Q2 2025 Talen Energy Corp Earnings Call
Good morning and welcome to the Talen Energy Corporation Q2 2025 earnings call. I am France, and I'll be the operator assisting you today.
All lines of been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star 1 on your telephone keypad, if you would like to withdraw your questions, press star 1 again, thank you.
I would now like to turn the call over to Sergio Castro. Please go ahead.
Thank you, France.
Welcome to Talent energy, second quarter 2025 conference call speaking. Today, our chief executive officer Mack, McFarland and Chief Financial Officer. Terry nuts. They are joined by other Talent, senior Executives to address questions during the second part of today's call as necessary.
We issued our earnings release this morning along with the presentation, all of which can be found in the investor relations section of Talon's website, Talent energy.com.
Today, we are making some forward-looking statements based on current expectations and assumptions.
Actual results could differ due to the risk factors and other considerations described in our financial disclosures and other SEC filings.
Today's discussion also includes references to certain non-gaap Financial measures we have provided information. Reconciling our non-gaap measures to the most directly comparable, gaap measures in our earnings release and the appendix of our presentation with that. I will now turn the call over to Mac
Thank you, Sergio and welcome everyone to our early morning call here. As always, we appreciate your continued interest and talent energy.
It is shaping up to be quite a year in the IPP space and we don't foresee things changing anytime soon. Thematically all Remains the Same AI continues to drive data center growth. And in fact, the hyperscalers continue to increase their capex plans year-over-year and quarter over quarter.
Power markets. Continue to show signs of things, getting tighter driven by demand and this includes both AEP and PPL, increasing their backlog from data centers. This quarter to new highs,
And we believe there is more opportunity for talent to create value in this environment.
That said this is going to be a relatively routine earnings call for the second quarter, as we have had a flurry of activity recently behind us.
In the second quarter turning to slide 2. We delivered a justed ea of 90 million in an adjusted free cash flow. Use of 78 million which reflects the extended outage at cuana.
While we prefer to have our maintenance outages at cesco Hannah, or any of our fossil Fleet units, completely scripted down to hourly activity. We do account for discovery.
And the work we discovered at cesco, Hannah enabled us to get increased megawatts out of unit 2. And in fact, we are seeing 75 megawatts plus already.
We will use what we have learned during this outage and incorporate similar work into next Spring's Unit 1 outage, where we expect to extend the outage, which shortened the overall time frame versus this spring. Because now we can plan ahead, we believe we will find similar levels of megawatt recovery.
On June 11th, we expanded and revamped our agreement with Amazon to a front of the meter arrangement for a total of 1.9 gigawatts doubling the size of the original contract, and eliminating regulatory uncertainty, a win for both us and AWS.
and the C, and the collaboration between us continues to advance as the campus construction ramps up,
As a subsequent event, we entered into agreements to purchase the Freedom Energy Center in Guernsey Power Plant, adding low-carbon, highly efficient CCGs to our fleet and expanding our capability to serve large loads and enter into long-term contracts.
Not to mention that these plants will add over 40% free cash flow per share accretion in 26 and more than 50% for the following 2 years on a mostly Merchants basis mostly Merchants because the acquisition comes with a small hedge book and existing gas contracts.
We are excited about adding these assets to our portfolio.
And we have filed requisite, HSR filings, as of today and our targeting close by the end of the year.
As you may recall from our September Investor Day, our earnings in the second half of 2025 will be higher because they include three important factors. First,
The 2025 26 capacity, pricing second, the RMR impacts of our brand insurers and Wagner plants, which underscore our commitment to support grid. Reliability, in Maryland, and third the ramp up of the AWS contract.
Terry will walk through this.
In more detail in a few minutes.
With half of the Year behind us. We are reaffirming 25, guidance. We will provide a further update on 2026 and our 2728
Outlook at our investor update on September 9th.
We are switching from an in-person meeting to avert to Virtual for this event and just to align expectations expectations. We intend to provide guidance and outlooks taking into consideration, the new plants and the recent tax benefit changes
you shouldn't expect some big deal announcement at this event. As you know we don't work that way. That said don't take my prior comments out of context. We are relentlessly and continuously focused on execution and you'll be the first to know when we add to the talent flywheel.
Lastly, we were added to 2 Russell Equity. Indices in. June. Driving passive fund de demand for our stock and continued shareholder rotation.
I am proud of what the team has accomplished to date. While setting the stage for additional long-term value creation, as always, none of this is possible without the hard work of every employee at Talent. So I'd like to thank them for powering the future at Talon.
I'll now turn the call over to Terry.
Thank you, Matt, and good morning everyone.
Turning. Now to our most recent announcement, the Strategic acquisition of the freedom and Guernsey generation plan.
As we stated a few weeks ago, we are excited about the acquisition of these assets and believe the transactions provide several key additions to Talent.
The acquisition will increase our generating capacity by roughly 3, gigawatts and core pjm markets and complements our existing commercial and marketing capabilities.
While also providing earnings and cash flow diversification for the business.
The assets are well positioned in a number of ways.
first, the plants occupy, a valuable position in the overall Supply stack
And are among the newest and lowest heat rate plants in pjm and include over 300 megawatts of dust firing capability.
Second freedom and guns. Here are well, positioned for fuel supply.
With the plant sitting in 2 of the most prolific natural gas, formations in the US, the Marcellus and Utica.
Providing, ample natural gas supply, and reliable access to pipeline infrastructure.
Third, these plants are located in some of the fastest-growing data center markets in the U.S.: Pennsylvania and Ohio.
Freedom is located only 3 miles from suspe Hannah and the AWS campus.
while Guernsey gives us access to the Columbus, Ohio Data Center Market,
Ohio has a well-established Data Center Market with an existing and significant hyperscaler presence. That continues to grow.
As evidenced by aep's, recent update of 9, gigawatts of large, load demand growth by 2029.
And we believe our core capabilities and strategy translate well into this Market.
Turning slide 4.
In June 2025, we entered into a new PPA with AWS, expanding the existing nuclear energy relationship.
The existing, Cusco Hannah co-located load Arrangement between town and Amazon. Will transition to a front of the meter Arrangement after the completion of transmission. Reconfigurations expected in the spring of 2026.
Concurrent with sesui, Hannah's annual refueling outage.
Feature of the deal that we think is key. Is that the arrangement provides flexibility to deliver power to other Amazon sites across Pennsylvania?
At the full contract. Quantity Talent is expected to provide AWS with 190020 megawatts.
Of carbon-free nuclear power from susco Hannah through 2042.
For operations that support AI and other cloud technologies.
Looking at the campus today AWS continues to build. We're delivering electrons, and receiving dollars.
Turning the side 5.
We continue to see strong energy fundamentals in the pjm market.
Further supported by the most recent capacity auction.
Recently, we've experienced several pjm, Max generation alert events.
Overall Q2 2025 weather was cooler than the same period in 2024 as measured by cooling degree days but average electricity demand, remained flat
We believe that this is a sign of demand growth in the market and expect this trend to continue.
Moving aside 6, let's look at our year-to-date financial and operating results.
Our team continues to deliver from an operational perspective.
Our Fleet ran well during the periods of high demand in Q2.
Demonstrating the value of a dispatchable fleet and generating 17 terawatt-hours with an equivalent force, an outage factor of 1.8%.
We had a busy year so far of Maintenance outages and high demand across the system and our team in the field, continues their Relentless effort to maintain and operate. The fleet.
The commitment of the team to operate in a state and reliable manner is an important part of talent's value proposition.
now, turning the financial results for the second quarter of 2025,
Gal reporting adjusted e of 90 million and an adjusted free cash flow. Use of 78 million.
Our largest recurring maintenance project is the annual spring refueling outage at Susana.
The incremental maintenance investment during the extended outage this year was approximately million dollars for the spring.
Along with approximately 30 days of additional appetite.
as we mentioned before we expect to pay back period of less than 2 years on this investment,
Adjusted free cash flow for the quarter was also impacted by the incremental interest on the term loan B, that we issued at the end of last year.
As mentioned earlier, starting on June 1st, our earnings now include the higher 2025 2026 pjm capacity pricing of approximately 270 dollars per megawatt day.
And the impacts of the reliability must run Arrangements.
Now, moving to the guidance on slide 8.
as Mac noted earlier today, we are reaffirming our previously announced 2024
my guidance range.
We continue to remain committed to returning, Capital to shareholders, and if we purchase approximately 23% of our outstanding shares for approximately 2 billion dollars, at an average price of around $150 per share, creating significant value for talent.
That's all since the start of 2024.
We have approximately 1 billion in buyback capacity, remaining through year in 2026 and are targeting 500 million of annual share repurchases During the post-acquisition deleveraging period.
Once we reach, our targeted, leverage of 3 and a half times or less.
We intend to return 70% of capital back to shareholders.
On a significantly Higher free cash flow base.
Turning slide 10. As of August 4th, our forecasted net. Leverage ratio was approximately 2.7 times. Well, below our Target,
In addition, we have approximately 861 million of liquidity with over 1601 million of cash, on the balance sheet and the full availability of our revolver.
After our initial financing of the freedom of endurance, the acquisition will be focusing on Debt Pay down in order to reach our targeted, net, leverage ratio by the end of 26.
While also targeting 500 million of shared resources.
With that, I'll hand the discussion back to Mac.
Great. Thanks, Terry. Uh, slide 11 has our upcoming events and we hope to see you at, uh, several of these events in the future.
Let me conclude with this before opening the line, uh, it continues to be a great time to be in the IPP space. It's very exciting. And we think that will continue through the end of the decade over the past several years, we've positioned Talon well, to create value.
In the next years ahead. We look forward to continued to executing focusing on free cash flow per share growth. The risking our cash flows through our Contracting strategy and maintaining the balance sheet and shareholder discipline. We have demonstrated for the past 2 years.
We appreciate everyone's interest in talent and for joining us on the call today. With that, we'll turn it back to the operator and open the line for questions.
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and,
Our first question comes from the line of Nick Campagna from Barclays USA. Please go ahead.
All right. Hey, good morning. Thanks for uh, keeping the headlines quiet today.
Hey, so um, so yeah, you just kind of talked about some of the stuff, Ohana work, you you're doing and sounds like you have an extra 75 megawatts coming in at unit 2, the potential for the same unit 1, I think. So, can you just remind us, is, should we be thinking about like unallocated name plate? Now, going to 450, or how should we think about that?
yeah, well for first nick, uh,
Maybe just to address your first comment. We don't like keeping things quiet but uh I think we've had a flurry of activity behind us. So it is a little bit of a quiet quarter for us here on the earnings call but
With respect to the nuclear unit when you think about the 75 megawatts that we're seeing on unit 2 and I said similar, so don't take that as fully 75 on, on unit 1. Um, that's relative, that's all relative, it, it it has to be relative to some number. And when we think about it, when we go from maintenance outage or refueling outage refueling, outage over a 2-year cycle, there is degradation that happens. Because tolerance is loose enough. You have steam that starts to bypass things of that.
Feature. Okay. And that's typically you see that, and you see that in 5, 10.
20 type megawatts over time. You see that in the fossil units, too, and you go back in and you retighten up the unit here we found incremental. We had been seeing
As a result of the upgrades that occurred, 10 years ago, we had started to see some degradation and the the extraction steam system around the turbine, not the turbine. We started to see some leaking there and, and the way that the steam flowed, and so we went and tightened that back up and got back to where we were previously. So I wouldn't say it. That's necessarily that it's incremental, megawatts. Now, we're working through, would we be able to, you know, go back and look at where we are with our, our capacity injection rights. What we we are able to offer into the, uh, capacity auction, Etc, but I wouldn't necessarily see this as an upright. This is sort of maintaining the system and getting back. It's just that when you look at the capital versus the recovery of of putting in to get these megawatts back, you, you could have essentially allowed some of this bypass to occur, but because we decided to tighten things up, we get megawatts back and that's what the payback period is, you know, we've said is around 2 years
Or less that so it, it depends on where your relative. I wouldn't add it to the name plate capacity. It just wouldn't do that. That's not how it works. It's just a you're always trying to keep yourself right there at that point. This helps us get back to that point.
Okay, noted, um, that's really helpful. I appreciate that. Uh, and then just on the share repurchase, you know, I think you did a roughly 100 million year to date. Are you still on track for the 500? Um, in into your end here and just any updated thoughts on the repurchase, uh, specially with the stock rating. How it how it has? Thanks. Yeah. So so 2, 2 2 things. I, I hand this over to Terry F. First of all, by the way, we are looking at what are the potentials to upgrade the units at cesco Hannah? We've said we've committed to doing that and you know that plus exploring, you know, the SMR with AWS as part of the contract. So we're looking at that and those would be cheap upright megawatts. Uh, we don't have anything to give you on that right now because we want to make sure we do the engineering and the cost analysis and then give that to you. But we are exploring that second thing on the, on the, on the share we purchase, you know, roughly a hundred million dollars your day. I think it's in the 80s, something the roughly
Hundred million dollars. I'll turn it over to Terry for the exact numbers but like we we were able to do that at a point in time. Uh I, you know, I'm not going to try to.
Position, this as hiding behind mnpi, but we did have mnpi, we we we we restructured the 2.0 contract, we bought freedom, and Guernsey, and that limited our ability in the second quarter. So are we on track?
Point we show hundred million dollars of share repurchases that we would execute through the end of 26 during that deal leveraging period. But the bigger benefit comes after we get de-levered and and get, uh, you know, and rotate our net leverage back to below 3 and a half times. Uh, we have a higher cash, Higher free cash flow base that then we intend to take the same policy in the same approach of using 70% of that, uh, to return Capital shareholders. So that's how we'll That's How we'll move from a direction of travel and still maintain that. Net leverage of Less Than 3 and a half times and get there by the
Targeting by the end of 26, you mentioned. Yeah, thanks deck.
Okay, thank you.
And your next question comes from Jeremy tonette from JP Morgan. Please go ahead.
Hi, good morning.
Morning, Jeremy. How are you doing?
Good good, thanks. Uh, just wanted to turn to the bra if I could and just wondering uh, any updated thoughts you could share coming out of the pjm auction here regarding Supply demand Trends. Uh, and you know, particularly in the, the light of the, your recent acquisition, just wondering any thoughts on those Trends and in the auction and how it impacts the acquisition as well.
Yeah. So so for the most recent auction, Jeremy that cleared a couple of weeks ago, I think a couple of interesting pieces of information. There 1, obviously the the demand and the load growth. We continue to see, we expect that, you'll continue to see that in subsequent auctions. I think, Mac mentioned this in the preparator marks you did. We have seen a supply response about 2.7 gigs of of additional Generation, Um, that have come in which quite frankly in the last. You know, few auctions is is something that when you think about a supply response, that's a, that's the largest response that we've seen in the last few auctions. But overall, we still see it as constructive. We still see, um, sort of this continued Trend, uh, as we move forward into into December, and obviously, we'll get when we when we get the next auction. We'll get the parameters, um, here in the next month or so. Um, and then obviously, we'll have to take a look at those and sort of do our Bottoms Up fundamental view of, you know, how do we think those parameters impact? What we see in December?
Yeah, I I think Jeremy just to add to to, to what um Terry said is when you look at the capacity markets, they're doing what they're supposed to be doing. They're sending a signal that says that the demand is growing, there needs to be a supply response. Obviously, it was capped
Um and this next auction will be have a cap as well as well as the floor. Um, and it would have cleared, you know, PTM says, around 390 without the cap. And if you think about um,
Supply and demand fundamentals, you, you've got to send that market signal for for people to buy, and we've got to get it. Longer dated. And, and we're committed to working on the capacity Market reforms after this 2728
Um, b gets run, this December, you know, ahead of the May 2829. Uh, next year May 26th will be for 2829.
And it is working, the markets are working. Uh, if you look, I think that there will be, you know, there's talk about demand response, I think there will be demand response. I think that there will be Supply response. There was a supply response as Terry said, there over 2 gigs. In this most recent, I think you see announcements of development projects. Uh, whether it be shipping port or Homer City, I think you see other people talking about, um, new CC GTS and
Ways to contract those new CC GTS with data centers to bring, you know, incremental, uh, megawatts to the grid. All of that, you know, basically says that the market just needs time to catch up, and it is working. The signals are sending there, and, you know, look, it's proven to be advantageous to have the deregulated market for...
The consumers, if you look at energy and capacity prices over the last decade they have been flat. I think there's been a lot of um, you know, there's a been, a lot of discussion about the impact on on consumers and things of that nature and its really just this temporal year-over-year.
Related markets, you know, several decades ago.
So we're at this point where the markets are sending a signal says that
Supply needs to come on, demand is growing and I think things are just are are are working. And you know, I I applaud pjm for pushing through and getting these these capacity auctions taken care of so that we can get back to, you know, a lot more foresight, 3 years in advance uh in May of next year,
Got it? Yeah no that makes sense. On the pricing Trends there and maybe just uh continuing I guess with the broader attention on your path to uh generation here, uh, in in Pennsylvania.
How do you see your existing assets competing against initiatives, like, uh, ppl's Genco. I mean, certainly stealing the ground carries a lot of, uh, advantages there. Uh, but do you expect the Pennsylvania governance? Focus on new supplied impact, how the market comes together? There.
Yeah, I think there's always the the push, pull, but look it. We we had the ability to buy things at a discount to new build costs and we think that that's Advantage when it comes to being able to, to contract those megawatts. And if things were to converge on new build, which is a lot of the discussion about, you know, bringing new build generation with a Data Center and a contract. We've always said we do that too. If you get the right returns, uh, the right risk profile,
Etc. We've said we contribute by building and we continue to explore uh you know, and and and Advance the permitting aspects and interconnections of our existing sites and thinking about, how do we leverage our existing sites to do so, um, but I don't know that the Market's necessarily there yet, you know? I we we've spoken a lot about sort of this
5-year 5 year 5 year where the next 5 years are really about 20 to 40 hours, which is really a capacity issue where you'll see demand response. You'll see people invest more in the current assets that will solve that 20 to 40 hours a year a year. And then you're really talking about, you know, 2030 32 through 35 being. When I think CC GTS come in at new build costs, that are being talked about a KW and then the
Years 11 through 15 out there that's when you start to see. Hopefully you know I'm a big Advocate, I think we're a big advocate of seeing nuclear come in smrs or or the new generation of of larger units come and but that's going to take time to get there. I know that the administration's pushing that and I I I think that's a good thing. Uh I think that's a good thing for the US in general. But again, going back, we think we're advantaged by buying assets that are existing on the ground that can that we can continue to invest in. We think we're looking at Redevelopment opportunities our existing site and under
The right contracts, we would contribute that. And then again, like I mentioned earlier, we're looking at upgrading the nuclear plant. Um, and we're also looking at smrs, that's part of our commitment with with AWS. But those are years out, the, the uprights nearer term that can help solve some of the supply.
Um, let me leave it at that Terry. Anything? No. Okay. Okay. It covers it.
That's very helpful. Thanks, and maybe just the last Quick 1, if I could sneak in, how do you think about valuing longer term?
Sorry, how do you think about valuing longer-term capacity prices at this point with, uh, with PJM asset acquisitions looking forward?
oh, uh, you know look I think
I that's that's a a a difficult 1. I think that if you if you look at where things are today, obviously with the most recent clear um you know and I think we were pretty clear that we we put out guidance for next year.
And, you know, we're going to give you an underpinning for 2728 in the Outlook.
And it won't underwrite.
These prices. Now, that doesn't mean that's a underwriting case. Not necessarily where the market will clear. I mean, there's a difference between an equity or debt under. There's a difference between those 2 and there's a difference between what the actual Market outcomes are. But I think that, um, we continue to think that the market is showing constructive signs here, Chris. Anything you want to add? Yeah, no.
No, yes, no, he agreed. Its construction.
well, the extrapolation as you look at the, the supply demand fundamentals will continue to see
Got it? That makes sense. I'll leave it there. Thank you.
Thank you, Jeremy.
And your next question comes from David araro from Morgan Stanley.
Please go ahead.
Oh hey thanks so much. Uh, good morning.
Um I was wondering uh what's the I guess? What's the nature of your discussions around? Contracting your gas plants at this point um it seems like Contracting with the Upstream producers has been a challenge in the past curious where that stands to
Yeah. Um,
this goes back to the, um,
what I always say which is we're not going to talk about commercial terms and how we do things, but let me try to.
Answer the question, um, in some form which is I think where we are headed.
Is, and we started this. We think that there's only so many. So many long-term contracts that can be carbon free. Other contracts are going to have to be
Front of the meter PPA virtual ppas and that means that they're effectively being sourced off of gas plants. And therefore then you need to start managing risk of gas plants. We just added
2 plants in in Freedom and Guernsey that are going to take how many a day 4 3, 400 3 400,000 a day uh mcf. And so, we actually think where things are headed is if you're going to sell long-term contracts, you need to figure out how to, how to hedge that or have a plan around hedging, that that can be, you can decide that you're just going to manage that risk.
With Chris and the desk.
Or you can say, let's go originated things. And and as we've said in the past originated longer term structured, gas deals, we think that you're going to see longer term structured offtake agreements.
And if the conversion is gas units, then you need the second leg of that is the gas supply. You're going to need to probably go out and match at least some volumetric level. Try to match some of that up on longer term Supply. And what that means is structuring an origination, which is, as I've said atrophied in these markets because structuring and origination went by the wayside when the markets went lower, there was no need to go secure Supply Etc, but structuring your originations effectively. What we did with the AWS contract, that's effectively what we did. It just happened to be a solid fuel, nuclear Fuel and we managed the risk around that appropriately and the operations there. But when you move to a gas unit, it's going to require a different skill set and that's where we're headed. We're headed into structuring origination and being in.
Able to have that skill set to appropriately manage and Warehouse risk and therefore devised a premium on what we sell on long-term contracts.
Yeah, got it now, that's helpful color. Um, that makes a lot of sense. Uh, it seems like that's the direction the Market's moving uh as well. Um, and you know?
Absolutely. Um I I was wondering just to view on as you look at pjm and energy prices and forwards from here, what do you think? Uh the market needs to see for you know some of these load forecasts and a very strong uh demand ahead to to actually be reflected in uh in in forwards from here.
Yeah, David. I I'll take that and then we'll also get some color from Chris Maurice, our chief commercial officer as well, as we mentioned earlier, right? We're, we're seeing a steady increase in spark spreads. We saw that during the second quarter, um, obviously gas has, has had, um, a good amount of volatility over the past several quarters, and that, and that does impact how you see the spark spreads move. But fundamentally, um, you know, when you look at the supply and demand in the same manner that you're seeing in the capacity auction, you know, that that same sort of supply and demand factors over to the energy market. And so, um, you know, we see it being very constructive for the next several years. Um, and um, and, and I think the other thing and and
Powered curves had been backward dated and that was you know, a bit puzzling to us, given the supply demand fundamentals and some of our views on um, tightening Supply anyway. So as of last week, 2 weeks ago, we saw the Cal rolls moved to a more contango shape. Um, again, reflective of the tightening Supply, demand, fundamentals. So, um, probably not fully where we think they need to be, but certainly trending, the right way, at this point,
And David Chris has been waiting to say contango for quite some time. So, um, look, I I, I think it goes back to that, that, that the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the the the, the near-term market.
are um,
Don't necessarily reflect fundamentals. They there's a lot of recency bias. I mean Chris will be the first 1 to tell you this. There's a lot of recency bias of what just happened last week with respect to whether or in this case, where we sit today, what's going to happen next week? Because there's more heat coming to to, to the, to the east Northeast. And it, it will then push, you know,
You typically get a couple year out type response, so it's a little bit of that recency bias but I think what we're seeing is a gradual move over time to where things are starting to align more to to fundamentals.
That said if you go back to the conversation we just had about structuring your origination which is everybody's been focused on sort of the short term and like how do I hedge next year or the year after if you're on the energy procurement side of things, right? If and people haven't thought about how to procure longer term.
since the hyperscalers and what they're, what we're doing working with them, but
That's where we think that people are going to need to get more accustomed to thinking about what does pricing look like for power 5 years out. What does it look like 7 years out? What does it look like 10 years out? And that's where we're focused. You know, we're Chris's focused on making sure we manage risk in the, in the near term but also thinking about the longer term, that's what coal does. And that's what Terry and I do. We all sit around and think about where, where are things going and, and to your point of, you know, that's where things are going, structuring your origination, we think that's true. And we think that will, then eventually start to converge with this near-term of where, where the visible markets are
Great. Yeah, thanks for all the comments. Very helpful. I appreciate it.
Thanks David.
And your next question comes from Michael Sullivan from Wolfe research. Please go ahead.
Hey, good morning.
Morning, wanted to just, hey, hey, Max. Wanted to just ask post the auction result. Um, just given the higher print there. Any impact that that just has on your your deleveraging plan, and then where you see yourself in terms of
Leverage capacity. Um, post the case in the steel to do more M&A.
So Michael obviously the capacity, clear helps free cash flow helps the overall earnings so that does give us um you know more more upfront. Obviously we've got to close the freedom and Guernsey acquisition to get that incremental um and as Mac alluded to earlier we've we've pushed forward on both the HSR front and the front front to get those filings done. Um,
I think I think it does, you know give us a tailwind and and something that we will look to execute on as as we you know, close that out. Um and and then get those get those units into the portfolio and allow the free cash flow to to go to the bottom line and
Everything plan.
And obviously, as as we de-lever, I mean, it's, you know, it's it's um, I'll still Max uh, coin term of the flywheel as we add assets and then de-lever and and gain that capacity back, that is a strategy that we look at, um, you know, longer term. But, but first and foremost we want to make sure that we execute, um, and and remain disciplined. Um, and then move forward with how we would think about m&a.
Being a strategic asset that just reloads. The balance sheet, being a strategic asset uh, as well as being able to, um, do our share repurchase program, all of that while maintaining our balance sheet, discipline and net, leverage of Less Than 3 and a half times.
okay, great, appreciate all the color there and then
Uh, back to some of the the conversation around around, new builds, um, maybe more specifically for for you all. And I know you just signed the RMR there, um, at Brandon and Wagner in Maryland, but I think they have an RFP upcoming in the state and there's been some talks there of ways to get new generation. I guess, how, how are you thinking about that at a higher level uh, with respect to future of those units and just uh, new Jen in that state
Yeah. So, you know, our presence is is obviously Brandon and Wagner as you mentioned in in, you know, being able to execute the RMR. We, we, we were shutting those units down.
happy to execute the RMR and, and provide grid reliability and hopefully provide a lower cost alternative to the, to the, um,
Consumers in Baltimore make sure the lights stay on, quite frankly. Um,
and if there was the ability to get gas to those units, we would obviously explore that. Um,
It's, those units are sort of on a, not really on a peninsula, but they're on the river. And so you're either going to come across the river underneath, or you've got to come.
across a bridge that got hit uh or you got to come through the urban areas that said, if if BG&E can get us gas,
we would look at potentially converting those boilers over like we did at Montour like we've done at Bruner and that could provide a a solution that may be at least cost alternative versus building.
A billion dollars worth of transmission. Um, but that's all dependent upon getting gas and that's not the easiest thing to do because you've got to get a volume of gas there that is is fairly significant relative to what the current infrastructure provides. Uh but we're working through that and um we'll see what that goes, as far as the RFP. Uh, we're not currently participating in it.
Okay. Very clear. Appreciate it. Thank you.
Thanks Mark. Thanks Mark.
Core isi.
Please go ahead.
Hey guys. Good morning. How are you?
Morning.
Um, just wanted to touch upon a little bit and drilled into, uh, Jeremy question a little bit. Uh, further when, um, when when we're thinking about the the the outer kind of auctions. I mean, what is the sense you guys get? Um, or or, or hearing, uh, regarding kind of the, the continued Implement implementation of the collar? I mean it it seems like you know, the market would dictate higher prices understanding that there's a lot of politics involved but just would be interested when we start to think about 2028 2029 and you know, you guys formulating guidance for the investor day like just how how are you guys kind of thinking about that?
so first of all, we're an early Innings with respect to what will happen past this this next auction on on, on the, the cap and the floor. Um, I I would tell you and I don't know that there's a consensus that has been drawn uh, across
The IPP space nor would I tell you that there's been a consensus drawn there's going to be several activities about how do we maintain affordability to use that term? Um going forward but that's just opposed how do you incentivize new generation at the right levels and incentivize keeping the existing generation around, right? Um, and not bifurcate those markets.
And but is there?
Is there an advantage to having?
A way to somewhat dampen over time.
And have longer perhaps longer dated, for example, capacity, markets that go out, even multiple years, like you might have in New England, Etc. That's an opportunity combined with a floor and a cap. That's appropriate that
says that we're not going to go to the lows and we're not going to go to the extreme highs.
Great question, but I think that it was just, you know, we just got past the most recent auction, we're going to get new parameters. When is it end of this month? End of this month, for the auction in December? And that's where sort of the Market's Focus has been. And and then we need to have a longer term discussion about how do you reform the market to make sure that you're sending the right price signals and create the right affordability? Uh, for the retail consumer. I there's just no answer to it at this point in time. It's it's in development.
Fair. Yeah. I I should have prefaced by saying I know it's kind of an unfair question. Um but um and then oh, all questions are unfair.
Well, that's okay. That, that that is, um, but um, uh, I just shifting gears a little bit. Um, just curious to on, um, on how you guys, uh, feel about kind of your nuclear nuclear fuel procurement. Just knowing that, you know, we have the kind of 10 the call, the culmination of the 10x agreement in Russia. And then we kind of go into a Gap. A gap period, you know, later on in the decade, um, when we're thinking about, you know, yeah, no, it's, it's a great l.
take a
Take a uh you know free pass on this 1 till September 9th. We're going to provide an update on that at that at that juncture. Uh but we are actively out there doing things.
All right, I'll hold you to it. M. Thanks. Okay. Bye bye. Thanks. Bye.
And your next question comes from Renee Singh from Bank of America. Please go ahead.
Good morning, guys. Um, uh, quick question on, how do you guys view data center? Clustering, kind of looks like, that's a big thing in Pennsylvania with the Homer City shipping Port site. So I guess specifically at the Susu Hannah site and what the recent acquisition of Freedom, um I guess what are the conversations there and is it kind of moving to more of those data center Hub, uh, kind of structures?
We didn't bring coal for nothing. Um yeah, look we uh we're bullish on. Uh, the prospects of data centers in Pennsylvania, specifically the eastern half of Pennsylvania. Um, obviously you you guys, I'm sure following ppl's load forecasts and, and data centers in the queue Advanced stages and that, that keeps going up and up and, um, you know, I think a lot of that is the is there in clustering, it's not just buy any 1, uh, company but I think all as the infrastructure, um, and and gigawatt scale campuses like ours, uh, that are the 1, um, are built out. Uh, it just kind of brings more data centers and so you can go into the pjm, uh, planning submissions and see all the different clusters, uh, or, or, uh, sites, uh, being actively developed. And, uh, obviously it's, uh, good for the eastern half of Pennsylvania and, and existing generation there. Uh, we like the acquisition
Uh, specifically Freedom. Um, that's right there next to Susana and obviously currency out in Ohio where there's already a large data center, clustering presence. Um, and so I think that's bullish for our entire portfolio as we, uh, you know, both just for the power in general but also our ability to contract that over time.
Yeah, that makes sense. And then I guess just secondly understanding that you've moved ahead with AWS front of the meter. Uh, can you have any insight to the ISA rehearings? I know it's ongoing. So, um, I guess any thoughts on implications of
Uh, ruling there for future contracts as well.
Yeah. I look, um,
With respect to the ISA. I I'd say the most relevant thing is we recently briefed the uh
the appeal, in the fifth, circuit on the ISA which is basic, is, is the next step that we see that says
Work. And why behind the meter doesn't work?
um,
Commercially. We're focused on the front of the meter, okay? In the near term, but long term, okay, when you hear of things like shipping Port, when you hear of Homer City, when you hear of, uh,
JVS going after building generation with it. That those are essentially for all practical purposes, a behind the meter yet grid connected
Discussion. Which we've always said that was where things were going to go and that you should have to pay your fair share, whatever. The definition of that, and everybody's got their own definition of that, but like you should pay for what you use. So let's put it that way. Not fair share, you should pay for what you use.
And we've always said that that was the case. It's just in our case which was fully behind the meter, not grid connected. There was no cost PGM said that.
That was in the ISA and so we're looking for justification on that we'll continue to do so.
because we think longer term that
everything should be on the table.
Okay, front of the meter behind the meter that's grid connected. Possibly even just behind the meter.
Okay? And those are types of solutions that are being talked about and that's getting that's getting lost. And I think ferc
uh along with pjm and pjm did this with their different options that they put forth to further, said that everything's available. They did rank them in their preference if you will. Uh, as to what they prefer versus lease preferred, fine,
Okay, but FERC needs to move forward with an all-of-the-above solution.
That allows the proliferation of data centers, doesn't disadvantage RTO that are restructured, like pjm and allows for continued investment in data centers and and and Supply growth at the same time. And so we continue to push forward on the behind the meter.
From a, a legal and Regulatory process standpoint but we're focused on front of the meter with respect to commercial terms.
That all make sense.
Thanks. Thanks Ronnie.
And your next question comes from Greg Oriole from UF UBS Financial, please go ahead.
Hey, Greg.
Hey yeah, thank you. Um, just
I know the disclosure wasn't new on, uh, smrs, but um, just the the strategy there and and where you're thinking about implementing that.
Thank you. Sure sure. And I Cole can jump in is helping work on this and, um,
Look, we have an agreement.
To explore smrs across our site.
Not just assessment. There's there's we have additional sites, we have additional land in Pennsylvania, we have but to explore smrs.
Um, personally, I'm an advocate of nuclear in some form or fashion. It's 20% of the overall Grid or 18% of the overall grid, uh, and it needs to be more than that. Um, as a, I think that's good for us policy, okay? Um, and we agreed with Amazon to explore smrs,
Which will do but you should take that as again. I said this is years 10 through 15 is sort of when things sort of look on the horizon for nuclear new nuclear putting aside you know restarting some of the plants which
I applaud the constellation is doing at crane clean energy center, it's great. Um,
But the and other locations that are being restarted.
But we are spending what I would call early stage. We're looking to spend, we haven't even started early stage development dollars and thinking about how do we work with the state? Our counterparty? What opportunities exist to to look at these types of things. But it's early stage to get the concept going and and and thinking about how might we implement it and how might we work with the current Technologies? I mean there's a whole licensing aspect that needs to go on. I think there's only 1 approved license right now on smrs. And so there there's an evolution in the OR
Evolution that needs to occur here before the before the nuclear Revolution occurs. So um, we're working on it early stages. Yeah, I would say if, if folks thought gas deals were complex, you know, the SMR deal or SMR back deal.
Uh, you, uh, development, that we're planting seeds today, but I wouldn't expect that to be the the near-term focus of announcements, right? But I, I and I do think, though, that there is the ability to start exploring this stuff, because you see the president. You see secretary Wright,
Pushing forward either EOS or doe advancement of how to get new nuclear coming to the grid and so we're excited about working on it. We're not necessarily allocating a bunch of dollars to it.
And it's early stage development at this point.
Thank you, appreciate it.
That's correct.
And your next question comes from an unidentified participant.
Yes. Go ahead and your next question. Comes from Julian dumolin Smith from Jeffrey's, please go ahead.
Morning, Julian. Hi team. It's sorry to disappoint. It's Paul. Thanks for squeezing me in.
How are you Paul? I'm great. I'm great. Julie, Julian says, thank you for the Hat. He was he's very appreciative.
I know a lot was Aston here just to, to squeeze in the last 1 and follow up on, I believe Michael's question on the, The Leverage profile. So obviously with the 3:30 megawatt day clear versus the, the 270, um, should we think about the 3.5 times net debit to Target you you're comfortable Levering up to that level on the higher capacity. Clear, um, kind of factor way of asking like your your view on sustainability of the the higher capacity prices.
Yeah. My car 3 and a half times Target, which is a target that we've had. Now for a couple years, we're comfortable with that. I think that gives us the right, you know, it it it cuts it cuts at the right level with respect to, you know, maintaining the ability to do things on either side. So we're fine with that. The, the 2770 versus 330 is is as we mentioned earlier, obviously helpful, um, as, as we move forward, but we would never. And, and we did this last year when we did our investor day, right? We're we're not going to write you know underwrite these these high prints for years and years and years in the long term projections. So we've got to keep that balance and keep that discipline as as we think about.
The balance sheets and combined with strategic activity and combined with everything that we manage from a liquidity and a hedging standpoint. I'd also tell you, tell you, tell you Paul that to piggy back on that, we're going to lay some of this out in September 9th on 26 guidance, 27, Outlook and 28 sort of early preview Outlook and we have a growing cash flow profile.
So, with the I'll call it more modest or conservative however we want to deem it underwriting case associated with capacity clears and that growing cash flow profile still meets. As we said, being able to toggle these things.
Allows us to return after we get our leverage down.
Targeting the end of next year to lessen that 3 and a half times, then allows us to return, to 70% of cash, being returned to shareholders, uh, and maintaining that Capital discipline. And with a growing cash flow profile, not necessarily underwritten by these at cap clears. We're in good shape there.
Yes, it's not understood. Definitely not thank you team.
Thanks everyone.
I appreciate everybody. I know. Uh, everyone's going to be running off to uh, additional calls, appreciate everybody's interest and talent. Um, and uh, we look forward to seeing you at some of our future events, have a great day. Thank you.
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