about what the newbuild situation is going to be.

I think we would prefer actually, I would prefer to see stronger forwards out -- 2 or 3 years out because I think -- it would reflect reality in that there's not new development.

Now would that bring on new development?

I don't know.

All I know is, is the previous time when this market came out and the forward curves did respond 2 to 3 years out, people built into it and they overbuilt the market.

And some people went -- there were bankruptcies.

And so I would hope that investors would be mindful of that, and -- because there's always that balance of wanting the forwards to reflect what reality is and that we can hedge into, but then the over-exuberance of developers and -- to push projects and overbuild the market.

It's really a delicate situation.

It's hard for us because we don't control it.

We have been very open about this.

We run the economics on newbuild and we just don't see it on the thermal side in the forwards right now.

And for us, the way that plays out is, as we roll into the prompt year, forwards keep popping up and then we hedge into that and we'll take advantage of it.

What is, I guess, uncomfortable is that when investors look at it and you guys look at it, you don't see a higher forward curve.

And so it's hard for you to ascribe higher earnings power to the company because it's not reflected in the forward curves.

But we do the fundamental analysis.

And when you do that, the supply-demand is not going to change.

In fact, it gets more favorable for existing generation over the next couple of years.

So there's definitely a dilemma here when you look at the mark and you say, "Okay.

Well, the curves don't reflect it, yet the fundamentals do." All is we can do is take advantage of the volatility and hedge into it when it's above our point of view, and that's what we're doing.

So again, if you ask me what I would like to see, I'd rather see the forward curves come up and reflect reality in '19 and '20 and take the risk on the development side because I think that people -- it's not that long ago where people were going bankrupt.

And I also think there's no strategics right now who are out there willing to just plunk down $1 billion-plus in ERCOT again.

So I think it's going to be developers and then it's very, very difficult -- I know this when I was at ECP.

It's extremely difficult to get financing on an ERCOT-based asset, even an existing one that we acquire when I was at ECP.

So I prefer to see the forward reflect reality.

I just don't think it's doing that right now.

That's our own fundamental view, and that's what we would prefer.

Your next question comes from the line of Steve Fleishman with Wolfe.

Just on the Asset Closure segment.

So this -- the Slide 21 reflects, I think, the costs for closure.

But could you just remind us of the EBITDA benefits so we have kind of the full picture together?

Yes.

And you're talking about the benefit from shutting down -- you're referring to the EBITDA benefit of shutting down the 3 ERCOT plants, Steve.

Is that what you were talking about?

Yes.

Just, well, the -- my recollection is you'd already pulled out the part of your guidance as to savings from closure, and then this is the cost.

I just want to kind of have the full picture of both -- and maybe this is the net cost, including the EBITDA benefits.

Yes.

So we don't have -- so I just want to make sure I understand the question.

So we -- the EBITDA we're showing is the actual EBITDA effect, and it's on Slide 16, from the Asset Closure segment.

And that's a drag, as you could see on that -- if you see that, Steve, that's on 16.

And then we have the actual cash expenditure, which is, just to be clear, in the first 5 years, it is largely the remediation of the mines.

That's why you see that substantial decline, and we expect it to further decline after the 10th year as well, over time.

And frankly, those have always been in our ARO, and it's just an acceleration of that because we decided to shut down plants.

But I think, Steve, if I'm getting you right, you're asking is there -- I will tell you we have not pulled out the EBITDA what you would call -- you could say that the drag is what the savings is.

So we're not going to get the drag anymore.

So that's -- I think that's the way of thinking about had we had those in there, that could -- that drag that's in there...

Right, correct.

So that's -- -- and then just the 2019, the Asset Closure, if you go to Slide 16, that EBITDA and that free cash flow, essentially getting rid of that drag, those would be roughly the ongoing impacts as well.

So when we're trying to match the cost versus that benefit of avoiding this drag.

Yes, yes.

It actually declines a bit too, over time.

So we did not provide those, but that EBITDA declines as well, not on a proportional basis, but it does decline, I think, into like the $40 million to $50 million range, Steve, over time.

So you would see that also decline, that benefit, if you will.

Okay.

And then just on -- any way to give a sense of the Moss Landing investment size?

Yes.

I think what we've -- we have some confidentiality issues which is what we've been dealing with, so we're trying to be as -- I don't want you guys to think we're being difficult here.

And I think we used -- I think it was $300 of KWh range.

I think the math is -- if you take that -- what was it against, 12 -- yes, I guess $1,200.

So that's about as clear as I want to get on that, but that's -- I hate to be that way but we've got some issues around just what we can disclose directly.

And are you -- is it like a 50-50 investment or are you going to own the whole thing?

Well, we're thinking about basically doing it on balance sheet.

We like the returns, and the spreads are just not compelling.

So -- and you know a little bit about what's going on with PG&E, but they are still investment grade.

But the spreads just aren't that compelling.

So at this point in time, our view is that we would do this 100% on balance sheet, [that's where we're comfortable]

And you own the whole project?

Yes.

And the other thing is, Steve, you know that I've got enough battle scars on me.

Going back into the late '90s or the early 2000s where everybody was project financing and trying to have mezzanine, that type financing, all kinds of things, our view is that it's a lot better to simplify our capital structure.

And to the extent we like the returns and the spreads aren't great, we prefer to keep our capital structure simple.

And so we are likely to do this 100%.

Now look, we could project finance it at any time, but we believe it's better to be on balance sheet.

And then just one last quick one on the -- just your quick take on the FERC order on subsidized generation and capacity and potential Alternate (sic) [Alternative] FRR?

Yes.

So at PJM?

Yes.

I've said this, I said it at the Analyst Day, I'll say it again, I think FERC has largely been constructive over the years.

I can remember LICAP and ICAP and PJM but LICAP and ISO New England, these things were clearing at next to 0. We've actually seen much higher capacity clears.

What I also will say equally, that states are getting more and more proactive in what they're doing.

And -- but I believe that PJM and FERC are going to come up with a solution that will be either net neutral.

I just can't imagine them agreeing to something that when you model it out would be negative to where we are today.

I think it will be at least net neutral.

I think FRR has a potential to -- and by the way, the devil is in the details on what -- how FRR is implemented.

Because the details around that, how much load do you take out, how much do you credit against a single resource, which is a block resource, against a shape -- demand curve, how much do you actually cut out, I don't want to get too into the weeds here, but depending on how that plays out, FRR could actually be slightly positive to neutral.

We actually have an idea which I don't want to front run right now, because we're trying to work this with a group of people that we think is -- I won't say it's a better idea.

I think it is -- let's put this way, with the way that FERC is constructed right now with Commissioner Powelson leaving, you've got to cobble together 3 votes inside of FERC.

We believe that there's a path where we believe there's 3 votes.

And I think that's important too, Steve, is to get those 3 votes and be able to actually put something in place.

Because the status quo today is not good, where they're able to offer into the market, where there is no -- there's -- there are no restrictions on renewables coming into the market.

There's basically 3 exemptions right now in the market.

But we do think there's a couple of ideas that we're going to go forward with.

We're trying to work, as I said, with a number of different parties to try to get people to sign off.

I think it's -- strength is in numbers when you go to FERC, and we think we're trying to -- or I think we may have a coalition.

But I think it could be net neutral to positive.

I think FRR is probably the weakest, in our view, for what it would be for us, but that -- the devil, again, is in the details on that.

There are a couple of other structures that we like.

I don't believe that you'll get through a straight MOPR-Ex with complete exemptions that shuts out the states.

I think if folks are holding out for that, I believe that has an extremely low chance of success because I do believe FERC believes that part of their role is to try to work with states and some of the things that states are trying to accomplish.

The good news is there are probably some things in between that are good for the capacity market, not perfect but good, and would be good for our company.

And that's what we're trying to work on as a coalition, to get something done that would be net-net positive but that FERC could live with from a states' rights standpoint.

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch.

Excellent.

So I just wanted to follow up, maybe to complete the last thought here on capital available.

You talked about Moss Landing CapEx being in the ZIP code of, say, $400 million, my words, not yours.

How do you think about the timing of that spread between '19 and '20 relative to the $550 million of remaining available for allocation?

Should we basically think about that as $200 million and $200 million?

So take $550 million and take out a couple of hundred million for Moss?

It could be.

The good news is -- so there's a couple of things we could do if we wanted to manage cash and -- for '19, because it's really just a '19 issue at the end of the day.

We could do a construction financing, and then -- or we can work with our suppliers in terms of timing of payments.

There's all kinds of things we could do around how we end up paying the cash out the door for that project.

And so I think for modeling purposes, I think if you said $200 million and $200 million, that's probably fair enough, or you split it half and half.

But I think we can optimize around that.

And I think that will really depend on what the opportunities are from a capital allocation standpoint, whether that be additional share repurchases or whether that would be a recurring dividend and the timing of that recurring dividend.

There could be other sources of cash that may come in as well that we may use against that as well.

So I think we have -- the good news is it's a '19 issue.

I think it's a good issue to have.

We can manage it, and we could actually push more into '20 if we wanted to.

Excellent.

And then just turning to Slide 25 real quickly and the commercial ops.

Maybe this is a Steve question.

Just can you elaborate a little bit versus 1Q versus 2Q?

You've had some changes in estimated generation.

If you multiply relative to the estimated '19 realized price, doesn't seem like too much of a change.

But can you elaborate a little bit on some of the puts and takes going on there, might it be slightly lower across all the regions?

I can start, Steve, with at least one thing.

If you're talking about ERCOT, which I think is probably where most of that shows up, as we've incorporated the Dynegy assets, we've put their combined-cycle plants under our dispatch protocols, and essentially, we're showing less generation during the lower-cost shoulder hours than would've been in the Dynegy forecast.

Yes basically, it's cycling the combined cycles a little bit more in our model that it did in the Dynegy models previously.

Julian, I'll add something.

We did a study before.

I think this is helpful.

When you think about combined-cycle plants and given their ability to cycle on and off, that movement, about 80% of the run time for combined cycles is in the money.

The other sort of 20% of that is generally at sort of a breakeven-type pricing.

And so if volumes move within that band, it really doesn't move margin at all.

And we've modeled that, and not only modeled it, we then have back-tested it with reality, and so there's just not a lot of margin in those hours.

Got it.

So hence -- at the end of the day, the '19 expectations aren't really moving around all that much, especially practically speaking, giving this was always your expectation of combined-cycle output on low margin?

That's right, yes.

Your next question comes from the line of Abe Azar with Deutsche Bank.

Can you talk about the hedging strategy, why you hedged natural gas more aggressively than heat rate in the second quarter?

Yes, sure.

Steve, go ahead.

Sure, I can take that.

We -- when we looked at the production growth associated gas coming out of places like the Permian, with strong oil prices, that continues to grow pretty rapidly.

In addition, the Freeport LNG was delayed.

So when we looked at the combination of those 2 events, we just thought there was more probability of downside in gas than upside.

So we wanted to kind of take that risk out, which is why we increased our hedge percentage pretty dramatically, up to around 91% in the 2019 period.

And Abe, I'll add.

We're pretty bearish at a point with gas in the next couple of years.

I mean, there's just a ton of gas that keeps coming.

And the one thing on -- I can't get into any of the details.

But we have ways of doing this, too, where we basically stop out the downside.

And we do that on an almost costless basis, and we give up some of the upside on gas.

And because our skew was more to the downside on gas, we're willing to give that upside away, and we're able to hit our $3 billion plus EBITDA target.

So while you're giving a little bit of upside away, you're preserving a band of upside in the way that we do this.

And -- but the key is you're really protecting your downside, which is where we see the greater probability of occurrence.

Great.

Follow-up is what have you learned about supply-and-demand balance in Texas from this summer that informs your view of future tightness?

Is there anything in the way the supply stack performed that makes it kind of different than your assumptions going into the summer?

Well, I'll answer, and then Steve, if you want to add to it, you can.

The fleet, meaning the entire ERCOT fleet of assets, has outperformed the summer, meaning in the last -- relative to the last 3 years, outages have been, I'd say, materially below.

And so you could argue that's a good thing for keeping the lights on, right?

But I think it has -- I think people got prepared.

They saw it coming.

They did the investments they needed for the summer.

And so far, they have performed.

The real question is if you get another heat wave or 2, what happens here is that you get the fatigue of some of the plants, and we'll see what happens.

But so far, I think that has outperformed in the market from what we've seen.

I think it was largely within expectations.

We did see a little bit of supply come in imported that we were not expecting to come in, and I think it came in -- Steve, you want to just mention that?

Sure, up in the Panhandle.

The only real issue I would say is that there's units up in the Panhandle that are in SPP that can switch back and forth.

And so they switched into ERCOT, and were able to flow over the Panhandle lines because the Panhandle wind was low.

That's really the only, I guess, material issue that we'd have to watch.

And that's not that huge a surprise, although we hadn't seen it recently but that's because prices have been dead.

And so to have that swing in, I think, wasn't a huge surprise to us but it did happen, and that's because we had strong pricing.

So I think -- but other than that, though, Abe, it largely has come in the way that we saw it come in, and I think we were prepared for it, the good news is, too, our integrated model worked.

I mean, our generation generated value in our -- in some cases, our retail business had higher costs for the incremental volumes.

But those 2, the generation was more than offsetting.

So at the end of the day, I think it worked out pretty darn well for us.

Great.

And then shifting gears a bit.

Is there an opportunity to sell the assets from the Asset Closure segment, such that you don't have an ongoing liability similar to the way some companies have divested the nuclear plants recently?

Yes.

The short answer to that is yes.

We have not baked that in.

That's an optimization opportunity.

We're actually in the process of running an RFP for a number of these to scrap -- sort of scrap metal guys and others, as appropriate, and I would -- I expect us to manage that liability down.

But we're being conservative, and we haven't -- we have not put that against it.

But I think Dynegy did that at Brayton Point.

You saw that, and that was a significant reduction in what they would have had to end up paying on that.

And you can expect that we will be looking to do the same.

I think one thing I do want to make a point about, though, is that on the remediation as it relates to the mines, we have to do that work.

I think we could offload it to somebody else if they wanted that land, and there is interest in it, but we -- the point being is with the dismantlement and recovery of a site with a power plant, you have some time to do that.

There's nothing that's compelling you that you have to do it, so you can wait for scrap metal to be -- in the markets to be better.

As it relates to the remediation of mines, you have to do that pretty much immediately after you shut those down.

And then ash ponds, you have a timeframe but it's relatively near term.

We have a little bit of flexibility around it.

But that's why we're out right now trying to run some of these RFPs because we want to get out in front of this.

So we could see a meaningful change in this liability if we can do that, but we didn't -- we don't know that and so we didn't want to bet on it.

Your next question comes from the line of Michael Weinstein with Crédit Suisse.

Steve, maybe you could talk a little bit about -- you mentioned how it's puzzling that the tightness doesn't extend beyond 1 year.

In your conversations with other market participants and ERCOT, what's the driving factor that you see behind the reason why people aren't willing to buy, I guess, beyond 1 year at this point?

I think it's driven by 2 things.

One is the contract period for retailers.

They don't typically buy 3 to 5 years, right?

There's a lot of buying typically on the front.

So that's just we'll call it supply-demand dynamic.

I think the other thing is just, this is kind of a show-me market.

We've historically seen either strategics, like other companies come in like Exelon, previously building combined cycles on balance sheet, and prior to that, we saw Panda come in and financing it.

So I think people are kind of waiting and seeing to see if there's any type of irrational build.

But I think it's a combination of those 2 factors.

That makes sense.

Also, just generally speaking, the 60% cash flow conversion rate from EBITDA, is that a kind of -- do you look at that as a fixed number going forward?

Or is that something that trends in an upward direction over time?

I'm just curious.

I'm sorry, could you say that again?

(inaudible)

Yes, more for Bill.

The 60% cash flow conversion rate, just wondering if that's something that is sort of -- you view that as a kind of a consistent constant over time?

Or is that something that trends in one direction or another?

Yes.

I think it generally is on average 60% over time.

Now Curt did mention that we have the potential to do some things going forward, like additional transactions to reduce interest expense.

Those types of things could become a net pickup for the balance of the forecast and the free cash flow conversion ratio.

And the extra $50 million that seems to be available for the second half of the capital allocation program, is that -- that's driven mostly by the results so far this year.

Is that safe to say?

Yes.

I mean -- no.

I think the biggest change is when we completed all the secured debt financing transactions that we closed in mid-June, we were able to get a revolving credit facility that was $2.5 billion.

The combined company -- the sum of the 2 revolvers for the -- that we had before that were a little bit less than that.

So we've got -- essentially, we were able to reduce our minimum cash requirement by about $100 million, and that's what grew into the cash available.

Got you.

And then one other thing.

I think Curt, you mentioned -- you may have just misspoke or maybe this was just kind of an off-the-record comment, but I think you said you would definitely be including more buybacks in 2019.

Obviously, that's going to be pending a board decision.

But is that something that you see is at least part of the capital allocation would be part of it but almost definitely certainly be additional buybacks in addition to everything else?

No, I think it's a function of where our stock trades relative to what we see is the value.

So I -- what I was trying to make a point is that I think we've got a couple of good allocation opportunities.

One is our shares, if they're attractive, but two is a recurring dividend.

And I think other than paying down debt, those would be, likely be the things that we would look at doing.

Bill mentioned that we may do some things that -- what I would refer to as an investment in our balance sheet that may reuse a little bit of cash.

But overall, I think our focus is pretty clear.

It's pay down debt and then have some allocation opportunities that would return capital to shareholders.

And then there's, of course, some other things that we may end up doing that might shore up the cash picture of the company.

We might rationalize the portfolio a little bit if -- we may consider that, clearly, looking at the Illinois fleet and rationalizing that, if that's what the answer becomes.

All can be helpful in the cash picture of the company, and -- but I think those are the real focus for us over the next 6 months.

I had just one last question on that same point.

Asset rationalization, you -- in the past, you talked about California and, as you just mentioned, Illinois and possibly the one asset you have in New York.

When do you think those decisions could be made?

Is that more of a 2019 issue as well?

Well, I think the MISO strategy is going to play out over multiple periods, I'd say as early as maybe later this year and into '19.

We have some decisions to make, and I think the sooner the better on that, right?

If we're losing money, we have to make some choices, and you would expect us to do that.

Independence plant is a very good plant.

We're actually looking at how Independence could play in terms of the other markets that are adjacent to New York and whether there's other opportunities.

So we haven't made any decisions around Independence, and we don't feel compelled to do that.

It would have to be a pretty strong value proposition, and it would have to be accretive to us to do that transaction.

In California, we're building a nice little business with the 300-megawatt battery installation.

We've got a good combined-cycle plant that we think will be useful over the next several years.

That site at Moss Landing has additional opportunity for batteries to be put in there, and we know that California's going to continue to grow their RPS.

And so there's going to be need for more batteries, and we can work with PG&E around that.

And then Oakland, even though it's a smaller site, we'll have -- we think that is a perfect place to put a battery installation.

They need to do something because they're going to shut the current -- or we're going to basically retire the current plant because the RMR contract's going to go away, and they need that site.

It's a perfect site for battery installation.

So I think we could develop a nice little business in California.

So that's what we're thinking about now is in California.

But I think MISO is where you would probably see more near-term action because we can't sit here and wait for legislators or FERC or others to save us.

We've got to save ourselves.

Your next question comes from the line of Angie Storozynski with Macquarie.

Most of my questions have been asked and answered, but you made a comment about growing your retail customer account.

Given that what has happened so far this summer in Texas and your past [mission] to maybe be grow the business through acquisitions, does it change your perspective?

Do you think that the summer is going to make it more difficult to actually acquire large retail books in Texas?

And in the absence of that, do you think that there is a way to grow this business organically?

Yes.

So a couple of things.

One, I think the volatility and higher prices actually make it more favorable to buy books in ERCOT, and that increase in customer count that we've experienced -- in fact, I remind everybody that we're now growing customers.

We had -- our net attrition was down to 0.5%.

We're growing customers this year.

I think it's a direct result of that phenomenon, is that people -- whether people actively go because they want to be with somebody that's a stronger, bigger entity or whether that entity raises their prices in response to spikes in prices and then that activates them to come to somebody like us, we've seen it happen.

And then we think we're going to continue to pick that up.

And if we continue to see tightness in this market, I think our ERCOT book is only going to benefit from that.

I think what's more important than anything though, is picking up the customer is one thing, but typically, because of the way we work with customers, we can keep those customers for a number of years.

And that's really powerful for us to be able to get the customer, number one, and then retain the customer, and we've been able to do that.

We saw this before in ERCOT where we were able to pick up customers, and we retained them for a while.

So this is really an advantaged situation for us, and this is purely organic, really.

With regard to growth, we've looked at a lot of books, and we just haven't found something that we feel comfortable with.

And there's a number of reasons why, but whether it's value or whether it's a combination of that and we just -- we don't like the business model, whatever it might be, maybe you can call us picky, but that's precisely what we are when it comes to buying something in retail because you got to make sure it's real, and we worry about that.

So what we are doing, because we picked up a nice footprint out of Dynegy, is that we are going to put an effort together, and we are already embarking on it, to grow our retail business organically outside of ERCOT.

And we'll do that prudent.

We'll do it methodically.

We're not going to get out over our skis and put a ton of money into it.

But we're going to basically have a prudent effort to grow our retail business on an organic basis.

We're -- we've done the work.

And anybody who's grown this business on an organic basis, it's -- you shouldn't expect it to be $200 million, like NRG came out with.

It's not going to be that.

And NRG hasn't performed that kind of number.

If you're going to grow at $200 million or something like that, we think you have to buy something.

Could we find something at some point in time to acquire?

Maybe.

But I just -- I don't see it right now in the near term.

And we would be interested if there was a retailer that had an ERCOT position because we can get larger in ERCOT.

We would be interested in buying selected books.

If somebody was struggling and we saw a value proposition, we would do that.

We would step in and do it.

We've looked at one and maybe others, I don't know, but I do know that we would be open to that.

But we think this is a time of opportunity for us for retail, in ERCOT, in particular.

This concludes the question-and-answer portion of our call.

I'd now like to turn the call over to Mr. Curt Morgan for closing remarks.

Well, thanks, again, for joining us on our Q2 2018 Earnings Call, and I'm sure we'll be talking to you soon.

Thank you very much for your interest in Vistra.

This concludes today's conference call.

You may now disconnect.