Q3 2024 Earnings Summary
- Constellation is aggressively pursuing both front-of-the-meter and behind-the-meter deals, with their "foot on the accelerator pressed all the way down" to meet customer demand and focus on speed to market.
- They operate in markets with robust transmission capabilities, especially in the ComEd zone, which has "probably the most robust export capabilities of any zone within PJM," enabling efficient movement of energy and capacity to capitalize on market opportunities.
- Anticipated increases in capacity market prices are expected to re-incentivize demand response and competitive supply options, and Constellation is well-positioned to benefit due to their customer base and market position.
- Regulatory Uncertainty Surrounding Colocation Projects: There is a lack of clarity on how the Federal Energy Regulatory Commission (FERC) will proceed regarding colocation, which could impact Constellation's ability to execute its colocation strategies. CEO Joe Dominguez stated, "There’s not clarity on where FERC goes... We got a little bit of work to do to understand it".
- Potential Delays in Project Timelines: The uncertainty and potential delays in regulatory approvals may hinder the company's ability to bring projects to market promptly. When asked about setbacks due to Friday's FERC ruling, Dominguez acknowledged that "there's not a quick fix" and that the regulatory process may not resolve issues "tomorrow".
- Reliance on Market Changes and Regulatory Flexibility: The company's growth plans depend on significant regulatory flexibility and market changes, particularly in PJM. Dominguez noted, "This is going to require a degree of regulatory flexibility and creativeness that's going to stretch everybody" , suggesting that achieving their goals may be challenging under current market conditions.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted Operating Earnings | FY 2024 | $7.60 - $8.40 per share | $8.00 - $8.40 per share | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted Operating Earnings | FY 2024 through Q3 | 7.60–8.40 per share | 9.20 total EPS (summing Q1 2024 EPS 2.79, Q2 2024 EPS 2.58, and Q3 2024 EPS 3.83) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Data center demand and colocation deals | Cited as major growth driver in Q2, Q1, and Q4 2023, with up to 50 GW potential in PJM; consistently highlighted as a key strategic focus | Growing demand for 24/7 reliability; more intense negotiations with hyperscalers; emphasis on both front-of-the-meter (FTM) and behind-the-meter (BTM) solutions | Remains a core theme, with deeper regulatory and commercial engagement each quarter |
Regulatory uncertainty and FERC rulings | Q2 2024: Neutral to cautiously optimistic outlook, with a technical conference not expected to block projects; Q1 2024 and Q4 2023: No mention | Narrow ruling on Talend’s ISA but multiple pathways for resolution; FERC and PJM expected to act; states supportive | Heightened focus in Q2 and Q3 2024 as colocation deals advance |
New nuclear capacity expansions (SMRs, uprates, restarts) | Q2 2024: Focus on relicensing and SMRs; Q1 2024: Exploring SMRs, potential TMI restart, 1,000 MW potential uprates; Q4 2023: No new builds, focusing on fleet optimization | Crane Clean Energy Center restart; 1,000 MW+ of uprates; SMRs under study; 2,000 MW new capacity targeted for 2027 | Expanding scope with clearer timelines in Q3 2024 |
Nuclear Production Tax Credit guidance | Q2 2024: Floor at ~$44.75/MWh in 2025, a major earnings backstop; Q1 2024: Awaiting Treasury guidance; Q4 2023: Transformative policy, ensures floor revenue with inflation adjustor | PTC working as intended, helping offset low power prices; flat in 2025 | Consistent cornerstone of earnings support, unchanged positive sentiment |
Share buybacks and capital returns | Q2 2024: Repurchased $500M, $1B YTD; Q1 2024: New $1B authorization, $1.5B completed; Q4 2023: Completed $1B, launched second $1B, confident in share repurchases | No repurchases in Q3 (due to negotiations), but ~$1B still authorized; ~$1.8B unallocated capital | Ongoing strategy, timing influenced by material nonpublic info in Q3 |
Transmission constraints and capacity market challenges | Q2 2024: Higher PJM prices reflect supply/demand tightness; nuclear resources favored; no mentions in Q1 or Q4 2023 | ComEd zone robust; DR depends on price signals; capacity auction delays remain a concern | Re-emerging topic in Q2 and Q3, tied to reliability pressures |
Potential or limited M&A opportunities | Q2 2024: No mention; Q1 2024: CEO states no significant M&A on horizon, focusing on organic growth; Q4 2023: Open to disciplined M&A for nuclear at the right price | No mention in Q3 2024 | Not currently prioritized, previously considered for nuclear assets |
Fuel cost risk management through long-term contracts | Q2 2024, Q1 2024: No mention; Q4 2023: Long-term nuclear fuel contracts secured well into the 2030s; ~$6/MWh cost | No mention in Q3 2024 | Only appeared in Q4 2023, no updates afterward |
Increasing O&M and CapEx outpacing EBITDA | Q2 2024, Q1 2024: No mention; Q4 2023: Noted O&M increases from acquiring STP, higher performance-based comp; CapEx varies year to year | No mention in Q3 2024 | Discussed once in Q4 2023 and not raised again |
Behind-the-meter versus front-of-the-meter solutions | Q2 2024: Both BTM and FTM pursued, BTM often long-dated deals; Q1 2024: Exploring BTM solutions; Q4 2023: BTM investments, off-site renewables for FTM | Balancing BTM and FTM offers; speed to market is critical; BTM tariffs complicate deals | Increasingly important for data center strategies, more detailed in Q2–Q3 |
Projected 10% to 13% earnings growth through the decade | Q2 2024: At least 10% base growth with upside; Q1 2024: Same baseline, sees additional drivers; Q4 2023: 10% base with inflation upside | 13% compound EPS growth cited, backstopped by PTC and new opportunities | Slight upward revision in Q3 to 13%, consistently anchored by the PTC |
-
Shift to Front-of-the-Meter Deals
Q: How does shifting to front-of-the-meter deals affect value creation and speed to market?
A: CEO Joseph Dominguez stated that Constellation is aggressively pursuing both front-of-the-meter and behind-the-meter deals. They are exploring opportunities to use their power stations to support data center development and partner with utilities to ensure customers get access to clean and reliable power. Speed to market is crucial, and they will follow customers where they need to go, depending on transmission configurations. -
Timeline for BTM Tariff Clarity
Q: What's the realistic timeline for getting clarity on behind-the-meter tariffs?
A: Dominguez acknowledged there's no quick fix, but many parties are interested in moving forward. They are considering how to address comments from the recent technical conference and craft a framework for a larger deal. He anticipates that energy around this issue will intensify, necessitating that FERC and others clear up the rules quickly. -
Transmission Capacity in Key Zones
Q: Can you speak to transmission capacity in ComEd and PECO zones for front-of-the-meter deals?
A: Dominguez highlighted that Constellation operates in markets with robust transmission capabilities. The ComEd zone has the most robust export capabilities within PJM. New transmission is being built, expanding their ability to move energy and capacity, which they are actively exploring. -
Confidence Amid Regulatory Uncertainty
Q: Does regulatory uncertainty cause setbacks in bringing BTM/FTM deals to market?
A: Dominguez expressed that the recent ruling was a narrow decision and does not cause them to over-rotate. Their internal planning remains the same, and they are moving at pace with both front-of-the-meter and behind-the-meter deals. Interest in their uprates has intensified, particularly after the Microsoft deal. They expect these opportunities to be additive to their 13% growth projection. -
Uprate Structures and Contracting
Q: How are you approaching uprate structures and potential recontracting?
A: Dominguez indicated they are seeing significant interest in uprates and want to package them with other opportunities. They have more customers interested than available uprates, so they plan to pair uprates with initiatives like relicensing. This approach aims to establish broader strategic relationships rather than offering uprates alone. -
Hyperscalers' Perspectives
Q: Are hyperscalers worried about regulatory issues in PJM? Any changes in their thinking?
A: Dominguez emphasized that hyperscalers have limited options and PJM remains a priority region. The power issue is critical for them, and they are not slowing their investment pace. He noted that regulatory flexibility and creativity are required across all markets, and hyperscalers are not willing to wait ten years for power infrastructure to be built. -
Potential Market Changes in PJM
Q: What are your thoughts on potential major market changes or re-regulation in PJM?
A: Dominguez believes that such changes are unrealistic. He noted that auctions have been delayed, and price signals need to be set to incentivize demand response and competitive supply. Historically, the market responds when given proper signals. He doesn't foresee significant progress on re-regulation and expects the market to work as it has in the past. -
Grid Charges for FTM Deals
Q: How do front-of-the-meter grid charges impact deal economics?
A: Dominguez stated that his view on grid charges hasn't changed; they should be charged for when the grid is used, and previous estimates remain valid. Efficient interconnections with reasonable costs mean prices shouldn't be much higher than previously shared figures. The issue is more about speed than dollars; customers are willing to pay their fair share but don't want to be delayed by lengthy study processes. -
Capital Allocation and Buybacks
Q: Will you lean more on buybacks this year, and what updates are expected in Q4?
A: The CFO indicated they plan to provide a comprehensive financial update on the Q4 earnings call, including formal 2025 guidance and updates on cash outlook. Regarding the buyback, they plan to be in the market whenever possible and see opportunities, especially when the stock is lower. -
FERC Decision and Process
Q: Do you expect FERC to start a process following the recent decision?
A: Dominguez said it's still unclear if FERC will initiate a process. They intend to drive the agenda if unsatisfied with progress, possibly with others of similar mind. They aim to formulate a plan over the next few weeks.