Jim Burke: Yes, thank you, David. I think the conversation certainly has picked up this year. We started our process, actually, last year looking at the time, it was a perspective close of Energy Harbor, which of course is now in the rearview mirror, which is great. And of course, the Talon AWS deal came out early March. So that was certainly a benchmark and a watershed event for the industry. I will say the two unit sites still have, this is an order of preference that I think the market is grappling with. The two unit sites have more desirability for what their redundancy can provide. Then there’s the single unit sites, of course. And then there’s the gas plants. So what’s been very interesting, David, about our discussions with potential partners is we have normally sort of tried to search for opportunities for us to find partners and bid into their energy needs.
Now this has been reversed. We actually have partners, potential partners coming to us directly. And speed is really very important to them. I would say gas has become as interesting to many of them as nuclear has, in fact, even a preference for some. So from our standpoint, all options are on the table with 40,000 megawatts. And, you know, we’ve got obviously 12 states and 40,000 megawatts that we can do some of our projects with. But we’ve actually flipped it a little bit. So we’ve actually put out some RFPs ourselves. So instead of just responding to the inbounds, we’ve actually gone out to the marketplace to handle actually multiple conversations simultaneously and see what the best opportunity might be for us. And so that process is not concluded yet, but we’re in the middle of that process.
And we’re very excited about the interest. Of course, you can imagine the hyperscalers, the co-locators, and the specific developers are in that process. We’re dedicating a ton of time to it, as I am personally. And it’s probably been the most exciting development for our industry, you know, in quite some time. But we think we can be a great partner to one or more capable parties because of the size of the fleet and multiple geographies. And I don’t know yet which one’s going to happen first. But it’s a it’s a huge opportunity set for us, David, one that I think we’re going to be making really good progress on here shortly.
David Arcaro: Great. That’s really helpful color. I was wondering if you could also touch on just other power plants and other co-location opportunities at gas plants. And are you potentially considering new build yourself as well? Would be curious.
Jim Burke: Yes, David, that actually ties into the earlier question, which is you have existing assets that we have in our portfolio, large scale combined cycle assets. The goal, obviously, for any of these potential partners with the data centers is speed and then reliability that they can, you know, count on for supply. It’s going to be really hard to build an asset like a combined cycle to support a new data center without it having the carbon capture equipment that we were, you know, talking about earlier. And that’s a huge lift that carbon capture equipment could double if not triple the cost of the combined cycle. So I don’t view that as a really attractive near term option at this point until that technology matures. So I think the existing combined cycles are an opportunity for somebody to co-locate.
I think the next best alternative, if it’s involving gas, is likely to be peakers. But that will probably require that that data center needs to also be prepared to pull from the grid so they could get the cheaper wind and solar power on the margin when available, but be prepared to run the peakers for continuity of supply and potentially a price hedge. That, I think, is a potential model. And I think some of our partners we’re talking to are wrestling with the fact that to build out the number of gigawatts that they’re talking about, there’s only so many large meters you can be behind. You’re going to have to actually add supply to the grid. And you’re probably going to have to work in a hybrid type situation where you’re pulling when there’s surplus, but then producing when you need.
And I think peakers could potentially play that role. And I think, again, that plays into this Q discussion of what if there’s a lot of gas to be built? I actually think that means more load comes. And then we might have to build more gas, along with the wind, solar, and battery that is, as you know, already heavily in the queue. But this gas from a reliability standpoint, I think, will play a role one way or the other. I just don’t see it being combined, brand new combined cycles for that purpose. Until there’s more clarity about these EPA rules, they’re likely to be litigated. I think it’s tough to invest into an environment where you’ve got uncertainty with protracted litigation. And so I think it’s going to be difficult to create new baseload assets with confidence.
And that’s why I think the existing baseload assets are getting as much attention as they are.
David Arcaro: Excellent. That’s really helpful. Thanks so much for all the color.
Jim Burke: Thank you.
Operator: The next question comes from Angie Storozynski with Seaport. Please go ahead.
Angie Storozynski: Thank you. So, I just first maybe starting with your credit metrics and investment grade aspirations. So just wondering, what’s the timeline when you think you’re going to hit investment grade metrics? And how you could potentially use like stock-based M&A to actually accelerate this path to investment grade?
Jim Burke: Yes, thanks, Angie. Appreciate that. As you know, what we just said today, we’re right at three times. I think we’re two notches away from investing grade with two of the agencies and one notch away from the other one. So we have some work to do even to get closer to investment grade. I think we’re continuing to look at — as we look at the outlook, I mean, our leverage metrics go down just with the increase in EBITDA that you’re seeing over time. And then, we have a significant amount of cash that has yet to be allocated. And so some of that will go to debt repayment. So we do expect that there could be opportunities to be talking about investment grade metrics in the next year or two. First, we want to make sure that we get the agencies to the one level below, and then we’ll really start talking to them about timing for the deleveraging.
And where we need to get? I think we said on the last call, it’s important for us to get to investment grade. If we do that, that we are comfortably in investment grade, we don’t want to be right at the edge of the metrics. We want to be significantly into that area. So we haven’t had those detailed discussions yet because, like I said, we’re still waiting to get the upgrade to the one notch below. I think as you think about our currency, as we said, we’re still, we’ve been focused. The price of the stock has come up and there could be opportunities to use it in transactions. But at this point, as we just noted earlier in the call, we still see room for our stock to run and we’re currently buying. So, I don’t think that that would be the driver for why investment grade wouldn’t be the driver-free deal like that.
We would certainly think about our ratings as we did any potential opportunistic transaction, but we’re comfortable where we are. We do think we’ll get to investment grade metrics, but we don’t have a specific timeline to do so.
Angie Storozynski: Okay. And then changing topics a bit, like your sensitive assets and the Brownfield sites, especially those associated with the former Dynegy plant. So just wondering, is there any change in your views about the longevity of those sensitive assets? Now it seems like they’re economic, right? But I’m sure that some of the increased output from these assets is embedded in those either that range of that you provided us with. But I just wonder if there is — if some of these assets might get reallocated back to the Vistra vision, meaning that you will not put them in that center bucket. And number two, is if there is any outside associated with those Brownfield sites from the former coal plant, especially in Illinois.?
Jim Burke: So Angie, I think on the on the coal plants themselves, the main driver that we’re looking at on a go forward basis is really the EPA rules that we need to comply with, which means that all but two of our coal plants, the two being Martin Lake and Oak Grove will be retiring in that 2027 timeframe, unless there’s some other change in rule or law that we don’t anticipate. They are more economic, given these curves. I think part of the reason the backward, you know, the further dated parts of the curve, particularly 2028 in PJM and even in Texas is moved up as the dates are becoming more real. And I think the supply and demand dynamic is becoming more apparent. And so, it’s not as much about the economics of those sites at this point that are in Ohio and Illinois and more about the compliance, which of course, we’re going to comply with the EPA rules that are in effect.
As far as Martin Lake and Oak Grove, with the new rules that played out last week, we would either have to add carbon capture technology to those sites, which again, would be very difficult to do. Similarly to the comments I made about combined cycle or cofire, 40% with gas, which we believe is a possibility, something that we think could extend the life if those assets are needed, potentially all the way up to 2039. That’s something we would have to evaluate because we’ve got to have the sufficient gas supply to be doing cofiring at that level. And currently we don’t, we have some cofiring at Oak Grove, but it’s much lower level. So I think Angie, this transition is happening on the grid, this base load across the country, whether it’s regulated markets or competitive markets, has to comply with these EPA rules.
And I think the opportunity for us to do something with those sites and redevelop the sites down the road is possible, but to operate in the coal configuration that it is right now, you know, seems unlikely for, for those sites in Ohio and Illinois.
Angie Storozynski: Okay. And just one last one about capacity prices. I’m just wondering, what kind of assumptions did you embed or versus at least the last two during capacity auction in those ranges that you provided us with, given that we’re, you know, awaiting the next capacity auction in PJM? And we’re seeing some bilateral contracts. We’ve seen those incremental capacity auction clearing, clearing meaningfully higher than that last option. I’m just wondering at least directionally if you can give us a sense what you expect and what is embedded in those ranges?
Jim Burke: Yes, Angie, we do see some bilateral trades that are, that are indicating improvement in PJM capacity clears. I think we’ve still been pretty conservative with our forecast and how we’ve built assumptions for the auctions that are forthcoming, the first one coming in July. I think where we’ve seen some of these clears, we’ve seen them in the $900 kind of megawatt day range, whether we’re going to see that in this upcoming clear or it’s going to be one later in December. We like the steps that PJM has been attempting to bring forward. They haven’t been successful in all of the market reforms that they’ve recommended, but I think there is a recognition of the tightening supply demand dynamics and also the fact that this coal is going to be retiring.
