The operator introduces the Constellation Energy Corporation Third Quarter 2023 Earnings Call and reminds participants that the call may be recorded. Emily Duncan, Senior Vice President of Investor Relations, introduces the speakers and mentions that the company's earnings release and presentation can be found on their website. She also notes that the call may contain forward-looking statements and references to non-GAAP measures. She encourages listeners to refer to the company's SEC filings for more information.

In the second paragraph, Joe Dominguez, the CEO of Constellation, thanks the listeners for joining the call and apologizes for any audio issues. He praises the company's strong performance in the third quarter and raises their full year guidance range. He also mentions that their 2024 gross margin has been raised by $250 million, despite not yet including the impact of the STP acquisition. He reiterates that Constellation has the largest and most reliable clean energy fleet and the best C&I and commercial platform in the business.

The company strategically combines businesses with a strong balance sheet to gain a competitive advantage and provide customers with certainty and sustainability solutions. They have recently acquired a 44% stake in the South Texas Project and completed outages at Byron and Peach Bottom in record time. The US Department of Energy has also awarded a $1 billion grant to the Midwest Hydrogen Hub, including the company's hydrogen project at LaSalle, demonstrating support for nuclear energy in clean hydrogen production.

Constellation's Treasury Department guidance is crucial in confirming that using existing nuclear energy to produce hydrogen qualifies for the full clean energy production tax credit. The company has signed a deal with ComEd to power its facility with clean, carbon-free energy and has earned a 2023 Great Place to Work certification. The company's nuclear plants had a high capacity factor during the hottest summer on record, and its power and renewable assets also ran well, supporting the grid during a challenging summer.

ERCOT experienced unprecedented demand and challenges this summer due to extreme heat and changes in the resource mix. The grid is expected to continue changing, making dispatchable generation and clean, reliable energy more important. The Commercial business has been successful in optimizing positions and providing customers with certainty in volatile times, leading to margin expansion. They have also been leading the way in sustainability solutions, with agreements with Microsoft and ComEd to use nuclear and renewable energy to produce clean energy.

The author discusses the success of Microsoft and ComEd in their efforts towards sustainability and their recognition of the importance of 24/7 carbon-free electricity produced by nuclear energy. They also mention the strong financial performance of the company in the third quarter and the opportunities created by market conditions. The nuclear and power fleet also performed well during a record-setting hot summer, with the nuclear fleet running at full capacity and ERCOT setting 10 new peak demand records in Texas.

The article discusses the record peaks observed in the Texas energy market and the increased operating conditions that followed. The company's investments in their Texas fleet helped support the grid and resulted in a 13% increase in plant running time compared to the previous year. The company also increased their gross margin forecast for 2023 and 2024 due to strong execution and performance. Market prices have also increased, leading to lower expected nuclear PTC revenues. The company's Commercial business is also seeing favorable margin trends with C&I customers and load auctions extending into 2025. However, there has been some moderation in margins and increased competition in load auctions. The company expects sustained commodity market volatility due to changes in the generation stack.

The company has a strong balance sheet and is well positioned to meet customer needs and create value for shareholders in the current volatile environment. They have raised their full year adjusted EBITDA guidance by $400 million and narrowed the range. This is due to an increase in gross margin, although there has also been an increase in operational costs. The recent acquisition of STP will not yet be reflected in their forecasts, but is expected to contribute to EBITDA starting in 2024. To fund the acquisition, the company issued $1.4 billion in debt, with strong demand and competitive pricing.

The company expresses appreciation for the support of their fixed income owners and their confidence in the long-term need for their assets. The recent transaction will not impact their credit metrics and they have completed $250 million in share buybacks during the third quarter. They still see their stock as attractive and have $1.2 billion in unallocated capital for future investments or returns to shareholders. The management team remains focused on creating value for shareholders and highlights their unique position as the best operator of nuclear plants and largest producer of carbon-free electricity in the US.

The commercial business of the company serves a significant portion of the competitive C&I market and is helping customers meet sustainability goals. The company has various opportunities for growth and value creation, including the ability to relicense its nuclear fleet for 80 years. The company also generates strong free cash flow, which can be used for organic growth, M&A, dividends, and stock buybacks. The recent STP deal, growth spending, and dividend increase demonstrate the company's commitment to creating value for shareholders. The company's unique combination of a large nuclear fleet, customer-facing business, and strong balance sheet sets it apart from competitors and provides unparalleled opportunities for value creation.

The management team is focused on addressing questions from the audience. The first question is about the competitive environment in retail and any changes in market share. Dan Eggers explains that they have seen strong margins in the Commercial business due to market volatility, but there has been some pressure on margins in recent months. They are keeping a close eye on this trend.

The speaker discusses the latest guidance update and how it reflects the patterns seen in the third quarter. They mention opportunities to improve the outlook for 2024 and 2025, but also state that a moderate approach has been taken in expectations for margins. The fourth quarter is seen as important for adding to backlog, and the speaker expresses hope for continued opportunities. The next question is about the timing of the hydrogen PTC and nuclear PTC rules, and the speaker mentions ongoing dialogue and cautious optimism in regards to the White House.

The speaker believes that the recent focus on hydrogen economy and clean energy is due to the need for reliable and time-matched energy to produce hydrogen economically and transition the economy. They mention that the administration is working on guidance for the hydrogen rule and that many companies, including their own, are waiting for this before making any major decisions. They also mention that there is a lot of work that needed to be done by Treasury for IRA implementation, but they do not believe the rumors of delays. The speaker predicts that the nuclear PTC will come in as expected, but may come closer to the end of the year or in the first quarter due to other priorities taking up Treasury's time.

The speaker expresses hope for guidance on hydrogen use before the end of the year and mentions the potential for using existing nuclear to make hydrogen. They are unable to provide details on the pace of adoption and the premium for the 24/7 clean product, but state that the sustainability offering will have a higher margin. They also mention the potential for other industries, such as data centers, to take on the load. The speaker acknowledges the role of policy in driving adoption but admits that they do not have enough data to predict the pace of deployment for the 180 million megawatt hours of power.

Shar Pourreza from Guggenheim Partners asks about the company's increased EBITDA and potential for additional buybacks. Dan Eggers explains that they still have some money to deploy and will be having conversations with the Board regarding future capital allocation. He also mentions the success of their recent deployment of capital and their goal to find investments with double-digit returns. Shar also asks about the company's outsized marketing portfolio gains, and Dan explains that it is a combination of durable margin expansion and opportunistic trading, such as ERCOT sparks.

The speaker acknowledges that dismantling the portfolio may be difficult, as the Commercial business is responsible for managing the generation business. The strong performance of the Texas plants and high margins have contributed to the company's success, but some moderation in margins is expected. The company has also taken advantage of opportunities in the physical markets. The speaker also mentions that the company is still working on their capital planning for the future.

Julien Dumoulin-Smith of Bank of America asks about the timing of potential commitments in light of potential developments with hydrogen and data centers, as well as potential buybacks. Joe Dominguez responds that they are constantly evaluating opportunities and will announce any developments as they arise.

Joe Dominguez, the speaker, explains that there are two ways in which hydrogen will be used by the company. The first is through "behind the fence line" opportunities where the company will produce hydrogen for a specific customer. The second is through "clean hydrogen by wire" where the company will provide a contract to a customer who will use it to justify getting tax credits for hydrogen production. The company is currently focusing on optimizing their LaSalle plant and adding more megawatts there, but they are also exploring opportunities with other plants. They are also talking to customers to see if they are interested in using hydrogen. However, the exact timing of when these opportunities will come to fruition is uncertain, as it depends on when customers are able to purchase and integrate electrolyzers into their facilities. If the rules are favorable, there may be a lot of contracting opportunities for the company in the future.

The company is looking into scaling LaSalle and producing hydrogen behind the fence line at other places. They are also exploring data centers, but are waiting for clarification from Treasury before moving forward. These opportunities are expected to have a significant impact on the company's financial outcomes, but it is too early to determine the specifics. The company is not holding back on data centers or capital allocation while waiting for a decision on hydrogen. They have the luxury of exploring multiple channels at once and will eventually compare the financial value of each opportunity.

The company is currently exploring different options for asset generation and is not tied to a specific hedging strategy. They have the freedom to be patient and will provide more information at the end of the year.

The IRA gives the company the ability to wait and realize the $43.75 at the bus that they're entitled to under the policy. This means they can be patient and flexible in their business decisions, whether it's holding onto more power or selling more. The company believes that the value of clean, reliable energy will increase over time, and the IRA supports their patience in transitioning to clean energy. The company plans to provide new metrics and disclosures at the year-end update to reflect the changes in their revenue dynamics.

The speaker expresses appreciation for the employees at Constellation and credits their focus and passion for the company's success. He also thanks the listeners for their interest and looks forward to speaking with them again in the future.

This summary was generated with AI and may contain some inaccuracies.