Q2 2025 Constellation Energy Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the constellation energy corporation, second quarter, earnings call at this time. All participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now, like to introduce your host. For today's call Emily Duncan senior vice president, investor relations. And strategic initiatives. You may begin
They are joined by other members of constellation senior management team who will be available to answer your questions following our prepared remarks.
The issued, our earnings release this morning along with the presentation, all of which can be found in the investor relations section of consolations website.
The earnings release and other matters, which we will discuss. During today's call contain forward-looking statements and estimates regarding constellation and its subsidiaries that are subject to various risks and uncertainties.
Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's materials and comments made during this call.
Please refer to today's AK and constellations other SEC filings for discussions with risk factors and other circumstances and considerations that may cause results to different for Management's, projections, forecasts and expectations.
Today's presentation also includes the references to adjusted operating earnings and other non-gaap measures. Please refer to the information contained in the appendix of our presentation. And our earnings release for reconciliations between the non-gaap measures and the nearest equivalent Gap measures. I'll now turn the call over to Joe
Thank you, Tanya and Emily, for getting us started. Good morning, everyone. I appreciate you joining our call and your interest in Constellation. I know it's a busy time with all these earnings calls going on around the same time, and you guys are hopping from call to call. We appreciate your interest in what we're doing here. Last but not least, I want to thank our team here at Constellation for delivering another.
Strong operational and financial uh, quarter. We uh you know, we always say this, people are the backbone of our success here. I'm really proud of the culture, we have built together, it requires constant work and attention. And we're never perfect at it but our leaders are all over it. They work at it every day and that's why I'm especially thrilled to start the call by telling you that for the third year in a row, we've been restored by a great place to work. Now, I've talked about this before. This is the only certification you get based on the input from your own folks and when you think about them as customers as a servant leaders, we want to be get net feedback and they're appreciation for what we're trying to do is everything to me.
Now turning to the quarter in our financial results, we delivered second quarter Gap, earnings of $2.67 per share and adjusted operating earnings of a $1.91 per share, improving on last year's second, quarter performance. As always Dan's here and he'll walk through the details. Now, as you recall, last quarter, we were a bit frustrated by our inability to be in the market. Buying back shares due to where we were, in The Meta Clinton deal process. In fact, uh, to to let you in on it, I think we were thinking it was a horse race as to whether we were going to get the call in before the announcement or vice versa.
Now since the meta announcement, we have executed 400 million in accelerated repurchases. And like the others we've done,
These stock repurchases continue to generate a wonderful return.
With long-term contracts like our meta and Microsoft deals. Now, becoming an ordinary part of our strategy and a normal course of our business. And hopefully you think we're good at it?
We don't have to pause stock repurchases, and to be crystal clear. You shouldn't assume anything about the timing of any new transaction from whether or not we're in the market purchasing shares,
Outside of our strong financial performance. It's been an exciting time for the company since we last met
We saw the big beautiful Bill signed into law preserving and actually strengthening the nuclear provisions and serving as a continued demonstration of the unique.
And strong support for nuclear across party lines.
We announced that we were bringing the restart of the Crane Clean Energy Center forward into the second half of 2027. I remember when we talked about that, people were skeptical that we would restart in 2028; they were right to be skeptical. We're going to start it in 2027.
We received New York taxes and Burke approvals for the Calpine at position, and we remain on track to close by the end of the year.
And as we just discussed, we announced a 20-year power purchase agreement with meta for the offtake of Clinton clean energy center to help them meet their clean energy needs.
This transaction is a big win for everyone.
The PPA ensures that a over 1100. Megawatts of emissions. Free nuclear energy will be around for decades to come
And it actually allows us to make investments to increase the output and bring even more megawatts to the Grid in Southern Illinois at a critical moment for America.
Happen. We love the partnership and I'm hopeful we can continue that partnership.
Beyond the Clinton transaction. We continue to make very good progress, with customers to reach additional agreements to sell our clean reliable and available megawatts from our nuclear plants.
Now look, this is always going to be the part of the call where we get questions. Inevitably. Of course. You want to know exactly where we are.
in every deal and inevitably of course I'm going to tell you that we can't comment on deals until they're done and even then we're going to keep some of the terms confidential
So, let me try to guide you here with as much as I can say.
First, for those of you who are fond of the baseball analogy to describe progress, I would simply say that we're in the late Innings on 1 transaction. We're past the seventh inning scratch. We've sung, Take Me Out to the ballpark on that 1 and I'd say we're in the middle to early Innings on other transactions. But most importantly from my perspective we're seeing a continued acceleration of interest from a growing number of entities.
The second thing that I'd like you to remember here is that sometimes you have the pricing and the deal terms done but you need other things to enable a transaction
Specifically, in the case of front of the meter deals, interconnection work with the utilities. So, if you want to connect the dots here, I think on 1 transaction, we are well, uh, on the way to being done, uh, but are waiting for some inputs, uh, from utilities.
As we said from the start of the company, clean and reliable megawatts are the most important energy commodity in the world today.
The many customers we engage with every day, believe the same thing and that gives us great confidence that we'll be able to continue to transact whether that be front of the meter or in co-located configurations.
When we announced the Calpine acquisition, we talked about the importance of natural gases role in the data economy and the reliability of the system,
A notably. In this regard, we were pleased to see kpis announcement supporting 190 megawatt, data center near the FED Hill Energy Center in Bosque County,
We expect to see more of these transactions in the future across the industry. And with respect to Calpine, we think that combination of gas and nuclear gives us a huge competitive advantage.
It allows us to provide a differentiated product that combines fast and reliable interconnection at both nuclear and gas sites, and the benefits of being able to provide clean and reliable energy product to our C customers for cleaning energy that is priced at a visible rate for 20 years or more. If the customer desires it, that's a big deal.
Now, let me shift gears a bit.
Justifiably given its skill, we talk a lot about data center customers but you got to remember here that many of our businesses value and buy clean nuclear and that continues to accelerate.
This quarter, I'm pleased to announce a significant new carbon-free energy transaction with Comcast.
A company that's been a wonderful partner to Constellation for many years. As part of it Comcast will be supporting upgrades. So again, here in this deal, we see a connection between private customer agreements and our country's objectives of preserving and growing clean and reliable energy.
and finally, as we've talked about before we see interest from governments,
The interest.
Was shown to you with the GSA deal. And while many of you have been grinding through industry calls this week and the last week,
You might have missed that the New York Department of Public Service staff, released an important white paper calling for a 20-year extension of the Zack program in New York that covers over 3,000 of our megawatts.
In New York.
The staff concluded that it's essential that nuclear be preserved to meet its clean energy goals in the our facilities be licensed.
You remember that New York was the first state to have a policy to support existing nuclear plants, understanding their importance as clean, firm and reliable.
Extending the Zack program, ensures that these plans will be there to support New York for decades to come. We commend the paper to your reading.
As I said it's been an incredibly exciting quarter here at constellation and in many respects it's been a historically important quarter.
It's a quarter where you see everything. We have told you now coming to pass.
And political support for nuclear getting the big beautiful Bill behind us is just huge.
Constellations ability to execute. Deals has been demonstrated.
The importance of reliable.
Natural gas to both the data economy and to America supporting our C. Calpine deal is more evident now than ever our continued ability to grow organically and inorganically through m&a. And most importantly, the strength of constellations commercial and operational performance. And that's, of course, the foundation for everything we do and why I always start out the calls thanking our great team here.
Let me turn this slide 6.
The passage of 1 big beautiful, bill was an Undisputed win for nuclear power.
Now, remember, here it was passed by all Republicans, and it preserved and actually expanded the nuclear credits from the Inflation Reduction Act, a bill that was passed by all Democrats.
So it's 1 of the only things. The 2 bills have in common is that it supports existing and new nuclear plants.
There's a lot of things we have a hard time agreeing on as a country.
And like you, I wish we could find more. But 1 thing is clear, the benefits of nuclear energy for families for local communities, for states and the economy as a whole is something that we all can agree on.
And I'd like to thank president Trump.
And the political leaders on both sides of the aisle for acting to preserve and advanced nuclear power in this country.
The bill maintains the critical 45u production, tax credits for ex existing facilities through 2032 and it gives us great confidence. That those tax credits will be renewed going into the future. It also preserves the 45 wide clean energy, tax credit for new nuclear and upgrades providing the full credit for projects that begin construction into 2033 and partial credit through 2035, recognizing that new nuclear will take some time to get going.
In addition, it adds a new nuclear energy Community bonus of 10% on top of the 45. Why credit?
We expect the crane clean energy center as well as every 1 of our upright projects to qualify for this 10% bonus.
Finally, the bill also extended the tax Provisions that were set to expire with the tax cuts and jobs Act of 2017. And I'll let Dan talked about these additional and significant positive impacts for us.
Support of nuclear from the administration did not stop as, you know, with the legislation.
I was very pleased on behalf of the industry to join president Trump in the Oval Office. When he signed the executive orders that signaled full support. And a clear intention by his administration that they want to preserve and expand nuclear power because it's vital to the economic and National Security of the United States.
The nuclear EOS rightly focus on Common Sense initiatives to expand the existing Fleet with FasTrak licensing, increased domestic conversion and enrichment and accelerate the deployment of new reactors all while maintaining the nrc's track record of being a responsible, regulator, that places safety at the top of every consideration.
And this Administration, like many policy makers on both sides of the aisle knows that American energy is critical to winning the AI race against China.
The AI action plan. Unveiled in, July calls for streamlining permitting of data centers and energy infrastructure and developing a grid. That could match the pace of AI Innovation. We're going to be at the heart of that.
But it's not just Republicans who are taking actions to support nuclear, both new and existing.
In communities that already have all of the infrastructure and the enormous support for the existing plants.
and most importantly,
A talented Workforce that could operate. The new nuclear units.
We're excited to participate. You know, it's early Innings on this work but I think it is going to be a signpost for other states and I'm excited for for the opportunities to expand nuclear in places like Maryland, Illinois, taxes and Pennsylvania.
To sum this all up while political and customer sentiment doesn't always follow logic and facts.
In this case, it clearly does.
Firm clean, reliable nuclear power is the most important energy commodity in the world today.
And through constellation, you our owners have more of it than anyone.
We will do great things together for America.
Turning the slide 7.
I want to talk a little bit about the PJM capacity auction and what we see going forward.
First, before I talk about future auctions, I think it's time to level set a little bit on the past.
There's a narrative that's been building up that data centers are entirely responsible for prices going up.
We got to remember here that that narrative is false
Certainly, there's been a rise in demand driven by the growth in the data economy, by things like vehicle electrification, by general economic growth, and the reindustrialization of America as our nation pursues its America First strategy. All of these things are cumulatively increasing demand, and prices will rise through simple supply and demand economics.
But the principle reason that we saw a step change in the pjm capacity prices because Burke ordered changes to the pjm market that were absolutely necessary to address reliability gaps. Why were those changes needed? Well, remember, those changes were needed because the market design,
That we used to have pretended that we live in a fairy tale land where all megawatts had equal reliability equal to nuclear.
When the analytical evidence screamed at us for many years that some forms of generation are simply more reliable than others.
It took longer to effectuate the changes than it should have and the delayed options added to the uncertainty. But the design work is completed and the market is working. Already in this last auction, the market, cleared 2700 megawatts of new and uprated generation capacity on what was a really short turnaround since the last auction.
Bringing in more Supply to support the growing demand.
And through pjm's rri process, which Governor Shapiro and constellation and many other supported, we know that more than 9 gigawatts of new firm reliable Supply will come online by 2032.
In addition we saw more than 300 megawatts of generation participate in the auction rather than retire.
We were happy to support consumer protection and the price cap.
Champion by Governor Shapiro and it worked. It starts to stabilize prices so that we could step in to the higher prices that were inevitable as a result of the design changes that perk has made.
And we think that will continue to work to help customers transition.
It's important because we understand the focus on customer costs, especially residential customers.
But again, let's put this all in context.
Starting with the critical fact that generation costs have actually declined.
38% from where they were from 2010.
To 2024.
This Compares very favorably to transition transmission and distribution costs, which have not declined. But instead have risen
290% and 57% respectively.
And electric wires costs are not alone, water, sewer, and trash is up. 77% on our average car insurance, which we all pay for at least should is up 125%.
We appreciate the impact on everyone's pocket book and we will do what we can to mitigate these things.
Of the energy ecosystem.
And constellation is doing more than anyone to meet its part to deliver the reliability that is needed for America. We're investing billions of dollars to restart operate and extend the lives of nuclear generation.
We had more than 1 gigawatt approved through the r r RI process, including Crane and the Byron, and Braidwood operates. We're bringing crane online earlier than planned, moving it up to the second half of 2027 with the aim to try to get it in the capacity auction for the period that begins June 1st 2022. Uh, uh, uh, 2027. We still got some work to do there but I'm hopeful we could get there.
We have 3 large upgrades that we are completing engineering work on totaling nearly 900 megawatts that we could bring on Atlas South Calvert and Limerick with adequate customer support.
And last week we announced our collaboration with grid re Beyond to use AI to help our customers reduce Peak energy use.
this program will offer customers the opportunity to cut energy costs and unlock new revenue streams while helping the market maintain system reliability, as we respond to growth reducing Peak Demand by only a small amount 25% or 22 hours a year would allow 76, gigawatts of new demand,
To be absorbed. That's the most effective way to deal with the new demand.
The latest auction results. Once again proved how markets not monopolies best work to attract enormous private investment and we all see any Observer all sees the tremendous interest by so many parties to build generation in these markets and private investment by these companies means that companies and not captive Monopoly, customers, take the Financial Risk, the market risk, the technology risk, and the construction risk rather than saddling captive customers with the consequences of poor decisions for decades to come,
We have no doubt how policy makers will view these issues.
Turning to slide 8 in June, I was incredibly proud to announce that the crane clean energy center will return faster and it was great to have Governor Shapiro at the event.
To give you some follow-up details on that. We've secured the fuel. We've got all the major equipment for 70% staff and we're walking through all aspects of the plan. And quite frankly, we're just so confident in the team there because the plant was in such phenomenal condition. When Brian and team laid it up in in 2017 to say I'm proud of all the work here has been an understatement.
Before I turn it over to Dan, I want to touch briefly on the Calpine transaction details are here for you on slide 9. The more time we spend with the Calpine team, the more I'm excited about the combination of the talented people in both companies.
We've received 3 of the necessary approvals and we're working with the Department of Justice on a second request for data and hopefully it puts us on a track to complete the work with the department and have this transaction, uh flows. Uh, by the end of the year, the sooner we could get it closed. The sooner we could offer American families and businesses, the unique capabilities of the combi cam combination of these businesses. And I'm super proud of the regulatory team that has worked to get the 3 approximately gotten. And I'm hopeful that we will get the last 1 here, shortly with that. Let me flip it over to Dan and then I'll have some closing comments after Dan. And we'll finally take your questions. Thank you Joe. Good morning, everyone. I'm beginning on slide 10. We are in 2 dollars and 67 cents per share and gaap earnings and a dollar 91 per share and adjusted operating earnings in the second quarter, which is 23 cents per share higher than last year.
Similar to the second quarter last year, the fleet performed exceptionally, well, and provided critical Around the Clock Supply at a time when pjm saw Peak loads materially outpacing, its summer, demand forecast.
our commercial team once again, successfully managed a period of extreme volatility where at times we saw Triple digit real-time pricing across much of the East Coast,
features, but allowed us to bank excess credits for use in future years, if there was a call to the cap, which is what we did again this year,
the impact of these credits in the banking mechanism have always been included in our full year 2025 guidance, slide 21 in the appendix provides more details on the mechanics of the Illinois Zack program.
For your gross receipts, for the majority of our Fleet, continued to be at or above the PTC floor. Resulting in significantly, fewer ptc's being accured this quarter compared to the second quarter last year, this is a good outcome in the means tested program continues to work as expected. Fiddle result in noise when comparing year-over-year results on a quarterly basis,
The extraordinary stock performance this year translates into higher book, compensation expense for us, creating some earning penguins that we will continue to monitor that said, we are reaffirming our full year, operating eths range of 8.90 to $9.60 per share.
Moving this slide 11 as I mentioned before, our Fleet performance was excellent during a period when it was needed to support unseasonably high demand across our operating footprint.
Our nuclear team posted second best.
Fleet production ever in the second quarter and it was ahead of plan with the capacity factor of 94.8% producing more than 41 million megawatt hours of reliable available and emissions-free power. We completed 3 Refugee outages in the quarter with an average duration of 19 days, feeding the industry average by over 2 weeks,
Being able to execute on these outages significantly. Better than the industry provides incremental benefit to the grid energy in the communities where we operate and of course, more power to sell. It truly is a testament to the operational excellence of our nuclear organization.
Our Renewables and natural gas fleets were also ahead of plan for the quarter with renewable energy capture at 96.1% and power dispatch match 98.3%. Our plants continue to perform when they are most needed.
Turning the slide 12, our commercial team is off to another strong. Start this year.
We're creating value from continued Market, volatility by optimizing our portfolio locking in higher than average margins on retail sales, and finding success in selling value. Added products around the clean attributes of our nuclear plants.
We continue to see robust, renewal on new business, win rates with our power and gas products reflecting the durable relationships. We have with these customers.
Our scale and ability to develop products to meet the needs of our customers is, truly a competitive advantage.
We have spent a lot of time over the last year and a half talking about the incredible demand for long-term, firm, and reliable power from data economy customers. And for good reason,
But it is arguably overshadowed our success in selling these. Same products to our traditional commercial customers.
For example, through June of this year, we have sold nearly double the volume of hourly, carbon-free and emission-free products than we signed all of last year. Let me off a little more Dimension. What we're seeing with these sales.
Remember the ability to offer time match? Clean power has only been around for just over 2 years in pjm. So we're encouraged by the growth and what is still a relatively new market?
Also interesting is that our customers for these products have mostly been from industries outside of the data economy, reflecting the breadth of demand for these offerings.
Their products are rightly sold at a premium to typical C and ideals, compensating us for the uniqueness of a scarce firm. Around the Clock, carbon-free energy solution is finally here, and the duration of these products varies, but they are typically much longer terms than those of our traditional commodity business.
Another area where we're seeing tremendous growth is with data center customers. We already serve.
Focusing just on the accounts we have continually served over the last 3 years, we have seen their usage in the first half of 2025 increase by 45% compared to the first half of 2023. This step-up in usage is probably not unique to Constellation, but it is indicative of the increased demand coming from the data economy, expansion of existing sites, gains, and energy density—even in existing facilities.
Turning to slide 13. I want to provide some brief comments around the financial impacts of the latest capacity auction.
Depends on expectations for gross receipts. When we are below the PTC floor, upside in pricing will first offset PTCs being generated. Then, when above the floor, we would retain the upsides. Fortunately, given where the current forwards are, our nuclear fleet is above the PTC floor for 2026 and 2027. So, the uplifting capacity markets will flow to our earnings outlook, assuming prices hold. This earnings upside above the PTC floor will show up in our enhancer earnings bucket.
That said, for the three sites in Illinois that are in the CMT program, through mid-2027, any revenues above the CMC price will be refunded to customers, so we will not realize any upside benefit for these three CMC plants in Illinois, even though they cleared the auction.
So from a financial impact perspective, we'll just focus on Constellation Standalone and not include Calpine given where we are on the approval process for 2026 net. EPS impact a constellation is approximately 50 cents per share for 2027 it. Seemingly we carry the same capacity prices forward to the 2728 auction. We would expect an approximately $150 per share increase in UPS
And help calibrate with these earnings benefits. Uh, the the Delta upside is density conservatively, uh, low number around 200 low 200s per megawatt day. Uh, embedded in our expectations,
Turning to slide 14 the strength of our balance sheet continues to be foundational to the company, and our Capital, allocation, the combination of our investment grade balance sheet and strong free cash flow. Create strategic flexibility to fund the Calpine acquisition, as well as pursue future growth Investments, and return Capital to our owners.
On our first quarter call, we talked about our disappointment and not being able to repurchase shares on the short-lived. Dip during the second quarter following the announcement of the metatranscriptome.
And with this quarter's 400 million, we will have repurchased 2.4 billion dollars of our outstanding shares since the beginning of our buyback program and still have about 600 million dollars remaining under the current board. Authorization, we will remain opportunistic in returning that Capital to our owners.
Let me now turn to the 1, big beautiful. Bill act. Joe already talked about our excitement around the support for the nuclear PTC Provisions, but there are some key other benefits from the legislation constellation. The obv VA includes an incremental, 10% bonus on the 45, why credit for nuclear energy communities that will provide incremental tax benefits for new nuclear megawatts. We expect the crane clean energy center as well as our other up rate projects to qualify for this bonus.
We also benefit from the General Corporate Provisions, included in the legislation, moving from 40% to 100% bonus depreciation on our entire Capital plan, including fuel as well as an immediate deduction for research and development expenses. Will meaningfully benefit our cash position.
These Provisions create an expected 2 to 300 million dollars of annual tax cash favorability per year for constellation Standalone, we expect that benefit to grow with Calpine in the capital plans. There, we're excited about constellations performance and our financial position as we head into closing Calpine later this year. And with that, I'll turn the call back to Joe.
Thanks Dan, great job. Uh, so look Dan and I have covered. We had a pretty great first half of the Year from our perspective, financially and operationally, real big wins on the policy front. We have some terrific significant opportunities on the horizon, to kind of continue to build on the successes. We you you have seen us achieve already.
And we're focused on closing the Calpine transaction. The second half of the year and really doing the work here uh, to bring these 2 great companies together.
Our company is really like no other in our unique and strong foundation will create value for our owners urinate and year round. So we produce robust cash flow and base earnings, which are protected by the nuclear PTC, which as you've seen now, has tremendous bipartisan support and I think we should reasonably expect the policy to be continued.
We do, uh, would be additive to that growth as well as to our base earnings.
We've had, uh, track record of finding ways to improve our earnings. And just this, uh, this update here, you're seeing what we're doing with the cranes, restart. We've done the, uh deals we've uh, with meta Microsoft, we've got the line acquisition. I think we're pretty smart about finding those things and getting them done.
Calpine will add 2 dollars in EPs and 2 billion dollars of free cash flow before, uh, growth starting next year. And Dan, of course, covered some of the cash benefits of big beautiful to us.
We've got upgrades uh that we're now through the Engineering Process on and we're hoping to partner with customers to bring to the grid.
And then finally not only does the PTC provide protection for the nuclear Fleet but in a world where people are concerned about inflationary impacts the PTC gives us some unique protection, through higher PTC, floors that are adjusted with higher inflation.
So, we feel like we have an unbelievable foundation for capturing value, from all the opportunities we're seeing. And for meeting the demand of, uh, the data economy, and the demand of just growth here in America,
And capturing the value that you deserve as our owners, our existing Fleet can serve customers with clean, reliable energy, that they need now for decades and decades to come.
So, uh, our unbelievable platform. We think it's unmatched in the world in which you operate, and I'm excited to take your questions.
Certainly.
As a reminder, ladies and gentlemen, if you do have a question at this time, please press star, 1 1 and wait for your name to be announced to withdraw your question. Please press star 1 again, 1 moment for our questions.
and our first question,
Will be coming from Steve fleshman, a wolf your line is open. Steve.
Yeah. Hi. Good morning.
Uh thanks for the updates. Uh so I guess first on the potential uh late eating data center deal.
the uh,
you mentioned interconnection being kind of maybe a Crux issue, could you just talk to
The timeline for that specific 1, you've already had to go through.
And then just generally, what are you seeing?
on pjm, interconnection timelines from
Utilities like is this? How long are they?
Yeah, any any thoughts? They are kind of high level as well.
Yeah, I mean it Steve just I'll do them a little. Well, I'll do them in order. I I'm I'm hoping uh we'll get that done this year.
when I was referring to,
um,
Obviously you know the the work is in other hands but you know, we're we're in close contact and coordination.
um, in terms of
some generic statement about how long it takes to interconnect. It's, I think it's really impossible. I I I think everybody's recognizing getting closer to plants and they transmission infrastructure is the key to speeding up the process.
And uh, it depends on the particular projects. But as a general rule, what we laid out a year ago to all of you as come to pass as the kind of conventional wisdom in the business of how you do this, most effectively,
Um, effectively, I've seen all the utilities be far more responsive to where we were a year ago. You know, when we started this stuff out, uh, and exploring these opportunities, it wasn't uncommon to see studies and those sorts of processes. Take a year or more. And I think all of the utilities to their, uh, credit and to our appreciation of their work that figured out
ways to expedite the engineering work and uh to go through the many requests they get in
A principled way. We've seen some utilities group requests to deal with them more quickly, but everybody seems to be responding to the Need for Speed and so I'm glad to see that but still at the end of the day it depends where you put this stuff.
You get uh, a good answer at 1 place in a bad answer at the other. What's important here is that the utilities transparently share that information so that the customers could understand the body.
Objects in different.
I, I think they're doing that.
And then just on this late. Anyone is this a matter of
Uh kind of just timing and cost or is this kind of like any risk of it just not being viable.
uh,
Things. So, yeah. Um, it it's, it's more of, uh, we just got to let them get through their process and figure out when the interconnection works and then, uh, we'll tell you about it. But, you know,
What I think folks on these calls tend to think is that we're sitting around. You know, debating dollars per megawatt hour for 8 or 9 months. There's a lot of complexity to these transactions. You've seen that in Microsoft you've seen that in meta, you've seen that in the work that Talent has announced, and there's just a lot of process and some of these things are within the control of our customer and ourselves. And when you're on the grid, uh, you do need the involvement of other parties and then, you know, making sure that the equipment that is needed for upgrades is available and all of that stuff. So it ends up taking a good bit of time as you can appreciate. Um, but you know, we we feel we're in a pretty good spot.
Okay. Uh, I've got a million pjm questions but I'll let other people ask those uh just other questions just on new nuclear. Has your
Kind of strategy changed. They're like, are you more willing now to invest in the new nuclear, and what would be the risk for ward conditions for you to do that?
Yeah. Steve, I I don't think this is going to be like big step change changes approach for constellation. I think it's more of an evolution.
And with time, uh, with the work that uh, Brian Hansen and his team at nuclear put into studying the designs. And then not only just looking at the designs from a viability and operational standpoint, but kind of getting into the nitty-gritty of the cost line items for the different component parts, the better understand how the thing is actually going to be manufactured whether it's modular in the case of an SMR, um, where the equipment's coming from timelines, all of that stuff, is that is work, that we are literally refining every single day. And here's what I would say, as a general rule, I feel better with the passage of each week in terms of better, understanding, and cost structures and the time to complete the work. And so I would say that our confidence
Is growing, uh, but it's growing incrementally, not in terms of major step changes. And so, I think you're going to, I think it's quite viable.
I think it's very very real. I don't think that everybody is designed is going to actually work and be commercially viable, but we've got a pretty good beat on who we think the winners are going to be. We've had a lot of conversations with companies to think about how constellation given its unique access to real estate. Its operational expertise, its construction, expertise. All of those things could be brought to bear in Aid of 1 of these companies. So there there's
I'm pretty pumped up about where this could go, but I'm not yet at a point where I could say, on a call like this, here's what the cost is going to be and here's when we think we're going to be able to do it, do I think we're going to get there? Yeah, I do.
Okay, great. Thank you.
And our next question.
Will be coming from Jeremy. Tanet of JP Morgan Securities, LLC. Your line is open. Jeremy
Hi, good morning. Hey Jeremy.
Morning Jeremy. How you doing?
Good good. Thanks. Just wanted to, you know, pick up with the auction a little bit more if I could and you know, you highlighted, the clear benefits of uh demand response in the importance in the future. Uh, you know, going forward there. I just wondering if you might be able to comment a bit more on uh thoughts on the level that materialized in this past auction Trends there and how you see this trending in the future or you know, what would it take to get more
Look, I think 1 of the things that's going to take to get more is that the elcc changed? So, uh, so for folks on the call who don't follow this at a granular level,
Uh pjn creates an electric load carrying capacity for every resource that gets fit into the auction demand response combined cycle, machines, nuclear plants, the star of the show, of course, is always nuclear plants because they're the strongest most reliable units in the system. And everything else gets kind of a haircut from there. In the case of demand response, going into this last auction, the elcc, the carrying capacity for Peak was set at less than 70%. From a financial perspective, that means that if you did a megawatt of demand response your price that you got back was hair, cut it by over 30%, right? From the go.
Participated in the market. This next auction goes up to over 90%.
So the economics of bidding in for demand response will change over the course of this next auction. There are requirements, we'll also change instead of having to be available for 18 hours. It'll stretch to 24 hours. But 1 of the reasons that we got uh, involved uh, with this new company to develop these AI products is because we think there's a there. There is Dr. By itself going to be a solution know but it's got to be a unique and important contributor. And I say unique because it uh represents an incredible speed to deliver reliability. So as I applaud pjm for improving the elcc, I wish they had done it for the last auction, but I'm not going to cry over that spilled milk and I think it'll deliver Meg Watson into the future.
Got it. That's uh, very helpful. Thank you for that.
Um it you just continuing with the auction if I could. Um, you know, we we've seen State attention from Governors and other stakeholders. You know, after the last auction here, I'm just wondering what you're expecting in terms of state level action on PGM changes, going forward here, whether that's incentivizing new Supply or other reforms, and could there be opportunities for constellation out of this.
I think there will be, look, I think what governor hokel is doing, uh, in terms of the New York, uh, RFP for nuclear. I could see that, uh, transpiring, other places. I mentioned other states, in which we do business, where new nuclear might make sense. Uh, and depending on the work that Brian and his team could do, I am quite sure. We're gonna not take 10 years to bring that stuff on that. It'll be done. Uh, in a much more time, effective way. So I think that's real on the long run. But um, Jeremy, I I I think the 1 thing that states are going to have to evaluate 1 of the points that we've championed is, we've got a number of states that have
Required fossil fuel plants to lead the system by a certain date.
and I don't think it should be a surprise to you that, uh,
We would recommend that they rethink.
Those requirements. And so we have advanced some ideas. I think there's some really good ideas out that would say, for example, if you're scheduled the retire in 2030,
Maybe as a compromise that generator starts ramping down from a historical, Baseline there are emissions, and call it 27, 28 29, so that they could Bank a missions that could then allow them to, to operate, uh between, you know, 2030 and a new set time to retire, right? So that they could buy their way in to an extension by reducing air pollution in these interim years. We've heard that we're supportive of, that makes a complete sense to us to keep some of these generating facilities on to give the market time to respond. Now, look, I, I know there's been a lot of discussion out there about Monopoly, Bill versus competitive market build. There's no, there's no timing advantage to having Monopoly built here. We're going to have to manage these next few years where the system is going to be tight. We're going to have to see Dr. Come in. We're going to have to have States perhaps revisit
Some of the timing for the retirement of units, and we're going to have to extend that so that we manage this interim period. And then we're going to see, 9 gigawatts come into the system through PJs rri.
We are here not because of a failure of markets. We are here because of a failure of regulatory design that has now been addressed, but took far too long to address and cast a cloud of uncertainty over the market for too long. Again, I can't get on these calls and cry about spilled milk, but if somebody's out there saying, "Oh, this is the failure of competitive markets, or this is all the fault of the hyperscalers," I'm just calling it a bunch of hoey. That's just not true.
Got it. That's helpful. Thank you.
Thank you. All right.
Our next question will be coming from. David are Aro of Morgan, Stanley, your line is open, David
Hey, thanks so much. Good morning.
Most recent discussions with regard to pricing versus previous.
Yeah, David. I I'm not going to talk about. Well, first of all, David, good morning. Thanks for being on the call. Not going to talk about specific deals because I I don't want to reference a particular transaction from a timing standpoint. What I what I think we're all saying is the market is getting more scarce. The price of capacity is becoming more scarce. The availability of other resources in light of what happened to with big, beautiful on Renewables. And in light of uh the fiac limitations for things like storage, I think are going to pressure. Those elements of Supply. We talked in our last call about the the cost of combined cycle machines going up. So,
All of these things as a grouping. Uh and of course the the consumption of the available megawatts is going to make the things that exist more scarce and all things considered that should mean that prices will continue to rise stated differently. You know what I would say to customers is this is a good opportunity to begin having those discussions.
Great, thanks. Um, I appreciate that. And then, you know, uh, how are you seeing the, um, you've got a couple of different, maybe structures or offerings here. Um, how are you seeing the balance between front of the meter virtual versus co-located, um, on-site data centers?
How's the interest? Um, been in, uh, maybe in the collocation side of things, is there a common structure for some of the deals that are um, that are moving forward.
Yeah, let me change. Um,
Let me change the labeling a little bit here uh so that I could precisely answer your question.
When I think of co-locating I think of proximately located I think just about everything's going to be proximately that that is of size, right? Is going to be proximately located to Major power elements. Whether it be the power plan, or a major elements of the transmission grid which again are are generally.
Uh, near power plants. So
I think the question you're getting to is,
Joe, is that going to be front of the meter or behind the meter? This is kind of the broader issue that has been in front of FERC now for some time.
I don't think anyone right now has uh given up hope that ferc is going to address and provide flexibility for True behind the meter configurations. And uh I happen to be with the president in Pittsburgh, uh, during the the summit that Senator McCormack organized, which is really a wonderful event, and 1 can't hear the president talk without coming to the conclusion that the president very strongly feels that things that are behind the meter and that generation built specifically. Uh,
For data centers, has got to be a part of the solution set that is available to customers. But right now, listen, given the ambiguity on this issue at work and you know what's going on in terms of the selection and appointment of ferc leadership.
You know, we don't have an answer to that just yet.
So we continue to think about it as a longer-term option, but what we're working on right now is all front of the meter. If that, David, is kind of what you were getting at.
Yeah, no, that's helpful. I was curious if co-locating and kind of offering in your own, whether it's land or maybe transmission interconnection, if that could add value versus something that's a little bit more, I guess, maybe more distant or virtual. Um, as I was thinking, the Clinton deal was...
Yeah, look, I think we could do both, but I think the land around the plants, uh, because of, again, the proximity to these major elements is going to be enormously valuable. We've talked about that from the beginning; there's no change in my view. My conviction around that has been nothing but strengthened, and so I think that's going to be the way this thing plays out. But the thing I was trying to bring out on the call in my prepared remarks was that the postal. Calpine, what we have is the opportunity to be proximately located in the major element. There might be a gas plant and associated transmission, but because...
Your deal.
And that's pretty hard to do with a gas plant because you don't know the input price of the natural gas. And so it's always going to be indexed to a certain extent, and it's very difficult to do because you don't know what future environmental policies might mean to the cost of CO2. So typically, when you're looking at a long-term deal at a gas plant, you're saying, "Hey, it's going to be indexed as something on the supply side, or we need a long-term supply arrangement. You need to deal with the firmness of that supply arrangement and then you have to have a conversation with the customer around, you know what happens if a carbon tax or a regional program comes into play or something else happens." The beauty of having the nuclear big watts is, as you've seen, we have no trouble giving somebody a price sheet for clean firm energy that's going to be here for decades to come.
That's where the pairing works.
Excellent. Yeah, that's helpful. Thanks so much.
Okay.
And our next question will be coming from Sophie, karp.
Of KBCM. Your line is open.
Hi, good morning, good morning. Thank you for taking my question. I have a question about um I guess you how utilities respond to the interconnection requests and proliferation of those requests. So what we and how that might impact You by by extension. So I guess, what we see is that you do it as I increasingly requiring long
The term contracts, uh, some, um, take or pay features in those contracts or guaranteed returns and, you know, features like that. And, um, from what we hear in a lot of data center customers are finding these, uh, exceedingly honors, right? Um, what, what from your standpoint, uh, could that have implications for, you know, your operation where you operate and maybe that, um, you know, maybe could you see that as in the customer's mind right away from some territories that are perceived as more difficult for, uh, more vertically integrated markets, where it might be easier for them to operate. Like, what is your view on that?
Look, I I I, I, I, I think the, the thing that's going on in the American politics and touching on the American regulatory compact. Whether that be in vertically, integrated markets, or in competitive markets, as its kind of this desire to visit upon the data centers, all of the costs associated with increases in supply and demand fundamentals. And that's kind of why I talked about what I did in the prepared remarks to dispel what I think is an inaccurate narrative.
Uh, but whether that's in a vertically integrated Market, we certainly see tariffs that are being created. In vertically, integrated markets that appear very own orous to Data Center developers and each state, whether it's a integrated Monopoly model or a competitive market, I think is going to have some choices that they make here that will in effect Drive the development.
2 particular regions, that are more friendly. I seen Pennsylvania, for example, deliberately be quite friendly more than Virginia deliberately be quite friendly to the data economy. We'll watch how that unfolds.
but um,
There. The the kind of, from my perspective, the kind of nonsensical aspect of this is that
if you are in a region where you're joining, state is building data centers, then whatever is going to occur to supply demand fundamentals, as a result of that growth is going to happen to your state. Even if you abolish data centers in your state, the grid, you know, as we all know doesn't stop at state borders, we don't have 50 different electrical Islands, we're all related and so supply. And demand, affects all of us and I think most informed Governors and policy makers have taken the view that we have to mitigate these impacts to the extent possible but artificially trying to suppress
Data center development, in order to suppress costs, would be as effective as, oh, I don't know, the state of New Jersey trying to affect interstate milk prices by directing residents to no longer drink milk. It just doesn't work. And so, you see a lot of activity in that area, but it just, you know, I think rationality will play out. We have to navigate.
What is, uh, going to be a, you know, a tougher, uh, few years. We made it tougher by having a bad market designed to begin with. That had artificially low prices but we're, you know, we're all ultimately understand that that has to be navigated in a way that works for American families, and Constellation is doing its part to do it.
A lot have been said about the nuclear credit and they obb, but are there any other Provisions there that you can discuss? That may indirectly benefit. You may be related to, uh, depreciation and something that can spur growth that, uh, you know, maybe a second, the second generator could benefit your business as well.
Well, the bonus depreciation, uh, clearly was a big impact, Dan, you covered that a bit. I think you could quantify that. Yeah, so yeah, we expect bonus appreciation to to be between bonus and R&D expensing, uh, 2 to 300 million dollars favorable per year, uh, you know, out the horizon.
Calfine should be added to do that. We'll come back to you on that. Uh once the deal closes, obviously certain beyond the federal statutory tax rate provided by uh the bill also of value.
Of 45 Vue. 45 why credit is important? And then 10% add or on 45, why for nuclear communities and other incremental opportunity? Those are, you know, from our seeds of the biggest ones. Uh, from what we're
Thank you.
That's all for me.
And that would now like to turn the call back to Joe for closing remarks.
Well, look as always, thanks for your time this morning again, know, it's a busy time for everybody. I hope we, uh, answered your questions. And we thought it was a, you know, the second quarter was the, um, you know, the end here of a wonderful first half for us in 2025, we look forward to continuing to execute for our owners and for all of our stakeholders. Uh, so until the next time be well,
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, you may now disconnect everyone have a great day.