VISTRA ENERGY CORP., 10-Q filed on 5/4/2018
Quarterly Report
v3.8.0.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 01, 2018
Document And Entity Information [Abstract]    
Entity Registrant Name Vistra Energy Corp.  
Entity Central Index Key 0001692819  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   522,955,994
v3.8.0.1
Condensed Statements Of Consolidated Income (Loss) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Operating revenues $ 765 $ 1,357
Fuel, purchased power costs and delivery fees (650) (683)
Operating costs (194) (214)
Depreciation and amortization (153) (170)
Selling, general and administrative expenses (162) (135)
Operating income (loss) (394) 155
Other income 10 9
Other deductions (2) 0
Interest expense and related charges 9 (24)
Impacts of tax receivable agreement (18) (21)
Income (loss) before income taxes (395) 119
Income tax (expense) benefit 89 (41)
Net income (loss) $ (306) $ 78
Weighted average shares of common stock outstanding:    
Weighted average shares of common stock outstanding - basic 428,450,384 427,583,339
Weighted average shares of common stock outstanding - diluted 428,450,384 427,800,350
Net income per weighted average share of common stock outstanding:    
Net income per weighted average share of common stock outstanding - basic $ (0.71) $ 0.18
Net income per weighted average share of common stock outstanding - diluted $ (0.71) $ 0.18
v3.8.0.1
Condensed Statements Of Consolidated Comprehensive Income (Loss) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]    
Net income (loss) $ (306) $ 78
Other comprehensive income (loss), net of tax effects:    
Effects related to pension and other retirement benefit obligations (net of tax benefit of $— in all periods) 1 0
Total other comprehensive income 1 0
Comprehensive income (loss) $ (305) $ 78
v3.8.0.1
Condensed Statements Of Consolidated Comprehensive Income (Loss) (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]    
Effects related to pension and other retirement benefit obligations (net of tax benefit of $— in all periods) $ 0 $ 0
v3.8.0.1
Condensed Statements Of Consolidated Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows — operating activities:    
Net income (loss) $ (306) $ 78
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:    
Depreciation and amortization 180 226
Deferred income tax (benefit) expense, net (83) 42
Unrealized net (gain) loss from mark-to-market valuations of derivatives 356 (129)
Accretion expense 19 14
Impacts of Tax Receivable Agreement 18 21
Stock-based compensation 6 4
Other, net 7 (13)
Changes in operating assets and liabilities:    
Margin deposits, net (64) 113
Accrued interest (11) (31)
Accrued taxes (69) (73)
Accrued incentive plan (50) (73)
Other operating assets and liabilities (25) (38)
Cash (used in) provided by operating activities (22) 141
Cash flows — financing activities:    
Repayments/repurchases of debt (10) (13)
Other, net 1 (5)
Cash used in financing activities (9) (18)
Cash flows — investing activities:    
Capital expenditures (39) (31)
Nuclear fuel purchases (11) (12)
Solar development expenditures 21 0
Proceeds from sales of nuclear decommissioning trust fund securities 46 79
Investments in nuclear decommissioning trust fund securities (51) (84)
Other, net (1) (3)
Cash used in investing activities (77) (51)
Net change in cash, cash equivalents and restricted cash (108) 72
Cash, cash equivalents and restricted cash — beginning balance 2,046 1,588
Cash, cash equivalents and restricted cash — ending balance $ 1,938 $ 1,660
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 1,379 $ 1,487
Restricted cash 59 59
Trade accounts receivable — net 463 582
Inventories 226 253
Commodity and other derivative contractual assets 404 190
Margin deposits related to commodity contracts 93 30
Prepaid expense and other current assets 75 72
Total current assets 2,699 2,673
Restricted cash 500 500
Investments 1,232 1,240
Property, plant and equipment — net 4,850 4,820
Goodwill 1,907 1,907
Identifiable intangible assets — net 2,437 2,530
Commodity and other derivative contractual assets 169 58
Accumulated deferred income taxes 793 710
Other noncurrent assets 189 162
Total assets 14,776 14,600
Current liabilities:    
Long-term debt due currently 44 44
Trade accounts payable 421 473
Commodity and other derivative contractual liabilities 595 224
Margin deposits related to commodity contracts 3 4
Accrued taxes 58 58
Accrued taxes other than income 59 136
Accrued interest 3 16
Asset retirement obligations 126 99
Other current liabilities 248 297
Total current liabilities 1,557 1,351
Long-term debt, less amounts due currently 4,366 4,379
Commodity and other derivative contractual liabilities 386 102
Noncurrent TRA obligation at the end of the period 351 333
Asset retirement obligation 1,817 1,837
Other noncurrent liabilities and deferred credits 239 256
Total liabilities 8,716 8,258
Commitments and Contingencies
Total equity:    
Common stock (par value — $0.01; number of shares authorized — 1,800,000,000) (shares outstanding: March 31, 2018 — 428,506,325; December 31, 2017 — 428,398,802) 4 4
Additional paid-in-capital 7,772 7,765
Retained deficit (1,700) (1,410)
Accumulated other comprehensive income (16) (17)
Total equity 6,060 6,342
Total liabilities and equity $ 14,776 $ 14,600
v3.8.0.1
Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Mar. 31, 2017
Dec. 31, 2016
Statement of Changes in Financial Position [Abstract]        
Common Stock, Par or Stated Value Per Share $ 0.01      
Common stock, shares authorized 1,800,000,000   1,800,000,000  
Common stock, shares outstanding 428,506,325 428,398,802 427,587,401 427,580,232
v3.8.0.1
Business And Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Business And Significant Accounting Policies
BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

References in this report to "we," "our," "us" and "the Company" are to Vistra Energy and/or its subsidiaries, as apparent in the context. See Glossary for defined terms.

Vistra Energy is a holding company operating an integrated power business in Texas. Through our Luminant and TXU Energy subsidiaries, we are engaged in competitive electricity market activities including power generation, wholesale energy sales and purchases, commodity risk management and retail sales of electricity to end users.

Vistra Energy has three reportable segments: (i) our Wholesale Generation segment, consisting largely of Luminant; (ii) our Retail Electricity segment, consisting largely of TXU Energy, and (iii) our Asset Closure segment, consisting of financial results associated with retired plants and mines. The Asset Closure segment was established as of January 1, 2018, and we have recast information from prior periods to reflect this change in reportable segments. See Note 16 for further information concerning reportable business segments.

Merger Transaction

On the Merger Date, Vistra Energy and Dynegy completed the transactions contemplated by the Merger Agreement entered into in October 2017. Pursuant to the Merger Agreement, Dynegy merged with and into Vistra Energy, with Vistra Energy continuing as the surviving corporation. Because the Merger occurred after March 31, 2018, Vistra Energy's condensed consolidated financial statements and the notes related thereto do not include the financial condition or the operating results of Dynegy in any of the periods presented herein or otherwise take into account the closing of the Merger or the effects of the Merger or any transactions related thereto. See Note 2 for a summary of the Merger and related transactions.

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and on the same basis as the audited financial statements included in our 2017 Form 10-K, with the exception of the change in reporting segments as detailed above. Adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been included therein. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and footnotes required by U.S. GAAP, they should be read in conjunction with the audited financial statements and related notes contained in our 2017 Form 10-K. The results of operations for an interim period may not give a true indication of results for a full year. All dollar amounts in the financial statements and tables in the notes are stated in millions of U.S. dollars unless otherwise indicated.

Use of Estimates

Preparation of financial statements requires estimates and assumptions about future events that affect the reporting of assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense, including fair value measurements, estimates of expected obligations, judgment related to the potential timing of events and other estimates. In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

Adoption of New Accounting Standards

Revenue from Contracts with Customers On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) and all related amendments (new revenue standard) using the modified retrospective method for all contracts outstanding at the time of adoption. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income on an ongoing basis and our retail electricity and wholesale generation revenues will continue to be recognized when electricity and other services are delivered to our customers. The impact of adopting the new revenue standard primarily relates to the deferral of acquisition costs associated with retail contracts with customers that were previously expensed as incurred. Under the new revenue standard, these amounts will be capitalized and amortized over the expected life of the customer.

As of January 1, 2018, the cumulative effect of the changes made to our condensed consolidated balance sheet for the adoption of the new revenue standard was as follows:
 
December 31, 2017
 
Adoption of New Revenue Standard
 
January 1,
2018
Impact on condensed consolidated balance sheet:
 
 
 
 
 
Assets
 
 
 
 
 
Prepaid expense and other current assets
$
72

 
$
5

 
$
77

Accumulated deferred income taxes
$
710

 
$
(4
)
 
$
706

Other noncurrent assets
$
162

 
$
16

 
$
178

Equity
 
 
 
 
 
Retained deficit
$
(1,410
)
 
$
17

 
$
(1,393
)

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed statement of consolidated income (loss) and condensed consolidated balance sheet was as follows:
 
Three Months Ended March 31, 2018
 
As Reported
 
Amount Without Adoption of New Revenue Standard
 
Effect of Change
Higher (Lower)
Impact on condensed statement of consolidated income (loss):
 
 
 
 
 
Operating revenues
$
765

 
$
764

 
$
1

Selling, general and administrative expenses
$
(162
)
 
$
(165
)
 
$
3

Net income (loss)
(306
)
 
(309
)
 
3


 
March 31, 2018
 
As Reported
 
Balances Without Adoption of New Revenue Standard
 
Effect of Change
Higher (Lower)
Impact on condensed consolidated balance sheet:
 
 
 
 
 
Assets
 
 
 
 
 
Prepaid expense and other current assets
$
75

 
$
69

 
$
6

Accumulated deferred income taxes
$
793

 
$
797

 
$
(4
)
Other noncurrent assets
$
189

 
$
169

 
$
20

Equity
 
 
 
 
 
Retained deficit
$
(1,700
)
 
$
(1,720
)
 
$
20



See Note 5 for the disclosures required by the new revenue standard.

Statement of Cash Flows In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The ASU requires restricted cash to be included in the cash and cash equivalents and a reconciliation between the change in cash and cash equivalents and the amounts presented on the balance sheet (see Note 17). We adopted the standard on January 1, 2018. The ASU modified our presentation of our condensed statements of consolidated cash flows, and retrospective application to comparative periods presented was required. For the three months ended March 31, 2017, our condensed statement of consolidated cash flows previously reflected a source of cash of $1 million reported as changes in restricted cash that is now reported in net change in cash, cash equivalents and restricted cash. See the condensed statements of consolidated cash flows and Note 17 for disclosures related to the adoption of this accounting standard.

Changes in Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02 (ASU 2016-02), Leases. The ASU amends previous GAAP to require the recognition of lease assets and liabilities for operating leases. The ASU will be effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Retrospective application to comparative periods presented will be required in the year of adoption. We are currently evaluating the impact of this ASU on our financial statements.
v3.8.0.1
Merger Transaction (Notes)
3 Months Ended
Mar. 31, 2018
Merger Transaction [Abstract]  
Merger Transaction [Text Block]
MERGER TRANSACTION

Merger Summary

On the Merger Date, Vistra Energy and Dynegy completed the transactions contemplated by the Merger Agreement entered into in October 2017. Pursuant to the Merger Agreement, Dynegy merged with and into Vistra Energy, with Vistra Energy continuing as the surviving corporation. The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code, as amended, so that none of Vistra Energy, Dynegy or any of the Dynegy stockholders will recognize any gain or loss in the transaction, except that Dynegy stockholders could recognize a gain or loss with respect to cash received in lieu of fractional shares of Vistra Energy's common stock. Vistra Energy is the acquirer for both federal tax and accounting purposes.

At the closing of the Merger, each issued and outstanding share of Dynegy common stock, par value $0.01 per share, other than shares owned by Vistra Energy or its subsidiaries, held in treasury by Dynegy or held by a subsidiary of Dynegy, was automatically converted into 0.652 shares of common stock, par value $0.01 per share, of Vistra Energy (the Exchange Ratio), except that cash was paid in lieu of fractional shares, which resulted in Vistra Energy issuing 94,409,573 shares of Vistra Energy common stock to the former Dynegy stockholders. The total number of Vistra Energy shares outstanding at the close of the Merger was 522,932,453 shares. Dynegy stock options and equity-based awards outstanding immediately prior to the Effective Time were generally automatically converted upon completion of the Merger into stock options and equity-based awards, respectively, with respect to Vistra Energy's common stock, after giving effect to the Exchange Ratio.

Following is a list of events that took place in connection with the completion of the Merger.

Warrants — The Company entered into an agreement whereby holders of each outstanding warrant previously issued by Dynegy will be entitled to receive, upon exercise, the equity securities to which the holder would have been entitled to receive of Dynegy common stock converted into shares of Vistra Energy common stock at the Exchange Ratio. As of the Merger Date, nine million warrants expiring in 2024 with an exercise price of $35.00 were outstanding, each of which can be redeemed for 0.652 share of Vistra Energy common stock.

Credit Agreement The Company assumed the obligations under Dynegy's $3.563 billion credit agreement consisting of a $2.018 billion senior secured term loan facility due 2024 and a $1.545 billion senior secured revolving credit facility. As of the Merger Date, there were no cash borrowings and $656 million of letters of credit outstanding under the senior secured revolving credit facility. On April 23, 2018, $70 million of the senior secured revolving credit facility matured.

Senior Notes — The Company and certain of the Company's wholly-owned subsidiaries that guarantee obligations under the Dynegy credit agreement assumed the following obligations of Dynegy:

$850 million of outstanding 6.75% Senior Notes due 2019, which were redeemed on May 1, 2018 at a redemption price of 101.688%, plus accrued and unpaid interest to but not including the date of redemption;
$1.750 billion of 7.375% Senior Notes due 2022;
$500 million of 5.875% Senior Notes due 2023;
$1.250 billion of 7.625% Senior Notes due 2024;
$188 million of 8.034% Senior Notes due 2024;
$750 million of 8.000% Senior Notes due 2025, and
$850 million of 8.125% Senior Notes due 2026.

Tangible Equity Units — The Company assumed the obligations of Dynegy's 4,600,000 7.00% tangible equity units, each with a stated amount of $100.00 and each comprised of (i) a prepaid stock purchase contract that will deliver to the holder, not later than July 1, 2019, unless earlier redeemed or settled, not more than 4.0421 shares of Vistra Energy common stock and not less than 3.2731 shares of Vistra Energy common stock per contract based upon the applicable fixed settlement rate in the contract and (ii) a senior amortizing note with an outstanding principal amount of $45 million that pays an equal quarterly cash installment of $1.7500 per amortizing note. In the aggregate, the annual quarterly cash installments will be equivalent to a 7.00% cash payment per year with respect to each $100.00 stated amount of tangible equity units.

Business Combination

The Merger is anticipated to provide a number of significant potential strategic benefits and opportunities to Vistra Energy, including increased scale and market diversification, rebalanced asset portfolio and improved earnings and cash flow. The Merger is being accounted for in accordance with ASC 805, Business Combinations (ASC 805), with identifiable assets acquired and liabilities assumed recorded at their estimated fair values on the Merger Date. Due to the limited time between the Merger Date and this filing, our purchase price allocation for the assets acquired and the liabilities assumed in the Merger has not been completed. The results of operations of Dynegy will be reported in our consolidated financial statements beginning as of the Merger Date.

Based on the opening price of Vistra Energy common stock on the Merger Date, the preliminary purchase price was approximately $2.3 billion. Our initial accounting of the purchase price allocation for the assets acquired and the liabilities assumed in the Merger and the supplemental pro forma financial results is currently underway and will be presented no later than the second quarter of 2018.
v3.8.0.1
Acquisition and Development of Generation Facilities (Notes)
3 Months Ended
Mar. 31, 2018
Acquisition And Development Of Generation Facilities [Abstract]  
Business Combination Disclosure [Text Block]
ACQUISITION AND DEVELOPMENT OF GENERATION FACILITIES

Odessa Acquisition

In August 2017, La Frontera Holdings, LLC (La Frontera), an indirect wholly owned subsidiary of Vistra Energy, purchased a 1,054 MW CCGT natural gas fueled generation plant (and other related assets and liabilities) located in Odessa, Texas (Odessa Facility) from Odessa-Ector Power Partners, L.P., an indirect wholly owned subsidiary of Koch Ag & Energy Solutions, LLC (Koch) (altogether, the Odessa Acquisition). La Frontera paid an aggregate purchase price of approximately $355 million, plus a five-year earn-out provision, to acquire the Odessa Facility. The purchase price was funded by cash on hand.

The Odessa Acquisition was accounted for as an asset acquisition. Substantially all of the approximately $355 million purchase price was assigned to property, plant and equipment in our consolidated balance sheet. Additionally, the initial fair value associated with an earn-out provision of approximately $16 million was included as consideration in the overall purchase price. The earn-out provision requires cash payments to be made to Koch if spark-spreads related to the pricing point of the Odessa Facility exceed certain thresholds. Subsequent to the acquisition, the earn-out provision has been accounted for as a derivative in our consolidated financial statements, and a partial buyback of the earn-out provision was settled in February 2018.

Upton Solar Development

In May 2017, we acquired the rights to develop, construct and operate a utility scale solar photovoltaic power generation facility in Upton County, Texas (Upton). As part of this project, we entered a turnkey engineering, procurement and construction agreement to construct the approximately 180 MW facility. For the three months ended March 31, 2018, we have spent approximately $21 million related to this project primarily for progress payments under the engineering, procurement and construction agreement. The facility began test operations in March 2018 and is expected to begin commercial operations in May 2018.
v3.8.0.1
Retirement of Generation Facilities (Notes)
3 Months Ended
Mar. 31, 2018
Retirement of Generation Facilities [Abstract]  
Retirement of generation facilities
RETIREMENT OF GENERATION FACILITIES

In January and February 2018, we retired three power plants with a total installed nameplate generation capacity of 4,167 MW. Luminant decided to retire these units because they were projected to be uneconomic based on current market conditions and would have faced significant environmental costs associated with operating such units. In the case of the Sandow units, the decision also reflected the execution of a contract termination agreement pursuant to which the Company and Alcoa agreed to an early settlement of a long-standing power and mining agreement. The following table details the units retired.
Name
 
Location (all in the state of Texas)
 
Fuel Type
 
Installed Nameplate Generation Capacity (MW)
 
Number of Units
 
Date Units Taken Offline
Monticello
 
Titus County
 
Lignite/Coal
 
1,880

 
3
 
January 4, 2018
Sandow
 
Milam County
 
Lignite
 
1,137

 
2
 
January 11, 2018
Big Brown
 
Freestone County
 
Lignite/Coal
 
1,150

 
2
 
February 12, 2018
Total
 
 
 
 
 
4,167

 
7
 
 
v3.8.0.1
Revenue (Notes)
3 Months Ended
Mar. 31, 2018
Revenue Recognition and Deferred Revenue [Abstract]  
Revenue from Contract with Customer [Text Block]
REVENUE

The following table disaggregates our revenue by major source:
 
Three Months Ended March 31, 2018
 
Retail Electricity
 
Wholesale Generation
 
Asset
Closure
 
Eliminations
 
Consolidated
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
Revenue from Oncor service area
$
662

 
$

 
$

 
$

 
$
662

Revenue from other TDSP service areas
287

 

 

 

 
287

Wholesale generation revenue from ERCOT

 
174

 
36

 

 
210

Revenue from non-affiliated REPs

 
19

 

 

 
19

Revenue from other wholesale contracts

 
34

 

 

 
34

Total revenue from contracts with customers
949

 
227

 
36

 

 
1,212

Other revenues:
 
 
 
 
 
 
 
 
 
Retail contract amortization
(12
)
 

 

 

 
(12
)
Hedging and other revenues
35

 
(462
)
 
(8
)
 

 
(435
)
Affiliate sales

 
(298
)
 

 
298

 

Total other revenues
23

 
(760
)
 
(8
)
 
298

 
(447
)
Total revenues
$
972

 
$
(533
)
 
$
28

 
$
298

 
$
765



Energy Charges

Revenue is recognized when electricity is delivered to our customers in an amount that we expect to invoice for volumes delivered or services provided. Sales tax is excluded from revenue. Residential invoices are due within 20 days from invoice date and business customer payment terms vary from 15 to 45 days from invoice date. Revenue is recognized over-time using the output method based on kilowatt hours delivered. Energy charges are delivered as a series of distinct services and are accounted for as a single performance obligation.

Wholesale Generation Revenue from ERCOT

Revenue is recognized when volumes are delivered to ERCOT. Cash settlement occurs within 10 business days after delivery. Revenue is recognized over-time using the output method based on kilowatt hours delivered. Luminant operates as a market participant within ERCOT and expects to continue to remain in a contract agreement with ERCOT indefinitely. Wholesale generation revenues are delivered as a series of distinct services and are accounted for as a single performance obligation.

Revenue from Nonaffiliated Retail Electric Providers

Revenue is recognized when volumes are delivered to the non-affiliated retail electric provider. Cash settlement occurs within 20 days following the month of delivery. Revenue is recognized over-time using the output method based on kilowatt hours delivered. Revenue from non-affiliated retail electric providers are delivered as a series of distinct services and are accounted for as a single performance obligation.

Revenue from Other Wholesale Contracts

Other wholesale contracts include other revenue activity with ERCOT, such as ancillary services, auction revenue and ERCOT neutrality revenue. Revenue is recognized when the service is performed. Cash settlement occurs within 10 business days after invoicing. Revenue is recognized over-time using the output method based on kilowatt hours delivered or other applicable measurements. Luminant operates as a market participant within ERCOT and expects to continue to remain in a contract agreement with ERCOT indefinitely. Other wholesale contracts are delivered as a series of distinct services and are accounted for as a single performance obligation.

Contract and Other Customer Acquisition Costs

We defer costs to acquire residential and business retail contracts and amortize these costs over the expected life of the contract. The expected life of a retail contract is calculated using historical attrition rates, which we believe to be an accurate indicator of future attrition rates. The deferred acquisition and contract cost balance as of March 31, 2018 and January 1, 2018 was $27 million and $22 million, respectively. The amortization expense related to these costs during the three months ended March 31, 2018 totaled $3 million and was recorded as selling, general and administrative expenses and $1 million was recorded to operating costs in the condensed statement of consolidated income (loss).

Practical Expedients

The vast majority of revenues are recognized under the right to invoice practical expedient, which allows us to recognize revenue in the same amount that we invoice our customers. We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue using the right to invoice practical expedient. We use the portfolio approach to categorize similar customer contracts into single performance obligations. Sales taxes are not included in revenue.

Accounts Receivable

The following table presents trade accounts receivable relating to both contracts with customers and other activities:
 
March 31, 2018
Trade accounts receivable from contracts with customers — net
$
415

Other trade accounts receivable — net
48

Total trade accounts receivable — net
$
463

v3.8.0.1
Goodwill and Identifiable Intangible Assets (Notes)
3 Months Ended
Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill And Identifiable Intangible Assets
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill

The carrying value of goodwill totaled $1.907 billion at both March 31, 2018 and December 31, 2017. The goodwill arose in connection with our application of fresh start reporting at Emergence and was allocated entirely to the Retail Electricity reporting unit (see Note 1). Of the goodwill recorded at Emergence, $1.686 billion is deductible for tax purposes over 15 years on a straight-line basis.

Identifiable Intangible Assets

Identifiable intangible assets are comprised of the following:
 
 
March 31, 2018
 
December 31, 2017
Identifiable Intangible Asset
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Retail customer relationship
 
$
1,648

 
$
645

 
$
1,003

 
$
1,648

 
$
572

 
$
1,076

Software and other technology-related assets
 
186

 
57

 
129

 
183

 
47

 
136

Retail and wholesale contracts
 
154

 
99

 
55

 
154

 
87

 
67

Other identifiable intangible assets (a)
 
33

 
11

 
22

 
33

 
11

 
22

Total identifiable intangible assets subject to amortization
 
$
2,021

 
$
812

 
1,209

 
$
2,018

 
$
717

 
1,301

Retail trade names (not subject to amortization)
 
 
 
 
 
1,225

 
 
 
 
 
1,225

Mineral interests (not currently subject to amortization)
 
 
 
 
 
3

 
 
 
 
 
4

Total identifiable intangible assets
 
 
 
 
 
$
2,437

 
 
 
 
 
$
2,530


____________
(a)
Includes mining development costs and environmental allowances and credits.

Amortization expense related to finite-lived identifiable intangible assets (including the classification in the condensed statements of consolidated income (loss)) consisted of:
Identifiable Intangible Asset
 
Condensed Statements of Consolidated Income (Loss) Line
Three Months Ended March 31,
 
2018
 
2017
Retail customer relationship
 
Depreciation and amortization
$
73

 
$
105

Software and other technology-related assets
 
Depreciation and amortization
10

 
8

Retail and wholesale contracts
 
Operating revenues/fuel, purchased power costs and delivery fees
12

 
28

Other identifiable intangible assets
 
Operating revenues/fuel, purchased power costs and delivery fees/depreciation and amortization
2

 
4

Total amortization expense (a)
$
97

 
$
145


____________
(a)
Amounts recorded in depreciation and amortization totaled $85 million and $115 million for the three months ended March 31, 2018 and 2017, respectively.

Estimated Amortization of Identifiable Intangible Assets

As of March 31, 2018, the estimated aggregate amortization expense of identifiable intangible assets for each of the next five fiscal years is as shown below.
Year
 
Estimated Amortization Expense
2018
 
$
368

2019
 
$
268

2020
 
$
192

2021
 
$
142

2022
 
$
89

v3.8.0.1
Income Taxes
3 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES

The calculation of our effective tax rate is as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Income (loss) before income taxes
$
(395
)
 
$
119

Income tax benefit (expense)
$
89

 
$
(41
)
Effective tax rate
22.5
%
 
34.5
%


For the three months ended March 31, 2018, the effective tax rate of 22.5% related to our income tax expense was higher than the U.S. Federal statutory rate of 21% due primarily to nondeductible TRA accretion and the Texas margin tax, net of federal benefit, offset by the difference in the forecasted effective tax rate and the statutory tax rate applied to mark-to-market unrealized losses.

For the three months ended March 31, 2017, the effective tax rate of 34.5% related to our income tax expense was lower than the U.S. Federal statutory rate of 35% due primarily to the difference in the forecasted effective tax rate and the statutory tax rate applied to mark-to-market unrealized gains, offset by deductible TRA accretion and the Texas margin tax, net of federal benefit.

Liability for Uncertain Tax Positions

Vistra Energy and its subsidiaries file income tax returns in U.S. federal and state jurisdictions and are expected to be subject to examinations by the IRS and other taxing authorities. Vistra Energy has limited operational history and filed its first federal tax return in October 2017. Vistra Energy is not currently under audit for any period, and we had no uncertain tax positions at both March 31, 2018 and December 31, 2017.
v3.8.0.1
Tax Receivable Agreement Obligation (Notes)
3 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]  
Tax Receivables Agreement Obligation
TAX RECEIVABLE AGREEMENT OBLIGATION

On the Effective Date, Vistra Energy entered into a tax receivable agreement (the TRA) with a transfer agent on behalf of certain former first lien creditors of our predecessor. The TRA generally provides for the payment by us to holders of TRA Rights of 85% of the amount of cash savings, if any, in U.S. federal and state income tax that we realize in periods after Emergence as a result of (a) certain transactions consummated pursuant to the Plan of Reorganization (including the step-up in tax basis in our assets resulting from the PrefCo Preferred Stock Sale), (b) the tax basis of all assets acquired in connection with the acquisition of two CCGT natural gas fueled generation facilities in April 2016 and (c) tax benefits related to imputed interest deemed to be paid by us as a result of payments under the TRA, plus interest accruing from the due date of the applicable tax return.

Pursuant to the TRA, we issued the TRA Rights for the benefit of the first lien secured creditors of TCEH entitled to receive such TRA Rights under the Plan of Reorganization. Such TRA Rights are subject to various transfer restrictions described in the TRA and are entitled to certain registration rights more fully described in the Registration Rights Agreement (see Note 15).

The following table summarizes the changes to the TRA obligation, reported as other current liabilities and Tax Receivable Agreement obligation in our condensed consolidated balance sheets, for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31,
 
2018
 
2017
TRA obligation at the beginning of the period
$
357

 
$
596

Accretion expense
18

 
21

TRA obligation at the end of the period
375

 
617

Less amounts due currently
(24
)
 
(16
)
Noncurrent TRA obligation at the end of the period
$
351

 
$
601



As of March 31, 2018, the estimated carrying value of the TRA obligation totaled $375 million, which represents the discounted amount of projected payments under the TRA. The projected payments are based on certain assumptions, including but not limited to (a) the federal corporate income tax rate of 21% and (b) estimates of our taxable income in the current and future years. Our taxable income takes into consideration the current federal tax code and reflects our current estimates of future results of the business. These assumptions are subject to change, and those changes could have a material impact on the carrying value of the TRA obligation. The aggregate amount of undiscounted payments under the TRA is estimated to be approximately $1.2 billion, with more than half of such amount expected to be attributable to the first 15 tax years following Emergence, and the final payment expected to be made approximately 40 years following Emergence (assuming that the TRA is not terminated earlier pursuant to its terms).

The carrying value of the obligation is being accreted to the amount of the gross expected obligation using the effective interest method. Changes in the amount of this obligation resulting from changes to either the timing or amount of TRA payments are recognized in the period of change and measured using the discount rate inherent in the initial fair value of the obligation. During the three months ended March 31, 2018 and 2017, the Impacts of Tax Receivable Agreement on the condensed statements of consolidated income (loss) totaled $18 million and $21 million, respectively, which represents accretion expense for the period.
v3.8.0.1
Earnings Per Share (Notes)
3 Months Ended
Mar. 31, 2018
Earnings Per Share [Abstract]  
Earnings Per Share
EARNINGS PER SHARE

Basic earnings per share available to common shareholders are based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the treasury stock method and includes the effect of all potential issuances of common shares under stock-based incentive compensation arrangements.
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
 
Net Loss
 
Shares
 
Per Share Amount
 
Net Income
 
Shares
 
Per Share Amount
Net income (loss) available for common stock — basic
$
(306
)
 
428,450,384

 
$
(0.71
)
 
$
78

 
427,583,339

 
$
0.18

Dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock-based incentive compensation plan

 

 

 

 
217,011

 

Net income (loss) available for common stock — diluted
$
(306
)
 
428,450,384

 
$
(0.71
)
 
$
78

 
427,800,350

 
$
0.18



For the three months ended March 31, 2018 and 2017, stock-based incentive compensation plan awards totaling 2,863,872 and 602,403 shares, respectively, were excluded from the calculation of diluted earnings per share because the effect would have been antidilutive.
v3.8.0.1
Long-Term Debt
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Long-Term Debt
LONG-TERM DEBT

Amounts in the table below represent the categories of long-term debt obligations incurred by the Company.
 
March 31,
2018
 
December 31,
2017
Vistra Operations Credit Facilities (a)
$
4,313

 
$
4,323

Mandatorily redeemable subsidiary preferred stock (b)
70

 
70

8.82% Building Financing due semiannually through February 11, 2022 (c)
27

 
30

Total long-term debt including amounts due currently
4,410

 
4,423

Less amounts due currently
(44
)
 
(44
)
Total long-term debt less amounts due currently
$
4,366

 
$
4,379

____________
(a)
At March 31, 2018, borrowings under the Vistra Operations Credit Facilities in our condensed consolidated balance sheet include debt premiums of $19 million, debt discounts of $2 million and debt issuance costs of $6 million. At December 31, 2017, borrowings under the Vistra Operations Credit Facilities in our condensed consolidated balance sheet include debt premiums of $21 million, debt discounts of $2 million and debt issuance costs of $7 million.
(b)
Shares of mandatorily redeemable preferred stock in PrefCo issued as part of the Spin-Off (see Note 1). This subsidiary preferred stock is accounted for as a debt instrument under relevant accounting guidance.
(c)
Obligation related to a corporate office space capital lease. This obligation will be funded by amounts held in an escrow account that is reflected in other noncurrent assets in our condensed consolidated balance sheets.

Vistra Operations Credit Facilities — At March 31, 2018, the Vistra Operations Credit Facilities consisted of up to $5.162 billion in senior secured, first lien revolving credit commitments and outstanding term loans, consisting of revolving credit commitments of up to $860 million, including a $715 million letter of credit sub-facility (Revolving Credit Facility), initial term loans totaling $2.814 billion (Initial Term Loan B Facility), incremental term loans totaling $988 million (Incremental Term Loan B Facility, and together with the Initial Term Loan B Facility, the Term Loan B Facility) and letter of credit term loans totaling $500 million (Term Loan C Facility).

The Vistra Operations Credit Facilities and related available capacity at March 31, 2018 are presented below.
 
 
 
 
March 31, 2018
Vistra Operations Credit Facilities
 
Maturity Date
 
Facility
Limit
 
Cash
Borrowings
 
Available
Capacity
Revolving Credit Facility (a)
 
August 4, 2021
 
$
860

 
$

 
$
584

Initial Term Loan B Facility (b)
 
August 4, 2023
 
2,814

 
2,814

 

Incremental Term Loan B Facility (b)
 
December 14, 2023
 
988

 
988

 

Term Loan C Facility (c)
 
August 4, 2023
 
500

 
500

 
18

Total Vistra Operations Credit Facilities
 
 
 
$
5,162

 
$
4,302

 
$
602

___________
(a)
Facility to be used for general corporate purposes. Facility includes a $715 million letter of credit sub-facility, of which $276 million of letters of credit were outstanding at March 31, 2018.
(b)
Cash borrowings under the Term Loan B Facility reflect required scheduled quarterly payment in annual amount equal to 1% of the original principal amount with the balance paid at maturity. Principal amounts paid cannot be reborrowed.
(c)
Facility used for issuing letters of credit for general corporate purposes. Borrowings under this facility were funded to collateral accounts that are reported as restricted cash in our condensed consolidated balance sheets. At March 31, 2018, the restricted cash supported $482 million in letters of credit outstanding (see Note 17), leaving $18 million in available letter of credit capacity.

In February 2018, certain pricing terms for the Vistra Operations Credit Facility were amended. We accounted for this transaction as a modification of debt. At March 31, 2018, cash borrowings under the Revolving Credit Facility would bear interest based on applicable LIBOR rates, plus a fixed spread of 2.25%, and there were no outstanding borrowings. Letters of credit issued under the Revolving Credit Facility bear interest of 2.25%. Amounts borrowed under the Initial Term Loan B Facility and the Term Loan C Facility bear interest based on applicable LIBOR rates, subject to a 0.75% floor, plus a fixed spread of 2.50%. Amounts borrowed under the Incremental Term Loan B Facility bear interest based on applicable LIBOR rates plus a fixed spread of 2.25%. At March 31, 2018, the weighted average interest rate before taking into consideration interest rate swaps on outstanding borrowings was 4.38%, 4.07% and 4.38% under the Initial Term Loan B Facility, the Incremental Term Loan B Facility and the Term Loan C Facility, respectively. The Vistra Operations Credit Facilities also provide for certain additional fees payable to the agents and lenders, as well as availability fees payable with respect to any unused portions of the available Vistra Operations Credit Facilities.

Obligations under the Vistra Operations Credit Facilities are secured by a lien covering substantially all of Vistra Operations' (and its subsidiaries') consolidated assets, rights and properties, subject to certain exceptions set forth in the Vistra Operations Credit Facilities.

The Vistra Operations Credit Facilities also permit certain hedging agreements to be secured on a pari-passu basis with the Vistra Operations Credit Facilities in the event those hedging agreements met certain criteria set forth in the Vistra Operations Credit Facilities.

The Vistra Operations Credit Facilities provide for affirmative and negative covenants applicable to Vistra Operations (and its restricted subsidiaries), including affirmative covenants requiring it to provide financial and other information to the agents under the Vistra Operations Credit Facilities and to not change its lines of business, and negative covenants restricting Vistra Operations' (and its restricted subsidiaries') ability to incur additional indebtedness, make investments, dispose of assets, pay dividends, grant liens or take certain other actions, in each case except as permitted in the Vistra Operations Credit Facilities. Vistra Operations' ability to borrow under the Vistra Operations Credit Facilities is subject to the satisfaction of certain customary conditions precedent set forth therein.

The Vistra Operations Credit Facilities provide for certain customary events of default, including events of default resulting from non-payment of principal, interest or fees when due, material breaches of representations and warranties, material breaches of covenants in the Vistra Operations Credit Facilities or ancillary loan documents, cross-defaults under other agreements or instruments and the entry of material judgments against Vistra Operations. Solely with respect to the Revolving Credit Facility, and solely during a compliance period (which, in general, is applicable when the aggregate revolving borrowings and issued revolving letters of credit (in excess of $100 million) exceed 30% of the revolving commitments), the agreement includes a covenant that requires the consolidated first lien net leverage ratio, which is based on the ratio of net first lien debt compared to an EBITDA calculation defined under the terms of the facilities, not to exceed 4.25 to 1.00. Although the period ended March 31, 2018 was not a compliance period, we would have been in compliance with this financial covenant if it was required to be tested at such date. Upon the existence of an event of default, the Vistra Operations Credit Facilities provide that all principal, interest and other amounts due thereunder will become immediately due and payable, either automatically or at the election of specified lenders.

Interest Rate Swaps — Effective January 2017, we entered into $3.0 billion notional amount of interest rate swaps to hedge a portion of our exposure to our variable rate debt. The interest rate swaps expire in July 2023 and effectively fix the interest rates between 4.38% and 4.50% on $3.0 billion of our variable rate debt. The interest rate swaps are secured by a first lien secured interest on a pari-passu basis with the Vistra Operations Credit Facilities.
v3.8.0.1
Commitments and Contingencies (Notes)
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments And Contingencies
COMMITMENTS AND CONTINGENCIES

Guarantees

We have entered into contracts that contain guarantees to unaffiliated parties that could require performance or payment under certain conditions. As of March 31, 2018, there are no material outstanding claims related to our guarantee obligations, and we do not anticipate we will be required to make any material payments under these guarantees.

Letters of Credit

At March 31, 2018, we had outstanding letters of credit under the Vistra Operations Credit Facilities totaling $758 million as follows:

$634 million to support commodity risk management collateral requirements in the normal course of business, including over-the-counter and exchange-traded transactions and collateral postings with ERCOT;
$36 million to support executory contracts and insurance agreements;
$55 million to support our REP financial requirements with the PUCT, and
$33 million for other credit support requirements.

Litigation

Litigation Related to EPA Reviews — In August 2013, the U.S. Department of Justice (DOJ), acting as the attorneys for the EPA, filed a civil enforcement lawsuit against Luminant in federal district court in Dallas, alleging violations of the Clean Air Act (CAA), including its New Source Review standards, at our Big Brown and Martin Lake generation facilities. In August 2015, the district court granted Luminant's motion to dismiss seven of the nine claims asserted by the EPA in the lawsuit.

In January 2017, the EPA dismissed its two remaining claims with prejudice and the district court entered final judgment in Luminant's favor. In March 2017, the EPA and the Sierra Club appealed the final judgment to the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit Court). After the parties filed their respective briefs in the Fifth Circuit Court, the appeal was argued before the Fifth Circuit Court in March 2018. We believe that we have complied with all requirements of the CAA and intend to vigorously defend against the remaining allegations. The lawsuit requests (i) the maximum civil penalties available under the CAA to the government of up to $32,500 to $37,500 per day for each alleged violation, depending on the date of the alleged violation, and (ii) injunctive relief, including an order requiring the installation of best available control technology at the affected units. An adverse outcome could require substantial capital expenditures that cannot be determined at this time or retirement of the remaining plant at issue, Martin Lake, and could possibly require the payment of substantial penalties. The recent retirement of the Big Brown plant should have a favorable impact on this litigation. We cannot predict the outcome of these proceedings, including the financial effects, if any.

Greenhouse Gas Emissions

In August 2015, the EPA finalized rules to address greenhouse gas emissions from new, modified and reconstructed and existing electricity generation units, referred to as the Clean Power Plan, including rules for existing facilities that would establish state-specific emissions rate goals to reduce nationwide CO2 emissions. Various parties (including Luminant) filed petitions for review in the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court) and subsequently, in January 2016, a coalition of states, industry (including Luminant) and other parties filed applications with the U.S. Supreme Court (Supreme Court) asking that the Supreme Court stay the rule while the D.C. Circuit Court reviews the legality of the rule for existing plants. In February 2016, the Supreme Court stayed the rule pending the conclusion of legal challenges on the rule before the D.C. Circuit Court and until the Supreme Court disposes of any subsequent petition for review. Oral argument on the merits of the legal challenges to the rule was heard in September 2016 before the entire D.C. Circuit Court.

Following a March 2017 Executive Order entitled Promoting Energy Independence and Economic Growth issued by President Trump covering a number of matters, including the Clean Power Plan (Order), in April 2017, in accordance with the Order, the EPA published its intent to review the Clean Power Plan. In October 2017, the EPA issued a proposed rule that would repeal the Clean Power Plan, with the proposed repeal focusing on what the EPA believes to be the unlawful nature of the Clean Power Plan and asking for public comment on the EPA's interpretations of its authority under the Clean Air Act. In December 2017, the EPA published an advance notice of proposed rulemaking (ANPR) soliciting information from the public as the EPA considers proposing a future rule. Vistra Energy submitted comments on the ANPR in February 2018. Vistra Energy submitted comments to the proposed repeal in April 2018. While we cannot predict the outcome of these rulemakings and related legal proceedings, or estimate a range of reasonably probable costs, if the rules are ultimately implemented or upheld as they were issued, they could have a material impact on our results of operations, liquidity or financial condition.

Cross-State Air Pollution Rule (CSAPR)

In July 2011, the EPA issued the CSAPR, compliance with which would have required significant additional reductions of sulfur dioxide (SO2) and nitrogen oxide (NOX) emissions from our fossil fueled generation units. After certain EPA revisions to the rule, the CSAPR became effective January 1, 2015. With respect to Texas's SO2 and annual NOX emission budgets, in November 2016, the EPA proposed to withdraw the CSAPR Federal Implementation Plan (FIP) addressing SO2 and annual NOX for Texas and in September 2017, the EPA finalized its proposal to remove Texas from these annual CSAPR programs. The Sierra Club and the National Parks Conservation Association filed a petition for review in the D.C. Circuit Court challenging that final rule and Luminant intervened on behalf of the EPA. On April 10, 2018, the D.C. Circuit Court granted the EPA's and petitioners' motion to hold the case in abeyance pending the EPA's consideration of a pending petition for administrative reconsideration. As a result of the EPA's action, Texas electric generating units are no longer subject to the CSAPR annual SO2 and NOX limits, but remain subject to the CSAPR's ozone season NOX requirements. While we cannot predict the outcome of future proceedings related to the CSAPR, based upon our current operating plans, including the recent retirements of our Monticello, Big Brown and Sandow 4 plants (see Note 3), we do not believe that the CSAPR in its current form will cause any material operational, financial or compliance issues to our business or require us to incur any material compliance costs.

Regional Haze — Reasonable Progress and Long-Term Strategies

The Regional Haze Program of the CAA establishes "as a national goal the prevention of any future, and the remedying of any existing, impairment of visibility in mandatory class I federal areas which impairment results from man-made pollution." In February 2009, the TCEQ submitted a State Implementation Plan (SIP) concerning regional haze (Regional Haze SIP) to the EPA. In December 2011, the EPA proposed a limited disapproval of the Regional Haze SIP due to its reliance on the Clean Air Interstate Rule (CAIR) instead of the EPA's replacement CSAPR program. The EPA finalized the limited disapproval of Texas's Regional Haze SIP in June 2012 and, on March 20, 2018, the D.C. Circuit Court issued a decision upholding the EPA's actions and denying all of Luminant's petitions for review.

In January 2016, the EPA issued a final rule approving in part and disapproving in part Texas' SIP addressing the reasonable progress component of the Regional Haze program and issuing a FIP. The EPA's emission limits in the FIP assume additional control equipment for specific lignite/coal-fueled generation units across Texas, including new flue gas desulfurization systems (scrubbers) at seven electricity generating units and upgrades to existing scrubbers at seven generation units. Specifically, for Luminant, the EPA's FIP is based on new scrubbers at Big Brown Units 1 and 2 and Monticello Units 1 and 2 and scrubber upgrades at Martin Lake Units 1, 2 and 3, Monticello Unit 3 and Sandow Unit 4. Under the terms of the rule, subject to the legal proceedings described in the following paragraph, the scrubber upgrades would be required by February 2019, and the new scrubbers would be required by February 2021.

In March 2016, Luminant and a number of other parties, including the State of Texas, filed petitions for review in the Fifth Circuit Court challenging the FIP's Texas requirements. Luminant and other parties also filed motions to stay the FIP while the court reviews the legality of the EPA's action. In July 2016, the Fifth Circuit Court denied the EPA's motion to dismiss Luminant's challenge to the FIP and granted the motions to stay filed by Luminant and the other parties pending final review of the petitions for review. The case was abated until the end of November 2016 in order to allow the parties to pursue settlement discussions. Settlement discussions were unsuccessful, and in December 2016 the EPA filed a motion seeking a voluntary remand of the rule back to the EPA for further consideration of Luminant's pending request for administrative reconsideration. In March 2017, the Fifth Circuit Court remanded the rule back to the EPA for reconsideration in light of the Court's prior determination that we and the other petitioners demonstrated a substantial likelihood that the EPA exceeded its statutory authority and acted arbitrarily and capriciously, but the Court denied all of the other pending motions. The stay of the rule (and the emission control requirements) remains in effect, and the EPA is required to file status reports of its reconsideration every 60 days. The recent retirements of our Monticello, Big Brown and Sandow 4 plants should have a favorable impact on this rulemaking and litigation. While we cannot predict the outcome of the rulemaking and legal proceedings, or estimate a range of reasonably possible costs, the result may have a material impact on our results of operations, liquidity or financial condition.

Regional Haze — Best Available Retrofit Technology (BART)

In September 2017, the EPA signed the final BART FIP for Texas, with the rule serving as a partial approval of Texas's 2009 SIP and a partial FIP. For SO2, the rule creates an intrastate Texas emission allowance trading program as a "BART alternative" that operates in a similar fashion to a CSAPR trading program. The program includes 39 generating units (including our Martin Lake, Big Brown, Monticello, Sandow 4, Stryker 2 and Graham 2 plants). The compliance obligations in the program will start on January 1, 2019 and the identified units will receive an annual allowance allocation that is equal to their most recent annual CSAPR SO2 allocation. Luminant's units covered by the program are allocated 91,222 allowances annually. Under the rule, a unit that is listed that does not operate for two consecutive years starting after 2018 would no longer receive allowances after the fifth year of non-operation. We believe the recent retirements of our Monticello, Big Brown and Sandow 4 plants will enhance our ability to comply with this BART rule for SO2. For NOX, the rule adopts the CSAPR's ozone program as BART and for particulate matter, the rule approves Texas's SIP that determines that no electric generating units are subject to BART for particulate matter. The National Parks Conservation Association, the Sierra Club and the Environmental Defense Fund filed a petition challenging the rule in the Fifth Circuit Court as well as a petition for reconsideration filed with the EPA. In March 2018, the Fifth Circuit Court granted a joint motion filed by the EPA and the environmental groups involved to abate the Fifth Circuit Court proceedings until the EPA has taken action on the reconsideration petition and concludes the reconsideration process. While we cannot predict the outcome of the rulemaking and legal proceedings, we believe the rule, if ultimately implemented or upheld as issued, will not have a material impact on our results of operation, liquidity or financial condition.

Affirmative Defenses During Malfunctions

In February 2013, the EPA proposed a rule requiring certain states to replace SIP exemptions for excess emissions during malfunctions with an affirmative defense. Texas was not included in that original proposal since it already had an EPA-approved affirmative defense provision in its SIP that was found to be lawful by the Fifth Circuit Court in 2013. In May 2015, the EPA finalized its 2013 proposal to extend the EPA's proposed findings of inadequacy to states that have affirmative defense provisions, including Texas. The EPA's revised proposal would require Texas to remove or replace its EPA-approved affirmative defense provisions for excess emissions during startup, shutdown and maintenance events. In June 2015, the State of Texas and various industry parties (including Luminant) filed petitions for review in the Fifth Circuit Court challenging certain aspects of the EPA's final rule as they apply to the Texas SIP. In August 2015, the Fifth Circuit Court transferred the petitions that Luminant and other parties filed to the D.C. Circuit Court, and in October 2015 the petitions were consolidated with the pending petitions challenging the EPA's action in the D.C. Circuit Court. Before the originally scheduled oral argument was held, in April 2017, the court granted the EPA's motion to continue oral argument and ordered that the case be held in abeyance with the EPA to provide status reports to the court on the EPA's review of the action at 90-day intervals. We cannot predict the timing or outcome of this proceeding, or estimate a range of reasonably possible costs, but implementation of the rule as finalized may have a material impact on our results of operations, liquidity or financial condition.

SO2 Designations for Texas

In November 2016, the EPA finalized its nonattainment designations for counties surrounding our Big Brown, Monticello and Martin Lake generation plants. The final designations require Texas to develop nonattainment plans for these areas. In February 2017, the State of Texas and Luminant filed challenges to the nonattainment designations in the Fifth Circuit Court. Subsequently, in October 2017, the Fifth Circuit Court granted the EPA's motion to hold the case in abeyance in light of the EPA's representation that it intended to revisit the nonattainment rule. In December 2017, the TCEQ submitted a petition for reconsideration to the EPA. In addition, with respect to Monticello and Big Brown, the retirement of those plants should favorably impact our legal challenge to the nonattainment designations in that the nonattainment designation for Freestone County and Titus County are based solely on the Sierra Club modeling, which we dispute, of alleged SO2 emissions from Monticello and Big Brown. Regardless, considering these retirements, the nonattainment designation for those counties are no longer supported. While we cannot predict the outcome of this matter, or estimate a range of reasonably possible costs, the result may have a material impact on our results of operations, liquidity or financial condition.

Litigation Related to the Merger

In January 2018, a purported Dynegy stockholder filed a putative class action lawsuit in the U.S. District Court for the Southern Division of Texas, Houston Division, alleging that Dynegy, each member of the Dynegy board of directors and Vistra Energy violated federal securities laws by filing a Form S-4 Registration Statement in connection with the Merger that omitted purportedly material information. The lawsuit sought to enjoin the Merger and to have Dynegy and Vistra Energy issue an amended Form S-4 or, alternatively, damages if the Merger closed without an amended Form S-4 having been filed. Two other related lawsuits were also filed but neither of those named Vistra Energy. In February 2018, Vistra Energy and Dynegy filed supplemental disclosures to the Registration Statement and the plaintiffs agreed to forego any further effort to enjoin the Merger, dismiss the individual claims with prejudice, and dismissed without prejudice claims of the putative class following the stockholder vote on March 2, 2018.

Other Matters

We are involved in various legal and administrative proceedings in the normal course of business, the ultimate resolutions of which, in the opinion of management, are not anticipated to have a material effect on our results of operations, liquidity or financial condition.
v3.8.0.1
Equity (Notes)
3 Months Ended
Mar. 31, 2018
Stockholders' Equity Note [Abstract]  
Equity
EQUITY

Vistra Energy did not declare or pay any dividends during the three months ended March 31, 2018 and 2017. The agreement governing the Vistra Operations Credit Facilities (the Credit Facilities Agreement) generally restricts the ability of Vistra Operations Company LLC (Vistra Operations) to make distributions to any direct or indirect parent unless such distributions are expressly permitted thereunder. As of March 31, 2018, Vistra Operations can distribute approximately $975 million to Vistra Energy Corp. (the Parent) under the Credit Facilities Agreement without the consent of any party. The amount that can be distributed by Vistra Operations to the Parent was partially reduced by distributions made by Vistra Operations to the Parent during the year ended December 31, 2017 of approximately $1.1 billion. There were no distributions made by Vistra Operations to the Parent during the three months ended March 31, 2018. Additionally, Vistra Operations may make distributions to the Parent in amounts sufficient for the Parent to make any payments required under the TRA or the Tax Matters Agreement or, to the extent arising out of the Parent's ownership or operation of Vistra Operations, to pay any taxes or general operating or corporate overhead expenses. As of March 31, 2018, the maximum amount of restricted net assets of Vistra Operations that may not be distributed to the Parent totaled approximately $3.6 billion.

Under applicable Delaware General Corporate Law, we are prohibited from paying any distribution to the extent that such distribution exceeds the value of our "surplus," which is defined as the excess of our net assets above our capital (the aggregate par value of all outstanding shares of our stock).

The following table presents the changes to shareholder's equity for the three months ended March 31, 2018:
 
Common
Stock (a)
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Accumulated Other Comprehensive Income (Loss)
 
Total Shareholders' Equity
Balance at December 31, 2017
$
4

 
$
7,765

 
$
(1,410
)
 
$
(17
)
 
$
6,342

Net loss

 

 
(306
)
 

 
(306
)
Adoption of accounting standard (Note 1)

 

 
17

 

 
17

Effects of stock-based incentive compensation plans

 
7

 

 

 
7

Change in unrecognized losses related to pension and OPEB plans

 

 

 
1

 
1

Other

 

 
(1
)
 

 
(1
)
Balance at March 31, 2018
$
4

 
$
7,772

 
$
(1,700
)
 
$
(16
)
 
$
6,060

________________
(a)
Authorized shares totaled 1,800,000,000 at March 31, 2018. Outstanding shares totaled 428,506,325 and 428,398,802 at March 31, 2018 and December 31, 2017, respectively.

The following table presents the changes to shareholder's equity for the three months ended March 31, 2017:
 
Common
Stock (a)
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Accumulated Other Comprehensive Income (Loss)
 
Total Shareholders' Equity
Balance at December 31, 2016
$
4

 
$
7,742

 
$
(1,155
)
 
$
6

 
$
6,597

Net income

 

 
78

 

 
78

Effects of stock-based incentive compensation plans

 
4

 

 

 
4

Other

 

 
1

 

 
1

Balance at March 31, 2017
$
4

 
$
7,746

 
$
(1,076
)
 
$
6

 
$
6,680


________________
(a)
Authorized shares totaled 1,800,000,000 at March 31, 2017. Outstanding shares totaled 427,587,401 and 427,580,232 at March 31, 2017 and December 31, 2016, respectively.
v3.8.0.1
Fair Value Measurements (Notes)
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS

We utilize several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those items that are measured on a recurring basis. We use a mid-market valuation convention (the mid-point price between bid and ask prices) as a practical expedient to measure fair value for the majority of our assets and liabilities and use valuation techniques to maximize the use of observable inputs and minimize the use of unobservable inputs. Our valuation policies and procedures were developed, maintained and validated by a centralized risk management group that reports to the Vistra Energy Chief Financial Officer.

Fair value measurements of derivative assets and liabilities incorporate an adjustment for credit-related nonperformance risk. These nonperformance risk adjustments take into consideration master netting arrangements, credit enhancements and the credit risks associated with our credit standing and the credit standing of our counterparties (see Note 14 for additional information regarding credit risk associated with our derivatives). We utilize credit ratings and default rate factors in calculating these fair value measurement adjustments.

We categorize our assets and liabilities recorded at fair value based upon the following fair value hierarchy:

Level 1 valuations use quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Our Level 1 assets and liabilities include CME or ICE (electronic commodity derivative exchanges) futures and options transacted through clearing brokers for which prices are actively quoted. We report the fair value of CME and ICE transactions without taking into consideration margin deposits, with the exception of certain margin amounts related to changes in fair value on certain CME transactions that, beginning in January 2017, are legally characterized as settlement of derivative contracts rather than collateral.

Level 2 valuations utilize over-the-counter broker quotes, quoted prices for similar assets or liabilities that are corroborated by correlations or other mathematical means, and other valuation inputs such as interest rates and yield curves observable at commonly quoted intervals. We attempt to obtain multiple quotes from brokers that are active in the markets in which we participate and require at least one quote from two brokers to determine a pricing input as observable. The number of broker quotes received for certain pricing inputs varies depending on the depth of the trading market, each individual broker's publication policy, recent trading volume trends and various other factors.

Level 3 valuations use unobservable inputs for the asset or liability. Unobservable inputs are used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. We use the most meaningful information available from the market combined with internally developed valuation methodologies to develop our best estimate of fair value. Significant unobservable inputs used to develop the valuation models include volatility curves, correlation curves, illiquid pricing delivery periods and locations and credit-related nonperformance risk assumptions. These inputs and valuation models are developed and maintained by employees trained and experienced in market operations and fair value measurements and validated by the Company's risk management group.

With respect to amounts presented in the following fair value hierarchy tables, the fair value measurement of an asset or liability (e.g., a contract) is required to fall in its entirety in one level, based on the lowest level input that is significant to the fair value measurement.

Assets and liabilities measured at fair value on a recurring basis consisted of the following at the respective balance sheet dates shown below:
March 31, 2018
 
Level 1
 
Level 2
 
Level 3 (a)
 
Reclassification (b)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
40

 
$
286

 
$
163

 
$
7

 
$
496

Interest rate swaps

 
77

 

 

 
77

Nuclear decommissioning trust –
equity securities (c)
465

 

 

 

 
465

Nuclear decommissioning trust –
debt securities (c)

 
427

 

 

 
427

Sub-total
$
505

 
$
790

 
$
163

 
$
7

 
1,465

Assets measured at net asset value (d):
 
 
 
 
 
 
 
 
 
Nuclear decommissioning trust –
equity securities (c)
 
 
 
 
 
 
 
 
288

Total assets
 
 
 
 
 
 
 
 
$
1,753

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
82

 
$
505

 
$
387

 
$
7

 
$
981

Total liabilities
$
82

 
$
505

 
$
387

 
$
7

 
$
981



December 31, 2017
 
Level 1
 
Level 2
 
Level 3 (a)
 
Reclassification (b)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
47

 
$
98

 
$
75

 
$
2

 
$
222

Interest rate swaps

 
18

 

 
8

 
26

Nuclear decommissioning trust –
equity securities (c)
468

 

 

 

 
468

Nuclear decommissioning trust –
debt securities (c)

 
430

 

 

 
430

Sub-total
$
515

 
$
546

 
$
75

 
$
10

 
1,146

Assets measured at net asset value (d):
 
 
 
 
 
 
 
 
 
Nuclear decommissioning trust –
equity securities (c)
 
 
 
 
 
 
 
 
290

Total assets
 
 
 
 
 
 
 
 
$
1,436

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
45

 
$
143

 
$
128

 
$
2

 
$
318

Interest rate swaps

 

 

 
8

 
8

Total liabilities
$
45

 
$
143

 
$
128

 
$
10

 
$
326

____________
(a)
See table below for description of Level 3 assets and liabilities.
(b)
Fair values are determined on a contract basis, but certain contracts result in a current asset and a noncurrent liability, or vice versa, as presented in our condensed consolidated balance sheets.
(c)
The nuclear decommissioning trust investment is included in the other investments line in our condensed consolidated balance sheets. See Note 17.
(d)
The fair value amounts presented in this line are intended to permit reconciliation of the fair value hierarchy to the amounts presented in our condensed consolidated balance sheets. Certain investments measured at fair value using the net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

Commodity contracts consist primarily of natural gas, electricity, coal, fuel oil and uranium agreements and include financial instruments entered into for economic hedging purposes as well as physical contracts that have not been designated as normal purchases or sales. Interest rate swaps are used to reduce exposure to interest rate changes by converting floating-rate interest to fixed rates. See Note 14 for further discussion regarding derivative instruments.

Nuclear decommissioning trust assets represent securities held for the purpose of funding the future retirement and decommissioning of our nuclear generation facility. These investments include equity, debt and other fixed-income securities consistent with investment rules established by the NRC and the PUCT.

The following tables present the fair value of the Level 3 assets and liabilities by major contract type and the significant unobservable inputs used in the valuations at March 31, 2018 and December 31, 2017:
March 31, 2018
 
 
Fair Value
 
 
 
 
 
 
Contract Type (a)
 
Assets
 
Liabilities
 
Total
 
Valuation Technique
 
Significant Unobservable Input
 
Range (b)
Electricity purchases and sales
 
$
41

 
$
(149
)
 
$
(108
)
 
Valuation Model
 
Hourly price curve shape (c)
 
$0 to $60/ MWh
 
 
 
 
 
 
 
 
 
 
Illiquid delivery periods for ERCOT hub power prices and heat rates (d)
 
$20 to $90/ MWh
Electricity and weather options
 
41

 
(232
)
 
(191
)
 
Option Pricing Model
 
Gas to power correlation (e)
 
40% to 100%
 
 
 
 
 
 
 
 
 
 
Power volatility (e)
 
5% to 195%
Electricity congestion revenue rights
 
66

 
(6
)
 
60

 
Market Approach (f)
 
Illiquid price differences between settlement points (g)
 
$0 to $15/ MWh
Other (h)
 
15

 

 
15

 
 
 
 
 
 
Total
 
$
163

 
$
(387
)
 
$
(224
)
 
 
 
 
 
 

December 31, 2017
 
 
Fair Value
 
 
 
 
 
 
Contract Type (a)
 
Assets
 
Liabilities
 
Total
 
Valuation Technique
 
Significant Unobservable Input
 
Range (b)
Electricity purchases and sales
 
$
12

 
$
(33
)
 
$
(21
)
 
Valuation Model
 
Hourly price curve shape (c)
 
$0 to $40/ MWh
 
 
 
 
 
 
 
 
 
 
Illiquid delivery periods for ERCOT hub power prices and heat rates (d)
 
$20 to $70/ MWh
Electricity and weather options
 
10

 
(91
)
 
(81
)
 
Option Pricing Model
 
Gas to power correlation (e)
 
30% to 100%
 
 
 
 
 
 
 
 
 
 
Power volatility (e)
 
5% to 180%
Electricity congestion revenue rights
 
45

 
(4
)
 
41

 
Market Approach (f)
 
Illiquid price differences between settlement points (g)
 
$0 to $15/ MWh
Other (h)
 
8

 

 
8

 
 
 
 
 
 
Total
 
$
75

 
$
(128
)
 
$
(53
)
 
 
 
 
 
 
____________
(a)
Electricity purchase and sales contracts include power and heat rate positions in ERCOT regions. Electricity congestion revenue rights contracts consist of forward purchase contracts (swaps and options) used to hedge electricity price differences between settlement points within ERCOT. Electricity options consist of physical electricity options and spread options.
(b)
The range of the inputs may be influenced by factors such as time of day, delivery period, season and location.
(c)
Based on the historical range of forward average hourly ERCOT North Hub prices.
(d)
Based on historical forward ERCOT power price and heat rate variability.
(e)
Based on historical forward correlation and volatility within ERCOT.
(f)
While we use the market approach, there is insufficient market data to consider the valuation liquid.
(g)
Based on the historical price differences between settlement points within ERCOT hubs and load zones.
(h)
Other includes contracts for natural gas and coal options.

There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the three months ended March 31, 2018 and 2017. See the table below for discussion of transfers between Level 2 and Level 3 for the three months ended March 31, 2018 and 2017.

The following table presents the changes in fair value of the Level 3 assets and liabilities for the three months ended March 31, 2018 and 2017.
 
Three Months Ended March 31,
 
2018
 
2017
Net asset (liability) balance at beginning of period
$
(53
)
 
$
83

Total unrealized valuation gains (losses)
(213
)
 
40

Purchases, issuances and settlements (a):
 
 
 
Purchases
29

 
10

Issuances
(4
)
 
(12
)
Settlements
17

 
(19
)
Transfers into Level 3 (b)

 
3

Transfers out of Level 3 (b)

 
2

Net change (c)
(171
)
 
24

Net asset (liability) balance at end of period
$
(224
)
 
$
107

Unrealized valuation gains (losses) relating to instruments held at end of period
$
(206
)
 
$
36

____________
(a)
Settlements reflect reversals of unrealized mark-to-market valuations previously recognized in net income. Purchases and issuances reflect option premiums paid or received.
(b)
Includes transfers due to changes in the observability of significant inputs. All Level 3 transfers during the periods presented are in and out of Level 2.
(c)
Activity excludes change in fair value in the month positions settle. Substantially all changes in value of commodity contracts are reported as operating revenues in our condensed statements of consolidated income (loss).
v3.8.0.1
Commodity and Other Derivative Contractual Assets and Liabilities (Notes)
3 Months Ended
Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Commodity And Other Derivative Contractual Assets And Liabilities
COMMODITY AND OTHER DERIVATIVE CONTRACTUAL ASSETS AND LIABILITIES

Strategic Use of Derivatives

We transact in derivative instruments, such as options, swaps, futures and forward contracts, to manage commodity price and interest rate risk. See Note 13 for a discussion of the fair value of derivatives.

Commodity Hedging and Trading Activity — We utilize natural gas and electricity derivatives to reduce exposure to changes in electricity prices primarily to hedge future revenues from electricity sales from our generation assets. We also utilize short-term electricity, natural gas, coal, fuel oil and uranium derivative instruments for fuel hedging and other purposes. Counterparties to these transactions include energy companies, financial institutions, electric utilities, independent power producers, oil and gas producers, local distribution companies and energy marketing companies. Unrealized gains and losses arising from changes in the fair value of derivative instruments as well as realized gains and losses upon settlement of the instruments are reported in our condensed statements of consolidated income (loss) in operating revenues and fuel, purchased power costs and delivery fees.

Interest Rate Swaps — Interest rate swap agreements are used to reduce exposure to interest rate changes by converting floating-rate interest rates to fixed rates, thereby hedging future interest costs and related cash flows. Unrealized gains and losses arising from changes in the fair value of the swaps as well as realized gains and losses upon settlement of the swaps are reported in our condensed statements of consolidated income (loss) in interest expense and related charges.

Financial Statement Effects of Derivatives

Substantially all derivative contractual assets and liabilities are accounted for under mark-to-market accounting consistent with accounting standards related to derivative instruments and hedging activities. The following tables provide detail of derivative contractual assets and liabilities as reported in our condensed consolidated balance sheets at March 31, 2018 and December 31, 2017. Derivative asset and liability totals represent the net value of the contract, while the balance sheet totals represent the gross value of the contract.
 
March 31, 2018
 
Derivative Assets
 
Derivative Liabilities
 
 
 
Commodity Contracts
 
Interest Rate Swaps
 
Commodity Contracts
 
Interest Rate Swaps
 
Total
Current assets
$
397

 
$
3

 
$
4

 
$

 
$
404

Noncurrent assets
95

 
74

 

 

 
169

Current liabilities
(2
)
 

 
(593
)
 

 
(595
)
Noncurrent liabilities
(1
)
 

 
(385
)
 

 
(386
)
Net assets (liabilities)
$
489

 
$
77