TXU Working With Texas PUC, Governor On Bad Debt "Backstop Mechanism"; Recovery Of Bad Debt From Coronavirus Emergency

Vistra CEO Says Bad Debt Could Double

Vistra "On The Lookout" For Acquisition Of Stressed Retail Providers

March 24, 2020

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Curt Morgan, Vistra Energy's president and chief executive officer, said during a Wolfe Research fireside chat that Vistra, which owns various retail energy providers in Texas including TXU, is working with the PUC and other stakeholders on a bad debt "backstop mechanism" in light of the current coronavirus emergency

"What we are working on, and I feel pretty good about, we're working with the Public Utility Commission here in Texas, the transmission and distribution utilities, other retail energy providers and generators, is a backstop mechanism for the period of time that the Governor [of Texas] declares that we have an emergency due to the virus," Morgan said

"And essentially what that would mean is, is a recovery of any bad debts that are coming from the virus," Morgan said

"This is not done yet and it won't be done until the Governor agrees to it, but I am just telling you that there are things in motion that could be a good backstop for us on the bad debt side," Morgan said

Annually, Vistra's bad debt is about $70 million, which is "more than offset, generally speaking," by late payment fee revenues, Morgan said. Vistra expects that $70 million bad debt figure to increase, and "maybe even double," Morgan said

A potential doubling of bad debt was included in stress test modeling conducted by Vistra, but even with such headwinds (and other retail headwinds noted below), Morgan said that due to Vistra's integrated model and hedging which the company has undertaken, Morgan still sees the company coming in near its mid-point of guidance for 2020

Morgan said that Vistra expects a negative impact on retail results due to the coronavirus, with such impact being volumetric in nature. Morgan expects that retail C&I volumes will see a decline, noting, in particular, the Permian Basin area, where he said that the company sees 600 MW of demand destruction going on

Morgan, however, noted that 90% of Vistra's retail EBITDA contribution is from residential and small business (and most of that from residential).

Morgan stressed that the Retail segment's margins are in the residential market, which may see an increase in volume due to work-from-home behavior

Morgan said that summer weather will be a bigger driver of 2020 results than the impacts from any virus-related demand fall-off

Morgan also does not expect to see peak load growth in ERCOT from 2019 to 2020

Morgan stressed that his view includes the caveat that the country gets a handle on the virus in the next few months, and does not enter a U-shaped recession

Morgan said that the current climate does present an opportunity for consolidation in the retail market, as weaker providers face pressures. Morgan said that Vistra is "on the lookout" and is "prepared" if a retail acquisition opportunity presents itself.

"This is an environment where you could see that happen," Morgan said of such retail acquisitions

Morgan said that any of such retail M&A opportunities are not going to be large in size

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