QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
−Removed: Market risk is the risk that in the normal course of business we may experience a loss in value due to changes in market conditions that affect economic factors such as commodity prices, interest rates and counterparty credit.
+Added: Market risk is the risk that in the normal course of business we may experience a loss in value because of changes in market conditions that affect economic factors such as commodity prices, interest rates and counterparty credit.
Our exposure to market risk is affected by several factors, including the size, duration and composition of our energy and financial portfolio, as well as the volatility and liquidity of markets.
+Added: Instruments used to manage this exposure include interest rate swaps to hedge debt costs, as well as exchange-traded, over-the-counter contracts and other contractual arrangements to hedge commodity prices.
Risk Oversight
−Removed: We manage the commodity price, counterparty credit and commodity-related operational risk related to the competitive energy business within limitations established by senior management and in accordance with overall risk management framework established and overseen by the Company's board of directors (Board) and the sustainability and risk committee of the Board, as applicable.
+Added: We manage the commodity price, counterparty credit and commodity-related operational risk related to the competitive energy business within limitations established by senior management and in accordance with overall risk management policies.
Interest rate risk is managed centrally by our treasury function.
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These techniques measure the risk of change in value of the portfolio of contracts and the hypothetical effect on this value from changes in market conditions and include, but are not limited to, position reporting and review, Value at Risk (VaR) methodologies and stress test scenarios.
−Removed: Key risk control activities include, but are not limited to, transaction review and approval (including credit review), operational and market risk measurement, transaction authority oversight, validation of transaction capture, market price validation and reporting, and portfolio valuation and reporting.
+Added: Key risk control activities include, but are not limited to, transaction review and approval (including credit review), operational and market risk measurement, transaction authority oversight, validation of transaction capture, market price validation and reporting, and portfolio valuation and reporting, including mark-to-market, VaR and other risk measurement metrics.
+Added: Vistra has a risk management organization that enforces applicable risk limits, including the respective policies and procedures to ensure compliance with such limits, and evaluates the risks inherent in our businesses.
Commodity Price Risk
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We continuously monitor the valuation of identified risks and adjust positions based on current market conditions.
+Added: We strive to use consistent assumptions regarding forward market price curves in evaluating and recording the effects of commodity price risk.
VaR Methodology — A VaR methodology is used to measure the amount of market risk that exists within the portfolio under a variety of market conditions.
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The VaR risk measures in 2021 were primarily comparable to the prior year.
−Removed: Month-end high VaR was lower in 2020 due to lower prices and a decrease in volatility in ERCOT as compared to the prior year.
+Added: The increase in month-end high VaR risk measure in 2021 is driven by a larger net open position, higher forward prices and an increase in market implied volatility as compared to the prior year.
Interest Rate Risk
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Excludes $2.12 billion of debt swapped to variable that is matched against the terms of $2.12 billion of debt swapped to fixed that effectively fix the out-of-the-money position of such swaps (see Note 11 to the Financial Statements).
−Removed: At December 31, 2020, the potential reduction of annual pretax earnings over the next twelve months due to a one percentage-point (100 basis points) increase in floating interest rates on long-term debt totaled approximately $6 million taking into account the interest rate swaps discussed in Note 11 to Financial Statements.
+Added: As of December 31, 2021, the potential reduction of annual pretax earnings over the next twelve months due to a one percentage-point (100 basis points) increase in floating interest rates on long-term debt totaled approximately $2 million taking into account the interest rate swaps discussed in Note 11 to Financial Statements.
Credit risk relates to the risk of loss associated with nonperformance by counterparties.
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See Note 16 to the Financial Statements for further discussion of this exposure.
−Removed: Bankruptcies — We are party to (i) certain gas transportation agreements with PG&E and (ii) a long-term resource adequacy contract with PG&E in connection with the Moss Landing battery storage project, which was originally approved by the California Public Utilities Commission (CPUC) in November 2018.
−Removed: PG&E filed for Chapter 11 bankruptcy protection in January 2019.
−Removed: In November 2019, the bankruptcy court approved PG&E's motion requesting approval of the assumption of the resource adequacy contract subject to the CPUC approving the terms of an amendment to the resource adequacy contract, and the CPUC approved the terms of the amendment in January 2020.
−Removed: PG&E emerged from bankruptcy protection in July 2020.
Credit Exposure — Our gross credit exposure (excluding collateral impacts) associated with retail and wholesale trade accounts receivable and net derivative assets arising from commodity contracts and hedging and trading activities totaled $2.357 billion at December 31, 2021.
−Removed: At December 31, 2020, Retail segment credit exposure totaled $990 million, including $982 million of trade accounts receivable and $8 million related to derivative assets.
+Added: As of December 31, 2021, Retail segment credit exposure totaled approximately $900 million of primarily trade accounts receivable.
Cash deposits and letters of credit held as collateral for these receivables totaled $60 million, resulting in a net exposure of $840 million.
Allowances for uncollectible accounts receivable are established for the potential loss from nonpayment by these customers based on historical experience, market or operational conditions and changes in the financial condition of large business customers.
−Removed: At December 31, 2020, aggregate Texas, East and Sunset segments credit exposure totaled $292 million including $163 million related to derivative assets and $129 million of trade accounts receivable, after taking into account master netting agreement provisions but excluding collateral impacts.
−Removed: Including collateral posted to us by counterparties, our net Texas, East and Sunset segments exposure was $281 million substantially all of which is with investment grade customers as seen in the following table that presents the distribution of credit exposure at December 31, 2020.
+Added: As of December 31, 2021, aggregate Texas, East and Sunset segments credit exposure totaled $1.457 billion including $687 million related to derivative assets and $770 million of accounts receivable, after taking into account master netting agreement provisions but excluding collateral impacts.
+Added: Including collateral posted to us by counterparties, our net Texas, East and Sunset segments exposure was $1.390 billion, as seen in the following table that presents the distribution of credit exposure by counterparty credit quality at December 31, 2021.
Credit collateral includes cash and letters of credit but excludes other credit enhancements such as guarantees or liens on assets.
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, 10% or greater) concentration of credit exposure exists with one counterparty, which represented an aggregate $619 million, or 45%, of the total net exposure.
−Removed: We view exposure to this counterparty to be within an acceptable level of risk tolerance due to the counterparty's credit ratings, which is rated as investment grade, the counterparty's market role and deemed creditworthiness and the importance of our business relationship with the counterparty.
+Added: We view exposure to this counterparty to be within an acceptable level of risk tolerance due to the counterparty's credit ratings, the counterparty's market role and deemed creditworthiness and the importance of our business relationship with the counterparty.
An event of default by one or more counterparties could subsequently result in termination-related settlement payments that reduce available liquidity if amounts such as margin deposits are owed to the counterparties or delays in receipts of expected settlements owed to us.
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• the severity, magnitude and duration of pandemics, including the COVID-19 pandemic, and the resulting effects on our results of operations, financial condition and cash flows;
−Removed: • the severity, magnitude and duration of extreme weather events (including winter storm Uri), drought and limitations on access to water, and other weather conditions and natural phenomena, and the resulting effects on our results of operations, financial condition and cash flows;
+Added: • the severity, magnitude and duration of extreme weather events (including Winter Storm Uri), drought and limitations on access to water, and other weather conditions and natural phenomena, contingencies and uncertainties relating thereto, most of which are difficult to predict and many of which are beyond our control, and the resulting effects on our results of operations, financial condition and cash flows;
• acts of sabotage, wars or terrorist or cybersecurity threats or activities;
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• sufficiency of, access to, and costs associated with coal, fuel oil, and natural gas inventories and transportation and storage thereof;
−Removed: • changes in the ability of vendors to provide or deliver commodities as needed;
+Added: • changes in the ability of counterparties and suppliers to provide or deliver commodities, materials, or services as needed;
• beliefs and assumptions about the benefits of state- or federal-based subsidies to our market competition, and the corresponding impacts on us, including if such subsidies are disproportionately available to our competitors;
−Removed: • the effects of, or changes to, market design and the power and capacity procurement processes in the markets in which we operate;
+Added: • the effects of, or changes to, market design and the power, ancillary services, and capacity procurement processes in the markets in which we operate;
• changes in market heat rates in the CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM electricity markets;
• our ability to effectively hedge against unfavorable commodity prices, including the price of natural gas, market heat rates and interest rates;
−Removed: • population growth or decline, or changes in market supply or demand and demographic patterns, particularly in ERCOT, MISO and PJM;
−Removed: • our ability to mitigate forced outage risk, including managing risk associated with CP in PJM and performance incentives in ISO-NE;
+Added: • population growth or decline, or changes in market supply or demand and demographic patterns;
+Added: • our ability to mitigate forced outage risk, including managing risk associated with Capacity Performance in PJM and performance incentives in ISO-NE;
• efforts to identify opportunities to reduce congestion and improve busbar power prices;
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• access to capital, the attractiveness of the cost and other terms of such capital and the success of financing and refinancing efforts, including availability of funds in capital markets;
−Removed: • our ability to maintain prudent financial leverage and achieve our capital allocation objectives;
+Added: • our ability to maintain prudent financial leverage and achieve our capital allocation, performance, and cost-saving initiatives and objectives;
• our ability to generate sufficient cash flow to make principal and interest payments in respect of, or refinance, our debt obligations;
• our expectation that we will continue to pay a comparable cash dividend on a quarterly basis;
−Removed: • our ability to implement and successfully execute upon\ our growth strategy, including the completion and integration of mergers, acquisitions and/or joint venture activity, the identification and completion of sales and divestitures activity, and the completion and commercialization of our other business development and construction projects;
+Added: • our ability to implement and successfully execute upon our strategic and growth initiatives, including the completion and integration of mergers, acquisitions and/or joint venture activity, the identification and completion of sales and divestitures activity, and the completion and commercialization of our other business development and construction projects;
• competition for new energy development and other business opportunities;
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.