Q3 2023 Constellation Energy Corp Earnings Call

Okay.

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation third quarter 2023 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

As a reminder, this call may be recorded I would now like to introduce your host for today's call Emily Duncan Senior Vice President Investor Relations you may begin.

Thank you Abigail and good morning, everyone and thank you for joining constellation Energy Corporation third quarter earnings Conference call.

The call today are Joe Domingos, constellations, as President and Chief Executive Officer, and Dan Eggers constellation The Chief Financial Officer, they're joined by other members of constellation and senior management team, who will be available to answer your questions. Following our prepared remarks, we issued our earnings release. This morning, along with the presentation all of which can be.

We found in the Investor Relations section of Constellation's website.

The earnings release, and other matters, which we discuss during today's call contain forward looking statements and estimates regarding constellation and its subsidiaries that are subject to various risks and uncertainties.

Actual results could differ from our forward looking statements based on factors and assumptions discussed today's material comments made during this call.

Please refer to today's 8-K and constellations SEC filings for discussions of risk factors and other circumstances into consideration.

Cause results to differ from management's projections forecasts and expectations.

Today's presentation also includes references to adjusted EBITDA and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures.

I'll now turn the call over to our CEO constellation Jody.

Thanks, Emily Thanks to the operator for getting US started good morning, everyone. Thanks for joining our call.

I apologize if the quality of the audio with great. We are all if you could believe it sitting around Emily Duncan cell phone here, because we lost.

Trunk line into the building.

But as you can see from our numbers pretty much everything else is going well around here I want to begin by thanking the good people at constellation for delivering an awesome third quarter.

They continued the strong performance from the first half of the year and they are the best at what they do.

For the third quarter, we earned 1819 9 billion and adjusted EBITDA.

As a result of this continued strong performance, we are again, raising our full year guidance range to $3 eight 4 billion.

The strength is now limited to 2023.

And you will see in our disclosures that we have raised our 2024 gross margin by $250 million.

I want to emphasize here that STP is not yet in our final disclosures for 2024.

As you recall, we estimated the average STP EBIT countries be you shouldn't be an incremental $190 million per year with 2024, a little lower due to the fact that we have an extra outage every third year and as it. So happens 2024 is one of those years.

However, we believe that the impact of that extra outage will be offset by the higher taxes energy prices, we've seen since we've announced the transaction.

So we're back to an estimated $190 million for 2024 with 2025 looking even better.

We will provide all of the STP and other updated financials and our fourth quarter call.

We talked about this before but it bears repeating.

Constellation owns the largest and most reliable clean energy fleet in the country and has the best C&I and commercial platform in the business.

We strategically a couple of these businesses with a strong balance sheet that in turn gives us a powerful competitive advantage across retail and wholesale channels.

It translates into a unique ability to give our customers the certainty and visibility that they want on energy costs as well as to provide you that sustainability solutions.

All of that ultimately leads to margin expansion and creates value for you.

Before I turn to the operational performance I wanted to talk about some exciting developments since our last call.

First as I noted earlier, we closed ahead of schedule on our acquisition of 44% of the South Texas project.

Expanding our clean reliable annual nuclear production to approximately 180 million megawatt hours.

We're looking forward to working and forging a strong relationship with our new co owners Austin energy and Cps. This.

This includes working to resolve.

Pending litigation and explore mutually beneficial opportunities to improve performance I talked last quarter.

About the fact that on average outage at STP last around 31 days.

Byron, we just completed an outage for very similar machine in 17 days.

And if you think that's amazing consider that we just completed the peach bottom outage in 13 days.

I was happy to see that back Brian Hansen, Our Chief Generation Officer was named as Chairman of the STP Board and will begin immediately to realize some of the opportunities we see in that asset the.

The second development I want to highlight is that the U S Department of energy awarded a $1 billion.

Grant to the Midwest hydrogen hub, which includes our hydrogen project at Lasalle.

Portion of this award will offset our cost for the project.

The award is proof that the Doe and the administration want existing nuclear energy to play a vital role in jumpstarting domestic clean hydrogen production.

However, it remains critical that the Treasury department guidance confirms that using existing nuclear energy to produce high.

Qualifies for the full clean energy production tax credits.

Certainly we think that the hub award is a good sign but we need to see the REIT rules.

It won't happen.

Third we signed a deal with Comed to power its facility with hourly matched clean free carbon free energy, which I'll cover in more detail in a few more minutes.

And finally, probably the most exciting thing is that we.

We earned a 2023 great place to work certification really proud of this because it's based on how our employees.

Rate their experience at constellation.

Thousands of our colleagues participated in the survey and 81% of them said that constellation is a great place to work that's 24%.

<unk> four percentage points higher than the average U S company. Our people are talented hard working and theyre passionate about what they do and that shows up in our results over and over again.

Our culture and our mission is also an asset and attracting the best talent in the market. We've on boarded 3000, new colleagues since separation thats pretty incredible for workforce of about 14000 people.

Now I will turn to the quarterly operational updates starting on slide six.

During the hottest summer on record our fleet helped to support the grid and ensure that American families get call their homes and that businesses have the electricity to power our economy.

Our nuclear plants had a third quarter capacity factor of 97, 2%.

But they ran at nearly 100% during June July and August.

The only reason we're at 97, 2% is that in September we started our planned refueling outages.

Our power and renewable assets also ran extremely well.

Our Texas fleet, which includes state of the art <unk> produced one 4 million megawatt hours more this year than last year.

Supporting ERCOT during an extremely challenging summer.

This summer ERCOT was affected not only by extreme heat.

Im precedented load and the impacts of the changing resource mix for example, during the summer ERCOT had 49 days with a peak higher than 80 Gigawatts.

Exceeding the all time summer peak demand sat in 'twenty, two and exceeding 2021 peak by nearly 11, eight gigawatts or an incredible 16%.

The system is constrained not just at peak, but in the hours after peak due to the intermittent output that comprises much of its generation portfolio.

As the grid continues to change we expect these conditions to amplify and challenges could occur at any hour.

The changes in the ERCOT stack and the hours of challenging operating conditions will increase the importance of dispatch will generation.

And particularly clean reliable dispatch of generation.

Quality of our gas fleet, coupled with our newly acquired STP assets sets us up for great success.

Wanted to send a special thank you to the people who operate our nuclear and power fleets for all that they do now.

Now, let me move to slide seven.

The success of the commercial business as the foundation for our financial performance. This year. They knocked the cover off the ball, we're able to optimize our positions across the both the generation and customer portfolios to create additional gross margin.

And we can provide our customers certainty on energy bills in volatile times, which leads to margin expansion.

We're also leading the way on sustainability solutions in the second quarter. We spent time talking about the Microsoft deal, where we use nuclear and renewable energy to produce a time matched clean energy product.

We continue to see very strong interest in this product.

This quarter, we're excited to announce an agreement with one of the largest utilities in the country combat to power its facilities with hourly matched carbon free energy from nuclear power.

Microsoft.

<unk> commented are both sustainability leaders and we're thrilled to be able to help them move forward in their efforts to address the climate crisis through their recognition of the importance of $24 seven carbon free electricity made by nuclear energy.

<unk> regionally produced clean energy to the exact moment when a customer uses energy is essential to reaching carbon reduction goals, while maintaining electric reliability and affordability.

That is why our nuclear fleet is essential today.

And we will be even more valuable tomorrow with that I'm going to turn it over to Dan for the financial update.

Thank you Joe and good morning, everyone beginning on slide eight as Joe mentioned the business continues to perform extremely well, we earned $1 199 billion and adjusted EBITDA in the third quarter, which compares to $592 million in the third quarter of last year, our commercial organization.

With the success, we have seen over recent quarters.

Our renewal rates have been strong and margins remain above historical levels as market volatility and the desire of customers to control their budgets have created opportunity for our team as we've discussed on prior calls the volatility in commodity markets and higher interest rates are leading to more appropriate risk pricing by.

Our competitors these.

These market conditions create opportunity for us to optimize our combined portfolio of generation and load, which we see in our results for 2023 and as we look out to 'twenty four 'twenty five with favorable gross margin uplift, but I'll talk about in a moment.

On the generation front, our nuclear and power fleets performed extremely well during a record setting hot summer as Joe said, our nuclear fleet ran full out during June July and August and as a result of the extreme heat and load growth in Texas ERCOT set 10, New peak demand records during the summer.

In addition to record peaks, we observed more significant operating conditions in the subsequent hours after the peak load due to low intermittent output and a stretch thermal fleet, which at times resulted in prices above $1000, a megawatt hour and has a $5000 cap for a few hours.

Investments, we made in our Texas fleet in advance of summer ensured we are ready to help support the grid when the plants were needed and they ran more than they did the previous year through September <unk>, Texas plants ran 13% more than they did last year.

Turning to slide nine our gross margin outlook, we have increased our gross margin forecast for 2023, and 2024, incorporating and continued strong execution and performance, Joe and I have discussed.

For 2023 total gross margin increased by $400 million to $9 $2 billion. Our projected gross margin is now $850 million higher than our expectations. When we began the year reinforcing the unparalleled operating environment, we have seen this year.

In 2024, our total gross margin, including Ptc's is $9 $45 billion total gross margin increased by $250 million from our last update.

Market prices increased across the major regions relative to last quarter. As a result, we expect earned last nuclear PTC revenues at our four plants without state support due to higher expected gross receipts.

Turning to our commercial business as you renew existing contracts and enter into new ones. We are seeing the favorable margin trends with our C&I customers and load auctions extending out into 2025.

We've seen some moderation in margins from highs earlier, this year and more participants load auctions, but see opportunity for these margin trends to continue for some time as we anticipate sustained commodity market volatility in part due to the changing composition of the generation stack.

With the strength of our balance sheet, along with our integrated generation and load business. We are well positioned during this volatile environment to continue meeting our customers' needs, while also creating value for our shareholders.

Moving to slide 10, we are raising our full year adjusted EBITDA guidance outlook by $400 million to a $3 9 billion midpoint and NEC.

Now in the range to three 8% to $4 billion. This upward revision reflects the significant increase to our gross margin forecast since the beginning of the year.

And as we flagged last quarter. The gross margin upside is somewhat tempered by an increased O&M driven primarily by increased compensation for our employees, including stock compensation due to the strong financial performance of the company.

I should note that just considering considering that we just closed the STP acquisition last week, our gross margin and cost forecast do not yet reflect STP will layer that plant into our year end disclosures that said our updated EBITDA guidance for 2023 includes STP for November.

In December which is a relatively small part of the increase to our guidance and as Joe mentioned in his remarks, we anticipate contribution from STP to at least meet the $190 million of EBITDA, starting in 2024, which again is not reflected in the gross margin or cost disclosures.

In our earnings materials today.

Turning to the financing and liquidity update on slide 11.

Fund the STP transaction, we issued one $4 billion of debt, including $900 million of 30 year and $500 million of 10 year senior unsecured notes, we saw significant demand with order books, peaking at seven times across both tranches.

We also achieved very tight pricing when we look at both spreads to treasuries and between the 10 and 30 year tranches pricing competitively with recent utility holding company transactions. We appreciate the support from our fixed income owners and the vote of confidence in the long term need for our assets into the <unk>.

2015, and well into their next license lives to 80 years.

As we stated at the time of the announcement the transaction would be credit neutral and a debt issuance did not strained our forward credit metrics. In fact, our credit metrics are now projected to be at or above the 35% at Moody's and 45% and S&P that we laid out at the beginning of the year.

Due to the additional cash flows captured in our earnings guidance.

We continue to execute on our commitment to return capital to our shareholders completed another $250 million of share buybacks during the third quarter. When we look at the opportunities ahead of US we still see our stock is attractive at current levels and we will continue to be opportunistic with the remaining $250 million.

Authorized by our board.

As we discussed in June we have $1 $2 billion of unallocated capital for 2023, and 2024, which will be used to create additional shareholder value through growth investments M&A or return of capital to our owners.

To remind you that this $1 $2 billion is based on our disclosures at year end 2022, do we shared on our fourth quarter call and does not reflect any additional cash created by this year's outperformance and upward revisions to next year's expectations. We will provide an updated view of all of this on our fourth.

Order call I'll turn the call back now to Joe for his closing remarks.

Thanks, Dan.

So the management team here remains focused on creating value for our shareholders.

Our business is unique and we continue to have many unique opportunities in front of us.

As you know, we're the best operator of nuclear plants, and the largest producer of carbon free electricity in the U S and now with STP, we will make more than 180 million megawatt hours annually just from our nuclear fleet.

Our commercial business serves more than 22% of the competitive C&I market in the United States and is helping customers like Microsoft and combat meet their sustainability goals through products like our hourly matching product.

Our businesses are essential to addressing the climate crisis and our assets are durable.

<unk> provides long term commitment to nuclear energy as part of the National security of this great nation.

We have many ways to grow and bring even more value to our shareholders against that baseline earnings level supported by the PTC and over the life of the PDC will benefit from price for inflation.

We have opportunities ahead of us to create additional value for the clean reliable nuclear energy that we provide like hydrogen data centers and expanding our hourly matched product.

We have the ability to re license our nuclear fleet to run at least 80 years without needing to replace it.

We have many ways to grow and bring more value to shareholders. We generate strong free cash flow that can be used to fund robust organic growth at double digit unlevered returns.

<unk> disciplined M&A support our growing dividend and buyback our stock each of these opportunities will create additional value for you our owners.

And we're executing on that strategy, we closed the STP deal, we announced $1 5 billion in growth spend and operates hydrogen and wind repowering.

We doubled the per share dividend and we bought back approximately $750 million.

Our own stock as part of an authorized $1 billion buyback plan and there is more we can do.

We have significant unallocated capital in 'twenty three 'twenty four as Dan just outlined and we could use.

Those monies to further enhance our earnings growth and provide value to you.

Constellation cannot be matched anywhere in the market, our large clean carbon free nuclear fleet paired with our customer facing business and strong balance sheet provides us with unparalleled opportunities to create value for them and that's what we're focused on now we as management teams stand ready to address your questions.

Thanks, operator.

Thank you ladies and gentlemen, if you have a question at this time you will need to press star one one on your telephone and wait for your name to be announced answer. Your question has been answered or you wish to remove yourself from the queue. Please press star one again.

Our first question.

Our first question comes from David Arcaro with Morgan Stanley. Your line is open.

Good morning, David.

Hey, good morning, Thanks for taking my questions.

I'm wondering if you could elaborate a bit on what youre seeing in the competitive environment in retail just in terms of churn and any changes in market share as you are experiencing higher margins there.

And I am going to tank.

<unk> covered a bit of this in his prepared remarks, and a lot of Mcgladrey Hey, good morning, David Yes, I would say that yeah. We've continued to see a strong market backdrop for our.

Commercial business both on the C&I side, we talk about a lot and then also on the load auction side margins have.

Been strong this year, particularly strong earlier in the year market volatility.

Created opportunity for us as we saw some competitors pull back and get less active as you saw them put a higher price on non risk capital for them to be involved in the business. So we've done a good job of maintaining and in some areas.

Spanning our win rates, we've seen opportunity at quite strong margins relative to history, I would say probably in the last.

Few months as the Euro has moved on we've seen a little more pressure on margin, so well above historical norms, but kind of off the highs. We saw earlier this year as people start to engage a little bit more in the markets and as I said in load auction side. There has been a huge amount of activity, but we are seeing more participants show back up again now than we had seen.

In the past again, all margins better than history, but we're keeping a close eye on that trend as we got into the rest of this year.

Got it yeah that's helpful color.

Does the latest guidance update does that kind of fully reflect the patterns that you're seeing so far in <unk>.

If the if the dynamics that you experienced in <unk> continue here or are there.

Further opportunities to kind of bolster the outlook into 2024.

Yes, as we continue to add business I think we've taken a reasonable approach our expectations for margins next year as I said, we're assuming the world stays better than it has been historically, but we have embedded some moderation in margins from what we're seeing which probably makes sense given kind of movements and making sure that.

We beat our expectations for all of you.

As you go through the balance of this year. The fourth quarter is an important one to watch and we'll see how much more we can add to backlog for 'twenty for Ann.

And 25, so we're hopeful we'll continue to find opportunity.

Okay, great. Thanks, so much I appreciate the color.

Thanks, David.

One moment our next question.

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

Okay, Yes.

Hey, good morning.

Good work I believe with your cell phone there.

Yeah.

We are.

So just.

On the <unk>.

Remaining things.

So we're kind of watching here the hydrogen.

PTC Rolls and then of course, the nuclear PTC could you just give us latest thoughts on timing of those.

Then also maybe more color on.

How much we should interpret the hydrogen hub announcement as.

Kind of.

Hinting at where its on it.

Hydrogen PTC comes out.

With respect to nuclear.

Steve.

Take the last question first we're obviously in a lot of dialogue.

With other stakeholders directly with the white house quite a bit.

I am very happy with the way the conversations are going.

But theres a lot of detail that needs to be in the rule and be right.

No.

I would say I'm cautiously optimistic I think a big part of that.

Isn't just the hub awards, but the fact that I think.

They are realizing that really jumpstart this hydrogen economy, we're going to need.

Reliable time match clean energy to get the eight both the environmental benefits.

On the grid side as well as produce hydrogen.

And the most economic way and transition economies look it I'll leave it at that I think the conversations have been really constructive.

Spent a lot of time on them, but we've got to kind of buy on this thing in terms of when it will land.

I think there is an understanding.

Within the administration that a lot of people are waiting on the hydrogen enroll them they need to come out.

With some guidance again, not just for the hubs, but generally we indicated in an article on Bloomberg that I was interviewed and.

We're slowing down on a lot of contract signings and other things coming so obviously, we're not alone.

In this ecosystem doing the same thing so I think they're working to kind of.

Get this all nailed down.

There's just there was a ton of work that needed to come out of treasury for the I already implementation.

So look I don't.

I hear the rumors that they're delaying things.

And all of that I'm not sure I believe that I think they are working diligently to get this thing done.

I don't think the nuclear PTC piece of this.

Is really at least.

So far as I could to tack controversial in any regard.

But it also only applies to a limited handful of players like us that have nuclear assets you guys have the broad application of hydrogen or domestic contract roles in some of the other things that happen.

Taken treasuries time, so I think those things.

Production tax credit for nuclear is going to come in as we expected, but I wouldn't be surprised to see that come closer to the end of the year or even in the first quarter.

Im hopeful that we will see some guidance before the end of the year on hydrogen and that it will.

Categorically address.

The use of existing nuclear to make hydrogen in the rate base.

Okay. Thanks, and then one other question just on the.

The 24 seven.

Clean products.

Like just.

How should we think about kind of pace of adoption here and interest levels you're seeing.

This part part you probably cant really answer which is just that.

Type of premium that you might.

Be getting for this type of product versus just normal.

Power sales.

Yes, yes.

Just normal power sales volatility and everything else, we factor into the sales of the power.

We've talked about historic margins of two to $4 and we've been clear that we're towards the top of that past this kind of market has reset itself.

The sustainability offering is going to be considerably north of that because it's a new product and provide new value to the customer.

Beyond that for competitive reasons, we haven't really got into the details of how big the margin is and I think at the end of the day at pace.

Something that.

We have yet to fully understand in terms of adoption. We've got 180 million megawatt hours of power. So we've got a lot of this to sell it's not all going to be deployed through cfe theres going to be other things like hydrogen hopefully data centers that will take on the boat the customer.

Piece of this is going to be a big part, but policy is going to play a role as states and others think about how they want to procure carbon trading time matched energy and at this point I think we're just we're hitting every opportunity in pushing everything but it's hard for me to sit here and say that we have enough data to talk.

Talk about how quickly we're going to be able to deploy all of it or a significant chunk of that 180 million megawatt hours. So it's I.

I would say, it's an incomplete at this point.

Okay, great. Thank you.

Thanks, Dave.

One moment our next question.

Our next question comes from Shar <unk> with Guggenheim Partners. Your line is open.

Good morning, Sean.

Good morning.

The EBITA, obviously was raised again, but we didn't get sort of that update on free cash flow guidance or incremental buybacks. Dan I guess can you maybe just provide some sort of an update why not move on incremental buybacks, where we got past the key quarter is there any sense on.

Are you saving anything for dry powder, etcetera, just maybe a little bit of an inkling would be great.

Yes sure.

We had a $1 billion program in place, we've gotten through $750 million of it now without a decoder ring you can kind of see is spent about $50 million a quarter thus far.

And so we still have some some some monies deploy you can imagine we'll be having conversations with the board as far as our updated budget plant right now.

A strong $23 24 in the forwards look beyond that.

To inform kind of the next wave of capital allocation.

Getting STP down was a great deployment of capital this year kind of looks better by the day with ERCOT prices, having moved as they have.

We want to keep looking for opportunities.

That and other things along that way to deploy.

Meaningful amounts of capital if they come available so.

We do want to keep dry powder, but we certainly understand that as we get this program worked down we've got a lot of capital still around and get it.

<unk> has always been a priority and we can't find investments that exceed that double digit unlevered return.

Got it and then another quarter of obviously outsized market and portfolio gains right. I mean can we just maybe unpack that 760 760 million year over year gain a little more I guess, what percentage is durable margin expansion versus maybe opportunistic trading or more one time items like <unk>.

Sparks thanks.

Yes, I mean, I think it's probably hard to.

Dismantle that as much as you would like to have to be totally honest it.

Think about how we run the portfolio.

The commercial business becomes responsible for managing our generation business once we get in the calendar right. So working with the team on dispatch how we setup positions will change its kind of hard to say who is a generation dollar commercial dollars. Some point in time, the way youre thinking about it but obviously.

The Texas plants running as well as they did this summer with prices where they were.

We have outpaced our production expectation. So there were some real contribution we got in the quarter or really in the year from ERCOT, So thats going to be a piece of it a piece of it is the fact that margins have been quite strong right. I think part of that is we've seen outsized margins, we talked about the load auctions right in.

We see in the first half of this year, what I'd fairly say is unprecedented margins in that business and so.

That's been great. We would expect that in normal course, as those moderate island, we're seeing a bit of that right. So there are some that was going to be situational toward to this year.

On kind of the C&I markets in the mass markets, we've seen very good margins this year.

I'm going to sit in the book for this year and next year and carrying into 'twenty five, but as I said to David earlier, we expect some moderation in those margins as we think about what has not yet been commensurate and was not in our pockets at this point in time and then the last part is not going to fully get into but as we have had with volatility.

<unk> there has been opportunities to maximize our portfolio.

In the physical markets and we've done well on that front again this year.

<unk>, probably this year than last year.

Got it and then lastly for me I know you realize you guys are still working through your capital planning before the next role but.

I've done a lot of recent data points around pulp rates for in light of like the IRI, especially for BW ours can you just get your updated thoughts here on sort of maybe the quantum of opportunity and potential timing there. Thanks.

Yes.

Sure I think we've basically said that we think the total universe is less than a thousand actionable somewhere between 501000 megawatts that make a lot of economic sense.

Brian and his team.

<unk>.

Pretty much at this point identify at every opportunity we see we're really costing knows.

I think they'll roll into the fleet.

By the end of this decade, and some of them will drag out even a little bit longer but.

We'll announce those as we complete the work and start ordering.

The parts for them, but we see opportunity and certainly beyond that which we've already announced we just we don't have an update on that but.

Yes.

This is one of those where the Doc looks calm on the surface, but there is there is a lot of paddling underneath.

Brian's organization will continue to work those opportunities we think there.

I think theyre pretty good opportunity is spectacular results.

Fantastic guys. Thank you so much I appreciate it.

Thanks, Eric.

One moment our next question.

Our next question comes from Julien Dumoulin Smith with Bank of America. Your line is open.

Good morning Julien.

Hey, good morning. Thank you guys very much for the time I appreciate it.

Maybe if I can go back to where some of the other last question as we're going and speaks to the timing and holding back on hedged commitments et cetera, I mean to the extent to which you get a thumbs up thumbs down or what have you on hydrogen could we see kind of an outsized pace of commitments.

And the start of next year.

What does that tie the datacenters or whether thats tied to capital allocation in terms of buybacks, considering maybe the harvest do or don't move forward et cetera, just wanted to try to piece together the different pieces here. Both on timing and then also are you effectively waiting for clarity on hydrogen in order to pursue more of these firm commitments if you.

Well.

Yes.

Alright.

Yes, sure Julien look.

I think hydrogen will occur for us in two different ways one will be.

What we've called the behind the fence line clean Energy center opportunities, where we'll make the gas and what we're looking for in those circumstances. When we made the gas behind the fence line of the plant. It is people that will take a 100% of the offtake of that gas so that we don't become somehow merge.

And hydrogen gas players, so certainly continuing those conversations and there are opportunities.

Lasalle, both will probably focus on optimizing lasalle and adding more megawatts there first.

If we can but I think that opportunity exists for a number of plans.

The other way hydrogen will evolve is through what we've called hydrogen clean hydrogen by wire right, where we're providing a contract very much like the Microsoft and combat type contract to a customer who will then use that contract to justify theyre getting.

The tax credit for hydrogen production and those are a lot of players kind of around the country, including many that exist in our customer base.

I would say that.

We've added a great deal of focus and talking to those customers and seeing what the opportunities can be.

I don't know yet how fast they will be able to buy electrolyze. There's an integrated goes electro <unk> into those facilities. So I can't tell you. This.

This is a 25% or 26.

Type of thing in terms of actually producing the energy producing the gas in those systems.

It could be 27, I think if the rules and up.

The way that we are hopeful they will end up youll see a flurry of contracting opportunity.

For us and you will see us begin to scale Lasalle and look at the opportunity to do behind the fence line hydrogen production at a lot of other places we haven't stopped the discussions or the work.

And in a certain sense.

I would say this and data centers, probably are enormous inbounds entered the company right now, but both require in the case of.

Hydrogen clarification from treasury as to whether those projects will move forward in the case of data centers. Those just end that would be enormous things that require a great deal of discussion and you'll update us I think the rules work out the right way I expect we will have an exciting 'twenty four and 'twenty five around that and I am hopeful.

Data centers will play out the same way, but it's just it's too early for me to describe pacing number of megawatts impact on the financial outcomes of the company I would just say that in 25 years of being in this business.

These are the most exciting opportunities we have and I think I think they will have great traction, but we got to work done and then we will announce it to all of you and Youll see it for yourself.

Right, but it's not as if youre waiting for one or the other here on lets say <unk> patience is a virtue.

Today.

'twenty seven is out there and more to the point, it's not as if youre holding back on data centers or capital allocation ahead of a decision on hydrogen just to set expectations.

That's right I think you've described it well.

I said it in response to Steve's question.

It's not like we're yet confronted with a scarcity of the clean megawatt hours that we produce we've got $180 million of these things so that gives us the luxury of exploring multiple channels at once there will be a point in time, where we'll be looking at kind of the financial value of <unk>.

Channel versus another but I think in the early going here, we're going to be wide open and we're certainly.

We're certainly working every angle.

And none are mutually exclusive at this point.

Got it excellent guys best of luck see soon.

Thank you.

One moment for our next question.

Our next question comes from <unk> Chopra with Evercore ISI. Your line is open.

Good morning, Hey, good morning. Thank you for taking my question I just had one question on the next generation.

Year to date, it's kind of been around that 80%, 83% range that hasnt moved.

Last year I was just looking at the Q3 2022 deck.

For the next year that would be 2023 back back in Q2 2020 do you like 90 ish percent. So this is just nuclear bdcs and sort of your willingness to stay more open.

And next year, maybe you can just comment on that and how should we think about hedging practice going forward into late 'twenty five and beyond.

Let me start with that I think the early questions we got.

Last year frankly, after the passage of the Iras, whether we'd stick with the hedging strategy that we had deployed for so many years at <unk> and then the early days of constellation that.

Yes.

It's been kind of generally described as a third a third a third.

And.

What we've done is we've explored all the we're exploring all the options that.

I just.

Talk to Julien about.

But we're not tethered to any kind of fixed hedging strategy, where we're trying to get off a certain number of megawatts in a given year, we have the freedom now.

Explore different opportunities to be patient and we have been I think over time.

Percentage of the fleet that is hedged and the disclosures that we've historically used will become less relevant because we've changed the hedging strategy.

We'll talk a little bit more about that.

At the end of the year and as we update for next year and we look at these different opportunities but.

At this point the IRI effectively gives us the ability.

To wait and realize the $43 75 at the bus.

That we're entitled to under the policy and so anything we need to do here has to be incremental to that opportunity and that's the way. We're looking at the business that means that may mean, we are holding on to more power or selling more power. It will depend on how these channels ultimately work, but it's the flexibility that.

That we have now and frankly the value that we offer to our owners is to is to get the best financial results for this fleet. We have and you don't look I'll add it's already been a long answer, but I will add to it.

Just think the value of clean reliable.

Energy is just going to go up over time and that causes me to want to be patient.

Without commenting on the technology I've seen obviously, what's happening with offshore wind and I think all of our owners could appreciate just how difficult it is to add.

Clean energy, let alone anything that resembles the reliability, we at so that that encourages us to be patient as we work through the transition and the IRS gives us the policy support to be patient and get the best opportunities for us for our customers and for the country.

Understood I appreciate that that color Joe I did have one more question you guys have talked about a different or added reporting metrics not just EBITDA, just any thoughts or additional color that you can share there.

Yes, we're still working through that right I think our plan is at the year end update.

We'll probably provide a whole host of new measures and disclosures for all of you we've had these.

These hedge tables I think we are going on something like 15 years.

Moving out of the world as a third a third a third as Joe mentioned in getting into the structure, where the PTC provides a very different revenue dynamic for us it's going to make sense to refresh everything I also think that with the.

With the PTC being an after tax revenue stream us probably talking about earnings on an after tax basis make more sense for all of you guys.

Understood. Thanks, guys congrats.

Thank you.

Thank you that concludes the question and answer session. At this time I would like to turn the call back to Joe Domingos for closing remarks.

Well, thanks, operator for handling the call and I'll, just I'll, just end, where I started I want to thank.

Our folks here at constellation.

When we when you separate companies.

So it's kind of a Harvard business school thing that one of the one of the values you get is that the management team.

Has as a good focus and is focused on one line of business as opposed to many and that brings value, but I kind of having lifted.

The enormous value that it's brought to us is the clarity of it.

Mission not only to the management team, but for our employees and Super excited that they feel passionate about the business. The results we present, our theirs and I just wanted to end again by thanking Deb and thank you to all of you for your interest in the company look forward to talking to you at the end of the fourth quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.

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