Power producer Vistra was poised to hit a jackpot when a hard freeze drove Texas electricity prices into the stratosphere last week. Instead, the company expects a financial blow that could run as high as $1.3bn, erasing all of last year’s profits.
Shares of the Irving, Texas-based company plummeted 20 per cent to $18.24 on Friday after it provided its first cost estimates for the storm that led to blackouts for millions of households and more than 30 deaths.
Vistra, formerly known as TXU, sells electricity into competitive markets at unregulated rates. The company is the largest owner of electric generators in Texas’s freewheeling market, with 19 plants able to produce more than 18 gigawatts of power.
Those assets should have collected eye-watering profits when Texas power prices surged to their maximum allowable $9,000 a megawatt-hour price cap, up from a 2020 average of $25 per MWh.
However, some of the company’s natural gas-fired plants did not receive gas, its coal piles became immovable and a glitch at the state grid operator capped prices when Vistra’s fleet was still running fairly well, executives said.
Curt Morgan, Vistra chief executive, compared it to losing the Super Bowl. “I was pulling my hair out. I thought we were long. I thought we were in a good position. We’re one of the biggest generators in terms of percentage on the grid,” he told analysts on Friday.
Management estimated a one-time hit of $900m to $1.3bn from the storm — far above the company’s net income of $624m in 2020.
Vistra was among dozens of generators to lose capacity during the record freeze in Texas last week. At state legislature hearings this week, Morgan and his counterparts at NRG Energy and Calpine confirmed outages in their fleets, while a wind power executive explained how some turbines iced over and lost energy output.
The travails at Vistra showed how thermal energy sources such as gas and coal were vulnerable to extreme cold in a state that focuses on protecting infrastructure from heatwaves and hurricanes.
The company supplies coal to its 1,600-megwatt Oak Grove power plant from a mine it owns nearby. But the wet coal pile at the plant became “chunks of ice,” said Jim Burke, chief financial officer. Shipping dry coal from the mine halted because the doors beneath railcars froze in an open position. The plant was down for a day and a half.
The majority of Vistra’s Texas power stations run on natural gas. Supplies of gas to its plants were interrupted during the storm as wellheads froze, processing plants lost power and pressure dropped on pipelines.
The company was forced to pay exorbitant amounts for gas and purchase high-priced electricity in the spot market to replace lost generation.
“This is the dilemma that we were faced with, with an unknown load, an unknown financial obligation, but an absolute obligation to human needs,” Morgan said.
As blackouts ensued on February 15, prices were below the $9,000 cap, which the Public Utility Commission of Texas attributed to a technical glitch. Vistra’s plants were running at a higher capacity that day, “and so we lost that value,” Morgan said.
Even so, Vistra estimated it produced about 25-30 per cent of the power generated in Texas during the storm.
The Electric Reliability Council of Texas, which operates the state’s grid, required increasing amounts of collateral from traders to back their purchases in the power market. Vistra said it posted a “significant amount of collateral, including to Ercot.”
After the collateral calls the company said it had about $1.5bn of cash and available liquidity under its revolving credit facility as of Thursday, down from $2.4bn at the end of 2020.
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