Q1 2025 Constellation Energy Corp Earnings Call
Speaker Change: Good morning ladies and gentlemen and welcome to the Constellation Energy Corporation first quarter earnings call.
Speaker Change: At this time, all participants on a listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time.
Speaker Change: As a reminder, this call may be recorded. I will now like to introduce your host for today's call, Emily Duncan, Senior Vice President, Investor Relations, and Strategic Initiatives. You may begin.
Emily Duncan: Thank you to Wanda. Good morning, everyone, and thank you for joining Constellation Energy Corporation's first quarter earnings conference call.
Emily Duncan: Leading the call today are Joe Dominguez, Constellation's President and Chief Executive Officer, and Dan Eggers Constellation's Chief Financial Officer. They are joined by other members of Constellation Senior Management team who will be available to answer your questions following our prepare for marks.
Emily Duncan: We issued our earnings release this morning, along with the presentation, all of which can be found in the Investor Relations section of Constellation's website.
Emily Duncan: The earnings release and other matters that we will discuss during today's call contained forward-looking statements and estimates regarding Constellation and its idearies that are subject to various risks and uncertainties.
Emily Duncan: Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's materials and comments made during this call.
Emily Duncan: Please refer to today's 8K and Constellation's other SEC filings for discussions of risk factors and other circumstances and considerations that may cause results to differ from management, projections, forecast, and expectations.
Emily Duncan: Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures . Please refer to the information contained in the appendix of representation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures . I'll now turn the call over to Dominguez.
Joe Dominguez: Thanks, Emily. First of all, let me thank Twanda for getting started. You know, in our three short years, we've had a couple occasions where the bridge call failed. So, Twanda, stay on your toes. Hopefully we won't need you. Morning, everyone. Let me first thank the incredible team here at Constellation for getting us off to a strong operational and financial start.
Emily Duncan: We are exactly where we want to be through the first quarter and we will meet our commitments this year.
Speaker Change: We delivered gap earnings of $0.38 per share and adjusted operating earnings of $2.14 per share as usual, Daniel walked you through the details in his section.
Speaker Change: I want to spend some time providing some higher level thoughts on what we're seeing in the market and what it means for Constellation's data economy strategy. The short story here is that we're seeing a very, very favorable environment.
Speaker Change: The business updates from the big tech companies where they've essentially doubled down on their capital and growth strategies.
Speaker Change: Reinforces Constellations' overall strategic plan, the importance of America's nuclear energy to meet the coming demand, and the strong logic of the Calpine acquisition.
Speaker Change: While we think there's some out there who have overstated the amount of new demand for their own reasons,
Speaker Change: We're confident that the demand could be met and that the markets will respond with demand response and new generation as needed.
Speaker Change: But importantly, even a more rational view of new demand will give us ample opportunity to support both in front of and behind the meter data center development at significant scale.
Speaker Change: and as we look at both the cost of new entry, as well as the amount of time it takes to bring new power generation on.
Speaker Change: We believe that the options for clean and reliable energy from our assets will be a compelling and durable strategic advantage for decades.
Speaker Change: This opportunity in turn will allow us to make needed investments in clean and reliable nuclear energy, so that we can relicense and keep running these one-of-a-kind assets through 20, 60, and beyond for America.
Now in summary, tears what we're seeing in the marketplace.
Speaker Change: First, the business updates from the tech companies are telling us that Americans are putting AI technology to work in their businesses and in their lives.
Speaker Change: AI technology makes businesses stronger and helps them offer better products and services. We're seeing that right here at Constellation. For families, it helps them manage their daily lives and educate their children.
Speaker Change: We see our data economy customers maintaining and often expanding their needs to build new data centers to provide these products and services to customers.
Speaker Change: Now it's our job as an energy industry to provide the necessary power, and that is precisely what Constellation will make happen. In fact, we're making tremendous progress today toward reaching agreements with our customers, which I'll describe a little bit more in a moment.
Speaker Change: The second dynamic we're seeing is that it's clear that the cost of new entry, whether that be for combined cycle machines or solar with storage, has gone up substantially. As has the time to build and cite these assets.
Speaker Change: At the end of the day in a tightening market, we compete with the cost of new entry, as market new entry prices converge.
Speaker Change: and we believe our offerings for clean and reliable generation are far more attractive from a time and pricing standpoint than any competing option.
Speaker Change: whether that's used to support on-grid data center development or behind-the-meter development.
Speaker Change: Locating AI facilities' proximate to large clean and reliable power plants continues to make all the sense in the world, but, critically, we do not need to have load co-located or behind the meter for us to achieve compelling pricing.
Speaker Change: To be perfectly candid, we weren't sure about that at the beginning of this strategic effort.
Speaker Change: Initially, we were somewhat concerned that fair pricing might only be available in behind-the-meter transactions structured like the talent deal.
Speaker Change: But we are now convinced that we could achieve fair pricing at levels consistent with our owner's expectations, regardless of whether a client chooses to be in front of the meter or behind it, whether a client chooses to be near our plant or in a remote area.
Speaker Change: We demonstrated that when we achieved the Crane Clean Energy Center Restore, we demonstrated that when we achieved the Landmark GSA Transaction that we announced in January , and we've demonstrated that time and again with CFE deals.
Speaker Change: and we certainly save further evidence in the deals we're working on now.
Speaker Change: Ongrid sales are increasingly attractive to us and to our customers for other reasons too.
Speaker Change: The behind-the-meter approach depends on the cooperation of the local utility, where our assets are part of the grid.
Speaker Change: and their willingness to facilitate studies and collaborate. Now, it's been no secret that hasn't happened easily, and the regulatory process is presently tied up at FERC, where the industry desperately needs some clarity.
Speaker Change: But I will tell you, there have been some benefits from the controversy over co-location. It's caused utilities to speed up the interconnection process because they came to understand that the studies were taking far too long.
Speaker Change: We want to take a moment to applaud the efforts of utilities to move more quickly, and we thank them.
Speaker Change: One of the benefits of on-grid sales for us is that we could work with utilities anywhere in the RTO. We could partner where it makes most sense and where they could bring these grid resources online as quickly as possible.
Speaker Change: This eliminates the need for extensive regulatory processes, it limits the complexity around behind the meter co-location, and it simply treats these customers like we've been treating all of our retail customers for decades.
Speaker Change: I do want to make clear that we still believe that behind-the-meter configurations will make sense for some customers and we continue to get inbound in that area.
Speaker Change: It may be the case at the end of the day that the largest and perhaps the most important data centers from a national security standpoint will involve grid configurations where a part of the data center operates behind the grid and part of it operates in front of the meter.
Speaker Change: President Trump highlighted a configuration like that recently in one of his remarks. We urge FERC to provide clarity on the rules for behind-the-meter configurations and to provide latitudes so that there could be innovation here following the President's lead.
Speaker Change: The third thing we're seeing is that the encouraging data center growth updates and the cost of new entry all reinforced the strong logic of what we did with Calpine in that deal.
Speaker Change: As I'll discuss, that deal looks better to us every day. We acquired Calpine because it was an awesome company run by terrific people.
Speaker Change: The combination of Constellation and Calpine people and assets will create new capabilities for our customers, large and small across America.
Speaker Change: But, as we discussed, we were also mindful of value when we negotiated that cow pine to you.
Speaker Change: And if you now consider the cost of new combined cycle machines that Constellation, Nexter, and many others have reported...
Speaker Change: One can easily make the argument that Calpine was worth twice as much as what we paid for.
Speaker Change: Now, of course, you might challenge me and say that the comparison of new CCGTs to the CalPine fleet does not completely square. You can say that the CalPine assets aren't known, and I'd have to agree with that. That is true.
Speaker Change: But you might also agree that unlike hypothetical new assets that face an uncertain world of interconnection cues, tariffs, supply chain issues, and delivery dates that are sometimes years away.
Speaker Change: Having a fleet of new plans that are up and running exceptionally well with a good team running them might offset a couple of years of age. Anyway, we love the deal.
Speaker Change: But so much of that is driven by macroeconomic factors that we cannot control.
Speaker Change: In our opinion, our stock price does not reflect the full value of the particular opportunities we have here.
Speaker Change: the double-digit-based earnings growth through the end of the decade, or the prospect of securing additional above-the-PTC pricing deals.
Speaker Change: As you can see from the disclosures, we have about a billion dollars left in our buyback authorization from the board.
Speaker Change: I'll tell you we would have loved to have been in the market buying at these prices during quarter. But as you've seen before, there are times where we have been unable to be in the market due to possessing material non-public information.
Speaker Change: We do look forward to sharing great news with you soon and resuming our buyback program at these compelling stock price levels.
Speaker Change: Starting to slide six, at the beginning of the call, I started with a big picture narrative we're seeing today. I now want to dig in a little bit.
Speaker Change: On slide six, we see the demand from data centers is coming and that the U.S. will rise to meet this challenge. The Trump administration has made clear that the U.S. must win the AI race, and the administration is taking steps to ensure that we will.
Speaker Change: They understand that the data economy is critically important to national security and to our economies and will be an important driver of American success.
Speaker Change: I can tell you that I've been in Washington a lot and I haven't had a single conversation with anyone from the administration or any member of Congress where the importance of AI leadership has not come up.
Speaker Change: And notwithstanding news and rumors to the contrary, we've seen the major tech companies get it too. And they've increased or recommitted to their capital plans for data center buildup.
Speaker Change: They are making these investments because AI is delivering for customers and you can see it in their business results.
Speaker Change: Businesses and families are looking at the possibility of what AI could do for them. You know, we have a number of projects here at Constellation where we're utilizing AI and I could tell you the tools are marvelously effective. They're going to change operations at plants.
Speaker Change: We're going to change our relationship with customers. We are going to discover new ways to do things that are going to bring enormous value to our customers and to our owners.
Speaker Change: We're a microcosm of the demand that is coming. There's just no doubt about that.
Speaker Change: I've said this before while the demand is strong, we have to be a bit cautious here that there are some claims that are a bit outsized in terms of the extent or amount of that demand.
claims that are difficult to substantiate either mathematically or logically.
and that's why we put slide seven in here.
Speaker Change: As I said, electric demand will be big for our industry. No doubt about that. But to be fair, some of the hyperbole about the size of the growth is coming from stakeholders who have their own motivations.
Speaker Change: including a desire to keep building out the wire system, or competitive market utilities that simply want the right or permission to go back and build generation in a competitive market. We've been seeing that in a few places.
Speaker Change: But we also see policymakers becoming skeptical about these claims. That skepticism is warranted in our view.
Speaker Change: We know from conversations from our customers and users that the same data center need is being considered in multiple jurisdictions across the United States at the same time.
Speaker Change: Just like fishing. If you're there with fishermen, you put a bunch of lines in the water to try to catch fish. And the data center developers are doing exactly the same thing. So sometimes the same project is showing up in multiple cues simultaneously.
Speaker Change: Mike, same thing happens with renewable development, where we see these massive cues, but we know through experience that a fraction of what is in the cue gets built.
Speaker Change: I'll give you a few examples. In ERCOP, the large load interconnection cube grows from 20 gigawatts in 2025 to more than 100 gigawatts by 2030, a more than five-fold increase.
Speaker Change: Looking at the chart on the left, you can see the comparison of MISO PGM and EROT forecasts for load compared to forecast on national load growth.
Speaker Change: These three ISOs account for less than half of the total US power demand.
Speaker Change: But they alone are projecting to mangrove notably higher than a wide range of consultants for the entirety of the US.
Speaker Change: It's hard not to conclude that the headlines are inflated. In fact, we've done the math, and if Nvidia were able to double its output, and every single chip went to Erkott, it still wouldn't be enough chance.
to support some of the load forecasts in ERCOT.
Speaker Change: There's been a history of over forecasting. We've seen this before with electric vehicles, we've seen it before with the internet.
Speaker Change: and utilities have historically overestimated their load forecasts. The Rocky Mountain Institute, for example, recently put out a study based on FERC data.
Speaker Change: and determined that in the last ten years, utilities have overstated long-term demand forecasts by 23% on average compared to what actually happened.
We get it.
Speaker Change: Utilities have to plan to ensure that the system is reliable. But when I listen to some of the comments on these calls, I just have to tell you folks, I think the load is being overstated. We need to bump the brakes here.
Speaker Change: Moving to slide 8, in the early days of our data economy strategy we heard concerns that the so-called window for our strategic execution.
Speaker Change: would eventually close because low-cost, new resources would be added to meet the data center load and that our existing resources would lose out to these opportunities.
Speaker Change: We've also heard that we would lose that because we weren't incremental.
Speaker Change: Let me deal with that last issue first. As a number of the data center companies have noted in their plans, re-licensing nuclear plants is incremental. We've seen that in policy space. Everyone gets it.
Speaker Change: We either include nuclear within the category of resources that participate in these sales or nuclear
But just focusing on costs of new generation.
Speaker Change: It's clear that we're in a whole new ballgame on cost. The estimates for new build CCGTs consistently exceed $2,000, with some estimates being closer to $3,000 at KW.
Speaker Change: and those are higher in certain locations in which we operate.
Speaker Change: For context, this is about three times as much as we spent on Wolf Hollow and the Colorado band plans less than 10 years ago. So 300% increase in less than 10 years.
Speaker Change: and as I alluded to earlier, if we were to rebuild just the Calpine fleet, it would cost about $65 billion.
Speaker Change: significantly higher for what we paid for the best operating natural gas fleet in the country.
Speaker Change: Solar is no exception to these increases. Solar plus storage is in a similar boat with costs now exceeding $2,500 per KW.
and that's even without the tariffs.
If we estimate what the terrorists would do to CCGT's,
Speaker Change: and Solar Plus storage we could easily see costs going another $5 to $10 higher for CCGTs on a megawatt hour basis and another $30 to $50 higher for storage and solar put together.
Speaker Change: The important strategic point here is that Constellation's fleet ultimately will compete with these new entrants.
for the right to serve the growing needs of America.
Speaker Change: Implicit was this unspoken assumption that new power, either renewables or <unk> would be less expensive for hyperscale customers.
Speaker Change: Customers as an alternative option to our plants.
Speaker Change: But that something we would be faster for new data centers and offer more reliability than renewables and more sustainability. They guessed. It turns out that we were just thinking about old cost data with the loop cost data firming up its pretty clear that nuclear simply wins the match in every single dimension call.
Speaker Change: Cost.
Speaker Change: Reliability predictability of firm prices for 20 years, what other resource could offer a 20 year fixed price I can't do that with my gas machines I can't do that with renewables the speed to execution, the sustainability value the resilience value the durability and policy.
Speaker Change: <unk> all of that makes nuclear the clear winner and folks. That's why I think people are wanting to contract with us and they don't care, whether it's in front of the meter or behind the meter let me turn to slide nine one of the reasons, we know that the competitive market will respond to the growing demand is because it always has we are.
Speaker Change: Seeing that in response to the expedited program that FERC and PJM approved for new dispatch of coal generation and PGA PJM.
Speaker Change: PJM pardon me and remember a big product that historically was used to deal with peak hour demand, whereas demand response and.
Speaker Change: And we saw that go from 15 Gigawatts of demand response in auctions that were held just a handful of years ago, two 4% to six gigawatts of demand response in recent auctions and we also another reason that demand response didn't happen didn't happen because the capacity market was broken and <unk>.
Speaker Change: Prices were ridiculously low.
Speaker Change: But now for RC has fixed those capacity markets I mean, we believe that.
Speaker Change: Demand response, once again is going to come back in the picture as early as this next auction.
Speaker Change: Remember our our grid was built for peak usage at the hottest or coldest hours of the year, but in most hours, we dramatically underutilized. The grid. The chart that you have here on slide nine is what we would call low dispatch diagram, it's pretty common diagram to everyone in the desert.
Speaker Change: And the colored lines here are every wanted a different <unk>, let me explain how it works. The ex access is 100% of the hours of the year. So we take 80 760 hours a year and Thats. The <unk> access the Y accesses, how many of the power plants or how much of the existing power Gen.
Speaker Change: Are you using during those hours and if you study. This what you quickly see here is that.
Speaker Change: For the vast majority of time, we don't you utilize the grid.
Speaker Change: In fact <unk>.
Speaker Change: 80% of the time or so.
Speaker Change: Third of the grid is not being used.
Speaker Change: And that means we have plenty of room, most hours to accommodate new generation.
Speaker Change: The Nichols Institute at Duke did it.
Speaker Change: A pretty cool study on this just recently and it's been in the news ever since and.
Speaker Change: And it basically said this that if we got customers to shave, 25% at peak, we could add 76 gigawatts of new load right.
Speaker Change: 76, Gigawatts of data center, just by getting customers curtail 25% of the time.
Speaker Change: So Dr is an incredibly powerful tool to meet all of this.
Speaker Change: Data center demand what it will do is it will utilize the slack in the system most Eric.
Speaker Change: Hours and cover those peak hours, where there is where there is a gap we're.
Speaker Change: We're seeing our data economy customers also pitch in with new curtailment methodologies and just I think it was just this week.
Speaker Change: We saw the EPA relax the rules on backup generation at data centers. So that backup generation can be co optimized for the grid and take the pressure off these key hours. The point is there's a lot of tools out there and we expect those tools to be used and again I think we will see some of.
Speaker Change: That here in this upcoming auction puts some downward pressure on the on the strain that we've seen in the prior option in my view.
Speaker Change: Now, let me turn to slide 10 constellation has some unique advantages that will ensure we are a large player in this space. We've talked about this but again, we have existing megawatts that are available to deliver power now we have clean and sustainable energy, which is going to be.
Speaker Change: Useful just now in this environment, but also in the future as concerns about climate continue to resurface, we could offer price certainty that is very different than any price certainty. We could offer from any other resource we've talked about speed and we've talked about the ability to work.
Speaker Change: Anywhere with any customer any part of the grid, we can bring additional megawatts to bear whether that's restarting nuclear plants life extensions and of course operates the plants. After calpine closes we're going to be able to provide this capability coast to coast and finally, just as we look for partners.
Speaker Change: Our investment grade.
Speaker Change: Credit rating is a huge competitive advantage because it gives customers confidence that we will be there and stand behind our contracts in the long term.
Speaker Change: We are well positioned to create additional value for our owners through our role serving the date.
Speaker Change: Data economy customers and we're Super excited about that now let me close out with the Calpine transaction.
Speaker Change: It's been a few months since we announced the deal. So I wanted to tell people, what we've been up to.
Speaker Change: But remember what we're building here is the largest fleet of.
Speaker Change: Clean and reliable zero and low carbon resources in the nation. We believe this will enable us to better serve families and businesses with new products and services at the best prices and as we spend more time with the Calpine team and get to know them better.
Speaker Change: Even more excited every day about the talent the combination of talent and skill, we're going to have as a combined team.
Speaker Change: We're making very good progress towards closing the deal and integrating the two companies. We have set up integration teams and we're doing the work to get ready to close this year. The teams are energized and we're looking forward to being one company and seeing with two very good companies could do when they aimed to be great.
Speaker Change: On the regulatory front, we've made all the required filings at this point, we received a deficiency notice from FERC and a second request for data from the Doj as you know in large transactions things like that should be anticipated, we filed our answer to the FERC deficiency notice on April 28th.
Speaker Change: And we remain on track to close the transaction by the end of the year again incredibly excited for that with that let me flip it over to Dan Dan will cover the financials and then again I'll talk to you a little bit more and we'll get to your question Scott Dan. Thanks, Joe Good morning, everyone. Beginning on page 12, we earned <unk> 38 per share and GAAP.
Speaker Change: Earnings in $2 14 per share and adjusted operating earnings for the first quarter, which was 32 cents per share higher than last year. We have seen strong performance from our commercial business over the last several years and the start of this year continues that trend the team did a great job positioning our portfolio and colder than average winter.
Speaker Change: <unk> captured value from serving more load versus the first quarter of 2024 and managing market prices during the quarter, we lock in margins that exceed our 10 year average supporting 2025 and benefiting future backlog as expected. We also realized higher prices for the Illinois Zach in CF.
Speaker Change: Programs from compared to the first quarter of 2024, partially offset by lower nuclear Ptt's recognized during the quarter. We continue to see this means tested PDC program working as intended as you know the BTC is determined on an annual basis and each quarter as book.
Speaker Change: Based on actual revenues plus forwards for the remainder of the year.
Speaker Change: As of March 31, we anticipate the gross receipts for the full year will be above the PTC floor across our entire fleet, whereas at the start of the year part of the fleet was projected to collect some ptc's. This full year expectation of higher prices resulted in us not booking PTC revenues in the.
Speaker Change: First quarter, whereas we did book some in the first quarter last year. While this is a good outcome on a full year basis. It can.
Speaker Change: Create noise and quarterly results and impacts the year over year comparability, where.
Speaker Change: We're happy with the start of our 2025 in context of our plan and are reaffirming our full year operating EPS guidance range of $8 92.
Speaker Change: To $9 60 per share.
Speaker Change: Now moving onto our first quarter operational performance on Slide 11 nuclear performance was strong we produced more than 41 million megawatt hours of reliable available and emissions free generation from our nuclear plants with a capacity factor of 94, 1% the team.
Speaker Change: <unk> to deliver industry, leading refueling outage performance, we completed three refueling outages during the quarter, averaging 24 days compared to the industry average of nearly 40 days.
Speaker Change: Our renewables and natural gas fleet also performed well with 96, 2% renewable energy capture and 99, 2% power dispatch match as you know constellation continues to do our part to bring clean reliable firm megawatts to the grid last Friday <unk>.
Speaker Change: <unk> announced a more than 1150, new nuclear megawatts, including the Crane clean Energy Center and other constellation nuclear operates were chosen for the accelerated interconnection process. We are pleased that PJM recognize the importance of getting these projects on the grid quickly.
Speaker Change: Our team for advocating for this important change.
Speaker Change: And on Crane, we are pleased with the progress we are making are re staffing is going more quickly than expected and we are getting multiple superb candidates applying for each position to date, we have already over half of the roughly 600 permanent employees, we will need to run the plant and the majority of them have been working at.
Speaker Change: The site.
Speaker Change: I'm happy to share our first operator classes underway with the second one on course to start this fall as.
Speaker Change: As the days passed and we address long lead time items like the PJM interconnect and staff training. We are confident that we will meet and potentially be our targets for both total cost and time to bring this plant back online.
Speaker Change: Turning to slide 14, our commercial team is off to another strong start this year, creating value by optimizing our portfolio and marking and higher than average margins, which are benefiting from continued market volatility as well as sales of value added products around the clean attributes of our nuclear plants are one of our renewal rates.
Speaker Change: <unk> remained strong, but both electric and gas customers, reflecting the durable relationships, we have with our customers.
Speaker Change: Turning to slide 15, it's understandable there is a lot of focus in the market right now on the risk of a recession and concerned about how power producers may fare in such an environment before I offer our perspective, let me start by noting that each recession is unique and carries its own impact our demand in terms of duration and Matt.
Speaker Change: Ignatyev.
Speaker Change: More recent recessions are temporarily impacted power demand by 1% to 4%, although the year over year data is also complicated by weather, which is more complicated and normalize on a national basis. Generally we are seeing a strong bounce back in power demand on the other side of a recession.
Speaker Change: In today's environment.
Speaker Change: We view a temporary slowdown in the economy and lower power demand is likely being offset by the very real demand growth, we're seeing across the nation, considering the impacts of ongoing electrification onshoring of manufacturing and demand associated with the build out of the data economy, we see counterbalances to any temporary.
Speaker Change: Go down or reduced power demand other parts of the economy.
Speaker Change: The biggest risk to our business in a recessionary environment has been the power price Fortunately compared to last recessions. We now have the nuclear PTC, which provides downside protection from a drop in commodity prices due to a recession as you know the nuclear PTC credit is means tested to ensure the continued operation of these.
Speaker Change: Critical power resources when prices are depressed, while not compensating them in higher price environments.
Speaker Change: Also looks at other major potential risks associated with a recession, including lower retail volumes bad debt as well as debt refinancing and we are confident in our ability to manage these collective headwinds with limited financial drag for our owners.
Speaker Change: And were to occur.
Speaker Change: Constellation remains in strong financial health, especially when you think about our investment grade balance sheet ample liquidity and cash flow supported by the nuclear ptc's as well as existing forward customer sales.
Speaker Change: Before moving on I also want to comment briefly on the current tariff environment, while the ultimate impact will depend upon trade policy that goes into effect. After this 90 day pause and anticipated negotiations, we estimate a negligible impact on O&M and roughly a 1% to 2% impact on our capex, including fuel.
Speaker Change: For 2025, and 2026, we will continue to monitor and mitigate the impacts to both cost and our supply chain.
Speaker Change: Finally, turning to slide 16, I want to spend a little more time on the PTC now that it has been in place for a year and we are fine and we are seeing some updates to key inputs reminding us of the inflationary protections. It provides as a reminder, we've assumed that the PTC floor and actual credit grow it.
Speaker Change: 2% inflation adjustment as part of our base earnings forecasts. So the adjustment was more than 2% our base earnings would increase.
Speaker Change: While the official rate used in the calculation is not yet published we estimate the inflation adjustment for 2025 to be between two three and two 6%.
Speaker Change: With the 2025% inflation adjustment in this range and then returning to our 2% assumption for 2026 and beyond we will see an earlier step up in prices that as an incremental $500 million in revenues to base earnings for 2028.
Speaker Change: This adjustment both demonstrates the benefits of the nuclear PTC and providing economic visibility for the nuclear industry.
Speaker Change: And reinforces the unique benefit of an inflation hedge in our business model compared to most other companies in the market.
Joe Dominguez: That I will thank you all and turn the call back to Joe.
Joe Dominguez: Thanks, Dan.
Speaker Change: Among dan's many talents as is <unk>.
Speaker Change: To multitask, so while reading the script you also wrote me a note, giving me a correction I think I said, 25% on the Duke study met 0.25%, but the study.
Speaker Change: To remind you demonstrates with quite modest demand response at levels that we've easily achieved in the past we could accommodate all new load on the system from the data economy using that tool when we think about the backup reciprocating engines at the sites and then we see that.
Speaker Change: New generation that the competitive market will bring as needed we see no reasonable concern in that area.
Speaker Change: So just to recap here, we're off to a fantastic start we're exactly where we want to be we're focused on closing calpine and integrating the business, we like that combination more and more each day, we have a business here that is very different.
Speaker Change: Very unique and stronger than we think anything else.
Speaker Change: Is out there in the industry.
Speaker Change: We produced robust cash flow and base earnings which are protected by a nuclear PTC PTC tax credit that has significant bipartisan support.
Speaker Change: Our earnings grow at 13% through the decade in any long term deal. We do from here on will be additive to that base earnings growth.
Speaker Change: I think we have demonstrated a track record of continuing to improve earnings and to surprise you from time to time with things like Crane Calpine and the GSA.
Speaker Change: Calpine will add at least $2 in EPS in $2 billion of free cash flow before growth starting next year.
Speaker Change: And not only does the PTC provide protection to the nuclear fleet, but we're beneficiaries of higher inflation through higher PTC floors, and Dan just covered that.
Speaker Change: So we're poised to build on the foundation by capturing value from the opportunities that we see in the data economy and in the overall economy as.
Speaker Change: Load continues to grow and industries, our onshore our existing fleet is vital to America, we understand that we're going to continue to make investments in making that fleet better longer lived and increase the output.
Speaker Change: But we're in a position right now to meet the demands of the time and to support America. At this critical point I got to tell you I couldnt be prouder of the team we have here with that we'll close down our prepared remarks and take your questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone and wait for.
Speaker Change: Your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Jeremy Tonet with J P. Morgan Securities. Your line is open.
Speaker Change: Morning, Jeremy Hi, good morning.
Speaker Change: Thank you for all the details this morning.
Speaker Change: Especially the behind the meter front of the meter and potential combinations thereof, and just wondering if you could pick up on some of the details in the slides here if you could provide.
Speaker Change: More details on the progress towards long term customer agreements as you talked about in the slides a bit they are you seeing incremental customer comfort around structures kind of.
Speaker Change: FERC clarity at this point or do we still need policy clarity here to get deals inked.
Speaker Change: Jeremy I think policy clarity will be welcome, but look I think.
Speaker Change: Like any any anyone else when they are trying to grow and they run into a delay a roadblock people start figuring out ways around it and I've indicated on earlier calls that I think some sharing of the cost made a lot of sense I've talked about that with regard to add ancillary services and I think.
Speaker Change: I indicated quite clearly that I didn't thank our customers were so price sensitive that they wanted to try to avoid all costs I have always been willing to cover fair costs. So that's not been the issue. The issue has been speed at different times and location. So the utilities have sped up <unk>.
Speaker Change: Action process, we see utilities out there leaning into it and our customers have to so theyre going to those utilities, if they could get into <unk>.
Speaker Change: Interconnected than Theyre looking to us to provide the power wherever they might be on the grid for those applications. So it's not like they've grown disinterested in behind the meter they still want to see that as an option and if you think about every single datacenter that exist today, that's a perfect illustration of what I'm talking about with some cough.
Speaker Change: <unk> and behind the meter and in front of the meter they get a lot of their power in front of the meter but at certain times. They use the backup generation at the site, which is effectively behind the meter generation right. So this is not anything new we've been doing in the industry since the 19 eighties with co Gen.
Speaker Change: For right now given the uncertainty our customers pivoted and they said okay constellation lets go on grid, let's do what Youre doing with GSA, let's do what youre doing with Crane and let's see if we can make something happen with utilities that are inclined to move studies quickly that's exactly what we've done.
Speaker Change: Got it that's helpful. Thank you and then just kind of rounding out here what is the expected path and timing to resolve the FERC 206 proceeding here in how do you think about settlement at this juncture.
Speaker Change: Look we think there is enough information right now in the FERC docket. There is enough robust information for the FERC to provide clarity I'll flip it over to David for the process, but.
Speaker Change: Although we did ask for settlement process as it turns out what we've seen in the docket should be sufficient for them to make a final decision on this and then showed look when you've got the president of the United States basically, saying the grid is too slow too antiquated.
That should be a kick in the pants to everybody in this business to get their act together and figure out rules of the road. So that we're not having any uncertainty around what could be the most important technology of our lifetime not only for our economy, but for our national security.
Speaker Change: David.
David: Here to talk a little bit about the process going forward, yes, sure. So the vast majority of the parties in the proceeding which is quite notable have argued to FERC.
David: You made the case to FERC that the existing PJM tariff is not just and reasonable needs to be amended to create the clarity and speed that <unk> been talking about and while we said we would support a quick settlement process. We also would welcome FERC to call balls and strikes very quickly on the merits of the case pending before it either.
David: <unk> speed and clarity together are quite important and we think that whether it's the settlement under our fast track proceeding to let the party. They can work it out or whether or not the commission direct PJM to amend its tariff to address the gap in some of these rules. We think all of that can be done in <unk>.
David: A handful of months and should be done in a handful of months. So theres a path forward under either approach and as Joe said, we think the record is quite clear.
David: For establishing the rules to allow these critically important.
David: Loads and customers to get on the system as quickly as possible.
Speaker Change: Got it speed will be great no one likes the regulatory sausage, making thank you.
David: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Steve Fleishman with Wolfe Your line is open.
Steve Fleishman: Good morning, Steve Hi, Good morning, Hi, just.
Speaker Change: First a couple of questions on the potential new power agreements.
Speaker Change: I guess first of all any sense.
Speaker Change: Whether the pricing we've seen as an indicator.
Speaker Change: Our pricing and assumed transmission.
Speaker Change: Front of the meter would be changed by.
Speaker Change: The customer not not by you.
Speaker Change: And then lastly, just.
Speaker Change: It sounds like.
Speaker Change: When you talk about.
Speaker Change: Youre talking about basically selling even beyond.
Speaker Change: Kind of the local utility where the zones beyond the local utility where the plants are.
Speaker Change: Could you just clarify that commentary and your ability to do that.
Speaker Change: Yeah sure I mean, the last one Steve we've been doing for 20 years right, we sell to customers everywhere in PJM, we have national accounts with customers, where we supply all of their businesses in a variety of areas. As you saw for example, I'll give you a great example of this when you saw when you.
Speaker Change: <unk> to the Crane clean Energy Center restart you know Theres No data center right. There in Pennsylvania, So Microsoft was quite clear they were using that power in multiple states and one of the strengths of our commercial team is being able to move power around the system again. This is nothing new we've been doing it for 20 years.
Speaker Change: And because of our geographic reach especially in areas like PJM, where we have a lot of west hub Leiden IHOP power and we can kind of fill in the blanks in all different places so.
Speaker Change: That allows us really to work with the utility that has got the most advanced projects and you know when I said before that we see the same project in multiple utilities plans its really because we have visibility and understanding where the client may want to use the power and thats, how we understand that we have.
Speaker Change: A lot of duplicate going on in the system in terms of your first question about level of pricing look we're going to have to be careful here our clients are pretty clear with us about two things they don't.
Speaker Change: Their own reasons to reveal pricing and they don't necessarily want to reveal all of the locations in which they intend to do business. Because this would be tantamount to sharing with their competitors, what they believe to be competitively sensitive information.
Speaker Change: We likewise have a concern about putting pricing data out there, which inhibits our ability to negotiate the best terms on future deals.
Speaker Change: Look what I'm trying to hint at in the script as you've seen the talent pricing you've seen what we're talking about in terms of cost of new entry, we think our pricing should be consistent.
Speaker Change: With those levels and beyond that I'm, not I'm, just simply not say.
Speaker Change: As to wires charges, and who bears those costs Youre assumption is 100% on that that's not a cost that we bear and any relationships with our customers today, nor will we in the future.
Speaker Change: Thank you one other question just on.
Speaker Change: The Iras nuclear.
Speaker Change: So obviously, we have the reconciliation process one of the issues that's come up is.
Speaker Change: Transferability.
Speaker Change: Weather day.
Speaker Change: The key transferability I know one of the loss allowance still for nuclear but in the event it wasn't.
Speaker Change: Allow going forward, what would that mean, if at all for you monetizing.
Speaker Change: Credits.
Speaker Change: If we see that as a de minimis impact to us because in particular post calpine, we have plenty of tax capacity.
Speaker Change: So it's I know it is for others not a big issue for us.
Speaker Change: But you did raise the IRI.
Speaker Change: And you did note the strong support for nuclear.
Speaker Change: The most recent letter we saw 26 congressmen come out in support.
Speaker Change: Well continuation of the 45, new credit for existing nuclear as well as 45 y to expand and revising existing nuclear that's 26 Congressman you put that together with the earlier letter.
Speaker Change: And there was not a complete duplication of signatures. There were 12 additional members in that early earlier letters supporting the tax credits that were not included in this last letter that had 26 members. So all told we have 38.
Speaker Change: Members of Congress Republican members of Congress supporting the tax credit that makes sense, because if you remember.
Speaker Change: Tax credit was actually created by Republicans. These were Republican ideas for the nuclear tax credits and even in the bill by Senator Kramer and Congresswoman the door check we're seeing the same thing a recognition that it's important to keep the nuclear plants alive.
Speaker Change: So I'm not seeing anything.
Speaker Change: Passing transferability or frankly nuclear being discussed and I am spending a lot of time on the hill to make sure I got my ear to the ground on anything that might happen. So we're very pleased with the support.
Speaker Change: The reconciliation for how since we will no doubt be bumpy and we will see some ups and downs and twists and turns.
Speaker Change: I think we're as well positioned as anyone Dan do you have any any other thoughts on.
Steve Fleishman: Clearers for clarity, Steve when we look at the forwards where they are today.
Steve Fleishman: We do not need to transfer any credits, we actually might be with our tax position looking to buy other peoples credits. If they came available at a discount so we feel comfortable with the forwards where they are today.
Steve Fleishman: Okay. Thank you.
Steve Fleishman: Thank you thanks, Steve.
Steve Fleishman: Please standby for our next question.
Speaker Change: Our next question comes from the line of David Arcaro with Morgan Stanley. Your line is open.
David Arcaro: Good morning, David Thank you so much thanks, so much good morning.
David Arcaro: And behind the meter I appreciate all your comments here on the front of the meter behind the meter and I guess, just maybe drilling into the behind the meter opportunity like you said diminishing here, you've seen those conversations shift and kind of move over to front of the meter.
David Arcaro: Or do you still have.
David Arcaro: The level of interest kind of waiting for the FERC clarity that might open up.
David Arcaro: That path.
David Arcaro: Yes, David I would just also.
David Arcaro: I think these folks want to get on with the show.
Speaker Change: And start construction.
Speaker Change: And so with the current situation around behind the meter and no one knowing exactly when we're going to have the necessary clarity.
Speaker Change: The discussions are.
Speaker Change: Front of the meter.
Speaker Change: With utilities and with the customers the logic of behind the meter in particular for these <unk>.
Speaker Change: Mass of training data centers at the time like the President was talking about in taxes in my view are still going to need behind the meter support because youre not going to accumulate four and five gigawatts of power on the grid, just not going to happen, so youre going to see.
Speaker Change: Things I think in the fullness of time that are going to have front of the meter.
Speaker Change: Connections, but you might actually supplement and build more power plants at the same site that'll never touch the grid and there'll be behind the meter and that's why I was saying.
Speaker Change: This is more in the category of brainstorming, but it's important that CRC not constrain innovation.
Speaker Change: For cogeneration and co location imagine had we done that in the 19 eighties and said, we're not going to consider imagine how much co. Gen. We would've lost in this country. So we're going to see some combinations combinations that frankly were not aware of here, but right now the conversation is where there is clarity.
Speaker Change: And where there is clarity is front of the meter and because we go anywhere in the RTL that suits us just fine.
Speaker Change: Got it great Yeah, that's really helpful color.
Speaker Change: And then maybe I was just curious if you could.
Speaker Change: Synthesize some of your thoughts on just the demand outlook for data centers to supply outlook as you've noted is challenging but then considering demand response.
Speaker Change: What is your view on power prices from here looking at the market.
Speaker Change: A number of parties has gotten concerned about affordability as an example, so how do you kind of manage that manage that for you, but also your underlying views of the fundamentals of the market here.
David Arcaro: Yes, Dave.
David Arcaro: I think when I think about affordability if I work.
Speaker Change: Flashing chart back up on the screen it would be that low dispatch curve.
Speaker Change: Because whether youre talking about affordability reliability issues when emissions concern actually occur in bulk.
Speaker Change: Really talking about those peak hours and necessity.
Speaker Change: We're not talking about days like today right Theres no issue.
Speaker Change: You are talking about those peak events, so having the tools available to manage those peak events, whether it's allowing the backup gen. At the data centers be a grid resource during those events. So I think thats a fantastic idea, we were very supportive of where EPA with the flex program that effort.
Speaker Change: <unk> has spearheaded with the data economy customers been deeply involved with that's made huge progress in terms of the hyperscale.
Speaker Change: Managing those events and then demand response, which simply means the hyperscale or as youre going to pay a little do in addition to what the capacity market might yield to get other industrial and commercial customers to back off in critical hours. If we're able to do that then we're going to manage the capacity market pressures.
Speaker Change: Bill we're going to manage some of the higher costs on bills right and we're going to manage at the same time some of the emissions issues that drive climate and other considerations. That's why we focus on that there's a tendency I think from <unk> people to look at this as we need energy at all.
Speaker Change: On the grid. These charts should tell you that is absolutely not true most of the time, we have an abundance of energy. So I think thats part of managing the story.
Speaker Change: You want to put off to the extent possible unnecessary investments in generation. So I think I'm, a little bit of an outlier here, but as I see the world. The next 567 years ought to be quite manageable and I think storage is going to be a part of this answer.
Speaker Change: What I worry about is the period after that what happens 15, 10 15 years down the road what happens if we then come back and we think about things like climate differently than the administration presently is thinking about them today, what happens if we have climate events that bring.
Speaker Change: Bring that all back and I think the answer that we offer and that we've encouraged to the administration is let's spend some money on research and development. So that if we do build gas machines. They don't become stranded in an environment, where climate becomes a major consideration we can.
Speaker Change: You'd invest in sequestration and other technologies. So I think that's the way we're going to have to manage the cost, but the biggest and best thing. We can do is not overreact and start building things that are unnecessary and frankly with a lot of the hyperbole in the system I think it's aimed at exactly doing the wrong thing.
Speaker Change: Got it thanks, so much appreciate your viewpoints.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Paul Zimbardo with Jefferies. Your line is open.
Speaker Change: Good morning, Paul.
Paul Zimbardo: Hi, Good morning, Thanks for squeezing me in.
Paul Zimbardo: Just from your comment about having MPI and the emphasis on not waiting for clarity is it a fair expectation that kind of.
Paul Zimbardo: You are pretty close to a deal and maybe within the next quarter or kind of not to read too much into that commentary. That's sometime later this year.
Paul Zimbardo: Well I'm not I.
Paul Zimbardo: Just I don't want to touch that because.
Paul Zimbardo: We are.
Paul Zimbardo: We're at a very.
Paul Zimbardo: Yes.
Paul Zimbardo: A very good stage in the process simply put it that way.
Paul Zimbardo: And the deals get announced when they are ready to rock and roll and and Thats.
Paul Zimbardo: That's as far as we decided we're going to go on this call.
Paul Zimbardo: Okay Fair.
Paul Zimbardo: Fair.
Paul Zimbardo: And then when you mentioned kind of a need to have a good partnership with the.
Paul Zimbardo: Regulated utility what's the timeline for some of the interconnection studies with your local PGM utilities, just how have the discussions with the utility of volatile mystically over the past few months.
Paul Zimbardo: They have some.
It's still a little bit all over the board.
Paul Zimbardo: But some of them are getting done here in what.
Paul Zimbardo: I could see six months seven months of time, and if you consider that some of the customers that we're talking to have started that interconnection process even before.
Paul Zimbardo: Our conversations have matured into until level, it's not.
Paul Zimbardo: It doesn't seem to be the constraint at this point.
Paul Zimbardo: So look I want to I want to test it some more but I think months instead of years is probably a good answer at this point.
Paul Zimbardo: And the utilities.
Paul Zimbardo: Again, I give them a lot of credit and I'm, saying this with.
Paul Zimbardo: With all the utilities, even ones that we haven't had agreements with in the past everyone seems to be wanting to get these studies done.
Paul Zimbardo: And get this slowed connected and that makes all the sense in the world to us and we'll work with them as best we can.
Paul Zimbardo: Thank you.
Paul Zimbardo: Thank you.
Paul Zimbardo: Ladies standby for our next question.
Paul Zimbardo: Our next question comes from the line of Andy stores, the ski with Seaport. Your line is open.
Speaker Change: Thank you so I have a question about recent demand.
Data centers for power so it seems like lease.
Speaker Change: Listening to the Hyperscale is theres been a shift.
Speaker Change: Away from training facilities mode to insurance.
Speaker Change: And so it seems like location matters again do FCC, but there is more demand for some of your assets closer to load centers.
Speaker Change: And sort of smaller in size and again I don't care if its back on the meter but has there been a shift in and what is what type of stainless I'm looking for.
Speaker Change: No I wouldn't say that I think I may have this wrong, but my recollection of the statistics is that about 85% of the expected load was always going to come from inference data centers. So youre going to see the lion's share is going to be influenced data centers, but.
Speaker Change: Even those data centers are getting quite large relative to the size they were.
Speaker Change: I remember when they were five and 10 megawatts I thought Oh My God. That's huge now we're talking 100 to 150 megawatts even for these inference data centers, so to a certain extent, they're just getting bigger.
Speaker Change: And that means they have to go to where there is available power more so than the fiber concerns that I think predominated. When we're talking about smaller data centers that were more easy to connect I think probably the bigger shift.
Speaker Change: Seen angi and Theres not enough data points to draw any firm conclusions is I think theres been some rationalization that these like Super large data centers 10, Gigawatts seven to 10 Gigawatts that were talked about quite liberally at the beginning of the AI phase I find people are speaking less.
Speaker Change: About that and thinking about how to cobble together more.
Speaker Change: Still what we would think of as large 500000 megawatt data centers and do some of the training but.
Speaker Change: I think it continues to evolve.
Speaker Change: Okay and separately.
Speaker Change: Just looking at forward power curves, especially in northern Illinois discipline.
Speaker Change: Quite a dramatic pullback in those curves even even post recovery.
Speaker Change: We have it seems like a number of data centers shifted away from the state and I'm wondering if you have a view why that is is there any sort of a regulatory slash political.
Speaker Change: Backlash against large loads in the state and what's your view on the long.
Speaker Change: Long term power prices in Illinois.
Speaker Change: I don't think so Angie I just think I.
Speaker Change: I think people are to go where they can connect to easiest.
Speaker Change: I don't see anything in particular with regard to Illinois necessarily or in opposition in Illinois, that's driving folks but.
Speaker Change: Your data center, and you're thinking about Illinois, you probably are thinking about Iowa, Indiana, Michigan to I mean.
Speaker Change: It goes back I think to your first question.
Speaker Change: In the early days of the data economy World, where we're seeing more modestly sized data centers proximity too big.
Speaker Change: Centers Big population centers was the fact.
Speaker Change: Now that's kind of moved away because I think power is the key element and interconnection speed is the key element. So I think that just that just widens the aperture.
Speaker Change: For our customers to look at multiple locations.
Speaker Change: Or is it just kind of another reality adhere to that.
Speaker Change: Data centers, we're going where there were data centers to take advantage again of fiber and other things.
Speaker Change: Certainly we've seen a shift in appetite to be able to explore Pennsylvania as an example, whereas before they were relatively light activity in those areas. So I just think that the.
Speaker Change: The World has continued to shift the geographies. These customers are looking at has broadened and.
Speaker Change: Again for us that's actually pretty good because because of the scale. The unique scale, we have and our ability to reach all of these different places, including 20 years of experience.
Speaker Change: And knowing how to move power around the system and accommodate clients like this.
Speaker Change: It should be right up our alley.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Joe Dominguez: Ladies and gentlemen at this time I would like to turn the call back over to Joe for closing remarks.
Joe Dominguez: Well, thanks, everybody for participating again, thanks, just give another call out to the team here at constellation.
Joe Dominguez: You make us all proud every single day.
Joe Dominguez: We've had a very good extensive discussion we look forward to the opportunity to provide additional updates on our business strategy and with that I'll close the call.
Joe Dominguez: Thank you ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Joe Dominguez: [music].
Joe Dominguez: Okay.
Joe Dominguez: Yes.
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Joe Dominguez: Okay.
Joe Dominguez: Sure.
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Joe Dominguez: Okay.