Good morning, welcome to the Vistra Corp. Business Update conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.
Thank you, Andrea. Good morning. We truly appreciate you all taking the time to join us on short notice this morning for our transaction announcement, which is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. Also available on the website are copies of today's investor presentation, the related press release, and our recent annual and quarterly reports on the forms Form 10-K and Form 10-Q. Joining me for today's call are Jim Burke, our President and Chief Executive Officer; and Kris Moldovan, our Executive Vice President and Chief Financial Officer. We have additional senior executives present to address questions during the second part of today's call as necessary. 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, and we assume no obligation to update our forward-looking statements. I encourage all listeners to review the safe harbor statements included on slides two and three of the investor presentation on our website that 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. Thank you. I'm gonna turn the call over now to our President and CEO, Jim Burke.
Thank you, Meagan. Good morning, everyone. We appreciate your joining and especially since we covered our 2022 results and 2023 outlook just this past Wednesday. We are here today to announce the acquisition of Energy Harbor and the creation of Vistra Vision. Through this creative transaction, we will combine Vistra's nuclear, retail, renewables, and battery storage assets with Energy Harbor's nuclear and retail assets to create one of the largest clean energy businesses in the country. To recap last week's call, I highlighted the three things I believe we are very good at. That's operating power plants, serving our retail customers, and managing the commercial risk between the two. I also reiterated our commitment to growing Vistra Zero, as well as our continued commitment to our capital allocation plan.
The transaction we are announcing today leverages our three core strengths, unlocks the Vistra Zero value, and reinforces our capital allocation commitments. Turning to slide six, many of our investors may not know that when we chose the name Vistra in 2016, we did so after a strategic review of our company's history, strengths, and vision for the future. We derived our name from our aspiration to be a company with vision backed by tradition. We take our responsibility to serve our customers seriously, and we understand now, as we did then, that we are in a dynamic industry with changing customer needs and technology shifts. We set that course in 2016, and I'm very proud of the progress we've made working together as a team. Today's announcement is an exciting opportunity to advance this aspiration even further.
First, Vistra Vision will be a leading zero carbon generation and retail integrated platform. As our country goes through this energy transition to cleaner sources of electricity, we cannot lose sight of reliability. That's what is exciting about nuclear power. With the combination of Vistra and Energy Harbor's nuclear assets, Vistra will be the second largest owner of merchant always on zero carbon nuclear power generation assets with 6.4 GW and one of the largest electric retailers in the country with nearly 5 million customers. The diversification and scale across markets and technologies with carbon-free attributes provides a strong operating platform for growth, including 2.4 GW of online and near-term solar and storage assets. Second, this combination creates immediate value for our shareholders.
Not only do we believe this transaction offers an attractive return, the nuclear production tax credit provides significant downside protection while maintaining the ability to capture upside through market volatility and hedging forward. Supporting our investment returns, we've completed an extensive diligence process over many months where we have identified approximately $125 million in annual run rate synergy opportunities. We believe we can achieve full run rate by the end of 2025. We have demonstrated our ability to deliver and typically exceed these initial estimates. Importantly, we have scale in our commercial operations back in mid-office, engineering services, supply chain, information technology, just to name a few, across the 37 GW of generation we currently own and operate, and we will be able to leverage these capabilities to ensure success for our Vistra Vision and Vistra Tradition businesses.
We continue to believe in the valuable role Vistra Tradition plays for electric grid reliability for our customers and our shareholders. Vistra Tradition represents all of our gas and coal assets, which include approximately 24,000 MW of gas-fired generation, most of which is highly efficient combined-cycle gas turbines, as well as 8,400 MW of coal. This fleet has been incredibly safe, has 95% commercial availability, is low cost, and continues to provide scale benefits for Vistra. Over the past few years, we've heard from the investment community they believe that our Vistra Zero portfolio has trapped value, and we believe this combination immediately unlocks that value and sets the business up for opportunistic growth in the future. This creative structure supports our targeted return of at least $1.3 billion in capital annually to shareholders.
In fact, as part of this announcement, our board has approved an additional $1 billion of share repurchases, which combined with the $800 million authorized and remaining available in 2023, results in $1.8 billion of capacity through the end of 2024. We expect this to continue in 2025 and 2026 as described on our third quarter 2021 earnings call, all while maintaining a strong balance sheet. On slide seven, we've summarized the transaction structure and terms. This creative structure helped us achieve two important goals. The first is our commitment to maintain the strength of Vistra's balance sheet. The second was to unlock the value of Vistra Zero for our shareholders. I will describe the key aspects. Energy Harbor will merge into a subsidiary of Vistra Vision.
Vistra Corp will own 85% of Vistra Vision and 100% of Vistra Tradition. Vistra has offered the Energy Harbor shareholders a 15% stake in the combined Vistra Vision entity, $+3 billion of cash and the assumption of $430 million of net Energy Harbor debt. Notably, the 15% stake in Vistra Vision will be held by Energy Harbor's two largest shareholders, Nuveen and Avenue Capital. They are excited about this opportunity as evidenced by the fact that this investment does not have a conversion or put right. We are excited to work with Nuveen and Avenue Capital on growing the Vistra Vision business. We require approvals from the Nuclear Regulatory Commission, FERC, and the DOJ. We do not currently foresee any issues, and we anticipate closing this transaction in the Q3 or Q4 2023 timeframe.
In addition to approval by the boards of directors of both companies, the majority of the Energy Harbor stockholders have already signed support agreements. On slide eight, we've provided a little background on Energy Harbor for those who may not be as familiar with the business. The company is an integrated nuclear generation power company that owns and operates three nuclear facilities in PJM with a combined capacity of just over 4 GW. Energy Harbor also operates a retail business of 36.7 TWh of retail sales, servicing approximately 1 million customers in the PJM and MISO markets. We appreciate the business they've been able to build and that they are familiar with the dynamics of operating in competitive markets. We are excited to work with the people at Energy Harbor to form a premier large-scale zero carbon business across the country.
Vistra has been a leader in the clean energy transition. We believe in a responsible transition, one that lowers emissions without forsaking the reliability or affordability of electricity. Nuclear energy is a carbon-free, dependable, always-on source of reliable power, and we believe it is a big part of the answer. On slide nine, we highlight one of the most compelling aspects of this transaction. We have two very capable teams that we're combining with a strong emphasis on safety and operating results. As one of the largest competitive power generators in the U.S., Vistra's track record of operational excellence is very strong. We are proud of our operating and safety track records across our fleet, as well as Comanche Peak.
We have developed proprietary capabilities with our power optimization center, which uses real-time data analysis and is staffed with operators and engineers that assist our plant teams with both safety and operating conditions. The team uses machine learning and predictive models to maximize performance and protect our people and our assets. We use this capability across our 50+ operating sites, including our nuclear, renewable, and storage assets. In fact, this capability was started many years ago as a result of Comanche Peak's efforts. As part of the transaction, we completed a detailed review of Energy Harbor's nuclear assets. This included a review by Vistra's own operational personnel across many functions, as well as enhanced third-party diligence from experts in the nuclear industry. This was a multi-month process.
It included many sessions with various members of the Energy Harbor organization throughout the diligence process and included numerous site visits to the Energy Harbor nuclear sites. In turn, Energy Harbor conducted its own reverse diligence on the assets that Vistra is contributing to Vistra Vision. At the end, it was an obvious conclusion that the people of Energy Harbor share our commitment to safety, operational excellence, and serving our communities. With that, Kris, I will hand the call over to you to discuss the transaction's financial highlights.
Thank you, Jim. Turning to slide 11, we have illustrated the increase in Vistra's consolidated Adjusted EBITDA midpoint potential for 2024 and 2025, assuming the transaction closes in 2023. As you recall, we have previously disclosed that we expected the midpoint of Adjusted EBITDA opportunities to be in the $3.5 billion-$3.7 billion range for those years. With this transaction, we see the midpoint opportunities increasing to a $4.2 billion-$4.5 billion range.
Of note, this increased range does include the Adjusted EBITDA opportunity allocable to the 15% minority interest. Additionally, this increased range includes our view of the midpoint of Adjusted EBITDA opportunities for Energy Harbor after taking into account expected realized synergies and an average annual impact of out of the money generation hedges in 2024 and 2025 of approximately $150 million. This is a measurable, immediate increase in earnings potential, which has been de-risked by the nuclear production tax credit contained in the Inflation Reduction Act. As you can see on the bottom of the slide, the transaction results in two scaled businesses within Vistra that continue to complement each other as we operate on an integrated basis.
Moving to slide 12, our team, which has demonstrated a track record of identifying and then realizing transaction synergies and operating improvements, has spent months conducting extensive diligence on Energy Harbor's cost structure and operating model. While we believe the Energy Harbor team has made substantial improvements over the last several years, we believe significant optimization opportunities remain. This is no different than the opportunities we've continued to identify with respect to our own operations. As shown on slide 12, we are targeting to achieve run rate pre-tax synergies of approximately $125 million by year-end 2025. Notably, we believe there is potential upside in this target. Turning now to slide 13. Whenever we talk about debt, I think it's important to reaffirm our commitment to a long-term net leverage target of less than 3x , excluding any non-recourse debt at Vistra Zero.
We believe this transaction structure, which includes the issuance of a 15% equity interest in Vistra Vision, demonstrates that commitment. In addition to the 15% equity interest in Vistra Vision, the consideration for the transaction includes $3 billion of cash, which amount will be funded with a combination of cash from Vistra's balance sheet and newly issued debt at Vistra Operations. It also includes the assumption by Vistra Vision of approximately $430 million of net debt. We expect at least a portion of the proceeds of any new debt incurred at Vistra Operations to be sent to Vistra Vision to complete the acquisition, thereby creating an intercompany loan between the entities.
Importantly, while we do expect to execute long-term financings prior to the closing of the transaction, Vistra Operations has obtained $3 billion of financing commitments to ensure funding of the cash consideration. Of course, since we are issuing 15% of the equity interest of Vistra Vision at closing, it was important to agree upfront on a pro forma capital structure of that business. To that end, at closing, Vistra Vision is expected to have net debt of approximately $3.43 billion, with the debt anticipated to consist only of the assumed debt from Energy Harbor, the intercompany loan from it, from Vistra Operations, potential non-recourse renewables and storage financings, and/or accounts receivable financings. Finally, as you would expect, we maintain an open and active dialogue with the rating agencies about our strategic initiatives and financing plans.
As we have previously stated, maintaining and potentially improving our ratings profile has been a pillar of our strategy, and we structured this transaction with that in mind. We believe that this transaction improves our business risk profile and that our discussions with the rating agencies have been constructive in that regard. With that, I'll hand it back to you, Jim, to cover how the transaction delivers on each of Vistra's strategic priorities.
Thank you, Kris. Before we open it to Q&A, I wanna turn to slide 15 to reiterate our continuing commitment to our strategic priorities and the role this transaction will play. It really highlights the value of our Vistra Zero carbon business, including our nuclear and retail business. This creative structure supports our robust capital allocation plan so that we can continue to deliver the shareholder return of capital. This transaction creates an immediately scaled zero carbon generation and retail growth platform, coupled with a scaled Vistra Tradition business supporting a strong customer value proposition. Finally, we were able to provide the consideration needed to purchase these assets without compromising the health of our balance sheet. Like Kris, I am looking forward to what we can do together, Vistra and Energy Harbor, to be a national leader in the energy transition.
With that, operator, we are ready to take some questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, that was star then one to ask a question. At this time, we will pause momentarily to assemble the roster. Our first question will come from Shar Pourreza of Guggenheim. Please go ahead.
Hey, good morning, guys.
Hey, Shar.
Good morning, Shar.
Good morning. You guys have been busy the past couple weeks. Obviously, like, appreciate the details in the slides. I guess my first question is just on the plans for growth in the new Vision entity. You guys melded basically these two things together, found significant synergies. I guess, how should we think about the longer-term capital allocation and growth off that $2.5 billion run rate, you know, beyond 2025? Should we expect incremental things like hydrogen, like one of your peers? Is the focus really on the storage and solar side?
Sure. Thank you. It's a great question. I would say we have to first focus on the integration and the synergy capture. I mean, we have found in the past that some of the best growth opportunities are internal, and I think we've shown that with some of the previous deals we've done. I think this platform opens up a number of options. One, we've got now, I think, clear visibility that we'll be able to provide our investors as to the earnings potential of a carbon-free business. I think that's could potentially attract additional capital and even additional investment into this, into this platform. I think that's one of the opportunities of setting this up as a business with visibility into it. Obviously, we have our current Vistra Zero pipeline that we're pursuing.
Now that we're scaling too on the nuclear side, you know, it's potential that we could actually continue to see opportunities there, whether it's existing sites or long-term. You know, when you think about this, Shar, the technology is not quite ready yet, but we've got some opportunities with sites to do things with future nuclear technologies, potentially even at existing coal sites and sites that we're, you know, retiring. We're interested in the, in the additional opportunities. I'll tell you, I think our plate's full, the next, you know, 12- 18 months to get through the close and the integration activities. I think what this does is it puts us at a scale now in a zero carbon business, and I think some of this was hidden within Vistra.
We talked about nuclear, we've talked about retail, we've talked about Vistra Zero. Putting this together with Energy Harbor makes this a very large platform, and I think one that will attract interest and one that our development team sees as folks are looking for partners that have commercial skills and commercial acumen to develop projects, and I think we bring that to the table. I think there's a wide range of options, Shar.
Just one of the things that's, you know, sort of, I guess, escaped one of your peers is just trying to extrapolate what that actual PTC floor is. You know, I appreciate that, you know, obviously on slide 20, you have the credits and you adjust for inflation, et cetera. That's good. I guess, at what point do you think you'll be comfortable to give them math around what that PTC floor EBITDA is for the pro forma entity?
You know, we have obviously run cases, Shar, As you know, the PTC doesn't give you a hard floor, right? It gives you support as power prices trend down with the maximum support coming if power prices were at $25 a megawatt hour, which, you know, in our world, we see a sustained $2.50 gas is a fairly low case. Even in that case, you know, we would be netting a $40 power price with the PTC. I will tell you the returns we ran for this, we had to do our stress test. The returns that we ran and the way we got comfortable with this was that gas and power have come off considerably since the time we were looking at this originally around the summer.
Our returns on our PTC case are not that much further below the returns that we actually modeled for this. We think we're modeling closer to the downside of the opportunity with still a lot of upside opportunity, depending on how gas and power, you know, behave from this point forward. I think this was an attractive time to be into the market. Of course, for us, we think about this on a long-term basis. We're still obviously exposed to gas and power prices, but having that protection on the downside is unlike any other asset class, you know, in the market, particularly a dispatchable asset class, and that makes it extremely valuable.
Terrific. Just last one for me, I promise. Is this the retail business? How do we think about it between Vision and Vistra Tradition?
All retail will be in Vistra Vision. Okay? That'll be all retail, TXU, Ambit, Crius, as well as the Energy Harbor brands. We expect that business to be supported obviously by assets within Vistra Vision. The commercial operation of Vistra will optimize power supply and risk across Vistra Tradition to serve retail as needed. We're not losing any scale benefits there. We're not losing any risk management capabilities. We're giving the customer, I believe, an opportunity to have a zero-emission product if they would like to, and that product is selling in different parts of the country. We confirm it. We confirm it, you know, with these dispatchable assets in a way that most pure renewable assets cannot.
Terrific. Thank you guys so much. Super interesting deal. Congrats.
Thank you, Shar.
The next question comes from Steve Fleishman of Wolfe Research. Please go ahead.
Hi, good morning. Congratulations. Couple, couple questions. Just following up on the last one. Now that Vistra Vision has actually got ownership by a third party to some degree, do you need to change some of the kind of intercompany or across company arrangements for retail and the like to kinda, you know, it's not two pockets in the same company anymore between? Could you just talk a little bit about that aspect?
Sure. Steve, thanks for the question. The way we view this is that it's normal operation for how we run our business today. You know, we do have 15% ownership. We do today and have been, we do arm's length wholesale transactions between the wholesale side with the assets and the retail side where we have a supply book. I see that structure exactly the same way going forward. We've been through that with the diligence process with the, with the investors, and I feel, you know, very comfortable that this is a really easy way for us to bring capital in and not have a difference in our operating model and our ability to effectively commercially optimize and risk manage.
Okay. Maybe just thinking about for maybe not the near term, but intermediate term, how would you think about the potential to formally separate the company into, let's say, two different stocks down the road? Is that feasible? Are there issues to be able to do that? Could you just talk about the kind of pros and cons of that?
Yeah, it's, you know, one of the challenges of obviously bringing the visibility into the different businesses is you may find that the capital markets, you know, are gonna wanna be invested in one or the other, and I think both are attractive. We hear that. We've had it combined, folks couldn't necessarily see the differences between them. The way we're thinking about this, Steve, is that we have a scale advantage right now running this platform the way we have. That scale provides value to both sides, the Vistra Vision and the Vistra Tradition. It's not impossible to think down the road, you know, as things evolve, one could end up being larger, the other one might, you have continued degradation, like with the coal retirements.
I actually think there's opportunity to take fossil and be an excellent fossil operator, as we're seeing that gas-fired assets, in particular, are likely gonna be on the grid for a long period of time. I think that potential, Steve, is there. It is not the premise under which we did this deal. It is not what our operating model, I think, is going to extract the most amount of synergy from, and there could be some dis-synergies down the road if that were attempted. The capital markets might view that as a, as a good strategy. That's not one that we've got on our radar as we've got this deal, you know, squarely in our sights. I would say, we need to show that we can deliver on these commitments.
Like we always have, we'll stay open to opportunities to unlock value. Right now, these are both scaled businesses with some interdependencies. I think we're gonna focus on running this in an integrated fashion for a while.
Thanks. That's helpful. I have one last question. Could you maybe give us a little more color or insight on how you think about what you paid for Energy Harbor, you know, comparable multiples or return expectations or some sort of way to think about the valuation you paid? Thanks.
Yeah. It's a great question. You know, originally when this process started, it looked like this could be an all cash deal. As we talked about our principles, we were concerned about the leverage that might require for us to be a successful bidder. We created a different dialogue and one that we're appreciative that the Energy Harbor team was interested in pursuing, and that was to put a marker and put value to our currency. That gave us a whole new opportunity here to structure something that I think was pretty interesting. As you know, we paid the $3 billion in cash. We're assuming the $430 million of debt, and then we provide this 15% interest in the new subsidiary, Vistra Vision. They placed a value on it.
We have obviously run models, and we had to get to our comfort is that 15%, you know, the right number. What will be public at some point here, likely today, is the investors that are in this equity have placed a value on it. I think that's an important marker because it's north of anything that you could ascribe to where we currently trade. I know that's been part of the frustration of investors, that we have different asset classes. Even in consideration of the different asset classes, it is an attractive valuation from our view, Steve. It's their mark, it's their value. I think that will come out, and we can talk more about it when that becomes public.
Is that in, like, the merger documents?
It is.
Will become public? Okay.
Yes, it is.
Great. Thank you. Appreciate it.
The next question comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.
Hey. Good morning, team. Nicely done. Thanks for the time. Appreciate it. just following up on some cleanup items here from the last couple questions. with respect to the Energy Harbor cash, I thought there was $1.4 billion on the balance sheet. Where does that stand? I see the documentation of the existing debt and the assumption therein, but can you speak to that? Related, can you also speak to taxes and cash tax expectations across the subsidiaries? Maybe just to throw in the other related question here would be, how do you think about financing these entities? I know historically, the Vistra Zero entity was sort of entirely functioned sort of in an entirely separate context here. Would you make the same assumptions about financing and cash flows, et cetera?
Thanks, Julien, for the questions. On the first question on cash, I, you know, I would start by telling you that.
We are not going to be acquiring any of the cash on the balance sheet. That will be the cash on the balance sheet at the time of closing, subject to a few adjustments that are laid out in the merger agreement, will be distributed to the Energy Harbor shareholders. The amount of that cash, you know, is significant, but that is not something that we're acquiring, and so that goes with the Energy Harbor shareholders. On tax, the partnership there'll be a partnership and there'll be flow through. You know, as we look at our 85% interest, you know, as the income flows through to us, we don't see a material change in the timing of when we make at Vistra Corp a material federal income tax or TRA payment.
I will say, though, we are acquiring Energy Harbor in its current state, so it will continue to pay tax as a corporate taxpayer, as it has done historically. Then on your last question, on financing. We laid out in the materials that we expect at closing there to be $3.43 billion of net debt. We do expect, as we grow Vistra Zero, to have non-recourse financing. This does not change our view on how we're going to finance the growth of our renewables and battery storage projects. You know, at that point, we think that that debt level is attractive for that entity and have no current intentions to increase it beyond that other than through the non-recourse project financing.
Yeah, indeed. Thank you. Just to clarify that last bit, the view of growth and funding, it seems like you've got an ability to tap non-recourse financing, which has not changed, and that obviously remains a lever. Related here, again, the key is you would finance that from the Vistra Vision subsidiary, for whatever Vistra Zero ultimately needed here, as and when needed. The Vistra Tradition would be separate.
That's correct.
Excellent. All right, guys, thank you. I'll leave it there.
The next question comes from David Arcaro of Morgan Stanley. Please go ahead.
Oh, hey, good morning. Thanks for taking my question, and congratulations.
Thank you.
Was wondering if you could comment a little bit on what the free cash flow outlook looks like for the Energy Harbor assets, if there's a free cash flow conversion on the EBITDA that you think about, or just key dynamics in terms of the free cash flow contribution to the baseline Vistra outlook?
Yeah. On the contribution from Energy Harbor, because they're a taxpayer, they have a little bit lower free cash flow conversion than we do on the Vistra consolidated, you know, before the transaction side. It still produces a lot of free cash flow. You know, we're expecting that that free cash flow conversion, you know, would be in the neighborhood of, you know, 50%, 40%-50%.
Got it. Okay, great. That's super helpful. Is that, kinda contemplated and considered in the share repurchase outlook, or could there be, you know, reconsideration of potential upside to the repurchase plan, that you had indicated $1 billion a year roughly, over the next several years?
As Jim noted, the board authorized an additional $1 billion as part of this transaction, so we now have $1.8 billion remaining authorization that we expect to utilize by the end of 2024. What I would say on that is we continue to maintain balance, and so we will continue to be balanced with the free cash flow. We're taking on some leverage in this transaction, and we are continuing to prioritize a strong balance sheet, and so we will seek to pay down some debt. I don't, you know, we will continue to balance the share repurchases with debt repayments.
Got it. That makes sense. I was wondering, you mentioned the potential to bring in additional interest, I think is, how you framed it, into this Vistra Vision subsidiary. Could you elaborate on that? Are you thinking that, there's a, that you could potentially sell down additional equity stakes in that business over time, or is there an optimal kind of balance of ownership versus, capital raised that you could extract, from that asset?
David, the request that we've received really over the last couple years since we started highlighting Vistra Zero was there's a lot of investor interest in the zero carbon asset classes. Even though they found Vistra compelling as an overall company with a strong free cash flow generation profile, there was always an interest with capital allocation to pursue some level of asset, and it's hard to find scale in some of the carbon-free asset classes. What we believe we've done by putting these together is we've put scale, obviously a scale that would be very hard to get to organically. We've put together scale. We've put together an operating model that can get the most value out of that scale with the stability of multiple technologies and markets that we're actually operating in.
I don't know what'll happen from this point forward, but I suspect we're gonna get some inbounds from folks that will wanna understand this structure. Again, at the right value that folks would place on this, we would be open to that. I mean, I think that's part of our job, is to continue to find ways to attract capital that expects a reasonable return. I think the return requirements of Vistra overall, you know, have been quite high when you look at from a free cash flow yield perspective. I think there's an appetite for long-lived carbon-free assets to not require the same free cash flow yield, but it has to be attractive. I think we would expect that that's a real possibility for us to work with investors and see if there's an opportunity there.
Okay, got it. Excellent. I appreciate that additional color. Thanks again, and congratulations.
Thank you, David.
Our last question will come from Angie Storozynski of Seaport. Please go ahead.
Thank you. Just going back to the free cash flow, question. You will be issuing $3 billion of debt in a difficult market. I'm just wondering, when do you expect this transaction to become, free cash flow accretive, for Vistra stand-alone?
Thanks, Angie. As you can see in the presentation, we do expect to fund the $3 billion. With a combination of additional debt and cash on the balance sheet. As you'll recall, we talked last week. The amount of cash on the balance sheet will obviously be dependent a little bit on the pace at which we receive back margin deposits. We don't think that we will. Just a note of clarification, we think that there'll be less than $3 billion of debt incurred. As for the accretion, as you look at it's over the near term. It's in taking into account the negative hedge value. If you exclude the negative hedge value, it's free cash flow accretive.
That particularly gets the accretion, gets more attractive as you get out, you know, towards the later years in our near-term, for-planning forecast.
'Cause one of the things that I'm just wondering about is that I think we've all heard stories about major maintenance CapEx that some of Energy Harbor's nukes might require. I hear you that you've done, you know, multi-month, you know, due diligence process on these assets. If you could comment again, you know, would have been helpful if we just had that free cash flow math because, you know, it would have captured that major maintenance expense, but maybe you can talk in general about it.
Yeah. Angie, I'll start off. That's a very good question. It's why I tried to touch on my remarks. Having a nuclear facility already in our fleet gives us an advantage in our ability to, I think, do an effective level of diligence. I think, you know, asking the right questions is part of that effort. Ken Peters, our chief nuclear officer, is here with us, so I'm gonna ask him to comment just briefly on it. I will tell you that we push not only our internal team but the external experts to take a look at not only history but forward-looking and give us ranges of scenarios. We did not find anything of concern.
In any plant environment, there is always a list of things that you would like to do at a certain point in time, and then things that could, through just major maintenance schedules, you might optimally time with another outage. Our teams uncovered, working collaboratively with the Energy Harbor team, their capital plans, not unlike the kind of effort we would have internally when we're discussing our long-range plan. If we didn't feel good about this fleet, we wouldn't be sitting here at this table. We want to make sure you get comfortable and that investors are comfortable that we've done a lot of due diligence on this. Ken, I'd ask you to comment just a little bit about some of the things that you and the experts went through.
Sure. Thank you, Jim. As Jim noted, the diligence process was extensive. That started for us with a review of the equipment performance of each of the assets. We looked at data going back about five years for equipment performance. Jim mentioned the tasks you want to get done, but not immediately. We call those backlogs. We looked at the maintenance backlogs for each of the plants, and it should be noted, those are comparable data indicators across the industry. The Institute of Nuclear Power Operations looks at maintenance backlogs every two years when they come in and do a plant evaluation. We compared their equipment history and backlogs to industry norms, and they were within norms of the industry as defined by INPO. Then we validated that for ourselves by doing visits to the plant sites.
When you walk around a power plant, you can compare the data you reviewed to the actual equipment conditions you see in the field. Most equipment maintenance tasks or deficiencies are identified by tags placed on equipment. That gave us confidence that what we saw reflected in the data was actually reflected in the as-found condition of the equipment in the power plants. Then to ensure that we weren't missing anything, we also had a second full round of visits to the site. This was by an independent consulting firm, so we got validation that we were not missing anything. They saw the same things we did.
Finally, we took all that data that we gained in understanding their equipment performance past and condition current, what was needed going forward with what they had on the books for their spending plans for equipment maintenance and upgrades. As Jim noted, that gave us a complete picture. There were no significant surprises in that, and that gave us the confidence that we have a very good view of the current status of the plants and what's needed going forward.
Ken, thank you.
Perfect.
Angie, I'll just.
Yeah.
That nuclear industry shares extremely well across sites as an industry because safety is the number one priority. I think that's part of the safety culture. No matter what the ownership, we've been through our own restructuring as a company. Energy Harbor's been through a restructuring. These plants have run well through that, I think that's a testament to the nuclear safety culture. I that's all part of, I think, Ken's rep as to how we got comfortable with this.
Okay, perfect. My last question, you know, a bigger picture issue here. You're not thinking of spinning off Vistra Vision anytime soon. You know, I think this industry, the power industry has had this issue with the public markets not really giving recognition to, you know, higher quality assets. Basically, the sum of the parts valuations haven't been working. From that perspective, I mean, is this just a question of time when this set of assets gets spin-off? Secondly, this is obviously a big step, but there are other, what I would call stranded assets, you know, non-emitting or nuclear merchant assets and other entities. Is this just the first step?
Should I think that you will continue to consolidate the merchant power industry? Again, not only nuclear plants, but, I don't know, the geothermal assets, electric transmission. I mean, again, it's just probably a more of a longer-dated issue.
Sure. Yeah, it is longer dated. Angie, that's what I love about this industry is I think last Wednesday you offered, you know, would we even be interested in selling Comanche Peak? I said, I think Comanche Peak is a core asset. I still believe that. Obviously, I think we've reinforced. We think the Energy Harbor assets are core assets. I think we are very comfortable at looking for areas of opportunity as a company. As far as the valuation's concerned, that's why we're staying with our capital allocation plan. I think it's important that we continue to return capital to shareholders. To be able to scale this business and still return capital to shareholders, I think got over a concern of an either/or. That, to me, helps address this valuation question, which is persistent.
I don't think it's what's gonna keep us from unlocking value. It just may take a little bit more time, but that's why I think we're gonna be getting after, you know, this integration and make sure that we demonstrate the track record of continuing to do this. This is the early stages for the energy transition in the grand scheme of things. I think it's after the Inflation Reduction Act incentives, and we understand, you know, how real some of these opportunities might be. It's just too early to predict. I think having the capabilities that we have here at Vistra, combined now with the Energy Harbor fleet, I think we're gonna have lots of possibilities, Angie.
Great. Thank you.
Thanks, Angie.
This concludes our question and answer session. I would like to turn the conference back over to Jim Burke for any closing remarks.
I just want to reiterate our thanks as a team. We've asked a lot of you to join us in a short period of time for two calls. This is obviously a momentous occasion for us, and we look forward to meeting the Energy Harbor team on the ground and having our collective teams establish an unparalleled platform in the industry. We'll be prepared to give updates as we move through the process to get to closing. Obviously, our regular quarter calls as scheduled. We'll be available as needed for follow-ups. Thanks again, and have a great morning.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.