Vistra corp (NYSE: VST) Q1 2023 Earnings Call dated May. 09, 2023
Corporate Participants:
Meagan Horn — Vice President of Investor Relations
James Burke — President and Chief Executive Officer
Kristopher Moldovan — Executive Vice President and Chief Financial Officer
Steve Muscato — President of Wholesale Operations and Development
Analysts:
Shahriar Pourreza — Guggenheim Partners — Analyst
Julien Dumoulin-Smith — Bank of America — Analyst
Michael Sullivan — Wolfe Research — Analyst
David Arcaro — Morgan Stanley — Analyst
Durgesh Chopra — Evercore ISI — Analyst
Angie Storozynski — Seaport — Analyst
Presentation:
Operator
Good Day, and welcome to the Vistra’s First Quarter 2023 Results Conference Call. [Operator Instructions]
At this time, I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.
Meagan Horn — Vice President, Investor Relations
Good morning, and thank you all for joining Vistra’s investor webcast, discussing our first quarter 2023 results. Today’s discussion is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. There, you can also find copies of today’s investor presentation and the earnings release.
Leading the call today are Jim Burke, Vistra’s President and Chief Executive Officer; and Kris Moldovan, Vistra’s Executive Vice President and Chief Financial Officer. They are joined by other Vistra senior executives to address questions during the second part of today’s call as necessary.
Our earnings release, presentation and other matters discussed on our call today include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the investor presentation available in the Investor Relations section of Vistra’s website. Also, today’s discussion contains 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. I encourage all listeners to review the safe harbor statement included on Slide two of 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.
Thank you. And I will now turn the call over to our President and CEO, Jim Burke.
Jim Burke — President and Chief Executive Officer
Thank you, Meagan. Good morning. Thank you all for joining our first quarter 2023 earnings call. I will begin on Slide five. We entered the year focused on our four strategic priorities, and we are making great strides. First, our integrated model continues to demonstrate its value and effectiveness. As you probably recall, we spent the majority of 2022 executing on our comprehensive hedging strategy that we said was locking in earnings opportunities for 2023 through 2025. We utilized available liquidity last year to support their strategy as we believe the additional EBITDA opportunities were significant. This first quarter of 2023, we saw this strategy translate into real value as mild weather was experienced across the major markets in which we operate which led to lower-than-expected cleared power prices.
While we saw power prices clear at approximately $30 a megawatt hour on average, our first quarter results reflect a realization of average prices of around $45 per megawatt hour given we were highly hedged entering the year. In addition, in the outer years where we have been more open, we have seen prices and spark spreads increase as compared to this time last year. We have continued to opportunistically hedge to secure an increasing out-year earnings potential. We believe this is important, not only because it provides an enhanced resiliency of our earnings profile despite an uncertain commodity market but also because it ensures we can deliver on our commitments to reliably serve our customers, consistently return capital to shareholders, maintain a strong balance sheet and transform our fleet as we strengthen our position for the long term.
Second, our return of capital to our shareholders remained consistent and robust. Kris will provide a detailed update on our capital allocation plan in just a moment, but I want to highlight that of the aggregate $4.25 billion share repurchase authorization, we have returned approximately $2.7 billion to shareholders from November 2021 through May 4, 2023. Additionally, we are on track to pay $300 million in common stock dividends in 2023 as planned, with our Board approving a second quarter dividend the amount of $0.204, representing an approximately 15% increase over the second quarter dividend paid in 2022.
The share repurchase program, together with the structure of our dividend plan, work in tandem to provide our shareholders with the expectation of dividend growth each quarter as the aggregate $300 million in annual dividends is spread across a decreasing number of shares of Vistra common stock. Third, we continue our focus on a strong balance sheet. As margin deposits return, we are positioned to utilize that cash for opportunistic delevering and/or to reduce the amount of debt we expect to incur to close the Energy Harbor acquisition we announced in March of this year.
While the first quarter is typically the lowest free cash flow quarter for Vistra, we were able to repay approximately $500 million of short-term debt. Of course, we’re expecting our net debt balance to grow over the balance of the year to fund the Energy Harbor acquisition, which we expect to come with a significant amount of EBITDA, but we remain focused on our goal of a long-term net leverage ratio, excluding any nonrecourse debt at Vistra Zero, of less than 3 times, which we expect to achieve in the 2024 to 2025 time frame. Finally, we are very excited about our announcement just two months ago regarding the acquisition of Energy Harbor which is expected to close later this year.
With this acquisition, our nuclear fleet will grow by an additional 4,000 megawatts in PJM, which will more than double the zero-carbon generation we have online today. Turning to Slide six, I will discuss this quarter’s results. We achieved $554 million of ongoing operations adjusted EBITDA. Strong operational performance and our robust hedging activities helped to offset milder-than-normal weather throughout the U.S. Our retail and generation teams continued their strong operational performance, with retail achieving growth in ERCOT customer counts while maintaining attractive margins, and our generation team delivering commercial availability of 97% while maintaining the focus on safety. The generation team has operated over three years without a significant injury across a large and diverse fleet, and safety remains our number one priority.
Looking ahead for the remainder of the year, we are confident in our ability to meet or exceed the midpoint of our $3.4 billion to $4.0 billion adjusted EBITDA from ongoing operations guidance range for 2023 and as we announced in the third quarter of 2022. We’re also reaffirming our $1.75 billion to $2.35 billion adjusted free cash flow before growth from ongoing operations guidance range. Of course, with nine months to go in the year, including the important summer months, we believe it would be premature to narrow or otherwise adjust our guidance range for 2023. Kris will cover in more detail while we remain bullish on our opportunities in years ahead.
Before I wrap up and turn the call over to Kris to discuss the first quarter’s performance in more detail, I want to provide a quick update on the status of our Energy Harbor acquisition. As noted on Slide seven, we have filed approval requests with each of the three key agencies and anticipate receiving all needed approvals in time to close by the end of this year. As a reminder, we’ve committed bridge financing in place in an amount sufficient to close the transaction, but we do expect to replace the entirety of our bridge commitments with permanent financing between now and closing.
Finally, I think it’s worth noting that as we have seen out-year forward price curves improve, our financial forecast for Energy Harbor has also improved in the out years. Previous estimates we shared in March indicated average adjusted EBITDA midpoint opportunities for 2024 through 2025 of approximately $900 million with adjusted free cash flow before growth opportunities at a 65% to 70% range. This is inclusive of synergies and on an open pretax basis. Given recent price curves, we see the average adjusted EBITDA midpoint opportunities from Energy Harbor for 2026 and beyond to be higher than this original estimate. We expect that we will provide more detailed adjusted EBITDA and other financial projections for the combined company closer to closing or just after.
Kris, I’ll now turn the call over to you.
Kris Moldovan — Executive Vice President and Chief Financial Officer
Thank you, Jim. Starting on Slide nine. Vistra delivered $554 million in ongoing operations adjusted EBITDA, including $583 million from generation and a loss of $29 million from retail. Generation’s results were strong despite the significant impact of milder weather on pricing, primarily driven by in-the-money settled hedges, opportunistically backing down generation at times when prices were below unit cost and the recognition of a net bonus position in PJM for Winter Storm Elliott.
Those benefits were partially offset by headwinds for the quarter that were known at the time guidance for 2023 was set, including default service migration costs and lower PJM capacity revenues as well as intra-year impacts relating to timing of hedges and opportunistic acceleration of planned outages into the first quarter. While retail was also impacted by mild weather, it’s important to note that due to strong counts and margin management, the results for retail for the first quarter are in the range of what we expected coming into the year. Given the intra-year shaping, we continue to see due to higher power costs in the winter and summer months, we anticipate substantially all of the ongoing operations adjusted EBITDA for retail to be achieved in the second and fourth quarters.
Accordingly, we are confident in our ability to meet or exceed the midpoint of the $905 million to $1.065 billion range of ongoing operations adjusted EBITDA for retail that we announced on our third quarter 2022 call. Turning now to Slide 10, I’ll share a quick update on capital allocation. As of May 4, we had executed approximately $2.7 billion of share repurchases since the beginning of the program in the fourth quarter of 2021. We expect to utilize the remaining approximately $1.55 billion of authorization by year-end 2024, with at least $1 billion of cumulative repurchases expected in calendar year 2023, as originally planned.
Notably, as of May 4, our outstanding share count had fallen to approximately 373 million shares, a significant reduction of approximately 23% from the aggregate number of shares that were outstanding when the program started in November 2021. As a result of our robust and consistent share repurchases, our dividend program of approximately $300 million per year, or approximately $75 million per quarter, continues to result in significant growth in the dividend per share received by our shareholders. To that end, the second quarter 2023 common stack dividend of $0.204 per share, which is payable on June 30, 2023, is approximately 15% higher per share as compared to the dividend paid in the second quarter of 2022.
While we remain committed to consistently returning capital directly to our shareholders, we also remain steadfast in our commitment to a strong balance sheet. Accordingly, we continue to target a long-term net leverage ratio, excluding any nonrecourse debt at Vistra Zero of less than 3 times. Finally, our Vistra Zero growth remains on track. We have allocated over 90% of the net proceeds from the December 2021 Green preferred stock issuance and are focused on securing nonrecourse project or portfolio level financing to, among other things, support the growth capex needs of the company. We anticipate the first such financing to be in place no later than the end of this year.
Turning to Slide 11, we provide an update on the out-year forward price curves as of May 4. As you recall, we announced last year on the first quarter call that we estimated a range of $3.5 billion to $3.7 billion of potential ongoing operations adjusted EBITDA midpoint opportunities for years 2023 through 2025 based on April 29, 2022 curves.
While we do not expect to update this range before initiating guidance for each applicable year, we did want to note that we currently believe there is upside to the range of each of 2024, 2025 and now 2026 in light of the higher prices in our primary markets and the continued execution of our comprehensive hedging program that has now hedged 2023 through 2025 at approximately 86% on average across all markets, with the balance of 2023 hedged approximately 99% and 2024 hedged approximately 96%. As you would expect, 2026 is significantly less hedged, which creates a significant opportunity but also a wider range given our open position. We remain committed to executing against our 2023 strategic priorities and translating that success into shareholder returns. We look forward to updating you on our progress on our second quarter call.
With that, operator, we’re now ready to open the line for questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from Shahriar Pourreza with Guggenheim Partners. Please proceed.
Shahriar Pourreza — Guggenheim Partners — Analyst
Hey, good morning guys.
Jim Burke — President and Chief Executive Officer
Hey, good mornings, Shar.
Kris Moldovan — Executive Vice President and Chief Financial Officer
Good mornings, Shar.
Shahriar Pourreza — Guggenheim Partners — Analyst
Good morning. Good morning. I think you sort of touched on this quickly, but I guess what point could you revisit and update the two-year commentary you guys have been providing? And then obviously, those numbers have been floated around first in ’22. I guess what kind of O&M inflation is embedded in those? Maybe put differently, we’ve seen a few of your peers kind of flagged strong increases in O&M cost as of late. So I guess, what are you guys seeing in those numbers as well? Thanks.
Jim Burke — President and Chief Executive Officer
Yeah. Shar — excuse me. This is Jim. This is Jim. Thanks for your question.
Shahriar Pourreza — Guggenheim Partners — Analyst
Hey, Jim.
Jim Burke — President and Chief Executive Officer
The two-year, if I understood your question, the two-year view you’re speaking to is about ’24 and ’25. And as you noted, we had put out the $3.5 billion to $3.7 billion range last spring when we started to see the forward curves move and we’ve been opportunistically hedging into that. When we got to the end of ’22 and we started to talk about ’23, obviously, we put out a $3.7 billion midpoint, which was at the upper end of this midpoint range, which was a construct we were trying to use to signal to the market that we see the earnings power of the business improving, but there’s still a lot unhedged at the time we first put it out. Since we’ve continued to hedge, we see us continuing to move up. So using the May four curves, and this is without including Energy Harbor, we see that midpoint opportunities for ’24 to ’25 start to move up higher than the $3.7 billion.
And we see it in sort of the $3.7 billion to $3.8 billion range. Again, this is the midpoint of those opportunities. So when we would formalize guidance at the end of this year for 2024, we’ll have a bigger range around that just given the inherent variability of managing through the business. But as we continue to perfect these hedges, we still have some open, obviously, in ’25 or more hedged than ’24. We see this earnings power definitely improving for ’24, ’25. And in ’26, we’re even more open. And if you roll forward to ’26, we see an increase even further from these numbers.
Shahriar Pourreza — Guggenheim Partners — Analyst
Okay. Perfect. And just — I’m sorry to ask, but what’s the O&M inflation you guys are embedding in those numbers?
Jim Burke — President and Chief Executive Officer
Yes. So the O&M inflation, it depends on which category we’re referring to, Shahriar. We’re using it, we have consistently seen something between 3% and 10%, depending on the nature of the input. Labor is different from OEMs doing outages which is different from variable chemicals we use in the power production process. But it’s in that range. And we are obviously, as a competitive company, we’re contracting and procuring as competitively as we possibly can. But we don’t have any go-gets, if you will, built into the numbers to — that we are trying to solve for. This is our best line of sight of what it takes to run this business.
Shahriar Pourreza — Guggenheim Partners — Analyst
Perfect. Perfect. And then just I’d love to get maybe a pulse check on sort of the legislative cycle right now and your expectations for resource adequacy in ERCOT. Things seem to be a little quieter now that the Senate has passed several items. I guess what are your expectations for pathways forward as the session comes to a close?
Kris Moldovan — Executive Vice President and Chief Financial Officer
Sure. shahriar, it is coming down in the final three weeks in Austin, I do think there’s been a lot of attention and, appropriately, so on reliability, and we’ve talked about that, especially when you consider that Texas is the nation’s leader in wind and soon to be the nation’s leader in solar which helps from a sustainability point of view. But we’ve actually seen that there’s needs to bolster the grid from a dispatchable generation point of view. That was the impetus for the performance credit mechanism that was adopted by the Public Utility Commission in January. And the timing is such that, depending on how the legislative process wraps up, the stakeholder process would begin for this PCM mechanism to be able to create a market mechanism to reward reliability.
There’s still many bills being considered in the House and the Senate, so it’s hard to predict what might pass. But I think from our standpoint, the PCM is meant to address not only the incentives for new generation, but ensuring that existing generation doesn’t retire prematurely because some of the other forms of generation are getting production tax credits which, as you know, can create downward pressure on market power prices. So from our standpoint, we think the reliability focus is important. If the PCM is well designed and it moves forward, we think that will bolster the competitive market.
We obviously want to continue to see support for our integrated model in Texas. We think it’s a business that serves customers well. And we would intend to invest in building gas-fired generation if there is a well-designed PCM. So we think policymakers are focused on the right aspects of what it takes to keep the grid affordable, reliable and sustainable. And Shahriar, our view is, is we want to be part of that solution here in our home state. But we still have three weeks to go. And we’ll obviously have to provide more updates as the session wraps up, but I do think the attention on this is well deserved, and we’ll be involved as much as we can through this session and the stakeholder process.
Shahriar Pourreza — Guggenheim Partners — Analyst
Very helpful, Jim. Thank you so much. Have a good morning. Appreciate it guys.
Jim Burke — President and Chief Executive Officer
Thank you, Shar.
Operator
The next question comes from Julien Dumoulin-Smith with Bank of America. Please proceed.
Julien Dumoulin-Smith — Bank of America — Analyst
Hey, good morning team. Thank you for the time, appreciate it. Look, I wanted to just follow up on the success of the Energy Harbor transaction. Obviously, you got a lot of folks’ attention. Can you talk a little bit about your thoughts about looking into potential further acquisitive activities. Obviously, there’s a North Star around buybacks and commitments there in and maintaining that throughout. But can you talk today, especially in reaction to Energy Harbor, how you would think about perhaps leaning in further to whether that’s nuclear or other angles that could include retail or renewables or what have you. But would love to hear your thoughts.
Jim Burke — President and Chief Executive Officer
Thank you, Julien and good morning. Look, we have generally stayed away from commenting on M&A. I think it’s one of those activities that opportunistically comes your way and you have to be prepared for it. You have to always be what we’d say, hang around the hoop a little bit on opportunities. However, I think the Energy Harbor transaction is a very significant one for us. Certainly, it’s our focus right now, not only getting through the approval process with the key agencies but the integration activities with the team at Energy Harbor and with our team. As you know, it’s transformative in a lot of ways because we use it as a platform to highlight just how much of a business we have with the carbon-free aspects of our business.
And obviously, we’re going to more than double that amount of generation with this transaction. The strong balance sheet and the returning capital, the reason we keep repeating the four priorities is because we have to find things that fit within those four priorities. And not everything is going to. And I think that’s a commitment we’ve made I think the Energy Harbor transaction reinforced. We mean those, that we’re going to stick with those four core principles. So Julien, nothing is ever off the table from the standpoint of looking at it, but it needs to fit the criteria that we’ve laid out and we’re going to remain disciplined in that regard.
Julien Dumoulin-Smith — Bank of America — Analyst
Look, and then with respect to the transaction itself, I mean, can you comment a little bit? I mean, it seems like there might be a slight delay in the close of the transaction. Just what caused that? Is that approval process or just the execution process? And then related, you talked about a significant jump in generation here. You all obviously have a pretty sizable retail platform. You saw some quarter-over-quarter declines in retail customers. How do you think about building out that retail platform a little bit further here in light of Energy Harbor? Or is that less of a priority considering things like the nuclear PTCs that might deemphasize the need to quote, unquote balance that retail business with generation, if you will.
Jim Burke — President and Chief Executive Officer
Sure. Well, on the first matter, I think we’re progressing well on the approvals process. We announced the transaction early March. We made the filings — the key filings in April. We believe the NRC is working towards an early October approval which, to be on a six-month track for a license transfer, we think is actually on the more efficient side of the scale in terms of where we would go. We’ve talked about closing this in the fourth quarter, and I think that is achievable. Julien, as you know, we don’t have anything built into our numbers for 2023 related to Energy Harbor. So hopefully, there’s some opportunity there. But just I think we’re tracking well. There’s nothing that we’re concerned about at this stage, but it’s still early in the approval process.
But so far, so good. On the retail side, our reduction in counts has been more outside of the ERCOT market. We’ve made some strategic exits in a couple of states. The Energy Harbor platform does give us an opportunity to bolster some of the areas where we do currently operate in retail. And obviously, it gives us an asset base, including some attributes like the emissions-free energy credits which customers are becoming more interested in that the nuclear units can offer. So I like our retail. We like our integrated model. We do think the Midwest, Northeast market reforms in some of the retail markets is still warranted. As we’ve talked about, Julien, the level of competition there in terms of the degree that you can differentiate your products there is still rather limited.
It’s more of a hedge channel and being able to serve customers with your assets than it is a true business-to-consumer or business-to-business differentiated marketing strategy. We hope to get there in some of these markets, and we’ll continue our efforts from a stakeholder outreach perspective. But the integrated model is certainly well intact with this acquisition because it comes with a retail business in addition to generation, but we do need to see these markets open up a little bit from a reform and being open to innovation in these markets the way Texas has been open innovation. And so we do have some work to do there, Julien.
Julien Dumoulin-Smith — Bank of America — Analyst
Excellent. All right. I’ll leave it there. Best of luck guys. We’ll see, speak soon.
Jim Burke — President and Chief Executive Officer
Thank you, Julien.
Operator
Our next question comes from Michael Sullivan with Wolfe Research. Please proceed.
Michael Sullivan — Wolfe Research — Analyst
Hey, good morning.
Jim Burke — President and Chief Executive Officer
Hey, Michael.
Kris Moldovan — Executive Vice President and Chief Financial Officer
Good morning.
Michael Sullivan — Wolfe Research — Analyst
Hey, Jim. Hey, Kris. I wanted to just confirm on the upside you’re seeing in ’24 all the way out to ’26 that, that’s based on basically current curves? And then if so, maybe if you could just give us your own point of view on where you think things could go just based on supply/demand dynamics in your major markets?
Jim Burke — President and Chief Executive Officer
You bet, Michael. Thank you. Yes, we based this off of using the May four curve. So it’s a function, obviously, of where we have hedged, what we still have open and the curves as of May 4, not that the liquidity is infinitely deep in some of these outer years, but it’s not based on a point of view. It is based on curves. We know that this is something that you and our investors are trying to follow, which is are we seeing some upside. As Kris laid out in his chart, from the time we first initiated the strategy of talking about a three-year horizon, the curves have actually improved in those outer years.
So while we’ve seen the front of the curves come down because of a number of factors, I’m going to ask Stephen Muscato, our President of Wholesale, to comment, we’ve seen the out-years actually strengthen. And we think that, that’s actually a sign of opportunity for Vistra long term. But in terms of the dynamics by market, I think it might be helpful for Steve to share a few thoughts as to how we see these markets that being impacted by some of the factors, obviously, late last fall and through this year and where we see that headed. Steve?
Steve Muscato — President of Wholesale Operations and Development
Thanks, Jim. Sure, I would add, if we start with natural gas, which is kind of a big driver behind power prices, the marginal shale has now become the Haynesville, which is a dry shale. We’re seeing limited growth in the Utica and the Marcellus due to limited pipeline takeaway. And all the growth in the Permian that’s happening, even though that’s a wet shale, is not the marginal shale. It’s being used to really feed growing LNG export market. So that’s really provided support on natural gas which is why you’re seeing it stay $4 and above at least ’25 and beyond.
The front end of the curve is really influenced by some excess storage inventories that are due to the mild weather that if you look going forward, if you assume normal weather, should lend itself out once you get to the late ’24, early ’25 period. In terms of, like, say, fundamentals in each market, you’re seeing this integration of renewables particularly challenging in PJM. You see a lot of coal leaving the stack over time but a slow incremental movement in renewables. Not only renewables is less effective in markets like PJM because lower capacity factors, it doesn’t have the same irradiance or wind speeds that you see in markets like Texas and MISO. But it also takes a lot to replace it. You could see five to nine to one replacement levels needed in order to maintain same levels of reliability.
You also have problems with East Coast gas markets to the extent they can recouple with European markets, that could also cause some volatility. And I think Jim mentioned some of the things that are already happening in ERCOT in terms of reform, solar pushing the peak out, you only have one-hour batteries coming into ERCOT, which really doesn’t help on an extended heatwave that may occur or extended cold point. And so I think uncertainty around gas and coal assets and determine what happens with the legislature in addition to an aging fleet provides this collision we’re seeing over time, which is going to win out renewables or fossil fuels? At least in the intermediate term, it appears gas is going to be needed, it’s going to be stressed and so we think that’s supporting fundamentals out the longterm.
Jim Burke — President and Chief Executive Officer
Steve, thanks for that. I’ll just add, Michael, that in addition to the dynamics we’re seeing of the resource mix and how it’s changing, we’ve seen obviously a handful of significant environmental regulations that have been issued and potentially forthcoming that could also put some pressure on assets that currently are providing a reliability service on these grids. And our assets, even with a Vistra Tradition and a Vistra Vision, coal is 25% to 30% on a go-forward basis of Vistra Tradition. It’s predominantly our combined cycle gas fleet. We think that has a lot of value in helping these grids be able to sustain a reliable operation while integrating more renewables.
And then, of course, our Vistra Vision is anchored by Vistra Zero and also Comanche Peak and Energy Harbor assets on a go-forward basis. So we like our asset position to backstop and what we call firm up our customer commitments. And we think the horizon, whether it’s the economics of what happens in competitive markets or whether it’s actually some of the incentives and the rules that could come forward from an environmental standpoint, these assets are going to be needed for reliability purposes. And that’s our thesis with why we think this business has a long-term earnings potential that we see actually growing through time.
Michael Sullivan — Wolfe Research — Analyst
Okay. That was super comprehensive. Maybe just one quick follow-up there on the environmental rules. So from where you’re standing right now, Jim, like any near-term impact in terms of whether it be investments that you have to put into some of your coal plants that you were planning to keep online?
Jim Burke — President and Chief Executive Officer
Not in the near term, Michael. A couple of things. Obviously, the CCR ELG rules we have talked about for years, and that does have impacts on our coal fleet, which we’ve communicated multiple times that will have retirement dates in that sort of ’27, ’28 horizon except for two of our sites. CASPR, or the good neighbor rule, it did — it was recently stayed. So you have an opportunity here for the state of Texas to revisit this rule, obviously, in the fifth circuit. It’s going to take some time to sort that out.
That could impact some of our old gas units, could impact the Hubbard lake if it were to be fully implemented. But I think there were good reasons for the challenge, and we’re certainly not the only party in that challenge. There’s many industry participants outside of even power as well as the state. But no, Michael, we don’t have any anticipated large capex spend as a result, but we stay active. Again, reliability is important, and we think that this transition that’s occurring on the grid needs to be done so thoughtfully. But nothing — no near-term impacts with the state, maybe a little bit pushed out from that standpoint in terms of impact on our fleet.
Michael Sullivan — Wolfe Research — Analyst
Appreciate all the color. Thank you.
Jim Burke — President and Chief Executive Officer
Thank you, Michael.
Operator
Next question comes from David Arcaro with Morgan Stanley. Please proceed.
David Arcaro — Morgan Stanley — Analyst
Hey, good morning. Thanks so much for taking my question.
Jim Burke — President and Chief Executive Officer
Hey, Dave.
David Arcaro — Morgan Stanley — Analyst
I wanted to check on the retail business. Just wanted to confirm, is that on track for the year given the first quarter results? Are you going to need to pursue some more proactive initiatives to keep kind of in line with the guidance range for this year? Or is this really just a more natural ebb and flow of the EBITDA results for retail?
Kris Moldovan — Executive Vice President and Chief Financial Officer
Yes. Thanks for the question, David. As we noted in the comments, the loss of $29 million, that was expected. That was within the range of what we expected when we set the guidance. So that’s not far off of exactly what we were expecting going forward. We continue, and I noted this, but we continue to expect retail to be able to meet or exceed the midpoint of its guidance range that we provided in the third quarter of last year. We don’t — we see some timing effects over the balance of the year and some margin and count benefits that have carried through that we see will offset some of the pressures they saw from weather in the first quarter.
So we don’t see anything in particular over the balance of the year that we need to stretch to meet that goal. Again, as we would note, the shape continues to be that we’re going to see pressure on the retail side from an EBITDA perspective in the first and third quarters. And the second and fourth quarters is where they’re going to make substantially all of the EBITDA. And that’s because they typically have flat prices through the year, but the power costs in the winter and summer months are the highest. So there’s some pressure on EBITDA in the first and third quarters, and the second and fourth quarters is where they make it up.
David Arcaro — Morgan Stanley — Analyst
Got it. Okay. That’s helpful. And then a similar topic. I was just curious what the latest trends you’re seeing are in customers moving to default service. Is that still a trend that’s happening? Or which direction are you seeing right now?
Jim Burke — President and Chief Executive Officer
David, we’re still seeing some default prices increase in the markets due to their kind of delayed procurement. But you are seeing competitive offers in the market that are now south of that default level. So you are not seeing the same level of migration to default. You’re going to start seeing and we are seeing folks moving from the fault back into the competitive arena. That is part of this market dynamic, I was mentioning that from a reform standpoint. Ideally, you would have a one-to-one relationship with the customer and not have a customer bouncing between a utility and a retailer.
But at this stage of the game, obviously, prices have crested. They’ve started to come off in the wholesale market and that’s creating opportunities for our retail business, but it’s also creating some of the migration in some markets away from default. And default prices, because they’re still increasing in some markets through May, that’s going to create more and more savings opportunities for customers.
David Arcaro — Morgan Stanley — Analyst
Okay. Great. That makes sense. Thanks so much.
Jim Burke — President and Chief Executive Officer
Thank you, David.
Operator
Our next question comes from Durgesh Chopra with Evercore ISI. Please proceed.
Durgesh Chopra — Evercore ISI — Analyst
Hey, good morning team. Thanks for giving me time. I just want to make sure, Jim, I sort of heard this clearly in the response to Shahriar’s question earlier. For ’24 and ’25, the midpoint is in the $3.7 billion to $3.8 billion range and ’26 is expected to be higher than that for the base business?
Jim Burke — President and Chief Executive Officer
That’s correct.
Durgesh Chopra — Evercore ISI — Analyst
Okay. And kind of above $900 million for Energy Harbor in 2026 as well.
Jim Burke — President and Chief Executive Officer
That is the view that we have. And obviously, we’ve talked about this on a hedged basis, which is largely open in ’26, Energy Harbor. We’re talking — because we are — ’24, ’25 numbers that we’ve given you have hedges in them for Energy Harbor. Once you get to ’26, Energy Harbor is pretty open, we’re pretty open. And actually, you could see Energy Harbor doing better than $900 million when you get out to 2026, again, at current curves.
Durgesh Chopra — Evercore ISI — Analyst
Understood. Thank you for clarifying that for me. And then just as we look to the end of the year or maybe as you close on Energy Harbor, what should we expect in terms of disclosure? Is it going to be sort of a three-year kind of like you did last year, EBITDA guidance and free cash flow range? Just any color you can share, that would be helpful.
Kris Moldovan — Executive Vice President and Chief Financial Officer
Yes, we’re going to — I think we will obviously update guidance for the balance of 2023 and then 2024 at or the time of closing. We haven’t made a decision as far as how far out we will continue to update. We’ll probably continue to give directionally where we see things going. But I think we’re — I don’t know that we plan to continue to consistently give three-year ranges going forward. But as we get closer to closing, we’ll work on getting updates to what we’ve put out so far.
Durgesh Chopra — Evercore ISI — Analyst
Understood. Thanks Jim and Kris.
Jim Burke — President and Chief Executive Officer
Thank you, Durgesh.
Operator
Today’s final question comes from Angie Storozynski with Seaport. Please proceed.
Angie Storozynski — Seaport — Analyst
Thank you. So actually two questions. One about flexibility in the financing of the Energy Harbor transaction. So I think we’re all watching credit spreads. You have this deal financed. You have the bridge financing in place, but you plan to refinance it before the end of the year. So I’m just wondering if you could use, for example, any of the project level debt you mentioned at the renewable assets to maybe help yourself here. So that’s one.
And number two, a bigger picture question. So when you look at the mark-to-market of earnings of Vistra Vision and Vistra Tradition, at these prices, you are solving for deleveraging pretty quickly, probably ’25, if not sooner. So would that change your thoughts about keeping these two businesses together, i.e., could we see a separation of Vistra Vision, again, which would unlock the true value of these assets? Thanks.
Kris Moldovan — Executive Vice President and Chief Financial Officer
Angie, I’ll handle the first question where you talked about financing of Energy Harbor. Obviously, we’ve — when we announced the transaction, we put out some assumptions on the amount of cash that we would use and the amount of debt and the split of the debt. We continue to look for opportunities. First, as you saw, the margin deposits are coming back as expected. We saw about over $1 billion, approximately $1.2 billion, come back from the end of the year into — through March 31.
And we continue to see some marginal positive returns as we settle our hedges going through the summer this year. So you can expect us to continue to optimize the amount of cash that we’re going to use from the balance sheet as we — and so it could be larger than the amount that we indicated on the call when we announced the transaction. As far as debt, we’re going to look at a number of opportunities. We’re going to be opportunistic as to timing and which market that we’re in. So we’re already preparing for those opportunities. And I think you’ll see us look at a number of different avenues to raise that debt and not just wait until the end and try to do it all in one market.
Jim Burke — President and Chief Executive Officer
And Angie, this is Jim. I’ll add to Kris’ comments on that. The idea, obviously, with this provision as it was conceived in order to execute on this transaction and keep a strong balance sheet did obviously do two things: It highlighted the amount of our earnings stream that has a zero greenhouse gas emissions profile, it also created an investment vehicle for some of the key shareholders for Energy Harbor to participate in this future entity. I still step back and think about this as a customer business that is — that has a changing sort of view of what they are looking for from the electric grid, including a more sustainable grid, but also a reliable grid.
That, in essence, is Vistra. I mean that is what we’re doing. We’re doing it. We’re expressing it through different transactions. Energy Harbor, obviously, is the most significant one. But with the Ambit and Crius and growing our retail presence and then our launching of our own opportunities with Vistra Zero. So the Dis-Synergies that could come about by saying that this business is only this and this business is only that is not really how the electric grid functions. It is obviously a way in which we can think about investors and how they want to express their point of view of what they invest in. But I think we can achieve that even with the structure we have here. And most importantly, we’re still a fundamentals-based view on value, and we invest in things that generate long-term sustainable cash flows.
I know folks do talk to us about what do we think it might take to get a rerate, that’s in some level out of our control. What is in our control is our ability to make good decisions, take advantage of the market opportunities as they come about, create some on our own and serve customers extremely well. And if we do that, we’re going to return capital to shareholders very aggressively and pay down debt. And I think that’s a winning model. It just may not come with the shorter-term moves that some people might want to see, but I think we’re building an enduring business. And I think that’s attractive for investors, and we’re prepared to execute on that.
Angie Storozynski — Seaport — Analyst
That’s great. And just the last one question. So you mentioned on some of that we’re seeing relatively limited liquidity in those forward curves for power, right? There’s always this question, is gas more liquid versus power and maybe those spark spreads that look incredible in forward years. I mean, that are just to good to be true. So I mean, is there a way for you to basically capture that strength even with limited trading liquidity in power markets, either through some derivative transactions, gas-driven hedges, you name it.
Jim Burke — President and Chief Executive Officer
Proxy for power. But to your point, it’s not a perfect proxy for power. And Steve, why don’t you comment a little bit on some of the things that we do to try to use liquidity efficient means and how we’re thinking about capturing this value. Because we are sensitive Angie, that the further out we go, depending on how we hedge, there obviously is a use of liquidity. We balance that into our thinking. And we’re not also thinking that these curves just go away tomorrow.
Because again, the fundamentals of what we think is happening with the electric grid, speak to reliability and assets with flexibility, which is our portfolio, and we think those are getting valued and they’re getting valued differently than they have in the past because reliability was taken for granted. Steve, why don’t you comment a little bit on how we’re thinking about locking this in.
Steve Muscato — President of Wholesale Operations and Development
Sure. I think for nuclear assets, gas is a decent proxy as a hedge, and so we are able to use gas instruments like the NYMEX and different NYMEX structures to at least either lock in value or put a range of value in place to kind of protect downside. But we do have the PTC, so that’s a consideration. In terms of the sparks we do have to buy the gas in order to lock in the spark. And some of the specific gas locations is more challenging. I think ERCOT, PJM, there’s more liquidity than places like New England for sure. But we try to do it in a liquidity efficient manner because as you get out further, the independent postings or the independent — the initial margins that you have to post with exchanges can be quite expensive as you go out in time.
And so we’re looking at trying to increase credit using first lien structures when we go out that far or even bilaterally with counterparties to get that done. And so it’s a little bit slower from both because we’re trying to use liquidity efficient channels and also going directly to customers and on other wholesale counterparties. But it is something we’ve begun working on in ’26, even out as far as ’27, but it will definitely take time. And again, trying to use liquidity efficient channels is important like first liens and direct to bilaterals.
Angie Storozynski — Seaport — Analyst
Great. Thank you.
Jim Burke — President and Chief Executive Officer
Angie, thank you for the question.
Operator
This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Jim Burke for any closing remarks.
Jim Burke — President and Chief Executive Officer
Yes, thank you. I want to thank everybody for joining us this morning. We appreciate your interest in Vistra. And please know that our Vistra team is working hard to execute well for the summer and our strategic priorities, and we look forward to giving you future updates. Have a great morning, everyone. Thanks.
Operator
[Operator Closing Remarks]