Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Emily Duncan, Senior Vice President, Investor Relations and Strategic Growth. You may begin.

Joseph Dominguez:

Thanks, Emily. Good morning, everyone. Thanks for joining us this morning and thanks for your interest in Constellation. During this incredibly hot summer, we've had, our best-in-class nuclear fleet has once again met the challenge and is delivering clean, reliable 24/7 power. Combined with our renewable and natural gas fleet, we're providing the power to keep families cool and businesses running, supporting our country's economic growth. Our commercial business continues to do an awesome job, providing needed products to our customers and managing our one-of-a-kind portfolio. I want to thank the women and men at Constellation for their tireless efforts and for helping our customers meet their energy and sustainability goals. At Constellation, we put our people first because they're the ones that are responsible for our success and because we think a good culture creates good results. In fact, I think it's the single most important driver of any company's success. Look, we're far from perfect but we work hard to make this place, some place where people want to come and spend a career doing important things for America and thriving. That is why we're so proud to report to you that Constellation was certified as a great place to work once again. We've been out as a separate company for about two full years, a little bit over that. And for two years, we've received this honor. And it's particularly impactful to us because you only get this certification through surveys and high marks by your people, independent surveys. So it's great to see that our folks are seeing the work we're doing. They believe in our mission, they're passionate and they're 100% committed. And it shows up again here in results for you, our owners. In this quarter, we're able to provide excellent results, but also raise guidance in just the second quarter. We delivered second quarter GAAP earnings of $2.58 per share and adjusted operating earnings of $1.68 per share. We are raising our adjusted operating earnings guidance from the initial range of $7.23 to $8.03 per share to a revised range of $7.60 to $8.40 per share. In effect, we're resetting the midpoint of our guidance to what used to be the top end of our guidance range. The fact that we do that here in Q2 as opposed to waiting until Q3 when these updates typically are provided should tell you how strongly we feel the business is performing. It's even more remarkable when one considers the compensation headwinds associated with stock comp, where the stock has obviously performed very well over the first half. Dan will cover all of the financial details in his slides. In terms of buybacks, we bought $500 million worth of our share during the quarter, bringing the total cash deployed on buybacks so far this year to over $1 billion -- or excuse me, to $1 billion. Although we've seen some slippage of late, we remain bullish on buybacks because our thesis is incredibly unique and compelling. We will grow base earnings by at least 10% through the decade, backstopped by the federal PTC, and that growth does not reflect the opportunities we have in front of us from adding new clean, reliable megawatts to the grid to meet reliability needs or from selling to data center customers. And as we have been throughout the year, we remain quite confident in our ability to do better each year than our base earnings, delivering even more value to our owners. And finally, we released our third sustainability report, highlighting our efforts to help customers achieve their goals. I encourage you to read it. It outlines the good work we're doing on so many fronts as we lead the nation in the production of clean and reliable energy and provide unique and powerful sustainability products. Now before I turn to the operational updates, I do want to spend a few minutes on two topics that are garnering a lot of attention. The PJM capacity market auction results and the data center opportunities and the FERC proceeding concerning those opportunities. First, let me talk about the PJM capacity option. We think and PJM said this in its press release, we think the same thing. It's telling us what we already know. The demand for electricity is growing and supply and demand fundamentals are tightening. We foreshadowed all of this in our lengthy 2023 Q4 call, when we walked through the market fundamentals in considerable detail. Fortunately, the reforms FERC recently approved for the PJM capacity market are designed to incentivize the supply that we need, namely incentivizing supply that can be counted on to operate when our customers need power. PJM proposed and FERC approved a design that provides greater compensation of the power plants like ours that historically deliver when the system needs power. We previously have shown you data on how nuclear energy performs extraordinarily well through grid emergencies, while other resources, frankly, do not, whether they are intermittent or dispatchable fossil assets. That means that nuclear is best positioned in this new market design and appropriately receives a fair level of compensation. In light of the forecasted load growth in PJM, we expect to see higher sustained pricing for capacity to address reliability needs and send more accurate price signals to retain, operate and relicense our plants as well as incentivizing the development of new resources and customer demand response. Over the years, the PJM market has a proven track record of attracting investment through price signals and has developed over 60 gigawatts of generation to meet all of the needs of the grid. And we're confident that the market will respond to higher prices and add more resources as needed. With that said, we know that higher prices impact families and businesses. And so our commercial team is working with these customers to provide solutions that manage the risk and smooth out bumps. But I think it's important to remember that adjusted inflammation, PJM energy and capacity prices are less today than they were 15 years ago. Markets work folks. What has changed for the customer is that the distribution and transmission elements of the bill have gone up. They've gone up to address reliability needs on those grid systems. But thankfully, that has been largely accomplished. And now we need to focus on investments on the reliability of the supply side. And that's what the capacity market is designed to do. Over the last two investor calls, we've emphasized that reliability is as critical as sustainability. They have to go hand-in-hand. Constellation's business is based on the thesis that the most valuable energy commodity in the world today is a reliable and zero emission megawatt of electricity. To us, the PJM results are just another data point that Constellation's thesis is right and that we're focused on doing the right things. First, by providing sustainability products to customers that expressly lead reliability to sustainability by time matching clean energy production to when our customers use energy. And second, by investments in relicensing and upgrading the clean energy centers that will reliably and sustainably power American families and businesses for decades to come. On this second point, in its recent comments concerning the auction, PJM alluded to potential efforts to speed up the interconnection of needed resources. We look forward to seeing PJM's ideas, and we certainly will support those efforts in any way that we can. The case for prompt and decisive action by PJM is manifestly clear. In sum, we need to invest to grow America's economy, and we need to invest and enable the technologies that support our economies and protect our nation. We think Constellation will play a big part in these efforts. That's our mission, and it is what inspires our people to make Constellation a great place to work. Now turning to Slide 6. We're continuing to do well in our discussions and negotiations with data center companies. The simple fact is that data centers are coming and they're essential to America's national security and economic competitiveness. We've heard this from a variety of policy bankers, a number of nations including China are buying for AI supremacy. And it's absolutely critical that the U.S. not fall behind it. Time is of the essence. We simply cannot wait years for the data centers that are going to bring transformations. They're going to bring transformations in medicines, bringing new cures to diseases and treatments that research alone cannot do. They'll better predict weather. They'll provide material enhancements and they'll do things for us on the energy supply system to more smartly manage the grid. Economically, data center investment means considerable construction as well as permanent jobs, tax revenue, community development and other benefits to our states. We appreciate what the utilities in our states are doing to attract this crucial economic engine. We're doing our part, too. All of our political leaders understand this and that's why states are competing with each other, Republicans and Democrats alike, to bring the development of data centers to their jurisdictions. All of the policymakers we talk to want data center development wherever it occurs on the grid or co-located. But as you're all closely following, there's an active conversation underway by policymakers and stakeholders, trying to understand the implications of the different ways of power and data centers. We welcome that conversation, and we're confident that any thorough examination of colocation with nuclear plants will show that it is both the fastest and most cost-effective way to develop critical digital infrastructure without burdening other customers with expensive upgrades. As we see it, utility connection will continue to make sense for some applications and in some parts of the grid. But where it's an option, we will continue to see customer interest in colocation, strong interest because there are just too many advantages of connecting large load directly to large forms of generation, especially clean generation. And I don't think that point is really debated. On Slide 6, you can see some of the many quotes from key stakeholders including the utilities that oppose Talen ISA talking about the significant benefits of colocation. I'll outline four of them. First, and behind-the-meter, configuration the data center customer, not other customers, pays for the infrastructure needed to connect to the power plant. Unlike in front of the meter projects, we're sometimes cost -- almost 90% or more of the costs are shared with other customers in these behind-the-meter configurations, the data center companies pay for the infrastructure. Second, co-locating a data center with the power plant is just more efficient and it is faster, which can, I think the complaining utilities have acknowledged telling the FERC, "significant new load can be served without having to expend resources on expensive system upgrades." That's from their filing. At a time when RTOs are struggling to integrate new resources faster and time is of the essence, this benefit is a big deal. Third, these behind-the-meter configurations are long dated. So they'll allow us to have the economic certainty to relicense nuclear plants and to operate them with all the attendant benefits that creates for the grid in our nation. Fourth, in terms of new clean generation, the common thesis for these forms of generation, whether they're SMRs or carbon sequestration technologies is to co-locate them with industrial and data center look. We've seen that countless number of times. For all these reasons, colocation will be an essential tool for maintaining our national security, developing new generation and our overall economic competitiveness. Friday's actions at the FERC may have slowed things but ultimately will be constructive in our view. Notably, FERC did not grant requests by a small number of utilities to set the Talen Energy ISA for hearing or in the alternative to reject it outright. Instead the FERC ordered a technical conference that will provide all parties with the opportunities to talk about the benefits of colocation as well as other issues. Likewise, we thought the language of the deficiency letter was narrow. In fact, it mirrored standard deficiency letter language about a higher burden approved for ISA modifications that we've seen in a number of other applications. Just as an example of this, in the last 12 months, excellent subsidiary, ComEd received two deficiency letters using the exact same language about a higher burden improved that we saw in the Talen letter. In both instances, the project was approved. Of course, look, we don't know what FERC ultimately will do with the Talen ISA, but we think the benefits are compelling and we look forward to the conference and we're confident that any fair examination of costs will support colocation. So at this point, we and our customers are continuing to make progress, and we hope to execute contracts. At the same time, on a parallel path, we'll participate in the FERC proceedings or in any proceeding where these matters are discussed. But that doesn't mean we won't have conversations with utilities outside these proceedings. In my view, transparency is part of who we are as a company and the more we could share with policymakers, utilities and all stakeholders about how these facilities will operate, how they'll interact with the grid and their benefits, the better for everyone. I just want you to remember that in the grand scheme of things, colocation is not a new idea. It's actually quite an old idea. As PSEG and others have noted, cogen or combined heat and power projects were the first co-locators since I think they were the first micro grids. And when I came into this business, those projects were a common feature of our system. And not surprisingly, utilities were not always friendly to cogen, at least not at first. But policymakers insisted on non-monopoly alternatives to power and things get better. Now we're dealing with a whole new generation of policymakers and regulators, including many that weren't around when the cogen policies were created. So we need to do a bit of work here to educate and inform. But importantly, we simply don't see this as a zero-sum game. There's a great opportunity for Constellation and for the utilities to work together to bring grid connected and co-located data economy growth projects to our states. Here's what I think. In the fullness of time, those jurisdictions that have clean energy centers like ours and offer both colocation and grid connection will be the most successful in generating business development and economic growth and jobs for their states. Now look, I want to close this part out by talking about something that I think kind of got missed in the overwhelming amount of conversation about the FERC process. I understand why there is a lot of attention on that, but we don't want to leave this topic without saying that we are making great progress on power sales for on grid data centers through our 24/7 product. Utilities across PJM, and I think you've seen this in a bunch of the earnings calls, have been highlighting the growth of data centers in their service territory. In total, as you could see on Slide 6, they now identified 50 gigawatts or more that would come in over time. Now look, in fairness, I think there's a bunch of duplication in those numbers and it's going to occur over a longish time line. But the point is, I think it's powerful that everyone is seeing the same thing, growth in this area. And those growth opportunities are good for Constellation because each of these grid data center projects, whether they're located in Illinois, Ohio or anywhere else in PJM or in other regions, they present an opportunity for our commercial team to sell clean and reliable power through our 24/7 product and other offerings to these clients. So in conclusion, we continue to have multiple ways to serve our data center customers, both behind-the-meter as well as grid connected and create value for all of our owners. Nothing over the last quarter has changed our outlook, how Constellation can meaningfully participate. Turning to Slide 7, our fleet performance is laid out in this slide. And as you can see here, nuclear performance was again strong and ahead of plan for the quarter. We produced more than 41 million megawatt hours of reliable, available and carbon free generation from our nuclear plants with a capacity factor of 95.4%. That's including refueling outages, which we completed in an average of 21 days, again, industry leading as always. Our renewables and natural gas fleet also performed well and exceeded our plan, with 96.6% of renewable energy capture and a 98% power dispatch match. Congratulations to those teams. Excellent work. Turning to Slide 8. We talk a lot about the advantage of creating value because our best-in-class carbon free generation fleet is combined with an industry leading commercial business, and the results here again demonstrate the validity of that point. Our commercial business thrives in volatile and changing markets. The markets we're seeing with spot and prices going up and down a bit throughout the course of the year. This quarter our team priced in higher margins to customers to manage their exposure to volatile prices through firm products that offer price certainty. They optimized not only our individual generation and load positions, but they created the best positions using both. And they sold customized sustainability solutions. On that point, we're seeing more evidence of our customers, not just data center customers, but customers as a whole, evolving in their sustainability journeys from buying annual clean energy products to starting to match their hourly consumption with clean energy. And again, I think the reliability to mention here plays hugely in the outstanding of customers that we need to match clean energy production with the time of use for their particular application. And they also understand that, that's the best way to ultimately make a difference in the environment and to manage the energy volatility. A good example that came to us this quarter when John Hopkins University Applied Physics Lab joined the growing list of high-profile customers that have turned to Constellation to power their operations with 24/7 carbon free energy. As we did with the Comcast contract, the McCormick contract that we highlighted on our last call, we spotlight this agreement with John Hopkins because it shows that it's just the hyperscalers. But rather a wide range of customers that are looking at 24/7 carbon free energy matching as the best solution. With that, I'll turn it over to Dan to cover the financial update.

Joseph Dominguez :

Thanks, Dan. Great job. Constellations like no other company. We have a unique set of existing assets that really can't be replicated that create opportunities for us that no one else has. At our core, we have a visible base earnings growth of 10% through the decade that is backstopped by the federal government through the nuclear PTC and has a built-in inflation adjusted. Backstop is a huge differentiator, especially as some investors start to become concerned about clouds in the economy. Our country needs what we have, clean and dependable power generation to drive economic growth. And the argument for that just got stronger as the year has progressed. We could support both national security and meet environmental goals. Power demand is growing and, at the same time, reliability is becoming a premium product and we have the most reliable generation in America. Increased demand, combined with the change of the electric system to more intermittent, non-dispatchable resources means that volatile power markets will continue. We have a commercial team that is very capable of addressing and earning margins from that volatility. We think Constellation is going to be a huge part of the solution for decades to come. Our clean and reliable nuclear plants, coupled with our ability to offer customers sustainability products will drive the U.S. energy transition and the growth in the data center economy. Politically, both Republicans and Democrats have consistently recognized that nuclear is both the backbone of our system from a reliability standpoint and is key to our sustainability goals. And that growth just -- that support just continues to grow, pardon me. On top of the opportunities we have from volatile power markets, we have more than 180 million megawatt hours of carbon free generation that we produced annually that can achieve additional compensation through in front of the meter deals, behind-the-meter deals, operates and other opportunities to invest in reliable clean energy and government procurements. Not many companies are growing at, at least 10% through the decade as their starting point with a federal backstop. But we're not satisfied with that. We think we will grow base earnings faster with both behind and in-front-of-meter customer deals and increasing our nuclear megawatts. On top of this, our commercial team is working to consistently create products and services that will capture additional value from the markets above our basis. That's our focus. That's what we do every day. So with that, let me turn it over back to you, Michelle to handle questions.

Shar Pourreza :

Joe, just starting with the colocation backdrop, does the FERC technical conference -- I think you kind of alluded to this, does it kind of prolong the time line for a deal announcement at this point? And can you give us just any color on timing of a potential deal or how your potential counterpart is your view in the ISA process right now?

Kathleen Barron :

No. I mean, I think you covered it, Joe. This kind of meeting is the kind of meeting that for holds from time to time, when they want to learn something about a topic. Last year, they had a technical conference on the EPA proposed 111D rule. And I've participated in these on both sides, both at the commissioner and as a stakeholder. And it really is a great opportunity for there to be interaction between stakeholders and the commissioners in an informal setting like a conference as opposed to doing solo litigation. So that we can answer questions, we can talk about the benefits as we see them and get the issues out there in the open in a setting where it's less adversarial than a litigated docket. And in terms of the Talen case, when we look at the narrowness of the deficiency letter, as Joe pointed out, it's very similar in language to other deficiency letters that have been issued on ISAs that have non-conforming language, asking very narrow question about why those provisions are necessary. You contrast that to what typically happens where there are long list of questions in deficiency letters reflecting concerns from the commission or questions from the commission. That does not occur here. So they really -- if you zoom out signaling that they intend to keep the Talen proceeding focused on the Talen fact, and then they're going to be standard tool that they have this tech conference to learn some more about the topic. So we see this as a very constructive way to move forward and, frankly, a responsible one on the FERC's behalf.

Joseph Dominguez :

Yes, sure. I don't think that's really any different -- now have been in this business seemingly for so long that I remember these cycles over and over again. We've had these discussions before. But in states like Pennsylvania, states like Ohio, they've been pretty clear. A lot of alone places like Illinois, where I just think that conversation would be impossible. They've been very clear that they want the markets to work. And there's great evidence here that the PJM market has worked. We've seen high prices before in the PJM market. And in fact, even with these higher prices, the point I made in my opening remarks here is that we're still at a lower point than we were 15 years ago. And it's just -- it's a testament to the value of competition. I think stakeholders in those states get it. I think there is a genuine concern about the growth rates in terms of spending on the T&D system. And I don't see policymakers naturally going to the view that monopolization of the generation sector. Further monopolization of the generation sector is going to be the answer now, frankly, any more than I ever did. So we'll respond to those points. But right now, we just have a new FERC process in the capacity option. We need to give it the time to work. There's no evidence whatsoever through history or anything that's going on now, that competition isn't going to address this problem, right? So that's our view.

David Arcaro :

I was wondering does the outcome of the PJM auction just in terms of how high prices got, does that increase the urgency that you're hearing from potential data center counterparties to get some of these colocation deals done?

David Arcaro :

And then another question that we've had is as you're working on data center deals, should we be assuming that dual unit plants make the most sense with one unit acting as backup? Or is there demand or certain structures where you could fully contract a dual unit plant? What would that structure potentially look like?

Operator:

Our next question comes from Steve Fleishman with Wolfe Research.

Joseph Dominguez :

Let me -- I think something you're referring to is a deal done, right?

Joseph Dominguez :

Yes. So Steve, I don't think we're time bounded by ultimately clarity in the FERC process. I do think the Talen ISA is going to be instructive and folks are watching that to make sure kind of it goes through or what conditions might get attached to that. But we independently are working on contractual provisions that will allow us to manage whatever outcome comes out of those proceedings. And so, at least for the moment, we're working with our customers towards finalizing deals. And I could certainly see a circumstance where those things get announced and there's still some process going on at FERC or some discussion among stakeholders.

Joseph Dominguez :

Not yet, Steve. But the customers are paying attention to this, and by the way, so are the policymakers. Look, if this stuff is happening, and I'll just -- Talen is not our deal, but I'll use it as an illustrate. Talen in that arrangement is bringing $10-plus billion maybe more than $20 billion of economic development to a region that, if we're going to be honest hasn't seen a lot of sunshine from an economic development standpoint of this dimension in a long, long time. And I think it's fair to say that policymakers around Pennsylvania like to see that for communities like this that need jobs and economic opportunities. And I think it's fair to extrapolate from that, that they won't like it very much if people interfere with those things and cause it to come off the rails. And so I think the policymaker reaction, the labor reaction, which, of course, drives policymakers in many of our jurisdictions, they're all pretty important factors. So I think we'll see that play out. I think that pushes parties to try to work these things out. The other thing is, from a customer standpoint, right, you want to be in a jurisdiction that is pro and friendly to data centers and gives these companies every option. And I think in the early innings, that probably isn't the case. And I noticed that you pointed that out in some of your research. So look, we're not at a place right now where people are signing have a circle around a particular jurisdiction with a red stripe through like ghost busters thing. But I think people are paying attention to it. Policymakers want this to happen. They want the parties to work it out. So at the end of it, we will go anywhere we need to go to have the discussion. If we could only have the discussion in proceedings state or federal, we'll have the discussions in state or federal proceedings. But we think the clear signal from what happened at FERC from the rejection of ban legislation in Maryland is to tell parties work these issues out. This economic development is important. I don't think we're the only ones hearing that message. And we'll strive and we do this every day to have conversations. You don't have to have every policy conversation in a proceeding. And frankly, if we did, regulators and lawmakers would never sleep. So we need to continue to have those discussions. I just -- in my view, Steve, it's this. If you have clean energy centers in your jurisdiction and you could offer that opportunity, that's a huge advantage for the incumbent utility to make the state a place that's friendly to the data economy. And what we've seen before is one data center attracts more because they kind of work together. So I just think the approach here of thinking about this as a zero-sum game is really just kind of the wrong mindset. And I think we just got to kind of get through that phase, and where you're working very hard to do it. Our owners expect us every day to work on the things that bring the spectacular results that our team is announcing today. And that's what we want to be working on. We don't want to be tied up in proceedings all over the place. We will if we have to, but we prefer to resolve these issues in a way that's friendly to what policymakers want and what customers want. That's what we aim to achieve.

Paul Zimbardo :

Lots of good content today. I wanted to shift and kind of run with that last one you mentioned a little bit, I know we're all focused on FERC but you mentioned Maryland. Just holistically, what are some of your state legislative priorities to support the colocation strategy? I know Maryland has Senate bill one, if you could just comment more broadly, what kind of the focuses are at the state level?

Paul Zimbardo :

And I know in your prepared remarks, you talked about some of the customer bill impacts from the PJM auction, some of the benefits for all parties from the colocation strategy, but just curious if you have any initial estimate of like what the benefits would be in terms of rate returns for rate payers, if there was like a hypothetical 1 gigawatt data center colocation. Some of your peers have kind of put out some numbers, but curious if you've done the analysis there you're willing to share?

Operator:

Thank you. I'd like to turn the call back over to Joe Dominguez for any further remarks.

Operator:

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation First Quarter Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Emily Duncan, Senior Vice President, Investor Relations and Strategic Growth. You may begin.

Joseph Dominguez:

[ Towana ] thanks for getting us started this morning. And Emily, thanks for running through all that and laying out the agenda for today. Good morning, everyone. Thank you for joining us. We had an excellent first quarter operationally and financially. We're making steady progress with technology customers on transactions that will power America into the future and employ thousands. And last week, we concluded meetings with our Board where they authorized another $1 billion in stock buybacks because we believe in our strategy.

Joseph Dominguez:

Thanks, Dan. Constellations like no other company. We have a unique set of existing assets that create opportunities that no one else has. At our core, we have visible base earnings growth of 10% through the decade that is backstopped by the federal government through the nuclear PTC and has a built-in inflation adjustor. We're the largest and best operator of nuclear power plants in the United States. Our plants are especially well positioned to meet the challenge of reliability and clean that U.S. electricity markets need.

David Arcaro:

I appreciate the update. Joe, you mentioned that you're exploring the potential to locate next-generation nuclear units at your sites. I was wondering if you could elaborate on that, just maybe what technology you're looking at. Where does that stand overall?

David Arcaro:

Perfect. Yes, that's really helpful color. Very interesting. We'll stay tuned on how that opportunity develops. And then I was wondering, as you're thinking about or talking to hyperscalers, big data center developers, are you seeing any discussions or opportunities evolve related to something like a supercomputer, a major multi-gigawatt data center like the Stargate idea we'd seen in the media, something that could potentially use power from multiple nuclear plants. Is that an option that you're seeing being explored at this point?

Shahriar Pourreza:

Maybe starting off on the disclosures. I mean, obviously, Dan, we've seen some major moves in the curves in recent weeks. You guys didn't really update the ranges on the enhanced gross margin for '24 and '25. Obviously realize you guys gave wide ranges, but I mean where are you relative to those curves, these curves?

Daniel Eggers:

I think we use that as a rule of thumb, and I don't want to mark to market. But Shah, if you go back to the slide we had on attribute value in '28, you had $10, which is like the curve might have moved depending on market in that range. You can see those numbers get bigger and inevitably push you out of that 10% to 20% if you're just going to mark that one variable right now.

Joseph Dominguez:

It's Joe. I just want to reiterate the point that I think Jim and Dan are making. There's definitely -- we're certainly seeing upside if you were to freeze this moment in time in terms of the power prices later in the decade, but they're not all that liquid right now. So we'll see how it kind of evolves over time. And the right point for you to look at us is when we talk about guidance ranges, again, as we get through the year, we'll provide some more data points on that stuff. But I think it's exciting to see all of that it also is in a liquid market out there.

Joseph Dominguez:

Shah, what we'll say is that we've obviously seen what happened with Palisades. I think that was brilliant, brilliant for the nation saw great support out of Michigan, great support out of the federal government. And we're not unaware of that, that opportunity exists for us. So we'll -- we're doing a good bit of thinking about a number of different opportunities, and that would probably be certainly one of those that we would think about. But we're not there yet to start disclosing capital and other things relating to that opportunity.

Operator:

Our next question comes from the line of Steve Fleishman with Wolfe Research.

Joseph Dominguez:

Yes, Steve, I think the interest is like nothing else we've seen in 20 years in terms of the number of clients that are coming to us, the size and scale of the opportunity. So I would say that kind of the -- what you're hearing in the market is certainly accurate in terms of the inbound that we're getting from an origination team perspective and frankly, some of the outreach we're doing. So that's all seems to be right. Right now, it's focused on nuclear because the clients we're dealing with aren't interested as a general rule in emitting technologies. They have sustainability goals. They have 24/7 clean goals, and they want to stay on that path. So we're focused right now on the nuclear plant opportunity and monetizing the value of the attributes that we have.

Joseph Dominguez:

Look, I'll stick with this. We are working fast. Our clients want to work fast. For competitive reasons, I don't want to lay out when we think announcements are going to come, and I don't think it would be fair to our clients to do that either at this point. There's work that is underway. We've got a lot of folks thinking about it and working on it, again, as this call is progressing. So I'm confident that we are going to be able to get to the finish line on these things, but we still have some work to do. And I don't want to lay out a time frame for announcement.

Joseph Dominguez:

Yes, Steve, I think on this one, there's not a whole lot more to report. In effect, we -- when we took the actions we took a couple of years -- over a year ago now. We were anticipating the passage of the band as we reported at the time. It took a little bit longer to get through Congress, but it's now there. It's now realized. So I think it just simply supports the strategy that we put in place a year ago. We think we are in a very solid position, kind of industry-leading solid position with regard to fuel. And we also are happy to see now investments in this domestic supply chain, which means that after this period of time where we've grown inventory, we're confident that we're going to have available and recently priced fuel to run this fleet for the next decade.

Durgesh Chopra:

Maybe just -- you obviously authorized additional $1 billion in share buybacks. I know there is no direct answer to this, but can you just help us kind of think through what is your calculus when you're thinking about incremental investment opportunities versus deploying capital on share buybacks and considering M&A in the future?

Joseph Dominguez:

Well, I wish I could. We're waiting for treasury guidance as we've probably said this on [ forward ] calls. But it is not as near as we could tell a high priority item for treasury because it has a narrow application out there. It's really just nuclear owners that are looking for. We think spot is most likely going to be the thing that prevails. So the spot price over the year at the bus of the plant, that's going to be energy and capacity coupled together, are going to be the measuring stick that the treasury will use for the application of the PTC. That's kind of consistent with the vast majority of the comments in this area. That's certainly, we think that's where they're going. But we just don't know yet because they haven't announced anything, and we're waiting on that. But our planning is based on that spot interpretation as we've outlined previously.

Joseph Dominguez:

Well, again, [ Towana ] thank you for kicking us off this morning. Thanks to all of you. We very much appreciate your interest in Constellation. I want to thank our women and men for a fantastic quarter. We look for more to come as the year goes forward. You know we're working on a lot of different things here at the company. The wind is at our backs, we feel very confident about the future and the fact that our best days are ahead. So look forward to catching up with you again on next quarterly earnings call. With that, I'll close the call.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation Business and Earnings Outlook Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host of today's call, Emily Duncan, Senior Vice President, Investor Relations and Strategic Growth. You may begin.

Joseph Dominguez:

Thanks, Emily. Tanya, thanks for getting us started this morning, and Emily for starting our agenda. Thank you all for joining us today. While this call is going to be focused on 2024 guidance and Constellation's future, I want to start out by commenting on the outstanding year we had in 2023, where we materially raised guidance in both the second and third quarter calls and yet still managed to exceed the top of the range in our full-year results. It's Constellation's second full year in business, and I think it's powerful that in both years, we exceeded the midpoint of our guidance range, and last year, just really [indiscernible] it. We hope that these results underscore for you the importance that our entire management team places on meeting all of our commitments to you, and we're going to continue to do that. As always the secret sauce here at Constellation is a unique mixture of best-generation assets in the world and the best-in-class commercial business, all run by an outstanding team of women and men. And I want to take a moment to thank them for the wonderful results because they are the ones that deserve the credit. Turning to 2024 and the future, I'm going to kick us off by focusing on our unique business and the advantages we see coming to us in this evolving marketplace. First, I'll talk a little bit about who we are, best operator of carbon-free nuclear plants in the world, backstopped by a nuclear PTC by the federal government, and with a wide-reaching commercial business that's focused on the kinds of customers that need us the most. Second, that in the changing power markets, we provide something that I think others struggled to do and that's carbon-free energy and reliability together. We think that's going to be the bedrock of the future for the country. And third that we're best positioned to capture value in volatile markets and through the energy transition by selling the clean and reliable attributes of our 180 million megawatt-hour nuclear fleet. Now Dan is going to follow up and discuss our 2024 EPS guidance range of $7.23 to $8.03 per share, our visible 10% plus growth on the vast majority of our earnings through the end of the decade, which we call base EPS and our updated two-year free cash flow outlook. Dan also will cover some of our new disclosures and walk you through that. And I appreciate that we've already heard this morning from a number of investors who find those to be very useful. Hopefully, you all well. So let's get started on Page 5 of the materials. Constellation is a special company that supports our countries and our customers' economic growth and sustainability goals. As we've said from the very beginning when we launched this Company, the most important and valuable energy commodity in the world today is carbon-free electricity that operates predictably and reliably. And we produce more of that than anyone. Our fleet has the best track record stretching back for well over a decade as being both the most cost-effective and reliable in the world. Our scale cannot be replicated because we already own more competitive nuclear generation than all of the other US competitive nuclear generators combined. Likewise, our assets have a special longevity. The longevity of our asset-base is unparalleled and we could operate for at least another 30 to 40 years. In a conflicted political world, nuclear energy emerges as a consensus pick for both Republicans and Democrats because of its unique qualities. The reach of our customer business, serving nearly one-fourth of all of the commercial industrial demand in the US and three-fourths of the Fortune 100 puts us in the best position to use our unique assets and capabilities to meet the needs of our customers. In the same vein, the combination of our assets in commercial business give us the ability to earn enhanced earnings over and above the base earnings of the Company, just as we did the first two years of our business. We will continue to use our high investment-grade balance sheet and disciplined approach to capital allocation to create value for you, including through share buybacks because we firmly believe in the future value of this Company. And as our nuclear fleet and customer business help meet the growing demand for clean reliable energy to power the US economy, there are multiple opportunities for us to generate first base earnings growth beyond the 10% that we're laying out today, and I'll walk you through that. The world clearly is moving in our direction. In the coming years, the demand for reliable and clean energy will only grow. We're the ones that are best positioned to meet that growing demand for clean energy and to tackle the energy transition to unlock the value through compensation for the unique, clean and reliable attributes of our 180 million megawatt hours of nuclear. And to help America power the technologies of the future, whether that be EVs, electric heating, industrial electrification, or the booming demand for the data economy that America must lead in for both economic and national security reasons. The production tax credit uniquely gives us the ability to be patient so that we could capture the value in this evolving market through strategic hedging and portfolio optimization. Simply stated, because of the PTC, we can now decide whether and frankly how to hedge our fleet. We don't have to hedge a third, a third, a third. And that option, that flexibility is enormously valuable and will drive enhanced earnings for us. And we could use the cash flow from these earnings to consolidate the industry bet on ourselves through buybacks and make double-digit unlevered returns on growth investments. And so no other company has such a potent combination of predictable growth, upside exposure to power markets, strong cash flows and the downside protection from the federal government. Let's turn to Slide 6. As I mentioned a moment ago, this team is committed to delivering on the promises we make because we know that delivering on promises is the way to create long-term sustainable value for our owners. So as we celebrate Constellation's second anniversary as an independent company, Slide 6 is a summary of the promises we made to you, promises we have kept. It's a long list, but I just want to highlight a few items. As I noted earlier, we've outperformed our financial expectations. Our balance sheet remains a competitive advantage and is now BBB thanks to upgrades at both S&P and Moody's. We've accumulated growth of our dividend of 150%, exceeding our 10% annual target, we have also completed our first billion-dollar buyback, and we started a second billion-dollar buyback in January. Now for several calls, I've reiterated that we're happy to buy our shares all day long, and we still feel that way. And I'm proud to say that, that commitment to the future of value of this Company has already delivered value for you. Buying back our own shares has been one of our best investments. It's already created $400 million in value. We successfully advocated for the inclusion of the nuclear PTC in the IRA, which is a game-changer for our business. We've had a disciplined approach to M&A, adding our owner -- ownership and STP to our fleet because of our focus on dual-unit nuclear power plants and the competitive advantage they have. We made the smart decision to aggressively buy fuel and secure cost for this decade and beyond. We created an hourly matched carbon-free energy product for our customers and we're selling that product now to sustainability leaders like Microsoft. And I think it's going to position us well in this data economy. We've begun the process to extend the lives of our nuclear fleet, which brings our asset lives to 80 years. And we've maintained our status and this is the most important thing. We've maintained our status as the best operator of nuclear power plants in the world. We're very excited to have accomplished all of that and all the things that are listed on this slide in two short years, but we're even more excited about what the future brings. As I turn to Slide 7, we've talked about this before, but I wanted to spend a few moments talking about how the nuclear PTC, and how it's fundamentally changed our business now that the program is in effect. Prior to the PTC, the outlook for our nuclear fleet was dependent on power prices, lower, high and our revenues would fluctuate year-over-year, sometimes quite significantly. The PTC has changed that. At its core, the PTC ensures that our fleet will have revenue visibility starting at $43.75 per megawatt-hour in 2024. This provides our fleet with significant downside protection, ensuring its operation. But we keep the upside above the PTC floor, and the upside is unlimited. In addition, as you can see on the left-hand side of the chart, the PTC floor revenue grows with inflation and will support our earnings per share growth target. Now, we're assuming that the PTC grows at 2% in our financial disclosures, including our 10% growth rate target. However, as you can see on the right, higher inflation than 2% would have a significant positive impact on our revenue growth. So if you believe that 2% is going to be hard to hold for a decade or more, this is a company that you ought to be interested in. For example, in 2028, the difference in revenue between the 2% and 3% inflation cases is more than $750 million, and in a 3% inflation case, our EPS growth rate would be in the mid to high teens, rather than the 10% we're talking about on this call. It's really quite significant. Let me turn to Slide 8, and what we want to talk about here is the public support that's growing as well as the political support between Republicans and Democrats who recognize the importance to our energy system of baseload power -- baseload clean power from a transition and a national security standpoint. You have quotes here from both President Biden and former President Trump, both whom are proponents of nuclear energy. Prior to the PTC, states stepped up with programs to ensure that these valuable resources do not prematurely retire. Now in Illinois, some of those programs were signed by Republican governors. Other times they were signed by Democratic governors. At the federal level was federal -- it was former President Trump, and you might recall this, he was focused on the need to retain baseload energy. It was the right idea. And remember, he proposed using DOE's authority -- its emergency authority under 202(c) to support existing nuclear plants when he was in office. And it was Republicans, both in the House and the Senate, who were among the first to introduce tax credit bills for nuclear. So in a sharply divided political world where the parties don't seem to agree on much, each party recognizes the unique and critical nature of nuclear energy and how essential it is to our country. So as a consequence, we believe that the policy is durable now and into the future. Let's go to Slide 9. Slide 9 kind of shows you the many reasons why policymakers and the public have come to appreciate nuclear, and I think it really does a good job here of summing up the case for nuclear. On the upper-left-hand side, you can see that nuclear produces more energy for the same amount of installed capacity than any other energy technology. It operates more than 90% of the time. In our case, operates 95% of the time. And that's nearly three times to four times greater than wind and solar. It's also there 24 hours a day in the heat or the cold, day or night, no matter what the weather. The grid reliability and support provided by nuclear is unparalleled by any other energy resource. And I can tell you this is not theoretical. We've already seen this an event after event, whether it was the polar vortex in '14, the Elliott event, the Uri event, or numerous others. It was nuclear that carried this system on its shoulders and people know that. Now moving to the bar charts on the upper-right side of Slide 9, note the existing nuclear plants could run at least for 39 more years. And I say at least because we believe that some of our plants can actually run through 100 years, much longer than existing wind and solar operating today, and it's also longer than all the renewables that are being built right now, and we think all the renewables that will be built this decade. Go on to the chart on the lower left shows that nuclear has the lowest lifecycle emissions of any technology. This is a big thing, from a sustainability standpoint. Now, we've included here everything from construction to the mining of fuel in this calculation, and that makes nuclear the best technology from a climate perspective. And then on the lower-right-hand side of this slide, you can see that nuclear is essentially tied with solar as the safest technology, highlighting the safe operations of nuclear plants and the abundant power they produce, and their ability to do that without admitting harmful pollutants into the atmosphere. And finally, look, unlike any other technology, nuclear is the only generation resource where we know and control where every gram of fuel is and we have set aside the funds to restore the sites to greenfield condition after eventual plant retirements many decades from now. So in a nutshell, whether you're talking about sustainability, safety, reliability, waste management, or long-lived durability, nuclear offers benefits at levels that no other resource can. And that's not all. It uses a lot less land, it could be positioned almost anywhere, and it creates more family-sustaining jobs than any other generation type for us, right? We just start -- we started the Company with 13,000 employees. In the last two years, we hired 2,500 people. So and these are long-term jobs and the communities love those jobs, and of course the politicians love those jobs. Nuclear is the backbone of the energy system now and it will become even more important in the future. So as we turn to Slide 10, I want to start talking to you about the kind of changing energy fundamentals we're seeing in the market. We all know that the clean-energy transition must happen and it is happening, and Constellation's role in it will only grow. But as America transitions, there will be impacts on electric reliability and electric markets. The EIA, the Energy Information Administration forecast that installed generation has to grow. And what you can see on the chart on the left-hand side is that what we're seeing is intermittent generation replacing dispatchable generation, and it's been happening for a while. At the same time in the market, if you look at the chart on the right-hand side, you can see we're beginning to see for the first time load growth. And I'd say for the first time we've seen load growth in places like Texas, but of course post-PJM, we've kind of seen a flat line on load growth for a decade or more, but that is changing. PJM's peak demand forecast for 2028 increased by 2% just in the last year. ERCOT's forecast for 2028 increased a whopping 6.6%. That increase is being driven by economic development across the country. This past year, more than 200 manufacturing facilities have been announced, and almost $0.5 trillion investments have been made since 2021. We're seeing onshoring of businesses from Europe and other parts of the world that simply don't enjoy America's affordable energy dominance. And we're seeing onshoring of supply chains here in America due to political tensions that are rising between the US-China and other nations. We're seeing electrification of transportation, buildings and manufacturing. We are seeing increases in the frequency of extreme weather events driving peak demand growth. And the demand growth is being talked about quite frequently in the data economy where AI is driving significant increase in these forecasts. So we think the combination of the energy transition, deteriorating supply reliability as we lose dispatchable generation and rising demand is all going to put a premium on clean-energy resources that are reliable. And again, we own more of them than anybody in the world. And in short, we're seeing the signs in this marketplace for the first time in a while where we're seeing prices begin to converge on the cost of new-build. And I don't know that we know that cost just yet. When we think about the offshore wind, that has been challenged in the Mid-Atlantic and other areas, we're now seeing prices that are well above $100 megawatt hour, and that's without the kinds of storage and other things that would be required to make those things any close -- anywhere close to the reliability of the nuclear power plant. So as I turn to Slide 11, we want to kind of talk a little bit about the data economy. I know that it is something that is a focus for many of our investors. Boston Consulting Group believes that AI and regular data center demand will grow by 7% to 7% of total electricity demand by 2030. To put this in context, this is the equivalent of the electricity used for lighting in every home, business and factory across the United States. It's a huge amount of energy. Most traditional data centers that were built 10 years ago were 10 megawatts or less. Today, it's not uncommon to see 100 megawatt data centers, and with our clients, we're talking about data centers that approach a thousand megawatts. And they require 24/7 power. This is something that doesn't get talked about enough in my opinion. When we do system planning and I have done this over the course of my career, we don't just kind of willy-nilly decide what generation we want. We first look at the load profile, what's growing in the economy. So for example, if it's peaking load like air-conditioning or electric heating, as an example, as we get into the energy transition, that kind of load growth will call for a particular kind of generation, peaking gas, mid-merit gas, or in the future batteries. But if the load growth is 24/7 baseload growth, then it calls for a very different technology, and that's us. Data centers are 24/7 consumers. We are 24/7 producers. So it's kind of a perfect marriage. And then when we add on top of that our ability to provide clean energy to meet the sustainability objectives of this Company, we think that there is an opportunity for us that is quite sizable. And we think the advantage Constellation can bring quite frankly is that it could meet this demand across multiple jurisdictions, and we can frankly serve the needs of some of even the largest customers in the world. So it is certainly exciting for us and something I'm sure we'll talk about. As we turn to Slide 12, what we're going to talk about here in 12 and 13 is both seasonal and day-to-day variability. And what I want to put in your mind is the challenge of serving load when we're seeing this sort of variability, a challenge that we don't believe we face at Constellation given the profile of our generation assets. Now look, before we start this, I want to be clear. We think renewables have an important place in our efforts to decarbonize. Constellation's offsite renewable business has grown rapidly and we're on track to grow the business by 3% to 4% of the volumes that we were talking about just in 2021. So our customers very much like renewable energy, but they also are striving to get 24/7 clean-energy. And the intermittency of renewables does create some challenges for grid operators. So what you can see on this slide here is really kind of a macro-seasonal disconnect between the performance of renewables and demand growth. You can see here that demand growth, no surprise here is peaking in July and August, and we also see that a lot of renewable assets are underperforming in that period of time. When I did a lot of work in the Midwest, it was very common for a 10-year period or more that we would see capacity factors for wind in the Midwest drop to 5% or lower on the very hottest days of the year. That's like people talk about hot still dates, it happens. And so again, it's, if you have a lot of dispatchable energy, you could address this. But as dispatchable energy is retiring, this load has to be picked up by nuclear plants. It's one of the challenges we face, and it's not just a seasonal challenge. As we flip to Slide 13, you kind of see this on a day-to-day basis. Particularly in the spring and the winter, these moves could be 50% of the production, or to give you some sense of the dimensionality of this. It's the equivalent of instantaneously turning on and off five nuclear reactors without notice. And so if you step back, you could well imagine that managing this much day-to-day and seasonal variability in a system that expect certainty and reliability is going to be a big challenge, and we're seeing that. But it's also an opportunity for us because as other firms are selling into this market and they have to deal with clients that need 24/7 power, right, and clean power, like utilities, like the data economy, they have to translate the ability to find this power in the market into higher-risk premiums into their bid, right, because there's going to be scarcity in certain hours. But that's not true for Constellation because our unique blend of reliability and clean assets gives us the ability to meet customer demand in any single hour. So those higher competitive risk premiums that other folks see turn into higher margins at Constellation, and our owners benefit from better results and enhanced earnings while our customers benefit from reliable energy and sustainability. Let's take a look at Slide 14. We put an ERCOT slide in here because in many respects, we think ERCOT is an example or of where other markets are going. And so this is the powerful data point here. In 2023, ERCOT had 222 hours where demand exceeded 80,000 megawatts compared to just one hour in 2022. ERCOT also exceeded the all-time summer peak demand set in 2022 and 2021 by 11.8 gigawatts for an incredible 16%. And the system isn't just constrained at peak. I think historically we would have said, well, then there are challenges at peak. But what we're really seeing here and I think this chart does a really nice job of it is that it's not necessarily peak demand that is driving high prices. When wind and solar make up less than 26% of the total demand, the prices and taxes start to move dramatically higher and kind of asymmetrically higher, and into the thousands of dollars per megawatt hour. These high prices are signals that the market is giving to investors that there is a premium on reliability, and these prices quickly carry over into the average price of the year. For example, every hour at the maximum price of $5,000 per megawatt hour impacts the full-year price around-the-clock energy price by $0.50 per megawatt hour. So you don't have to see a ton of these hours to move energy prices and we've seen that. And we think that what's happening in ERCOT is eventually going to happen in other markets to different degrees. And frankly, ERCOT has some advantages in that the solar and wind profiles there are among the very best in the entire nation. So the somatic is this reliability is equally as important as sustainability, and we have to solve for both. And that's why we say the most valuable energy commodity in the world today is a commodity that does both of those things, and that's what Constellation owns. Nuclear sustainability attributes were ridiculously undervalued for so many years, and it's now beginning to be recognized. But it's only the beginning and we're still a long way off, as I mentioned before, but fully understanding or valuing what clean and reliable energy together means. We think that spells a very good future for Constellation to exceed what we're talking about this morning. As I turn to Slide 15, our states were the first to recognize how vital nuclear was in supporting the economy and the environment. New York, Illinois, New Jersey, Connecticut, they had controversial programs, I would say, and the ZEC programs for nuclear initially. But they all look pretty prescient now, don't they? And what we're seeing is that customers are following their lead, showing a more willingness to contract for the attributes of our fleet. And we have quite a few ways to monetize getting paid for these attributes and we're going to be able to sell those more and more as the state programs roll off. And as we progress through the decades, you can see on the chart on the left-hand side, we're going to have a full 180 million megawatt hours of clean nuclear power to sell annually. That is leveraged at exactly the right time these transitions and energy market and the economy are occurring. And so, as I talked about it earlier, we see opportunities in the data center area for 24/7 clean generation because of the sustainable needs, because they need energy 24/7, and our dual unit sites are competing for behind-the-fence line opportunities with those technologies. Depending on the outcome of the treasury -- final treasury rules and if we don't get the right outcome, depending on the outcome of litigation, hydrogen remains an opportunity for us going forward. We are committed to the view that we are correct in the interpretation of the statue and we'll win. The states and the federal government are now entering into the marketplace to look for hourly match carbon-free energy. We've seen that in the case of ComEd, and we continue to see opportunity with our customer -- C&I customers who want to follow the lead that Microsoft and ComEd have set for an hourly match clean-energy product. Now importantly, when we talk about the 10% growth for base earnings through the decade, these opportunities aren't included in either our forecast or our expected growth rate. Now, it's a little bit early to share what we think the value of the attributes would be and I think this is the kind of thing that gets needs to get updated as contracts get signed. But if you just look at the chart on the upper-right-hand side, you can kind of see the impact. If we sold attributes for half of our fleet at $10 per megawatt hour, and I am not signaling that $10 the right price, isn't, but that alone would be $900 million of additional revenue. And since there is no additional cost test to generate the revenues, the upside would be more than $2 of additional earnings per share. So you can kind of see how both inflation and the sale of attributes meaningfully change the 10% growth rate and make sizable leaves to upwards of 20% or more. And remember, while we pursue the opportunities from the market through attributes sales, our revenues are protected by the PTC. On Slide 16, I want to bring back a couple of the points I've already made. We're the largest generator of nuclear power in the country, all of which sets in competitive markets. And you can see from the chart on the left-hand slide here that if you accumulated all of the other merchant or competitive nuclear in the market, it still doesn't total what Constellation is. But more than that, our fleet is overwhelmingly dual unit. So if you think about the 25 units we're invested in, all but Clinton and Ginna are dual unit sites that enjoy those economics. And that's important both from the cost of producing the megawatt hour but also behind-the-fence line opportunities with data centers and others. We're the cleanest generator with the most attributes to sell in the market. And because we could operating in competitive markets, we have the opportunity to create value unlike any regulated peer. And we're the best operator of plants and we've led the industry and you can see this on the right-hand side, and we produce more energy by something like 4% of capacity factor than the industry average. That doesn't sound like a lot, but operating 4% better than the industry average is the equivalent of having another reactor's worth of power, or for you, $335 million in additional revenues with costs only higher for the fuel consumed. If I turn to Slide 17, I want to talk a little bit about what we're seeing in the competitive C&I market and how these businesses kind of fit together very well from our perspective. The story here isn't just about sheer size. You can see on the upper chart here that we're the second-largest retail supplier. It's the composition of the customers that we have. We've been focused from the beginning on the C&I customer base. Again, when you think about our generation profile, providing 24/7 power, we want to have the kinds of customers that have a load profile and demand profile that works best with our machines, and that is commercial and industrial customers. Secondly, these are the kinds of customers that have sustainability goals. So as we introduce products like 24/7, and as we continue to rollout core with its sizable growth which is our off-site renewable program, it's become a real win-win for Constellation and its customers. And we could serve that load with lower risk than others, meeting the margin expansion that we foresee will go into our earnings. Now Slide 18 talks about how we're uniquely positioned to help our C&I customers meet their demand. And frankly, like our country, customers are on a journey here to meet environmental and sustainability goals and to do that in a way that is most affordable. And we've positioned the business to be a great partner to these customers. We anticipated the drive for clean energy so we created the Emissions Free Energy Certificates, the EFECs that now effectively memorialize nuclear generation. We've worked with PJM and other RTOs to have the data available to the market so that customers could see the hourly match because we know that this is moving towards hourly match and already has. Customers wanted energy tied to specific projects. So we created our core off-site renewables program, and we work with renewable developers to match their projects with our customers. And as I've said several times here, we're leading the way with the first truly hourly match carbon-free program in the market. Customers now get to see a particular asset that produces their clean energy where we need it. And the big thing here, folks, I think the change has been the acceptance of nuclear as a sustainability solution, been around for a long time. And years ago, we couldn't get customers to look at nuclear, regardless of its economics, it's reliability or its environmental benefits. But that's changed. States led the way and customers increasingly accept nuclear and that opens the door for us to have a sales discussion. And once customers see what we could do from an affordability and time match perspective, they like it. And our customers are exploring behind-the-meter opportunities and we're looking at different partnerships as that landscape evolves. As we move from just energy to more sustainability products. The other thing we're looking at is the duration of the contracts tends to expand. And so we see margins significantly above historic margins and the duration of term that is significantly longer. And that adds to visibility of our earnings for the decade and beyond. Our customer relationships and the focus on C&I will put us on the path to monetize the assets that we have, we uniquely have and the reliable and clean energy. So I'll close this part of the presentation with Slide 19. The success in the outperformance of the past few years would not have happened had we not had this unique world-class generation portfolio with the best commercial team in the business. And we've integrated those two things as one part of the platform. Over the past two years, our commercial business has demonstrated that it could thrive in volatile and changing markets. And I think that's what we're going to see going forward. I think all of the data indicates volatility and change both from growing demand and the turnover and the composition of the fleet is going to lead the volatility and our team is well positioned to handle that because of the stability of our assets. So we're going to be able to price in higher margins to customers to manage their exposure through these volatile moments. We're going to be able to optimize our individual generation and load positions to create the best position using both understanding that we control fully now when we hedge, we're going to be able to sell customized sustainability solutions. And these businesses will work in tandem to serve our customers, help America transition and provide the carbon-free and reliable energy that we need. And I think it's going to produce results that are better than our current plan. So now I'll turn it over to Dan to talk a little bit about the financial outlook and some of the changes that we've made. And again, very much appreciate the positive comments we already received. Dan?

Joseph Dominguez:

Thanks, Dan. Folks, I'm going to close here basically where I started. We've had a fantastic run for the first couple of years of this business. But as we look at the fundamentals of power markets, as we look at growing demand, need for sustainability solutions, we think there is a ton of room to run yet. And we think we have a very durable policy in the PTC because of the kind of unique position we're in, where both political parties have strongly supported nuclear energy for all of the reasons that we covered earlier in the presentation. At our core, we have visible base earnings growth of 10% through the decade, backstop by the PTC. And again, our assets are the best in the world, run by the best people that operate those sorts of plants in the world. And this company can't be replaced. There's simply not enough nuclear out there to replace it. And we all know from having seen Vogtle, what the cost of new nuclear is. And notably having 25 of these assets and having to just replace two of them at Vogtle was $35 billion should give you some sort of insight in the replacement value of clean energy that is also 100% dependable throughout any sort of weather event. Our businesses -- our commercial and our generation business are a great marriage. That 24% share of the C&I business gives us the ability to connect our unique capabilities with some of the most sustainable companies in the country, and that just seems to be growing. As we look at the dynamics of energy markets, it's impossible not to conclude that if we're going to continue on the energy transition, that reliability is going to become just as important as sustainability, and we're able to do both of those things. We just think that we're a huge part of the solution for America. And our clean reliable nuclear plants, coupled with our ability to reach customers and help them achieve their sustainability goals supports our vision as being the leading company in this space. On top of the opportunities that we've talked about, we're going to have 180 million megawatt hours of carbon-free electricity that we could receive additional compensation for through 24/7 sales, behind-the-meter opportunities, hydrogen subject to the final rules or the outcome of litigation, government procurements of clean energy, and just simply capturing prices above the PTC price floor as volatility continues and accelerates in the markets. All of these opportunities are all on top of what is a wonderful profile for the Company of growing a very base and predictable part of our business that comprises a huge chunk of our earnings by 10% per year. And Dan and I have already discussed how that number could be considerably better. So that's the reason, as we talk about capital allocation, that that we're happy to buy the shares of this company all day long. Because the road we've traveled for the first two years is nothing compared to the future that we're going to have as a company here at Constellation. With that, I look forward to answering your questions with the rest of the management team here.

Steve Fleishman:

Yes. Hey, good morning. Can you hear me okay?

Steve Fleishman:

Okay. Great. Thanks. So I guess, first for Joe, just as you're thinking about the attribute values the fleet and the different options, whether it's the 24/7 or the on-site hydrogen, on-site data center, et cetera, just how are those kind of weighing against each other right now in terms of most likely? And then just also kind of the timing of when you're likely to kind of be in a position to start making more of those decisions. And just to clarify, those are all kind of upside to base and enhance the way to think about it? Thank you.

Daniel Eggers:

Hey, Steve, just to tie that into the earnings expectations, right? As we sign long-term contracts for the attribute sales of data center, what have you, those long-term earnings contributions would flow into the base earnings given the long-term visibility that go with them.

Daniel Eggers:

Yeah, Steve. We use a range of expectations, right? We have the billion-dollar buyback on right now. We've got the $3.1 billion to $3.5 billion of unallocated. We assume that we'll use some of that for growth opportunities and some of that for buyback. But I would say that, that outcome covers a range of outcomes. So it's not as if it was an all-buyback assumption, which would probably be the highest additive contribution to EPS, right, because you get immediate contribution, whereas the growth investments probably have a higher return, but take a little more time to get into play. So we -- our growth rate is -- encompasses a wide range of capital deployments to make sure we'll meet our commitments.

Daniel Eggers:

Thanks, Steve.

Joseph Dominguez:

Good morning, David.

Daniel Eggers:

Yeah, I think that's a fair expectation. If you think about setting aside the nuclear PTC and the tax attributes of it, we will work through our tax credits we've accumulated previously. So depending on capital investment and bonus depreciation, things like that, our functional cash tax rate is probably going to be a bit higher in the future than it has been in the past. That could be a little bit of an impediment. Year-to-year, you can see different timing on nuclear fuel spend or base CapEx spend, particularly if we think about the work we're doing to extend the useful lives of the assets. But I think it's fair to assume that we should have some good follow-through on free cash flow.

David Arcaro:

Yeah, got it. Thanks. That makes sense. And then let's see, you give a range -- you know that range of $10 to $20 per megawatt hour for the attribute payments. Is that the right range that you think about for each of those different clean attribute potential, whether it's hydrogen, whether it's data centers? And I guess, what's your confidence in achieving that uplift in terms of the pricing level for those end customer sources?

David Arcaro:

Okay, great. Got it. I'll leave it there. Thanks so much.

Durgesh Chopra:

Hey, good morning, team. Thanks for taking my questions. Just wanted to follow up, a quick clarification. Dan, the unallocated capital, the $3 billion, is that factored into the base EPS growth rate, or is that in the other bucket on top?

Durgesh Chopra:

Got it. That's helpful. And then maybe any color that you can share on your M&A strategy going forward? Obviously, there's a healthy bit of free cash flow here for you to execute on, but just -- and you layered out the return parameters, but what kind of assets? Is it predominantly nuclear, or could you be looking at other renewable assets? If you could just provide more color there. Thank you.

Durgesh Chopra:

Perfect. Thanks.

Joseph Dominguez:

But look, it's all at the right price, right? What you're seeing here in terms of the management presentation is that we like the future of this company. We like the future contracting opportunity. We like the future realization of the reliability benefit that we think we can. So stated quite simply, we think there's a lot of value that is still unrealized here. So as we look at different M&A opportunities, it's going to be judged against buyback in the sense of where is going to be the greatest impact or a return for our investors. And I'm not sure where that's going to be. We have a type of plant that we would be interested in buying. We have commercial businesses that we'd be interested in buying, but those things have to come at the right price. And if we've, I think, demonstrated anything very well over the first couple of years is we're going to be really disciplined in how we look at that.

Operator:

And one moment for our next question. Our next question will be coming from Angie Storozynski of Seaport. Angie, your line is open.

Angie Storozynski:

Thank you. Good morning. So just maybe two things. One is, can you tell us how you did against the free cash flow projections from the analyst day from '22? Again, whenever I think about power, it should be a cash business, right? So I'm just wondering how you tracked against that guidance range, and also, what was the main reason why you decided to change from EV to EBITDA -- well, from EBITDA to EPS? I understand the nuclear PTCs, but just like conceptually, what was the reason?

Angie Storozynski:

Okay. And just one other thing. So when I look at your -- the progression, for example, of O&M expenses and CapEx, right, those numbers seem to be going actually even faster up versus EBITDA projections. So -- I mean, that would imply like -- well, at least the CapEx one would imply lower free cash flow generation of the EBITDA that you're adding. And admittedly, and again, there's no question about it, you guys have been on the forefront of addressing the nuclear fuel cost risk. I mean, I obviously, appreciate all of the additional purchases, nuclear fuel expense, nuclear fuel CapEx, et cetera. But just again, is there a shift in how cash-heavy the cash -- the earnings are? Or is it just -- again, I don't know if you can comment at all.

Angie Storozynski:

And none of your fuel contracts have any indexation to the current price.

Angie Storozynski:

Sounds good. Thank you.

Operator:

And one moment for our next question. Our next question will be coming from Neil Kalton of Wells Fargo. Neil, your line is open.

Daniel Eggers:

Yeah, Neil, I think when you look at our commercial business, right, we tend to sell forward in contract terms, let's call it, 24 months plus or minus, right? We would have sold a lot more of our '24 volumes in '22 and '23 than we would have sold '25 volumes in '22 and '23. So what we have in our numbers reflects really the positive backlog gains, right? We had very good margins on what we've been signing to the point that margin sustain at the higher than these long-term average margins you would expect that enhanced value to improve as we sell more contracts, right? So anything that isn't sold at this point in time, we assume reverts back to this long-term average we've seen volatility continue. We've seen good margins hold up into this year. So I'd say there's probably, in my mind, a bit of opportunity if we can sustain at these market conditions. And the commercial business has just done a tremendous job taking advantage of the market, but also helping our customers, the volatility is disruptive to them. So our ability to sign and provide them long-term certainty to their energy costs is really valuable for them, and it's been a good relationship for sure.

Neil Kalton:

That's what I thought. I just wanted to make sure that was the case. And then in terms of the growth there, how should we think about it? I think it's like 200 terawatt hours is sort of your base. I mean how do you think internally about the growth longer term there? meaningful? Or should we think about it as kind of being in that range for the foreseeable future?

Daniel Eggers:

Neil, on the retail side of the house, I think that we have been opportunistic in our ability to grow. We've been a consolidator in retail for a long period of time. So I think when things that fit our portfolio, could be added to our volumes. I think the team always challenge themselves on the profitability of the customers and the margin gains that we're looking at, right? So we're going to balance all those pieces as we go forward making sure that it's not just volume driven, but it's profit to be organization-driven.

Operator:

That ends our Q&A session today. I would now like to turn the call to Joe.

Operator:

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Emily Duncan, Senior Vice President, Investor Relations. You may begin.

Joe Dominguez:

Thanks, Emily. Thanks to the operator for getting us started. Good morning, everyone. Thanks for joining our call. I apologize if the quality of the audio isn't great. We are all, if you could believe it, sitting around Emily Duncan's cell phone here because we lost a trunk line into the building. But as you could see from our numbers, pretty much everything else is going well around here. I want to begin by thanking the good people of Constellation for delivering an awesome third quarter. They continued the strong performance from the first half of the year and they are the best at what they do. For the third quarter, we earned $1.199 billion in adjusted EBITDA. As a result of this continued strong performance, we are again raising our full year guidance range to $3.8 billion to $4 billion. The strength is not limited to 2023, and you will see in our disclosures that we have raised our 2024 gross margin by $250 million. I want to emphasize here that STP is not yet in our final disclosures for 2024. As you recall, we estimated the average STP EBITDA contribution to be an incremental $190 million per year with 2024 a little lower due to the fact that we have an extra outage every third year. And as it so happens, 2024 is one of those years. However, we believe that the impact of that extra outage will be offset by the higher Texas energy prices we have seen since we've announced the transaction. So we're back to an estimated $190 million for 2024 with 2025 looking even better. We will provide all of the STP and other updated financials in our fourth quarter call. We talked about this before, but it bears repeating. Constellation owns the largest and most reliable clean energy fleet in the country and has the best C&I and commercial platform in the business. We strategically couple these businesses with a strong balance sheet that, in turn, gives us a powerful competitive advantage across retail and wholesale channels. It translates into a unique ability to give our customers the certainty and visibility that they want on energy costs as well as to provide to them sustainability solutions. All of that ultimately leads to margin expansion and creates value for you. Before I turn to the operational performance, I want to talk about some exciting developments since our last call. First, as I noted earlier, we closed ahead of schedule on our acquisition of 44% of the South Texas Project, expanding our clean, reliable annual nuclear production to approximately 180 million megawatt hours. We're looking forward to working and forging a strong relationship with our new co-owners, Austin Energy and CPS. This includes working to resolve pending litigation and explore mutually beneficial opportunities to improve performance. I talked last quarter about the fact that an average outage at STP lasts around 31 days. At Byron, we just completed an outage for a very similar machine in 17 days. And if you think that's amazing, consider that we just completed the Peach Bottom outage in 13 days. I was happy to see that, Bryan Hanson, our Chief Generation Officer, was named as Chairman of the STP Board and will begin immediately to realize some of the opportunities we see in that asset. The second development I want to highlight is that the US Department of Energy awarded a $1 billion grant to the Midwest Hydrogen Hub, which includes our hydrogen project at LaSalle. A portion of this award will offset our cost for the project. The award is proof that the DOE and the administration want existing nuclear energy to play a vital role in jump-starting domestic clean hydrogen production. However, it remains critical that the Treasury Department guidance confirms that using existing nuclear energy to produce hydrogen qualifies for the full clean energy production tax credit. Certainly, we think that the hub award is a good sign, but we need to see the right rules or the hub won't happen. Third, we signed a deal with ComEd to power its facility with hourly matched clean free -- carbon-free energy, which I'll cover in more detail in a few minutes. And finally, probably the most exciting thing is that we earned a 2023 Great Place to Work certification. Really proud of this because it's based on how our employees rate their experience at Constellation. 5,000 of our colleagues participated in the survey and 81% of them said that Constellation is a great place to work. That's 24 percentage points higher than the average US company. Our people are talented, hard-working and they're passionate about what they do, and that shows up in our results over and over again. Our culture and our mission is also an asset in attracting the best talent in the market. We've onboarded 3,000 new colleagues since separation and that's pretty incredible for a workforce of about 14,000 people. Now I'll turn to the quarterly operational updates, starting on Slide 6. During the hottest summer on record, our fleet helped to support the grid and ensure that American families can cool their homes and that businesses have the electricity to power our economy. Our nuclear plants had a third quarter capacity factor of 97.2% but they ran at nearly 100% during June, July and August. The only reason we're at 97.2% is that, in September we started our planned refueling outages. Our power and renewable assets also ran extremely well. Our Texas fleet, which includes state-of-the-art CCGTs, produced 1.4 million megawatt hours more this year than last year, supporting ERCOT during an extremely challenging summer. This summer, ERCOT was affected not only by extreme heat, but by unprecedented load and the impacts of a changing resource mix. For example, during the summer, ERCOT had 49 days with a peak higher than 80 gigawatts, exceeding the all-time summer peak demand set in '22 and exceeding 2021's peak by nearly 11.8 gigawatts or an incredible 16%. The system is constrained not just at peak, but in the hours after peak due to the intermittent output that comprises much of its generation portfolio. As the grid continues to change, we expect these conditions to amplify, and challenges could occur at any hour. The changes in ERCOT stack and the hours of challenging operating conditions will increase the importance of dispatchable generation and particularly clean, reliable, dispatchable generation. The quality of our gas fleet, coupled with our newly acquired STP assets, sets us up for great success. I want to send a special thank you to the people who operate our nuclear and power fleets for all that they do. Now let me move to Slide 7. The success of the Commercial business is the foundation for our financial performance. This year, they knocked the cover off the ball. We're able to optimize our positions across both the generation and customer portfolios to create additional gross margin. And we can provide our customers certainty on energy bills in volatile times, which leads to margin expansion. We're also leading the way on sustainability solutions. In the second quarter, we spent time talking about the Microsoft deal where we use nuclear and renewable energy to produce a time-matched clean energy product. We continue to see very strong interest in this product. This quarter, we're excited to announce an agreement with one of the largest utilities in the country, ComEd, to power its facilities with hourly match carbon-free energy from nuclear power. Microsoft and ComEd are both sustainability leaders, and we're thrilled to be able to help them move forward in their efforts to address the climate crisis through the recognition of the importance of 24/7 carbon-free electricity made by nuclear energy. Matching regionally produced clean energy to the exact moment when a customer uses energy is essential to reaching carbon reduction goals while maintaining electric reliability and affordability. That is why our nuclear fleet is essential today and will be even more valuable tomorrow. With that, I'm going to turn it over to Dan for the financial update.

Joe Dominguez:

Thanks, Dan. So the management team here remains focused on creating value for our shareholders. You know our business is unique, and we continue to have many unique opportunities in front of us. As you know, we're the best operator of nuclear plants and the largest producer of carbon-free electricity in the US. And now with STP, we'll make more than 180 million-megawatt hours annually just from our nuclear fleet. Our Commercial business serves more than 22% of the competitive C&I market in the United States and is helping customers like Microsoft and ComEd meet their sustainability goals through products like our hourly matching product. Our businesses are essential to addressing the climate crisis and our assets are durable. The IRA provides long-term commitment to nuclear energy as part of the national security of this great nation. We have many ways to grow and bring even more value to our shareholders against a baseline earnings level supported by the PTC. And over the life of the PTC, we'll benefit from price war inflation. We have opportunities ahead of us to create additional value for the clean, reliable nuclear energy that we provide like hydrogen, data centers and expanding our hourly matched product. We have ability to relicense our nuclear fleet to run at least 80 years without needing to replace it. We have many ways to grow and bring more value to shareholders. We generate strong free cash flow that could be used to fund robust organic growth at double-digit unlevered returns, pursue disciplined M&A, support our growing dividend and buyback our stock. Each of these opportunities will create additional value for you, our owners and we're executing on that strategy. We closed the STP deal. We announced $1.5 billion in growth spend in operates, hydrogen and wind repowering. We doubled the per share dividend, and we bought back approximately $750 million of our own stock as part of an authorized $1 billion buyback plan, and there's more we can do. We have significant unallocated capital in '23 and '24, as Dan just outlined, and we could use those monies to further enhance our earnings growth and provide value to you. Constellation cannot be matched anywhere in the market. Our large clean carbon-free nuclear fleet, paired with our customer-facing business and strong balance sheet provides us with unparalleled opportunities to create value for you. And that's what we're focused on. Now we, as a management team, stand ready to address your questions. Thanks, operator.

Joe Dominguez:

Good morning, David.

Joe Dominguez:

Dan, I'm going to -- Dan covered a bit of this in his prepared remarks and I'll let him elaborate.

David Arcaro:

Got it. Yeah, that's helpful color. And just the latest guidance update, does that kind of fully reflect the patterns that you're seeing so far in 4Q? If the dynamics that you experienced in 3Q continue here, are there further opportunities to kind of bolster the outlook into 2024?

David Arcaro:

Okay great. Thanks so much. I appreciate the color.

Operator:

One moment for our next question. Our next question comes from Steve Fleishman with Wolfe Research. Your line is open.

Steve Fleishman:

Yeah. Hey, good morning. Good work, Emily, with your cell phone there. So just on the remaining IRA things that we're kind of watching here, the hydrogen PTC rules and then of course the nuclear PTC, could you just give us latest thoughts on timing of those? And then also maybe more color on how much we should interpret the hydrogen hub announcement as kind of hinting at where the hydrogen PTC comes out with respect to nuclear?

Steve Fleishman:

Okay. Thanks. And then one other question just on the 24/7 clean product and the like. Just how should we think about kind of pace of adoption here and interest levels you're seeing? And this part, you probably can't really answer, which is just the type of premium that you might be getting for this type of product versus just normal power sales, yeah. Thanks.

Steve Fleishman:

Okay. Great. Thank you.

Operator:

One moment for our next question. Our next question comes from Shar Pourreza with Guggenheim Partners. Your line is open.

Shar Pourreza:

Good morning. The EBITDA obviously was raised again, but we didn't get sort of that update on free cash flow guides or incremental buyback. Dan, I guess, can you maybe just provide some sort of an update why not move on incremental buybacks? I mean, we got past the key quarter. Is there any sense on -- are you saving anything for dry powder, et cetera? Just maybe a little bit of an inkling would be great.

Shar Pourreza:

Got it. And then another quarter of obviously outsized marketing portfolio gains, right? I mean, can we just maybe unpack that $760 million year-over-year gain a little more? I guess, what percentage is durable margin expansion versus maybe opportunistic trading or more one-timey items like ERCOT sparks? Thanks.

Shar Pourreza:

Got it. And then lastly, again, for me, I know you realize you guys are still working through your capital planning before the next role. But there have been a lot of recent data points around upgrades for -- in light of like the IRA, especially for BWRs. Can you just get your updated thoughts here on sort of maybe the quantum of opportunity and potential timing there? Thanks.

Shar Pourreza:

Fantastic, guys. Thank you so much. Appreciate it.

Operator:

One moment for our next question. Our next question is from Julien Dumoulin-Smith with Bank of America. Your line is open.

Julien Dumoulin-Smith:

Hey, good morning to you. Thank you guys very much for the time. Appreciate it. Maybe I can go back to where some of the last questions were going and speaks to timing and holding back on hedge commitments, et cetera. I mean, to the extent to which you get a thumbs up, thumbs down or what have you on hydrogen, could we see kind of an outsized pace of commitments in the start of next year? And whether that's tied to data centers or whether that's tied to capital allocation in terms of buybacks, considering maybe the hubs do or don't move forward, et cetera? Just want to try to like piece together the different pieces here both on timing. And then also, are you effectively waiting for clarity on hydrogen in order to pursue more of these firm commitments, if you will, on [indiscernible]?

Julien Dumoulin-Smith:

Right. But it's not as if you're waiting for one or the other here on, let's say, 4Q, right? Patience is a virtue as they say. And '27 is out there. And more to the point, it's not as if you're holding back on data centers or capital allocation ahead of a decision on hydrogen, just to set expectations?

Julien Dumoulin-Smith:

Got it. Excellent guys. Best of luck. See you soon.

Operator:

One moment for our next question. Our next question comes from Durgesh Chopra with Evercore ISI. Your line is open.

Durgesh Chopra:

Hey, good morning. Thank you for taking my question. I just have one question on the asset generation. Year-to-date, it's kind of been around that 80%, 83% range that hasn't moved. Last year, I was just looking at the Q3 2022 deck for the next year that would be 2023 back in Q3 2022, you were like 90-ish percent. So this is just nuclear PTCs and sort of your willingness to stay more open next year? Maybe you can just comment on that and how should we think about hedging practice going forward into like '25 and beyond?

Durgesh Chopra:

Understood. I appreciate that color, Joe. I did have one more question. You guys have talked about a different or added reporting metrics, not just EBITDA. Just any thoughts or additional color that you can share there?

Durgesh Chopra:

Understood. Thanks guys. Congrats.

Operator:

Thank you. That concludes the question-and-answer session. At this time, I would like to turn the call back to Joe Dominguez for closing remarks.

Operator:

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder this call may be recorded. I'd now like to introduce your host for today's call, Emily Duncan, Senior Vice President of Investor Relations. You may begin.

Joe Dominguez:

Thanks, Emily. Good morning, everyone. Thanks for joining our call. I'm sorry about the delayed start here. I know it's a busy day for many of you, but it's a reminder of the old adage that all very good things are worth waiting for. I want to begin by thanking the women and men of Constellation for delivering a fantastic second quarter. It builds on the great work they did in the first quarter. For the second quarter, we earned $1.031 billion in adjusted EBITDA. As a result of the strong year-to-date results, and our expectations for the performance to continue, we are raising our 2023 adjusted EBITDA guidance range by $400 million to $3.3 billion to $3.7 billion, and we remain, despite this update, bullish for the balance of the year. What's more of the strong performance of the team is not limited to 2023. As you can see in the disclosures, it also reflects an increase in our 2024 gross margin update, which has increased by another $150 million on top of the $100 million increase you saw just a quarter ago, and we continue to find opportunity for further improvement. Our O&M remains on plan with the only material variance being the expected increase in employee compensation and profit sharing that comes with such an extraordinary year. Of course, Dan will discuss all of the drivers in more detail in his remarks, but the short story here is this. In Constellation, you own the largest and most reliable clean energy fleet in America as well as the best C&I and commercial platform in the business. We strategically couple these businesses with a strong balance sheet that, in turn, gives us a powerful competitive advantage across all retail and lower channels. It all translates into a unique ability to give our customers the certainty, and visibility they want on energy costs, and sustainability solutions, and ultimately leads to margin expansion and better value for you. In addition to the strong financial results I just touched upon, we had a great operational quarter, which I'll go through. We also had some exciting developments since our earnings - last earnings call, that should give you great confidence in the long-run strength of our company. First, we announced the acquisition of 44% of the dual unit South Texas Project Nuclear Station from NRG last month. This is an excellent asset. It's one of the youngest and largest in the country. And like our fleet, it has been well maintained. Regulatory approval has been filed with the NRC, and we expect to be able to close by the end of the year. Second, we announced a deal with Microsoft to provide them with an hourly time match clean energy product. It's the first agreement of its kind, and we think it will lead to many more. I'll cover the importance of that deal in a moment. Third, we reached an agreement with NYSERDA to share the value of the PTC with New York customers. New York was the first state to adopt the program that recognizes the unique value of clean, carbon-free nuclear energy. And so, it makes sense that they are first in receiving the benefits of the IRA. The resolution of this issue is exactly what we plan for. Fourth, at Constellation, you know that our mission is to accelerate the transition to a clean carbon-free future. But we think that natural gas is an important bridge fuel, and we have invested in technologies to make natural gas generation cleaner. In May, we set an industry record for blending hydrogen with natural gas at our Hillabee generating station to reduce emissions. The test showed that with only minor modifications, an existing natural gas plant, I think this plant is a little bit over 15 years old. That kind of technology can safely operate on a blend of nearly 40% clean hydrogen and 60% natural gas, nearly doubling the previous blending record for similar generation stations. As many of you know, EPA's proposed regulations for reducing carbon emissions from gas power plants depends upon clean hydrogen blending, and we just showed that it works. In addition, we have worked on gas generation with carbon capture technologies that have the potential of making natural gas generation truly carbon-free. We have been investors and collaborators in net power and at CCUS technology for many years. We were pleased to see the successful launch of this publicly traded company with our stake presently valued at over $450 million. These accomplishments and many more are laid out in our second sustainability report that, we published last month. It details how Constellation and its customers are leading the fight against the climate crisis. I commend this important report to your reading. Now, before I turn to the quarterly operational updates, let me remind you that we just launched this company. August 2 marked the first 18 months of our business. And I think folks would be hard-pressed to find a better launch, and we appreciate you being on that journey with you. Let me turn to Slide 6. We saw strong performance across our generation fleet during the quarter, meeting or exceeding our operational targets, and we have continued to see good performance in July. That's one of the reasons we have such confidence in the updates, we're providing you today. Our nuclear plants had a second quarter capacity factor of 92.4%, looks, that's even with five refueling outages during the quarter. And these outages were completed in less than 24 days on average. By the way, just for context, that's two weeks less time than the industry average for refuels, scale matters. Our power assets have exceeded their plan, delivering a dispatch match of 99.1%, meaning they were available just that every time they were called. Our Texas fleet continues to meet the challenge of extreme heat this summer, putting needed power on the grid and allowing us to capture additional value from the higher prices that we are seeing. And lastly, our renewables fleet performed near plan despite the lower wind speed that it seems just about everyone is talking about. Turning to Slide 7. As I mentioned, our commercial business is driving the outperformance this year, because of the way that we optimize our positions across both the generation and the load portfolios to create additional gross margin. We saw just that during the quarter. The team also continues to have success in helping our customers meet their sustainability needs. But this quarter, our team made history of setting a new bar for corporate procurements. As I touched upon previously, in June, we reached a landmark agreement with Microsoft that combines the environmental attributes of nuclear power with renewable energy to produce a time-match clean energy solution for Microsoft. This agreement enables one of the Microsoft's facilities that time-match clean energy production and energy use in order to operate on nearly 100% clean power every single hour of the day. Matching clean energy production to the exact moment when a customer uses energy is essential to reaching carbon reduction goals while maintaining electric reliability. You'll recall that the first generation of clean energy accounting rules as well as state clean energy programs allowed customers to claim that they are reducing emissions even when the credits they're buying are from electricity produced in faraway regions or at a completely different day, time or even year. In effect, we were allowing people to take RECs from April and pretend that it was offsetting energy consumption in July or August. People were buying RECs from Texas and pretending it was deliverable in New England or the Mid-Atlantic to meet sustainability goals. Now to be fair, this approach was a good starting point, but leaves a large gap between stated emissions and reduction goals and actual emissions reductions. Unfortunately, it also sent the wrong message. It told developers to build generation in places where customers are not located and encourage them to produce energy at times customers don't need it. Among other things, that mismatch in time and location, has led to the enormous interconnection problems that we're really seeing across the nation and which, in our opinion, will only get worse. It is a tough problem, but the answer is simple. In order to meet the - climate crisis head on and preserve electric reliability, we need clean energy that predictively operates so that - output is time-matched to customer demand. As we see in Europe and elsewhere, clean energy, time and geographic matching is where energy policy and corporate sustainabilities must go. The leading sustainability companies in the nation and the world's governments and NGOs get that. Constellation and Microsoft are leading by example with this landmark agreement. It shows that time matching works, and it shows that nuclear energy in combination with renewable energy can make it all happen. Basically, nuclear fills the gap when the wind isn't flowing and when the sun doesn't shine. And that produces a solution that cannot be matched by renewables alone. Having Microsoft, one of the world's sustainability leaders, recognizing the value of nuclear as a sustainability solution that will lead to even better environmental outcomes is a very big deal. It paves the way for others to follow. And - this is the way I think about it. 2022 will always be remembered as the year in which the federal government finally began to put nuclear energy in the high echelon of premium, clean energy products that must be supported by policy as a national priority. I believe that 2023 will go down as the year in which large customers began to think the same way and recognize the reality that including nuclear energy and sustainability solutions leads to even better outcomes. My compliments to the Microsoft team and their vision. We're glad to have them both as a partner and as a customer. I'll now turn it over to Dan, for a more detailed update on the financial outlook. Dan?

Joe Dominguez:

Thanks, Dan. That's a good summary. Folks, this management team remains focused on creating value for our shareholders. Our business is unique, and we continue to have many opportunities in front of us to create incremental value for our investors. As you know, we're the best operator of nuclear plants, and the largest producer of carbon-free electricity in the United States. Our commercial business serves nearly 25% of the competitive C&I market in the United States and is helping our customers, like Microsoft, meet their sustainability goals through products like our hourly matching product. Our businesses are essential to addressing the climate crisis and our assets are durable. The Inflation Reduction Act provides unique opportunities for Constellation and its investors. We believe, we will be able to use nuclear energy to produce hydrogen. We will be able to relicense our nuclear fleet to run at least 80 years without needing to replace it. And the IRA provides, at long last, the long-term commitment that nuclear energy is part of the national security of this great nation. And we have many ways to grow and bring more value to our shareholders. Against the baseline earnings level supported by the PTC floor over the length of the PTC, we will benefit from floor price inflation. If you're a believer that 2% inflation for the U.S. is going to be hard to reach, then you should like this company a great deal. We generate strong free cash flow that can be used to fund robust organic growth at double-digit unlevered returns, disciplined M&A like the STP deal, fund a growing dividend and buyback stock. We're doing all those things already. We've announced a $1.5 billion growth in uprates, hydrogen and wind repowering, doubled the per share dividend and have bought back approximately $500 million of our own stock as part of the authorized $1 billion buyback. And as Dan mentioned, there's more we can do. We have $1.2 billion of unallocated capital in '23 and '24 that can be used to further enhance our earnings growth in the ways that I've outlined. Constellation is in unique form that cannot be matched anywhere in the marketplace. Our large clean carbon-free nuclear fleet paired with our customer-facing business provides us with opportunities to grow and create value for our shareholders. And that's what we're focused on. Now, Dan and I and the rest of the management team, look forward to your questions.

Joe Dominguez:

Good morning, Steve.

Dan Eggers:

Correct. Yes, Steve. The way we've approached that slide is we refresh it, once a year when we give our full plan for numbers. So the metrics are in there, I'll tell you that, yes given the strength in earnings this year that would certainly look favorable, before we put STP and time to watch. So that - we do not include updates to our numbers in credit metrics or the cash available as we go through the years. So favorability, we've seen in '23 and '24 would be added to the numbers we talk about.

Joe Dominguez:

Yes, sure, Steve. I mean, first of all, think about the duration of our products that we typically sell on the market are one year products. We're selling for 30 months or more in the case of load following options. So this is - the deals we're entering into are going to persist for a while. I think that the margin expansion is really - and I'm going to invite Jim McHugh, the Head of our Commercial Group, to chime in here. It's a reflection of the volatility we've seen in the market. And in turn, I think that volatility is a reflection of the changing composition of the generation fleet and kind of saw that this - summer in Texas, where you have - home prices and all of a sudden, you have less wind or renewable output and prices spiked asymmetrically really high levels and make it real difficult for companies that don't have our balance sheet and our generation capabilities to handle. Frankly, the impact - the financial impact of that volatility and cover themselves. That's a new phenomenon. And I think that's going to do nothing, but increase settings. Honestly, Steve, I think reserve margins are about as thick as they're going to be in these markets, and as you see fossil generation being replaced with renewable generation. The underlying markets are going to be very volatile, and it's going to take a special kind of company with a special balance sheet to cover that. I think the sustainability solutions also allow us to enter into longer deals with customers that really want that sort of product support. So look, I think this is durable. I think margins will always increase and contract over time. But what we're seeing here is, what I think is going to be a durable long-term trend. And Jim, why don't you get into some of the specifics of what you're seeing?

Steve Fleishman:

Great. Thanks. I have one more question. That was very helpful. Just - can you maybe update us on your thoughts on the green hydrogen IRA credit treatment? And I guess, aligned with that, how are you thinking about choosing, between you're producing green hydrogen from nuclear or these 24/7 contracts like this? Just, can you maybe go through your thought process on how you're prioritizing among those?

Steve Fleishman:

Super helpful. Thanks so much.

Operator:

Our next question comes from the line of Shar Pourreza with Guggenheim Partners.

Joe Dominguez:

Good morning.

Joe Dominguez:

Sure. Shar, let me give it over to Jim.

Shar Pourreza:

Thank you.

Shar Pourreza:

Fantastic. Helpful. And then, Joe, just on STP, I know - I realize you guys are somewhat removed from the legal situation between their current owners, and I appreciate the comments in the prepareds. But any additional color you could provide on your timing expectation right now, and how we should be thinking about the potential redeployment of that $1.75 billion if, for like whatever reason, this becomes a more serious roadblock?

Shar Pourreza:

Okay. Perfect. And then just lastly from me, I know you mentioned in your prepared remarks, Joe, your dialogue with the New York on net ZECs. Can we just expand on the mechanics of what that will look like going forward? Is there actually uplift from the transition to the PTC? Thank you, guys.

David Dardis:

Yes. Thank you. Well, first, obviously, New York was the first state to recognize the value of nuclear and what it did for its customers, both from a sustainability perspective as well as managing prices. And so that program was historic. And we've been a strong partner of the state all along under that program. New York also was able to negotiate a provision in the PTC, which basically ignores the ZEC payments for purposes of calculating the PTC. And in working with New York, what we've agreed to under the amendment we made under a change in law provision of our existing contract is that the ZEC program will be reduced dollar-for-dollar for every dollar of PTC, we would otherwise be eligible for them.

Joe Dominguez:

Thanks, Shar.

Joe Dominguez:

Hi. Good morning, David.

Joe Dominguez:

Yes. I think there's some bits of good developments. So, I'm going to turn it over to Kathleen Barron who Heads Strategy and will share for us to give an update on.

David Arcaro:

Got it. Thanks. That's helpful. And then just looking back to what your expectations were around nuclear fuel cost heading into this year. How has that been tracking in terms of market pricing of nuclear fuel and your ability to lock that and going forward? And then a kind of similar topic just on O&M trends this year, how is your overall O&M expense been following against your earlier guidance?

David Arcaro:

Got you. Okay. Great. Thanks so much.

Operator:

Our next question comes from the line of Paul Zimbardo with Bank of America.

Paul Zimbardo:

Hi. Good morning, team. Thank you. Just to follow-up on Shar's question briefly. In terms of the New York agreement with the ZEC and the PTC play, how would that change the cash tax rate, whether for 2024 or beyond? Just, I think that there's some savings from pretax to post tax there? Thanks.

Paul Zimbardo:

Okay. But at least just generically, if you kind of - the New York agreement and if you do things in other states, is it right to think that should be cash tax savings prospectively?

Paul Zimbardo:

Okay. Great. And then quickly going back to the Microsoft deal, very interesting to see that one. The nuclear energy, whether it's - the energy certificates, the CFCs, are those coming from Constellation nuclear plants or different nuclear plants to serve Microsoft? Just curious there?

Paul Zimbardo:

Okay. Great. Thanks team.

Operator:

That concludes today's question-and-answer session. I'd like to turn the call back to Joe Dominguez for closing remarks.

Operator:

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a Q&A answer session and instructions will follow at that time. As a reminder this call may be recorded. I would like to now introduce your host for today's call, Emily Duncan, Vice President of Investor Relations. Emily you may begin.

Joe Dominguez:

Thanks, Leah, again who started this morning. And thank you Emily for that. Good morning everyone and thank you for joining our first quarter earnings call. I'm going to start on slide 5 of the deck. Once again, we're off to a strong year operationally and financially, thanks to the focus and dedication of the women and men that do their best every day to produce and deliver clean reliable and affordable electricity to our customers. For the first quarter, we earned $658 million in adjusted EBITDA. But the top line story here is that based upon our performance to date, we can project that we will end the year comfortably in the top half of our guidance range. And if we continue to execute, we expect to be at/or near the top of that range. In addition, 2024 looks better to us than when we reported in February. Our commercial team had a tremendous quarter, not only generating better than planned earnings in the quarter, but they were able to lock in value for the remainder of this year and for next. On the back of their strong execution, our gross margin is up $50 million in 2023 and $100 million in 2024. As Dan will cover, all-in 2023 is up $100 million from where we were in February. For 2024, we expect to come in notably above current consensus, which you could see using our disclosures on page 25 of the presentation. And in our gross margin update, you'll also see how the PTC interacts with our portfolio to add value in the face of lower commodity prices. We think that the message here is pretty simple, our company had a strong first year and is on track to have great years two and three. Our business is unique and we still have many opportunities in front of us to create value for our owners. We are the best operator of nuclear plants and the largest producer of carbon-free clean energy in the United States. We produced approximately 11% of our nation's clean energy last year. Our commercial business serves 25% of the entire competitive C&I market in the United States, 75% of the Fortune 100. Our businesses are essential to addressing climate change and will be needed for decades to come to provide clean and reliable energy as America simultaneously reduces its reliance on fossil fuels, and the transportation industrial agriculture and residential sectors, all increasingly turn to electrification to reduce harmful pollution. The Inflation Reduction Act, the IRA provides unique opportunities for Constellation and its owners. Through the Nuclear Production Tax Credit, the US government has made a long-term commitment to our nation's nuclear assets recognizing that without them we simply cannot meet the climate goals. The PTC provides downside commodity risk protection as you could see in our disclosures today, while ensuring that our plants remain economic and reliable. The PTC protection level rises with inflation, providing us structural inflation risk protection. Other provisions of the IRA create unique growth opportunities like increasing the output from our nuclear plants through uprates and hydrogen. And finally it gives us the opportunity to extend the time horizon of our fleet to 80 years. And we've made this point I'll make it again, no other clean energy asset except hydro can run for this long without being replaced. We have many ways to grow and bring more value to our shareholders. Against the baseline earnings level, support provided by the PTC over the life of the PTC, we will benefit from forward price inflation that grows with overall inflation in the country. And as you can see on slide 18 depending on your assumptions about inflation there are some meaningful top-line growth opportunity ahead for us in the PTC. We generate strong free cash flow that can be used to fund robust organic growth at double-digit unlevered returns, disciplined M&A and fund a growing dividend and the buyback of our stock. Each of these will create additional value for our shareholders. And we're already doing this. We have announced $1.5 billion of growth in uprates, hydrogen and wind repowering double the per share dividend. And in March alone we bought back approximately $250 million of our own stock as part of our authorized $1 billion buyback which we will execute. And there's more we can do. We have $2 billion of unallocated capital in 2023 and 2024 that can be used to further enhance our earnings growth. At our current stock price, I'd be happy to use this capital to continue buying back our stock all day long. We will continue to look for investment opportunities consistent with or adjacent to our core businesses, and we are committed to the energy transition. However in the absence of any near-term M&A opportunities or a ramp-up in growth CapEx, we will in the short-term use the majority of the $2 billion to repurchase our own shares. Constellation cannot be matched anywhere in this marketplace. Our clean carbon-free nuclear fleet paired with our customer-facing business provides us with opportunities to grow and create value for you. It is a unicorn. I'll turn next to our quarterly operational updates beginning on slide 6. Nuclear performance was strong and slightly ahead of plan. We produced more than 40 terawatt hours of reliable affordable and carbon-free generation from our nuclear plants with an on-plan capacity factor of 92.8%. As some of you may be aware during routine inspections during our Nine Mile Point 1's refueling outage, we identified an issue with non-safety-related well. It's not uncommon in the industry, but it did extend Nine Mile's outage to 39 days. The cost of the repair is absorbed within our existing budget. But the point I want to make here is that even with the extended outage at Nine Mile, we returned to service roughly in line with the industry average for a standard refueling outage of approximately 39 days. And the point here is that at Constellation a long outage is just average for everyone else. And while Nine Mile lagged our ability to lead the nation in returning units from outages was demonstrated at both Byron and Calvert Cliffs, which completed their refueling outages ahead of plan and at an average duration of 21 days in total. Our renewables and natural gas fleet also performed well with 96.6% renewable energy capture and 98.4% power dispatch match. The team is presently completing our summer readiness work to make sure that it's ready for the hot summer months to come. Turning to slide 7. I'll talk a little bit about the Commercial business, but I already mentioned before they've had an incredible start to the business. It's a business that benefits from the opportunities that volatility in the commodity markets creates. We're able to leverage our expertise to give our customers certainty of their energy costs in this volatile market environment, while realizing higher unit margins across both wholesale and retail as risk is more appropriately reflected in pricing. Our balance sheet strength is a key advantage to supporting our customers and being able to capture these healthy margins. Providers with more constrained balance sheets and less experience with volatile markets are not able to provide customers the certainty and the visibility that our customers desperately want and need. Our balance sheet strength allows us to provide this needed certainty to our customers. We operate our generation and customer businesses symbiotically with each other supporting and making the whole stronger. As such, we can optimize our positions across the combined generation and workload portfolios to create additional gross margin, particularly, in times of volatility. And again, I'll just hit this I think the results this quarter and what we've predicted for the remainder of the year and next demonstrate all of this. And we have continued success developing and providing sustainability products like core to our customers. As I mentioned earlier, this strong performance creates additional value for you both in 2023 and 2024. And before I turn it over to Dan for a full update on the financial outlook I want to address our O&M disclosures from the last call. We're confident in the firmness of our forecast and the entire management team is coming committed to ensuring that this forecast is met and it will be met. We will always look for additional opportunities to run our business as efficiently as possible. Dan?

Joe Dominguez:

Thanks, Dan. And I'm going to go to Slide 11 and conclude our prepared remarks. And I'll just end where I started on the value that Constellation brings to you our shareholders. We think it's a value that can't be found anywhere else. We own nearly 25% of the US nuclear fleet, producing the most carbon-free energy in the country, nearly twice as much as our next competitor. These plants can run for 80 years. That's a useful life, that's longer than any other carbon-free generation that exists today. In the case of renewables, it will operate longer than any renewables that are built in this decade. We're the best operator of nuclear plants period. And we provide, power to nearly quarter of all competitive C&I customers in the U.S. including three-fourth of the Fortune 100. All of this puts us in the best position, to meet the growing demand for clean energy and reliable sustainable products. Our balance sheet strength is an advantage over others in the market. We have unique opportunities to create additional value for our shareholders, the increasing value of the PTC overtime through the inflation adjustment that's embedded in the law and our strong free cash flow allows us to fund a growing dividend robust organic growth. And where we could find compelling M&A, we'll do it. But if we can't find those opportunities then we're happy to return capital to you, through share buybacks. I'll now open the call to questions.

David Arcaro:

HI. Good morning. Thanks for taking my question.

David Arcaro:

Good morning. Maybe starting out with the Commercial results they were very strong. You had some good success in new business creation. I'm wondering if you could just elaborate on what you're seeing or where you're seeing the strength. And maybe more broadly, the competitive environment in retail, what are you seeing for churn and any changes in market share there.

David Arcaro:

Got it. That's helpful. I appreciate that perspective. And wondering if you could also give an update on, the inflationary pressures that you're seeing just in terms of labor contracts and material costs. Was 1Q consistent with your expectations heading into the year? How do you see it trending for the year? I heard your confidence in being able to achieve it wondering, if you're seeing any difference in the pressures on the business this year so far.

David Arcaro:

Okay. Got it. Straight forward enough. I'll leave it there. Thanks so much.

Operator:

Thank you. Our next question comes from Steve Fleishman of Wolfe. Your line is open.

Steve Fleishman:

Yes. Good morning. Thanks. Yes, just on the commercial upside you're seeing. I know -- I'm just -- the 2024 gross margin is a lot better than we would have expected just on power prices. Does some of this benefit the way you contract go into 2025 even, just given the way you contract, or is it more kind of 2023, 2024?

Steve Fleishman:

Okay. Great. And then, big picture question. Just any concerns you have about IRA related to just this debt ceiling issue with the Republicans having IRA removing the bill? And just any thoughts on likelihood that that is a real risk.

Steve Fleishman:

Okay. Thank you. And then, lastly just on uprates. The -- I know you kind of came out with some growth investment for uprates that were I think more ones that were a little more normal course, but I think you're still working on kind of the potential for others over time. Just any update on how you're thinking about uprate opportunities?

Steve Fleishman:

Okay. Great. I’ll leave it there. Thank you.

Operator:

Thank you. One moment for our next question. And our next question comes from Shar Pourreza of Guggenheim Partners. Your line is now open.

Shar Pourreza:

Good morning, guys. Good morning, Dan. Good morning, Joe. Quick ones here. I know, Joe, you guys mentioned on the fourth quarter call that you were working with kind of state policymakers to potentially reduce their support in light of sort of the federal PTC. Any updates on those efforts, especially as you look at states like New York?

Shar Pourreza:

Okay. Perfect. And then, on the gross margin side, obviously, you talked about it a little bit. You're now looking at about $100 million in PTC credits for the non-state-supported plants. Could we get a little bit more detail on where that is coming from? And it looks like from the sensitivities, it might be weighted towards LaSalle. But any additional color you can provide here as we see this creep up in gross margin for the first time? Thanks.

Shar Pourreza:

Okay. Perfect. And then, just last thing, sort of, to ask -- and I'm getting questions on it this morning. But I guess would you have guided to the top half without the additional PJM invoice uplift? Thanks.

Shar Pourreza:

Fantastic. All right, guys. Appreciate it. Congrats. See you soon.

Operator:

Thank you. And thank you. One moment for our next question. Our next question comes from Paul Zimbardo of Bank of America. Your line is open.

Paul Zimbardo:

Hi. Good morning. Thank you, team. Nice update across the board. Well done.

Paul Zimbardo:

Following up on the capital allocation discussion, you referenced growth and potential consolidation as influencing the timing. Just are there things discrete that you're watching for? And just, in general, when should we expect you to start to move some of that unallocated to the allocated bucket?

Dan Eggers:

Hey, Paul. Good morning. I think that, Joe talked about the uprate. I was asked earlier, we're looking at a number of growth opportunities that take a little time to manifest so we're going to continue to work through those. We continue to look at the market for potential M&A opportunities. I think nuclear generally, comes to the top of that list and we're going to be pretty focused there. We have the $750 million of buyback, to work our way through. I think we have a little time to get through there. And we'll continue to analyze, both the scope of opportunity and then -- when we can put that out. So, I'm not going to give you an exact timeline, but we're certainly keeping a close eye on how quickly, we can deploy opportunities that come through there.

Joe Dominguez:

Yes. No, it will -- the formal guidance come on the fourth quarter call. But Paul, what we've been trying to do with these new disclosures is to kind of give you all of the moving pieces, which will update quarter-to-quarter. So you'll see the formal guidance, but you can start to piece together the story obviously.

Joe Dominguez:

Thanks, Paul

Durgesh Chopra:

Hi, good morning, team. Thanks for giving the time. Just Joe, a finer point on capital allocation. You talked about the attractiveness of the share price. I just want to be clear in terms of the unallocated $2 billion for 2023 and 2024, could that potentially go towards an upside share buyback?

Durgesh Chopra:

Thank you. And then just maybe Dan, going back to the PTC the $100 million accretion gross margin. Can you is there a way for us to get to what a dollar PTC value you're usingm to get to that like an average across the different assets that you have?

Durgesh Chopra:

Okay. Thanks, guys. I appreciate that.

Joe Dominguez:

Good morning, Ross.

Joe Dominguez:

Very good. Thank you.

Joe Dominguez:

That's, right.

Joe Dominguez:

Yes, you got it. And look like I said, I think all the pieces are right there in front of you.

Operator:

Thank you. I would now like to turn it back to Joe Dominguez for final remarks.

Operator:

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect. And everyone, have a great day.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation Fourth Quarter 2022 Earnings Call. [Operator Instructions]. As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Emily Duncan, Vice President, Investor Relations. You may begin.

Joseph Dominguez:

Thanks, Emily. Good morning, everyone. Thanks for joining our fourth quarter earnings call. We've been a stand-alone company for a year now, and what a year it's been. We really appreciate the confidence our owners have shown in the company and its future. I'm going to start on Page 5 of the deck with language that ought look pretty familiar to you. A year ago, we laid out our strategy for the company and made commitments to you focused on creating value, namely that we create an enduring business with the unique ability to tackle the climate crisis, that we'd operate a premier and transformational ESG companies that sets a high bar and leads the way for others and we'd protect our balance sheet and deliver exceptional value to our shareholders. Thanks to the hard working women and men that run our power plants and serve our customers, along with the corporate teams that support them, we're well on the way to delivering on these commitments. This year, we produced 180 terawatt hours of carbon-free clean electricity from nuclear, wind, solar and hydro, which we estimate to be about 11% of all carbon-free energy produced in the U.S. in 2022. On the customer front, retail customers ranked Constellation as the #1 retail energy supplier. We continue to offer strong pricing and innovative solutions like CORe and carbon-free energy matching, what we call 24/7, that are meeting customers where they are today and anticipating where they're going to be a few years down the road. Following a bumpy 2021 marked by challenges in Texas during super storm Uri, our power business, which includes all of our hydro, renewables and natural gas plants has bounced back and arguably has had its finest year ever. The investments we made in the Texas fleet worked. Our clean nuclear energy centers continue a string of excellent years. Once again, our nuclear performance led the industry. And to put this in context and give you perspective, our capacity factors have been the best in the industry for over a decade. Now that track record ought to give you great confidence in our ability to sustain performance. But there's a much bigger meaning to having the largest, most reliable and most resilient clean energy fleet in America. It means when the chips are down and the grid is facing a crisis moment, like PJM faced during winter storm Elliott, just the latest example of these harsh storms, Constellation's plans are the difference between keeping the lights on or having a Christmas without heat and light for millions. That's dramatic but it's also correct, and it's just that simple. And storm after storm demonstrates the same thing. I know this morning, you likely read the news in our release about the financial benefits we'll receive in PJM capacity bonus payments, payments that we earned during Elliott. And we'll talk about the PJM a little bit more this morning. But it's part of a much bigger story in energy and it's part of the value thesis for this company. In 2022 at long last, clean nuclear energy finally got appropriate credit for the environmental value, the E, if you will, in ESG. That drove the IRA and it drives interest in our stock. But candidly, however, our view is that clean nuclear energy continues to remain undervalued from both a policy and ESG perspective. Because it's not just the E part of the ESG story that makes our assets important. It's the S, too. And what I'm talking about here is the enormous societal benefit of having affordable clean energy, together with high levels of reliability and resilience. It's what makes our assets among the most important of any class of energy assets in America, and it's what you will own here at Constellation. In this regard, I to your reading Constellation Sustainability Report, which explains how clean energy pieces fit together and how Constellation's customer-facing business is helping C&I customers to develop and expand their sustainability plans by providing greenhouse gas emissions reports and clean energy products. As you know, providing highly reliable clean energy to power the grid is just the beginning of the future we see for the company. The IRA unlocked many opportunities. It gives us unique opportunities grow by upgrading our existing plans and earning an enhanced PTC with those incremental megawatts to grow by investing in hydrogen and to grow by extending the lives of our assets to 80 years and increase the number of megawatts to our fleet producers. These are the opportunities and investments you will see today -- in today's presentation. Finally, we talked at Analyst Day about giving back to society. In 2022, we walked the walk. One of the best ways to give back is to create family-sustaining job opportunities for people and communities that need them. That's why I'm happy to report that this year, we hired 2,000 new people across all of our businesses that will earn good wages and benefits and bring that value back to their communities. Earlier this month, we announced a historic pledge with the North American Building Trades Union to increased diversity in the graft jobs that are in the backbone of our company and the backbone of this nation. They're essential to the clean energy future. Our spending with diverse businesses increased by $200 million. Our people showed their heart and their passion and their generosity by volunteering 80,000 hours to their communities, and they gave along with the company $12.5 million in charitable contributions. Now all of this was done as we executed the financial commitments that we're here to talk about this morning. We achieved 2022 EBITDA of $2.667 billion, taking the top of our guidance range. We paid down $2.5 billion of debt and generated robust free cash flow to support our strong balance sheet, a strength that was recognized by the S&P and their upgrade and in their continuing positive outlook for our business. We distributed $185 million in dividends to shareholders and we delivered total value return of 75% versus negative 14% for the rest of the S&P 500. It was a good year. And as promised, we're meeting our commitment to you to provide an update on capital allocation. So let's flip to Slide 6, and I'll walk you through it. At Analyst Day, we laid out our capital allocation philosophy. We've maintained a strong investment-grade credit rating. You saw we enhanced that this year. We provide annual dividends growing at 10%. We grow the business organically and inorganically where returns exceed a double-digit unlevered threshold. And where we don't have those opportunities or they don't meet the thresholds, we're going to return value to you, our owners. Now over the course of the year, we have significant developments. The IRA was enacted, it opened the door to the growth opportunities that we discussed in nuclear and hydrogen and will provide a floor of support for our business. And the whole geopolitical and energy world got turned upside down due to the war in Ukraine with long-term effects. Given these developments, we made a number of decisions to support long-term value creation. We have secured nuclear fuel through 2028, which will allow us to withstand any future Russian supply disruption. We're investing in our nuclear fleet so that it could provide clean energy on the grid for at least 80 years. And we've begun implementing a plan to upgrade plants to achieve more output with no incremental O&M. Our balance sheet and credit metrics remain strong and continue to be the backbone of our financial policies and they provide an enormous competitive advantage to us. We will double the share of dividend starting with the March 23 payment and we'll then target 10% growth beyond. We will continue to invest in our assets, which will supply the grid with clean energy from our nuclear fleet for decades and help decarbonize America. I said a moment ago that we have the best assets and best operations. Our mostly dual unit fleet cannot be matched by any other asset class in America. We will remain disciplined in our evaluation of M&A opportunities, which includes making decisions informed by our own assets and how they compare it to others. We've explained how we look at value and our strong bias to purchasing well-maintained and well-supported multi-unit sites. At this moment in time, we haven't found an actionable opportunity, but we continue to believe in the consolidation of the industry and we will continue to be patient and disciplined as we explore every one of those opportunities. With that lens, we and the Board believe it is more valuable in the organic opportunities we have at hand as well -- that there is more value, excuse me, and the organic opportunities we have at hand as well as in our company's own shares. Accordingly, we're going to invest $1.5 billion in organic growth that meets our double-digit unlevered return threshold, including uprates at Byron and Braidwood, the first we've authorized; investments in 300 megawatts of wind repowering and refurbishment; and we've allotted $900 million in capital to begin to satisfy the growing demand for clean hydrogen in our regions. Now Dan in his remarks is going to go into detail on those investment opportunities. In addition, our Board authorized $1 billion in share repurchases, a direct investment reflecting our belief in the strength and value of our company. And even with these investments and the enhanced shareholder return vehicles we've announced today, we still will have approximately $2 billion in additional capital to be allocated in '23 and '24. This will allow us to pursue additional organic growth opportunities that meet our return thresholds, provide strategic flexibility for M&A. And to the extent that these opportunities do not materialize or if they don't materialize in this time frame, we'll look at opportunities to return the value to you. Now turning to Slide 7. I already touched on this. I mentioned at the top of our call that our power generation business had an excellent year, tying our best ever dispatch match, meaning our ability to respond and operate the plants when grid operators order us to do so. Our nuclear fleet continues to lead the industry. 94.8% capacity factor makes it the seventh year in a row with a capacity factor over 94%, the best in the industry, as I said, for over a decade. Our 11 refueling outages averaged an industry-leading 21 days, matching our fleet record. Turning to the customer business on Slide 8. Our team had an exceptional year and was able to create significant value managing the portfolio through a very volatile year. We had strong and effective portfolio management success and load options. All whole, we served 208 terawatt hours of wholesale and retail load, and we continue to see strong customer renewables and new customer wins in both our power and natural gas business. And we had our best year ever in the CORe product. As you know, during these calls, I often update you on deals we've executed. But to put that in perspective, we've executed 6 deals for 12 customers, delivering 1.65 terawatt hours of renewable energy annually and creating strong margins for Constellation. Turning to Slide 9. The clean energy center strategy for the company is the key to accelerating the transition to a carbon-free future for America. In 2022, we made strides towards our corporate purpose of accelerating this future. We announced our intent to seek license renewals at Clinton and Dresden, with Dresden being our next step in bringing the entire fleet to 80-year lives. We're making hydrogen today at Nine Mile and using it as a test bed for the future growth opportunities that I mentioned before, and we're working with others to secure hydrogen hub DOE funding in many regions. And finally, we're exploring through a DOE grant the ability to use our cooling towers to take carbon out of the air, a technology that could result in clean energy centers having negative carbon emissions. 2022 was a great year to show the potential of these clean energy centers. 2023 is the year that we will begin to put those plans in action. Now turning to Slide 10. As I mentioned before, PJM went through a great emergency in December. And it was the latest evidence that time and time again, always-on nuclear is there when other resources fail. It was true back in the '14 polar vortex when 22% of PJM capacity failed, with 81% of it being either coal or natural gas and nearly 1/4 of the wind not showing up either. Nuclear saved the day with 96% of the nuclear units operating and preventing a catastrophe. Reforms were made, as you recall, and PJM customers have paid about $58 billion in capacity payments since the rules were changed, all in an effort to avert the crisis that occurred during the polar vortex. But disappointingly, we saw almost the same facts leading to PJM great emergencies during the winter holidays, once again, nearly a 1/4 of PJM capacity failed with 90% of it being fossil. Folks, we know that renewable is intermittent and it's difficult to plan a future around. But the other truth of it is that fossil assets are not performing during these severe storms. That forced PJM to issue emergency conservation orders, which were followed by alerts from governors and utilities across PJM. 38% of the natural gas plants did not operate when needed. In contrast, Constellation's nuclear plants ran at a perfect 100%. Let there be no doubt that clean nuclear energy saved Christmas this year. But the point I want to leave you with is this. We're going to learn as a nation and a world that dispatchable clean generation is the most valuable thing in energy. We kind of know it already. That's why we're investing so much in things like battery and hydrogen and other forms of energy storage, all things that aim to pair renewables and provide more predictable and resilient clean energy. But you see, we already do that. Clean, reliable and resilient energy is what our fleet does every single day and better than anyone else in the world. And that's what you own when you own constellation. Now I'm going to turn it over to Dan for the financial outlook.

Joseph Dominguez:

Okay. Thanks, Dan. Well, folks, as you can see, we had a pretty spectacular first year as a company. And now it's time to have another one. In '23, we're going to continue to focus on operational excellence, delivering on our financial commitments and working towards our purpose of accelerating the transition to a carbon-free future. We're focused on ensuring the success of the hydrogen work we're doing, delivering additional megawatts and extending lives of critical clean energy center assets. We'll work with Treasury and other states on IRA implementation issues, and we will continue to effectively deploy capital to the benefit of our shareholders. We will continue to update you throughout the year on these matters during our calls. Now, Justin, I think it's time for questions.

James Thalacker:

Maybe just questions for Dan. I guess I was hoping to get a little more color on the higher growth-related CapEx that you've outlined in the updated slides. And specifically, you discussed generically that these organic growth projects will exceed your double-digit thresholds. So I want to confirm that this is a double-digit unlevered IRR threshold first and foremost. But then I was also hoping that maybe you could discuss a little bit if we look at these 3 different channels whether it be hydrogen, nuclear uprates or repowering, could -- are there different return profiles for each one of these or just disproportionate return? And is this driven by a function of the leverage that you think you can put on these discrete projects? Or is it driven more by the overall economic margins you see prior to the leverage?

Daniel Eggers:

Yes. I mean it's kind of interesting when you think about the uprates at 135 megawatts. It's a lot of megawatts when you put it in clean energy equivalent value, right? It's almost the same as 400 megawatts of wind. We're going to get that equivalent energy output $200 million with the same $27.50 per megawatt hour PTC tax credit, right? So think about the gearing on how many megawatts you get to that amount of capital is quite attractive. As Joe said, all of that back-end work, right? There's no additional O&M. There's no additional fuel to make those work. So there's -- the economics on those look awfully good, and we're continuing to run down a list of projects to see what else we can advance forward. It will take some time to get those on, as I said, just based on the timing of getting equipment manufactured and then managing the refilling our business. But that's -- and it's great for the environment. It's great for the company. So we're real excited about those. I think the other question you asked was about kind of leverage and how that's affecting the return. So as said, these are all unlevered investments at this point in time. Our assumption is we're managing our balance sheet to that 35% CFO to debt. That's been kind of the for us for the last year and will continue to be. So the future opportunities to think about finding differently. We'll look at that. But I think we have the time to further in service to make those decisions.

Daniel Eggers:

Yes, it's a good question, Jim. And I think about where we are, it's been quite a year, and we've learned an awful lot about the business as far as where our investment opportunities are. The IRA dramatically began to change the landscape for opportunities to deploy capital. I think you got hydrogen the operators, there's a lot of things that have really opened up, and we made a lot of progress this year, $1.5 billion of growth capital from an organization that wasn't putting that kind of capital to work. Our expectation is 2022, we're going to learn a lot more about the opportunities for investment. We're going to see how inorganic opportunities play their way through. But I think we're going to continue to learn more about the size, scope and duration of our investments. And that will then inform some of our capital allocation decisions for the long term, right? We think that the dividend increase today made a lot of sense. It's still 20% or less of our free cash flow for growth. We think that's a very reasonable payout at this time. And it will continue to evolve. But I think the balance right now is the growth investment, the dividend is the right setup.

Operator:

And our next question comes from Steve Fleishman from Wolfe Research.

Daniel Eggers:

Yes, Steve, I'm not going to give you the exact numbers. But what I said in the prepared remarks is the majority of that increase is associated with inventory over this period in time. Remember that what we're doing right now is we're continuing to expect that the Russian deliveries are contracted to provide, will continue to occur. We will be buying fuel from other providers who will make sure that we would cover any potential Russian store calls. We'll be net building inventory out towards 2028, assuming Russian delivery -- if the Russians were to -- if fuel is no longer available to us the capital numbers would change. We are admittedly seeing higher prices both on the pieces of fuel we had not previously purchased. And then we've talked to you in the past about there some hedge in our numbers. When you saw uranium move, really conversion and enrichment services go up 50% to 100% over the course of the year due to the conflict, that is putting upward pressure on that fuel bill. So it is more than inventory reserve.

Steven Fleishman:

Okay. Secondly, on the hydrogen project. When we think about how you're going to capture returns there, obviously you'll have an investment and some kind of, as you said, contracts for the hydrogen. But how should we think about the interaction between the nuclear plant and what it sells its power at to the hydrogen projects? Like is -- will some of the return come from that side, too? Or how should we think about that?

Joseph Dominguez:

Yes. Steve, it's a really cool kind of investment because in a certain sense, if energy prices were to decline, there's incremental value on the hydrogen side because of what's happening. Let's just kind of pretend some numbers here. Let's suppose prices go from $40 to $35. From a company standpoint, we're going to get the tax credit that will true us back up at $43.75 for the energy sale. Plus production of hydrogen just became cheaper. So it's -- we've talked about it quite a bit here. It's one of these interesting things that's been the Holy Grail in this business. How do you find many businesses that are negatively co-variant to natural gas? So that actually, when natural gas prices go down, it's a better story for Constellation and the top line story is immediately what's happened to power prices. The floor support in the PTC does that to a significant degree, as Dan mentioned. But the other piece of it that's interesting is this interaction between power prices, making hydrogen even more economically viable at lower prices. So it's the ability to get both of these production tax credits that makes it a very good strategic way for us.

Joseph Dominguez:

We're always bound by confidentiality when we look at any group of assets or any companies so I'm not going to get into the specifics. What I would say is the same impact that has happened to our fleet and the value of our company is expressed in those acquisition values for M&A. But that's where we get to kind of have to take a little bit more of a disciplined view of looking at the quality of the assets that are available, how well they have been maintained and this big criteria for us around dual unit sites as opposed to single unit sites. For our fleet, we're invested in 23 units. 21 of them operate as a dual unit site or effectively as a dual unit site. The only 2 plants that are outliers are Clinton, right, and . And in both those circumstances, the reason they're part of our fleet is because the states have had clean energy policies that require the existence and continued operation of these plants. So that's the way we've looked at it. We've run every single one of these assets out there. We know exactly what to look for in diligence and we've been disciplined. I'm not trying to signal to you that we think any less of the consolidation opportunity. That's not my intent here. But I think when people heard us talk about discipline, they had a view that, that was something that we sold on and we're not. We already have a tremendous business here, unparalleled by any other group of assets, and I'm not going to dilute it by overpaying for anything. If there are assets that come to us that are available at what we believe is a reasonable price and they meet the criteria we talked about, we're going to go after it. But it takes 2 hands to clap in this space. And I think the other reality is we probably aren't seeing the same passion for separating these assets from traditionally regulated utilities that exist in pre-IRA and frankly throughout the separation of Exelon into its 2 component parts. So that's what we're seeing. I think there will still be opportunities, and we'll kick the tire on everything. So I don't want to indicate a lack of opportunity, but it's the reality of our discipline and the reality, as I said, of the fact that these units are more valuable in the IRA setting, and strategically, companies are holding on to them.

David Arcaro:

I'm just wondering just you've got $2 billion of additional capital that hasn't yet been allocated. Wondering just what the milestones or timing you would envision in terms of identifying other investment opportunities to start to allocate that capital. Could more opportunities kind of pop up through 2023? Or is that potentially a chunk that could roll over into 2024 and serve as an ongoing base for a potential allocation?

David Arcaro:

Okay. Got it. And then I was just wondering, just digging a little bit more into the hydrogen opportunities, I was curious which end markets you're envisioning in terms of who might be the off-takers for the hydrogen. Wanted to clarify, they're taking the volume directly from the site so you don't have to deal with transportation. And I was also just curious if there's an electrolyzer producer or technology identified at this point.

David Arcaro:

Okay. Got it. And no indication at this point as to just the end market in terms of if it's industrial uses or fertilizer or jet fuel or other areas like that?

Operator:

And our next question comes from Paul Zimbardo from Bank of America.

Joseph Dominguez:

Paul, I've long ago learned that the worst way to kind of have these discussions with policymakers is to talk a heck of a lot about them on earnings calls because we're having these conversations where you would expect us to have them. Let me flip it over to Kathleen with the caution that these are confidential discussions and we'll see how they unfold.

Paul Zimbardo:

Okay. Duly noted. And then I know you commented a little bit on the special dividend commentary and relative value. But just at a high level, what's the philosophy around the authorized share repurchases? Is it something more programmatic or opportunistic?

Operator:

Thank you. And I am showing no further questions. I would now like to turn the call back over to Joe Dominguez for closing remarks. .

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Good day ladies and gentlemen, and welcome to the Constellation Energy Corporation Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Emily Duncan, Vice President, Investor Relations. You may begin.

Joe Dominguez:

Thanks, Emily. Good morning, everyone. Thanks for joining our call. I especially want to thank the new owners of Constellation to the call. It’s gratifying to see the continuing and expanding interest in our new company from all parts of the world. We had a strong quarter delivering adjusted EBITDA of 592 million, which is a result of the strong operations and performance across the business. Dan will go through some of the details in his remarks and we look forward to your questions at the end. As always, I want to start with a shout-out to the talented women and men who help us to run this company and who listen into these calls. Thanks for everything you do. [Plainly] [ph], the biggest news during the quarter was the passage of the Inflation Reduction Act, which recognizes the vital role that clean carbon free nuclear plays in meeting the country's climate objectives. We've had a little time now to absorb the transformational impact of the IRA to us and in our minds does four big things. First, it helps us to attract and retain talent. This business is about human capital and it's hard to keep people when you're constantly talking about plant closures. Thankfully, we're done with that. Second, and to the same point, the IRA keeps the plants open for our communities and for America. And it's not just about the carbon benefits. It's about the local air pollution reductions. It's the jobs and economic benefits, especially in hard hit areas of our nation, and it's about electric reliability and affordability. We've said this before, but it bears constant repeating. The most important energy commodity in the world today is a reliable zero emission clean energy megawatt. I don't care how you make it, but producing affordable clean energy that shows up whenever and wherever you want is the foundation of any modern energy system that deals with climate. The PTC begins to recognize the value of that scarce commodity and we make more of it than anyone in America. Third, the IRA provides our owners consistent returns by creating downside protection through commodity cycles with inflation protection. We wanted to take a minute this morning highlighting the inflation protection mechanism of the PTC, given the concern that all businesses and investors rightfully have about inflation at this moment in time. Our thinking is that inflation will be difficult to control for many reasons and that the Fed's stated goal of getting to 2% long-term inflation will be a significant challenge. Fortunately, the PTC automatically adjusts higher in these scenarios as you could see from the slide. In a 2% case, prices go to about $51 over the term of the PTC, and $57 a megawatt hour in a 3% case. This gives us great confidence in our ability to favorably manage longer-term inflationary risks. Fourth, the IRA gives us an interesting opportunity to grow by operating our plants and earn an enhanced PTC for incremental megawatts, to grow by investing in hydrogen and to grow by extending the lives of our assets to 80 years. I'll talk about a couple of these more in a moment. [In some] [ph], the IRA gives our investors a very unique investment opportunity. A clean energy investment with unlimited upside to higher commodity prices, downside commodity risk protection provided by the U.S. government, unique growth opportunities in hydrogen, life extensions, and upgrades and structural inflationary risk protection. We were pleased to see that the S&P recognized that the IRA provides significant benefits as part of its reassessment of Constellation's risk profile and upgraded us to BBB, while maintaining a positive outlook. A good investment credit rating is more important now than ever. If I can turn to Slide 6, I think this is a slide I'm pretty excited to talk about. What it depicts is the life of our existing assets. The blue is the current license life of our fleet. And as you can see, it starts to dwindle down beginning in 2030s and phases-out by 2050. You could see in some of the other colors here, certain life extensions that we've already filed for or obtained in the case of a few of our plants. The green that's shown on the chart is the additional life that we will get by going to 80 years. And just to provide some context on how big that opportunity is for Constellation in America, just extending the life of Constellation's clean energy units, not all the units in the country, just ours, just extending ours will create as much clean power for America to fight the climate crisis as all of the renewable energy that's been built in America over the last 40 years. And it won't cost hundreds of billions of dollars to make it happen. It's there for us at a modest cost through the NRC life extension process. Last week, we announced that we will be asking the NRC to renew the licenses of Clinton and Dresden units in Illinois for an additional 20 years, allowing these plans to serve America to the middle of the century and beyond. The NRC process for renewals expected to take us about four years and it will allow Clinton to run to 2047 and Dresden to run to about 2050. This is Clinton's initial license renewal and with a subsequent renewal it has the potential to operate until 2067. With continued policy support, we believe that we'll be able to renew the licenses at all of our plants, which would mean parts of our existing fleet would be providing carbon free always on generation well into the [2060’s] [ph] at least. Once license life is extended, our clean energy nuclear plants would have an operating life that is longer than any existing renewable energy source and in fact longer than any new renewable energy source that would be put into service in the next decade, but this isn't just about competition with other technologies. We need every zero carbon resource and license renewal is a hugely important part of the [Climate Tool Chest] [ph]. It gives our owners a unique investment opportunity for the long run. Turning to Slide 7, I want to talk a little bit about hydrogen. Like many others, we think that clean hydrogen will play an incredibly important role in mitigating climate change and reaching sectors of our energy and transportation industrial uses that can't be reached through traditional electrification. Hydrogen could be used to create sustainable aviation fuels for airplanes, reduce emissions, and steel manufacturing and other industrial process, for fuel cells that provide power for long haul trucking and even to create fertilizers and other clean agricultural products. The opportunities are virtually limitless, and the clean hydrogen provisions of the IRA, specifically the ability to earn both a nuclear and hydrogen PTC means that nuclear plants can become COGS in the clean hydrogen market. As you know, we will be the first to produce hydrogen from nuclear energy through our pilot project at Nine Mile Point. Last week, we also announced that we are a member of the Midwest Alliance for Clean Hydrogen or MachH2, which will be applying for a hydrogen hub funding from the DOE. We see Constellation participating in three ways as shown on this slide. First, hydrogen by wire. They are thinking about customers that are already using hydrogen at their industrial processes and want to use clean hydrogen. In order to get the full tax credit, they're going to need to prove that they're powering their electrolyzers with clean energy, and that will translate into contract opportunities with us to provide cleaning 24/7 power through our Constellation business. The second opportunity we have is to co-locate electrolyzers and make hydrogen byproducts at our sites. And the third opportunity is to power fuel cells with hydrogen and that's what we're testing at Nine Mile along with NYSERDA and the DOE. There, you store hydrogen at times where the grid doesn't need power and then you run that hydrogen back through a fuel cell and produce energy to the grid when it's needed. The key thing we're doing here is exploring optionality, so that we could use these three strategies interchangeably. And one of the technical things that we're trying to work on is being able to move from producing energy and putting it on the grid to making hydrogen with that energy and going back and forth in a matter of 10 minutes to 15 minutes. That way we'll always be able to support the grid when the grid needs energy and when the grid doesn't need the excess energy, we could be making hydrogen. As we turn to Slide 8, I want to talk a little bit about our operations. Our power and renewable fleet performed well with power dispatch match rate of 98.8% and a renewable capture rate of 95.7%. Our nuclear fleet ran well, but not perfect at 96.4% in its capacity factor. Our fleet will end the year with industry leading performance. Performance that has led continually for a significant period of time now. We continue to operate at a capacity factor that is about 4% better than the industry average. And to put that in context for you, on an open position at the PTC price port, a 4% higher capacity factor for our fleet translates into over $300 million of incremental revenue. Turning to Slide 9 in our commercial business highlights. As I mentioned at the top, our commercial business performed well during the quarter with strong volumes of electricity and gas delivered to our customers and we closed deals that provide carbon free solutions to our customers. We delivered 56 terawatt hours of electricity during the quarter and we continue to see strong renewal and win rates across both our electric and gas businesses. Those win rates are reflected on the chart. We reached an agreement with the City of Chicago in collaboration with Swift Current Energy to purchase 100% clean renewable energy by 2025. As part of the agreement, the city will source its large energy uses with 300 megawatts of a new solar facility under construction in Illinois, and will procure renewable energy credits for its remaining uses. This agreement will help Chicago lead the way in the fight against the climate crisis and yet is another example of how we're helping our customers meet their sustainability goals. Finally, I want to spend a moment on used fuel. Turning to Slide 10, we often talk about the fact that nuclear has many ESG attributes. It's got the lowest lifecycle carbon emissions of any technology. It produces more carbon free power on less land than any other source because of its incredible power density. It provides unprecedented, reliable, and affordable energy to all communities because we think reliability is just as important to society as sustainability. It provides family sustaining jobs in many core communities across the country and has a strong industry safety culture. And as I mentioned through innovation, we could use that clean energy to decarbonize other sensors with hydrogen fuels, but one of the questions we often get from investors is about spent fuel or as we prefer to call it used fuel. So, I want to spend a few minutes talking about how fuel safety – how fuel safely and secured and stored at our sites. First, I don't think we get appropriate credit for this, but we're the only large scale energy producing technology that takes full responsibility for all its waste, plans for its eventual disposal, and we pre-fund all of our [plants] [ph] retiring obligations. That's not true for any other energy source, whether it's fossil fuels or renewable energy. We know where every gram of spent fuel is located and how it is packaged, tagged, and tracked. In terms of volume, nuclear energy is extremely dense and produces less waste by volume than any other type of energy. For context, all of the spent nuclear fuel produced in the United States from the dawn of the civilian nuclear era. When President Eisenhower gave his famous 1953 Atoms for Peace speech, until now all of it could fit inside a Super Walmart. By comparison, a single coal plant generates as much waste by volume in one hour as the entire U.S. nuclear power industry has produced during its entire history. Now, after our fuel is used to produce energy, it's placed in water [indiscernible] down. Then it's placed in these 16-foot stainless steel containers that are shown on the picture in this slide, and there the material can be safely stored for hundreds and hundreds of years. These containers are designed to withstand earthquakes, storms, and projectiles, and they're completely passive, meaning they don't need any power or any source of energy to continue to operate. There's never been any unplanned radiation release from the containers and they emit less radiation than a frequent flyer received in a year. The safe storage of these materials gives us time to finally resolve disposal or to reuse the fuel as many technologies now proposed to do. Look, it's not a perfect solution, but there are no perfect solutions in the energy sector. and we're extremely proud of what the industry has done. And we wanted to share this perspective because we know how important it is many of our owners. Now, with that, let me flip it over to Dan.

Joe Dominguez:

Thanks, Dan. The company is strong. It's built for the long haul and it's an essential company for America. As valuable as the IRA was to the company and to the nation, the thing I'm really proud on about is extending the life and beginning really to extend the life of what we did with Clinton and the announcement on Dresden. These are just the most important assets for America at this point in time. Financially, we're executing well and our balance sheet is in great shape. Our investment grade credit rating is extremely valuable. So, I'll close with the value proposition. We're a unique company that can't be replicated and our assets as I said are critical to meeting our climate goals. The IRA has de-risked the business providing four excellent inflation protection and an exciting platform for growth. We own nearly 25% of the U.S. nuclear fleet producing the most carbon free energy in the country, nearly twice as much at carbon-free energy as the next generator. These plants can run for 80 years, a useful life that's longer than any other carbon-free generation that exists today and in the case of renewables that will be built over the next decade. We provide power to nearly 23% of all competitive C&I customers in the U.S., including three-fourths of the Fortune 100. This puts us in the best position to meet the growing demand for customer driven carbon-free energy and sustainability products. We're the best operator of nuclear power plants in the country [indiscernible] and that delivers enormous value. We generate strong free cash flow through our best-in-class operations, our retail and wholesale platforms, and our support for clean energy and our focus on costs. And finally, we intend to deliver value to you, our shareholders through our capital allocation strategy. We told you that we provide you with an update this year and we're working on that, but as many of you know, there are some meaningful potential inorganic growth opportunities that align with our strategy and we need to see how these things play out before we could provide an update. But as a reminder, our capital allocation strategy starts with maintaining strong investment grade credit ratings, which provide us a competitive advantage. We provide an $180 million annual dividend growing at 10%. We believe there are opportunities to grow our business organically and inorganically and we will see growth opportunities that exceed a double-digit unlevered return threshold and will deliver long-term value to our customers. And when we don't have those opportunities or don't have those opportunities in a particular time frame, we will return capital to our owners through a special dividend or share buybacks. With that said, I'll open it up for questions and I apologize for the noise on our end, there was a little glitch with the mic.

Shar Pourreza:

Hey, good morning, guys.

Shar Pourreza:

Joe, maybe we can start with an update just on the market for the nuclear assets now that IRA has, kind of been digested, a couple of processes going on. What have you been seeing in the market? And is M&A just more or less likely at this point based on recent dialogues you've had? And then do you have a firmer date in mind on when we could see a capital allocation update if inorganic opportunities don't meet your threshold at least in the near term?

Shar Pourreza:

Okay, perfect. That's what I wanted to level set. So, if something inorganic doesn't transpire, it takes some time, you're not married to having to disclose capital allocation before year-end, so we can maybe expect it around the February call when you report year-end results?

Shar Pourreza:

Okay, perfect. And then lastly, I don't know, this shouldn't be a surprise, but I mean obviously you guys like everyone else are seeing labor and material inflation. We're getting a lot of questions on it this morning. Have you seen – Joe, have you seen any moderation more recently at a higher level? How should we, sort of think, should we be thinking about maybe the potential pressures in 2023 and beyond as it relates to your initial guide you guys rolled out with the Analyst Day earlier there's year, which was just shy of $4.5 billion per year?

Dan Eggers:

Yes. Thanks, Joe. Thanks, Shar. It's a good question. And I think Joe kind of hit off on the point that we are having the inflationary production of the IRA. If you think about this year, right, the inflationary environment has really been good to us from power prices moving higher into levels we haven't seen in a real long time, which is clearly helping the business. When I look at the cost of human indulgence for a second, I'll kind of break down our costs a little bit more for you from an overall O&M budget perspective. First off, a little bit under half of our O&M spend is associated with labor, right. So, we’ve got half labor, half supplier, and contract work. Of that O&M bill for labor, about 25% to 30% is going to be for our workforce, it’s going to be the represented population. Our longest labor contract [since go until 2027] [ph]. So, we have pretty good visibility on labor inflation rates on that piece of our labor bill, kind of in the 2.5% range. On the non-union side, I think that we saw some of that this year with the hiring and recalibrating some of our pay levels. We are seeing upward wage inflation just as you're seeing everywhere else in the economy, kind of top to bottom. So, that's something keeping an eye on. Our focus is making sure we pay our people fairly and well. And so, we're managing that, but that’s something I think this is kind of the reality of the world in which we operate right now. If I go to the contracting and supplier side of the equation, and really this is predominantly nuclear and power related spend when we get to this side of our dollars. About half of that spend is kind of with 20 major partners, so large partners to the company of big providers. We generally sign multi-year contracts with them, with inflation caps or bands around them. That's helped to manage some of that inflation in the Q3 percent range. Obviously, there's some sensitivities as we go through renewals and there are some causes for things like commodity escalation and things like that. It hasn't been a huge drag so far, but something we're keeping an eye on, and on the other half of the supplier, right, these are going to be a wider range of suppliers, smaller, shorter contracts and things like that. So far, we've managed that inflation pretty well and certainly well below what we've seen in the market, but it's something we'll keep an eye on. Given our size and how we buy, we get benefits of both buying. We also buy in inventory, so we spaced out some of those costs they roll through, particularly when we think about nuclear inventories or things like that, which will help us to manage our costs. A couple of things that I called out in my script today, [that you think about] [ph] for kind of next year, the growth spending that we had this year, I think you should expect us to continue to make some investments in growth. This is an important opportunity for us and putting money to work there to help fuel that opportunity is important. On the stock comp, which was fairly notable amount of money this year, the tails on that are pretty small to be honest. Most of that gets timed this year just on how the true-ups work. So, there's a little bit there, but in the scheme of what our O&M spend is, it's [pretty tiny] [ph]. So, that's probably how I would think about O&M as you kind of look at your model and our plan will be to refresh all these numbers for all of you on the fourth quarter earnings call in our normal course.

Joe Dominguez:

Thanks, Shar.

Steve Fleishman:

Yes. Hi. Good morning. Thanks. So, just on the – Joe, one of the growth avenues you mentioned is [uprates of nuclear] [ph], could you talk to what the uprate potential might be in the fleet and any timing on that?

Steve Fleishman:

Okay. And the double PTC would essentially be, kind of one for being like a new carbon-free megawatt and then another for being nuclear PGC, essentially?

Kathleen Barron:

Hi, Steve. Yes, Joe’s talking about the tech neutral credit that is for any carbon-free resource that goes into service at the end of 2024. So, you would no longer be eligible for those incremental megawatts for the existing reserve PTC. You would transition into that new carbon-free tech-neutral credit that's roughly double the value.

Joe Dominguez :

[Indiscernible] what is pipeline credits, right?

Steve Fleishman:

Yes. Okay. Thank you. And then just going back to the prior question on O&M, I know you don't want to really define all that at the moment, but just with respect to the [part] [ph] that's related to growth initiatives, can you give us a sense of, kind of how much you're willing to size that? And then to the degree that you start moving forward, projects, would it get capitalized into those? So, it's kind of temporary. Just how to think about how big the [Multiple Speakers]?

Dan Eggers:

And Steve, it's kind of everything. It's the hydrogen stuff, we started from a position earlier in the year where frankly we just needed to learn a lot before we get into this track. The hub work, the work is investigating upgrades and other growth opportunities. All that stuff as a starting company essentially that hasn't done a lot of those investments over the last few years, required us to bring in some talent, some consultants and other experts to get smarter about that. And that's at a cost this year. It's smart. It's good investments. It's what we need to be doing.

Operator:

Thank you. One moment for our next question. And our next question comes from Paul Zimbardo with Bank of America. Your line is open.

Joe Dominguez :

Paul, as I said, I think we'll give that update on the fourth quarter earnings call when we kind of give a comprehensive view of all the pieces put together, including the roll forward on our gross margin outlook. So, it's probably a little bit early. I think it's kind of fair when you think about some of the things enumerated on a prior question, with Shar that we are seeing some pressures where we do our best to mitigate that as we can. But I guess, fair to understand that there are some challenges out there in this inflationary environment.

Joe Dominguez:

Yes, I think we're comfortable with the balance sheet [is right now] [ph]. I think the flexibility that affords us is attractive, right? And we saw the support of the agencies, which we're happy about. We also kind of look at the balance sheet as a tool we can use and we look at some of these potential larger investment opportunities. The idea of using the balance sheet to support them is going to be available to us. So, we're good with where the leverage is right now and the ability to flex it when opportunities come up. When I think about the return on capital as we make new growth investments or a threshold we look at for M&A or anything else, we talked about a double-digit unlevered return at the Analyst Day. That is still our North Star as we’re evaluating opportunities and projects internally and I don't see that changing at this point in time. So, that's pretty well where we are.

Joe Dominguez:

Thanks, Paul.

Joe Dominguez:

Good morning, David.

Joe Dominguez:

Look, we're in kind of NDA space with a lot of folks here. So, I would say that there have been very extensive conversations on all fronts. in both the colocation, as well as providing energy to customers who want to reduce hydrogen at their own site. And what we're hopeful is that by the first quarter, we'll be in a position where we're going to be able to start to announce some commercial deals and commercial activity. The hub proposal is going to take a little bit longer, Kathleen, if you want to share a little bit of your thoughts on the timeline for that work, but that also has some commercial contracts that will be a significant part of that work. So, in a sense that stuff has to be done before the DOE could that the [funding] [ph].

David Arcaro:

Okay, great. Thanks so much for the color there. I was just wondering in the quarter on the unplanned outages that you saw, wondering if there were any common, kind of underlying causes there or any need that you might fee for additional kind of spending related to the issues like maintenance CapEx or anything that might be lingering beyond last quarter?

Bryan Hanson:

No, I think you covered it, Joe. There's nothing extraordinary about any of the issues we had. We'll provide some more vendor oversight to make sure the quality of parts that we get meet our standards. And again, we have very high expectations of how we operate these plants. And so, when a piece of equipment isn't performing right, we'll take the plant down made to repairs and to restart it. And I'm just still pleased that wrapping up our refuel outage season here in the next couple of weeks with the four outstanding refuel outages this fall and we're on track. And like Dan said, better than a 94% capacity factor for year-end, which will be industry leading as always.

Operator:

Thank you. One moment for our next question. And our last question comes from Durgesh Chopra with Evercore ISI. Your line is open.

Dan Eggers:

Yes, we're not refreshing that specifically here, I would say, on the year as the EBITDA is [indiscernible] our CapEx is tracked online and I think our performance this year is certainly consistent with our expectations that we have underline that page in the Analyst Day. As I think about next year and we're always going to go through a budgeting process, but the price outlook and the market conditions have improved for next year. Obviously, we can't have a cost discussion what's going on today, but I think we feel good about the numbers we shared with you in the spring.

Dan Eggers:

Yes. I think we'll give you the 2023 guidance for sure. We'll give you some gross margin disclosures and head disclosures certainly through 2024. There's a little bit of complexity, as you're well aware, without clarification from treasury on how gross receipts are going to be calculated. That does have a varying [bolt on] [ph] EBITDA and free cash flow and how they're going to look. So, I think we want to get through that process and have a little more clarity there before we probably extend beyond the 2023, 2024 look. That could also complicate a little bit how we talk about it, a base EBITDA number, but it's something we’re trying to getting our arms around because we know that you guys would like to see it, but we also want to make sure we have a well-reasoned number that's supported by, but we're going to get our treasury.

Operator:

Thank you. I would now like to turn the conference back to Joe Dominguez for closing remarks.

Operator:

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation Second Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this call may be recorded.

Emily Duncan:

Thank you, Liz. 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 senior management team, who will be available to answer your questions following our prepared remarks.

Daniel Eggers:

Thanks, Joe, and good morning, everyone. Starting on Slide 11. We had another strong quarter financially, earning $603 million in adjusted EBITDA. As expected, year-over-year EBITDA was slightly lower.

Steven Fleishman:

Well, Joe, you even got the operator excited. So I think that's the first.

Steven Fleishman:

Yes. So this bill's not passed yet, and so I just want to just get a little more color on your confidence, such confidence that it's going to get done, and also make sure that the corporate min tax provisions would not impact Constellation.

Daniel Eggers:

Yes, Steve, thanks for the question. So when we talk about our cash tax exposure, I guess, number one, certainly, we're going to be over the $1 billion pretax earnings threshold as we look forward. So we'll qualify it in that sense. We've told you that we expect that our cash tax rate to be moving up from a modest payer this year to be a more meaningful payer next year and the years beyond. When we look at '23, our cash tax rate would be above the AMT under all circumstances. We would expect to be a cash taxpayer, absent the PCC, once that goes in effect in '24, we'll manage the credits to cover our tax liabilities and use the transfer market to monetize those that wouldn't fit and rate the AMT construct.

Kathleen Barron:

No, I think that's right. I mean, I think, Steve, you've followed us for long enough. You've seen hurdles get cleared over the last couple of months. There are a couple of remaining, as Joe said, the problem with is getting to work on the tax title and the energy title. And we just -- we have a couple of more days here to let the Senate continue doing their work, but we're getting close.

Paul Zimbardo:

Wanted to touch a little bit on the cost side of the business. Just given the inflationary pressures, are the guidances -- the multiyear guidance that you put out for O&M, maintenance capital, still good ones to focus on? Or are you starting to see some pressure on those numbers?

Daniel Eggers:

I think that's right. We'll keep an eye on all the pieces, but certainly, between the labor deals that we have and the supply contracts, the delays that significantly played out at this point.

Paul Zimbardo:

Okay. Great. And if I could quickly ask just about the nice uptick in new customer win rates, renewal rates, just how those conversations have evolved now that commodity prices have proven pretty sticky, to be higher than before?

Jamieson Ward:

It's actually James for Shar. Can you hear me?

Jamieson Ward:

So Joe, I guess, I wanted to start with your comments on growth in capital allocation and how that kind of ties into the IRA potentially passing this summer. Would that change your views at all around inorganic nuclear growth? And are you seeing any opportunities out there right now?

Joseph Dominguez:

My thought on that would be that anything we spend in '23 would be relatively modest compared to the amount of cash that we'll be generating as a business. And I think capital in that area would probably scale up more meaningfully in '24.

James Thalacker:

Just a real quick question, just sticking on the supply side. A lot of people are focused on the pricing side. But just wondering, I noticed that just yourself and Duke had signed LOIs with Global Laser Enrichment over the last couple of months. And just wondering if the -- there's been increased focus on energy security and domestic supply production, how do you guys see bringing uranium back in terms of both production as well as enrichment here in the U.S., and how this technology might sort of play into that? I know it's going to be longer dated.

Bryan Hanson:

Yes. I just said it's important for the U.S. to reestablish itself as an international leader in enrichment services. As you know, we currently have very modest amounts in the U.S. today. So I think based on this desire, we're seeing a lot of new innovations come about, both in GLE, as you referenced, and a couple of other companies that are also looking at the United States to expand enrichment services. And we want to be an active part of that.

Bryan Hanson:

Yes, I think most of the manufacturers think somewhere after 2026, out in the 2028 to 2030 period. And again, through our contracting and contracts that we have, we're -- again, we're hedged for multiple years out in the future and feel comfortable where we are in our fuel position today.

David Arcaro:

I was wondering, just if the -- if you get the nuclear PTC, is there a like baseline EBITDA and cash flow level that you would have in mind as to -- if all of your plants would have received the PTC into that low 40s per megawatt hour level, what that would mean for the kind of stable, low-risk and derisked piece of the EBITDA profile?

Daniel Eggers:

Yes, Dave, I think [ that hard ] point, we just kind of highlight that this is a trend that we haven't seen historically, right? We reiterated our guidance comfortably for the year. So we still feel good that this is going to be a little bit in the friction of the year. So I wouldn't over rotate in it by any means, the origination, as Joe pointed out. We're having good margins on the business as customers are coming back, and they're looking at getting risk priced into those contracts. So we feel good about it. I guess a little bit of something we're keeping eye on for this year, maybe dragging in next year a little bit, but nothing has changed in our disclosures at this point.

Joseph Dominguez:

Yes, David, I'm going to ask Jim to jump in and answer that. But just not to be nitpicky, but in your prior question, you talked a little bit about how we levelize prices and that we might get the value back in outer-years. There's no might about it. What we're doing is just smoothing the price trajectory for customers and levelizing that really over a period of years. We will get it back in the outer-years but by no means are we signaling that this has lost money and that there's any chance to it. Jim, why don't you cover the last question?

Jonathan Arnold:

Guys, can you hear me?

Jonathan Arnold:

Just a quick question to sort of ease off of the starting to talk about 2024 and hedging. As you read the IRA legislation as it's currently drafted, what is going to drive the PTC most likely? Is it going to be a market clearing the busbar type price of the unit? Or is it going to be some number that reflects hedges you have on? And then how do you think that would be determined? Or just any insight you can give on how you think that's going to work.

Jonathan Arnold:

Okay. So the bill is sort of not definitive and something to work out after the after passage effectively.

Jonathan Arnold:

Okay. And then maybe I just want to make sure I have what you said on capital allocation. I got a buzz on the line, do you say later in the year, was something or any more specific than that?

Joseph Dominguez:

Yes. I think in terms of the long-term value of our assets and our business, the market is going to be able to figure that out fairly readily. I know that the treasury interpretation on the reference point for setting the PTC is an issue, and certainly, in the earlier year of the program, perhaps it's an issue. But in the long term, you're going to be able to look at the number of megawatts we produce and evaluate it against low 40s megawatt hour price, and you're going to have a pretty good sense of what the value of these companies can be.

Daniel Eggers:

Well, Liz, I want to thank you again for starting the call and your colorful remarks throughout and for all the folks who have listened in and the great questions we've received. So thank you very much, everybody. Have a great day.

Operator:

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation First Quarter 2022 Earnings Call. [Operator Instructions] Later, we will conduct question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded.

Emily Duncan:

Thank you, Shannon. Good morning, everyone, and thank you for joining us for our first Constellation Energy Corporation earnings conference call as a stand-alone company. 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.

Stephen Byrd:

Congrats on the great results. So I wanted to maybe focus first on just the outlook for federal legislation, and you provided some great commentary. How are you thinking just given the evolution of everything we've seen politically, could you just maybe speak a little bit more to your sense for the chances of success? I do agree with your point that, if anything passes, it does appear highly likely that nuclear support will be in that. So I think that's well-appreciated. But I'm just curious more about your sense of the prospects for something getting across the finish line?

Stephen Byrd:

That's super helpful color. Maybe just my last question, just building on your point on national security is uranium. I think you all have taken a very thoughtful approach to ensuring you have uranium supply. But we do get in the United States a decent amount of uranium from Russia. And I was just curious, what do you see as possible moves in terms of supply chain adjustments at the industry level? And then feel free to comment on your position, but I think you guys are in good shape. But more broadly, I'm interested in your take on what adjustments might occur at the national level in terms of how we procure uranium?

Operator:

Our next question comes from Steve Fleishman with Wolfe Research.

Joseph Dominguez:

Steven, I'm going to ask Jim to jump in here. We're not vigorously tied to the 1/3, 1/3, 1/3 that you saw from this company in prior years. We have, as you pointed out, through the state support mechanisms, a lot of our volume already hedged -- but look, we saw a good run of prices during the course of the quarter. And Jim's message to the team was opportunistically seasonally where it makes sense let's grab some of that value. And in point of fact, as we're sitting here today, some of the high points that we saw during the quarter have now worked their way back a little bit. And we're pretty glad that we had those hedges. So look, I don't think we're going to be slaves to 1/3, 1/3, 1/3, but we're going to see value. And you ought to know that, as we're going to run this company, we're going to be disciplined around the balance sheet, but we're going to be disciplined about making sure that every time we give a projection to you, we hit it or do better. And so we're going to continue to use the hedging strategy to give us that sort of assurance.

James McHugh:

Yes. Thanks, Joe. I guess what I would add to your question about, well, given that we have the policy deals, the way we think about this hedging window is typically in this kind of 3-year window, there's some customer contracts that go a little longer. So the way we think about that is we want to be able to Joe's point, capture the moments when we have the opportunity when you see prices run like this, and I think overall, we're still going to be able to have some flexibility, and Dan mentioned the flexibility. So we tie that in constantly to what are we trying to achieve in hitting the targets that we've provided, as Joe mentioned, and achieve with the balance sheet goal of keeping a strong balance sheet. So I think we'll continue the same general strategy with flexing up or down here and there as we see the market move in periods like this. I don't think there's a vast change to the overall philosophy of what we're trying to achieve.

Joseph Dominguez:

Sure, Steve. We have looked at it. And as you know, we announced at our Analyst Day, we did a deal at our combined cycle machines down in Texas, where we get incredibly strong interest from data center companies that come behind the fence line, and not only at the fossil plants in Texas, but, of course, taking advantage of the clean energy production at our nuclear plants and the high reliability that they get sitting behind the fence line there. We've held back a little bit on that. First, not interested in getting into more commodity risk around bitcoin and cryptocurrency. And honestly, I think all of the events that have transpired since Analyst Day kind of reinforce that sense of running the business and not having commodity exposure in terms of the production. So far, that's the way we've run things. We will look at contracts. But right now, I'm holding tight to see what happens in Washington because I want to see how that policy would work and interplay with any contract we might have with a data center behind the fence line. But is it an opportunity? Sure, it is. The Tier 0 data center market is going to do nothing but grow even if the cryptocurrency piece of it starts to stagnate a little bit, and those will be opportunities for us. But they're not things that we need to jump at with our nuclear plants. I think hydrogen and certainly how the production tax credit work are things that we need to see pretty clearly before we enter into long-term deals.

Paul Zimbardo:

I wanted to continue on Steve's line of questioning. Just more specifically around retail. How have those conversations gone? Not talking about the crypto data mine but just large commercial, industrial, the Microsofts of the world chief in recognizing that 0 carbon value. Is it about higher margins, more duration? Just if you could give a little more flavor on those conversations?

Joseph Dominguez:

Yes, Paul, it's a good question. We're not going to remark that annual guidance or the multiyear guidance on a quarterly basis. But certainly, I think we talked about the idea, we're confident in our capital budgets and our cost budgets. So there's more at the top line. You can probably translate it down to what it means for us.

Michael Lapides:

I actually have two questions, one for Dan, one for Joe. Dan, kind of a little bit of a modeling or just kind of trying to think about the gross margin line. When we see forward curves move up a lot in a year like 2023, safe to assume that you don't get to capture -- for the unhedged portion or uncontracted portion of the portfolio, you don't get to capture all of that benefit simply because some of your retail contracts they have prices set, or if they're floating, they have caps. And therefore, when we think about kind of moves in the curves for the unhedged portion of the portfolio that there's some portion of that move that just won't kind of trickle down to your bottom line?

Michael Lapides:

Got it. And then, Joe, you made a comment in your opening remarks, you talked a lot about how some parts of the world, and especially Europe, may not have focused on the criticality of nuclear generation. I want to talk about that a little bit, and I'm curious for your feedback. One of Europe's largest nuclear generators has made no moves to retire plants. In fact, they're building plants. But they have faced given legacy issues with the plants or simply just aged, massive operational issues that have brought plants off-line and have reduced the amount of nuclear power in France, and that impacts the broader European market. I'm just curious how you think and your team thinks about your nuclear fleet and the U.S. nuclear fleet and the potential whereas these plants age, that operational performance, which has improved dramatically in the U.S. over the last 10, 15 years for the nuclear fleet, actually turns the other direction or faces headwinds or risks?

Bryan Hanson:

I'd just add just much to Dan's chagrin, we invest in the plants like they're going to run forever, Joe. So we just stay attuned to that, right? There's nothing significant in the future that isn't already on our forecast around making these plants [indiscernible] years.

Operator:

Our next question comes from Shar Pourreza with Guggenheim Partners.

Joseph Dominguez:

Yes, I would say our Texas assets are worth more now in terms of our own valuation than 3 months ago when we kicked the company off. but they're also producing more value. And they remain some of the lowest-emitting resources in the entirety of the Texas market. Look, I think we own the 2 best combined cycle machines in Texas, not only in terms of their operational performance and their emissions levels but something we haven't talked about in Texas, but probably should is the ability to withstand drought conditions because we don't need cooling water. They're air-cold machines. So not only are they very good, but they're air-cold machines. So if you have drought, they're going to be able to run through that. We like where we're positioned there. And while the work certainly isn't done, and the Texas Commission has acknowledged as much in terms of market design there, they've taken a lot of risk off the table, and the weatherization efforts there have worked. Point is, yes, I see the rising value of those things, but they're also delivering a lot of value to our customers in Texas right now. No hurry to give them up. I think the trend in terms of upward value is going to grow even stronger there. Not -- but that's probably where things are going to stop. We're not going to be a company that is going to be buying a lot of additional fossil fuel units. We've made that clear from an ESG commitment standpoint, and that's where things stand right now on that. Does that address your question on fossil?

Joseph Dominguez:

Look, I think we have a much bigger open position out there. And as Dan said, we try to give some good sensitivities. I think those are projectable, and the prices are pretty healthy out there. But I'm going to kind of stick to where Dan and I have been throughout the call. We'll have a period of time later on in the year when we can provide the update we'll provide updates in terms of our performance this year. I want to get through the summer. I want to be able to see how the fleet performs this summer. I want to then be able to factor in things like capital return. We owe you a big update at the end of the year on those sorts of things, and then we'll start wrapping in '24 to '25. I'm cognizant of what some of the other players in this space have said. Obviously, the improved pricing has lifted our boats there. But I want to shy away from being specific until we get some more ground under our feet. Dan, anything more to add there?

Joseph Dominguez:

And hopefully, Congress will act, and we'll have some sense of what that looks like for us at the same. So still a lot of moving pieces but a great start.

Joseph Dominguez:

Well, just -- I just want to end up where I started off. Thank you all for your interest in the company. I'm thankful for the men and women who run this company. They've been doing a great job. Look forward to continuing this discussion in our next quarter, and frankly, continuing the good performance. Have a wonderful day.