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TXU Parent To Invest $20 Million In 2019 For Organic Retail Growth

Midwest, Northeast Target Markets

Vistra Texas Residential Customer Count Flat vs. Q2

Vistra Announces Capital Allocation Plan

November 2, 2018

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Reporting by Paul Ring • ring@energychoicematters.com

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Vistra Energy, the parent of TXU, Dynegy, and other retail brands, said in reporting earnings today that it plans to invest approximately $20 million in 2019 on an organic retail growth initiative.

Vistra said that PJM would be the initial market for the organic retail growth, more broadly stating the growth would focus on the Midwest and Northeast.

Vistra CEO Curt Morgan said that the company estimates that, cumulatively, the company will be able to grow its retail portfolio through an investment in the range of 1x EBITDA, which Morgan said was, "a much more attractive investment in our view as compared to paying approximately 3-4x EBITDA net of synergies for retail portfolios that have been available for acquisition."

Aside from being more cost-effective, Morgan said that organic growth allows Vistra to choose the retail markets it enters and to build a business it is comfortable operating, rather than buying a retail business which may not be a match

Morgan during an earnings call said that Vistra looked at everything that was out there in terms of retail M&A, but did not feel comfortable with any of the opportunities, given other potential uses of its capital including organic growth. Morgan cited high attrition and business practices which may not align with Vistra as factors weighing against retail acquisitions.

However, come 2020, Morgan said Vistra may consider retail M&A opportunities as developments change, and the company is always open to deals which make sense, and continues to look at everything.

Vistra's residential customer count in ERCOT was 1.492 million as of Q3 2018, versus 1.493 million as of Q2 2018, and 1.477 million a year ago

Vistra said that its ERCOT residential customer counts were up ~1.4% year-to-date, solely as a result of organic growth

Vistra's retail volumes during Q3 2018 were 21,305 GWh for the quarter, consisting of 10,886 GWh C&I, 7,137 GWh residential, and 3,282 GWh municipal aggregation

In Texas, Vistra's retail volumes during Q3 2018 were 13,263 GWh (6,126 GWh C&I, 7,137 GWh residential), versus 12,205 GWh a year ago

Vistra's Retail segment Adjusted EBITDA was $141 million for Q3 2018, versus $176 million a year ago, due to lower margin driven by higher power costs, partially offset by lower operating costs

Vistra called its Retail performance in-line with expectations

Vistra provided updated Retail segment ongoing operations Adjusted EBITDA guidance for 2019 of $740-810 million, versus prior guidance from May 2018 of $790-860 million.

Vistra reported that it lowered its estimated ongoing operations 2019 Adj. EBITDA guidance by $30 million versus a prior estimate from Retail factors, including higher power prices, expectations of higher bad debt, and a reduction in expectations from the Dynegy retail business. Each of these factors accounted for one-third of the forecast decline versus the prior guidance

Vistra also announced a capital allocation plan which includes

• Upsizing of share repurchase program by an incremental $1.25 billion expected to be opportunistically executed over the next 12 to 18 months,

• Adoption by board of directors of annual dividend program expected to begin in the first quarter of 2019 at approximately $0.50 per share; Vistra management anticipates an annual dividend growth rate in the range of approximately 6-8 percent per share, and

• Expectation to achieve leverage target of approximately 2.5x net debt to EBITDA (or approximately 2.7x gross debt to EBITDA) by year-end 2020.

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