Constellation Energy Corporation (CEG) — Q2 2025 Transcript

Thank you, Tania. Good morning, everyone, and thank you for joining Constellation Energy Corporation's Second 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 will discuss during today's call contain forward-looking statements and estimates regarding Constellation and its subsidiaries that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's 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.

Thanks, Tanya and Emily for kicking us off. Good morning, everyone. Thank you for being here and for your interest in Constellation. I realize it's a hectic time with numerous earnings calls happening, and I appreciate your attention to what we're doing. I also want to acknowledge our team at Constellation for another strong operational and financial quarter. People are the key to our success, and I'm proud of the culture we've built together. It requires ongoing effort and focus, and while we may not be perfect, our leaders remain committed to it every day. I'm particularly excited to share that for the third consecutive year, we've been recognized as a great place to work, based solely on feedback from our employees. This recognition is significant to me because it reflects their appreciation and support of our efforts. Now, on to the quarter and our financial outcomes. We reported second quarter GAAP earnings of $2.67 per share and adjusted operating earnings of $1.91 per share, which is an improvement over last year's second quarter. Dan will provide more details shortly. As you may recall, last quarter, we were somewhat disappointed by our inability to buy back shares due to the ongoing Calpine deal process. We were unsure if we would finalize the deal before the announcement. However, since the Calpine announcement, we've executed $400 million in Accelerated Repurchases as part of our stock buyback program, which continues to deliver excellent returns. With long-term contracts like our Calpine and Microsoft deals now integral to our strategy, we won’t need to pause stock repurchases. Please don’t assume the timing of any new transactions based on our share purchases. In addition to our solid financial performance, there have been several exciting developments for the company since we last spoke. The recent Big Beautiful Bill was signed into law, enhancing nuclear provisions and demonstrating bipartisan support for nuclear energy. We moved the restart of the Crane Clean Energy Center to the second half of 2027, ahead of the original 2028 timeline. We've secured New York, Texas, and FERC approvals for the Calpine acquisition, and we remain on schedule to close by year-end. We also announced a 20-year power purchase agreement with Calpine for the Clinton Clean Energy Center, ensuring the availability of over 1,100 megawatts of emissions-free nuclear energy for decades. This arrangement allows us to invest in increasing output and delivering even more megawatts to the grid at this crucial time for America, marking a significant achievement for all parties involved. Beyond the Clinton agreement, we are actively making headway with customers on additional deals to sell our clean, reliable megawatts from our nuclear plants. I know you’re eager to get updates on our transactions, and while I can't disclose specific deal details until they're completed, I want to assure you that we have made substantial progress. For those who enjoy using baseball analogies, let's say we're in the late innings on one transaction and we’re in the early to middle innings on others. The interest from various entities continues to grow, which is promising. For some transactions, while we've agreed on pricing and terms, other conditions—especially for front-of-the-meter deals—rely on utility interconnections. For one transaction, we're making good progress but are waiting on inputs from utilities. We believe clean and reliable megawatts are the most crucial energy commodity today, and many customers share this belief, reinforcing our confidence in securing future transactions. We’ve previously discussed the importance of natural gas in the data economy and system reliability. We were pleased to see Calpine's announcement regarding a 190-megawatt data center in Bosque County. We foresee more such transactions in the future. The combination of gas and nuclear gives us a substantial competitive advantage, allowing us to provide a distinct energy product that is both reliable and clean at stable prices over a long term. It's essential to acknowledge that while we emphasize data center clients, many other businesses value and purchase our clean nuclear energy, and that trend is growing. This quarter, I'm excited to report a significant new carbon-free energy agreement with Comcast, connecting private customer agreements to our nation's clean energy goals. Additionally, we've witnessed governmental interest, illustrated by the GSA deal and a recent white paper from the New York Department of Public Service calling for a 20-year ZEC Program extension. This extension is vital for preserving nuclear energy in New York, supporting its clean energy objectives for years to come. This quarter has been historic for Constellation, as we witness the realization of many objectives we've discussed. The bipartisan support for nuclear energy strengthened by the Big Beautiful Bill is a significant development. Our capacity to execute deals has been validated, and the importance of reliable natural gas is evident in our partnership with Calpine. Our ability to grow organically and through mergers is strong, driven by Constellation's solid commercial and operational performance, which is the foundation of everything we do. Turning to the PJM capacity auction, it’s important to clarify past misconceptions about data centers' role in price increases. While the data economy and economic growth are driving demand, the primary reason for the capacity price hikes is FERC-mandated changes to the PJM market. These adjustments were necessary to address reliability gaps, recognizing that not all generation forms offer the same reliability. In the recent auction, we saw the market clear new capacity that supports increasing demand. The consumer protection price cap was effective in stabilizing prices, helping customers manage the inevitable transition to higher costs as a result of the changes made by FERC. Despite concerns about customer expenses, it’s important to note that generation costs have actually decreased substantially compared to rising transmission and distribution costs. As part of our commitment to reliability, we are investing billions to reactivate and extend our nuclear generation capabilities. We had over 1 gigawatt approved through the RRI process, including upgrades at Crane, Byron, and Braidwood. Our plans for Crane’s early restart remain ambitious, and we are advancing on our large projects at LaSalle, Calvert, and Limerick. We’re also collaborating with GridBeyond to leverage AI to help customers reduce peak energy usage, which will contribute to market reliability. The auction outcomes reaffirm the effectiveness of competitive markets over monopolies, attracting substantial private investment in generation. This private investment enables companies to manage risks rather than placing the burden on captive customers. In June, I was proud to announce the Crane Clean Energy Center’s expedited reopening. We've made significant progress on staffing and securing resources and are well-prepared for our operations moving forward. Regarding the Calpine transaction, we are progressing through the necessary approvals, and I look forward to closing this deal by year-end to provide our customers with the unique capabilities offered by this acquisition. Now, I’ll hand it over to Dan for further insights, and I'll share some closing remarks after his update.

Thank you, Joe. Good morning, everyone. Beginning on Slide 10, we are in $2.67 per share in GAAP earnings and $1.91 per share and adjusted operating earnings in the second quarter, which is $0.23 per share higher than last year. Similar to the second quarter last year, the fleet performed exceptionally well and provided critical around-the-clock supply at a time when PJM saw peak loads materially outpacing its summer demand forecast. Our commercial team once again successfully managed a period of extreme volatility, where at times we saw triple-digit real-time pricing across much of the East Coast. In addition to the strong performance from our generation and commercial teams, we also recognized $201 million from the Illinois ZEC Program for bank credits. This is similar to what you saw in the second quarter of 2023. As you may recall, the Illinois ZEC Program includes an overall cost cap as one of its consumer protection features, but allowed us to bank excess credits for use in future years if there was a fall of the cap, which is what we did again this year. The impact of these credits and the banking mechanism have always been included in our full year 2025 guidance. Slide 21 in the appendix provides more details on the mechanics of the Illinois ZEC Program. Full year gross receipts for the majority of our fleet continue to be at or above the PTC floor, resulting in significantly fewer PTCs being accrued this quarter compared to the second quarter last year. This is a good outcome and the means-tested program continues to work as expected, which will result in noise when comparing year-over-year results on a quarterly basis. The extraordinary stock performance this year translates into higher book compensation expense for us creating some earnings wins that we will continue to monitor. That said, we are reaffirming our full year operating EPS range of $8.90 to $9.60 per share. Moving to Slide 11. As I mentioned before, our fleet performance was excellent during a period when it was needed to support unseasonably high demand across our operating footprint. Our nuclear team posted its second-best fleet production ever in the second quarter and was ahead of plan with a capacity factor of 94.8%, producing more than 41 million megawatt hours of reliable, available and emissions-free power. We completed 3 refueling outages in the quarter with an average duration of 19 days, beating the industry average by over 2 weeks. Being able to execute on these outages significantly better than the industry, provides incremental benefit to the grid, energy in the communities where we operate and of course, more power to sell. It truly is a testament to the operational excellence of our nuclear organization. Our renewables and natural gas fleets were also ahead of plan for the quarter with renewable energy capture at 96.1% and power dispatch matching 98.3%. Our plants continue to perform when they are most needed. Turning to Slide 12. Our commercial team is off to another strong start this year. We're creating value from continued market volatility by optimizing our portfolio, locking in higher-than-average margins on retail sales and finding success in selling value-added products around the clean attributes of our nuclear plants. We continue to see robust renewal and new business win rates with our power and gas products, reflecting the durable relationships we have with these customers. Our scale and ability to develop products to meet the needs of our customers is truly a competitive advantage. We have spent a lot of time over the last 1.5 years talking about the incredible demand for long-term clean, firm and reliable power from the data economy customers and for good reason. But it has arguably overshadowed our success in selling these same products to our traditional commercial customers. For example, through June of this year, we have sold nearly double the volume of hourly carbon-free and emission-free products than we signed all of last year. Let me offer a little more context about what we're seeing with these sales. Remember that the ability to offer time-matched clean power has only been around for just over 2 years in PJM. So we're encouraged by the growth in what is still a relatively new market. Also interesting is that our customers for these products have mostly been from industries outside of the data economy, reflecting the breadth of demand for these offerings. Their products are rightly sold at a premium to typical C&I deals compensating us for the uniqueness of a scarce firm around-the-clock carbon-free energy solution. And finally, the duration of these products varies, but they are typically much longer terms than those of our traditional commodity business. Another area where we're seeing tremendous growth is with data center customers we already serve. Focusing just on the accounts we have continually served over the last 3 years, we have seen their usage in the first half of 2025 increase 45% compared to the first half of 2023. This step-up in usage is probably not unique to Constellation, but it is indicative of the increased demand coming from the data economy, expansion of existing sites and gains in energy density even in existing facilities. Turning to Slide 13. I want to provide some brief comments around the financial impacts of the latest capacity auction. As a reminder for everyone, that will help with your modeling. With the nuclear PTC now in place, calculating the benefit from higher capacity prices is admittedly a little more involved than just the PxQ and depends on expectations for gross receipts. When we are below the PTC floor, upside in pricing will first offset PTCs being generated and then when above the floor, we would retain the upside. Fortunately, given where the current forwards are, our nuclear fleet is above the PTC floor for 2026 and 2027. So the uplift in capacity markets will flow to our earnings outlook, assuming prices hold. This earnings upside above the PTC floor will show up in our enhanced earnings bucket. That said, for the 3 sites in Illinois that are in the CMC program through mid-2027, any revenues above the CMC price will be refunded to customers. So we will not realize any upside benefit for these 3 CMC plants in Illinois, even though they cleared the auction. So from a financial impact perspective, we'll just focus on Constellation standalone and not include Calpine given where we are in the approval process. For 2026, the net EPS impact of Constellation is approximately $0.50 per share. For 2027, assuming we carry the same capacity prices forward to the '27, '28 auction, we would expect an approximately $1.50 per share increase in EPS and help calibrate with these earnings benefits. The delta upside did say conservatively low number around low 200s per megawatt day embedded in our expectations. Turning to Slide 14. The strength of our balance sheet continues to be foundational to the company and our capital allocation. The combination of our investment-grade balance sheet and strong free cash flow create strategic flexibility to fund the Calpine acquisition, as well as pursue future growth investments and return capital to our owners. On our first quarter call, we talked about our disappointment in not being able to repurchase shares on the short-lived dip. During the second quarter, following the announcement of the Calpine transaction, along with reiterating that more long-term PPAs are part of our strategy, we're able to enter into an accelerated share repurchase program for $400 million. We expect this view of data economy deals as now being normal course to our business will afford us flexibility in when we can be in the market buying back stock going forward. And with this quarter's $400 million, we will have repurchased $2.4 billion of outstanding shares since the beginning of our buyback program, and still have about $600 million remaining under the current board authorization. We will remain opportunistic in returning that capital to our owners. Let me now turn to the One Big Beautiful Bill Act. Joe already talked about our excitement around the support for the nuclear PTC provisions, but there are some key other benefits from the legislation for Constellation. The OBBBA includes an incremental 10% bonus on the 45Y Credit for nuclear energy communities that will provide incremental tax benefits for new nuclear megawatts. We expect the Crane Clean Energy Center as well as our other upgrade projects to qualify for this bonus. We also benefit from the general corporate provisions included in the legislation, moving from 40% to 100% bonus depreciation on our entire capital plan, including fuel, as well as an immediate deduction for research and development expenses will meaningfully benefit our cash position. These provisions create an expected $200 million to $300 million of annual tax cash favorability per year for Constellation standalone. We expect that benefit to grow with Calpine and the capital plans there. We're excited about Constellation's performance and our financial position as we head into closing Calpine later this year. And with that, I'll turn the call back to Joe.

Thanks, Dan. Great job. So look, Dan and I have covered, we had a pretty great first half of the year from our perspective financially and operationally. Real big wins on the policy front. We have some terrific significant opportunities on the horizon to continue to build on the successes you have seen us achieve already. And we're focused on closing the Calpine transaction in the second half of the year and really doing the work here to bring these two great companies together. Our company is really like no other, and our unique and strong foundation will create value for our owners year in and year out. So we produce robust cash flow and base earnings, which are protected by the nuclear PTC, which, as you've seen now, has tremendous bipartisan support. And I think we should reasonably expect the policy to be continued. Our earnings grow at 13% through the decade and any long-term deal we do would be additive to that growth as well as to our base earnings. We've had a track record of finding ways to improve our earnings. And just this update here, you're seeing what we're doing with the Crane restart. We've done the deals with Calpine and Microsoft. We've got the Calpine acquisition. I think we're pretty smart about finding those things and getting them done. Calpine will add $2 in EPS and $2 billion of free cash flow before growth starting next year. And Dan, of course, covered some of the cash benefits of the Big Beautiful Bill to us. We've got uprates that we're now through the engineering process on, and we're hoping to partner with customers to bring to the grid. And then finally, not only does the PTC provide protection for the nuclear fleet, but in a world where people are concerned about inflationary impacts, the PTC gives us some unique protection through higher PTC floors that are adjusted with higher inflation. So we feel like we have an unbelievable foundation for capturing value from all the opportunities we're seeing and for meeting the demand of the data economy and the demand of just growth here in America and capturing the value that you deserve as our owners. Our existing fleet can serve customers with clean, reliable energy that they need now for decades and decades to come. So an unbelievable platform. We think it's unmatched in the world in which you operate, and I'm excited to take your questions.

Thanks for the updates. First, regarding the potential late inning data center deal, you mentioned that interconnection might be a critical issue. Could you discuss the timeline for that specific deal? Also, what are you observing about PJM interconnection timelines from utilities? How long are they, and do you have any general thoughts on this?

Yes, Steve, I'll address those points in order. I'm optimistic we'll complete that this year. The work is under someone else’s responsibility, but we are maintaining close communication and coordination. Speaking generally about the time it takes to interconnect, it's really difficult to give a specific timeframe. It's widely acknowledged that being closer to plants and major transmission infrastructure is essential for speeding up the process, which varies based on specific projects. However, generally speaking, what we discussed a year ago has become common understanding in terms of effective practices in this industry. Fortunately, I've noticed that utilities have become much more responsive compared to a year ago when we began exploring these opportunities. It used to be common for studies and similar processes to take a year or longer. Thankfully, utilities have found ways to expedite engineering work and handle requests in a more organized manner. Some have grouped requests to process them more quickly. Everyone seems to recognize the urgency for faster responses, which is encouraging. Nonetheless, ultimately, the location matters, and you may receive positive feedback in one instance and negative in another. It's crucial for utilities to openly share information so that customers can assess the feasibility of various projects in different locations, and I believe they're making progress in that area.

And then just on this late inning one, is this a matter of kind of just timing and cost? Or is this kind of like any risk of it just not being viable?

Steve, I wouldn't be discussing this during the call if I didn't believe it was a feasible option. We just need to allow them to move through their process and determine when the interconnection is ready. After that, we'll provide updates. However, I think people on these calls often assume we're just sitting around negotiating costs per megawatt hour for several months. The reality is that these transactions are quite complex. You've seen this with Microsoft, Calpine, and the announcements made by Talend. There are numerous processes involved, some of which are beyond our control and the customer’s. Once you're connected to the grid, other parties need to be involved, and we also have to ensure that the necessary equipment for upgrades is available. As you can imagine, this can take a considerable amount of time. Nevertheless, we believe we are in a good position.

Okay. I've got 1 million PJM questions, but I'll let other people ask those. Just other questions just on new nuclear. Has your kind of strategy change there? Like are you more willing now to invest in new nuclear? And what would be the risk-reward conditions for you to do that?

Yes, Steve, I believe this will not represent a significant change in Constellation’s approach. Rather, it's an evolution. Over time, with the efforts of Bryan Hanson and his nuclear team studying the designs, we have not only assessed them in terms of viability and operational efficiency but also delved into the details of cost components for different parts to understand how they will be manufactured. This includes considerations for modular designs, sourcing equipment, timelines, and much more, which we are continuously refining. Generally speaking, my confidence improves each week as we gain a clearer understanding of cost structures and project timelines. Therefore, I feel our confidence is growing, though gradually, rather than through any major leap. I think the potential is quite strong and very real, although I don't believe every design will ultimately prove viable. We have a good sense of which designs are likely to succeed, thanks to numerous discussions with companies about how Constellation can leverage its unique real estate access, operational expertise, and construction skills to support them. I'm genuinely excited about the future possibilities, but I am not yet at a stage where I can specify costs or timeline estimates on this call. Do I believe we will achieve this? Yes, I do.

Just wanted to pick up with the auction a little bit more, if I could. And you highlighted the clear benefits of demand response and the importance in the future going forward there. Just wondering if you might be able to comment a bit more on thoughts on the level that materialized in this past auction trends there and how you see this trending in the future? Or what would it take to get more?

Look, I think one of the things it's going to take to get more is that the ELCC change. So for folks on the call who don't follow this at a granular level. PJM creates an electric load carrying capacity for every resource that gets bid into the auction, demand response combined-cycle machines, nuclear plants. The star of the show, of course, is always nuclear plants because they're the strongest, most reliable units in the system. And everything else gets kind of a haircut from there. In the case of demand response going into this last auction, the ELCC, the carrying capacity for peak was set at less than 70%. From a financial perspective, that means that if you bid a megawatt of demand response, your price that you got back was haircutted by over 30%, right, from the go. So that limited a bit the amount of DR that participated in the market. This next auction, that goes up to over 90%. So the economics of bidding in for demand response will change over the course of this next auction. Their requirements will also change. Instead of having to be available for 18 hours, it will stretch to 24 hours. But one of the reasons that we got involved with this new company to develop these AI products is because we think there's a bear there. Is DR by itself going to be a solution? No, but it's got to be a unique and important contributor. And I say unique because it represents an incredible speed to deliver reliability. So as I applaud PJM for improving the ELCC. I wish they had done it for the last auction, but I'm not going to cry over that spilled milk, and I think it will deliver megawatts into the future.

Just continuing with the auction, if I could. We've seen state attention from governors and other stakeholders after the last auction here. I'm just wondering what you're expecting in terms of state-level action on PJM changes going forward here, whether that's incentivizing new supply or other reforms? And could there be opportunities for Constellation out of this?

I think there will be. Look, I think what Governor Hochul is doing in terms of the New York RFP for nuclear, I could see that transpiring in other places. I mentioned other states in which we do business where new nuclear might make sense. And depending on the work that Bryan, and his team could do, I am quite sure we're going to not take 10 years to bring that stuff on. It will be done in a much more time-effective way. So I think that's real in the long run. But Jeremy, I think the one thing that states are going to have to evaluate, one of the points that we've championed is we've got a number of states that have required fossil fuel plants to leave the system by a certain date. And I don't think it should be a surprise to you that we would recommend that they rethink those requirements. And so we have advanced some ideas. I think there are some really good ideas out there that would say, for example, if you scheduled to retire in 2030, maybe as a compromise, that generator starts ramping down from a historical baseline, their emissions in, call it, '27, '28, '29, so that they could bank emissions that could then allow them to operate between 2030 and a new set time to retire, right, so that they could buy their way into an extension by reducing air pollution in these interim years. We've heard that. We're supportive of that, it makes complete sense to us to keep some of these generating facilities on to give the market time to respond. Now look, I know there's been a lot of discussion out there about monopoly build versus competitive market build. There's no timing advantage to having monopoly build. We're going to have to manage these next few years where the system is going to be tight. We're going to have to see DR come in. We're going to have to have states perhaps revisit some of the timing for the retirement of units, and we're going to have to extend that so that we manage this interim period. And then we're going to see 9 gigawatts come into the system through PJM's RRI. We are here not because of a failure of markets. We are here because of a failure of regulatory design that has now been addressed, but took way too long to address and cast a cloud of uncertainty over the market for too long. Again, I can't get on these calls and cry about spilled milk. But if somebody is out there saying, oh, this is the failure of competitive markets or this is all the fault of the hyperscalers. I'm just calling it a bunch of hooey. That's just not true.

I was wondering if you could touch on the direction of pricing in discussions you're having on some of these data center deals. We've seen, obviously, with the capacity auction prints coming in, higher, and it does seem like conversations and demand has been fairly elevated. What are you seeing in terms of some of these most recent discussions with regard to pricing versus previous?

Yes, David, thank you for joining the call. I won't discuss specific deals because I want to avoid referencing any particular transaction timing. What we're observing is that the market is becoming more restricted, and the pricing for capacity is also tightening. The availability of other resources has been impacted by recent developments in the renewable sector and the limitations set by FERC on storage. These factors are likely to add pressure on supply. In our last call, we mentioned that the costs of combined cycle machines are increasing. Collectively, these issues, along with the demand for available megawatts, will likely render existing capacity more limited, which should lead to continued price increases. My advice to customers is that now is a good time to start these discussions.

Great, I appreciate that. How are you viewing the balance between front of the meter virtual offerings and co-located on-site data centers? What is the level of interest in the colocation side? Is there a common structure emerging for the deals moving forward?

Yes. Let me change the labeling a little bit here so that I can precisely answer your question. When I think of co-locating, I think, of approximately located. I think just about everything is going to be approximately located to major power elements, whether it be the power plant or major elements of the transmission grid, which again, are generally near power plants. So I think the question you're getting to is, Joe, is that going to be front of the meter or behind the meter? It's going to kind of this broader issue that has been in front of FERC now for some time. I don't think anyone right now has given up hope that FERC is going to address and provide flexibility for true behind-the-meter configurations. And I happen to be with the President in Pittsburgh during the summit that Senator McCormick organized, which is really a wonderful event. And one can't hear the President talk without coming to the conclusion that the President very strongly feels that things that are behind the meter and that generation built specifically for data centers has got to be a part of the solution set that is available to customers. But right now, listen, given the ambiguity on this issue at FERC and what's going on in terms of the selection and appointment of FERC leadership, we don't have an answer to that just yet. So we continue to think about it as a longer-term option, but what we're working on right now is all front of the meter. If that, David, is kind of what you were getting at.

Yes. No, that's helpful. I was curious if co-locating and kind of offering in your own, whether it's land, maybe transmission interconnection if that could add value versus something that's a little bit more, I guess, maybe more distant or virtual as I was thinking the Clinton deal was?

Yes. Look, I think we could do both, but I think the land around the plants because of, again, the proximity to these major elements is going to be enormously valuable. And we've talked about that from the beginning. There's no change in my view. My conviction around that has been nothing but strengthened. And so I think that's going to be the way this thing plays out. But the thing I was trying to bring out on the call in my prepared remarks was that post-Calpine, what we have is the opportunity to be approximately located in the major element there might be a gas plant and associated transmission. But because of Constellation's unique capabilities, the ownership of this nuclear fleet and our commercial ability, right, we could take that interconnection and we could couple that with a clean energy product for 24/7 clean energy, which not only gives the customer the sustainability value that they want, and we definitely see that desire for sustainability. But the other thing they want is they want certainty on pricing for a 20-year deal. And that's pretty hard to do with the gas plant because you don't know the input price of the natural gas. And so it's always going to be indexed to a certain extent. And it's very difficult to do because you don't know what future environmental policies might mean to the cost of CO2. So typically, when you're looking at a long-term deal at a gas plant, you're saying, 'Hey, it's going to be indexed to something on the supply side, or we need a long-term supply arrangement.' You need to deal with the firmness of that supply arrangement. And then you have to have a conversation with the customer around what happens if a carbon tax or a regional program comes into play or something else happens. The beauty of having the nuclear megawatts is, as you've seen, we have no trouble giving somebody a price sheet for clean firm energy that's going to be here for decades to come. That's where the pairing works.

I have a question about how utilities are handling interconnection requests and the rise in those requests, and how that may affect you. We're noticing that utilities are increasingly demanding longer-term contracts, including some take-or-pay components or guaranteed returns. Many data center customers are finding these requirements very burdensome. From your perspective, could this influence your operations? Specifically, do you anticipate data center customers moving away from areas they find challenging to more vertically integrated markets where they can operate more easily? What is your perspective on that?

I believe that what's happening in American politics and the regulatory landscape, whether in vertically integrated or competitive markets, reflects a tendency to place all costs related to supply-demand shifts onto data centers. I mentioned this in my prepared remarks to clarify what I see as a misleading narrative. In vertically integrated markets, we are witnessing the implementation of tariffs that seem quite burdensome for data center developers. Each state, whether operating under an integrated monopoly model or in a competitive market, will make decisions that could steer development towards areas that are more accommodating. For instance, I've observed that Pennsylvania and Northern Virginia have taken steps to be more friendly towards the data economy. It will be interesting to see how this develops. The unreasonable part is that if one state has neighboring states building data centers, any changes in supply and demand dynamics due to that growth will impact the neighboring state too, even if data centers are banned there. The electrical grid is interconnected; we don't function as separate entities. Supply and demand affects us all, and I think that many informed governors and policymakers recognize the need to mitigate these impacts where possible. However, trying to restrict data center growth to lower costs would be as ineffective as New Jersey attempting to control interstate milk prices by telling residents not to consume milk. It simply doesn't work. There's considerable activity in this area, but I believe common sense will prevail. We need to navigate the challenging years ahead thoughtfully. We've already complicated matters with a flawed market design that led to artificially low prices, but we are aware of this and must address it in a manner conducive to American families, and Constellation is committed to doing its part.

If I could ask one more quick question. There has been a lot of discussion regarding the nuclear credits in the OBBB, but are there any other aspects that you can mention which might indirectly benefit your business, perhaps in relation to depreciation or anything that could stimulate growth?

Well, the bonus depreciation clearly was a big impact. Dan, you covered that a bit. I think you could quantify that.

Yes. So we expect bonus depreciation to be between bonus and R&D expensing $200 million to $300 million favorable per year out the horizon. Calpine should be added to that. We'll come back to you on that once the deal closes. Obviously, certainty on the federal statutory tax rate provided by the bill also is of value, 45U-45Y Credit is important and the 10% adder on 45Y for nuclear communities is another incremental opportunity. Those are from our seats, the biggest ones from what we're focused on today.

Thank you for your time this morning. I appreciate how busy everyone is. I hope we addressed your questions. The second quarter marked the end of a successful first half of 2025 for us. We look forward to continuing to deliver for our owners and all our stakeholders. Until next time, take care.