Constellation Energy Corporation

Good morning, 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 Initiatives. You may begin.

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

Thanks, Tanya and Emily, for getting us started. Good morning, everyone. Thanks for joining our call and for your interest in Constellation. I know it's a busy time with all these earnings calls going on around the same time, and you guys are hopping from call to call. We appreciate your interest in what we're doing here. Last but not least, I want to thank our team here at Constellation for delivering another strong operational and financial quarter. You know, we always say this. People are the backbone of our success here. I'm really proud of the culture we have built together. It requires constant work and attention, and we're never perfect at it. But our leaders are all over it. They work at it every day. And that's why I'm especially thrilled to start the call by telling you that for the third year in a row, we've been recertified as a great place to work. Now, I've talked about this before. This is the only certification you get – based on the input from your own folks. And when you think about them as customers, as the servant leaders we want to be, getting that feedback and their appreciation for what we're trying to do is everything to me. Now turning to the quarter and our financial results, we delivered second quarter gap earnings of $2.67 per share and adjusted operating earnings of $1.91 per share, improving on last year's second quarter performance. As always, Dan's here, and he'll walk through the details. Now, as you'll recall, last quarter we were a bit frustrated by our inability to be in the market buying back shares due to where we were in the meta Clinton deal process. In fact, to let you in on it, I think we were thinking it was a horse race as to whether we were going to get the call in before the announcement or vice versa. Now, since the meta announcement, we have executed 400 million in accelerated repurchases. And like the others we've done, these stock repurchases continue to generate a wonderful return. With long-term contracts like our Meta and Microsoft deals now becoming an ordinary part of our strategy and a normal course of our business, and hopefully you think we're good at it, we don't have to pause stock repurchases. And to be crystal clear, you shouldn't assume anything about the timing of any new transaction from whether or not we're in the market purchasing shares. Outside of our strong financial performance, it's been an exciting time for the company since we last met. We saw the big beautiful bill signed into law, preserving and actually strengthening the nuclear provisions and serving as a continued demonstration of the unique and strong support for nuclear across party lines. We announced that we were bringing the restart of the Crane Clean Energy Center forward into the second half of 2027. I remember when we talked about that, people were skeptical that we would restart in 2028. They were right to be skeptical. We're going to start it in 2027. We received New York, Texas, and FERC approvals for the Calpine acquisition, and we remain on track to close by the end of the year. And as we just discussed, we announced a 20-year power purchase agreement with META for the offtake of Clinton Clean Energy Center to help them meet their clean energy needs. This transaction is a big win for everyone. The PPA ensures that over 1,100 megawatts of emissions-free nuclear energy will be around for decades to come. And it actually allows us to make investments to increase the output and bring even more megawatts to the grid in southern Illinois. at a critical moment for America. Meta made this happen. We love the partnership, and I'm hopeful we can continue that partnership. Beyond the Clinton transaction, we continue to make very good progress with customers to reach additional agreements to sell our clean, reliable, and available megawatts from our nuclear plants. Now, look, this is always going to be the part of the call where we get questions. Inevitably, of course, you want to know exactly where we are, every deal and inevitably of course I'm going to tell you that we can't comment on deals until they're done and even that we're going to keep some of the terms confidential so let me try to guide you here with as much as I can say first for those of you who are fond of the baseball analogy to describe progress I would simply say that we're in the late innings on one transaction we're past the seventh inning stretch we've sung take me out to the ballpark on that one And I'd say we're in the middle to early innings on other transactions. But most importantly, from my perspective, we're seeing a continued acceleration of interest from a growing number of entities. The second thing that I'd like you to remember here is that sometimes you have the pricing and the deal terms done, but you need other things to enable a transaction. Specifically, in the case of front-of-the-meter deals, interconnection work with the utilities. So if you want to connect the dots here, I think on one transaction, we are well on the way to being done, but are waiting for some inputs from utilities. As we said from the start of the company, clean and reliable megawatts are the most important energy commodity in the world today. The many customers we engage with every day believe the same thing. And that gives us great confidence that we'll be able to continue to transact, whether that be front of the meter or in co-located configurations. When we announced the Calpine acquisition, we talked about the importance of natural gas's role in the data economy and the reliability of the system. Notably in this regard, we were pleased to see Calpine's announcement supporting a 190 megawatt data center near the Thad Hill Energy Center in Bosque County. We expect to see more of these transactions in the future across the industry, and with respect to Calpine, we think the combination of gas and nuclear gives us a huge competitive advantage. It allows us to provide a differentiated product that combines fast and reliable interconnection at both nuclear and gas sites, and the benefits of being able to provide clean and reliable energy product to our customers. cleaning energy that is priced at a visible rate for 20 years or more if the customer desires it. That's a big deal. Now, let me shift gears a bit. Justifiably, given its scale, we talk a lot about data center customers, but you've got to remember here that many of our businesses value and buy clean nuclear, and that continues to accelerate. This quarter, I'm pleased to announce a significant new carbon-free energy transaction with Comcast. a company that's been a wonderful partner to Constellation for many years. As part of it, Comcast will be supporting upgrades. So again here in this deal, we see a connection between private customer agreements and our country's objectives of preserving and growing clean and reliable energy. And finally, as we've talked about before, we see interest from governments. The interest was shown to you with the GSA deal. And while many of you have been grinding through industry calls this week and the last week, you might've missed that the New York department of public service staff released an important white paper calling for a 20 year extension of the ZEC program in New York that covers over 3000 of our megawatts. In New York, the staff concluded that it's essential that nuclear be preserved to meet its clean energy goals and our facilities be relicensed. You remember that New York was the first state to have a policy to support existing nuclear plants, understanding their importance as clean, firm, and reliable. Extending the ZEC program ensures that these plants will be there to support New York for decades to come. We commend the paper to your reading. As I said, it's been an incredibly exciting quarter here at Constellation, and in many respects, it's been a historically important quarter. It's a quarter where you see everything we have told you now coming to pass. The customer and bipartisan political support for nuclear getting the big, beautiful bill behind us is just huge. Constellation's ability to execute deals has been demonstrated, the importance of reliable Natural gas to both the data economy and to America supporting our cow pine deal is more evident now than ever. Our continued ability to grow organically and inorganically through M&A, and most importantly, the strength of Constellation's commercial and operational performance. And that's, of course, the foundation for everything we do and why I always start out the calls thanking our great team here. Let me turn to slide six. The passage of one big, beautiful bill was an undisputed win for nuclear power. Now, remember here, it was passed by all Republicans, and it preserved and actually expanded the nuclear credits from the Inflation Reduction Act, a bill that was passed by all Democrats. So it's one of the only things the two bills have in common is that it supports existing and new nuclear plants. There's a lot of things we have a hard time agreeing on as a country. And like you, I wish we could find more, but one thing is clear. The benefits of nuclear energy for families, for local communities, for states and the economy as a whole is something that we all can agree on. And I'd like to thank President Trump and the political leaders on both sides of the aisle for acting to preserve and advance nuclear power in this country. The bill maintains the critical 45U production tax credits for existing facilities through 2032, and it gives us great confidence that those tax credits will be renewed going into the future. It also preserves the 45Y clean energy tax credit for new nuclear and upgrades, providing the full credit for projects that begin construction into 2033. and partial credit through 2035 recognizing that new nuclear will take some time to get going in addition it adds a new nuclear energy community bonus of 10 on top of the 45 y credit we expect the crane clean energy center as well as every one of our upright projects to qualify for this 10 bonus Finally, the bill also extended the tax provisions that were set to expire with the Tax Cuts and Jobs Act of 2017. And I'll let Dan talk about these additional and significant positive impacts for us. Support of nuclear from the administration did not stop, as you know, with the legislation. I was very pleased on behalf of the industry to join President Trump in the Oval Office when he signed the executive orders that signaled full support and a clear intention by his administration that they want to preserve and expand nuclear power because it's vital to the economic and national security of the United States. The nuclear EOs rightly focus on common sense initiatives to expand the existing fleet with fast-track licensing, increased domestic conversion and enrichment, and accelerate the deployment of new reactors, all while maintaining the NRC's track record of being a responsible regulator that places safety at the top of every consideration. And this administration, like many policymakers on both sides of the aisle, knows that American energy is critical to winning the AI race against China. The AI action plan unveiled in July calls for streamlining permitting of data centers and energy infrastructure and developing a grid that could match the pace of AI innovation. We're going to be at the heart of that. But it's not just Republicans who are taking actions to support nuclear, both new and existing. At the end of June, in addition to supporting the continuation of the ZEK program through 2049, which we just talked about, New York Governor Hochul called for building one gigawatt of nuclear in upstate New York, to support a reliable and affordable electric grid while providing the necessary zero emission to achieve a clean energy economy. This follows our work at Nine Mile Point on an early site permit. And as I've said to all of you before, I think one of the unique advantages we have here at Constellation is the real estate that we own around our existing plants because it just makes sense to us that when we build out new nuclear, we're gonna build it out in communities that already have all of the infrastructure and the enormous support for the existing plants, and most importantly, a talented workforce that could operate the new nuclear units. We're excited to participate. We know it's early innings on this work, but I think it is going to be a signpost for other states, and I'm excited for the opportunities to expand nuclear in places like Maryland, Illinois, Texas, and Pennsylvania. To sum this all up, while political and customer sentiment doesn't always follow logic and facts, in this case it clearly does. Firm, clean, reliable nuclear power is the most important energy commodity in the world today, and through Constellation, you, our owners, have more of it than anyone. We will do great things together for America. Turning to slide 7. I want to talk a little bit about the PJM capacity auction and what we see going forward. First, before I talk about future auctions, I think it's time to level set a little bit on the past. There's a narrative that's been building up that data centers are entirely responsible for prices going up. You've got to remember here that that narrative is false. Certainly, there's been a rise in demand driven by the growth in the data economy. by things like vehicle electrification, by general economic growth, and the re-industrialization of America as our nation pursues its America First strategy. All of these things are cumulatively increasing demand and prices will rise through simple supply and demand economics. But the principal reason that we saw a step change in the PJM capacity price is because FERC ordered changes to the PJM market that were absolutely necessary to address reliability gaps. Why were those changes needed? Well, remember, those changes were needed because the market design that we used to have pretended that we live in a fairy tale land where all megawatts had equal reliability, equal to nuclear. When the analytical evidence screamed at us for many years that some forms of generation are simply more reliable than others. It took longer to effectuate the changes than it should have, and the delayed auctions added to the uncertainty. But the design work is completed and the market is working. Already in this last auction, the market cleared 2,700 megawatts of new and uprated generation capacity on what was a really short turnaround since the last auction. bringing in more supply to support the growing demand. And through PJM's RRI process, which Governor Shapiro and Constellation and many others supported, we know that more than 9 gigawatts of new firm reliable supply will come online by 2032. In addition, we saw more than 300 megawatts of generation participate in the auction rather than retire. We were happy to support the consumer protection price cap championed by Governor Shapiro, and it worked. It starts to stabilize prices so that we could step in to the higher prices that were inevitable as a result of the design changes that FERC has made. And we think that will continue to work to help customers transition. It's important because we understand the focus on customer costs, especially residential customers. But Again, let's put this all in context, starting with the critical fact that generation costs have actually declined 38% from where they were from 2010 to 2024. This compares very favorably to transmission and distribution costs, which have not declined, but instead have risen 290%. and 57% respectively. And electric wires costs are not alone. Water, sewer, and trash is up 77% on average. Car insurance, which we all pay for, at least should, is up 125%. We appreciate the impact on everyone's pocketbook, and we will do what we can to mitigate these things. But the competitive generation market has been a remarkable story, particularly in comparison to other aspects of the energy ecosystem. And Constellation is doing more than anyone to meet its part to deliver the reliability that is needed for America. We're investing billions of dollars to restart, uprate, and extend the lives of nuclear generation. We had more than one gig watt approved through the RRI process, including Crane, and the Byron and Braidwood upgrades. We're bringing crane online earlier than planned, moving it up to the second half of 2027 with the aim to try to get it in the capacity auction for the period that begins June 1st, 2027. We still got some work to do there, but I'm hopeful we could get there. We have three large upgrades that we are completing engineering work on. totaling nearly 900 megawatts that we could bring on Atlas South, Calvert, and Limerick with adequate customer support. And last week, we announced our collaboration with GridBeyond to use AI to help our customers reduce peak energy use. This program will offer customers the opportunity to cut energy costs and unlock new revenue streams while helping the market maintain system reliability as we respond to growth. Reducing peak demand by only a small amount, 25% or 22 hours a year, would allow 76 gigawatts of new demand to be absorbed. That's the most effective way to deal with the new demand. The latest auction results, once again, prove how markets, not monopolies, best work to attract enormous private investment. And we all see, any observer all sees the tremendous interest by so many parties to build generation in these markets. And private investment by these companies means that companies and not captive monopoly customers take the financial risk, the market risk, the technology risk, and the construction risk rather than saddling captive customers with the consequences of poor decisions for decades to come. We have no doubt how policymakers will view these issues. Turning to slide eight, in June I was incredibly proud to announce that the Crane Clean Energy Center will return faster and it was great to have Governor Shapiro at the event. To give you some follow-up details on that, we've secured the fuel, we've got all the major equipment, we're 70% staffed and we're walking through all aspects of the plan And quite frankly, we're just so confident in the team there because the plant was in such phenomenal condition when Brian and the team laid it up in 2017. To say I'm proud of all the work here has been an understatement. Before I turn it over to Dan, I want to touch briefly on the Cal Pine transaction. Details are here for you on slide nine. The more time we spend with the Cal Pine team, the more I'm excited about the combination of the talented people in both companies. We've received three of the necessary approvals and we're working with the Department of Justice on a second request for data. And hopefully it puts us on a track to complete the work with the department and have this transaction close by the end of the year. The sooner we could get it closed, the sooner we could offer American families and businesses the unique capabilities of the combination of these businesses. And I'm super proud of the regulatory team that has worked to get the three approvals we've gotten, and I'm hopeful that we will get the last one here shortly. With that, let me flip it over to Dan, and then I'll have some closing comments after Dan, and we'll finally take your questions.