Taking Severe Financial Hit from Texas Outages, Vistra CEO Discusses What Went Wrong

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Researched by Industrial Info Resources (Sugar Land, Texas)--Vistra Corporation (NYSE:VST) (Irving, Texas), one of the largest power providers in the U.S. and responsible for an approximately 18% market share in Texas' much-headlined ERCOT grid, faced a tough a February with the winter freeze in Texas, and the consequences of that disaster on the company have yet to be fully seen. According to the company's recent 8-K filing with the U.S. Securities and Exchange Commission, Vistra will take a $900 million-to-$1.3 billion financial hit from the Texas outages. Vistra could not operate some of its facilities at full capacity or at all because of a shortage of natural gas and was forced to purchase power on the wholesale market at extremely high prices during the event.

Industrial Info is tracking more than $2.3 billion of active Vistra projects, including more than $1.2 billion worth in Texas. Projects include battery energy storage systems, several solar farms and nuclear refueling.

Click on the image at right for a breakdown by state of active Vistra projects.

In Friday's earnings conference call, Vistra Chief Executive Officer Curt Morgan greeted industry analysts with, "I would like to start out with the elephant in the room. We had a rough week last week to say the least, and for our investors who are listening to this call, I want to say on behalf of everybody at Vistra that we are disappointed in our inability to deal with the unprecedented event in a way that was favorable for the company, but I can assure you, we did everything we could to try to come out on top... Within literally an hour or two, our world kind of turned upside down."

Providing a lengthy explanation of what happened during the week, Morgan discussed the company's inability to obtain natural gas: "If you think about what happened, there was a confluence of events, but the biggest of which, which we had not seen, was all the way from the wellhead we were having freeze-ups, so there wasn't enough gas to inject into the pipelines. We had gas processing facilities that were having winter issues, and one of the biggest things that happened was that the TDUs [transmission and delivery utilities] didn't have an updated list of critical infrastructure, and so all of a sudden--they couldn't help it--they just shut down what they didn't think was critical, and all of a sudden, we had gas compressors that are run on electricity...shut off. They weren't listed as critical infrastructures." Morgan said it takes about a day to get pipeline gas pressurization levels back to normal, so it essentially took the balance of the week to restore the situation, and the company was buying natural gas at very high prices. He said the company's market share of Texas power, usually about 18%, was an estimated 25%-30% from Monday through Friday, "often at the expense of making money."

The U.S. Energy Information Administration (EIA) reports that the U.S. experienced near-record withdrawals from underground natural gas storage in the week ending February 19, with weekly stocks falling by 338 billion cubic feet (Bcf), nearly three times the average withdrawal for mid-February. According to IHS Markit (London, England) estimates, dry natural gas production in Texas fell by 10 Bcf per day during the period.

Vistra also had problems at its coal-fired plants, including coal delivery issues.

Morgan was speaking on the conference call from Austin, Texas, where he and other power executives have been testifying to the Texas legislature. Morgan has testified that when Vistra officials called utility providers, they were told they weren't a priority. "How can a power plant be at the bottom of the list of priorities?" he asked.

According to news media, the Electricity Reliability Council of Texas (ERCOT), which manages the power grid for most of the state, has said that blackouts were necessary to an avert an even more catastrophic disaster that could have wiped out the state's power for months. "It worked from keeping us [from] going into a blackout that we'd still be in today, that's why we did it," ERCOT President Bill Magness testified. "Now it didn't work for people's lives, but it worked to preserve the integrity of the system."

The Texas Department of State Health Services says it likely will take several more weeks before the state has an idea of how many deaths can be attributed to the storm, but there are several reports of deaths and hospitalizations from both hypothermia and carbon-monoxide poisoning from people using sources of heat, such as gasoline-powered generators and charcoal barbecues, indoors. Vistra's Morgan accused ERCOT of a lack of urgency as the storm approached. At least six ERCOT board members, including Chairwoman Sally Talberg, resigned last week ahead of the hearings.

Vistra reported 2020 net income of $624 million, compared with $926 million in 2019. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from ongoing operations was $3.77 billion in 2020, compared with $3.39 billion in 2019.

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