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Vistra Energy Corp (NYSE:VST)
Q3 2018 Earnings Conference Call
Nov. 2, 2018, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Vistra Energy Third Quarter 2018 Results Webcast and 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. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key.

Thank you. Molly Sorg, Vice President of Investor Relations, you may begin your conference.

Molly Sorg -- Vice President of Investor Relations

Thank you and good morning, everyone. Welcome to Vistra Energy's investor webcast, discussing Third 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, and Bill Holden, Executive Vice President and Chief Financial Officer. We also have a few 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.

Curt Morgan -- President and Chief Executive Officer

Thank you Molly, and good morning to everyone on the call, as always. We appreciate your interest in Vistra Energy. Before we dive into results for the quarter, I would like to kick off today's call announcing the outcome of Vistra's capital allocation planning process. As you can see on slide six, I'm excited to announce today that the Vistra Energy board of directors has approved both a $1.25 billion increase to our repurchase program, bringing our authorized total for share repurchases up to $1.75 billion, as well as the initiation of a recurring dividend program. In addition, we remain committed to achieving our leverage target of 2.5 times net debt to EBITDA.

The core of our capital allocation policy is based on three key pillars: Opportunistically repurchasing our shares when our stock price reflects an attractive valuation, as we believe it does today; returning capital to shareholders through a recurring dividend that is both predictable and grows periodically; and maintaining the lowest leverage in the industry. We believe our capital allocation plan will attract new long-term investors and provide our shareholders with an attractive total shareholder return over the years.

Now, let's spend some time on the details of the capital allocation plan. First, the board has approved a $1.25 billion increase to our existing $500 million share repurchase program, bringing our authorized total up to $1.75 billion. We believe our equity, which has been trading at a free cash flow yield in the mid-to-high teens is meaningfully undervalued. As a result, allocating incremental capital toward share repurchases is one of the most attractive investments we can make at the present time.

Our own analysis suggests the intrinsic value of the Vistra equity is significantly above current valuations. We plan to execute share repurchases under the additional authorization on an opportunistic basis beginning in 2018, as we have already completed the initial 500 million of share repurchases the board authorized in June of this year.

In addition, if we are able to opportunistically repurchase shares from large emergence-related selling stockholders, we might explore allocating a portion of the $1.25 billion authorization toward block trades of this nature, possibly with other interested investors. Any such block trades would be purely opportunistic in nature. We expect the majority of our share repurchased authorization will be executed in the open market over the next 12 to 18 months.

Next, the dividend program approved by the board this week is expected to be initiated in the first quarter of 2019, with the payment of an annual dividend of approximately 50 cents per share payable quarterly. As is customary, we expect board will valuate declaration of the dividend on a quarterly basis beginning in the first quarter of 2019. Our expectation is that the approximately 50 cents per share annual dividend will reflect a yield currently above 2%, which is higher than the S&P 500 average of dividend-paying equities.

Management further expects we will grow the dividend at an annual rate of approximately 6% to 8% per share. The payment of a dividend of this size is more than manageable for Vistra given the substantial free cash flow generated by our business. It represents less than 15% of forecast 2019 free cash flow before growth from the consolidated business and less than 35% of forecast 2019 free cash flow before growth from our stable retail operations. Even with the payment of this recurrent dividend, we would still expect to have just under %1.8 billion of capital to be allocated to other uses. We are also confident the targeted 6% to 8% share growth rate for the dividend can be comfortably supported by our projected free cash flow, including annual EBITDA growth initiatives, which I will discuss in more detail momentarily.

And last, Vistra remains committed to achieving its long-term leverage target of 2.5 times net debt to EBITDA. While we remain firmly committed to achieving this leverage target, Vistra management and our board of directors do recognize that the valuation of our equity is such a compelling investment opportunity at this time that we believe repurchasing our shares is the single-most attractive investment we can make. In addition, it will allow us to accelerate the rotation of our shareholder base. We realize this delays achievement of our leverage target, but we view this as a sensible near-term decision. We remain committed to getting to 2.5 times net debt to EBITDA by year end 2020.

Further, we believe the rating agencies will require us to demonstrate consistent financial results for a couple of years prior to considering an upgrade of our ratings to investment grade. Accordingly, we not believe that reallocating a portion of our cash available for allocation through year end 2019 to an enhanced share repurchase program will meaningfully delay the timing of Vistra achieving investment-grade credit ratings. Moreover, with the sizable free cash flow we are projected to generate on an annual basis, we still have line of sight to achieving our long-term leverage target of 2.5 times net debt to EBITDA by year end 2020.

It is important to note that even with the reallocation of capital we are announcing here today, Vistra is still projecting it will achieve 2.9 times net debt to EBITDA by year end 2019, which is the lowest leverage level of any company in the history of this sector. Balance sheet strength remains a core priority of Vistra, and we intend to manage our business and cash flows accordingly.

Turning now to slide seven, I thought it might be useful to summarize Vistra's strong record on capital allocation over the past two years. Since our emergence from bankruptcy, we have shown a commitment to returning capital to shareholders, while also maximizing our EBITDA and free cash flow through disciplined investing and balance sheet and asset optimization. In particular, shortly after emergence from bankruptcy, Vistra paid a $1 billion special dividend in December of 2016, and we are now announcing the initiation of a meaningful recurring dividend program expected to begin in the first quarter of 2019.

Next, we recently completed execution of $500 million of share repurchases, and today we announced authorization of an incremental $1.25 billion of share repurchases. We have also prioritized liability management, electing to repay approximately $1.5 billion of debt and executing on other opportunistic refinancing transactions since the announcement of the merger, reducing our annual interest expense by approximately $185 million on a pre-tax basis. We are now forecasting we will further reduce our debt balances in the range of $2.2 to $2.3 billion over the next two years, and we will continue to look for opportunities to refinance high-cost Dynegy legacy debt to further reduce our annual interest expense.

Finally, we optimized our ERCOT generation portfolio in 2017 and 2018, retiring approximately 4200 megawatts of uneconomic coal assets while investing in an attractive solar project with a 10 megawatt battery and a low-cost, low-heat-rate combined cycle plant, both otherwise which exceeded our investment threshold of 500 to 600 basis points above our cost to capital. In fact, Vistra's acquisition multiple on its three recently acquired CCGT assets is in the range of two to four times based on the respective 2019 forecast EBITDA, exhibiting Vistra's investment discipline while our solar and battery investment in Upton 2 comfortably exceeded our investment threshold with high-teens returns.

We also closed on the Dynegy acquisition, further diversifying our operations and creating approximately $6.8 billion in equity value from the synergies alone, and after netting the full purchase price, which assumes no value for the underlying business. However, we believe the purchase price for Dynegy was below intrinsic value, particularly given the increase power curves in capacity clearance since the date of the merger.

We are continuing this focus on disciplined investing and EBITDA and free cash flow optimization as we close out 2018 and move into 2019. Examples of opportunities we have to enhance our EBITDA and free cash flow in the near term include executing on an organic retail expansion in the Midwest and Northeast markets, realizing a full year of benefits from the Upton 2 Solar and Battery Project, optimizing our California portfolio through battery storage investments at our Moss Landing site and potentially at our Oakland site in the future, optimizing our MISO portfolio and pursuing incremental value from our operations performance initiative and from further debt optimization.

In addition, as we described at our Analyst Day in June, we expect we will generate approximately $1.8 to $2 billion or more in ongoing operations adjusted free cash flow on an annual basis. In fact, we are forecasting we will generate more than $2 billion in adjusted free cash flow before growth from our ongoing operations in 2019, with a similar projection in 2020. As a result, Vistra expects it will easily be able to continue its trend of returning capital to shareholders in future years, as well as investing in creative growth projects.

As we have mentioned previously, on average, we believe an estimate of annual growth capital of approximately $500 million seems appropriate for a company of our size. Given our return criteria, we would expect this investment to generate approximately $100 million per year in EBITDA, which will further support management's intention to grow its dividend at an annual rate of approximately 6% to 8%. We believe our track record, business position, scale, and capability should afford us the opportunity to invest in our business, but it is important to note that if we do not find attractive investment opportunities in any given year, we would return capital to shareholders.

Turning now to slide eight, I would like to cover our third quarter and year-to-date 2018 financial results. Vistra finished the third quarter of 2018 delivering 1.153 billion in adjusted EBITDA from ongoing operations, strong results for the quarter despite below-average August weather in Texas, which limited the margin we were able to capture from our approximately 1,200 megawatts of generation we intentionally keep open in the summer months for risk mitigation purposes.

Year-to-date, Vistra's adjusted EBITDA from its ongoing operations is $2.069 billion. Excluding the cumulative impact to adjusted EBITDA of the partial buybacks of the Odessa power plant earn out executed in February and May, Vistra's year-to-date adjusted EBITDA from ongoing operations would have been 2.089. As a reminder, when we executed the Odessa earn-out buybacks, which we view as an investment, the economic benefit net of the premium paid was approximately $25 million, which we largely locked in around the time of the execution.

As you might recall, Vistra's results through June 30 were tracking ahead of internal expectations. As a result, despite the disappointing August weather in Texas, we are narrowing our 2018 full-year guidance range for ongoing operations adjusted EBITDA to 2.75 to 2.85 billion, while maintaining our prior midpoint of 2.8 billion. Similarly, we are narrowing our 2018 full-year guidance range for ongoing operations adjusted free cash flow before growth to 1.45 to 1.55 billion, maintaining our prior mid-point of 1.5 billion.

Our reaffirmation of the 2018 guidance mid points with the higher forward curves utilized to develop our May guidance is a testament to the strength of our integrated model, which continues to perform well, supporting our confidence in the stability of our EBITDA profile. In fact, utilizing October 2017 curves, which we used in our original merger guidance and are similar to the curves others likely use for 2018 guidance, we would be tracking more than 150 million above the implied mid-point on our comparable May 2018 guidance basis.

Today, we are also narrowing our 2019 ongoing operations adjusted EBITDA guidance range to 3.22 to 3.42 billion in our 2019 ongoing operations adjusted free cash flow before growth guidance range to 2.1 to 2.3 billion. As a result, Vistra is expecting to convert more than 65% of its ongoing operations adjusted EBITDA to ongoing operations adjusted free cash flow before growth in 2019.

This free cash flow conversion ratio is significantly higher than that of other commodity-based capital intensive energy industries, and as a result, we believe over time this unique financial characteristic will lead to a full valuation for Vistra. In the meantime, we will be focused on executing our business plan and continuing to deliver on our commitments as we prove to the market that our new business model is one that can create relatively stable EBITDA and significant cash flow conversion, even in challenging wholesale power price environments.

Before we leave the discussion on financial performance for the quarter, though we are not providing 2020 guidance today, I would like to highlight that the recent uplift in 2020 forward curves across all markets has provided Vistra with opportunities to incrementally hedge in order to lock in a more stable EBITDA profile. In addition, we expect the strong fundamentals in ERCOT to continue at least into 2020, resulting in continued increasing forwards and an opportunity to lock in value. We also believe that the Texas PUC may act on market rule changes by the summer of 2019, most notably the operating reserve demand curve, which could also positively impact forwards in 2019 and beyond.

As you may recall, Dynegy was forecasting declining EBITDA in 2020 and 2021 due principally to lower capacity revenues in PJM. However, through curve improvements and merger value leverage, we are now forecasting Vistra's ongoing operations adjusted EBITDA and adjusted free cash flow before growth in 2020 to be relatively flat with our 2019 expectations, with increasing confidence beyond 2020.

In fact, turning to slide nine, you can see that, as of September 30, Vistra has hedged at least 75% of its generation length for 2019 in all markets, other than MISO and CAISO. In addition, also as of September 30, Vistra has hedged generally 20% to 30% of its generation length in all markets for 2020. It is this practice of hedging into the volatility in the forward curves, combined with our stable retail operations and exposure to capacity markets that allows Vistra to create what we expect will be a stable $3 billion plus adjusted EBITDA profile in varying wholesale power market environments without investments in growth.

As you may recall from my Analyst Day presentation, an important and unique feature of Vistra is the efficiency of our assets and their significant in-the-money nature, which facilitates our hedging strategy. In the near term, our sector is going through a much-needed transformation with costs savings, operational efficiencies, in some cases divestures. However, when it is all said and done, it will be the quality of the assets in the businesses remaining that will matter. We believe that having significant and diverse streams of revenue will be critical for long-term success, and we absolutely believe deep in the money generation is of high value, especially when coupled with a strong balance sheet and an adaptability to optimize and hedge our assets.

I also would like to point out, as you will see on the chart, that we are meaningfully less hedged in ERCOT on a heat-rate basis as compared to a natural gas equivalent basis in both 2019 and 2020. This hedging discrepancy is intentional, as we continue to remain bullish on ERCOT 2019 and 2020 heat rates, as mentioned earlier.

If you turn to slide 10, you will see a graph depicting historical forward norths of summer 5 by 16 ERCOT heat rates for 2019, 2020, and 2021. As the chart depicts, summer 2020 and 2021 forward curves have moved up significantly, but are still creating lower than 2019 forward curves, even though reserve margins are projected to decline during that period. However, as the applicable summer gets closer in time, we tend to see forward curves move up in response to anticipated tight supply demand conditions.

For example, summer 2019 forwards moved up considerably in April to June 2018 timeframe. This dynamic of the volatility in the ERCOT summer curves is generally favorable to Vistra. The steep backwardation in the forward curve should continue to deter new thermal investment in ERCOT, so long as financial players and strategics act rationally. However, the near-term volatility in the curves reflecting near-term tightness in the market allows Vistra to hedge at least 12 to 24 months out and create a stable EBITDA profile.

Given that load in ERCOT, it's forecast to grow at approximately 2% per year, combined with the fact that it takes anywhere from 20 to 24 months to construct a new combined-cycle gas asset, we continue to believe 2019 and 2020 will experience increasingly tight market conditions in ERCOT. We similarly expect that forward curves will continue to improve as we get closer to the prompt summer, providing Vistra with an even further opportunity to hedge its remaining open length in the out years.

I think it is important to note that while tight markets are generally good for Vistra, we are entering a period where reliability in ERCOT could be at risk. It is incumbent on all ERCOT participants, including generators, gas pipelines, railroads, TDUs, and retailers to work together and operate reliably and responsibly. Summer 2018 was a very good start. As I have mentioned during previous earning calls, our own analysis suggests that investment in thermal generation at ERCOT remains uneconomic and likely will continue to be uneconomic even with any reasonable market changes under review by the Texas PUC. We believe investment in merchant solar is approaching a point where it may be economic, but not without risk, as the ERCOT supply demand balance is highly volatile, as are the resulting prices.

Moving on now to our merger value lever targets, I'm excited to announce today that we are increasing our adjusted EBITDA value lever targets by 65 million, bringing our new total of expected adjusted EBITDA benefits from the merger up to 565 million. Of this 65 million increase, 15 million reflects enhanced value identified from our exercise to capture traditional merger synergies, and 50 million reflects enhanced value we expect to realize from our ongoing operations performance initiative. As you can see on slide 11, we expect we will be at full run rate of the 565 million of EBITDA value leverage by year end 2020.

Last, given our continued work to reduce our overall cost of debt through our balance sheet optimization activities, we have increased our anticipated annual after-tax free cash flow benefits to approximately 295 million from the approximately 260 million we forecast in May. As I have mentioned previously, we only announce additional synergies in OPI value when we are highly certain of capture. And we still believe there could be upside to the 275 million OPI target we are announcing today. However, it will take us well into 2019 to prove this out, so please stay tuned for the further updates on this topic.

Before I turn the call over to Bill, I would like to comment on some of Vistra's third quarter business highlights. Importantly, our retail team continues to focus on execution, and I am pleased to mention that Vistra residential retail customer accounts are up 1.4% year-to-date in ERCOT, solely as a result of organic growth. Our strong brand-differentiated products and focus on the customer underlie our position as the largest single brand residential retail electric provider in ERCOT. And our scalable platform and capabilities should provide a solid base to support our retail operations in Illinois and Ohio and our organic retail growth strategy in other markets we choose to compete in outside of ERCOT.

We plan to invest approximately $20 million in 2019 on our organic retail growth initiatives. We estimate we will be able to grow our retail portfolio organically through a cumulative investment in the range of 1 times EBITDA, a much more attractive investment, in our view, as compared to paying approximately 3 to 4 times EBITDA and net synergies for retail portfolios that have been available for acquisition. In addition to being more cost effective, an organic growth strategy allows us to choose the markets we enter and build the kind of business we are comfortable operating. We plan to launch our organic retail growth strategy in PJM, and we look forward to sharing the result of that effort with you in the future.

Next, many of you are probably aware that the Illinois Pollution Control Board recommended two modifications to the Illinois EPA's proposed amendment to the state's multipollutant standards. On balance, we believe the recommended modifications to the MPS rule are fair, and while it take a bit more time to get to a final amendment than we had originally hoped, the modifications as proposed should give us the flexibility we need to build an EBITDA and free cash flow positive business in Illinois under one fleetwide, mass-based tonnage GAAP. We should be in a position to discuss actions we expect to take regarding our MISO fleet by mid 2019.

And last, Vistra's two battery projects remain on track for commercial operations. The Moss Landing 300 megawatt battery storage project is on the California Public Utility Commission agenda for approval on November, 8, 2018. I am sure you are aware that approval by the CPUC of our project, as well as others, was delayed from October 25. As a procedural matter, these projects are under one docket, and, therefore, are linked for approval. We remain cautiously optimistic the Moss Landing project will be approved. And if approved, the COD of the project is anticipated in the fourth quarter of 2020.

Vistra's 10 megawatt Upton 2 battery storage project is on track for COD in December 2018. These battery storage projects are relatively low risk, and they are examples of how Vistra is continuing to diversify its generation portfolio to adopt new technologies at what we forecast to be attractive returns exceeding our internal investment threshold. The significant EBITDA from our integrated business model, combined with our commitment to achieving the lowest leverage in the industry and Vistra's modern, low-maintenance cost generation fleet should continue to support our strong free cash flow conversion profile more than 60%. This results in ample fire power to continue to return substantial capital to shareholders through a combination dividends and share repurchases and invest in a disciplined fashion in creative growth projects, leading to a long-term shareholder value. We remain excited about the future of our company and the value proposition we bring to investors.

I would now like to turn over the call to Bill Holden to discuss our financial results and guidance in more detail.

Bill Holden -- Executive Vice President, Chief Financial Officer

Thanks, Curt. Turning now to slide 14, as Curt mentioned, Vistra concluded the third quarter of 2018 delivering 1.153 billion of adjusted EBITDA from ongoing operations. While below-average temperatures in ERCOT resulted in lower realized power prices on our remaining open positions, negatively impacting our ERCOT generation segment, our retail operations and generation segments outside of Texas performed well. In particular, generation performance in both PJM and California exceeded expectations as a result of favorable prices, higher generation volumes, and lower SG&A expenses. Both segment results for the quarter can be found on slide 21 in the appendix.

So, today, Vistra's adjusted EBITDA from ongoing operations is 2.069 billion, which reflects nine months of results from the legacy Vistra operations and results from the legacy Dynegy operations from the period from April 9, 2018, through September 30, 2018. Excluding the negative $20 million impact of the partial buybacks of the Odessa earn outs that we executed in February and May, Vistra's adjusted EBITDA from its ongoing operations would have been 2.089 billion for the period. We expect these partial buybacks to have a positive impact net of the premium paid over the period from 2018 through 2020.

Finally, I am pleased to announce today that we have completed the $500 million share repurchase program our board authorized in June of this year. Under the program, we purchased approximately 21.4 million shares at an average price of approximately $23.36 per share. Given that we continue to view our current share prices meaningfully undervalued, we expect to begin executing share repurchases in 2018 under our newly authorized 1.25 billion share repurchase program.

Turning now to slide 15, you will see that Vistra is narrowing its 2018 ongoing operations guidance while reaffirming both the adjusted EBITDA and adjusted free cash flow before growth mid points. Following the below-average August temperatures in Texas, Vistra's ability to reaffirm its guidance mid point that was marked against relatively high ERCOT forward curves as of March 29, 2018, is a true testament to the strength and stability of Vistra's integrated operations.

And one final reminder, Vistra's 2018 guidance reflects Vistra's results on the stand-alone basis for the period prior to April 9, 2018, and anticipated results of the combined company for the period from April 9 through December 31, 2018.

Turning to slide 16, Vistra is also narrowing and updating its 2019 guidance, forecasting adjusted EBITDA from ongoing operations of 3.22 to 3.42 billion and adjusted free cash flow before growth from ongoing operations of 2.1 to 2.3 billion. As a result, Vistra is forecasting that in 2019, it will convert more than 65% of its adjusted EBITDA from ongoing operations to adjusted free cash flow before growth from ongoing operations. This impressive free cash flow conversion is what will enable Vistra to execute on the diverse capital allocation plan we announced today.

Slide 17 provides a walk forward showing the variances from the 2019 guidance we initiated in May to the guidance update we are providing today. As many of you know, 2019 power price curves are up meaningfully in the markets where we operate. As a result, you might have been expecting an increase in Vistra's 2019 adjusted EBITDA guidance today. All else equal, you would have been correct. As the first call-out box on slide 17 states, Vistra's 2019 ongoing operations adjusted EBITDA guidance would have been up by approximately $185 million based on price movement alone.

However, this uplift in the forward curves is offset by 80 million of incremental 2019 hedges added between March 30 and September 30 of this year; 30 million of lowered MISO capacity revenue due to lower price and volume assumptions for the planning year '19-'20, as well as updates to the MISO plant power basis expectations; 55 million of lower forecast generation margin due to impacts of outage timing and increased fuel supply costs; and the 30 million adjustment to the 2019 retail adjusted EBITDA expectations.

Accounting for these changes, Vistra's 2019 ongoing operations adjusted EBITDA guidance range would have been 3.24 to 3.44 billion. However, we are also expecting to invest approximately $20 million in 2019 on our organic retail growth strategy, which brings our 2019 adjusted EBITDA guidance range for ongoing operations to 3.22 to 3.42 billion.

Importantly, as Curt mentioned earlier on the call, 2020 forward curves have improved recently, and we are now forecasting that 2020 adjusted EBITDA and adjusted free cash flow before growth will be relatively flat to 2019, which bodes well for 2020 capital allocation.

Finally, let's turn to slide 18 for a brief capital structure update. As you can see in the table, following our August bond issue and senior notes redemption that reduced our annual interest expense by $56 million on a pre-tax basis, Vistra has approximately 11.3 billion of long-term debt outstanding as of September 30, 2018. We forecast our net debt to EBITDA will be approximately 2.9 times at the end of next year. We will continue to look for opportunities to optimize our balance sheet and reduce our total debt we work toward achieving our long-term leverage target of 2.5 times by year end 2020.

In total, we expect we will have more than $3.8 billion of capital to allocate between now and year end 2020, some of which we have already earmarked for the payment of a recurring dividend beginning in the first quarter of 2019 and for incremental share repurchases. We continue to believe the relatively stable EBITDA generated by integrated operations, combined with our industry-leading balance sheet and diverse capital allocation policy will attract long-term investors that have historically shied away from this sector. As we focus on execution and continue to deliver on our commitments, we believe these efforts will translate into meaningful value creation for our investors.

With that, Operator, we are now ready to open the lines for questions.

Questions and Answers:

Operator

Thank you. At this time, I would to remind everyone, in order to ask a question, press * then the number 1 on your telephone keypad. We'll pause for just a moment to compile a Q&A roster.

And our first question comes from the line of Greg Gordon at Evercore ISI. You're line is open.

Greg Gordon -- Evercore ISI -- Analyst

Thanks. Good morning, everyone.

Curt Morgan -- President and Chief Executive Officer

 Hey, good morning.

Greg Gordon -- Evercore ISI -- Analyst

Thanks for the update. So, looking at the numbers, everything looks fantastic in terms of your free cash flow outlook, and I think you're confidence in the stability of EBITDA and free cash flow in '20 is great. Your guidance -- the high end of your EBITDA guidance range is a little bit below consensus. Thank you for giving us on this walk on page 17. Are you telling us that you were hedging into the rising -- part of the reason why we're a little bit lower is because you were sort of averaging in and hedging as prices were rising? And then the fuel supply part -- is that coal or is that gas?

Curt Morgan -- President and Chief Executive Officer

Yeah. So, Greg, we were hedging into it. I think we've said that we're not basically taking the risks the highs of the highs. When we see things above fundamental view, we'll hedge. So, we did hedge into it, but prices moved up. We still have open position, as you can see, that's attractive for us in '19, as well as '20 now and '21. So, yes, that is what you're seeing is that we did hedge into that previously before the recent run up.

And then, the transport is both. We've seen an increase -- and this is in ERCOT...We've seen an increase in gas transport costs, and then we also saw, around Coleto Creek, an increase in rail costs. And this probably doesn't surprise you, but people know that the power markets have increased -- the revenue in the power markets has increased, and people don't miss a trick. When they can, they try to get a piece of that. And these are tough businesses because they're largely monopoly -- have a monopoly position. But they don't always act like a monopoly. So...Well, I guess they do act like a monopoly I guess is what I'm saying.

But we were able to negotiate what we thought were, relative to market, pretty good rates on these things. But nevertheless, there was a little bit of a chunk that was taken out of us. And that happened...You guys know this, too, that we came out with '19 guidance in May, and that's why we had a $200 million range around it. And we had just done the merger, and some of this stuff on 17 that you see is refinement of some of the assumptions when we took Dynegy's plan and we melded it together to give guidance in May. We've made refinements since then, and maybe we're a little more conservative in certain areas, like MISO Capacity and some other -- and retail -- and the Dynegy retail business, which is contributing to some extent to the negative bars on the waterfall.

Greg Gordon -- Evercore ISI -- Analyst

Well, it would make sense in a rising wholesale price environment that there'd be some retail -- offset to retail margin, right? I mean, that's been...One of the benefits of retail is its counter-cyclical, but when prices rise that should happen. Correct?

Curt Morgan -- President and Chief Executive Officer

That's right. And the good news is of that 105 incremental benefit, in ERCOT when you net the $30 million reduction and then you look at what's up in ERCOT of that wholesale price increase, the integrative model is working. So, we have a higher increase on wholesale than we do in retail. Some of that 30, though, I'll tell you is about third of -- a third of it is bad debt expense. With higher bills, you tend to see a trend with higher bad debt expense. And so, a little bit of that is our forecast that we may see higher bad debt expense. A third of that is power costs, as well. And then, the other third of it is we just reduced the expectation around the Dynegy retail business. I think we've appropriately costed out that business relative to the way that Dynegy looked at it, and we just feel like it's gonna be a little bit lower. But I think we feel like we can build it up and actually increase that over time.

But that's what that 30 is, Greg, is those different pieces.

Greg Gordon -- Evercore ISI -- Analyst

Great. Just two more questions, and I'll beat to the queue. In terms of how you manage your length in Texas, I know that one of the reasons why was August was so challenging for you is that you tend to bring a lot of length into the market, into the day ahead in the spot market, to self-insure and manage risk, and August basically didn't happen. Is there some level of conservatism built into this guidance because you know that you're gonna sort of self-insure and manage your risk that way going forward?

Curt Morgan -- President and Chief Executive Officer

Yes. So, that open position, especially after this summer we're a little bit gun-shy here, but that open position is marked at a lower level, and it takes into account basically a lower probability of pricing. So, we do have -- we have marked at that roughly 1,200 megawatts. And the way we size that, Greg, is that we look at our largest unit, which is the Comanche Peak unit. And if we were to lose one of our largest units, we want to have enough backup generation to cover that. And so, that's how we size that for risk management purposes, but that 1,200 megawatts is marked at a lower level. So, if we got into the summer real-time prices were very strong, because we would release that 1,200 into the real-time market, you certainly could see a much higher earnings power from the company.

Greg Gordon -- Evercore ISI -- Analyst

Right. So, you don't want to count on that because basically you don't want to have a disappointing third quarter like you did last year versus whatever expectation you set? Is that a fair summary?

Curt Morgan -- President and Chief Executive Officer

That's right.

Greg Gordon -- Evercore ISI -- Analyst

All right, last question. Do you have the CapEx associated with the Moss Landing and other battery projects in California baked into your capital allocation numbers right now? Or would that come out of the numbers if those were approved?

Curt Morgan -- President and Chief Executive Officer

Yes, it is included.

Greg Gordon -- Evercore ISI -- Analyst

Okay. Thank you, guys.

Curt Morgan -- President and Chief Executive Officer

Thanks, Greg.

Operator

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

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, good morning.

Curt Morgan -- President and Chief Executive Officer

 Good morning, Julien. How are you?

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Good, good, good. Excellent. Can you perhaps comment a little bit on the 2020 commentary you just provided with respect to having a flattish outlook? Are you basically saying the range of '19 versus '20 is effectively flat on an EBITDA and FCF basis?

Curt Morgan -- President and Chief Executive Officer

Yes, we are saying -- look, I mean, within a percentage point here or there. But right now, it is essentially flat from both an EBITDA and free cash flow basis. I think you've seen that our free cash flow conversion has actually gone up some, from roughly 60% up to about -- actually I think it's 66%. I think we see that continuing. That's partly due to some good management around our CapEx. We're seeing that as flattish. We also believe that beyond that, there's a good chance of that, as well. I mean, our view around ERCOT is that this tightness could persist for a while. We'll see, but we feel pretty good about what that outlook in ERCOT is shaping up to look l. And we also think it could extend into '21, '22.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. And then with respect to retail, just a multifaceted question here. First, you're bringing down 2019 expectations despite a higher customer count quarter over quarter. How exactly is -- how are you thinking about that in terms of customers and composition? And then also, can you comment a little bit more specifically around acquisition versus organic expansion? You made a couple different comments in your prepared remarks with respect to both sides of that. As far as you see the expansion into the Northeast, is this principally organic at this point? I know you still have that strategic planning process under way.

Curt Morgan -- President and Chief Executive Officer

Yeah. So, on the-simply on the retail -- the reduction in the retail EBITDA, there's a couple of things related to that. One is that we are going to invest $20 million build to build out our organic retail business. And when we're doing that, we're not going to have an offset basically from the gross margin side. But we expect to start to get that offset meaningfully in 2020 and 2021. So, there's a bit of a drag there.

And then, this is just a reflection frankly of higher costs against the retail business, but we do believe longer term, adding those customers is gonna benefit as we bring them in. We should see some...And there's some offset in there for higher customer counts. It's just not enough to cover the higher costs of goods sold essentially for the retail business. But we're picking more than that up on the wholesale side, which is what you would expect those two things to somewhat offset.

Jim Burke is with me. Jim, do have anything to add to that?

Jim Burke -- Executive Vice President and Chief Operating Officer

Curt, I think you summarized it well. Julien, the way we tend to think this is a little bit of a long-term proposition around how we serve customers. We faced a similar dynamic in 2014, and we were very disciplined about how we managed our margins and our customer acquisition channels. And it paid off through reduced attrition in '15, '16, '17, and growth in '18. So, I think we're just taking the long view on this and running the business in this integrated way for maximizing long-term value.

Curt Morgan -- President and Chief Executive Officer

And then, Julien, on your other question about organic versus inorganic, I guess you'd call it -- M&A -- we did do a full strategy. We went to the board with it. We have a very detailed plan to grow out our business organically -- the number of people we want to bring, the way we want to shape the organization, the market evolution, where we want to start and how we want to add to that. So, we're gonna embark on that.

On the M&A side, we looked at everything that was out there. And frankly, given the evolution of our company right now, where we could spend our capital, and the underlying value proposition that each of those businesses brought and the price that we would have to pay, we just did not feel comfortable that this was the right time for this company to spend somewhere between half a billion to a billion dollars into one of those businesses. We were concerned about high attrition rates. We were concerned about effectively -- business practices and other things. I don't mean anything negative. I'm just saying the way we conduct business and the way others do -- it was just not necessarily a match that was comfortable for us.

And I think it was a bad timing. We just didn't feel like this was the time that...The Dynegy deal -- we were in the middle of it. We were -- we didn't want to slip up on that. And as you can see, that continues to provide very good benefits to us, and we wanted to be able to integrate that. To take on another acquisition at this point in time in the company just didn't make sense to us. We did not want to do something and then later regret it, and that would've eroded the credibility of the company in terms of what we do with capital allocation.

So, the reason we brought it up again though is that that does not mean that if we get into '20 and beyond that we would not consider doing an acquisition to help accelerate the organic retail strategy. So, we always keep that open. We look at everything. We have a dedicated team to do that. And if we find something that we think is something we're comfortable with, that we can buy it at the right price and it's the kind of business we like, we would certainly consider it.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent, thank you.

Curt Morgan -- President and Chief Executive Officer

Thanks, Julien.

Operator

Our next question comes from the line of Shar Pourreza from Guggenheim Partners. Your line is open.

Shar Pourreza -- Guggenheim Partners -- Analyst

Good morning, guys.

Curt Morgan -- President and Chief Executive Officer

Hey, Shar.

Shar Pourreza -- Guggenheim Partners -- Analyst

So, let me just -- on the buybacks, the timing seems to highlight the program may go into to 2020. Can you just elaborate a little bit, Curt, on how you're thinking about the timing? I.e., should we assume sort of open-market purchases occur in 2019 given, obviously, where the free cash flow yield of the stock is, with any residual amounts being the cross, saying block trades, private transactions, whatever, bleeding into 2020? And then, just how are sort of conversations going with your ex-creditors, or are we very preliminary right now?

Curt Morgan -- President and Chief Executive Officer

So, those are good questions. So, on the timing front we're gonna begin this $1.25 billion program in 2018. So, we said 12 to 18 months, and I think that is just purely to give us more time, if we need to, from an opportunistic standpoint, depending on where our stock price is. But we intend to -- just like you would expect, we're gonna be out in the open market with a grid, and if it the price of our stock is in certain particular ranges, we're gonna buyback our stock. We will manage it with our cash, because this business has a bit of a cyclical cash. So, we always have to manage what we're gonna buy in any given quarter based on what cash is gonna look like.

I should mention, though -- I think it's really important to mention is that we have moved our target on leverage from 2.5 by the end of '19 to 2.9 and then 2.5 by '20. I do want people to know, though, that this assumes that we're gonna take debt down between now and the end of '19 by another billion dollars. So, we're gonna also manage the timing of debt repayment and the timing of the share repurchases. I would not be surprised -- and Bill can add to this -- I would not be surprised that this would end up possibly being a 12-month program. I think we can support a 12-month program. But I would hope it wasn't, and I would hope we don't even spend all of it, because I'm hoping that we would actually realize our full price.

Having said that, we're prepared to move on this and do the full program in 12 months, if that's what economics dictate. And we will do that. Bill, anything --

Bill Holden -- Executive Vice President, Chief Financial Officer

The only thing I'd add -- I'd agree with what Curt said. Some of it will depend on the stocks trading will affect the pace of the open market program. And then just tactics -- to your question about potential block trades. I think we'll hold some amount of cash so that we have dry powder to do block trades if we see opportunities that we find are attractive. But I think most of what we're gonna do, I'd envision, would be open-market purchases.

Curt Morgan -- President and Chief Executive Officer

And Shar, we have not -- to be very honest about this -- we have not engaged with anybody -- any of the large sort of emergence-related shareholders -- we have not engaged directly with them. The one thing I think we would want to consider, and we've heard some feedback on this front, is we would actually like to engage with investors and see if can't get interest from other investors to join with us so that we can do a much bigger block and to bring either new or existing shareholders that want to increase their position along with us. And so, I think we're gonna that engage on that front first, and then we would engage, to the extent there's interest, and we don't even know that there's interest, but we believe there probably will be. But we're perfectly comfortable doing open-market purchases 100% of this, if that's the way it shapes up.

If there's something that we can bring a bigger block together of investors and we can do it at a discount to market, which I think we would probably insist on...And the reason we would insist on that is that we're bringing liquidity to a seller they can't get on their own. And so, there is a -- we believe there should be some discount to do that. Now, there's definitely certain criteria around that, and there's -- I'd say normal circumstances dictate what that discount is. So, I think everybody...I'm not talking about we're gonna get at 50% of the share price. But there generally is, for that kind of liquidity that gets offered to the market, there's generally some level of discount. So, we're gonna factor all those things in, and we'll see where that takes us. Ultimately, we'll see how this plays out, but we are prepared to do open-market purchases, and we're not uncomfortable with that at all.

Shar Pourreza -- Guggenheim Securities -- Analyst

That's very good color. And then just, real quick, shifting to your other capital allocation decision around the dividend. Obviously the growth rate is much higher than many expected. Where do you want to ultimately levelize at over the long term? So, similar to utilities around 4% to 6% growth -- do you have a specific yield in mind over the long term, or sort of just given your cash flow conversion cycles, your free cash flow profile, should we just assume 6% to 8% growth, at least into the median term?

Curt Morgan -- President and Chief Executive Officer

I think you should assume that 6% to 8% growth into median term. I mean, the board is going to...Obviously management team will work with the board on this. We'll look at -- if we're five to six years into this, and we'll see where we are, if believe that we need to adjust that growth rate, we'll consider it. But I believe that...First of all, the board has to approve and declare dividends. And the board's gonna have to declare the growth rate. I think we said this, and we said it for a reason, is that management believes it'll be 6% to 8%. We will recommend that to the board. Certainly, we talked to the board about it, but the board hasn't necessarily committed to anything on that, but I think they're generally in line with us.

What I would say is, though, that we consider that 6% to 8% I think a median-term growth rate. I don't think that any of us think that's a one or two-year deal. I think we are committed to it for a pretty good period of time and believe that we can reasonably afford it given our free cash flow, but also our ability to grow earnings. We've got things in place right now that, for the next two to three years, are gonna grow earnings that would more than fund the 6% to 8% growth in the dividend. And then, that's not counting whether we would deploy some capital long term to growth. Which I think, if you're at $1.8 to $2 billion free cash flow, you could probably expect -- and we says this all the time, but over time we're gonna put some capital back into the business. We're gonna find an opportunity to do something which would also grow EBITDA. So, we think we can support that growth rate in with line of sight growth in EBITDA that's in front of us right now, and then longer term, we will likely deploy capital, and we would expect obviously to get EBITDA from that capital deployment.

Shar Pourreza -- Guggenheim Securities -- Analyst

Got it. And then just lastly on the MISO assets, when do you expect to make a decision here? I mean, obviously given the cash flow profile, you can see an improvement in your conversion cycles. I guess, Curt, what are you waiting for around MISO?

Curt Morgan -- President and Chief Executive Officer

So, we...Unfortunately, we've gotta wait to see what the multipollutant standard -- what the final outcome of that is. Unfortunately, it didn't happen in the fourth quarter of '18, but we did get what I think is a reasonable and fair outcome from the Illinois Pollution Control Board. We will have to go through another hearing on that. That's OK; we're not uncomfortable with that. But we're thinking April/May timeframe to get a final kind of outcome.

Because what happens, Shar, it goes from the Illinois Pollution Control Board, they recommended it to a committee of the legislature -- it's called JCAR. And then JCAR actually votes on it. It doesn't have to go to the full legislature; it just goes to JCAR. And we believe that it will go through as it is today. And if that happens, we should be prepared then to come to the market, but more importantly to begin to execute on what we are going to do and how we're gonna create our final -- I shouldn't say final, but create the business that we believe will be profitable.

Now, work is going on right now, and so I want to make sure that you know and everybody knows that we're gonna be in a position to execute immediately. So, we know -- if the deal goes through exactly the way it is now, we know what we would do. And so, it's just a matter of timing. But we also have been contingency planning. So, if something else happened, then we would be prepared for that, as well. And that would include engaging with MISO to make sure that they understand our plans, engaging with politicians, engaging with the Illinois Commerce Commission, to make sure that we have the pathway to shore this up. And there is a reasonably significant -- we believe -- a reasonably significant improvement in EBITDA once we clean this portfolio up. And that's what we're trying to get to. Unfortunately, we're gonna have a little bit of a drag in 2019 to get to the point where we get a final multipollutant standard.

Shar Pourreza -- Guggenheim Securities -- Analyst

Got it. Congrats on this inflection point, guys, seriously.

Curt Morgan -- President and Chief Executive Officer

 Thank you.

Operator

Our next question comes from the line of Steve Fleishman from Wolfe Research. Your line is open.

Steve Fleishman -- Wolfe Research -- Analyst

Hey, good morning. Just so I have the right bearings, what curve date are you now using for '19 and '20 guidance commentary?

Curt Morgan -- President and Chief Executive Officer

 That's end of September.

Steve Fleishman -- Wolfe Research-- Analyst

Okay. And then, Curt or Bill, just when you look at the 2019 guide adjustments that you made, the different buckets, can we just maybe -- if you recharacterize them to adjustments made on the kind of Dynegy assumptions, because it seems like each bucket has some from that -- could you maybe do it that way? And also say do you feel like those are now totally done?

Curt Morgan -- President and Chief Executive Officer

Yeah. And, Steve, I'll look at 17 -- slide 17. Maybe that's the best way. So, in MISO -- the MISO capacity...By the way, both of those are Dynegy adjustments. So, the one thing -- you may recall this, although it's a while ago, Dynegy had a basis issue in, I think it was first quarter of 2018. And what happened is ultimately Stuart and Killen retired. That created a basis issue in [inaudible], and what happened is they had a bit of a hit on that, but it wasn't reflected in their plan. And so, we have basically made an adjustment around that basis. I think it's also...Steve Muscato is here...Was it also in Illinois, we had a basis adjustment, as well?

Steve Muscato -- Senior Vice President, Chief Commercial Officer

Yes. It was around several of the plants down in Southern Illinois, some mild basis adjustment.

Curt Morgan -- President and Chief Executive Officer

And, Steve, this was just us getting in and doing our own modeling, because we do a precise transmission modeling. And we determined that we felt like there was some basis cost that was missing in the plan. And then on MISO capacity, this is just our view of what we think MISO capacity is going to be. And we do believe now we have it properly reflected. I would actually say, over time, we may even be able to improve upon the basis situation and manage that better. But the other thing is on MISO capacity, there's some things we're looking to do, both through shaping up our portfolio in MISO that could improve MISO capacity prices, but also actions things that we might -- some actions we might take with FERC that might lead to an improvement in that. We'll see. That's proven to be tough in the past.

And then, on the outage front, I do want to make one comment just on outages is that we did move some outages into 2019 that weren't there. Those are, as you know, sort of nonrecurring in nature. That was a choice to move outages in. And so, to me, that is -- there's about 30 million of that effect, I believe, in here. And so, if you take that 30 million that was a choice to move -- that's right, it's on the chart -- 30 million...If you take that and you add it to where we, we're kind of back to where we were when we had previous guidance.

And then on the regional front --

Steve Fleishman -- Wolfe Research -- Analyst

And is the outage timing at -- is that at the Dynegy assets, the outage timing? Or a mix of...?

Curt Morgan -- President and Chief Executive Officer

Go ahead, Jim. Which one is this?

Jim Burke -- Executive Vice President and Chief Operating Officer

Yeah, Steve. This is Jim. Comanche Peak is a good portion of that, and then the other portion is PJM and MISO.

Curt Morgan -- President and Chief Executive Officer

Yeah, so it would be. So, those -- obviously, we didn't have assets in those margins, so those would be Dynegy.

And then on the retail front, we took it down -- I told you about 10 million of that, I believe, was -- we took down the retail business. And that is, frankly we just got in, we looked at how they priced and the transfer pricing between those and what we thought the true pricing was of that retail business. And we just felt like we needed to move that down for planning purposes. Of course, we're gonna be trying to push as hard as we can to get as much value as we can out of it, but we think this is the more realistic view of the business. And that is strictly the Dynegy retail business.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. But, I guess most importantly, do you feel these are now fully scrubbed and that these kind of function changes won't happen anymore?

Curt Morgan -- President and Chief Executive Officer

We do. And by the way, Steve, can I mention one thing? But the other side of this coin is that the wholesale assets are up pretty significantly. And we've been able to hedge those up, as well. So, on balance, our EBITDA actually from the Dynegy...And if you take the cost savings, which we could not have gotten on a stand-alone basis, the EBITDA from the deal itself is up substantially. But these are clean-up items. I just want to be clear about the net balance of all the things we looked at when we looked at the Dynegy acquisition.

Steve Fleishman -- Wolfe Research -- Analyst

Great. And then, just one last question on the comments about the 2020 guidance being flat. So, just on the surface, you mentioned you have the capacity pressure in PJM and then you have the fact that the ERCOT curves are pretty backwardated downward, so could you just maybe quickly go through what are the positive offsets? I know you have your incremental cost cuts? What are the other positives?

Curt Morgan -- President and Chief Executive Officer

Yeah. So, curves are a part of that, and they could be higher. So, if we see the curves move like we expect them to as we get closer to 2020, we might even see that 2020 could potentially even be higher than '19. We're just marking that right now --

Steve Fleishman -- Wolfe Research-- Analyst

But you're not assuming that, though? You're just...Yeah.

Curt Morgan -- President and Chief Executive Officer

What's that?

Steve Fleishman -- Wolfe Research-- Analyst

You're not assuming that? You're just marking? Yeah.

Curt Morgan -- President and Chief Executive Officer

Yeah, we're just marking. And so, part of that improvement, Steve, is curves. It's also not just curves in ERCOT. It's also curves outside of...We saw the curves move up in some of the other markets, which is why we're hedging where we can in 2020 to some extent. So, that's part of it. Part of it's exactly what you just said, which is we are also picking up value from OP and the synergies. And then also, we're getting a full year -- in '19 anyway, we're getting a full year of Upton 2. But then beyond that, in '20, the timing...Yes, so we will not pick up...I'm sorry. I was gonna say the California battery, but that doesn't pick up until 2021.

We have not assumed in these numbers that we have a pickup from MISO, so that is not in there, just to be clear about what are those things that are not -- we have not yet reflected in these numbers. But it's mainly curves, Steve, and it's mainly the pickup from the value levers.

Steve Fleishman -- Wolfe -- Analyst

Great. Thank you, that's helpful. Thank you.

Curt Morgan -- President and Chief Executive Officer

All right. Thanks a lot.

Operator

Our next question comes from the line of Praful Mehta of Citigroup. Your line is open.

Praful Mehta -- Citigroup -- Analyst

Thanks so much, guys. And appreciate the detailed and fulsome update that you're giving. So, appreciate it.

Curt Morgan -- President and Chief Executive Officer

Thank you. Go ahead, Praful.

Praful Mehta -- Citigroup -- Analyst

So, my question firstly was on all these curves that we've talked about, especially in ERCOT. You see these curves clearly going up, but they are backwardated. And we see that you lost some potential for EBITDA given your hedging policy in '19. So for example, when we look at slide nine, clearly you are now keeping you're heat rates more open. You're hedging gas, but not as much on power, especially in '20. But wanted to understand how much flexibility do you have with this? As in, how much can you keep open given your belief that these forward curves are backwardated and you're going to see more volatility? Should we expect pretty low hedging on the heat rate side going forward?

Curt Morgan -- President and Chief Executive Officer

So, this is always the dilemma when you're trying to manage -- you know, obviously manage what your earnings are gonna be in any given year. We tend to do some hedging, and we try to go in kind of increments, but we try to do...For example, for now for '20, we're about 30% hedged. We talk about that and say that's probably a good place to be in '20. But we might go higher, for example in PJM and ISO New England because the curves have moved up. And if there's liquidity, we might want to take more of that off. We don't see a lot more upside in that, but I would expect us to be a little more sticky on the ERCOT front as we move out on the curve. The real thing that's difficult to really predict is does somebody do something that doesn't make economic sense and then affect the curves in the future. We keep very close tabs on development, and we have a pretty good sense of what's out there.

This is why I think we're gonna probably keep heat rate in ERCOT a little more open than what we might otherwise do, because I think our belief is that this relative tightness in the market may roll out for a years longer. Because we really don't see the kind of development out there that's going to close the gap and get us back to a higher reserve margin level.

So, it's a balance. Would I like to not have $80 million of negative against 185 million? Yeah. But we made a conscious choice, not knowing exactly how the market was gonna play out, that we thought it was right to take some risks off the table and hedge. And we don't look backwards. Once you do it, you make that decision.

What we really are trying to manage, too, to be honest with you guys, is we're trying to manage to a $3 billion plus EBITDA. And we're sitting here now looking at numbers that are well over 3.3 billion in '19, we believe '20, and into '21. And so, we feel pretty comfortable at times to take risks off the table, knowing that things can happen and do in markets that can upset things. I mean, we could go into a recession in the country. That's something that we have to be aware of, and that could have an impact on demand.

So, we're constantly trying to manage what's available in the market, what is our fundamental view, where do we see the sentiment in the market, and then we're taking risks off the table over time. But I think we're pretty comfortable leaving a fair amount of that heat rate open right now in ERCOT, but I think you'll also see take we'll still take some of it off the table in '20 and '21 as those become liquid markets. And we might have a negative against what would have been a positive at a later date if you marked it, but we're comfortable doing that just to manage risk

Praful Mehta -- Citigroup -- Analyst

Yeah, that makes a lot of sense, Curt. Thanks for that.

And then maybe just stepping back, giving all the discussion on capital allocation, if you take between now and let's say 2020, your buybacks, dividend, the debt pay down, and the CapEx -- especially the growth CapEx, do you see that...How much excess capital, I guess, do you still have to allocate kind of if you allocate into these buckets the way you're seeing it right now? You clearly have a little bit left over, or is that mostly utilized through 2020 at this point?

Curt Morgan -- President and Chief Executive Officer

So, Bill, you can give good detail.

Bill Holden -- Executive Vice President, Chief Financial Officer

Through 2020, we would be mostly -- we'd be using most of the capital available for the combination of things you listed: Dividends, stock repurchases, and additional deleveraging. But as Curt noted, the capital for the Moss Landing battery storage project is also included in the 2019 and '20.

Praful Mehta -- Citigroup -- Analyst

Gotcha. So, the growth CapEx right now through '20 is about what? 150, 200 million number? And when do you expect to kind of increase that growth CapEx profile going forward?

Curt Morgan -- President and Chief Executive Officer

Well, I think, as Bill said though, given what our capital allocation program is, we're using most of our capital in '19 and '20 to either pay down debt or repurchase shares and pay the dividend. We do have some available, but we're also doing...As you now, probably, we're doing the Moss Landing, which is growth CapEx. So, that's a fair amount of growth CapEx in '20. And then we have a few other things, some upgrades which we consider growth CapEx-some upgrades to some of our units. So, we are putting some money into growth that will increase EBITDA.

But I think '21 and beyond is where we have a tremendous amount of cash flow coming in, and so we'll be looking at growth as being something...Plus, some of these things we're doing -- MISO, the batteries, those are gonna add to EBITDA, so we look at that as increasing EBITDA. We're probably gonna want to turn our attention to growth beyond that period of time in '21 and looking for things to invest in to grow the business. And so, we would probably look at that starting in '21.

Praful Mehta -- Citigroup -- Analyst

Gotcha. Thanks so much, guys. Very helpful.

Curt Morgan -- President and Chief Executive Officer

Thank you.

Operator

I would now like to turn the call back to Curt Morgan for closing remarks.

Curt Morgan -- President and Chief Executive Officer

Well, thank you again, everybody for your attention today and your interest in our company. We enjoy these discussions. We'll be out -- members of management will be out talking to investors and the sales side analysts over the next couple of months. It's a pretty busy schedule for us. We're always available, Molly is -- I'll put her out there -- for phone calls to follow up if there are further questions. But we're excited about where we're going with the company, and we feel like we had very good results so far in '18, and we think '19 and '20 are shaping up to be very strong years. So, thank you for your time.

Operator

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

Duration: 73 minutes

Call participants:

Molly Sorg -- Vice President of Investor Relations

Curt Morgan -- President and Chief Executive Officer

Bill Holden -- Executive Vice President, Chief Financial Officer

Jim Burke -- Executive Vice President and Chief Operating Officer

Steve Muscato -- Senior Vice President, Chief Commercial Officer

Greg Gordon -- Evercore ISI -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Shar Pourreza -- Guggenheim Partners -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

Praful Mehta -- Citigroup -- Analyst

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