Constellation Energy Corporation

Thank you for standing by, and welcome to Constellation Energy Corporation's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. Instructions will follow at that time. As a reminder, this call may be recorded. I would now like to hand the call over to Emily Duncan, Senior Vice President, Investor Relations and Strategic Growth. Please, you may begin.

Thank you, Lateef. Good morning, everyone, and thank you for joining Constellation Energy Corporation's third quarter earnings conference call. Leading the call today are Joe Dominguez, Constellation's president and chief executive officer, and Dan Eggers, Constellation's chief financial officer. They are joined by other members of Constellation's senior management team who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning along with the presentation. all of which can be found in the investor relations section of Constellation's website. The earnings release and other matters which we discussed during today's call contain forward-looking statements and estimates regarding Constellation and its subsidiaries that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's material and comments made during this call. Please refer to today's 8K and constellations other SEC filings for discussions of risk factors and other circumstances and considerations that may cause results to differ from management's projections, forecasts, and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I'll now turn the call Over to Joe Dominguez.

Thanks, Emily. Good morning, everyone. Thank you for joining us today, and a big thank you to our amazingly talented team at Constellation. Today, Dan and I once again have the privilege to share their results, results that outperform our plan, your expectations, and require us to raise guidance. But before I do that, I want to touch upon Friday's FERC ruling that I know is top of mind for many folks. In Constellation's view, the two-to-one ruling rejecting Talens ISA by a fraction of the commission is not the final word from FERC on co-location. The ruling, as many of you know, is very narrow, and we believe that all of the commissioners, including the two who recuse themselves from Friday's decision, understand the critical importance of providing additional guidance. Now, how that's going to come could occur in a number of different ways. We could see the commission take action. We could see PJM take action or parties like ourselves could take action. It's premature at this point to say which of those pathways we are going to pursue. But we know this, co-location in competitive markets remains one of the best ways for the U.S. to quickly build large data centers that are necessary to lead on AI. As Chairman Phillips explained, our nation's entire economy and national security is at stake if we do not lead in AI. That sentiment is shared by both presidential candidates. As National Security Advisor Jake Sullivan warned just two weeks ago, quote, even if we have the best AI models, but our competitors are faster to deploy, we could see them seize the advantage in using AI capabilities against our people, our forces, and our partners and allies. We all know that power has emerged as the key to America's ability to meet the challenge, and Constellation uniquely is positioned to help. There are multiple regulatory and commercial pathways to resolve the co-location issues, and we will work quickly with customers and other stakeholders to put these in place. In PJM, we have abundant base load power almost all times of the year. We can power AI. I think sometimes we get sloppy and say we have energy issues with AI growth. We don't. We have a capacity issue that manifests itself just a few hours of the year. This problem is fairly simple to address with demand response, peakers, and batteries all provided that we have the right market price signals. But to be fair, we have been a bit challenged on the issue of getting the capacity market moving. Now we agree with PJM's decision to delay the latest auction, and we encourage PJM to do that because we support changing the reference unit and addressing the RMR units. Those narrow reforms should provide clarity, fair pricing, and price stability for customers and generators alike. PJM should also proceed with streamlining the process for adding generation like our crane restart. We're happy to see PJM progressing on this front, and we're working hard to bring crane on in 2027. We trust that FERC will prioritize these RPM matters and urge FERC to act on them quickly. The load is going up, and the market needs the price signal to react. We note that the recent utility filings with PJM already indicate another five to six gigawatts of load in the next auction that we expect PJM to implement in its planning parameters. The PJM capacity market has a long track record of being able to deliver new capacity and to drive customer demand response, but we need to let it work. Co-location will add, not detract, from reliability in PJM. Here Constellation's principles have been quite simple. First, in times of emergency, our power should support the grid. To be absolutely clear about what I am saying, that means that nuclear energy supporting a co-located load will be switched to the grid when needed to prevent the reliability crisis. and it should be fairly compensated when so called. Second, if the co-located load has backup power, it should be allowed to offer that power to the grid, subject, of course, to state and environmental permitting rules. Third, co-located load should pay its fair share of grid costs for what it uses. These issues should be brought together and advanced at FERC. Frankly, I think part of the issue with the ISA proceeding is that it did not bring these issues together and understandably some of the commissioners want to see the complete package. We will pursue this regulatory clarity while simultaneously pursuing commercial strategies for co-location that are permitted under existing rules. Now turning to our results and guidance updates, in the third quarter, Our 14,000-person team here at Constellation delivered gap earnings of $3.82 per share and adjusted operating earnings of $2.74 per share. Due to this strong performance, we are raising and narrowing our adjusted operating earnings guidance for the full year to $8 to $8.40 per share. This brings our midpoint to $8.20 per share, a whopping $0.60 cents per share above our original guidance midpoint, and we remain bullish on the balance of the year. Our core value proposition is strong, and our strategy remains on track. We will grow our base EPS by at least 13% through 2030, growth that is backstopped by nuclear production tax credits. We have the best operated and largest fleet of carbon-free, reliable nuclear plants that run 24-7, and we will be needed by the energy system for decades to come. These assets will benefit from both increasing demand for carbon-free electricity and reliable power. Through our industry-leading CNI business, we provide the innovative products and services our customers want. our strong investment grade balance sheet, along with strong free cash flows that can continue to be used for growth, meet our threshold, and provide valuable opportunities for you, our owners. And finally, as you've seen this year, we have the ability to do better than our base level of earnings through multiple paths, including optimizing our portfolio and getting better than average margins. It's been an incredible three years for Constellation, a remarkable journey that perhaps is best epitomized by the restart of the Crane Clean Energy Center that we announced in September. Crane validates three points that we have discussed many times before. First, it's a powerful symbol of the rebirth of nuclear energy, and it happens at a location that once came to represent nuclear energy's demise. Second, it confirms our thesis that the most valuable energy commodity in the world today is clean and reliable electricity. And third, it underscores the growing demand for 24-7 clean energy driven by the data economy, onshoring, and electrification. All of these macro points benefit our owners. We have talked about them before, and I don't think we need to talk about them much more because by now these points have become self-evident. In addition to Crane, we have at least 1,000 megawatts of additional nuclear generation that we could bring onto the grid through upgrades. And I'm pleased to report to you that we are seeing a wave of interest from customers all who are interested in these opportunities and in our relicensing, and we are making significant progress on contracting. The intensity of our negotiations with hyperscalers and others keeps going up and up. Our entire team is focused on executing transactions and supporting data center development anywhere in PJM. Now, I want to emphasize the word anywhere. Recall that when Microsoft announced the crane offtake agreement, they explained that their agreement with Constellation enables them to use the energy in four different states, not just Pennsylvania. That should tell you that Constellation easily can structure transactions to sell energy, capacity, and sustainability products to data economy customers anywhere in PJM, and in some cases, outside of PJM. And we can make those fixed price deals for as long as our counterparties desire. That's pretty unique to us. The governors in the states where we operate clean energy centers certainly understand the national security imperative and the value of economic development in their states. They want us to use the clean energy in their states, and we want that too. But we will follow the customers to all utilities and regions that are working with us to advance economic development and meet the vital national security needs of the nation. So as we look forward to the inevitable regulatory certainty and flexibility on co-location that Chairman Phillips emphasized in his dissent, Constellation is continuing to hit on all cylinders on co-location opportunities, grid sales, and in delivering new MiG-1s to the grid at attractive prices. We are proud that no one, No one is doing more to sustain and increase clean and reliable energy for America than Constellation. And we continue to lead research on new nuclear energy designs, such as SMRs, and for natural gas with sequestration. Our partnership with Rolls-Royce Nuclear is advancing a very promising SMR design, and we are working with other SMR developers as well. Our pioneering investment in net power is poised to undergo advanced engineering tests at our facility in LaPorte, Texas. And we're partnering with GE on engineering tests and a pre-feed study for CCUS at Colorado Bend. As I've said to you many times before, natural gas is a big part of our bridging strategy. And we continue to be a player in natural gas, provided we have a real pathway to sustainability. Because while powering the data economy is vital to our nation, defeating the climate crisis is vital to the world. In conclusion, our people are leading on all fronts. The 13% compounded growth that we've committed to you through the end of the decade is secure. And we're very confident that we will outperform this target as we layer in new opportunities just as you have seen us continuously outperform quarter to quarter and year to year. Turning slide sets. Nuclear performance was once again strong. We produced more than 41 million megawatt hours of a reliable, available, and carbon-free generation from our nuclear plants with a capacity factor of 95%. Our refueling outage performance was exceptional during the quarter. We completed two refueling outages during the quarter with each lasting less than 18 days on average. Great job to Brian Hanson, David Rhodes, and that team. For the year, our average is under 20 days. Tracking two days are almost 10% below our historical averages and well below the industry average of 40 days. Our renewables and natural gas fleet similarly performed very well with 96% renewable energy capture and 98.2% power dispatch matching. Turning to slide seven, we talk a lot about the advantage of creating value between our best-in-class generation fleet and our exceptional commercial business. Our results this year are further proof of the strategic advantages of the combination of these businesses. This is an area where the numbers, not the words, do most of the talking, and you can see from the numbers just how spectacularly the commercial team has performed. We perform so well because our customer business is meeting demand in many ways, including through our Core Plus and CFE products, where we enable new renewable generation to be built and carbon-free electricity to be shared with our customers. Since 2020, our Core Plus business has grown by leaps and bounds as customers look for products to help them meet their energy and sustainability goals. As I mentioned before, through this product, 2,800 megawatts of wind and solar have been added to the system, helping to meet not only our customers' needs, but the system's needs. We think Core Plus is a great way for customers to move forward on their sustainability efforts, and it's a complementary pathway to our elite CFE product that provides 24-7 time and geographically matched clean energy. I'm now going to turn the call over to Dan for the financial update. Dan?