Q3 2024 Talen Energy Corp Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Talon Energy Corporation third quarter 'twenty 'twenty four earnings call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your China looked down you would then here an automated message of bites in your hands right.
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Speaker Change: Be advised that today's conference is being recorded I would like now to turn the conference over to Alan <unk> Senior director of Investor Relations. Please go ahead.
Speaker Change: Thanks, Michelle welcome to talent Energy's third quarter 2024 conference call participating on today's call are Chief Executive Officer, Mark Macfarlane and Chief Financial Officer, Terry not they are joined by other talented senior executive to address questions. During the second part of today's call as necessary.
Speaker Change: We issued our earnings release this morning, along with the presentation all of which can be found in the Investor Relations section of talented web site Www Dot talent energy Dot com.
Speaker Change: We are making some forward looking statements based on current expectations and assumptions actual results could differ due to risk factors and other considerations described in our financial disclosures and other SEC filings. Today's discussion also includes references to certain non-GAAP financial measures. We have provided information reconciling our non-GAAP.
Speaker Change: To the most directly comparable GAAP measures in our earnings release, and the appendix of our presentation with that I will now turn the call over to Mac.
Mac: Well. Thank you Alan good morning, everyone and thanks for joining us today.
Mac: Before we get into our quarterly results I would like to start with a few brief remarks.
Market and regulatory events over the last few months have further underscored how critical existing generation is disturbing demand growth and supporting grid reliability.
Mac: Since we signed the Amazon deal in March of this year the market fundamentals for power in the United States have only become more constructive for IP piece, the higher PJM capacity auction results in July the Microsoft Crane clean energy announcement, and increasing utility load forecast.
Mac: Driven by data centers, the re shoring up the industry and the electrification of our economy all support this thesis.
Mac: The U S is expected to be the fastest growing market for data centers going from 25 gigs of demand in 'twenty four.
Mac: That 80 gig by 2030 meeting this demand will require significantly more generation to speed the market and access to long term power have become top priorities for Hyperscale data center customers.
Mac: As I said before serving this massive data center demand will require an all of the above approach. This includes co location like our arrangement with AWS hybrid arrangements that co locate primary power behind the meter while using the grid for backup.
In front of the meter connections to utility transmission.
Mac: We are disappointed in the FERC decision to reject the RSA Amendment. It does not change. The fact that this load growth is coming and it will not stop our progress.
Mac: Development of the data Center campus will continue under the existing 300 megawatt RSA as we in AWS worked together on the path forward.
Mac: <unk> co location arrangement with AWS as part of the solution to issues raised at the FERC Technical conference on large co located load.
Hey, bring service to the customers quickly and without expensive transmission upgrades that would impact a retail consumers energy bill.
Mac: That said, we are exploring a whole suite of commercial and legal solutions to facilitate full development of the Susquehanna campus as well as progressing other opportunities across our fleet. This includes filing a motion for FERC rehearing in parallel with AWS contract discussions we are keeping all of our options open when it comes to <unk>.
Mac: Co location.
Mac: The meter or the hybrid solution I discussed earlier.
Mac: I know the first questions in our Q&A today will be when are you going to have this solved.
Mac: Look like.
Mac: And what about your next data deal the short answer to all of this is we'll let you know when we're done.
Quite frankly this reminds me of a year ago. When we hosted our Susquehanna site day visit and data center at our data Center campus and talked about co location as a novel concept. Many of you asked the same questions. Then and you heard me gave the same answer you all know that we do or don't do commercial negotiations in public and we're not going to comment on.
At this time.
Mac: That said I believe we can leverage our transaction experience.
Mac: Advantaged grid location and strong stakeholder relationships to utilize all of the options on the table.
Mac: I am confident that we as an industry can meet the challenges in front of us and sees the opportunity to power the AI economy and bring it substantial economic benefits to Pennsylvania, specifically in the U S more broadly.
Mac: So now turning to our key highlights.
Mac: Starting with slide three.
Mac: Talent has had an active third quarter and I'd like to highlight several of our achievements starting with our solid operational and financial performance in the third quarter, we generated $230 million of adjusted EBITDA and $97 million of adjusted free cash flow.
Mac: Based on our strong performance year to date, we are raising and narrowing our guidance for 2024.
Mac: And we are also affirming the 2025 financial guidance.
Mac: Announced at our Investor Day in September.
Mac: Larry will provide more details on that as well as our 2026 outlook.
Mac: In October we acquired Taro was 25% share in Nautilus, which provides us strategic flexibility with the building and its power use.
Mac: Operational activities at Nautilus had been suspended which releases of 150 megawatts of power to be sold at more profitable levels to the PJM wholesale market and eventually to Amazon.
Mac: Lastly, we were added to five equity indices over the last few months driving passive fund demand for our stock and continued shareholder rotation.
Mac: I'm proud of what the team has accomplished this quarter, while setting the stage for more long term value creation.
Mac: Turning to slide four you've heard me talk about the RSA and password. We also participated in the FERC Technical conference on November one.
Mac: There was a lot of good discussion and we applaud the commission for taking up this serious matter.
Mac: We continue to believe the path forward is that all solution should be on the table as long as the RTL the generator the transmission operator in the state Puc's are onboard for.
Mac: Or the respective state PUC.
Mac: Turning to the PJM capacity auction.
Mac: JM is requested in the FERC has approved a six month delay of the 'twenty six 'twenty seven auction that was originally scheduled for next month due to complaints filed by the Sierra club and other Ngls.
Mac: Subsequent auctions will occur every six months.
Mac: Through the 'twenty eight 'twenty nine auction in December of 2026.
Mac: The JM is focused on reevaluating the auction referenced technology, which impacts the steepness of the supply curve as well as in the treatment of RMR or reliability must run units.
Speaker Change: We're generally supportive of PJM, taking another look at the supply curve. However, however, we think PJM should compress the time between auctions to get them back on track sooner to the original timeframe of three years in advance further delays in the capacity market create uncertainty and the very market that need signals to incentivize new build.
Speaker Change: We also believe that requiring RMR units to either bid into the capacity market as a price taker or be accounted for as a phantom supply will distort price signals RMR units are meant to support transmission reliability not to serve as a capacity resource we're moving RMR resources from the capacity market is appropriate to spend.
Speaker Change: The proper signals that new generation is needed.
Speaker Change: We encourage PJM to resolve these issues as quickly as possible and look forward to engaging constructively with them on the process.
On that note, let's turn to slide five and put some numbers behind the supply demand situation in PJM.
Speaker Change: Since 2000 2019 Gigawatts of generation assets are retired in PJM and nearly all of those are gas and coal plants, while only 10 gigawatts of new gas plants have come online.
Speaker Change: Along with 13, Gigawatts of renewables and batteries, which do not provide the same dispatch ability as gas plants and coal plants from a demand perspective, PJM recently reported significant increases in submitted request to the 2025 power demand forecast for anticipated large loans like data centers and manufacturing.
Speaker Change: These requests include 15 gigawatts of demand by 'twenty, six and over 50 gig by 2030 <unk>.
Speaker Change: PPL itself forecast that by 2030 large loads could double the peak summer demand curve demand and its control area.
And that is where most of our plants are located.
Speaker Change: These data points highlight how PJM needs more reliable dispatch of coal generation to meet the power demand growth that is coming.
Moving on to slide six let's look at our year to date operational and financial results.
Speaker Change: Our team continued to deliver from an operational perspective, our fleet ran well generating over 27 terawatt hours with.
Speaker Change: With an equivalent forced outage factor of only two four which is an improvement to three 5% in the same period last year roughly half of that generation came from our carbon free Susquehanna nuclear facility.
Speaker Change: Importantly, our team work safely during the busy summer months, we haven't year to date T. Our IR of only 0.3, which is truly remarkable this is in line with or better than our peers and we continue to emphasize safety is our first priority across the fleet.
We leveraged our strong operational foundation in commercial strategy to deliver significant adjusted EBITDA and adjusted free cash flow on a year to date basis.
Speaker Change: We continue to prioritize capital returns and balance sheet discipline during the quarter Terry.
Speaker Change: Terry will take you through the year to date numbers, our leverage and our liquidity later in the presentation.
Speaker Change: I'd like to stop and take this opportunity to recognize and thank our employees across the company worked safely to deliver impressive operational results across the entire portfolio.
Speaker Change: These team members are key to our overall performance as they operate maintain and improve our generation fleet and other assets without their hard work and commitment to excellence none of this is possible.
Terry Not: I'll now turn the call over to Terry.
Speaker Change: Alright.
Speaker Change: Thank you Mac and good morning, everyone.
Speaker Change: Now turning to financial results for the third quarter of 2020 for talent, our reported adjusted EBITDA of $230 million and adjusted free cash flow of $97 million.
Speaker Change: Compared to the same period last year.
Speaker Change: Expanded spark spreads and higher power demand drove increased generation margin across our fleet.
Generation margin along with the combined impacts of our hedging strategy and the PTC more than offset the absence of earnings from our ERCOT generation portfolio, which.
Speaker Change: Which was sold in March of 2024.
Speaker Change: Q3, 2024, adjusted free cash flow included the impact of a $40 million higher pension plan contribution.
Reflecting our continued commitment to our workforce and retirees.
Additionally, we accelerated some raw uranium purchases during the quarter to take advantage of pricing opportunities.
Speaker Change: These collectively resulted in lower adjusted free cash flow compared to the third quarter of 2023.
Speaker Change: For the year to date period, adjusted EBITDA was $606 million and adjusted free cash flow was $262 million.
Speaker Change: Moving now to guidance on slide eight.
Speaker Change: With three quarters of performance behind US, we are raising and narrowing our 2020 for adjusted EBITDA and adjusted free cash flow ranges.
Speaker Change: Our new adjusted EBITDA range is $750 million to $780 million.
Speaker Change: And our new adjusted free cash flow range is 265 million to $295 million.
Speaker Change: Yes.
Speaker Change: Looking ahead to 2025, we are reaffirming the guidance ranges, we announced at our Investor Day in September.
Speaker Change: Our adjusted EBITDA range remains at $925 million to $1 75 billion.
Speaker Change: Our adjusted free cash flow range is still 395 million to $595 million.
Speaker Change: Additionally, our 2026 outlook also remains unchanged from what we disclosed at our Investor day.
Speaker Change: These ranges continue to demonstrate its talent significant earnings and cash flow growth profile, which includes nearly tripling adjusted free cash flow per share by 2026.
Speaker Change: Turning to slide nine we remain committed to maintaining net leverage below our target of three five times, along with maintaining ample liquidity.
Speaker Change: As of November 8th our forecasted net debt to 2024, EBITDA ratio was only $2 one times well below our target.
Speaker Change: In addition, we have nearly $1 3 billion of liquidity, including over $550 million of unrestricted cash on the balance sheet.
We continue to engage with the rating agencies.
Speaker Change: Two of which have responded to our balance sheet discipline by upgrading our credit ratings and.
Speaker Change: In September our S&P corporate credit rating was upgraded to double B minus.
And in October our Moody's rating was upgraded to <unk>.
Speaker Change: We remain focused on unlocking value in returning capital to shareholders.
Speaker Change: September we announced another upsizing of our share repurchase program and have over $1 $2 billion of capacity remaining through year end 2026.
We have returned approximately $950 million to shareholders year to date by repurchasing roughly $8 3 million shares.
Speaker Change: Due to the timing of our Investor day in subsequent non deal Roadshow. There was limited time to repurchase shares at the end of this quarter.
Speaker Change: That said, we continue to see share repurchases as the best use of our capital and continue targeting a return of 70% of adjusted free cash flow to shareholders.
Speaker Change: Turning to the next slide.
Speaker Change: After up listing to the NASDAQ talent has become eligible to join several equity indices, which has driven substantial institutional and passive start demand.
Speaker Change: Cowen has been added to five indices, resulting in passive investment funds acquiring over 6 million shares in September alone.
Speaker Change: Earlier this month Talon was added to the MSCI USA small cap index, which will be effective on November 25.
Speaker Change: And we anticipate additional passive fund demand from that inclusion.
Speaker Change: Further talent could quantify for additional value growth are sector specific indices further enhancing stopped demand and accelerating the natural shareholder rotation.
Mark Macfarlane: With that ill hand, the discussion back to Mark.
Mark Macfarlane: Great. Thanks Terry.
Mark Macfarlane: As all of you have heard me say before calendar remains an IPP that focused on being an IPP and that's at a time when reliable and flexible generation assets are more valuable than they've been in many years.
Speaker Change: We appreciate your interest in talent and for joining us on today's call. We will now open the line for questions and I'll turn it back to the operator Michelle.
Speaker Change: Thank you.
A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced and to withdraw. Your question. Please press star one again.
Speaker Change: And the first question will come from Shar per Reza.
Speaker Change: With Guggenheim Your line is now open.
Speaker Change: Hey, guys good morning.
Good morning Shar.
Shar: Good morning, Matt just by you prepare it seems like there's not a lot of appetite to answer mind AWS strategy question. So let me let me just shift gears towards resource adequacy, which is obviously a very topical.
Shar: Hi.
Shar: Are you involved I guess in state level conversations in Pennsylvania at this point.
Speaker Change: You see what eventually run an RFP and look for peaking ppas or has it stayed passes a test like mechanism would you with talent and be involved in new development.
Speaker Change: How do you see this sort of unfolding the SaaS side overall.
Speaker Change: Sure.
Speaker Change: Well, obviously, that's a broad policy question because.
I understand that there are a number of people who are talking about.
Speaker Change: Either RFP or rate basing generation.
Speaker Change: I think that there is a couple of things that are going on one first of all for the first time in seven years, we had a higher capacity clear a clear that was higher than $100 a megawatt day.
Speaker Change: I think we have.
Speaker Change: Fair amount of reactive.
Speaker Change: Voice is going on here with respect to how to solve the resource adequacy problem I think first and foremost.
Speaker Change: Solution to that problem is as I said in my remarks is to get the capacity market.
Speaker Change: On track, so that we're providing price signals three years out.
Speaker Change: With respect to the Tms that has been floated we have been in conversations in Harrisburg through.
Speaker Change: Our company has and look we think that something like a TF that provides low cost loans to generation.
Speaker Change: And that can help.
Speaker Change: The resource adequacy issue that we see on the horizon.
And we're supportive of it but generally it.
Speaker Change: It depends on how those loans come out what strings are attached to them et cetera. So when you ask that question sure. There's not a lot of specifics out there right now there are people talking about should we rate based generation should we do something like that.
Okay.
Speaker Change: The Pennsylvania Energy fund should we.
Speaker Change: Think about other ways to solve the resource adequacy I think what's getting lost in all of this with respect to Pennsylvania is that Pennsylvania has excess reserve margins in excess of 30%. It's other states that have lower reserve margins that are better quite frankly somewhat of the issue that said.
Speaker Change: Sylvia as an opportunity given that it has gas local gas plentiful gas a pro fact fracking.
Speaker Change: Position on things.
Speaker Change: Regardless of what side of the aisle you're on there.
Speaker Change: And so they have the ability to export energy.
I think that they can continue to do that and I think capacity market sort of way to do that.
Speaker Change: Terry if you have any further comments there.
Terry Not: Yes, Thanks, Matt a couple of things to add to that response shar.
Speaker Change: First of all the Pennsylvania PUC is holding.
Speaker Change: Is holding a conference on resource adequacy here.
Speaker Change: Right before Thanksgiving and we plan on participating in that so obviously being a large generator in the PJM market. We definitely are engaged in those discussions and we will continue to be engaged.
Speaker Change: Back to sort of a general policy question. The other thing I would add to Mike's comments is I think obviously, Pennsylvania Energy fund is an interesting concept, we've seen that done in Texas.
I think whether it's a Pennsylvania energy fund or whether it's some of these discussions around rfps. The Devil is always in the details right.
Speaker Change: What does what does that asset if you put in that new asset how does it participated in the capacity market.
Speaker Change: What is it what does it ultimately.
Speaker Change: What economics are sort of born by the asset itself and what can it do in looking to not do from a participation standpoint, so I think theyre constructive discussions will be engaged.
Speaker Change: And look forward to helping solve the resource adequacy issue.
Sure.
Speaker Change: One more comment on that real quick which is.
Speaker Change: As we talk about our sites which are.
Speaker Change: And the PPL zone as advantage sites, we have a lot of sites that have access to gas and are in the right point on the transmission system to interconnect and we're looking to see how we can leverage those sites.
Speaker Change: Redevelopment opportunities.
Speaker Change: Again, it's going to have to have the right kind of economics, the right kind of returns et cetera, but we are exploring at there and if you want to ask your AWS question feel free.
Speaker Change: Alright ill pass that to someone else.
Speaker Change: But just that.
Speaker Change: Just my only question is legislation starts to form can you is there discussions youre, having with the wireless companies or is the bid ask kind of tier wide right now, it's even come to a discussion table.
I think that the.
Speaker Change: Things that are being discussed right now are so preliminary.
Speaker Change: There is it's not like there's a bid ask it's wide are tight.
Speaker Change: Everything is still preliminary but thats why I said that these have been somewhat reactive capacity clear.
Speaker Change: Again.
Speaker Change: And as being.
Speaker Change: Quite frankly.
Speaker Change: I think that we're in.
Speaker Change: Not even close to what it's going to take and the capacity clears to incentivize new generation and people say, we should rate basis.
Speaker Change: Clear or go through an RFP process just to be clear. The reason why PJM is the most effective deregulated wholesale market in the country is because it was people didn't want to pay you for stranded assets. They wanted to move to a deregulated market.
Speaker Change: PJM because they felt as though it would drive the lowest cost of supply.
Speaker Change: We continue to believe that and we will participate in that.
Speaker Change: Got it perfect I'll touch base with you guys in a little bit I appreciate it I'll pass it to someone else. Thanks Mac.
Speaker Change: Thanks sure.
Speaker Change: And our next question comes from Jeremy Tonet with Jpmorgan. Your line is open.
Jeremy Tonet: Hi, good morning.
Jeremy Tonet: Morning.
Jeremy Tonet: Just wanted to come back to I guess the.
Technical conference here, if I could.
Jeremy Tonet: With.
Speaker Change: Looking at the proceeding there as a read through for the amended ISI, how do you think about that or just really.
Speaker Change: Any thoughts on data center development more broadly coming out of the conference here just wondering what your take was on the technical conference.
So I think in general and coal is on the line who is our witness during the third panel and he can jump in here at the end of this but I think in general I think there was a whole lot of discussions that we are.
Speaker Change: Beneficial to thinking about.
How does how do we solve the growing demand from data centers I do believe that.
Speaker Change: <unk> got conflated with resource adequacy and the distinction between so called front of the meter.
Speaker Change: And behind the meter co located et cetera sort of worked its way into that conversation and it really should be parse separately.
I think we believe that the outcome should be.
Said this in the opening remarks, Jeremy is that if the <unk> in this case PJM.
Transmission operator in this case PPL on our specific RSA and the generator are all in agreement as the as the state level you see being the PUC in this instance.
Speaker Change: This is a state level issue and that if those four parties or an agreement and they don't see that there are incremental cost which is exactly what was found in the case of the RSA and it created reliability, we think that that's a model that should be approved.
Speaker Change: <unk> fits in with those four parties agree.
Speaker Change: Ill.
Speaker Change: We may have colleagues that have a different view of that.
Speaker Change: I think that that's what you come out of them.
Speaker Change: As we go back and I think we'll see where this goes.
Speaker Change: There is the.
Speaker Change: The PJM guidelines and some other things that need to be addressed.
Speaker Change: You started the question with.
Speaker Change: Amending the RSA, we're looking at that right now I think our current cash on a regulatory front put aside the commercial which is where we're focused for just a second.
But on the on the regulatory path is first to file a motion for rehearing and that's a step that we're taking on that path.
Speaker Change: Cole you want to talk about what we're doing on their current AWS contract permit yes sure.
Speaker Change: Hi, everyone I think first on the question as Mac said I think.
Speaker Change: Co location got kind of lost between the forest and the trees.
Speaker Change: That conference and resource adequacy kind of completed co locations as Mack said.
Speaker Change: I think we think it's going to get sorted out it's going to take a little bit of time here.
Speaker Change: But we're optimistic FERC will start to set a path forward that gives clarity on the co location in particular.
Speaker Change: On our commercial path forward.
Speaker Change: Our existing agreement with Amazon I think it's important to reiterate what Max said in the opening remarks that we have an existing I would say that's been approved for 300 megawatts.
Speaker Change: Which enables us to have runway here to optimize getting to the 960 megawatts.
Speaker Change: This deal over time here we are.
Speaker Change: We're evaluating all of our options jointly with AWS on how to accelerate that.
And both probably solid AWS recently publicly reiterated a commitment to the same alright, so passport or wide range as Mac also outlined in the opening remarks from kind of a status quo configuration.
Speaker Change: All the way to a full grid connection and Theres, a bunch of shades of gray in between we're looking at each of those options and weighing this carefully.
Some of those configurations may have technical and engineering adjustments that are going to require some review and analysis. So we are in process to get to an optimal answered here jointly between all the parties and will provide an update when we have one.
Got it just to add onto it.
Speaker Change: Sure Jim.
I was just going to add on book and I mentioned this we have been looking at a number.
Speaker Change: Current commercial arrangements across the fleet.
Speaker Change: When we signed the original 960 deal.
Speaker Change: With AWS earlier this year.
Speaker Change: So we then started resting on our laurels.
Speaker Change: We've been looking at a number of different commercial arrangements and that is what allows us to sort of focus on how do we.
Speaker Change: If you want to call it pivot or look at a different way to get to the 960 <unk>.
Actively doing that we're also going to preserve our optionality with respect to co location, because we think that co location is one of the forums.
Speaker Change: To speed to market.
Speaker Change: And two how are the AIA economy, and should not be loss and so that's why we're going to continue on that front, but we're focused on the commercial aspects of things.
Speaker Change: Got it very helpful. There. Thank you and then just pivoting here.
Speaker Change: Data centers looking for firm.
Speaker Change: Sources of power and there's only so much nuclear out there. So just wondering if you could provide any updated thoughts on the appetite for gas.
Speaker Change: To service this demand.
Speaker Change: Behind the meter or what have you just any updated thoughts on that side.
Speaker Change: Look I think.
Speaker Change: There's a couple there's a couple of things at play here I mean, obviously.
Speaker Change: Many of the hyper scaler and those that use that are non hyperscale or is it used cloud services et cetera, all have.
Speaker Change: Aspirations for carbon neutrality at some point and some at some point in the future.
And so we're seeing that people are looking at the carbon free aspect of nuclear obviously, because its baseload and it fits the load side of the equation.
Speaker Change: Data centers, which are effectively 24 by seven that's not exactly accurate, but let's let's use that for now.
Speaker Change: And.
Speaker Change: The use of renewables as well.
Speaker Change: To meet their energy demands, but in the near term and I think this is important over the next decade.
Speaker Change: Until there is <unk>.
Speaker Change: <unk> that can be put in place.
Speaker Change: So put those out in the mid Thirty's.
Speaker Change: That gap if you believe that the load is coming that gap is going to have to be served.
Speaker Change: By gas units.
Speaker Change: And I think that if you look at PJM PJM has a real opportunity to serve.
Speaker Change: That loan because of where it is geographically located for the data centers and because and then if I was the hone that down we think we're in a disadvantaged spot because Pennsylvania has abundant gas pro fracking pro business.
Speaker Change: And.
There will be the ability to.
Speaker Change: Put additional electrons.
Speaker Change: On the grid.
Speaker Change: New gas units and so and I think the appetite will get there because the need is there and it is going to be if you want to call. This a transition fuel until we can get more nuclear.
Speaker Change: Now anybody who has ever.
Anybody that I've ever spoken with knows that I'm very much pro nuclear.
I think that is.
Speaker Change: Energy Independence, if you go to the electrical side, nothing could be better than having a lot more nuclear units along with gas units okay.
Speaker Change: It's going to take some time to get there and so to fill that gap is going to have to be gas units.
Speaker Change: And we're looking at what opportunities we have to play to answers to go back to <unk> original question about the resource adequacy, how might we help fill that gap.
Speaker Change: Got it very helpful. There and if I could just quickly pivot to the PJM auction and your expectations for changes there or any reforms that you would be supportive of.
Speaker Change: Well I think <unk> said in the opening remarks, and then bring Terry into the conversation to look we've.
Speaker Change: We've had conversations with with our colleagues as well as <unk>.
Industry working groups and things of that nature, and I think the biggest thing that.
Speaker Change: The thing that most of us.
Speaker Change: Agree on is that we don't want.
Speaker Change: Very binary outcomes to where you either get a zero clearing price for 700.
Okay because.
Speaker Change: Whether you believe its price shocks and we can talk about that because capacity is the smallest portion of anybody's bill so.
This so called five times going from 50 to $2 50 is the smallest portion of the bill it does not increase or build that much.
Speaker Change: But put that aside politically and you hear people react to the prices going up.
Speaker Change: We don't want that volatility there. So that is why we are supportive of changing the curve.
Speaker Change: As PJM looks.
Speaker Change: This delay.
Speaker Change: To make.
Speaker Change: Modifications to the to the RPM for 'twenty six 'twenty seven.
Speaker Change: We're supportive of that in general.
Speaker Change: There is always as Terry said earlier Devils in the detail.
Speaker Change: We also as I said in the remarks and I'll reiterate it here.
Speaker Change: And we've been pretty clear that we are willing to participate.
Speaker Change: And RMR and we're having ongoing discussions with respect to RMR, but what we've always said is they should not distort the capacity and energy markets.
Speaker Change: And.
Speaker Change: They are there and their need is there as PJM has said for transmission reliability, but not as a capacity resource.
Speaker Change: And so we think those are two very important issues here as we go into this auction Terry you want to pick up on that.
Terry Not: Yes, maybe to add to Matt's comments I think the other variable that.
Terry Not: We're paying attention to right.
Brian We always we always like to do just basic fundamental supply and demand analysis and a big a big variable that I think will be interesting is to see what the demand forecast looks like.
Terry Not: Most people may be aware that PJM runs various subcommittees.
Terry Not: And they had a load analysis subcommittee made a few weeks ago and some of the some of the demand forecast that are coming out of that committee.
Terry Not: R R.
There are very interesting and so.
Terry Not: And we alluded to it in the slides if you take a look at some of the forecast.
Terry Not: There is there is obviously tightness in the market.
Terry Not: Especially as we move through the next few years, so that to US is probably the biggest variable that will have to see how it comes out.
Terry Not: <unk> comments on RMR units I cant agree with more.
Terry Not: I think.
Terry Not: Putting an RMR unit is in some risk if you put it if you put it in the supply stack or you just netted out of demand.
Terry Not: Ultimately is going to happen when that RMR unit retires at the end of the RMR period, right Youre going to see that drop off in some respects.
Terry Not: It's a bit of a distortion in delaying a little bit of the inevitable.
Speaker Change: We're obviously opposed to that but.
Speaker Change: We'll stay engaged we will see where PJM comes out on parameters.
Speaker Change: And then look forward to the auction as we get into next year.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: And the next question comes from Angie <unk> with Seaport. Your line is open.
Speaker Change: Thank you so.
Speaker Change: Just on the timing.
Speaker Change: The resolution.
Speaker Change: Susquehanna.
Speaker Change: <unk>.
Speaker Change: I know that.
Sorry, first one to say that I want an answer now.
Speaker Change: But I'm actually having some second thoughts here.
Speaker Change: Welcome to your.
Speaker Change: Pearce I mean.
Speaker Change: They're making lady interesting points, sorry, Debbie Thank you sang.
Speaker Change: Co locations are still the most viable option from the speed to power argument.
Speaker Change: Perspective.
Speaker Change: We have new administration, which is very supportive of economic growth NII in the U S.
Speaker Change: We may have some meaningful changes at FERC.
Speaker Change: Come next year.
Speaker Change: And you have.
Speaker Change: <unk> 300 megawatts to deploy and seemingly all options available given as you said the transmission availability et cetera. So.
Speaker Change: So again I know, it's surprising, but why rush with any decision peer with changes to the existing contract.
Why not just take some time.
Actually assess the backdrop.
Speaker Change: That is about to change.
Speaker Change: <unk> about the change for AI in this country.
Speaker Change: Well good morning Angie.
Good morning.
Speaker Change: I appreciate the question.
Speaker Change: Look when we say that.
Speaker Change: Coal jump in here.
Speaker Change: Thank you.
Speaker Change: When we say that we're looking at commercial arrangements with AWS I would tell you that we don't think that anything is off the table. There is all sorts of possible options and as I said in the opening remarks co location.
Speaker Change: Is one of those and we're continuing to keep that option open by following the motion for rehearing.
Speaker Change: I think in general and I'm going to say in general.
Speaker Change: We agree with some of the points you laid out.
Speaker Change: But also there is an aspect of it.
Speaker Change: You put the time element in here, obviously the time element.
Speaker Change: As meaningful as well as we go through and look at our options and we have discussions with our counterparty or Counterparties, we think about.
Speaker Change: What is the best way to do this going forward.
Speaker Change: And as it takes into consideration a lot of different things, including the economics and so therefore.
Speaker Change: We will take our time will be very reasoned about the amount of time, we take just as I hope.
Speaker Change: We're viewed as reasons with respect to our commercial activities.
Speaker Change: And so.
Speaker Change: There is no easy answer to that question, Angie, but I do appreciate it.
Speaker Change: Coal anything to add yes, I would just reiterate that we're not rushing Angie.
Speaker Change: To your question and we are being methodical and analyzing all of our options.
Speaker Change: We do want to be responsive to our customer.
Does need clarity at some point to accelerate make large investments.
Speaker Change: So that is part of the analysis.
Speaker Change: That said, we're going to look at the economics and other.
Speaker Change: <unk>.
Speaker Change: Frozen cons of each option and we will let folks know when we have an answer there.
Speaker Change: Okay and then the other thing is the wrong way.
Speaker Change: Any questions about your gas assets I mean, you have.
Speaker Change: Former coal plants converted to gas that are currently running of speakers, but used to be baseload assets that Ron.
Speaker Change: 85% of the time.
Speaker Change: No.
Speaker Change: One could argue that if these assets were to stay on the grid.
Speaker Change: You can't necessarily ramped the outflows from these assets until basically power prices rise and Mike market power prices rise. So we're.
Speaker Change: So we're having all of these discussions about additionality, yet how for example extensions of operating nitrogen licensees of nuclear plants.
Speaker Change: Would the additionality, but how about the.
The fact that you could.
Speaker Change: Increase the output from some of your gas plants in a sense thoughtful if there were to be supported by an above market contract again as long as these assets are behind.
And behind the meter sort of a setup so andrew.
Speaker Change: Okay.
I think it's a good point, whether it's behind the meter front of the meter does look the Lotus coming okay and these assets have been used as you said is peaking assets for the most part over the last several years and now they are receiving higher capacity revenues, but the energy margin on them as effectively.
Speaker Change: On a year over year basis Sparks are relatively flat if you will okay, but we do have for example at mature.
Speaker Change: 500 heat rate unit, we have ample gastric why we ran the gas lateral there we've made the conversions.
Speaker Change: From an energy standpoint, it can provide a lot more energy its just theres no additionality at the peak, but theres a lot.
Speaker Change: And all the other hours that it doesn't run rate so when it's running 10% 15% of the time and we're starting to see that uptick we saw strong loads in the second quarter and monitor we're starting to run more and more.
Speaker Change: So you will get to your point about I don't know if it's exactly four fold I think is the number you used you will get increased dispatch, even if they don't have a contract and increased sparks.
Speaker Change: That should manifest themselves over time as the supply or the demand starts to show up.
Speaker Change: I also think there is an opportunity at a lot of your sites as I said before because of the interconnections of where they're located.
Speaker Change: For Repowering opportunities as well in fact, when you convert monitored over to a gas unit that is a repowering opportunity and so we're looking at all opportunities are expanding.
Speaker Change: Can we get incremental megawatts and so when people ask about resource adequacy, what are you doing to solve it well. The first thing that's going to happen is as we're looking at how do we run these units more have more megawatts get out of these units okay.
Speaker Change: How can we.
Speaker Change: And that will be the first part that contributes to resource adequacy. Its knocked a thousand megawatts <unk> announcement, but when you do this across our fleet and other fleets, where everybody is looking to get $10 20 megawatts more you'll start to fill some of that resource adequacy equal.
Speaker Change: Over time, and then you'll get to Newbuild.
Speaker Change: So we think that those gas assets are in a prime position for.
Speaker Change: Increased energy margin or to be a solution.
Speaker Change: Sure.
Speaker Change: Power of the AI economy as well.
Speaker Change: Coal Terry.
Speaker Change: Yes, Michael let me jump in there real quick.
Terry Not: Good morning, Angie, it's Terry So a couple of things to add to <unk> comments. When you take a look at the second quarter in the third quarter of this year.
Terry Not: Lastly did run appreciably more.
Terry Not: So as we had periods of.
Tightness in warm weather in PJM those assets did dispatch.
Terry Not: A bit more this year than we've seen in prior years. So so we've seen some of that phenomenon come into play already in 2024, I think you look at it on a weather adjusted basis.
Terry Not: M load.
Terry Not: It was higher.
Speaker Change: Has it been higher this year than the prior year.
Speaker Change: And to that end one of the things when you start.
Speaker Change: Usually you have a few initial reactions to resource adequacy.
Speaker Change: And you see it in most markets some of that is okay.
Speaker Change: To your point, Okay, dispatching the existing fleet across the across the supply stack.
Speaker Change: On an incremental basis. The second one and then becomes okay. Do you have anything that was previously announced as a notice of suspension of retirement that youre going to unretire.
Speaker Change: Some of the other things that you may see us.
Could there, possibly be conversions of assets that previously were one technology or one fuel type similar to what we did on our <unk> plant where are we converted it to burning gas and so that.
Speaker Change: That resource adequacy response, Theres a few steps that are usually.
Speaker Change: Taken first because they're quicker than maybe more economical.
And then obviously when you think about a newbuild and to Matt's point earlier.
Speaker Change: New utility scale.
Speaker Change: Combined cycle plant is probably going to take.
Speaker Change: Sure.
Speaker Change: Five to six years to get done.
Speaker Change: And so youre going to need these incremental things that are done in the interim to help address.
Speaker Change: The additional generation and then the last thing on our fleet specifically to Talon, we had added given the additional dispatch that we saw in our gas plants.
Speaker Change: And the second and third quarter, we have added some incremental.
Speaker Change: Maintenance cost into our numbers that were included on our Investor day to make sure that those assets are there and they're hardened and theyre ready to go.
Speaker Change: We move forward over the next several years so.
Speaker Change: That's.
Speaker Change: Sort of where we think how we think about the gas units today.
Speaker Change: And as you can see by the way if you look at the.
Speaker Change: The percent hedged in 2006, you can see that the percentage went down some of that as the PTC put becoming less in the money, okay, but a lot of that is also driven by increased dispatch forecast the dispatch of our gasoline so you're right on.
Speaker Change: Okay, great. Thank you.
Speaker Change: And our next question will come from Nicholas Campanella with Barclays. Your line is open.
Nicholas Campanella: Yeah, Hey, thanks for taking my questions.
Nicholas Campanella: So you just you just brought it up at the end of your remarks, there, but you brought the hedges down and I just want to confirm that's not that's not a change in view of like freeing up.
Nicholas Campanella: Additional open capacity or energy for significant longer term. Thanks.
Speaker Change: Maybe just to clarify.
Speaker Change: That was not an action by us to take hedges off it's just the denominator in that calculation is expected Gen and expected general grows.
Speaker Change: And because of it because of slight increases.
Speaker Change: <unk>.
Speaker Change: Sparks, particularly in periods by which the gas units are more likely to run so around the summer and winter timeframe. So when you increase our generation if you keep the numerator the same it just drives it down so its not we didnt take hedges off it's not based off of view I would think if you wanted to pursue.
Speaker Change: <unk> on that we feel more comfortable.
Speaker Change: Given that we're moving to more contracted revenues with the PTC.
Speaker Change: As a downside protection, we feel more comfortable being a little more open, particularly as we look at <unk>.
Demand coming as Terry mentioned from the <unk>.
Speaker Change: <unk> forecast.
The load forecast from the subcommittee of PJM.
Speaker Change: That would be the position we've taken all of that means is we haven't layered on additional hedges.
Speaker Change: There has been increased generation.
Speaker Change: Forecasted project.
Speaker Change: Great contacts thank you for that.
And then just on the current RMR processes that at FERC I know you're in settlement discussions, but just can you.
Reconfirm your timing there or do you still expect that to kind of be solved by year end and just wondering if.
Speaker Change: There is any impact to that discussion based off of the wider kind of RMR being included in the capacity auction now discussion is there going to be a delay in your ability to kind of get to the settlement because I know that timing is of the essence on on that side. Thanks.
Speaker Change: I'm going to.
Speaker Change: John Wonder our general counsel is here and I'll ask him to provide some context around the RMR, but let me start with the switches.
Speaker Change: Even with the delay.
Speaker Change: The capacity auction.
And the overlay of the RMR.
Speaker Change: Regardless of the intersection there.
Speaker Change: We've got a plant.
Speaker Change: And Brandon insurers with employees with fuel contracts with maintenance needs with outages and things of that nature that you cannot make a decision with respect to that RMR, one day before as opposed to shut down and in fact, we've implored.
Speaker Change: All constituents.
Speaker Change: To come to the table and defined a solution to the RMR this year.
Speaker Change: That was our stated goal and timeframe.
Speaker Change: Because we have to make a lot of decisions that impact.
Speaker Change: Our employees impact our fuel contracts all the things that I, just said and you just don't flip a switch on those until we need time to do that and so hopefully we will get to that time now John do you want to.
Provide some update on the process.
Speaker Change: Sure sure Mike Nick Thanks for your question.
Speaker Change: What we're really doing here in the immediate moment is focusing on those settlement negotiations and.
Speaker Change: There are settlement conferences, both in the end of November and early December and we've made it very clear throughout the process that our objective and this has to be done by the end of December with the knowledge of what we can reach an agreement on whether that's an agreement that has a FERC order behind it or not we wont know that probably by the end of December but we're going to have an idea by the end of December.
Speaker Change: <unk>.
Speaker Change: What the parameters of a settlement will look like.
Speaker Change: We made that very clear to everybody.
Speaker Change: Thank you.
Speaker Change: And our next question will come from Michael Sullivan with Wolfe Your line is open.
Michael Sullivan: Hey, good morning, good morning.
Speaker Change: What FERC is going to come with an early December which potentially could.
Speaker Change: Impact how these units are treated or is that enough time.
Speaker Change: When they come with that in early December to turn it around five by year end.
Speaker Change: Okay.
Speaker Change: Michael I'm not sure I understand the question I think we're targeting by the end of this.
Speaker Change: Purion John can go through those having a settlement.
Speaker Change: We need to early next year prepare for it.
I was going to shutdown may 31, we've got to start preparing and you just can't flip a switch to prepare and so that's why we're asking everybody to come to the table and our resolve this now.
But I'm not sure I exactly understood the timing of your.
Your question from a timing perspective could you rephrase that sure, yes, I mean, maybe I'm misunderstanding.
Speaker Change: Hi.
Speaker Change: Understanding is sorry.
Speaker Change: Sorry P. J M was going to come to <unk> with some capacity market rule changes with the 205 filing in early December and as part of that I think they were reevaluating how these RMR units get treated and so just if they change how they get treated.
Speaker Change: Is that enough of a turnaround time for you all.
Speaker Change: And how you hash out terms of settlement.
Speaker Change: John do you want to pick up on that.
I can take that Matt.
Speaker Change: Look I think that the two things are relatively distinct.
Speaker Change: The <unk>.
Speaker Change: Inclusion in the capacity market of the RMR plants is about the capacity of the RMR plants not about what we get paid in the RMR now it will not be a factor.
Speaker Change: Ultimately when the auction runs in PJM is gets its way in the RMR gets included in there are some offsets for people who are paying for the RMR, we'll see how that shakes out but from our perspective.
Speaker Change: They are separate questions, whether we can get to an RMR agreement that satisfies us on what it takes to run those plants into the future for the next several years.
Speaker Change: Synced from whether PJM includes the capacity for those plans in the supply side.
Speaker Change: In the auction.
Speaker Change: Okay, that's very clear thank you.
Speaker Change: And then I guess when you say <unk>.
Speaker Change: All options are on the table and working with Amazon.
Speaker Change: Maybe just to clarify like you talked about the 960 is doing something potentially even bigger on the table and involving other plants in your fleet.
Speaker Change: Look I think.
Speaker Change: First.
Michael as I said, we've been looking at it.
Speaker Change: Yes.
Speaker Change: A number of different commercial arrangements that we think we could port from other thoughts.
Speaker Change: Over to how might we go forward with AWS.
Speaker Change: I think that.
Speaker Change: Many people asked us whether or not the second reactor.
Speaker Change: Because of the first arrangement it was a backup to the first one when it was dawn if you recall that arrangement I'm sure you do that that's how it worked and how much you free up that and we talked at that time about looking at how might other types of commercial arrangements.
Speaker Change: I'm not going to.
Speaker Change: Talk about what we're talking to Amazon about but I do think that.
Speaker Change: There are ways by which using.
Speaker Change: Grid is back up.
Speaker Change: Greatest primary source.
Speaker Change: Co location all of that's what we mean when all of those things are on the table.
Speaker Change: I hope that's helpful. But we're just not going to get into what we're discussing with AWS coal do you have anything to add.
No I think that's that's.
Speaker Change: That's right.
Great. Thank you very much.
And the next question comes from Antoine Orman with Jefferies. Your line is open.
Antoine Orman: Hey, guys hope you're well. Thank you for taking my question and congrats on the quarter.
Antoine Orman: So I guess, if we can talk a little bit about speed to market. It seems like it's one of the main factor for.
Antoine Orman: These hyperscale.
Speaker Change: Give us a sense maybe.
Speaker Change: How long it would take for fluid immuno deal.
Speaker Change: Can you go through the process. So you agree on terms already how long does it take until the contract so.
Speaker Change: Contributing.
Going through PPO PJM is there anything you can recycle from the <unk> 50.
Speaker Change: 60 megawatt OSA.
Speaker Change: And how that would change it.
The deal will be larger than the combined <unk>.
Speaker Change: Yes, good morning, and it's one that's getting too specifically with respect to Susquehanna and the AWS. So I'm not going to talk about that but perhaps if I was just a pan out for a second and talk about.
What is a front of the meter solution and as I said, we've been looking at all of these different types of commercial arrangements across the fleet.
Speaker Change: The.
Speaker Change: In front of the meter.
Speaker Change: It is effectively a retail contract or.
Speaker Change: Virtual PPA or PPA as was done.
Speaker Change: Okay.
Speaker Change: We understand was done with Microsoft.
PMI or the Crane clean energy Center.
Speaker Change: And that is.
Speaker Change: With respect to speed to market.
Speaker Change: Our understanding of the way that PPL the zone that most of our plants are in that we've been discussing here today that speed to market. We believe is faster in that zone, whether it be co located.
Speaker Change: Grid backup or front of the meter because of the advantage PPO has and that it has a.
Speaker Change: Hey transmission.
Speaker Change: System that can be easily attached to and I think you saw that when PPL put forth basically $781 million to be exact almost $800 million worth of transmission upgrades.
Speaker Change: To serve six to eight gigs of what they see as highly likely data centers coming and so the transmission system.
Speaker Change: In PPL is advantaged and because we have sites and assets and PPL. We believe we're also in an advantaged position, but one thing I will tell you is that.
Speaker Change: I think.
Speaker Change: A lot of questions revolve around this concept of.
Speaker Change: The front of the meter and one of the things that I've said and conversations is the fact that no. One has defined with front of the meter is.
No one defined a co location deal to we did it.
Speaker Change: And now people are talking about are front of the meter deal.
Speaker Change: I guess the closest and.
Speaker Change: This is by the way I applaud constellation for their deal with Microsoft claim Center.
Speaker Change: That's the closest that we see but I don't know that thats necessarily been defined but if you look at the characteristics of speed to market. I think you have to have an advantaged transmission zone, you have to have ample land water.
Speaker Change: Generation resources etcetera, we think that we're in the right zone that has those coal anything that you would add there.
Speaker Change: That's going to reiterate our echo those comments you made about PPL I mean, maybe.
Speaker Change: Maybe I'll just encourage folks to go look at other comments <unk> made both in our earnings.
Speaker Change: Other analysts have written about but.
Speaker Change: Dave discussed their timing they think they can.
Speaker Change: Connect.
Speaker Change: Front of the meter fairly quickly.
Speaker Change: And you can also look at some of the filings they've made with PJM and Theyre subcommittees to kind of confirm the timing for large projects. So.
We think thats something that.
Speaker Change: Certainly won't.
Speaker Change: Delay potential opportunities across our fleet.
Speaker Change: And obviously for Susquehanna, where we have plenty of runway as I said earlier with the 300 megawatts.
Speaker Change: Under the existing I think.
Speaker Change: Great. That's helpful. Thank you very much I did just if I can on the Newbuild side I am curious if there would be any appetite for you to build a new <unk> today on a merchant basis in PJM or elsewhere.
Speaker Change: So it.
Speaker Change: It depends on how you define merchant if merchant means all revenues are received from capacity and energy I think.
Speaker Change: That <unk>.
Speaker Change: First of all it relies on what are these capacity market changes, which have yet to be defined.
It needs to have a rigorous capacity market that provides the proper signals.
Speaker Change: And then it.
It depends on obviously the expectations of energy margin now I will tell you that.
Speaker Change: The landscape is the generation landscape and doing this for.
Speaker Change: A while.
Speaker Change: There has been.
A litany of projects developed <unk> they go full merchant.
Speaker Change: That.
Speaker Change: Go bankrupt.
And so wed have to look long and hard at that we actually think.
Speaker Change: That's the model going forward will be to have.
Speaker Change: I don't know if its that RFP, but I've said this in the past it.
Speaker Change: Hyperscale or can provide their balance sheet to this or a combination of a data center developer along with generating unit that combo.
Speaker Change: Provides an off take agreement that.
We haven't had large loads like this in a long time since sort of the industrial Buildout, particularly up the Delaware River Basin.
Speaker Change: With refiners and et cetera, but when you have large loads like that that have a power need you can match those things up and do contracts and so we see that as the more likely way that we might participate going forward at least having a portion of the plant tied to.
Speaker Change:
Speaker Change: Contract if you will.
Speaker Change: Yes.
Speaker Change: And then just Ken real quick.
Speaker Change: Can you characterize maybe the opportunity for upgrades at Susquehanna Theres been a bunch.
Speaker Change: Over many.
Speaker Change: Many years I was just curious if there's any any opportunity there.
Speaker Change: Yes, we're looking at those.
Obviously that provides to the so called additionality argument and.
We're looking at those.
Speaker Change: A number of upgrades were done across the nuclear fleets in the.
Speaker Change: Early two thousands.
And the next evolution of them becomes.
More expensive.
Speaker Change: Imputes.
Speaker Change: Sure.
Speaker Change: More need to think about how might it.
Speaker Change: Impact you or what we call margin.
Speaker Change: And at our nuclear facility, which is.
Speaker Change: Safety margin.
Speaker Change: And reliability factors in there as well we're looking at them I don't know that it is.
Speaker Change: As prevalent in our opportunity here is it might be in some others.
Speaker Change: Got it okay. Thank you so much guys and talk to you later.
Speaker Change: Great. Thanks, Antoine so great. Thanks, everyone for joining us today and thank you for your continued interest and support of talent everyone have a good day and we look forward to connecting with you.
Speaker Change: In the future take care.
Speaker Change #100: This does concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change #100: [music].
Okay.