Talen Energy Corporation

Good morning and welcome to the Talent Energy Corporation Quarter 2 2025 earnings call. I am Franz and I'll be the operator assisting you today. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session and if you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your questions, press star 1 again. Thank you. I would now like to turn the call over to Sergio Castro. Please go ahead.

Thank you, Franz. Welcome to Talent Energy's 2nd Quarter 2025 conference call. Speaking today, our Chief Executive Officer Mack McFarland and Chief Financial Officer Terry Nutt. They are joined by other talent 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 Talent's website, talentenergy.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 Mack.

Thank you, Sergio, and welcome everyone to our early morning call here. As always, we appreciate your continued interest in Talent Energy. It is shaping up to be quite a year in the IPP space, and we don't foresee things changing anytime soon. Thematically, all remains the same. AI continues to drive data center growth, and in fact, the hyperscalers continue to increase their capex plans year over year and quarter over quarter. Power markets continue to show signs of things getting tighter, driven by demand, and this includes both AEP and PPL increasing their backlog from data centers this quarter to new highs. And we believe there is more opportunity for talent to create value in this environment. That said, this is going to be a relatively routine earnings call for the second quarter, as we have had a flurry of activity recently behind us. In the second quarter, turning to slide two, we delivered adjusted EBITDA of $90 million and an adjusted free cash flow use of $78 million, which reflects the extended outage at Susquehanna. While we prefer to have our maintenance outages at Susquehanna or any of our fossil fleet units completely scripted down to hourly activity, we do account for discovery. And the work we discovered at Susquehanna enabled us to get increased megawatts out of Unit 2, and in fact, we are seeing 75 megawatts plus already. We will use what we have learned during this outage and incorporate similar work into next spring's Unit 1 outage, where we expect to extend the outage, but shorten the overall timeframe versus this spring, because now we can plan ahead, and we believe we will find similar levels of megawatt recovery. On June 11, we expanded and revamped our agreement with Amazon to a -the-meter arrangement for a total of 1.9 gigawatts, doubling the size of the original contract and eliminating regulatory uncertainty, a win for both us and AWS. And the collaboration between us continues to advance as the campus construction ramps up. As a subsequent event, we entered into agreements to purchase the Freedom Energy Center and Guernsey Power Plant, adding low-carbon, highly efficient CCGTs to our fleet and expanding our capability to serve large loads and enter into long-term contracts. Not to mention that these plants will add over 40% free cash flow per share accretion in 2016 and more than 50% for the following two years on a mostly merchant basis. Mostly merchant because the acquisition comes with a small hedge book and existing gas contracts. We are excited about adding these assets to our portfolio. We have filed FERC 203 applications for both plants, and we have filed requisite HSR filings as of today and are targeting close by the end of the year. As you may recall from our September Investor Day, our earnings in the second half of 2025 will be higher because they include three important factors. First, the 2025-26 capacity pricing. Second, the RMR impacts of our Brand and Shores and Wagner plants, which underscore our commitment to support grid reliability in Maryland. And third, the ramp up of the AWS contract. Terry will walk through this in more detail in a few minutes. With half of the year behind us, we are reaffirming 25 guidance. We will provide a further update on 2026 and our 2728 outlook at our investor update on September 9th. We are switching from an in-person meeting to a virtual for this event. And just to align expectations, we intend to provide guidance and outlooks taking into consideration the new plants and the recent tax benefit changes. You shouldn't expect some big deal announcement at this event. As you know, we don't work that way. That said, don't take my prior comments out of context. We are relentlessly and continuously focused on execution, and you'll be the first to know when we add to the Talon flywheel. Lastly, we were added to two Russell Equity Indices in June, driving passive fund demand for our stock and continued shareholder rotation. I am proud of what the team has accomplished to date while setting the stage for additional long-term value creation. As always, none of this is possible without the hard work of every employee at Talon. So I'd like to thank them for powering the future at Talon. I'll now turn the call over to Terry.

Thank you, Matt. And good morning, everyone. Turning now to our most recent announcement, the strategic acquisition of the Freedom and Guarantee Generation Plan. As we stated a few weeks ago, we are excited about the acquisition of these assets and believe the transactions provide several key additions to Talon. The acquisition will increase our generating capacity by roughly 3 gigawatts in core PJM markets and complements our existing commercial and marketing capabilities, while also providing earnings and cash flow diversification for the business. The assets are well positioned in a number of ways. First, the plants occupy a valuable position in the overall supply stack and are among the newest and lowest heat rate plants in PJM and include over 300 megawatts of duct firing capability. Second, Freedom and Guarantee are well positioned for fuel supply, with the plant sitting in two of the most prolific natural gas formations in the U.S., the Marcellus and Utica, providing ample natural gas supply and reliable access to pipeline infrastructure. Third, these plants are located in some of the fastest growing data center markets in the U.S., Pennsylvania and Ohio. Freedom is located only three miles from Susquehanna and the AWS campus, while Guarantee gives us access to the Columbus, Ohio data center market. Ohio has a well established data center market with an existing and significant hyperscalar presence that continues to grow, as evidenced by AEP's recent update of 9 gigawatts of large load demand growth by 2029. And we believe our core capabilities and strategy translate well into this market. Turning to slide four, in June 2025, we entered into a new PPA with AWS, expanding the existing nuclear energy relationship. The existing Susquehanna co-located load arrangement between town and Amazon will transition to a front of the meter arrangement after the completion of transmission reconfiguration expected in the spring of 2026, concurrent with Susquehanna's annual refueling outage. Another feature of the deal that we think is key is that the arrangement provides flexibility to deliver power to other Amazon sites across Pennsylvania. At the full contract quantity, town is expected to provide AWS with 1920 megawatts of carbon free nuclear power from Susquehanna through 2042 for operations that support AI and other cloud technologies. Looking at the campus today, AWS continues to build. We're delivering electrons and receiving dollars. Turning to slide five, we continue to see strong energy fundamentals in the PJM market, further supported by the most recent capacity options. Compared to the prior year, peak summer heat and demand are driving steady increases in forward summer spark spread. Recently, we've experienced several PJM max generation alert events. Overall, Q2 2025 weather was cooler than the same period in 2024 as measured by cooling degree days, but average electricity demand remained flat. We believe that this is a sign of demand growth in the market and expect this trend to continue. Moving to slide six, let's look at our year to date financial and operating results.

Our

team continues to deliver from an operational perspective. Our fleet ran well during the periods of high demand in Q2, demonstrating the value of a dispatchable fleet and generating 17 terawatt hours with an equivalent forced outage factor of 1.8%. We had a busy year so far of maintenance outages and high demand across the system, and our team in the field continues their relentless effort to maintain and operate the fleet. The commitment of the team to operate in a safe and reliable manner is an important part of Talon's value proposition. Now turning to financial results for the second quarter of 2025. Talon's reporting adjusted EBITDA of $90 million and an adjusted free cash flow use of $78 million. Our largest recurring maintenance project is the annual spring refueling outage at Susquehanna. The incremental maintenance investment during the extended outage this year was approximately $30 million for the spring, along with approximately 30 days of additional outage time. As we mentioned before, we expect a payback period of less than two years on this investment. Adjusted free cash flow for the quarter was also impacted by the incremental interest on the term loan B that we issued at the end of last year. As Matt mentioned earlier, starting on June 1st, our earnings now include the higher 2025-2026 PJM capacity pricing of approximately $270 per megawatt day and the impacts of the reliability must run arrangements. Now moving to guidance on slide 8. As Matt noted earlier today, we are reaffirming our previously announced 2025 guidance arrangements. We continue to remain committed to returning capital to shareholders and have repurchased approximately 23% of our outstanding shares for approximately $2 billion at an average price of around $150 per share, creating significant value for Talon. That's all since the start of 2024. We have approximately $1 billion in buyback capacity remaining through year in 2026 and are targeting $500 million of annual share repurchases during the post-acquisition deleveraging period. Once we reach our targeted leverage of three and a half times or less, we intend to return 70% of capital back to shareholders on a significantly higher free cash flow base. Turning slide 10. As of August 4th, our forecasted net leverage ratio was approximately 2.7 times, well below our target. In addition, we have approximately $861 million of liquidity with over $161 million of cash on the balance sheet and the full availability of our revolver. After our initial financing of the Freedom and Guarantee Acquisition, we'll be focusing on debt pay down in order to reach our targeted net leverage ratio by the end of 26, while also targeting $500 million of share repurchase. With that, I'll hand the discussion back to Matt.

Great, thanks, Terry. Slide 11 has our upcoming events and we hope to see you at several of these events in the future. Let me conclude with this before opening the line. It continues to be a great time to be in the IPP space. It's very exciting and we think that will continue through the end of the decade. Over the past several years, we've positioned talent well to create value in the next years ahead. We look forward to continue to executing, focusing on free cash flow per share growth, de-risking our cash flows through our contracting strategy, and maintaining the balance sheet and shareholder discipline we have demonstrated for the past two years. We appreciate everyone's interest and talent for joining us on the call today. With that, we'll turn it back to the operator and open the line for questions.

And we will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to join the queue. Again, if you would like to withdraw your question, simply press star 1 again. If you called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Just a reminder, we ask that you please limit yourself to one question and one follow-up only. And after that, you can just simply join the queue again. And as for now, your first question comes from the line of Nick Campanella from Barclays, USA. Please go ahead.

All right. Hey, good morning. Thanks for keeping the headlines quiet today.

Morning, Nick.

Hey, so you just kind of talked about some of the Succulhanna work you're doing, and it sounds like you have an extra 75 megawatts coming in at Unit 2, the potential for the same at Unit 1, I think. So can you just remind us, should we be thinking about like unallocated nameplate now going to 450 or how should we think about that?

Yeah, well, first, Nick,

maybe just to address your first comment, we don't like keeping things quiet, but I think we've had a flurry of activity behind us. So it is a little bit of a quiet quarter for us here on the earnings call. But with respect to the nuclear unit, when you think about the 75 megawatts that we're seeing on Unit 2, and I said similar. So don't take that as fully 75 on Unit 1. That's relative. That's all it has to be relative to some number. And when we think about it, when we go from maintenance outage or refueling outage, refueling outage over a two year cycle, there is degradation that happens because tolerances loosen up. You have steam that starts to bypass things of that nature. Okay. And that's typically you see that and you see that in five, 10, 20 type megawatts over time. You see that in the fossil units too. And you go back in and you re-tighten up the unit. Here we found incremental. We had been seeing as a result of the upgrades that occurred 10 years ago, we had started to see some degradation and the extraction steam system around the turbine, not the turbine. We started to see some leaking there in the way that the steam flowed. And so we went and tightened that back up and got back to where we were previously. So I wouldn't say it's necessarily that it's incremental megawatts. Now we're working through, would we be able to go back and look at where we are with our capacity injection rights, what we are able to offer into the capacity auction, et cetera. But I wouldn't necessarily see this as an upgrade. This is sort of maintaining the system and getting back. It's just that when you look at the capital versus the recovery of putting in to get these megawatts back, you could have essentially allowed some of this bypass to occur. But because we decided to tighten things up, we get megawatts back. And that's what the payback period is. You know, we've said is around two years or less. So it depends on where you're relative. I wouldn't add it to the nameplate capacity. It just wouldn't do that. That's not how it works. It's just that you're always trying to keep yourself right there at that point. This helps us get back to that point.

Okay, noted. That's really helpful. I appreciate that. And then just on the share repurchase, I think you did roughly 100 million year to date. Are you still on track to the 500 into year end here? And just any updated thoughts on the repurchase, especially with the stock rewriting how it has. Thanks.

Yeah, so, so two things, I hand this over to Terry. First of all, by the way, we are looking at what are the potentials to operate the units at Susquehanna. We've said we've committed to doing that and, you know, that plus exploring, you know, the SMR with AWS as part of the contract. So we're looking at that. And those would be cheap, upgrade megawatts. We don't have anything to give you on that right now because we want to make sure we do the engineering and the cost analysis and then give that to you. But we are exploring that. Second thing on the on the share repurchase, you know, roughly 100 million dollars. Your data, I think it's in the 80 something, but roughly 100 million dollars. I'll turn it over to Terry for the exact numbers. But like we were able to do that at a point in time. You know, I'm not going to try to position this as hiding behind MNPI, but we did have MNPI. We restructured the 2.0 contract. We bought Freedom and Guernsey and that limited our ability in the second quarter. So are we on track? I don't know if you if you if you if you did it pro rata, we should be at 250 out of 500, but we've done 100. We're committed to returning capital to shareholders were there to be supportive of the equity. And that is our commitment. Terry, anything you want to add?

Yeah, no, I would just add Nick that that obviously is part of the Freedom and Guernsey acquisition. We had we plan to finance it entirely by death. And so we'll take on that incremental leverage. And when we take a look at that incremental leverage and what we intend to do from a leveraging standpoint, we show 500 million dollars of share repurchases that we would execute through the end of 26 during that leveraging period. But the bigger benefit comes after we get delevered and get, you know, and rotate our net leverage back to below three and a half times. We have a higher cash higher free cash flow base that then we intend to take the same policy and same approach of using 70% of that to return capital shareholders. So that's how we'll that's how we'll move from a direction of travel

and still maintain that net leverage is less than three and a half times and get there by the targeting by the end of 26.

Yeah. Thanks. Okay, thank you. And your next question comes from Jeremy

from JP Morgan. Please go ahead.

Hi, good morning.

Morning, Jeremy. How are you doing?

Good. Good. Thanks. I just want to turn to the BRA if I could. And just wondering any updated thoughts you could share coming out of the P jam auction here regarding supply demand trends. And, you know, particularly in the light of your recent acquisition, just wondering any thoughts on those trends in the auction and how it impacts the acquisition as well.

Yes. So for the most recent auction, Jeremy, that cleared a couple of weeks ago, I think a couple of interesting pieces of information there. One, obviously the demand and the load growth we continue to see, we expect that you'll continue to see that in subsequent auctions. I think Mac mentioned this in the preparator marks. You did. We have seen a supply response about 2.7 gigs of additional generation that have come in, which quite frankly, in the last few auctions is something that when you think about a supply response, that's the largest response that we've seen in the last few auctions. But overall, we still see it as constructive. We still see sort of this continued trend as we move forward into December. And obviously we'll get when we get the next auction, we'll get the parameters here in the next month or so. And then obviously we'll have to take a look at those and sort of do our bottoms up fundamental view of, you know, how do we think those parameters impact what we see in December?

Yeah, I think Jeremy, just to add to what Terry said is when you look at the capacity markets, they're doing what they're supposed to be doing. They're sending a signal that says that the demand is growing. There needs to be a supply response. Obviously it was capped and this next auction will have a cap as well as well as the floor. And it would have cleared, you know, PJM says around 390 without the cap. And if you think about supply and demand fundamentals, you've got to send that market signal for people to buy. And we've got to get it longer dated. And we're committed to working on the capacity market reforms after this 2728. BRA gets run this December, you know, ahead of the May 28 29. Next year, May 26 will be for 2829. And it is working. The markets are working. If you look, I think that there will be, you know, there's talk about demand response. I think there will be demand response. I think that there will be supply response. There was a supply response as Terry said, there over two gigs in this most recent. I think you see announcements of development projects, whether it be shipping port or Homer city. I think you see other people talking about new CCGT's and ways to contract those new CCGT's with data centers to bring incremental megawatts to the grid. All of that, you know, basically says that the market just needs time to catch up and it is working. The signals are sending there. And, you know, look, it's proven to be advantageous to have the deregulated market for the consumers. If you look at energy and capacity prices over the last decade, they have been flat. I think there's been a lot of, you know, there's been a lot of discussion about the impact on consumers and things of that nature. And it's really just this temporal year over year issue that people say, well, the bills have gone up. But yes, but if you look over 10 years, bills have actually been flat on an energy and capacity basis, which means, and that's flat on a nominal basis, which means on a real basis, they've actually declined as a percentage of disposable income. And so it is deregulation and the restructured markets have provided the lowest cost to consumer. And that was the objective of going into the deregulated markets, you know, several decades ago. So we're at this point where the markets are sending a signal says that supply needs to come on. Demand is growing. And I think things are just are working and, you know, I applaud PGM for pushing through and getting these capacity auctions taken care of so that we can get back to, you know, a lot more foresight three years in advance in May of next year.

Got it. Yeah, no, that makes sense on the pricing trends there and maybe just continuing, I guess, with the broader attention on your path to generation here in Pennsylvania. How do you see your existing assets competing against initiatives like PPL's GenCo? I mean, certainly steel on the ground carries a lot of advantages there. But do you expect the Pennsylvania government's focus on new supplied impact how the market comes together there?

Yeah, I think there's always the push pull. But look, we had the ability to buy things at a discount to new build cost. And we think that that's advantage when it comes to being able to to contract those megawatts. And if things were to converge on new build, which is a lot of the discussion about, you know, bringing new build generation with a data center and a contract, we've always said we do that too. If you get the right returns, the right risk profile, et cetera, we said we contribute by building and we continue to explore, you know, and advance the permitting aspects and interconnections. Of our existing sites and thinking about how do we leverage our existing sites to do so? But I don't know that the market's necessarily there yet. You know, we've spoken a lot about sort of this. Five year, five year, five year, where the next five years are really about 20 to 40 hours, which is really a capacity issue where you'll see demand response. You'll see people invest more in the current assets that will solve that 20 to 40 hours a year. And then you're really talking about, you know, 2030, 32 through 35 being when I think CCGT's come in at new build costs that are being talked about above $2,000 a KW. And then the years 11 through 15 out there, that's when you start to see, hopefully, you know, I'm a big advocate. I think we're a big advocate of seeing nuclear come in. SMRs are the new generation of larger units come. But that's going to take time to get there. I know that the administration is pushing that and I think that's a good thing. I think that's a good thing for the US in general. But again, going back, we think we're advantaged by buying assets that are existing on the ground that can that we can continue to invest in. We think we're looking at redevelopment opportunities are existing site and under the right contracts. We would contribute that. And then again, like I mentioned earlier, we're looking at upgrading the nuclear plant. And we're also looking at SMRs. That's part of our commitment with with AWS. But those are years out the the upgrades near term that can help solve some of the supply.

Let me leave it at that. Terry, anything? No. Okay.

That's very helpful. Thanks. And maybe just the last quick one, if I could sneak in. How do you think about valuing longer term? Sorry, how do you think about valuing longer term capacity prices at this point with with PJM asset acquisitions looking forward?

Oh, you know, look, I think. That's it. That's a difficult one. I think that if you if you look at where things are today, obviously with the most recent clear. You know, and I think we were pretty clear that we we put out guidance for next year. And, you know, we're going to give you an underpinning for twenty seven, twenty eight in the outlook, and it won't underwrite these prices. Now, that doesn't mean that's a underwriting case, not necessarily where the market will clear. I mean, there's a difference between an equity or debt under there's a difference between those two. And there's a difference between what the actual market outcomes are. But I think that we continue to think that the market is showing constructive signs here. Chris, anything you want to.

Yeah.

No, yes, no.

It's constructed. Well, extrapolation is the supply demand fundamentals will continue to see flight improvement, but you're traveling from this auction on to the next auction and looking forward. We're we're not projecting two to three options.

No, got it. That makes sense. I'll leave it there. Thank you. Thank you.

And your next question comes from David are Carl from Morgan Stanley. Please go ahead.

Oh, hey, thanks so much. Good morning. I was wondering what's the I guess what's the nature of your discussions around contracting your gas plants at this point? It seems like contracting with the upstream producers has been a challenge in the past. Curious where that stands to.

Yeah, this goes back to the.

What I always say, which is we're not going to talk about commercial terms and how we do things, but let me try to answer the question in some form, which is I think where we are headed is and we've said this. We think that there's only so many so many long term contracts that can be carbon free. Other contracts are going to have to be front of the meter PPA virtual PPAs. And that means that they're effectively being sourced off of gas plants. And therefore, then you need to start managing risk gas plants. We just added two plants in freedom and currency that are going to take how many a day

for three,

400,000 a day. MCF and so we actually think where things are headed is if you're going to sell long term contracts, you need to figure out how to how to hedge that or have a plan around hedging that that can be. You can decide that you're just going to manage that risk with Chris and the desk. Or you can say, let's go originate things and as we've said in the past, originate longer term structured gas deals. We think that you're going to see longer term structured off take agreements. And if the conversion is gas units, then you need the second leg of that is the gas supply. You're going to need to probably go out and match at least some volumetric level try to match some of that up on longer term supply. And what that means is structuring and origination, which is, as I've said, atrophied in these markets because structuring and origination went by the wayside when the markets went lower. There was no need to go secure supply, et cetera, but structuring and originations effectively what we did with the AWS contract. That's effectively what we did. It's just happened to be a solid fuel nuclear fuel. And we managed to risk around that appropriately and the operations there. But when you move to a gas unit, it's going to require a different skill set. And that's where we're headed. We're headed into structuring origination and being able to have that skill set to appropriately manage and warehouse risk and therefore devise a premium on

what we sell on long term contracts.

Yeah, got it. Now that's helpful color. That makes a lot of sense. It seems like that's the direction the market's moving as well. We just hope to get there first. Absolutely. I was wondering just your view on as you look at PJM and energy prices and forwards from here, what do you think the market needs to see for some of these load forecasts and a very strong demand ahead to actually be reflected in forwards from here?

Yeah, David, I'll take that. And then we'll also get some color from Chris Maurice, our chief commercial officer as well. As we mentioned earlier, right? We're seeing a steady increase in spark spreads. We saw that during the second quarter. Obviously, gases has had a good amount of volatility over the past several quarters and that does impact how you see the spark spread move. But fundamentally, when you look at supply and demand in the same manner that you're seeing in the capacity auction, that same sort of supply and demand factors over to the energy market. And so, you know, we see it being very constructive for the next several years. And I think the other thing, and maybe Chris can talk about this a little bit as well, from a liquidity standpoint, three years, four years out, it's just not an active market, right? From a power standpoint, the gas market has a really good depth of liquidity. There's a lot of velocity with respect to volumes that trade in the gas market. But when you look at volumes in the power market that far out, it's not nearly as liquid as you see in the gas market. And so that's something else to make sure that everybody sort of keeps in mind.

Yes, it takes time. We've seen in the power markets, they'll respond eventually. I think, I've noted we mentioned the previous quarters, but the forward power curves had been backwardated. And that was, you know, a bit puzzling to us, given the supply demand fundamentals and some of our views on tightening supply anyway. So as of last week, two weeks ago, we saw the Cal rolls move to a more contangoed shape, again, reflective of the tightening supply demand fundamentals. So probably not fully where we think they need to be, but certainly turning the right way at this point.

And David, Chris has been waiting to say contango for quite some time. So look, I think it goes back to the near term markets are don't necessarily reflect fundamentals. There's a lot of recency bias. I mean, Chris will be the first one to tell you this. There's a lot of recency bias of what just happened last week with respect to weather or in this case, where we sit today, what's going to happen next week? Because there's more heat coming to the to the to the east, northeast, and it will then push, you know, you typically get a couple year out type response. So it's a little bit of that recency bias. But I think what we're seeing is a gradual move over time to where things are starting to align more to to fundamentals. That said, if you go back to the conversation we just had about structuring origination, which is everybody's been focused on sort of the short term and like, how do I hedge next year or the year after if you're on the energy procurement side of things, right? And people haven't thought about how to procure longer term sans the hyperscalers and what they're what we're doing working with them. But that's where we think that people are going to need to get more accustomed to thinking about what does pricing look like for power five years out? What does it look like seven years out? What does it look like 10 years out? And that's where we're focused. You know, we're Chris is focused on making sure we manage risk in the in the near term, but also thinking about the longer term. That's what Cole does. And that's what Terry and I do. We all sit around and think about it. Where are things going? And to your point of, you know, that's where things are going. Structuring origination. We think that's true. And we think that will then eventually start to converge with this near term of where the visible markets

are.

Great. Yeah, thanks for all the comments. Very helpful. I appreciate it. Thanks,

David. And your next question comes from Michael Sullivan from Wolf Research. Please go ahead. Hey, good morning.

Morning. I wanted to just hey, why don't you just ask, post the auction result just given the higher print there? Any impact that that just has on your deleveraging plan and then where you see yourself in terms of leverage capacity post the case in this deal to do more M&A?

So, Michael, obviously, the capacity clear helps free cash flow helps the overall earnings. So that does give us more more upfront. Obviously, we've got to close the freedom and guarantee acquisition to get that incremental. And as Mac alluded to earlier, we've we've pushed forward on both the .S.R. front and the front front to get those filings done. I think I think it does give us a tailwind and something that we will look to execute on as we close that out and then get those get those units into the portfolio and allow the free cash flow to go to the bottom line and help us with the deleveraging plan. I mean, obviously, as we delever, I mean, it's, you know, it's I'll still Max coin term of the flywheel as we add assets and then delever and gain that capacity back. That is a strategy that we look at in a longer term. But first and foremost, we want to make sure that we execute and remain disciplined and then move forward with how we would think about M&A.

Yeah, Michael, maybe just to add to Terry's comments and we said this when we acquired the plants and then obviously the auction cleared the next couple of days with it clearing at the three thirty versus sort of our what we had previously put out a twenty six for underwriting our outlook, which was a two seventy. That just gives us more cash flow, which means that the leveraging is, you know, easier. We're not even with this transaction when we put the debt, which is an all debt transaction to finance this. When we put that on, it does it. It moves our leverage ratios up, but it doesn't take a significant amount and given the free cash flows that come off of these units because it's so highly accretive along with tax benefits, it makes it easy easier to get down to the three and a half times that leverage next year. And that just reloads. You know, we talked about the balance sheet being a strategic asset that just reloads the balance sheet being a strategic asset as well as being able to do our share repurchase program. All of that while maintaining our balance sheet discipline and net leverage of less than three and a half times.

OK, great. Appreciate all the color there. And then back to some of the conversation around around new build, maybe more specifically for you all. And I know you just signed the arm are there at Brandon and Wagner in Maryland, but I think they have an RFP upcoming in the state and there's been some talks there of ways to get new generation. I guess how are you thinking about that at a higher level with respect to future of those units and just new Jan in that state?

Yeah, so, you know, our presence is obviously Brandon Wagner, as you mentioned, and, you know, being able to execute the arm are we we were shutting those units down, happy to execute the arm are and provide grid reliability and hopefully provide a lower cost alternative to the to the. Consumers in Baltimore and make sure the lights stay on quite frankly. And if there was the ability to get gas to those units, we would obviously explore that. Those units are sort of on a not really on a peninsula, but they're on the on the river. And so you either got to come across the river underneath, or you've got to come across a bridge that got hit. Or you got to come through the urban areas. That said, if if can get us gas. We would look at potentially converting those boilers over, like we did at Montour, like we've done at Brunner. And that could provide a solution that may be a least cost alternative versus building. A billion dollars for the transmission, but that's all dependent upon getting gas. And that's not the easiest thing to do because you've got to get a volume of gas there. That is is fairly significant relative to what the current infrastructure provides, but we're working through that and we'll see where that goes as far as the RFP.

We're

not

currently participating.

Okay, very clear. Appreciate it. Thank you. Thanks. Thanks. Next one. Or as I please go ahead. Hey guys,

good morning. How are you?

Morning.

Just wanted to touch upon a little bit and drilled into Jeremy's question a little bit further when when when we're thinking about the the outer kind of auction. I mean, what is the sense you guys get or hearing? Regarding kind of the continued implement implementation of the collar. I mean, it seems like, you know, the market would dictate higher prices, understanding that there's a lot of politics involved. Just would be interested when we start to think about 2028, 2029 and you know, you guys formulating guidance for the investor day like just how how are you guys kind

of thinking about that?

So,

first of

all, we're in early innings with respect to what will happen past this this next auction on the cap and the floor. I would tell you, and I don't know that there's a consensus that has been drawn across the IPP space, nor would I tell you that there's been a consensus drawn. There's going to be several activities about how do we maintain affordability to use that term going forward, but that's juxtaposed. How do you incentivize new generation at the right levels and incentivize keeping the existing generation around? Right? And not bifurcate those markets. And, but is there

is

there an advantage to having a way to somewhat dampen over time and have longer, perhaps longer dated, for example, capacity markets that go out even multiple years like you might have in New England, et cetera. That's an opportunity combined with a floor and a cap that's appropriate that says that we're not going to go to the lows and we're not going to go to the extreme highs. But the definition of those two different things are is where the rubber meets the road and I don't know that there's been a full on consensus about it. I think people, it's a great question, but I think that it was just, you know, we just got past the most recent auction. We're going to get new parameters. When is it?

End of this month

for the auction in December. And that's where sort of the market's focus has been. And then we need to have a longer term discussion about how do you reform the market to make sure that you're sending the right price signals and create the right affordability for the retail consumer. There's just no answer to it at this point in time. It's in development.

Fair. Yeah, I should have preface by saying I know it's kind of an unfair question. All questions are unfair. Well, that's fair. But just shifting gears a little bit, I'm just curious too on how you guys feel about kind of your nuclear fuel procurement, just knowing that we have kind of the culmination of the 10X agreement in Russia. And then we kind of go into a gap period later on in the decade when we're thinking about, you know, it's a great value.

It's a great question. We're going to provide an update, a further update at our investor day on nuclear fuel. It's something that we are actively thinking about hedging. I think we showed that we had 100% of stuff through what outage that was the most recent.

29.

29. You know, but you're right. We're looking at 29 through the beginning of the next decade at this point. You know, longer nuclear fuel, as I mentioned when we were talking about the AWS contract is a solid fuel that we manage. And it's an interesting thing because you're managing both price, but you're also managing physical supply. And so let us, if I could, if I may take a free pass on this one until September 9th, we're going to provide an update on that at that juncture. But we are actively out there doing things.

All right, I'll hold you to it. Thanks. Okay. Thanks. And your next question

comes from anything from Bank of America. Please go ahead.

Good morning, guys. Morning, ready? Quick question on how you guys view data center clustering. It kind of looks like that's a big thing in Pennsylvania with the Homer City shipping port site. So, I guess, specifically at the Susquehanna site and with the recent acquisition of Freedom, I guess, what are the conversations there? And is it kind of moving to more of those data center hub kind of structures?

We

didn't bring coal for nothing.

Yeah, look, we were bullish on the prospects of data centers in Pennsylvania, specifically the eastern half of Pennsylvania. Obviously, you guys, I'm sure following PPL load forecasts and data centers in the queue advanced stages, and that keeps going up and up. And I think a lot of that is based on clustering, not just by any one company, but I think as the infrastructure and gigawatt scale campuses like ours, or the one adjacent to Susquehanna are built out, it just kind of brings more data centers. And so you can go into the PJAM planning submissions and see all the different clusters or sites being actively developed. And obviously, it's good for the eastern half of Pennsylvania and existing generation there. We like the acquisitions, specifically Freedom. That's right there next to Susquehanna and obviously Guernsey out in Ohio, where there's already a large data center clustering presence. And so I think that's bullish for our entire portfolio as we both just for the power in general, but also our ability to contract that over time.

Yeah, that makes sense. And then I guess just secondly, understanding that you've moved ahead with AWS front of the meter. Can you have any insight to the ISA rehearings? I know it's ongoing. So I guess any thoughts on implications of ruling there for future contracts as well?

Yeah, look, With respect to the ISA, I'd say the most relevant thing is we recently briefed the appeal in the Fifth Circuit on the ISA, which is the next step that we see that says, You need to tell us why the ISA didn't work and why behind the meter doesn't work. Commercially, we're focused on the front of the meter, okay, in the near term. But long term, okay, when you hear of things like shipping port, when you hear of Homer City, when you hear of JVs going after building generation with it, those are essentially for all practical purposes a behind the meter yet grid connected discussion, which we've always said that was where things were going to go. And that you should have to pay your fair share, whatever the definition of that, and everybody's got their own definition of that. But like you should pay for what you use. Let's put it that way, not fair share. You should pay for what you use. And we've always said that that was the case. It's just in our case, which was fully behind the meter, not grid connected, there was no cost. PGM said that. PPL said that. That was in the ISA. And so we're looking for justification on that. We'll continue to do so because we think longer term that everything should be on the table. Okay, front of the meter, behind the meter that's grid connected, possibly even just behind the meter. Okay, and those are types of solutions that are being talked about. And that's getting that's getting lost. And I think FERC, along with PGM, and PGM did this with their different options that they put forth to FERC, said that everything's available. They didn't rank them in their preference, if you will, as to what they prefer versus least preferred. Fine. Okay. But FERC needs to move forward with an all of the above solution that allows the proliferation of data centers, doesn't disadvantage RTOs that are restructured like PGM, and allows for continued investment in data centers and supply growth at the same time. And so we continue to push forward on the behind the meter from a legal and regulatory process standpoint, but we're focused on front of the meter with respect to commercial terms.

Okay, that all makes sense. Thank you so much,

guys. Thanks for thanks for any. And your next question

comes from Greg Oriel from UBS Financial. Please go ahead.

Hey, Greg. Hey, yeah, thank you. Just I know the disclosure wasn't new on SMRs, but just the strategy there and where you're thinking about implementing that. Thank you.

Sure. Sure. And I, Cole can jump in, helping work on this and Look, we have an agreement to explore SMRs across our site, not just Susquehanna. There's there. We have additional sites. We have additional land in Pennsylvania. We have, but to explore SMRs. Personally, I'm an advocate of nuclear in some form or fashion. It's 20% of the overall grid or 18% of the overall grid. And it needs to be more than that. As a, I think that's good for US policy. Okay. And we agreed with Amazon to explore SMRs, which we'll do, but you should take that as again. I said this is years 10 through 15 is sort of when things sort of look on the horizon for nuclear new nuclear putting aside, you know, restarting some of the plants, which I applaud the constellations doing a crane clean energy center. Great. But the, and other locations that are being restarted, but we are spending what I would call early stage. We're looking to spend. We haven't even started early stage development dollars and thinking about how do we work with the state? Our counterparty, what opportunities exist to look at these types of things, but it's early stage to get the concept going and thinking about how might we implement it and how might we work with the current technology? So, I mean, there's a whole licensing aspect that needs to go on. I think there's only one approved license right now on SMRs. And so there there's an evolution in here. Evolution that needs to occur here before the before the nuclear revolution occurs. So we're working on early stages.

Yeah, I would say if folks thought gas deals are complex, the SMR deal or SMR back deal. It's going to be very complicated. Right? As Max said, there's regulatory, you know, issues that the work through. So I would just set expectations that we're very early innings and that is a very long term. You are a development that we're planning seats today, but I wouldn't expect that to be the near term focus of announcement.

Right? But I and I do think, though, that there is the ability to start exploring this stuff because you see the president, you see Secretary Wright. Pushing forward either EOs or DOE advancement of how to get new nuclear coming to the grid. And so we're excited about working on it. We're not necessarily allocating a bunch of dollars to it. And it's early stage development at this point.

Thank you. Appreciate it. That's great. And your next question comes from. Yeah, go ahead.

And your next question comes from Julian Smith from Jeffries. Please go ahead.

Morning, Julian. I see you. Sorry to disappoint. It's Paul. Thanks for squeezing the.

How are you, Paul?

I'm great. I'm great. Good. Thank you for the hat. He was very appreciative. I know a lot was asked in here just to squeeze in last one and follow up on, I believe, Michael's question on the leverage profile. So, obviously, with the 330 megawatt a clear versus the 270, should we think about the 3.5 times net debt, either to target you're comfortable levering up to that level on the higher capacity clear kind of factor way of asking like your view on sustainability of the. Higher capacity prices.

Yeah, my car three and a half times target, which is a target that we've had now for a couple of years. We're comfortable with that. I think that gives us the right. You know, it cuts it cuts at the right level with respect to. Maintaining the ability to do things on either side. So we're fine with that. The 270 versus three thirties is, as we mentioned earlier, obviously helpful as we move forward. But we would never. And we did this last year. We did our investor day. Right? We're not going to write, you know, underwrite these high prints for years and years and years in the long term projection. So we've got to keep that balance and keep that discipline as we think about the balance sheet and combined with strategic activity and combined with everything that we manage from a liquidity and a hedging standpoint. I'd

also tell you, tell you, tell you Paul that. To get back home that we're going to lay some of this out in September 9th on 26. Guidance 27 outlook and 28 sort of early preview outlook. And we have a growing cash flow profile. So, with the, I'll call it more modest or conservative. However, we want to deem it underwriting case associated with capacity clears. And that growing cash flow profile still meets, as we said, being able to toggle these things. Allows us to return after we get our leverage down targeting the end of next year to less than that three and a half times. Then allows us to return to 70% of cash being returned to shareholders and maintaining that capital discipline and with a growing cash flow profile, not necessarily underwritten by these

cat clears. We're in good shape there.

Yes, no, understood. Definitely. Thank

you, team.

Thanks, everyone. I appreciate everybody. I know everyone's going to be running off to additional calls. Appreciate everybody's interest in talent. And we look forward to seeing you at some of our future events. Have a great day. Thank you.