Vistra Corp (VST) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Vistra Second Quarter 2020 Results Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Ms. Molly Sorg. Thank you. Please go ahead, Molly.

Thank you, and good morning, everyone. Welcome to Vistra's investor webcast covering second quarter 2020 results, which is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. Also available on our website are a copy of today's investor presentation, our Form 10-Q and the related earnings release.

Joining me for today's call are Curt Morgan, President and Chief Executive Officer; and David Campbell, Executive Vice President and Chief Financial Officer. We have a few additional senior executives on the call to address questions in the second part of today's webcast 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 that 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. We assume no obligation to update our forward-looking statements.

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 provided 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 especially during these uncertain times.

Cases of COVID-19 have been rising throughout the country, including in many of the states where we operate. Cities are facing social unrest as citizens are fighting for equality and demanding change, while the political climate is polarizing and masked by uncertainty heading into this presidential election season. While it all seems overwhelming, I remain convinced that we will get through this and we will be better than ever. I have seen proof of the resiliency of the American people through the lens of our own team members and their dedication and commitment to keeping the lights on in the face of these macro challenges. And instead of the strife in our country dividing us, we have rallied together as a team and as a family, seeking a better understanding of one another and recognizing that the only way we advance as a company and as a country is to listen and take action to ensuring quality for all. We say at Vistra, we want to be a company that works for everyone.

Our people are our #1 asset, and they have continued to show up day after day to maintain the level of operational excellence our stakeholders expect from us and our customers deserve. The second quarter results we are announcing today are evidence of this dedication.

On Slide 6, we show our strong second quarter and year-to-date results. In the second quarter, Vistra delivered adjusted EBITDA from ongoing operations of $929 million, which is 30% above second quarter 2019 results. The quarter-over-quarter favorability was driven by the acquisitions of Crius and Ambit in the second half of 2019 as well as strong execution by our retail, generation and commercial teams. Specifically, our retail team grew customer counts in the second quarter in all 5 of our ERCOT residential retail brands, all while earning all-time highs in our post-interaction customer surveys, reflecting our team's laser focus on maintaining superior customer service levels during this pandemic.

Our generation team executed 86 spring maintenance outages in the first half of the year. Our overall performance came in on time and under budget despite the challenges presented by COVID-19, positioning our fleet to be available for the critical summer months.

In addition, our teams continue to drive savings and revenue enhancements through the ongoing execution of our operations performance improvement initiative, which we expect will deliver an incremental $100 million of adjusted EBITDA in 2020, reaching an annual run rate of nearly $700 million by year-end.

And last, our commercial team once again optimized the value of our generation fleet through hedging and optimization transactions. Vistra's second quarter 2020 financial results benefited from both portfolio positioning executed in anticipation of COVID-19 as well as from higher hedged energy margin realized in ERCOT and PJM.

Vistra delivered year-to-date adjusted EBITDA from ongoing operations of $1.779 billion, results that are tracking ahead of expectations for the period and solidly above 2019 results by more than 15%, further evidence of the resiliency of the integrated model.

As a result of this strong performance through the first half of the year, we are reaffirming our 2020 guidance ranges for both ongoing operations adjusted EBITDA and ongoing operations adjusted free cash flow before growth, as set forth on Slide 6.

And while it is early in the year to formally reset our guidance ranges with the important summer months ahead, we are currently tracking above the midpoint of our 2020 guidance ranges.

As it relates to the potential impacts from COVID-19 that we outlined on our first quarter earnings call in May, year-to-date results would indicate that these initial estimates could prove to be overstated, particularly with respect to bad debt, though we will continue to monitor the situation, especially given the recent increase in COVID cases in Texas and now that the federal unemployment benefits have expired as of July 31. Despite the political wrangling in D.C., we continue to believe there will be a phase 4 stimulus package that will help bolster the economy, although perhaps the unemployment benefits will not be at the same level. After all, it is an election year and neither side wants to come up short when it comes to helping voters.

On retail volumes, in the second quarter, residential usage were just approximately 5%, while business volumes were down anywhere from 5% to 15% during the quarter, with significant improvement in demand seen across all markets by the end of the quarter as states began to reopen.

Importantly, data suggests that ERCOT demand is now virtually flat to expected pre-COVID levels, even with the rising cases in the state, as we depict on Slide 7. On this slide, we have updated the demand decline impacts we are seeing across each of our markets as of mid to late July as compared to those we observed in April of this year. ERCOT, the market where we derive approximately 70% of our adjusted EBITDA is the most resilient, with peak demand already back to expected pre-COVID levels. The balance of the markets where we operate are also showing meaningful recovery with demand within 1% to 5% of expected pre-COVID levels across the board. This strong recovery in demand, particularly in ERCOT, is a positive data point for our 2021 outlook, bringing us to Slide 8.

Vistra's fundamental point of view continues to suggest that our 2021 ongoing operations adjusted EBITDA could track in line with or potentially slightly lower than the 2020 guidance midpoint. Even though forward curves for the summer 2021 peak have recently followed the lows of approximately $80 per megawatt hour, we do not believe this is where the 2021 forward curve will ultimately settle as we have seen this pattern play out in each of the past 3 years. The supply/demand fundamentals remain tight in ERCOT, and we believe stronger pricing than current forwards is supported by our detailed fundamental analysis.

In fact, it has always been our view that estimating Vistra's future EBITDA based on a single point in time on the forward curve marginalizes our opportunistic hedging capabilities and ignores the volatility in the ERCOT forwards and our proven ability to take advantage of this volatility to optimize the value of our fleet. Rather, we have consistently delivered financial results in line with our point of view, reflecting the stability of our integrated operations and strong commercial execution.

To illustrate, the graph on the slide demonstrates how, historically, ERCOT forward curves have risen in the late summer or early fall of the immediately preceding year. It is typically during this time when retailers start to hedge their exposure for the upcoming summer and traders move from the prop summer to the forward summer, increasing liquidity. As such, the forward summer begins to reflect normal weather and supply/demand fundamentals, with less emphasis placed on the specifics and sentiments of the prop seller.

With 2021 reserve margins likely to remain tight, the risk and scarcity pricing remains. We anticipate this risk to persist in the longer term as well, supported by the annual demand growth in Texas, coupled with the market's increasing reliance on intermittent renewable resources during peak hours.

All it takes is 1 week of hot temperatures, in either low wind output or an unplanned outage for scarcity pricing to materialize.

While market participants might be currently bearish summer 2021 because we have yet to see any meaningful scarcity events in 2020, recall that we were in the same place at this time last year. In 2019, we observed a couple of weeks of hot July temperatures in Texas, but wind was also strong and unit performance was exceptional. Scarcity pricing did not materialize and 2020 5x16 summer prices fell to the low 90s per megawatt hour by the end of July. But then in August, we observed 72 15-minute intervals of $1,000 per megawatt hour or higher pricing, including 12 intervals that reached the $9,000 per megawatt hour cap, primarily driven by high temperatures and low wind. It was then that the forward for 2020 started to move higher to reflect the underlying fundamentals with 2020 5x16 summer prices rising more than 50% to approximately $150 per megawatt hour by the end of October.

Much of Texas summer shows its teeth in August and September, so the greatest opportunity for scarcity pricing remains in the forefront. With demand back to expected pre-COVID levels, we expect 2021 forward curves to once again rise this fall in anticipation of another tight summer and we will be there to take advantage of it.

As we illustrate on Slide 9, ERCOT price spikes in recent years have been caused by moderate to strong loads combined with either unplanned outages or low wind or solar output. In 2018 and 2019, ERCOT saw a total of 31 hours where prices were greater than $1,000 per megawatt hour, with 71% of the hours occurring in August, September or October. The average price for these high-priced hours was $2,921 per megawatt hour, which increased the around-the-clock price by $5.17 per megawatt hour. We continue to believe weather will be a critical variable driving the incidence of scarcity pricing intervals, both this and next summer. And with residential demand coming in more than 5% higher-than-expected pre-COVID levels, we could see meaningful new peak demand records as residential demand is both relatively inelastic and more sensitive to temperature swings due to the increase in air conditioning load.

Moreover, we expect year-over-year demand growth in ERCOT to remain strong, necessitating the addition of incremental renewable resources just to keep pace with the higher anticipated load.

It is important to remember that the new resources coming online in ERCOT to serve this load are renewable resources, which by definition, are intermittent in nature. The more the grid relies on these renewable resources to satisfy peak demand, the greater the risk of scarcity intervals occurring in the future.

In summary, all of the necessary ingredients to drive scarcity pricing intervals, both this summer and next are present: tight supply/demand fundamentals, year-over-year demand growth, a recurring theme of delayed or canceled new renewable development and an increasing reliance on intermittent renewable resources to satisfy peak demand. While the Texas weather patterns haven't yet yielded scarcity pricing intervals in the early part of 2020, historical data tells us that it is a question of when, and not if, these events will occur, especially now that we are seeing wind output return to more normal levels. In fact, in the last 2 days, we've seen wind output in the hundreds to low thousands already begin to occur. And if you couple that with high temperatures, you're going to see scarcity value.

Just like in 2019, we expect our company will be ready to perform and capture value when the opportunities present themselves.

We continue to believe our integrated model is well positioned to deliver relatively consistent financial results while generating a substantial amount of free cash flow on an annual basis. It is important to stress that we believe in balance and integration between retail and generation. We are not a short retailer and believe owning generation remains fundamental to risk management, especially as intermittent resources continue to comprise a greater percentage of the supply base. We also have the operational, technical and commercial capabilities to capture attractive stand-alone returns in generation with superior integrated returns. We look forward to talking more about how we plan to allocate our significant capital at our virtual investor event in September.

We have spent most of our time this morning talking about the financial strength of our organization. Of course, our investors are interested in our financial results, but as you all know, ESG is garnering greater and greater interest. We believe that is a good thing. So we would be remiss not to spend some time talking about the value we place on all of our stakeholders, including our employees, customers and communities, including the environment. In fact, 1 of our 4 core principles states, "We care about our key stakeholders, including our people, customers, communities, suppliers and investors." We also are committed to maintain aboveboard honest and ethical relationships with elected officials and regulators. Another one of our core principles is we do business the right way. A just company is a sustainable company that we believe attracts and retains talent, customers and investors.

In the second quarter, our company brought these core principles to the forefront as we continued our long tradition of corporate stewardship and initiated some new programs. One in particular that has meant more to me as a CEO than perhaps any other initiative which I have ever been a part, in June, in response in particular to the George Floyd death, we initiated sessions with our employees, where members of the leadership team came together in small groups with employees to listen to their thoughts and experiences on race in their lives and within the workplace. Something just went off in my mind that life's playing field in this country for people of color, especially African-Americans and Blacks, was still not level as much as I wanted to believe it was. I wanted to believe so badly that we had evolved. The stories our employees shared about the challenges they continue to face most outside of the office, but some within our own walls, simply because of the color of their skin, were sobering. We have now completed 21 listening sessions in just over a month period for a total of about additional 40-hour work week and I have attended every single one of them. The feedback we received during these sessions was invaluable, helping us to identify pockets of issues we must address to unlock the full potential of our employees in our company. As a result, we have new diversity and inclusion initiatives in flight that we are excited to roll out in the weeks and months ahead.

Some of the social issues identified are, of course, bigger than Vistra. But we will start with what we can control. We intend to become more vocal on issues that are occurring outside of our company as well.

In addition to the listening sessions, which were a new initiative for Vistra in the second quarter, we also continue to prioritize the safety of our employees and contractors through the COVID-19 pandemic, while ensuring a reliable electricity supply. We have maintained many initiatives we instituted in the first quarter, including our work-from-home policy for all employees with remote work capabilities, thorough cleaning of our facilities between shifts, temperature testing and then entry questionnaires at all of our locations and requiring facial coverings and distancing where possible. We continue to test employees for antibodies in the virus if they show symptoms or suspect potential infection and support quarantine with pay. In the first half of the year, we shipped our employees and their families more than 5,000 facial coverings to help keep them safe in the public spaces and also sent nearly 30,000 masks to organizations in our local communities, including hospitals. We have similarly continued to support our customers, launching our 22nd annual Beat the Heat program by tripling the funding due to COVID. Beat the Heat is a critical program, including drive-thru distributions of new air conditioning units and fans, education on heat safety, tips for saving on energy costs and financial assistance for TXU Energy customers. In total, we assisted 4,400 customers impacted by COVID-19 pay their electric bills through $1.1 million in donations to TXU Energy Aid, which is in addition to the $2 million we donated to nonprofits and social service agencies for COVID-19 relief.

Similarly, in June, with a focus towards social justice and equity, we made a commitment to donate $10 million over the next 5 years to support the advancement of business and education in diverse communities, including enhancing our minority, women, veteran and LGBTQ+ supplier programs.

In the second quarter, we also enhanced our environmental stewardship initiatives by publishing our 2019 Sustainability Report that, for the first time, adopts the Global Reporting Initiative and Sustainability Accounting Standards Board frameworks. A link to our sustainability report is available on Slide 10. We recognize the importance of providing complete and transparent information to the many stakeholders who have interest in our ESG-related activities, and the publication of our 2019 Sustainability Report in June was the first step toward enhancing these disclosures.

This fall, we intend to publish a climate report, adopting the task force on climate-related financial disclosures framework. So please keep an eye on the Sustainability section of our website for the latest news and events around our social, economic and environmental initiatives.

On the development front, in the second quarter, we announced the expansion of both of our battery energy storage projects in California. Phase 2 of the Moss Landing project will add an additional 100 megawatts for a total of 400 megawatts, with commercial operations expected to begin prior to August 2021.

In addition, we increased the capacity of our Oakland project by more than 80%. As a result, we now have nearly 450 megawatts of battery energy storage developments under contract in California, with another nearly 3,000 megawatts of solar and battery storage projects in our development pipeline, primarily in ERCOT.

We believe these projects are only the start of Vistra's expansion into zero carbon-generating assets with our market-leading commercial team, development project management skills, technical prowess, operational and maintenance capabilities and attractive sites. We are a natural owner of these assets. We know how to manage the volatility and risk associated with renewables. And we serve nearly 5 million retail customers who are increasingly seeking to procure their electricity needs from renewable resources. We are also a large purchaser of renewables through long-term agreements with over 1,000 megawatts contracted. We plan to provide more details regarding our near-term renewable investment pipeline during our virtual investor event on September 29.

Before I turn the call over to David, I did want to comment on a federal rule the Environmental Protection Agency finalized last week relating to coal combustion residuals. We have mentioned this pending rule in the past, as we believe it will have far-reaching implications for the power sector. At a very high level, the rule requires certain coal plants that dispose of coal ash and surface impoundments to either make necessary capital investments and operating changes to bring these coal ash disposal sites into compliance with the federal rule or to permanently retire by 2023 or 2028, depending on the size of the surface impoundment. Importantly, decisions on compliance must be made by the end of November this year.

Now that the rules have been finalized and will be published in the Federal Register in the next couple of weeks, we are fine-tuning the steps we plan to take in each of our impacted sites. We expect to provide formal details of our plans on a site level basis at our virtual investor event in September. It is important to note that our valuation suggests that there are several coal plants, especially in PJM, that will be under pressure due to this rulemaking.

As I close this morning, I want to reiterate that Vistra is committed to lead as we strive to achieve a safe, inclusive and environmentally conscious company and one that is a positive contributor to society. In doing so, we expect we will be able to create a sustainable company that can produce enduring value for all of our stakeholders in both the near and long term, reaching its fair and full value.

I will now turn the call over to David Campbell.

Thank you, Curt. As shown on Slide 12, Vistra delivered another strong quarter, with adjusted EBITDA from ongoing operations of $929 million, which was $212 million higher than the same period in 2019.

Our retail segment increased by $108 million period-over-period and our generation segments were up a collective $104 million.

The positive year-over-year variance for our ongoing operations was driven by the acquisitions of Crius and Ambit and favorability in our ERCOT and PJM segments, reflecting our operations performance improvement initiatives and commercial optimization contributing to higher energy margin.

As a reminder, due to the retirement of 4 coal plants in our MISO segment in the fourth quarter of 2019 and the associated movement of the financial results of those plants into the Asset Closure segment, our 2019 results have been recast, increasing ongoing operations adjusted EBITDA by $9 million in the first quarter of 2019 and $10 million in the second quarter of 2019.

Year-to-date, Vistra's ongoing operations adjusted EBITDA is $1.779 billion or $238 million higher than our comparable 2019 results. The favorability is driven by the acquisitions of Crius and Ambit as well as higher energy margins in our ERCOT and PJM segments.

In both the second quarter and the first half of the year, Vistra's financial results are coming in ahead of management expectations. As a result, Vistra is currently tracking toward the upper half of its guidance range.

Turning now to Slide 13. Vistra remains committed to reducing our leverage in 2020 as we approach our long-term leverage target of 2.5x net debt to EBITDA. As of July 31, we have paid down nearly $750 million of debt in 2020, including the redemption of the entire $500 million principal amount of our 5.875% senior unsecured notes due 2023 as well as redemption of the entire $166 million principal amount of our 8.125% senior unsecured notes due 2026.

Last week, we also announced that our Board of Directors approved our third quarter dividend of $0.135 or $0.54 per share on an annual basis, which represents an 8% increase from the annual dividend we paid in 2019.

We plan to provide details regarding our long-term capital allocation plan at our virtual investor event on September 29. You can expect that our plan for 2021 and beyond will remain aligned with our core tenets of maintaining a strong balance sheet, being opportunistic and disciplined with respect to growth investments, investing in retail and renewable growth opportunities only when our internal return thresholds are met and, in aggregate, returning most of the cash available for allocation to our shareholders in the form of dividends and share repurchases.

As part of our virtual investor event in September, we plan to provide details regarding a 2-year share repurchase program as well as a multiyear dividend announcement. A high-level agenda of planned topics for the event can be found on Slide 14.

We also expect to update our 2020 guidance, introduce preliminary 2021 guidance and describe our plans to further transform our generation portfolio between now and 2030.

On the portfolio side, we plan to provide additional details regarding our expected reduction in coal exposure over the next decade as well as details about our current growth pipeline. It should be an exciting event and we hope you'll be able to join us.

In closing, Vistra's strong financial performance through the first half of 2020, in the midst of a global pandemic, continues to support what we believe is our attractive value proposition, which is our ability to deliver consistent financial results with a high conversion of EBITDA to cash flow as well as capture value through high-return investments and acquisitions. Our low-debt, low-cost integrated model can and does deliver.

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

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

It's actually James for Shar. Congrats on a great quarter and looking forward to September. I just have 2 quick questions for you. Building off of some of your COVID data points, are you seeing or expecting any inorganic retail opportunities to arise in Texas or the East due to the virus? Any stress on smaller books?

Well yes, we -- I mean, we have seen pockets of books and companies that have seen some signs of stress. The summer hasn't shown up here yet in ERCOT and so that has provided some relief for some of those companies. But we could see that and we're active, as you might guess. And most people are going to come to us before they transact with somebody else. So we're in the flow on that and we are seeing some of it. And I would expect if we see what we think we're going to see in terms of scarcity value, particularly in ERCOT, we may see some more of those books come available.

I will say that when we evaluate those, we're obviously looking for quality books, it can extend beyond a year. And some of these companies have -- the value of their company is atrophied because they may be door-to-door, more face-to-face-type contact. And what's happening with the virus, those types of channels have been a little more difficult. And so you've got to really dig under and just make sure you're getting something of value. And we're not going to do a deal just to do one. We want to make sure we get value.

I don't know, Jim Burke's on the line. And Jim oversees over our retail business. Do you want to add anything to that?

Curt, I think you covered it well. The only thing I would add is that, with some of the COVID impacts having a little bit more focus on the business impacts to demand, some of the lower-margin business-focused books are seeing a little bit more pressure than some of the residential books. But in general, the theme that Curt mentioned that the summer hasn't shown up yet in ERCOT, is probably the prevailing consideration and we are constantly monitoring the market for these opportunities.

Got you. And then this one might be more for David, but could you give us an update maybe on the conversations with the rating agencies? Are you still targeting investment grade maybe by the end of next year? Or has that kind of slipped to '22?

Yes, David. You there?

Yes. So the conversations with the agencies continue to go well. The -- with S&P, they've indicated and right now they've got us some positive outlook for getting the BB+. And they've indicated that, that review will happen as early as the third quarter. That's possible they'll wait for the third quarter results. We expect that, that review will happen as early as the third quarter of this year. And they haven't put a fixed time line out for consideration to investment grade, but that often can take a year or so afterwards.

Moody's is on a faster trajectory. They and their -- when they upgraded us to the equivalent of BB+, indicated that they would consider an upgrade as early as the middle part of 2021.

So obviously, we don't control the time line. We expect it's going to be next year, middle or latter part of next year. But the key thing is that I think the agencies have both recognized and affirmed that the strength of our company through the pandemic and through the financial crisis is something -- related, crisis related to the pandemic is something that they're watching and evaluating and can help to reinforce the resiliency of our business and our business model. And we think this quarter's results and our expectation is that you're willing to reinforce that. So we think we're on a positive trajectory with both the agencies.

And your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

So if I can ask a couple of questions. Let me just start first with a high-level question. As you think about this larger update in the next couple of months, how do you think about growth investments and where you want to be positioned on that front? And I'm thinking specifically on storage, but also just in terms of generation, you've seen your peers enter more into PPA structures to further align their generation business with retail. How do you see the growth side of the equation initially coming in? And I know this is, to a certain extent, preempting some of your updates coming ahead here, but just think more strategically here on growth as part of the capital allocation. Where are you going with that?

Yes. Julien, thanks for the question. And I tried to allude a little bit in the comments to this, and I will say, obviously, some for September, some of the details, but I think more at a 10,000-foot level strategically and I made a very specific comment for a good reason. I think we may think a little bit differently than or maybe other competitors do. But we kind of balance between having investment in physical assets, in generation and in new technologies, renewables and batteries and PPAs. Like I said, we've got over 1,000 megawatts of PPAs as well as we've invested in batteries in California, we put up in 2 which is a battery.

And I think you should expect us to do the same. I mean there are times where we have opportunities to sign up a PPA that is good value and we may back-to-back that with a retail deal.

And then we also have times where we have because of a location we might have or because of our retail business and also because of our commercial capabilities and our ability to manage projects, those types of things, we have the capability to also invest in solar, predominantly solar and batteries. Of course, we've got a really good location in Moss Landing and then also Oakland in California. You can only imagine, given the size of our company in Texas, we've got a number of really good sites. And when it comes to renewables and batteries, it's kind of like real estate. It's location, location, location. And I think there's an opportunity for us to use our skills and capabilities as well as our locations and to invest in assets as well. And we like that balance. We like a balance of both new technology investments and then we also like the balance of PPAs.

I'm also a little concerned right now about the depth of the PPA market. And so also, you don't want to put your eggs all in one basket because you're going to try to cover a short position with PPAs and the PPAs are not there, then you got to go to something else and lean on the market.

And so we like a balanced approach and that also manifests itself in a balanced capital allocation plan. And that means we're going to put a little bit of money back into our company and we're going to put a lot of the money back to the shareholder. And that's -- we're going to get into very -- into the very detailed specifics of that and our overall portfolio and how we expect to manage it in September.

And so we just want to see this summer play out a little bit. And I think we're -- by the time we get to September, we'll be in a very good place to lay all that out. But we do see ourselves as a balanced and integrated player with a balanced mix of assets and PPAs and that we are going to deploy some capital into projects that we know we have an advantage and have superior returns.

And we've also said, if we don't find those, if we don't have those, and we'll be able to get into the details in September, then we're plenty fine with returning capital to shareholders. In fact, we're excited about the fact that we're getting our debt down to the level now where we have to allocate less and less to debt paydown and we can now start to allocate more and more to returning capital to shareholders.

Julien, you still there?

And looks like we might have lost Julien. Julien, are you on mute?

Maybe we can get him back on here in a minute.

Okay. And we'll move on to the next question. And your next question comes from Michael Weinstein with Crédit Suisse.

Is there any reason why you're tracking in the upper half of the guidance range? Is there any reason why the second half of the year might bring that back down to the midpoint of the range at this point? I mean is there -- are there any specific things you're looking at? Or is it just COVID-19 uncertainty that we should be worried about?

Well look, I think certainly, COVID-19, and we still continue to believe that we may do better on the bad debt expense side. But you just don't know. And like we said in our remarks, I'm a little worried about the additional unemployment and insurance payments coming off at the end of July. We think that's been helpful, people paying their bills. And we want to tread a little bit lightly, you guys know the cases in Texas have exploded. And this is really uncharted waters. So -- and then that's one of the things that I think could be a place where we might give something back. We haven't played out the whole summer out yet and we still carry a little bit of length in the summer. And so we'd like to see how that plays out.

But I think we were also trying to say in our remarks that we feel pretty good about where we are at this point in time. And so we didn't want to change the ranges. We typically don't do it this early. I think we'll probably talk about that in September. That's even earlier than we normally do. But I think we're going to be in a position to talk about '20 in the range then in September.

I think for us and you know us well, I think you do, for us to even talk about the fact that we're tracking above the midpoint, I think, tells you that we're feeling good about 2020. But I do want to emphasize, there is still -- there are still some things out there that we want to keep an eye on for the remainder of the year, but we're feeling good about it.

And I don't know, David, if there's anything you want to specifically mention, please jump in.

Curt, I'd just emphasize where you closed, is that we feel good about how we're tracking, even our commentary. I think you can see, Michael, in the script, reflects our view that we're tracking well. So Q3 is always a big quarter for us, so that's why we typically don't update the range at this time of year, but we're feeling good about how we're tracking. The business has performed well. And it's an unusual year. So that, plus the normal dynamics of Q3 being our biggest quarter, are why we haven't changed the range, but still signaling the strength. Go ahead.

Sorry about that, David. I will mention this, Michael, that I think people -- I think they now know this about us, but we kind of have a balanced year that we have. So the retail does pretty good and can do pretty well in the shoulder months where the supply cost, because we have a levelized retail price where the supply costs are lower. And then in the summer, we don't make as much money in retail, although we're doing pretty well, obviously, right now. And then in the winter months, in the fall and the winter, we get that lower supply cost again. And so it's important that volumes stay strong for us in the remainder of the year on the retail side. So October can be a big month for us. November and December can be big months on the retail side.

And if you get -- if you had a situation where in Texas, you had an issue with demand because of COVID, that might be a little bit of a drag. We're not seeing that, though. We haven't seen it through -- up to now, and we've seen, obviously, a lot of cases. And so we're pretty optimistic that we're not going to see it. But also the relief program in ERCOT is coming off at the end of August. And so all those things are going to factor into what's going to happen with our retail business for the remainder of the year. We're optimistic, but we want to keep an eye on it, and we've provisioned for it, too. And when we're telling you where we think we're going to be, we also take into account that we do think that there could be higher bad debt expense than we normally have.

Right. And one place you mentioned about that renewable investments would only be done if it meets your return criteria. How does that look now? Are renewable investments presenting some attractive return possibilities for you? And I'm not just talking about just in Texas, but maybe in other states, where gas and electric prices might be a little higher.

Yes. So there are opportunities out there for people like us that have the locations, the capabilities, have the integrated nature of the business. You can see what I'd call attractive returns. And we're going to get more into that. And we'll actually -- in September, when we go through this, we'll actually show you how that builds up. Because I know what people have in their mind, they have a PPA, sort of what the returns are for some of the developers that are putting these projects out there. And they're wondering, how are you making something that looks attractive? Somebody's getting that value. That value exists given where market prices are clearing in ERCOT. It's who's getting it. And so the developer wants to get paid the development fee and they need to get financing to get the project to go. So they need a PPA with an investment-grade firm in order to do that. And then somebody, the investment-grade firm, is getting the value. How they choose to monetize that value is up to them. They can sell the PPA to us and we can back-to-back it with a retail deal. They can take it to the market. Many of these guys don't want to take it to the market because there's risk taking it to the market. And if you don't have the capability to do that, then you don't want that risk. And so you're going to offlay that risk. But the value is in the market.

And as we move more and more, Michael, to merchant investment, because not everything in Texas or across this country can be built through a PPA structure, when we get to the point where somebody has to put down real dollars per merchant, then the kind of returns that we're looking for and that we see, they're justified. They need to be there in order to justify the risk. And then you have to have the capability. You have to deal with basis risk and market risk and weather risk and all of those things that go into it. We have that ability to do that. We've got a whole infrastructure that knows how to do that. Not everybody knows how to do that.

And so -- but we are seeing the opportunity, and we're one of the -- in my view, one of the view players that really have the integrated nature and the capabilities to actually monetize and to extract those kind of returns.

And your next question comes from the line of Jonathan Arnold with Vertical Research Partners.

Just one quick question on the retail side. I saw the customer count versus March came down maybe about 1%. And your -- but your slide says you grew counts in ERCOT across all classes. So I'm presuming other regions saw customer accounts come in and maybe that was partly sort of intentional. But could you just give us some perspective on what's going on there?

Yes. David, do you want -- so Jonathan, to be clear, do you want us to talk about what's going on like in the PJM area, ISO New England, just what's going on with customer counts there as well as ERCOT? I just want to make sure that I got the question right.

If you could touch both, and just to make correct that the counts did come down in PJM or elsewhere.

All right.

This is Jim. I'm happy to take it.

Yes. Go ahead, Jim. Yes. Go ahead, Jim.

Yes. Jonathan, so we had talked on the last call that a couple of our partners, the brands that we acquired, Crius and Ambit, are more dependent on face-to-face selling and the Midwest, Northeast markets have had some of the biggest restrictions on face-to-face selling. So Crius and Ambit, for instance, did well in Texas. Texas reopened in mid-June to allow some face-to-face selling. Many of the other markets, particularly Illinois and Ohio, where we've got sizable presence, have not reopened yet. So the quarter 1 to quarter 2 drop is largely a function of the markets not enabling that kind of channel performance.

We have moved to other channels. There's more online activity that you would expect. There's definitely more. We're doing through the phones, but not through face-to-face selling. So that's the main driver. And fortunately, the strong ERCOT performance of TXU as well as the other brands in ERCOT more than overcame that in the quarter. And that -- and we see sort of the full year playing out in a similar fashion.

Perfect. And then just kind of one question on -- last quarter, you had talked about your point of view, and you'd also had a specific comment on what you -- where you thought '21 would track relative to 2020 based on the March forward curves. I mean they don't seem to have moved very much. So I'm curious if that prior comment still stands or if hedging and other things might have moved the needle there.

Yes. So I think we're pretty much where we were. We see -- we were trying to convey a message that we're kind of flattish to midpoint guidance from 2020, which was, I think it's like [3 4, 3 5,], we're kind of flattish to lower.

We also, I think, if you remember, Jonathan, we said that we had stressed down further than that, and we were within 10% of EBITDA. But that was to give you guys a sense, because we were getting feedback from people that -- especially we were really in the throes of COVID and it was really new at the time, they wanted to see what a stress case would look like. But I think where we are right now is we're sort of flattish to slightly lower. And that was similar to where we had come out last time. We haven't seen anything yet that would change that view, and we'll probably know more because we'll be through most of the summer and into September. We'll also be able to see where the '21 curves go as we roll out of the summer and into that fall period that we showed on that graphic where you start to see people turning their attention to the next summer. And that's where you get liquidity, and that's where pricing starts to firm up. Some of that pricing is supported by what happens in the summer, people -- the prompt summer. People like to look and see, well, was there scarcity or when conditions for scarcity showed up, didn't show up. That kind of thing does affect the market. And so we'll see where the rest of the summer goes. But if we get some high temperatures and low wind, people will be looking to see how the market reacts to that. All that sort of factors into affecting the forward curves. And for us, I think you know this, we would prefer to hedge up most of our long exposure in ERCOT, in particular, as we go into the next year, and then fill in the gaps throughout the initial part of the year and going into the summer. I don't know whether we'll get that opportunity, but we think we will, and that's what we're going to be looking for. And that's when you'll see more of the summer exposure that we have, hedging will occur sort of between now and the balance of the year. And then you'll see us sort of shape it a little bit as we go into next year. But we feel pretty confident we're going to get the opportunity for '21 summer, which is really our biggest exposure for length.

We'll get plenty of opportunities to be able to hedge going into that. And we still feel really good, when we look at our detailed supply/demand fundamental and modeling, we still feel good that we have a pretty tight market. And it's a market that's relying more and more on intermittent resources. In fact, you no longer have a situation in ERCOT where you can supply all the peak load with dispatchable resources like coal and gas and nuclear. So you have to rely on a certain level of renewable resources in order to be a reliable market and to actually meet the demand in the market. And with the volatility and intermittent nature of those resources, the inherent nature of that, you're going to get a few days in a market like ERCOT where you have extremely high temperatures in July and August and September time frame. There are going to be some days where it's going to be tight, and that's where the scarcity comes into play. And with the ORDC standard deviation moving up this year, we ought to see some pretty good pricing. It will be a function of weather, of course, and wind and unit performance. But we're pretty -- we go into this we're pretty confident that we'll see opportunities.

Great. And just one final thing. Your most obvious listed peer reorganized their segments this year to be -- to show more kind of an integrated look of the businesses. Is that something you would potentially consider? Or do you expect you'll continue reporting the way you are?

That's a good question. I don't think we're going to do what they did. But I think in September, you'll see that we have a slightly different way that we are going to take a look at our business, that we hope will actually increase transparency and provide more information to you guys. And that will be the goal of what we do. And we'll give you a better sense of the business from a longevity standpoint and our strategic focus. So we do have an idea that we've been working on for some time now, and we would like to roll that out commensurate with the remainder of our longer-term capital allocation plan.

And there are no further questions at this time. I'll now hand the call back over to Curt Morgan for closing remarks.

Thank you for taking the time to join us this morning. And as I stated at the beginning of the call, we do appreciate your interest in Vistra, and we look forward to continuing the conversation. I hope everybody stays healthy and safe through these trying times. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.