Talen Energy Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Talent Energy Corporation's second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Ellen Liu, Senior Director, Investor Relations. Please go ahead.

Thanks, Michelle. Welcome to Talent Energy's second quarter 2024 conference call. Participating on today's call are Chief Executive Officer Mack McFarland and Chief Financial Officer Terry Nutt. They are joined by other TALEN senior executives to address questions during the second part of today's call as necessary. We issued our earnings release this morning, along with the presentation, all of which can be found in the investor relations section of TALEN's website, www.talenenergy.com. Today, we are making some forward-looking statements based on current expectations and assumptions. Actual results could differ due to risk factors and other considerations described in our financial disclosures and other SEC filings. Today's discussion also includes references to certain non-GAAP financial measures. We have provided information reconciling our non-GAAP measures to the most directly comparable GAAP measures in our earnings release and the appendix of our presentation. With that, I will now turn the call over to Matt.

Great. Thank you, Ellen. Good morning, everyone. and thank you for joining us. Before we get into our earnings results and presentation, I'd like to comment on the challenges and opportunities facing our industry as we meet the growing electrification needs of the AI economy. At Talon, we have come up with one creative cost-effective solution by co-locating a one gigawatt AWS data center campus next to our Susquehanna nuclear plant. Everyone seems interested in our efforts. Our colleagues in the IPP space, regulated utilities, and RTOs. And the issue now sits at BERC's doorstep, where it plans to hold a technical conference on the broader issues this fall. In the investment community, our deal created excitement about increased demand and incremental value creation across the entire power sector, attracting new investors. And I'll admit it is one of the most exciting times I've seen in my power career. It will drive unprecedented change in our industry change that will yield great opportunity. The focus has now turned to the question, how will the value creation get shared across companies? The recent high PJM capacity auction prices, coupled with this new demand, have caused people to discuss the repeal of deregulation, RTOs coming apart, states separating from PJM, and to engage in other comments and distracting discussions. These ideas are misguided and miss the point that PJM has been a highly successful competitive market, keeping prices relatively low and providing reliable electricity and bringing to market nearly 60 gigawatts of new build capacity in the past two decades. This rhetoric creates uncertainty, which, if allowed to persist, chills investment and job creation at a moment in time when we all have an exciting new demand to serve. They also missed the point that the opportunity here is so large that regulated companies, T&D companies, and generators will all participate in the value creation and, in fact, are all necessary for the solution. I typically agree with the saying, where you stand depends on where you sit. However, I think at this time we all sit in the same place. As I see it, it is a win-win for everyone if we can get it right. the IPPs, T&Ds, as well as the customers in the region we serve who will benefit from increased reliability, lower cost, and much needed economic development. This is an opportunity for us as an industry to lead. Everyone's talking about 15 gigawatts of backlog here, five gigawatts of backlog there, and so on with respect to data centers. While these estimates seem large, the customer need is really large and a matter of when, and to some extent where, but not if. How will we as an industry rise to the occasion to meet the challenge of electrifying the future? You've heard me discuss it before. The big four hyperscalers have a 2024 CapEx budget of nearly $250 billion, and those estimates have been rising. And they're on a pace to spend over a trillion dollars by 2028. And you can reach a similar conclusion if you look at chip maker production forecasts. Electrifying that growth in data center demand will challenge the industry to deploy capital for new generation and transmission enhancements in the billions of dollars for every gigawatt of data center capacity when the existing capacity on the grid is insufficient. The generators cannot do it alone, and the T&Ds cannot do it alone. One forecast of data center growth totals 60 gigawatts of capacity by the end of this decade nationally, with nearly 15 gigawatts of that being in PJM. That means we as an industry will need to deploy hundreds of billions of dollars to meet this need. This will mean an opportunity for generation developers and significant rate-based growth for T&D companies alike. If we can bring these solutions to the customers and meet the needs of the AI economy, we can help drive economic development for the states we operate in. For every gigawatt of data centers built, Direct investment is roughly $10 billion, and the total economic impact is a multiple of two to three times that when you add the ancillary jobs and investment created. So we really should think about this as a $20 to $30 billion of economic development for every gigawatt of data center investment. This is a big economic opportunity for those who get it right. Housing, schools, services, jobs. It's no wonder the labor leaders I talk to are highly supportive. And I am optimistic we can get it right. Turning to our specific deal with AWS, when we announced our deal, we did not kid ourselves. We knew we had a solution, one that was quick to market, cost-effective, and reliable. But we also recognized that it is not the only solution. Our behind-the-meter Direct Connect solution is just one innovative way to solve but one gigawatt of the challenge. Many others will have to follow, and the next evolution will need to be balanced, balanced in its form of supply for customers behind the meter, front of the meter, and whatever creative solution can be developed, balanced in terms of the appropriate cost sharing, protecting residential rates, and maintaining grid reliability. Our one deal brings hundreds of jobs and tens of billions of dollars of economic development to the state of Pennsylvania, and importantly for us, the greater Berwick area. Our one deal matters because data centers form in multi-site clusters, so we hope that proving one working model in Pennsylvania is a sign of good things to come for further build-out. While our ISA has been the subject of much debate, we remain optimistic that FERC will approve the filed amendments once PJM responds to FERC's question and the Commission has had time to fully review. We look forward to participating in the technical conference this fall, and I am confident that as an industry we can meet the challenges in front of us, seize the opportunity to power the AI economy, and do it swiftly so that we can bring about the economic benefits and investment capital to PJM, Pennsylvania, and the entire U.S. I'd like to quickly mention our RMR proceedings at Brandon and Wagner. After the recent PJM capacity auction results, people have asked us if we're going to change course from the RMR process. Said simply, no, that's not how it works and it's more complicated than that. So as long as we are paid a fair rate, we are committed to the RMR process and are working with stakeholders in settlement discussions before FERC to try to reach an agreed upon rate that will allow us to stay online. That said, we are willing to consider repowering the site and potentially adding batteries under the right circumstances. This could make sense and could potentially eliminate costly transmission upgrades. We look forward to continuing the process and finding a solution, as I said, with all stakeholders. I look forward to your questions on these important matters and will now turn to our key highlights for this earnings call. So starting with slide three, Talon has had an active second quarter. I'd like to highlight several of our achievements. One overarching theme is the increasingly visible impact of rising power demand through higher prices in both energy and capacity markets. In the second quarter, our fleet ran well during periods of unusually high temperatures and demand in PJM, enabling us to capture healthy generation margin. As our gas fleet ran significantly more than it did in Q2 of last year, demonstrating the value of dispatchable generation in a rising power market. Given our solid first half performance, we are raising our 2024 adjusted EBITDA and adjusted free cash flow guidance ranges. and the representative midpoints. With respect to the recent PJM auction, our fleet cleared 6.8 gigawatts of capacity at roughly $270 per megawatt day in the 2526 auction compared to $50 per megawatt day in the prior planning year. This equals $600 million in capacity revenues for the 2526 planning year. AWS continues to make progress on its data center campus near Susquehanna. The local township recently granted AWS a zoning amendment that will allow the construction and operation of 960 megawatts of data centers. And in Q3, we expect to receive the $300 million of sale proceeds currently in escrow. Additionally, we reached another strategic milestone by listing on the NASDAQ exchange on July 10th, which in turn improved the trading liquidity of our equity enabled greater access for more investors, and made us eligible for major indices. We are proud of the value that we have unlocked and believe there's more opportunities for value creation to come, especially in the current market backdrop. So please join us at our Investor Day in New York on September 5th. I'll now turn the call over to Terry for further details.