Q4 2024 Talen Energy Corp Earnings Call
Yes.
Speaker Change: Good day and thank you for standing by welcome to the talent Energy Corporation full year 2024 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this special need to press star one on your telephone you all didn't hear an automated message advising you can just raise to withdraw your question. Please press star one again.
Speaker Change: Please be advised today's conference is being recorded I would now like to turn the conference over to your Speaker today, Emily you lose senior director of Investor Relations. Please go ahead.
Speaker Change: Thank you Kevin.
Speaker Change: The Taliban Energy's year end 2020 for a conference call speaking today are Chief Executive Officer, Matt Mcfarland, and Chief Financial Officer.
Speaker Change: They're joined by other talented senior executives to address questions. During the second part of today's call as necessary. We issued our earnings release. This afternoon, along with the presentation all of which can be found in the Investor Relations section of talent website, Www Dot talent energy Dot com.
Speaker Change: Today, 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.
Speaker Change: Today's discussion also includes references to certain non-GAAP financial measures. We have provided information reconciling non-GAAP measures 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 Grill.
Mac Grill: Thank you Ellen before we get into our results I'd like to start with some brief remarks talent has been the beneficiary of strong tailwind since we signed the AWS contract last March and joined NASDAQ last July our investors have seen strong results, whether they have been with us since the restructuring are invested in the stock more recently.
Mac Grill: Then and today, we have real conviction about talent, our value and path forward.
Mac Grill: Recent news has clearly caused some to question the IPP investment space and the unprecedented demand growth expected from data centers, let me be clear our value proposition remains unchanged in our view and the town story continues to excite us market fundamentals remain incredibly strong for IP fees in general and in talent footprint.
Mac Grill: Typically and we see real opportunity in events of the last several weeks.
Mac Grill: We have a clear vision about our path forward.
Mac Grill: <unk> has a $1 billion plus of dry powder, and our share repurchase program and balance sheet flexibility to execute this SRP.
Mac Grill: Or ask strategically if the right opportunities present themselves Cowen has an existing relationship with a hyper scaler, who shows no signs of pulling back on growth and has invested material capital and sweat equity into the Susquehanna arrangements today and on an ongoing basis.
Mac Grill: Cowen has a PPA that we are executing right now with visibility to 300 megawatts before we need to concern ourselves with regulatory issues about our co location arrangement and site development continues as we worked through startup with AWS.
Mac Grill: With this visibility towards the first 300 megawatts talent has time to convert the contract to a different commercial arrangement and or resolve the regulatory questions and we are confident and focused on executing on one of those options if not both overtime.
Mac Grill: <unk> has long power long PJM and will continue to benefit from a capacity market in the midst of promising reform efforts and a demand cycle that continues to show increasing strength Pelon has a clear line of sight to our cash flows with a nuclear PTC the PJM capacity market price increases.
Mac Grill: RMR that we executed recently in Baltimore and the beginnings of revenues under the AWS contract as we electrify the site.
Mac Grill: Terrific to reiterate we have strong conviction in our view the talent is well positioned for powering the future and our strategy remains unchanged.
Mac Grill: Now I'd like to highlight our operational and strategic achievements for 2024.
Starting on slide two of our presentation with our strong operational and financial performance, we generated $770 million of adjusted EBITDA and $283 million.
Mac Grill: Adjusted free cash flow for the year, our fleet achieved record levels of safety and reliability and I would like to thank the men and women of talent, who have made this a reality.
Mac Grill: Without their efforts none of this is possible.
Mac Grill: Our strong performance has continued into 2025 and we are reaffirming our 25 guidance in 'twenty six outlook, we've seen cold weather hit the mid Atlantic with PJM setting a new winter instantaneous peak load record of over 145000 megawatts on January 22nd.
Mac Grill: And it has been a strong start to the year, we continued to deliver under our contract with AWS, we are earning revenues from them already and construction continues on the campus. While AWS, obviously drives the schedule, we are working with them to deliver power under our PPA and the currently approved 300 megawatt ISI.
Mac Grill: Our interconnection services agreement. We are also moving forward on the commercial and legal path to ramp up to the full 960 megawatts for the campus among other opportunities across our fleet.
Mac Grill: As I previously mentioned in late January we agreed to a reliability must run or RMR with PJM FERC staff, the Maryland, PSC and local utilities. These RMR arrangements extend the life of branded stores and Wagner from May 25 to <unk> 29 or until necessary transmission upgrades in the region are complete.
Mac Grill: The timing aligns us with the PJM planning year, thus the extension through May of 'twenty nine.
Mac Grill: Beginning June one 2025, we will receive annual payments of $145 million for brand insurers and $35 million for Wagner and be reimbursed for variable cost and project investments.
Mac Grill: <unk> annual revenues included incentive fees for performance that we intend to achieve the settlement is subject to FERC final approval and we are encouraged by the level of support from key stakeholders through these arrangements, we provide critical infrastructure and protect protect grid reliability, and Maryland as well as the broader PJM.
Mac Grill: Yeah.
Mac Grill: Moving to our strategic achievements on page three 2024 was focused on unlocking value from our existing assets and returning it to shareholders, while exercising balance sheet discipline I think everyone knows the story and we're going to continue down this path of maximizing value with a focus on shareholder returns in 2025.
Mac Grill: While seeking compelling growth opportunities.
Mac Grill: Like I said the story remains the same turning to slide four.
Mac Grill: Here's an update on our page we've provided before the green bars in the chart or from our Investor Day last September where we talked about tripling free cash flow per share by 2026, assuming share count was held flat as we said in September this could be improved with buying back shares and that's what we did the effect of the share.
Mac Grill: Backs, we executed in 2024 is now reflected here in the Blue bars, which uses a static share count as of 12 31 2024 for the year is 25 and 26.
Mac Grill: These actions taken late last year have moved the mid points of free cash flow per share and <unk> 25, and 26 by approximately 11%.
Mac Grill: I want to remind everybody that when we present, our free cash flow per share metric, we do not exclude growth capex. So what you see here is what you get when it comes to capital allocation and cash available for shareholder returns and we do not include our future share repurchases.
Mac Grill: If any and the calculations looking for more of the same in 2025 maximizing value and returning it to shareholders that will always be our advanced investment benchmark as we evaluate opportunities for future growth.
Mac Grill: Turning to slide five.
Mac Grill: This slide supports what I said at the beginning of this call news happens markets move and markets are fickle, but talents underlying value proposition remains the same and still points up into the right. We clearly see significant load growth coming over the next decade AI is in its early innings and talent is executing a data center.
Mac Grill: <unk> arrangement today and is well positioned to power the future.
Mac Grill: Turning to the next slide slide six this is especially true in PJM and the PPL zone specifically.
Mac Grill: Looking at the graph, even if only part of this demand comes to pass it would still be a huge step up from the last decade and has yet to manifest itself and the forward curves as we see it in fact 26 and 27 is backward dated right now and that doesn't make sense to us demand growth means higher run times at higher prices for our existing generation fleet.
Mac Grill: <unk> and more attractive economics for potential data center arrangements.
Mac Grill: Turning to slide seven we are encouraged by what we've seen on the regulatory side in the last couple of months FERC PJM state governments and other stakeholders are aware of these growing power needs and have started taking some much needed action. We appreciate all the group's working efficiently to keep capacity auctions moving forward.
Mac Grill: As soon as possible.
Mac Grill: Incentivizing, new generation and provide more clarity on serving important data center customers.
Mac Grill: We recently filed comments in support of Governor Shapiro settlement in PJM on the capacity auction. We think this is a good interim step to reduce volatility. However, we believe the market should be allowed to work the market needs clarity on long term rules for capacity auctions, we need to get back to the normal course of running these auctions well in advance.
Mac Grill: As intended by the RPM.
Mac Grill: Simply we need regulatory certainty around the capacity market because it is critical for long term investments, we will continue being active participants in the regulatory process. We will work constructively with FERC PJM and the state where we operate successful outcomes here are critical to ensuring grid reliability and bringing new.
Mac Grill: <unk> online the RPM is work synthesis inception, bringing tens of thousands of megawatts of new generation to PJM and now is the time to redouble our efforts on this front.
Mac Grill: Recently, FERC constructed PJM to evaluate its tariff and proposed rules for governance of co located load connections, we will advocate for a simple and non controversial solution. If the generator the local utility the Rts and the customer and the customer agree on terms and the customer.
Mac Grill: Agrees to pay for what it uses from the grid then the load should be able to connect.
Terry: With that I'll turn the call over to Terry.
Terry: Thank you Mac and good afternoon, everyone.
Terry: Turning to slide nine, let's look at our full year financial and operational results.
Terry: As Matt mentioned, we achieved record levels of reliability and safety. This year, our fleet generated over 36 terawatt hours of power with an equivalent forced outage factor of only two 2% compared to five 5% last year.
Terry: Half of this generation came from our carbon free Susquehanna nuclear facility.
Terry: Additionally, PJM saw a notable increase in power demand in 2024 with weather normalized winter peak load in January and February increasing one 7% compared to 2023.
Terry: Reinforcing prior demand growth forecast with actual results.
Terry: Our gas fired fleet experienced a significant increase in dispatch opportunities, which drove higher volumes and energy margin.
Terry: Safety remains our first priority across the fleet.
Terry: And our 2020 for TR IRR was 0.34.
Terry: This is in line with or better than our peers and among the lowest incident rates and talents history.
Terry: Thanks to this performance our 2020 for adjusted EBITDA and adjusted free cash flow exceeded the midpoint of the guidance, we adjusted upward last quarter, enabling us to continue returning capital to shareholders.
Terry: I will provide some more financial details on slide 10.
Terry: Our full year 2024 results were supported by strong generation performance hedging activities, including the impacts of the nuclear PTC and disciplined cost management.
Terry: Despite the absence of earnings from the ERCOT generation portfolio that we sold in May.
Terry: During the fourth quarter, we generated adjusted EBITDA of $164 million and adjusted free cash flow of $21 million.
Terry: Adjusted EBITDA was $41 million higher than Q4 dollars 23, and adjusted free cash flow was $43 million higher primarily due to lower financing costs.
Terry: Turning now to guidance on slide 11, we are reaffirming the previously announced 2025 guidance ranges.
Terry: Our adjusted EBITDA range remains at $925 million to $1 75 billion and our adjusted free cash flow range is still a 395 million to $595 million.
Terry: Yeah.
Terry: If I were to provide any color on the start of 2025 it.
Terry: It would be this our fleet ran reliably during peak peak winter weather events, and we had strong commercial results.
Terry: Our 2026 outlook also remains unchanged from what we disclosed at our September Investor Day.
Terry: These ranges continued to demonstrate talents robust earnings and cash flow growth profile.
Terry: Which includes tripling adjusted free cash flow per share by 2026.
Terry: Moving to slide 12, we are committed to maintaining ample liquidity and net leverage below our target of three five times.
Terry: As of February 21, our 2024 net leverage ratio was three three times and pro forma 2025 was two four times well below our target.
In addition, we have approximately $1 2 billion of liquidity with over $470 million of cash on the balance sheet.
Terry: Yes.
Terry: In December we executed a series of refinancing transactions that both improved our capital structure and enabled us to complete a large share repurchase.
Terry: We lowered the interest rate on our existing term loan b and revolving credit facility.
Terry: <unk> terminated our cashback term loan C and expanded our letter of credit capacity by entering into a new facility.
Terry: We also issued a new term loan b at a lower rate and use those proceeds along with cash on hand to buy back approximately 5 million shares from our largest shareholder.
Terry: Lastly, we cleaned up our debt covenants and baskets, giving ourselves increased capacity for capital allocation.
Terry: Let's turn to slide 13.
Terry: Since the start of 2024, we have repurchased approximately 13 million shares or 22% of our shares outstanding returning nearly $2 billion of capital to our shareholders.
Speaker Change: Which as we said previously is 75% of our market cap since emergence.
Speaker Change: We continue to see share repurchases as the first priority for excess cash and we'll continue to use that as the benchmark to measure the return profile of any growth opportunities.
Speaker Change: We continue to target a return of 70% of adjusted free cash flow to our shareholders.
Speaker Change: We have significant buyback capacity through year end 'twenty six supported by $470 million of cash on the balance sheet and over $1 2 billion of adjusted free cash flow generation during the period.
Mark: With that I'll hand, it back to Mark.
Mark: Thanks, Terry 24 was an exciting time in 'twenty five is starting strong.
Mark: But we are not finished nor will we ever be as we continue to focus on maximizing shareholder value and creating growth opportunities.
Mark: We appreciate everyone's interest in talent and for joining us on the call today.
Mark: I'll now turn it back to the operator and open the line for questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered you were seeing with yourself from the queue. Please press star one again and we also ask that you limit yourself to one question and one follow up we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Michael Sullivan with Wolfe Research Your line is open.
Speaker Change: Hey, good morning, guys, Hey, Matt.
Speaker Change: Matt good to hear from you.
Speaker Change: I'm going to start with the same question I think everyone's been asking you and all your peers.
Speaker Change: The week of.
Speaker Change: The FERC.
Speaker Change: Order on co location just in terms of.
Speaker Change: How quickly you think that they can turn this around and what can you do in the interim.
Speaker Change: Sure so.
Speaker Change: Taking just kind of two different questions, taking the first one.
Speaker Change: How quickly could turn us around look I think we're encouraged by what's happened with FERC on how they pushed it to PJM and put a timeline out there Chris we came out with this press release or statement. The day. After the open meeting and basically said that he wants to move fast on this and push that that PJM, we're encouraged by that as I.
Speaker Change: Said, we think that they can act fast.
Speaker Change: Ill reiterate what I said, which is I think it's a simple solution that if the local utility that transmission owner and arcades PPL.
Speaker Change: State PUC, the <unk> being PJM and the generator all agree and it's paying for what.
Speaker Change: Service is being used then we think that that solution should be amenable to the market and should be available to the market and should be one of many different solutions and in all of the above approach for solving the growing AI demand. So we're encouraged by what we see how fast it is a regulatory process, but we're encouraged by.
Speaker Change: The timeframe by which Christie chairman, Christy as outlined and asked PJM to respond.
Speaker Change: The interim what can we do I think the story again remains the same I think talent. However.
Speaker Change: Absolutely I think our story is different in that what we have is a current arrangement with AWS and I think we shouldnt lose sight of that.
Speaker Change: Think that's complicated nor do I think it imputes the same regulatory uncertainty that might exist elsewhere, we have a deal that we're executing on.
Speaker Change: That deal by the way we're at 363 days in hindsight from when we signed that and since that time, we've been executing on it.
Speaker Change: At the site right now as I mentioned electrifying the site for those that came during the Investor day in September.
Speaker Change: Our October 23 excuse me.
Speaker Change: And visited the site when it was a shell it looks vastly different now it looks like someone kicked over an anthill you've got trucks cars everywhere, you've got equipment, showing up and we're working through startup and electrifying, we're receiving revenues under that contract. So.
Speaker Change: Look we view this as a race to be able to power the future power AI demand, we have an existing contract.
Speaker Change: I kind of view it is we're out of the blocks down the track and so we are executing.
Speaker Change: And we're looking forward and not back and so what does that mean, we have time, we have filled 2027 under the development schedule to solve this I'm confident that we will find a solution as I mentioned either through our commercial arrangement as well as preserving as I've said in the past we are pursuing a dual track right now as well as preserving co location because I think.
Speaker Change: It needs to be part of the ultimate solution going forward.
Speaker Change: So we're executing under that and we're excited about.
Speaker Change: Electrifying the campus and seeing the campus move forward Theyre turning dirt, it's it's an exciting time for us.
Speaker Change: That's great I appreciate all that color.
Speaker Change: Maybe just.
Speaker Change: Little more color on on latest thoughts for best use of cash I think you used the term economically justified growth.
Speaker Change: What does that look like as we sit here today.
Speaker Change: So I'm staring at Terry right now because it is going to reach across the table and probably.
Speaker Change: I don't know make sure I stay in check.
Speaker Change: Michael I think the story is the same we always benchmark as I said in the opening comments.
Speaker Change: Against returning cash.
Speaker Change: Cash to shareholders as our capital allocation that remains our benchmark by which we evaluate things, but when we look at the opportunity set that we have with respect to.
Speaker Change: Data center opportunities long term contracts things of those nature.
Speaker Change: We were thrown off a bunch of cash we've got a growing cash flow.
Speaker Change: Cash flow profile right, that's putting a lot of cash on the balance sheet. We've got.
Speaker Change: For versus our net leverage target as Teri articulated an unlevered balance sheet. So we have balance sheet capacity.
Speaker Change: But when we look at those we're going to use them.
Speaker Change: <unk> for growth opportunities that fit that strategy and if we don't find growth opportunities that fit that strategy or even if we do we're going to benchmark them against buying back our stock.
Speaker Change: And that's our general rule of thumb, Terry you want to just Michael just to add to Matt's comment.
Speaker Change: Sure.
Speaker Change: You mentioned this in his remarks earlier.
Should expect more of the same we bought 22% of our market cap back in.
Speaker Change: In less than 12 months during 2024.
Speaker Change: We think that buying our shares back as the highest and best use of our cash.
Speaker Change: As we look at other opportunities, it's got it clear that I mean.
Speaker Change: Take December for example, we were able to execute.
Speaker Change: A good transaction with our largest shareholder and that one transaction in itself increased our free cash flow per share by 11% and 25 and 26 and so we're focused on that as we thought about our debt covenants and our baskets. When we're doing all of the refinancing we had a we had a keen focus on how do we make sure that we've got.
Speaker Change: Got improvements in those areas to where we can continue doing what we've been executing on.
Speaker Change: Very helpful. Thank you very much.
Speaker Change: Thanks, Michael Thanks, Michael one of them before our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Shar <unk> with Guggenheim Partners. Your line is open.
Speaker Change: Hey, guys, Hey, Mark Hey, Shar.
Shar: Just any views on the backdrop for resource adequacy legislation in Pennsylvania, I guess, what do you expect out of the legislator at this point is something kind of regulated in a quasi regulated like PPA still possible as we head into what seems to be an active March in Pennsylvania can you strike.
Shar: I can deal with the wireless players or are you in discussions with them just a little bit of elaboration on the research side.
Shar: Yes, so look I think.
Speaker Change: We've had the opportunity to have conversations with the governor as well as the staff and I think Keith.
Speaker Change: Governor Shapiro in Pennsylvania, keenly in tune with making sure that there is resource adequacy that there is economic development associated with data center growth balanced with making sure that there is consumer protections and price and Thats why we put forward. The caller. If you will the cap in the floor on the capacity auction.
Speaker Change: <unk>.
Speaker Change: Which we did file in support of recently.
Speaker Change: FYI.
Speaker Change: And I think but thats.
Speaker Change: Our near term fixed I think we got to get the capacity markets right in the long term to incentivize new generation and I think there is.
Speaker Change: Discussions going a foot shar as you mentioned about is there an opportunity to think about contracting for load through the local utility.
Speaker Change: In general I think that idea makes a lot of sense and it makes a lot of sense for an energy exports state like Pennsylvania, I think the governor's interested in continuing to be an energy exports state and supportive of that and wants to see new generation brought to bear.
Speaker Change: And those are early days in that discussion with respect to the reregulation I will say this the markets have worked.
Speaker Change: The markets have work, bringing tens of thousands of megawatts of generation.
Speaker Change: Both conventional gas fired generation as well as renewables into the market and I think we need to not have necessarily knee jerk reactions of reregulation I don't find that to be the most economic form of incentivizing generation, but some form of longer term contracts by the load serving entities could.
Speaker Change: An interesting idea.
Speaker Change: But it's early days and there is not the Devil is always in the detail on ideas like that and you got to let them flesh out and Thats very early but I don't think theres a huge appetite for reregulation.
Speaker Change: And I think that people are supportive of the markets and what has brought from lowering consumer costs over time for the past decade for the past decade energy and capacity prices in our zone have been flat on a nominal basis, which means on a real basis, they've actually declined.
Speaker Change: 25% to 30% over the past 10 years and there is $2 70 versus the 50 to 100 at most over the last decade, maybe.
Speaker Change: Maybe a little higher in the very first part of that decade.
Speaker Change: That's inclusive of what I'm, saying here that energy and capacity has been flat. So we need to find the right mix here and it's an interesting idea, but it's early days there are sharp.
Speaker Change: Got it on the long term contracts.
Speaker Change: And then as Michigan kind of that proxy as you guys are thinking about or having discussions around long term contracts is structure would like Michigan, where you have a longer term PPA. The wires companies can earn on the PPA is that kind of the benchmark or is there something else. We should be thinking about look I will profess that I don't know Mitch.
Speaker Change: Again, and so it's hard for me to use that as a benchmark sharp.
Speaker Change: If you are saying that they go out of contract for capacity resources for a longer period of time and use that to serve provider.
Speaker Change: Provider of last resort or the backstop for serving customers then yes.
Speaker Change: That would be the benchmark. It's also quasi to sort of self scheduling, which is what dominion does inside of PJM, where they have their own supply and their own but it is not the supply in this case of the transmission owners that supply would be coming from the generation owners and the transmission owners would then be buying it and self scheduling.
Speaker Change: Got it okay, but it is very early in those discussions like where now you Peel the onion. So far back there is no more onion.
Speaker Change: Got it got it and then just lastly, just back a lot of focus this week on additionality in light of some of your peers any just updated thoughts on your own development program are you looking at turbine slots or projects at this point. Thanks, guys I appreciate it.
Speaker Change: Look so first of all what are we looking at we're looking at how can we get more megawatts from our existing fleet are there potential operator can we go recoup some of the megawatts.
Speaker Change: That may be lost on certain designs across our fleet what can we add by upgrading for example at lower Mount Bethel and those are those are megawatts and I think that that's really what's going to fill the near term.
Speaker Change: If I think about resource adequacy, I think about it in sort of.
Speaker Change: Three phases, you've got the near term midterm and long term and in the near term, we've got to get it right balancing load in and getting the most out of what's existing because new development isn't going to hit.
Speaker Change: The grid until very late this decade, if not into the 2030. So we're focused on what can we do to provide more megawatts and keep existing megawatts around bruner, Brandon choice or the RMR, what can we do a keystone in kind of all the owners are having discussions there so.
Speaker Change: That's what we're focused on with respect to longer term and development.
Speaker Change: I do believe and I've said this I think.
Speaker Change: We've said this at least.
Speaker Change: For the past six months, maybe possibly longer that gas is going to have to be the solution in that mid term and that.
Speaker Change: Try Masters, if you will and that but its going to come online around 2030, but I think what's going to happen. There is youre going to have to see people sign up for longer term contracts and I do think that eventually what youll see if you want to call. It additionality I don't know, but I think youll see people look to how do we contract for <unk>.
Speaker Change: Assets to bring new generation to bear and.
Speaker Change: And that's how I think conditionality get solved I think the whole concept of taking any particular load.
Speaker Change: And calling it out and saying it's got to bring its own generation.
Speaker Change: It's really a false narrative.
Speaker Change: And the fact that that doesn't happen with anything that connects to the grid. You can go plug a server into and it was all outlet right now call that front of the meter and it doesn't need to bring this new generation. So I don't think we should we should look at data centers in particular as this one off load that needs to bring additionality, that's not the way to solve.
Speaker Change: It's what we need to do is provide the right incentives to bring new generation to bear.
Speaker Change: Got it Super helpful. As always Matt. Thank you so much I appreciate it.
Speaker Change: One moment for our next question.
Jeremy Tonet: Our next question comes from Jeremy Tonet with J P. Morgan Your line is open.
Jeremy Tonet: Hi, good afternoon.
Speaker Change: Hey, Jeremy how are you doing.
Jeremy Tonet: Good good.
Speaker Change: Looking forward to 2025 here EBIT I was just wondering if you add up the new ptc's to RMR payments in PJM capacity payments.
Speaker Change: Bracket roughly what percentage of your forward EBITDA do you see you have like full visibility line of sight at this point.
Speaker Change: So Jeremy I think when you look at those you take capacity the AWS contracts I would add in there our hedge profile is too as well we've got a significant amount of 2025 margin bracketed I think obviously as we move forward in time and AWS contract ramps.
Speaker Change: And then also in the fact that you've got the floor and ceiling now on capacity markets for a few years that you can get that even gives us more trajectory for a range of outcomes. When we think about the upcoming years and so pretty significant portion I mean top of my head, it's well north of if you exclude the hedges.
Speaker Change: The 40% of sort of locked in for 25.
Speaker Change: Obviously when you include the hedges as well youre going to be you're going to be upwards of.
90% and I think just to add to what Terry said, if you look at where the PTC is right.
Speaker Change: Pricing.
Speaker Change: Mark to market of our portfolio versus.
Speaker Change: Coming off with Susquehanna versus the PTC. The PTC is it out of the money. So we view that when we look at it and think about our hedging strategy. We look at that as a put option that we have our own floor by which provides those cash flows but were in excess of that right. Now is what I'm, saying in the market. If we just run those.
Speaker Change: Megawatts to market.
Speaker Change: Got it that's helpful. There.
Speaker Change: And there's been a lot of I guess talk in the marketplace a lot of concern with that.
Speaker Change: As far as what the Hyperscale or what you're doing out there I understand that commercial discussions are sensitive to a lot of factors out there, but how do you feel about the pace of hyper scaler I guess.
Speaker Change: And on AI at this point and.
Speaker Change: How that impacts you guys going forward.
Speaker Change: So look I mentioned that theres been a lot of a lot of news out there in the market and some of my opening remarks.
Speaker Change: <unk>.
Speaker Change: It's interesting to see and I call the market's fickle, because it's interesting to see how the markets react to this I think that we are early innings of the AI boom.
Speaker Change: <unk>.
Speaker Change: That demand.
Speaker Change: It is going to to possibly move around but the demand is there. We are seeing no signs of slowing seeing capex plans being announced you see Nvidia announcements and I can tell you anecdotally from what we see at our site development continues on the campus and it's full steam ahead. So.
Speaker Change: We're excited about where things are and.
Speaker Change: The news that comes out in both directions.
Speaker Change: I think generally the demand is up into the right and hasnt shown any signs of slowing.
Speaker Change: Okay.
Speaker Change: Got it that's helpful and one last one if I could just.
Speaker Change: As far as the market being fickle here it seems like there is.
Speaker Change: No.
Speaker Change: Debate with traditional utility is getting more competitive and landing data centers here and then you have the backdrop of the regulatory items as you're talking about in PJM I'm. Just wondering how you think about the competitive market positioning at this point given the considerations as you outlined there.
Speaker Change: Right.
Speaker Change: Look theyre going to data centers will be in the competitive markets I think youre going to see announcements all over the country and some of those markets are going to be regulated and I think that if you look at it.
Speaker Change: Again.
Speaker Change: I think we're in a different situation overall, because we're electrifying a campus right now that's the speed to market that we could provide I think that the inbounds that we've seen in coal can jump in here the inbounds that we've seen across our fleet and the opportunities to explore additional hasnt stopped.
Speaker Change: And it continues I think that there is demand out there and it's going to find its way into PJM. If you look at where we are it was a speed to market of being able to connect.
Speaker Change: I think you've seen PPL say that they have the ability to provide additional speed they submitted their large load.
Speaker Change: In the PJM late last year showing.
Speaker Change: <unk> of megawatts of backlog that they can connect quickly and if you look at where PJM is particularly where we are in PJM and were Pennsylvania sit it fits right there where you can between northern Virginia, and the load centers in the northeast and Thats, an optimal space that they have to be but if you're a hyper scaler totally understand it if they're all <unk>.
Speaker Change: And to build 30 gigs of data center by X date, we're going to have to diversify across the country. So when we see those announcements.
Speaker Change: Do we want them to be.
Speaker Change: Our announcement sure, but do we understand that theres going to be diversification by the Hyperscale is absolutely, but we like our positioning and continue to like our position Kohl's.
Mac Grill: As Mac said.
Speaker Change: We've seen significant interest in other opportunities outside of what we've already announced here from.
Speaker Change: From a variety of different types of data center operators and end users.
Speaker Change: Look.
Mike: As Mike said some of these opportunities are going to find.
Mike: Their needs are met in the regulated market some in the competitive markets and I'll go back to what we talked about back in our Investor day back in September well.
Mike: Well before the FERC <unk> ish.
Mike: Issues came up.
Mike: There's different constructs for different counterparties rates be kind of the all of the above approach and whether thats a behind the meter like we do at Susquehanna or is that a front of the mirror solution to reserve some kind of hybrid solution to unlock more megawatts either at susquehanna or across our gasoline.
Mike: We have already been looking at those at anticipating and has been kind of proven out in our discussions with different counterparties that some like one solution and others like a different solution.
Mike: So we're excited about the fleet, we have and the opportunities ahead.
Speaker Change: Thank you.
Speaker Change: Maybe a little inside baseball here, but like I said it was 363 days ago that we re signed and inked the AWS deal and I think it was 362 days ago that I said the coal how are we going to do this and do it differently across the fleet and we've been working on it since that time and there is there's a lot of different solutions, whether it would be.
Speaker Change: The behind the meter front of the meter or everything in between which is co located grid backup and we've been thinking through all of those solutions and having discussions about them and how they might fit.
Speaker Change: And we just continue to press forward on that.
Speaker Change: Got it.
Speaker Change: Very helpful. There, so recapping talent very well positioned with speed to market.
Speaker Change: To capitalize there on a trend that is not abating with a lot of visibility to cash flow. This year it sounds good.
Speaker Change: Thank you well said.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Our next question comes from Andrew <unk> with Seaport. Your line is open.
Speaker Change: Hey, guys, it's been a long day, we're starting to recap.
Speaker Change: How are you doing.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks for thanks for sticking with us and getting on the call.
Speaker Change: So I mean look I mean, we're clearly getting anxious.
Speaker Change: All of the Optionality that.
Speaker Change: But you can think of a weekend thank god.
Speaker Change: You could potentially see.
Speaker Change: In front of the meter deals overnight seemingly at least from our vantage point.
Speaker Change: You are surrounded by transmission lines and yet.
Speaker Change: We're not announcing anything.
Speaker Change: So.
Speaker Change: So why is that and again I understand it takes time as you just pointed out it's been a year.
Speaker Change: We've had some.
Speaker Change: Some issues with FERC that's for sure.
Speaker Change: But again.
Speaker Change: Feels like there is some disconnect.
Speaker Change: PPL Zelman from what we're hearing from PPL and some and the lack of announcements that we're hearing from you. So <unk>.
Speaker Change: Again, what are you waiting for and as you sit today what is the timeline do you need the whole procedure.
Speaker Change: At FERC to.
Speaker Change: To basically continue so are we in this waiting game until the end of this year.
Speaker Change: I was thinking that something will come out from the other PJM filing within the next 30 days.
Speaker Change: You want to wait.
Speaker Change: Again at some point. This this time to power benefits will go away no. So isn't that in your best interest to sign these contracts while the demand is there.
Speaker Change: That was a lot of our questions.
Speaker Change: But I appreciate it and.
Speaker Change: Look I don't you.
Speaker Change: Youre asking the question if we're waiting on regulatory uncertainty and as I said in the early comments.
We're not in the same position, we're not waiting on regulatory certainty for anything we're executing under our current contract first of its kind contract. We're electrifying the site receiving revenues doing all of those things working with AWS on getting that going and we have.
Speaker Change: I would say that allows us two years' worth of time on that regulatory.
Speaker Change: With regulatory certainty, okay, because we have that and so we're pushing forward. We're looking at all of our alternatives commercially and.
Speaker Change: As I've said in the past and I know that sometimes this doesn't satiate.
Speaker Change: Desires of people, but we work on things and when we get things done we are willing to announce them, but at the same time.
Speaker Change: We don't talk about our commercial negotiations of what we're doing.
Speaker Change: And the public and so.
Speaker Change: I get and I totally understand that people are looking at the time I think that talent is differently positioned and that we're acting under our current contract that allows us time by which to have ongoing conversations coal.
Speaker Change: Yes, I mean, as Mike said, we obviously announced the deal and let's not forget we spent.
Speaker Change: A good part of the next six months after that Youll perfecting it alright, we added an escrow that had to get released in August.
Speaker Change: Zoning milestones and other permitting that had to happen there.
Speaker Change: Obviously, we can walk and chew gum and we've been working on some other opportunities.
Speaker Change: On the FERC ISI rejection on November <unk>, obviously changed with some of those configurations might look like in terms of speed and it takes two to get to a deal and our counterparties have to figure out what's right for them do they want to move faster and move to a different solution and so we've been working through those.
Speaker Change: <unk> says when we have something to announce.
Speaker Change: Youll be the personnel.
Angie: I don't think Angie that debt.
Speaker Change: The.
Speaker Change: Not announcing a deal across the industry I'm speaking industry wide here.
Speaker Change: As a sign that there is a lack of appetite I just think that there.
Speaker Change: There is an appetite and.
Speaker Change: It is.
Speaker Change: It will take time I don't think that that time is.
Speaker Change: 27% 28 by any means a 26 I think that there is time to get things done and we have time under the current contract where we're running two pronged right, which is executing under our current contract to get the campus up and running and like I said.
Speaker Change: Is up it is getting up and running right now and we're excited about that and we continue to execute on that and that gives us some ability to do.
Other look at other deals and do the right deals not just any deal.
Speaker Change: Okay.
Speaker Change: Can I push back a little bit.
Speaker Change: Sure how about the gas plants.
Speaker Change: I understand that there is.
Speaker Change: Some uncertainty around the structure.
Speaker Change: Surrounding the colocation or whatever connection to the data center at Susquehanna, but but.
Speaker Change: <unk> gas <unk> be a bit more straightforward.
Speaker Change: Those could be in front of the meter.
Speaker Change: Could be just regular commercial arrangements and yet we haven't heard anything on that on that farm Ddos.
Speaker Change: Yes.
Speaker Change: Great question look I mean, as I said earlier, I think Mack did as well and we're looking at a number of opportunities across our fleet. Obviously, we have one nukes that means.
Speaker Change: So our fleet pretty much is the gas gas units and look we've seen increased interest even in the last three or four months.
Speaker Change: On specific deals around a number of our assets there and we have some attractive sites we believe.
Speaker Change: Sites that have ample land more than 2000 acres in some cases surrounding the plant we have good interconnections as you mentioned the transmission access to water and just the overall location and.
Speaker Change: It's really about what does the counterparty one.
Speaker Change: Whats right for talent and what's the right long term solution in.
Speaker Change: We're working through that process.
Speaker Change: Actually say interest has picked up quite frankly on gas.
Speaker Change: Gas deals.
Speaker Change: As we've discussed in the past I've always said I think gas fields or what's going to fill the gap.
Speaker Change: Nuclear deals, which have the carbon free aspect to them, but gas is going to have to fill.
Speaker Change: The gap and if you look at so called regulatory regulated deals are vertically integrated deals that have been announced that take the one in Louisiana, it's been around building new gas plants.
Speaker Change: Additionality, whatever but it's around a gas portfolio and I think that people are looking for that and I think that.
Speaker Change: Those are coming they are just not here yet.
Speaker Change: That's right. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Nick <unk> with Evercore ISI. Your line is open.
Speaker Change: Hey, guys, it's actually good for you.
Speaker Change: Hey, guys, it's Mark how are you.
Speaker Change: Good excellent. Thank you Mike good discussion.
Speaker Change: All my other questions have been answered maybe just one quick clarification.
Speaker Change: As we think about 2025.
Speaker Change: And 2026 guidance.
Speaker Change: How does the.
Speaker Change: The recent RMR agreements, how does that factor into our numbers with those the upside if approved or how should we think about that thank you.
Terry: Hi, Andrew This is Terry so when we put those ranges out we had an assumption around the RMR.
Terry: It's within our within our range.
Terry: So it's included in those guys that we have out there.
Terry: Okay perfect. That's all I had thank you. Thanks.
Terry: Thanks for just one moment for our next question.
Reni Singh: Our next question comes from Reni Singh with Bank of America. Your line is open.
Reni Singh: Hi, guys.
Ross: Anything here for Ross.
Ross: Hey, Rene how are your question I just had a quick question about the.
Ross: The RMR situation at FERC.
Ross: So I was curious kind of do you see like any I saw that the Merrill Lynch people Council.
Ross: I would like something.
Ross: In protest.
Speaker Change: Christy's comments on consumer rates can you kind of see any.
Ross: Issues with that process and cannot be held out.
Speaker Change: Longer.
Speaker Change: So you wouldn't get the revenues I guess.
Speaker Change: You have any clarity there.
Speaker Change: Yes, Randy let me, let me start and maybe John General Counsel wander can jump in.
Speaker Change: First I'm glad you asked about the RMR because its something thats been done between our calls here and something that we filed and something that we are.
Speaker Change: We're excited about because we were able to reach a settlement with all the major stakeholders, including FERC staff as well as the Maryland, PSC and have the support to do that and we're excited about the ability to continue to provide grid reliability and Baltimore in PJM, specifically and so and to do our part in that.
Speaker Change: With respect to the process I will let John jump in and the SEC, but I think it's key to remember that the FERC, which approve the PJM auction rules to move forward in July for 'twenty six 'twenty seven as part of that what's included is that these RMR units are in that.
Speaker Change: Auction set of rules.
Speaker Change: Theyre being bid.
Zero, effectively and as a resource but in.
Speaker Change: In order for that auction to go forward. This RMR has to be put in place and we've been fairly clear about that from the beginning John anything you'd add on that.
Speaker Change: Thanks Mac.
Speaker Change: No Randy not very much to add to that really I'll give you a couple of just sort of dates on it may.
Speaker Change: One is the data we've asked FERC to approve the settlement by that date, if it's not resolved by the time. The RMR is supposed to start we will have the ability to run the plant using these.
Speaker Change: These financial.
Speaker Change: Agreements until for it does improve it and then there is a true up at FERC does something to it later down the road, but we don't expect that because of the things Max outlined.
Speaker Change: We think that.
Speaker Change: Number of stakeholders, who support it and have filed in support of it and the nature of those stakeholders. The parties, we're going to pay for it are on board with the settlement because it brings reliability and it make sure that that Baltimore continues to get heat in the winter.
Speaker Change: At nighttime.
Speaker Change: Okay that makes sense. Thank you guys.
Speaker Change: One moment for our next question.
Craig: Our next question comes from Craig <unk> with Tuohy Brothers investment Research. Your line is open.
Speaker Change: Good afternoon.
Speaker Change: Thanks for taking the question.
Speaker Change: Hey, Greg item.
Speaker Change: Good.
Speaker Change: So I wanted to dig a bit more in and just gas fired Michael's growth investment in charters additionality questions.
Speaker Change: So simply put in light of the recent.
Speaker Change: NRG and Williams industry news.
Speaker Change: Would you say that it's fair to say that to get Hyperscale, our attention for a long term gas powered solution you have to be deploying notable new capacity.
Speaker Change: And if that is the case.
Speaker Change: What kind of return threshold would you be looking at to incentivize talent move in that direction given your return of capital focus.
Speaker Change: Well, there's a lot in that question, Craig so sort of like returns analysis and things of that nature. It would have to be a longer term contract, but maybe just a couple of comments with respect to the framing of the question.
Speaker Change: NRG announcement I think is <unk>.
Speaker Change: Directionally in the right direction, I think that the as two separate pieces to it the first piece of it was the.
Speaker Change: The part that addresses additionality, our understanding just reading is that the LOI with the two different data center providers are not they are an existing generation are using existing generation not bringing additionality. So theres two components to that piece there.
Speaker Change: I do think that bringing new generation as I said is in that.
Speaker Change: Mid term not the near term and I think that's why you probably saw them parsed out I don't know I haven't spoken to them I'm just reading on what I saw which was.
Speaker Change: I think it's good for the industry to keep advancing the ability to power data centers.
Speaker Change: But I think for us.
Speaker Change: To invest in that we would have to see something that provided a contract with I'm not ready to put a number on it I don't think terry's ready to put a number on it but a number that provides an adequate return that's above and yields better than our free cash flow yield of buying our stock back which is always the benchmark is.
Speaker Change: As I mentioned, but it wouldnt just be on a sort of a one year timeframe. It would be over a longer term timeframe and that had a longer term contract with a.
Speaker Change: A good credit on the other side I think that we have a different position being a long only generator I think you need to do that as part of our portfolio because I don't think people want to take single asset risk and we have the ability to offer that because I think those deals will more than likely look like either a co located deal with grid backup or front of the meter deep.
Speaker Change: That supports that build but if that unit is loss you're going to have to provide it from somewhere else from your portfolio. We're excited about the opportunity to have a portfolio a flexible portfolio of assets that could backstop going along with new generation and so that's how we see it playing out for US is it a better investment than buying our stock back does it have a good long term off take.
Speaker Change: Agreement and can we put it in our portfolio and provide an overall solution as well as possibly green it up with environmental credits and alike in order to provide effectively a C&I front of the meter deal. So thats, how we view it.
Speaker Change: That's helpful.
Speaker Change: And finally just on guidance.
Speaker Change: I mean, it's obviously the start of the year.
Speaker Change: Wasn't expecting any major changes but.
Speaker Change: But there are some positive things I mean, the opening comments talked about the sustained tight multiyear.
Speaker Change: Supply demand outlook, but you also have the Maryland RMR settlement.
Speaker Change: I think the original guidance was based on.
Speaker Change: Capacity markets versus that step up in the 2025 26 auction, but now it looks like that will probably move from $2 70 ish close to that 325 cap at least for the next auction.
Speaker Change: So is it fair to say that within the guidance range.
Speaker Change: Things are leaning towards the top half at this point.
Speaker Change: So.
Speaker Change: Terry and I got together before this call and we looked at each other and said to each other don't you do it.
Speaker Change: Alright, I have been working together for.
Speaker Change: I don't know.
Speaker Change: A long time, where they were going to say publicly.
Speaker Change: Look as part of normal course, it's just not customary in our opinion to update guidance for 25%.
Speaker Change: And they're not even at the end of the first quarter.
Speaker Change: So later in the year, we will provide an update on that I think the ranges are inclusive of commodity changes upside and downside rmr's or anticipated I think the capacity for $25 26 was put into that number and as we go through the year, we're off to a good start there is no.
Speaker Change: After a good start.
Speaker Change: But it's a four quarter game to provide full year results and we're just not going to change guidance at this point in time, and our 26 outlook.
Speaker Change: Again, if you look at the markets the markets have moved up I think during.
Speaker Change: During the cold weather event I'm looking at Chris <unk>, our Chief commercial officer, I mean, the market was well bid in the first part of this year in the term market.
Speaker Change: And thats come off a little bit, but the markets are generally trending up and we're starting to see load manifest itself and so if you look at our hedge position, which is in the appendix we have the ability to participate in that in that commodity sensitivity is encompassed in those ranges and so we'll provide more specific update to that we're just not going to do that at this point in time.
Speaker Change: Jim.
Speaker Change: Yes, Greg I mean, you should expect that obviously as we move forward, we'll narrow and adjust guidance accordingly, but as Matt said.
Speaker Change: We're two months into the year so.
Speaker Change: <unk>.
Speaker Change: Update as we move forward.
Speaker Change: Thank you.
Mac Grill: Ladies and gentlemen, this does conclude the Q&A portion of today's conference I'd like to turn the call back over to Mac for any closing comments.
Speaker Change: Great. Thank you Kevin.
Speaker Change: And thanks, everyone for joining us today and your continued support and interest in talent I have a great day.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.