VISTRA CORP. The discussion below, as well as other portions of this quarterly report on Form 10-Q, contain forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. In addition, management may make forward-looking statements orally or in other writing, including, but not limited to, in press releases, quarterly earnings calls, executive presentations, in the annual report to stockholders and in other filings with theSEC . Readers can usually identify these forward-looking statements by the use of such words as "may," "will," "should," "likely," "plans," "projects," "expects," "anticipates," "believes" or similar words. These statements involve a number of risks and uncertainties. Actual results could materially differ from those anticipated by such forward-looking statements. For more discussion about risk factors that could cause or contribute to such differences, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part I, Item 1A "Risk Factors" in the Company's 2019 Form 10-K, Part II, Item 1A "Risk Factors" in the Company's quarterly report on Form 10-Q for the period endedJune 30, 2020 and any updates contained herein. Forward-looking statements reflect the information only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statements to reflect future events, developments, or other information. IfVistra does update one or more forward-looking statements, no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements. This discussion is intended to clarify and focus on our results of operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included under Item 1 of this quarterly report on Form 10-Q for the three and nine months endedSeptember 30, 2020 . This discussion should be read in conjunction with those consolidated financial statements and the related notes and is qualified by reference to them. The following discussion and analysis of our financial condition and results of operations for the three and nine months endedSeptember 30, 2020 and 2019 should be read in conjunction with our condensed consolidated financial statements and the notes to those statements. Results are impacted by the effects of the Ambit Transaction and the Crius Transaction (see Note 2 to the Financial Statements). Operational results for four facilities retired in late 2019 were recast from the MISO segment to the Asset Closure segment (see Note 4 to the Financial Statements).
All dollar amounts in the tables in the following discussion and analysis are
stated in millions of
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial position and results of operations is based upon its consolidated financial statements. The preparation of these consolidated financial statements requires estimation and judgment that affect the reported amounts of revenue, expenses, assets and liabilities. The Company bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the accounting for assets and liabilities that are not readily apparent from other sources. If the estimates differ materially from actual results, the impact on the consolidated financial statements may be material. The Company's critical accounting policies are disclosed in our 2019 Form 10-K.
Business
Vistra is a holding company operating an integrated retail and electric power generation business primarily in markets throughout theU.S. Through our subsidiaries, we are engaged in competitive energy market activities including power generation, wholesale energy sales and purchases, commodity risk management and retail sales of electricity and natural gas to end users. EffectiveJuly 2, 2020 , we changed our name fromVistra Energy Corp. toVistra Corp. (Vistra ) to distinguish from companies that are involved in exploring for, producing, refining, or transporting fossil fuels (many of which use "energy" in their names) and to better reflect our integrated business model, which combines a retail electricity and natural gas business focused on serving its customers with new and innovative products and services and an electric power generation business powering the communities we serve with safe, reliable power. 54 -------------------------------------------------------------------------------- Table of Contents Operating SegmentsVistra has six reportable segments: (i) Retail, (ii)Texas , (iii) East, (iv) West, (v) Sunset and (vi) Asset Closure. In the third quarter of 2020,Vistra updated its reportable segments to reflect changes in how the Company's CODM makes operating decisions, assesses performance and allocates resources. Management believes that the revised reportable segments provide enhanced transparency into the Company's long-term sustainable assets and its commitment to managing the retirement of economically and environmentally challenged plants. See Notes 1 and 17 to the Financial Statements for further information concerning the updates to our reportable business segments.
Significant Activities and Events and Items Influencing Future Performance
Investments in Clean Energy and CO2 Reductions
InSeptember 2020 , we announced the planned development of 668 MW of solar photovoltaic power generation facilities and 260 MW of battery ESS inTexas . See Note 3 to the Financial Statements for a summary of our solar and battery energy storage projects. Also inSeptember 2020 , we announced our intention to retire all of our remaining coal generation facilities inIllinois andOhio and one natural gas facility inIllinois no later than year-end 2027 due to economic challenges, including incremental expenditures that would be required to comply with the CCR rule and ELG rule (see Note 12 to the Financial Statements), and in furtherance of our efforts to significantly reduce our carbon footprint. See Note 4 to the Financial Statements for a summary of these planned generation retirements in 2025-2027 as well as our generation plant retirements in 2019.
COVID-19 Pandemic
With the global outbreak of the novel coronavirus (COVID-19) and the declaration of a pandemic by theWorld Health Organization onMarch 11, 2020 , theU.S. government has deemed electricity generation, transmission and distribution as "critical infrastructure" providing essential services during this global emergency. As a provider of critical infrastructure,Vistra has an obligation to provide critically needed power to homes, businesses, hospitals and other customers.Vistra remains focused on protecting the health and well-being of its employees and the communities in which it operates while assuring the continuity of its business operations. We have updated and implemented our company-wide pandemic plan to address specific aspects of the COVID-19 pandemic to guide our emergency response, business continuity, and the precautionary measures we are taking on behalf of employees and the public. We will continue to monitor developments affecting both our workforce and our customers, and we have taken, and will continue to take, health and safety measures that we determine are necessary in order to mitigate the impacts. To date, as a result of these business continuity measures, the Company has not experienced material disruptions in our operations due to COVID-19. The fundamentals of the Company remain strong.Vistra believes it has sufficient available liquidity to continue business operations during this volatile period. As described under Available Liquidity, the Company has total available liquidity of$2.557 billion as ofSeptember 30, 2020 , consisting of cash on hand and available capacity under our Revolving Credit Facility. In addition, the maturities of our long-term debt are relatively modest until 2023. If the Company experienced a significant reduction in revenues, the Company believes it would have additional alternatives to maintain access to liquidity, including capital expenditure reductions, reductions to planned voluntary debt repayments and cost reductions. As a result of the Company's ongoing initiatives, the Company believes it is well positioned to be able to respond to changes in customer demand, regulation or other factors impacting the Company's business related to the COVID-19 pandemic. The COVID-19 pandemic presents potential new risks to the Company's business. Although there have been logistical and other challenges to date, there has been no material adverse impact on the Company's first, second or third quarter 2020 results of operations. The situation surrounding COVID-19 remains fluid and the potential for a material impact on the Company's results of operations, financial condition and liquidity increases the longer the virus impacts the level of economic activity in theU.S. and globally. As a result, COVID-19 may have a range of impacts on the Company's operations, the full extent and scope of which are currently unknown. See Part II, Item 1A Risk Factors - The outbreak of COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could have a material and adverse effect on our business, financial condition, and results of operations. 55 -------------------------------------------------------------------------------- Table of Contents In response to the economic and employment impacts of the COVID-19 outbreak, various states have instituted moratoriums or other conditions on disconnections for retail electricity customers. For example, in March andApril 2020 , the PUCT issued multiple orders requiring REPs in theERCOT market to suspend late fees for residential customers throughMay 15, 2020 , and to offer deferred payment plans to customers upon request. The PUCT also enacted the COVID-19 Electricity Relief Program whereby REPs must forego disconnecting customers certified as experiencing COVID-19-related hardship, and if such customer would otherwise be subject to disconnection and meets other qualifications, such REP would request suppression of the delivery charges from the transmission and distribution utility and request a proxy energy charge reimbursement from the COVID-19 Electricity Relief Program of$0.04 /kWh. The PUCT ceased accepting new enrollments under the COVID-19 Electricity Relief Program afterAugust 31, 2020 , and the disconnection protections and financial assistance expired afterSeptember 30, 2020 .
See Note 7 to the Financial Statements for a summary of certain anticipated tax-related impacts of the CARES Act to the Company.
Ambit Transaction
OnNovember 1, 2019 (Ambit Acquisition Date),Volt Asset Company, Inc. , an indirect, wholly owned subsidiary ofVistra , completed the acquisition of Ambit (Ambit Transaction). See Note 2 to the Financial Statements for a summary of the Ambit Transaction and business combination accounting.
Crius Transaction
OnJuly 15, 2019 ,Vienna Acquisition B.C. Ltd. , an indirect, wholly owned subsidiary ofVistra , completed the acquisition of the equity interests of two wholly owned subsidiaries of Crius that indirectly own the operating business of Crius (Crius Transaction). See Note 2 to the Financial Statements for a summary of the Crius Transaction and business combination accounting.
Dividend Program
InNovember 2018 , we announced that the Board had adopted a dividend program, which we initiated in the first quarter of 2019. See Note 13 to the Financial Statements for more information about our dividend program.
Share Repurchase Program
InSeptember 2020 , we announced that the Board had authorized a new share repurchase program (Share Repurchase Program) under which up to$1.5 billion of our outstanding common stock may be repurchased. The Share Repurchase Program will be effectiveJanuary 1, 2021 , at which time the Prior Share Repurchase Plan will terminate. See Note 13 to the Financial Statements for more information concerning the Share Repurchase Program and the Prior Share Repurchase Program, including shares repurchased and remaining amounts available under the Prior Share Repurchase Program. Debt Activity We have stated our objective to reduce our consolidated net leverage. We also intend to continue to simplify and optimize our capital structure, maintain adequate liquidity and pursue opportunities to refinance our long-term debt to extend maturities and/or reduce ongoing interest expense. In 2019 and 2020, we completed several transactions, including the redemption and repayment of all previously outstanding senior notes issued by Parent, that we believe, in the aggregate, advanced all of these goals. See Note 11 to the Financial Statements for details of our long-term debt activity and Note 10 to the Financial Statements for details of our accounts receivable financing. 56 -------------------------------------------------------------------------------- Table of Contents Power Price, Natural Gas Price and Market Heat Rate Exposure
Estimated hedging levels for generation volumes in our
2020 2021
Nuclear/Renewable/Coal Generation:
Texas 100 % 86 %
Sunset 100 % 92 %
Gas Generation:
Texas 100 % 63 %
East 98 % 83 %
West 100 % 93 %
The following sensitivity table provides approximate estimates of the potential
impact of movements in power prices and spark spreads (the difference between
the power revenue and fuel expense of natural gas-fired generation as calculated
using an assumed heat rate of 7.2 MMBtu/MWh) on realized pretax earnings (in
millions) taking into account the hedge positions noted above for the periods
presented. The residual gas position is calculated based on two steps: first,
calculating the difference between actual heat rates of our natural gas
generation units and the assumed 7.2 heat rate used to calculate the sensitivity
to spark spreads; and second, calculating the residual natural gas exposure that
is not already included in the gas generation spark spread sensitivity shown in
the table below. The estimates related to price sensitivity are based on our
expected generation, related hedges and forward prices as of September 30, 2020 .
Balance 2020 (a) 2021
Nuclear/Renewable/Coal Generation:
- $ 19 Nuclear/Renewable/Coal Generation:
- $ (16)
Gas Generation: $1.00 /MWh increase in spark spread $ 1 $ 15
Gas Generation: $1.00 /MWh decrease in spark spread $ - $ (12) Residual Natural Gas Position:
- $ (22) Residual Natural Gas Position:
- $ 11 East:
Gas Generation:$1.00 /MWh increase in spark spread $ 1$ 9 Gas Generation:$1.00 /MWh decrease in spark spread $ -$ (5)
Residual Natural Gas Position:
(1) $ (3) Residual Natural Gas Position:
1 $ 3 Sunset:
Coal Generation:$2.50 /MWh increase in power price $ 1$ 9 Coal Generation:$2.50 /MWh decrease in power price $ -$ (4)
___________
(a)Balance of 2020 is from
57
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RESULTS OF OPERATIONS
Consolidated Financial Results - Three and Nine Months Ended
Three Months Ended September Favorable Nine Months Ended Favorable
30, (Unfavorable) September 30, (Unfavorable)
2020 2019 $ Change 2020 2019 $ Change
Operating revenues $ 3,552 $ 3,194 $ 358 $ 8,919 $ 8,949 $ (30)
Fuel, purchased power costs and
delivery fees (1,469) (1,687) 218 (3,832) (4,287) 455
Operating costs (457) (397) (60) (1,249) (1,153) (96)
Depreciation and amortization (410) (424) 14 (1,284) (1,213) (71)
Selling, general and
administrative expenses (268) (246) (22) (755) (637) (118)
Impairment of long-lived assets (272) - (272) (356) - (356)
Operating income 676 440 236 1,443 1,659 (216)
Other income 8 6 2 19 45 (26)
Other deductions - (4) 4 (35) (9) (26)
Interest expense and related
charges (101) (224) 123 (541) (720) 179
Impacts of Tax Receivable
Agreement 58 (62) 120 44 (26) 70
Equity in earnings of
unconsolidated investment - 3 (3) 4 13 (9)
Income before income taxes 641 159 482 934 962 (28)
Income tax expense (199) (45) (154) (283) (270) (13)
Net income $ 442 $ 114 $ 328 $ 651 $ 692 $ (41)
Three Months Ended September 30, 2020
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues $ 2,521 $ 1,591 $ 644 $ 84 $ 250 $ - $ (1,538) $ 3,552
Fuel, purchased power
costs and delivery fees (2,119) (346) (295) (38) (209) - 1,538 (1,469)
Operating costs (35) (185) (54) (8) (128) (47) - (457)
Depreciation and
amortization (67) (117) (181) (5) (13) (10) (17) (410)
Selling, general and
administrative expenses (190) (18) (12) (8) (15) (8) (17) (268)
Impairment of long-lived
assets - - - - (272) - - (272)
Operating income (loss) 110 925 102 25 (387) (65) (34) 676
Other income 1 1 - 1 - 5 - 8
Other deductions - (3) - - 3 - - -
Interest expense and
related charges (2) 2 (2) 3 (1) - (101) (101)
Impacts of Tax Receivable
Agreement - - - - - - 58 58
Income (loss) before
income taxes 109 925 100 29 (385) (60) (77) 641
Income tax expense - - - - - - (199) (199)
Net income (loss) $ 109 $ 925 $ 100 $ 29 $ (385) $ (60) $ (276) $ 442
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Three Months Ended September 30, 2019
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues $ 2,207 $ 731 $ 553 $ 95 $ 227 $ 74 $ (693) $ 3,194
Fuel, purchased power costs
and delivery fees (1,358) (429) (299) (40) (197) (57) 693 (1,687)
Operating costs (22) (166) (49) (6) (96) (58) - (397)
Depreciation and
amortization (86) (126) (170) (5) (21) - (16) (424)
Selling, general and
administrative expenses (160) (21) (21) (3) (9) (12) (20) (246)
Operating income (loss) 581 (11) 14 41 (96) (53) (36) 440
Other income - 1 - - 1 1 3 6
Other deductions - (2) - - - (2) - (4)
Interest expense and
related charges (8) 2 (3) - (2) - (213) (224)
Impacts of Tax Receivable
Agreement - - - - - - (62) (62)
Equity in earnings of
unconsolidated investment - - 3 - - - - 3
Income (loss) before income
taxes 573 (10) 14 41 (97) (54) (308) 159
Income tax expense - - - - - - (45) (45)
Net income (loss) $ 573 $ (10) $ 14 $ 41 $ (97) $ (54) $ (353) $ 114
Our operating segments delivered strong operating performance with a disciplined
focus on cost management, while generating and selling essential electricity in
a safe and reliable manner during a period of significant economic disruption.
Our performance reflected the stability of our integrated model, including a
diversified generation fleet, retail and commercial and hedging activities in
support of our integrated business, to produce results in line with expectations
and significant cash from operations of $1.041 billion in the three months ended
September 30, 2020 despite general uncertainty in the overall economy.
Consolidated results increased $328 million to net income of $442 million in the
three months ended September 30, 2020 compared to the three months ended
September 30, 2019 . The change in results is driven by $321 million in pre-tax
unrealized net gains on hedging transactions in 2020 compared to $79 million in
pre-tax unrealized net losses on hedging transactions in 2019 and strong Texas
wholesale operating results, partially offset by a $272 million pre-tax
impairment of assets related to our Kincaid and Zimmer coal generation
facilities.
For the three months ended
For the three months endedSeptember 30, 2020 and 2019, selling, general and administrative expense increased by$22 million , primarily due to the increased expense resulting from the acquisition of Crius inJuly 2019 and Ambit inNovember 2019 . Interest expense and related charges decreased$123 million to$101 million in the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 driven by unrealized mark-to-market gains of$11 million in 2020 compared to unrealized mark-to-market losses of$76 million in 2019 and a$27 million decrease in interest paid/accrued reflecting the reduction in higher interestVistra senior unsecured notes through the Redemptions and Tender Offers in 2019 and 2020. See Note 18 to the Financial Statements. For the three months endedSeptember 30, 2020 and 2019, the Impacts of the Tax Receivable Agreement totaled income of$58 million and expense of$62 million , respectively. See Note 8 to the Financial Statements for discussion of the impacts of the Tax Receivable Agreement Obligation. 59 -------------------------------------------------------------------------------- Table of Contents For the three months endedSeptember 30, 2020 , income tax expense totaled$199 million and the effective tax rate was 31.0%. For the three months endedSeptember 30, 2019 , income tax expense totaled$45 million and the effective tax rate was 28.3%. See Note 7 to the Financial Statements for reconciliation of the effective rates to theU.S. federal statutory rate. Nine Months Ended September 30, 2020 Asset Eliminations / Vistra Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues
$ 8,919 Fuel, purchased power costs and delivery fees (5,133) (840) (897) (115) (480) - 3,633 (3,832) Operating costs (94) (577) (192) (22) (298) (65) (1) (1,249) Depreciation and amortization (229) (370) (540) (14) (73) (10) (48) (1,284) Selling, general and administrative expenses (489) (58) (66) (18) (52) (20) (52) (755) Impairment of long-lived assets - - - - (356) - - (356) Operating income (loss) 440 1,478 150 42 (471) (95) (101) 1,443 Other income 1 5 1 1 4 6 1 19 Other deductions - (7) (30) - 4 (2) - (35) Interest expense and related charges (8) 6 (6) 6 (2) - (537) (541) Impacts of Tax Receivable Agreement - - - - - - 44 44 Equity in earnings of unconsolidated investment - - 4 - - - - 4 Income (loss) before income taxes 433 1,482 119 49 (465) (91) (593) 934 Income tax expense - - - - - - (283) (283) Net income (loss)$ 433 $ 1,482 $ 119 $ 49 $ (465) $ (91) $ (876) $ 651 60
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Nine Months Ended September 30, 2019
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Operating revenues
$ 8,949 Fuel, purchased power costs and delivery fees (4,383) (1,062) (1,036) (131) (540) (158) 3,023 (4,287) Operating costs (44) (525) (170) (22) (263) (129) - (1,153) Depreciation and amortization (204) (385) (506) (14) (59) - (45) (1,213) Selling, general and administrative expenses (364) (60) (61) (13) (65) (33) (41) (637) Operating income (loss) 19 1,324 260 79 166 (103) (86) 1,659 Other income - 21 - - 5 2 17 45 Other deductions - (6) - - - (2) (1) (9) Interest expense and related charges (16) 7 (10) - (5) - (696) (720) Impacts of Tax Receivable Agreement - - - - - - (26) (26) Equity in earnings of unconsolidated investment - - 13 - - - - 13 Income (loss) before income taxes 3 1,346 263 79 166 (103) (792) 962 Income tax benefit - - - - - - (270) (270) Net income (loss)$ 3 $ 1,346 $ 263 $ 79 $ 166 $ (103) $ (1,062) $ 692 Our operating segments delivered strong operating performance with a disciplined focus on cost management, while generating and selling essential electricity in a safe and reliable manner during a period of significant economic disruption. Our performance reflected the stability of our integrated model, including a diversified generation fleet, retail and commercial and hedging activities in support of our integrated business, to produce results in line with expectations and significant cash from operations of$2.350 billion for the nine months endedSeptember 30, 2020 despite general uncertainty in the overall economy. Consolidated results decreased$41 million to net income of$651 million in the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . The change in results is driven by a$181 million pre-tax decrease in unrealized gains on hedging transactions, a$356 million pre-tax impairment of assets related to ourKincaid , Zimmer andJoppa /EEI coal generation facilities and a$29 million pre-tax loss on disposal of our equity method investment inNortheast Energy, LP (NELP), almost completely offset by strongTexas wholesale operating results and the addition of Crius and Ambit. See Note 18 to the Financial Statements. For the nine months endedSeptember 30, 2020 and 2019, operating costs increased$96 million to$1,249 million primarily driven by higher estimated costs for ARO, increased LTSA costs and COVID-related expenses.
For the nine months ended
Interest expense and related charges decreased$179 million to$541 million in the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 driven by a$83 million decrease in interest paid/accrued reflecting the reduction in higher interestVistra senior unsecured notes through the Redemptions and Tender Offers in 2019 and 2020 and a$94 million decrease in unrealized mark-to-market losses on interest rate swaps. See Note 18 to the Financial Statements. For the nine months endedSeptember 30, 2020 and 2019, the Impacts of the Tax Receivable Agreement totaled income of$44 million and expense of$26 million , respectively. See Note 8 to the Financial Statements for discussion of the impacts of the Tax Receivable Agreement Obligation. 61 -------------------------------------------------------------------------------- Table of Contents For the nine months endedSeptember 30, 2020 , income tax expense totaled$283 million and the effective tax rate was 30.3%. For the nine months endedSeptember 30, 2019 , income tax expense totaled$270 million and the effective tax rate was 28.1%. See Note 7 to the Financial Statements for reconciliation of the effective rates to theU.S. federal statutory rate.
Discussion of Adjusted EBITDA
Non-GAAP Measures - In analyzing and planning for our business, we supplement our use of GAAP financial measures with non-GAAP financial measures, including EBITDA and Adjusted EBITDA as performance measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures included in the tables below, may provide a more complete understanding of factors and trends affecting our business. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures and are, by definition, an incomplete understanding ofVistra and must be considered in conjunction with GAAP measures. In addition, non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure. EBITDA and Adjusted EBITDA - We believe EBITDA and Adjusted EBITDA provide meaningful representations of our operating performance. We consider EBITDA as another way to measure financial performance on an ongoing basis. Adjusted EBITDA is meant to reflect the operating performance of our segments for the period presented. We define EBITDA as earnings (loss) before interest expense, income tax expense (benefit) and depreciation and amortization expense. We define Adjusted EBITDA as EBITDA adjusted to exclude (i) gains or losses on the sale or retirement of certain assets, (ii) the impacts of mark-to-market changes on derivatives, (iii) the impact of impairment charges, (iv) certain amounts associated with fresh-start reporting, acquisitions, dispositions, transition costs or restructurings, (v) non-cash compensation expense, (vi) impacts from the Tax Receivable Agreement and (vii) other material nonrecurring or unusual items.
Because EBITDA and Adjusted EBITDA are financial measures that management uses to allocate resources, determine our ability to fund capital expenditures, assess performance against our peers, and evaluate overall financial performance, we believe they provide useful information for investors.
When EBITDA or Adjusted EBITDA is discussed in reference to performance on a consolidated basis, the most directly comparable GAAP financial measure to EBITDA and Adjusted EBITDA is Net income (loss).
62
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Adjusted EBITDA - Three and Nine Months Ended September 30, 2020 Compared to
Three and Nine Months Ended September 30, 2019
Three Months Ended September Favorable Nine Months Ended Favorable
30, (Unfavorable) September 30, (Unfavorable)
2020 2019 $ Change 2020 2019 $ Change
Net income $ 442 $ 114 $ 328 $ 651 $ 692 $ (41)
Income tax expense 199 45 154 283 270 13
Interest expense and related
charges (a) 101 224 (123) 541 720 (179)
Depreciation and amortization (b) 431 444 (13) 1,341 1,266 75
EBITDA before Adjustments 1,173 827 346 2,816 2,948 (132)
Unrealized net (gain) loss
resulting from hedging
transactions (321) 79 (400) (444) (625) 181
Generation plant retirement
expenses 43 49 (6) 43 49 (6)
Fresh start/purchase accounting
impacts - (8) 8 34 26 8
Impacts of Tax Receivable
Agreement (58) 62 (120) (44) 26 (70)
Non-cash compensation expenses 16 12 4 46 36 10
Transition and merger expenses (2) 38 (40) 17 82 (65)
Impairment of long-lived assets 272 - 272 356 - 356
Loss on disposal of investment in
NELP - - - 29 - 29
COVID-19-related expenses (c) 3 - 3 18 - 18
Other, net 11 1 10 14 12 2
Adjusted EBITDA $ 1,137 $ 1,060 $ 77 $ 2,885 $ 2,554 $ 331
____________
(a)Includes unrealized mark-to-market net gains on interest rate swaps of $11
million and unrealized mark-to-market net losses on interest rate swaps of $76
million for the three months ended September 30, 2020 and 2019, respectively.
Includes unrealized mark-to-market net losses on interest rate swaps of $181
million and $275 million for the nine months ended September 30, 2020 and 2019,
respectively.
(b)Includes nuclear fuel amortization in the Texas segment of $20 million and
$20 million for the three months ended September 30, 2020 and 2019,
respectively, and $57 million and $53 million for the nine months ended
September 30, 2020 and 2019, respectively.
(c)Includes material and supplies and other incremental costs related to our
COVID-19 response.
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Three Months Ended September 30, 2020
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Net income (loss) $ 109 $ 925 $ 100 $ 29 $ (385) $ (60) $ (276) $ 442
Income tax expense - - - - - - 199 199
Interest expense and related
charges (a) 2 (2) 2 (3) 1 - 101 101
Depreciation and amortization (b) 67 138 181 5 13 10 17 431
EBITDA before Adjustments 178 1,061 283 31 (371) (50) 41 1,173
Unrealized net (gain) loss
resulting from hedging
transactions (316) (78) (40) (9) 122 - - (321)
Generation plant retirement
expenses - - - - 43 - - 43
Fresh start/purchase accounting
impacts (6) - 6 - - - - -
Impacts of Tax Receivable
Agreement - - - - - - (58) (58)
Non-cash compensation expenses - - - - - - 16 16
Transition and merger expenses 1 - (5) - - - 2 (2)
Impairment of long lived assets - - - - 272 - - 272
COVID-19-related expenses (c) - 2 - - 1 - - 3
Other, net 3 15 1 1 - 2 (11) 11
Adjusted EBITDA $ (140) $ 1,000 $ 245 $ 23 $ 67 $ (48) $ (10) $ 1,137
____________
(a)Includes $11 million of unrealized mark-to-market net gains on interest rate
swaps.
(b)Includes nuclear fuel amortization of $20 million in Texas segment.
(c)Includes material and supplies and other incremental costs related to our
COVID-19 response.
Three Months Ended September 30, 2019
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Net income (loss) $ 573 $ (10) $ 14 $ 41 $ (97) $ (54) $ (353) $ 114
Income tax expense - - - 45 45
Interest expense and related
charges (a) 8 (2) 3 - 2 - 213 224
Depreciation and amortization (b) 86 146 170 5 21 - 16 444
EBITDA before Adjustments 667 134 187 46 (74) (54) (79) 827
Unrealized net (gain) loss
resulting from hedging
transactions (769) 682 60 (21) 127 - - 79
Generation plant retirement
expenses - - - - 11 38 - 49
Fresh start/purchase accounting
impacts (12) - - (1) 8 (3) - (8)
Impacts of Tax Receivable
Agreement - - - - - - 62 62
Non-cash compensation expenses - - - - - - 12 12
Transition and merger expenses 24 5 1 - 2 1 5 38
Other, net 3 2 6 - (1) 1 (10) 1
Adjusted EBITDA $ (87) $ 823 $ 254 $ 24 $ 73 $ (17) $ (10) $ 1,060
____________
(a)Includes $76 million of unrealized mark-to-market net losses on interest rate
swaps.
(b)Includes nuclear fuel amortization of $20 million in Texas segment.
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Nine Months Ended September 30, 2020
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Net income (loss) $ 433 $ 1,482 $ 119 $ 49 $ (465) $ (91) $ (876) $ 651
Income tax expense - - - - - - 283 283
Interest expense and related
charges (a) 8 (6) 6 (6) 2 - 537 541
Depreciation and amortization (b) 229 427 540 14 73 10 48 1,341
EBITDA before Adjustments 670 1,903 665 57 (390) (81) (8) 2,816
Unrealized net (gain) loss
resulting from hedging
transactions (114) (449) (37) (1) 157 - - (444)
Generation plant retirement
expenses - - - - 43 - - 43
Fresh start/purchase accounting
impacts 1 (4) 23 - 14 - - 34
Impacts of Tax Receivable
Agreement - - - - - - (44) (44)
Non-cash compensation expenses - - - - - - 46 46
Transition and merger expenses 8 (2) 1 - - - 10 17
Impairment of long-lived assets - - - - 356 - - 356
Loss on disposal of investment in
NELP - - 29 - - - - 29
COVID-19-related expenses (c) - 12 2 - 3 - 1 18
Other, net 7 17 8 3 2 2 (25) 14
Adjusted EBITDA $ 572 $ 1,477 $ 691 $ 59 $ 185 $ (79) $ (20) $ 2,885
____________
(a)Includes $181 million of unrealized mark-to-market net losses on interest
rate swaps.
(b)Includes nuclear fuel amortization of $57 million in Texas segment.
(c)Includes material and supplies and other incremental costs related to our
COVID-19 response.
Nine Months Ended September 30, 2019
Asset Eliminations / Vistra
Retail Texas East West Sunset Closure Corporate and Other Consolidated
Net income (loss) $ 3 $ 1,346 $ 263 $ 79 $ 166 $ (103) $ (1,062) $ 692
Income tax expense - - - - - - 270 270
Interest expense and related
charges (a) 16 (7) 10 - 5 - 696 720
Depreciation and amortization (b) 204 438 506 14 59 - 45 1,266
EBITDA before Adjustments 223 1,777 779 93 230 (103) (51) 2,948
Unrealized net (gain) loss
resulting from hedging
transactions 192 (616) (74) (45) (82) - - (625)
Generation plant retirement
expenses - - - - 11 38 - 49
Fresh start/purchase accounting
impacts 17 - 4 (3) 10 (2) - 26
Impacts of Tax Receivable
Agreement - - - - - - 26 26
Non-cash compensation expenses - - - - - - 36 36
Transition and merger expenses 24 11 5 1 26 - 15 82
Other, net 7 11 20 2 10 3 (41) 12
Adjusted EBITDA $ 463 $ 1,183 $ 734 $ 48 $ 205 $ (64) $ (15) $ 2,554
____________
(a)Includes $275 million of unrealized mark-to-market net losses on interest
rate swaps.
(b)Includes nuclear fuel amortization of $53 million in Texas segment.
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Retail Segment - Three and Nine Months Ended
Three Months Ended September Favorable Nine Months Ended Favorable
30, (Unfavorable) September 30, (Unfavorable)
2020 2019 Change 2020 2019 Change
Operating revenues:
Revenues in ERCOT $ 1,839 $ 1,600 $ 239 $ 4,536 $ 3,716 $ 820
Revenues in Northeast/Midwest 683 576 107 1,862 1,239 623
Amortization expense 7 12 (5) (1) (7) 6
Other revenues (8) 19 (27) (12) 66 (78)
Total operating revenues 2,521 2,207 314 6,385 5,014 1,371
Fuel, purchased power costs and
delivery fees:
Purchases from affiliates (1,859) (1,451) (408) (3,761) (2,813) (948)
Unrealized net gains (losses) on
hedging activities with affiliates 324 757 (433) 126 (209) 335
Delivery fees (570) (497) (73) (1,446) (1,192) (254)
Other costs (a) (14) (167) 153 (52) (169) 117
Total fuel, purchased power costs and
delivery fees (2,119) (1,358) (761) (5,133) (4,383) (750)
Net income (loss) $ 109 $ 573 $ (464) $ 433 $ 3 $ 430
Adjusted EBITDA $ (140) $ (87) $ (53) $ 572 $ 463 $ 109
Retail sales volumes (GWh):
Retail electricity sales volumes:
Sales volumes in ERCOT 16,573 15,251 1,322 41,547 35,727 5,820
Sales volumes in Northeast/Midwest 11,103 9,193 1,910 28,640 21,756 6,884
Total retail electricity sales
volumes 27,676 24,444 3,232 70,187 57,483 12,704
Weather (North Texas average) -
percent of normal (b):
Cooling degree days 89.0 % 106.0 % 91.0 % 96.0 %
Heating degree days - % - % 88.0 % 111.0 %
____________
(a)For the three and nine months ended September 30, 2020 , includes third-party
fuel and power purchases of $13 million and $50 million , respectively.
(b)Weather data is obtained from Weatherbank, Inc. For the three and nine months
ended September 30, 2020 , normal is defined as the average over the 10-year
period from September 2010 to September 2019 . For the three and nine months
ended September 30, 2019 , normal is defined as the average over the 10-year
period from September 2009 to September 2018 .
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Net income decreased by $464 million to $109 million and Adjusted EBITDA
decreased by $53 million to negative Adjusted EBITDA of $140 million in the
three months ended September 30, 2020 compared to the three months ended
September 30, 2019 . Net income increased by $430 million to $433 million and
Adjusted EBITDA increased by $109 million to $572 million in the nine months
ended September 30, 2020 compared to the nine months ended September 30, 2019 .
Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2020
Compared to 2019 Compared to 2019
Margin primarily driven by the addition of Crius acquired in
(3) $ 250
Other driven by higher SG&A expense (including bad debt expense) primarily due to the addition of Crius and Ambit
(50) (141)
Change in Adjusted EBITDA $ (53) $ 109
Change in depreciation and amortization expenses driven by Crius/Ambit intangibles
25 (17)
(Unfavorable)/favorable impact of lower unrealized net gains/losses on hedging activities
(453) 306
Lower transition and merger and other expenses 17 32
Change in net income (loss) $ (464) $ 430
Generation - Three Months Ended September 30, 2020 Compared to Three Months
Ended September 30, 2019
Three Months Ended September 30,
Texas East West Sunset
2020 2019 2020 2019 2020 2019 2020 2019
Operating revenues:
Electricity sales $ 206 $ 321 $ 210 $ 332 $ 78 $ 73 $ 231 $ 230
Capacity revenue from
ISO/RTO - - (25) 9 - - 40 40
Sales to affiliates 1,307 1,090 436 275 1 - 116 86
Rolloff of unrealized net
gains (losses) representing
positions settled in the
current period 138 380 41 56 4 (6) (41) (32)
Unrealized net gains
(losses) on hedging
activities 129 (415) 67 (44) 1 28 (44) (56)
Unrealized net gains
(losses) on hedging
activities with affiliates (189) (646) (85) (75) - - (48) (37)
Other revenues - 1 - - - - (4) (4)
Operating revenues 1,591 731 644 553 84 95 250 227
Fuel, purchased power costs
and delivery fees:
Fuel for generation
facilities and purchased
power costs (311) (341) (301) (298) (41) (39) (217) (193)
Fuel for generation
facilities and purchased
power costs from affiliates 2 - (4) (2) - - 1 1
Unrealized (gains) losses
from hedging activities (1) (1) 19 4 4 (1) 11 (3)
Unrealized net (gains)
losses on hedging
activities with affiliates - - (2) - - - - -
Ancillary and other costs (36) (87) (7) (3) (1) - (4) (2)
Fuel, purchased power costs
and delivery fees (346) (429) (295) (299) (38) (40) (209) (197)
Net income (loss) $ 925 $ (10) $ 100 $ 14 $ 29 $ 41 $ (385) $ (97)
Adjusted EBITDA $ 1,000 $ 823 $ 245 $ 254 $ 23 $ 24 $ 67 $ 73
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Three Months Ended September 30,
Texas East West Sunset
2020 2019 2020 2019 2020 2019 2020 2019
Production volumes (GWh):
Natural gas facilities 10,722 12,924 16,248 15,484 1,347 1,320
Lignite and coal facilities 8,051 7,833 8,685 8,667
Nuclear facilities 5,270 5,274
Solar/Battery facilities 133 137
Capacity factors:
CCGT facilities 58.7 % 69.5 % 66.4 % 63.5 % 59.7 % 58.6 %
Lignite and coal facilities 81.0 % 78.8 % 59.4 % 59.3 %
Nuclear facilities 103.8 % 103.8 %
Weather - percent of normal
(a):
Cooling degree days 96.0 % 108.0 % 108.0 % 109.0 % 114.0 % 110.0 % 102.0 % 119.0 %
Heating degree days - % - % 144.0 % 47.0 % - % - % 98.0 % - %
Generation
Three Months Ended September 30,
2020 2019
Market pricing:
Average ERCOT North power
price ($/MWh) $ 24.86 $ 71.13
Average NYMEX Henry Hub
natural gas price ($/MMBTU) $ 1.95 $ 2.33
Average Market On-Peak Power
Prices ($MWh) (b):
PJM West Hub $ 28.35 $ 31.17
AEP Dayton Hub $ 28.44 $ 32.28
NYISO Zone C $ 23.09 $ 25.85
Massachusetts Hub $ 27.22 $ 29.69
Indiana Hub $ 29.84 $ 32.00
Northern Illinois Hub $ 25.80 $ 29.79
Average natural gas price
(c):
TetcoM3 ($/MMBtu) $ 1.45 $ 1.87
Algonquin Citygates
($/MMBtu) $ 1.52 $ 2.09
____________
(a)Reflects cooling degree days or heating degree days for the region based on
Weather Services International (WSI) data.
(b)Reflects the average of day-ahead quoted prices for the periods presented and
does not necessarily reflect prices we realized.
(c)Reflects the average of daily quoted prices for the periods presented and
does not reflect costs incurred by us.
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The following table presents changes in net income (loss) and Adjusted EBITDA
for the three months ended September 30, 2020 compared to the three months ended
September 30, 2019 .
Three
Months Ended
Texas East West Sunset
Favorable/(unfavorable) change in revenue net of fuel $ 196
$ (3) $ 5 $ (1) Favorable/(unfavorable) change in other operating costs (18) (3) (2) 1 Favorable/(unfavorable) change in selling. general and administrative expenses (1) 3 (4) (8) Other - (6) - 2 Change in Adjusted EBITDA $ 177
8 (11) - 8
Change in unrealized net (gains)/losses on hedging activities
760 89 (12) 16
Impairment of long-lived assets - - - (272)
Generation plant retirement expenses - - - (32)
Fresh start/purchase accounting impacts - (6) (1) 8
Transition and merger expenses 5 6 - 2
Other (including interest and COVID-19 related expenses) (15) 17 2 (12)
Change in Net income (loss) $ 935
The change in
The change in East segment results was driven by higher unrealized hedging gains and improved realized margin through hedging activities and plant optimization efforts, partially offset by lower capacity revenue and increased depreciation expenses.
The change in West segment results was driven by lower unrealized gains.
The change in Sunset segment results was driven by impairment of assets related
to our
Generation - Nine Months Ended
Nine Months Ended
Texas East West Sunset
2020 2019 2020 2019 2020 2019 2020 2019
Operating revenues:
Electricity sales $ 676 $ 908 $ 582 $ 1,039 $ 204 $ 214 $ 566 $ 625
Capacity revenue from
ISO/RTO - - (34) 184 - - 124 156
Sales to affiliates 2,185 1,840 1,287 750 3 - 286 223
Rolloff of unrealized net
gains (losses) representing
positions settled in the
current period 74 370 138 19 (21) (5) (173) (64)
Unrealized net gains on
hedging activities 322 100 (10) (45) 25 47 75 181
Unrealized net gains
(losses) on hedging
activities with affiliates 66 136 (119) 89 - - (74) (15)
Other revenues - 2 1 (3) - 3 (16) (13)
Operating revenues 3,323 3,356 1,845 2,033 211 259 788 1,093
Fuel, purchased power costs
and delivery fees:
Fuel for generation
facilities and purchased
power costs (730) (928) (888) (1,039) (110) (134) (492) (514)
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Nine Months Ended
Texas East West Sunset
2020 2019 2020 2019 2020 2019 2020 2019
Fuel for generation
facilities and purchased
power costs from affiliates 5 - (8) (2) - - 2 1
Unrealized (gains) losses
from hedging activities (13) 10 28 10 (3) 3 15 (19)
Ancillary and other costs (102) (144) (29) (5) (2) - (5) (8)
Fuel, purchased power costs
and delivery fees (840) (1,062) (897) (1,036) (115) (131) (480) (540)
Net income (loss) $ 1,482 $ 1,346 $ 119 $ 263 $ 49 $ 79 $ (465) $ 166
Adjusted EBITDA $ 1,477 $ 1,183 $ 691 $ 734 $ 59 $ 48 $ 185 $ 205
Production volumes (GWh):
Natural gas facilities 27,111 30,255 41,682 41,582 3,755 3,530
Lignite and coal facilities 20,330 20,613 19,083 24,289
Nuclear facilities 15,045 13,951
Solar/Battery facilities 341 354
Capacity factors:
CCGT facilities 50.7 % 55.9 % 57.8 % 58.5 % 56.1 % 52.8 %
Lignite and coal facilities 69.0 % 69.9 % 44.0 % 56.0 %
Nuclear facilities 99.8 % 92.6 %
Weather - percent of normal
(a):
Cooling degree days 98.0 % 100.0 % 106.0 % 103.0 % 126.0 % 105.0 % 103.0 % 110.0 %
Heating degree days 81.0 % 110.0 % 93.0 % 99.0 % 91.0 % 117.0 % 89.0 % 98.0 %
Generation
Nine Months Ended September
30,
2020 2019
Market pricing:
Average ERCOT North power
price ($/MWh) $ 20.25 $ 40.38
Average NYMEX Henry Hub
natural gas price ($/MMBTU) $ 1.82 $ 2.57
Average Market On-Peak Power
Prices ($MWh) (b):
PJM West Hub $ 23.91 $ 31.22
AEP Dayton Hub $ 24.06 $ 31.27
NYISO Zone C $ 19.26 $ 27.15
Massachusetts Hub $ 24.06 $ 34.83
Indiana Hub $ 26.23 $ 31.87
Northern Illinois Hub $ 22.12 $ 28.81
Average natural gas price
(c):
TetcoM3 ($/MMBtu) $ 1.55 $ 2.47
Algonquin Citygates
($/MMBtu) $ 1.75 $ 3.16
____________
(a)Reflects cooling degree days or heating degree days for the region based on
Weather Services International (WSI) data.
(b)Reflects the average of day-ahead quoted prices for the periods presented and
does not necessarily reflect prices we realized.
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(c)Reflects the average of daily quoted prices for the periods presented and
does not reflect costs incurred by us.
The following table presents changes in net income (loss) and Adjusted EBITDA
for the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019 .
Nine Months
Ended
Texas East West Sunset
Favorable/(unfavorable) change in revenue net of fuel $ 363
$ (14) $ 15 $ (2) Favorable/(unfavorable) change in other operating costs (43) (1) - (1) Unfavorable change in selling. general and administrative expenses (8) 1 (4) (9) Other (18) (29) - (8) Change in Adjusted EBITDA $ 294
11 (34) - (14)
Change in unrealized net (gains)/losses on hedging activities
(167) (37) (44) (239)
Impairment of long-lived assets - - - (356)
Generation plant retirement expenses - - - (32)
Fresh start/purchase accounting impacts 4 (19) (3) (4)
Transition and merger expenses 13 4 1 26
Loss on disposal of investment in NELP - (30) - -
Other (including interest and COVID-19 related expenses) (19) 15 5 8
Change in Net income (loss) $ 136 The change inTexas segment results was driven by higher realized prices through hedging activities and plant optimization efforts, partially offset by lower unrealized hedging gains, lower insurance reimbursement and COVID-19 related expenses in the current year. The change in East segment results was driven by lower unrealized hedging gains, lower capacity revenue, loss on disposal of equity method investment in NELP for 100% ownership ofNorth Jersey Energy Associates (see Note 18 to the Financial Statements) and COVID-19 related expenses in the current year. The change in West segment results was driven by lower unrealized hedging gains, partially offset by higher realized prices through hedging activities and plant optimization efforts. The change in Sunset segment results was driven by impairment of assets related to ourKincaid , Zimmer andJoppa /EEI coal generation facilities and related generation plant retirement expenses, higher unrealized hedging losses, lower capacity revenue, and higher operating costs. 71 -------------------------------------------------------------------------------- Table of Contents Asset Closure Segment - Three and Nine Months EndedSeptember 30, 2020 Compared to Three and Nine Months EndedSeptember 30, 2019 Three Months Ended September Favorable Nine Months Ended Favorable 30, (Unfavorable) September 30, (Unfavorable) 2020 2019 Change 2020 2019 Change Operating revenues $ -$ 74 $ (74) $ -$ 217 $ (217) Fuel, purchased power costs and delivery fees - (57) 57 - (158) 158 Operating costs (47) (58) 11 (65) (129) 64 Depreciation and amortization (10) - (10) (10) - (10) Selling, general and administrative expenses (8) (12) 4 (20) (33) 13 Operating loss (65) (53) (12) (95) (103) 8 Other income 5 1 4 6 2 4 Other deductions - (2) 2 (2) (2) - Loss before income taxes (60) (54) (6) (91) (103) 12 Net loss$ (60) $ (54) $ (6)$ (91) $ (103) $ 12 Adjusted EBITDA$ (48) $ (17) $ (31)$ (79) $ (64) $ (15) Production volumes (GWh) - 2,276 (2,276) - 6,568 (6,568) Results for the Asset Closure segment primarily reflect the retirement of theCoffeen , Duck Creek,Havana andHennepin plants in November andDecember 2019 (see Note 4 to the Financial Statements). Operating costs for the three and nine months endedSeptember 30, 2020 included ongoing costs associated with the decommissioning and reclamation of retired plants and mines. 72 -------------------------------------------------------------------------------- Table of Contents Energy-Related Commodity Contracts and Mark-to-Market Activities The table below summarizes the changes in commodity contract assets and liabilities for the nine months endedSeptember 30, 2020 and 2019. The net change in these assets and liabilities, excluding "other activity" as described below, reflects$444 million and$625 million in unrealized net gains for the nine months endedSeptember 30, 2020 and 2019, respectively, arising from mark-to-market accounting for positions in the commodity contract portfolio.
Nine Months Ended
2020 2019
Commodity contract net liability at beginning of period $ (279) $ (850)
Settlements/termination of positions (a) 74 321
Changes in fair value of positions in the portfolio (b) 370 304
Acquired commodity contracts (c) - (22)
Other activity (d) 7 (131)
Commodity contract net asset (liability) at end of period $ 172 $ (378) ____________
(a)Represents reversals of previously recognized unrealized gains and losses upon settlement/termination (offsets realized gains and losses recognized in the settlement period). The nine months endedSeptember 30, 2020 and 2019 include reversals of$1 million and$1 million of previously recorded unrealized losses related toVistra beginning balances, respectively. The nine months endedSeptember 30, 2020 and 2019 also include reversals of$7 million and$116 million , respectively, of previously recorded unrealized losses related to commodity contracts acquired in the Merger, Crius Transaction and Ambit Transaction. Excludes changes in fair value in the month the position settled as well as amounts related to positions entered into, and settled, in the same month. (b)Represents unrealized net gains (losses) recognized, reflecting the effect of changes in fair value. Excludes changes in fair value in the month the position settled as well as amounts related to positions entered into, and settled, in the same month. (c)Includes fair value of commodity contracts acquired on the Crius Acquisition Date in 2019 (see Note 2 to the Financial Statements). (d)Represents changes in fair value of positions due to receipt or payment of cash not reflected in unrealized gains or losses. Amounts are generally related to premiums related to options purchased or sold as well as certain margin deposits classified as settlement for certain transactions executed on the CME. Maturity Table - The following table presents the net commodity contract asset arising from recognition of fair values atSeptember 30, 2020 , scheduled by the source of fair value and contractual settlement dates of the underlying positions. Maturity dates of unrealized
commodity contract net asset at
Less than Excess of
1 year 1-3 years 4-5 years 5 years Total
Prices actively quoted $ 63 $ (62) $ (1) $ - $ -
Prices provided by other
external sources 33 24 (1) - 56
Prices based on models 44 85 11 (24) 116
Total $ 140 $ 47 $ 9 $ (24) $ 172
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Table of Contents FINANCIAL CONDITION Operating Cash Flows Nine Months EndedSeptember 30, 2020 Compared to Nine Months EndedSeptember 30, 2019 - Cash provided by operating activities totaled$2.350 billion and$1.823 billion for the nine months endedSeptember 30, 2020 and 2019, respectively. The favorable change of$527 million was primarily driven by increased cash from operations and a decrease in cash margin deposits posted with third-parties. Depreciation and amortization expense reported as a reconciling adjustment in the condensed consolidated statements of cash flows exceeds the amount reported in the condensed consolidated statements of operations by$228 million and$181 million for the nine months endedSeptember 30, 2020 and 2019, respectively. The difference represented amortization of nuclear fuel, which is reported as fuel costs in the condensed consolidated statements of operations consistent with industry practice, and amortization of intangible net assets and liabilities that are reported in various other condensed consolidated statements of operations line items including operating revenues and fuel and purchased power costs and delivery fees. Investing Cash Flows Cash used in investing activities totaled$927 million and$979 million for the nine months endedSeptember 30, 2020 and 2019, respectively. Capital expenditures totaled$838 million and$474 million for the nine months endedSeptember 30, 2020 and 2019, respectively. Cash used in investing activities for the nine months endedSeptember 30, 2020 and 2019 also reflected net purchases of environmental allowances of$119 million and$137 million , respectively. For the nine months endedSeptember 30, 2020 and 2019, capital expenditures consisted of:
Nine Months Ended
2020 2019
Capital expenditures, including LTSA prepayments $ 439 $ 348
Nuclear fuel purchases $ 69 $ 33
Growth and development expenditures $ 330 $ 93
Capital expenditures $ 838 $ 474
Financing Cash Flows
Cash used in financing activities totaled $1,348 million and $784 million for
the nine months ended September 30, 2020 and 2019, respectively. The change was
primarily driven by:
•issuance of $4.6 billion principal amount of Vistra Operations senior secured
and unsecured notes in 2019;
•redemption of $166 million principal amount of outstanding of 8.125% senior
notes in July 2020 ;
•redemption of $500 million principal amount of outstanding of 5.875% senior
notes in June 2020 ;
•net repayment of $350 million in short-term borrowings under the Revolving
Credit Facility in 2020;
•repayment of $100 million of term loans under the Vistra Operations Credit
Facility in March 2020 , and
•redemption of $81 million principal amount of outstanding of 8.000% senior
notes in January 2020 ,
partially offset by:
•cash tender offers and early redemptions to purchase approximately $2.5 billion
of senior unsecured notes assumed in the Merger in 2019;
•repayment of approximately $2.0 billion of term loans under the Vistra
Operations Credit Facilities in 2019;
•$632 million in cash paid for share repurchases in 2019, and
•$153 million decrease in debt tender offer and other financing fees in 2020
compared to 2019.
Debt Activity
See Note 11 to the Financial Statements for details of the Vistra Operations Credit Facilities and other long-term debt.
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Available Liquidity
The following table summarizes changes in available liquidity for the nine
months ended
September 30 ,
2020 2019 Change
Cash and cash equivalents $ 500 $ 300 $ 200
Vistra Operations Credit Facilities - Revolving
Credit Facility 2,057 1,426 631
Total available liquidity $ 2,557 $
1,726
The$831 million increase in available liquidity for the nine months endedSeptember 30, 2020 was primarily driven by cash from operations, repayments of cash borrowings under the Revolving Credit Facility and a reduction in letters of credit outstanding under the Revolving Credit Facility reflecting the issuance of$166 million of letters of credit under the new Secured LOC Facilities, partially offset by$838 million of capital expenditures (including LTSA prepayments, nuclear fuel and development and growth expenditures),$747 million principal amount of outstandingVistra senior unsecured notes redeemed in 2020,$100 million of term loans under the Vistra Operations Credit Facility repaid inMarch 2020 ,$81 million principal amount of outstanding of 8.000% senior notes redeemed inJanuary 2020 and$198 million in dividends paid to shareholders. Based upon our current internal financial forecasts, we believe that we will have sufficient liquidity to fund our anticipated cash requirements, including those related to our capital allocation initiatives, through at least the next 12 months. Our operational cash flows tend to be seasonal and weighted toward the second half of the year.
Liquidity Effects of Commodity Hedging and Trading Activities
We have entered into commodity hedging and trading transactions that require us to post collateral if the forward price of the underlying commodity moves such that the hedging or trading instrument we hold has declined in value. We use cash, letters of credit and other forms of credit support to satisfy such collateral posting obligations. See Note 11 to the Financial Statements for discussion of the Vistra Operations Credit Facilities. Exchange cleared transactions typically require initial margin (i.e., the upfront cash and/or letter of credit posted to take into account the size and maturity of the positions and credit quality) in addition to variation margin (i.e., the daily cash margin posted to take into account changes in the value of the underlying commodity). The amount of initial margin required is generally defined by exchange rules. Clearing agents, however, typically have the right to request additional initial margin based on various factors, including market depth, volatility and credit quality, which may be in the form of cash, letters of credit, a guaranty or other forms as negotiated with the clearing agent. Cash collateral received from counterparties is either used for working capital and other business purposes, including reducing borrowings under credit facilities, or is required to be deposited in a separate account and restricted from being used for working capital and other corporate purposes. With respect to over-the-counter transactions, counterparties generally have the right to substitute letters of credit for such cash collateral. In such event, the cash collateral previously posted would be returned to such counterparties, which would reduce liquidity in the event the cash was not restricted.
At
•$155 million in cash has been posted with counterparties as compared to$202 million posted atDecember 31, 2019 ; •$11 million in cash has been received from counterparties as compared to$8 million received atDecember 31, 2019 ; •$1.034 billion in letters of credit have been posted with counterparties as compared to$1.150 billion posted atDecember 31, 2019 , and •$20 million in letters of credit have been received from counterparties as compared to$17 million received atDecember 31, 2019 .
Income Tax Payments
In the next 12 months, we do not expect to make federal income tax payments due toVistra's use of NOL carryforwards. We expect to make approximately$35 million in state income tax payments, offset by$11 million in state tax refunds, and no TRA payments in the next 12 months. In addition, we expect to receive approximately$129 million in AMT refundable credits in the next 12 months. 75 -------------------------------------------------------------------------------- Table of Contents For the nine months endedSeptember 30, 2020 , we received a refund of$37 million related to alternative minimum tax credits claimed on Dynegy tax returns. For the nine months endedSeptember 30, 2020 , there were no federal income tax payments,$32 million in state income tax payments,$6 million in state income tax refunds and no TRA payments.
Financial Covenants
The Credit Facilities Agreement includes a covenant, solely with respect to the Revolving Credit Facility and solely during a compliance period (which, in general, is applicable when the aggregate revolving borrowings and issued revolving letters of credit (in excess of$300 million ) exceed 30% of the revolving commitments), that requires the consolidated first-lien net leverage ratio not exceed 4.25 to 1.00. Although the period endedSeptember 30, 2020 was not a compliance period, we would have been in compliance with this financial covenant if it was required to be tested at such date.
See Note 11 to the Financial Statements for discussion of other covenants related to the Vistra Operations Credit Facilities.
Collateral Support Obligations
The RCT has rules in place to assure that parties can meet their mining reclamation obligations. InSeptember 2016 , the RCT agreed to a collateral bond of up to$975 million to support Luminant's reclamation obligations. The collateral bond is effectively a first lien on all ofVistra Operations' assets (which ranks pari passu with the Vistra Operations Credit Facilities) that contractually enables the RCT to be paid (up to$975 million ) before the other first-lien lenders in the event of a liquidation of our assets. Collateral support relates to land mined or being mined and not yet reclaimed as well as land for which permits have been obtained but mining activities have not yet begun and land already reclaimed but not released from regulatory obligations by the RCT, and includes cost contingency amounts. The PUCT has rules in place to assure adequate creditworthiness of each REP, including the ability to return customer deposits, if necessary. Under these rules, atSeptember 30, 2020 ,Vistra has posted letters of credit in the amount of$98 million with the PUCT, which is subject to adjustments. The ISOs/RTOs we operate in have rules in place to assure adequate creditworthiness of parties that participate in the markets operated by those ISOs/RTOs. Under these rules,Vistra has posted collateral support totaling$351 million in the form of letters of credit,$10 million in the form of a surety bond and$2 million of cash atSeptember 30, 2020 (which is subject to daily adjustments based on settlement activity with the ISOs/RTOs).
Material Cross Default/Acceleration Provisions
Certain of our contractual arrangements contain provisions that could result in an event of default if there was a failure under financing arrangements to meet payment terms or to observe covenants that could result in an acceleration of payments due. Such provisions are referred to as "cross default" or "cross acceleration" provisions. A default byVistra Operations or any of its restricted subsidiaries in respect of certain specified indebtedness in an aggregate amount in excess of$300 million may result in a cross default under the Vistra Operations Credit Facilities. Such a default would allow the lenders to accelerate the maturity of outstanding balances (approximately$2.6 billion atSeptember 30, 2020 ) under such facilities. Each ofVistra Operations' (or its subsidiaries') commodity hedging agreements and interest rate swap agreements that are secured with a lien on its assets on a pari passu basis with the Vistra Operations Credit Facilities lenders contains a cross default provision. An event of a default byVistra Operations or any of its subsidiaries relating to indebtedness equal to or above a threshold defined in the applicable agreement that results in the acceleration of such debt, would give such counterparty under these hedging agreements the right to terminate its hedge or interest rate swap agreement withVistra Operations (or its applicable subsidiary) and require all outstanding obligations under such agreement to be settled. 76 -------------------------------------------------------------------------------- Table of Contents Under (i) theVistra Operations Senior Unsecured Indentures and theVistra Operations Senior Secured Indenture, a default under any document evidencing indebtedness for borrowed money byVistra Operations or any Guarantor Subsidiary for failure to pay principal when due at final maturity or that results in the acceleration of such indebtedness in an aggregate amount of$300 million or more may have resulted in a cross default under theVistra Operations Senior Unsecured Notes, the Senior Secured Notes, the Vistra Operations Credit Facilities, the Receivables Facility, the Alternate LOC Facilities, and other current or future documents evidencing any indebtedness for borrowed money by the applicable borrower or issuer, as the case may be, and the applicable Guarantor Subsidiaries party thereto. Additionally, we enter into energy-related physical and financial contracts, the master forms of which contain provisions whereby an event of default or acceleration of settlement would occur if we were to default under an obligation in respect of borrowings in excess of thresholds, which may vary by contract. The Receivables Facility contains a cross-default provision. The cross default provision applies, among other instances, ifVistra Operations , the performance guarantor, fails to make a payment of principal or interest on any indebtedness that is outstanding in a principal amount of at least$300 million , or, in the case ofTXU Energy , the originator and servicer, in a principal amount of at least$50 million , or if other events occur or circumstances exist under such indebtedness which give rise to a right of the debtholder to accelerate such indebtedness, or if such indebtedness becomes due before its stated maturity. If this cross-default provision is triggered, a termination event under the Receivables Facility would occur and the Receivables Facility may be terminated. The Repurchase Facility contains a cross-default provision. The cross-default provision applies, among other instances, if an event of default (or similar event) occurs under the Receivables Facility or the Vistra Operations Credit Facilities. If this cross-default provision is triggered, a termination event under the Repurchase Facility would occur and the Repurchase Facility may be terminated. Under the Alternate LOC Facilities, a default under any document evidencing indebtedness for borrowed money byVistra Operations or any Guarantor Subsidiary for failure to pay principal when due at final maturity or that results in the acceleration of such indebtedness in an aggregate amount of$300 million or more, may result in a termination of the Alternate LOC Facilities. Under the Secured LOC Facilities, a default under any document evidencing indebtedness for borrowed money byVistra Operations or any Guarantor Subsidiary for failure to pay principal when due at final maturity or that results in the acceleration of such indebtedness in an aggregate amount of$300 million or more, may result in a termination of the Secured LOC Facilities.
Guarantor Summary Financial Information
During the three months endedSeptember 30, 2020 , our 8.125% senior notes were guaranteed by substantially all of our wholly owned subsidiaries. We fully redeemed the 8.125% senior notes on inJuly 2020 . The following tables summarize the combined financial information of (i)Vistra Corp. (Parent), which is the ultimate parent company and issuer of the senior notes with effect as of the Merger Date, on a stand-alone, unconsolidated basis and (ii) the guarantor subsidiaries ofVistra (Guarantor Subsidiaries). The Guarantor Subsidiaries consist of the wholly owned subsidiaries, which jointly, severally, fully and unconditionally, guarantee the payment obligations under the senior notes. See Note 11 to the Financial Statements for discussion of the senior notes and Note 13 to the Financial Statements for discussion of dividend restrictions ofVistra Operations (a guarantor subsidiary ofVistra ) and Parent. This financial information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto ofVistra . Transactions between the Parent and the Guarantor Subsidiaries have been eliminated. The inclusion ofVistra's subsidiaries as Guarantor Subsidiaries in the summary financial information is determined as of the most recent balance sheet date presented. 77 -------------------------------------------------------------------------------- Table of Contents The Parent files a consolidatedU.S. federal income tax return. All consolidated income tax expense or benefits and deferred tax assets and liabilities are included in the Guarantor summary financial information presented below. Nine Months Ended September 30, 2020 Revenues $ 8,550 Operating income $ 1,493 Net income $ 705 Net income attributable to Vistra $ 705 September 30, 2020 September 30, 2020 Current assets $ 2,781 Current liabilities $ 2,267 Noncurrent assets 21,275 Noncurrent liabilities 13,486 Total assets $ 24,056 Total liabilities $ 15,753 Noncontrolling interest $ - Guarantees
See Note 12 to the Financial Statements for discussion of guarantees.
OFF-BALANCE SHEET ARRANGEMENTS
As of
COMMITMENTS AND CONTINGENCIES
See Note 12 to the Financial Statements for discussion of commitments and contingencies.
CHANGES IN ACCOUNTING STANDARDS
See Note 1 to the Financial Statements for discussion of changes in accounting standards.
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