Constellation Energy - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong top line and operations, with Operating Revenues of $6.79B and nuclear capacity factor of 94.1%; Adjusted Operating EPS was $2.14 while GAAP EPS was $0.38.
• Versus S&P Global consensus, Adjusted EPS modestly missed ($2.14 vs $2.21*), Revenue significantly beat ($6.79B vs $5.44B*), and EBITDA missed ($1.08B* actual vs $1.26B* estimate); management reaffirmed full-year Adjusted EPS guidance of $8.90–$9.60.
• Management highlighted accelerating data-center demand, on-grid sales momentum, and PJM fast-track interconnection for Crane and >1,150 MW of nuclear uprates as near-term catalysts; Calpine acquisition remains on track to close by year-end.
• Strategic tone: confidence in durable value from clean, firm power, inflation-linked nuclear PTC floor, and pending long-term customer agreements; buyback capacity remains, though activity can be constrained by MNPI.

What Went Well and What Went Wrong

What Went Well

• Reaffirmed FY2025 Adjusted EPS guidance ($8.90–$9.60), underscoring confidence in commercial performance, nuclear PTC framework, and pipeline of customer deals.
• Operational execution: nuclear capacity factor at 94.1%, 0 non‑refueling outage days, 99.2% dispatch match, and 96.2% renewable capture—best-in-class fleet performance.
• PJM selected Crane Clean Energy Center and additional uprates (>1,150 MW) for expedited interconnection; management sees Crane staffing, operator training, and interconnect timelines on track or better.

Quotes:

• “We delivered Adjusted (non-GAAP) Operating Earnings of $2.14 per share… Our generation fleet performed well… nuclear plants achieving a 94.1% capacity factor” – CFO Dan Eggers.
• “On-grid sales are increasingly attractive… we could achieve fair pricing at levels consistent with our owner expectations” – CEO Joe Dominguez.

What Went Wrong

• Adjusted EPS modestly below consensus; EBITDA below consensus as quarterly PTC recognition swung to zero given higher forward prices, creating YoY comparability noise despite favorable full-year setup.
• GAAP EPS fell sharply YoY ($0.38 vs $2.78), reflecting fair value marks and decommissioning-related items; Adjusted EPS grew ($2.14 vs $1.82) but non-GAAP uplift did not fully offset consensus expectations.
• Macro/tariffs create minor cost headwinds; management estimates negligible O&M impact and ~1–2% CapEx impact including fuel in 2025–2026.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Constellation Energy Corporation first-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.

Emily Duncan (SVP of Investor Relations)

Thank you, Tawanda. Good morning, everyone, and thank you for joining Constellation Energy Corporation's first-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 release 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 8-K 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 Dominguez.

Joseph Dominguez (President and CEO)

Thanks, Emily. First of all, let me thank Tawanda for getting us started. In our three short years, we've had a couple of occasions where the bridge call failed. Tawanda, stay on your toes. Hopefully, we won't need you. Morning, everyone. Let me first thank the incredible team here at Constellation for getting us off to a strong operational and financial start. We are exactly where we want to be through the first quarter, and we will meet our commitments this year. We delivered GAAP earnings of $0.38 per share and adjusted operating earnings of $2.14 per share. As usual, Dan will walk you through the details in his section. I want to spend some time providing some higher-level thoughts on what we're seeing in the market and what it means for Constellation's data economy strategy. The short story here is that we're seeing a very, very favorable environment.

The business updates from the big tech companies, where they've essentially doubled down on their capital and growth strategies, reinforce Constellation's overall strategic plan, the importance of America's nuclear energy to meet the coming demand, and the strong logic of the Calpine acquisition. While we think there are some out there who have overstated the amount of new demand for their own reasons, we're confident that the demand can be met and that the markets will respond with demand response and new generation as needed. Importantly, even a more rational view of new demand will give us ample opportunity to support both in front of and behind-the-meter data center development at significant scale.

As we look at both the cost of new entry as well as the amount of time it takes to bring new power generation on, we believe that the options for clean and reliable energy from our assets will be a compelling and durable strategic advantage for decades. This opportunity, in turn, will allow us to make needed investments in clean and reliable nuclear energy so that we can relicense and keep running these one-of-a-kind assets through 2060 and beyond for America. In summary, here's what we're seeing in the marketplace. First, the business updates from the tech companies are telling us that Americans are putting AI technology to work in their businesses and in their lives. AI technology makes businesses stronger and helps them offer better products and services. We're seeing that right here at Constellation.

For families, it helps them manage their daily lives and educate their children. We see our data economy customers maintaining and often expanding their needs to build new data centers to provide these products and services to customers. Now, it's our job as an energy industry to provide the necessary power, and that is precisely what Constellation will make happen. In fact, we're making tremendous progress today toward reaching agreements with our customers, which I'll describe a little bit more in a moment. The second dynamic we're seeing is that it's clear that the cost of new entry, whether that be for combined cycle machines or solar with storage, has gone up substantially, as has the time to build and site these assets. Now, at the end of the day, in a tightening market, we compete with the cost of new entry as market and new entry prices converge.

We believe our offerings for clean and reliable generation are far more attractive from a time and pricing standpoint than any competing option, whether that's used to support on-grid data center development or behind-the-meter development. Locating AI facilities proximate to large, clean, and reliable power plants continues to make all the sense in the world. Critically, we do not need to have load co-located or behind-the-meter for us to achieve compelling pricing. To be perfectly candid, we were not sure about that at the beginning of this strategic effort. Initially, we were somewhat concerned that fair pricing might only be available in behind-the-meter transactions structured like the Talon deal.

We are now convinced that we could achieve fair pricing at levels consistent with our owners' expectations, regardless of whether a client chooses to be in front of the meter or behind it, whether a client chooses to be near our plant or in a remote area. We demonstrated that when we achieved the Crane Clean Energy Center restore. We demonstrated that when we achieved the landmark GSA transaction that we announced in January. We have demonstrated that time and again with CFE deals. We certainly see further evidence in the deals we are working on now. On-grid sales are increasingly attractive to us and to our customers for other reasons, too. The behind-the-meter approach depends on the cooperation of the local utility where our assets are part of the grid and their willingness to facilitate studies and collaborate.

Now, it's been no secret that hasn't happened easily, and the regulatory process is presently tied up at FERC, where the industry desperately needs some clarity. I will tell you, there have been some benefits from the controversy over co-location. It's caused utilities to speed up the interconnection process because they came to understand that the studies were taking far too long. We want to take a moment to applaud the efforts of utilities to move more quickly, and we thank them. One of the benefits of on-grid sales for us is that we could work with utilities anywhere in the RTO. We could partner where it makes most sense and where they could bring these grid resources online as quickly as possible. This eliminates the need for extensive regulatory processes.

It eliminates the complexity around behind-the-meter co-location, and it simply treats these customers like we've been treating all of our retail customers for decades. I do want to make clear that we still believe that behind-the-meter configurations will make sense for some customers, and we continue to get inbound in that area. It may be the case at the end of the day that the largest and perhaps the most important data centers, from a national security standpoint, will involve grid configurations where part of the data center operates behind the grid and part of it operates in front of the meter. President Trump highlighted a configuration like that recently in one of his remarks. We urge FERC to provide clarity on the rules for behind-the-meter configurations and to provide latitudes so that there could be innovation here following the president's lead.

The third thing we're seeing is that the encouraging data center growth updates and the cost of new entry all reinforce the strong logic of what we did with Calpine in that deal. As I'll discuss, that deal looks better to us every day. We acquired Calpine because it was an awesome company run by terrific people. The combination of Constellation and Calpine people and assets will create new capabilities for our customers, large and small, across America. As we discussed, we were also mindful of value when we negotiated that Calpine deal. If you now consider the cost of new combined cycle machines that Constellation, NextEra, and many others have reported, one can easily make the argument that Calpine was worth twice as much as what we paid for it.

Now, of course, you might challenge me and say that the comparison of new CCGTs to the Calpine fleet does not completely square. You can say that the Calpine assets aren't brand new, and I'd have to agree with that. That is true. You might also agree that, unlike hypothetical new assets that face an uncertain world of interconnection queues, tariffs, supply chain issues, and delivery dates that are sometimes years away, having a fleet of new plants that are up and running exceptionally well with a good team running them might offset a couple of years of age. Anyway, we love the deal. On the other hand, we don't so much love the equity volatility that our owners have experienced this quarter. So much of that is driven by macroeconomic factors that we cannot control.

In our opinion, our stock price does not reflect the full value of the particular opportunities we have here: the double-digit base earnings growth through the end of the decade or the prospect of securing additional above-the-PTC pricing deals. As you can see from the disclosures, we have about $1 billion left in our buyback authorization from the board. I'll tell you, we would have loved to have been in the market buying at these prices during the quarter. As you've seen before, there are times where we have been unable to be in the market due to possessing material non-public information. We do look forward to sharing great news with you soon and resuming our buyback program at these compelling stock price levels. Turning to slide six, at the beginning of the call, I started with the big picture narrative we're seeing today.

I now want to dig in a little bit. On slide six, we see the demand from data centers is coming and that the U.S. will rise to meet this challenge. The Trump administration has made clear that the U.S. must win the AI race, and the administration is taking steps to ensure that we will. They understand that the data economy is critically important to national security and to our economies and will be an important driver of America's success. I can tell you that I've been in Washington a lot, and I haven't had a single conversation with anyone from the administration or any member of Congress where the importance of AI leadership has not come up. Notwithstanding news and rumors to the contrary that we've seen, the major tech companies get it too, and they've increased or recommitted to their capital plans for data center build-up.

They are making these investments because AI is delivering for customers. You can see it in their business results. Businesses and families are looking at the possibility of what AI could do for them. We have a number of projects here at Constellation where we're utilizing AI. I could tell you the tools are marvelously effective. They're going to change operations at plants. They're going to change our relationship with customers. We are going to discover new ways to do things that are going to bring enormous value to our customers and to our owners. We're a microcosm of the demand that is coming. There's just no doubt about that.

I've said this before, while the demand is strong, we have to be a bit cautious here that there are some claims that are a bit outsized in terms of the extent or amount of that demand, claims that are difficult to substantiate either mathematically or logically. That is why we put slide seven in here. As I said, electric demand will be big for our industry, no doubt about that. To be fair, some of the hyperbole about the size of the growth is coming from stakeholders who have their own motivations, including a desire to keep building out the wire system or competitive market utilities that simply want the right or permission to go back and build generation in a competitive market. We have been seeing that in a few places. We also see policymakers becoming skeptical about these claims.

That skepticism is warranted in our view. We know from conversations from our customers and users that the same data center need is being considered in multiple jurisdictions across the United States at the same time, just like fishing. If you've ever been a fisherman, you put a bunch of lines in the water to try to catch fish. The data center developers are doing exactly the same thing. Sometimes the same project is showing up in multiple queues simultaneously. The same thing happens with renewable development, where we see these massive queues, but we know through experience that a fraction of what is in the queue gets built. I'll give you a few examples. In ERCOT, the large load interconnection queue grows from 20 GW in 2025 to more than 100 GW by 2030, a more than five-fold increase.

Looking at the chart on the left, you can see the comparison of MISO, PJM, and ERCOT forecasts for load compared to forecasts on national load growth. These three ISOs account for less than half of the total U.S. power demand. They alone are projecting demand growth notably higher than a wide range of consultants for the entirety of the U.S. It is hard not to conclude that the headlines are inflated. In fact, we have done the math. If NVIDIA were able to double its output and every single chip went to ERCOT, it still would not be enough chips to support some of the load forecasts in ERCOT. There has been a history of over-forecasting. We have seen this before with electric vehicles. We have seen it before with the internet. Utilities have historically overestimated their load forecasts.

The Rocky Mountain Institute, for example, recently put out a study based on FERC data and determined that in the last 10 years, utilities have overstated long-term demand forecasts by 23% on average compared to what actually happened. We get it. Utilities have to plan to ensure that the system is reliable. When I listen to some of the comments on these calls, I just have to tell you, folks, I think the load is being overstated. We need to pump the brakes here. Moving to slide eight. In the early days of our data economy strategy, we heard concerns that the so-called window for our strategic execution would eventually close because low-cost new resources would be added to meet the data center load and that our existing resources would lose out to these opportunities. We've also heard that we would lose out because we weren't incremental.

Let me deal with that last issue first. As a number of the data center companies have noted in their plans, relicensing nuclear plants is incremental. We've seen that in policy space. Everyone gets it. We either include nuclear within the category of resources that participate in these sales or nuclear will fail to exist. Just focusing on costs of new generation, it's clear that we're in a whole new ballgame on cost. The estimates for new-build CCGTs consistently exceed $2,000, with some estimates being closer to $3,000 a kW. Those are higher in certain locations in which we operate. For context, this is about three times as much as we spent on Wolf Hollow and the Colorado Bend plants less than 10 years ago. A 300% increase in less than 10 years.

As I alluded to earlier, if we were to rebuild just the Calpine fleet, it would cost about $65 billion, significantly higher for what we paid for the best operating natural gas fleet in the country. Solar is no exception to these increases. Solar plus storage is in a similar boat with costs now exceeding $2,500 per kW. That is even without the tariffs. If we estimate what the tariffs would do to CCGTs and solar plus storage, we could easily see costs going another $5-$10 higher for CCGTs on a megawatt-hour basis and another $30-$50 higher for storage and solar put together. The important strategic point here is that Constellation's fleet ultimately will compete with these new entrants for the right to serve the growing needs of America.

In the early days of the discussion of the AI-powered dynamic, and I got to tell you, I smile a little bit when I say early days. I mean, when we were talking about this last year, we often described our competitive advantage at Constellation in terms of speed and reliability as compared to new renewables because renewables are not reliable. I mean, we thought our competitive advantage over new natural gas in terms of speed and sustainability because gas emits CO2. Implicit was this unspoken assumption that new power, either renewables or CCGTs, would be less expensive for hyperscaler customers as an alternative option to our plants. That somehow we would be faster for new data centers and offer more reliability than renewables and more sustainability than gas. It turns out that we were just thinking about old cost data.

With the new cost data firming up, it's pretty clear that nuclear simply wins the match in every single dimension: cost, reliability, predictability of firm prices for 20 years. What other resource could offer a 20-year fixed price? I can't do that with my gas machines. I can't do that with renewables. The speed to execution, the sustainability value, the resilience value, the durability and policy support, all of that makes nuclear the clear winner. Folks, that's why I think people are wanting to contract with us, and they don't care whether it's in front of the meter or behind the meter. Let me turn to slide nine. One of the reasons we know that the competitive market will respond to the growing demand is because it always has.

We are seeing that in response to the expedited program that FERC and PJM approved for new dispatchable generation and PJM, pardon me. Remember, a big product that historically was used to deal with peak-hour demand was demand response. We saw that go from 15 GW of demand response in auctions that were held just a handful of years ago to 4 GW-6 GW of demand response in the recent auctions. We also know the reason that demand response did not happen. It did not happen because the capacity market was broken and prices were ridiculously low. Now FERC has fixed those capacity markets, and we believe that demand response, once again, is going to come back in the picture as early as this next auction.

Remember, our grid was built for peak usage at the hottest or coldest hours of the year, but in most hours, we dramatically underutilized the grid. The chart that you have here on slide nine is what we would call a low dispatch diagram. It's a pretty common diagram to everyone in the business. The colored lines here are every one of the different RTOs. Let me explain how it works. The x-axis is 100% of the hours of the year. So we take 8,760 hours of the year, and that's the x-axis. The y-axis is how many of the power plants or how much of the existing power gen are you using during those hours. If you study this, what you quickly see here is that for the vast majority of time, we don't utilize the grid.

In fact, 80% of the time or so, a third of the grid is not being used. That means we have plenty of room most hours to accommodate new generation. The Nicholas Institute at Duke did a pretty cool study on this just recently, and it's been in the news ever since. It basically said this: that if we got customers to shave 25% at peak, we could add 76 GW of new load, right? 76 GW of data center just by getting customers curtailed 25% of the time. DR is an incredibly powerful tool to meet all of this data center demand. What it'll do is it will utilize the slack in the system most hours and cover those peak hours where there is a gap. We're seeing our data economy customers also pitch in with new curtailment methodologies.

I think it was just this week that we saw the EPA relax the rules on backup generation at data centers so that backup generation could be co-optimized for the grid and take the pressure off these key hours. The point is, there's a lot of tools out there, and we expect those tools to be used. I think we'll see some of that here in this upcoming auction. It'll put some downward pressure on the strain that we've seen in the prior auction, in my view. Now, let me turn to slide 10. Constellation has some unique advantages that will ensure we're a large player in this space. We've talked about this. We have existing megawatts that are available to deliver power now.

We have clean and sustainable energy, which is going to be useful just now in this environment, but also in the future as concerns about climate continue to resurface. We could offer price certainty that is very different than any price certainty we could offer from any other resource. We've talked about speed, and we've talked about the ability to work anywhere with any customer, any part of the grid. We could bring additional megawatts to bear, whether that's restarting nuclear plants, life extensions, and of course, uprates to the plants. After Calpine closes, we're going to be able to provide this capability coast to coast. Finally, just as we look for partners, our investment grade credit rating is a huge competitive advantage because it gives customers confidence that we will be there and stand behind our contracts in the long term.

We're well-positioned to create additional value for our owners through our role serving data economy customers, and we're super excited about that. Now, let me close out with the Calpine transaction. It's been a few months since we announced the deal, so I want to tell people what we've been up to. Remember, what we're building here is the largest fleet of clean and reliable zero and low-carbon resources in the nation. We believe this will enable us to better serve families and businesses with new products and services at the best prices. As we spend more time with the Calpine team and get to know them better, we're even more excited every day about the combination of talent and skill we're going to have as a combined team. We're making very good progress towards closing the deal and integrating the two companies.

We have set up integration teams, and we're doing the work to get ready to close this year. The teams are energized, and we're looking forward to being one company and seeing what two very good companies could do when they aim to be great. On the regulatory front, we've made all the required filings at this point. We received a deficiency notice from FERC and a second request for data from the DOJ. As you know, in large transactions, things like that should be anticipated. We filed our answer to the FERC deficiency notice on April 28th, and we remain on track to close the transaction by the end of the year. Again, incredibly excited for that. With that, let me flip it over to Dan. Dan will cover the financials, and then again, I'll talk to you a little bit more, and we'll get to your questions.

Go ahead, Dan.

Daniel Eggers (CFO)

Thanks, Joe. Good morning, everyone. Beginning on page 12, we are in $0.38 per share in GAAP earnings and $2.14 per share in adjusted operating earnings for the first quarter, which was $0.32 per share higher than last year. We have seen strong performance from our commercial business over the last several years, and the start of this year continues that trend. The team did a great job positioning our portfolio at a colder-than-average winter, captured value from serving more load versus the first quarter of 2024, and managing market prices. During the quarter, we locked in margins that exceed our 10-year average, supporting 2025 and benefiting future backlog. As expected, we also realized higher prices for the Illinois ZEC and CMC programs when compared to the first quarter of 2024, partially offset by lower nuclear PTCs recognized during the quarter.

We continue to see this means-tested PTC program working as intended. As you know, the PTC is determined on an annual basis, and each quarter is booked based on actual revenues plus forwards for the remainder of the year. As of March 31, we anticipate the gross receipts for the full year will be above the PTC floor across our entire fleet, whereas at the start of the year, part of the fleet was projected to collect some PTCs. This full-year expectation of higher prices resulted in us not booking PTC revenues in the first quarter, whereas we did book some in the first quarter last year. While this is a good outcome on a full-year basis, it can create noise in quarterly results and impacts the year-over-year comparability.

We're happy with the start of our 2025 in context of our plan and are reaffirming our full-year operating EPS guidance range of $8.90-$9.60 per share. Now, moving on to our first quarter operational performance on slide 11. Nuclear performance was strong. We produced more than 41 million MWh of reliable, available, and emissions-free generation from our nuclear plants with a capacity factor of 94.1%. The team continues to deliver industry-leading refueling outage performance. We completed three refueling outages during the quarter, averaging 24 days compared to the industry average of nearly 40 days. Our renewables and natural gas fleet also performed well with 96.2% renewable energy capture and 99.2% power dispatch match. As you know, Constellation continues to do our part to bring clean, reliable, firm megawatts to the grid.

Last Friday, PJM announced that more than 1,150 new nuclear megawatts, including the Crane Clean Energy Center and other Constellation nuclear uprates, were chosen for the accelerated interconnection process. We are pleased that PJM recognized the importance of getting these projects on the grid quickly and want to thank our team for advocating for this important change. On Crane, we are pleased with the progress we are making. Our restaffing is going more quickly than expected, and we are getting multiple superb candidates applying for each position. To date, we have already over half of the roughly 600 permanent employees we will need to run the plant, and the majority of them have been working at the site. I am happy to share our first operator class is underway, with the second one on course to start this fall.

As the days pass and we address long lead time items like the PJM interconnect and staff training, we are confident that we will meet and potentially beat our targets for both total cost and time to bring this plant back online. Turning to slide 14, our commercial team is off to another strong start this year, creating value by optimizing our portfolio and locking in higher-than-average margins, which are benefiting from continued market volatility as well as sales of value-added products around the clean attributes of our nuclear plants. Our renewal rates remain strong with both electric and gas customers, reflecting the durable relationships we have with our customers. Turning to slide 15, it's understandable there is a lot of focus in the market right now on the risk of a recession and concern about how power producers may fare in such an environment.

Before I offer our perspective, let me start by noting that each recession is unique and carries its own impact on power demand in terms of duration and magnitude. More recent recessions have temporarily impacted power demand by 1%-4%, although the year-over-year data is also complicated by weather, which is more complicated to normalize on a national basis. Generally, we have seen a strong bounce back in power demand on the other side of a recession. In today's environment, we view a temporary slowdown in the economy and lower power demand as likely being offset by the very real demand growth we are seeing across the nation. Considering the impacts of ongoing electrification, onshoring of manufacturing, and demand associated with the build-out of the data economy, we see counterbalances to any temporary slowdown or reduced power demand from other parts of the economy.

The biggest risk to our business in a recessionary environment has been the power price. Fortunately, compared to last recessions, we now have the nuclear PTC, which provides downside protection from a drop in commodity prices due to a recession. As you know, the nuclear PTC credit is means-tested to ensure the continued operation of these critical power resources when prices are depressed, while not compensating them in higher-priced environments. We've also looked at other major potential risks associated with a recession, including lower retail volumes, bad debt, as well as debt refinancing, and we are confident in our ability to manage these collective headwinds with limited financial drag for our owners if a recession were to occur. Constellation remains in strong financial health, especially when you think about our investment-grade balance sheet, ample liquidity, and cash flows supported by the nuclear PTCs as well as existing forward customer sales.

Before moving on, I also want to comment briefly on the current tariff environment. While the ultimate impact will depend upon trade policy that goes into effect after this 90-day pause and anticipated negotiations, we estimate a negligible impact on O&M and roughly a 1%-2% impact on our CapEx, including fuel for 2025 and 2026. We'll continue to monitor and mitigate the impacts to both costs and our supply chain. Finally, turning to slide 16, I want to spend a little more time on the PTC now that it has been in place for a year, and we are seeing some updates to key inputs, reminding us of the inflationary protections it provides. As a reminder, we've assumed that the PTC floor and actual credit grow at a 2% inflation adjustment as part of our base earnings forecast.

If the adjustment was more than 2%, our base earnings would increase. While the official rate used in the calculation is not yet published, we estimate the inflation adjustment for 2025 to be between 2.3%-2.6%. With the 2025 inflation adjustment in this range and then returning to our 2% assumption for 2026 and beyond, we will see an earlier step up in prices that adds an incremental $500 million in revenues to base earnings for 2028. This adjustment both demonstrates the benefits of the nuclear PTC in providing economic visibility for the nuclear industry and reinforces the unique benefit of an inflation hedge in our business model compared to most other companies in the market. With that, I'll thank you all and turn the call back to Joe.

Joseph Dominguez (President and CEO)

Thanks, Dan. Among Dan's many talents is his ability to multitask.

While reading the script, he also wrote to me a note giving me a correction. I think I said 25% on the Duke study, meant 0.25%, but the study, again, to remind you, demonstrates with quite modest demand response at levels that we've easily achieved in the past. We could accommodate all new load on the system from the data economy using that tool. When we think about the backup, reciprocating engines at the sites, and then we see the new generation that the competitive market will bring as needed, we see no reasonable concern in that area. Just to recap here, we're off to a fantastic start. We're exactly where we want to be. We're focused on closing Calpine and integrating the business. We like that combination more and more each day.

We have a business here that is very different, very unique, and stronger than we think anything else that is out there in the industry. We produce robust cash flow and base earnings, which are protected by a nuclear PTC, a tax credit that has significant bipartisan support. Our earnings grow at 13% through the decade, and any long-term deal we do from here on will be additive to that base earnings growth. I think we have demonstrated a track record of continuing to improve earnings and to surprise you from time to time with things like Crane, Calpine, and the GSA. Calpine will add at least $2 in EPS and $2 billion of free cash flow before growth starting next year. Not only does the PTC provide protection to the nuclear fleet, but we're beneficiaries of higher inflation through higher PTC floors, and Dan just covered that.

We're poised to build on the foundation by capturing value from the opportunities that we see in the data economy and in the overall economy as load continues to grow and industries are onshored. Our existing fleet is vital to America. We understand that. We're going to continue to make investments in making that fleet better, longer-lived, and increase the output. We are in a position right now to meet the demands of the time and to support America at this critical point. I got to tell you, I couldn't be prouder of the team we have here. With that, we'll close down our prepared remarks and take your questions.

Operator (participant)

Thank you. Ladies and gentlemen, to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again.

Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeremy Tonet with J.P. Morgan Securities. Your line is open.

Joseph Dominguez (President and CEO)

Morning, Jeremy.

Jeremy Tonet (Analyst)

Hi, good morning. Thank you for all the details this morning, especially the behind-the-meter, front-of-the-meter, and potential combinations thereof. Just wondering if you could pick up on some of the details in the slides here. If you could provide more details on the progress towards long-term customer agreements, as you talked about in the slides a bit there. Are you seeing incremental customer comfort around structures kind of independent of firm clarity at this point, or do we still need policy clarity here to get deals inked?

Joseph Dominguez (President and CEO)

Jeremy, I think policy clarity would be welcome.

Look, I think like anyone else, when they're trying to grow and they run into a delay or roadblock, people start figuring out ways around it. I've indicated on earlier calls that I think some sharing of the cost made a lot of sense. I've talked about that with regard to ancillary services. I think I indicated quite clearly that I didn't think our customers were so price-sensitive that they wanted to try to avoid all costs. They've always been willing to cover fair costs. That's not been the issue. The issue has been speed at different times and location. The utilities have sped up the interconnection process. We see utilities out there leaning into it, and our customers have too. They're going to those utilities.

If they could get interconnected, then they're looking to us to provide the power wherever they might be on the grid for those applications. It's not like they've grown disinterested in behind-the-meter. They still want to see that as an option. If you think about every single data center that exists today, that's a perfect illustration of what I'm talking about with some combination of behind-the-meter and in front-of-the-meter. They get a lot of their power in front-of-the-meter, but at certain times, they use the backup generation at the site, which is effectively behind-the-meter generation, right? This is not anything new. We've been doing it in the industry since the 1980s with Cogen. For right now, given the uncertainty, our customers pivoted, and they said, "Okay, Constellation, let's go on-grid. Let's do what you're doing with GSA.

Let's do what you're doing with Crane, and let's see if we could make something happen with utilities that are inclined to move studies quickly. That's exactly what we've done.

Jeremy Tonet (Analyst)

Got it. That's helpful. Thank you. Just kind of rounding out here, what is the expected path and timing to resolve the FERC 206 proceeding here, and how do you think about settlement at this juncture?

Joseph Dominguez (President and CEO)

Look, we think there's enough information right now in the FERC docket. There's enough robust information for the FERC to provide clarity. I'll flip it over to David for the process. Although we did ask for a settlement process, as it turns out, what we've seen in the docket should be sufficient for them to make a final decision on this.

They showed, look, when you've got the President of the United States basically saying, "The grid is too slow, too antiquated," that should be a kick in the pants to everybody in this business to get their act together and figure out rules of the road so that we're not having any uncertainty around what could be the most important technology of our lifetime, not only for our economy, but for our national security. I'll give David a moment here to talk a little bit about the process going forward.

Yeah, sure. The vast majority of the parties in the proceeding, which is quite notable, have argued to FERC and made a case to FERC that the existing PJM tariff is not just unreasonable and needs to be amended to create the clarity and speed that Joe's been talking about.

While we've said we would support a quick settlement process, we also would welcome FERC to call balls and strikes very quickly on the merits of the case pending before it. In either case, speed and clarity together are quite important. We think that whether it's a settlement under a fast-track proceeding to let the parties see if they can work it out, or whether or not the commission directs PJM to amend its tariff to address the gap in some of these rules, we think all of that can be done in really a handful of months and should be done in a handful of months. There's a path forward under either approach. As Joe said, we think the record is quite clear for establishing the rules to allow these critically important loads and customers to get on the system as quickly as possible.

Jeremy Tonet (Analyst)

Got it. Speed would be great. No one likes the regulatory sausage making. Thank you.

Operator (participant)

Thank you. Please stand by for our next question. Our next question comes from the line of Steve Fleishman with Wolfe. Your line is open.

Joseph Dominguez (President and CEO)

Good morning, Steve.

Steve Fleishman (Senior Analyst)

Yeah, hey, good morning. Hi. Just first, a couple of questions on the potential new power agreements. I guess, first of all, any sense on whether the pricing we've seen is an indicator of pricing? I assume transmission in front-of-the-meter would be paid by the customer, not by you. Lastly, just it sounds like when you talk about, you're talking about basically selling even beyond kind of the local utility, where the in zones beyond the local utility where the plants are. Can you just clarify that commentary and your ability to do that?

Joseph Dominguez (President and CEO)

Yeah, sure.

I mean, the last one, Steve, we've been doing for 20 years, right? We sell to customers everywhere in PJM. We have national accounts with customers where we supply all of their businesses in a variety of areas. As you saw, for example, I'll give you a great example of this. When you saw us do the Crane Clean Energy Center restart, you know there's no data center right there in Pennsylvania. Microsoft was quite clear. They were using that power in multiple states. One of the strengths of our commercial team is being able to move power around the system. Again, this is nothing new. We've been doing it for 20 years.

Because of our geographic reach, especially in areas like PJM where we have a lot of West Hub, a lot of Nighthub power, we could kind of fill in the blanks in all different places. That allows us really to work with the utility that has got the most advanced projects. You know, when I said before that we see the same project in multiple utilities' plans, it's really because we have visibility and understanding where the client may want to use the power. That's how we understand that we have a lot of duplicates going on in the system. In terms of your first question about level of pricing, look, we're going to have to be careful here. Our clients are pretty clear with us about two things.

They do not want, for their own reasons, to reveal pricing, and they do not necessarily want to reveal all of the locations in which they intend to do business because this would be tantamount to sharing with their competitors what they believe to be competitively sensitive information. We likewise have a concern about putting pricing data out there, which inhibits our ability to negotiate the best terms on future deals. Look, what I am trying to hint at in the script is you have seen the talent pricing. You have seen what we are talking about in terms of cost of new entry. We think our pricing should be consistent with those levels. Beyond that, I am just simply not going to say. As to wires charges and who bears those costs, your assumption is 100% on that.

That's not a cost that we bear in any relationships with our customers today, nor will we in the future.

Steve Fleishman (Senior Analyst)

Thank you. One other question just on the IRA and nuclear. Obviously, we have the reconciliation process. One of the issues that's come up is transferability and whether they keep transferability. I know one of the laws allowed it still for nuclear, but in the event it wasn't allowed going forward, what would that mean if at all for you monetizing credits?

Joseph Dominguez (President and CEO)

We see that as a de minimis impact to us because, in particular, post-Calpine, we have plenty of tax capacity. I know it is, for others, not a big hot issue for us. You did raise the IRA, and you did note the strong support for nuclear.

In the most recent letter, we saw 26 congressmen come out in support of the continuation of the 45U credit for existing nuclear, as well as 45Y to expand and relicense existing nuclear. That's 26 congressmen. You put that together with the earlier letter, and there was not a complete duplication of signatures. There were 12 additional members in that earlier letter supporting the tax credits that were not included in this last letter that had 26 members. All told, we have 38 members of Congress, Republican members of Congress supporting the tax credit. That makes sense because if you remember, the tax credit was actually created by Republicans. These were Republican ideas for the nuclear tax credit. Even in the bill by Senator Kramer and Congresswoman Fedorchuk, we're seeing the same thing, a recognition that it's important to keep the nuclear plants alive.

I'm not seeing anything impacting transferability or, frankly, nuclear being discussed. I am spending a lot of time on the Hill to make sure I have my ear to the ground on anything that might happen. We are very pleased with the support. The reconciliation process will no doubt be bumpy, and we will see some ups and downs and twists and turns. I think we are as well positioned as anyone. Dan, do you have any other thoughts on the transferability?

Daniel Eggers (CFO)

Yeah, I mean, just for clarity, Steve, when we look at the forwards where they are today, we do not, A, need to transfer any credits, and we actually might be, with our tax position, looking to buy other people's credits if they came available at a discount. We feel comfortable with the forwards where they are today.

Steve Fleishman (Senior Analyst)

Thank you.

Operator (participant)

Thank you.

Joseph Dominguez (President and CEO)

Thanks, Steve.

Operator (participant)

Please stand by for our next question. Our next question comes from David Arcaro with Morgan Stanley. Your line is open.

Joseph Dominguez (President and CEO)

Good morning, David.

David Arcaro (Equity Research Analyst)

Oh, thanks so much. Thanks so much. Good morning. On behind-the-meter, I appreciate all your comments here on the front-of-the-meter, behind-the-meter. I guess just maybe drilling into the behind-the-meter opportunity. Is that diminishing here? Are you seeing those conversations shift and kind of move over to front-of-the-meter, or do you still have a significant level of interest kind of waiting for the FERC clarity that might open up that path?

Joseph Dominguez (President and CEO)

Yeah. Look, yeah, David, I'll say I think these folks want to get on with the show and start construction. And so with the current situation around behind-the-meter and no one knowing exactly when we're going to have the necessary clarity, the discussions are in front-of-the-meter with the utilities and with the customers.

The logic of behind-the-meter, in particular, for these massive training data centers of the kind like the president was talking about in Texas, in my view, are still going to need behind-the-meter support because you're not going to accumulate four and five GW of power on the grid. Just not going to happen. You are going to see things, I think, in the fullness of time that are going to have front-of-the-meter connections, but you might actually supplement and build more power plants at the same site that'll never touch the grid, and they'll be behind-the-meter. That is why I was saying this is more in the category of brainstorming, but it's important that FERC not constrain innovation for cogeneration and colocation. Imagine had we done that in the 1980s and said, "We're not going to consider." Imagine how much cogen we would have lost in this country.

We're going to see some combinations, combinations that, frankly, we're not aware of here. Right now, the conversation is where there is clarity. Where there is clarity is front-of-the-meter. Because we don't go anywhere in the RTO, that suits us just fine.

David Arcaro (Equity Research Analyst)

Got it. Great. Yeah, that's really helpful color. Maybe I was curious if you could synthesize some of your thoughts on just the demand outlook for data centers. The supply outlook, as you've noted, is challenging, but then considering demand response, kind of what is your view on power prices from here, looking at the market? A number of parties have gotten concerned about affordability as an example. How do you kind of manage that fear, but also, yeah, your underlying views of the fundamentals of the market here?

Joseph Dominguez (President and CEO)

Yeah.

David, I think when I think about affordability, if I work the Flash Emmy chart back up on the screen, it would be that low dispatch curve. Because whether you're talking about affordability, reliability issues, when emissions concern actually occur in bulk, you're really talking about those peak hours in the system. You're not talking about days like today, right? There's no issue. You're talking about those peak events. Having the tools available to manage those peak events, whether it's allowing the backup gen at the data centers to be a grid resource during those events, I think that's a fantastic idea. We were very supportive of where EPA went. The Flex program that EPRI has spearheaded with the data economy customers, been deeply involved with, that's made huge progress in terms of the hyperscalers managing those events.

Demand response, which simply means the hyperscalers are going to pay a little dough in addition to what the capacity market might yield to get other industrial and commercial customers to back off in critical hours. If we're able to do that, then we're going to manage the capacity market pressures on bill. We're going to manage some of the higher costs on bills, right? And we're going to manage, at the same time, some of the emissions issues that drive climate and other considerations. That's why we focus on that. There's a tendency, I think, from laypeople to look at this as we need energy at all times on the grid. These charts should tell you that's absolutely not true. Most of the time, we have an abundance of energy. I think that's part of managing the story.

You want to put off, to the extent possible, unnecessary investments in generation. I think I'm a little bit of an outlier here, but as I see the world, the next five, six, seven years ought to be quite manageable. I think storage is going to be a part of this answer. What I worry about is the period after that. What happens 10, 15 years down the road? What happens if we then come back and we think about things like climate differently than the administration presently is thinking about them today? What happens if we have climate events that bring that all back?

I think the answer that we offer and that we've encouraged to the administration is let's spend some money on research and development so that if we do build gas machines, they don't become stranded in an environment where climate becomes a major consideration. We continue to invest in sequestration and other technologies. I think, look, that's the way we're going to have to manage the cost. The biggest and best thing we could do is not overreact and start building things that are unnecessary. Frankly, with a lot of the hyperbole in the system, I think it's aimed at exactly doing the wrong thing.

David Arcaro (Equity Research Analyst)

Got it. No, thanks so much. Appreciate your viewpoints.

Operator (participant)

Thank you. Please stand by for our next question. Our next question comes from the line of Paul Zimbardo with Jefferies. Your line is open.

Joseph Dominguez (President and CEO)

Morning, Paul.

Paul Zimbardo (Research Analyst)

Hi, good morning.

Thanks for squeezing me in. Just from your comment about having an MPI and the emphasis on not waiting for FERC clarity, is it a fair expectation that kind of you're pretty close to a deal and maybe within the next quarter, or kind of not to read too much into that commentary and it's sometime later this year?

Joseph Dominguez (President and CEO)

I'm not I don't want to touch that because we are at a very good stage in the process. I'll simply put it that way. The deals will get announced when they're ready to rock and roll. That's as far as we decided we're going to go on this call.

Paul Zimbardo (Research Analyst)

Fair. When you mentioned kind of a need to have a good partnership with the regulated utility, what's the timeline for some of the interconnection studies with your local PJM utilities?

Just how have the discussions with utility evolved holistically over the past few months? Thank you.

Joseph Dominguez (President and CEO)

They've some, it's still a little bit all over the board, but some of them are getting done here in what I could see six months, seven months of time. If you consider that some of the customers that we're talking to have started that interconnection process even before our conversations have matured into a level, it doesn't seem to be the constraint at this point. I want to test it some more, but I think months instead of years is probably a good answer at this point. The utilities, again, I give them a lot of credit. I'm seeing this with all the utilities, even ones that we haven't had agreements with in the past.

Everyone seems to be wanting to get these studies done and get this load connected. That makes all the sense in the world to us, and we'll work with them as best we can.

Paul Zimbardo (Research Analyst)

Thank you.

Operator (participant)

Thank you. Please stand by for our next question. Our next question comes from Angie Storozynski with Seaport. Your line is open.

Angie Storozynski (Senior Equity Research Analyst)

Thank you. I have a question about recent demands from data centers for power. It seems like we've, at least listening to the hyperscalers, there's been a shift away from training facilities more to inference. It seems like location matters again. Do you actually see that there's more demand for some of your assets closer to load centers and sort of smaller in size?

I do not care if it is front or back of the meter, but has there been a shift in what hyperscalers are looking for?

Joseph Dominguez (President and CEO)

No, Angie, I would not say that. I think I may have this wrong, but my recollection of the statistics is that about 85% of the expected load was always going to come from inference data centers. You are going to see the lion's share is going to be inference data centers. Even those data centers are getting quite large relative to the size they were. I remember when they were 5 MW and 10 MW, I thought, "Oh my God, that is huge." Now we are talking 100 MW-150 MW even for these inference data centers. To a certain extent, they are just getting bigger.

That means they have to go to where there is available power more so than the fiber concerns that I think predominated when we were talking about smaller data centers that were more easy to connect. I think probably the bigger shift I have seen, Angie, and there is not enough data points to draw any firm conclusions, is I think there has been some rationalization that these super large data centers, 10 GW, 7 GW-10 GW that were talked about quite liberally at the beginning of the AI phase. I find people are speaking less about that and thinking about how to cobble together more still what we would think of as large, 500,000 MW data centers and do some of the training. I think it continues to evolve.

Angie Storozynski (Senior Equity Research Analyst)

Okay.

Separately, just looking at forward power curves, especially in Northern Illinois, there's been quite a dramatic pullback in those curves even post-recent recovery. We have, it seems like, a number of data centers shifted away from the state. I'm wondering if you have a view why that is. Is there any sort of a regulatory/political backlash against large loads in the state? What's your view on long-term power prices in Illinois?

Joseph Dominguez (President and CEO)

No, I don't think so, Angie. I just think people are going to go where they can connect easiest. I don't see anything in particular with regard to Illinois necessarily or an opposition in Illinois that's driving folks. If you're a data center and you're thinking about Illinois, you probably are thinking about Iowa and Indiana and Michigan too. I mean, it goes back, I think, to your first question.

In the early days of the data economy world, where we're seeing more modestly sized data centers, proximity to big centers, big population centers was the thing. Now that's kind of moved away because I think power is the key element and interconnection speed is the key element. I think that just widens the aperture for our customers to look at multiple locations. I think there's just kind of another reality here too that data centers were going where there were data centers to take advantage, again, of fiber and other things. Certainly, we've seen a shift in appetite to be able to explore Pennsylvania as an example, whereas before there was relatively light activity in those areas. I just think that the world has continued to shift. The geographies these customers are looking at has broadened.

Again, for us, that's actually pretty good because of the unique scale we have and our ability to reach all of these different places, including 20 years of experience in knowing how to move power around the system and accommodate clients like this. It should be right up our alley.

Angie Storozynski (Senior Equity Research Analyst)

Very good. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, I would like to turn the call back over to Joe for closing remarks.

Joseph Dominguez (President and CEO)

Thanks everybody for participating. Again, thanks. Just give another call out to the team here at Constellation. You make us all proud every single day. We've had a very good, extensive discussion. We look forward to the opportunity to provide additional updates on our business strategy. With that, line, I'll close the call.

Operator (participant)

Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation.

You may now disconnect.