Constellation Energy Corporation (CEG) — Q1 2025 Transcript

Thank you, everyone, and thank you for joining Constellation Energy Corporation's first quarter earnings conference call. Leading the call today are Joe Dominguez, Constellation's President and Chief Executive Officer; and Dan Eggers, Constellation's Chief Financial Officer. They are joined by other members of Constellation's senior management team, who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning, along with the presentation, all of which can be found in the Investor Relations section of Constellation's website. The earnings release and other matters, which we'll 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 material and comments made during this call. Please refer to today's 8-K and Constellation's other SEC filings for discussions of risk factors and other circumstances and considerations that may cause results to differ from management's projections, forecasts, and expectations. Today's presentation also includes references to adjusted operating earnings, and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I'll now turn the call over to Joe Dominguez.

Thanks, Emily. First of all, let me thank Tuwanda for getting it started. In our three short years, we have had a couple of occasions where the bridge call failed. So, Tuwanda stand on your toes. Hopefully, we will need you. Good morning, everyone. Let me first thank the incredible team here at Constellation for getting us off to a strong operational and financial start. We are exactly where we want to be through the first quarter, and we will meet our commitments this year. We delivered GAAP earnings of $0.38 per share, and adjusted operating earnings of $2.14 per share. As usual, Dan will walk you through the details in his section. I want to spend some time providing some higher-level thoughts on what we're seeing in the market and what it means for Constellation's data economy strategy. The short story here is that we're seeing a very, very favorable environment. The business updates from the big tech companies, where they've essentially doubled down on their capital and growth strategies, reinforces Constellation's overall strategic plan, the importance of America's nuclear energy to meet the coming demand, and the strong logic of the Calpine acquisition. While we think there are some out there who have overstated the amount of new demand for their own reasons, we're confident that the demand can be met, and that the markets will respond with demand response and new generation as needed. But importantly, even a more rational view of new demand will give us ample opportunity to support both in front of and behind-the-meter data center development at significant scale. And as we look at both the cost of new entry as well as the amount of time it takes to bring new power generation online, we believe that the options for clean and reliable energy from our assets will be a compelling and durable strategic advantage for decades. This opportunity, in turn, will allow us to make needed investments in clean and reliable nuclear energy so that we can re-license and keep running these one-of-a-kind assets through 2060 and beyond for America. Now, in summary, here's what we're seeing in the marketplace. First, the business updates from the tech companies are telling us that Americans are putting AI technology to work in their businesses and in their lives. AI technology makes businesses stronger and helps them offer better products and services. We're seeing that right here at Constellation. For families, it helps them manage their daily lives and educate their children. We see our data economy customers maintaining and often expanding their needs to build new data centers to provide these products and services to customers. Now, it's our job as an energy industry to provide the necessary power, and that is precisely what Constellation will make happen. In fact, we're making tremendous progress today toward reaching agreements with our customers, which I'll describe a little bit more in a moment. The second dynamic we're seeing is that it's clear that the cost of new entry, whether that be for combined cycle machines or solar with storage, has gone up substantially, as has the time to build these assets. Now, at the end of the day, in a tightening market, we compete with the cost of new entry as market and new entry prices converge. And we believe our offerings for clean and reliable generation are far more attractive from a time and pricing standpoint than any competing option, whether that's used to support on-grid data center development or behind-the-meter development. Locating AI facilities proximate to large, clean, and reliable power plants continues to make all the sense in the world. But critically, we do not need to have load co-located or behind-the-meter for us to achieve compelling pricing. To be perfectly candid, we weren't sure about that at the beginning of this strategic effort. Initially, we were somewhat concerned that fair pricing might only be available in behind-the-meter transactions structured like the Talen deal. But we are now convinced that we could achieve fair pricing at levels consistent with our owners' expectations, regardless of whether a client chooses to be in front of the meter or behind it, whether a client chooses to be near our plant or in a remote area. We demonstrated that when we achieved the Crane Clean Energy Center restore. We demonstrated that when we achieved the landmark GSA transaction that we announced in January. And we've demonstrated that time and again with CFE deals. And we certainly see further evidence in the deals we're working on now. On-grid sales are increasingly attractive to us and to our customers for other reasons too. The behind-the-meter approach depends on the cooperation of the local utility, where our assets are part of the grid, and their willingness to facilitate studies and collaborate. Now, it's been no secret that hasn't happened easily. And the regulatory process is presently tied up at FERC, where the industry desperately needs some clarity. But I will tell you, there have been some benefits from the controversy over co-location. It's caused utilities to speed up the interconnection process because they came to understand that the studies were taking far too long. We want to take a moment to applaud the efforts of utilities to move more quickly, and we thank them. One of the benefits of on-grid sales for us is that we can work with utilities anywhere in the RTO. We could partner where it makes most sense, and where they could bring these grid resources online as quickly as possible. This eliminates the need for extensive regulatory processes. It eliminates the complexity around behind-the-meter co-location. And it simply treats these customers like we've been treating all of our retail customers for decades. I do want to make clear that we still believe that behind-the-meter configurations will make sense for some customers. And we continue to get inbound in that area. It may be the case at the end of the day that the largest and perhaps the most important data centers from a national security standpoint will involve grid configurations where part of the data center operates behind the grid, and part of it operates in front of the meter. President Trump highlighted a configuration like that recently in one of his remarks. We urge FERC to provide clarity on the rules for behind-the-meter configurations, and to provide latitude so that there can be innovation here following the President's lead. The third thing we're seeing is that the encouraging data center growth updates and the cost of new entry all reinforce the strong logic of what we did with Calpine in that deal. As I'll discuss, that deal looks better to us every day. We acquired Calpine because it was an excellent company run by terrific people. The combination of Constellation and Calpine people and assets will create new capabilities for our customers, large and small, across America. But as we discussed, we were also mindful of value when we negotiated that Calpine deal. If you now consider the cost of new combined cycle machines that Constellation, NextEra, and many others have reported, one can easily make the argument that Calpine was worth twice as much as what we paid for it. Now, of course, you might challenge me and say that the comparison of new CCGTs to the Calpine fleet does not completely square. You can say that the Calpine assets aren't brand new. And I'd have to agree with that. That is true. But you might also agree that, unlike hypothetical new assets that face an uncertain world of interconnection queues, tariffs, supply chain issues, and delivery dates that are sometimes years away, having a fleet of new plants that are up and running exceptionally well with a good team running them might offset a couple of years of age. Anyway, we love the deal. On the other hand, we don't so much love the equity volatility that our owners have experienced this quarter. But so much of that is driven by macroeconomic factors that we cannot control. In our opinion, our stock price does not reflect the full value of the particular opportunities we have here, the double-digit-based earnings growth through the end of the decade or the prospect of securing additional above-the-PTC pricing deals. As you can see from the disclosures, we have about $1 billion left in our buyback authorization from the board. I'll tell you, we would have loved to have been in the market buying at these prices during the quarter. But as you've seen before, there are times where we have been unable to be in the market due to possessing material non-public information. We do look forward to sharing great news with you soon and resuming our buyback program at these compelling stock price levels. Turning to slide six, at the beginning of the call, I started with the big-picture narrative we're seeing today. I now want to dig in a little bit. On slide six, we see the demand from data centers coming, and that the U.S. will rise to meet this challenge. The Trump administration has made clear that the U.S. must win the AI race, and the administration is taking steps to ensure that we will. They understand that the data economy is critically important to national security and our economies and will be an important driver of America's success. I can tell you that I've been in Washington a lot, and I haven't had a single conversation with anyone from the administration or any member of Congress where the importance of AI leadership has not come up. And notwithstanding news and rumors to the contrary that we've seen, the major tech companies get it too. And they've increased or recommitted to their capital plans for data center build-out. They are making these investments because AI is delivering for customers, and you can see it in their business results. Businesses and families are looking at the possibility of what AI could do for them. We have a number of projects here at Constellation where we're utilizing AI, and I could tell you the tools are marvelously effective. They're going to change operations at plants, going to change our relationship with customers. We are going to discover new ways to do things that are going to bring enormous value to our customers and to our owners. We're a microcosm of the demand that is coming. There's just no doubt about that. And I've said this before, while the demand is strong, we have to be a bit cautious here that there are some claims that are a bit outsized in terms of the extent or amount of that demand, claims that are difficult to substantiate either mathematically or logically. And that's why we put slide seven in here. As I said, electric demand will be significant for our industry, no doubt about that. But to be fair, some of the hyperbole about the size of the growth is coming from stakeholders who have their own motivations, including a desire to keep building out the wire system or competitive market utilities that simply want the right or permission to go back and build generation in a competitive market. We've been seeing that in a few places. But we also see policymakers becoming skeptical about these claims. That skepticism is warranted in our view. We know from conversations with our customers and end users that the same data center need is being considered in multiple jurisdictions across the United States at the same time. Just like fishing, if you're a fisherman, you put a bunch of lines in the water to try to catch fish. And the data center developers are doing exactly the same thing. So, sometimes the same project is showing up in multiple queues simultaneously. The same thing happens with renewable development, where we see these massive queues. But we know through experience that a fraction of what is in the queue gets built. I'll give you a few examples. In ERCOT, the large load interconnection queue grows from 200 or 20 gigawatts in 2025 to more than 100 gigawatts by 2030, a more than five-fold increase. Looking at the chart on the left, you can see the comparison of MISO, PJM, and ERCOT forecasts for load compared to forecasts on national load growth. These three ISOs account for less than half of the total U.S. power demand. But they alone are projecting demand growth notably higher than a wide range of consultants for the entirety of the U.S. It's hard not to conclude that the headlines are inflated. In fact, we've done the math, and if NVIDIA were able to double its output and every single chip went to ERCOT, it still wouldn't be enough chips to support some of the load forecasts in ERCOT. There's been a history of over-forecasting. We've seen this before with electric vehicles. We've seen it before with the Internet. And utilities have historically overestimated their load forecasts. The Rocky Mountain Institute, for example, recently put out a study based on FERC data and determined that in the last 10 years, utilities have overstated long-term demand forecasts by 23% on average compared to what actually happened. We get it. Utilities have to plan to ensure that the system is reliable. But when I listen to some of the comments on these calls, I just have to tell you folks, I think the load is being overstated. We need to pump the brakes here. Moving to slide eight, in the early days of our data economy strategy, we heard concerns that the so-called window for our strategic execution would eventually close because low-cost new resources would be added to meet the data center load and that our existing resources would lose out to these opportunities. We've also heard that we would lose out because we weren't incremental. Let me deal with that last issue first. As a number of the data center companies have noted in their plans, relicensing nuclear plants is incremental. We've seen that in policy space. Everyone gets it. We either include nuclear within the category of resources that participate in these sales or nuclear will fail to exist. But just focusing on cost of new generation, it's clear that we're in a whole new ballgame on cost. The estimates for new-built CCGTs consistently exceed $2,000, with some estimates being closer to $3,000 at KW. Those are higher in certain locations in which we operate. For context, this is about three times as much as we spent on Wolf Hollow and the Colorado Bend plants less than 10 years ago. So, a 300% increase in less than 10 years. And as I alluded to earlier, if we were to rebuild just the Calpine fleet, it would cost about $65 billion, significantly higher for what we paid for the best operating natural gas fleet in the country. Solar is no exception to these increases. Solar Plus storage is in a similar boat with costs now exceeding $2,500 per KW. And that's even without the tariffs. If we estimate what the tariffs would do to CCGTs and Solar Plus storage, we could easily see costs going another $5 to $10 higher for CCGTs on a megawatt-hour basis and another $30 to $50 higher for storage and solar put together. The important strategic point here is that Constellation's fleet ultimately will compete with these new entrants for the right to serve the growing needs of America. Early days of the discussion of the AI-powered dynamic, and I got to tell you, I smile a little bit when I say early days. I mean, when we talked about this last year. We often described our competitive advantage at Constellation in terms of speed and reliability as compared to new renewables because renewables are not reliable. And we thought our competitive advantage over new natural gas in terms of speed and sustainability because gas emits CO2. Implicit was this unspoken assumption that new power, either renewables or CCGTs, would be less expensive for hyperscaler customers as an alternative option to our plants. But that we would be faster for new data centers and offer more reliability than renewables and more sustainability than gas. It turns out that we were just thinking about old cost data. With new cost data firming up, it's pretty clear that nuclear simply wins the match in every single dimension; cost, reliability, predictability of firm prices for 20 years. What other resource could offer a 20-year fixed price? I can't do that with my gas machines. I can't do that with renewables. The speed to execution, the sustainability value, the resilience value, the durability and policy support all of that makes nuclear the clear winner, and folks, that's why I think people are wanting to contract with us and they don't care whether it's in front of the meter or behind the meter. Let me turn to slide nine. One of the reasons we know that the competitive market will respond to the growing demand is because it always has. We are seeing that in response to the expedited program that FERC and PJM approved for new dispatchable generation in PJM. And remember, a big product that historically was used to deal with peak hour demand less demand response. And we saw that go from 15 gigawatts of demand response in auctions that were held just a handful of years ago to two to six gigawatts of demand response in the recent auctions. We also know the reason that demand response didn't happen. It didn't happen because the capacity market was broken and prices were ridiculously low. But now FERC has fixed those capacity markets and we believe that demand response once again is going to come back in the picture as early as this next auction. Remember, our grid was built for peak usage at the hottest or coldest hours of the year, but in most hours, we dramatically underutilized the grid. The chart that you have here on slide nine is what we would call low dispatch diagram. It's a pretty common diagram to everyone in the business. And the colored lines here are every one of the different RTOs. Let me explain how it works. The x-axis is 100% of the hours of the year. So, we take 8,760 hours of the year and that's the x-axis. The y-axis is how many of the power plants or how much of the existing power gen are you using during those hours. And if you study this, what you quickly see here is that for the vast majority of time, we don't utilize the grid. In fact, 80% of the time or so, a third of the grid is not being used. And that means we have plenty of room most hours to accommodate new generation. The Nicholas Institute at Duke did a pretty cool study on this just recently and it's been in the news ever since. And it basically said this, that if we got customers to shave 25% at peak, we could add 76 gigawatts of new load, right? Seventy-six gigawatts of data center just by getting customers to curtail 25% of the time. So, DR is an incredibly powerful tool to meet all of this data center demand. What it'll do is it will utilize the slack in the system most hours and cover those peak hours where there is a gap. We're seeing our data economy customers also pitch in with new curtailment methodologies. And I think it was just this week that we saw the EPA relax the rules on back-up generation at data centers so that back-up generation could be co-optimized for the grid and take the pressure off these key hours. The point is, there are a lot of tools out there and we expect those tools to be used. And again, I think we'll see some of that here in this upcoming auction. It'll put some downward pressure on the strain that we've seen in the prior auction, in my view. Now, let me turn to slide 10. Constellation has some unique advantages that will ensure a large player in this space. We've talked about this. But again, we have existing megawatts that are available to deliver power now. We have clean and sustainable energy, which is going to be useful just now in this environment, but also in the future as concerns about climate continue to resurface. We could offer price certainty that is very different from any price certainty we could offer from any other resource. We've talked about speed. And we've talked about the ability to work anywhere with any customer, in any part of the grid. We could bring additional megawatts to bear, whether that's restarting nuclear plants, life extensions, and of course, operating the plants. After Calpine closes, we're going to be able to provide this capability coast to coast. And finally, just as we look for partners, our investment grade credit rating is a huge competitive advantage because it gives customers confidence that we will be there and stand behind our contracts in the long term. We're well-positioned to create additional value for our owners through our role serving the data economy customers and we're super excited about that. Now, let me close out with the Calpine transaction. It's been a few months since we announced the deal, so I want to tell people what we've been up to. But remember, what we're building here is the largest fleet of clean and reliable zero and low carbon resources in the nation. We believe this will enable us to better serve families and businesses with new products and services at the best prices. And as we spend more time with the Calpine team and get to know them better, we're even more excited every day about the talent, the combination of talent and skill we're going to have as a combined team. We're making very good progress towards closing the deal and integrating the two companies. We have set up integration teams and we're doing the work to get ready to close this year. The teams are energized and we're looking forward to being one company and seeing what two very good companies could do when they aim to be great. On the regulatory front, we've made all the required filings at this point. We received a deficiency notice from FERC and a second request for data from the DOJ. As in large transactions, things like that should be anticipated. We filed our answer to the FERC deficiency notice on April 28th and we remain on track to close the transaction by the end of the year, again, incredibly excited for that.

Thanks, Joe. Good morning, everyone. Beginning on page 12, we're in $0.38 per share in GAAP earnings and $2.14 per share in adjusted operating earnings for the first quarter, which was $0.32 per share higher than last year. We have seen strong performance from our commercial business over the last several years and the start of this year continues that trend. The team did a great job positioning our portfolio at colder than average winter, captured value from serving more load versus the first quarter of 2024, and managing market prices. During the quarter, we locked in margins that exceed our 10-year average, supporting 2025 and benefiting future backlog. As expected, we also realized higher prices for the Illinois ZEC and CMC programs when compared to the first quarter of 2024, partially offset by lower nuclear PTCs recognized during the quarter. We continue to see this means-tested PTC program working as intended. As you know, the PTC is determined on an annual basis and each quarter is booked based on actual revenues plus forwards for the remainder of the year. As of March 31, we anticipate the gross receipts for the full-year will be above the PTC floor across our entire fleet, whereas at the start of the year, part of the fleet was projected to collect some PTCs. This full-year expectation of higher prices resulted in us not booking PTC revenues in the first quarter, whereas we did book some in the first quarter last year. While this is a good outcome on a full-year basis, it can create noise in quarterly results and impacts the year-over-year comparability. We're happy with the start of our 2025 in the context of our plan and are reaffirming our full-year operating EPS guidance range of $8.90 to $9.60 per share. Now, moving on to our first quarter operational performance on slide 11; nuclear performance was strong. We produced more than 41 million megawatt hours of reliable, available, and emissions-free generation from our nuclear plants with a capacity factor of 94.1%. The team continues to deliver industry-leading refueling outage performance. We completed three refueling outages during the quarter, averaging 24 days compared to the industry average of nearly 40 days. Our renewables and natural gas fleet also performed well with 96.2% renewable energy capture and 99.2% power dispatch match. As Constellation continues to do our part to bring clean, reliable, firm megawatts to the grid, last Friday, PJM announced that more than 1,150 new nuclear megawatts, including the Crane Clean Energy Center and other Constellation nuclear upgrades, were chosen for the accelerated interconnection process. We are pleased that PJM recognized the importance of getting these projects on the grid quickly, and I want to thank our team for advocating for this important change. And on Crane, we are pleased with the progress we are making. Our restaffing is going more quickly than expected. We are getting multiple superb candidates applying for each position. To date, we have already over half of the roughly 600 permanent employees we will need to run the plant, and the majority of them have been working at the site. I am happy to share our first operator class is underway, with the second one on course to start this fall. As the days pass and we address long lead time items, like the PJM interconnect and staff training, we are confident that we will meet, and potentially beat our targets for both total cost and time to bring this plant back online. Turning to slide 14, our commercial team is off to another strong start this year, creating value by optimizing our portfolio and locking in higher than average margins, which are benefiting from continued market volatility, as well as sales of value-added products around the clean attributes of our nuclear plants. Our renewable rates remain strong with both electric and gas customers, reflecting the durable relationships we have with our customers. Turning to slide 15, it's understandable there is a lot of focus in the market right now on the risk of a recession. Again, certain about how power producers may fare in such an environment. Before I offer our perspective, let me start by noting that each recession is unique and carries its own impact on our demand in terms of duration and magnitude. More recent recessions have temporarily impacted power demand by 1% to 4%. Although, the year-over-year data is also complicated by weather, which is more complicated and normalized on a national basis. Generally, we are seeing a strong bounce back in power demand on the other side of the recession. In today's environment, we view a temporary slowdown in the economy, and lower power demand. It is likely being offset by the variable demand growth we're seeing across the nation. Considering the impacts of ongoing electrification, on-shoring of manufacturing, and demand associated with the build-out of the data economy, we see counterbalances to any temporary slowdown in reduced power demand in other parts of the economy. The biggest risk to our business in a recessionary environment has been the power price. Fortunately, compared to the last recessions, we now have the nuclear PTC, which provides downside protection from a drop in commodity prices due to a recession. As you know, the nuclear PTC credit is tested to ensure the continued operation of these critical power resources when prices are depressed, while not compensating them in higher-priced environments. We have also looked at other major potential risks associated with the recession, including lower regional volumes, bad debt, as well as debt refinancing. And we are confident in our ability to manage these collective headwinds with limited financial drag for our owners, if a recession were to occur. Constellation remains in strong financial health, especially when you think about our investment-grade balance sheet, ample liquidity, and cash flow supported by the nuclear PTCs, as well as existing forward customer sales. Before moving on, I also want to comment briefly on the current tariff environment. While the ultimate impacts will depend upon trade policy that goes into effect after this 90-day pause and anticipated negotiations, we estimate a negligible impact on O&M, and roughly a 1% to 2% impact on our CapEx, including fuel for 2025 and 2026. We will continue to monitor and mitigate the impacts to both cost and our supply chain. Turning to slide 16, I want to spend a little more time on the PTC now that it's been in place for a year, and we are seeing some updates to key inputs, reminding us of the inflationary protections it provides. As a reminder, we have assumed that the PTC floor and actual credit go at a 2% inflation adjustment as part of our base earnings forecasts. So, if the adjustment was more than 2%, our base earnings would increase. While the official rate used in the calculation is not yet published, we estimate the inflation adjustment for 2025 to be between 2.3% and 2.6%. With the 2025 inflation adjustment in this range, and then returning to our 2% assumption for 2026 and beyond, we will see an earlier step-up in prices that has an incremental $500 million in revenues to base earnings for 2028. This adjustment both demonstrates the benefits of the nuclear PTC in providing economic visibility for the nuclear industry, and reinforces the unique benefit of an inflation hedge in our business model, compared to most other companies in the market. With that, thank you all, and turn the call back to Joe.

Thanks, Dan. Among Dan's many talents is his ability to multitask. So, while reading the script, he also wrote to me a note giving me a correction. I think I said 25% on the Duke study, it meant 0.25%. But the study again demonstrates that with quite modest demand response at levels that we've easily achieved in the past, we could accommodate all new load on the system from the data economy using that tool when we think about the back-up reciprocating engines at the sites, and then we see the new generation in the competitive market will bring as needed. We see no reasonable concern in that area. So, just to recap here, we are off to a fantastic start. We're exactly where we want to be. We are focused on closing Calpine and integrating the business. We like that combination more and more each day. We have a business here that is very different, very unique, and stronger than we think anything else that is out there in the industry. We produce robust cash flow and base earnings, which are protected by a nuclear PTC, a tax credit that has significant bipartisan support. Our earnings grow at 13% through the decade and any long-term deal we do from here on will be additive to that base earnings growth. I think we have demonstrated a track record of continuing to improve earnings and to surprise you from time to time with things like Crane, Calpine, and the GSA. Calpine will add at least $2 in EPS and $2 billion of free cash flow before growth starting next year. And not only does the PTC provide protection to the nuclear fleet, but we're beneficiaries of higher inflation through higher PTC floors and Dan just covered that. So, we're poised to build on the foundation by capturing value from the opportunities that we see in the data economy and in the overall economy as load continues to grow and industries are on short. Our existing fleet is vital to America. We understand that. We're going to continue to make investments in making that fleet better, longer-lived, and increase the output. But we're in a position right now to meet the demands of the time and to support America at this critical point. And I got to tell you, I couldn't be prouder of the team we have here. With that, we'll close down our prepared remarks and take your questions.

Good morning, Jeremy.

Hi, good morning. Thank you for all the details this morning, especially the behind-the-meter, front-of-the-meter, and potential combinations thereof. And just wondering if you could pick up on some of the details in the slides here, if you could provide more details on the progress towards long-term customer agreements as you talked about in the slides a bit there, are you seeing incremental customer comfort around structures kind of independent of for clarity at this point, or do we still need policy clarity here to get deals inked?

Jeremy, I think policy clarity would be welcome, but look, I think like anyone else, when they're trying to grow and they run into a delay or roadblock, people start figuring out ways around it. And I've indicated on earlier calls that I think some sharing of the costs made a lot of sense. I've talked about that with regard to ancillary services. And I think I indicated quite clearly that I didn't think our customers were so price-sensitive that they wanted to try to avoid all costs. They've always been willing to cover fair costs. So, that's not been the issue. The issue has been speed at different times and location. So, the utilities have sped up interconnection process. We see utilities out there leaning into it, and our customers have too. So, they're going to those utilities. If they could get interconnected, then they're looking to us to provide the power wherever they might be on the grid for those applications.

Got it, that's helpful. Thank you. And then, just kind of routing out here, what is the expected path and timing to resolve the FERC 206 proceeding here? And how do you think about settlement at this juncture?

Look, we think there's enough information right now in the FERC docket. There's enough robust information for the FERC to provide clarity. I'll flip it over to David for the process, but although we did ask for a settlement process, as it turns out, what we've seen in the docket should be sufficient for them to make a final decision on this. And they showed, look, when you've got the president of the United States basically saying the grid is too slow, too antiquated, that should be a kick in the pants to everybody in this business to get their act together and figure out rules of the road so that we're not having any uncertainty around what could be the most important technology of our lifetime, not only for our economy but for our national security. I'll give David a moment here to talk a little bit about the process, and then, I'll turn it over to you, David. I'm sure you have some thoughts going forward.

Yes, sure. So, the vast majority of the parties in the proceeding, which is quite notable, have argued to FERC and made a case to FERC that the existing PJM tariff is not just and reasonable and needs to be amended to create the clarity and speed that Joe's been talking about. And while we said we would support a quick settlement process, we also would welcome FERC to call balls and strikes very quickly on the merits of the case pending before it. In either case, speed and clarity together are quite important, and we think that whether it's a settlement under a fast-track proceeding to let the parties see if they can work it out, or whether or not the commission directs PJM to amend its tariff to address the gap in some of these rules, we think all of that can be done in really a handful of months and should be done in a handful of months. So, there's a path forward under either approach, and as Joe said, we think the record is quite clear for establishing the rules to allow these critically important loads and customers to get on the system as quickly as possible.

Got it. Speed would be great. No one likes the regulatory sausage-making. Thank you.

Good morning, Steve.

Yes, hey, good morning. Hi. Just first a couple of questions on the potential new power agreements. I guess, first of all, any sense on whether the pricing we've seen is an indicator of pricing, and I assume transmission in front-of-the-meter would be paid by the customer, not by you. And then, lastly, just, it sounds like when you talk about, you're talking about basically selling even beyond kind of the local utility where the, in zones beyond the local utility where the plants are. So, can you just clarify that commentary and your ability to do that?

Yes, sure. I mean, the last one, Steve, we've been doing for 20 years, right? We sell to customers everywhere in PJM. We have national accounts with customers where we supply all of their businesses in a variety of areas. As you saw, for example, I'll give you a great example of this. When you saw us do the Crane Clean Energy Center restart, there's no data center right there in Pennsylvania. So, Microsoft was quite clear. They were using that power in multiple states. And one of the strengths of our commercial team is being able to move power around the system. Again, this is nothing new. We've been doing it for 20 years. And because of our geographic reach, especially in areas like PJM where we have a lot of West Hub, a lot of NIHUB power, we could kind of fill in the blanks in all different places. So, that allows us really to work with the utility that has got the most advanced projects. And when I said before that we see the same project in multiple utilities plans, it's really because we have visibility and understanding where the client may want to use the power. And that's how we understand that we have a lot of duplicates going on in the system.

Thank you. One other question just on the IRA and nuclear; so, obviously we have the reconciliation process and one of the issues that's come up is transferability and whether they keep transferability. I know one of the laws allowed it still for nuclear, but in the event it wasn't allowed going forward, what would that mean if at all for you monetizing credits?

We see that as a de minimis impact to us because in particular post-Calpine, we have plenty of tax capacity. So, I know it is for others, not a big hot issue for us. But you did raise the IRA and you did note the strong support for nuclear. In the most recent letter, we saw 26 congressmen come out in support of the continuation of the 45U credit for existing nuclear, as well as 45Y to expand and re-license existing nuclear. That's 26 congressmen. You put that together with the earlier letter, and there was not a complete duplication of signatures. There were 12 additional members in that earlier letter supporting the tax credits that were not included in this last letter that had 26 members. So, all told, we have 38 members of Congress, Republican members of Congress supporting the tax credit. That makes sense because if you remember, the tax credit was actually created by Republicans. These were Republican ideas for the nuclear tax credit. And even in the bill by Senator Cramer and Congresswoman Fedorchak were saying the same thing, a recognition that it's important to keep the nuclear plants alive. So, I'm not seeing anything impacting transferability or frankly nuclear being discussed. And I am spending a lot of time on the Hill to make sure I got my ear to the ground on anything that might happen. So, we're very pleased with the support. The reconciliation process will no doubt be bumpy and we'll see some ups and downs and twists and turns. But I think we're as well positioned as anyone. Dan, do you have any other thoughts on?

Yes, just for clarity, Steve, when we look at the Ford's where they are today, we do not, (a), need to transfer any credits and we actually might be, with our tax position, looking to buy other people's credits if they came available at a discount. So, we feel comfortable with the Fords, where they are today.

Thank you.

Good morning, David.

Hello, thanks so much. Good morning. On behind-the-meter, and I appreciate all your comments here on the front-of-the-meter, behind-the-meter, I guess just maybe drilling into the behind-the-meter opportunity. Like, is that diminishing here? Are you seeing those conversations shift and kind of move over to front-of-the-meter? Or do you still have a significant level of interest kind of waiting for the clarity that might open up that path?

I believe that the team is eager to proceed with construction. Given the current uncertainty surrounding behind-the-meter solutions, discussions are primarily focused on front-of-the-meter options with utilities and customers. I think that large training data centers, like those being discussed in Texas, will still require behind-the-meter support because it’s unrealistic to expect to bring 4 to 5 gigawatts of power solely from the grid. Over time, we will see connections to front-of-the-meter systems, but there may also be additional power plants built at the same locations that will remain behind-the-meter and not connect to the grid. And that's why I was saying, this is more in the category of brainstorming, but it's important that FERC not constrain innovation for co-generation and co-location. Imagine had we done that in the 1980s and said, we're not going to consider, imagine how much co-gen we would have lost in this country. So, we're going to see some combinations, combinations that frankly we're not aware of here, but right now the conversation is where there is clarity and where there is clarity is front-of-the-meter. And because we go anywhere in the RTO, that suits us just fine.

Got it. Great. Yes, that's really helpful color. Then maybe I was curious if you could synthesize some of your thoughts on just the demand outlook for data centers, the supply outlook, as you've noted is challenging, but then considering demand response, what is your view on power prices from here, looking at the market? A number of parties have gotten concerned about affordability as an example. So, how do you kind of manage that fear, but also your underlying views of the fundamentals of the market here?

Yes, David, when I think about affordability, if I were to flash any chart back up on the screen, it would be that low dispatch curve because whether you're talking about affordability, reliability issues, when emissions concerns actually occur in bulk, you're really talking about those peak hours in the system. You're not talking about days like today, right? There's no issue. You're talking about those peak events. So, having the tools available to manage those peak events, whether it's allowing the back-up generation at the data centers to be a great resource during those events, I think that's a fantastic idea. We were very supportive of where EPA went. The Flex program that EPRI has spearheaded with the data economy customers, we've been deeply involved with, that's made huge progress in terms of the hyperscalers managing those events. And then, demand response, which simply means the hyperscalers are going to pay a little dough in addition to what the capacity market might yield to get other industrial and commercial customers to back off in critical hours. If we're able to do that, then we're going to manage the capacity market pressures on bills. We're going to manage some of the higher costs on bills, right? And we're going to manage at the same time some of the emissions issues that drive climate and other considerations. That's why we focus on that. There's a tendency I think from laypeople to look at this as we need energy at all times on the grid. These charts should tell you that's absolutely not true. Most of the time, we have an abundance of energy. So, I think that's part of managing the story. You want to put off to the extent possible unnecessary investments in generation. So, I think I'm a little bit of an outlier here, but as I see the world, the next five, six, seven years ought to be quite manageable. And I think storage is going to be a part of this answer. What I worry about is the period after that. What happens 15, 10, 15 years down the road? What happens if we then come back and we think about things like climate differently than the administration presently is thinking about them today? What happens if we have climate events that bring that all back? And I think the answer that we offer and that we've encouraged to the administration is let's spend some money on research and development so that if we do build gas machines, they don't become stranded in an environment where climate becomes a major consideration. We continue to invest in sequestration and other technologies. So, I think, look, that's the way we're going to have to manage the cost. But the biggest and best thing we could do is not overreact and start building things that are unnecessary. And frankly, with a lot of the hyperbole in the system, I think it's aimed at exactly doing the wrong thing.

Got it. No, thanks so much. I appreciate your viewpoints.

Good morning, Paul.

Hi, good morning. Thanks for squeezing me in. From your comment about having an NPI and the emphasis on not waiting for clarity, is it a fair expectation that kind of you're pretty close to a deal and maybe within the next quarter or kind of not to read too much into that commentary and it's sometime later this year?

I don't want to address that because we are in a very good place in the process. The deals will be announced when they are ready. That's all we will cover on this call.

Okay, fair. And when you mentioned kind of a need to have a good partnership with the regulated utility, what's the timeline for some of the interconnection studies with your local PJM utilities? Just how the discussions of utility evolved holistically over the past few months? Thank you.

It’s still somewhat variable, but some of the projects are being completed within six to seven months. Interestingly, some customers have initiated the interconnection process even before our discussions have reached a more developed stage, which doesn’t seem to be a current limitation. I want to explore this further, but I believe that months rather than years is a reasonable expectation at this time. I also commend the utilities. I’m seeing this trend across all utilities, even those we haven’t previously partnered with; each one appears focused on completing these studies and connecting the load, which makes perfect sense to us. We will collaborate with them as effectively as we can.

Thank you.

Thank you. First, I have a question about recent demand from data centers for powers. It seems like, at least listening to the hyperscalers, there's been a shift away from training facilities more to inference. And so, it seems like location matters again. So, do you actually see that there's more demand for some of your assets closer to load centers and sort of smaller in size? And again, I don't care if it's front or back of the meter, but has there been a shift in what hyperscalers are looking for?

No, Angie, I wouldn't say that. I think I may have this wrong, but my recollection of the statistics is that about 85% of the expected load was always going to come from inference data centers. So, you're going to see the lion's share is going to be inference data centers. But even those data centers are getting quite large relative to the size they were. I remember when they were 5 and 10 megawatts, I thought, oh, my God, that's huge. Now we're talking 100 to 150 megawatts even for these inference data centers. So, to a certain extent, they're just getting bigger. And that means they have to go to where there's available power more so than the fiber concerns that I think predominated when we were talking about smaller data centers that were more easy to connect. I think probably the bigger shift I've seen, Angie, and there's not enough data points to draw any firm conclusions, is I think there's been some rationalization that these super-large data centers, 10 gigawatts, 7 to 10 gigawatts that were talked about quite liberally at the beginning of the AI phase, I find people are speaking less about that. And thinking about how to combine more large 500,000 megawatt data centers and conduct some of the training. But I believe it continues to develop.

Okay. Looking at the forward power curves in Northern Illinois, there has been a significant pullback in those curves, even after a recent recovery. It appears that several data centers have moved away from the state. I'm curious about your perspective on why that might be. Is there any regulatory or political backlash against large energy loads in the state? Also, what is your outlook on long-term power prices in Illinois?

No, I don't think so, Angie. I believe people will go where they can connect most easily. I don't notice any specific issue in Illinois or opposition that is affecting people. However, if you are a data center considering Illinois, you are likely also thinking about Iowa, Indiana, and Michigan. This relates back to your initial question regarding the early days of the data economy, where smaller data centers prioritized proximity to large population centers. Now, that focus has shifted because power availability and interconnection speed have become the key factors. So, I think that just widens the aperture for our customers to look at multiple locations. And I think there is just kind of another reality here too, that data centers were going where there were data centers to take advantage, again, fiber and other things. And certainly we've seen a shift in appetite to be able to explore Pennsylvania, as an example, whereas before there was relatively wide activity in those areas. So, I just think that the world is continuing to shift. The geographies these customers are looking at has broadened. And again, for us, that's actually pretty good because of the scale, the unique scale we have and our ability to reach all of these different places, including 20 years of experience, and knowing how to move power around the system, and accommodate clients like this, it should be right up our alley.

Very good. Thank you.

Well, thanks everybody for participating. Again, thanks. Just give another call out to the team here at Constellation. You may consult throughout every single day. We've had a very good extensive discussion. We look forward to the opportunity to provide additional updates on our business strategy. And with that, Tuwanda, I will close the call.