Constellation Energy Corporation — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation First Quarter Earnings Call. [Operator Instructions] 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 Growth. You may begin.
Thank you, [ Towana ]. 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.
[ Towana ] thanks for getting us started this morning. And Emily, thanks for running through all that and laying out the agenda for today. Good morning, everyone. Thank you for joining us. We had an excellent first quarter operationally and financially. We're making steady progress with technology customers on transactions that will power America into the future and employ thousands. And last week, we concluded meetings with our Board where they authorized another $1 billion in stock buybacks because we believe in our strategy.
First, we're extending the lives of our existing sites to power the nation into 2060 and beyond, creating more clean energy than all of the renewables ever built in this country.
Thank you, Joe, and good morning, everyone. Beginning on Slide 9, we earned $2.78 per share in GAAP earnings and $1.82 per share in adjusted operating earnings, which is $1.04 per share higher than last year. As Joe mentioned, our commercial business has continued to perform very well. They do this through our generation to load portfolio optimization strategy, and we take advantage of our physical position in the markets to capture more value to the combined generation and customer businesses than they could if they were apart.
Thanks, Dan. Constellations like no other company. We have a unique set of existing assets that create opportunities that no one else has. At our core, we have visible base earnings growth of 10% through the decade that is backstopped by the federal government through the nuclear PTC and has a built-in inflation adjustor. We're the largest and best operator of nuclear power plants in the United States. Our plants are especially well positioned to meet the challenge of reliability and clean that U.S. electricity markets need.
[Operator Instructions] Our first question comes from the line of David Arcaro with Morgan Stanley.
I appreciate the update. Joe, you mentioned that you're exploring the potential to locate next-generation nuclear units at your sites. I was wondering if you could elaborate on that, just maybe what technology you're looking at. Where does that stand overall?
Yes. So David, here's what we've done so far on that. There was an RFI that was issued by 3 companies: Google, Microsoft and Nucor Steel. And what these companies were looking for is power today, but also some role in building new clean power supply in the future. And so what we outlined in our response to that request for information is exactly what I said earlier on the call that we think our existing sites are in an incredibly valuable resource as we consider new firm, clean energy, in particular, from nuclear energy. And so we proposed a structure kind of a multi-tiered structure where we could begin flowing power today from our existing power plants on a long-term PPA.
Perfect. Yes, that's really helpful color. Very interesting. We'll stay tuned on how that opportunity develops. And then I was wondering, as you're thinking about or talking to hyperscalers, big data center developers, are you seeing any discussions or opportunities evolve related to something like a supercomputer, a major multi-gigawatt data center like the Stargate idea we'd seen in the media, something that could potentially use power from multiple nuclear plants. Is that an option that you're seeing being explored at this point?
I think we're just going to be careful here in terms of that because there's just a lot being reported about that in the press, and we don't want to be kind of linked to a particular project until it's time to announce something. But I think what I am comfortable saying is this, David, we're seeing interest in developing projects that are on a size and scale that presently don't exist, but will be needed for training systems and other things to kind of build out and support the need for all of these foundational models.
Our next question comes from the line of Shahriar Pourreza with Guggenheim Partners.
Maybe starting off on the disclosures. I mean, obviously, Dan, we've seen some major moves in the curves in recent weeks. You guys didn't really update the ranges on the enhanced gross margin for '24 and '25. Obviously realize you guys gave wide ranges, but I mean where are you relative to those curves, these curves?
Yes, we gave a huge amount of disclosure as you captured on the last call. Our approach to updating those is really going to be when we do a more comprehensive revisit of our guidance, right? What goes into enhance is more than just a power price, there's a lot going on in the commercial business and other positioning. So I think when you see us assuming we update our earnings guidance or our range as the year goes on, I think that's a good opportunity to refresh the disclosures we have, including our expectations for enhanced in '24 and '25.
I think you hit it. I think that if you look out at more the '27, '28, '29 time frame, the market run-up we saw during the first quarter has kind of held on and maybe gone a little higher. The '25, '26 time frame has been a little bit more volatile in both directions, and that volatility is which Joe spoke to, right? When we see the continued baseload retirements and renewable penetration with energy demand, we're going to see volatility up and down. The out-year strength, I think, is certainly reflective of some of this increased demand that we're talking about, it's not real liquid out there. There's not a lot of trading volumes that can be done out in that time frame.
Okay. It's perfect. So I guess, for '26, '27, '28, whatever, are you still within that 10% to 20% of consolidated range as a general rule of thumb?
I think we use that as a rule of thumb, and I don't want to mark to market. But Shah, if you go back to the slide we had on attribute value in '28, you had $10, which is like the curve might have moved depending on market in that range. You can see those numbers get bigger and inevitably push you out of that 10% to 20% if you're just going to mark that one variable right now.
Okay. Perfect. And then, Joe, lastly...
It's Joe. I just want to reiterate the point that I think Jim and Dan are making. There's definitely -- we're certainly seeing upside if you were to freeze this moment in time in terms of the power prices later in the decade, but they're not all that liquid right now. So we'll see how it kind of evolves over time. And the right point for you to look at us is when we talk about guidance ranges, again, as we get through the year, we'll provide some more data points on that stuff. But I think it's exciting to see all of that it also is in a liquid market out there.
Yes. No, I appreciate you addressing that because I mean, that's one of the key questions coming in to us is why didn't you mark like some of your other peers. So I appreciate the color there, Joe. And then just lastly for me, there's been a bunch of industry chatter on this. Are you considering a TMI restart at this time? If so, can you maybe talk a little bit about the capital involved in that and the time line?
Shah, what we'll say is that we've obviously seen what happened with Palisades. I think that was brilliant, brilliant for the nation saw great support out of Michigan, great support out of the federal government. And we're not unaware of that, that opportunity exists for us. So we'll -- we're doing a good bit of thinking about a number of different opportunities, and that would probably be certainly one of those that we would think about. But we're not there yet to start disclosing capital and other things relating to that opportunity.
Our next question comes from the line of Steve Fleishman with Wolfe Research.
I'm a little more of a peanut butter and chocolate Reese's fan, but I like the peanut butter and jelly reference. The -- just on the data center opportunity, maybe you could just give us a little more color because there's a lot of utilities talking about data center growth and even some of the companies talking about data centers related to gas plants. So just first on just -- first on the demand that you're seeing, but then maybe more importantly, any sense of kind of timing and just other things to execute beyond just customer demand? Like are there hurdles you need to get through on permitting, citing other things that set timing gap?
Yes, Steve, I think the interest is like nothing else we've seen in 20 years in terms of the number of clients that are coming to us, the size and scale of the opportunity. So I would say that kind of the -- what you're hearing in the market is certainly accurate in terms of the inbound that we're getting from an origination team perspective and frankly, some of the outreach we're doing. So that's all seems to be right. Right now, it's focused on nuclear because the clients we're dealing with aren't interested as a general rule in emitting technologies. They have sustainability goals. They have 24/7 clean goals, and they want to stay on that path. So we're focused right now on the nuclear plant opportunity and monetizing the value of the attributes that we have.
Okay. Is it -- do you think you'll be able to have something to announce by the end of the year?
Look, I'll stick with this. We are working fast. Our clients want to work fast. For competitive reasons, I don't want to lay out when we think announcements are going to come, and I don't think it would be fair to our clients to do that either at this point. There's work that is underway. We've got a lot of folks thinking about it and working on it, again, as this call is progressing. So I'm confident that we are going to be able to get to the finish line on these things, but we still have some work to do. And I don't want to lay out a time frame for announcement.
Okay. Just one other quick question. The law that passed on the Russia limits on nuclear enriched -- nuclear and then investing in U.S. enrichment. Can you just talk about your nuclear fuel -- update on your nuclear fuel positioning and the impact of that law?
Yes, Steve, I think on this one, there's not a whole lot more to report. In effect, we -- when we took the actions we took a couple of years -- over a year ago now. We were anticipating the passage of the band as we reported at the time. It took a little bit longer to get through Congress, but it's now there. It's now realized. So I think it just simply supports the strategy that we put in place a year ago. We think we are in a very solid position, kind of industry-leading solid position with regard to fuel. And we also are happy to see now investments in this domestic supply chain, which means that after this period of time where we've grown inventory, we're confident that we're going to have available and recently priced fuel to run this fleet for the next decade.
Our next question comes from the line of Durgesh Chopra with Evercore ISI.
Maybe just -- you obviously authorized additional $1 billion in share buybacks. I know there is no direct answer to this, but can you just help us kind of think through what is your calculus when you're thinking about incremental investment opportunities versus deploying capital on share buybacks and considering M&A in the future?
Yes. I don't mind talking about it at all. It really is a summation of everything we've talked about in the call. We think we have a very good strategy here. We think as we compare that to M&A opportunities, the unrealized value in Constellation seems to be the best place for us to put our investment dollar right now. It has -- we have been buying shares of this company since we were, what, in the $80 and we saw a little bit of a drop in prices. We had some kind of negative, I would say, analyst reports at that point in time. We didn't believe it. We told you we didn't believe it. We told you we'd buy the company all day long. We still feel that way today because what we're looking at is the potential growth in our business, the opportunities that we know we're working on, the fundamentals and power markets and sustainability goals that I talked about earlier.
That's very clear, Joe. I appreciate all that color. And then can I just switch gears and quickly a follow-up in regards to the nuclear PTC guidance, what is the key -- what are the key items for us to look there? Is it the definition of gross receipts and just how do you see that playing out? Anything you can share there?
Well, I wish I could. We're waiting for treasury guidance as we've probably said this on [ forward ] calls. But it is not as near as we could tell a high priority item for treasury because it has a narrow application out there. It's really just nuclear owners that are looking for. We think spot is most likely going to be the thing that prevails. So the spot price over the year at the bus of the plant, that's going to be energy and capacity coupled together, are going to be the measuring stick that the treasury will use for the application of the PTC. That's kind of consistent with the vast majority of the comments in this area. That's certainly, we think that's where they're going. But we just don't know yet because they haven't announced anything, and we're waiting on that. But our planning is based on that spot interpretation as we've outlined previously.
At this time, I would now like to turn the call back over to Joe for closing remarks.
Well, again, [ Towana ] thank you for kicking us off this morning. Thanks to all of you. We very much appreciate your interest in Constellation. I want to thank our women and men for a fantastic quarter. We look for more to come as the year goes forward. You know we're working on a lot of different things here at the company. The wind is at our backs, we feel very confident about the future and the fact that our best days are ahead. So look forward to catching up with you again on next quarterly earnings call. With that, I'll close the call.
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.