Good morning. My name is Tim and I will be your conference operator today. At this time, I would like to welcome everyone to the Vistra Energy Second Quarter 2018 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Molly Sorg, you may begin your conference.

Thank you and good morning, everyone. Welcome to Vistra Energy’s investor webcast, discussing second quarter 2018 results, which is being broadcast live from the Investor Relations section of our website at www.vistraenergy.com. Also available on our website are a copy of today’s investor presentation, our 10-Q and the related earnings release. Joining me for today’s call are Curt Morgan, President and Chief Executive Officer; Bill Holden, Executive Vice President and Chief Financial Officer and Steve Muscato, Senior Vice President and Chief Commercial Officer. We also have additional senior executives in the room to address questions in the second part of today’s call, as necessary. Before we begin our presentation, I encourage all listeners to review the Safe Harbor Statements included on slides 2 and 3 in the investor presentation on our website, which explain the risks of forward-looking statements, the limitations of certain industry and market data, included in the presentation and the use of non-GAAP financial measures. Today’s discussion will contain forward-looking statements, which are based on assumptions we believe to be reasonable only as of today’s date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. Further, our earnings release, slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are in the earnings release and in the appendix to the investor presentation. I will now turn the call over to Curt Morgan to kick off our discussion.

Thank you, Molly and good morning to everyone on the call. As always, we appreciate your interest in Vistra Energy. I’m going to turn to slide 6. I’d like to cover our second quarter highlights, starting with our quarter and year to date 2018 financial results. We had another very good quarter. This is even after initiating our combined company guidance in May, which reflects higher forward curves and increased retail expectations particularly in ERCOT. We concluded the quarter delivering 653 million in adjusted EBITDA from our ongoing operations, results that exceeded our expectations for the quarter, primarily as a result of higher realized prices, lower than forecast operations and maintenance expenses and ERCOT retail favorability that was offset by higher power costs than planned for our Ohio retail portfolio. A meaningful, yet imperfect comparison we thought might be of interest is a comparison of second quarter 2017 versus second quarter 2018 results, using Dynegy’s and Vistra’s previously disclosed standalone quarterly results for 2017. This comparison indicates a more than 20% increase in 2018 over 2017, driven primarily by higher ERCOT retail and wholesale contribution margins and realized merger synergies. And similar to the first quarter of 2018, we once again executed a partial buyback of the Odessa power plant earn out in May, which reduced second quarter adjusted EBITDA by approximately $10 million. We expect the three year impact of the transaction, net of the premium paid, to be a positive $2 million. Excluding this second quarter negative impact, Vistra’s adjusted EBITDA from its ongoing operations would have been 663 million. I would also like to highlight that in the second quarter, our retail team grew residential customer counts in ERCOT by more than 1% year-over-year, ending the quarter with 1.493 million customers. This is the highest ERCOT residential…

Thanks, Curt. Turning now to slide 11, we wanted to spend a few minutes on the call today, discussing the state of the ERCOT market. As many of you know, Texas experienced extreme temperatures the last two weeks of July. During this period, ERCOT saw meaningful daily and intraday volatility, as it’s depicted on the two graph on the slide. During the two-week period, ERCOT North Hub on peak day ahead average prices were consistently above $100 per megawatt hour and even reached $401 per megawatt hour on July 23 with a single hour exceeding $2000 per megawatt hour. These high day ahead prices provided Vistra the opportunity to sell unhedged length at attractive prices during the month of July. However, while day ahead prices during the month of July were strong, real time prices came in meaningfully lower during the month. Real time prices settled below the day ahead market because ERCOT had sufficient supply to meet the demand, despite the above average temperatures. Specifically, July 2018 wind production at the peak hour was right around the average wind production at the peak hour over the last three years in July. Outages in July this year however were well below the July average over the last three years. As a result, generation supply in ERCOT was robust enough to meet the peak demand, as represented by real time prices. Importantly however, even though July prices did not reach the scarcity extremes that some might have expected during the July heat wave, average July on peak day ahead prices still averaged approximately $112 per megawatt hour. As a result, we are well positioned heading into August. Turning now to slide 12, you can see there has been meaningful volatility in the ERCOT 5x16 summer heat rates, particularly for 2018. It…

Thank you, Steve. Turning now to slide 15, as Curt mentioned, Vistra concluded the second quarter of 2018, delivering $653 million in adjusted EBITDA from our ongoing operation, exceeding our expectations for the quarter that were embedded in our guidance. Excluding the negative $10 million impact of the partial buyback of the Odessa power plant earnout in May, Vistra’s adjusted EBITDA from its ongoing operations would have been $663 million. We expect this partial buyback to have a three year impact, net of the premium paid of positive $2 million. Vistra’s second quarter 2018 adjusted EBITDA from ongoing operations of $653 million compares favorably to our expectations for the quarter, because of higher realized prices and strong unit performance in our key generation segment, lower operating costs and favorable results in ERCOT retail that were offset by higher power costs and a even higher retail market. Segment results for the quarter can be found on slide 20 in the appendix, where you will see that following the merger with Dynegy, Vistra is now reporting six segments. Nationwide retail, ERCOT wholesale, PJM Wholesale, New York/New England wholesale, MISO Wholesale and the asset closure segment. The corporate and other non-segment consists primarily of corporate expenses, interest and taxes and CAISO operations. Year-to-date, Vistra’s adjusted EBITDA from its ongoing operations is $916 million, which reflects six months of results from the legacy Vistra operations and results from the legacy Dynegy operations for the period from April 9, 2018 through June 30, 2018. Excluding the negative $28 million impact of the partial buyback of the Odessa power plant earnout that we executed in February and May, Vistra’s adjusted EBITDA from ongoing operations would have been $944 million for the period. We expect these partial buybacks to have a positive impact, net of the premium…

[Operator Instructions] Your first question comes from the line of Shar Pourreza with Guggenheim Partners.

So Curt, if you're correct around the curves and you layer on incremental hedges post summer peak, you could actually end up with somewhat higher available capital than you currently project, right? So, how are you sort of thinking about the size of buybacks, especially given the recent weakness in the shares, I mean, the stock is trading at somewhere in the mid double digit free cash flow yields here. So has the size of the buybacks -- has that thought process even evolved since the Analyst Day or could it evolve?

Yes, it could evolve. I think the way we have discussed this with the board is that depending on where our share price is, it could just continue to be the best investment that we can make and I think it's a tradeoff frankly in ’18, ’19 because this is not an issue once you pay down debt in ’19, because then our cash flow is strong, but it's a real question of whether you continue to do share buybacks or whether you institute a dividend. And we're very focused, as you know, because you've been with us around, talking to investors, we're trying to get feedback as to what we think the right use of that capital would be in ’19 because that's really where the choice has to be made, because we're so focused on paying down debt and we're going to have some excess cash. Now look, if we have better cash picture than what we're talking about right now, then you can do both. And so we're going to look at that obviously and try to manage that, but right now, given where our stock is, we think it is a very good investment for the company to buy back our shares. We still have a significant amount left to do and we're going to be focused on it. And I will add too that, I think when we instituted the buyback program, we were at around $24 and we would have gone, I'd say, meaningfully above that and continue to buyback because we feel our share price is well north of even that. So I think you'll see us execute this 500 million. I think, the board – we’ll talk to the board near the end of this year about what we want to do, this is what we also want to see how we come out of the summer and what our cash position looks like and then I think by the end of this year, we're going to be able to come back out to the market, probably around the Q3 call and we'll be able to talk about what capital allocation might look like in ’19 and that will definitely include both share buybacks as well as a recurring dividend.

And then just remind us the recurring dividend, when you – assuming the board approves it obviously, assuming when you can pay out your first?

So the timing is what you're asking?

That's correct.

Yeah. I think, this is a question that we need to talk to the board about, it has to do with what our cash picture looks like. So look, I don't want to get out in front of the board on this one, but it would be some time, if we did so, it would be some time in ’19 and I would guess it would probably be more in the first half, but we need talk to the board about this, but it is in that kind of timeframe.

And then just on the leverage, since you mentioned it, is there – how are sort of conversations if any going with the rating agencies as far as thinking about maybe an investment grade rating?

We have not had a conversation with the agencies yet, because we’re still meaningfully above where we want to get to. I feel like that's a ’19 issue that maybe late ’18, ’19 when we’ll engage with them. I think we also – they’re like everybody else about this sector. They want to see it first. So I think we have to execute and demonstrate to them, so we have not yet engaged, we've had some cursory discussions with the agencies, but we have not had a detailed discussion. I think what we will end up doing is going into them -- to see them with a detailed presentation of what our financial plan looks like and have direct discussions, but that's probably later this year, early ’19 before we engage in that.

And then just lastly, on the synergy stuff, it's good to see you guys are achieving ahead of schedule and like there's upside. Just on the timing of the upside, as far as the adjusted EBITDA, free cash levers, so how are we -- is this the 2019 story as well? Are we going into 2020 as you think about incremental opportunities? And then just in general, taking some of your prepared remarks, you gave some color there, but where the incremental levers sort of coming from, is it sort of around further optimization, additional maybe one or two cold retirements, refis, just a little bit of color on sort of where are you seeing any incremental levers post deal closing?

Yes. So just the operations performance initiative, the OP process, that's probably more a ’19, later ’19 and probably into ’20, because it takes time to get through each of these plants, it’s very detail and there's, each plants is probably 100 different ideas that end up getting implemented. So that's all about getting through our process and that I would guess that's what that looks like. In terms of incremental interest, expense savings through the optimization of the balance sheet, that could be later ’19 into ’19. So there are things that we're looking at right now that could reduce interest expense and optimize the balance sheet and there may be a little bit on the synergy side, but that -- we probably wouldn't talk about that till the Q3 call, it's not a material amount. But I think those are the things that we still have available to us and I think the nice thing is, I think Q3 call, we will have a little bit to talk about there and I think extending into ’19, we’ll have a lot to talk about. If you think about it, we're going to have, I think, a good year this year, relative to any expectation. And Shar, I don’t want to reemphasize the folks here that when we came out with guidance back in November, we used October curves. That's what everybody else was using. We then increased it to the, basically the end of March curves, which were substantially higher. So we already increased guidance already this year once and then we're beating relative to that, whereas the other guidance that you guys are hearing are probably back into the October of 2017 curves, which are meaningfully lower. So we’re continuing to produce strong earnings, strong cash, we have catalysts coming forward as well around the OP effort and other balance sheet improvements and then we're going to talk to the market about whether we want to continue to buy back shares and/or do a recurring dividend. So we feel good about the catalyst coming forward in the next six months and we’ll have a lot to talk about.

Your next question comes from the line of Praful Mehta with Citigroup.

So quickly on the EBITDA for this quarter, you mentioned that this was higher than what you had embedded in your guidance. Can you give us any sense for how much higher was the EBITDA and obviously you're going to look at full year guidance as well, but is there any color you can give us on where that is tracking broadly.

So on the front ability, you want to -- I think, we can scale generally where -- how much ours was. I don’t know what, we can’t.

I mean basically, I would say, retail is roughly in line, the wholesale segment was higher and probably in the sort of $60 million to $70 million.

Yeah. Right. And then on the full year basis, we're not ready to – remember, this is against the higher guidance that we gave in May. We're not ready to do anything with full year guidance and I think that’s because, August is playing out, weather has subsided a bit in early August, but you guys know this. I mean, in ERCOT, weather can change on a dime and so we want to, I think it's prudent for us not to do anything yet on full year guidance and we'll have a lot to talk at the Q3 call around that, and you will -- and so I think it's better for us to hold on at this point on full year guidance. But as I said in my prepared remarks, we feel pretty good about where we are for 2018, especially given the fact that we had increased guidance to much higher curves than the back in the October ’17 curves that others are using.

And then this asset closure segment, just so we understand the NPV of almost 500 million here negative. You said there are funds on the balance sheet to kind of support most of it, can you just give us a sense of how much cash is sitting to kind of support this asset closure kind of investment over time.

Yeah. And Praful, I think what we’re referring to is that every time an obligation for which the liability has already been booked for those expenditures and then if you look at it, the total at the end of Q2 for mining and plant retirement, retirement obligations was about 1.068 billion in total and roughly half of that would be attributable to the asset closure segment.

So Praful, another way to say this is, if you were looking at the asset retirement obligation on the balance sheet of both Vistra and Dynegy all along, which I assume you guys look at, right, because that is the MTV of what the future expected retirement obligations are of the company, that number has not changed much. So that total has been and it continues to be about the same and about half of that relates to the asset closure segment. There's another rather large obligation related to the nuclear plant, Comanche Peak. You probably know this that we -- there's a surcharge in the encore rates that actually go against that. We do have a large reserve against that particular obligation that grows over time, as that surcharge is collected and the obviously we invest in conservative securities to earn a return on what we have in the reserve to go against that.

And then finally, just quickly on ERCOT, there's ongoing debates on what's actually better for IPPs, whether it's the volatility like this and no enough price movement to attract new build or do you prefer to have the spikes and see some new build come in overtime, just to keep some kind of stability on the ERCOT market. Curt, where do you see your preference, I guess, what would you rather see in ERCOT and how should it play out.

I think somebody called it, I can’t remember which one of you guys called it, the building locks, just right and what's just right, look, I think for us in particular, we like summers in the kind of the 105, 106 range. It's a good sweet spot for us in the way that we're set up. But we can't be too concerned about what the new build situation is going to be. I think, we would prefer, actually, I would prefer to see stronger forwards out two or three years out, because I think it would reflect reality and that there's not new development. Now would that bring on new development? I don't know. All I know is the previous time when this market came out and the forward curves did respond two to three years out, people built into it and they overbuilt the market and some people went -- there were bankruptcies. And so I would hope that investors would be mindful of that and because there's always that balance of wanting the forwards to reflect what reality is and that we can hedge into, but then the over exuberance of developers and to push projects and overbuild the market. It's really a delicate situation, it's hard for us because we don't control it. We have been very open about this. We run the economics on new build and we just don't see it on the thermal side in the forwards right now. And for us, the way that plays out is, as we roll into the prompt year, forwards keep popping up and then we hedge into that and we'll take advantage of it. What is I guess uncomfortable is that when investors look at it and you guys look at it, you don't see a higher…

Your next question comes from the line of Steve Fleishman with Wolfe.

Just on the asset closure segment. So the slide 21 reflects I think the costs per closure but could you just remind us of the EBITDA benefits, so we have kind of the full picture together.

And you’re talking about the benefit from shutting down, you're referring to the EBITDA benefit of shutting down the three ERCOT plants, Steve. Is that what you’re talking about?

Yeah. My recollection is, you’ve already pulled out the -- part of your guidance is the savings from closure and then this is the cost, I just want to kind of have a full picture of both and maybe this is the net cost, including the EBITDA benefits.

So we don't have – I just want to make sure I understand the question. So, the EBITDA we are showing and the actual EBITDA effect and it’s on slide 16 from the asset closure segment and that's a drag as you can see on that -- if you see that Steve, that’s on 16. And then we have the actual cash expenditure, which is, just to be clear, in the first five years, it is largely the remediation of the mines. That's why you see that substantial decline and we expect it to further decline after the tenth year as well over time and frankly those have always been in our ARO. And it's just an acceleration of that because we decided to shut down plants, but I think Steve, if I get you right, you're asking, is there, I will tell you we have not pulled out the EBITDA, what you would recall, you could say that the drag is what the savings is, so we're not going to get the drag anymore, so that's, I think that's a way of thinking about, had we had those in there, that drag –

And then just the 2019, the asset closure, if you go to slide 16, at EBITDA net free cash flow essentially getting rid of that drag, those would be roughly the ongoing impacts as well, so we’re trying to match the cost versus that benefit of avoiding this drag?

Yeah. And it actually declines a bit too over time. So we did not provide those, but that EBITDA declines as well, not on a proportional basis, but it does decline, I think into like the $40 million to $50 million range Steve over time. So you would see that also decline that benefit, if you will.

Okay. And then just on the – any way to give a sense of the MOSS landing investment size.

Yeah. I think what we've done -- we have some confidentiality issues, which is what we've been dealing with. So we're trying to be as -- I don't want you guys think, we're being difficult here and I think we used, I think, it was $300 of KWH range, I think the math is, if you take that, what was it against 12 -- against 1200. So I want to be as clear as I want to get on that, but that, I hate to be that way, we get some issues around just what we can disclose directly.

And are you -- is it like a 50-50 investment or you’re going to own the whole thing?

Well, we’re thinking about basically doing it on balance sheet, we like the returns and the spreads are just not compelling. So and a little bit about what's going on with PG&E, but they are still investment grade, but the spreads just aren't that compelling. So at this point in time, our view is, is that we would do this 100% on balance sheet.

And you own the whole project?

Yeah. And the other thing is, Steve, you know that I’ve got enough battle scars on me, going back into the late-90s, early-2000s where everybody was project financing and trying to have mezzanine financing, all kinds of things, our view is that it's a lot better to simplify our capital structure and to the extent we like the returns and the spreads aren’t great, we’d prefer to keep our capital structure simple and so we are likely to do this 100%. Now look we could project finance it at any time, but we believe it's better to be on balance sheet.

And then just one last quick one on the – just your quick take on the FERC order on subsidized generation and capacity and potential alternative FRR.

Yes. So at PJM?

Yeah.

Yeah. Well, first of all, I think FERC and I’ve said this at the Analyst Day, I'll say it again. I think FERC has largely been constructive over the years. I mean I can remember LICAP and ICAP and PJM, but LICAP and ISO-New England, [indiscernible] zero. We've actually seen much higher capacity clears, but I also will say equally that states are getting more and more proactive in what they're doing and – but I believe that PJM and FERC are going to come up with a solution that will be either net neutral. I just can't imagine them agreeing to something that when you model it out would be negative to where we are today. I think it will be at least net neutral. I think FRR has the potential to -- and by the way the devil's in the details on what -- how FRR is implemented, because the details around that, how much load do you take out, how much do you credit against a single resource, which is a block resource against the shape, demand curve, how much do you actually cut out, I don't want to get too into the weeds here, but depending on how that plays out, FRR could actually be slightly positive to neutral. We actually have an idea, which I don't want to front run right now because we're trying to work this with a group of people that we think is – I won’t say it’s a better idea, I think it is, let’s put this way, with the way that FERC is constructed right now with Commissioner Paulsen leaving, you've got to cobble together three votes inside of FERC. We believe that there's a path where we believe there's three votes and I think that's important too, Steve,…

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch.

So just wanted to follow-up, maybe to complete the last slide here on capital available. You talked about MOSS landing CapEx being in a zip code of say 400 million, my words, not yours, how do you think about the timing of that spread between ’19 and ’20, relative to the 550 of remaining available for allocation. Should we basically think about that as 200 and 200, so take 550 and take out the couple of hundred million for MOSS?

It could be. The good news is, so there's a couple of things we could do. If we wanted to manage cash and for ’19, because it's really just a ’19 issue at the end of the day. We can do a construction financing and then – or we can work with our suppliers in terms of timing of payments. There is all kinds of things we can do around, how we end up paying the cash out the door for that project and so, I think, for modeling purposes, I think if you said 200 and 200, that’s probably a fair enough or you split half and half, but I think we can optimize around that and I think that will really depend on what the opportunities are from a capital allocation standpoint, whether that be additional share repurchases or whether that would be a recurring dividend and the timing of that recurring dividend, there could be other sources of cash that may come in as well that we may use against that as well. So I think we have -- the good news is, it's a ’19 issue. I think, it's a good issue to have, we can manage it and we could actually push more into 20 if we wanted to.

And then just turning to slide 25 real quickly in the commercial ops, maybe the Steve question, just can you elaborate a little bit versus 1Q, versus 2Q, you have had some changes in estimated generation, if you multiply, relative to the estimated ‘19 realized price, doesn't seem like too much of a change, but can you elaborate a little bit on some of the puts and takes going on there, might be slightly lower across all the regions.

I can start Steve with at least one thing. If you’re talking about ERCOT, which I think is probably where most of that shows up, as we've incorporated the Dynegy assets, we put their combined cycle plants on the our dispatched protocols and essentially we’re showing less generation during the lower cost shoulder hours that what would have been in the Dynegy forecast.

Yeah. Basically, it’s cycling the combined cycles a little bit more in our model than it did in the Dynegy models previously.

Hey Julien, I’ll add something. We did a study before, I think this is helpful when you think about combined cycle plants and given their ability to cycle on and off, that movement about 80% of the run time for combined cycles is in the money. The other sort of 20% of that is generally at sort of a breakeven type pricing and so if volumes move within that band, it really doesn't move margin at all. And we’ve modeled that and not only modeled that, we then have back tested it with reality and so there's just not a lot of margin in those hours.

So hence, at the end of the day, ’19 expectations aren’t really moving around all that much, especially practically speaking, given this is always your expectation of combined cycle outlook on the margin.

Yeah.

Your next question comes from the line of Abe Azar with Deutsche Bank.

Can you talk about the hedging strategy, why you hedge natural gas more aggressively than heat rate in the second quarter?

When we look at the production growth associated with -- associated gas coming out of places like the Permian, with strong oil prices, that continues to grow pretty rapidly. In addition, the Freeport LNG was delayed. So when we look at the combination of those two events, we just thought there was more probability of downside in gas than upside. So we wanted to kind of take that risk out, which is why we increased our hedge percentage pretty dramatically up to around 91% in the 2019 period.

And I’ll add -- we're pretty bearish at a point with gas in the next couple of years. I mean, there's just a ton of gas that keeps coming. And the one thing is I can't get into any of the details, but we have ways of doing this too where we basically stop out the down side and we do that on almost costless basis. And we give up some of the upside on gas and because our skew was more of the downside on gas, we're willing to give that upside away and we're able to hit our 3 billion plus EBITDA target. So while you're giving a little bit of upside away, you're preserving a band of upside in the way that we do this and -- but the key is, you're really protecting your downside, which is where we see the greater probability of occurrence.

Follow-up is, what have you learned about supply and demand balance in Texas from the summer of future tightness. Is there anything in the way the supply stack performed that makes it kind of different than your assumptions going into the summer.

Well, I’ll add some and then Steve, if you want to add there, you can. The fleet, meaning the entire ERCOT fleet of assets has outperformed this summer, meaning in the last, relative to the last three years, outages have been I’d say materially below. And so you can argue, that's a good thing for keeping the lights on, right, but I think it has -- I think people got prepared, they saw it coming, they did, they did the investments they needed for the summer and so far they have performed. The real question is if you get another heat wave or two, what happens here is that you get the fatigue of some of the plants and we’ll see what happens. But so far, I think, that has outperformed in the market from what we've seen. I think it was largely within expectations. We did see a little bit of supply come in imported that we were not expecting to come in and I think you came in, Steve, you want to just mention that?

Sure. Up in the Panhandle, the only real issue I would say that there is -- units up in the Panhandle that are in SPP, that can switch back and forth. And so they switched into ERCOT and were able to flow over the Panhandle lines because the Panhandle, that's really the only I guess material issue that we have to watch.

And that's not that huge of a surprised although we haven't seen it recently, but that's because prices have been dipped. And so to have that swing in, I think it wasn't a huge surprise to us but it did happen and that because we had strong pricing. So I think, it largely has come in the way that we saw it come in and I think we were prepared for. The good news is to our integrated model worked. I mean, our generation generated value in our -- in some cases, our retail business had higher cost for the incremental volume, but those two -- the generation was more than offsetting. So at the end of the day, I think it worked out pretty darn well for us.

And then shifting gears a bit, is there an opportunity to sell the assets from the asset closure segment such that you don't have an ongoing liability, similar to the way some companies have divested the nuclear plants recently?

Yes. The short answer to that is yes. We have not baked that in. That's an optimization opportunity. We're actually in the process of running an RFP for a number of these to scrap -- sort of scrap metal guys and others as appropriate and I would -- I expect us to manage that liability down, but we’re being conservative and we have not put that against it, but I think [indiscernible] you saw that and that was a significant reduction of what they would have had paying on that and you can expect that we will be looking to do the same. I think, one thing I do want to make a point about though is that on the remediation, as it relates to mines, we have to do that work. I think, we could offload it to somebody else if they wanted that land and there is interest in it, but we -- the point being is, with the dismantlement and recovery of a site with a power plant, you have some time to do that. There's nothing that’s compelling you that you have to do, so you can wait for scrap metal to be -- the market to be better. As it relates to the remediation of mines, you have to do that pretty much immediately after you shut those down. And then ash ponds, you have a timeframe, but it's relatively near term. We have a little bit of flexibility around it, but that's why we're out right now trying to run some of these RFPs because we want to get out in front of this, so we could see a meaningful change in this liability if we can do that, but we don't know that and so don’t want to bet on it.

Your next question comes from the line of Michael Weinstein with Credit Suisse.

Steve, maybe you can talk a little bit about, you mentioned out puzzling tightness doesn’t extend beyond one year. In your conversations with other market participants in ERCOT, what's the driving factor that you see behind the reason why people aren’t willing to buy, I guess, beyond one year at this point?

I think it's driven by two things. One is the contract period for retailers, they don't typically buy three to five years, right. There's a lot of buying typically on the front, so that's just what we call it, supply demand dynamic. I think the other thing is just, this is kind of a show me market, we've historically seen either strategics like other companies come in like Exxon previously building combined cycles on balance sheet. And prior to that, we saw [indiscernible] come in and finance, I mean. So I think people are kind of waiting and seeing to see if there's any type of irrational build, but I think it’s a combination of those two factors.

Also just generally speaking, the 60% cash flow conversion rate from EBITDA. Is that a kind of a – you look at that as a fixed number going forward or is that something that trends in an upward direction over time, just curious?

I’m sorry –

Yeah. More for Bill. The 60% cash flow conversion rate. Just wondering if that's something that is sort of – you view that as a kind of a consistent constant over time or is that something that trends in one direction or another?

Yeah. I think, in general, it’s on average 60% over time. Now, Curt did mention that we have the potential to do some things going forward, like additional transactions to reduce interest expense, those types of things to become a net pickup for the balance of the forecast in the free cash flow conversion ratio.

And the extra 50 million that’s -- seems to be available for the second half, the capital allocation program, is that -- that's driven mostly by the results so far this year. Is that safe to say?

Yeah. I mean I think the biggest changes, when we completed all the secured debt financing transactions that we closed in mid-June, we were able to get a revolving credit facility that was $2.5 billion. The combined company -- the sum of the new revolvers that we had before that were a little bit less than that. So we've got – essentially, we were able to reduce our minimum cash requirement by about $100 million and that’s fled through into the cash.

And then one other thing, I think, Curt, you mentioned, you may have just misspoke or maybe this was just kind of an off the record comment, but I think you said you would definitely be including more buybacks in 2019. Obviously, that's going to be pending a board decision, but is that something that you see as at least part of the capital allocation, be part of it, would almost definitely certainly be additional buybacks, in addition to everything else?

No. I think it’s a function of where our stock trades relative to what see as the value. So, what I was driving to make a point is that I think we've got a couple of good allocation opportunities. One is our shares if they're attractive, but two is a recurring dividend and I think other than paying down debt, those would likely be the things that we would look at doing. Bill mentioned that we may do some things what I would refer to as an investment in our balance sheet that may use a little bit of cash, but overall, I think our focus is pretty clear. It’s pay down debt and then have some allocation opportunities that would return capital to shareholders and then there's of course other things that we may end up doing that might shore up the cash picture of the company, we might rationalize the portfolio a little bit, we may consider that. Clearly looking at the Illinois fleet and rationalizing that, if that's what the answer becomes, all can be helpful in the cash picture of the company. But I think those are real focus for us over the next six months.

Just one last question on that same point, asset rationalization, in the past, you talked about California and, as you just mentioned, Illinois and possibly the one asset you have in New York. When do you think those decisions could be made? Is that more of a 2019 issue as well?

Well, I think the MISO strategy is going to play out over multiple periods. I’d say as early as maybe later this year and in to ’19, we have some decisions to make and I think the sooner the better on that, right. If we're losing money, we have to make some choices and you would expect us to do that. Independent’s plan is a very good plan. We're actually looking at how our Independents could play in terms of the other markets that are adjacent to New York and whether there's other opportunities. So we have made any decisions around independents and we don't feel compelled to do that. It would have to be a pretty strong value proposition and it would have to be accretive to us to do that transaction. In California, we're building a nice little business with 300 megawatt battery installation. We've got a good combined cycle plant that we think will be useful over the next several years. The site at Moss Landing has additional opportunity for batteries to be put in there and we know that California is going to continue to grow their RPS and so there's going to be a need for more batteries and we can work with PG&E around that and then Oakland even though it's a smaller site will have, we think is a perfect place to put a battery installation. They need to do something because they're going to shut the current, we're going to basically retire the current plant, because the RMR contract is going to go away and they need that site, it's a perfect site for battery installation. So I think we could develop a nice little business in California, so that's what we're thinking about now is in California, but I think MISO is where you would probably see more near term action, because we can't sit here and wait for legislators or FERC or others to save us. We got to save yourself.

Your next question comes from the line of Angie Storozynski with Macquarie.

Most of my questions have been asked and answered, but you made a comment about growing your retail customer count. Given what has happened so far this summer in Texas and you’re past the missions to maybe grow the business through acquisitions, does it change your perspective, do you think that this summer is going to be make it more difficult to actually acquire large retail books in Texas and then in the absence of that, do you think that there is a way to grow this business organically?

So, a couple of things. One, I think, the volatility in higher prices actually make it more favorable to buy books in ERCOT and that increase in customer count that we've experienced, in fact, I’ll remind to everybody that we're now growing customers, our net attrition was down to 0.5%. We're growing customers this year. I think it’s a direct result of that phenomenon is that people -- whether people actively go because they want to be with somebody that's a stronger, bigger entity or whether that entity raises their prices in response to spikes in prices and then that activates them to come to somebody like us. We've seen it happen and we think we're going to continue to pick that up. And if we continue see tightness in this market, I think our ERCOT book is only going to benefit from that. I think what’s more important than anything, picking up the customer is one thing, but typically because of the way we work with customers, we can keep those customers for a number of years and that's really powerful for us to be able to get customer number one and then retain the customer and we've been able to do that. We saw this before in ERCOT where we were able to pick up customers and we retained them for a while. So this is really an advantage situation for us and this is purely organic really. With regard to growth, we’ve looked at a lot of books and we just have found something that we feel comfortable with and there's a number of reasons why, but whether it's value or whether it's a combination of that and we just -- we don't like the business model, whatever it might be, maybe you can call us picky,…

This concludes the question-and-answer portion of our call. I'd now like to turn the call over to Mr. Curt Morgan for closing remarks.

Well, thanks again for joining us on our Q2 2018 earnings call. And I’m sure we’ll be talking to you soon. Thank you very much for your interest in Vistra.

This concludes today's conference call. You may now disconnect.