Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our financial position is routinely subject to a variety of risks, including market risks associated with (i) changes in commodity prices, (ii) interest rate movements on outstanding debt, and (iii) credit risk, which is the risk of financial loss if a customer, counterparty, or financial institution is unable to perform or pay amounts due to us.
Market risks are monitored by our risk management group which operates independently of the wholesale commercial operations, utilizing defined practices and analytical methodologies. These practices and methodologies measure the risk of change in value of the portfolio of contracts and the hypothetical effect on this value from changes in market conditions. Measurement techniques include, but are not limited to, position reporting and review, Value at Risk (VaR) methodologies and stress test scenarios. Risk management regularly reports their analysis to the Company's Risk Committee and Executive Committee, and to the Sustainability and Risk Committee of the Board.
Commodity Price Risk and Oversight
Our business is subject to the inherent risks of market fluctuations in the price of commodities for energy-related products we market or purchase in futures markets including electricity, natural gas, uranium, coal, environmental credits and other energy commodities in competitive wholesale markets. Factors that influence these market fluctuations are dependent upon many factors outside of our control including seasonal changes in supply and demand, weather conditions, market liquidity, governmental, regulatory, and environmental policies.
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VISTRA CORP.
We manage the commodity price 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. In managing commodity price risk, we enter into a variety of market transactions including, but not limited to, short- and long-term contracts for physical delivery, exchange-traded and over-the-counter financial contracts and bilateral contracts with customers. Similar to other participants in the market, we cannot fully manage the long-term value impact of structural declines or increases in natural gas and power prices. Our nuclear fleet is eligible for the nuclear PTC provided by the IRA which provides increasing levels of support as unit revenues decline below levels established in the IRA and is further adjusted annually for inflation over the duration of the program.
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. The resultant VaR produces an estimate of a portfolio's potential for loss given a specified confidence level and considers, among other things, market movements utilizing standard statistical techniques given historical and projected market prices and volatilities.
Parametric processes are used to calculate VaR and are considered by management to be the most effective way to estimate changes in a portfolio's value based on assumed market conditions for liquid markets. This measurement estimates the potential loss in value, due to changes in market conditions, of all underlying generation assets and contracts. The use of this method requires a number of key assumptions, such as use of (i) an assumed confidence level, (ii) an assumed holding period ( i.e. , the time necessary for management action, such as to liquidate positions), and (iii) historical estimates of volatility and correlation data.
The following table summarizes the VaR for Vistra's commodity portfolio based on a 95% confidence level and an assumed holding period of 60 days. Average VaRs are the average of each month-end average for the three months ended March 31, 2026 and the year ended December 31, 2025, respectively.
Three Months Ended March 31, 2026 Year Ended December 31, 2025
(in millions)
Average VaR $ 469 $ 224
High VaR $ 491 $ 316
Low VaR $ 442 $ 138
Interest Rate Risk
We are exposed to fluctuations in interest rates through our issuance of variable rate debt. We mitigate our exposure to fluctuations in interest rates through entering interest rate swaps. These interest rate swaps limit the impact of interest rate changes on our results of operations and cash flows and lower our overall borrowing costs. Interest rate risk is managed centrally by our treasury function.
As of March 31, 2026, we have approximately $3.9 billion principal amount of variable rate debt consisting of the Vistra Operations Term Loan B-3 Facility, the BCOP Credit Facility and the Vistra Zero Term Loan B Facility (see Note 11 to the Financial Statements for additional information). We have entered into net notional interest rate swaps that will hedge $2.3 billion of our exposure to Vistra Operations variable rate debt through December 2030 and $416 million of our project-level debt through October 2045 (see Note 12 to Financial Statements for additional information). As of March 31, 2026, 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 $12 million after taking into account the interest rate swaps.
In April 2026, Vistra Operations repaid $2.444 billion in outstanding borrowings under the Term Loan B-3 facility and settled and terminated all of Vistra Operation's interest rate swaps which does not result in a material change to the potential reduction of annual pre-tax earnings disclosed above.
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VISTRA CORP.
Credit Risk
Our primary concentration of credit risk is associated with the collection of receivables resulting from sales to retail customers and the risk of a counterparty's failure to meet its obligations under derivative contracts. We minimize our exposure to credit risk by evaluating potential counterparties, monitoring ongoing counterparty risk and assessing overall portfolio risk. This includes review of counterparty financial conditions, current and potential credit exposures, credit rating and other quantitative and qualitative credit criteria. We also employ certain risk mitigation practices, including utilization of standardized master agreements that provide for netting and setoff rights, as well as credit enhancements such as margin deposits and customer deposits, letters of credit, parental guarantees and surety bonds. See Note 12 to the Financial Statements for additional information.
Our gross credit exposure (excluding collateral impacts) associated with retail and wholesale trade accounts receivable and net derivative assets (liabilities) arising from commodity contracts and hedging and trading activities totaled $2.317 billion as of March 31, 2026. Including collateral posted to us by counterparties, our net exposure was $2.258 billion, as seen in the following table that presents the distribution of credit exposure by counterparty credit quality as of March 31, 2026. Credit collateral includes cash and letters of credit but excludes other credit enhancements such as guarantees or liens on assets.
March 31, 2026
Exposure Before Credit Collateral
Trade Accounts Receivable Derivatives Gross
Exposure Credit
Collateral Net
Exposure
(in millions)
Retail segment $ 1,565 $ 4 $ 1,569 $ 47 $ 1,522
Texas, East, West, and Asset Closure segments:
Investment grade $ 179 $ 433 $ 612 $ 8 $ 604
Below investment grade or no rating 37 99 136 4 132
Texas, East, West, and Asset Closure segments
$ 216 $ 532 $ 748 $ 12 $ 736
Total
$ 1,781 $ 536 $ 2,317 $ 59 $ 2,258
Contracts classified as "normal" purchase or sale and non-derivative contractual commitments are not marked-to-market in the financial statements and are excluded from the detail above. Such contractual commitments may contain pricing that is favorable considering current market conditions and therefore represent economic risk if the counterparties do not perform.
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. Significant ( i.e. , 10% or greater) concentration of credit exposure exists with one counterparty, which represented an aggregate $298 million, or 40%, of our total net exposure of our wholesale segments as of March 31, 2026. We view exposure to this counterparty to be within an acceptable level of risk tolerance due to the counterparty's credit ratings, market role and deemed creditworthiness and the importance of our business relationship with the counterparty.
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VISTRA CORP.
Energy-Related Commodity Contracts and Mark-to-Market Activities
The table below summarizes the changes in commodity contract assets and liabilities for the three months ended March 31, 2026 and 2025.
Three Months Ended March 31,
2026 2025
(in millions)
Commodity contract net liability as of January 1 $ (2,576) $ (1,459)
Mark-to-market adjustments:
Settlements/termination of positions (a) 331 189
Changes in fair value of positions in the portfolio (b) 392 (756)
Net gain (loss) associated with mark-to-market accounting
723 (567)
Other activity (c)
(25) 5
Commodity contract net liability as of March 31
$ (1,878) $ (2,021)
____________
(a) Represents reversals of previously recognized unrealized gains and losses upon settlement/termination (offsets realized gains/(losses) recognized in the settlement period). Excludes changes in fair value in the month the position settled as well as amounts related to positions entered into, and settled, in the same month.
(b) Represents unrealized net gains/(losses) recognized, reflecting the effect of changes in fair value. Excludes changes in fair value in the month the position settled as well as amounts related to positions entered into, and settled, in the same month.
(c) Primarily represents changes in fair value of positions due to receipt or payment of cash not reflected in unrealized gains or losses. Amounts are generally related to premiums related to options purchased or sold as well as certain margin deposits classified as settlement for certain transactions executed on the CME.
The following maturity table presents the net commodity contract liability arising from recognition of fair values as of March 31, 2026, scheduled by the source of fair value and contractual settlement dates of the underlying positions.
Maturity dates of unrealized commodity contract net liability as of March 31, 2026
Source of Fair Value Less than
1 year 1-3 years 4-5 years Excess of
5 years Total
(in millions)
Prices actively quoted $ (672) $ (152) $ 2 $ 1 $ (821)
Prices provided by other external sources (92) (40) (1) (133)
Prices based on models (123) (248) (242) (311) (924)
Total $ (887) $ (440) $ (241) $ (310) $ (1,878)
We have engaged in natural gas hedging activities to mitigate the risk of higher or lower wholesale electricity prices that have corresponded to increases or declines in natural gas prices. When natural gas prices are elevated or depressed, we continue to seek opportunities to manage our wholesale power price exposure through hedging activities, including forward wholesale and retail electricity sales.