VST Q2 2025: Comanche Peak deal on track, contracting momentum up Q/Q
- Strong deal progress: Management expressed confidence in the progress on the Comanche Peak opportunity, emphasizing that the team “feels very good about where things stand,” which suggests a solid pipeline of contracting activity and a commitment to securing the right deal for the company.
- Rising deal momentum: In the Q&A, executives noted that the level of discussions and customer engagement—particularly on front-of-the-meter and co-located deals—is higher this quarter than last, indicating increasing market demand and a more robust contracting environment.
- Resilient regulatory positioning: Management addressed regulatory concerns (e.g., SB6) by stating that their approach, including meeting current filing requirements, minimizes any regulatory gating issues, providing confidence that execution will not be materially delayed by new processes.
- Deal Complexity and Uncertain Timing: The Comanche Peak deal and other large, complex contracting opportunities are not guaranteed to close quickly, as executives emphasized that “you're not done until you're done,” potentially delaying revenue realization and adding execution risk.
- Regulatory Uncertainty: There remains some ambiguity regarding Texas policy, particularly surrounding SB6 and its evolving process. Although management expressed confidence, any unforeseen changes or additional regulatory requirements could adversely affect project execution and economics.
- Capacity Auction Price Volatility: The PJM capacity auction pricing environment is unpredictable, with recent clears at elevated levels. This uncertainty could pressure margins if higher future auction prices or cost increases in new builds are not fully offset by revenue, impacting overall profitability.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EBITDA | FY 2025 | $5.5B to $6.1B | $5,500,000,000 to $6,100,000,000 | no change |
Adjusted Free Cash Flow Before Growth | FY 2025 | $3B to $3.6B | $3,000,000,000 to $3,600,000,000 | no change |
Adjusted EBITDA Midpoint Opportunity | FY 2026 | Expected to be significantly above $6B, with potential outcomes approaching mid- to high $6B and possibly $7B | Increased to at least $6.8B, with the possibility of reaching $7B | raised |
Adjusted Free Cash Flow Conversion Rate | FY 2026 | no prior guidance | Targeting at or above 60% of adjusted free cash flow before growth to adjusted EBITDA over the medium term, up from the previous target of 55%-60% | no prior guidance |
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Comanche Peak
Q: Progress on Comanche Peak deal?
A: Management expressed solid confidence in finalizing the Comanche Peak deal, stressing that a binding agreement will be reached only when the right terms are met, without committing to a fixed timeline. -
Texas Policy
Q: Is SB6 hindering Comanche Peak?
A: They feel comfortable with Texas regulatory clarity—SB6 requirements are met by their current filings, and a deal signed before September 1 remains unaffected by new rules. -
Contracting Outlook
Q: How is long-term contracting progressing?
A: The team noted that conversations with large customers are more active this quarter; the ebb and flow of discussions reflect a generally stronger momentum for new, diversified contracting opportunities. -
Capital Allocation
Q: What drives improved free cash flow conversion?
A: Management expects free cash flow conversion to climb above 60% in 2026, boosted by better operational metrics and reduced depreciation, which strengthens the overall balance sheet. -
Investment Grade
Q: How will investment grade be achieved?
A: They plan to reduce net leverage—already around 3× adjusted EBITDA—through debt repayments and rising EBITDA, setting the stage for an investment grade upgrade within the next 12–18 months. -
PJM Capacity
Q: What is the outlook for PJM auction prices?
A: Management explained that while capacity clears remain elevated due to increased new build costs, the overall impact is moderated as energy and capacity revenues currently represent a smaller portion of customer bills compared to rising wire charges. -
M&A Activity
Q: Does pending M&A block future deals?
A: They emphasized that the existing M&A activity will not restrict pursuing additional attractive deals, with ongoing evaluations in major markets ensuring ample deal flow. -
Backup Generation
Q: How is backup generation structured?
A: Depending on customer needs, backup generation may be integrated into a turnkey solution or arranged separately, ensuring that reliability and project economics are both preserved. -
2027 Curves
Q: Any update on the 2027 price curves?
A: Management affirmed that the 2027 curves remain broadly in line with previous expectations, with slight upward trends anticipated due to evolving market dynamics and hedging roll-offs.
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