The operator introduces the Constellation Energy Corporation's second quarter earnings call and reminds participants of the call's recording. Emily Duncan, Senior Vice President of Investor Relations and Strategic Growth, will be hosting the call with Constellation's President and CEO, Joe Dominguez, and CFO, Dan Eggers. The company's earnings release and presentation can be found on their website and may contain forward-looking statements. The presentation will also include references to adjusted operating earnings and other non-GAAP measures.

The CEO of Constellation, Joseph Dominguez, thanks everyone for joining the call and expresses pride in the company's performance during the summer. He highlights the importance of their employees and the company's culture in driving success, and mentions that Constellation has been certified as a great place to work for the past two years. This certification is based on independent surveys and reflects the passion and commitment of their employees.

The company has reported strong results for the second quarter and has raised their earnings guidance. They have also bought back $500 million worth of shares and remain confident in their ability to continue growing. They have also released their third sustainability report, showcasing their efforts to help customers achieve their goals.

The article discusses the positive efforts being made by the company in the production of clean energy and sustainability products. The author then shifts focus to two important topics - the PJM capacity market auction results and the FERC proceeding on data center opportunities. The author explains that the demand for electricity is growing and supply and demand fundamentals are tightening, but the recent reforms approved by FERC will incentivize the supply of reliable power. The author also emphasizes the importance of nuclear energy in this new market design and expects to see higher sustained pricing for capacity in order to address reliability needs and incentivize the development of new resources.

The PJM market has a track record of attracting investment through price signals and has developed over 60 gigawatts of generation. The market will respond to higher prices, but the commercial team is working with customers to provide solutions. Adjusted inflation shows that PJM energy and capacity prices are lower than they were 15 years ago. The distribution and transmission elements of the bill have gone up to address reliability needs, but now investments need to focus on the supply side. Constellation's business is based on the idea that reliable and zero emission electricity is the most valuable commodity. They provide sustainability products and invest in clean energy centers for the future. PJM is considering efforts to speed up the interconnection of needed resources.

Constellation supports PJM's efforts and believes that investing in technology is crucial for America's economic growth and national security. The company is doing well in negotiations with data center companies, and recognizes the importance of these centers for America's competitiveness. Data centers will bring advancements in medicine, weather prediction, and energy management, creating jobs and economic benefits for states. Politicians from both parties are competing to attract data center development in their jurisdictions.

The author discusses the ongoing conversation about the implications of colocation with nuclear plants for data centers. They believe that colocation is the fastest and most cost-effective way to develop digital infrastructure without burdening other customers. They also mention that utilities have acknowledged the benefits of colocation, such as the data center customer paying for infrastructure and the efficiency and speed of the process. Additionally, they state that these behind-the-meter configurations are long-term solutions.

The author discusses the benefits of colocation for nuclear plants and new clean generation, and mentions that FERC's actions may have slowed things down but will ultimately be constructive. They also mention that FERC did not grant requests to reject the Talen Energy ISA outright and ordered a technical conference to discuss the benefits of colocation. The author believes that any fair examination of costs will support colocation and they will continue to make progress and participate in any discussions on the matter.

The speaker believes in transparency and discussing how facilities will operate and benefit the grid with stakeholders. They acknowledge that colocation is not a new concept and that utilities were not always friendly to it in the past. However, the speaker sees an opportunity for Constellation and utilities to work together to bring grid connected and co-located data economy growth projects to states. They also mention the progress they are making on power sales for on grid data centers through their 24/7 product.

The utility industry in PJM is experiencing growth in data centers, with a total of 50 gigawatts or more expected to come in over time. While there may be some duplication in these numbers, it is clear that there is a significant opportunity for Constellation to provide clean and reliable power to these customers through both behind-the-meter and grid-connected solutions. The company's nuclear fleet also had a strong performance, producing over 41 million megawatt hours with a 95.4% capacity factor, while its renewables and natural gas fleet exceeded expectations with a 96.6% energy capture rate and 98% power dispatch match.

The speaker discusses the benefits of the company's carbon-free generation fleet and commercial business, which has performed well in volatile markets. The team has been able to offer customers price certainty and customized sustainability solutions. More customers are seeking 24/7 carbon-free energy options, as seen with the addition of John Hopkins University Applied Physics Lab as a customer. The company's reliability is crucial in matching clean energy production with customers' time of use. The financial update will be covered by Dan.

In the second quarter, the company reported $2.58 per share in GAAP earnings and $1.68 per share in adjusted operating earnings, which is $0.04 per share higher than last year. The commercial business performed well and saw margins above long-term averages, contributing to an improved outlook for the year. The company also benefited from the nuclear PTC and recognized $33 million in the Illinois ZEC program in June for banked credits. This is lower than the $218 million recognized last year due to a decrease in forward prices.

The paragraph discusses the impact of the Illinois ZEC credits on the company's second quarter results, stating that their earnings would have been $0.04 higher if not for the timing of when they recognized the credits. The company has raised their full year adjusted operating earnings guidance and increased their enhanced gross margin line due to better optimization of their portfolio and higher commercial margins. The financial impact of last week's capacity auction results is also discussed, with the nuclear PTC now in place and the calculation of benefits from higher capacity prices being more complex than a simple PxQ exercise.

The nuclear PTC is a credit that is calculated by filling the gap between gross receipts and the PTC threshold value of $44.75 in 2025. Units that were below the PTC threshold will receive PTC revenues to reach the threshold. For units already above the threshold, any increase in capacity prices will result in earnings upside. However, any revenues above the CMC price will be refunded to customers. The capacity prices were higher than expected, resulting in a $0.25 per share increase in earnings for 2025. In 2026, assuming similar capacity prices and using end of quarter forward power prices, there is expected to be a $1.25 per share increase in earnings. The financing and liquidity update is on Slide 12.

The company's balance sheet remains strong and they have completed $1 billion in share repurchases so far this year. They have $1 billion remaining in their repurchase program and over $2 billion in capital to be allocated for the next few years. The company believes their stock is undervalued and will continue to invest in it through repurchasing shares. The company's unique assets provide opportunities for growth and they have a visible base earnings growth of 10% through the decade, backstopped by the federal government. This backstop is seen as a major differentiator in the current economic climate.

The country needs clean and reliable power generation to drive economic growth, and Constellation is well-positioned to meet this need. With a strong commercial team and dependable nuclear plants, Constellation is poised to play a significant role in the energy transition and growth in the data center economy. Both Republicans and Democrats recognize the importance of nuclear power for reliability and sustainability, and this support is expected to continue. Constellation also has opportunities to earn additional compensation through various deals and investments in clean energy. The company aims to grow base earnings faster through customer deals and increasing nuclear megawatts, and their commercial team is constantly working to create new products and services to capture more value from the markets.

The speaker states that their company's focus is on their daily operations. They believe that the FERC technical conference may slow down the timeline for a deal announcement, but the impact of any potential ancillary service charges will be minimal. They are confident that they can manage any contingencies in their negotiations and having clarity on the situation will speed up the deal execution. The speaker then turns the call over to Michelle for questions.

The speaker discusses the ongoing process of a FERC proceeding and the possibility of announcing a deal before it is completed. They express confidence that the FERC will approve the deal and highlight the importance of the deal to policymakers. They also mention an upcoming conference where stakeholders can discuss the deal with commissioners in a less adversarial setting.

The paragraph discusses the Talen case and the deficiency letter issued by the FERC, which focuses on the narrow question of why certain provisions are necessary. This suggests that the FERC intends to keep the proceeding focused on the Talen fact and will use the tech conference to learn more about the topic. The discussion then shifts to the possibility of new entry into the market and the potential for PPA or rate basing peakers in PJM if the market does not move fast enough. However, the speaker believes that states like Pennsylvania and Ohio have been clear in their support for market-based solutions, and the PJM market has proven effective in the past despite high prices.

The speaker discusses the recent PJM auction and its impact on the urgency of potential data center deals. They believe that the high prices in the auction increase the need for colocation and in-front-of-the-meter deals. They also mention the opportunity for clean and reliable megawatts and the team's focus on meeting the demands of data center customers. The speaker believes that the auction signals the availability of supply to address data center growth in PJM. Overall, they see the auction as a positive development.

The speaker discusses the current market response to the forecast and the need for people to secure their supply. They also mention the use of dual unit plants for data centers and how the structure may depend on the type of data center and its purpose. They are still learning about the different use cases and how resources will interact with the grid and customers. The speaker does not rule out any potential configurations.

The speaker believes that the dual-unit site is the most logical location for the project, and it is likely to be chosen first. They are expecting a technical conference in the fall and a policy statement in 2025, but they are not bound by the timeline of the FERC process. They are currently working on contractual provisions with customers and may announce deals even before the FERC process is completed. The process has become very public and noisy.

Joseph Dominguez, the CEO of Exelon Utilities, discusses how the recent issues with data center projects, such as Talen, could potentially impact the company's relationship with customers and policymakers. He notes that policymakers and labor groups are paying attention to these issues and want the parties involved to work things out. Additionally, customers want to be in jurisdictions that are pro-data center and give companies options. While these issues are not yet causing major concerns, they are being closely monitored and could potentially impact the company's decisions in the future.

The speaker states that if the discussion can be held in state or federal proceedings, they will do so. However, they believe that the recent rejection of ban legislation in Maryland by FERC signals a need for parties to work out these issues outside of proceedings. They stress the importance of economic development and having conversations outside of proceedings. The speaker believes that having clean energy centers in a state can attract more data centers and that the zero-sum game mentality is not helpful. They prefer to work on issues that bring results and resolve issues in a way that is friendly to policymakers and customers. The last question of the call asked about state legislative priorities to support the colocation strategy.

Joseph Dominguez, CEO of Exelon, discusses the company's plans for state-level legislation and their focus on being reactive to current market trends. He also mentions the potential benefits for rate payers from the colocation strategy, estimating costs of around $1 billion for a gigawatt of load, but noting that this cost would be significantly reduced for hyperscalers who are paying for direct connections at the plant.

The speaker believes that the cost of putting a data center on the grid is much higher than people realize, and that the grid may not be able to support such a large load. They argue that bringing data centers closer to large generation resources, such as nuclear power plants, would be a more practical and cost-effective solution. The speaker hopes that these discussions will be addressed in upcoming policy discussions.

The speaker introduces a document by Mike Formo, a leader in transmission, which discusses the feasibility and cost of connecting large loads to the grid. This will be an important topic for discussions with regulators and policymakers. The speaker also mentions the opportunities for data centers, but emphasizes the importance of being close to generation sources for timely action. The speaker concludes by thanking the company's employees and expressing excitement for the unique opportunities the company has.

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